role of service in an economy
TRANSCRIPT
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
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.
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
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
ROLE OF SERVICES 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
Chapter 1 - Services in the Economy
HISTORICAL US EMPLOYMENT BY ECONOMIC SECTOR
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
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
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
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
INPUTSMaterialsEquipmentCustomersStaffTechnologyFacilities
PROCESS
SERVICE OPERATION
Operation
Goods and services
OUTPUTS
Figure: The service operation
EXPERIENCE
OUTCOMESValue
EmotionsJudgements
Intentions
SERVICE PRODUCT
Customer
INPUTSTimeEffortCost
Figure: Service = experience + outcome
INPUTSMaterialsEquipmentCustomersStaffTechnologyFacilities
PROCESS
SERVICE OPERATION
EXPERIENCE
OUTCOMESValue
EmotionsJudgements
Intentions
SERVICE PRODUCTCustomer
Operation
Figure: Managing service and service operations
BUSINESS DECISIONS & INTEGRATIVE ELEMENTS
PERCEIVED DIFFERENCES BETWEEN MANUFACTURING AND SERVICES
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
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
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
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)
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)
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
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)
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)
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)
Service delivery
Customer relationships
Performance management
Supplier relationships
Strategy
Service concept
THE SERVICE MANAGEMENT SYSTEM (BASED ON NORMAN, 2000)
THE MANUFACTURING-SERVICE INTERFACE IN THE OFFER TO THE CUSTOMER
NORMAN’S ICERBERG PRINCIPLE IN SERVICE OPERATIONS