1. Chapter 04 New Service Development
McGraw-Hill/Irwin
Service Management: Operations, Strategy, and Information Technology, 6e
Copyright © 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.

2. Learning Objectives
Describe the fundamental characteristics of service innovation.
Describe the four structural and four managerial elements of service design.
Describe the components of the customer value equation.
Explain and differentiate what is meant by the divergence and the complexity of a service process.
Describe the sequence of states and the enablers of the new service development process.
Prepare a blueprint for a service operation.
Explain the difference between direct and indirect customer contact.
Compare and contrast the four approaches to service system design: production-line, customer as coproducer, and information empowerment.
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3. Innovation in Services
Basic Research: Pursue a planned search for new knowledge regardless of possible application.
Applied Research: Apply existing knowledge to problems in creation of new service.
Development: Apply knowledge to problems to improve a current service.
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4. Innovation 혁신 創新 创新 革新
CREATING
SOMETHING
NEW

5. Challenges for Service Innovation
Ability to protect intellectual and property technologies.
Incremental nature of innovation.
Degree of integration required.
Ability to build prototypes or conduct tests in a controlled environment.
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6. Levels of Service Innovation
Radical Innovations
Major Innovation: new service that customers did not know they needed.
Start-up Business: new service for underserved market.
New Services for the Market Presently Served: new services to customers of an organization.
Incremental Innovations
Service Line Extensions: augmentation of existing service line (e.g. new menu items).
Service Improvements: changes in service delivery process (e.g. self-service boarding kiosk).
Style Changes: modest visible changes in appearances.
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7. Technology-Driven Service Innovations
Source of Technology
Service Example
Service Industry Impact
Power/energy
Jet aircraft
Nuclear energy
International flight is feasible
Less dependence on fossil fuel
Facility design
Hotel atrium
Enclosed sports stadium
Feeling of grandeur/spaciousness
Year-around use
Materials
Photochromic glass
Synthetic engine oil
Energy conservation
Fewer oil changes
Methods
Just-in-time (JIT)
Six Sigma
Reduce supply-chain inventories
Institutionalize quality effort
Information
E-commerce
Satellite TV
Increase market to world-wide
Alternative to cable TV
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8. Service Design Elements
Topics
Structural
Delivery system
Process structure, service blueprint, strategic positioning
Facility design
Servicescapes, architecture, process flows, layout
Location
Geographic demand, site selection, location strategy
Capacity planning
Strategic role, queuing models, planning criteria
Managerial
Information
Technology, scalability, use of Internet
Quality
Measurement, design quality, recovery, tools, six-sigma
Service encounter
Encounter triad, culture, supply relationships, outsourcing
Managing Capacity and Demand
Strategies, yield management, queue management
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9. New Service Development Cycle
Full-scale launch
Post-launch review
Full Launch
Development
Enablers
Formulation
of new services
objective / strategy
Idea generation
and screening
Concept
development and
testing
Organizational
Context
People
Service design
and testing
Process and system
design and testing
Marketing program
Personnel training
Service testing and
pilot run
Test marketing
Teams
Product
Technology
Systems
Tools
Analysis
Design
Business analysis
Project authorization
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10. Service Blueprint of Luxury Hotel
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11. Strategic Positioning Through Process Structure
Degree of Complexity: Measured by the number of steps in the service blueprint. For example a clinic is less complex than a general hospital.
Degree of Divergence: Amount of discretion permitted the server to customize the service. For example the activities of an attorney contrasted with those of a paralegal.
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12. Structural Alternatives for a Restaurant
LOWER COMPLEXITY/DIVERGENCE CURRENT PROCESS HIGHER COMPLEXITY/DIVERGENCE
TAKE RESERVATION
SEAT GUESTS, GIVE MENUS
SERVE WATER AND BREAD
TAKE ORDERS
Salad Bar
Entree (6 choices)
Dessert (6 choices)
Beverage (6 choices)
SERVE ORDERS
CASH OR CREDIT CARD
No Reservations
Self-seating. Menu on Blackboard
Eliminate
Customer Fills Out Form
Pre-prepared: No Choice
Limit to Four Choices
Sundae Bar: Self-service
Coffee, Tea, Milk only
Serve Salad & Entree Together:
Bill and Beverage Together
Cash only: Pay when Leaving
Specific Table Selection
Recite Menu: Describe Entrees & Specials
Assortment of Hot Breads and Hors D’oeuvres
At table. Taken Personally by Maltre d’
Salad (4 choices)
Expand to 10 Choices: Add Flaming Dishes;
Bone Fish at Table
Expand to 12 Choices
Add Exotic Coffees; Wine list, Liqueurs
Separate-courses; Hand Grind Pepper
Choice of Payment. Including House Accounts:
Serve Mints
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13. Taxonomy of Service Processes
Low divergence High divergence
(standardized service) (customized service)
Processing Processing Processing Processing Processing Processing
of goods Information of people of goods Information of people
Dry Check Auto repair Computer
No Cleaning processing Tailoring a programming
Customer Restocking Billing for a suit Designing a
Contact a vending credit card building
machine
Ordering Supervision
Indirect groceries of a landing
customer from a home by an air
contact computer controller
No Operating Withdrawing Operating Sampling Documenting Driving a
customer a vending cash from an elevator food at a medical rental car
service machine an ATM Riding an buffet dinner history Using a
worker Assembling escalator Bagging of health club
interaction premade groceries Searching for facility
(self furniture information
Direct service) in a library
Customer Customer Food Giving a Providing Home Portrait Haircutting
Contact service service in a lecture public carpet painting Performing
worker restaurant Handling transit cleaning Counseling a surgical
interaction Hand car routine bank Mass Landscaping operation
washing transactions vaccination service
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14. Generic Approaches to Service Design
Production-line
• Limit Discretion of Personnel
• Division of Labor
• Substitute Technology for People
• Standardize the Service
Customer as Coproducer • Self Service • Smoothing Service Demand
• Customer-Generated Content
Customer Contact • Degree of Customer Contact • Separation of High and Low Contact Operations
• Sales Opportunity and Service Delivery Options
Information Empowerment • Employee
• Customer
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15. Customer Value Equation
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16. Discussion Questions
What are the limits in the production-line approach to service?
Give an example of a service in which isolation of the technical core would be inappropriate.
What are some drawbacks of customer participation in the service delivery process?
What ethical issues are raised in the promotion of sales during a service transaction?
Go to and find the current non-manufacturing share of total business R&D for the countries listed in Table 1.1. Are there any surprises?
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17. 100 Yen Sushi House
Prepare a service blueprint for the 100 Yen Sushi House.
What features differentiate 100 Yen Sushi House and how do they create a competitive advantage?
How has the 100 Yen Sushi House incorporated the just-in-time system into its operations?
Suggest other services that could adopt the 100 Yen Sushi House service delivery concept.
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18. Dishwashing Counter in Back
100 Yen Sushi House Layout
Dishwashing Counter in Back
CONVERSATION AREA
Miso and Tea Station
CONVEYOR BELT
CONVERSATION AREA
TAKE-OUT POSITION
ENTRANCE
= CHEF
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19. Commuter Cleaning - New Venture Proposal
Prepare a service blueprint for Commuter Cleaning.
What generic approach to service design is illustrated by Commuter Cleaning, and what competitive advantage does this offer?
Using the data in Table 4.7 calculate a break-even price per shirt if monthly demand is expected to be 20,000 shirts and the contract with a cleaning plant stipulates a charge of $0.50 per shirt.
Critique the business concept, and make recommendations for improvement.
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20. Golfsmith Prepare a service blueprint for Golfsmith.
What generic approach to service design does Golfsmith illustrate and what competitive advantages does this design offer?
Why is Golfsmith a good candidate for Internet sales?
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21. INTERACTIVE CLASS EXERCISE
The class breaks into small groups and prepares a service blueprint for Village Volvo.
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