CH-1-4 The Service Economy – Service Management: Operations, Strategy, Information Technology : Book Guide

This Document Contains Chapters 1 to 4 Chapter 1 The Service Economy TEACHING NOTE This introductory chapter is intended to motivate students and arouse their interest in the importance of services in our economy and career opportunities in the 21st Century. Material on the "experience economy" illustrates the current economic evolution beyond the postindustrial economy. The role of information technology, innovation, and changing demographics in service sector growth can lead to speculation about the future. The chapter continues by answering the question “why study services” with a discussion of the distinctive characteristics of service operations. The question of “what is a service” is answered with the service package and grouping services by delivery process using the "service process matrix." Service-dominant logic is presented as an alternative paradigm to the traditional goods-centered view of value creation. The open systems view of service management represents a departure from the traditional role of the operations management found in manufacturing. SUPPLEMENTARY MATERIALS “The Hitchhiker’s Guide to Cybernomics: A Survey of the World Economy”, The Economist, September 28, 1996. A 46 page special insert loaded with figures and graphs that present the transformation from an industrial economy to a service economy driven by information technology. The article discusses new jobs, productivity, and the difficulty of measuring economic output when the metrics were designed for industrial production. Joseph Pine and James Gilmore, "Welcome to the Experience Economy," Harvard Business Review, July-August 1998, pp. 97-105. The authors describe the features of the emerging experience economy represented by firms such as the Rainforest Café that stage an experience rather than just deliver a service. James L. Heskett, " Lessons in the Service Sector”, Harvard Business Review, March-April 1987, pp. 118-129. This is a classic article articulating the need to integrate marketing and operations to achieve excellence in services. The author formulates a strategic service vision that is both internally directed (employees) and externally directed (customers). LECTURE OUTLINE 1. Service Definitions 2. Facilitating Role of Services in an Economy (Figure 1.1) 3. Economic Evolution (Figure 1.2 and 1.3) 4. Stages of Economic Development (Table 1.2) 5. Nature of the Service Sector (Figure 1.4 and Figure 1.5) 6. The Experience Economy (Table 1.3, Table 1.4, and Figure 1.6) 7. Distinctive Characteristics of Service Operations 8. The Service Package (Figure 1.7 and Table 1.5) 9. Grouping Services by Delivery Process (Figure 1.8 and Figure 1.9) 10. Service-Dominant Logic (Table 1.6) 11. Open-Systems View of Service Operations Management (Figure 1.10) TOPICS FOR DISCUSSION 1. Illustrate how the type of work that he or she does influences a person's lifestyle. For example, contrast a farmer, a factory worker, and a schoolteacher. Answer: A farmer's lifestyle is, to a certain extent, still influenced and conditioned by the elements, the weather, the quality of the soil, and the availability of water. Life is partly a game, but mostly it is a struggle against nature. The rhythm of life is shaped by nature and the pace of work varies with the season. In the case of the factory worker, the struggle is against a fabricated nature: a world of cities, factories and tenements. Life is machine-paced (or at least appears to be). Efficiency is the watchword and productivity is its measure. The standard of living is measured by the quantity of goods a person has. The worker becomes just a part, a person in the bureaucratic and faceless organizations that spring up to achieve the task of production and distribution of these goods. The individual is the unit of social life, with society considered as the sum of all the individual decisions being made in the marketplace. Protection from the organization is often sought through labor unions. A schoolteacher interacts on a face-to-face basis with his/her students in an intellectual environment. A career in teaching involves continual reading in the subjects taught and searching for innovative ways to motivate students. Life is reflective, ordinarily not physically demanding, and work is conducted in a pleasant campus environment. 2. Is it possible for an economy to be based entirely on services? Answer: Economies based on services only are exceptions and rare ones at that, e.g., Andorra and Liechtenstein, resort islands in the South Pacific and the Caribbean, and Monte Carlo (gambling). Such countries must import their food, consumer goods, and durables. But as a rule, this cannot be done for larger economies where production of food and/or goods is essential. 3. What is the value of self-service in an economy? Answer: Measuring self-service is a problem in its own right and currently is not included in the GNP. A creative discussion of methods to measure self-service indirectly would include accounting for customer labor in transactions such as buying a meal at a fast-food restaurant where you are expected to bus your own table or the savings in pumping your own gas at a filling station. Self-service has additional value because the labor is present only when it is needed. In Chapter 5 “Technology in Services” the topic of self-service technology (SST) will be explored. 4. Determine if the U.S. service sector currently is expanding or contracting based upon the Non-Manufacturing Index (NMI) found at ISM Report on Business on the Institute of Supply Management website: http://www.ism.ws/pubs/ismmag/. Answer: The ISM Report of Business has a wealth of survey data from industry respondents on the current level of business activity for the month. The first table presents the ISM series index for the current and previous month for several measures (e.g., new orders, employment, inventories, etc.). An index value above 50 indicates an expanding service sector economy, below 50 a declining economy. The table also contains a measure of the index direction and rate of change. 5. What are some of the management problems associated with allowing service employees to exercise judgment in meeting customer needs? Answer: Some consistency and, therefore, perceived quality of service might be lost when different employees handle situations in different ways. Much more training of customer contact personnel is required to develop their decision-making skills and to provide them with the confidence to use their own judgment. Service personnel also need to be trained in the limits of the service that should be provided 6. Critique the “Distinctive Characteristics of Service Operations” by arguing that the characteristics of, customer participation, simultaneity, perishablity, intangibility, and heterogeneity, may apply to goods as well. Answer: The following analysis is based upon the article “The Four Service Marketing Myths: Remnants of a Goods-Based, Manufacturing Model,” Journal of Service Research, 6, no. 4, (May 2004), pp. 324-335 by Stephen L. Largo and Robert F. Lushc. Note how the arguments are a precursor of Service-Dominant Logic. Customer participation in the service process This characteristic was not one of the original four unique characteristics of services offered by our colleagues in marketing. In taking a process perspective customer participation should be expanded beyond a physical presence in the process, for example, providing health history to a physician, investing savings in a bank, or entrusting one’s automobile to a repair shop. Customer participation in the service delivery process is the hallmark of all services but could be found in collaborative product design in manufacturing. Interestingly the attempt to reduce customer-employee interaction through the promotion of self-service just reinforces the customer role as co-producer. Simultaneity In an attempt to achieve manufacturing efficiencies, some services decouple part of the delivery process from the customer. The typical example is auto repair that involves processing a customer’s tangible possession in a factory setting that does not require the simultaneous presence of the customer. Most services such as restaurants, banks, and hotels have a front and back office operation with part of the service produced in the back office where customer demand can be batched and processed with manufacturing efficiency. Perishability The concept that services cannot be produced at one point in time, inventoried, and later sold upon demand led to the concept of service perishability. However, service capability can be stored in systems, databases, knowledge, and people to be used when called upon. In fact, service capacity as measured, for example, in hotel rooms or airline seats is routinely referred to as inventory to be sold at a later date. Unlike manufacturing, service capacity is inventoried prior to production rather than after. Finally, when customers form a queue waiting for service, one might consider this to be an inventory of raw material. Intangibility With few exceptions, essentially all goods have a service component, whereas all services have some facilitating goods in the service package. Thus, goods and services can be placed on a continuum according to the relative degree of tangibility. For example, in the purchase of a home entertainment center the financing offered by the store is a service. On a domestic airline flight, passengers in coach are offered a drink and peanuts. Heterogeneity Process variability destroys efficiency and consistency in quality both in manufacturing and services. Standardization in services, such as limited menus at fast-food restaurants, is an attempt to reduce input variability. In the medical field, standardization of procedures has a major impact on reducing infection and recurrence. INTERACTIVE CLASS EXERCISE The class breaks into small groups. Each group identifies service firms that should be listed in the Fortune 100 and places them in rank order of estimated annual revenue. Post on the backboard the combined results of the student groups. Bring to class an PowerPoint slide or overhead of the most recent listing of the Fortune 100 to compare with the students’ lists (see http://www.fortune.com). CASE: VILLAGE VOLVO 1. Describe Village Volvo's service package. Answer: The following descriptions address the four elements of Village Volvo's service package: supporting facility, facilitating goods, explicit services, and implicit service. Supporting facility The new Butler building with ample service bays (two bays per mechanic) and comfortable waiting room promotes the customer's positive perception of the organization. The suburban location could mean difficult access and the possible need for a shuttle. Facilitating goods Specialized tools and an inventory of select auto parts are obvious items in this element. Information The unique and possibly differentiating feature is the Custom Care Vehicle Dossier (CCVD), which serves as a powerful information tool for both mechanic and customer. The CCVD acts as a prompt to the customer to seek continuing service in a pattern (based upon mileage or time). Analysis of customer patterns can assist Village Volvo in predicting demand and scheduling its operations to make full use of capacity. Explicit services The two owners of Village Volvo are former authorized Volvo dealer mechanics and have 22 years of combined experience between them. They have earned a respected reputation and satisfied customer following. Service availability is enhanced by the use of "express times" when customers can come in and get quick, routine jobs done while they wait. Implicit services The owners' attitudes and emphasis on customer satisfaction is illustrated by encouraging inspection of replaced parts. The policy of confirming work prior to commencement is essential to the customer's perception of reliability and participation in the service process. 2. How are the distinctive characteristics of a service firm illustrated by Village Volvo? Answer: Village Volvo exemplifies many characteristics of a service firm, one of which is that the inputs are the customers themselves. Listed below are the distinguishing characteristics of a service firm and the specific attributes of Village Volvo, which exemplify those characteristics. Customer participation in the service process The client brings his or her car to Village Volvo for specific needs or routine services during scheduled times. There is continuous interaction between the client and the service manager and the assigned mechanic as evidenced by the discussion of problems and the test drive of the vehicle prior to the time when the repair work is done. Once the repair is complete, the client does the quality control inspection and is furnished with the worn parts. Simultaneity For routine repairs, customers can wait in the attractively furnished waiting area. In most cases the customers drop off their vehicles early in the morning and return for pickup at the end of the day. This allows Village Volvo some latitude in scheduling the daily work. For repair services, production and consumption of the service need not occur simultaneously, because the service is performed on the customer's property, which can be inventoried. Perishability Village Volvo is aware of this problem and has taken action to smooth demand, first by encouraging clients to make appointments for diagnosis and repair of specific problems and then by scheduling "drop in" times for Wednesday afternoon and Thursday morning. During peak hours, all mechanics are asked to deal with customers to reduce customer-waiting time. Intangibility Most customers are unable to judge the quality of an automobile repair service and thus, reputation becomes very important. If Village Volvo did not have such a good reputation, it would be difficult to persuade customers to use the private garage rather than the dealership. Village Volvo tries to reduce this intangibility by providing customers with their worn out parts. Heterogeneity Village Volvo is a service shop with the capability to handle a variety of auto repair problems. The mechanics treat each customer's problem individually by explaining to the customer exactly what has occurred and what will happen. 3. Characterize Village Volvo in regard to the nature of the service act, the relationship with customers, customization and judgment, the nature of demand and supply, and the method of service delivery. Answer: • Car repair represents a tangible action performed on an object and therefore, is a service directed at a physical possession. • By keeping a Custom Care Vehicle Dossier (CCVD) on customers’ vehicles, Village Volvo is attempting to develop a “membership” relationship. The repair service itself is a discrete transaction, but sending reminders for routine maintenance gives the appearance of continuous monitoring. • For routine maintenance (e.g., oil changes) customization and judgment are limited in scope. However, for major repairs the opposite is true. • Demand for emergency auto repairs can vary considerably, but reservations for work is common and a loaner car can be provided for extended repairs. Routine maintenance can be scheduled to fill low demand periods. • Village Volvo has a single site and requires customers to bring their cars (or have them towed) to the facility. 4. How could Village Volvo manage its back office (i.e., repair operations) like a factory? Answer: After receiving the cars for repair at the beginning of the day, the scheduling of repairs can be planned in accordance with the availability of the mechanics and the promised delivery times. Thus, the back office can be run much like a manufacturing job shop. Routine work like brake pad replacement and minor tune-ups can be delegated to apprentice mechanics in order to achieve cost savings. 5. How can Village Volvo differentiate itself from Volvo dealers? Answer: Dealers have traditionally neglected their service departments because more money was made in the sale of vehicles. The turnover of dealer mechanics also has been high because good mechanics leave to open their own shops such as Village Volvo. The appeal of the independent mechanic is the personal relationship and trust that develops between vehicle owner and mechanic. The Custom Care Vehicle Dossier is a method that Village Volvo uses to establish the customer's loyalty. CASE: XPRESSO LUBE [Students Robert Ferrell, Greg Miller, Neil Orman, and Trent Reynolds prepared this analysis.] 1. Describe Xpresso Lube’s service package? Answer: • Supporting facility: Xpresso Lube has a fixed amount of operational capacity because it has a limited number of service lifts – two to be exact. Other components of its supporting facility are tools and equipment, an equipment storage area, a spacious waiting room, chairs, a service counter, street access and parking. • Facilitating goods: oil, filters, auto parts, coffee, snacks, cups, napkins, sugar, and milk. • Information: for regular customers a reminder card could be sent for routine maintenance. • Explicit services: a car with new oil and filter, maintenance checks of the car, and a cup of coffee. • Implicit services: trust, a feeling of not “getting screwed,” a feeling of keeping the car maintained, the satisfaction that comes from taking care of one’s car, the good feeling that comes from recycling the old oil, a caffeine lift, and the satisfaction of drinking good coffee while you wait. 2. How are the distinctive characteristics of a service operation illustrated by Xpresso Lube? Answer: • Customer Participation in the Service Process: Customers bring their cars to Xpresso Lube and wait for the oil change. Customers are invited to inspect the car while on the lift to observe other needed repairs. • Simultaneity: Using the coffee shop as a pleasant diversion allows Xpresso Lube to reduce partially the need for working on arriving cars immediately. Providing a shuttle service to the nearby University and State Capital would allow scheduling of oil changes. • Perishability: The number of car lifts at the shop limits Xpresso Lube’s capacity. This oil change business also owns an auto repair facility next door so the two businesses can deploy mechanics between them to utilize labor capacity in the most efficient way. • Intangibility: When an oil change is done in a typical pit, the customer cannot actually see the process and, after the service, the car’s performance probably will not be noticeably different. In this situation, customers rely on the word of the oil change service person. Xpresso Lube’s car lift design allows customers to watch its service, which gives customers more assurance that their needs are being met. • Heterogeneity: Different cars provide some variability in the oil change routine. Some customers even come only for the coffee. 3. Characterize Xpresso Lube in regard to nature of the service act, relationship with customers, customization and judgment, nature of demand and supply, and method of service delivery. Answer: • Changing the oil is the primary function of Xpresso Lube. This is a tangible action performed on the car, but the secondary service is serving coffee, which recognizes the personal needs of the owners. • Xpresso Lube’s service relationships consist of discrete, one-time transactions, but the company’s focus on fostering customer trust and a pleasant waiting environment might lead to more long-term customers. • Fairly low customization is possible, but the accessibility of the service area and the mechanics can lead to customization opportunities if there are problems with the cars. • There is a significant demand fluctuation based on the obvious convenience of having the service performed after work or during the weekend. This peaked demand pattern easily can exceed Xpresso Lube’s capacity. But Xpresso Lube’s service environment encourages people to accept longer waits and, by providing transportation, it enables customers to drop off their cars in the morning and retrieve them later in the day. The supply of the service cannot be altered very easily, given the company’s fixed number of two carports and lifts. 4. What elements of Xpresso Lube’s location contribute to its success? Answer: Xpresso Lube is located on the main thoroughfare leading to the University of Texas and, thus, provides excellent visibility. The immediate business area is bustling and diverse, and attracts a broad spectrum of visitors. It’s also an area where customers don’t mind waiting because they can walk to a variety of popular shops (e.g., Wheatville Co-Op and Half-Priced Books). 5. Given the example of Xpresso Lube, what other services could be combined to “add value” for the customer? Answer: Many examples exist in today’s business environment. One common service combination is selling concessions – candy, popcorn, or beer, for example – with showing movies, sports events, or concerts. Others include the combination of bookstores and coffeehouses, gaming activities such as pool or bowling with alcohol sales and prepared food (e.g., Dave & Busters), fast food and gasoline (e.g., Exxon and McDonald’s). All of these combinations support one another and marry related customer needs. In the case of gas and hamburgers, for example, customers are in a hurry and the service combination provides them additional reasons to stop. Other examples take advantage of unfilled waiting time. By locating in a shopping mall, a one-hour eyeglass store provides its customers something to do while they wait for their glasses (i.e., shop at other mall stores). Chapter 2 Service Strategy TEACHING NOTE This chapter sets forth the strategic theme of the book that the operations function is central to the competitive strength of a service firm. The chapter begins with the strategic service vision that relates the service delivery system to the target market segments via an operating strategy and service concept using Southwest Airlines as an example. The application of the three generic competitive strategies — cost leadership, differentiation, and focus — to service firms is explored with examples. Porter’s five forces model and SWOT analysis are applied to service firms. Taking a page from manufacturing strategy, we apply the concept of service winners, qualifiers, and service losers to the dimensions of service competition. The important role that information plays in a firm's competitive strategy is captured in a two-by-two matrix that uses the dimensions of strategic focus (external or internal) and competitive use of information (online or offline). The concept of a virtual value chain that can create competitive advantage in the "marketspace" is illustrated with examples from USAA. Privacy questions and anticompetitive behavior are issues that limit the use of information. The chapter concludes with a discussion of the stages in service firm competitiveness and a “whodunit” Case about two niche-market banks. SUPPLEMENTARY MATERIALS James L. Heskett, W. Earl Sasser, Jr. and Christopher W.L. Hart, Service Breakthroughs, Free Press, New York, 1990. The authors describe how breakthrough managers develop counterintuitive strategic service visions and a service concept that focuses on achieving results for their customers. Case: Southwest Airlines (A) (HBS case 575-060) Southwest Airlines began as a small intrastate Texas airline, operating commuter-length routes between Dallas (Love Field), Houston, and San Antonio. In June 1971, having overcome legal hurdles raised by entrenched Braniff and Texas International, Southwest inaugurated service with a massive promotional campaign and many innovations designed to attract passengers. On February 1, 1973, Southwest must decide how to respond to Braniff's "Half Price Sale." Case: Zipcar: Refining the Business Model (HBS Case: 9-803-096) The expense of owning or leasing a modest car in urban locations can exceed $500 per month when insurance and parking expenses are included. Using a website for reservations and wireless communication, the concept of car sharing has become a reality with Zipcar and its tag line, “wheels when you want.” Case: British Airways: Using Information Systems to Better Serve the Customer (HBS case 9-395-065) British Airways developed an information system, Customer Analysis and Retention System (CARESS) to ensure rapid response to customer complaints. The case explores how this system is able to melt the complaint iceberg in order to resolve customer complaints quickly and improve retention as well as to provide data for root-cause-analysis of problems. Case: Ritz Carlton: Using Information Systems to Better Serve the Customer (HBS Case 9-395-064) Ritz-Carlton, a Malcolm Baldrige National Quality Award winner, relies on two information systems to promote customer loyalty: COVIA to handle centralized reservations and Encore, a local system that keeps track of guest preferences. Note: Service in E-Commerce: Findings from Exploratory Research (HBS Module Note N9-800-418). This note explores the concept of scalability in the context of customer support and logistics. The authors also discuss the E-commerce customer experience cycle that includes navigation, information, customer support, and logistics leading to loyalty when well executed. LECTURE OUTLINE 1. The Strategic Service Vision (Table 2.1 and 2.2) 2. Understanding the Competitive Environment of Services 3. Competitive Service Strategies Overall cost leadership, Differentiation, Focus 4. Strategic Analysis Porter’s Five Forces Analysis (Figure 2.1) SWOT Analysis: Strengths, Weaknesses, Opportunities, Threats (Table 2.3) 5. Winning Customers in the Marketplace Qualifiers, Service winners, Service losers 6. Sustainability (Figure 2.2) 7. The Competitive Role of Information in Services (Figure 2.3) Creation of Barriers to Entry, Revenue Generation, Database Asset, Productivity Enhancement 8. The Virtual Value Chain (Figure 2.4) 9. Economics of Scalability (Table 2.4 and 2.5) 10. Limits in the Use of Information Anticompetitive, Fairness, Invasion of Privacy, Data Security, Reliability 11. Using Information to Categorize Customers 12. Stages in Service Firm Competitiveness (Table 2.6) Available for Service, Journeyman, Distinctive Competence, World-Class Service Delivery TOPICS FOR DISCUSSION 1. Give examples of service firms that use the strategy of focus and differentiation and the strategy of focus and overall cost leadership. Answer: Reed College in Portland, Oregon, is a small private college that is focused primarily on an undergraduate education in liberal arts and sciences. The school differentiates itself from most other higher education institutions in such areas as the selectivity of its admissions requirements, the rigorousness of its courses, and the requirement of a research thesis for an undergraduate degree. Another firm that exemplifies the strategies of focus and differentiation is Amy's Ice Cream in Austin, Texas. Amy's is focused on kneading various condiments into the ice cream, a service that also is provided by a number of other firms. But, the servers at Amy's are accorded extraordinary freedom to interact with customers and it is the nature of this service encounter that differentiates Amy's from other ice creameries. Southwest Airlines is an example of firms that employ the strategies of focus and overall cost leadership. Southwest concentrates on serving a select geographic region at low cost. The airline achieves low cost by providing “no-frills” service, and it maximizes utilization of its assets by maintaining a quick turnaround practice at airports. United Services Automobile Association (USAA) is another example of an organization that has a well-defined focus, primarily that of providing insurance and financial services for American military officers and their families. The company is able to provide the lowest possible rates in the industry to its customers, in part, by doing business over the phone instead of using field agents. 2. What ethical issues are associated with micromarketing? Answer: The ethical issue associated with micromarketing involves the customer's right to privacy. Scanner data and other personal information that target specific customers might be very beneficial for businesses, but the inappropriate use of the information can allow businesses to mislead or manipulate their customers. From an ethical standpoint, there must be some limits to the nature and amount of information a business can obtain from its customers. 3. For each of the three generic strategies (i.e., cost leadership, differentiation, and focus), which of the four competitive uses of information is most powerful? Answer: Productivity enhancement is the most powerful use of information for achieving cost leadership, because it allows firms to reduce inventory, reduce waste, and eliminate paperwork, all of which save money. Improved productivity allows companies to make more efficient use of their assets, such as retail shelf space. Creating barriers to entry is the most powerful use of information for protecting a differentiation strategy. When customer loyalty is high, cost cutting by competitors is less effective. Switching costs can also create barriers to entry, for example, when suppliers use a computer order-entry network to establish a direct link to customers. Database assets are the most powerful use of information for building a focus strategy. These assets allow a company to develop profiles of their customers and their buying habits. This information allows the firm to develop new services and to be seen as responsive to its customers' needs. Advertising and distribution economies can be realized. 4. Give an example of a firm that began as world-class and has remained in that category. Answer: Federal Express and Disney come to mind. Apple Inc. is a prime example of a firm that began as world-class and has maintained its status. Since its founding in 1976, Apple has been renowned for its innovative products and design excellence, from the early Macintosh computers to the iPhone and beyond. Its consistent focus on high-quality technology and user experience has solidified its place as a leading global brand. 5. Could firms in the “world-class service delivery” stage of competitiveness be described as “learning organizations’? Answer: Learning in organizations means the continuous testing of experience and the transformation of that experience into knowledge that is accessible to the whole organization and relevant to its purpose (see Senge, et.al., The Fifth Discipline Field Book, Doubleday, New York, pg. 49). Table 2.6 in the text shows that this definition is illustrated by the world-class service delivery category. Consider the following example comments: • Learning organizations raise customer expectations, seek challenges, and improve continuously. • A learning organization is proactive, develops its own capabilities, and generates opportunities • The learning organization regards the customer as a source of stimulation, ideas, and opportunities. • The workforce of a learning organization is innovative and creates new procedures. • Top management of a learning organization looks to front-line management as a source of ideas. 6. Compare and contrast sustainability efforts in service operations and manufacturing. Answer: At the outset, certain environmental wastes such as pollution generated by manufacturing plants are glaring problems in industrialized nations. Therefore, it is easy for most people to relate the physical nature of sustainability efforts to manufacturing. Such efforts include emission control and other measures to protect our air and water from contamination. Waste reduction through lean management and value recovery apply to service and manufacturing firms alike, however. Regulations by agencies such as EPA, WEEE, and RoHS apply equally to service firms. Beyond those regulations, service firms must build an image of responsible organizations that are committed to sustainability by cultivating a culture that eliminates negative impacts on environmental and social issues. Service firms have a responsibility equal to that of the manufacturing sector in achieving sustainability, especially for long-term viability of the firm. 7. Conduct a triple bottom line evaluation for a hospital by identifying its social, economic, and environmental attributes that enhance the sustainability movement. Answer: Social: • Proper health education for all constituencies. • Free screening for essential medical issues. • Appropriate medical outsourcing. • Linking health and wellness programs for a holistic approach to health care. Economic: • Use of lean management for cost savings – e.g., process control, better materials management, better record-keeping, elimination of unnecessary tests. • Cost-efficient payment structure for medical access and health insurance Environmental: • Managing medical wastes – e.g., biodegradable products such as contaminated dressings. • Responsible medical disposals – e.g., used syringes. Overall, in promoting health, hospitals need to use fewer resources (economic), provide support for employee self esteem (social), and become better stewards of their medical resources and products (environmental). INTERACTIVE CLASS EXERCISE The class divides and debates the proposition “Frequent flyer award programs are or are not anticompetitive.” The statement “Frequent flyer award programs are anticompetitive” was voiced following airline deregulation. The frequent flyer award is an attempt by airlines to create customer loyalty in a commodity market and to avoid price competition. Priceline.com and other Internet ticket sellers have reintroduced price competition making frequent flyer awards less effective. CASE: UNITED COMMERCIAL BANK AND EL BANCO 1. Compare and contrast the strategic vision of El Banco and United Commercial Bank. Answer: Service Delivery System Operating Strategy Service Concept Target Market Segments El Banco Spanish spoken Hispanic physical setting Franchise Low cost informal store fronts Fee based services Attract first time bank customers Latinos United Commercial Bank Chinese spoken Conservative Import-export services Branches in Chinese-American communities Offices in China, Taiwan, Hong Kong Loans to businesses High interest CDs Low fees Chinese-Americans 2. Identify the service winners, qualifiers, and service losers for El Banco and United Commercial Bank. Answer: Service Winners Qualifiers Service Losers El Banco Check cashing Money transfers Spanish spoken Informal location Lack of sophisticated services United Commercial Bank Low fees Import-export services Chinese spoken Soundness and safety Lowering interest rate on CDs 3. What are the differentiating features of banks that target ethnic communities? Answer: • Products that match unique customer needs (trade finance, check cashing) • Well articulated cultural focus on target community (language, physical setting) • Convenient location accessible to community (ethnic population centers, places frequently visited by community members) CASE: THE ALAMO DRAFTHOUSE 1. Marketing analysts use market position maps to display visually the customers’ perceptions of a firm in relation to its competitors regarding two attributes. Prepare a market position map for Alamo Drafthouse using “food quality” and “movie selection” as axes. Answer: 2. Use the “Strategic Service Vision” framework to describe Alamo Drafthouse in terms of target market segments, service concept, operating strategy, and service delivery system. Answer: 3. Identify the service qualifiers, winners, and service losers for Alamo Drafthouse. Are the Alamo purchase decision criteria appropriate for the multiplex movie theater market? What do you conclude? Answer: Qualifiers include good sound system, reasonable prices for the meals, availability of beer and wine, and menu selection. A service winner is the unique “date” experience including the special events and film showing. Service losers include movie projection and sound that do not meeting minimal standards. For the multiplex movie theater market the qualifier is the desired movie showing, a winner would be convenient location and available time of showing, and the loser would be a long waiting line at the box office. The difference in the criteria would lead us to conclude that Alamo does not compete in the multiplex movie market. 4. Use Porter’s Five Forces Model to assess the strategic position of Alamo Drafthouse in the “entertainment industry.” Answer: 5. Conduct a SWOT analysis to identify internal strengths and weaknesses as well as threats and opportunities in the external environment. Answer: Strengths • Small theater with kitchen is unique. • People in your market see dinning and movie combination as your strength. Weaknesses • Projection and sound quality could be improved. • Attracting mid-week audience. Opportunities • Expand by purchasing small movie theaters. • Business meeting could be a market niche. Threats • Cash-flow problem. • Concept copied by competitor. Chapter 3 New Service Development TEACHING NOTE The chapter begins with a discussion of sources of service sector growth including the role of the Internet. Following a discussion of service innovation a model of the new service development process is presented. The challenge of adopting and readiness to embrace new technology is explored. Blueprinting is an effective visual presentation of the service delivery system and it also highlights the front- and back-office nature of services. The strategic nature of the service process is discussed in the context of positioning through process structure. Four generic approaches to service system design cover a spectrum of possible strategies. Students should be encouraged to look at their own experiences to find examples of each approach. SUPPLEMENTARY MATERIALS James A. Fitzsimmons and Mona J. Fitzsimmons, New Service Development: Creating Memorable Experiences, Editors, Sage Publications, 2000 A contributed volume with chapters from leading service researchers covering topics in three areas: service innovation, service process design, and service process implementation. Case: Taco Bell Corporation (HBS Case 9-692-058) Taco Bell is a fast food restaurant chain serving Mexican food that is formulated to appeal to the American general public. As of 1991, the company had gone through a remarkable transformation and was hailed by the press and industry experts as having revolutionized the fast food world. The new delivery process, referred to as K-minus (kitchen moved out of the restaurant to a central facility), illustrates the design strategy of separating physically the front-and back-office operations. The impact on employees, managers, and the firm are explored. Case: Alaska Airlines (HBS case 9-800-004) Alaska Airlines, serving west coast cities from Prudhoe Bay, Alaska, to Puerto Vallarta, Mexico, has won awards for providing outstanding customer service. Faced with price competition from Southwest Airlines, Alaska is introducing frontline technology and customer self-service options to improve productivity and reduce costs. Case: Caruso's Pizza (HBS Case 9-687-071) Caruso's Pizza is a small, entrepreneurial restaurant chain. Its owner is considering an experimental pizza delivery system (called "express delivery") that involves a major process innovation, producing pizzas to inventory and storing them on trucks equipped with ovens. The system promises faster delivery of higher-quality pizza, but, as yet, is an unproven technology. At the same time a computerized one-phone-number order entry system is under consideration. Case: Cultivating Capabilities to Innovate: Booz-Allen & Hamilton (HBS case 9-698-027) Case describes the efforts of the president to understand and improve the way that new products, services, and processes are developed and deployed throughout the firm. Proactive management of these processes proves very difficult because of the firm’s decentralized decision structure and the firm’s cultural predisposition to listen to its existing customers. LECTURE OUTLINE 1. Sources of Service Sector Growth Information Technology (Figure 3.1) The Internet as a Service Enabler Innovation Changing Demographics 2. Innovation in Services (Table 3.1) 3. New Service Development (Figure 3.2 and Table 3.2) 4. Technology in Service Innovation Challenges of Adopting New Technology in Services Readiness to Embrace New Technology 5. Service Design Elements Customer Value Equation 6. Strategic Positioning Through Process Structure (Table 3.3) 7. Service Blueprinting (Figure 3.3) 8. Taxonomy for Service Process Design (Table 3.4) Degree of divergence Object of the service process Type of customer contact 9. Generic Approaches to Service System Design Production-line approach Customer as coproducer Customer contact approach Information empowerment (Figure 3.4) 10. Intellectual Property TOPICS FOR DISCUSSION 1. What are the limits of the production-line approach to services? [Student James Fieber provides the following answer.] Answer: Impersonal and standard services are the most obvious limits created by the production-line approach. This approach can be used only when a standard, low-divergence service is desired and is not applicable to specialized services. Its use sacrifices any chance to personalize or customize the service and opportunities for innovation are lost. A standard or routine process reduces the incentive for making continuous improvement and gains in productivity. Low-skilled employees who may be helpless often staff this type of process when the system does not function normally. The production-line approach and the standardized services it generates might require some education of the customer (e.g., ATMs), and there might be little human contact to guide him or her. In some situations, technological equipment that is part of a service must be compatible with other equipment already in use. A service that is highly standardized might provide an easy opportunity for the customer to substitute another service or to do-it-himself or -herself (e.g., a microwaved frozen dinner can substitute for a fast-food dinner). The production-line approach to services can be limited by its emphasis on standardization and efficiency, which may overlook individual customer needs and personalization. This model can lead to reduced flexibility and creativity in service delivery, potentially diminishing customer satisfaction. Additionally, it may not address complex or unique service requirements effectively, impacting overall service quality. 2. Give an example of a service in which isolation of the technical core would be inappropriate. Answer: One of the selling points of McDonald's is the cleanliness of its franchises and the visibility of the technical core of its operations confirms that claim. Therefore, it would be contrary to its image to hide the technical core of its operations from the customer. In a high-end restaurant, isolating the technical core would be inappropriate because the quality of service relies heavily on the interaction between the front-line staff and the customer. The seamless integration of kitchen operations with attentive, personalized service is crucial to delivering a memorable dining experience, making it essential for the technical and service aspects to work closely together. 3. What are some drawbacks of increased customer participation in the service process? Answer: Suppose, for instance, that a mechanic attempts to involve the car owner in performing some of the simple tasks involved in tuning up the car. Assume these tasks include removing the water pump, changing the air filter, gapping and replacing the spark plugs, and replacing defective distributor cables. What are the legal implications of allowing customers to be in the working area? If the customer is injured, who is responsible for healthcare costs? Who is liable for poor workmanship or failures? How is quality maintained when the skills of customers are variable? Increased customer participation in the service process can lead to inconsistencies in service quality, as not all customers contribute equally or effectively. It may also create additional strain on staff, who must manage and accommodate varying levels of customer involvement. Moreover, it can result in longer service times and potential frustration if customer contributions are not well-managed. 4. What ethical issues are raised in the promotion of sales during a service transaction? [Student Brigitte Kelly provides the following answer.] Answer: The traditional rule of caveat emptor is particularly true in the service transaction. The opportunity for deception is great because production and consumption occur simultaneously. Frequently, no physical evidence of wrongdoing is available and the situation is further complicated by the question of the customer's contributory negligence. Therefore, the promotional ethics of the service provider are difficult to discern and this paves the way for unscrupulous ads and promotions. Most consumers can recognize a blatant promotional lie, either when it is made or immediately after obtaining the service. Sometimes, however, promotional claims can be very difficult to recognize. Consider a physical therapist who claims that four out of five orthopedists refer their patients to him or her. That might seem like an impressive recommendation, but just how good is that recommendation if all five of those orthopedists have lost licenses to practice medicine in other states? Clearly, the promotional claims of services involve moral and ethical issues. It is sometimes difficult to compare the claims and realities of a product that can be touched and measured, but the intangible nature of services makes such comparisons far more difficult, and often impossible. Perhaps the most effective "policing" of services can be performed by the industry itself. It has the most to lose from unethical practices, because reputation is one of the few measures a customer can use to select a service. Other efforts to counteract unethical claims include consumer education and looking at the compensation system (e.g., do commission sales increase abuses of customers?). Promotion of sales during a service transaction can raise ethical issues such as pressuring customers into unwanted purchases or upselling products that may not be in their best interest. This approach might lead to misleading claims or exploitation of customers' lack of knowledge. Additionally, it can create conflicts of interest between serving the customer’s needs and achieving sales targets. INTERACTIVE CLASS EXERCISE The class breaks into small groups and prepares a service blueprint for Village Volvo. Physical Garage Clean Wait Tow Truck Wait Evidence Waiting Area Interior Bill Uniform Van Village Volvo Blueprint CASE: 100 YEN SUSHI HOUSE 1. Prepare a service blueprint for the 100 Yen Sushi House operation. Answer: 2. What features of the 100 Yen Sushi House service delivery system differentiate it from the competition, and what competitive advantages do they offer? Answer: The main differentiating factor of 100 Yen Sushi House is its production-line approach to food preparation and service. Even the customers are included in the production line. The rate at which customers enter the restaurant, remove dishes from the food train, and leave the restaurant determines the flow of the delivery process. This "pull" system that originates directly from the customers' inputs gives 100 Yen a competitive advantage because it allows the cooks to match the preparation of particular foods to the demand for them, thereby eliminating waste. 100 Yen's method of food delivery reduces the number of personnel needed to serve customers and this feature represents a competitive advantage. The restaurant also differentiated itself from most other establishments by offering each of its items at the same price, but varying the size of the item according to its cost. This arrangement simplifies the customer-billing procedure and, here again, 100 Yen realizes savings in personnel costs. 3. How has the 100 Yen Sushi House incorporated the just-in-time system into its operation? Answer: One way that 100 Yen has incorporated the JIT system is making agreements with vendors who deliver fish several times each day. Because it receives fish only when it is needed, the restaurant does not need refrigerators for storing an inventory of perishable items and, consequently, more space is available for customers. Another feature of JIT that 100 Yen practices is making quality the responsibility of every employee instead of leaving it to be "inspected in" by selected "quality inspectors." For example, all employees are charged with the task of monitoring the prepared sushi and removing the "old" dishes from the serving train. Because the sushi is not made to order, 100 Yen does experience some waste, but the trade-off between the time that is saved and the waste can be turned to the management's advantage by giving careful attention to customer demand. 100 Yen also uses a kanban system (empty space on the conveyor) rather than a push system. In general, the attention of all employees to the delivery of a quality service and the responsiveness of management to customer demand are both indicative of a successful implementation of the just-in-time philosophy. 4. Suggest other services that could adopt the 100 Yen Sushi House service delivery concepts. Answer: Other organizations that could use the 100 Yen technique include baking cookies for shopping mall customers, delicatessen restaurants, specialty cafes and bars that are located close to their suppliers, and refreshment concessions in amusement parks. One student recalls a cafeteria that had three circulating self-serve dishes. This system eliminated a bottleneck in the delivery of the service and replacing unused dishes each time they rotated behind the wall ensured quality. CASE: COMMUTER CLEANING - A NEW VENTURE PROPOSAL 1. Prepare a service blueprint for Commuter Cleaning. Answer: 2. What generic approach to service system design is illustrated by Commuter Cleaning, and what competitive advantages does this design offer? Answer: The customer contact approach to service design is used by Commuter Cleaning. This approach is exemplified by the separation of high-contact front- office drop-off and pick-up by the customer at a commuter train station kiosk and the low-contact back-office contract cleaning operations at a remote site. The principal competitive advantage is customer convenience, because the kiosk is located where the customer must be every workday and monthly billing and use of a personal laundry bag minimize the transaction time. 3. Using the data in Table 3.5, calculate a break-even price per shirt if monthly demand is expected to be 20,000 shirts and the contract with a cleaning plant stipulates a charge of $.50 per shirt. Answer: Break-even price per shirt is calculated by setting the total monthly fixed expenses equal to the monthly demand multiplied by the difference between the price per shirt and the cleaning charge per shirt as shown below: 4. Critique the business concept, and make suggestions for improvement. Answer: The business concept seems particularly effective for cleaning men’s and women’s business shirts, but more complicated dry cleaning is problematical, because instructions would be difficult to communicate. The level of demand is prone to severe peaking and explicit efforts would be needed to smooth demand throughout the week. Customers might need to be given a day in the week (perhaps keyed to a color-coded bag) to make a drop-off. There is some concern about lack of quality control over the contract cleaner and the willingness of the contract cleaner to return shirts the same day if it interferes with in-house cleaning. Accounts receivable could pose a collection problem, because the cleaned shirts have already been returned to the customer. CASE: AMAZON.COM 1. How does Amazon.com illustrate the sources of service sector growth? Comment on information technology, Internet as an enabler, innovation, and changing demographics. Answer: Amazon.com has taken the business world by storm. Jeff Bezos set out with lofty goals and has taken every conceivable step to achieve them. Amazon.com identified a market that was perfect for the virtual world. Books are the same no matter where they are purchased. There is no need to try on or taste books so books can be sold effectively without the physical presence of the customer. Amazon.com launched with a concentration on books, but quickly branched out into other lines of business such as music and auction sites. It is hailed as the top pure web-based business in existence, yet did not turn a profit for several years. This is due to Bezos’ eye towards long-term success, which he thinks is driven by grabbing market share early in the game regardless of profitability and creating strong brand equity for the business. Information Technology Amazon.com was the first to introduce the very successful Kindle as a digital book reader. In 2011 a tablet computer called Kindle Fire was introduced to compete with the iPad. This move to digital products represents a change in focus from being exclusively in the D quadrant of Figure 3.1 to compete in the C quadrant as well. Amazon.com has created an information chain beginning with retail products viewed online to their consumption using handheld devices. Internet as an Enabler From the beginning, Amazon’s focus was on increasing its customer base. It did this by capitalizing on the Internet’s major strength – its ability for mass customization. The Web site’s Discussion Boards allowed customers to post opinions and reviews. This incorporated the customer as a participant in the development of the website and helped to increase loyalty to the site. “Collaborative filtering” allows Amazon to personalize recommendations to its customers and the 1-Click streamline service makes repeat ordering as hassle free as possible. Finally, Amazon made the site simple to navigate and used few graphics so the site would load quickly. The attributes work together to raise the level of involvement between Amazon and its customers, thereby creating switching costs in the future. Innovation Amazom.com has been credited with specific Internet innovations that include 1-Click (purchase processing), customer “wish lists,” personalized recommendations for each customer, ability to distinguish between personal and gift purchases, and site customization to focus on each customer’s preferences. Using “collaborative filtering” Amazon is able to recommend to its customers products or books that other customers who have made similar purchases have ordered. This software technique mimics the personal advice found at your corner store. Amazon.com has extended its reach to other businesses with Amazon Web Services (AWS), a platform for managing their operations including a CloudWatch capability for monitoring the AWS. Changing Demographics The Kindle book reader was a simultaneous hit with two demographics, the elderly and grandchildren. Because the Kindle was priced very low (possibly below cost), it became an ideal gift for both demographics. Grandparents could encourage their grandchildren to read with an inexpensive Christmas gift. On the other hand, grandparents could enjoy the novel features of the Kindle such as increased font size for elderly eyes. In general, Amazon.com is benefiting from the baby boomer retirees’ free time to read. 2. What generic approaches(s) to service design does Amazon.com illustrate and what competitive advantages does this design offer? Answer: The two generic approaches that are obvious candidates include customer as coproducer and information empowerment. For Amazon.com, customers, without doubt, act as self-servers using their own computers for access. The competitive advantage is considerable savings that result from avoiding investment in physical retail sites. Customers also participate as content contributors when they provide product reviews. However, under the customer contact approach, Amazon.com falls into a position that results in low sales opportunity, although cost of delivery is low as see in Figure 3.3 (Web site). Amazon.com addresses the low sales opportunity with its collaborative filtering software that makes sales suggestions based on other customer purchases. Amazon utilizes the power of its brand name to sell a myriad of products effectively. In addition, its CRM (Customer Relationship Management) approach to cross-sell products proactively based on an individual’s online search activity will increase its profitability. 3. Is Amazon.com a model for the future of retailing? Answer: Amazon.com definitely is a model for future retailing for one primary reason: the company listens to its customers and alters its service package real-time as a result of this feedback loop. A quick rebuttal to this argument might be Amazon’s lack of profits. However, high levels of customer service and customer retention techniques might drive revenues through the rough start-up period, which Amazon.com has definitely succeeded in doing so far. There are numerous reasons to believe Amazon will be profitable in the future. First, it has very strong brand equity. Amazon has become the Nordstrom’s of the Internet world. It is the gold standard of service, which every future Internet retailer must match or risk falling short of customer expectations. Second, this strong brand equity has led to a loyal user base, including a current estimated repeat customer rate of 73 percent. It is no secret that the lifetime value of a customer is tremendous. Amazon has recognized this and is poised to reap major profits from its current user base. Eventually, Amazon will no longer be in a pure market share drive. This will allow it to lower its marketing expenditures and reap the “lifetime customer” profits. The reasons Amazon has established itself as the future retailing model include (1) customer-centric process design from inception, (2) full utilization of information technology to enhance the service delivery, (3) and a unique and continually evolving service package. The Internet empowers the buyer so retailers that are unable to perform well in these three areas will fail miserably in Internet retail space. Jeffrey Bezos’ vision for Amazon took an entire year to develop, which in Internet time is an eternity. As speed-to-market is the only rule, Bezos demonstrated his customer-centric focus by his bet to take more time to develop the “best” product for the customer that was friendly and very easy to use. This bet early on clearly established one of Amazon’s founding principles– customer focus. This was further demonstrated through its decision to ensure minimal customer dissatisfaction during the Christmas season. Amazon stockpiled inventory so customers would not be dissatisfied when items were out of stock. Utilization of information technology to provide the service delivery process is Amazon’s strength. It has been credited with specific Internet innovations that include 1-Click (purchase processing), customer “wish lists,” personalized recommendations for each customer, ability to distinguish between personal and gift purchases, and site customization to focus on each customer’s preferences. Amazon is one of the best companies at benefiting from the utilization of its information technology and customer-specific data to generate additional sales. Finally, Amazon’s approach has created a “give the customer what he/she wants or lose the business” mentality, because the customer can locate and purchase a good elsewhere with only a click of a mouse. Amazon.com definitely has put the rest of the retail industry on its ear in terms of service levels and service packages and it has signaled the market that this is only the beginning! Chapter 4 The Service Encounter TEACHING NOTE The chapter begins with a discussion of the role of technology in the service encounter followed by a discussion of the emergence of self-service. A service encounter triad framework is presented in order to organize our thinking about the relationships between customers, contact personnel, and the service organization. This framework identifies three sources of tension among each of these viewpoints: (1) perceived control in the customer contact activities, (2) efficiency versus autonomy between the service organization and its personnel, and (3) efficiency versus satisfaction between the service organization and the customer. We explore the issues involved for each party in the service encounter to achieve a satisfactory experience. The chapter concludes with a discussion of the service profit chain model that relates the development of internal customers (employees) to satisfaction of external customers resulting in growth and profitability. SUPPLEMENTARY MATERIALS Case: Nordstrom (HBS case 9-579-218) Nordstrom is a very successful department store that has defined a superior level of service for the entire industry. The employees, who are challenged by a pay-for-performance policy, are empowered to deliver the highest level of service, but they are under considerable pressure to meet sales goals. Case: Apollo Hospitals of India (A) (HBS Case 9-396-027) Dr. Prathap Reddy founded Apollo Hospital Madras in 1983 as the first for-profit hospital in India. The hospital offers sophisticated treatment in a comprehensive range of specialties. State-of-the-art medical technology operated by skilled technicians complement its superior doctors, many of whom had left lucrative jobs in Europe and North America to come to Apollo. Case: JetBlue Airways: Starting from Scratch (HBS Case 9-801-354) Former Southwest executives launched New York-based JetBlue across the country using new Airbus A320s equipped with individual video screens behind every seat to receive satellite television and radio. Ann Rhoades initiated an innovative human resources plan around core values, non-union environment, and customized employment packages. Case: Hal Rosenbluth (A) and (B) (HBS Cases 9-996-043 and 9-996-044) With a new proprietary information system, Hal is repositioning his travel agency, made famous for putting customers second, for rapid growth. However, the new system will require front-line agents to show greater initiative and creativity than exhibited in the past. Hal needs to find a way to communicate the new values and emphasize the worth of individual initiative within his geographically-dispersed organization. LECTURE OUTLINE 1. Technology in the Service Encounter (Figure 4.1) The Emergence of Self-service (Table 4.1 2. The Service Encounter Triad (Figure 4.2) Encounter Dominated by the Service Organization Contact Personnel-Dominated Encounter Customer-Dominated Encounter 3. The Service Organization Culture Empowerment Control Systems (Table 4.2) Customer Relationship Management 4. Contact Personnel Selection Training (Table 4.3) Creating an Ethical Climate 5. The Customer Expectations and Attitudes (Table 4.4) The Role of Scripts in Coprodution 6. Summary of Service Encounters (Figure 4.3) 7. Creating a Customer Service Orientation (Figure 4.4) 8. Service Profit Chain (Table 4.5 and Figure 4.5) TOPICS FOR DISCUSSION 1. How can we design for self-recovery when self-service failures occur? Answer: Self-service devices such as ATMs or gasoline pumps could be designed with a way to communicate with an attendant immediately (either with an incorporated intercom or a 1-800 number) or, in the case of an unmonitored device, a way to record a message and contact information so the problem can be resolved later. Some “extra smart” devices make an official notification automatically when a failure occurs. Self-service checkouts in supermarkets or large building supply stores, for example, usually have an employee available to assist with stubborn machines or flustered customers. One could provide mops for customers who spill self-serve drinks, but that might not be received well! A link to Frequently Asked Questions (FAQ) can help customers to solve problems. Self-recovery measures can be designed into the system to prevent failure in the first place by using “poka-yoke” devices to avoid errors and reduce or eliminate the need for assistance A panel of customers could test prototype self-service technologies (SST) for robustness in use. 2. What are the organizational and marketing implications of considering a customer as a "partial employee?" [Student Ronald Anderson submitted this response.] Answer: Using a customer as a partial employee in the service process has several organizational implications. Such use creates a trade-off between operational efficiency and operational control. When customers provide elements of the service, the result is enhanced efficiency of the service capacity, because the capacity is added to the system at the moment it is needed. At the same time, however, much of the quality of the service might be out of the control of the organization. Mistakes by the customer can be costly. For example, the self-serve yogurt machine in a grocery store is a highly efficient delivery system, but it might also result in waste, extra work for the cleaning staff, and damage to the equipment when customers misuse it. The use of customers as partial employees also requires management to "train" the customers in how to behave. Often, the training must take place at the time when the service is sought. Failure to communicate the proper behavior can result in customer anxiety and dissatisfaction. A more subtle difficulty that providers might encounter involves changing the behaviors that customers have learned already. For example, in an effort to streamline its airport operation, most airlines pre-assign seats when tickets are issued so that passengers who do not have luggage to check can avoid standing in a long check-in line. However, many such passengers still adhere to old behaviors and stand in lines needlessly. Customers who act as partial employees have implications for marketing operations. Services can target the type of customer who desires a lot of control over the process and who is a quick learner. An example is seen in the relationship between airlines and frequent business travelers who often are control-oriented and well-educated. Considering a customer as a "partial employee" implies that they actively contribute to the service delivery process, which can affect organizational efficiency and training needs. Marketing strategies might shift to emphasize co-creation and engage customers in brand experiences. This perspective also necessitates clear communication and support systems to manage customer involvement effectively, ensuring a positive impact on service quality and satisfaction. 3. Comment on the different dynamics of one-on-one service and group service in regard to perceived control of the service encounter. Answer: When customers are served in groups such as in a recreational setting (e.g., Club Med) or on an airline flight, certain norms of behavior must be enforced strictly. Because the potential for a single customer to ruin the service experience of the group is high, contact personnel must exercise authority and be seen in that role (e.g., by wearing a uniform). Peer pressure of other customers also will help to control deviant behavior. In one-on-one service, the opportunity for service customization is much easier to accomplish without the knowledge of other customers (e.g., upgrading a hotel room). However, abuse also can result from either party to the encounter. For example, the contact person could intimidate a customer into buying unnecessary services (e.g., insurance for a rental car) or the customer could demand disallowed services (e.g., extra carry-on luggage). 4. How does use of a "service script" relate to service quality? [Student Gus Martin submitted this response.] Answer: There are many ways to provide a quality service. A "service script" is one method that companies can use to improve quality. Such scripts provide a professional and consistent way of solving customer problems. Inevitably, occasional mistakes will be made during service encounters. Some of these mistakes will be minor and customers will accept them with equanimity or overlook them. Serious mistakes, however, can distress the customer and eventually lead to a loss of business. Research has shown that when a big mistake is made, the customer is more likely to judge the business on the way the problem is resolved than on the mistake itself. When a customer is upset, it is important that the employee listens to the customer and handles the situation in an efficient and professional manner. Service scripts provide the employee with a set of predetermined and professional responses to difficult situations. An effective service script guides the employee's reaction to the customer and helps the employee to elicit the information that is required to solve the problem. Such scripts ensure that the customer receives proper attention during a time that is critical to the delivery of a quality service. Service scripts promote consistency, which is a very important feature of a quality service. However, it is important to realize that each customer and each encounter is unique, so employees should use service scripts as guidelines only. The use of a "service script" helps standardize service delivery, ensuring consistency and reliability in interactions. This can enhance service quality by providing clear guidelines for staff, reducing variability and errors. However, rigid adherence to scripts might limit personalization and flexibility, potentially impacting the overall customer experience negatively if not balanced effectively. 5. If the roles played by customers are determined by cultural norms, how can services be exported? [Student William F. Wittig submitted this response.] Answer: Services can be exported in several ways but primarily by concentrating on how the services are presented or marketed to the customers. For example, a service that is culture-dependent, such as an ethnic restaurant, might advertise itself as serving authentic cuisine and thereby differentiate itself from other restaurants. McDonald's is recognized around the world as a source of authentic American food, but it employs another exporting tool, that of reliability or consistency. American Express is another example of a company that uses reliability and consistency to export its service. The Paris office of AMEX might not look like or be run like the place where you bought your traveler's checks, but you can count on receiving prompt, courteous, and excellent service. A third way that services can be exported is through adaptability. Walmart provides an example within the United States. Each outlet carries the same basic items, but each store also can order special merchandise to reflect the cultural interests of its local customers. For example, Walmart in Birmingham, Alabama, carries University of Alabama and Auburn University clothing, and the Walmart in Austin, Texas, carries clothing that has the University of Texas and Texas A&M insignia. Consider, also, the Olive Garden restaurant chain. Definite differences in regional food tastes exist, so Olive Garden varies the composition of its spaghetti sauce according to the location of the restaurant. Federal Express exports its service to other parts of the world by adapting to cultural differences in local working hours. Services can be tailored to respect and align with cultural norms by adapting service delivery to fit local expectations and practices. Understanding cultural roles helps customize interactions and ensure appropriate behaviors, enhancing customer satisfaction and engagement. This cultural sensitivity also helps in building trust and rapport, which are crucial for successful service outcomes. INTERACTIVE CLASS EXERCISE The class breaks into small groups and each group comes up with an example from each of the four organizational control systems (i.e., belief, boundary, diagnostic, and interactive). Project Table 4.2 on a screen as a reference for the discussion of control systems. The discussion should include an evaluation of the effectiveness of each control system. CASE: AMY'S ICE CREAM [Students Scott Uhrig and Matt Keener wrote the responses for these questions.] 1. Describe the service organization culture at Amy's Ice Cream. Answer: A corporate culture is a system of values and beliefs that are shared by the members of an organization. Such a system defines acceptable work behavior and when it is a healthy system, it contributes to the organization's success. Amy Miller, the founder and president of Amy's, recognized very early in her career that creating a strong group culture was crucial to her company's success, because it offered a unique way to differentiate Amy's from the competition. Amy's values include individualism and self-expression in a team context, more emphasis on intrinsic rewards than on monetary rewards, maximization of autonomy and responsibility for all employees, job satisfaction, and making the customer smile. Perhaps the most important value is employee empowerment. These values are supported by the beliefs that the ice cream business is a "feel good" one in which happy employees mean happy customers, that the service encounter or "moment of truth" should be customized and entertaining, and the facility design should support the personalities of the employees. Amy's Ice Cream fosters a fun, energetic, and customer-centric service culture, emphasizing creativity and a playful atmosphere in interactions with customers. 2. What are the personality attributes of the employees who are sought by Amy's Ice Cream? Answer: Amy's selection process is designed to identify employees who are bright, innovative, and energetic. Employees must be "performers" who can express themselves freely and be sensitive to the customers' needs. Amy's Ice Cream seeks employees who are enthusiastic, personable, and creative, with a strong focus on delivering exceptional customer service and a positive attitude. 3. Design a personnel selection procedure for Amy's Ice Cream using abstract questioning, situational vignette, and/or role-playing. Answer: Amy's strives to hire employees who are comfortable performing for customers and who can sense how far the kidding can be taken. In addition, the employees must be responsible enough to perform well in an autonomous environment. The following personnel selection processes can be used to identify such employees. For personnel selection, Amy's Ice Cream could use abstract questioning to assess problem-solving skills, situational vignettes to evaluate responses to customer service scenarios, and role-playing to observe how candidates engage with customers and handle real-life service Abstract questions: • If you were an ice cream dessert, which one would you be and why? Answer: I would be a vibrant, multi-layered sundae with a variety of toppings. This represents my dynamic personality and adaptability, as I enjoy bringing together different elements to create something enjoyable and unique. • What part of your job do you like best and why? Answer: I enjoy the interactive aspect of my job the most, as it allows me to connect with customers and make their day a little brighter. Seeing the positive impact of my service and creativity is incredibly fulfilling. • What have you done in the past to irritate a customer and how did you know that the customer was irritated? Answer: I once accidentally mixed up an order, and I noticed the customer’s irritation through their body language and frustrated tone. I quickly addressed the issue by apologizing and correcting the mistake, ensuring their satisfaction. • Complete the following statement with a few sentences of your own: I scream, you scream. We all scream for ice cream. But not just any ice cream. It must be Amy’s Ice Cream, because … Answer: It’s not just a treat; it’s an experience. Amy’s Ice Cream offers a unique blend of creativity, high-quality ingredients, and exceptional customer service that turns every visit into a memorable occasion. • What flavor of ice cream best describes your personality? Answer: A blend of rich chocolate and tangy raspberry, because it reflects my dynamic nature—combining depth, creativity, and a touch of unexpected zest. Situational vignettes: • As you are working one day, you notice a man who appears to be waiting for service so you approach him and offer to serve him. He responds that he needs no assistance and leaves the store. Later you learn that the man called corporate headquarters and complained about poor service at your store. The operations manager at the head office apologizes and sends the man some coupons for free ice cream. A few days later the man returns to your store with the gift certificates. When asked if he needs assistance, the man again responds that he needs no help and proceeds to look around the store. What would you do? • A particular customer at the store that you manage has the irritating habit of always showing up about two minutes before closing on Tuesday nights and staying for at least 45 minutes. This creates a problem because Tuesday is the only day of the week when all of the employees can participate in the weekly store meeting that is held after closing time. The man's presence usually delays the start of the meetings and your employees get annoyed. Moreover, your employees are on the clock while they wait for the man to leave. How would you handle this situation? • As one of several employees at the busy campus area store, you routinely have been performing certain supporting tasks (e.g. garbage removal, restroom maintenance) on an as-needed basis. Company policy dictates that these jobs are not assigned to specific employees, but that all employees have equal responsibility for performing them. After several weeks on the job, it becomes clear that two employees consistently avoid these jobs in favor of more pleasant activities such as waiting on customers. How would you handle this situation? Role playing: • Two employees pose as irate customers and complain about the slow and apathetic service they always have received from this store in the past. • An employee poses as a customer who complains, not only about the volume of the music, but also about its suitability for your store. situations. CASE: ENTERPRISE RENT-A-CAR [Students John Cliff, Robin Kelly, and Margarita Wong wrote the responses for these questions.] 1. How has Enterprise Rent-A-Car (ERAC) defined its service differently than that of the typical national car rental company? Answer: Enterprise Rent-A-Car (ERAC) offers a complete “service package” to its target market, the local rental or “hometown” segment. This market includes two groups: the replacement and the discretionary segments. ERAC differentiates itself from the typical national car rental company by applying a personalized service philosophy in its business. This principle is reflected in its service package: Supporting facility • ERAC has 7000 offices and customers perceive them as being located nearby as opposed to its competitors who are located at or near airports only. • Some offices are strategically located next to or in car dealers or repair facilities, and offer a convenient replacement car. Facilitating goods • ERAC offers a wide variety of cars, with a selection of more than 60 types of vehicles for all tastes and needs (e.g. a car to impress clients or a reliable car for a long trip). Information • Because ERAC picks up its customers from office or home, it acquires information that is useful in planning future site locations. • With an automated system, ARMS, customers are able to contact any North American office via an exclusive 1-800 number. Explicit services • Convenience in free pick-ups and drop-offs for the customer. • Rates lower than those of the competition. • Availability to customers of a 1-800 number that allows them to contact any of ERAC connected offices and ARMS, which makes insurance companies’ (who are major clients) transactions more efficient. • Comprehensiveness in its services through an end-to-end client’s fleet management arrangement offered by an Account Services representative – this service includes activities such as acquisition, registration, financing, fueling, maintenance management, and disposal. Implicit services • Image and service attitude based on ERAC’s culture, which focuses on hiring people with abilities to deal with customers and internal competition. • Convenience by partnering with repair facilities and auto dealers for replacement cars. Enterprise Rent-A-Car differentiates its service by emphasizing a highly personalized, customer-centric approach and local community focus, rather than the standard national model. ERAC’s strategy includes offering pick-up and drop-off services and fostering strong relationships with local customers, which contrasts with the more impersonal, airport-centric service typical of national car rental companies. 2. What features of its business concept allow ERAC to compete effectively with the existing national rental car companies? Answer: Three main elements of ERAC’s service concept are the keys that allow it to compete with national rental car companies – these keys are related to the company’s service delivery system: A simple but personalized service delivery system relies on providing convenience to customers through a unique 1-800 number and the picking-up and dropping-off services free-of-charge. Despite these extra services ERAC offers a wide selection of cars at attractive low prices. The number and location of ERAC’s offices facilitates the delivery system – it has offices within 15 minutes of 90 percent of the U.S. population and repair facilities. Its service encounter emphasizes treating people like friends and neighbors and hiring “people” people, (i.e.) those who have personalities and attitudes aligned with the culture of the organization. 3. Use the service profit chain to explain the success of ERAC. Answer: ERAC focuses on recruiting, hiring, and training people who have the social skills required to succeed in the car rental business. The competitive advantage of ERAC is not offering cars only but also people offering a service. The quality service provided to customers, along with the competitive nature of the personnel and the reward and compensation system practiced by ERAC generate satisfied employees, who commit to maintain or improve the quality of their work and increase their productivity. The value of the service provided by ERAC is reflected in satisfied customers, who return or refer others to the business. Overall, its service profit chain drives the profitability and the growth of the company. Solution Manual for Service Management: Operations, Strategy, Information Technology James A. Fitzsimmons, Mona J. Fitzsimmons 9789339204471