The Nature of Services

1
The Nature of Services
2
Proportion of Goods and Services in Purchase
Bundle

• Goods
  Services
• 100 75 50 25 0
  25 50 75 100
• Self-service gasoline.
• Personal computer
• Office
  copier.
• Fast-food
  restaurant
• 
  Gourmet restaurant
• 
  Auto repair
• 
  Airline flight.
• 
  Haircut.

3
The Service Process Matrix

• 
  
• Degree Degree of Interaction and
  Customization
• of labor Intensity 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 aspects of Architects
• 
  commercial banking
  
• 
  

4
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 purchased or
  consumed by the buyer or items provided by the
  consumer. Examples are food items, auto parts,
  legal documents, golf clubs.

5
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.

6
From pure to quasi-manufacturing services

• Pure service high contact
• Mixed service medium contact (front-office)
• Quasi-manufacturing low contact (boundary
  functions and technical core)
• Degree of contact influences time of demand and
  the exact nature of the service

7
Degree of contact and management decisions

• High
• Location near customer
• Layout customer physical, psychological needs
  and expectations
• Product Design environment as well as physical
  product

• Low
• Near supply, transport, labor
• Enhance production
• Product defined by fewer attributes

8
Degree of contact and management decisions (cont)

• High
• Process design stages have direct, immediate
  effect
• Scheduling customer is in the schedule,
  immediate service
• Production planning orders cannot be stored

• Low
• Customer not involved in majority of steps
• Customer concerned with completion dates
• Backlogging and smoothing are possible

9
Degree of contact and management decisions (cont)

• High
• Worker skills PR
• Quality variable standards and expectations
• Time standards depends on customer needs, loose

• Low
• Technical skills
• Standards measurable and fixed
• Time can be known

10
Degree of contact and management decisions (cont)

• High
• Wages variable o/p, time based wage systems
• Capacity Planning meet peak demand
• Forecasting short-term, time oriented

• Low
• Fixed o/p, output based wage systems
• Storable output, average demand
• Long term, o/p oriented

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11
Degree of contact and management decisions (cont)

• HC systems have more uncertainty in day to day
  operations
• It is only by chance that capacity will match
  demand
• Workforce is a signficant PR component
• HC systems are at the mercy of time

12
Degree of contact and management decisions (cont)

• Implications for management
• Rationalization is difficult many factors affect
  the ultimate quality of the service experience
• Distinction should be made between high and low
  contact elements
• Development of 2 types of worker skills

13
Unique Characteristics of Services

• Customer presence uncertainty on service time,
  workforce needed, quality of service and
  operating costs.
• Attention to facility design and layout
• Routing the customer through the service system
• Employee job design
• Customer job design
• customer expects faster and cheaper service
• manager employs customer to acieve higher
  capacity utilisation

14
Unique Characteristics of Services

• Intangibility
• Customer doesnt know what level of service s/he
  will be getting (only minimum levels may be
  guaranteed through registration, licencing,
  regulations)
• Management must identify particular needs and use
  creative advertising to emphasise abstract
  benefits
• Importance of reputation

15
Unique Characteristics of Services

• No patent protection short life cycles for
  innovations quick response to competitive
  pressure
• Capture market share as quickly as possible
• Clear definition of service package, geographic
  area covered, standard facility design,
  trademarks to define uniqueness
• Barriers to entry

16
Unique Characteristics of Services

• Simultaneity non-inventoriable output
• Inability to absorb fluctuations in demand
• Manufacturing inventory decouples operations
• Services decoupling is through customer waiting
• Inventory control queue control
• Capacity, facility utilisation, idle time
  balanced against customer waiting time
• Capacity surrogate to inventory
• Cost of idle capacity inventory holding cost
• Lack of capacity stock out

17
Unique Characteristics of Services

• Simultaneity (cont)
• Interaction creates customer perceptions of
  quality eliminates opportunites for QC
• Limit discretion of employees
• Standardised procedures
• Limited geographic area
• Opportunities for promotional strategies,
  personal selling

18
Unique Characteristics of Services

• Time-dependant demand customer demand and
  arrival patterns difficult to forecast (cyclical,
  seasonal)
• Perishability of demand cannot inventory,
  opportunity loss of idle capacity, need to match
  supply with demand
• Strategies to cope with variability
• Automation (affects pricing, service time,market
  positioning, maintenance, layout, workforce),
  Overlapping shifts, Price incentives,
  Reservations and appointments, Customer
  self-service

19
Unique Characteristics of Services

• Heterogeneity variability in output
• Due to customer presence and intangibility
• Difficult to establish and meet standards each
  time
• Training employees (Hamburger University)
• Field inspection

20
Unique Characteristics of Services

• Difficulty in measuring output (number of
  customers) and evaluating performance (maximizing
  profit)
• Labor intensiveness
• Customer/worker interface marketing/production
  interface
• Direct worker affects perceived value of service
• Production as well as marketing skills
• Worker scheduling, training, incentives

21
Unique Characteristics of Services

• Site and size dictated by customer
• Limited economies of scale
• Control of decentralised operations (multi-site
  management)
• Standardise service package
• Extra layers of management
• Automate back room operations
• Resilence to economic cycles recession proof?

22
Unique Characteristics of Services

• International transportability
• Legal restrictions
• Advertisability
• Adequate channels of distribution
• Cultural, social norms
• Political stability
• Distance
• Language

23
Service Process Orientation

• Customer as Coproducer
• Front and Back Office Perspectives
• Service Profit Chain Focus on Internal and
  External Customers
• Quality (perceptions vs expectations)
• Focus on Both Efficiency and Effectiveness
• Use IT as an Enabler for Both Internal and
  External Customers

24
Strategic Service Classification (Nature of the
Service Act)

• 
  Direct Recipient of the Service
• Nature of
• the Service Act People
  Things
• 
  Peoples bodies
  Physical possessions
• 
  
  
• Health
  care
  Freight transportation
• 
  Passenger transportation
  Equipment repair and maintenance
• Tangible actions Beauty salons
  Veterinary care
• 
  Exercise clinics
  Janitorial services
• 
  Restaurants
  Laundry and dry cleaning
• 
  Haircutting
  Landscaping/lawn care
• 
  Peoples minds
  Intangible assets
• 
  
• 
  Education
  Banking
• Intangible actions Broadcasting
  Legal
  services
• 
  Information services
  Accounting
• 
  Theaters
  Securities
• Museums
  
  Insurance

25
Strategic Service Classification (Relationship
with Customers)

• Type of Relationship between
  Service Organization and Its Customers
• Nature of
• Service Delivery Membership
  relationship No formal relationship
• 
  Insurance
  Radio station
• 
  Telephone subscription
  Police protection
• Continuous delivery College enrollment
  Lighthouse
• of service Banking
  
  Public Highway
• 
  American Automobile association
• 
  Long-distance phone calls Restaurant
• 
  Theater series subscription
  Mail service
• Discrete transactions Commuter ticket or
  transit pass Toll highway
• 
  Sams Wholesale Club Movie theater
• 
  Egghead computer software Public
  transportation
• 
  
  
• 
  
  
• 
  
  
• Strengthen membership relation? Shop miles, OGS

26
Strategic Service Classification (Customization
and Judgment)

• Extent
  to Which Service Characteristics Are Customized
• Extent to Which Personnel
• Exercise Judgment in Meeting
• Customer Needs
  High
  Low
• 
  Professional services
  Education (large classes)
• 
  Surgery
  Preventive health programs
• 
  Taxi services
  College food service
• High
  Beautician
• 
  Plumber
• 
  Gourmet restaurant
• 
  Telephone service
  Public transportation
• 
  Hotel services
  Routine appliance repair
• Low
  Retail banking (excl. major loans)
  Movie theater
• 
  Family restaurant
  Spectator sports
• 
  
  Fast-food restaurant
• 
  
• More customization? Multiple screens in cinema,
  no ketchup in burger

27
Strategic Service Classification (Nature of
Demand and Supply)

• 
  Extent of Demand Fluctuation over Time
• Extent to which Supply
• Is Constrained
  Wide
  Narrow
• 
  Electricity
  Insurance
• Peak demand can Natural gas
  Legal services
• usually be met Telephone
  Banking
• without a major delay Hospital
  maternity unit Laundry and dry
  cleaning
• Police and fire
  emergencies
• 
  Accounting and tax preparation Services
  similar to those above
• Peak demand regularly Passenger
  transportation but with
  insufficient capacity
• exceeds capacity Hotels and
  motels for their base
  level of
• 
  Restaurants
  business
• 
  
• How to manage demand? How to control supply?
  Nature of fluctuation, cause

28
Strategic Service Classification (Method of
Service Delivery)

• 
  Availability of Service
  Outlets
• Nature of Interaction
• between Customer and
• Service Organization
  Single site Multiple
  site
• Customer goes to
  Theater Bus
  service
• service organization
  Barbershop
  Fast-food chain
• Service organization
  Lawn care service Mail
  delivery
• comes to customer
  Pest control service AAA
  emergency repairs
• 
  Taxi
• Customer and service
  Credit card company Broadcast
  network
• organization transact at
  Local TV station Telephone
  company
• arms length (mail or
• electronic communications)
• IT/IS more customized service, efficient,
• Affects location, quality, consistency

29
Open Systems View of Service Operations

• 
  Service Process Consumer
  Evaluation
• Consumer arrivals
  Consumer participant departures
  Criteria
• (input)
  Consumer-Provider (
  output) Measurement
• 
  interface
• 
  Control
  Monitor
• Customer demand
  Service operations manager
  Service personnel
• 
  Production function
• Perceived needs Alter
  Monitor and control process Schedule
  Empowerment
• Location demand
  Marketing function
  supply Training
• 
  Interact with consumers
  Attitudes
• 
  Control demand
• 
  Modify as
  necessary
• 
  Define standard
• 
  
• 
  Service package
• 
  Supporting facility
• Communicate
  Facilitating goods
  Basis of

30
Topics for Discussion

• What are the characteristics of services that
  will be most appropriate for Internet delivery?
• When does collecting information through service
  membership become an invasion of privacy?
• What are some management problems associated with
  allowing service employees to exercise judgement
  in meeting customer needs?
• What factors are important for a manager to
  consider when attempting to enhance a service
  firms image?