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The Service Economy
服務經濟Chap. 1
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Greatest labor migrationsince Industrial revolution
Nation % of WorldLabor
% Agri
% Goods
% Services
China 21.0 50 15 35
India 17.0 60 17 23
USA 4.8 2 20 78
Indonesia 3.9 45 16 39
Brazil 3.0 23 24 53
Russia 2.5 12 23 65
Japan 2.4 5 26 69
Nigeria 2.2 70 10 20
Bangladesh 2.2 63 11 26
Germany 1.4 3 28 69
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• Service operations management techniques– Service environments• Customers are present in the system• Co-create values with customers
– Traditional manufacturing
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• Service definitions– an activity or series of activities of more or less
intangible nature– normally but not necessarily, take place in
interactions between customer and service provider
– outcomes are provided as solutions to customers problems
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Role of Services in an Economy
INFRASTRUCTURE SERVICE· Communications· Transportation· Utilities· Banking
PERSONAL SERVICES· Healthcare· Restaurants· Hotels
CONSUMER(Self-service)
GOVERNMENT SERVICES· Military· Education· Judicial· Police and fire protection
DISTRIBUTION SERVICES
· Wholesaling · Retailing · Repairing
FINANCIAL SERVICES · Financing · Leasing · Insurance
MANUFACTURINGServices inside company:
· Finance· Accounting· Legal· R&D and design
BUSINESS SERVICES· Consulting· Auditing· Advertising· Waste disposal
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• Servitization (服務科學 )– Selling solutions rather than products– Products are platform to deliver a service• Automobile manufacturers
– Financing and/or leasing automobile
• Otis Elevator– After sale maintenance contracts
• Rolls-Royce– Selling “power-by-the-hour”– Instead of selling aero engines
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Stages of Economic Activity
Primary (Extractive): Agriculture, Mining, Fishing, Forestry
Secondary (Goods-Producing): Manufacturing, Processing
Tertiary (Domestic Services): Restaurants, Hotels, Laundry, Maintenance
Quaternary (Trade and Commerce): Transportation, Communications, Retailing, Finance, Government
Quinary (Extending Human Potential): Health, Education, Research, Arts, Recreation
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Trends in U.S. Employment by Sector
Agriculture:Value from
harvesting nature
Goods:Value from
making a product
Services:Value from enhancing the
capabilities and interactions among people
2012Year
Perc
ent
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Features of
pre-, industrial, post- society
Pre- Use of Standard dominant Human Unit of of Living Society Game Activity Labor Social Life Measure Structure Technology
Pre- Against Agriculture Raw Extended Sub- Routine Simple hand Industrial Nature Mining muscle household sistence Traditional tools
power Authoritative
Industrial Against Goods Machine Individual Quantity Bureaucratic Machines fabricated production tending of goods Hierarchical nature Post- Among Services Artistic Community Quality of Inter- Information industrial Persons Creative life in terms dependent Intellectual health, education, recreation
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Nature of the Service SectorDistribution of U.S. Employment, 2009
Transportation and utilities 19%
Other services 4%
Financial services6%Leisure and hospitality
9%
Health care and social assistance
11%
Professional and business services
12%
Construction5%
Manufacturing 9%
Federal government 2%
Information 2%
Agriculture and mining 2%
State and local government 13%
Self employed and unpaid family workers
6%
Educational services 2%
Retail and wholesale trade
14%
1-10
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• Service industries are the source of economic leadership– During the past 30 years, most jobs are created in
the service sector– Service industries account for 70% of national
income (USA)– More flexible in how and where work is performed
(telecommuting)– More control over your own time
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– Greater opportunity to express yourself through your work
– Ability to shape and reshape your life’s work in accordance with your values and interests
– (P.10)
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Features of Economies
Economy Agrarian Industrial Service Experience
EconomicOffering
Food Packagedgoods
Commodityservice
Consumer services
Businessservices
Function Extract Make Deliver Stage Co-create
Nature Fungible Tangible Intangible Memorable Effectual
Attribute Natural Standardized Customized Personal Growth
Method of Supply
Stored in bulk
Inventoried Delivered on demand
Revealed over time
Sustained over time
Seller Trader Producer Provider Stager Collaborator
Buyer Market Customer Client Guest Collaborator
Expectation Quantity Features Benefits Sensations Capability
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Consumer Service Experience (B2C)
Design Principles
• Theme the Experience (主題餐廳 )• Harmonize Impressions with Positive Cues
(O’Hare airport parking garage)• Eliminate Negative Cues
(Cinemark talking trash containers)• Mix in Memorabilia (Hard Rock T-shirts)• Engage all Five Senses (Mist in Rainforest)
1-14
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Business Service Experience (B2B)
Design Principles• Co-creation of value– Customer is an input to the service process– Customer is a coproducer of the value extracted
from the relationship• Relationships– Source of innovation and differentiation– Ability to tailor the service offering to customer’s
needs
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• Service capability– Provide service capability to meet fluctuation in
demand while retaining quality of service– Quality of service is measured primarily from the
perspective of the customer
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Typology of Services Experiences
Core Experience Essential Feature Examples
Creative Present ideas Advertising, theater
Enabling Act as intermediary Transportation, communications
Experiential Presence of customer Massage, theme park
Extending Extend and maintain Warranty, health check
Entrusted Contractual agreement Service/repair, portfolio mgt.
Information Access to information Internet search engine
Innovation Facilitate new concepts R&D services, product testing
Problem solving Access to specialists Consultants, counseling
Quality of life Improve well-being Healthcare, recreation, tourism
Regulation Establish rules and regulations Environment, legal, patents
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Foundation Premises of Service-Dominant Logic
1. Service is the fundamental basis of exchange.applying competence (knowledge and skills) for the benefits
of another party
2. Service delivery process is complex and has many intermediary (e.g. Internet)
3. Goods are distribution mechanisms for service provision.4. Operant resources are the source of competitive
advantageintellectual capital, skills, and knowledge
5. All economies are service economies.
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Foundation Premises of Service-Dominant Logic
6. The customer is always a co-creator of value.7. A service is only a capacity to create value upon
customer activation.e.g. a seat on an airplane.
8. Service exchange necessarily must become customer-focused.
9. Value is created when customer integrate and applies resources of the service provider
e.g. using PayPal to make a purchase on eBay.
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Foundation Premises of Service-Dominant Logic
10. Value is uniquely determined by the customerbased on personal needs
at the specific timee.g. quick lunch or dinner party
in the particular contexte.g. alone or in a group
as an experience
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Distinctive Characteristics of Service Operations
• Customer participation in the service process– Attention to facility design
Front office:• Interior decorating, furnishing, layout, noise, and colorBack office:• Open back office to promote confidence in the service
– Restaurant provides a view of kitchen– Auto repairs bays can be observed through windows
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– Customer play an active part• Knowledge, experience, motivation, and even the
honesty of the customer all directly affect service performance– The popularity of supermarkets and discount stores is based
on customers are willing to assume an active role– The education of a student is determined largely by the
student’s own effort and contributions
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– Customer as temporary employee• Opportunity for co-productionFast food restaurants
– Customer place order from a limited menu– Clean their table after the mealCustomer expect– Fast service & less expensive mealsService provider benefits– Fewer personnel required– Labor provided just in time
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• SimultaneityServices are created and consumed simultaneously– Closed system: manufacturing• Use inventory to absorb the fluctuation of demand• Factory can operate at a constant level of output
– Open system: service• Demand variations directly transmit to the system• Customers waits or queue• Opportunity for personal selling
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• PerishabilityOpportunity loss of idle capacity– An empty airline seat– An unoccupied hotel room– Demand variation considerably• Lunch between noon to 1• Theme park peak during summer
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– Options to manage time-perishable capacity• Smooth demand by
– Using reservation or appointments– Provide price incentives– Demarketing peak time
• Adjust service capacity by– Using part time help– Schedule work shifts according demand forecast– Increase the customer self-service content
• Allow customer to wait
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• IntangibilityService is idea and concept; product is thing.– No patent protection• To secure the benefits of novel service concept
– Expand extremely rapid and preempt any competitors– Franchising
» Harvard business school, case study » 7-11» Costco» 同款、不同師傅
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– Challenge for customers• No opportunity to test service before buying
– Rely on reputation of service provider
• Government consumers protection– Registration, licensing, regulation– GMP– AASCB– Drawbacks
» Stifling innovation, raising barriers to entry, reducing competition
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• HeterogeneityResults of service delivery system varies from
customer to customer– Service is intangible– Customer co-production• Create more satisfying human work experience
– 導演、演員– Introduction of self-service technology• Eliminating routine impersonal tasks• Permitting personal attention to the remaining work
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– To ensure consistency of service quality• Develop standards• Employee train in proper procedures• Customer feedback
– Direct customer-employee contact• Hotel industry
– Difficult to have happy customers with unhappy employees– Require genuine concern for employee welfare
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• Nontransferrable ownershipCustomers do not receive ownership when purchase
service– Gain access of resources for a period of time• Hotel room for a night• A seat on an airplane• Human skill (e.g. dentist)• Technology (cellular network)• Physical asset (theme park)
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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
Place and space rental
Obtain exclusive use of portion of a larger space
Hotel room, seat on airplane, storage unit
Housekeeping , economies of scale
Labor and expertise Hire other people to do a job
Car repair, surgery, management consulting
Renew Expertise, time is perishable
Physical facility usage
Gain access to a facility for a period of time
Theme park, camp ground, physical fitness gym
Queuing and crowd control
Network usage Gain access to participate Electric utility, cell phone, internet
Availability and pricing decisions
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Service Package:bundle of goods and service to deliver value
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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 items
provided by the consumer. – Examples are food items, legal documents, golf
clubs, medical history.
1-34
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The Service Package (cont.)
• Information: – Operations data or information that is provided by
the customer to enable efficient and customized service.
– Examples are patient medical records, seats available on a flight, customer preferences, location of customer to dispatch a taxi.
1-35
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The Service Package (cont.)
• Explicit Services: – Benefits readily observable by the senses. The
essential or intrinsic features. – Examples are quality of meal, attitude of the waiter,
on-time departure.• Implicit Services: – Psychological benefits or extrinsic features which
the consumer may sense only vaguely. – Examples are privacy of loan office, security of a well
lighted parking lot.
1-36
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• The service package of a Budget Hotel– Supporting facility:– Facilitating goods:– Information:– Explicit services:– Implicit services:
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The Service Process Matrixgrouping service by delivery process
Degree of Interaction and Customization Low High
Service Factory Service Shop
* Airlines * Hospitals
Low * Trucking * Auto repair
* Hotels * Other repair services
* Resorts and recreation
Mass Service Professional Service
* Retailing * Doctors
High * Wholesaling * Lawyers
* Schools * Accountants
* Retail banking * Architects
1-38
Degree of Labor Intensity
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The Service Process Matrixgrouping service by delivery process
Degree of Interaction and Customization Low High
Service Factory Service Shop
* Airlines * Hospitals
Low * Trucking * Auto repair
* Hotels * Other repair services
* Resorts and recreation
Mass Service Professional Service
* Retailing * Doctors
High * Wholesaling * Lawyers
* Schools * Accountants
* Retail banking * Architects
1-39
Degree of Labor Intensity
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Challenge for service management
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Open Systems View of Services
1-41
Frontoffice
Backoffice
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Mini Case
• Village Volvo– P.25
• Xpresso Lube– P. 26