Welcome to
Service Management
Chapter 1
The Service Economy
CLO1
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Learning Objectives
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Describe the central role of services in an economy.
Identify and differentiate the five stages of economic
activity.
Describe the features of preindustrial, industrial, and
postindustrial societies.
Describe the features of the experience economy contrasting
the consumer (B2C) with the business (B2B).
Explain the essential features of the service-dominant logic.
Identify and critique the six distinctive characteristics of a
service operation and explain the implications for managers.
Describe a service using the service package dimensions.
Use the service
process matrix to classify a service.
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Table 1.1: Sector Employment in Top Ten
Nations by 2015 Labor Force Size
Nation
% of World
Labor
% Agri
% Goods
% Services
China
21.2
33.6
30.3
36.1
India
13.9
49.0
20.0
31.0
European Union
6.4
5.0
21.9
73.1
United States
4.3
0.7
20.3
79.0
Indonesia
3.4
38.9
13.2
47.9
Brazil
3.0
15.7
13.3
71.0
Bangladesh
2.3
47.0
13.0
40.0
Russia
2.1
9.4
27.6
63.0
Japan
1.8
2.9
26.2
70.9
Pakistan
1.7
43.7
22.4
33.9
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Service Definitions
Services are deeds, processes, and performances.
Valarie Zeithaml, Mary Jo Bitner, & Dwayne Gremler
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Service Definitions - continued
Services are economic activities offered by one party to
another, most commonly employing time-based
performances to bring about desired results in recipients
themselves or in objects or other assets for which
purchasers have responsibility. In exchange for their
money, time, and effort, service customers expect to
obtain value from access to goods, labor, professional
skills, facilities, networks, and systems; but they do not
normally take ownership of any of the physical elements
involved.
Christopher Lovelock and Lauren Wright
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Service System Definition
A service system is a value-coproduction
configuration of people, technology, other
internal and external service systems, and shared
information (such as language, processes,
metrics, prices, policies, and laws).
Jim Spohrer, Paul Maglio, John Bailey, and Daniel Gruhl
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Figure 1.1: Role of Services in an
Economy
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Figure 1.2: Stages of Economic
Activity
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Figure 1.3: Trends in U.S.
Employment by Sector, 1850-2015
90
80
Service
70
60
50
Percent
Manufacturing
40
30
20
Agriculture
10
0
1860
1880
1900
1920
0
1940
0
1960
0
1980
2000
2020
Year
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Table 1.2: Comparison of Societies
Society
Game
Predominant
Activity
PreIndustrial
Against
nature
Agriculture
Mining
Features
Use of
Standard
Human Unit of
of Living
Labor
Social Life Measure Structure
Technology
Raw
muscle
power
Extended
household
Subsistence
Routine
Simple hand
Traditional
tools
Authoritative
Industrial Against
Goods
fabricated production
nature
Machine
tending
Individual
Quantity
of goods
Bureaucratic Machines
Hierarchical
Postindustrial
Artistic
Community
Creative
Intellectual
Among
persons
Services
Quality of
Interlife in terms dependent
health,
Global
education,
recreation
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Information
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Figure 1.4: Distribution of U.S.
Employment by Industry, 2014
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Table 1.3: Language of Economic
Evolution
Economy
Agrarian
Industrial
Service
Experience
Economic
Offering
Food
Packaged
goods
Commodity
service
Consumer
services (B2C)
Business
services (B2B)
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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Experience Design Principles
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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 (Club Med group
pictures)
Engage all Five Senses (Jungle sounds and
mist in Rainforest Cafe)
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Figure 1.5: The Four Realms of an
Experience
Passive
Customer
Participation
Active
Environmental Relationship
Absorption
Immersion
Entertainment
Estheticism
(movie
(tourist)
Education
Escapism
(language)
(scuba diving)
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Table 1.4: Typology of Services in
the 21st Century
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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Table 1.5: Foundational Premises
(FPs) of Service-Dominant Logic
1. Service is the fundamental basis of exchange.
2. Indirect exchange masks the fundamental basis of exchange.
3. Goods are distribution mechanisms for service provision.
4. Operant resources are the fundamental source of competitive advantage.
5. All economies are service economies.
6. The customer is always a co-creator of value.
7. The enterprise cannot deliver value, but only offer value propositions.
8. A service-centered view is inherently customer-oriented and relational.
9. All economic and social actors are resource integrators.
10. Value is uniquely and phenomenologically determined by the beneficiary.
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Distinctive Characteristics
of Service Operations
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Customer Participation: attention to facility design,
opportunities for co-production
Simultaneity: services created and consumed
simultaneously, cannot be stored
Perishability: cannot inventory, opportunity loss of idle
capacity, need to match supply with demand
Intangibility: services are ideas and concepts, service
innovations are not patentable, franchising, importance of
reputation
Heterogeneity: customer involvement in delivery
process results in variability
Nontransferrable Ownership: services do not involve
transfer of ownership
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Table 1.6: Nonownership
Classification of Services
Type of Service
Customer Value
Examples
Management Challenge
Goods rental
Obtain temporary right to Vehicles, tools, furniture,
exclusive use
equipment
Site selection and
maintenance
Place and space
rental
Obtain exclusive use of
defined portion of a
larger space
Hotel room, seat on
airplane, storage unit
Housekeeping and
achieving economies of
scale
Labor and
expertise
Hire other people to do a
job
Car repair, surgery,
management consulting
Expertise is a renewable
resource, but time is
perishable
Physical facility
usage
Gain admission 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
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Availability and pricing
decisions
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Figure 1.6: Service Package
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The Service Package
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Supporting Facility: The physical resources that must
be in place before a service can be offered. 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 golf clubs, skis, food items,
replacement auto parts, legal documents, and medical
supplies.
Information: Data that is available from the customer
or provider to enable efficient and customized service.
Examples are patient medical records, seats available on a
flight, customer preferences, GPS location of customer to
dispatch a taxi, and Google map link on hotel website.
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The Service Package (cont.)
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Explicit Services: Benefits readily observable by
the senses and that consist of the essential or
intrinsic features of the service. Examples are the
absence of pain when a tooth is repaired, smoothrunning vehicle after a tuneup, and response time of
a fire department.
Implicit Services: Psychological benefits that the
customer may sense only vaguely, or extrinsic
features of the service. Examples are the status of an
Ivy League degree, the privacy of a loan office, and
worry-free auto repair.
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Figure 1.7: The Service
Process Matrix
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Figure 1.8: Challenges for Service
Managers
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Figure 1.9: Open Systems View of
Services
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Discussion Topics
1. Illustrate how the type of work he or she does influences a person’s
lifestyle. For example, contrast a farmer, a factory worker, and a
school teacher.
2. Is it possible for an economy to be based entirely on services?
3. What is the value of self-service in an economy?
4. Determine if the service sector is currently expanding or contracting
based upon the Non-Manufacturing Index (NMI) found at the ISM
Report on Business on the Institute of Supply Management website:
http://instituteforsupplymanagement.org/ISMReport/
5. What are challenges of the sharing economy with respect to
regulation, insurance, and trust issues?
6. Critique the distinctive characteristics of service operations by
arguing that the characteristics of customer participation, simultaneity,
perishability, intangibility, heterogeneity, and nontransferable
ownership might apply to goods as well.
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Interactive Class Exercise
The class breaks into small groups. Each
group identifies service firms that should
be listed in the Fortune 100 and places
them in rank order of estimated annual
revenue.
http://fortune.com/fortune500/list/
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Case 1.1: Village Volvo
1. Describe Village Volvo’s service package.
n Supporting Facility
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Facilitating Goods
n
Information
n
Explicit Services
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Implicit Services
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Case 1.1: Village Volvo
2. How are the distinctive characteristics of a
service firm illustrated by Village Volvo?
n Customer Participation
n Simultaneity
n Perishability
n Intangibility
n Heterogeneity
n Nontransferrable Ownership
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Case 1.1: Village Volvo
3. How could Village Volvo manage its
back office (repair operations) like a
factory?
4. How can Village Volvo differentiate
itself from Volvo dealers?
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Case 1.2: Xpresso Lube
1. Describe Xpresso Lube’s service package.
n Supporting Facility
n
Facilitating Goods
n
Information
n
Explicit Services
n
Implicit Services
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Case 1.2: Expresso Lube
2. How are the distinctive characteristics of a
service operation illustrated by Expresso Lube?
n Customer Participation
n Simultaneity
n Perishability
n Intangibility
n Heterogeneity
n Nontransferrable Ownership
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Case 1.2: Xpresso Lube
3. What elements of Xpresso Lube’s
location contribute to its success?
4. Given the example of Xpresso Lube,
what other services could be combined to
“add value” for the customer?
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