1. New Service Development
Chapter 3

2. Learning Objectives Describe sources of service sector growth.
Describe fundamental characteristics of service innovation.
Describe managerial issues associated with adoption of new technology.
Explain and differentiate divergence and complexity of a service process.
Describe the sequence of stages and the enablers of the new service development process.
Prepare a service blueprint
Compare and contrast the four approaches to service system design: production-line, customer as coproducer, customer contact and information empowerment.
Explain how intellectual property rights protect a service brand.
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3. Source of Service Sector Growth
Information Technology
Internet as a Service Enabler
Innovation Push theory (e.g. Post-it) Pull theory (e.g. Cash Management)
Services derived from products (e.g. Netflix)
Exploiting information (e.g. Auto part sales)
Difficulty of testing service prototypes
Changing Demographics
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4. Distribution of GDP in the US Economy
Product
Services
Physical
Information 6%
10%
31%
53%
37%
63%
84%
16% D B A C
A = Physical Product, B= Physical Service, C= Digital Product, D= Information Service
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5. 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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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 airline 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. 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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9. Adoption of New Technology in Services
Challenges of Adopting New Technology The Process is the Product Back Office vs Front Office Changes Need for Standardization
Readiness to Embrace New Technology
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10. 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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11. 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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12. Customer Value Equation
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13. Strategic Positioning Through Process Structure
Degree of Complexity: Measured by the number of steps in the service blueprint, e.g., a clinic is less complex than a general hospital
Degree of Divergence: Amount of discretion permitted the server to customize the service, e.g., the activities of an attorney contrasted with those of a paralegal
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14. 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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15. Service Blueprint of Luxury Hotel
F = Possible Fail Point
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16. Taxonomy of Service Processes
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17. 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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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. 100 Yen Sushi House Questions
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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20. COMMUTER CLEANING
A New Venture Proposal
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21. 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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22. Service Blueprint
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23. Breakeven Analysis
Fixed Expenses = (Demand)*(Price -Charge) $13,404 = 20,000*(Price ) Price = (13, ,000)/20,000 = $1.17
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24. Winning the Online Book Wars
AMAZON.COM
Winning the Online Book Wars
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25. Amazon’s Success Factors
First mover advantage (mind share)
Low overhead costs (60 inventory turns/yr.)
Cross-Marketing: Amazon Associates Program (other web sites link book sales)
Customer service (recommendations)
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26. Online Book Buying Experience
Convenience
Browsing experience
Searching
Editorial content
Delivery
Payment
Recommendations
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27. Supply Chain Management
Amazon orders from wholesaler and repackages and ships (cross-docking?)
Dependent upon one wholesaler (Ingram)
Considering self-distribution (buying directly from publishers)
Ingram response by offering drop-shipping
Traditional distribution system is designed to stock retail store shelves
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28. Barnes and Noble Response
Internet seen as a new channel to leverage existing assets and strengths.
Features (online community reflective of real store)
Pricing (30/20% vs 40% Amazon top 500)
Alliances (Firefly collaborative filtering)
Information Technology (Web farm flexibility)
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29. Amazon’s Challenges Operations (Barnes & Noble - 2% margins)
International expansion
Brand extension into online music sales
Backward integration into self-publishing
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30. Amazon.com Questions
How does Amazon.com illustrate the sources of service sector growth? Comment on information technology, Internet as an enabler, innovation, and changing demographics.
What generic approach(es) to service design does Amazon.com illustrate and what competitive advantages does this design offer?
Is Amazon.com a model for the future of retailing?
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31. 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?
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32. Interactive Class Exercise
The class breaks into small groups and prepares a service blueprint for Village Volvo.
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