ISM 270
Service Engineering and
Management
Lecture 3: Technology in Services
Announcements
 Homework
1 due today
 Homework 2 due next week 1/30
 Project 1 given today, due 2/13
Today’s Lecture
 Review
of Strategic Advantage (Porter
Model)
 Role of Technology in Services
 Alan Karp, HP Labs
Understanding the Competitive
Environment of a Company
Companies do not exist in a vacuum:
It is necessary to understand the competitive
environment to assess the current competitive
position of a company.
It has become increasingly necessary to posture a
company for challenges in its future.
Porter Competitive Model
Potential
New Entrants
Bargaining
Power
of Suppliers
Intra-Industry Rivalry
Strategic Business Unit
Substitute
Products
and Services
Bargaining
Power of Buyers
Competitive Model Focus
• What is driving competition in the current or
future industry?
• What are current or future competitors likely
to do and how can a company respond?
• How can a company best posture itself to
achieve and sustain a competitive advantage?
Competitive Model Forces
Intra-industry Rivals: Strategic Business Unit (SBU)
and major rivals.
Buyers: Categories of major customers.
Suppliers: Categories of major suppliers that play a
significant role in enabling the SBU to conduct its
business.
New Entrants: Companies that are new as competitors in
a geographic market or existing companies that through a
major shift in business strategy will now directly compete
with the SBU.
Substitutes: An alternative to doing business with the
SBU.
Porter Competitive Model Education Industry –
Universities U.S. Market
Potential
New Entrants
Bargaining
Power
of Suppliers
• Faculty
• Staff
• Equipment and
Service Suppliers
• Alumni
• Foundations
• Governments
• IT Vendors
• Foreign Universities
• Shift in Strategy by Universities
or Companies
Intra-Industry Rivalry
SBU: UCSC
Rivals: UC campuses, CSU,
Private universities,
Community Colleges
Substitute
Products
and Services
• Internet Distance Learning
• Books and Videotapes
• Computer-Based Training
• Company Education Programs
Bargaining
Power of Buyers
• Students
• Parents
• Businesses
• Employers
• Legislators
Role of Technology through
Porter perspective: Can we…
1. Build barriers to prevent a company from entering
an industry?
2. Build in costs that would make it difficult for a
customer to switch to another supplier?
3. Change the basis for competition within the
industry?
4. Change the balance of power in the relationship
that a company has with customers or suppliers?
5. Provide the basis for new products and services,
new markets or other new business opportunities
Porter Competitive
Strategies
Cost Leadership Strategies
Differentiation Strategies
Primary
Strategies
Innovation Strategies
Supporting
Strategies
Growth Strategies
Alliance Strategies
Porter Primary Strategies
Differentiation—customer values the differences that you
provide in products, services or capabilities.
Cost—is least cost. If this is the primary strategy, over time
there will only one ultimate winner.
Porter Supporting
Strategies
Innovation—either with business strategies or use of
information systems or both.
Growth—deals with growth in revenue and other business
volumes. Can be a key factor in establishing a market
position. Can also be a major requirement to offset high
fixed operating costs.
Alliances—importance of establishing a strong relationship
with suppliers and other business partners often on a
contractual basis.
Dell, Inc. Strategies
Primary Strategy:
Differentiation
Least Cost
Supporting Strategies:
Innovation
Growth
Alliances
IT Significance
Information Technology can change the way that an
organization (business or public sector) competes.
• As the foundation for organizational renewal.
• As a necessary investment that should help
achieve and sustain strategic objectives.
• As an increasingly important communication
network among employees and with customers,
suppliers, business partners and even
competitors.
Strategic Roles
of Information Systems
Specific Examples:
 Lower Costs
 Differentiate
 Innovate
 Promote Growth
 Develop Alliances
 Improve Quality and Efficiency
 Build an IT Platform
 Support (enable) other
Strategies
New Service Development
Learning Objectives
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Discuss the new service development
process.
Prepare a blueprint for a service operation.
Describe a service process using the
dimensions of divergence and complexity.
Use the taxonomy of service processes to
classify a service operation.
Compare and contrast the generic
approaches to service system design.
Levels of Service Innovation
Radical Innovations

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Major Innovation: new service driven by information
and computer based technology
Start-up Business: new service for existing 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 features of
currently offered service
 Style Changes: modest visible changes in
appearances
Technology Driven Service Innovation

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Power/energy - International flights with jet
aircraft
Physical design - Enclosed sports stadiums
Materials - Astroturf
Methods - JIT and TQM
Information - E-commerce using the Internet
Service Design
Elements

Structural
- Delivery system
- Facility design
- Location
- Capacity planning
 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.
For example a clinic is less complex than
a general hospital.
 Degree of Divergence: Amount of
discretion permitted the server to
customize the service. For example the
activities of an attorney contrasted with
those of a paralegal.
Structural Alternatives for a Restaurant
LOWER COMPLEXITY/DIVERGENCE
CURRENT PROCESS
No Reservations
Self-seating. Menu on Blackboard
Eliminate
Customer Fills Out Form
TAKE RESERVATION
SEAT GUESTS, GIVE MENUS
SERVE WATER AND BREAD
TAKE ORDERS
PREPARE ORDERS
Pre-prepared: No Choice
Salad (4 choices)
Limit to Four Choices
Entree (15 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
COLLECT PAYMENT
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’
Individually Prepared at table
Expand to 20 Choices: Add Flaming Dishes;
Bone Fish at Table; Prepare Sauces at Table
Expand to 12 Choices
Add Exotic Coffees; Sherbet between
Courses; Hand Grind Pepper
Choice of Payment. Including House Accounts:
Serve Mints
Taxonomy of Service Processes
Low divergence
(standardized service)
No
Customer
Contact
Processing
of goods
Processing
Information
Dry
Cleaning
Restocking
a vending
machine
Check
processing
Billing for a
credit card
High divergence
(customized service)
Processing
of people
Processing
of goods
Processing
Information
Auto repair
Tailoring a
suit
Computer
programming
Designing a
building
Ordering
groceries
from a home
computer
Indirect
customer
contact
No
customerservice
worker
interaction
(selfservice)
Operating
a vending
machine
Assembling
premade
furniture
Withdrawing
cash from
an ATM
Direct
Customer
Food
Giving a
Providing
Customer Contact
service
service in a
worker
restaurant
Handling
interaction
Hand car
routine bank
washing
transactions
Processing
of people
Supervision
of a landing
by an air
controller
Operating
an elevator
Riding an
escalator
Home
lecture
transportation
Providing
mass
vaccination
Sampling
food at a
buffet dinner
Bagging of
groceries
Documenting
medical
history
Portrait
public
cleaning
Landscaping
service
Haircutting
carpet
Counseling
Searching for
information
in a library
Driving a
rental car
Using a
health club
facility
painting
a surgical
operation
Performing
Generic Approaches to Service
Design
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Production-line
• Limit Discretion of Personnel
• Division of Labor
• Substitute Technology for People
• Standardize the Service
Customer as Coproducer
• Self Service
• Smoothing Service Demand
Customer Contact
• Degree of Customer Contact
• Separation of High and Low Contact Operations
Information Empowerment
• Employee
• Customer
Customer Value Equation

ResultsPro duced   ProcessQua lity 
Value 
Price   CostsofAcq uiringtheS ervice 
Project 1
Technology in Service
Learning Objectives
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Discuss the of technology in the service
encounter.
Describe the emergence of self-service.
Place an example of service automation in its
proper category.
Describe different Internet business models.
Understand the importance of scalability to ecommerce success.
Discuss the managerial issues associated with
the adoption of new technology.
Role of Technology in the Service Encounter
Technology
Customer
Technology
Server
A. Technology-Free
Service Encounter
Customer
Technology
Server
B. Technology-Assisted
Service Encounter
Technology
Customer
Customer
C. Technology-Facilitated
Service Encounter
Technology
Server
D. Technology-Mediated
Service Encounter
Customer
Server
Server
E. Technology-Generated
Service Encounter
Evolution of Self-service
Service Industry
Human Contact
Machine Assisted Service
Electronic Service
Banking
Teller
ATM
Online banking
Grocery
Checkout clerk
Self-checkout station
Online order/ pickup
Airlines
Ticket agent
Check-in kiosk
Print boarding pass
Restaurants
Wait person
Vending machine
Online order/ delivery
Movie theater
Ticket sale
Kiosk ticketing
Pay-for-view
Book store
Information clerk
Stock-availability terminal
Online shopping
Education
Teacher
Computer tutorial
Distance learning
Gambling
Poker dealer
Computer poker
Online poker
Self-service Technologies (SST)

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Does customer adoption of self-service follow a
predictable pattern?
How do we measure self-service quality (e.g.,
ease of use, enjoyment, and/or control)?
What is the optimal mix of SST and personal
service for a service delivery system?
How do we achieve continuous improvement
when using SST?
What are the limits of self-service given the loss
of human interaction?
Classification of Service
Automation
 Fixed-sequence
(F) - parking lot gate
 Variable-sequence (V) - ATM
 Playback (P) - answering machine
 Numerical controlled (N) - animation
 Intelligent (I) - autopilot
 Expert system (E) - medical diagnosis
 Totally automated system (T) - EFT
Purpose of Web-site
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A retail channel (Amazon.com)
Supplemental channel (Barnes & Nobel)
Technical support (Dell Computer)
Embellish existing service (HBS Press)
Order processing (Delta Airline)
Convey information (Kelly Blue Book)
Organization membership (POMS.org)
Games (Treeloot.com)
Technology Convergence
Enabling E-Business

Internet
 Global telephone system
 Communications standard TCP/IP
(Transfer Control Protocol/Internet Protocol)
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Addressing system of URLs
Personal computers and cable TV
Customer databases
Sound and graphics
User-friendly free browser
E-Business Models
(Weill & Vitale, Place to Space, HBS Press, 2001)
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Content Provider: Reuters
Direct to Customer: Dell
Full-Service Provider: GE Supply Co.
Intermediary: eBay
Shared Infrastructure: SABRE
Value Net Integrator: 7-Eleven Japan
Virtual Community: Monster.com
Whole-of-Enterprise: Government
Economics of E-Business

Sources of Revenue:
- Transaction fees
- Information and advice
- Fees for services and commissions
- Advertising and listing fees
 Ownership
- Customer relationship
- Customer data
- Customer transaction
Electronic and Traditional
Services
Features
Electronic
Traditional
Encounter
Screen-to-face
Face-to-face
Availability
Anytime
Working hours
Access
From anywhere
Travel to location
Market Area
Worldwide
Local
Ambiance
Payment
Electronic
interface
Credit card
Physical
environment
Cash or check
Differentiation
Convenience
Personalization
Privacy
Anonymity
Social interaction
Grocery Shopping Comparison
On-line
Shopping
Advantages
Convenience
Saves time
Less impulse
buying
Disadvantages Forget items
Less control
Need computer
Delivery fee
Traditional
Shopping
See new items
Memory trigger
Product sampling
Social interaction
Time consuming
Waiting lines
Carry groceries
Impulse buying
Economics of Scalability
Dimensions
High
Scalability
Low
E-commerce
continuum
Selling
information
(E-service)
Selling valueadded service
Selling
services with
goods
Selling goods
(E-commerce)
Information vs.
Goods Content
Information
dominates
Information with
some service
Goods with support
services
Goods dominate
Degree of Customer
Content
Self-service
Call center backup
Call center support
Call center order
processing
Standardization vs.
Customization
Mass distribution
Some
personalization
Limited
customization
Fill individual orders
Shipping and
Handling Costs
Digital asset
Mailing
Shipping
Shipping, order
fulfillment, and
warehousing
After-sales service
None
Answer questions
Remote maintenance
Returns possible
Example Service
Used car prices
Online travel agent
Computer support
Online retailer
Example Firm
Kbb.com
Biztravel.com
Everdream.com
Amazon.com
Adoption of New Technology in
Services

Challenges of Adopting New Technology
The Process is the Product
Back Office vs Front Office Changes
Need for Standardization
 Managing the New Technology Adoption
Process
Ten step process with concern for employees
and customers
Discussion
Name an Internet site you believe will be
successful in the long run - explain why.
E-Business Supply Chain
(Network) Elements

Major entities including firm of interest and its
customers, suppliers, and allies
 Major flows of product, information, and money
 Revenues and other benefits each participant
receives
 Critical aspects: participants, relationships, and
flows
Example: 7-Eleven Japan
Evolution of B2C E-Commerce in
Japan
1.
2.
3.
4.
What features of the 7-Eleven Japan
distribution system illustrate the “Value Net
Integrator” e-business model?
Does the 7-Eleven Japan distribution system
exhibit scalability economics?
How does the 7-Eleven example of B2C ecommerce in Japan illustrate the impact of
culture on service system design?
Will the 7-Eleven “Konbini and Mobile” system
be adopted in the United States?
Alan Karp
 Head
of Virus Safe Computing Initiative,
HP Labs
 Ph.D. Astronomy, University of Maryland
 15 years at IBM, 15 years at HP Labs
 Expert in large scale scientific computing,
distributed service development