University of Delaware Lerner College of Business & Economics OperationsManagement BUAD 467/667: Service Management Spring 2008 Instructor: Teaching Assistant: Professor Patrick T. Harker 104 Hullihen Hall 831-2111; email: harker@udel.edu Dan Brown 333G Purnell Hall 831-6506; email: brownman@udel.edu Office Hours: By appointment only Office Hours: Wednesdays 1:30-3:00 and 5:30-7:00pm Class Schedule: Tuesdays 6:00-8:45 p.m. Room: Rm. 231 Lerner Hall Description of the Course The service sector is the largest component of all developed countries (in the U.S., it accounts for 70% of GNP and 80% of employment). In addition, some evidence suggests that productivity in services has substantially lagged that of manufacturing. Given the sheer size of this sector of the economy and the lack of large productivity improvements, it is imperative that attention be given to improving the operations of service delivery systems. Technology alone will not solve this problem. Over the past decade, service industry investments in technology totaled more than $180 billion; 85% of all technology investments in the U.S. are made by organizations in the service sector. Thus, management and engineering talent must be focused on improving the operation processes in services if individual organizations and the economy as a whole are to prosper. This course will focus on the various aspects involved in the management of services within the “pure” service sector (banking, transportation, travel and tourism, government, etc.) and within the service functions of manufacturing (after-sales support, financing, etc.). After an introductory section to provide an overview of the role of services in the economy and within the functioning of various enterprises (manufacturing, government, not-for-profits, etc.), the following topics will be explored: design and delivery of services, the measurement of productivity and quality, managing capacity and demand, quality management, redesign of service delivery processes, management of technology, and managing human resources. The design of the course involves lectures and case discussions as the primary vehicle for BUAD 467/667: Spring 2008 Service Management Page 2 Prof. Patrick T. Harker learning. It is important that students have exposure to Management Science/ Operations Research techniques; in particular, linear programming and basic probability modeling will be used in the course. Grading Policy & Class Design: The grade in this course will be based on the following criteria with their associated weights: Case assignments & homework Midterm examination Final examination/ project Class participation 25% 25% 30% 20% There are three individual homework assignments that you must complete. In addition, there are four group case assignments. You need to form a group of five students and submit a group report; I’ll provide the details on the write-up before the first case is due. You must complete three of the four possible cases. In the event you do all four, you will receive extra credit. With respect to class participation, I will call on students at random to discuss the case and their individual or group analyses. You will be assigned a grade at the end of the class based on how prepared you were and the quality of your answer. A final examination will be held for the course in the regularly scheduled slot at the end of the semester. In lieu of the final examination, groups of students can select to analyze a service delivery process in an organization and apply the techniques discussed herein to improve the performance of this operation (see below for details). By so doing, you will not need to take the examination. This option will be discussed further in the semester. Finally, guest lecturers may appear from time to time to discuss a certain topic. Thus, the scheduled contained on the following pages is only meant to be a guide and is subject to change based on the speakers’ availability. BUAD 467/667: Spring 2008 Service Management Page 3 Prof. Patrick T. Harker Final Projects The purpose of this final project is to allow you to apply the ideas you have learned in an area of special interest to you. It is intended as a form of co-production, where you now serve as the teachers! Groups are to consist of 4-5 people; exceptions must be approved. Here are some examples of the types of projects that are acceptable: • Service Improvement - This type of project involves a specific application the class concepts to solve (or at least understand) a service operations problem. Past reports included: • Analysis of the service delivery at a major New York hospital • Analysis of an emergency room in Delaware • Analysis of "Blue Dog Bagels", a bagel restaurant in Canada • Performance measurement of service delivery in a set of regional banks • Operational analysis of a local travel agency • Investigation of alternative technologies for the Wharton admissions office • Analysis of a new concept to provide a single reservation number for tee times at golf courses. Don’t forget to look at not-for-profit organizations; they are a source of great ideas and will make you feel good at the end! • . • New Service Business Operations Plan - For the entrepreneurs in the class, this is your opportunity to lay out an operations plan with supporting analysis for a new service business. Past reports have included a plan for a home appliance repair business, a medical software company, and engineering consulting firm, and a musical instrument rental business. Service Audit - The last type of project is the Service Audit. In this case, one chooses an organization or a service delivery system within the organization that delivers high-quality service, and studies this organization (through publicly available data and interviews and data collection within the firm) to uncover "what makes them tick". The broad categories that should make up such an audit include a combination of the basic principles learned in class, the Balridge Quality criteria, and other idea that you generate in the course of the project. Required Books: • • J.A. Fitzsimmons and M.J. Fitzsimmons, Service Management: Operations, Strategy, and Information Technology, 6th edition (New York, McGraw-Hill, 2007). Course Pack BUAD 467/667: Spring 2008 Service Management Page 4 Prof. Patrick T. Harker BUAD 467/667 Schedule - Spring 2008 Class 1 February 12 Introduction This class provides an overview of the semester as well as defining the challenges facing service firms. Readings: 1. Chapters 1 and 2 in Service Management Class2a February 19 Service Strategy I Building a great service business starts with a good strategy; service strategy will be discussed in the context of retail banking. Case: Commerce Bank (HBS #9-603-080) In your groups of five, answers to the following questions: 1. what was the initial strategy for this company? 2. how has the service value chain concept apply to Commerce? Be sure to comment on the blending of strategy, location, IT and human resources. 3. is this strategy sustainable? What threats are on the horizon for Commerce? Guest Speaker: Mr. Vernon Hill, Founder and former CEO, Commerce Bank Class 2b February 19 Service Strategy II The service-value chain is introduced as an important concept in designing service delivery systems. Readings: 1. Chapters 3 in Service Management 2. J.L. Heskett, T.O. Jones, G.W. Loveman, W.E. Sasser, Jr., and L.A. Schlesinger, “Putting the service-profit chain to work,” Harvard Business Review (March-April 1994). HBS #94204 Case: Southwest Airlines (Darden #UVA-OM-0743) http://www.southwest.com/ In reading over the case, consider the following questions: 1. What are the key elements of Southwest’s success? 2. What are the key success factors in implementing the service value chain at Southwest? 3. What happens when Kelleher retires? BUAD 467/667: Spring 2008 Service Management Page 5 Prof. Patrick T. Harker Class 3a February 26 Designing the Delivery Process: Basics The notion of focus in the design of service delivery systems is explored both empirically and through the case, Shouldice Hospital. Readings: 1. Chapter 4 in Service Management Case: Shouldice Hospital Limited (HBS #9-683-068) www.shouldice.com In reading over the case, consider the following questions: 1. What is the external service vision at Shouldice Hospital? The internal vision? 2. How do you account for its performance to date? Do these factors lead to a sustainable competitive advantage? Why or why not. 3. What are the key threats facing Shouldice? Should they expand? 4. How would you implement the changes you propose? Submit: A five to eight page writeup of the Shouldice Hospital case, including answers to the questions to the above questions. This case is mandatory for all groups. Class 3b February 26 Designing the Delivery Process: Location Geographic location remains a vital aspect of the design of service delivery systems; various approaches for location decisions are discussed in this class. Readings: 1. Chapter 10 in Service Management 2. T. Spencer III, A.J. Brigandi, D.R. Dargon and M.J. Sheehan, “AT&T’s telemarketing site selection system offers customer support,” Interfaces 20 (1990), 83-96. Class 4a March 4 Capacity Design I Once the overall service delivery system is designed, one needs to turn to decisions concerning capacity investments and the management of capacity. This class introduces the issues involved in capacity design and management. Readings: 1. Chapter 11 in Service Management 2. K.L. Katz, B.M. Larson and R.C. Larson, “Prescription for the waiting-in-line blues: entertain, enlighten, and engage,” Sloan Management Review (Winter 1991), 44-53. BUAD 467/667: Spring 2008 Service Management Page 6 Prof. Patrick T. Harker Class 4b March 4 Capacity Design II Basic queuing models are used to introduce the tradeoffs involved in capacity decisions between cost and level of service. Readings: 1. Chapters 12 and 16 in Service Management 2. “Variability and queueing” Teaching Note (The Wharton School, University of Pennsylvania). Submit: • Homework 1: “Athol Furniture” case on pp. 251-253 in Service Management. Class 5a March 11 Design in Action: Call Centers Call centers are the fastest growing delivery channel in a variety of industries. This class will discuss call center operations from a queuing perspective as well as from the point of view of human resources and technology. Readings: 1. B. Andrews and H. Parsons, “L.L. Bean chooses a telephone agent scheduling system,” Interfaces 19, (1989), 1-9. 2. B. Andrews and H. Parsons, “Establishing telephone-agent staffing levels through economic optimization,” Interfaces 23 (1993), 14-20. 3. B. Andrews, and S. Cunningham, “L.L. Bean improves call-center forecasting,” Interfaces 25 (1995), 1-13. 4. A. Evensen, P.T. Harker, and F.X. Frei, “Effective call center management: evidence from financial services,” Working Paper 98-25, Wharton Financial Institutions Center. Can be downloaded from: http://fic.wharton.upenn.edu/fic/papers/98/9825.pdf Case: O.Z. Aksin and P.T. Harker, “NationsBank reinvents the phone channel (A): the design decision,” Case, INSEAD, 1998. In reading over the case, consider the following questions: 1. What are the key advantages of moving toward the new call center at Nations? 2. What are the key disadvantages? 3. How would you put together a business case to justify the investment in the new call center design? 4. What problems do you foresee in the implementation of this new design? How can these problems be dealt with? Guest Speaker: Joseph Claricurzio, Senior VP, Bank of America Class 5b March 11 Capacity Design III The analytics of queuing are explored using the case Pronto Pizza. Readings: Pronto Pizza in Chapter 16 in Service Management. Submit: 1. One page project proposal. BUAD 467/667: Spring 2008 Service Management Page 7 Prof. Patrick T. Harker Class 6a March 18 Capacity Design IV The application of queuing thinking and models is used to analyze the situation at Manzana Insurance. Cases: Manzana Insurance (HBS 9-692-015) In your groups of five, use queuing models to discuss the answers to the following questions: 1. What is the current turnaround time for Manzana? Are they as bad as they think? 2. What operational changes can be made to reduce the turnaround time? Be specific and show your estimates the new times for each proposed change. 3. Given the answer to (2) and your understanding of service processes, what recommendations would you give to Manzana’s management? Submit: • A five to eight page writeup of the Manzana case, including answers to the above questions.This case is mandatory for all groups. Class 6b March 18 Customer Efficiency Management The key to efficiency and quality in services is the effective involvement of customers in the production process. This concept is discussed using ebay as an example. Readings: 1. F.X. Frei, “Breaking the tradeoff between efficiency and service,” Harvard Business Review Repring R0611E Case: ebay (A): The Customer Marketplace (Harvard #09-602-071) www.ebay.com In reading over the case, consider the following questions: 1. What are the various means that ebay uses to involve customers in the production process? 2. What risks are involved with this co-production model? How does ebay mitigate these risks? 3. How does ebay continue to grow without losing their unique co-production approach? Submit: A five to eight page writeup of the ebay (A) case, including answers to the above questions. This case is optional; you can do either this case or the case on Class 9a. Class 7 March 25 Midterm An in-class midterm will be held that covers all of the material in the first half of the class. The exam is open-book and open notes. Submit: Homework 2: “Renaissance Clinic (B)” problem on p. 474 in Service Management. BUAD 467/667: Spring 2008 Service Management Page 8 Prof. Patrick T. Harker Class 8a April 8 Service Quality I The SERVQUAL model is introduced as a basic tool for measuring service quality. Readings: 1. Chapter 6 in Service Management 2. A. Parasuraman, V.A. Zeithaml and L.L. Berry, Delivering Quality Service (Free Press, New York, 1990), pp 15-49; appendix. 3. D.D. Wyckoff, “New tools for achieving service quality,” in C.H. Lovelock (ed.), Managing Services, Second Edition (Prentice-Hall, Englewood Cliffs, NJ, 1992), 226-239. Class 8b April 8 Service Quality II OK, so you can measure service quality. So what’s it have to do with the bottom line? Readings: 1. P.R. Nayyar, “Stock market reactions to customer service changes,” Strategic Management Journal 16 (1995), 39-53. 2. R.T. Rust, A.J. Zahorik, and T.L. Keiningham, “Return on quality (ROQ): making service quality financially accountable,” Journal of Marketing 59 (1995), 58-70. 3. R.T. Rust and A.J. Zahorik, “Customer satisfaction, customer retention, and market share,” Journal of Retailing 69 (1993), 193-215. Case: Starbucks: Delivering Customer Service (Harvard #9-504-016) In your groups of five, discuss the answers to the following questions: 1. Can Starbucks quality keep up with their growth? 2. How can they justify the investment in service quality improvements? What metrics can you use to tie customer satisfaction to the bottom line? 3. Would you make the investment? Why or why not? BUAD 467/667: Spring 2008 Service Management Page 9 Prof. Patrick T. Harker Class 9a April 15 Service Quality III How do you compete on the basis of service quality? This class introduces the notion of a service guarantee and explores the use of this concept at Delta Dental. Readings: 1. C.W.L. Hart, “The power of unconditional service guarantees,” Harvard Business Review (July-August 1988). Case: Delta Dental Plan of Massachusetts (Darden Case UVA-OM-0762) www.deltadental.com In your groups of five, discuss the answers to the following questions: 4. what are the success factors of GSOE? 5. how did Delta Dental make sure that the guarantee was linked to operations changes? 6. is the process/ guarantee at Delta Dental sustainable? Can they keep it up? What must they do to insure that this process is sustainable? 7. is the guarantee competitively sustainable? Why don’t others simply copy the idea? Submit: A five-eight page writeup of the case, including answers to the questions to the above questions. This case is optional; you can do either this case or the case on Class 4b. Guest Speaker: Stephen T. Lawless, MD, MBA; Vice-President Quality and Safety, Nemours Class 9b April 15 Performance Measurement I A key management control in a variety of service organizations is the ability to measure performance; this is especially true where the outcomes of the service cannot easily be quantified as dollars (e.g., health care). This class introduces the challenges facing service organizations as they implement performance measurement systems. A useful site for information on performance measurement is the American Productivity and Quality Center at http://www.apqc.org/. Readings: 1. Chapter 7 in Service Management 2. C.P. McLaughlin and S. Coffey, “Measuring productivity in services,” International Journal of Service Industries Management 1 (1990), 46-64. Cases: Fairfield Inn (A) (HBS #9-689-092) www.fairfieldinn.com In your groups of five, discuss the answers to the following questions: 1. what is Scorecard? 2. what are it’s strengths and weaknesses? 3. is the idea of tying rewards/ compensation to Scorecard useful? 4. what are the advantages and problems associated with this strategy? 5. where is a Scorecard-like efficiency measurement system useful? Harmful? Class 10a April 22 Performance Measurement II A powerful analytical tool for the measurement of performance called Data Envelopment Analysis (DEA) is introduced. Information on DEA and software that implements this approach BUAD 467/667: Spring 2008 Service Management Page 10 Prof. Patrick T. Harker can be found at the following sites: http://www.deazone.com/software/, http://www.deafrontier.com/software.html, and http://www.banxia.com/frontier/index.html. Readings: 1. Chapter 7-Supplement in Service Management Class 10b April 22 Performance Measurement III A guest speaker will describe performance measurement in his or her organization. Guest Speaker: Michael Middaugh, University of Delaware. BUAD 467/667: Spring 2008 Service Management Page 11 Prof. Patrick T. Harker Class 11a April 29 Performance Measurement IV A simple case will be used to illustrate the details of implementing a DEA study as well as its use in financial services. Readings: 1. H.D. Sherman and G. Ladino, “Managing bank productivity using data envelopment analysis (DEA)”, Interfaces 25 (1995), 60-73. Cases: Nashville National Bank (Owen Graduate School Case) In your groups of five, discuss the answers to the following questions: 1. Fortunately, Aleda has her laptop computer out in the lobby of Clay’s office and is capable of running a new DEA analysis. If you were Aleda, what new analysis would you do? Why? What would the new analysis imply about branch productivity (i.e., be sure to show the results of the new DEA analysis). 2. If you had this analysis to do all over “from scratch”, would you use the same inputs and outputs? Why or why not? 3. What are the limitation and strengths of DEA for branch productivity analysis? Submit: A five to eight page write-up of the Nashville National Bank case, including answers above questions and an appendix containing your DEA analysis. This case is mandatory for all groups. Class 11b April 29 IT in Services I: Basics The service sector is the largest consumer of information technology (IT) in the economy. What are the strategic and managerial challenges facing managers as they integrate IT even further into their service delivery systems? Readings: 1. Chapter 5 in Service Management 2. O. O’Sullivan, “Technology spending’s uncertain payback,” USBanker (September 1998), 32-40. 3. P.T. Harker, L.M. Hitt, and F.X. Frei, “How financial service firms decide on technology,” in R.E. Litan and A.M. Santomero (eds.), Brookings-Wharton Papers on Financial Services 1999, (The Brookings Institution, Washington, DC, 1999) 93-146. Case: State Street Bank and Trust Company: New Product Development (HBS 9-696-087) www.statestreet.com In your groups of five, discuss the answers to the following questions: 1. what are the technological limits that distort the new product development process at State Street? 2. how should the development effort be organized? 3. what are the proper expectations for the type of risk assessment systems described herein? Is a company-wide application possible? BUAD 467/667: Spring 2008 Service Management Page 12 Prof. Patrick T. Harker Class 12 May 6 IT and Services II: Investment Decisions IT in services generally leads to the ability to better serve specific customer’s needs (i.e., mass customization). That is, IT often leads to greater flexibility in the service organization. How should such investment decision be made? This class introduces the Analytic Hierarchy Process (AHP), a powerful technique for decision making; details on the method and its implementation in Decision Lens can be found at: http://www.decisionlens.com/. Readings: 1. P. Harker, “The art and science of decision making: the Analytic Hierarchy Process,” in B.L. Golden, E.A. Wasil, and P.T. Harker (eds.), The Analytic Hierarchy Process: Applications and Studies (Berlin: Springer-Verlag), 3-36. Guest Speaker: Daniel Saaty, Decision Lens Inc. Submit: Homework 3: Mid-Atlantic Bus Lines problem on pp. 71-72 in Service Management. Class 13 May 13 Projects You have a choice between submitting a group project (see the second page of the syllabus) or a take-home final examination to fulfill the final requirement. The final exam will be a 24 hour take home covering all the material in the course. Presentations will be scheduled in class on this day and May 20th Class 14 May 20 Final Exams and Projects Continuation of Class 13 and the project presentations. BUAD 467/667: Spring 2008 Service Management Page 13 Prof. Patrick T. Harker BUAD 467/667 Spring 2008 At-A-Glance Session Date 1 2a 2b 2/12 2/19 2/19 Topic I. The Service Management Challenge Introduction The Service Challenge I The Service Challenge II 3a 3b 4a 4b 5a 5b 6a 6b 7 2/26 2/26 3/4 3/4 3/11 3/11 3/18 3/18 3/25 II. Designing Service Delivery Systems Designing the delivery process I: basics Designing the delivery process II: location Capacity design I: basics Capacity design II: queuing models Design in action: call centers Capacity design III: queuing models (con't.) Capacity design IV: application Customer efficiency management MIDTERM EXAMINATION 8a 8b 9a 9b 10a 10b 11a 4/8 4/8 4/15 4/15 4/22 4/22 4/29 III. Measuring Service Operations Measuring quality I: basics Measuring quality II: links to profitability Measuring quality III: service guarantees Delta Dental Case* Measuring performance I: basics Measuring performance II: analytical tools (DEA) Measuring performance III: measurement in practice Measuring performance IV: banking applications Nashville National Bank Case 11b 12 13 14 4/29 5/6 5/13 5/20 IV. Putting the Pieces Together IT & services: basics IT & services II: investment decisions Homework 3 PROJECT PRESENTATIONS PROJECT PRESENTATIONS or FINAL EXAMINATION (if no project selected) * only one of these cases must be submitted. Assignment Due Shouldice Hospital Homework 1 Project Proposal Manzana Insurance Case ebay (A)* Homework 2