4

Service Management (5e)

Operations, Strategy, Information Technology
By
Fitzsimmons and Fitzsimmons

Chapter – 4
New Service Development
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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.
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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
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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
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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
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Sources of New Services

Customer suggestions

Frontline employees

Mining customer database

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New Service Development Cycle

• Full-scale launch
• Post-launch review

Full Launch Enablers Development

• Formulation

l
nte na
• Service design Co izatio of new services
and testing xt People objective / strategy

Tea
n

• Process and system • Idea generation

m
ga

s
and screening
Or

design and testing

• Marketing program • Concept
design and testing Product development and
• Personnel training testing
• Service testing and Technology Systems
pilot run
• Test marketing
Tools
Design Analysis
• Business analysis
• Project
authorization
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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
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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
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Service Blueprint of Luxury Hotel

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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
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Structural Alternatives for a Restaurant

Table 4.3 (pp 85)
Specific Table Selection
LOWER COMPLEXITY/DIVERGENCE CURRENT PROCESS HIGHER COMPLEXITY/DIVERGENCE
Recite Menu: Describe Entrees &
No Reservations TAKE RESERVATION Specials
Self-seating. Menu on Blackboard SEAT GUESTS, GIVE Assortment of Hot Breads and Hors
Eliminate MENUS D’oeuvres
Customer Fills Out Form SERVE WATER AND BREAD At table. Taken Personally by Maltre d’
TAKE ORDERS
PREPARE ORDERS
Individually Prepared at table
Pre-prepared: No Choice
Salad (4 choices)
Expand to 20 Choices: Add Flaming
Limit to Four Choices
Entree (15 choices) Dishes;
Bone Fish at Table; Prepare Sauces at
Sundae Bar: Self-service
Dessert (6 choices) Table
Expand to 12 Choices
Coffee, Tea, Milk only
Beverage (6 choices)
Serve Salad & Entree Together:
Bill and Beverage Together SERVE ORDERS Add Exotic Coffees; Sherbet between
Courses; Hand Grind Pepper
Cash only: Pay when Leaving
COLLECT PAYMENT
Choice of Payment. Including House
Accounts:
Serve Mints
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Taxonomy for Service Process Design

Service processes can be classified using the

concept of
1. Divergence
2. the object toward which service activity is directed
3. Degree of customer contact
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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
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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
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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
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Taxonomy of Service Processes

Table 4.4 (pp. 86)
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Generic Approaches to Service Design

1. Production-line
2. Customer as Coproducer
3. Customer Contact
4. Information Empowerment
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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
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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
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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)
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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
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Customer Value
Results produced for the customer
✔ 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
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Customer Value Equation

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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?