BUS 273f (1) MANAGING SERVICE ORGANIZATIONS COURSE SYLLABUS Spring 2015 Class Hours: Tuesday and Thursday 12:30 pm – 2:00 pm Location: To be determined Anita L. Tucker, DBA Associate Professor of Operations Management Office Hours: Thursdays 2:30 pm – 4:30 pm I am happy to meet with you on other days and times, just send me an email request. Sachar 209B 781-736-8542 (office phone) atucker@brandeis.edu Revision date November 3, 2014 1 COURSE DESCRIPTION Overview Services are an important-and increasing-component of modern economies. They include business-to-consumer companies, such as banks, restaurants, and hospitals; as well as businessto-business organizations, such as software and information technology firms. Many innovative, new business models have sprung from the service industry, such as Uber, Netflix, and Zipcar. Today’s business students will be expected to understand how to effectively design and manage service organizations. By taking this half-semester course you will gain the knowledge and skills to design, assess, and improve the operations of service organizations. The topics that we will cover include: a model for achieving excellence in service organizations, revenue management, and strategies for reducing waiting time. Learning Goals In this course, you will learn the key topics in managing a service organization. By the end of the course you will: Be able to articulate tradeoffs among potential service models (e.g., low cost versus convenience), and the customer and employee management systems. Understand how to manage supply and demand, and techniques for handling imbalances between the two. Calculate key performance metrics for service organizations, and understand how to improve them. Teaching Methods The focus of the course will be on learning and applying fundamental service operations management principles and techniques. We will learn key concepts through textbook chapters, journal articles, teaching cases, and hands-on exercises. The final presentation assignment will give you the opportunity to work with a team of fellow students to design a new service concept or study a topic from class in more depth. Course Prerequisite: None, although it is helpful to have taken the core OM course so that you have an understanding of process analysis, such as capacity and flow rates. Materials This course will use business school cases, text book chapters and exercises. I have created a course packet on the Harvard Business Online website where you can purchase some of the materials, including the Harvard Business cases and the on-line exercise, for this course. The URL is shown below: https://cb.hbsp.harvard.edu/cbmp/access/27952723 Students can access PDF files of course materials via the link for six months from the date of purchase. You will have immediate access to the materials upon placing your order, for subsequent access, you must login to http://harvardbusinessonline.org 2 The textbook for the course is Service Management: Operations, Strategy, Information Technology, 2014, 8th edition. Fitzsimmons, Fitzsimmons, and Bordoloi. McGraw-Hill. ISBN: 0078024072. This textbook is ~$140 used. The 2010 7th edition (~$45) and 2007 6th edition (~$4) are acceptable and can be found on amazon.com. Grading: Grades are based on several components. Class Participation (35%). Class participation is determined by your preparation and active participation during class. The two simulations will be part of your participation grade. Your grade on those assignments will be determined by the accuracy of your preparation work as well as your engagement during the exercise. Class attendance is required. If you are unable to attend class, please let me know in advance, if possible, including the reason you are unable to attend. You will not be penalized for one absence, but any absences beyond that will hurt your grade. For case discussion and group exercises, you are expected to actively listen, respond to questions, express your viewpoints, and respond to comments from your fellow students. I will keep a record of class participation for each student and assign a grade based on the quality of your in-class comments. One or two high quality comments during class is preferred over frequent, low-quality participation. Participation is necessary, as attendance without participation will result in a C+ participation grade (assuming there are no more than one absence). High quality (e.g., contributing analysis, synthesis) participation for most classes will be an A. Consistent, although not always breakthrough participation will be a B. Please leave your laptops closed during class unless there is a specific reason to use the computer (e.g., the revenue management simulation). Also, please be courteous to your fellow students by arriving on time, refraining from being on your phone during class, or leaving in the middle of class. Case Write ups (20%) You will be submitting your preparation work for two short cases that are in the text book, Clean Sweep, and Athol Furniture. The write-ups should be done by you individually and turned in at the start of class. They should be no more than 5 double-spaced pages, plus any exhibits. Presentation and Executive Summary (45%) You will prepare a group (4 or fewer students) presentation and submit an accompanying short paper that summarizes your project (5 pages). You will make a ~10 minute presentation of your 3 project to the class on the last day. You will turn in a copy of your presentation and your paper to me for grading before the start of class. There are two different types of projects. Please chose the one that most interests you. 1) Use the Service Model (service offering, funding mechanism, customer management system, employee management system) to a. Develop a new service business –OR– b. Enhance an existing business (e.g., self-serve kiosk for a hospital) –OR– c. Comparative analysis of two service businesses in the same industry with very different operating models. (For example, In-N-Out Burger versus Burger King). You can compare their service offering to their customers (e.g., cost-focus, quality-focus, flexibility-focus, etc.), how they arrange their operations to deliver their service offering, how it is funded, and any differences in their employee and customer management systems (e.g., selection, training, rewards). 2) Use the quantitative topics from class to analyze an existing service company’s operations. Some examples are: a. Loyalty Programs. Examine how a company designs its loyalty program and how the data might be used to increase profitability for the company and satisfaction for the customer. Assess the impact on the employees. b. Waiting time. Conduct a study of the waiting time at a service organization. What strategies does the company use to reduce wait times? Develop other ideas to decrease waiting time. c. Examine poka-yoke devices used by service organizations to prevent service failures. Take photos of poka-yoke devices beyond those listed in the textbook. Come up with ideas for new poka-yoke devices for other services that have problems with errors. d. Work with a service company to create a control chart for a process e. Administer the Servqual Instrument to customers of a service organization for which you might be able to gain access. Identify the biggest gap (e.g., Market research, design, conformance, or communication). f. Facility locations: Map out the locations of a company’s service locations. What criteria do companies use to determine their locations? Determine locations that should be explored for future growth. g. Servicescapes: Examine the servicescape of two different businesses in the same industry. How do the servicescapes and process flows impact the customer experience and the organization’s profitability and efficiency? Grading Rubric for the project and presentations (100 points in total) 15 points: CUSTOMER RESEARCH. Did the students conduct some type of market research with customers or the targeted customer base? (For example, you could survey 20 people, or 4 conduct a more in-depth interview with 5 potential customers to find out their preferences for the proposed service.) 15 points: COMPANY INTERVIEW. Did the students contact an existing company in the business to learn what the difficulties or challenges might be of implementing their proposed solution? Or to learn more details about the actual practice? 15 points: COURSE FRAMEWORK. Did the students frame their project using a key element from our course? For example, the service model, or capacity management strategies. 10 points: OVERALL QUALITY PRESENTATION. Was the presentation well done, free of typos and with good graphics? Was the delivery good? (clear, understandable) 15 points: OVERALL QUALITY PAPER. Was the paper well written? Was it free of typographical errors? Was the information presented clearly? Did they use citations from published literature to substantiate their claims and explain where they got their data from? 30 points: RIGOR. Did the students conduct rigorous analysis of their problem? Was there a financial analysis of the potential business idea, or payback period of the improvement? Did they think through the implications of their service design or suggested improvement? Is there depth in their report and lessons? Did they conduct any research (e.g., market size, trends over time, competitors) to inform their project? Communication We will use Latte for posting course slides and for class announcements. Assignments should also be submitted on Latte unless otherwise instructed. Email usually is the best way to reach me besides coming to my office hours. Special Accommodation If you are a student with a documented disability on record at Brandeis University and wish to have a reasonable accommodation made for you in this class, please see me immediately. Academic Integrity You are expected to be familiar with and to follow the University’s policies on academic integrity (see http://www.brandeis.edu/global/current-students/academic/integrity/index.html). Instances of alleged dishonesty will be forwarded to the Office of Campus Life for possible referral to the Student Judicial System. Potential sanctions include failure in the course and suspension from the University. 5 Date Day Class # 1/13/2015 Tu 1 Tentative syllabus for Managing Service Organizations Topic Reading Case Introduction The Service Economy Fitzsimmons Ch 1, The Service Please prepare The Economy; Ch 2 Service Strategy Alamo Drafthouse case from the textbook 1/15/2015 Th 2 Service Offering 1/20/2015 Tu 3 Funding Mechanism 1/22/2015 Th 4 Customer Management System 1/27/2015 Tu 5 Employee Management System 1/29/2015 Th 6 Diagramming a service process 2/3/2015 Tu 7 Service Quality Service Design The 4 things a service business must get right. HBR Reprint 0804D. (Frei, HBR, April 2008). Fitzsimmons Ch 3, New Service Development, pgs 65-67. (“Innovation in services”, “New Service Development”) Fitzsimmons Ch 4, The Service Encounter, p 102 – 103. (“The Customer”) Fitzsimmons, Ch 4, The Service Encounter, pgs 106-107. (“The Service Profit Chain”) Managing the Core Service Blueprinting: Fitzsimmons Ch 3, p 72-73. (The paper “Service Blueprinting” 2007 by Bitner et al. provides more details.) Ch 5, Supporting Facility and Process Flows. Fitzsimmons Ch 6, Service Quality 6 Assignment Due Introduce the course presentation project Commerce Bank (603080) Innovation at Progressive (A): Pay as you go insurance (602175) Fill out the poll question before class Zip Car (605054) Team and Project topic due Quik Trip (611045) Guest Speaker: Phil Menzel, VP HR, Sears In groups of 3, create a service blueprint for a specific service company. Be prepared to discuss with the class. Guest speaker Susan Spraragen, Principal Design Researcher, Pitney Bowes. Service experience design consultant Case write up due Prepare the case Clean Sweep, Inc., on pages 172-174. 2/5/2015 Th 8 Location 2/10/2015 Tu 9 Process Improvement Fitzsimmons, Ch 8, Service Facility Location Prepare the case Athol Furniture, Inc. pgs 240242. Guest speaker: Roger Berkowitz, CEO of Legal Seafood Case write up due Guest speaker: Barry Sloane, CEO of Century Bank Cincinnati Children’s Hospital Medical Center (HBP Case 609109) Service Analytics 2/12/2015 Th 10 Revenue Management 2/17/2015 Tu --Break-- 2/19/2015 2/24/2015 Th Tu 11 --Break-Revenue Management 2/26/2015 Th 12 Revenue Management & Queuing Theory 3/3/2015 Tu 13 Queuing Theory Cachon and Terwiesch, 2006. Chapter 6: Variability and its impact on process performance, 1st edition, McGraw-Hill. The "Killer Application" of Revenue Management: Harrah's Cherokee Casino and Hotel. 2008. Metters et al. Interfaces 38 (3): 161-175. *Introduce the revenue management exercise Motherland Air Revenue Management (Play the Simulation during class) Submit your revenue management decisions at the start of class. *Introduce the multiple server queues exercise Debrief Motherland Air and discuss article Patient Flow at Brigham and Women’s Hospital (A) 7 Exercise: Multiple Server (608171) 3/5/2015 Th Presentations 8 Queue(4386) Session 1 The Service Economy This session introduces service organizations and some frameworks that will help us study different service companies. Please read Chapters 1 and 2 in the Fitzsimmons textbook. Please be prepared to discuss the case study “The Alamo Drafthouse”. (You don’t need to turn in anything). Case: The Alamo Drafthouse Case Preparation Questions: 1. Marketing analysts use market position maps to display visually the customers’ perceptions of a firm in relation to its competitors regarding two attributes. Prepare a market position map for Alamo Drafthouse using “food quality” and “movie selection” as axes. 2. Use the “Strategic Service Vision” framework to describe Alamo Drafthouse in terms of target market segments, service concept, operating strategy, and service delivery system. 3. Identify the service qualifiers, winners, and service losers for Alamo Drafthouse. Are the Alamo purchase decision criteria appropriate for the multiplex movie theater market? What do you conclude? 4. Use Porter’s Five Forces Model to assess the strategic position of Alamo Drafthouse in the “entertainment industry.” 5. Conduct a SWOT analysis to identify internal strengths and weaknesses as well as threats and opportunities in the external environment. Session 2 Service Offering This class introduces the “Service Model” Framework via a case and an article reading. We will be discussing the service model over the next three classes. Reading: The Four Things a Service Business Must Get Right. 2008. Frei, Frances. Harvard Business Review. Case: Commerce Bank (603080) Case Preparation Questions: 1. Analyze Commerce Bank's service delivery system prior to Retailtainment. How well does the company's operations design support its competitive position? Which decisions in particular do you find critical to the bank's success? 9 2. What was the motivation for the Retailtainment program? How well did Retailtainment meet these goals? How if at all would you modify the program? 3. What would you advise as the competitive response to Commerce Bank's market entry? 4. Briefly look at the financial statements for Commerce Bank and the industry (Exhibits 1-4). Do you see support, or cause for concern, of the bank's strategy in the financial statements? Session 3 Funding Mechanism During this class we will discuss various ways that companies can fund their efforts to provide excellent service. Progressive Corporation is an auto insurance provider that began as a provider of insurance to high-risk drivers ("non-standard"drivers). Over time, the company began insuring "standard" drivers as well. Back in 2000, the company piloted a new service, a pay-as-you-go insurance product called "Autograph". At the time of the case, the company was deciding whether to roll out the innovation on a larger scale. Reading: services) Fitzsimmons Ch 3, New Service Development, pages 65-67 (Innovation in Case: Innovation at Progressive (A): Pay as you go insurance (602175) Case Preparation Questions: 1. How does Progressive's performance as an auto insurer compare to that of typical insurance companies? How has its performance changed over time? What explains the difference in performance? 2. Customers of auto insurers are very price sensitive. How problematic is it to Progressive that customers almost always select the insurer that offers the best price? 3. Assess the viability of the Autograph system. What level of consumer acceptance will it take to make Autograph successful? 4. What are the barriers to consumer acceptance? Should Autograph be expanded nationwide? Please fill out the Latte poll associated with this question. Session4 Customer Management System This class discusses the role of customers in service organizations’ operating system. As the customer participates in the service delivery process, it is important to be able to influence their behaviors. We consider two types of control mechanisms: normative and instrumental controls. Reading: Fitzsimmons, Ch 4 The Service Encounter, p 102-103 (The Customer) 10 Case: Zip Car (605054) Case Preparation Questions: 1. How would you characterize the service that Zipcar provides? Who are its competitors? What role does it play in its competitive landscape? 2. In your opinion, what are the critical success factors for Zipcar? 3. Which mechanisms does Zipcar have in place to manage customer behavior? What, specifically, are the mechanisms intended to accomplish? What adjustments, if any, would you recommend the company make? 4. Many other service organizations have sprung up (such as Uber, Air BnB) where the exchanges are between individuals rather than the traditional employee and customer exchanges. What do you think accounts for the increase in these types of businesses and what it required for them to be successful? How much of a threat do you think they pose to traditional companies, such as Hilton Hotels? Assignment: By the start of class, you should have turned in the names of the members of your course project team and your topic using Latte assignment. Session 5 Employee Management System This session studies the employee management system, which is comprised of selection, training, job design and performance management. GUEST: We will be joined by Mr. Philip Menzel, who is a 20 year human resource executive. Currently he is Vice President for Human Resources at Sears. He will speak to us about his views on managing employees and the service profit chain. Please come well-prepared for the Quik Trip case and ready to engage with Phil. Reading: Fitzsimmons Ch 4 The Service Encounter, p 106-107 “The Service Profit Chain” Case: QuikTrip (611045) Case Preparation Questions: 1. Should Chet Cadieux break with successful precedent and accelerate his entry into North Carolina? What are the potential costs and benefits of this acceleration? 2. Why has QuikTrip been so successful? What are the most surprising elements of QuikTrip’s success? 3. What operating decisions has QuikTrip made to increase labor productivity and to allow employees to be integral to their success? 11 4. Is QuikTrip’s success sustainable? What could cause QuikTrip’s business model to falter? Session 6 Diagramming a Service Process This session is the first in a module on “Managing the Core”. We will use this class to explore several methods for diagramming the flow of work and interactions in a service organization. You should use these methods to depict the service operation that you study for your project. Reading: Fitzsimmons Ch 3, New Service Development, p 72-73 “Service Blueprinting”. Fitzsimmons Ch 5, Supporting Facility and Process Flows 1. In groups of 3, create a service blueprint for a service business. Be prepared to present your blueprint to the class. Session 7 Service Quality The intangible nature of the service package requires a comprehensive approach to quality control that begins with service design and includes the attitudes, training, and motivation of service personnel. Our discussion begins with defining and measuring service quality using the SERVQUAL instrument. The idea of designing quality into the service process includes tools such as Poka-yoke or failsafing, and quality function deployment. A Walk-through Audit quality assessment tool is developed with an example. Achieving service quality begins with understanding the cost of quality and the use of statistical process control techniques. We will also discuss the topic of service recovery planning. Reading: Fitzsimmons Ch 6, Service Quality Case: Clean Sweep Case, Fitzsimmons p 172-174. Case Preparation Questions: Please write up your answers to the questions below, and submit them on Latte. This will count as one of your case write-ups and it must be done individually. 1. Prepare an X -chart and R-chart for complaints, and plot the average complaints per building for each crew during the 9-month period. Do the same for the performance ratings. What does this analysis reveal about the service quality of CSI’s crews? 2. Discuss possible ways to improve service quality. 3. Describe some potential strategies for reducing CSI's staffing problems. 12 Session 8 Location This class discusses techniques that service organizations can use to determine which physical locations should be used as the sites of new stores. Reading: Fitzsimmons, Ch 8 Service Facility Location Case: Athol Furniture (Fitzsimmons pg 240-242). Case Preparation Questions: Please answer the questions about the case in the text book. You will turn in your answers before class on Latte. This counts as one of your case write-ups. It should be done individually. 1. Utilizing a spreadsheet version of the Huff location model (with = 1.0), recommend a store size and location for AFI that will maximize expected net operating profit before taxes. Assuming that AFI does not wish to consider a store smaller than 10,000 square feet, assess the store sizes (based on increments of 5,000 square feet) up to the maximum allowable sales area for each potential site. 2. What is the expected annual net operating profit before taxes and market share for the outlet you have recommended? Defend your recommendation. 3. Try two other values of (e.g., 0.5 and 5.0) to measure the sensitivity of customer travel propensity on your recommended location. 4. Briefly state any shortcomings you may perceive in this model. Session 9 Process Improvements In this class we will explore an organization that, unlike Toyota, did not have a culture of continuous improvement. The case discusses the steps that the senior leadership team undertook to create such a culture. The case also enables us to explore commonly used tools for process improvement, such as Plan-Do-Study-Act (PDSA) cycles. Case: Cincinnati Children’s Hospital Medical Center (609109) Cincinnati Children’s Hospital Medical Center (CCHMC)’s performance on cystic fibrosis was in the bottom quarter of all cystic fibrosis centers in the U.S. when it began its turnaround efforts. Case assignment questions: 1. How would you characterize the improvement strategy at CCHMC? 2. What is your assessment of CCHMC's policy of transparency? Are they being too open with performance data? Why or Why not? 3. What are your thoughts on CCHMC’s pursuit of perfection without regard to financial implications? Will pursuing perfection put them out of business? 13 4. Moving forward, what would you recommend to sustain the hospital's improvement efforts? Session 10 Revenue Management This class will discuss revenue management, which is an approach that companies can use to make sure that capacity is reserved for their highest paying customers, who also usually do not ‘arrive’ until close to the service date. Without techniques like revenue management, companies might allocate too much capacity to the early-arriving demand from the value-seeking customers. Reading: The “Killer Application” of Revenue Management: Harrah’s Cherokee Casino and Hotel. 2008. Metters et al. Interfaces 38(3): 161-175. Note: We will not focus on the technical aspects mentioned in the case, nor are you expected to be familiar with the methods and citations referenced in the article. Preparation Questions: 1. What do you think accounts for Harrah’s success with revenue management at its properties? Why do you think that all casinos don’t track their customers to the same extent that Harrah’s does? Under what conditions might revenue management be less successful? 2. What aspects of Harrah’s Cherokee Casino and Hotel (HCCH) revenue management system struck you as the most novel or interesting? 3. What do you think are the most difficult aspects of implementing revenue management? How can these challenges be mitigated? 4. Can you think of new ways to leverage concepts of revenue management in other industries? What are the benefits and risks associated with your ideas? At the end of the class, I will introduce and explain the revenue management exercise that we will be doing in the next class. You will need to work with your group – randomly assigned by Latte--on the assignment and submit your answers before the next class (Session 11). Session 11 Revenue Management During this class you will get to try your hand at Revenue Management! We will be doing a simulation of selling airplane tickets where you get to vary the price you charge for different fare classes, and how many of the seats to reserve for the highest fare passengers. You need to work with your group (randomly assigned by Latte) before class to determine what prices you are going to charge, how much capacity to reserve, and what your strategy will be for adjusting these decisions as time unfolds and the seats start being sold. 14 Online Simulation: Motherland Air Assignment: Your team needs to make the following decisions for the 24th week before the plane departs and submit your answers via Latte. 1. OVERBOOKING AMOUNT. The number of tickets you will sell beyond the plane’s 100 seat capacity. 2. PRICING. Determine the prices you will charge for full and discount fare classes. The current prices are $1000 for business class (full), $400 for tourist class (discount), and $100 for deep discount tickets. You may keep prices the same, raise full and discount prices by 10%, or lower full and discount prices by 10%. 3. RESERVATION LIMIT. This is the maximum number of deep discount tickets, and deep discount plus tourist class tickets you will sell by a given time period. The final number will be the maximum number of tickets (the sum of all three types) that you will sell, which is 100 plus your overbooking amount. To make these decisions, you might want to answer these questions. a. Pricing: Use the data from Figure 2 and Figure 3 in the case (also provided in the excel spreadsheet) to determine the historical average combined demand for full and discount fare tickets on the 40 flights of the 400-seat 747. How does this compare to your plane’s 100-seat capacity? What does this suggest with regard to pricing and the number of tickets to allocate to the three fare classes? b. Overbooking level: To determine your overbooking level, it may be helpful to build an excel matrix of the expected costs of various overbooking levels – as determined by a range of no show rates. If the overbooking amount (say 5 tickets) is greater than the no show rate (say 0 no-shows), then the cost is the penalty described in the case ($200* the # of overbooked tickets squared). If the number of overbooked tickets (e.g. 5) is less than the no-show rate (eg 6), then the cost is $1000 of revenue per unsold ticket (6-5=1). Finally, you can use the data from Figure 2 and Figure 3 to calculate the no-show rates for the 40 flights. Use the data to calculate the probabilities of various no-show levels (e.g. what is the probability of zero no shows? Of only 1 person being a no-show?, etc.). You can use these probabilities to determine the expected value of various overbooking amounts. (e.g. What is the expected value of overbooking 5 tickets?) Use this analysis to help you decide on your overbooking level. Session 12 Queuing Theory During this class we will discuss the results from the revenue management simulation. We will also discuss queuing theory. 15 I will be introducing an online laboratory, “Multiple Server Queues” during the class. It is due at the start of next class (Session 13). You can talk with other students about this assignment, but you must submit your own set of individual answers. Reading: Cachon and Terwiesch 2006, 1st edition. Chapter 6“Variability and its impact on process performance.” Session 13 Queuing Theory During this class we will discuss the application of queuing theory to a real situation: patient flow in hospitals. Case: Patient Flow at Brigham and Women’s Hospital (A) (608171) Case Preparation Questions: 1. What would you recommend that the hospital do to improve patient flow to the ICUs? 2. Why do you think that several people didn’t follow the official procedure for requesting ICU beds that day? Do you think this is a big problem? Why or why not? 3. In Exhibit 5, analyze chain of emails including Dr. Rogers’ original e-mail. What do these emails show about the ability of organizations to learn from negative events? As Chief Medical Officer or Chief Executive Officer for the hospital, what, if anything, would do in response to this situation? 4. Examine the formula for waiting time on page 8 of the case. What does this tell you about the levers for reducing waiting time for patients? What are the implications of the formula for managers? Please also prepare the lab “Multiple Server Queue” 4386 and submit your answers to the questions via the application. To do this, you need to download the exercise from the Harvard Business Publishing website, and complete the questions. 16