New Service Development
Design service delivery system with
features to differentiate
Chap. 03
Distribution of GDP in the US Economy
Product
Services
A
Physical
B
6%
31%
37%
53%
63%
Information
10%
C
D
16%
84%
A = Physical Product, B= Physical Service, C= Digital Product, D= Information Service
3-2
• Sources of Service Sector Growth
– Information technology
– The Internet as a service enabler
– Innovation
– Changing demographics
– Information technology
• Ubiquitous computing
– Smart phones
• Personal banking
– Transfer of fund
– Payment of bill
– Managing personal finance
• Healthcare
– Off shore radiologist
– The Internet as a service enabler
– Wireless connectivity, web 2.0, social networking
• Cost-effective tool to connect customers
• Push information to customers
– Innovation
• New service developed thru innovation
–
–
–
–
A poor adhesive (3M, Post-it)
DVD players (Video rental)
Internet streaming (Netflex)
WWW (e-commerce, social networking, …)
• Unexpected events
– The Arab Spring uprising (security evacuation insurance)
• Observant contact employee
– Hotel concierge observe high demand for taxi
» Airport shuttle bus service
• Exploit information available
– Sales from auto parts stores
» Frequent failures
» Performance enhancements
• Service lab for testing new service
– Burger King
» Store replica in a warehouse in Miami
– Facebook
» Shopping notifications
– Changing demographics
• French revolution
– Jobless chefs of dispossessed nobility
– Open their own restaurants
• Aging population
– Healthcare
– Retirement (pension, 401K)
Innovation in Services
• Basic Research: Pursue a planned search for new
knowledge regardless of possible application.
• Applied Research: Gaining new knowledge that will
meet a specific need.
• Development: Apply knowledge to problems to
improve a current service.
3-9
Challenges for Service Innovation
• Ability to protect intellectual and property
technologies
• Incremental nature of innovation
• Degree of integration required
• Ability to build prototypes or conduct tests in
a controlled environment
3-10
Levels of Service Innovation
Radical Innovations
• Major Innovation: new service that customers did not know
they needed.
• Start-up Business: new service for underserved market.
• New Services for the Market Presently Served: new services to
customers of an organization.
Incremental Innovations
• Service Line Extensions: augmentation of existing service line
(e.g. new menu items).
• Service Improvements: changes in service delivery process
(e.g. self-service airline boarding kiosk).
• Style Changes: modest visible changes in appearances.
3-11
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
3-12
Technology-Driven Service Innovations
Source of
Technology
Service Example
Service Industry Impact
Power/energy
Jet aircraft
Nuclear energy
International flight is feasible
Less dependence on fossil fuel
Facility design
Hotel atrium
Feeling of grandeur/spaciousness
Enclosed sports stadium Year-around use
Materials
Photochromic glass
Synthetic engine oil
Energy conservation
Fewer oil changes
Methods
Just-in-time (JIT)
Six Sigma
Reduce supply-chain inventories
Institutionalize quality effort
Information
E-commerce
Satellite TV
Increase market to world-wide
Alternative to cable TV
3-13
Adoption of New Technology
in Services
• Challenges of Adopting New Technology
– The Process is the Product
• Customers acceptance
– Loss of personal attention
– Learn new skills
– Forgo some benefits
• Internal customers (Front office)
– Retraining, (word processing vs typewriter)
• Back office
– Full benefits until standard accepted industry-wide
» So many browsers, security settings
3-14
• Readiness to Embrace New Technology
– Technology readiness
• Person’s propensity to embrace and use new
technology
– Evaluate customers’ level of readiness
• Airport check-in Kiosk
– Employee’s readiness
• Implementation of ERP
Service Design Elements
Design Elements
Topics
Structural
Delivery system
Process structure, service blueprint, strategic positioning
Facility design
Servicescapes, architecture, process flows, layout
Location
Geographic demand, site selection, location strategy
Capacity planning
Strategic role, queuing models, planning criteria
Managerial
Information
Technology, scalability, use of Internet
Quality
Measurement, design quality, recovery, tools, six-sigma
Service encounter
Encounter triad, culture, supply relationships, outsourcing
Managing capacity and
demand
Strategies, yield management, queue management
3-16
Customer Value Equation

Re sults Pr oduced   Pr ocessQuali ty 
Value 
Pr ice   C ostsofAcquiringtheService
3-17
Strategic Positioning
Through Process Structure
• Degree of Complexity:
– Measured by the number of steps in the service blueprint,
– e.g., a clinic is less complex than a general hospital
• Degree of Divergence:
– Amount of discretion permitted the server to customize
the service,
– e.g., the activities of an attorney contrasted with those of a
paralegal
3-18
Structural Alternatives
for a Restaurant
LOWER COMPLEXITY/DIVERGENCE
No Reservations
Self-seating. Menu on Blackboard
Eliminate
Customer Fills Out Form
Pre-prepared: No Choice
CURRENT PROCESS
TAKE RESERVATION
SEAT GUESTS, GIVE MENUS
SERVE WATER AND BREAD
TAKE ORDERS
Salad Bar
Limit to Four Choices
Entree (6 choices)
Sundae Bar: Self-service
Dessert (6 choices)
Coffee, Tea, Milk only
Serve Salad & Entree Together:
Bill and Beverage Together
Cash only: Pay when Leaving
Beverage (6 choices)
SERVE ORDERS
CASH OR CREDIT CARD
HIGHER COMPLEXITY/DIVERGENCE
Specific Table Selection
Recite Menu: Describe Entrees & Specials
Assortment of Hot Breads and Hors D’oeuvres
At table. Taken Personally by Maltre d’
Salad (4 choices)
Expand to 10 Choices: Add Flaming Dishes;
Bone Fish at Table
Expand to 12 Choices
Add Exotic Coffees; Wine list, Liqueurs
Separate-courses; Hand Grind Pepper
Choice of Payment. Including House Accounts:
Serve Mints
3-19
Service Blueprint of Luxury Hotel
F
F
F
F
F = Possible Fail Point
3-20
10 minutes exercise
• Service blueprint
– Pick your own service process
– Design the service
• Taxonomy for service process design
– Degree of divergence
• Low divergence: high volume with narrowly defined
and focused service
– Opportunity to substitute automation for labor
• High divergence: more flexibility and judgment are
required
– Customized service (e.g. consulting)
– require high level of technical and analytic skills
Taxonomy of Service Processes
– Object of the service process
• Goods
– Provided by the customer (auto repairs)
» Property must be secure from damage or loss
– Provided by the service firm (facilitating goods)
» Stock level and quality is concerned
» E.g. MacDonald’s food items
• Information
– Back office activities
– Customer service: information is communicated
– Consulting: information is directly interact between client &
service
• People
– Physical change: haircut
– Geographic change: bus ride
– Interpersonal and technical skill needed
– Type of customer contact
• Customer present & interact directly
– Process of people
» Training in interpersonal skills
» Facility issues of location, layout, and design
» Managing queue
• Contact maybe indirect (via Internet)
– Self service
» ATM
» Boarding pass kiosk
» Customer is willing to learn how to interact with machine
• No customer contact
– Manufacturing style management
– Batch process, job shop
Taxonomy of Service Processes
3-27
Generic Approaches
to Service Design
• Production-line
• routine service
• control environment to ensure consistent quality & efficiency
• Customer as Coproducer
• encourage customers to take an active role
• Customer Contact
• Separation of High and Low Contact Operations
• low-contact to be designed as a technical core
• Information Empowerment
• IT is a fundamental part of our daily life
• IT can empower customer and employee
3-28
• Production-line approach
• Manufacturing systems are designed with control of
process
• Output is machine paced
• Jobs are designed with specific tasks to perform
• Tools and machines are provided to improve efficiency
– McDonald’s
• Hamburger patties are measured and prepackaged
• French fries …
– Limited discretionary action of personnel
• Employee is given well-defined task to perform with
tool to accomplish them
• Standardization & quality are the hallmarks
– Consistency in meeting specification
• Customer can expect the same level of service from all
franchises
– Division of labor
• Job can be broken down into groups of simple tasks
• Permit specialization of labor skills
• Low pay & low skill employment
– Substitution of technology for people
• ATM vs teller
• RFID vs Highway toll system
– Service standardization
• Limited menu items guarantees a fast hamburger
• Routine process, well-defined tasks, easy to control
• Customers as coproducer
• Customer present in the service process can support
the competitive strategy of cost leadership with
possible customization
• Beta version of software development
• Productivity gains are achieved by division of labor
– Self service
• Low cost airlines
– Automatic check-in kiosk, sell e-ticket over the Internet
• Customer controlled quality, e.g. Salad bar.
– Smoothing service demand
– Service capacity is a time-perishable commodity
– Whenever server is idle, service capacity is permanent loss
– The nature of demand of a service is clearly RANDOM
» The hour of the day
» The day of the week
» The season of the year
• Smoothing demand will improve service productivity
– Adjust service demand to match availability of service
» Appointment & reservation
• Customers can avoid of waiting
» Incentive to promote off-peak hours
– If attempt to smooth demand fail
» Initiate queue management
• Great utilization of service
• Customer’s frustration or
• Disney’s FastPass create more sale opportunity
– Customer-generated content
• The Internet has opened a new opportunity for
customer coproduction
– Wikipedia
– Social media
• Customer contact approach
• Manufacturing
– use inventory to decouple customer demand to achieve
efficiency
– use JIT to meet variation of demand and lower inventory
• Service delivery separate high- and low-contacts
operation
– Give customers a personalization feel
– Reach efficiency for back office operation
– Degree of customer contact
• Service quality is perceived by the customer
experiences
• Lower the percentage of the physical presence of the
customer in the system
– 網路選課
– DIY option
– Separation of high- and low-contact operations
• High-contact operations require employee with
excellent interpersonal skills
• Low-contact operations separate from customers
physically
• Airlines
– Reservation staff and attendants
» Wear uniform and receive training
– Baggage handlers and aircraft maintenance
» Hardly seen by customers
– Sales opportunity and service delivery options
• Information empowerment
– IT touch our life in all areas.
– Service could not survive without use of IT
• More than a convenient way
• Empower both employees and customers
– Employee empowerment
• Files age
–
–
–
–
Customer order files
Suppliers files
Inventory files
Interact WITHIN functional boundaries
• Relational Database age
– Customer service agent can check inventory
– Airlines agent can rebook flights at any alliance airlines
– Interact ACROSS functional boundaries
– Customer empowerment
• Customers no longer confined to their local service
– MIT open courses
• Customer take an active part of their service
– Tracking package
– Supermarket check out
– Get information of their travel destinations
• Intellectual property
– New service design need protection from
competitors copying
•
•
•
•
Inventions (artificial heart)
Trademark (McDonald’s golden arches)
Industrial design right (Starbucks store ambience)
Trade secret (KFC recipe)
– Ten things google has found to be true (p.82)
• Mini cases
– Case 3.1, 100 yen sushi house
– Case 3.3, Amazon.com (p. 86)