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Service Innovation and Management. Minder Chen, Ph.D. Associate Professor of MIS Chair of Business and Economics CSU Channel Islands References (I). James Teboul, Service Is Front Stage: Positioning Services for Value Advantage, Palgrave McMillan, 2006.

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Service Innovation and Management

Minder Chen, Ph.D.

Associate Professor of MIS

Chair of Business and Economics

CSU Channel Islands

references i
References (I)
  • James Teboul, Service Is Front Stage: Positioning Services for Value Advantage, Palgrave McMillan, 2006.
  • Christopher H. Lovelock and Jochen Wirtz, Services Marketing, 6/E, Prentice Hall, 2007.
  • James A. Fitzsimmons,Mona J. Fitzsimmons, Service Management: Operations, Strategy, and Information Technology, Irwin Professional Publication, 2008.
  • Leonard Berry and Kent Seltman, Management Lessons from Mayo Clinic: Inside One of the Worlds Most Admired Service Organizations, McGraw Hill, 2008.
  • Bill Hefley and Wendy Murphy (Editors), Service Science, Management and Engineering: Education for the 21st Century (Service Science: Research and Innovations in the Service Economy), Springer, February 1, 2008.
  • Michael D. Johnson and Anders Gustafsson, Competing in a Service Economy: How to Create a Competitive Advantage Through Service Development and Innovation, Jossey-Bass, May 23, 2003.
  • Robert F. Lusch & Stephen L. Vargo, The Service-Dominant Logic of Marketing: Dialog, Debate, And Directions, M.E. Sharpe, February 28, 2006.
references ii
References (II)
  • Putting the Service-Profit Chain to Work, Heskett, James L.; Jones, Thomas O.; Loveman, Gary W.; Sasser, Jr., W. Earl; Schlesinger, Leonard A.. Harvard Business Review, Jul-Aug 2008, Vol. 86 Issue 7/8, p118-129.
  • How to Sell Services MORE Profitably, Reinartz, Werner; Ulaga, Wolfgang. Harvard Business Review, May 2008, Vol. 86 Issue 5, p90-96.
  • The Four Things a Service Business Must Get Right, Frei, Frances X.. Harvard Business Review, April 2008, Vol. 86 Issue 4, p70-80.
  • BREAKING THE TRADE-OFF Between Efficiency and Service, Frei, Frances X., Harvard Business Review, Nov. 2006, Vol. 84 Issue 11, p92-101.
  • Vargo, Stephen L. and Lusch, Robert F. (2004a) ‘Evolving to a New Dominant Logic for Marketing’, Journal of Marketing 68(1): 1–17.
  • Vargo, Stephen L. and Lusch, Robert F. (2004b) ‘The Four Services Marketing Myths: Remnants from a Manufacturing Model’, Journal of Service Research 6(4): 324–35.
  • Succeeding through Service Innovation: A Service Perspective for Education, Research, Business and Government, by: IfM and IBM, 2008
classification of services
Classification of Services
  • Extractive (agriculture, mining)
  • Transformative (construction, food, manufacturing): Second sector
  • Producer services (Business services and marketed services)
  • Personal services (domestic, hotel, repair, dry-cleaning, entertainment, etc.)
  • Distributive services (logistics, communication, wholesale and retail trade)
  • Non-marketed services (Health, welfare, government, legal serices, education services, etc.)

Industry sector: Mining, Construction, & Manufacturing

Source: Front Stage

service classification proximity to final customers
Service classification – Proximity to final customers
  • Business-to-business services
  • Consumer services
  • “self-services”
four categories of services

Who or What Is the Direct Recipient of the Service?

Nature of the Service Act



Tangible Actions

  • People processing
  • (services directed at people’s bodies):
  • Barbers
  • Health care
  • Possession processing
  • (services directed at physical possessions):
  • Refueling
  • Disposal/recycling

Intangible Actions

  • Mental stimulus processing
  • (services directed at people’s minds):
  • Education
  • Advertising/PR
  • Information processing
  • (services directed at intangible assets):
  • Accounting
  • Banking
Four Categories of Services

More T-shaped People

to work in, study, and innovate

service systems





Social Science


Slide by Jean Paul Jacob

service characteristics
Service Characteristics
  • A service is a deed, a performance, a process, an effort.
  • What is being bought is intangible.
  • Services are produced and consumed almost simultaneously.
  • Services in principle cannot be inventories.
  • Customers are involved in the production of the services.
  • Manufacturing firms also have a service component of their own.
  • Instant delivery and custom design are both services.
service definition
Service Definition
  • A service is a means of delivering value to customers by facilitating outcomes customers want to achieve without the ownership of specific costs and risks.
    • ITIL Version 3
services definition
Services Definition
  • A service is a provider/client interaction that creates and captures value.
  • The provider and client coordinate their work (co-production) and in the process, both create and capture value (transformation).
  • Services typically require assessment, during which provider and client come to understand one another's capabilities and goals.
  • A time-perishable, intangible experience performed for a customer acting in the role of co-producer (Fitzsimmons, 2001)
current services thinking
Current services thinking
  • A service is a provider-to-client interaction that creates and captures value while sharing risks
  • Services are value that can be rented
  • Services are the application of specialized competences (skills and knowledge)
  • Services are autonomous, platform independent, business functions
distinguishing services from goods
Distinguishing services from goods
  • Inseparability
  • Services are created and consumed at the same time
  • Services cannot be inventoried
  • Demand fluctuations cannot be solved by inventory processes
  • Quality control cannot be achieved before consumption
  • Consideration: Does the ability to tailor and customize goods to the customers’ demands and preferences mean that these goods also have an inseparability characteristic?
  • Heterogeneity
  • From the client’s perspective, there is typically a wide variation in service offerings
  • Personalization of services increases their heterogeneous nature
  • Perceived quality-of-service varies from one client to the next
  • Consideration: Can a homogeneous perception of quality due to customer preference idiosyncrasies (or due to customization) also benefit the goods manufacturer?
distinguishing services from goods1
Distinguishing services from goods
  • Intangibility
  • Services are ideas and concepts that are part of a process
  • The client typically relies on the service providers’ reputation and the trust they have with them to help predict quality-of-service and make service choices
  • Regulations and governance are means to assuring some acceptable level of quality-of-service
  • Consideration: Do most services processes involve some goods?
  • Perishability (No inventory)
  • Any service capacity that goes unused is perished
  • Services cannot be stored so that when not used to maximum capacity the service provider is losing opportunities
  • Service capability estimation and planning are key aspects for service management
  • Consideration: Do clients who participate in some service process acquire knowledge which represents part of the stored service’s value? What might the impact be?
  • Co-produced
service layering
Service Layering
  • Pure service: Legal service, barber shop
  • IT-enabled Service: Google for information search, eBay for online auction services, WebMD for online health information
  • IT Services: IT outsourcing service provider (IBM Global Service), on-demand data center (EDS), on-demand computing (IBM)
  • Service-wrapped IT products: iTune and iPod; GM OnStar (Emergency service + remote diagnosis & sensing + GPS & Navigation)
  • Manufacturing services: IC design houses, TSMC foundry service
  • Pure manufacturing: Manufacturing of commodity products

Source: Minder Chen, 2007

products vs services
Products vs. Services
  • Products can be seen as the physical embodiment of the service provided.
    • Cars provide comfortable transportation services
    • Televisions deliver entertainment
    • Cosmetics offer beatification services
    • Cameras provides services for wonderful memory
onstar service from gm
OnStar Service from GM

OnStar By GM |, Car Safety Device and Vehicle Security System

Screen clipping taken: 2007/3/6, 上午07:56

ipod and itune
iPod and iTune

Apple - iPod + iTunes,, Screen clipping taken: 2007/3/6, 08:02


November 4, 2003 - 08:35 EST   Apple today announced that its first retail store in Japan will open in Tokyo's Ginza shopping district on Sunday, November 30 at 10:00 a.m. This will be Apple's 73rd retail store, and the first outside the United States. The new store will feature five floors ….

inside an apple store
Inside an Apple Store

Applestore, Soho, New York, 20 Sep 2005

computing clouds amazon web services
Computing Clouds: Amazon Web Services

Amazon Web Services Developer Connection : AWS Solutions Catalog

Screen clipping taken: 2007/3/6, 上午08:08

3 new new things
3 New New Things (三創)
  • Creativity(創造力): Individual and group creativity, creative problem solving process.
  • Innovation(創新): Product/service and Process innovation, culture for innovation.
  • Entrepreneurship(創業): Creating a business /enterprise, cost leadership, differentiation, focused market, etc.
service innovation
Service Innovation
  • Innovation in services, in service products – new or improved service products (commodities or public services). Often this is contrasted with “technological innovation”, though service products can certainly have technological elements.
  • Innovation in service processes – new or improved ways of designing and producing services. This may include innovation in service delivery systems, though often this will be regarded instead as a service product innovation.
  • Innovation in service firms, organizations, and industries – organizational innovations, as well as service product and process innovations, and the management of innovation processes, within service organizations.

dimensions of service innovation
Dimensions of service innovation
  • The Service Concept: A “new value proposition”.
  • The Client Interface: refers to innovation in the interface between the service provider and its customers. e.g., self-service
  • The Service Delivery System: A "service factory" approach— is a standardized and industrialized environment for more effective service innovation.
  • Technological Options: Customer loyalty cards and “smart” RFID cards for transactions.
service oriented model architecture
Service-Oriented Model & Architecture

The service target may be the service client itself.

provider client relationship
Provider-Client relationship
  • Provider
    • An entity (person, business, or institution) that makes preparations to meet a need
    • An entity that serves
  • Client
    • An entity (person, business, or institution) that engages the service of another
    • An entity being served
  • Some general relationship characteristics are that the client
    • Participates in the service process (also known as the service engagement)
    • Co-produces the value
    • The quality of service delivered depends on customers preferences, requirements, and expectations
five key areas for service innovation in high tech
Five Key Areas for Service Innovation in High Tech
  • The Capture, Management and Re-use of Knowledge is progressing slowly. Where are the breakthroughs?
    • In electronic self help? In professional services/consulting IP capture?
  • The Growing Complexity of the Customer’s Systems is increasing cost-to-serve and negatively effecting customer satisfaction. How can we apply innovative approaches to tracking the customer environment, the cause of problems and to facilitate cooperative service provision among different companies with common customers?
  • What are future approaches to Building Supportability Into Technology Products?
    • Predict environments conducive to problems
    • Sense developing problems; Take Pre-emptive actions (automated and non)
    • Collect information for service providers
  • Service organizations know more about the use of products and changing customers environments than any other part of the company. How can we Turn Mountains of Data Into Usable Management Information for services management, the sales force and product development teams?
  • The Services Supply Chain is becoming increasingly complex. Innovation around the “service system” business model that can help companies partner effectively will help both the quality of customer solutions and the bottom line.
service innovation is inherently multidisciplinary
Service innovation is inherently multidisciplinary

Knowledge sources driving service innovations…









Science &








& Markets

Social Sciences

SSME = Service Sciences, Management, and Engineering

manufacturing vs services a matter of degree
Manufacturing vs. Services: A matter of Degree

Manufacturing Sector

Service Sector

three types of restaurants
Three Types of Restaurants



(i.e., Benihana)

Source: Service Is Front Stage

in n out burger
In-N-Out Burger

important factors to fast food users
Important Factors to Fast-Food Users
  • The cleanliness of the restaurant (77 percent rated this “extremely important”),
  • Taste or flavor of the food (73 percent)
  • Order accuracy (66 percent).
  • Quality of ingredients also is highly important (64 percent)
  • Temperature of food ranks next in importance (57 percent).


Manchu Han Imperial Feast (Chinese cuisine 108 dishes)


Kaiseki or kaiseki ryōri

japanese teppanyaki cooking hibachi style
Japanese teppanyaki cooking: Hibachi-style
  • Moving the backstage to the frontstage
  • Dining + Entertaining (Showmanship)

Complimentary flatbed pick-up & delivery of your vehicle.

  • New Express Service:  Oil change in 30 minutes.
  • Loaner Vehicles and complimentary car wash with every service.
  • Longo Lexus courtesy pickup and dropoff shuttle (within a 15-mile)
  • Guest Lounge with complimentary cappuccinos, coffee, tea, and pastries.
  • Kids Play Area with children's movies and games.
  • Guest Business Center provides computers, copier, fax and printer, & phone. 
  • Wireless internet access available throughout our facility.
  • Starbucks Coffee and Subway sandwich restaurant located at our facility.

empowered customer focus processes
Empowered Customer-Focus Processes

Manager as Coach


Customer-facing Process




Values and Quality

delivered to

Customers timely

the progression of economic value
The Progression of Economic Value

WELCOME TO THE EXPERIENCE ECONOMY. Pine, II, B. Joseph; Gilmore, James H.. HarvardBusinessReview, Jul/Aug98, Vol. 76 Issue 4, p97-105.

build a bear workshop
Build a Bear Workshop
servant leadership
Servant Leadership
  • Customer
  • Distributors/Dealers
  • Front-line workers
  • Supervisor
  • Managers
  • CEO
employees and customers

Employees and Customers

“You don’t get happy guests with unhappy employees.”

J. W. Marriot

value chain of people
Value Chain of People















the service triangle
The Service Triangle

WOM: Words of Mouth

the service triangle1
The Service Triangle

Product and process formulation


High-quality internal services and

Good internal management

Revenue growth and profitability

Frontline employee



Value of service provided

Low turnoverProductivity


(Teboul, 2005, p. 33).

zappos com
  • YouTube - Zappos on
  • Amazon acquires Zappos for $850M Million
  • Video from Jeff Bezos about Amazon and Zappos
  • Zappos on face book
  • Why Zappos are so successful in selling shoes online?
  • How would you use Web 2.0 for your business?
  • Anything unique about the Web site design?
zappos at a glance
Zappos  at  a  Glance
  • Founded  in  1999,1600  employees  (half  in  Las  Vegas,   Nevada,  half  in  Louisville,  Kentucky)
  • Zappos  is  “Powered  by  Service”
  • Providing  the  best  online  shopping  experience possible.
    • Fast,  Free  Shipping.   Free  return  shipping.   365‐day   return  policy.
    • Fast  fulfillment.   Expedited  delivery.   Fast,  friendly  & expert  customer  service.
  • Best  selection:
    • Over  1200  brands,  over  200,000  styles,  over  900,000 unique  UPCs. Over  4  million  items  in  warehouse
    • Photography  in  multiple  angles  &  100%  in‐house.
    • 100%  of  products  inventoried  (no  drop  ship).
  • Zappos  is  a  service  company  that  happens  to  sell   shoes,  clothing,  handbags,  eyewear,  watches  (and eventually  a  bunch  of  other  stuff).
zappos core value
Zappos Core Value

Deliver WOW Through Service

Embrace and Drive Change

Create Fun and A Little Weirdness

Be Adventurous, Creative, and Open-Minded

Pursue Growth and Learning

Build Open and Honest Relationships With Communication

Build a Positive Team and Family Spirit

Do More With Less

Be Passionate and Determined

Be Humble

zappos success
Zappos Success
  • encouraging customers to order as many products as they wanted in order to “try them on,” then offering free return shipping for a full 365 days
  • only listing products on the site when stock was in their own warehouse (which actually lowered sales by 25% at a time when the company was still in the red)
  • Run warehouse operation 24/7 to deliver super-fast turnaround on orders, despite it being an inefficient way to manage fulfillment
  • encouraging customers to call them about nearly everything. Their call center takes 5,000 calls per day, and employees work independent of scripts, quotas, or call time limits. The longest call to date has been four hours. Zappos views the phone experience as a branding device, and speaks to virtually every customer at least once.
  • deciding to invest in “surprise” (free) upgrades to overnight shipping for most customers. This means that most orders are delivered within 24 hours, despite the web site indicating it will take 2-5 business days.
zappos 10 things learned in e commerce
Zappos: 10  Things  Learned  in  e‐commerce

1. The  e‐commerce  business  is  built  on  repeat  customers

2. Word  of  mouth  really  works  online

3. Don’t  compete  on  Price

4. Make  sure  your  web  site  inventory  is  100%  accurate

5. Centrally  locate  your  distribution

6. Customer  service  is  an  investment,  not  an  expense.

7. Start  small,  stay  focused

8. Don’t  be  secretive.  Don’t  worry  about  competitors

9. You  need  to  actively  manage  your  company  culture

10. Be  wary  of  so‐called  experts…INCLUDING  US!!!

service blueprint components
Service blueprint components

Physical evidence

Customer actions


Employee actions


Employee actions

Support processes

Desktop PC and applications, ticket, records

IT request, problem call to help desk, etc

Line of interaction

Takes call, opens ticket, visit to employee desk side

Line of visibility

Refers to manuals, asks for help from team

Line of internal interaction

Time recording, payroll, training, etc

customer life cycle
Customer Life Cycle

The Proof!

Translate Failure into Success!





"Moments of Truth"




Market and Customer Research and analysis


Sales Processes

(Including Business Partners)




To Know


Profit Opportunities

Delivery, Welcoming service and

Continuous Contact Processes

mot analysis example a credit card company
MOT Analysis Example: A Credit Card Company
  • Pri to MOT
    • Recognition
    • Information gathering
    • Comparison
  • MOT
    • Applying for Credit Card
    • Receiving Credit Card
    • Using Credit Card
    • Providing Information
    • Changing and Upgrading
    • Gifts giving
    • Emergency Assisting
  • After MOT
    • No usage follow-up
    • Stop membership follow-up
think from the customer back
Think from the Customer Back



The Customer








Job Responsibilities



* Adapted from The Price Waterhouse Change Integration Team, Better Change, Irwin, 1995, p. 163.


Organization Structure

ec and business processes
EC and Business Processes




fax, e-mail

Send info

Request info







Fulfill Services


Identify need

Find source

Evaluate offerings


Operate, Maintain, Repair

Data sheets, catalogs, demos

Web surfing

Web searches, web ads

Web site




Corporate Databases



Web site

Credit cards, e-cash



Deliver soft goods electronically

Web site, phone,

fax, e-mail, e-mailing list