Chapter 5, Service Process DesignChapter 5, Service Process Design

INTRODUCTIONINTRODUCTIONtoto

Operations ManagementOperations Management

5e, SchroederCopyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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Chapter OutlineChapter Outline

Defining ServiceDefining Service

Service-Product BundleService-Product Bundle

Service MatrixService Matrix

Customer ContactCustomer Contact

Service Recovery and Guarantees Service Recovery and Guarantees

Globalization of ServicesGlobalization of Services

Employees and ServiceEmployees and Service

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The Shift to Services

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Services in EuropeServices in Europe

““The Service Sector accounts for about The Service Sector accounts for about 70 percent of the European economy.”70 percent of the European economy.”

Source: Wall Street Journal, 4 March 2005, p. A13Source: Wall Street Journal, 4 March 2005, p. A13

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Defining ServiceDefining ServiceKey ConceptsKey Concepts

Intangibility of the offeringIntangibility of the offering

Simultaneous production and consumptionSimultaneous production and consumption

No finished goods inventoryNo finished goods inventory

Front office vs. back officeFront office vs. back office

Difficulty in defining and measuring quality Difficulty in defining and measuring quality and productivityand productivity

Other differences between manufacturing and Other differences between manufacturing and service (service (See Table 5.1See Table 5.1))

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Service-Product BundlesService-Product Bundles

Tangible serviceTangible service (explicit service)—what (explicit service)—what the seller does for you.the seller does for you.

Psychological benefitsPsychological benefits (implicit service)— (implicit service)—how you feel about it.how you feel about it.

Physical goodsPhysical goods (facilitating goods)—what (facilitating goods)—what you can carry away.you can carry away.

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Comparison of Goods and Services (Comparison of Goods and Services (Figure 5.1Figure 5.1))

100% 75% 50% 25% 0% 100%75%50%25%

Self-service groceriesSelf-service groceries

AutomobileAutomobile

Installed carpetingInstalled carpeting

Fast-food restaurantFast-food restaurant

Gourmet restaurantGourmet restaurant

Auto maintenanceAuto maintenance

HaircutHaircut

Consulting servicesConsulting services

Goods Services

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SERVICE MATRIX (Figure 5.2)

Standard with options, usingModerately repeatable Sequence.

Co-routed•Stock brokerage

Provider Routed•ATM

Standardized with highlyrepeatable process sequence.

Highly customized with unique process sequence.

Customer Routed•Estate planning

Many process pathways, jumbled flows, complex work with many exceptions

Moderate number of process pathways. Flexible flows with some dominant paths, moderate work complexity.Limited number of process pathways. Line flows, low complexity work.

Ope

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Serv

ice

Syst

em/P

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ss D

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nCustomer Wants and Needs in the Service Package

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Customer ContactCustomer Contact

Definition of “contact”—interaction Definition of “contact”—interaction between service provider and the customer. between service provider and the customer.

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Customer Contact MatrixCustomer Contact Matrix(see Fig. 5.3)(see Fig. 5.3)

Low customer contactLow customer contact– High production efficiencyHigh production efficiency– Low sales opportunityLow sales opportunity– Workers with clerical skillsWorkers with clerical skills– Focus on paper handlingFocus on paper handling– Office automationOffice automation

High customer contactHigh customer contact– Low production efficiencyLow production efficiency– High sales opportunityHigh sales opportunity– Workers with diagnostic skillsWorkers with diagnostic skills– Focus on client mixFocus on client mix– Client/worker teamsClient/worker teams

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Customer Contact InefficiencyCustomer Contact Inefficiency

Potential Potential inefficiencyinefficiency in services is a function in services is a function of the amount of customer contactof the amount of customer contact

Why? Customer must be managedWhy? Customer must be managed– Customer determines the time in service systemCustomer determines the time in service system– Customer determines the sequence of serviceCustomer determines the sequence of service– Customer influences what happens during the Customer influences what happens during the

service and may require support services such as service and may require support services such as food and bathroomsfood and bathrooms

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Customer Contact VariabilityCustomer Contact Variability

Types of Types of VariabilityVariability induced by customers in induced by customers in service delivery:service delivery:arrival – when they arrive to consume a servicearrival – when they arrive to consume a service

request – what they ask for in the bundlerequest – what they ask for in the bundle

capability – ability of customers to participatecapability – ability of customers to participate

effort – willingness of customers to participateeffort – willingness of customers to participate

subjective preference – preferences of customers in subjective preference – preferences of customers in how service is carried outhow service is carried out

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Customer Contact DirectnessCustomer Contact Directness

High contact (High contact (front officefront office) services) services– Direct customer contactDirect customer contact– Customer has control of processCustomer has control of process

Low-contact (Low-contact (back officeback office) services) services– Out of sight of customerOut of sight of customer– Provider has control of processProvider has control of process

Goal: move non-value-added activities to Goal: move non-value-added activities to back office—why?back office—why?

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Related ConceptsRelated Concepts

Service RecoveryService Recovery

– What you do to compensate the customer for bad What you do to compensate the customer for bad

service.service.

– Fly in your soup: new bowl of soup plus free dessertFly in your soup: new bowl of soup plus free dessert

Service GuaranteeService Guarantee

– Analogous to a guarantee for a productAnalogous to a guarantee for a product

– Requires specific criteria and responsesRequires specific criteria and responses

– Pizza delivery: 30 minutes or it is free!Pizza delivery: 30 minutes or it is free!

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Technology in ServicesTechnology in Services

Contrasting Views:Contrasting Views:

Production-line approach to serviceProduction-line approach to service– StandardizationStandardization– Automation Automation

Employees are the center of service deliveryEmployees are the center of service delivery

– Technology to support front-line employeesTechnology to support front-line employees

– Value investments in employeesValue investments in employees

– Place importance on recruiting front-line employeesPlace importance on recruiting front-line employees

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Outsourcing & Offshoring of Outsourcing & Offshoring of ServicesServices

Outsourcing: having an organization outside your Outsourcing: having an organization outside your

own firm perform service activities such as own firm perform service activities such as

workforce recruiting, payroll management, workforce recruiting, payroll management,

accounting services, and call center functions.accounting services, and call center functions.

Offshoring: the export of these service activities Offshoring: the export of these service activities

to other countries.to other countries.

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Employees and ServiceEmployees and ServiceLinks in the service-profit chainLinks in the service-profit chain

(See Figure 5.4)(See Figure 5.4)

Internal service quality, leads to…Internal service quality, leads to…Employee satisfaction, leads to…Employee satisfaction, leads to…Employee retention & productivity, lead to…Employee retention & productivity, lead to…External service value, leads to…External service value, leads to…Customer satisfaction, leads to…Customer satisfaction, leads to…Customer loyalty, leads to…Customer loyalty, leads to…Revenue growth & profitability (the goal)Revenue growth & profitability (the goal)

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SummarySummary

Defining ServiceDefining Service

Service-Product BundleService-Product Bundle

Service MatrixService Matrix

Customer ContactCustomer Contact

Service Recovery and Guarantees Service Recovery and Guarantees

Globalization of ServicesGlobalization of Services

Employees and ServiceEmployees and Service

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End of Chapter Five