The Service Economy

服務經濟Chap. 1

Greatest labor migrationsince Industrial revolution

Nation % of WorldLabor

% Agri

% Goods

% Services

China 21.0 50 15 35

India 17.0 60 17 23

USA 4.8 2 20 78

Indonesia 3.9 45 16 39

Brazil 3.0 23 24 53

Russia 2.5 12 23 65

Japan 2.4 5 26 69

Nigeria 2.2 70 10 20

Bangladesh 2.2 63 11 26

Germany 1.4 3 28 69

• Service operations management techniques– Service environments• Customers are present in the system• Co-create values with customers

– Traditional manufacturing

• Service definitions– an activity or series of activities of more or less

intangible nature– normally but not necessarily, take place in

interactions between customer and service provider

– outcomes are provided as solutions to customers problems

Role of Services in an Economy

INFRASTRUCTURE SERVICE· Communications· Transportation· Utilities· Banking

PERSONAL SERVICES· Healthcare· Restaurants· Hotels

CONSUMER(Self-service)

GOVERNMENT SERVICES· Military· Education· Judicial· Police and fire protection

DISTRIBUTION SERVICES

· Wholesaling · Retailing · Repairing

FINANCIAL SERVICES · Financing · Leasing · Insurance

MANUFACTURINGServices inside company:

· Finance· Accounting· Legal· R&D and design

BUSINESS SERVICES· Consulting· Auditing· Advertising· Waste disposal

• Servitization (服務科學 )– Selling solutions rather than products– Products are platform to deliver a service• Automobile manufacturers

– Financing and/or leasing automobile

• Otis Elevator– After sale maintenance contracts

• Rolls-Royce– Selling “power-by-the-hour”– Instead of selling aero engines

Stages of Economic Activity

Primary (Extractive): Agriculture, Mining, Fishing, Forestry

Secondary (Goods-Producing): Manufacturing, Processing

Tertiary (Domestic Services): Restaurants, Hotels, Laundry, Maintenance

Quaternary (Trade and Commerce): Transportation, Communications, Retailing, Finance, Government

Quinary (Extending Human Potential): Health, Education, Research, Arts, Recreation

Trends in U.S. Employment by Sector

Agriculture:Value from

harvesting nature

Goods:Value from

making a product

Services:Value from enhancing the

capabilities and interactions among people

2012Year

Perc

ent

Features of

pre-, industrial, post- society

Pre- Use of Standard dominant Human Unit of of Living Society Game Activity Labor Social Life Measure Structure Technology

Pre- Against Agriculture Raw Extended Sub- Routine Simple hand Industrial Nature Mining muscle household sistence Traditional tools

power Authoritative

Industrial Against Goods Machine Individual Quantity Bureaucratic Machines fabricated production tending of goods Hierarchical nature Post- Among Services Artistic Community Quality of Inter- Information industrial Persons Creative life in terms dependent Intellectual health, education, recreation

Nature of the Service SectorDistribution of U.S. Employment, 2009

Transportation and utilities 19%

Other services 4%

Financial services6%Leisure and hospitality

9%

Health care and social assistance

11%

Professional and business services

12%

Construction5%

Manufacturing 9%

Federal government 2%

Information 2%

Agriculture and mining 2%

State and local government 13%

Self employed and unpaid family workers

6%

Educational services 2%

Retail and wholesale trade

14%

1-10

• Service industries are the source of economic leadership– During the past 30 years, most jobs are created in

the service sector– Service industries account for 70% of national

income (USA)– More flexible in how and where work is performed

(telecommuting)– More control over your own time

– Greater opportunity to express yourself through your work

– Ability to shape and reshape your life’s work in accordance with your values and interests

– (P.10)

Features of Economies

Economy Agrarian Industrial Service Experience

EconomicOffering

Food Packagedgoods

Commodityservice

Consumer services

Businessservices

Function Extract Make Deliver Stage Co-create

Nature Fungible Tangible Intangible Memorable Effectual

Attribute Natural Standardized Customized Personal Growth

Method of Supply

Stored in bulk

Inventoried Delivered on demand

Revealed over time

Sustained over time

Seller Trader Producer Provider Stager Collaborator

Buyer Market Customer Client Guest Collaborator

Expectation Quantity Features Benefits Sensations Capability

Consumer Service Experience (B2C)

Design Principles

• Theme the Experience (主題餐廳 )• Harmonize Impressions with Positive Cues

(O’Hare airport parking garage)• Eliminate Negative Cues

(Cinemark talking trash containers)• Mix in Memorabilia (Hard Rock T-shirts)• Engage all Five Senses (Mist in Rainforest)

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Business Service Experience (B2B)

Design Principles• Co-creation of value– Customer is an input to the service process– Customer is a coproducer of the value extracted

from the relationship• Relationships– Source of innovation and differentiation– Ability to tailor the service offering to customer’s

needs

• Service capability– Provide service capability to meet fluctuation in

demand while retaining quality of service– Quality of service is measured primarily from the

perspective of the customer

Typology of Services Experiences

Core Experience Essential Feature Examples

Creative Present ideas Advertising, theater

Enabling Act as intermediary Transportation, communications

Experiential Presence of customer Massage, theme park

Extending Extend and maintain Warranty, health check

Entrusted Contractual agreement Service/repair, portfolio mgt.

Information Access to information Internet search engine

Innovation Facilitate new concepts R&D services, product testing

Problem solving Access to specialists Consultants, counseling

Quality of life Improve well-being Healthcare, recreation, tourism

Regulation Establish rules and regulations Environment, legal, patents

Foundation Premises of Service-Dominant Logic

1. Service is the fundamental basis of exchange.applying competence (knowledge and skills) for the benefits

of another party

2. Service delivery process is complex and has many intermediary (e.g. Internet)

3. Goods are distribution mechanisms for service provision.4. Operant resources are the source of competitive

advantageintellectual capital, skills, and knowledge

5. All economies are service economies.

Foundation Premises of Service-Dominant Logic

6. The customer is always a co-creator of value.7. A service is only a capacity to create value upon

customer activation.e.g. a seat on an airplane.

8. Service exchange necessarily must become customer-focused.

9. Value is created when customer integrate and applies resources of the service provider

e.g. using PayPal to make a purchase on eBay.

Foundation Premises of Service-Dominant Logic

10. Value is uniquely determined by the customerbased on personal needs

at the specific timee.g. quick lunch or dinner party

in the particular contexte.g. alone or in a group

as an experience

Distinctive Characteristics of Service Operations

• Customer participation in the service process– Attention to facility design

Front office:• Interior decorating, furnishing, layout, noise, and colorBack office:• Open back office to promote confidence in the service

– Restaurant provides a view of kitchen– Auto repairs bays can be observed through windows

– Customer play an active part• Knowledge, experience, motivation, and even the

honesty of the customer all directly affect service performance– The popularity of supermarkets and discount stores is based

on customers are willing to assume an active role– The education of a student is determined largely by the

student’s own effort and contributions

– Customer as temporary employee• Opportunity for co-productionFast food restaurants

– Customer place order from a limited menu– Clean their table after the mealCustomer expect– Fast service & less expensive mealsService provider benefits– Fewer personnel required– Labor provided just in time

• SimultaneityServices are created and consumed simultaneously– Closed system: manufacturing• Use inventory to absorb the fluctuation of demand• Factory can operate at a constant level of output

– Open system: service• Demand variations directly transmit to the system• Customers waits or queue• Opportunity for personal selling

• PerishabilityOpportunity loss of idle capacity– An empty airline seat– An unoccupied hotel room– Demand variation considerably• Lunch between noon to 1• Theme park peak during summer

– Options to manage time-perishable capacity• Smooth demand by

– Using reservation or appointments– Provide price incentives– Demarketing peak time

• Adjust service capacity by– Using part time help– Schedule work shifts according demand forecast– Increase the customer self-service content

• Allow customer to wait

• IntangibilityService is idea and concept; product is thing.– No patent protection• To secure the benefits of novel service concept

– Expand extremely rapid and preempt any competitors– Franchising

» Harvard business school, case study » 7-11» Costco» 同款、不同師傅

– Challenge for customers• No opportunity to test service before buying

– Rely on reputation of service provider

• Government consumers protection– Registration, licensing, regulation– GMP– AASCB– Drawbacks

» Stifling innovation, raising barriers to entry, reducing competition

• HeterogeneityResults of service delivery system varies from

customer to customer– Service is intangible– Customer co-production• Create more satisfying human work experience

– 導演、演員– Introduction of self-service technology• Eliminating routine impersonal tasks• Permitting personal attention to the remaining work

– To ensure consistency of service quality• Develop standards• Employee train in proper procedures• Customer feedback

– Direct customer-employee contact• Hotel industry

– Difficult to have happy customers with unhappy employees– Require genuine concern for employee welfare

• Nontransferrable ownershipCustomers do not receive ownership when purchase

service– Gain access of resources for a period of time• Hotel room for a night• A seat on an airplane• Human skill (e.g. dentist)• Technology (cellular network)• Physical asset (theme park)

Non-ownership Classification of Services

Type of Service Customer value Examples Management Challenge

Goods rental Obtain temporary right to exclusive use

Vehicles, tools, furniture, equipment

Site selection and maintenance

Place and space rental

Obtain exclusive use of portion of a larger space

Hotel room, seat on airplane, storage unit

Housekeeping , economies of scale

Labor and expertise Hire other people to do a job

Car repair, surgery, management consulting

Renew Expertise, time is perishable

Physical facility usage

Gain access to a facility for a period of time

Theme park, camp ground, physical fitness gym

Queuing and crowd control

Network usage Gain access to participate Electric utility, cell phone, internet

Availability and pricing decisions

Service Package:bundle of goods and service to deliver value

1-33

The Service Package

• Supporting Facility: – The physical resources that must be in place

before a service can be sold. – Examples are golf course, ski lift, hospital,

airplane.• Facilitating Goods: – The material consumed by the buyer or items

provided by the consumer. – Examples are food items, legal documents, golf

clubs, medical history.

1-34

The Service Package (cont.)

• Information: – Operations data or information that is provided by

the customer to enable efficient and customized service.

– Examples are patient medical records, seats available on a flight, customer preferences, location of customer to dispatch a taxi.

1-35

The Service Package (cont.)

• Explicit Services: – Benefits readily observable by the senses. The

essential or intrinsic features. – Examples are quality of meal, attitude of the waiter,

on-time departure.• Implicit Services: – Psychological benefits or extrinsic features which

the consumer may sense only vaguely. – Examples are privacy of loan office, security of a well

lighted parking lot.

1-36

• The service package of a Budget Hotel– Supporting facility:– Facilitating goods:– Information:– Explicit services:– Implicit services:

The Service Process Matrixgrouping service by delivery process

Degree of Interaction and Customization Low High

Service Factory Service Shop

* Airlines * Hospitals

Low * Trucking * Auto repair

* Hotels * Other repair services

* Resorts and recreation

Mass Service Professional Service

* Retailing * Doctors

High * Wholesaling * Lawyers

* Schools * Accountants

* Retail banking * Architects

1-38

Degree of Labor Intensity

The Service Process Matrixgrouping service by delivery process

Degree of Interaction and Customization Low High

Service Factory Service Shop

* Airlines * Hospitals

Low * Trucking * Auto repair

* Hotels * Other repair services

* Resorts and recreation

Mass Service Professional Service

* Retailing * Doctors

High * Wholesaling * Lawyers

* Schools * Accountants

* Retail banking * Architects

1-39

Degree of Labor Intensity

Challenge for service management

Open Systems View of Services

1-41

Frontoffice

Backoffice

Mini Case

• Village Volvo– P.25

• Xpresso Lube– P. 26