OM Chapter 2

process

Process decisions relate to how activities are performed within the service firm, the specific steps and sequence in the service delivery process and to what extent and how customers will be involved in the co-creation of value.

What are the four services and what are they based on?

Services: (a) service factories, (b) service shops, (c) mass services, or (d) professional services, based on two dimensions: 1. the degree of labor intensity involved in the process and 2. the degree of customer interaction and customization.

Describe the financial perspective of the balanced scorecard:

The financial perspective ensures that the firm's strategy and its proper execution are truly effective as measured by sales growth and the associated profits generated, both of which affect shareholder value. Other measures that can be included here include market share and cash flow.

no contact services

are performed without any personal customer contact at all. -These services correlate highly with those that are described earlier as quasi-manufacturing services, such as back-office check processing or mail sorting. -Mail is often the medium for communication between customers and service providers in no-contact services.

strategy maps

as a tool to help managers translate a given strategy into an executable plan of action. -Strategy maps provide a method for identifying all of the decisions a firm must make to ensure that its strategy is being executed properly. -Because it includes all of the functional areas, a strategy map also ensures that the individual functions are properly integrated and aligned both within the organization as well as from the customer's perspective

value constellation

concept proposed by Richard Normann and Rafael Ramirez, describing how customers are directly involved in the co-creation of the service -firms adopting this approach define new markets. -A good example of this value constellation approach is a bank ATM, which provides self-service bank transactions to customers at convenient locations on a 24x7 basis. Another example is IKEA, the Swedish furniture store chain, which redefined value by offering low cost furniture that customers assemble themselves. By involving customers more in the value co-creation process, IKEA is able to significantly reduce its shipping costs, (because the furniture was shipped unassembled in smaller cartons) and labor costs (because the customer supplies the labor to assemble the furniture) - and they pass some of these savings onto its customers in the form of lower prices

mission statement

identifies its primary purpose for existing. It usually includes a description of the firm's current capabilities and how it focuses on its customers.

forward integration

involves purchasing or controlling customers.

backward integration

involves purchasing or controlling the suppliers;

service factories

provide standardized services to large numbers of customers. -They tend to be capitalintensive and the level of interaction with and customization of service for customers is fairly low. In contrast, mass services are provided in high-labor intensity environments but also have relatively low levels of customization.

product

refers to the benefits that will be provided to the customer through the good or service. -Product decisions relate to the ways the firm differentiates its products from those of competitors, including how the products will be branded, trademarked, and packaged; what warrantees will be included; what features will be included in the product design; and what models and sizes will be included in the product line.

What are the 5 types of decisions that every organization must make about IT and how it will be governed?

(a) IT principles, (b) IT architecture, (c) IT infrastructure, (d) business application needs, and (e) IT investment and prioritization.

What do Structural operations strategy decisions include?

(a) location, (b) capacity, (c) vertical integration and (d) process technology.

What are the different types of services?

(a) pure services, (b) mixed services or (c) quasi-manufacturing services

What are the 4 stages of IT Architecture decisions?

(a) the application silo stage, during which the there is no standardization across applications, (b) the standardized technology stage, during which the firm begins to build a shared infrastructure, (c) the rationalized data stage, during which resources are shifted away from application development and toward data and infrastructure development with emphasis on data that supports core activities across the organization, and (d) the modular architecture stage, during which the firm preserves global standards while enabling local differences.

What do infrastructural decisions include?

(a) workforce, (b) quality management, (c) policies and procedures and (d) organizational structure.

the way managers control the way work is performed

(monitoring and influencing the process or focusing on the output)

the temporal nature of employment relations

(whether staff are hired for a short-term job or a long-term career),

Describe the innovation and learning perspective of the balanced scorecard

-A key element in today's competitive environment is an organization's ability to develop and introduce new goods and services. Two firms that excel at doing this are Apple and Google. -The goal in introducing new goods and service is always to increase value for the customer, either through goods and services that have new features not offered by competitors or through improved operational efficiencies that result in faster delivery and/or lower prices to the customer.

Describe market segmentation strategy:

-A market segmentation strategy focuses on satisfying the needs of a particular market segment. -For example, the quick service restaurant segment of the restaurant industry focuses on customers who want to eat quickly and at a low cost. -To accomplish this, restaurants in this segment typically offer limited menus and self-service. The Four Seasons Hotels, on the other hand, focus on a very different segment; they offer very high level services with prices to match: focusing on the top five per cent of the hotel industry.

Describe Services Performed on People versus Services Performed on Things.

-Another way to characterize services is to consider not only the degree of contact but also whether the service is directed at people or things. -Some low contact services performed on customers' possessions require high skill levels, such as accounting services (for example, preparing tax returns) or legal services (for example, drawing up a contract or will), while others, such as housekeeping or janitorial services, require less skill.

Describe rewards in hr:

-Employees expect to be rewarded and compensated for their work. Some rewards are intrinsic: (a) the satisfaction of a job well done, (b) the opportunity to grow skills and capabilities, and (c) the respect of managers and peers. -Extrinsic compensation is typically related to wages and benefits. Organizations must make a variety of strategic decisions about extrinsic compensation, including: (a) how best to compensate the workforce (the level of salary and benefits), (b) whether and how much pay should be contingent upon performance, (c) the salary scale for the organization (the ratio of highest to lowest worker), (d) how to position compensation compared to competitors and the labor market in general, and (e) how to administer its pay system (in a more secret as opposed to a more transparent manner).

Describe Operational Excellence.

-Firms pursuing this strategy focus on the product or service being delivered. -The dimensions of excellence include price, quality, speed of delivery and on-time delivery. -Southwest Airlines and McDonald's are good examples of service firms that have adopted this strategy

Describe low cost strategy:

-Firms that adopt this strategy attract customers primarily because they sell goods and services at a lower cost than their competitors. -To be successful, companies that compete on cost must also be the low cost producer in the markets they serve. -Wal-Mart has been so successful with keeping its costs low that competitors like Target or Kohl's simply cannot compete with Wal-Mart on cost alone.

Describe location in structural decisions:

-For services that deal directly with the customer (which we will learn later in the chapter are defined as high contact services), the location decision is driven by where the customers are -For example, economies of scale may be realized by having all of the production at Dunkin' Donuts done in a single huge facility - say in Ottumwa, Iowa, near the geographic center of the United States - and it might be most convenient for the company to have all of its customers come to that single location to purchase Dunkin' Donuts products. But most of its customers in the U.S. (or even in Iowa, for that matter) aren't willing to travel to Ottumwa on their way to work in the morning just to grab a quick cup of coffee. On the other hand, low contact services, which don't require the physical presence of the customer, such as Citibank's credit card phone center in Sioux Falls, South Dakota, can be located in a part of the country, or even the world, where labor and other operating costs are lower. Telecommunication technology enablesthat service location decision, which is why many English-speaking call centers are located in India, the Philippines, and Panama and in Morocco for French-speaking countries..

Describe staffing in HR:

-HR staffing strategies relate to how organizations acquire, develop, retain and disengage from their employees. -The approaches firms use to recruit and select employees, not to mention the level of resources invested in training and developing these resources, typically vary depending upon how much the firm relies upon the external labor market (as opposed to its own, internal supplies - or "internal labor market") as its primary source of human capital. -Firms adopting a longer-term, output-based employment model (often called a "commitment strategy") tend to structure their hiring around person-organization culture fit and learning competencies and invest heavily in employee development. -In contrast, firms adopting a shorter-term, process-based employment model tend to hire for the job and invest little in training because there is a risk that there will be little return on those investments.

Describe policies and procedures in infrastructural decisions:

-Managers also need to define how the work will be performed and how decisions will be made. -These policies and procedures can make a tremendous difference in the consistency of the service and the way customers perceive the service. -For example, one of the reasons for McDonald's success is the consistency of its products and services around the world, which can be attributed in large part to the very clear and detailed procedures that have been developed for how hamburgers and fries should be made and served to customers. One of the expectations of McDonald's customers is that wherever they go, McDonald's food will taste essentially the same, and it probably would not if the procedures were not consistently followed in every store around the world.

Describe services with wide fluctuations in demand:

-One of the greatest challenges associated with managing service operations is dealing effectively with wide fluctuations in demand. Goods producing organizations have the edge here; they can produce goods during slow periods to meet the anticipated demand in peak periods. Because of the intangibility of services and the simultaneity of service delivery and consumption by the consumer, service managers have no choice but to try to provide services when customers require them. For example, delivering e-cards on Valentine's Day needs to be done on Valentine's Day; no other day will do (in 2008, during certain times on that Valentine's Day, only 30 percent of customer attempts to reach popular e-card sites were successful and both senders and receivers of e-cards often had to try to access the site several times). 17 This example illustrates a seasonal or one-time peak demand situation. Similar challenges occur on much smaller scales, however. Demand for services may fluctuate considerably by season of the year, day of the week, time of the day, and even from minute to minute within the day. If the perceived value of the service is high, customers may be willing to wait in line, but there is always the risk that they will choose not to wait for the service - or even to seek the service from another service provider. -When demand fluctuates widely, the service manager needs to be very attuned to workforce issues, particularly the number of workers that need to be scheduled, the stress on workers in busy times and the boredom that can accompany slow periods of demand. Quality control is particularly important here because of the way the pace of the work may vary when demand varies. Strategies for matching supply and demand include ways of increasing capacity when it is needed, serving customers more quickly (without sacrificing quality), and shifting demand to periods when more capacity is available.

Describe how the strategic decisions made within the organization's functional areas determine the key processes that need to be developed and how performance is measured.

-Optimally, throughout the strategy development process, information is regularly fed back through the service system so that performance goals are achieved and customers' needs are constantly reassessed and addressed. -The service delivery process, then, is continuously driven by strategy, which is continuously monitored by the established performance measures.

Describe employee relations in HR:

-Organizations must also make strategic decisions about how they want to handle issues of discipline, employee complaints and grievances and employees' social welfare. -Although union membership rates have been declining in most industrialized countries over the past 30 years, studies suggest that many employees would still like to be unionized and companies must adopt a strategy for responding if and when employees seek to unionize. -Some of the most profitable firms in particular service industries (for example, Southwest Airlines) have developed cooperative relations with the unions representing their workers as the basis of their employee relations strategy

Describe Customer Intimacy.

-Organizations that adopt this strategy focus primarily on developing long-term relationships with customers. -An integral element in this strategy is providing excellent service at all levels. -Examples of service firms that use this strategy are the Four Seasons Hotels and Singapore Airlines.

What has the marketing mixed been expanded to include?

-People -Physical evidence -Process

Describe performance management in HR:

-Performance management strategies focus on the approach taken by the firm to reduce the uncertainties inherent in work processes. -At the broadest level, these strategic decisions involve how the organization structures its work processes. -That is, does it standardize and routinize these processes, ensure close monitoring, or provide a highly skilled or professional workforce with the autonomy and discretion needed to allow them to do the job as they see fit. When workers have discretion in how they perform their work, managers also have to decide how to monitor performance to quickly identify and respond to individual variations. -There are many ways organizations can monitor performance, but none are problem free and the costs of implementing the wrong performance management system can be very high

Describe capacity in structural decisions:

-Physical capacity decisions are critically important. Too much capacity translates into unnecessarily high fixed costs, which may reduce profits to the point of bankruptcy. -Conversely, too little capacity may create long waiting lines that frustrate customers and reduce their loyalty, leading to opportunity costs associated with lost sales when customers take their business elsewhere.

Describe quality management in infrastructural decisions:

-Service managers also need to decide how quality will be defined, measured, and monitored within their organizations. -Quality decisions are critically important for every firm, but particularly for service organizations, because of the intangibility of services and their simultaneity of production and consumption.

Describe workforce in infrastructural decisions:

-Service managers need to establish the skill qualifications for their workers, and to determine how they will be scheduled, trained and evaluated. -For example, a walk-in medical clinic may choose to 9 staff its workforce with nurse practitioners who can assess and treat a wide variety of patients' problems, but whose salaries are likely to be lower than those of physicians. Some restaurants may choose to employ professional waitstaff while others may choose high school or college students for their major waitstaff pool.

Describe the impact of technology on developing a strategy:

-Technology has significantly changed the way service managers develop strategies. The Internet has not only increased competition in an already crowded and highly competitive environment, it has also forced managers to react much more quickly to changes in the marketplace. At one time managers had the luxury of months and even years to develop their strategies; however, they now have, in many instances, only days, weeks - or maybe months, if they are lucky. -Strategy is critical to virtual service businesses like Amazon.com or E*TRADE, because they lack the physical structures of brick-and-mortar services, which lend credibility through their ability to come into direct contact with customers. Unless they can develop a successful strategy, virtual services will be forced to compete only on price, which ultimately results in insufficient profit margins that are required to sustain long-term growth. Likewise, the right strategy is critical for brick-and-mortar services that are trying to expand their services through the Internet. As stated earlier, there needs to be alignment among the multiple service channels that a firm uses to serve its customers and cross-channel processes need to be seamless from the customer's perspective. -The Internet is only one example of how technology is mandating service managers to rethink their strategies. As mobile devices such as smartphones and wearables (such as health monitors and smart watches) increase in popularity and other new technologies are developed and become more affordable, these too will need to be considered in the strategic development process.

Describe the customer perspective in the balanced score card:

-The focus here is on how the firm is perceived by its customers. -Customer-related issues typically fall into one of four categories: (a) time: how long it takes to deliver the good or service, (b) quality: both design quality (the level of quality built into the good or service) and conformance quality (that is, the degree to which the process meets established standards), (c) performance and service: specifically how value is created for the customer, and (d) price (note that these map directly to the competitive priorities of cost, quality, flexibility, delivery and service).

Describe organizational structure in infrastructural decisions:

-The hierarchical structure of an organization defines who reports to whom, which in turn determines how the work gets done. -For example, hospitals may be organized according to traditional departments, such as medicine, surgery, nursing and pharmacy, or they may be organized around service lines, such as women's health care and cardiac care. Hospitals that are organized around service lines may have nurses and pharmacists reporting to physicians, whereas in a more traditional organization, nurses would report to a head nurse who would, in turn, report to a supervisor, who also in turn, would report to the Director of Nursing. -Similarly, in a functional organization, all pharmacists would report to the pharmacy shift supervisor, each of whom would report to the Chief of Pharmacy. The way people interact in organizations that are structured in one way is likely to be very different from the way they interact in the other

Describe process technology in structural decisions:

-The most basic definition of technology is how work is done. -The choice of the technology that will be used to provide service is very important for most service organizations. -For example, some colleges and universities may decide to employ face-to-face teaching technologies in a classroom while others may choose to develop Internet distance-learning technologies. -Similarly, some restaurants choose to provide table service while others provide only counter service, and still others have customers serve themselves.

Describe how the degree of cusomter contact affects worker skill requirement and efficiency

-Understanding the degree of customer contact helps to determine how a service should be managed. The skills required of the service worker are clearly affected by the degree of customer contact. Workers in high customer contact services must master not only the technical skills associated with the specific service being delivered, but must also possess interpersonal skills to properly interact with customers. For example, a secretary in a law office must not only be competent at data entry, filing, scheduling, and other clerical tasks, but must also be able to interact appropriately with clients - from pleasantly dealing with the details of appointments to supporting and comforting clients who are upset. Similarly, physicians must not only master the technical skills of diagnosis and treatment but must also learn an appropriate "bedside manner" and professors must not only know their fields, but must also have the skill to bring their material to life in the classroom and to relate to students one-on-one. -In contrast, workers in service environments with virtually no contact with customers need not possess the same level of people skills required of customer contact workers. Indirect contact services, such as phone-based services, may require more people skills than no-contact services, but perhaps fewer people skills than face-to-face services. In high contact services, then, the emphasis is on effectiveness; that is, meeting the customer's needs. Efficient use of resources is still important, but it takes a back seat to effectiveness (See the chapter on Process Analysis and Performance Measurement for a more detailed discussion on efficiency and effectiveness measures). -In high contact services where the customer is directly involved, the degree of customer contact introduces an element of uncertainty into the service delivery process that can negatively affect efficiency. For example, the interaction with customers in a bank may slow the speed of processing a transaction, perhaps because customers are slow to find the materials required to complete their transactions (for example, their checkbooks and bank cards) or because they need to ask questions of the teller. Dick Chase has further suggested that the proportion of time that the customer is in contact with the service in relation to the total service delivery time for that customer is the key factor in determining efficiency.14 This model would suggest, for example, that a bank's back office check clearing operation is likely to be more efficient than the teller operation. The bank's customers at the tellers' counter all vary in the way they interact with the teller. The uncertainty introduced by customer and server differences makes the teller operation inherently less efficient than the check clearing operation. Although high customer contact may, in fact, reduce the service system's efficiency, high customer contact also provides the opportunity to involve the customer in the process and thereby to reduce the uncertainty involved with providing complex services.

Describe vertical integration in structural decisions:

-Vertical integration relates to how much of the supply chain is controlled by the organization. -Backward integration involves purchasing or controlling the suppliers; forward integration involves purchasing or controlling customers. -For example, a coffee house chain might purchase coffee bean growers (backward integration) or an airline might purchase a company that provides tours in the cities to which the airline flies (forward integration). -Technology has enabled organizations to work together as closely as if they were vertically integrated without actual change of ownership. -This virtual vertical integration makes it possible for organizations to share information and engage in joint planning that produces an advantage for all parties involved

Describe product differentiation strategy:

-With a product differentiation strategy, a firm offers products and services that are significantly different from those of the competition. -For example, Whole Foods, a supermarket chain, specializes in offering high quality organic groceries, fruits and vegetables.

Describe Product Leadership.

-With this strategy, firms focus on new product and service development, with the goal of always staying ahead of the competition. -Companies using this strategy include Google, Apple and trendy restaurants like the French Laundry in California.

What happens once the business strategy has been defined?

-management needs to turn to the specific strategic decisions within each of the major functional areas. -It is important to emphasize that these functional strategic decisions cannot be made in a vacuum, that is, they need to be coordinated and integrated across all of the functional areas to be truly effective. -This is especially true for services where there is often significant overlap among the functional areas

What are the four main HR subsystems?

-staffing, -performance management, -rewards, and -employee relations

What are the two major categories of strategic operations decisions?

-structural decisions, which relate to brick-and-mortar issues, -infrastructural decisions, which relate to less tangible issues.

What is The goal of developing a strategy?

-to define a specific roadmap for everyone in the organization to follow. -That roadmap shows not only the destination, but also the route that the organization needs to follow to reach that destination. -In other words, managers try to develop strategies that differentiate their firms from their competitors so customers perceive more value in the services that their firms are providing and are willing to pay for that added value. -Equally important, the strategy also addresses the organizational decisions that will allow the firm to move ahead of its competition.

Describe the customer's perspective in developing service strategies:

-you as the customer perceive that the service offers you significant value when you compare its benefits to its costs. -Each of these services has defined a strategy for co-creating significant customer value and, equally important, has successfully implemented that strategy, resulting in loyal customers who will return again and again.

promotion

Decisions here relate to how the product or service will be advertised and what means will be used to stimulate sales.

direct customer contact

Face-to-face contact between the customer and the provider -Most of the high-contact services we encounter on a daily basis are direct contact services, such as schools, restaurants and brick-and-mortar retail stores. -When services are provided by telephone, the degree of contact may be high (for example, a suicide hotline or a computer support line), but the contact is indirect. Services that can be provided indirectly, such as those provided by a call center, can take advantage of low cost locations and economies of scale (which is why there are large call centers in India and The Philippines).

What are the two main strategic dimensions of HR:

HR strategies can be differentiated from one another along two main strategic dimensions: -the temporal nature of employment relations (whether staff are hired for a short-term job or a long-term career), -and the way managers control the way work is performed (monitoring and influencing the process or focusing on the output).

IT investment and prioritization-

IT investment makes up over 50% of the capital budget of most large companies. -Many firms look at IT investments in portfolio terms, with a number of investments spread across different types of assets with different risk-return profiles. -The portfolio approach is important because success is uncertain and even successful investments do not pay off immediately. -MIT research estimated that around 50% of strategic IT investments fail and significant IT investments may have a several year lag between the time of the investment and effective use. -These investments often have a negative impact on a firm's profits in the year after the investment due to the cash outlay and the significant disruption that they cause.

Treacy and Wiersema's Strategy Framework-

Michael Treacey and Fred Wiersema provide another strategy framework that focuses on the customer value proposition. -identifies three major customer value propositions: (a) operational excellence, (b) customer intimacy and (c) product leadership

Describe the internal business perspective in the balanced scorecard

The internal business perspective identifies the key business processes that contribute to the firm's success. Included here are the critical success factors that allow the firm to excel from a customer's perspective and the core competencies that are required to maintain its competitive advantage in the marketplace.

the marketing mix

The marketing mix has traditionally been summarized as incorporating the Four Ps: (a) product, (b) price, (c) place and (d) promotion. The marketing mix for services has been expanded to include three additional elements: (e) people, (f) physical evidence, and (g) process

Quasi-Manufacturing Services

There is virtually no face-to-face contact between the customer and the service provider in quasi-manufacturing services. -Here, the "interaction" occurs between a customer's possession and the service. -The processing of checks in the back office of a bank, government administration offices such as the non-contact arm of the Internal Revenue Service, and the automated mail sorting processes at a regional branch of the Post Office are examples of quasi-manufacturing services, all of which are performed for the customer on the customer's possessions (a check, a tax document, or a personal letter)

Business application decisions-

These decisions are often difficult because IT affects so many functions but operates in the background. Some of the key issues concern: (a) deploying IT infrastructure to achieve business objectives, (b) locating infrastructure services so that they can be effective, (c) pricing services fairly, (d) deciding when to update services, and (e) deciding what to outsource

people

These decisions relate to both the people who are employees and the people who are customers. -Employee decisions include how workers will be recruited, trained, evaluated and rewarded. -Customer decisions relate to how customers will be treated by the service firm to influence their own service outcomes and the outcomes of other customers.

price

These decisions relate to how the price of the product or service will be positioned in relation to those of competitors. -From the point of view of the customer, price is related to value; from the point of view of the firm, price is related to profit. -Pricing decisions include whether the firm will price at a premium or for a budget; what discounts will be offered for volume; and how to price for retailers, wholesalers, and agent

physical evidence

These decisions relate to how the service facility and service providers look: the ambience of the facility, the dress of employees and the physical appearance of other service tangibles such as menus in a restaurant, signage in a department store and stock market performance reports by brokerage firms.

mixed services

These involve elements of close customer contact and elements of back-office work. -Postal services would be an example of a mixed service; although there is some customer contact with either the postal workers at the post office counter or with the mail carrier, there is also significant back office work that is done in the form of sorting and transportation. Similarly, a stay at a hotel has some contact with hotel employees (the front desk clerk, and perhaps the housekeeper or room service delivery person), but much of the work is done without the presence of the customer

IT Principles

These principles relate to the organization's operating model (how centralized or decentralized the organization will be), how the IT function will support that operating model (for example, if the operating model is centralized, data should be more standardized and coordinated than in a decentralized model), and how IT will be funded (centrally or allocated to operating units).

vision statement

a high-level statement of what an organization would like to achieve or accomplish in the future.

service shops

also tend to be capital intensive but provide customized services, while professional services are very labor intensive as well as highly interactive and customized

place

decisions relate to where the products or services will be delivered. -Some place decisions include whether services will be sold directly to customers, through telemarketing, through retailers, and/or via the Internet and what area(s) will be served and with how many outlets.

business strategy

defines the scope and boundaries of the SBU, in terms of how it satisfies the needs of its customers in the specific markets that it serves and the goods and services that it provides. -Business strategies are also used by smaller, independent companies and organizations that only compete in a particular market with limited product or service offerings. -Corporate and business unit strategies determine the organization's competitive priorities. -The competitive priorities, in turn, determine what decisions are made within each business function within the strategic business unit.

corporate strategy

defines the specific industries and businesses in which the firm will compete, and the way in which resources are acquired and allocated among those businesses -Each strategic business unit (SBU) within a corporation will have its own strategy based on who its customers arw

What is the first step in developing an effective strategy?

develop a common set of goals and objectives that all employees will share.

porter's strategy framework

developed my michael porter where he identified that Without this differentiation, customers will buy solely on the basis of price, thereby driving prices down and reducing profit margins. In addition to the low-cost strategy, Michael Porter, one of the leading authorities on competitive advantage, has identified two other strategies: market segmentation and product differentiation.

strategy

is a carefully developed long-range plan for achieving specific desired results. It incorporates how the organization will obtain funding (debt, equity, external sources, internal sources), with whom the organization will compete and who its customers will be. -Strategy also determines along which dimensions the organization will compete. The "classic" competitive dimensions are cost (low price), quality (high quality), flexibility (ability to respond to changes in demand volume and product mix), delivery (speed of service) and service. -due to both increased competition and advances in technology, customers expect excellence on several dimensions. Many firms have risen to the challenge and now provide just that.

blue ocean strategy

is a relatively new strategy framework, that was introduced by W. Chan Kim and Renee Mauborgne, that focuses on defining entirely new areas of business that previously had not been identified. -Their research suggests that firms that are willing to venture into these unchartered waters or "blue oceans" typically outperform firms that focus on competing in established markets where it is more difficult to take business away from the competition -Compatible with the value constellation concept

The Internet of Things (IoT)

is an emerging concept that recognizes the growing presence of the Internet and the ability to embed software into physical products thereby creating "smart products." These smart products are typically connected through a network to each other and to their manufacturers who provide remote technical support and maintenance. Examples of firms that offer such products are General Electric (locomotives, airplane engines, and medical diagnostic equipment), Rolls Royce (airplane engines), and EMC Corp (data storage devices) -The Internet of Things is, in essence, adding a service component to products, providing their manufacturers with a competitive advantage over their competition. These smart products, with their built in services, ensures a future stream of revenues for firms, and in the process increases the percentage of total revenues that are derived from services.

distinctive competency

is an exceptional capability that creates a customer preference in the marketplace for a firm and its products or services, thereby enabling it to achieve a leadership position over time. -it is critical for firms to develop some capabilities into distinctive competencies that are difficult for other firms to easily copy -Distinctive competencies are perceived by the customer and therefore relate directly to the firm's success in the marketplace. For example, the ability to offer stylish haircuts at a low price may be the distinctive competency perceived by the customer. -Core competencies may not be perceived directly by the customer, but they relate to what the customer perceives as distinctive competencies. For example, the distinctive competency of stylish haircuts at a low price may be related to the hair salon chain's core competency to attract and retain well-trained young stylists.

IT architecture

is the organizing logic for applications, data, and infrastructure technologies, captured in a set of policies, relationships, and technical choices to achieve desired business and technical standardization and integration." -Architecture competency has been described as evolving through four stages: (a) the application silo stage, during which the there is no standardization across applications, (b) the standardized technology stage, during which the firm begins to build a shared infrastructure, (c) the rationalized data stage, during which resources are shifted away from application development and toward data and infrastructure development with emphasis on data that supports core activities across the organization, and (d) the modular architecture stage, during which the firm preserves global standards while enabling local differences.

balanced scoreboard

provide a structured approach for implementing a given strategy. -The balanced scorecard identifies four major perspectives that an organization needs to consider when implementing its strategy: (a) the customer perspective, (b) the internal process perspective, (c) the innovation and learning perspective, and (d) the financial perspective. -This approach encourages integration across the functional areas of an organization and promotes a balance between short term measures (financial) and long term measures (customer and learning and growth).

professional sales

such as healthcare, engineering consulting, and legal advice, are examples of complex and customized servicesthat require a workforce that has the ability to exercise judgment. -Professional workers tend to be highly educated and trained to manage the ambiguity that is typically associated with the unique problems their customers may have. However, while professional workers may require little or no additional training on the technical aspects of their work, they are likely to need - and appreciate - an orientation to the goals of the organization, because there may often appear to be a conflict between the goals of the individual professional and his or her customer and the goals of the organization. -For example, physicians may need to understand that their HMO employer controls costs by limiting the vendors from which drugs can be ordered, and therefore limiting the number of name-brand drugs. If the physicians are not given the proper orientation to this policy the organization may be stymied in its attempt to control costs and the physicians may be frustrated in their efforts to provide the care they want to provide to their patients. In professional services it is likely that the worker knows considerably more about the technical nature of the service than the manager, and consequently these service professionals may balk at "being managed." -Managing this type of service, therefore, primarily focuses on providing their professionals with the information and support they need to be effective and efficient. This is not to say that professionals do not need to be "managed," but it does imply a very different style of management. -Managers need to establish standards and goals jointly with professionals, so that both managerial and professional objectives can be met. Managers also need to regularly provide information about service performance outcomes, so that the professionals can modify their actions to better meet their service standard objectives.

What happens once the critical success factors have been identified?

the firm must develop a set of distinctive competencies.

How do companies properly manage a service operation so that its customers' requirements are consistently met (effectiveness) and in a way that makes best use of the resources available (efficiency)?

the service organization's management team needs to understand how to think about service strategically, that is, to understand how the organization and the customer co-create service value.

critical success factors

those activities, conditions, or other deliverables that are necessary for the firm to achieve its business goals - in other words, the critical things the organization must get right. -For example, if the goal of a bank is to achieve a certain percentage of Internet-based transactions, a critical success factor will be a user-friendly website that encourages customers to bank online rather than at an ATM or at a teller window.

pure services

those in which the major portion of the value creation takes place in the presence of the customer. -Examples of pure services include a meeting with a lawyer, a visit to a health spa, or attending an on-campus class at a university. Each of these has a high degree of direct contact between the customer and the service provider.

True or false? Services with high levels of labor intensity require control of processes related to the workforce, while those with high levels of interaction and customization require cost and quality controls. Services with low levels of customization require differentiation from other services and attention to the customers' perception of the environment and at the same time, standardization of processes to assure consistency of service. On the other hand, services with low labor intensity (in other words, services with high capital intensity) require constant attention to changes in technology and processes that permit efficient use of capital resources.

true

True or false? Strategy provides the necessary "action" for achieving the organization's vision, in terms of defining how it will compete in the marketplace.

true

True or false? The corporate vision and mission statement provide the foundation for developing a strategy.

true

structural decisions

which relate to brick-and-mortar issues,

infrastructural decisions,

which relate to less tangible issues.