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ServicesManagement

Introduction

FALL 2006

Why study Services?

• Service-based economies

• Service as a business imperative inmanufacturing and IT

• Deregulated industries and professionalservice needs

• Services marketing/management is different

• Service equals profits – follow the money

• It’s where the jobs are!!!

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Course Logistics

• Website– http://www4.ncsu.edu/~montoya/SMsyllabus.html

– PPT files available by 12noon day of class

• eBook will be available in a week– Chapter copies for now

• Co-Production in action!!

Course Logistics

• Website– http://www4.ncsu.edu/~montoya/SMsyllabus.html

– PPT files available by 12noon day of class

• eBook will be available in a week– Chapter copies for now

• Co-Production in action!!

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Introduction to Services

• Explain what services are and identify important trends inservices.

• Explain the need for special services management conceptsand practices and why the need has developed and isaccelerating.

• Explore the profound impact of technology on service.• Outline the basic differences between goods and services

and the resulting challenges and opportunities for servicebusinesses.

• Introduce the services variables and the philosophy ofcustomer focus, as powerful frameworks and themes formanaging services.

Service Definitions• Services are deeds, processes, and

performances.Valarie Zeithaml & Mary Jo Bitner

• A service is a time-perishable, intangibleexperience performed for a customer acting inthe role of a co-producer.

James Fitzsimmons

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Definition of Service Firms Service enterprises are organizations that

facilitate the production and distribution ofgoods, support other firms in meeting theirgoals, and add value to our personal lives.

Role of Services in our Economy

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Percent Service Employment forSelected Nations

Country 1980 1987 1993 2000 United States 67.1 71.0 74.3 74.2 Canada 67.2 70.8 74.8 74.1 Israel 63.3 66.0 68.0 73.9 Japan 54.5 58.8 59.9 72.7 France 56.9 63.6 66.4 70.8 Italy 48.7 57.7 60.2 62.8 Brazil 46.2 50.0 51.9 56.5 China 13.1 17.8 21.2 40.6

01020

30405060

7080

1929 1948 1969 1977 1984 1999

Perc

ent o

f U.S

. Lab

or F

orce

Source: Survey of Current Business, April 1998, Table B.8, July 1988, Table 6.6B, and July 1992, Table 6.4C; EliGinzberg and George J. Vojta, “The Service Sector of the U.S. Economy,” Scientific American, 244,3 (1981): 31-39.

Year

Services Manufacturing Mining & Agriculture

Percent of U.S. Labor Forceby Industry

7

010

20304050

607080

1948 1959 1967 1977 1987 1999

Perc

ent o

f GD

P

Year

Source: Survey of Current Business, August 1996, Table 11, April 1998, Table B.3; Eli Ginzberg and George J.Vojta, “The Service Sector of the U.S. Economy,” Scientific American, 244,3 (1981): 31-39.

Services Manufacturing Mining & Agriculture

Percent of U.S. GrossDomestic

Product by Industry

Examples of Service Industries• Health Care

– hospital, medical practice, dentistry, eye care• Professional Services

– accounting, legal, architectural

• Financial Services– banking, investment advising, insurance

• Hospitality– restaurant, hotel/motel, bed & breakfast– ski resort, rafting

• Travel– airline, travel agency, theme park

• Others– hair styling, pest control, plumbing, lawn maintenance, counseling

services, health club, interior design

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Contributions of Service Industriesto

U.S. Gross Domestic Product

Source: Inside Sam’s $100 Billion Growth Machine, by David Kirkpatrick, Fortune, June 14, 2004, p 86.

Figure 1.2

Tangibility Spectrum

TangibleDominant

IntangibleDominant

SaltSoft Drinks

DetergentsAutomobiles

Cosmetics

AdvertisingAgenciesAirlines

InvestmentManagement

ConsultingTeaching

Fast-foodOutlets

Fast-foodOutlets

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Characteristics of ServicesCompared to Goods

Intangibility

PerishabilitySimultaneous

Productionand

Consumption

Heterogeneity

Implications of Intangibility

• Services cannot be inventoried

• Services cannot be easily patented

• Services cannot be readily displayed orcommunicated

• Pricing is difficult

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Implications of Heterogeneity

• Service delivery and customer satisfactiondepend on employee and customer actions

• Service quality depends on many uncontrollablefactors

• There is no sure knowledge that the servicedelivered matches what was planned andpromoted

Implications of SimultaneousProduction and Consumption

• Customers participate in and affect the transaction

• Customers affect each other

• Employees affect the service outcome

• Decentralization may be essential

• Mass production is difficult

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Implications of Perishability

• It is difficult to synchronize supply and demandwith services

• Services cannot be returned or resold

Challenges for Services• Defining and improving quality• Designing and testing new services• Communicating and maintaining a consistent image• Accommodating fluctuating demand• Motivating and sustaining employee commitment• Coordinating marketing, operations, and human resource

efforts• Setting prices• Finding a balance between standardization versus

personalization• Ensuring the delivery of consistent quality

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An Integrated Approach to ServiceManagement

The Eight Service Components (Variables) • Product Elements • Place, Cyberspace, and Time • Promotion and Education • Price and Other User Outlays + Process + Productivity and Quality + People + Physical Evidence

Require the Integration of IT, Marketing, Operations, andHuman Resources

Service Variables

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Example Service/Product Bundle

Airport shuttleCoffee loungeVariant

In house restaurantDeferred paymentplans

Peripheral

Service

Bath robeGarment bagPeripheral

Goods

Room for the nightBusiness suitsCore

Business hotelCustom clothierBusiness

Core Service

Example

Core Goods

Example

Element

The Service Process Matrix

Degree of labor Intensity

Degree of Interaction and Customization

Low High

Low

Service factory* Airlines * Trucking * Hotels * Resorts and recreation

Service shop * Hospitals * Auto repair * Other repair services

High

Mass service: * Retailing * Wholesaling * Schools * Retail aspects of commercial banking

Professional service * Doctors * Lawyers * Accountants * Architects

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The Service Package• Supporting Facility: The physical resources that must be in place

before a service can be sold. Examples are golf course, ski lift,hospital, airplane.

• Facilitating Goods: The material consumed by the buyer or itemsprovided by the consumer. Examples are food items, legal documents,golf clubs, medical history.

• Information: Operations data or information that is provided by thecustomer to enable efficient and customized service. Examples arepatient medical records, seats available on a flight, customerpreferences, location of customer to dispatch a taxi.

The Service Package (cont.)• Explicit Services: Benefits readily observable by the

senses. The essential or intrinsic features. Examples arequality of meal, attitude of the waiter, on-time departure.

• Implicit Services: Psychological benefits or extrinsicfeatures which the consumer may sense only vaguely.Examples are privacy of loan office, security of a well lightedparking lot.

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Strategic Service ClassificationNature of the Service Act

Direct Recipient of the Service

Nature of

the Service Ac t

People

Things

Tangible actions

People’s bodies:

Health care

Passenger transportation

Beauty salons

Exercise clinics Restaurants

Physical possessions:

Freight transportation

Repair and maintenance

Veterinary ca re

Janitorial services Laundry and dry cleaning

Intangible ac tions

People’s minds:

Education

Broadcasting Information services

Theaters

Museums

Intangible assets:

Banking

Legal services Accounting

Securities

Insurance

Strategic Service ClassificationRelationship with Customers

Type of Relationship between Service Organization and Its Customers

Nature of Service Delivery

“Membership” relationship

No formal relationship

Continuous delivery

of service

Insurance

Telephone subscription

Electric Utility Banking

Radio station

Police protection

Lighthouse Publi c Highway

Discrete

transactions

Long-distance phone calls Theater series tickets

Transit pass

Sam’s Wholesale Club

Airline frequent flyer

Restaurant Pay phone

Toll highway

Movie theater

Public transportation

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Strategic Service ClassificationCustomization and Judgment

Extent to Which Service Characteristics Are Customized

Extent to Which Personnel Exercise Judgment in Meeting Customer Needs

High

Low

High

Surgery Taxi services Gourmet restaurant

Preventive health programs Education (large classes) Family restaurant

Low

Telephone service Hotel services Retail banking Cafeteria

Public transportation Spectator sports Movie theater Institutional food service

Strategic Service ClassificationNature of Demand and Supply

Extent of Demand Fluctuation over Time

Extent to which Supply

Is Constrained

Wide

Narrow

Peak demand can usually be met withou t

a major delay

Electricity Telephone

Police emergency

Hospital maternity unit

Insurance

Legal services

Banking

Laundry and dry cleaning

Peak demand regularly

exceeds capacity

Tax preparation Passenger transportation

Hotels and motels

Fast food restaurant Movie theater

Gas station

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Strategic Service ClassificationMethod of Service Delivery

Availability of Service Outlets

Nature of Interaction

between Customer and

Service Organization Single site Multiple site

Customer travels to service organization

Theater Barbershop

Bus service Fast -food chain

Service provide r

travels to customer

Tax i

Pest control service Taxi

Mail delivery

AAA emergency repairs

Transaction is at arm’s length

Credit card company Local TV station

Broadcast network Telephone company

Open Systems View ofServices

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Xpresso Lube Facility

Xpresso Lube’s Service Package

• Supporting Facility

• Facilitating Goods

• Information

• Explicit Services

• Implicit Services

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Xpresso Lube’s DistinctiveService Characteristics

• Intangibility

• Perishability

• Heterogeneity

• Simultaneity

• Customer Participation in the Service Process

Xpresso Lube’s ServiceClassification

• Nature of the service act

• Relationship with customers

• Customization and judgement

• Nature of demand and supply

• Method of service delivery

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Beyond Xpresso Lube

• Given the example of Xpresso Lube, whatother services could be combined to “addvalue” for the customer?

Next Time …

• Read Chapters 1, 2, 3, 5

• Review website

• Questions???