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Chapter 04 New Service Development. McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e. Copyright © 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved. Learning Objectives. Describe the fundamental characteristics of service innovation.

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chapter 04 new service development

Chapter 04New Service Development

McGraw-Hill/Irwin

Service Management: Operations, Strategy, and Information Technology, 6e

Copyright © 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.

learning objectives
Learning Objectives
  • Describe the fundamental characteristics of service innovation.
  • Describe the four structural and four managerial elements of service design.
  • Describe the components of the customer value equation.
  • Explain and differentiate what is meant by the divergence and the complexity of a service process.
  • Describe the sequence of states and the enablers of the new service development process.
  • Prepare a blueprint for a service operation.
  • Explain the difference between direct and indirect customer contact.
  • Compare and contrast the four approaches to service system design: production-line, customer as coproducer, and information empowerment.

4-2

innovation in services
Innovation in Services
  • Basic Research: Pursue a planned search for new knowledge regardless of possible application.
  • Applied Research: Apply existing knowledge to problems in creation of new service.
  • Development: Apply knowledge to problems to improve a current service.

4-3

challenges for service innovation
Challenges for Service Innovation
  • Ability to protect intellectual and property technologies.
  • Incremental nature of innovation.
  • Degree of integration required.
  • Ability to build prototypes or conduct tests in a controlled environment.

4-4

levels of service innovation
Levels of Service Innovation

Radical Innovations

  • Major Innovation: new service that customers did not know they needed.
  • Start-up Business: new service for underserved market.
  • New Services for the Market Presently Served: new services to customers of an organization.

Incremental Innovations

  • Service Line Extensions: augmentation of existing service line (e.g. new menu items).
  • Service Improvements: changes in service delivery process (e.g. self-service boarding kiosk).
  • Style Changes: modest visible changes in appearances.

4-5

new service development cycle
New Service Development Cycle
  • Full-scale launch
  • Post-launch review

Full Launch

Development

Enablers

  • Formulation
  • of new services
  • objective / strategy
  • Idea generation
  • and screening
  • Concept
  • development and
  • testing

People

Organizational

Context

Teams

  • Service design
  • and testing
  • Process and system
  • design and testing
  • Marketing program
  • design and testing
  • Personnel training
  • Service testing and
  • pilot run
  • Test marketing

Product

Technology

Systems

Tools

Analysis

Design

  • Business analysis
  • Project authorization

4-8

strategic positioning through process structure
Strategic Positioning Through Process Structure
  • Degree of Complexity: Measured by the number of steps in the service blueprint. For example a clinic is less complex than a general hospital.
  • Degree of Divergence: Amount of discretion permitted the server to customize the service. For example the activities of an attorney contrasted with those of a paralegal.

4-10

structural alternatives for a restaurant
Structural Alternatives for a Restaurant

LOWER COMPLEXITY/DIVERGENCE CURRENT PROCESS HIGHER COMPLEXITY/DIVERGENCE

TAKE RESERVATION

SEAT GUESTS, GIVE MENUS

SERVE WATER AND BREAD

TAKE ORDERS

Salad Bar

Entree (6 choices)

Dessert (6 choices)

Beverage (6 choices)

SERVE ORDERS

CASH OR CREDIT CARD

No Reservations

Self-seating. Menu on Blackboard

Eliminate

Customer Fills Out Form

Pre-prepared: No Choice

Limit to Four Choices

Sundae Bar: Self-service

Coffee, Tea, Milk only

Serve Salad & Entree Together:

Bill and Beverage Together

Cash only: Pay when Leaving

Specific Table Selection

Recite Menu: Describe Entrees & Specials

Assortment of Hot Breads and Hors D’oeuvres

At table. Taken Personally by Maltre d’

Salad (4 choices)

Expand to 10 Choices: Add Flaming Dishes;

Bone Fish at Table

Expand to 12 Choices

Add Exotic Coffees; Wine list, Liqueurs

Separate-courses; Hand Grind Pepper

Choice of Payment. Including House Accounts:

Serve Mints

4-11

taxonomy of service processes
Taxonomy of Service Processes

Low divergence High divergence

(standardized service) (customized service)

Processing Processing Processing Processing Processing Processing

of goods Information of people of goods Information of people

Dry Check Auto repair Computer

No Cleaning processing Tailoring a programming

Customer Restocking Billing for a suit Designing a

Contact a vending credit card building

machine

Ordering Supervision

Indirect groceries of a landing

customer from a home by an air

contact computer controller

No Operating Withdrawing Operating Sampling Documenting Driving a

customer- a vending cash from an elevator food at a medical rental car

service machine an ATM Riding an buffet dinner history Using a

worker Assembling escalator Bagging of health club

interaction premade groceries Searching for facility

(self- furniture information

Direct service) in a library

Customer Customer Food Giving a Providing Home Portrait Haircutting

Contact service service in a lecture public carpet painting Performing

worker restaurant Handling transit cleaning Counseling a surgical

interaction Hand car routine bank Mass Landscaping operation

washing transactions vaccination service

4-12

generic approaches to service design
Generic Approaches to Service Design
  • Production-line

• Limit Discretion of Personnel

• Division of Labor

• Substitute Technology for People

• Standardize the Service

  • Customer as Coproducer• Self Service • Smoothing Service Demand

• Customer-Generated Content

  • Customer Contact • Degree of Customer Contact • Separation of High and Low Contact Operations

• Sales Opportunity and Service Delivery Options

  • Information Empowerment • Employee

• Customer

4-13

discussion questions
Discussion Questions
  • What are the limits in the production-line approach to service?
  • Give an example of a service in which isolation of the technical core would be inappropriate.
  • What are some drawbacks of customer participation in the service delivery process?
  • What ethical issues are raised in the promotion of sales during a service transaction?
  • Go to http://www.oecd.org/home and find the current non-manufacturing share of total business R&D for the countries listed in Table 1.1. Are there any surprises?

4-15

100 yen sushi house
100 Yen Sushi House
  • Prepare a service blueprint for the 100 Yen Sushi House.
  • What features differentiate 100 Yen Sushi House and how do they create a competitive advantage?
  • How has the 100 Yen Sushi House incorporated the just-in-time system into its operations?
  • Suggest other services that could adopt the 100 Yen Sushi House service delivery concept.

4-16

100 yen sushi house layout
100 Yen Sushi House Layout

Dishwashing Counter in Back

CONVERSATION AREA

Miso and Tea Station

CONVEYOR BELT

CONVERSATION AREA

TAKE-OUT POSITION

ENTRANCE

= CHEF

4-17

commuter cleaning new venture proposal
Commuter Cleaning - New Venture Proposal
  • Prepare a service blueprint for Commuter Cleaning.
  • What generic approach to service design is illustrated by Commuter Cleaning, and what competitive advantage does this offer?
  • Using the data in Table 4.7 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 $0.50 per shirt.
  • Critique the business concept, and make recommendations for improvement.

4-18

golfsmith
Golfsmith
  • Prepare a service blueprint for Golfsmith.
  • What generic approach to service design does Golfsmith illustrate and what competitive advantages does this design offer?
  • Why is Golfsmith a good candidate for Internet sales?

4-19

interactive class exercise
INTERACTIVE CLASS EXERCISE

The class breaks into small groups and prepares a service blueprint for Village Volvo.

4-20