role of service in an economy

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ROLE OF SERVICE IN AN ECONOMY

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Page 1: role of service in an economy

ROLE OF SERVICE IN AN ECONOMY

Page 2: role of service in an economy

WHAT IS OPERATIONS?

• The transformation process that turns inputs into outputs, that is, the act of combining people, raw materials, technology, etc. into useable services and products

• Who are in the operations function?• The people who actually make a product or

perform a service

• Typically operations has the largest number of employees of any functional area

Page 3: role of service in an economy

BUT I’M GOING INTO MARKETING, FINANCE, STRATEGY…

• Regardless of your functional area, you will be involved in “transformational processes”, in other words, “getting things done”

• Service operations can help you get things done more effectively and more efficiently.

Page 4: role of service in an economy

SERVICE DEFINITIONS

Services are deeds, processes, and performances.

Valarie Zeithaml & Mary Jo Bitner

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

James Fitzsimmons

Page 5: role of service in an economy

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.

James Fitzsimmons

Page 6: role of service in an economy

ROLE OF SERVICES IN AN ECONOMY

Page 7: role of service in an economy

WHY STUDY SERVICE OPERATIONS?

• Service firms are a large percentage of the economies of industrialized nations

• 80% of the US economy (employment and GDP)

• Gain a competitive edge. There is little focus on services in the academic world

• Not all management tools that are appropriate for manufacturing are transferable into a service environment

Page 8: role of service in an economy

Chapter 1 - Services in the Economy

HISTORICAL US EMPLOYMENT BY ECONOMIC SECTOR

Page 9: role of service in an economy

PERCENT SERVICE EMPLOYMENT FOR SELECTED NATIONS

Country 1980 1987 1993 2000 United States 67.1 71.0 74.3 74.2 Canada 67.2 70.8 74.8 74.1 Israel 63.3 66.0 68.0 73.9 Japan 54.5 58.8 59.9 72.7 France 56.9 63.6 66.4 70.8 Italy 48.7 57.7 60.2 62.8 Brazil 46.2 50.0 51.9 56.5 China 13.1 17.8 21.2 40.6

Page 10: role of service in an economy

TRENDS IN U.S. EMPLOYMENT BY SECTOR

0

10

20

30

40

50

60

70

80

90

Pro

po

rta

tion

of to

tal em

plo

yem

en

t

Year

Service

Manufacturing

Agriculture

Page 11: role of service in an economy

STAGES OF ECONOMIC DEVELOPMENT

Society Game

Pre- dominant activity

Use of human labor

Unit of social life

Standard of living measure Structure Technology

Pre- Industrial

Against Nature

Agriculture Mining

Raw muscle power

Extended household

Sub- sistence

Routine Traditional Authoritative

Simple hand tools

Industrial Against fabricated nature

Goods production

Machine tending

Individual Quantity of goods

Bureaucratic Hierarchical

Machines

Post- industrial

Among Persons

Services Artistic Creative Intellectual

Community Quality of life in terms of health, education, recreation

Inter- dependent Global

Information

Page 12: role of service in an economy

CHARACTERISTICS OF SERVICES …

• Rules:• Services are intangible• Simultaneous production

and consumption• Proximity to the customer• Services cannot be

inventoried

• Exceptions:• Facilitating goods:

playbills, groceries• Computer system

upgrades; janitorial services

• Internet-based services; catalogs

• Retailers hold inventory; hotel rooms, airline seats are inventory

Page 13: role of service in an economy

INPUTSMaterialsEquipmentCustomersStaffTechnologyFacilities

PROCESS

SERVICE OPERATION

Operation

Goods and services

OUTPUTS

Figure: The service operation

Page 14: role of service in an economy

EXPERIENCE

OUTCOMESValue

EmotionsJudgements

Intentions

SERVICE PRODUCT

Customer

INPUTSTimeEffortCost

Figure: Service = experience + outcome

Page 15: role of service in an economy

INPUTSMaterialsEquipmentCustomersStaffTechnologyFacilities

PROCESS

SERVICE OPERATION

EXPERIENCE

OUTCOMESValue

EmotionsJudgements

Intentions

SERVICE PRODUCTCustomer

Operation

Figure: Managing service and service operations

Page 16: role of service in an economy

BUSINESS DECISIONS & INTEGRATIVE ELEMENTS

Page 17: role of service in an economy

PERCEIVED DIFFERENCES BETWEEN MANUFACTURING AND SERVICES

Page 18: role of service in an economy

Low High

High

Low

Capability

Commodity

Complexity

Simplicity

Process variety

Volume per unit

Increasing process definition

Decreasing unit costs

Many processes lie close to this

capability-comm

odity spectrum

Figure: Four main types of service processes

Page 19: role of service in an economy

THE NEW EXPERIENCE ECONOMY

Economy Agrarian Industrial Service Experience

Function Extract Make Deliver Stage

Nature Fungible Tangible Intangible Memorable

Attribute Natural Standardized Customized Personal

Method of supply

Stored in bulk

Inventoried Delivered on demand

Revealed over time

Seller

Trader

Manufacturer

Provider

Stager

Buyer

Market

User

Client

Guest

Page 20: role of service in an economy

THE FOUR REALMS OF AN EXPERIENCE

Customer Participation

Passive Active

Environmental

Absorption Entertainment (Movie): least involved level of experience

Education (Language)

Relationship Immersion Esthetic (Tourist)

Escapist (Scuba Diving): requires the most commitment from the customer

Page 21: role of service in an economy
Page 22: role of service in an economy

EXPERIENCE DESIGN PRINCIPLES

• Theme the Experience (Forum shops in Las Vegas that are decorated with Roman columns and where the salespeople wear togas)

• Harmonize Impressions with Positive Cues(O’Hare airport parking garage, each floor is painted with a distinctive colour and unique music – hard rock on the first floor and classical on the second)

Page 23: role of service in an economy

EXPERIENCE DESIGN PRINCIPLES

• Eliminate Negative Cues(Cinemark (Austin, Texas) talking trash containers that says ‘thank you’ when an item s discarded )

• Mix in Memorabilia (Hard Rock T-shirts or group pictures of vacationers)

• Engage all Five Senses (Jungle sounds and mist in the air at the Rainforest Café in Las Vegas)

Page 24: role of service in an economy

Service value:• All-inclusive price• Car parking is extra• Expensive ticket but well worth it• Few additional costs• Food reasonably priced• Overall excellent value for money

Service operation:• Good signage to the park• Large car parks• Clear site maps• Different queuing systems• Range of food outlets• Over 100 rides and attractions

Organising idea: A great day out at a theme park

Organisation: Alton Towers, Staffordshire, UK

Service outcome:• Great day out• Fun time• Thrilling rides• Never a dull moment• Great experience with friends/family• Exhausting

Service experience:• Quick and easy to buy ticket• Exhilarating and entertaining• Fun and lively, for all ages• Range of attractions• Plenty of food and drinks• Long queues for main rides at peak

Service concept (summary): A UK theme park that provides an inclusive package of over 100 rides and attractions to suit all ages and tastes with thrills, fun, fantasy, fast food, historic heritage and magnificent gardens.

Figure: Alton Towers’ service concept

Page 25: role of service in an economy

SOURCES OF SERVICE SECTOR GROWTH

• InnovationPush theory (e.g. 3M, Post-it, discovery of a poor adhesive translated into a glue for notes for temporary attachment; www as a place of commerce is changing the delivery of services)Pull theory (e.g. Cash Management Account introduced by Merrill Lynch(during the period of high interest rates in the 1980s, a need arose to finance short-term corporate cash flows, and individual investors were interested in obtaining an interest rate that was higher than those currently available on passbook bank deposits); after the French Revolution, the chefs employed by the dispossessed nobles opened their own restaurants)Services derived from products (Video Rental creating a renewed demand for old movies)

Page 26: role of service in an economy

SOURCES OF SERVICE SECTOR GROWTH

• Innovation (contd.) • Information driven services (records of sales by

auto parts stores can be used to identify frequent failure areas in particular models of cars – the information having value both for the manufacturer who can accomplish engineering changes, and the retailer who can diagnose customer problems)Difficulty of testing service prototypes, providing a partial explanation for the high failure rate of service innovations, particularly in retailing and restaurants, (Burger King mock restaurant in Miami, beta versions of software)

Page 27: role of service in an economy

SOURCES OF SERVICE SECTOR GROWTH

• Social Trends Aging of the population(in USA, the Traveller’s Insurance Company has developed a Retirement Job Bank of its retired employees to fill-in during hard times)

• Two-income families(day-care, pres-school, home delivery, eating out services)

• Growth in number of single people (recreational sports and other group-oriented activities will be in demand) All these social trends support the notion that Home will become a sanctuary for people in future (with IT-enabled connectivity in various forms)

Page 28: role of service in an economy

Service delivery

Customer relationships

Performance management

Supplier relationships

Strategy

Service concept

Page 29: role of service in an economy

THE SERVICE MANAGEMENT SYSTEM (BASED ON NORMAN, 2000)

Page 30: role of service in an economy

THE MANUFACTURING-SERVICE INTERFACE IN THE OFFER TO THE CUSTOMER

Page 31: role of service in an economy

NORMAN’S ICERBERG PRINCIPLE IN SERVICE OPERATIONS