Service Management--Chapter 2

Cost-Responsiveness Efficient Frontier

x axis: cost ( H->L)

Using Information to Categorize Customers

-Coding grades customers on how profitable their business is. -Routing is used by call centers to place customers in different queues based on customer code. -Targeting allows choice customers to have fees waived and get other hidden discounts. -Sharing data about your transaction history with other firms is a source of revenue.

Responsive Supply Chains

-Primary goal: Respond quickly to demand -Product design strategy:Create modularity to allow postponement of product differentiation -Pricing strategy: Higher margins because price is not a prime customer driver -Manufacturing strategy: Maintain capacity flexibility to buffer against demand/supply uncertainty -Inventory strategy: Maintain buffer inventory to deal with demand/supply uncertainty -Lead-time strategy: Reduce aggressively, even if the costs are significant -Supplier strategy: Select based on speed, flexibility, reliability, and quality

Efficient Supply Chains

-Primary goal: Supply demand at the lowest cost -Product design strategy: Maximize performance at a minimum product cost -Pricing strategy: Lower margins because price is a prime customer driver -Manufacturing strategy: Lower costs through high utilization -Inventory strategy: Minimize inventory to lower cost -Lead-time strategy: Reduce, but not at the expense of costs -Supplier strategy: Select based on cost and quality

Competitive Service Strategies (Overall Cost Leadership)

-Seeking Out Low-cost Customers (e.g., USAA) -Standardizing a Custom Service (e.g., H&R Block) -Reducing the Personal Element in Service Delivery (e.g., promote self-service at airline check-in) -Reducing Network Costs (e.g., hub and spoke at FedEx) -Taking Service Operations Offline (e.g., shoe-repair drop-off)

Strategic Service Vision Target Market Segments

-What are common characteristics of important market segments? -What dimensions can be used to segment the market, demographic, psychographic? -How important are various segments? -What needs does each have? -How well are these needs being served, in what manner, by whom?

Strategic Service Vision Service Concept

-What are important elements of the service to be provided, stated in terms of results produced for customers? -How are these elements supposed to be perceived by the target market segment, by the market in general, by employees, by others? -How do customers perceive the service concept? -What efforts does this suggest in terms of the manner in which the service is designed, delivered, marketed?

Strategic Service Vision Operating Strategy

-What are important elements of the strategy: operations, financing, marketing, organization, human resources, control? -On which will the most effort be concentrated? -Where will investments be made? -How will quality and cost be controlled: measures, incentives, rewards? -What results will be expected versus competition in terms of, quality of service, cost profile, productivity, morale/loyalty of servers?

Strategic Service Vision Service Delivery System

-What are important features of the service delivery system including: role of people, technology, equipment, layout, procedures? -What capacity does it provide, normally, at peak levels? -To what extent does it help to ensure quality standards, differentiate the service from competition, provide barriers to entry by competitors?

Limits in the Use of Information

Anti-competitive (e.g. Barrier to entry) Fairness (e.g. Yield management) Invasion of Privacy (e.g. Micro-marketing) Data Security (e.g. Medical records) Reliability (e.g. Credit report)

Customer Criteria for Selectinga Service Provider

Availability (24 hour ATM; 800 nos.) Convenience (Site location: Gas, Fast Food) Dependability (On-time performance) Personalization (Know customer's name) Price (Not easy; Quality surrogate) Quality (Perceptions important) Reputation (Word-of-mouth) Safety (Customer well-being) Speed (Avoid excessive waiting)

Porter's Five Forces Model

Bargaining power of the customer example: Bank of America ATM fee where customers threatened to boycott the bank, so BoA took away the fee

Competitive Service Strategies (Focus)

Buyer Group: (e.g. USAA insurance and military officers) Service Offered: (e.g. Shouldice Hospital and hernia patients) Geographic Region: (e.g. neighborhood restaurant)

Service Loser:

Defined by failure to deliver at or above the expected level for a competitive dimension, e.g., failure to repair auto (dependability), rude treatment (personalization), or late delivery of package (speed).

economics of scalability

Econ of scale for a best seller would be more profitable for barns & noble than amazon bc of transportation costs WITHOUT ebooks With eBooks, amazon wins because it costs them virtually nothing to send the "book" to the customer Office365: Microsoft transformed MS Suite from a product (DVD to download) into a service (Office365 cloud computing contracts)

Competitive Service Strategies (Differentiation)

Making the Intangible Tangible (memorable) (e.g., Disney Theme Parks) Customizing the Standard Product (e.g., software driven customization at Ritz Carlton) Reducing Perceived Risk (e.g., FedEx) Giving Attention to Personnel Training (e.g., McDonald's Hamburger University) Controlling Quality (e.g., Shouldice Hospital)Note: Differentiation in service means being unique in brand image (McD Golden Arch), technology use (Sprint fiber-optic network), features (AmEx complete travel services) , or reputation for customer service (Nordstrom's).

virtual value chain

Marketplace vs Marketspace Creating New Markets Using Information (Gather, Organize, Select, Synthesize, and Distribute) Four Stage Evolution • 1st Stage (New Processes): See physical operations more effectively with information (USAA "paperless operation"). • 2nd Stage (New Knowledge): Substitute virtual activities for physical (USAA "automate underwriting"). • 3rd Stage (New Products): Use information to deliver value to customers in new ways (USAA targeted products and "event oriented service"). • 4th Stage (New Relationships): Seek customer collaboration in co-creation of value (USAA "financial planning service").

Sustainability in Services

Motivations: -Regulations/legislation --Environmental Protection Agency (EPA) --Waste Electrical and Electronic Equipment (WEEE) --Restriction of Hazardous Substances (RoHS) -Perception/Image Building -Economic --Cost savings from waste reduction

Competitive Role of Information in Services

Online (Real Time)/External (Customer): Creation of barriers to entry: reservation system, frequent user club, switching costs Online (Real Time)/Internal (Operations): Revenue generation: Yield management, point of sales, expert systems Offline (Analysis)/External (Customer): Database asset: Selling info, development of services, micromarketing Offline (Analysis)/Internal (Operations): Productivity enhancement: Inventory status, data envelopment analysis (DEA)

Competitive Environment of Services

Relatively Low Overall Entry Barriers Economies of Scale Limited High Transportation Costs Erratic Sales Fluctuations No Power Dealing with Buyers or Suppliers Product Substitutions for Service High Customer Loyalty Strong Exit Barriers (i.e. sentimental factories that prevent people from shutting down a family run business)

SWOT analysis

Strengths, Weaknesses, Opportunities, Threats SW-Internal OT-external

Service Winner:

The competitive dimension that is used to make the final choice among competitors, e.g., price.

Service Qualifier:

To be taken seriously, a certain level must be attained on the competitive dimension, as defined by other market players, e.g., cleanliness for a fast food restaurant or safe aircraft for an airline.

Triple Bottome Line Impact

aka 3BL; started by shell oil Three p's: People, Planet, Profit Sustainable jobs: Green collar *sustainability in middle of three circles in venn diagram *social progress, environmental stewardship, economic growth are the circles

exploiting the virtual value chain

production>distribution>retailing>customer (physical value chain) New Process (stage 1)>New Knowledge(2)>New Products (3)> New Relationships (4) (virtual value chain) Apply the generic value-adding steps of the information world: - Gather - Organize - Select - Synthesize - Distribute to each physical activity to create virtual value. Virtual value chain: based on information only`

stages in service firm competitiveness

reputation, operations, service quality, back office, customer, introduction of new technology, workforce, first-line management