Tips of Studying
•
•
•
•
•
•
Know the key terms and definitions at the end
of each chapter.
Pay attention to examples, figures and tables.
Study the three team assignments and
presentations.
Go over the mid-term.
Practice using a calculator for control chart
formulas.
Study with others.
Chapter 1
What is the role of services in an
economy?
Service Definition
A service is a time-perishable,
intangible experience performed for a
customer acting in the role of a coproducer.
Role of Services in an Economy
90
80
70
60
50
40
30
20
10
Year
19
90
19
70
19
50
19
30
19
10
18
90
18
70
0
18
50
Proportation of total employement
Trends in U.S. Employment by
Sector
Service
Manufacturing
Agriculture
Stages of Economic
Development
Predominant
activity
Use of
human Unit of
labor
social life
Standard
of living
measure Structure
Agriculture
Mining
Raw
Extended
muscle household
power
Subsistence
Routine
Simple hand
Traditional tools
Authoritative
Industrial Against Goods
fabricated production
nature
Machine Individual
tending
Quantity
of goods
Bureaucratic Machines
Hierarchical
PostAmong
industrial Persons
Artistic Community Quality of
InterInformation
Creative
life in terms dependent
Intellectual
of health, Global
education,
recreation
Society
Game
PreAgainst
Industrial Nature
Services
Technology
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
Absorption Entertainment Education
(Movie)
(Language)
Environmental
Relationship
Immersion Esthetic
(Tourist)
Escapist
(ScubaDiving)
Experience Design Principles
•
•
Theme the Experience
Forum shops
Harmonize Impressions with Positive Cues
O’Hare airport parking garage
•
Eliminate Negative Cues
cinemark talking trash containers
•
•
Mix in Memorabilia
Engage all Five Senses
Hard Rock T-shirts
Mist in Rainforest
Source of Service Sector Growth
•
Innovation
Push theory
New discovery, Post-it
Pull theory
changing demographic, interest rates
Services derived from products
Video Rental
Information driven services
statement of transaction for tax prep
Difficulty of testing service prototypes
focus group
•
Social Trends
Aging of the population
Two-income families
Growth in number of single people
Home as sanctuary
Chapter 2
How do you categorize a service?
Service/Product Bundle
Element
Business
Core Goods
Example
Custom clothier
Core Service
Example
Business hotel
Core
Business suits
Room for the night
Peripheral
Goods
Peripheral
Service
Variant
Garment bag
Bath robe
Deferred payment
plans
In house restaurant
Coffee lounge
Airport shuttle
The Service Package
1. Supporting Facility
Examples are golf course, ski lift, hospital, airplane.
2. Facilitating Goods
Examples are food items, legal documents, golf clubs, medical history.
3. Information
Examples are patient medical records, seats available on a flight, customer
preferences, location of customer to dispatch a taxi.
4. Explicit Services
Examples are quality of meal, attitude of the waiter, on-time departure.
5. Implicit Services
Examples are privacy of loan office, security of a well lighted parking lot.
Distinctive Characteristics of Services
•
•
•
•
•
Customer Participation
Simultaneity
Perishability
Intangibility
Heterogeneity
The Service Process Matrix
Degree of Interaction and Customization
Low
Degree
of labor Intensity
High
Low
Service factory:
* Airlines
* Trucking
* Hotels
* Resorts/ recreation
Mass service:
* Retailing
* Wholesaling
* Schools
* Retail aspects of
commercial banking
High
Service shop:
* Hospitals
* Auto repair
* Other repair services
Professional service:
* Doctors
* Lawyers
* Accountants
* Architects
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
Beauty salons
Exercise clinics
Restaurants
People’s minds:
Intangible actions
Education
Broadcasting
Information services
Theaters
Museums
Things
Physical possessions:
Freight transportation
Repair and maintenance
Veterinary care
Janitorial services
Laundry and dry cleaning
Intangible assets:
Banking
Legal services
Accounting
Securities
Insurance
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
Electric Utility
Banking
Long-distance phone calls
Theater series tickets
Transit pass
Sam’s Wholesale Club
Airline frequent flyer
Radio station
Police protection
Lighthouse
Public Highway
Restaurant
Pay phone
Toll highway
Movie theater
Public transportation
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
Telephone
Legal services
Police emergency
Banking
Hospital maternity unit
Laundry and dry cleaning
Tax preparation
Fast food restaurant
Passenger transportation
Movie theater
Hotels and motels
Gas station
Strategic Service Classification
(Method of Service Delivery)
Availability of Service Outlets
Nature of Interaction
between Customer and
Service Organization
Single site
Multiple site
Customer travels to
service organization
Theater
Bus service
Barbershop
Fast-food chain
Service provider
travels to customer
Taxi
Mail delivery
Pest control service
AAA emergency repairs
Credit card company
Broadcast network
Local TV station
Telephone company
Transaction is at
arm’s length
Open Systems View of Services
Service Process
Consumer arrivals
(input)
Consumer participant
Consumer-Provider
interface
Control
departures
( output)
Production function:
Alter
Monitor and control process
demand
Marketing function:
Interact with consumers
Control demand
Modify as necessary
Define standard
Communicate
by advertising
Service package
Supporting facility
Facilitating goods
Explicit services
Implicit services
Evaluation
Criteria
Measurement
Monitor
Service Operations Manager
Customer demand
Perceived needs
Location
Consumer
Service personnel
Schedule
supply
Basis of
selection
Empowerment
Training
Attitudes
Chapter 3
What is a service strategy?
Strategic Service Vision Elements
1.
Target Market Segment What are common
2.
Service Concept How do customers perceive the
3.
Operating Strategy What are important
4.
Service Delivery System What are
characteristics of important market segments?
service concept?
elements of the strategy: operations, financing, marketing,
organization, human resources, control?
important features of the service delivery system including:
role of people, technology, equipment, layout, procedures?
Competitive Environment of Services
•
•
•
•
•
•
•
•
Relatively Low Overall Entry Barriers
Economies of Scale Limited
High Transportation Costs
Erratic Sales Fluctuations
No Power Dealing with Buyers or Suppliers
Product Substitutions for Service
High Customer Loyalty
Exit Barriers
Competitive Service Strategies
1.
2.
3.
Overall Cost Leadership
Differentiation
Focus
Overall Cost Leadership
•
•
•
•
•
Seeking Out Low-cost Customers
Standardizing a Custom Service
Reducing the Personal Element in Service
Delivery (promote self-service)
Reducing Network Costs (hub and spoke)
Taking Service Operations Off-line
Differentiation
•
•
•
•
•
Making the Intangible Tangible (memorable)
Customizing the Standard Product
Reducing Perceived Risk
Giving Attention to Personnel Training
Controlling Quality
Note: Differentiation in service means being unique in
brand image, technology use, features, or reputation for
customer service.
Focus
•
Buyer Group: (e.g. USAA insurance and
military officers)
•
Service Offered: (e.g. Shouldice Hospital and
hernia patients)
•
Geographic Region: (e.g. Austin Cable Vision
and TV watchers)
Customer Criteria for Selecting
a Service Provider
1.
2.
3.
4.
5.
Availability
Convenience
Dependability
Personalization
Price
6.
7.
8.
9.
Quality
Reputation
Safety
Speed
Service Purchase Decision
•
Service Qualifier: Just to be considered.
•
Service Winner: Used to make the final
choice.
•
Service Loser: Failure to deliver.
Competitive Role of Information
in Services
Strategic Focus
Competitive Use of Information
On-line
Off-line
(Real time)
(Analysis)
Creation of barriers to entry: Data base asset:
External Reservation system
Selling information
(Customer) Frequent user club
Development of services
Switching costs
Micro-marketing
Revenue generation:
Productivity enhancement:
Internal Yield management
Inventory status
(Operations) Point of sale
Data envelopment
Expert systems
analysis (DEA)
The Virtual Value Chain
Marketplace
vs.
Marketspace
Limits in the Use of Information
•
Anti-competitive (Barrier to entry)
•
Fairness (Yield management)
•
Invasion of Privacy (Micro-marketing)
•
Data Security (Medical records)
•
Reliability (Credit report)
Using Information to Categorize
Customers
•
•
•
•
Coding (how to handle)
Routing (call centers)
Targeting (hidden discounts)
Sharing (source of revenue)
Chapter 4
How do you develop a new service?
Levels of Service Innovation
I. Radical Innovations
•
•
•
Major Innovation
internet banking
Start-up Business
new service in existing service
New Services for the Market Presently Served
kiosks in supermarkets
II. Incremental Innovations
•
•
•
Service Line Extensions
Service Improvements
Style Changes
new menu items
self airline check-in
funeral homes celebrate life
Technology Driven Service
Innovation
•
•
•
•
•
Power/energy
Physical design
Materials
Methods
Information
Service Design
Elements
1.
Structural
- Delivery system
- Facility design
- Location
- Capacity planning
2.
Managerial
- Service encounter
- Quality
- Managing capacity and demand
- Information
New Service Development
Cycle
• Full-scale launch
• Post-launch review
Full Launch
Development
Enablers
• Formulation
of new services
objective / strategy
• Idea generation
and screening
• Concept
development and
testing
People
• Service design
and testing
• Process and system
design and testing
• Marketing program
design and testing
• Personnel training
• Service testing and
pilot run
• Test marketing
Design
Product
Technology
Systems
Tools
Analysis
• Business analysis
• Project authorization
Service Blueprint of Luxury
Hotel
Strategic Positioning
Through Process Structure
Degree of Complexity
Measured by the number of steps in the service
blueprint. (clinic vs. hospital)
•
Degree of Divergence
Amount of discretion permitted the server to
customize the service. (attorney vs. paralegal)
•
Generic Approaches to Service Design
1. Production-line
• Limit Discretion of Personnel
• Division of Labor
• Substitute Technology for People
• Standardize the Service
2. Customer as Coproducer
• Self Service
• Smoothing Service Demand
3. Customer Contact
McDonald’s
mufflers
MRI tech
greeting card reorder
franchising - Starbucks
Pizza Hut buffet
automatic check-in at airlines
midweek ski lift discount
front office/back office
laundry at a hospital
• Degree of Customer Contact
• Separation of High and Low Contact Operations
Airline reservationists/baggage handler
4. Information Empowerment
• Employee
• Customer
IT – it’s not just for nerds anymore
cancelled airline flight
package tracking
Customer Value Equation

Re sults Pr oduced   Pr ocessQuality 
Value 
Pr ice   CostsofAcquiringtheS ervice 
Chapter 5
What is the role of technology in
services?
Role of Technology
MRI, Optometrist, Airlines
Personal Care, Professional services
Technology
Customer
Financial planner
Technology
Server
Customer
A. Technology-Free
Service Encounter
Technology
Server
B. Technology-Assisted
Service Encounter
Technology
Customer
Customer
Server
C. Technology-Facilitated
Service Encounter
Technology
Server
D. Technology-Mediated
Service Encounter
Customer
Server
E. Technology-Generated
Service Encounter
Tech call center, House arrest monitoring
ATM, Web based info, checkout scanning, airport kiosks
Classification of Service Automation
1.
2.
3.
4.
5.
6.
7.
Fixed-sequence (F)
Variable-sequence (V)
Playback (P)
Numerical controlled (N)
Intelligent (I)
Expert system (E)
Totally automated system (T)
automatic tollbooth, newspaper dispenser
ATM, car wash, collating copy machine
directory assistance, answering machine, spell check
IRS Forms, animation
autopilot, computer games, Doppler radar
car diagnostics, medical diagnosis, stock trading
telemarketing, eft, space shuttle
Purpose of Web-site
1.
2.
3.
4.
5.
6.
7.
8.
A retail channel
Supplemental channel
Technical support
Embellish existing service
Order processing
Convey information
Organization membership
Games
Amazon.com
Barnes & Nobel
Dell Computer
HBR, News websites
Airlines, Expedia.com
Kelly Blue Book, Dr. Koop
asq.org
treeloot.com
Chapter 6
What are the dimensions of service
quality?
Moments of Truth
•
Each customer contact is called a moment of
truth.
•
You have the ability to either satisfy or dissatisfy
them when you contact them.
•
A service recovery is satisfying a previously
dissatisfied customer and making them a loyal
customer.
Dimensions of Service Quality
1.
2.
3.
4.
5.
Reliability
dependable over time
Responsiveness
keeping customers waiting
Assurance
reputation, credentials, confidence, track record
Empathy
Tangibles
being a good listener, putting yourself in their place
cleanliness, physical appearance
Perceived Service Quality
Word of
mouth
Service Quality
Dimensions
Reliability
Responsiveness
Assurance
Empathy
Tangibles
Personal
needs
Expected
service
Perceived
service
Past
experience
Service Quality Assessment
1. Expectations exceeded
ES<PS (Quality surprise)
2. Expectations met
ES~PS (Satisfactory quality)
3. Expectations not met
ES>PS (Unacceptable quality)
Service Quality Gap Model
Customer
Perceptions
Managing the
Evidence
Customer Satisfaction
GAP 5
Customer
Expectations
Customer /
Marketing Research
GAP 1
Communication
GAP 4
Understanding
the Customer
Management
Perceptions
of Customer
Expectations
Service
Delivery
Conformance
GAP 3
Design GAP 2
Conformance
Service
Standards
Service Design
Taguchi’s Robust Design
Most “Robust” Setting
Taguchi Loss Function
Traditional loss function
Loss ($)
L (x) = k (x-T)2
.480
Lower
limit
.
.500
Target
.520
.
Upper
Limit
Classification of Service Failures
with Poka-Yoke Opportunities
Server Errors:
Customer Errors:
•
Task
checklist
•
Preparation
•
Treatment
listening check
•
Encounter
size limitation
•
Tangible
clean uniform
•
Resolution
computer beep
survey
Benchmarking
Benchmarking is the systematic process of evaluating
the work processes of organizations that are
recognized as representing best
practices for the purpose of improving performance.
World-Class Best
Functional
Industry
Competition
Internal
(12.1)
Walk-Through-Audit
•
•
•
•
Service delivery system should conform to
customer expectations.
Customer impression of service influenced by
use of all senses.
Service managers lose sensitivity due to
familiarity.
Need detailed service audit from a customer’s
perspective.
Quality Costs
Prevention
Appraisal
•Planning
•Supplier
•Design
Review
•Training
•Process Control
•Process
Improvement
•System Auditing
Inspection
Internal
Failures
External
Failures
•Rework
•Customer
•Product
•Scrap
Inspecting/Checking
•Product Testing
•Measurement System
Validation
•Product Auditing
•Re-inspecting
Returns
•Complaint
Adjustments
•Warranty
Charges
•Customer
Loss
•Reputation
Loss
•Re-testing
•Downtime
•Yield
Losses
•Dispositioning
NonConformances
Costs of Service Quality
(Bank Example)
Failure costs
Detection costs
Prevention costs
External failure:
Process control
Loss of future business
Peer review
Negative word-of-mouth Supervision
Liability insurance
Customer comment card
Legal judgments
Inspection
Interest penalties
Quality planning
Training program
Quality audits
Data acquisition and analysis
Recruitment and selection
Supplier evaluation
Internal failure:
Scrapped forms
Rework
Recovery:
Expedite disruption
Labor and materials
Descriptive Statistics
1. Measures of Central Tendencies (Location)
•
Mean

x
i
N
•
Median = The middle value
•
Mode - The most frequent number
2. Measures of Dispersion (Spread)
•
Range
R=Maximum-Minimum
•
Standard Deviation
•
Variance
2

 (x
i
  )2
N
The Normal (Gaussian) Curve
-3
-2
-1

68.26%
95.46%
99.73%
+1
+2
+3
Red Bead Experiment
20
18
16
14
Series1
12
Series2
10
Series3
Series4
8
Series5
6
4
2
0
1
2 3
4
5 6
7
8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Control Charts
Special Cause
(Assignable)
+3σ
Common Cause
(Chance or
Random)
Average
-3σ
Special Cause
(Assignable)
Unconditional Service Guarantee:
Customer View
•
•
•
•
•
Unconditional
L.L. Bean, Target
Easy to understand and communicate 15 minutes or free
Meaningful
$3 rebate vs free pizza
Easy to invoke
toll-free call
Easy to collect
on the spot, Ritz-Carlton, restaurant manager
Unconditional Service Guarantee:
Management View
•
•
•
•
•
Focuses on customers
British Airways
Sets clear standards
FedEx
Guarantees feedback
Manpower
Promotes an understanding of the service
delivery system
Bug Killer
Builds customer loyalty by making expectations
explicit
reduce customer risk, expectations explicit, retains dissatisfied customers
Customer Feedback and
Word-of-Mouth
•
The average business only hears from 4% of their customers who are
dissatisfied with their products or services. Of the 96% who do not bother
to complain, 25% of them have serious problems.
•
The 4% complainers are more likely to stay with the supplier than are the
96% non-complainers.
•
About 60% of the complainers would stay as customers if their problem
was resolved and 95% would stay if the problem was resolved quickly.
•
A dissatisfied customer will tell between 10 and 20 other people about their
problem.
•
A customer who has had a problem resolved by a company will tell about 5
people about their situation.
Service Recovery Framework
Severity
Of
Failure
Perceived
Service
Quality
Psychological
empathy
apology
Service
Recovery
Expectations
Patronage
Customer
Loyalty
Service
Guarantee
Psychological
apology
show interest
Follow-up
Service
Recovery
Service
Recovery
Speed of
Recovery
Pre-recovery Phase
Service
Failure
Occurs
Tangible
-fair fix
-value add
Provider
Aware of
Failure
Frontline
Discretion
Immediate Recovery Phase
-
Tangible
-small token
-
Fair
Restitution
Follow-up Phase
Loyalty
Satisfaction
Retention
Approaches to Service Recovery
•
Case-by-case
•
Systematic response
•
Early intervention
•
Substitute service
individual, but fair
protocol to handle complaints
notify the customer immediately
capitalizing on rival failure
Quality Principles of
Continuous Improvement
1.
Customer satisfaction
2.
Management by facts
3.
Respect for people
Plan-Do-Check-Act (PDCA) Cycle
Plan
Act
Do
Check
Flow Charting
Input
Document
Process
Process
No
Output
Report
Decision
Yes
Process
Process
Process
Process
Storage
Delay
Process
(AV.3)
Cause and Effect Diagram
a.k.a. Ishikawa Diagram, Fishbone Diagram
Person
Procedures
Process
Material
Equipment
Pareto Chart
a.k.a. 80/20 Rule
Vital Few
Trivial (Useful) Many
Deming’s 14-Points
1.
2.
3.
4.
5.
6.
7.
Fulfill the long-term needs.
Chronic mistakes are unacceptable.
Cease dependence on mass inspection.
End the practice of awarding business on
price tag alone.
Improve constantly and forever the system
of production and service.
Institute training.
Institute leadership.
Deming’s 14-Points
8.
9.
10.
11.
12.
13.
14.
Drive out fear.
Break down barriers between staff areas.
Eliminate slogans, exhortations, and
targets for the workforce.
Examine the impact of work standards.
Remove barriers to pride of workmanship.
Institute a vigorous program of education
and retraining.
Take action to accomplish the
transformation.
Philip Crosby’s 14-Step Zero
Defect Quality Improvement
Program
Chapter 7
How does the service encounter
describe a service firm’s delivery
process?
The Service Encounter Triad
Service
Organization
Efficiency
versus
autonomy
Efficiency
versus
satisfaction
Contact
Personnel
Customer
Perceived
control
The Service Organization
•
•
Culture
Values
Behaviors
Empowerment
Invest in people
Use IT to enable personnel
Recruitment and training
Anchor performance
ServiceMaster (Service to the Master)
Disney (Choice of language)
like investing in equipment
customer history
match to firm’s CSF
recognition and reward
Culture
The shared beliefs and values of an
organization that guide employee
decision-making and behavior in the
firm.
Empowerment
Providing contact personnel with the
training and information to make
decisions for the firm without close
supervision.
Organizational Control
for Employee Empowerment
Beliefs
Systems
To
contribute
Core values Identify core
& mission
values
Boundary
Systems
To do right
Risks to be
avoided
Diagnostic
Control
Systems
To achieve
Specify and
enforce
rules
Build clear
targets
Interactive
Control
Systems
To create
Encourage
learning
Strategic
Uncertainties
Critical
performance
variables
Contact Personnel Attributes
•
•
•
•
Flexibility
Tolerance for Ambiguity
Ability to Monitor and Change Behavior
on the Basis of Situation Cues
Empathy for Customers
Contact Personnel
Selection
1. Abstract Questioning
“From your past experience, …”
2. Situational Vignette ability to “think on their feet” in substance and delivery
3. Role Playing
requires careful scripting and customer actor rehearsal
Training
1. Technical Skills
2. Unrealistic customer expectations
3. Unexpected service failure
Unrealistic customer expectations
1. Unreasonable demands
2. Demands against policies
3. Unacceptable treatment of
employees
4. Drunkenness
5. Breaking of societal norms
6. Special-needs customers
I want to take all my luggage on board
I have to smoke
You’re an idiot
Hey, where’s my drink?
I like to sunbath nude
Why don’t you understand English?
Unexpected Service Failure
1. Unavailable service
Why isn’t the ATM working?
2. Slow performance
Why hasn’t our plane arrived?
3. Unacceptable service
There’s a fly in my soup.
Training on Unrealistic Customer
Expectations and Unexpected
Service Failure
•
A prescribed response to a any given situation
“I am very sorry, but federal safety regulations permit a passenger
only two carry-on pieces small enough to be stored under the seat
or overhead. May I check your larger pieces all the way to your
final destination?”
•
Anticipate the types of exchange they might encounter
through role playing
The Customer
Shopping attitudes
1. Economizing customer
2. Ethical customer
3. Personalizing customer
4. Convenience customer
Customer as Co-Producer
1. What is their role?
2. How to train?
3. When to retrain?
compares value with competition
moral obligation (Ronald McDonald House)
know your name
pay extra for hassle free service
Service Encounter Success
Factors
Customer
Human
Machine
Service Provider
Human
Machine
Employee selection
Interpersonal skills
Support technology
Engender trust
Easy to access
Fast response
Verification
Remote monitoring
User friendly
Verification
Security
Easy to access
Compatibility
Tracking
Verification
Security
The Customer
Shopping attitudes
1. Economizing customer
2. Ethical customer
3. Personalizing customer
4. Convenience customer
Customer as Co-Producer
1. What is their role?
2. How to train?
3. When to retrain?
compares value with competition
moral obligation (Ronald McDonald House)
know your name
pay extra for hassle free service
Service Encounter Success
Factors
Customer
Human
Machine
Service Provider
Human
Machine
Employee selection
Interpersonal skills
Support technology
Engender trust
Easy to access
Fast response
Verification
Remote monitoring
User friendly
Verification
Security
Easy to access
Compatibility
Tracking
Verification
Security
Satisfaction Mirror
More
Repeat
Purchases
Stronger
Tendency to
Complain about
Service Errors
More Familiarity with
Customer Needs
and Ways of
Meeting Them
Greater Opportunity
for Recovery
from Errors
Higher Customer
Satisfaction
Higher Employee
Satisfaction
Lower
Costs
Better
Results
Higher
Productivity
Improved Quality
of Service
Service Profit Chain
Internal
Operating strategy and
service delivery system
External
Service
concept
Target market
Loyalty
Customers
Satisfaction
Productivity
&
Employees
Output
quality
Capability
Service
value
Satisfaction
Loyalty
Profitability
Service
quality
Customer orientation/quality emphasis
Allow decision-making latitude
Selection and development
Rewards and recognition
Information and communication
Provide support systems
Foster teamwork
Revenue
growth
Quality & productivity
improvements yield
higher service quality
and lower cost
Attractive Value
Service designed
& delivered to
meet targeted
customers’ needs
Solicit customer
feedback
Lifetime value
Retention
Repeat
Business
Referrals
Is attitude emphasized?
Are job previews utilized?
Are customers screened?
Careful Employee
and Customer
Selection
Are employees
encouraged to
refer friends?
Are referrals from
the “best”
employees given
priority?
Is satisfaction
measured
periodically?
Are measurements
linked to other
functions on
the cycle?
Are they linked to
service objectives?
Are they balanced
between monetary
and non-monetary?
Is training for job and
life?
(and Self-selection))
Employee
Referrals of
Potential
Job
Candidates
Satisfied
Employees
HighQuality
Training
Cycle
of
Capability
Appropriate
Rewards
and Frequent
Recognition
Well-Designed
Support
Systems
 Information
 Facilities
Greater Latitude
to Meet
Customer’s
Needs
Clear Limits
on, and
Expectations
of, Employees
Do they limit the “right” risks?
Are they logical to employees?
Is it an important
element of quality of
work life?
Do they reflect
needs of the
service encounter?
Are they designed
to foster
relationships?
Does it reflect top
management
“talk”?
Is it enough to
allow delivery of
results to
customers?
Chapter 11
How do you forecast the demand
for services?
Delphi Method
Nuclear Power Industry Example
No
jdgmt.
Round
1
Round
2
Round
3
1
6
5
6
15
35
6
Strongly
disagr.
Disagr.
Disagr.
Somewh.
Uncert.
Agree
somewh.
Agree
Strongly
agree
Chapter 12
Describe strategies for managing
capacity and demand.
Strategies for Matching Supply
and Demand for Services
SUPPLY
STRATEGIES
DEMAND
STRATEGIES
Developing
complementary
services
Developing
reservation
systems
Partitioning
demand
Sharing
capacity
Establishing
price
incentives
Crosstraining
employees
Promoting
off-peak
demand
Using
part-time
employees
Yield
management
Increasing
customer
participation
Scheduling
work shifts
Creating
adjustable
capacity
Daily Scheduling of
Telephone Operator Workshifts
Scheduler program assigns
tours so that the number of
operators present each half
hour adds up to the number
required
Number of operators
2500
Calls
2000
1500
1000
500
0
12
2
4
6
8
10
12
Time
2
4
6
8
10
12
Topline profile
30
25
20
15
10
5
Tour
0
12
2
4
6
8
10
12
Time
2
4
6
8
10
12
Integer Linear Programming (ILP) Model
for Weekly Nurse Staffing Requirements
Tour Requirement: 5 days on and 2 consecutive days off
Objective function
:
Minimize
x 1+ x 2+ x 3+ x 4+ x 5+ x 6+ x 7
Constraints
Sunday
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
:
x 2+ x 3+ x 4+ x + x 6
5
x +x + x +x
3
4
5
6
+ x + x +x
x1
4
5
6
+
x
+
x
x 1+ x 2
5
6
+
x
x1 + x 2 + x 3
6
x1 + x 2 + x 3 + x 4
x1 + x 2 + x 3 + x 4 + x 5
+x
7
+x
7
+x
7
+x
7
+ x7
 3
 6
 5
 6
 5
 5
5
Weekly Nurse Staffing Schedule
Schedule matrix, x = day off
Nurse
1
2
3
4
5
6
7
8
Total
Required
Excess
Su
M
x
x
…
…
…
…
…
…
x
6
3
3
x
...
...
…
…
…
…
6
6
0
Tu
W
Th
F
Sa
…
…
…
…
...
x
x
x
…
…
…
…
5
5
0
…
x
x
…
…
…
…
6
6
0
…
…
…
x
x
x
…
5
5
0
…
…
…
x
x
x
…
5
5
0
…
…
…
…
…
…
x
7
5
2
Scheduling Part-time Bank Tellers
Tellers required
0 1 2 3 4 5
Tellers required
5 6 7
3 4
Decreasing part-time teller demand histogram
5
4
3
2
1
4
3
2
1
1
5
2
Fri.
Mon.
Wed.
Thurs
1
2
Two Full-time Tellers
Tues.
Wed.
Thurs.
Fri.
0
Mon.
DAILY PART-TIME WORK SCHEDULE, X=workday
Teller
Mon.
Tues.
Wed.
1
2
3,4
5
x
x
x
….
….
….
….
….
x
….
….
x
Thurs.
….
x
….
….
Fri.
x
x
x
x
Tues.
Yield Management
Most appropriate for services with the following characteristics:
•
•
•
•
•
•
Fixed Capacity
hotels, airlines
Ability to Segment Markets Saturday-night stay, Seasonal resort example
Perishable Inventory
standby passengers
Product Sold in Advance
Demand control for a hotel example
Fluctuating Demand
Low Marginal Sales Cost and High Capacity
Change Cost
selling airline snack vs. cost on bigger aircraft
Increase utilization (slow demand) Increase revenue (high demand)
Chapter 15
What are the challenges of managing
the service supply relationships?
Deming’s 14-Points
Point 4
End the practice of awarding business
on price tag alone.
Customer-Supplier Duality in Service
Supply Relationships (Hubs)
Supplier
Service
Design
Material transfer
Service
Provider
Customer
Information transfer
Two-Level Bidirectional Service
Supply Relationship
Service
Category
Customer
-Supplier
>Input
Output>
Service
Provider
>Input
Output>
Provider’s
Supplier
Minds
Patient
>Disturbed
Treated>
Therapist
>Prescription
Drugs>
Pharmacy
Bodies
Patient
>Blood
Diagnosis>
Physician
>Sample
Test Result>
Lab
Belongings
Driver
>Car
Repaired>
Garage
>Engine
Rebuilt>
Machine
Shop
Information
Home
Buyer
>Property
Loan>
Mortgage
Company
>Location
Clear Title>
Title
Search
Sources of Value in Service
Supply Relationships
•
Managing Productive Capacity
1. Transfer
make knowledge available web based FAQ
2. Replacement
substitute technology for server digital blood pressure device
3. Embellishment
enable self-service by teaching change surgical dressing
•
Management of Perishability
1. Time allotment based on “best use”
2. Idle time for training
real-time schedules
computer-based (mobile data terminals)
Outsourcing Services
Benefits
1.
Allows the firm to focus on its core
competence
2.
Service is cheaper to outsource than perform
in-house
3.
Provides access to latest technology
4.
Leverage benefits of supplier economy of
scale
Outsourcing Services
Risks
1.
Loss of direct control of quality
2.
Jeopardizes employee loyalty
3.
Exposure to data security and customer privacy
4.
Dependence on one supplier compromises future
negotiation leverage
5.
Additional coordination expense and delays
6.
Atrophy of in-house capability to perform service
Taxonomy for Outsourcing
Business Services
Importance of Service
Focus
of
Service
Low
High
Facility Support:
Equipment Support:
Property -Laundry
-Repairs
-Janitorial
-Maintenance
-Waste disposal
-Product testing
Employee Support:
Employee
Development:
People -Food service
-Plant security
-Training
-Temporary personnel -Education
-Medical care
Facilitator:
Professional:
-Bookkeeping
-Advertising
Process -Travel booking
-Public relations
-Packaged software
-Legal