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Week 2 Service Operations Fundamentals PDF
Week 2 Service Operations Fundamentals PDF
A service is a time-perishable, intangible experience performed for a customer acting in the role of a co-producer.
James Fitzsimmons
Service enterprises are organizations that facilitate the production and distribution of goods, support other firms in meeting
their goals, and add value to our personal lives.
James Fitzsimmons
1-2
Role of Services in an Economy
Financial Products Model
PERSONAL SERVICES
· Healthcare Service Business Model
Fulfillment
Internal Services · Restaurants
· Finance, Accounting DISTRIBUTION · Hotels
· Legal SERVICES
· R&D and design · Wholesaling.
Retailing. Repairing
CONSUMER
(Self-service)
BUSINESS SERVICES
· Consulting, Auditing GOVERNMENT SERVICES
· Advertising · Military
· Waste disposal · Education
· Judicial, Police and fire protection
1-3
Financial Services: 4 variants
Customer Participation
High Low
Backend
Relationship/Contact Intensity Savings
Transactions
Low Accounts-
and Account
Mutual Funds
Management
Self-managed
Retail
High and advisory
Banking
supported
Services
investment
1-4
Typology of Financial Services
Core Experience Essential Feature Examples
5
Distinctive Characteristics of Services
• Simultaneity: opportunities for personal selling, interaction creates
customer perceptions of quality
• Perishability: cannot inventory, opportunity loss of idle capacity, need to
match supply with demand
• Intangibility: creative advertising, no patent protection, importance of
reputation
• Heterogeneity: customer involvement in delivery process results in
variability
• Customer Participation in the Service Process: attention to facility design,
opportunities for co-production, concern for customer and employee
behavior
1-6
Service Profit Chain:
People are key Leadership
Employee
Revenue
Loyalty Growth
Satisfaction
Internal External
Customer Customer
Service Service Value
Productivity Satisfaction Loyalty
Quality Capability Quality
INTERFACE
Profitability
7
The Service (Customer Benefits) Package
• Supporting Facility: The physical resources that must be in
place before a service can be sold. Examples are retail branch
of a bank, ski lift, hospital, airplane.
• Facilitating Goods: The material consumed by the buyer or
items provided by the consumer. Examples are free drinks or
food, legal documents, memberships to golf clubs.
• Information: Operations data or information that is provided
by the customer to enable efficient and customized service.
Examples are stocks performance data, market trends,
reports.
• Explicit Services: Benefits readily observable by the senses.
The essential or intrinsic features. Examples are returns or
gains/losses from investment, analysis and support.
• Implicit Services: Psychological benefits or extrinsic features
which the consumer may sense only vaguely. Examples are
privacy of loan office, risk management, insurance service.
1-8
The Service Process Matrix
Degree of Interaction and Customization
Low High
1-9
Open Systems View of Services
1-10
Strategic Service Vision
Target Market Segments Operating Strategy
• What are common characteristics of important • What are important elements of the strategy: operations,
market segments? financing, marketing, organization, human resources,
control?
• What dimensions can be used to segment the
• On which will the most effort be concentrated?
market, demographic, psychographic?
• Where will investments be made?
• How important are various segments?
• How will quality and cost be controlled: measures,
• What needs does each have? incentives, rewards?
• How well are these needs being served, in what • What results will be expected versus competition in terms
of, quality of service, cost profile, productivity,
manner, by whom? morale/loyalty of servers?
2-11
Goldman Sachs Strategic Service Vision
Service Delivery Operating Strategy Service Concept Target Market
System Segment
Risk of Entry
Supplier Customer
Bargaining Bargaining
Power Power
Rivalry
Power of Threat of
Complements Substitutes
13
Competitive Environment of Services
• Relatively Low Overall Entry Barriers
• However financial services have relatively higher barriers to entry
• Expertise, capital, relationships are powerful barriers
• Economies of Scale Limited
• FinTech is the means to scale several financial services
• Goldman Sachs entered retail savings market using technology
• Higher customer service costs
• Professional services are expensive
• Erratic Sales Fluctuations
• Business and economic cycles
• Dealing with Buyers or Suppliers
• Top performing firms have more loyal customers
• Dependent on suppliers (other banks, and Central Bank) for liquidity
• Product Substitutions for Service
• Online presence
• Financial returns can compensate for lack of personalized service
• High Customer Loyalty
• Results based relationships
• Strong Exit Barriers
• Banks have to honor debt and other obligations
2-14
Competitive Service Strategies (Overall
Cost Leadership)
• Seeking Out Low-cost Customers (e.g., penny stock firms)
• Standardizing a Custom Service (T-Rowe Price, Fidelity Investment)
• Reducing the Personal Element in Service Delivery (Charles Schwab)
• Reducing Network Costs (E-Banking, Trading and Banking)
• Taking Service Operations Offline (E-Trade)
2-15
Competitive Service Strategies
(Differentiation)
2-16
Competitive Service Strategies (Focus)
• Buyer Group
• Goldman Sachs does not accept the layperson investor;
only wealth clients and corporations and other institutions)
• Service Offered
• Fidelity only offers mutual and ETFs
• Geographic Region:
• Standard Chartered focuses on Asia-Pacific
2-17
SWOT Analysis
Strengths Weaknesses
• What are your company’s advantages? • What could you improve?
• What do you do better than anyone else? • What should you avoid?
• What unique resources do you have? • What factors lose sales?
• What do people in your market see as • What are people in your market
your strengths? likely to see as a weakness?
Opportunities Threats
• What are your competitors’ • What obstacles do you face?
vulnerabilities? • What are your competitors doing?
• What are the current market trends? • Is changing technology
• Does technology offer new service threatening your position?
options? • Do you have cash-flow problems?
• Are there niches in the market your
organization can fill?
2-18
Customer Criteria for Selecting
a Service Provider
• Availability (24 hour ATM)
• Convenience (Site location)
• Dependability (On-time performance)
• Personalization (Know customer’s name)
• Price (Quality surrogate)
• Quality (Perceptions important)
• Reputation (Word-of-mouth)
• Safety (Customer well-being)
• Speed (Avoid excessive waiting)
2-19
Winning Customers in the Marketplace
2-20
Social Responsibility and Ethics in Financial
Services
Motivations:
• Regulations/legislation
• Frank-Dodd
• Basel-II, and then Basel-III
• Insider trading laws
• Perception/Image Building
• Are you looking out for the client or for the firm itself?
• Proprietary trading strategy different from investor funds strategy
• Risk Management
• Avoiding whale trades
• Maintaining liquidity and stability
2-21
Competitive Role of Information in Services
2-22
The Virtual Value Chain
• Marketplace vs Marketspace
• Creating New Markets Using Information (Gather, Organize, Select, Synthesize, and Distribute)
• Four Stage Evolution
• 1st Stage (New Processes): Blend physical operations and decisions more effectively with
information and current data (e.g. “paperless operation”).
• 2nd Stage (New Knowledge): Substitute virtual activities for physical ( e.g.“automate
underwriting”).
• 3rd Stage (New Products): Use information to deliver value to customers in new ways (e.g. “event
oriented service”).
• 4th Stage (New Relationships): Seek customer collaboration in co-creation of value (“financial
planning service”).
2-24
Economics of Scalability
Dimensions High Scalability Low
Selling Selling value- Selling Selling commodities
information (e- added service services with (e-commerce)
E-commerce
service) commodities
continuum
Information vs. Information Information with Commodites with Commodities
commodities content dominates some service support services dominate
Degree of customer Self-service Call center Call center support Call center order
content backup processing
Standardization vs. Mass Some Limited Fill individual orders
customization distribution personalization customization
Shipping and Digital asset Mailing Shipping Shipping, order
handling costs commodities fulfillment, and
warehousing
commodities
After-sales service None Answer questions Remote maintenance Trade or contract
reversals possible
Example service Paypal Insurance Supply Chain Commodities Trading
Finance
2-25
Limits in the Use of Information
• Anti-competitive (e.g. Barrier to entry)
• Fairness (e.g. Yield management)
• Invasion of Privacy (e.g. Micro-marketing)
• Data Security (e.g. Customer transaction records)
• Reliability (e.g. Credit report)
2-26
Using Information to Categorize Customers
2-27
Stages in Service Firm Competitiveness
2-28
Stages in Service Firm Competitiveness
2-29