Tips of Studying Know the key terms and definitions at the end of each chapter. Know the key terms and definitions at the end of each chapter. Pay attention.

Tips of StudyingTips of Studying

• Know the key terms and definitions Know the key terms and definitions at the end of each chapter.at the end of each chapter.

• Pay attention to examples, figures Pay attention to examples, figures and tables.and tables.

• Study the three team assignments Study the three team assignments and presentations.and presentations.

• Go over the mid-term.Go over the mid-term.• Practice using a calculator for Practice using a calculator for

control chart formulas. control chart formulas. • Study with others.Study with others.

Chapter 1Chapter 1

What is the role of services in What is the role of services in an economy?an economy?

Service DefinitionService Definition

A service is a A service is a time-time-perishableperishable, , intangibleintangible experience performed for a experience performed for a customer acting in the role of customer acting in the role of a a co-producer.co-producer.

Role of Services in an Role of Services in an EconomyEconomy

Trends in U.S. Employment Trends in U.S. Employment by Sectorby Sector

0

10

20

30

40

50

60

70

80

90

Year

Pro

port

atio

n o

f to

tal e

mplo

yem

ent

Service

Manufacturing

Agriculture

Stages of Economic Stages of Economic DevelopmentDevelopment

Pre- Use of StandardPre- Use of Standard dominant human Unit of of living dominant human Unit of of living Society Game activity labor social life measure Structure TechnologySociety Game activity labor social life measure Structure Technology

Pre- Against Agriculture Raw Extended Sub- Routine Simple Pre- Against Agriculture Raw Extended Sub- Routine Simple handhand

Industrial Nature Mining muscle household sistence Traditional toolsIndustrial Nature Mining muscle household sistence Traditional tools power Authoritative power Authoritative

Industrial Against Goods Machine Individual Quantity Bureaucratic Machines Industrial Against Goods Machine Individual Quantity Bureaucratic Machines fabricated production tending of goods Hierarchical fabricated production tending of goods Hierarchical naturenature Post- Among Services Artistic Community Quality of Inter- InformationPost- Among Services Artistic Community Quality of Inter- Information industrial Persons Creative life in terms dependentindustrial Persons Creative life in terms dependent Intellectual of health, GlobalIntellectual of health, Global education,education, recreation recreation

The New Experience The New Experience EconomyEconomy

Economy Agrarian Industrial Service Experience

Function Extract Make Deliver Stage

Nature Fungible Tangible Intangible Memorable

Attribute Natural Standardized Customized Personal

Method of

supply

Stored in

bulk

Inventoried Delivered

on demand

Revealed

over time

Seller

Trader

Manufacturer

Provider

Stager

Buyer

Market

User

Client

Guest

The Four Realms of an The Four Realms of an ExperienceExperience

Customer Participation

Passive Active

Environmental

Absorption Entertainment (Movie)

Education (Language)

Relationship Immersion Esthetic (Tourist)

Escapist (ScubaDiving)

Experience Design Experience Design PrinciplesPrinciples

• Theme the Experience Theme the Experience Forum shopsForum shops

• Harmonize Impressions with Positive Harmonize Impressions with Positive CuesCues

O’Hare airport parking O’Hare airport parking

garagegarage

• Eliminate Negative CuesEliminate Negative Cues cinemark talking trash cinemark talking trash

containerscontainers

• Mix in Memorabilia Mix in Memorabilia Hard Rock T-shirtsHard Rock T-shirts

• Engage all Five Senses Engage all Five Senses Mist in RainforestMist in Rainforest

Source of Service Sector Source of Service Sector GrowthGrowth

• InnovationInnovationPush theory Push theory New discovery, Post-itNew discovery, Post-it

Pull theory Pull theory changing demographic, interest changing demographic, interest ratesrates

Services derived from products Services derived from products Video RentalVideo Rental

Information driven services Information driven services statement of statement of transaction for tax preptransaction for tax prep

Difficulty of testing service prototypes Difficulty of testing service prototypes focus groupfocus group

• Social TrendsSocial Trends Aging of the populationAging of the populationTwo-income familiesTwo-income familiesGrowth in number of single peopleGrowth in number of single peopleHome as sanctuaryHome as sanctuary

Chapter 2Chapter 2

How do you categorize a How do you categorize a service?service?

Service/Product BundleService/Product Bundle

ElementElement Core Core GoodsGoods

ExampleExampleCore Core ServiceService

ExampleExample

BusinessBusiness Custom Custom clothierclothier

Business hotelBusiness hotel

CoreCore Business suitsBusiness suits Room for the Room for the nightnight

PeripheralPeripheral

GoodsGoodsGarment bagGarment bag Bath robeBath robe

PeripheralPeripheral

ServiceServiceDeferred Deferred payment planspayment plans

In house In house restaurantrestaurant

VariantVariant Coffee loungeCoffee lounge Airport shuttleAirport shuttle

The Service Package

1. Supporting FacilityExamples are golf course, ski lift, hospital, airplane.

2. Facilitating GoodsExamples are food items, legal documents, golf clubs, medical history.

3. InformationExamples are patient medical records, seats available on a flight, customer preferences, location of customer to dispatch a taxi.

4. Explicit ServicesExamples are quality of meal, attitude of the waiter, on-time departure.

5. Implicit ServicesExamples are privacy of loan office, security of a well lighted parking lot.

Distinctive Characteristics of Services

• Customer Participation • Simultaneity• Perishability• Intangibility• Heterogeneity

The Service Process Matrix

Degree of Interaction and CustomizationLow High

Service factory: Service shop: * Airlines * Hospitals Low * Trucking * Auto repair * Hotels * Other repair services * Resorts/ recreation

Degree

of labor Intensity Mass service: Professional service:

* Retailing * Doctors High * Wholesaling * Lawyers * Schools * Accountants * Retail aspects of * Architects commercial banking

Strategic Service Classification (Nature of

the Service Act)

Strategic Service Classification (Nature of

the Service Act) Direct Recipient of the ServiceNature of the Service Act People Things People’s bodies: Physical possessions: Health care Freight transportation Passenger transportation Repair and maintenance

Tangible actions Beauty salons Veterinary care Exercise clinics Janitorial services Restaurants Laundry and dry cleaning

People’s minds: Intangible assets: Education Banking

Intangible actions Broadcasting Legal services Information services Accounting Theaters Securities Museums Insurance

Strategic Service Classification

(Relationship with Customers)

Strategic Service Classification

(Relationship with Customers) Type of Relationship between Service Organization and Its

CustomersNature of Service Delivery “Membership” relationship No formal relationship

Insurance Radio station Telephone subscription Police protection

Continuous delivery Electric Utility Lighthouse

of service Banking Public Highway

Long-distance phone calls Restaurant Theater series tickets Pay phone

Discrete transactions Transit pass Toll highway Sam’s Wholesale Club Movie theater Airline frequent flyer Public transportation

Strategic Service Classification (Nature of

Demand and Supply)

Strategic Service Classification (Nature of

Demand and Supply) Extent of Demand Fluctuation

over TimeExtent to which Supply Is Constrained Wide

Narrow

Electricity Insurance

Peak demand can Telephone Legal services

usually be met Police emergency Banking

without a major delay 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

Strategic Service Classification (Method of

Service Delivery)

Strategic Service Classification (Method of

Service Delivery) Availability of Service OutletsNature of Interaction between Customer and Service Organization Single site Multiple site

Customer travels to Theater Bus service

service organization Barbershop Fast-food chain

Service provider Taxi Mail delivery

travels to customer Pest control service AAA emergency repairs

Transaction is at Credit card company Broadcast network

arm’s length Local TV station Telephone company

Open Systems View of Services

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 by advertising Explicit services selection Implicit services

Chapter 3Chapter 3

What is a service strategy?What is a service strategy?

Strategic Service Vision Strategic Service Vision ElementsElements

1.1. Target Market SegmentTarget Market Segment What What are common characteristics of important market are common characteristics of important market segments?segments?

2.2. Service ConceptService Concept How do customers How do customers perceive the service concept?perceive the service concept?

3.3. Operating StrategyOperating Strategy What are What are important elements of the strategy: operations, important elements of the strategy: operations, financing, marketing, organization, human financing, marketing, organization, human resources, control?resources, control?

4.4. Service Delivery SystemService Delivery System What What are important features of the service delivery are important features of the service delivery system including: role of people, technology, system including: role of people, technology, equipment, layout, procedures?equipment, layout, procedures?

Competitive Environment of Competitive Environment of ServicesServices

Competitive Environment of Competitive Environment of ServicesServices

• Relatively Low Overall Entry BarriersRelatively Low Overall Entry Barriers• Economies of Scale LimitedEconomies of Scale Limited• High Transportation CostsHigh Transportation Costs• Erratic Sales FluctuationsErratic Sales Fluctuations• No Power Dealing with Buyers or No Power Dealing with Buyers or

SuppliersSuppliers• Product Substitutions for ServiceProduct Substitutions for Service• High Customer LoyaltyHigh Customer Loyalty• Exit Barriers Exit Barriers

Competitive Service Competitive Service StrategiesStrategies

1.1. Overall Cost LeadershipOverall Cost Leadership

2.2. DifferentiationDifferentiation

3.3. FocusFocus

Overall Cost LeadershipOverall Cost LeadershipOverall Cost LeadershipOverall Cost Leadership

• Seeking Out Low-cost CustomersSeeking Out Low-cost Customers• Standardizing a Custom Service Standardizing a Custom Service • Reducing the Personal Element in Reducing the Personal Element in

Service Service Delivery (promote self-Delivery (promote self-service)service)

• Reducing Network Costs (hub and Reducing Network Costs (hub and spoke)spoke)

• Taking Service Operations Off-lineTaking Service Operations Off-line

DifferentiationDifferentiationDifferentiationDifferentiation

• Making the Intangible Tangible Making the Intangible Tangible (memorable)(memorable)

• Customizing the Standard ProductCustomizing the Standard Product• Reducing Perceived RiskReducing Perceived Risk• Giving Attention to Personnel TrainingGiving Attention to Personnel Training• Controlling QualityControlling Quality

Note: Differentiation in service means being unique in brand image, technology use, features, or reputation for customer service.

FocusFocusFocusFocus

• Buyer Group: (e.g. USAA insurance Buyer Group: (e.g. USAA insurance and military officers)and military officers)

• Service Offered: (e.g. Shouldice Service Offered: (e.g. Shouldice Hospital and hernia patients)Hospital and hernia patients)

• Geographic Region: (e.g. Austin Geographic Region: (e.g. Austin Cable Vision and TV watchers)Cable Vision and TV watchers)

Customer Criteria for Customer Criteria for SelectingSelecting

a Service Provider a Service Provider

Customer Criteria for Customer Criteria for SelectingSelecting

a Service Provider a Service Provider1. Availability2. Convenience3. Dependability4. Personalization

5. Price

6. Quality

7. Reputation8. Safety9. Speed

Service Purchase Service Purchase DecisionDecision

Service Purchase Service Purchase DecisionDecision

• Service Qualifier:Service Qualifier: Just to be Just to be considered.considered.

• Service Winner:Service Winner: U Used to make sed to make the final choice.the final choice.

• Service Loser:Service Loser: Failure to Failure to deliver. deliver.

Competitive Role of Competitive Role of Information in ServicesInformation in Services

Strategic Focus Competitive Use of Information Strategic Focus Competitive Use of Information On-line Off-lineOn-line Off-line (Real time) (Analysis)(Real time) (Analysis) Creation of barriers to entry: Data base asset:Creation of barriers to entry: Data base asset: External Reservation system Selling informationExternal Reservation system Selling information (Customer) Frequent user club Development of (Customer) Frequent user club Development of

servicesservices Switching costs Micro-marketingSwitching costs Micro-marketing Revenue generation: Productivity Revenue generation: Productivity

enhancement:enhancement: Internal Yield management Inventory statusInternal Yield management Inventory status (Operations) Point of sale Data envelopment(Operations) Point of sale Data envelopment Expert systems analysis (DEA) Expert systems analysis (DEA)

The Virtual Value ChainThe Virtual Value Chain

MarketMarketplaceplacevs.vs.

MarketMarketspacespace

Limits in the Use of Limits in the Use of InformationInformation

• Anti-competitive (Barrier to entry)Anti-competitive (Barrier to entry)

• Fairness (Yield management)Fairness (Yield management)

• Invasion of Privacy (Micro-marketing)Invasion of Privacy (Micro-marketing)

• Data Security (Medical records)Data Security (Medical records)

• Reliability (Credit report)Reliability (Credit report)

Using Information to Using Information to Categorize CustomersCategorize Customers

• Coding Coding (how to handle)(how to handle)• Routing Routing (call centers)(call centers)• Targeting Targeting (hidden (hidden

discounts)discounts) • Sharing Sharing (source of revenue)(source of revenue)

Chapter 4Chapter 4

How do you develop a new How do you develop a new service?service?

Levels of Service Levels of Service InnovationInnovation

I. Radical InnovationsI. Radical Innovations• Major Innovation Major Innovation internet internet

bankingbanking

• Start-up Business Start-up Business new service in existing new service in existing

serviceservice • New Services for the Market Presently New Services for the Market Presently

Served Served kiosks in supermarketskiosks in supermarkets

II. Incremental InnovationsII. Incremental Innovations• Service Line Extensions Service Line Extensions new menu new menu

itemsitems

• Service Improvements Service Improvements self airline self airline check-incheck-in

• Style Changes Style Changes funeral homes celebrate lifefuneral homes celebrate life

Technology Driven Technology Driven Service InnovationService Innovation

• Power/energyPower/energy• Physical designPhysical design• Materials Materials • Methods Methods • InformationInformation

Service Design Service Design ElementsElements

1.1. StructuralStructural- Delivery system- Delivery system- Facility design- Facility design- Location- Location- Capacity planning- Capacity planning

2.2. ManagerialManagerial- Service encounter- Service encounter- Quality- Quality- Managing capacity and demand- Managing capacity and demand- Information- Information

New Service New Service Development CycleDevelopment 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

Service Blueprint of Service Blueprint of Luxury HotelLuxury Hotel

Strategic PositioningStrategic Positioning Through Process Structure Through Process Structure

• Degree of ComplexityDegree of Complexity

Measured by the number of steps in the Measured by the number of steps in the service blueprint. (clinic vs. hospital)service blueprint. (clinic vs. hospital)

• Degree of DivergenceDegree of Divergence

Amount of discretion permitted the Amount of discretion permitted the server to customize the service. server to customize the service. (attorney vs. paralegal) (attorney vs. paralegal)

Generic Approaches to Generic Approaches to Service DesignService Design

1. Production-line 1. Production-line McDonald’sMcDonald’s• • Limit Discretion of PersonnelLimit Discretion of Personnel mufflers mufflers• • Division of LaborDivision of Labor MRI tech MRI tech• • Substitute Technology for PeopleSubstitute Technology for People greeting card reorder greeting card reorder• • Standardize the ServiceStandardize the Service franchising - Starbucks franchising - Starbucks

2. Customer as Coproducer 2. Customer as Coproducer Pizza Hut Pizza Hut buffetbuffet

• Self Service• Self Service automatic check-in at airlines automatic check-in at airlines• Smoothing Service Demand• Smoothing Service Demand midweek ski lift midweek ski lift

discountdiscount

3. Customer Contact 3. Customer Contact front office/back officefront office/back office• Degree of Customer Contact • Degree of Customer Contact laundry at a hospital laundry at a hospital• Separation of High and Low Contact Operations• Separation of High and Low Contact Operations

Airline reservationists/baggage handlerAirline reservationists/baggage handler

4. Information Empowerment4. Information Empowerment IT – it’s not just for nerds IT – it’s not just for nerds anymoreanymore

• Employee• Employee cancelled airline flight cancelled airline flight• • Customer Customer package tracking package tracking

Customer Value EquationCustomer Value Equation

erviceuiringtheSCostsofAcqicePr

tyocessQualiProducedPrsultsReValue

Chapter 5Chapter 5

What is the role of What is the role of technology in services?technology in services?

Role of TechnologyRole of Technology 

Technology Technology Technology

Technology Technology

Customer Customer 

Server 

Server 

Server 

Server 

Server 

CustomerCustomer

Customer

D. Technology-MediatedService Encounter

E. Technology-GeneratedService Encounter

A. Technology-FreeService Encounter

B. Technology-AssistedService Encounter

C. Technology-FacilitatedService Encounter

Personal Care, Professional services

MRI, Optometrist, Airlines Financial

planner

Tech call center, House arrest monitoring ATM, Web based info, checkout scanning,

airport kiosks

Classification of Service Classification of Service AutomationAutomation

1.1. Fixed-sequence (F) Fixed-sequence (F) automatic tollbooth, automatic tollbooth,

newspaper dispensernewspaper dispenser 2.2. Variable-sequence (V) Variable-sequence (V) ATM, car wash, ATM, car wash,

collating copy machinecollating copy machine

3.3. Playback (P) Playback (P) directory assistance, directory assistance, answering answering

machine, spell checkmachine, spell check

4.4. Numerical controlled (N) Numerical controlled (N) IRS Forms, IRS Forms,

animationanimation

5.5. Intelligent (I) Intelligent (I) autopilot, computer games, Doppler autopilot, computer games, Doppler

radarradar

6.6. Expert system (E) Expert system (E) car diagnostics, car diagnostics, medical diagnosis, medical diagnosis,

stock tradingstock trading

7.7. Totally automated system (T) Totally automated system (T) telemarketing, telemarketing,

eft, space shuttleeft, space shuttle

Purpose of Web-Purpose of Web-sitesite

1.1. A retail channel A retail channel Amazon.comAmazon.com

2.2. Supplemental channel Supplemental channel Barnes & NobelBarnes & Nobel

3.3. Technical support Technical support Dell ComputerDell Computer

4.4. Embellish existing service Embellish existing service HBR, News HBR, News

websiteswebsites

5.5. Order processing Order processing Airlines, Expedia.comAirlines, Expedia.com

6.6. Convey information Convey information Kelly Blue Book, Dr. Kelly Blue Book, Dr.

KoopKoop

7.7. Organization membership Organization membership asq.orgasq.org

8.8. Games Games treeloot.com treeloot.com

Chapter 6Chapter 6

What are the dimensions of What are the dimensions of service quality?service quality?

Moments of TruthMoments of Truth• Each customer contact is called a Each customer contact is called a

moment of truth.moment of truth.

• You have the ability to either satisfy or You have the ability to either satisfy or dissatisfy them when you contact them.dissatisfy them when you contact them.

• A A service recovery service recovery is satisfying a is satisfying a previously dissatisfied customer and previously dissatisfied customer and making them a loyal customer.making them a loyal customer.

Dimensions of Service Dimensions of Service QualityQuality

1.1. ReliabilityReliability dependable over dependable over

timetime

2.2. ResponsivenessResponsiveness keeping keeping

customers waiting customers waiting

3.3. Assurance Assurance reputation, credentials, confidence, reputation, credentials, confidence,

track record track record

4.4. EmpathyEmpathy being a good listener, putting yourself in being a good listener, putting yourself in

their placetheir place

5.5. TangiblesTangibles cleanliness, physical cleanliness, physical

appearance appearance

Perceived Service QualityPerceived Service Quality

Word of mouth

Personal needs

Past experience

Expectedservice

Perceivedservice

Service Quality Dimensions

ReliabilityResponsiveness

AssuranceEmpathyTangibles

Service Quality Assessment1. Expectations exceeded ES<PS (Quality surprise)2. Expectations met ES~PS (Satisfactory quality)3. Expectations not met ES>PS (Unacceptable quality)

Service Quality Gap Service Quality Gap ModelModel

Customer

Perceptions

Customer

Expectations

Service

Delivery

Service Standards

ManagementPerceptions of Customer Expectations

Managing the Evidence

Conformance Service Design

Understanding the Customer

Customer Satisfaction GAP 5

Customer / Marketing Research

GAP 1

Conformance GAP 3

Communication GAP 4

Design GAP 2

Taguchi’s Robust DesignTaguchi’s Robust Design

Most “Robust” Setting

Taguchi Loss FunctionTaguchi Loss Function

.500 .520.480

Loss ($)

Target .UpperLimit

.Lowerlimit

L (x) = k (x-T)2

Traditional loss function

Classification of Service Classification of Service FailuresFailures

with Poka-Yoke with Poka-Yoke OpportunitiesOpportunitiesServer Errors:Server Errors:

• Task Task checklistchecklist

• Treatment Treatment listening listening checkcheck

• Tangible Tangible clean clean uniformuniform

Customer Customer Errors:Errors:

• Preparation Preparation surveysurvey

• Encounter Encounter size size limitationlimitation

• Resolution Resolution computer computer beepbeep

BenchmarkingBenchmarkingBenchmarking is the systematic process of evaluating the work processes of organizations that are recognized as representing best practices for the purpose of improving performance.

World-Class Best

Functional

Internal

Industry

Competition

(12.1)

Walk-Through-AuditWalk-Through-Audit• Service delivery system should Service delivery system should

conform to customer expectations.conform to customer expectations.• Customer impression of service Customer impression of service

influenced by use of all senses.influenced by use of all senses.• Service managers lose sensitivity Service managers lose sensitivity

due to familiarity.due to familiarity.• Need detailed service audit from a Need detailed service audit from a

customer’s perspective. customer’s perspective.

Quality Costs Quality Costs PreventioPreventio

nnAppraisal Appraisal Internal Internal

FailuresFailuresExternaExterna

l l FailureFailure

ss•PlanningPlanning•Design Design ReviewReview•TrainingTraining•Process Process ControlControl•Process Process ImprovementImprovement•System System AuditingAuditing

•Supplier Supplier InspectionInspection•Product Product Inspecting/ChecInspecting/Checkingking•Product TestingProduct Testing•Measurement Measurement System System ValidationValidation•Product Product AuditingAuditing

•ReworkRework•ScrapScrap•Re-Re-inspectinginspecting•Re-testingRe-testing•DowntimeDowntime•Yield LossesYield Losses•DispositioninDispositioning Non-g Non-ConformancesConformances

•Customer Customer ReturnsReturns•Complaint Complaint AdjustmenAdjustmentsts•Warranty Warranty ChargesCharges•Customer Customer Loss Loss •ReputatioReputation Lossn Loss

Costs of Service QualityCosts of Service Quality(Bank Example)(Bank Example)

Failure costs Detection costs Prevention Failure costs Detection costs Prevention costscosts

External failureExternal failure: Process control Quality planning: Process control Quality planning Loss of future business Peer review Training programLoss of future business Peer review Training program Negative word-of-mouth Supervision Quality auditsNegative word-of-mouth Supervision Quality audits Liability insurance Customer comment card Data acquisition and analysisLiability insurance Customer comment card Data acquisition and analysis Legal judgments InspectionLegal judgments Inspection Recruitment and selection Recruitment and selection Interest penalties Supplier evaluationInterest penalties Supplier evaluation Internal failure:Internal failure: Scrapped forms Scrapped forms ReworkRework Recovery:Recovery: Expedite disruptionExpedite disruption Labor and materialsLabor and materials

Descriptive StatisticsDescriptive Statistics1.1. Measures of Central Tendencies (Location)Measures of Central Tendencies (Location)

• MeanMean

• Median = The middle valueMedian = The middle value

• Mode - The most frequent numberMode - The most frequent number

2. Measures of Dispersion (Spread)2. Measures of Dispersion (Spread)

• Range R=Maximum-MinimumRange R=Maximum-Minimum

• Standard DeviationStandard Deviation

• VarianceVariance

N

xi

N

)x( 2i

2

The Normal (Gaussian) The Normal (Gaussian) CurveCurve

-3 -2 -1 +1 +2 +3

68.26%

95.46%

99.73%

0

2

4

6

8

10

12

14

16

18

20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Series1

Series2

Series3

Series4

Series5

Red Bead ExperimentRed Bead Experiment

Control ChartsControl Charts

+3+3σσ

AveragAveragee

-3-3σσ

Common Cause(Chance or Random)

Special Cause(Assignable)

Special Cause(Assignable)

Unconditional Service Unconditional Service Guarantee: Customer ViewGuarantee: Customer View

• Unconditional Unconditional L.L. Bean, Target L.L. Bean, Target

• Easy to understand and Easy to understand and communicate communicate 15 minutes or free15 minutes or free

• Meaningful Meaningful $3 rebate vs $3 rebate vs

free pizzafree pizza

• Easy to invoke Easy to invoke toll-toll-

free callfree call

• Easy to collect Easy to collect on the spot, Ritz-Carlton, on the spot, Ritz-Carlton,

restaurant managerrestaurant manager

Unconditional Service Unconditional Service Guarantee: Management Guarantee: Management

ViewView• Focuses on customers Focuses on customers

British AirwaysBritish Airways

• Sets clear standards Sets clear standards FedExFedEx

• Guarantees feedback Guarantees feedback ManpowerManpower

• Promotes an understanding of the Promotes an understanding of the service delivery system service delivery system

Bug KillerBug Killer

• Builds customer loyalty by making Builds customer loyalty by making expectations explicit expectations explicit reduce customer risk, reduce customer risk,

expectations explicit, retains dissatisfied customersexpectations explicit, retains dissatisfied customers

Customer Feedback andCustomer Feedback andWord-of-MouthWord-of-Mouth

• The average business only hears from 4% of their customers The average business only hears from 4% of their customers who are dissatisfied with their products or services. Of the who are dissatisfied with their products or services. Of the 96% who do not bother to complain, 25% of them have serious 96% who do not bother to complain, 25% of them have serious problems.problems.

• The 4% complainers are more likely to stay with the supplier The 4% complainers are more likely to stay with the supplier than are the 96% non-complainers.than are the 96% non-complainers.

• About 60% of the complainers would stay as customers if their About 60% of the complainers would stay as customers if their problem was resolved and 95% would stay if the problem was problem was resolved and 95% would stay if the problem was resolved quickly.resolved quickly.

• A dissatisfied customer will tell between 10 and 20 other A dissatisfied customer will tell between 10 and 20 other people about their problem.people about their problem.

• A customer who has had a problem resolved by a company will A customer who has had a problem resolved by a company will tell about 5 people about their situation.tell about 5 people about their situation.

Patronage

LoyaltySatisfactionRetention

SeverityOf

Failure

PerceivedServiceQuality

Psychologicalempathyapology

Tangible-fair fix-value add

Psychological

show interest

Follow-upService

Recovery

Tangible-small token

ServiceRecoveryExpectations

ServiceRecovery

CustomerLoyalty

ServiceGuarantee

Speed of Recovery

FrontlineDiscretion

ServiceFailure Occurs

--

ProviderAware ofFailure

-

apology

-Fair

Restitution

Pre-recovery Phase Immediate Recovery Phase Follow-up Phase

Service Recovery Framework

Approaches to Service Approaches to Service RecoveryRecovery

• Case-by-case Case-by-case individual, but fairindividual, but fair

• Systematic response Systematic response protocol to protocol to

handle complaintshandle complaints

• Early intervention Early intervention notify the customer notify the customer

immediatelyimmediately

• Substitute service Substitute service capitalizing on rival capitalizing on rival

failurefailure

Quality Principles ofQuality Principles ofContinuous ImprovementContinuous Improvement

1.1. Customer satisfactionCustomer satisfaction

2.2. Management by factsManagement by facts

3.3. Respect for peopleRespect for people

Plan-Do-Check-Act (PDCA) Plan-Do-Check-Act (PDCA) CycleCycle

Plan

Do

Check

Act

Flow ChartingFlow ChartingProcess

Process

Decision

Process

Process

Process

Process

InputDocument

OutputReport

Storage

Delay

Process

Yes

No

(AV.3)

CauseCause and Effect and Effect DiagramDiagram

a.k.a. Ishikawa Diagram, Fishbone a.k.a. Ishikawa Diagram, Fishbone DiagramDiagram

Process

Person Procedures

Material Equipment

Pareto ChartPareto Charta.k.a. 80/20 Rulea.k.a. 80/20 Rule

Vital Few

Trivial (Useful) Many

Deming’s 14-PointsDeming’s 14-Points1. Fulfill the long-term needs.2. Chronic mistakes are unacceptable.3. Cease dependence on mass

inspection.4. End the practice of awarding

business on price tag alone.5. Improve constantly and forever the

system of production and service.6. Institute training.7. Institute leadership.

Deming’s 14-PointsDeming’s 14-Points8. Drive out fear.9. Break down barriers between staff areas.10. Eliminate slogans, exhortations, and

targets for the workforce.11. Examine the impact of work standards.12. Remove barriers to pride of workmanship.13. Institute a vigorous program of education

and retraining.14. Take action to accomplish the

transformation.

Philip Crosby’s 14-Step Philip Crosby’s 14-Step Zero Defect Quality Zero Defect Quality Improvement ProgramImprovement Program

Chapter 7Chapter 7

How does the service How does the service encounter describe a encounter describe a service firm’s delivery service firm’s delivery process?process?

Service

Organization

Efficiencyversus

satisfaction

Efficiencyversus

autonomy

CustomerContact

Personnel Perceived control

The Service Encounter The Service Encounter TriadTriad

• CultureCultureValues Values ServiceMaster (Service to the ServiceMaster (Service to the

Master)Master)

Behaviors Behaviors Disney (Choice of Disney (Choice of

language)language)

• EmpowermentEmpowermentInvest in people Invest in people like investing in like investing in

equipmentequipment

Use IT to enable personnel Use IT to enable personnel customer historycustomer history

Recruitment and training Recruitment and training match to match to

firm’s CSFfirm’s CSF

Anchor performance Anchor performance recognition and recognition and

rewardreward

The Service OrganizationThe Service Organization

CultureCulture

The shared beliefs and values The shared beliefs and values of an organization that guide of an organization that guide employee decision-making employee decision-making and behavior in the firm.and behavior in the firm.

EmpowermentEmpowerment

Providing contact personnel Providing contact personnel with the training and with the training and information to make information to make decisions for the firm without decisions for the firm without close supervision.close supervision.

Organizational ControlOrganizational Controlfor Employee Empowermentfor Employee Empowerment

Beliefs Systems

To contribute

Core values & mission

Identify core values

Boundary Systems

To do right Specify and enforce rules

Risks to be avoided

Diagnostic Control Systems

To achieve Build clear targets

Critical performance variables

Interactive Control Systems

To create Encourage learning

Strategic Uncertainties

Contact Personnel Contact Personnel AttributesAttributes

• FlexibilityFlexibility• Tolerance for AmbiguityTolerance for Ambiguity• Ability to Monitor and Change Ability to Monitor and Change

Behavior on the Basis of Behavior on the Basis of Situation CuesSituation Cues

• Empathy for CustomersEmpathy for Customers

SelectionSelection1. Abstract Questioning 1. Abstract Questioning “From your past “From your past

experience, …”experience, …”

2. Situational Vignette 2. Situational Vignette ability to “think on their feet” in substance ability to “think on their feet” in substance

and deliveryand delivery

3. Role Playing 3. Role Playing requires careful scripting and customer actor requires careful scripting and customer actor

rehearsalrehearsal

TrainingTraining

1. 1. Technical SkillsTechnical Skills

2. Unrealistic customer expectations2. Unrealistic customer expectations

3. Unexpected service failure3. Unexpected service failure

Contact PersonnelContact Personnel

1. 1. Unreasonable demands Unreasonable demands I want to take all my I want to take all my

luggage on boardluggage on board

2. Demands against policies 2. Demands against policies I have to I have to

smokesmoke

3. Unacceptable treatment of3. Unacceptable treatment of employees employees You’re You’re

an idiotan idiot

4. Drunkenness 4. Drunkenness Hey, where’s my drink?Hey, where’s my drink?

5. Breaking of societal norms 5. Breaking of societal norms I I

like to sunbath nudelike to sunbath nude

6. Special-needs customers 6. Special-needs customers Why don’t you Why don’t you

understand English?understand English?

Unrealistic customer Unrealistic customer expectationsexpectations

Unexpected Service Unexpected Service FailureFailure

1. Unavailable service 1. Unavailable service Why Why

isn’t the ATM working?isn’t the ATM working?

2. Slow performance 2. Slow performance Why hasn’t our Why hasn’t our

plane arrived?plane arrived?

3. Unacceptable service 3. Unacceptable service There’s a fly in my soup.There’s a fly in my soup.

Training on Unrealistic Training on Unrealistic Customer Expectations and Customer Expectations and Unexpected Service Failure Unexpected Service Failure • A prescribed response to a any given A prescribed response to a any given

situationsituation““I am very sorry, but federal safety regulations I am very sorry, but federal safety regulations

permit a passenger only two carry-on pieces permit a passenger only two carry-on pieces small enough to be stored under the seat or small enough to be stored under the seat or overhead. May I check your larger pieces overhead. May I check your larger pieces all the way to your final destination?”all the way to your final destination?”

• Anticipate the types of exchange they might Anticipate the types of exchange they might encounter through role playingencounter through role playing

Shopping attitudesShopping attitudes1. Economizing customer 1. Economizing customer compares value with compares value with

competitioncompetition

2. Ethical customer 2. Ethical customer moral obligation (Ronald McDonald moral obligation (Ronald McDonald

House)House) 3. Personalizing customer 3. Personalizing customer know know

your nameyour name

4. Convenience customer 4. Convenience customer pay extra for hassle free pay extra for hassle free

serviceservice

Customer as Co-ProducerCustomer as Co-Producer

1. 1. What is their role?What is their role?

2. How to train?2. How to train?

3. When to retrain?3. When to retrain?

The CustomerThe Customer

Service Encounter Service Encounter Success Factors Success Factors

Customer Service Provider Human Machine

HumanEmployee selectionInterpersonal skillsSupport technologyEngender trust

User friendlyVerificationSecurityEasy to access

MachineEasy to accessFast responseVerificationRemote monitoring

CompatibilityTrackingVerificationSecurity

Shopping attitudesShopping attitudes1. Economizing customer 1. Economizing customer compares value with compares value with

competitioncompetition

2. Ethical customer 2. Ethical customer moral obligation (Ronald McDonald moral obligation (Ronald McDonald

House)House) 3. Personalizing customer 3. Personalizing customer know know

your nameyour name

4. Convenience customer 4. Convenience customer pay extra for hassle free pay extra for hassle free

serviceservice

Customer as Co-ProducerCustomer as Co-Producer

1. 1. What is their role?What is their role?

2. How to train?2. How to train?

3. When to retrain?3. When to retrain?

The CustomerThe Customer

Service Encounter Service Encounter Success Factors Success Factors

Customer Service Provider Human Machine

HumanEmployee selectionInterpersonal skillsSupport technologyEngender trust

User friendlyVerificationSecurityEasy to access

MachineEasy to accessFast responseVerificationRemote monitoring

CompatibilityTrackingVerificationSecurity

Higher Customer Satisfaction

More Familiarity with Customer Needs and Ways of Meeting Them

Greater Opportunity for Recoveryfrom Errors

Higher EmployeeSatisfaction

Higher Productivity

Improved Quality of Service

MoreRepeatPurchases

Stronger Tendency to Complain about Service Errors

Lower Costs

Better Results

Satisfaction Mirror Satisfaction Mirror Satisfaction Mirror Satisfaction Mirror

Internal

Operating strategy andservice delivery system

  Service concept Target market

Servicevalue

Customers

Loyalty

Productivity&

Outputquality

Servicequality

Capability

Satisfaction

Employees Satisfaction Loyalty

Revenuegrowth

External

Profitability

Customer orientation/quality emphasisAllow decision-making latitudeSelection and developmentRewards and recognitionInformation and communicationProvide support systemsFoster teamwork

Quality & productivity improvements yield higher service quality and lower cost

Attractive Value Service designed& delivered tomeet targetedcustomers’ needsSolicit customerfeedback

Lifetime valueRetentionRepeat BusinessReferrals

Service Profit Chain Service Profit Chain Service Profit Chain Service Profit Chain

Is attitude emphasized?Are job previews utilized?Are customers screened?

Are employees encouraged to refer friends?

 Are referrals from the “best” employees given priority?

Is satisfactionmeasured periodically? Are measurements linked to other functions on the cycle?

Careful Employeeand Customer

Selection 

(and Self-selection))

High-Quality Training

Well-DesignedSupport Systems Information Facilities

Greater Latitude to Meet

Customer’s Needs

Clear Limits on, and

Expectations of, Employees

AppropriateRewards

and FrequentRecognition

SatisfiedEmployees

EmployeeReferrals of

Potential Job

Candidates

Is training for job and life? Is it an important element of quality of work life?

Do they reflect needs of the service encounter?

Are they designed to foster relationships?

Does it reflect top management “talk”? Is it enough to allow delivery of results to customers?

Do they limit the “right” risks?Are they logical to employees?

Cycle of

Capability

Are they linked toservice objectives? Are they balanced between monetary and non-monetary?

Chapter 11Chapter 11

How do you forecast the How do you forecast the demand for services?demand for services?

Delphi MethodDelphi MethodNuclear Power Industry Nuclear Power Industry

ExampleExample11 66 55 66 1515 3535 66

No No jdgmt.jdgmt.

StrongStrongly ly

disagr.disagr.

DisagrDisagr..

Disagr. Disagr. SomewSomew

h.h.

UncertUncert..

Agree Agree somewsomew

h.h.

AgreeAgree StrongStrongly ly

agreeagree

RounRound 1d 1

RounRound 2d 2

RounRound 3d 3

Chapter 12Chapter 12

Describe strategies for Describe strategies for managing capacity and managing capacity and demand.demand.

Strategies for Matching Strategies for Matching Supply and Demand for Supply and Demand for

ServicesServices

DEMANDSTRATEGIES

PartitioningdemandDeveloping

complementaryservices

Establishingprice

incentivesDevelopingreservationsystems

Promoting off-peakdemand

Yieldmanagement

SUPPLYSTRATEGIES

Cross-training

employees

Increasingcustomer

participationSharingcapacity

Schedulingwork shifts

Creatingadjustablecapacity

Usingpart-time

employees

Daily Scheduling ofDaily Scheduling of Telephone Operator Telephone Operator

WorkshiftsWorkshifts

0

5

10

15

20

25

30

Time

Num

ber o

f ope

rato

rs

Scheduler program assigns tours so that the number of operators present each half hour adds up to the

number required Topline profile

12 2 4 6 8 10 12 2 4 6 8 10 12

Tour

12 2 4 6 8 10 12 2 4 6 8 10 12 0

500

1000

1500

2000

2500

Time

Cal

ls

Integer Linear Programming (ILP) Integer Linear Programming (ILP) ModelModel

for Weekly Nurse Staffing for Weekly Nurse Staffing RequirementsRequirements

Minimize x

Sunday x Monday

Thursday x Friday x Saturday x

Objective function :

1 + x 2 + x 3 + x 4 + x 5 + x 6 + x 7

Constraints :

2 + x 3 + x 4 + x5

+ x 6 3

x 3 + x 4 + x 5 + x 6 + x7 6

Tuesday x 1 + x

4 + x 5 + x 6 + x

7 5

Wednesday x 1 + x 2 + x

5 + x

6 + x

7 6

1 + x 2 + x 3

+ x6

+ x7 5

1 + x 2 + x 3 + x 4 + x7 5

1 + x 2 + x 3 + x 4 + x 5 5

Tour Requirement: 5 days on and 2 consecutive days off

Weekly Nurse Staffing Weekly Nurse Staffing ScheduleSchedule

Schedule matrix, x = day off

Nurse Su M Tu W Th F Sa

1 x x … … … … ...

2 … x x … … … … 3 … ... x x … … … 4 … ... x x … … … 5 … … … … x x … 6 … … … … x x … 7 … … … … x x … 8 x … … … … … xTotal 6 6 5 6 5 5 7Required 3 6 5 6 5 5 5Excess 3 0 0 0 0 0 2

Scheduling Part-time Bank Scheduling Part-time Bank TellersTellers

0

1

2

3

4

5

6

7

Tel

lers

req

uire

d

Mon. Tues. Wed. Thurs. Fri.

Two Full-time Tellers

54

1

32

1

432 1

5 2

Fri. Mon. Wed. Thurs Tues. 0

1

2

3

4

5

Te

llers

re

qu

ired

Decreasing part-time teller demand histogram

DAILY PART-TIME WORK SCHEDULE, X=workday

Teller Mon. Tues. Wed. Thurs. Fri.

1 x …. x …. x 2 x …. …. x x 3,4 x …. …. …. x 5 …. …. x …. x

Yield ManagementYield Management

• Fixed Capacity Fixed Capacity hotels, hotels,

airlinesairlines

• Ability to Segment Markets Ability to Segment Markets Saturday-night stay, Saturday-night stay,

Seasonal resort exampleSeasonal resort example

• Perishable Inventory Perishable Inventory standby standby

passengerspassengers

• Product Sold in Advance Product Sold in Advance Demand control Demand control

for a hotel examplefor a hotel example

• Fluctuating Demand Fluctuating Demand Increase utilization (slow demand) Increase Increase utilization (slow demand) Increase

revenue (high demand)revenue (high demand)

• Low Marginal Sales Cost and High Low Marginal Sales Cost and High Capacity Change Cost Capacity Change Cost se selling lling

aairline snack vs. cost on bigger aircraftirline snack vs. cost on bigger aircraft

Most appropriate for services with the following characteristics:

Chapter 15Chapter 15

What are the challenges of What are the challenges of managing the service managing the service supply relationships?supply relationships?

Deming’s 14-PointsDeming’s 14-Points

Point 4

End the practice of awarding business on price tag alone.

Customer-Supplier Duality Customer-Supplier Duality in Service Supply in Service Supply

Relationships (Hubs)Relationships (Hubs)

Supplier

Customer

Material transfer

ServiceDesign

ServiceProvider

Information transfer

Two-Level Bidirectional Two-Level Bidirectional Service Supply Service Supply RelationshipRelationship

ServiceService

CategoryCategoryCustomCustom

erer

--SupplieSupplie

rr

>>InputInput

Output>Output>ServiceService

ProvideProviderr

>>InputInput

Output>Output>ProviderProvider

’s’s

SupplierSupplier

MindsMinds PatientPatient >>DisturbDisturbeded

Treated>Treated>

TherapiTherapistst

>>PrescriptPrescriptionion

Drugs>Drugs>

PharmaPharmacycy

BodiesBodies PatientPatient >>BloodBlood

DiagnosisDiagnosis>>

PhysiciPhysicianan

>>SampleSample

Test Test Result>Result>

LabLab

BelonginBelongingsgs

DriverDriver >>CarCar

RepairedRepaired>>

GarageGarage >>EngineEngine

Rebuilt>Rebuilt>MachineMachine

ShopShop

InformatiInformationon

HomeHome

BuyerBuyer>>PropertPropert

yy

Loan>Loan>

MortgaMortgagege

CompaCompanyny

>>LocationLocation

Clear Clear Title>Title>

TitleTitle

SearchSearch

Sources of Value in Sources of Value in Service Supply Service Supply RelationshipsRelationships

• Managing Productive CapacityManaging Productive Capacity1. Transfer 1. Transfer make knowledge availablemake knowledge available web based FAQ web based FAQ

2. Replacement 2. Replacement substitute technology for server digital substitute technology for server digital

blood pressure deviceblood pressure device

3. Embellishment 3. Embellishment enable self-service by teaching enable self-service by teaching

change surgical dressingchange surgical dressing

• Management of PerishabilityManagement of Perishability1.1. Time allotment based on “best use”Time allotment based on “best use” real-real-

time schedulestime schedules

2. Idle time for training2. Idle time for training computer-based computer-based (mobile data terminals)(mobile data terminals)

Outsourcing ServicesOutsourcing ServicesBenefitsBenefits

1. Allows the firm to focus on its llows the firm to focus on its core competencecore competence

2.2. Service is cheaper to outsource Service is cheaper to outsource than perform in-housethan perform in-house

3.3. Provides access to latest Provides access to latest technologytechnology

4.4. Leverage benefits of supplier Leverage benefits of supplier economy of scaleeconomy of scale

Outsourcing ServicesOutsourcing ServicesRisksRisks

1. Loss of direct control of quality

2. Jeopardizes employee loyalty

3. Exposure to data security and customer privacy

4. Dependence on one supplier compromises future negotiation leverage

5. Additional coordination expense and delays

6. Atrophy of in-house capability to perform service

Taxonomy for Taxonomy for Outsourcing Business Outsourcing Business

ServicesServices

Importance of Service Low High

Property Focus

Facility Support: -Laundry -Janitorial -Waste disposal

Equipment Support: -Repairs -Maintenance -Product testing

of People

Employee Support: -Food service -Plant security -Temporary personnel

Employee Development: -Training -Education -Medical care

Service

Process

Facilitator: -Bookkeeping -Travel booking -Packaged software

Professional: -Advertising -Public relations -Legal