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Ch. 4 New Service DevelopmentCh. 4 New Service Development

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Learning ObjectivesLearning Objectives

1. Innovation in services1. Innovation in services

2. New service development 2. New service development processprocess

3. Service Design Elements3. Service Design Elements

4. Strategic 4. Strategic positioningpositioning

5. Service 5. Service blueprintingblueprinting

6. Generic approaches to service system6. Generic approaches to service system

designdesign

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1. Innovation in Services1. Innovation in Services

Basic ResearchBasic Research: Pursue a planned search for : Pursue a planned search for new knowledge regardless of possible new knowledge regardless of possible application.application.

Applied ResearchApplied Research: Apply existing knowledge : Apply existing knowledge to problems in creation of new service.to problems in creation of new service.

DevelopmentDevelopment: Apply knowledge to problems : Apply knowledge to problems to improve a current service.to improve a current service.

R&D!R&D!

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1. Challenges for Service 1. Challenges for Service InnovationInnovation

Ability to protect intellectual and Ability to protect intellectual and property property (IP)(IP) technologies. technologies.

Incremental nature of innovation.Incremental nature of innovation.

Degree of integration required.Degree of integration required.

Ability to build prototypes or conduct Ability to build prototypes or conduct tests in a controlled environment.tests in a controlled environment.

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2. New Service Development Cycle2. New Service Development Cycle

People

Technology Systems

Product

Full Launch Development

Design Analysis

Org

aniz

atio

nal

Con

text Team

s

Tools

Enablers

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

• Business analysis• Project authorization

• Full-scale launch• Post-launch review

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

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2. Levels of Service Innovation2. Levels of Service Innovation

(1) Radical Innovations(1) Radical Innovations

Major InnovationMajor Innovation

Start-up BusinessStart-up Business

New Services for the Market Presently servedNew Services for the Market Presently served

(2) Incremental Innovations(2) Incremental Innovations

Service Line ExtensionsService Line Extensions

Service ImprovementsService Improvements

Style ChangesStyle Changes

e.g. FedExe.g. FedEx

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2. 2. TechnologyTechnology Driven Service Driven Service InnovationInnovation

Power/energyPower/energy - International flights with jet - International flights with jet aircraftaircraft

Physical designPhysical design - Enclosed sports stadiums - Enclosed sports stadiums

MaterialsMaterials - Astroturf - Astroturf

MethodsMethods - JIT and TQM - JIT and TQM

InformationInformation - E-commerce using the Internet - E-commerce using the Internet

e.g. Amazon.come.g. Amazon.com

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3. Service Design Elements3. Service Design Elements

(1) Structural:(1) Structural:Delivery systemDelivery system (front & back office)Facility designFacility design (aesthetics, layout)LocationLocation (competition, site characteristics)Capacity planningCapacity planning (number of (number of servers))

(2) Managerial(2) ManagerialService encounterService encounter (culture, empowerment)QualityQuality (measurement, guarantee)Managing capacity and demandManaging capacity and demand (queues)Information Information (data collection, resource)

e.g. Shouldice Hospital

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3. Customer Value Equation3. Customer Value Equation

V = (R + PQ) / (P + C)V = (R + PQ) / (P + C)

R: ResultsR: Results

PQ: Process QualityPQ: Process Quality

P: PriceP: Price

C: CostsC: Costs

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4. Strategic Positioning4. Strategic Positioning Through Process Structure Through Process Structure

Degree of ComplexityDegree of Complexity: Measured by the : Measured by the number of steps in the service blueprint. number of steps in the service blueprint. e.g. clinic VS general hospital.e.g. clinic VS general hospital.

Degree of DivergenceDegree of Divergence: Amount of : Amount of discretion permitted the server to discretion permitted the server to customize the service. customize the service.

e.g. attorney VS paralegal.e.g. attorney VS paralegal.

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4. Lower/Higher Complexity/Divergence4. Lower/Higher Complexity/Divergence

No Reservations

Self-seating. Menu on

Blackboard

Customer Fills Out Form

Pre-prepared: No Choice

Limit to Four ChoicesSundae Bar: Self-service

Coffee, Tea, Milk only

Serve Together

Cash only

TAKE RESERVATIONSEAT GUESTS, GIVE MENUS

SERVE WATER AND BREAD

TAKE ORDERS

Salad (4 choices)

Entree (15 choices)Dessert (6 choices)

Beverage (6 choices)

SERVE ORDERS

COLLECT PAYMENT

Specific Table SelectionRecite Menu: Describe

Assortment of Hot Breads and Hors D’oeuvres

At table. Taken Personally by Maltre d’

Individually Prepared at table

Expand to 20 Choices:

Expand to 12 ChoicesAdd Exotic Coffees

Separate-Courses

Choice of Payment

LOWER CURRENT PROCESS HIGHER

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5. Service Blueprint of Luxury 5. Service Blueprint of Luxury HotelHotel

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6. Generic Approaches to Service 6. Generic Approaches to Service DesignDesign

Production-lineProduction-line

• • Limit Discretion of PersonnelLimit Discretion of Personnel

• • Standardize the ServiceStandardize the Service

Customer as CoproducerCustomer as Coproducer• Substitution of Customer Labor for Provider• Substitution of Customer Labor for Provider• Smoothing Service Demand• Smoothing Service Demand

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

Information EmpowermentInformation Empowerment

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Discussion QuestionsDiscussion Questions

What ethical issues are raised in the What ethical issues are raised in the promotion of sales during a service promotion of sales during a service transaction?transaction?

What are some drawbacks of customer What are some drawbacks of customer participation in the service delivery process?participation in the service delivery process?

Give an example of a service in which Give an example of a service in which isolation of the technical core would be isolation of the technical core would be inappropriate.inappropriate.

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INTERACTIVE CLASS EXERCISEINTERACTIVE CLASS EXERCISE

The class breaks into small groups and The class breaks into small groups and prepares a service blueprint for bus prepares a service blueprint for bus carrier, courier service et al.carrier, courier service et al.

Go to Go to http://http://www.oecd.orgwww.oecd.org/home/home and find and find the current non-manufacturing share of the current non-manufacturing share of total business R&D for the countries listed total business R&D for the countries listed in Table 1.1. Are there any surprises?in Table 1.1. Are there any surprises?