Service Innovation and Management
Minder Chen, Ph.D.
Associate Professor of MIS
Chair of Business and Economics
CSU Channel Islands
minderchen@gmail.com
References (I)
• James Teboul, Service Is Front Stage: Positioning Services for Value
Advantage, Palgrave McMillan, 2006.
• Christopher H. Lovelock and Jochen Wirtz, Services Marketing, 6/E,
Prentice Hall, 2007.
• James A. Fitzsimmons,Mona J. Fitzsimmons, Service Management:
Operations, Strategy, and Information Technology, Irwin Professional
Publication, 2008.
• Leonard Berry and Kent Seltman, Management Lessons from Mayo Clinic:
Inside One of the Worlds Most Admired Service Organizations, McGraw
Hill, 2008.
• Bill Hefley and Wendy Murphy (Editors), Service Science, Management
and Engineering: Education for the 21st Century (Service Science:
Research and Innovations in the Service Economy), Springer, February 1,
2008.
• Michael D. Johnson and Anders Gustafsson, Competing in a Service
Economy: How to Create a Competitive Advantage Through Service
Development and Innovation, Jossey-Bass, May 23, 2003.
• Robert F. Lusch & Stephen L. Vargo, The Service-Dominant Logic of
Marketing: Dialog, Debate, And Directions, M.E. Sharpe, February 28, 2006.
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Services - 2
References (II)
• Putting the Service-Profit Chain to Work, Heskett, James L.; Jones,
Thomas O.; Loveman, Gary W.; Sasser, Jr., W. Earl; Schlesinger,
Leonard A.. Harvard Business Review, Jul-Aug 2008, Vol. 86 Issue 7/8,
p118-129.
• How to Sell Services MORE Profitably, Reinartz, Werner; Ulaga,
Wolfgang. Harvard Business Review, May 2008, Vol. 86 Issue 5, p90-96.
• The Four Things a Service Business Must Get Right, Frei, Frances X..
Harvard Business Review, April 2008, Vol. 86 Issue 4, p70-80.
• BREAKING THE TRADE-OFF Between Efficiency and Service, Frei,
Frances X., Harvard Business Review, Nov. 2006, Vol. 84 Issue 11, p92101.
• Vargo, Stephen L. and Lusch, Robert F. (2004a) ‘Evolving to a New
Dominant Logic for Marketing’, Journal of Marketing 68(1): 1–17.
• Vargo, Stephen L. and Lusch, Robert F. (2004b) ‘The Four Services
Marketing Myths: Remnants from a Manufacturing Model’, Journal of
Service Research 6(4): 324–35.
• Succeeding through Service Innovation: A Service Perspective for
Education, Research, Business and Government, by: IfM and IBM, 2008
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Evolution of Works
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Classification of Services
• Extractive (agriculture, mining)
• Transformative (construction, food, manufacturing):
Second sector
• Producer services (Business services and marketed
services)
• Personal services (domestic, hotel, repair, dry-cleaning,
entertainment, etc.)
• Distributive services (logistics, communication,
wholesale and retail trade)
• Non-marketed services (Health, welfare, government,
legal serices, education services, etc.)
Industry sector: Mining, Construction, & Manufacturing
Source: Front Stage
© Minder Chen, 2009
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Service classification – Proximity to final customers
• Business-to-business services
• Consumer services
• “self-services”
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Four Categories of Services
Who or What Is the Direct Recipient of the Service?
Nature of the Service Act
Tangible Actions
Intangible Actions
People
People processing
Possession processing
(services directed at
people’s bodies):
(services directed at
physical possessions):
 Barbers
 Refueling
 Health care
 Disposal/recycling
Mental stimulus
processing
Information processing
(services directed at
people’s minds):
 Education
 Advertising/PR
© Minder Chen, 2009
Possessions
(services directed at
intangible assets):
 Accounting
 Banking
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More T-shaped People
to work in, study, and innovate
service systems
Social Science
(People)
Management
(Business)
Slide by Jean Paul Jacob
Engineering
(Technology)
Service Characteristics
• A service is a deed, a performance, a process, an
effort.
• What is being bought is intangible.
• Services are produced and consumed almost
simultaneously.
• Services in principle cannot be inventories.
• Customers are involved in the production of the
services.
• Manufacturing firms also have a service
component of their own.
• Instant delivery and custom design are both
services.
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Service Definition
• A service is a means of delivering value
to customers by facilitating outcomes
customers want to achieve without the
ownership of specific costs and risks.
– ITIL Version 3
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Services Definition
• A service is a provider/client interaction that
creates and captures value.
• The provider and client coordinate their work
(co-production) and in the process, both create
and capture value (transformation).
• Services typically require assessment, during
which provider and client come to understand
one another's capabilities and goals.
• A time-perishable, intangible experience
performed for a customer acting in the role of
co-producer (Fitzsimmons, 2001)
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Current services thinking
• A service is a provider-to-client interaction that
creates and captures value while sharing risks
• Services are value that can be rented
• Services are the application of specialized
competences (skills and knowledge)
• Services are autonomous, platform independent,
business functions
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Distinguishing services from goods
Inseparability
 Services are created and consumed at the same time
 Services cannot be inventoried
 Demand fluctuations cannot be solved by inventory processes
 Quality control cannot be achieved before consumption
Consideration: Does the ability to tailor and customize goods to the customers’
demands and preferences mean that these goods also have an inseparability
characteristic?
Heterogeneity
 From the client’s perspective, there is typically a wide variation in service
offerings
 Personalization of services increases their heterogeneous nature
 Perceived quality-of-service varies from one client to the next
Consideration: Can a homogeneous perception of quality due to customer
preference idiosyncrasies (or due to customization) also benefit the goods
manufacturer?
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Distinguishing services from goods
Intangibility
 Services are ideas and concepts that are part of a process
 The client typically relies on the service providers’ reputation and the trust they
have with them to help predict quality-of-service and make service choices
 Regulations and governance are means to assuring some acceptable level of
quality-of-service
Consideration: Do most services processes involve some goods?
Perishability (No inventory)
 Any service capacity that goes unused is perished
 Services cannot be stored so that when not used to maximum capacity the
service provider is losing opportunities
 Service capability estimation and planning are key aspects for service
management
Consideration: Do clients who participate in some service process acquire
knowledge which represents part of the stored service’s value? What might the
impact be?
Co-produced
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Service Layering
• Pure service: Legal service, barber shop
• IT-enabled Service: Google for information search, eBay
for online auction services, WebMD for online health
information
• IT Services: IT outsourcing service provider (IBM Global
Service), on-demand data center (EDS), on-demand
computing (IBM)
• Service-wrapped IT products: iTune and iPod; GM OnStar
(Emergency service + remote diagnosis & sensing + GPS
& Navigation)
• Manufacturing services: IC design houses, TSMC foundry
service
• Pure manufacturing: Manufacturing of commodity
products
Source: Minder Chen, 2007
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Products vs. Services
• Products can be seen as the physical
embodiment of the service provided.
–
–
–
–
Cars provide comfortable transportation services
Televisions deliver entertainment
Cosmetics offer beatification services
Cameras provides services for wonderful memory
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OnStar Service from GM
OnStar By GM | OnStar.com, Car Safety Device and Vehicle Security System
http://www.onstar.com/us_english/jsp/index.jsp
Screen clipping taken: 2007/3/6, 上午 07:56
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iPod and iTune
Apple - iPod + iTunes, http://www.apple.com/itunes/, Screen
clipping taken: 2007/3/6, 08:02
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•
November 4, 2003 - 08:35 EST Apple today announced that its first retail store in
Japan will open in Tokyo's Ginza shopping district on Sunday, November 30 at
10:00 a.m. This will be Apple's 73rd retail store, and the first outside the United
States. The new store will feature five floors ….
Services - 19
© Minder Chen, 2009
Inside an Apple Store
Applestore, Soho, New York, 20 Sep 2005
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Computing Clouds: Amazon Web Services
Amazon Web Services Developer Connection : AWS Solutions Catalog
http://solutions.amazonwebservices.com/connect/index.jspa
Screen clipping taken: 2007/3/6, 上午 08:08
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3 New New Things （三創)
• Creativity（創造力）: Individual and group
creativity, creative problem solving
process.
• Innovation(創新): Product/service and
Process innovation, culture for
innovation.
• Entrepreneurship(創業): Creating a
business /enterprise, cost leadership,
differentiation, focused market, etc.
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Service Innovation
• Innovation in services, in service products – new or
improved service products (commodities or public
services). Often this is contrasted with “technological
innovation”, though service products can certainly have
technological elements.
• Innovation in service processes – new or improved
ways of designing and producing services. This may
include innovation in service delivery systems, though
often this will be regarded instead as a service product
innovation.
• Innovation in service firms, organizations, and
industries – organizational innovations, as well as
service product and process innovations, and the
management of innovation processes, within service
organizations.
http://en.wikipedia.org/wiki/Service_innovation
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Dimensions of service innovation
• The Service Concept: A “new value proposition”.
• The Client Interface: refers to innovation in the
interface between the service provider and its
customers. e.g., self-service
• The Service Delivery System: A "service factory"
approach— is a standardized and industrialized
environment for more effective service innovation.
• Technological Options: Customer loyalty cards
and “smart” RFID cards for transactions.
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Service-Oriented Model & Architecture
The service
target may be
the service
client itself.
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Provider-Client relationship
•
Provider
– An entity (person, business, or institution) that makes
preparations to meet a need
– An entity that serves
•
Client
– An entity (person, business, or institution) that engages the
service of another
– An entity being served
•
Some general relationship characteristics are that the client
– Participates in the service process (also known as the service
engagement)
– Co-produces the value
– The quality of service delivered depends on customers
preferences, requirements, and expectations
© Minder Chen, 2009
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Five Key Areas for Service Innovation in High Tech
1. The Capture, Management and Re-use of Knowledge is progressing slowly.
Where are the breakthroughs?
–
In electronic self help? In professional services/consulting IP capture?
2. The Growing Complexity of the Customer’s Systems is increasing cost-toserve and negatively effecting customer satisfaction. How can we apply
innovative approaches to tracking the customer environment, the cause of
problems and to facilitate cooperative service provision among different
companies with common customers?
3. What are future approaches to Building Supportability Into Technology
Products?
–
Predict environments conducive to problems
–
Sense developing problems; Take Pre-emptive actions (automated and
non)
–
Collect information for service providers
4. Service organizations know more about the use of products and changing
customers environments than any other part of the company. How can we
Turn Mountains of Data Into Usable Management Information for services
management, the sales force and product development teams?
5. The Services Supply Chain is becoming increasingly complex. Innovation
around the “service system” business model that can help companies partner
effectively will help both the quality of customer solutions and the bottom line.
© Minder Chen, 2009
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Service innovation is inherently multidisciplinary
Knowledge sources driving service innovations…
Science &
Engineering
Technology
Innovation
Social-Organizational
Innovation
Social Sciences
Business
Innovation
Demand
Innovation
Business
Administration
and
Management
Global
Economy
& Markets
SSME = Service Sciences, Management, and Engineering
© Minder Chen, 2009
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Manufacturing vs. Services: A matter of Degree
Manufacturing Sector
© Minder Chen, 2009
Service Sector
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Three Types of Restaurants
Teppanyaki-type
Restaurant
(i.e., Benihana)
Source: Service Is Front Stage
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Services: The front-stage experience
manufacturing
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In-N-Out Burger
http://www.in-n-out.com/menu.asp
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Important Factors to Fast-Food Users
• The cleanliness of the restaurant (77 percent
rated this “extremely important”),
• Taste or flavor of the food (73 percent)
• Order accuracy (66 percent).
• Quality of ingredients also is highly important
(64 percent)
• Temperature of food ranks next in importance
(57 percent).
http://www.sandelman.com/news/pdf/2005AwardsofExcellenceRelease.pdf
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Manchu Han
Imperial Feast
(Chinese cuisine
108 dishes)
懷石料理
Kaiseki or kaiseki ryōri
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Japanese teppanyaki cooking: Hibachi-style
• Moving the backstage to the frontstage
• Dining + Entertaining (Showmanship)
• http://www.benihana.com/about/the-benihana-story
•
•
•
•
•
http://www.youtube.com/watch?v=P9SUw0ARqwc&feature=related
http://www.youtube.com/watch?v=aX6gUMRqJjA&feature=related
http://www.youtube.com/watch?v=J1LGJ4rKX0g&feature=related
http://www.youtube.com/watch?v=3zATulLPfVc&feature=related
http://en.wikipedia.org/wiki/Teppanyaki
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Food for Thought?
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•
•
•
•
•
•
•
•
•
Complimentary flatbed pick-up & delivery of your vehicle.
New Express Service: Oil change in 30 minutes.
Loaner Vehicles and complimentary car wash with every service.
Longo Lexus courtesy pickup and dropoff shuttle (within a 15-mile)
Guest Lounge with complimentary cappuccinos, coffee, tea, and pastries.
Kids Play Area with children's movies and games.
Guest Business Center provides computers, copier, fax and printer, & phone.
Wireless internet access available throughout our facility.
Starbucks Coffee and Subway sandwich restaurant located at our facility.
http://www.longolexus.com/AboutServiceAndParts
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Empowered Customer-Focus Processes
Manager as Coach
Teamwork
Customer-facing Process
Empowered
Font-line
worker
Values and Quality
delivered to
Customers timely
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The Progression of Economic Value
WELCOME TO THE EXPERIENCE ECONOMY. Pine, II, B. Joseph; Gilmore, James H.. Harvard Business
Review, Jul/Aug98, Vol. 76 Issue 4, p97-105.
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Build a Bear Workshop
• http://www.buildabear.com/aboutus/ourcompan
y/process.aspx
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Servant Leadership
•
•
•
•
•
•
•
© Minder Chen, 2009
Customer
Distributors/Dealers
Front-line workers
Supervisor
Managers
CIO, CFO, COO
CEO
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Employees and Customers
“You don’t get happy
guests with unhappy
employees.”
J. W. Marriot
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Value Chain of People
+
Employee
Value
+
+
Customer
Satisfaction
+
+
+
© Minder Chen, 2009
Business
Profitability
Shareholder
Value
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Service Profit Chain
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Lifetime Value of a Customer
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The Service Triangle
WOM: Words of Mouth
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The Service Triangle
Product and process
formulation
Firm
High-quality internal
services and
Good internal management
Frontline
employee
Revenue
growth and
profitability
Relationship
Customer
Value of service provided
Low turnover
Productivity
Loyalty
(Teboul, 2005, p. 33).
© Minder Chen, 2009
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Customer Loyalty
© Minder Chen, 2009
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Zappos.com
• YouTube - Zappos on Nightline
www.youtube.com/watch?v=tFyW5s_7ZWc
• Amazon acquires Zappos for $850M Million
• Video from Jeff Bezos about Amazon and Zappos
• Zappos on face book
http://www.facebook.com/zappos?v=app_3801015922
• http://twitter.com/zappos
• http://ag.arizona.edu/rtip/Symposium/2008/08_powerpoi
nt/c_adkins_zappos.pdf
• Why Zappos are so successful in selling shoes online?
• How would you use Web 2.0 for your business?
• Anything unique about the Web site design?
© Minder Chen, 2009
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Zappos at a Glance
• Founded in 1999,1600 employees (half in Las Vegas,
Nevada, half in Louisville, Kentucky)
• Zappos is “Powered by Service”
• Providing the best online shopping experience possible.
– Fast, Free Shipping. Free return shipping. 365‐day
return policy.
– Fast fulfillment. Expedited delivery. Fast, friendly &
expert customer service.
• Best selection:
– Over 1200 brands, over 200,000 styles, over 900,000
unique UPCs. Over 4 million items in warehouse
– Photography in multiple angles & 100% in‐house.
– 100% of products inventoried (no drop ship).
• Zappos is a service company that happens to sell
shoes, clothing, handbags, eyewear, watches (and
eventually a bunch of other stuff).
© Minder Chen, 2009
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Zappos Core Value
1.
2.
3.
4.
5.
6.
Deliver WOW Through Service
Embrace and Drive Change
Create Fun and A Little Weirdness
Be Adventurous, Creative, and Open-Minded
Pursue Growth and Learning
Build Open and Honest Relationships With
Communication
7. Build a Positive Team and Family Spirit
8. Do More With Less
9. Be Passionate and Determined
10.Be Humble
http://about.zappos.com/our-unique-culture/zappos-core-values/deliver-wow-through-service
© Minder Chen, 2009
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Zappos Success
• encouraging customers to order as many products as they
wanted in order to “try them on,” then offering free return
shipping for a full 365 days
• only listing products on the site when stock was in their own
warehouse (which actually lowered sales by 25% at a time when
the company was still in the red)
• Run warehouse operation 24/7 to deliver super-fast turnaround
on orders, despite it being an inefficient way to manage
fulfillment
• encouraging customers to call them about nearly everything.
Their call center takes 5,000 calls per day, and employees work
independent of scripts, quotas, or call time limits. The longest
call to date has been four hours. Zappos views the phone
experience as a branding device, and speaks to virtually every
customer at least once.
• deciding to invest in “surprise” (free) upgrades to overnight
shipping for most customers. This means that most orders are
delivered within 24 hours, despite the web site indicating it will
take 2-5 business days.
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© Minder Chen, 2009
Zappos: 10 Things Learned in e‐commerce
1. The e‐commerce business is built on repeat customers
2. Word of mouth really works online
3. Don’t compete on Price
4. Make sure your web site inventory is 100% accurate
5. Centrally locate your distribution
6. Customer service is an investment, not an expense.
7. Start small, stay focused
8. Don’t be secretive. Don’t worry about competitors
9. You need to actively manage your company culture
10. Be wary of so‐called experts…INCLUDING US!!!
© Minder Chen, 2009
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Service blueprint components
Physical evidence
Desktop PC and applications, ticket, records
Customer actions
IT request, problem call to help desk, etc
Line of interaction
Onstage
Employee actions
Takes call, opens ticket, visit to employee desk side
Line of visibility
Backstage
Employee actions
Refers to manuals, asks for help from team
Line of internal interaction
Support processes
© Minder Chen, 2009
Time recording, payroll, training, etc
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Customer Life Cycle
The Proof!
Translate Failure into Success!
"Moments of
Truth"
Market and Customer Research
and analysis
Sales Processes
(Including Business Partners)
Cross-Selling,
Profit Opportunities
Delivery, Welcoming service and
Continuous Contact Processes
© Minder Chen, 2009
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MOT Analysis Example: A Credit Card Company
• Pri to MOT
–
–
–
Recognition
Information gathering
Comparison
• MOT
–
–
–
–
–
–
–
Applying for Credit Card
Receiving Credit Card
Using Credit Card
Providing Information
Changing and Upgrading
Gifts giving
Emergency Assisting
• After MOT
–
–
No usage follow-up
Stop membership follow-up
© Minder Chen, 2009
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Customer Experiences of an Airline Passenger: SAS
SAS Scandinavian Airlines
© Minder Chen, 2009
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Value Creation Cycle for a Full Service Hotel
© Minder Chen, 2009
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Think from the Customer Back
The Customer
Define
Outcomes
Redesign
Outputs
Activities/Tasks
Functions/Processes
Organization
Determine
Activities
Define
Job Responsibilities
Management
* Adapted from The Price
Waterhouse Change
Integration Team, Better
Change, Irwin, 1995, p. 163.
© Minder Chen, 2009
Develop
Organization Structure
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EC and Business Processes
Seller
Customer
Send info
Phone,
fax, e-mail
Request info
Provide
Info
Identify
need
Corporate Databases
Data sheets,
catalogs, demos
Get
customer
Web surfing
Web searches,
web ads
Web site
Find
source
Newsgroups
Provide
info
Demos,
reviews
Fulfill
Services
Evaluate
offerings
Net
communities
Web site
P.O.s
Credit cards, e-cash
EDI
Deliver soft goods electronically
Support
© Minder Chen, 2009
Purchase
Web site, phone,
fax, e-mail, emailing list
Operate,
Maintain,
Repair
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The Service Portfolio
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Service Support Model
© Minder Chen, 2009
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The Service Delivery Process Model
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Service-Oriented Enterprise Architecture
View
SERVICE
Strategic Service
View
Strategy
Tactic
View
PROCESS
Service Value
Chain
Framework
People
Customer
Segmentation &
Employee
Attributes
Service
Customer
Organizational
Portfolio & Management Structure &
Catalogue Activity Model Human
Workflow
Operatio Service
Service
Service Teams
nal View Operations Blueprinting
& Web
Services
© Minder Chen, 2009
Information
Motivation
EnterpriseWide
Conceptual
Information
Model
Visions,
Missions, &
Business
Strategy
Logical Data
Model
Business
Goals
Physical Data
Model &
Dimensional
Model for Data
Warehouse
Performance
Measure
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