UNIVERSITY OF PRETORIA Graduate School of Technology Management SYSTEMS ENGINEERING: A DUAL SA ECONOMY PERSPECTIVE Richard Weeks
ASPECTS TO BE ADDRESSED • South Africa: the reality of a dual economy within a global services driven economy • Service science: the new South African frontier in a dual services and manufacturing economy • A Systems Engineering perspective of the new frontier • Clarity as to the concept and nature of services • Service system life cycle • Service System Design • Facility Design • The service encounter (moment of truth) • Service implementation and management
Nature of the global economy-Rise of services economy Source: 2004 IBM study, based on national labour data
Question? • In your day-to-day life-world how many of the purchases that you and your family make are services related? • Within the organisation you work for, how many of the day-to-day activities undertaken are services related?
Question? • In your day-to-day life-world how many of the purchases that you and your family make are services related? Medical – insurance – servicing of car – electricity -banking/financial transactions – municipal services – education of children – security services – domestic cleaning – transportation (taxies) …………. • Within the organisation you work for, how many of the day-to-day activities undertaken are services related? May be external or internal to the organisation– information - travel/transportation – training of staff – salaries – taxation – IT support services ………….
Nature of the services sector What are some everyday services? • Transportation Train, taxis, airlines, delivery, airports, shipping, • Hospitality Hotels, restaurants, cafeterias, • Infrastructure Communications, electricity, water, waste removal, roads,energy • Government Police, fire, water, waste removal, health, education, • Financial Banking, investments, insurance, • Entertainment Television, movies, concerts, • Professional Services Doctors, dentists, lawyers, skilled craftspeople, teachers, • Health Hospitals, dentists, clinics, doctors, medical aid, ambulance
Role of Services in a Network Economy FINANCIAL SERVICES · Financing · Leasing · Insurance INFRASTRUCTURE SERVICE · Communications · Transportation · Utilities · Banking PERSONAL SERVICES · Healthcare · Restaurants · Hotels MANUFACTURING Services inside company: · Finance · Accounting · Legal · R&D and design DISTRIBUTION SERVICES · Wholesaling · Retailing · Repairing CONSUMER (Self-service) BUSINESS SERVICES · Consulting · Auditing · Advertising · Waste disposal GOVERNMENT SERVICES · Military · Education · Judicial · Police and fire protection
Product Services A B Physical 6% 37% 31% Information 10% 63% 53% C D 84% 16% Distribution of GDP in the US Economy
Nature of Service Sector Percent Distribution of Wage and Salary Employment in USA by Industry Sector, 2006
We believe that the global economy has passed a tipping point in the transition from an industrial, good-centred to an innovation, service-centred logic. Dominant logic and innovative technologies, methods and concepts evolve in a particular way to form something new.” Davenport, Leibold & Voelpel - 2006
The realities of the South African Economy ESSENTIALLY SOUTH AFRICA HAS A DUAL SERVICES & MANUFACTURING ECONOMY AGRICULTURE 9% MANUFACTURING 26% SERVICES 65% Fastest growing sector of the economy
The nature of the South African Services Economy In relation to the Global Services EconomyRelative annual % growth in exports of services Growth over the period 1997-2006 South Africa Source: OECD
The nature of the South African Services Economy In relation to the Global Services EconomyRelative annual % growth in importsof servicesGrowth over the period 1997-2006 South Africa Source: OECD
The nature of the South African Services Economy Servicestrade balance: exports of services minus imports of services Billion US dollars, average 2004-2006 Negative Trade Balance!! South Africa NOTE: SOUTH AFRICA IMPORTS MORE SERVICES THAN IT EXPORTS
The nature of the South African EconomyTrade balance: exports of goods minus imports of goodsBillion US dollars, average 2004-2006 Negative Trade Balance!! South Africa
SARS TRADE STATISTICSREPUBLIC OF SOUTH AFRICAPRELIMINARY REPORT FOR JULY 2008 This is not a sustainable situation
SERVICE SCIENCE: THE NEW SOUTH AFRICAN FRONTIER IN A DUAL SERVICES AND MANUFACTURING ECONOMY
How is South Africa positioned to address the challenge of the new frontier?World Economic Forum: The 12 pillars of competitiveness Service innovation critical for South Africa to gain a competitive advantage
SA – Global CompetitiveIndex2007-2008 South Africa's GCI for 2007-2008 44
“Africa needs to improve its competitive position in order to penetrate global markets, its own national markets being too small to constitute a solid basis for sustainable growth and poverty reduction ” Peter Watson
The South African Skills Paradox South Africa has large numbers of unemployed people (Estimate 25%) yet it also suffers from a skills shortage at the same time – The services economy requires multi-skilled people who can integrate technology & business in developing innovative product & service business solutions for clients, with due regard to the human socio-cultural operational factors involved
THE NEW SOUTH AFRICAN DUAL SERVICES & MANUFACTURING ECONOMIC FRONTIER If the services sector is the largest and the fastest growing sector of the global economy South Africa will need to capture a larger share of the action within this highly competitive sector of the economy, if it is to turn the negative trade balance around In a Dual Economy the focus is on an innovative product/services bundle or offering to gain a competitive advantage in the marketplace This by implication, from a systems engineering perspective, entails the need to innovatively integrate the manufacturing and services value chains at an operational level – particularly as it relates to front and back stage operational and support systems
Trevor Manual – SA Minister of Finance (SA Reality): “The knowledge base of the population, the technology that workers are able to use, the systems around which production is organised, the innovation potential of a workforce and the means of communication between agents in the economy are all key factors that drive long run economic growth” “the world economy is far more skills intensive today” YET “South Africa faces an unprecedented shortage of skills. While we have about four million unemployed people we have about a million vacancies”
Systems engineering perspective Systems engineering in a dual services & manufacturing economic context provides a framework for the integration of processes, tools, technology and human resources in the planning, development, implementation and management of innovative services and products that meet client’s needs. It is defined by the International Council on Systems Engineering (INCOSA) as: an engineering discipline whose responsibility is creating and executing an interdisciplinary process to ensure that the customer and stakeholder's needs are satisfied in a high quality, trustworthy, cost efficient and schedule compliant manner throughout a system's entire life cycle”
Service Systems Engineering Defined: Service Systems Engineering applies engineering methods, ingenuity, and integrative techniques to design service processes and systems for improving the human condition and quality of life. Michigan University of Technology . Definition, 6/07
Definition:Engineering Services Management (ESM) A melding together of strategy, engineering, business processes & infrastructure, and human socio-cultural systems into an innovative and dynamic response that adds value in realising client needs and expectations in order to gain a competitive advantage within the global and local services and manufacturing marketplace University of Pretoria: GSTM
Clarity as to the concept and nature of services • Provider • An entity (person 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, expectations and perception of the services encounter (Moment of truth)
Value proposition Value Employees & Stockholders Community Customer Service Provider Value Value Service Experience Partners Competition Service System Source: Adapted from Stephen K. Kwan & Jae H. Min, 2008
Clarity as to the concept and nature of services • Simultaneity: services created & consumed simultaneously - cannot be stored, It eliminates opportunity for quality-control intervention before delivery. Capacity management critical to meet demand or queuing ensues. • Perishability: cannot establish a services inventory as backup, leads to a loss of opportunity of idle capacity and a need to match supply with demand – an airline seat no filled or a dentist appoint not kept results in a revenue loss. • Intangibility: services are concepts and ideas in contrast to products as things. Difficult for client to evaluate beforehand what is being offered and what they will get for their money. Creative advertising, no patent protection, importance of reputation assume relevance. • Heterogeneity: customer involvement and the human element in services delivery process results in variability. Interaction involved and perceptions of the interaction in relation to prier expectations in terms thereof is subjective in nature. • Customer Participation in the Service Process: attention to facility design and the services encounter. Issues of consideration: opportunities for co-production, concern for customer and employee behavior. • Non-Ownership: unlike goods there is not a transfer of ownership - what are clients buying? Gaining access to a resource for a period of time. Sharing resources between clients presents management challenges i.e. queuing.
Implications of Rental/Usage Paradigm • Creates the option of renting a good upon demand rather than purchase. • Service often involves selling slices of larger physical entities. • Labor and expertise are renewable resources. • Time plays a central role in most services. • Service pricing should vary with time and availability. Question: Can services in general be described as customers sharing resources?
The Service Process Matrix Degree Degree of Interaction and Customization of labor IntensityLow High Service FactoryService Shop * Airlines * Hospitals Low * Trucking * Auto repair * Hotels * Other repair services * Resorts and recreation Mass ServiceProfessional Service * Retailing * Doctors High * Wholesaling * Lawyers * Schools * Accountants * Retail banking * Architects
Service Classification (Nature of Demand and Capacity) Extent of Demand Fluctuation over Time Extent to Which Demand Exceeds CapacityWide Narrow Electricity Insurance Peak demand can Telephone Legal services met without a major delay Police emergency Banking Hospital maternity unit Laundry and dry cleaning Tax preparation Fast food restaurant Peak demand regularly Passenger transportation Movie theater exceeds capacity Hotels and motels Gas station
Product / Service transformation analogy James Teboul, 2006.
The Services Product bundle or offering • Process of value enhancement in services and manufacturing systems integration – client & provider customisation of product and associated services, design, testing manufacturing, delivery, after sales service, training in use of product, maintenance, phasing out of product taking environmental considerations into account. • Products and services in nature are fundamentally very different and this in itself presents inherent challenges in defining the bundle offered and purchased. • Innovation and creativity assumes specific relevance in product and services design and delivery, as well as their integration to gain a competitive advantage in the marketplace. • The inherent human interaction aspects involved in services introduces emotions, feelings, perceptions, values, beliefs and similar difficult considerations that need to be taken into consideration. • Introduction of front stage client facing and backstage institutional & support systems and activities that need to be integrate • Services in support of goods has become a means of differentiating a firm’s products.
The Increasing Role of Service in Manufacturing • Examples of Services • Product / service customization • Information • Warranties • Leasing, licensing, and rentals • After sales services • Staff training • Customer support • Maintenance • Service adds value (and profitability) • Service margins can be greater than associated product margins • Additional services providing a competitive advantage I marketplace • Bundle providing innovative packaged offering exceeding value of individual elements added together • Outsourcing resulting is lowering of cost to client and enhanced services • Client access to: ongoing research; technology; staff expertise & experience
SERVICE SYSTEM LIFE CYCLE Service Conceptualisation Service Design Service Testing Systems engineering in a dual services & manufacturing economic context provides a framework for the integration of processes, tools, technology and human resources in the planning, development, implementation and management of innovative services and products that meet client’s needs. Service Implementation Service Management Service Phase-out
Service Design Elements • Structural- Service vision - Delivery system- Location - Facility design - Capacity planning • Managerial- Service encounter- Quality- Managing capacity and demand- Information
Full-scale launch • Post-launch • review Full Launch Development Enablers • Formulation • of new services • objective / strategy • Idea generation • and screening • Concept • development and • testing • Service design • and testing • Facility design and • testing • Process and system • design and testing • Marketing program • design and testing • Personnel training • Service testing and • pilot run • Test marketing Organizational Context People Teams Product Technology Systems Tools Analysis Design • Business analysis • Project • authorization New Service System Design
Service VisionService Delivery System • What are important features of the service delivery system including: role of people, technology, equipment, layout, procedures? • What capacity does it provide, normally, at peak levels? • To what extent does it, help insure quality standards, differentiate the service from competition, provide barriers to entry by competitors?