Chapter 15 Organizing for Change Management and Service

Chapter 15 Organizing for Change Management and Service Leadership Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 15 - 1

Learning Objectives - Chapter 15 § Uncover the implications of the service-profit chain for service management § Examine how marketing, operations and human resource management need to be integrated in a service business § Explore the distinction between evolutionary change and turnaround § Establish the role service leaders play in fostering success § Determine actions required to move a firm toward status of world class service delivery Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 15 - 2

Effective Marketing Lies at the Heart of Value Creation Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 15 - 3

The Service-Profit Chain (Fig 15. 1) Internal External Operating strategy and service delivery system Loyalty Service Concept Target Market 4 -7 Customers Satisfaction Productivity and Employees Output Quality Capability Revenue growth Service Value 3 Satisfaction 2 Loyalty 1 Profitability Service Quality • Workplace design • Job design • Selection and development • Rewards and recognition • Information and communication • Tools for serving customers Quality and • Attractive value productivity • Service designed Improvements and delivered to yield higher meet targeted service quality customers’ needs and lower costs • Lifetime value • Retention • Repeat business • Referral Source: See Services Marketing textbook, page 436, for full source information. Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 15 - 4

Links in the Service-Profit Chain Table 15. 1 1. Customer loyalty drives profitability and growth 2. Customer satisfaction drives customer loyalty 3. Value drives customer satisfaction 4. Employee productivity and retention drive value 5. Employee loyalty drives productivity 6. Employee satisfaction drives loyalty and productivity 7. Internal quality drives employee satisfaction 8. Top management leadership underlies chain’s success Source: See Services Marketing textbook, page 437, for full source information. Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 15 - 5

Qualities Associated with Service Leaders § Understands mutual dependency among marketing, operations and human resource functions of the firm § Has a coherent vision of what it takes to succeed § Strategies are defined and driven by a strong, effective leadership team § Responsive to various stakeholders § Value creates through customer satisfaction Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 15 - 6

Integrating Marketing, Operations, and Human Resources Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 15 - 7

Reducing Interfunctional Conflict § One challenge is to avoid creating “functional silos” Ø High-value creating enterprises should be thinking in terms of activities, not functions § Top management needs to establish clear imperatives for each function that defines how a specific function contributes to the overall mission Ø The marketing imperative Ø The operations imperative Ø The human resources imperative Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 15 - 8

Defining the Three Functional Imperatives § Marketing Imperative Ø Target “right” customers and build relationships Ø Offer solutions that meet their needs Ø Define quality package with competitive advantage § Operations Imperative Ø Create and deliver specified service to target customers Ø Adhere to consistent quality standards Ø Achieve high productivity to ensure acceptable costs § Human Resource Imperative Ø Recruit and retain the best employees for each job Ø Train and motivate them to work well together Ø Achieve both productivity and customer satisfaction Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 15 - 9

Creating a Leading Service Organization Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 15 - 10

From Losers to Leaders: Four Levels of Service Performance (1) § Service Losers Ø Bottom of the barrel from both customer and managerial perspectives Ø Customers patronize them because there is no viable alternative Ø New technology introduced only under duress; uncaring workforce § Service Nonentities Ø Dominated by a traditional operations mindset Ø Unsophisticated marketing strategies Ø Consumers neither seek out nor avoid them Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 15 - 11

From Losers to Leaders: Four Levels of Service Performance (2) § Service Professionals Ø Clear market positioning strategy Ø Customers within target segment(s) seek them out Ø Research used to measure customer satisfaction Ø Operations and marketing work together Ø Proactive, investment-oriented approach to HRM § Service Leaders Ø The crème da la crème of their respective industries Ø Names synonymous with outstanding service, customer delight Ø Service delivery is seamless process organized around customers Ø Employees empowered and committed to firm’s values and goals Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 15 - 12

Moving to a Higher Level of Performance § Firms can move either up or down the performance ladder § Organizations devoted to satisfying their current customers may miss important shifts in the marketplace Ø As a result, they may face difficulties attracting new consumers with different expectations § Companies defending their control of their competitive edge may have encouraged competitors to find higher-performing alternatives § Organizations with a service-oriented culture may turn otherwise as a result of a merger or acquisition that brings in new leaders who emphasize short-term profits Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 15 - 13

In Search of Human Leadership Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 15 - 14

Leading a Service Organization Involves Eight Stages (1) § Creating a sense of urgency to develop the impetus for change § Putting together a strong enough team to direct the process § Creating an appropriate vision of where the organization needs to go § Communicating that new vision broadly Source: John Kotter Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 15 - 15

Leading a Service Organization Involves Eight Stages (2) § Empowering employees to act on that vision § Producing sufficient short-term results to create credibility and counter cynicism § Building momentum and using that to tackle tougher change problems § Anchoring new behaviours in organizational culture Source: John Kotter Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 15 - 16

Leadership versus Management § Leadership Ø Concerned with development of vision and strategies, and empowerment of people to overcome obstacles—make vision happen Ø Emphasis on emotional and spiritual resources Ø Works through people and culture Ø Produces useful change, especially non-incremental change § Management Ø Involves keeping current situation operating through planning, budgeting, organizing, staffing, controlling, and problem solving Ø Emphasizes physical resources—raw materials, technology, capital Ø Works through hierarchy and systems Ø Keeps current system functioning Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 15 - 17

Setting Direction versus Planning § Planning - management process, designed to produce orderly results, doesn’t produce change Ø Planning follows and complements direction setting, serving as useful reality check and road map for strategic execution § Setting direction - creating and articulating visions and strategies that describe a business, technology, or corporate culture in terms of the long term Ø Many of best visions and strategies combine basic insights and translate them into realistic competitive strategy § See Service Persp. 15. 1 : Can Cirque du Soleil Stretch Further? Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 15 - 18

Individual Leadership Qualities § Visualize quality of service as foundation for competing § Able to believe in their employees and make communicating with them a priority § Love of the business § Driven by a set of core values that they infuse into the organization § Need not be charismatic, but has to be principled § Must have personal humility blended with intensive professional will, ferocious resolve, and willingness to give credit to others but take blame themselves Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 15 - 19

Change Management Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 15 - 20

Evolution versus Turnaround (1) § Evolution involves continual mutations designed to ensure the survival of the fittest Ø Top management must proactively evolve the focus and strategy of the firm to take advantage of changing conditions and the advent of new technologies § Turnaround situations are where leaders seek to bring distressed organizations back from the brink of failure and set them on a healthier course Ø Example: Amex (Service Perspectives 15. 2) Ø Can be advantageous to bring in a new CEO from outside the organization Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 15 - 21

Evolution versus Turnaround (2) § Hurdles that leaders face in reorienting and formulating strategy Ø Cognitive hurdles Ø Resource hurdles Ø Motivational hurdles Ø Political hurdles § Turning around an organization that has limited resources requires concentrating those resources where the need and the likely payoffs are greatest § A firm’s search for growth often involves expansion— even diversification into new lines of business Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 15 - 22

Role Modeling Desired Behaviour § “Management by walking around” Ø Provides insights to both backstage and front-stage operations Ø The ability to observe and meet both employees and customers, and opportunity to see how corporate strategy is implemented on the front line Ø Best Practice In Action 15. 2 § This approach may lead to a recognition that changes are needed in that strategy § A risk of prominent leaders becoming too externally focused at the risk of their internal effectiveness Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 15 - 23

Leadership, Culture, and Climate (1) § Leadership traits are needed of everyone in supervisory or managerial positions, including those heading teams Ø Effective communication is essential for a leader § Organizational culture Ø Shares perceptions or themes regarding what is important in the organization Ø Shares values about what is right or wrong Ø Shares understanding about what works and what doesn’t work Ø Shares beliefs, and assumptions about why these things are important Ø Shares styles of working and relating to others Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 15 - 24

Leadership, Culture, and Climate (2) § Organizational climate Ø The tangible surface layer on top of the organization’s underlying culture Ø Factors of influence: ― Flexibility, responsibility, standards that people set, perceived aptness of rewards, clarity people have about mission and values, level of commitment to a common purpose § Creating a new climate for service, based on understanding of what is needed for market success, may require Ø Radical rethinking of HRM activities, operational procedures, and the firm’s reward and recognition policies Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 15 - 25

Summary – Chapter 15 (1) § The service-profit chain targets new investments to develop service and satisfaction levels for maximum competitive impact Ø Widens the gap between service leaders and merely good competitors § Marketing, operations and human resource management need to be integrated by reducing interfunctional conflict and setting imperatives for each function § Evolutionary change is ongoing mutation and adaptation, while turnaround is bringing an organization back from the brink of disaster § Service leaders play an essential role in fostering success by being role models, effective communications, sharing values and beliefs and creating a climate for service Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 15 - 26

Summary – Chapter 15 (2) § Strategies to move a firm toward status of world class service delivery Ø Mutual dependence among marketing, operations and human resources Ø Deliver superior value and quality Ø Marketing strategies that beat the competition Ø Viewed as trustworthy and ethical Ø Outstanding place to work Ø All actions are well coordinated Ø All managers participate in strategic planning Copyright © 2008 Pearson Education Canada Services Marketing, Canadian Edition Chapter 15 - 27