1. Chapter – 4 New Service Development
Service Management (5e)
Operations, Strategy, Information Technology By
Fitzsimmons and Fitzsimmons
Chapter – 4
New Service Development

2. Learning Objectives Discuss the new service development process.
Prepare a blueprint for a service operation.
Describe a service process using the dimensions of divergence and complexity.
Use the taxonomy of service processes to classify a service operation.
Compare and contrast the generic approaches to service system design.

3. Levels of Service Innovation
Radical Innovations
Major Innovation:
new service driven by information and computer based technology
Wells Fargo Internet banking launched in May 1995
Start-up Business:
new service for existing market
New Services for the Market Presently Served:
new services to customers of an organization
Bank branches in Supermarkets

4. Incremental Innovations
Service Line Extensions:
augmentation of existing service line, such as adding new menu items, new routes
Exclusive lounge at Airports for first class passengers for some airlines
Service Improvements:
changes in features of currently offered service
Delta Airlines use of ATM-like kiosks to distribute boarding passes to passengers
Style Changes:
modest visible changes in appearances
Some funeral homes now arrange for celebration of life instead of mourn death

5. Technology Driven Service Innovation
Power/energy - International flights with jet aircraft
Physical design - Enclosed sports stadiums, Hotel Atrium
Materials - Astroturf
Methods - JIT and TQM
Information - E-commerce using the Internet

6. Sources of New Services
Customer suggestions
Frontline employees
Mining customer database

7. New Service Development Cycle
People
Technology
Systems
Product
Full Launch
Development
Design
Analysis
Organizational
Context
Teams
Tools
Enablers
Formulation
of new services
objective / strategy
Idea generation
and screening
Concept
development and
testing
Business analysis
Project authorization
Full-scale launch
Post-launch review
Service design
and testing
Process and system
design and testing
Marketing program
Personnel training
Service testing and
pilot run
Test marketing

8. Service Design Elements 1. Structural
Delivery system
Front and back office
Automation
Customer participation
Facility design
Size
Aesthetics
Layout
Location
Customer demographics
Single versus multiple sites
Competition
Site characteristics
Capacity planning
Managing queues
Number of servers
Accomodating average or peak demand

9. Service Design Elements 2. Managerial
Service encounter
Service culture
Motivation
Selection and training
Employee empowerment
Quality
Measurement
Monitoring method
Expectations versus perceptions
Service guarantee
Managing capacity and demand
Strategies for altering demand and controlling supply
Queue management
Information
Competitive resources
Data collection

10. Service Blueprint of Luxury Hotel

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.
Figure 4.3 (pp 85)
Allows us to see the market positioning of a service based on degree of complexity and degree of divergence allowed

12. Structural Alternatives for a Restaurant Table 4.3 (pp 85)
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
TAKE RESERVATION
SEAT GUESTS, GIVE MENUS
SERVE WATER AND BREAD
TAKE ORDERS
PREPARE ORDERS
Salad (4 choices)
Entree (15 choices)
Dessert (6 choices)
Beverage (6 choices)
SERVE ORDERS
COLLECT PAYMENT
Specific Table Selection
Recite Menu: Describe Entrees & Specials
Assortment of Hot Breads and Hors D’oeuvres
At table. Taken Personally by Maltre d’
Individually Prepared at table
Expand to 20 Choices: Add Flaming Dishes;
Bone Fish at Table; Prepare Sauces at Table
Expand to 12 Choices
Add Exotic Coffees; Sherbet between
Courses; Hand Grind Pepper
Choice of Payment. Including House Accounts:
Serve Mints
LOWER COMPLEXITY/DIVERGENCE CURRENT PROCESS HIGHER COMPLEXITY/DIVERGENCE

13. Taxonomy for Service Process Design
Service processes can be classified using the concept of
Divergence
the object toward which service activity is directed
Degree of customer contact

14. 1. Degree of divergence
Low divergence – standardized service with high volume
Tasks are routine
Relatively low level of technical skills required
Production-line approach, example, McDonalds
High divergence – customized services
More technical and analytical skills required
More flexibility required
More capacity required

15. 2. Object of the Service Process
Working on goods of the customer, ex. Auto repair
Property must be secured from damage or loss
Services where the provider provides facilitating goods ex restaurant
Appropriate stock levels and the quality of these facilitating goods becomes a concern
Processing information
Done in back office, ex. check processing at a bank
Providing information over phone , ex. Phone banking
Processing People, ex. Haircut or surgical operation
High interpersonal skills required as well as technical skills

16. 3. Type of Customer Contact
Decision on level of customer contact will decide the type of training for employees and the design of the facility
Indirect via electronic media – no need for service provider at the time of service delivery
Indirect via phone – need for service provider at the time of delivery and need for employee interpersonal skills
Customer is physically present for part or full service – need for interpersonal skills and also careful planning of service layout

17. Taxonomy of Service Processes Table 4.4 (pp. 86)

18. Generic Approaches to Service Design
Production-line
Customer as Coproducer
Customer Contact
Information Empowerment

19. 1. Production-Line Approach
Characteristics
Routine and simple services
High standardization
Low customer contact
Limited discretionary action of personnel – to get consistency in service performance
Division of Labor – total job is broken into groups of simple tasks
Substitution of technology for people – example ATM machines
Service standardization – limited service options creates opportunities for predictability and preplanning

20. 2. Customer as Co-Producer
Characteristics
For most services, the customer is present when the service is being performed
We can use the customer as a productive worker – through proper design of the service
Either compensate the customer for their service or design in such a way that he/she does not feel as a co-producer
Self Service – E-tickets over the Internet provide convenience
Smoothing Service Demand – will allow better use of capacity, which is time-perishable
To implement demand-smoothing strategy, customers must participate, adjusting the time of their demand to match availability of the service.
Appointments, reservations, price incentives

21. 3. Customer-Contact Approach
Manufacturing
is a controlled environment focused on maximizing productivity and capacity utilization; inventory to decouple production from customer demand
Services
When low contact – then run them as manufacturing in back-office, achieving high capacity utilization and economies of scale
When high-contact – the quality is determined by customers’ experience – both the process and the outcome are important
Separate different components of service into high and low contact areas to bring efficiency
Considerations that will impact high and low contact are given in table 4.5 (pp 93)

22. 4. Information Empowerment
Employee empowerment – faster and accurate
Record keeping
customer names
Supplier relationship
Communication with other firms
All aspects of an operation can be integrated (ERP systems)
Customer empowerment
Customers can use Internet to educate themselves

23. Customer Value Results produced for the customer Process quality
It must satisfy the need for which it was purchased
Process quality
Since customer is a part of the process of service delivery, therefore improvement in service quality will be appreciated by the customer
Price to the customer
Greater consistency in service quality should lower cost – because that allows greater alignment between customer perceptions and expectations; resulting in lower price being offered to customer
Cost of acquiring the service
Total cost of acquiring the service is important to customers

24. Customer Value Equation

25. 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?