Service Management

Service Strategy
Univ.-Prof. Dr.-Ing. Wolfgang Maass
Chair in Economics Information and Service Systems (ISS)
Saarland University, Saarbrcken, Germany
WS 2011/2012
Thursdays, 8 10 a.m.
Room HS 024, B4 1
Vision Wanted!
How to place a service in the market? - All begins with an
entrepreneurs idea entrepreneurs idea entrepreneurs idea entrepreneurs idea and an unmet need unmet need unmet need unmet need (Fitzsimmons &
Fitzsimmons, 2011)
For any given market space, service strategy defines the
portfolio of services to be offered and the customers to be
supported. (Iqbal & Nieves, p. 161, 2007)
Strategic service vision Strategic service vision Strategic service vision Strategic service vision needs to be formulated when
entering a market
Univ.-Prof. Dr.-Ing. Wolfgang Maass 26.10.2011 Slide 2
entering a market
4 categories of elements of strategic service vision (Chase
& Hayes 91)
Specific questions help to develop categories
Startup firms should answer questions from right to left Startup firms should answer questions from right to left Startup firms should answer questions from right to left Startup firms should answer questions from right to left
Service Delivery Service Delivery Service Delivery Service Delivery
System System System System
Operating Operating Operating Operating
Strategy Strategy Strategy Strategy
Service Service Service Service
Concept Concept Concept Concept
Target Market Target Market Target Market Target Market
Segments Segments Segments Segments
Who is our intended customer? What are the most important
elements of our service from
the customerss perspective
How will we differentiate
ourselves from our competitors?
How will we provide this
differentiated service?
Strategic Service Vision
Target Market Segments Target Market Segments Target Market Segments Target Market Segments
What are common
characteristics characteristics characteristics characteristics of important
market segments?
Which dimensions can be used
to segment segment segment segment the market the market the market the market?
Service Delivery Service Delivery Service Delivery Service Delivery
System System System System
Operating Operating Operating Operating
Strategy Strategy Strategy Strategy
Service Service Service Service
Concept Concept Concept Concept
Target Market Target Market Target Market Target Market
Segments Segments Segments Segments
How well is the service concept
positioned in relation to customers
needs and competitors offering?
Example Example Example Example
Target Market Segments Target Market Segments Target Market Segments Target Market Segments
Univ.-Prof. Dr.-Ing. Wolfgang Maass 26.10.2011 Slide 3
to segment segment segment segment the market the market the market the market?
(demographic, psychographic)
How important important important important are various
segments?
Which needs needs needs needs do they have?
How well are these needs being
served served served served in what manner? by
whom?
Target Market Segments Target Market Segments Target Market Segments Target Market Segments
State of Texas residents
Business traveler who drives
because of inadequate service
Inexpensive family travel on
weekends
(Heskett et al., 1997; Fitzsimmons & Fitzsimmons, 2011)
Strategic Service Vision
Service Concept Service Concept Service Concept Service Concept
What are important elements of the
service in terms of results results results results for
customers?
How are these elements supposed to
be perceived perceived perceived perceived by the target market
Service Delivery Service Delivery Service Delivery Service Delivery
System System System System
Operating Operating Operating Operating
Strategy Strategy Strategy Strategy
Service Service Service Service
Concept Concept Concept Concept
Target Market Target Market Target Market Target Market
Segments Segments Segments Segments
To what extent is the value of results and
process quality for customers leveraged on
service provider costs?
Example Example Example Example
Service Concept Service Concept Service Concept Service Concept
Univ.-Prof. Dr.-Ing. Wolfgang Maass 26.10.2011 Slide 4
be perceived perceived perceived perceived by the target market
segment? (by the market in general, by
employees, by others)
How do customers customers customers customers perceive the
service concept?
Which efforts efforts efforts efforts does this suggest in
terms of the manner in which the
service is designed? delivered?
marketed?
Service Concept Service Concept Service Concept Service Concept
Serves peanuts and soft
drinks only
Use of inner-city or low
traffic airports avoids
congestion
Short flights with frequent
departures
Carry-on luggage
(Heskett et al., 1997; Fitzsimmons & Fitzsimmons, 2011)
Strategic Service Vision
Operating Strategy Operating Strategy Operating Strategy Operating Strategy
What are important elements elements elements elements of the
strategy? (operations, financing,
marketing, organization, HR, control)
On which strategic elements most effort effort effort effort
will be concentrated?
Service Delivery Service Delivery Service Delivery Service Delivery
System System System System
Operating Operating Operating Operating
Strategy Strategy Strategy Strategy
Service Service Service Service
Concept Concept Concept Concept
Target Market Target Market Target Market Target Market
Segments Segments Segments Segments
Does the service
delivery system support
the operating strategy?
Example Example Example Example
Operating Strategy Operating Strategy Operating Strategy Operating Strategy
Univ.-Prof. Dr.-Ing. Wolfgang Maass 26.10.2011 Slide 5
will be concentrated?
Where will investment investment investment investments be made?
How will quality and cost quality and cost quality and cost quality and cost be controlled?
(measures, incentives, rewards)
What results results results results will be expected vs. vs. vs. vs.
competition competition competition competition in terms of QoS, cost
profile, productivity, morale/loyalty of
servers?
Operating Strategy Operating Strategy Operating Strategy Operating Strategy
Quick turnaround at gate
results in high utilization of
aircraft
No assigned seating
rewards punctuality and
promotes on-time
performance
(Heskett et al., 1997; Fitzsimmons & Fitzsimmons, 2011)
Strategic Service Vision
Service Delivery System Service Delivery System Service Delivery System Service Delivery System
What are important features features features features
of the service delivery
system? (role of people,
technology, equipment, layout,
procedures)
Service Delivery Service Delivery Service Delivery Service Delivery
System System System System
Operating Operating Operating Operating
Strategy Strategy Strategy Strategy
Service Service Service Service
Concept Concept Concept Concept
Target Market Target Market Target Market Target Market
Segments Segments Segments Segments
Example Example Example Example
Service Delivery System Service Delivery System Service Delivery System Service Delivery System
Univ.-Prof. Dr.-Ing. Wolfgang Maass 26.10.2011 Slide 6
What capacity capacity capacity capacity does it
provide? (normally, at peak
levels)
To what extent does it help
ensure quality standards quality standards quality standards quality standards?
Differentiate from services of
competitors? Provide barriers barriers barriers barriers
to entry to entry to entry to entry for competitors?
Fun cabin atmosphere to
differentiate service
Use only Boeing 737
aircraft to control
maintenance and operating
costs
Hire cabin crew based on
attitude
(Heskett et al., 1997; Fitzsimmons & Fitzsimmons, 2011)
Competitive Environment of Services
Formulating a strategic service vision strategic service vision strategic service vision strategic service vision is
important - Why?
Service firms compete in difficult economic
environments characterized by
(1) Relatively low low low low overall entry barriers; entry barriers; entry barriers; entry barriers; e.g., service
innovations are not patentable and are not capital-
Univ.-Prof. Dr.-Ing. Wolfgang Maass 26.10.2011 Slide 7
innovations are not patentable and are not capital-
intensive in most cases
(2) (2) (2) (2) Reduced opportunities Reduced opportunities Reduced opportunities Reduced opportunities for economies of scale economies of scale economies of scale economies of scale
(new: cloud computing/utility computing)
(3) Erratic sales fluctuations; sales fluctuations; sales fluctuations; sales fluctuations; service demand varies as
a function of time and day of week
(4) No advantage of size in dealing with buyers or
suppliers; caused by small size small size small size small size of many service
firms
TinyURL.co TinyURL.co TinyURL.co TinyURL.co
m mm m
(Fitzsimmons & Fitzsimmons, 2011)
Competitive Environment of Services
(5) Product substitution - product innovations can
be substitutes substitutes substitutes substitutes for services (e.g., home
pregnancy test) and vice versa (e.g., washing
machine -> launderette); service firms must also
watch other potential products innovations
(6) Customer loyalty loyalty loyalty loyalty - created by established firms
(7) (7) (7) (7) Exit barriers Exit barriers Exit barriers Exit barriers e.g. difficult to drive out non-profit
Univ.-Prof. Dr.-Ing. Wolfgang Maass 26.10.2011 Slide 8
(7) (7) (7) (7) Exit barriers Exit barriers Exit barriers Exit barriers e.g. difficult to drive out non-profit
organizations or low-profit firms
New entrants have to develop service
strategies that address important competitive
features of their respective industries
(Fitzsimmons & Fitzsimmons, 2011)
Competitive Service Strategies
3 generic competitive strategies (Porter, 1980)
(1) (1) (1) (1) Overall cost leadership Overall cost leadership Overall cost leadership Overall cost leadership - Implementing low-
cost strategy requires high capital investment
in state-of-the-art equipment and aggressive
pricing; can revolutionize an industry, e.g.,
McDonalds, Walmart
Univ.-Prof. Dr.-Ing. Wolfgang Maass 26.10.2011 Slide 9
McDonalds, Walmart
Seeking out low low low low- -- -cost customers cost customers cost customers cost customers that are willing to buy in quantity, without frills and
serve themselves
Standardizing Standardizing Standardizing Standardizing a customized service; routine professional services at low cost
Reducing personal element Reducing personal element Reducing personal element Reducing personal element in service delivery; high-risk strategy accepted by
customers if increased convenience results
Reducing network costs Reducing network costs Reducing network costs Reducing network costs
Taking service operations offline; decouple decouple decouple decouple service transaction from customer, e.g.,
drop-off/pick-up
(Porter, 1980; Fitzsimmons & Fitzsimmons, 2011)
Competitive Service Strategies
(2) (2) (2) (2) Differentiation Differentiation Differentiation Differentiation Creating a service that is
perceived as being unique unique unique unique based on brand
image, technology, features, customer
service, dealer network etc. - primary thrust
lies in creating customer loyalty; e.g.,
American Express, Mercedes-Benz, Apple
Univ.-Prof. Dr.-Ing. Wolfgang Maass 26.10.2011 Slide 10
Making intangible services tangible tangible tangible tangible, e.g., by reminding
customers of their purchase
Customizing Customizing Customizing Customizing the standard product; providing a personal touch
Reducing Reducing Reducing Reducing perceived risk, risk, risk, risk, e.g., provide extra time to explain work
to be done to avoid lack of information about the purchase
Giving attention to personnel training personnel training personnel training personnel training - -- - enhanced service quality
Controlling quality quality quality quality - delivering consistent level of service quality
(Porter, 1980; Fitzsimmons & Fitzsimmons, 2011)
Competitive Service Strategies
(3) (3) (3) (3) Focus Focus Focus Focus servicing a particular market very
well by addressing customers specific customers specific customers specific customers specific
needs needs needs needs, e.g., particular buyer group, service
or geographic region; examples are low
budget hotels, overnight package delivery
etc.
Univ.-Prof. Dr.-Ing. Wolfgang Maass 26.10.2011 Slide 11
Combination of differentiation and/or overall cost
leadership in a particular market particular market particular market particular market rather than
entire market
(Porter, 1980; Davidow & Uttal, 1989; Fitzsimmons & Fitzsimmons, 2011)
Strategic Analysis
Yes or No! Should we enter an
industry with a new service
offering?
2 popular planning tools
Potential New Potential New Potential New Potential New
Entrants Entrants Entrants Entrants
Competitive Competitive Competitive Competitive
Rivalry within Rivalry within Rivalry within Rivalry within
Industry Industry Industry Industry
Bargaining Bargaining Bargaining Bargaining
Power of Power of Power of Power of
Customers Customers Customers Customers
Bargaining Bargaining Bargaining Bargaining
Power of Power of Power of Power of
Suppliers Suppliers Suppliers Suppliers
Threat of Threat of Threat of Threat of
Substitutes Substitutes Substitutes Substitutes
Interne Analyse
Univ.-Prof. Dr.-Ing. Wolfgang Maass 26.10.2011 Slide 12
(Fitzsimmons & Fitzsimmons, 2011)
Porters five forces analysis of
target industry structure (Porter,
1985)
SWOT analysis to assess the
organizations strengths,
weaknesses, opportunities, and
threats in a market
SWOT SWOT SWOT SWOT Analyse Analyse Analyse Analyse
Interne Analyse
Strken ( Strken ( Strken ( Strken (Strengths Strengths Strengths Strengths) )) )
Schwchen Schwchen Schwchen Schwchen
( (( (Weaknesses Weaknesses Weaknesses Weaknesses) )) )
Externe
Analyse
Chancen Chancen Chancen Chancen
(Opportunities) (Opportunities) (Opportunities) (Opportunities)
Verfolgen von neuen
Chancen, die gut zu
den Strken des
Unternehmens passen.
Schwchen
eliminieren, um neue
Chancen zu nutzen.
Gefahren Gefahren Gefahren Gefahren
(Threats) (Threats) (Threats) (Threats)
Strken nutzen, um
Bedrohungen
abzuwenden.
Verteidigungs-
strategien entwickeln,
um vorhandene
Schwchen nicht zum
Ziel von Bedrohungen
werden zu lassen.
Competitive Role of Information
IT helps to define competitive firm strategies
Strategic roles of information in services (Fitzsimmons, 1993; Heskett 1986;
Bott, 1985):
Creation of barriers to entry
reservation systems
Database asset
selling information
Online (real time) Online (real time) Online (real time) Online (real time)
Offline (analysis) Offline (analysis) Offline (analysis) Offline (analysis)
External External External External
Univ.-Prof. Dr.-Ing. Wolfgang Maass 26.10.2011 Slide 13
reservation systems
frequent user club
switching costs
selling information
development of
services
micromarketing
Revenue generation
yield management
point of sales
expert systems
Productivity
enhancement
inventory status
data envelopment
analysis (DEA)
Collecting and
analyzing
information of
(multisite)
service
operations
External External External External
(customer) (customer) (customer) (customer)
Internal Internal Internal Internal
(operations) (operations) (operations) (operations)
Brainteaser
Look at the 3 generic strategies, i.e. cost
leadership, differentiation and focus.
Which of the four competitive uses of
information is most powerful for each of the 3
strategies?
10 10 10 10
Minutes Minutes Minutes Minutes
Univ.-Prof. Dr.-Ing. Wolfgang Maass 26.10.2011 Slide 14
strategies?
Discuss it with your neighbor!
Heads up!
Limits in use of information - questions of fairness,
invasion of privacy and anticompetitiveness
Anticompetitive Anticompetitive Anticompetitive Anticompetitive
Frequent flyer programs - How to consider free-trip awards? Removal
of price competition?
Fairness Fairness Fairness Fairness
Is yield management fair? Easiest way to start a riot when asking
Univ.-Prof. Dr.-Ing. Wolfgang Maass 26.10.2011 Slide 15
Is yield management fair? Easiest way to start a riot when asking
passengers on a flight how much their tickets cost.
Invasion on privacy Invasion on privacy Invasion on privacy Invasion on privacy
Record of every private purchase? Big databases with personal
data?
Data security Data security Data security Data security
Transmission of these personal data to other firms?
Reliability of data Reliability of data Reliability of data Reliability of data
Are the data correct, e.g., considered by a credit-report agency?
(Brady, 2000; Fitzsimmons & Fitzsimmons, 2011)
Virtual Value Chain
Physical Physical Physical Physical
Market Market Market Market
Physical world of
people and
things
Electronic Electronic Electronic Electronic
Market Market Market Market
Virtual world of
information
Establishment of presence in electronic
market based on competitive position in
physical market
Collecting information to improve
service delivery process and
creation of customer value
Univ.-Prof. Dr.-Ing. Wolfgang Maass 26.10.2011 Slide 16
things
creation of customer value
Traditional, physical value chain consists of sequence of stages beginning
with manufacturing and ending with sales to customer
Virtual value chain (Rayport & Sviokla, 1995) was traditionally treated as
value-adding elements; not as source of value - but this is no longer the
case in service companies
(Rayport & Sviokla, 1995; Fitzsimmons & Fitzsimmons, 2011)
Virtual Value Chain
Virtual Value Chain Virtual Value Chain Virtual Value Chain Virtual Value Chain
Traditional or Physical Traditional or Physical Traditional or Physical Traditional or Physical
Value Chain Value Chain Value Chain Value Chain
New Processes New Processes New Processes New Processes
(Stage 1) (Stage 1) (Stage 1) (Stage 1)
New Knowledge New Knowledge New Knowledge New Knowledge
(Stage 2) (Stage 2) (Stage 2) (Stage 2)
New Products New Products New Products New Products
(Stage 3) (Stage 3) (Stage 3) (Stage 3)
New Relationships New Relationships New Relationships New Relationships
(Stage 4) (Stage 4) (Stage 4) (Stage 4)
Production Production Production Production Distribution Distribution Distribution Distribution Retailing Retailing Retailing Retailing Customer Customer Customer Customer
Univ.-Prof. Dr.-Ing. Wolfgang Maass 26.10.2011 Slide 17
Value-adding process of virtual value chain must gather raw information that
is processed and finally distributed
Value-adding steps are virtual; performed through and with information
Creation of value at any stage involves sequence of 5 activities: gathering,
organizing, selecting, synthesizing, distributing information
(Stage 1) (Stage 1) (Stage 1) (Stage 1) (Stage 2) (Stage 2) (Stage 2) (Stage 2) (Stage 3) (Stage 3) (Stage 3) (Stage 3) (Stage 4) (Stage 4) (Stage 4) (Stage 4)
(Rayport & Sviokla, 1995; Fitzsimmons & Fitzsimmons, 2011)
Virtual Value Chain
First Stage New Processes
Considering physical operations more effectively more effectively more effectively more effectively with
information, e.g., paperless operations
Second Stage New Knowledge
Virtual alternatives substitute substitute substitute substitute for physical activities, e.g.,
installing information systems to automate business while
capturing information about customers
Univ.-Prof. Dr.-Ing. Wolfgang Maass 26.10.2011 Slide 18
Third Stage New Products
Analysis of customer information to discover new product new product new product new product
needs and methods needs and methods needs and methods needs and methods to deliver value, e.g., customization of
standard products
Fourth Stage New Relationships
Exploration of opportunities for customer collaboration in the
co co co co- -- -creation of value creation of value creation of value creation of value, e.g., web-based user-generated content
concerning products
(Rayport & Sviokla, 1995; Fitzsimmons & Fitzsimmons, 2011)
Stages in Service Firm Competitiveness
Available for Service Available for Service Available for Service Available for Service
Operations need to
Framework by Chase & Hayes (1991) describes role of operations role of operations role of operations role of operations in strategic
development of service firms
Framework provides way to measure and evaluate measure and evaluate measure and evaluate measure and evaluate a firms progress in developing
the service delivery system
Services need not start at stage 1
(Detailed discussion in exercise)
Journeyman Journeyman Journeyman Journeyman
Keeping pace with
Distinctive Competence Distinctive Competence Distinctive Competence Distinctive Competence
Clear vision of what
World World World World- -- -Class Service Delivery Class Service Delivery Class Service Delivery Class Service Delivery
Operations become pro-active,
forcing higher performance
Univ.-Prof. Dr.-Ing. Wolfgang Maass 26.10.2011 Slide 19
Operations need to
be performed at
minimum cost
Firms are either
relatively young or
those that serve a
niche market
Dont screw up
Keeping pace with
competitors
All operate
essentially the
same way
Dont let our
competitors gain too
much of an
advantage over us
Clear vision of what
creates value for
customers
Consistent choices with
respect to service quality
Operations is typical
advocate of TQM
Challenge for operations:
assure that the
operations strategy
remains supportive
Open to new service
initiatives
forcing higher performance
standards on the whole company,
identifying new business
opportunities, helping redefine the
firms competitive strategy
Create needs, establish
expectations, and continually
expand those expectations
Customer = consultants
IT = potential means for develop
competitive advantage
Literature
Books:
Fitzsimmons, J. A. and Fitzsimmons, M. J. Service Management - Operations, Strategy, Information
Technology, McGraw - Hill, 2011.
Heskett, J. L. Managing in the Service Economy, Harvard Business School Press, 1986.
Heskett, J. L., Sasser, W. E. and Schlesinger, L. A. The Service Profit Chain, Free Press, 1997.
Iqbal, M. and Nieves, M. Service Strategy: Office of Government Commerce (ITIL), The Stationery Office Ltd,
2007.
Porter, M. E. Competitive Advantage: Creating and Sustaining Superior Performance, Free Press, 1985.
Porter, M. E. Competitive strategies: Techniques for analysing industries and competitors, Free Press, 1980.
Univ.-Prof. Dr.-Ing. Wolfgang Maass 26.10.2011 Slide 20
Papers:
Bott, H. S. "Information for Competitive Advantage," Operations Management Review (), 1985, pp. 35.
Brady, D. "Why Service Stinks," Business Week (), 2000, pp. 124.
Chase, R. B. and Hayes, R. H. Beefing up Operations in Service Firms," Sloan Management Review (33:1),
1991, pp. 17.
Davidow, W. H. and Uttal, B. "Service Companies: Focus or Falter," Harvard Business Review (), 1989, pp. 77-
85.
Fitzsimmons, J. A. "Strategic Role of Information in Services"'Perspectives in Operations Management:
Essays in Honor of Elwood S. Buffa', Kluwer Academic Publishers, 1993.
Rayport, J. F. and Sviokla, J. J. "Exploiting the Virtual Value Chain," Harvard Business Review (), 1995.
Univ.-Prof. Dr.-Ing. Wolfgang Maass
Univ.-Prof. Dr.-Ing. Wolfgang Maass
Chair in Information and Service Systems
Saarland University, Germany