Service Definitions

Services are deeds, processes, and performances.

Service Operations Management

Chetan Soman
A service is a time-perishable, intangible experience performed for a customer acting in the role of a co-producer.

Definition of Service Firms

Service enterprises are organizations that facilitate the production and distribution of goods, support other firms in meeting their goals, and add value to our personal lives.

Role of Services in an Economy

FINANCIAL SERVICES Financing Leasing Insurance INFRASTRUCTURE SERVICE Communications Transportation Utilities Banking

MANUFACTURING Services inside company: Finance Accounting Legal R&D and design

DISTRIBUTION SERVICES Wholesaling Retailing Repairing

PERSONAL SERVICES Healthcare Restaurants Hotels

CONSUMER (Self-service)

BUSINESS SERVICES Consulting Auditing Advertising Waste disposal

GOVERNMENT SERVICES Military Education Judicial Police and fire protection

Percent Employment in Services

Top Ten Postindustrial Nations
Country United States United Kingdom The Netherlands Sweden Canada Australia France Japan Germany Italy 1965 59.5 51.3 52.5 46.5 57.8 54.6 43.9 44.8 41.8 36.5 1975 66.4 58.3 60.9 57.7 65.8 61.5 51.9 52.0 n/a 44.0 1985 70.0 64.1 68.3 66.1 70.6 68.4 61.4 57.0 51.6 55.3 1995 74.1 71.4 73.4 71.5 74.8 73.1 70.0 61.4 60.8 62.2 2005 78.6 77.0 76.5 76.3 76.0 75.8 74.8 68.6 68.5 65.5
1-5

Distinctive Characteristics of Services

Simultaneity: opportunities for personal selling, interaction creates customer perceptions of quality Perishability: cannot inventory, opportunity loss of idle capacity, need to match supply with demand Intangibility: creative advertising, no patent protection, importance of reputation Heterogeneity: customer involvement in delivery process results in variability Customer Participation in the Service Process: attention to facility design, opportunities for co-production, concern for customer and employee behavior

The Service Package

Supporting Facility: The physical resources that must be in place before a service can be sold. Examples are Warehouse, hospital, airplane. Facilitating Goods: The material consumed by the buyer or items provided by the consumer. Examples are legal documents, food items, golf clubs, medical history. Information: Operations data or information that is provided by the customer to enable efficient and customized service. Examples are location of customer to dispatch a shipment, patient medical records, seats available on a flight, customer preferences

The Service Package (cont.)

Explicit Services: Benefits readily observable by the senses. The essential or intrinsic features. Examples are on-time delivery, quality of meal, attitude of the nurses. Implicit Services: Psychological benefits or extrinsic features which the consumer may sense only vaguely. Examples are home pick-up, privacy of loan office, security of a well lighted parking lot.

Dynamic Product (service) Cycle

10 Strategic OM Decisions
Goods & service design Quality Process & capacity design Location selection Layout design Human resource and job design Supply-chain management Inventory Scheduling Maintenance

Non-ownership Classification of Services

Type of Service Customer value Examples Management Challenge

Goods rental

Obtain temporary right to exclusive use

Vehicles, tools, furniture, equipment

Site selection and maintenance

Service Classifications

Place and space rental

Obtain exclusive use of defined portion of a larger space Hire other people to do a job

Hotel room, seat on airplane, storage unit

Housekeeping and achieving economies of scale

Labor and expertise

Car repair, surgery, management consulting Theme park, camp ground, physical fitness gym

Expertise is a renewable resource, but time is perishable Queuing and crowd control

Physical facility usage

Gain admission to a facility for a period of time

Network usage

Gain access to participate

Electric utility, cell phone, internet

Availability and pricing decisions

Implications of Rental/Usage Paradigm

Creates the option of renting a good upon demand rather than purchase. Service often involves selling slices of larger physical entities. Labor and expertise are renewable resources. Time plays a central role in most services. Service pricing should vary with time and availability. Question: Can services in general be described as customers sharing resources?

The Service Process Matrix

Degree of labor Intensity Degree of Interaction and Customization Low High Service Factory Service Shop * Airlines * Hospitals * Trucking * Auto repair * Hotels * Other repair services * Resorts and recreation Mass Service * Retailing * Wholesaling * Schools * Retail banking Professional Service * Doctors * Lawyers * Accountants * Architects

Low

High

Challenges For Managers

Strategic Service Classification (Nature of the Service Act)

Direct Recipient of the Service Nature of the Service Act
People Peoples bodies:
Health care Passenger transportation Beauty salons Exercise clinics Restaurants

Things Physical possessions:

Freight transportation Repair and maintenance Veterinary care Janitorial services Laundry and dry cleaning

Tangible actions

Peoples minds:
Education

Intangible assets:
Banking Legal services Accounting Securities Insurance

Intangible actions

Broadcasting Information services Theaters Museums

Strategic Service Classification (Relationship with Customers)

Type of Relationship between Service Organization and Its Customers Nature of Service Delivery
Membership relationship
Insurance Telephone subscription Electric Utility Banking

Strategic Service Classification (Customization and Judgment)

Degree of Customization Extent to Which Personnel Exercise Judgment in Meeting Customer Needs
High Low

No formal relationship
Radio station Police protection Lighthouse Public Highway

Continuous delivery of service

Surgery High Taxi services Gourmet restaurant

Preventive health programs Education (large classes) Family restaurant

Discrete transactions

Long-distance phone calls Theater series tickets Transit pass Wholesale buying club Airline frequent flyer

Restaurant Pay phone Toll highway Movie theater Public transportation

Telephone service Hotel services

Public transportation Spectator sports Movie theater Institutional food service

Low

Retail banking Cafeteria

Strategic Service Classification (Nature of Demand and Capacity)

Extent of Demand Fluctuation over Time Extent to Which Demand Exceeds Capacity
Electricity

Strategic Service Classification (Method of Service Delivery)

Availability of Service Outlets Nature of Service Delivery
Single site Multiple site

Wide
Insurance

Narrow Customer travels to service organization Service firm delivers

Theater Barbershop Taxi Pest control service Credit card company Local TV station Bus service Fast-food chain Mail delivery AAA emergency repairs Broadcast network Telephone company

Peak demand can met without a major delay

Telephone Police emergency Hospital maternity unit

Legal services Banking Laundry and dry cleaning

Tax preparation

Fast food restaurant Movie theater Gas station

Peak demand regularly exceeds capacity

Passenger transportation Hotels and motels

Transaction at arms length

Line of Customer Visibility in Processing a retain loan

Back office/ Front Office Decoupling Strategies

Strategic Choices for Decoupling Strategies

Dynamic Product (service) Cycle

Introduction of new services

Service Strategy Triad

Architecture for Service Delivery System

Basic Elements of the Strategic Service Vision

Service Delivery System

Operating Strategy

Service Concept

Target Market

Strategic Service Vision

Target Market Segments
What are common characteristics of important market segments? What dimensions can be used to segment the market, demographic, psychographic? How important are various segments? What needs does each have? How well are these needs being served, in what manner, by whom?

Strategic Service Vision

Service Concepts
What are important elements of the service to be provided, stated in terms of results produced for customers? How are these elements supposed to be perceived by the target market segment, by the market in general, by employees, by others? How do customers perceive the service concept? What efforts does this suggest in terms of the manner in which the service is designed, delivered, marketed?

Strategic Service Vision

Operating Strategy
What are important elements of the strategy: operations, financing, marketing, organization, human resources, control? On which will the most effort be concentrated? Where will investments be made? How will quality and cost be controlled: measures, incentives, rewards? What results will be expected versus competition in terms of, quality of service, cost profile, productivity, morale/loyalty of servers?

Integrative questions of the Strategic Service Vision

Value/Cost Leveraging: To what extent is the value of results and process quality for customers leveraged over cost to the service provider ? Service Delivery System

Operating Strategy

Service Concept

Target Market

Positioning: Does the service delivery system support the operating strategy? How well is the service concept positioned in relation to customers needs and customer competitors action? competitors

Perceived Service Quality

Word of mouth Personal needs Past experience

Service Quality Gap Model

C u sto m e r P e r c e p tio n s
C u s t o m e r S a ti s fa c t i o n GAP 5

C u sto m e r E x p e c ta ti o n s
C u sto m er / M a r k e t in g R e s e a r c h GAP 1

Service Quality Dimensions Reliability Responsiveness Assurance Empathy Tangibles

Expected service

Perceived service

Service Quality Assessment 1. Expectations exceeded ES<PS (Quality surprise) 2. Expectations met ES~PS (Satisfactory quality) 3. Expectations not met ES>PS (Unacceptable quality)

M a n a g in g th e E v id e n c e

C o m m u n ic a t i o n GAP 4

U n d e r s ta n d in g th e C u s to m e r

S e rv ic e D e li v e r y
C onform a nc e GAP 3 D e sig n G A P 2

M anagem ent P e r c e p tio n s o f C u s to m e r E x p e c ta ti o n s

C o n fo rm a n c e

S e rv ic e S ta n d a r d s

S e rv ic e D e sig n

Internal Environment
Service Design
Bottleneck analysis Technology choice Capacity Planning Economies of Scale

Impact of variability
Capacity Planning Staffing Scheduling Maintenance Inventory Sources of variability: Customers? Suppliers? Processes?

Matching Supply and Demand

Managing variability