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By Dr.

Swatantra Kumar

The concept of guaranteed overnight airfreight delivery of packages and letters was the subject of a college term paper by the Fedex founder, Frederick W. Smith. As the story is told, the term paper received a C because the idea was so unbelievable, but the business now is a model for the industry.

Traditionally, air freight has been slow and unreliable, an ancillary service provided by airlines that primarily are interested in passenger service. The genius of Smith, an electrical engineer, was in recognizing the analogy between freight transport and an electrical network connecting many outlets through the junction box.

From this insight was born the hub-andspoke network of Federal Express, with Memphis serving as the hub and sorting center for all packages. Arriving at night from cities throughout the United States, planes would upload their packages and wait approximately two hours before returning to their home cities with packages ready for delivery the next morning.

Thus, a package from Los Angeles destined for San Diego would travel from Los Angels to Memphis on one plane, then from Memphis to San Diego on another. With the exception of severe weather grounding an aircraft or a sorting error, the network design guaranteed that a package would reach its destination overnight.

Thus, the design of the service delivery system itself contained the strategic advantage that differentiated FedEx from the existing air-freight competitors. Today, FedEx has expanded to several hubs and uses trucks to transport packages between nearby large urban centers

Basic Research: Pursue a planned search for new knowledge regardless of possible application.
Like the case of FedEx, where a new idea was put in place

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

Business schools starting professional MBA programmes

for working professionals.

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

Creation of GBS by P&G

Ability to protect intellectual and property technologies.

How it is to be done?

Incremental nature of innovation.

How it shall be managed?

Degree of integration required.

How it should be accessed

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


Radical Innovations Major Innovation: new service that customers did not know they needed. Start-up Business: new service for underserved market. New Services for the Market Presently Served: new services to customers of an organization. Incremental Innovations Service Line Extensions: augmentation of existing service line (e.g. new menu items). Service Improvements: changes in service delivery process (e.g. self-service boarding kiosk). Style Changes: modest visible changes in appearances.

New service category Major innovation

Descriptions (radical innovations)


New service for markets as yet Wells Fargo internet banking undefined. These innovations launched in may 1995 are usually driven by information and computer based technologies New service in a market that is Mondex USA, a subsidiary of already served by existing MasterCard international, that services designs and distributes smart cards for retail transactions New service offering to existing customers of an organization (Although the service may be available from other companies A bank offers Credit card facility to its current customers

Start-up business

New services for the market presently served

New service category Service line extensions

Descriptions (Incremental innovations) Augmentations of the existing service line such as adding new menu items, new routes, and new courses

examples Singapore Airlines first-class airport check-in in a special exclusive lounge

Service improvements

Changes in features of services Delta Airlines use the ATM like that are currently being offered kiosks to distribute boarding passes to passengers The most common of all new services, these are modest forms of visible changes that have an impact on customer perceptions, emotions, and attitudes. Style changes not change the service fundamentally, only its appearances Funeral homes, such as Calvary Mortuary in Los Angeles, now offer abbreviated ceremonies that celebrate life instead of mourn death, full-service flower shops, and facilities with more pastels, bighted walls, and more windows and lights

Style changes (perceptual)

Source of Technology

Service Example
Jet aircraft Nuclear energy Hotel reception area Enclosed sports stadium Photochromic glass Synthetic engine oil Just-in-time (JIT) Six Sigma E-commerce Satellite TV

Service Industry Impact

International flight is feasible Less dependence on fossil fuel Feeling of grandeur/spaciousness Year-around use Energy conservation Fewer oil changes Reduce supply-chain inventories Institutionalize quality effort Increase market to world-wide Alternative to cable TV

Facility design




Business strategy development or review New service strategy development

Front-end Planning

Idea generation
Screen ideas against new service strategy

Concept development and evaluation

Test concept with customers and employees

Business analysis
Test for profitability and feasibility

Service development and testing

Conduct service prototype test


Market testing
Test service and other marketing-mix elements

Commercialization Postintroduction evaluation

Markets Offerings
Current Customers New Customers

Existing Services

Share building

Market development

New Services

Service development


Full-scale launch Post-launch review

Full Launch


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

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





Business analysis Project authorization

Consider a building, which begins in the minds eye of the architect and is translated onto paper in the form of engineering drawings for all the buildings systems: foundation, structure, plumbing, and electrical. An analog to this design process is the service concept with the system elements outlined here. These elements must be engineered to create a consistent service offering that achieves the strategic service vision.


Delivery system Facility design Location Capacity planning Service encounter Quality Managerial capacity and demand Information


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Delivery system: front and back office, automation, customer participation Facility design: size, aesthetics, layout Location: customer demographics, single or multiple sites, competition, site characteristics Capacity planning: managing queues, number of servers, accommodating average or peak demand

Service encounter: Service culture, motivation, selection and training, employee empowerment Quality: measurement, monitoring, methods, expectations Vs perceptions, service guarantee Managing capacity and demand: strategies for altering demand and controlling supply, queue management Information: competitive resource, data collection

Design Elements


Delivery system Facility design Location Process structure, service blueprint, strategic positioning Servicescapes, architecture, process flows, layout Geographic demand, site selection, location strategy

Capacity planning
Managerial Information Quality Service encounter Managing Capacity and Demand

Strategic role, queuing models, planning criteria

Technology, scalability, use of Internet Measurement, design quality, recovery, tools, six-sigma Encounter triad, culture, supply relationships, outsourcing Strategies, yield management, queue management


When a building is developed, the design is captured on architectural drawings, called blueprints, because the production is printed on special paper, creating blue lines. These blue prints show what the product should look like and all the specifications needed for its manufacture.

G. Lynn Shostack has proposed that a service delivery system also can be captured in a visual diagram (Service Blueprint) and used in the similar manner for the design of the services

A tool for simultaneously depicting the service process, the points of customer contact, and the evidence of service from the customers point of view.

Service Blueprint

Points of contact Evidence

Customer Actions
line of interaction Onstage Contact Employee Actions line of visibility Backstage Contact Employee Actions line of internal interaction

Support Processes

Truck Packaging Forms Hand-held Computer Uniform Customer Calls Customer Gives Package

Truck Packaging Forms Hand-held Computer Uniform Receive Package



Line of interaction
CONTACT PERSON (On Stage) (Back Stage) Driver Picks Up Package Deliver Package

Line of visibility
Customer Service Order

Line of internal interaction


Dispatch Driver

Airport Receives & Loads

Fly to Sort Center Load on Airplane Sort Packages

Fly to Destination

Unload & Sort

Load On Truck


Hotel Exterior Cart for Parking Bags

Desk Registration Papers Lobby Key

Elevators Hallways Room

Cart for Bags

Room Amenities Bath


Delivery Tray Food Appearance


Bill Desk Lobby Hotel Exterior Parking


Arrive at Hotel

Give Bags to Bellperson

Check in

Go to Room

Receive Bags

Sleep Shower

Call Room Service

Receive Food


Check out and Leave

CONTACT PERSON (Back Stage) (On Stage)

Line of Interaction
Greet and Take Bags Process Registration Deliver Bags Deliver Food Process Check Out

Line of Visibility
Take Bags to Room Take Food Order


Line of Internal Interaction

Registration System Prepare Food Registration System

Educational institution Architectural firm A social networking site

Step 1
Identify the process to be blueprinted

Step 2
Identify the customer or customer segment

Step 3
Map the process from the customers point of view

Step 4
Map contact employee actions, onstage and back-stage, and/or technology actions

Step 5
Link contact activities to needed support functions

Step 6
Add evidence of service at each customer action step

New Service Development

concept development market testing

Supporting a Zero Defects Culture

managing reliability identifying empowerment issues

Service Recovery Strategies

identifying service problems conducting root cause analysis modifying processes

Service Marketers creating realistic customer expectations:

service system design promotion

Human Resources Management empowering the human element:

job descriptions selection criteria appraisal systems

Operations Management rendering the service as promised:

managing fail points training systems quality control

System Technology providing necessary tools:

system specifications personal preference databases

Service blueprints also use Poke-Yokes procedures that block the inevitable mistake from becoming a service defect. Poka-yokes (roughly translated from the Japanese as avoid mistakes) are common in factories and consist of such things as fixtures to ensure that parts can only be attached in right way, electronic switches that automatically shut off equipments if a mistake is made.

Poka-yokes were intially created for manufacturing operations, but they have wide range of applications to service operations as well. These can be classified into warning methods, physical or visual contact methods, and by what we call the three Ts the task to be done (was the car fixed right); the treatment accorded to the customer (was the service manager courteous?); and the tangible or environmental features of the service facility (was the waiting area clean and comfortable)

Height bars at amusement parks Indented trays used by surgeons to ensure that no instrument are left in the patient. Chains to configure waiting lines. Beepers on ATMs to warn people to take their card out of the machine Mirrors on phones to ensure a smiling voice

Production-line Limit Discretion of Personnel Division of Labor Substitute Technology for People Standardize the Service McDonalds


Customer as Coproducer Self Service Smoothing Service Demand Customer-Generated Content

ATMs, Coffee makes in hotel rooms shift some service burden onto customers

Customer Contact Degree of Customer Contact Separation of High and Low Contact Operations Sales Opportunity and Service Delivery Options Consider this:
After several visits to a stores mens clothing department,

a customers suit still did not fit. He wrote the company president, who sent a letter to the customers office with a new suit in fitting. When the alterations were completed, the suit was delivered to the customer free of charge. The company involved was Nordstrom, a specialty clothing retailer

Information Empowerment Employee Customer Now customers are empowered through information to even track their parcels through FedEx website.

Degree of Complexity: Measured by the number of steps in the service blueprint. For example a clinic is less complex than a general hospital. Degree of Divergence: Amount of discretion permitted the server to customize the service. For example the activities of an attorney contrasted with those of a paralegal.

Complexity High Divergence High



No Reservations Self-seating. Menu on Blackboard Eliminate Customer Fills Out Form

TAKE RESERVATION SEAT GUESTS, GIVE MENUS SERVE WATER AND BREAD TAKE ORDERS PREPARE ORDERS Salad (4 choices) Entree (15 choices) Dessert (6 choices) Beverage (6 choices) SERVE ORDERS

Specific Table Selection Recite Menu: Describe Entrees & Specials Assortment of Hot Breads and Hors Doeuvres At table. Taken Personally by Maltre d

Pre-prepared: No Choice Limit to Four Choices Sundae Bar: Self-service Coffee, Tea, Milk only Serve Salad & Entree Together: Bill and Beverage Together Cash only: Pay when Leaving

Individually Prepared at table Expand to 20 Choices: Add Flaming Dishes; Bone Fish at Table; Prepare Sauces at Table Expand to 12 Choices Add Exotic Coffees; Sherbet between Courses; Hand Grind Pepper


Choice of Payment. Including House Accounts: Serve Mints

Determine service stages Determine alternative methods or technologies to perform operations at each stage (involves distributing tasks between men and machines) Preliminary selection of alternative methods: must meet expected level and timing of output

Detailed alternative service production: combine alternatives at each stage

Methods must be compatible

Each combination is analysed on the basis of

Performance criteria: capacity Economic criteria: purchase, installation, start-up costs, production costs) Qualitative criteria: operating flexibility, safety, intangibles, negatives (noise)

Evaluation and final selection

Service encounters can be configured in a number of different ways. The service system design matrix identifies six common alternatives

Degree of customer/server contact High

Buffered Core (none) Permeable system (some) Reactive system (much) Face to face total customization


Sales Opportunity

Face to face loose specs

Purchasing efficiency

Face-toface tight specs

Phone contact
On site technology

Mail contact



Worker requirement Focus of operations

Technological Innovations

Clerical skills Paper handling Office automation

Helping skills Demand Management Routing methods

Verbal skills Scripting calls Computer databases

Procedural skills Flow control Electronic aids

Trade skills Capacity Management Self-service

Diagnostic skills Client mix Client/worker teams