NEW SERVICE DEVELOPMENT Chapter 3 Mc GrawHillIrwin Copyright

NEW SERVICE DEVELOPMENT Chapter 3 Mc. Graw-Hill/Irwin Copyright © 2014 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

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. 3 -2

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 3 -3

Distribution of GDP in the US Economy Product Services A Physical B 6% Information 10% 31% 37% 53% 63% C D 16% 84% A = Physical Product, B= Physical Service, C= Digital Product, D= Information Service 3 -4

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. 3 -5

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. 3 -6

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 Feeling of grandeur/spaciousness Enclosed sports stadium 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 3 -7

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 3 -8

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 3 -9

New Service Development Cycle 10 • Full-scale launch • Post-launch review Full Launch ga n Co izatio nte na l xt Or s am Design People Te • Service design and testing • Process and system design and testing • Marketing program design and testing • Personnel training • Service testing and pilot run • Test marketing Development Enablers Product Technology • Formulation of new services objective / strategy • Idea generation and screening • Concept development and testing Systems Tools Analysis • Business analysis • Project authorization 3 -10

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 3 -11

Customer Value Equation 3 -12

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 3 -13

Structural Alternatives for a Restaurant LOWER COMPLEXITY/DIVERGENCE No Reservations Self-seating. Menu on Blackboard Eliminate Customer Fills Out Form Pre-prepared: No Choice CURRENT PROCESS TAKE RESERVATION SEAT GUESTS, GIVE MENUS SERVE WATER AND BREAD TAKE ORDERS Salad Bar Limit to Four Choices Entree (6 choices) Sundae Bar: Self-service Dessert (6 choices) Coffee, Tea, Milk only Serve Salad & Entree Together: Bill and Beverage Together Cash only: Pay when Leaving Beverage (6 choices) SERVE ORDERS CASH OR CREDIT CARD HIGHER COMPLEXITY/DIVERGENCE 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 3 -14

Service Blueprint of Luxury Hotel F F = Possible Fail Point F 3 -15

Taxonomy of Service Processes 3 -16

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 3 -17

100 Yen Sushi House Layout Dishwashing Counter in Back CONVERSATION AREA Miso and Tea Station CONVEYOR BELT CONVERSATION AREA TAKE-OUT POSITION ENTRANCE = CHEF 3 -18

100 Yen Sushi House Questions Prepare a service blueprint for the 100 Yen Sushi House. 2. What features differentiate 100 Yen Sushi House and how do they create a competitive advantage? 3. How has the 100 Yen Sushi House incorporated the just-in-time system into its operations? 4. Suggest other services that could adopt the 100 Yen Sushi House service delivery concept. 1. 3 -19

COMMUTER CLEANING A New Venture Proposal 3 -20

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. 3 -21

Service Blueprint 3 -22

Breakeven Analysis Fixed Expenses = (Demand)*(Price -Charge) $13, 404 = 20, 000*(Price - 0. 50) Price = (13, 404 + 10, 000)/20, 000 = $1. 17 3 -23

AMAZON. COM Winning the Online Book Wars 3 -24

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) 3 -25

Online Book Buying Experience • Convenience • Browsing experience • Searching • Editorial content • Delivery • Payment • Recommendations 3 -26

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 3 -27

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) 3 -28

Amazon’s Challenges • Operations (Barnes & Noble - 2% margins) • International expansion • Brand extension into online music sales • Backward integration into self-publishing 3 -29

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? 3 -30

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? 3 -31

Interactive Class Exercise The class breaks into small groups and prepares a service blueprint for Village Volvo. 3 -32