Transcript The Nature of Services - Middle East Technical University

The Nature of Services
Proportion of Goods and Services
in Purchase Bundle
Goods
Services
100%
75
50
25
0
25
50
75
100%
Self-service gasoline…………….
Personal computer……………
Office copier………………….
Fast-food restaurant…………
Gourmet restaurant…………
Auto repair……………………
Airline flight…………………….
Haircut………………………….
The Service Process Matrix
Degree
Degree of Interaction and Customization
of labor Intensity
Low
High
Low
High
Service factory:
* Airlines
* Trucking
* Hotels
* Resorts and recreation
Service shop:
* Hospitals
* Auto repair
* Other repair services
Mass service:
* Retailing
* Wholesaling
* Schools
* Retail aspects of
commercial banking
Professional service:
* Doctors
* Lawyers
* Accountants
* Architects
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
purchased or consumed by the buyer or
items provided by the consumer.
Examples are food items, auto parts,
legal documents, golf clubs.

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.

From pure to quasi-manufacturing
services
Pure service: high contact
 Mixed service: medium contact (frontoffice)
 Quasi-manufacturing: low contact
(boundary functions and technical core)
 Degree of contact influences time of
demand and the exact nature of the
service

Degree of contact and management
decisions



High
Location: near
customer
Layout: customer
physical, psychological
needs and expectations
Product Design:
environment as well as
physical product



Low
Near supply,
transport, labor
Enhance production
Product defined by
fewer attributes
Degree of contact and management
decisions (cont)



High
Process design:
stages have direct,
immediate effect
Scheduling: customer
is in the schedule,
immediate service
Production planning:
orders cannot be
stored



Low
Customer not
involved in majority
of steps
Customer
concerned with
completion dates
Backlogging and
smoothing are
possible
Degree of contact and management
decisions (cont)



High
Worker skills: PR
Quality: variable
standards and
expectations
Time standards:
depends on customer
needs, loose

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
Low
Technical skills
Standards
measurable and
fixed
Time can be known
Degree of contact and management
decisions (cont)



High
Wages: variable o/p,
time based wage
systems
Capacity Planning:
meet peak demand
Forecasting: shortterm, time oriented



Low
Fixed o/p, output
based wage
systems
Storable output,
average demand
Long term, o/p
oriented
http://www.businessweek.com/2000/00_43/b3704001.htm
Degree of contact and management
decisions (cont)
HC systems have more uncertainty in
day to day operations
 It is only by chance that capacity will
match demand
 Workforce is a signficant PR component
 HC systems are at the mercy of time

Degree of contact and management
decisions (cont)
Implications for management
 Rationalization is difficult: many factors
affect the ultimate quality of the service
experience
 Distinction should be made between
high and low contact elements
 Development of 2 types of worker skills
Unique Characteristics of Services

Customer presence: uncertainty on
service time, workforce needed, quality
of service and operating costs.
• Attention to facility design and layout
• Routing the customer through the service
system
• Employee job design
• Customer job design
– customer expects faster and cheaper service
– manager employs customer to acieve higher
capacity utilisation
Unique Characteristics of Services

Intangibility:
• Customer doesn’t know what level of
service s/he will be getting (only minimum
levels may be guaranteed through
registration, licencing, regulations)
• Management must identify particular needs
and use creative advertising to emphasise
abstract benefits
• Importance of reputation
Unique Characteristics of Services

No patent protection: short life cycles for
innovations; quick response to
competitive pressure
• Capture market share as quickly as
possible
• Clear definition of service package,
geographic area covered, standard facility
design, trademarks to define uniqueness
• Barriers to entry
Unique Characteristics of Services

Simultaneity: non-inventoriable output
• Inability to absorb fluctuations in demand
– Manufacturing inventory decouples operations
– Services decoupling is through customer
waiting
– Inventory control – queue control
• Capacity, facility utilisation, idle time
balanced against customer waiting time
– Capacity surrogate to inventory
– Cost of idle capacity – inventory holding cost
– Lack of capacity – stock out
Unique Characteristics of Services

Simultaneity (cont)
• Interaction creates customer perceptions of
quality; eliminates opportunites for QC
– Limit discretion of employees
– Standardised procedures
• Limited geographic area
• Opportunities for promotional strategies,
personal selling
Unique Characteristics of Services

Time-dependant demand: customer
demand and arrival patterns difficult to
forecast (cyclical, seasonal)
• Perishability of demand: cannot inventory,
opportunity loss of idle capacity, need to match
supply with demand
• Strategies to cope with variability:
– Automation (affects pricing, service time,market
positioning, maintenance, layout, workforce),
Overlapping shifts, Price incentives, Reservations
and appointments, Customer self-service
Unique Characteristics of Services

Heterogeneity: variability in output
• Due to customer presence and intangibility
• Difficult to establish and meet standards each
time
• Training employees (Hamburger University)
• Field inspection
Unique Characteristics of Services
Difficulty in measuring output (number of
customers) and evaluating performance
(maximizing profit)
 Labor intensiveness

• Customer/worker interface –
marketing/production interface
• Direct worker affects perceived value of service
– Production as well as marketing skills
– Worker scheduling, training, incentives
Unique Characteristics of Services

Site and size dictated by customer
• Limited economies of scale
• Control of decentralised operations (multi-site
management)
– Standardise service package
– Extra layers of management
– Automate back room operations

Resilence to economic cycles: recession
proof?
Unique Characteristics of Services

International transportability
•
•
•
•
•
•
•
Legal restrictions
Advertisability
Adequate channels of distribution
Cultural, social norms
Political stability
Distance
Language
Service Process Orientation
Customer as Coproducer
 Front and Back Office Perspectives
 Service Profit Chain Focus on Internal
and External Customers
 Quality (perceptions vs expectations)
 Focus on Both Efficiency and
Effectiveness
 Use IT as an Enabler for Both Internal
and External Customers

Strategic Service Classification
(Nature of the Service Act)
Direct Recipient of the Service
Nature of
the Service Act
Tangible actions
People
People’s bodies:
Health care
Passenger transportation
Freight transportation
Equipment repair and maintenance
Beauty salons
Exercise clinics
Restaurants
Haircutting
Veterinary care
Janitorial services
Laundry and dry cleaning
Landscaping/lawn care
People’s minds:
Intangible actions
Things
Physical possessions:
Intangible assets:
Education
Banking
Broadcasting
Information services
Theaters
Museums
Legal services
Accounting
Securities
Insurance
Different forms of delivery or substitutes? DVD, online courses, ATM
affect: location, facility design, business hours
Strategic Service Classification
(Relationship with Customers)
Type of Relationship between Service Organization and Its Customers
Nature of
Service Delivery
“Membership” relationship
No formal relationship
Continuous delivery
of service
Discrete transactions
Insurance
Telephone subscription
Radio station
Police protection
College enrollment
Lighthouse
Banking
American Automobile association
Public Highway
Long-distance phone calls
Theater series subscription
Restaurant
Mail service
Commuter ticket or transit pass
Sam’s Wholesale Club
Egghead computer software
Toll highway
Movie theater
Public transportation
Strengthen membership relation? Shop & miles, OGS
Membership affects competitive advantage (knowing the customer), customer loyalty (frequent
flyer awards)
Strategic Service Classification
(Customization and Judgment)
Extent to Which Service Characteristics Are Customized
Extent to Which Personnel
Exercise Judgment in Meeting
Customer Needs
High
Low
Professional services
Surgery
Taxi services
High
Low
Education (large classes)
Preventive health programs
College food service
Beautician
Plumber
Gourmet restaurant
Telephone service
Hotel services
Public transportation
Routine appliance repair
Retail banking (excl. major loans)
Family restaurant
Movie theater
Spectator sports
Fast-food restaurant
More customization? Multiple screens in cinema, no ketchup in burger
Which quadrant is a strategic choice and affects service delivery system
Strategic Service Classification
(Nature of Demand and Supply)
Extent of Demand Fluctuation over Time
Extent to which Supply
Is Constrained
Peak demand can
usually be met
without a major delay
Peak demand regularly
exceeds capacity
Wide
Narrow
Electricity
Insurance
Natural gas
Legal services
Telephone
Banking
Hospital maternity unit
Police and fire emergencies
Laundry and dry cleaning
Accounting and tax preparation
Services similar to those above
Passenger transportation
but with insufficient capacity
Hotels and motels
Restaurants
for their base level of
business
How to manage demand? How to control supply? Nature of fluctuation, cause
Strategic Service Classification
(Method of Service Delivery)
Availability of Service Outlets
Nature of Interaction
between Customer and
Service Organization
Single site
Multiple site
Customer goes to
service organization
Theater
Bus service
Barbershop
Fast-food chain
Service organization
comes to customer
Lawn care service
Mail delivery
Pest control service
Taxi
AAA emergency repairs
Credit card company
Broadcast network
Customer and service
organization transact at
arm’s length (mail or
electronic communications)
IT/IS more customized service, efficient,
Affects location, quality, consistency
Local TV station
Telephone company
Open Systems View of Service
Operations
Service Process
Consumer arrivals
(input)
Consumer participant
Consumer-Provider
interface
Control
Customer demand
Perceived needs
Location
Consumer
Evaluation
departures
( output)
Criteria
Measurement
Monitor
Service operations manager
Production function:
Alter
Monitor and control process
Schedule
demand Marketing function:
supply
Interact with consumers
Control demand
Modify as necessary
Define standard
Communicate
by advertising
Service package
Supporting facility
Facilitating goods
Explicit services
Implicit services
Basis of
selection
Service personnel
Empowerment
Training
Attitudes
Topics for Discussion
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What are the characteristics of services that will be
most appropriate for Internet delivery?
When does collecting information through service
membership become an invasion of privacy?
What are some management problems associated
with allowing service employees to exercise
judgement in meeting customer needs?
What factors are important for a manager to consider
when attempting to enhance a service firm’s image?