Services:: What Is A Service?

Services:
What is a service?
Víctor Tang
victang@alum.mit.edu
INTERNATIONAL CONFERENCE ON ENGINEERING DESIGN, ICED'09. 24 - 27 AUGUST 2009, STANFORD UNIVERSITY, STANFORD, CA, USA
FIRST-PRINCIPLES FOR SERVICES AND PRODUCT-SERVICES-SYSTEMS: AN R&D AGENDA
VICTOR TANG1, RUOYI ZHOU2 (1) MASSACHUSETTS INSTITUTE OF TECHNOLOGY, (2) IBM ALMADEN RESEARCH CENTER © v tang.
What is a service?
system of
interactions
work product
expectations
money provider
client
objects
time
Lucas!
production
value
Consulting
Project
© v tang.
Landmarks in service thinking [1]
1930. Exclusion. US Department of Commerce classification

as “other”, neither agriculture nor manufacturing.
7676
74
80 70 76 75
66
69 68
60
54 57 62
40 22222428 32
42 42
20 21 22 28 28 38 40
32 48 45
0
© v tang.

1980. Scholars characterize service as non-material.

IHIP, Intangible, Heterogeneous, Inseparable, Perishable.
Since then, service as science, non-science, redefined marketing,
engineering systems, systems engineering, customers as
suppliers, economic transaction without ownership, …
2000+. Multidisciplinary. As a PSS – product service system. As SSME -
Service Science, Management, and Engineering.
2007. International Labor Organization: for the first time in
history, employment in services (40%) exceeds
agriculture (39.4%), and manufacturing (20.7%).
© v tang.
IHIP attributes of services
Intangibility. Unlike a physical good, services
cannot be seen, tasted, heard, or smelled before
purchase.
Heterogeneity. Unlike manufactured goods, services

are delivered by people of different skills and
motivations; thus making each service experience
unique.
Inseparability. Production and consumption

of services are simultaneous and inseparable.
Perishability. A service
“perishes” unless experienced.
lucas
Services cannot be stored.
consultant
Takchronicity. Value co-creation

at reciprocal tempo and cadence.
Like tango, waltz, …
© v tang.
IHIP Landmark in service thinking

© v tang.
IT Product-Service-System – 4 subsystems
external
SITUATIONAL CONTEXT
IT STRATEGY
BUSINESS STRATEGY
GOVERNANCE
GOVERNANCE
business technology
ORGANIZATIONAL IT INFRASTRUCTURE
INFRASTRUCTURE & SUBSYSTEMS & PROCESSES
PROCESSES
internal
7
Adapted from: Henderson & Venkatraman 1999, Strategic Alignment. IBM SJ © v tang.
Winter games scope of IT
Tickets 1.8x106
Phones 20,000
Athletes, officials, press, TV, … 97,356
Volunteers 36,000
Lines of code 25x106

Test cases 60,000
Mainframes 18
Servers 160
PCs 5000
Printers 1300
Network routers, switches… 1950
Historical records 82,857

Total traffic for the games 6.1 Terabytes
Nagano home page 85,000 pages
Peak hits/minutes 103K
8
© v tang.
Stakeholders=herding Cats
IOC
stakeholder their value system dominant factors

International Olympic  brand and franchise  prestige
Committee  revenues  wealth
 national prestige  prestige
Nagano Organizing
 exciting games  temporary
Committee
 operations and budget organization
International Sports  exciting games  franchise
Federations  data accuracy, timeliness  show biz
Worldwide News Press  data accuracy, timeliness  franchise

Agencies  information accuracy, timeliness  reach 100n*106
 flawless operations  franchise
Broadcasters
 data accuracy, timeliness  reach 100n*106
 data accuracy, timeliness
Press  reach n*106
 updated historical information
9
Source: v tang analysis © v tang.


Science? If so, services need “a scientific approach and have a clear set of
principles and goals”1 and “common features that sciences require”
(National Academy of Engineering 2003, pp.219). © v tang.
Service Definitions from the literature [1]
1. Services represent a flow of benefits … derived from either

physical goods or from human activities. (Hirshleifer 2006, 17).
2. A service is any act or performance that one party can offer that is
essentially intangible and does not result in the ownership of
anything.” (Kotler 2006, 402).
3. Services are economic activities that create value and provide benefits
for customers as a result of bringing about a desired change in - or on
behalf of – the recipient of the service. (Lovelock and Wirtz 2006, 3).
4. Clients and providers working together for a state transformation, such

as material goods, information, organization, with some ownership
relation to the client.” (Spohrer and Maglio 2006 in IBM white paper, 1).
5. To organize a solution to a problem. (Gadney, Gallouj, Weinstein 1995,

5).
6. Pay for performance in which value is coproduced by client and
provider. (Spohrer and Maglio 2006)
© v tang.



5).
© v tang.



5).
© v tang.
Services definition
Service
A solution performed for consideration
with a taktchronously co-produced
product-IHIP composite to create a
stream of benefits.
What are services’ first principles?
definition
Lucas!
 identify
Consulting
domains
Project
 distill epistemic rules

principles
© v tang.
Deconstruction of Definition
Service.
definition
A solution performed for consideration  identify
with a taktchronously co-produced domains

product-IHIP composite to create a principles
stream of benefits.
definition domain
solution to a customer problem market and customer needs

for consideration finance, and contract law
performed by the provider production management
takchronously co-produced product co-design and co-development
product-IHIP composite engineering and behavioral economics
results: stream of benefits. project and strategic management
© v tang.
Epistemic Rules
Service.
definition

stream of benefits.
domain epistemic rules
market and customer needs

 parity
finance, and contract law
 research
production management
 falsibility
product co-design and co-development
 accretion
engineering and behavioral economics
 sciences-of-the-artificial
project and strategic management
© v tang.
First principles
Service.
definition

stream of benefits.
domain first principles
market and customer needs customer satisfaction

finance, and contract law fair Nash-equilibrium
production management lean production
product co-design and co-development systematic design
engineering and behavioral economics physics, behavioral economics
project and strategic management satisficing under uncertainty
© v tang.
The “ilities”
Service.
definition

stream of benefits.
domain principles

∰ system principle:
design & manage “ilities”
© v tang.
The Gap Model
© v tang.
The New Gap Model
© v tang.
Nash equilibrium – we both win or we both lose
I win and solution

WIN
you lose We both space
win.
We both
LOSE lose.
LOSE WIN
Win-Win requires knowing, exploring, and testing …

 for my decrement in cost what is my incremental benefit
 for your incremental cost and what is your incremental benefit loss
to equilibrate these four moving parts to architect a win-win solution.
(c) v tang
© v tang.
Solution space benefits
ℛ=
costs
benefitsIBM IBM to Olympics benefitsOly
cost shift function
ℛOlym >>1
ℛIBM >>1
C1Olym
. ℛIBM <<1
.
ℛOlym <<1
C2 Olym
cost . . cost
C1IBM C2IBM C1IBM C2IBM C2Olym C1Olym
ℛOlym >>1 win lose ++ +- win lose

ℛOlym *
ℛOlym <<1 lose win -- +- lose win
ℛIBM <<1 ℛIBM >>1
Source: v tang. INFORMS 2012, Beijing. Services , Value, Benefits, Pricing : Axioms and First Principles ©
(c)vvtang.
tang
Solution space ℛ=
benefits
costs
cost shift function
ℛOlym >>1
ℛIBM >>1
C1Olym
ℛOlym ok
ℛIBM ok
. ℛIBM <<1
C*Olym
.
ℛOlym <<1
C2 Olym
cost . . cost
C1IBM C*IBM C2IBM C1IBM C*IBM C2IBM C2Olym C*Olym C1Olym
ℛOlym >>1 win lose ok not ok win lose

ℛOlym ok not ok ok ok ok ok not ok
ℛOlym <<1 lose win not ok ok lose win
ℛIBM <<1 ℛIBM ok ℛIBM >>1
(c)vvtang.
tang
Solution space ℛ=
benefits
costs
cost shift function
ℛOlym >>1
ℛIBM >>1
C1Olym
ℛOlym ok
ℛIBM ok
. ℛIBM <<1
C*Olym
.
ℛOlym <<1
C2 Olym
cost . . cost
C1IBM C*IBM C2IBM C1IBM C*IBM C2IBM C2Olym C*Olym C1Olym
ℛOlym >>1 win lose ok not ok win lose

ℛOlym ok not ok ok ok ok ok not ok
ℛOlym <<1 lose win not ok ok lose win
ℛIBM <<1 ℛIBM ok ℛIBM >>1
(c)vvtang.
tang
Nash Equilibrium
Vp= ln((1/20)*(Rp+200)/5)
Vc= ln((1/25)*(550-Rc)/7)
1.03
1.01
benefits 1.00
0.99
0.98
68 70 72 74 76 78
provider client
reservation price reservation price
region of
Nash Equilibria
V Tang, 2013. Services’ Value-Price Nash-Equilibrium: Normative Principles. INFORMS Annual Meeting. Minneapolis, Minnesota. © v tang.
Every field has its paradigmatic process
goal: understand nature

science make observations about nature
 confirm hypotheses
goal: rational choice

decision
analysis define problem/opportunity
 commit resources to action
goal: useful artifacts

engineering
identify the market needs
 develop and operate products
goal: consistent structures

mathematics state an assertion to prove
 prove theorems
5
confidentia © v tang.
Method - paradigmatic meta-process for the practice
The Scientific Method

Goal: Understand nature
1. Observe some aspect of the universe.
2. Create a tentative description, a hypothesis.
3. Use the hypothesis to make predictions.
4. Test with experiments and modify the hypothesis.
5. Repeat steps 3 and 4 until theory and experiment are consistent.
Canonical Paradigm of decision making

Goal: Rational choice
1. Identify decision agent
2. Specify alternative choices
3. Rank consequences of choices against objectives
4. Address uncertainties
5. Select a choice, commit to action.
http://physics.ucr.edu/~wudka/Physics7/Notes_www/node6.html
4Wolfs, F. 1996. “Introduction to the scientific method.” Physics Laboratory Experiments, Appendix E, Department of Physics and Astronomy, University of Rochester. Web 1996.
Lakatos, I. 1999, The Methodology of Scientific Research Programmers. Cambridge University Press, Cambridge, UK.
Bell,D.E., H. Raiffa, A. Tversky. 1988. Decision making: Descriptive, normative, and prescriptive interactions. pp 28.Cambride Univ. Press
Bazerman, M.H. 2002. Judgment in Managerial Decision Making (5 th edition).John Wiley & Sons. NY.
Popper, K. xxxxxxxxxx Kuhn, T.S. xxxxxxxxxxx confidential © v tang.
Method - paradigmatic meta-process for the practice
The Engineering Method

Goal: End-end product/system development
1. Conceive a solution to address customer needs.
2. Design a system embodying the conceived solution.
3. Implement. Develop the system and its processes.
4. Operate. Run and Maintain the system.
The Mathematical Axiomatic Method

Goal: Consistent mathematical theoretic structures
1. Define axioms
2. Define rules of inference
5
3. Prove lemmas, propositions, and theorems

4. Extend and generalize
Crawley, E., Malmqvist, J., Ostlund, S., & Brodeur, D. 2007. Rethinking engineering education:: The CDIO approach. New York: Springer.
Seering, W.P. 2003. Redefining engineering. MIT Faculty Newsletter. Vol. XVI(1).
http://www.answers.com/topic/axiom#ixzz1sUz0DZhP confidential © v tang.
Even the big-bang is a process
Even the big-bang has a temporal dimension.

There’s a beginning, a middle, and an end … a temporal process.
Every discipline has its accepted method for professional practice.*
* Kuhn, T.S. 1965. The Structure of Scientific Revolutions. MIT Press, Cambridge, MA. confidential © v tang.
The Service Method a meta-process for the practice
The Service Method

Goal: Client-Provider co-creating value
Phase 1. Exploration
engage or not?
Phase 2. Negotiation
formalize intent or not?
Phase 3. Planning
formulate a plan or not?
Phase 4. Engineering
engineer the plan or not?
Phase 5. Operations
operationalize the plan or not?
Phase 6. Adaptation and Control
intervene or not?
confidential © v tang.
Phase process schema
client requires requires provider’s

interpretation phase’s critical issue interpretation
using requires using
client to reach to reach provider
a compatible decision decision factors
decision factors
using
used in used in
an engagement mechanism
following
service principles
to produce
shape shape
a client & provider recognized output
that marks
stipulated at stipulated at provider’s
client’s decision phases’s commit point
decision
for an outcome
continue revisit this phase revisit prior phase quit

choice of both choice of both choice of both choice of either one
© v tang.
client VALUE CO-CREATION – PHASES provider
decision factors phase critical issue, requirement for decision and commitment decision factors
Φ1 issue. to engage or not?
needs, client & provider expectations compatible? capabilities,
capabilities, needs,
expectations requirement have exploratory interactions; have a meeting of the minds expectations
decision if expectations are compatible. commit intention to engage
Φ2 issue. to formalize intent or not?
client and provider reservation prices compatible? provider reservation
client reservation price,
price,
and affordability requirement negotiate mutually satisfactory terms and conditions and financial return
decision if reservation prices appear fair. commit to formalize
sufficiency and Φ3 issue. to formulate a plan or not? sufficiency and

complementarity client+provider knowledge and skills sufficient and complementary? complementarity
of knowledge requirement agree to doable plan; with no gaps in knowledge or skills of expertise
and expertise decision if have client+provider skills. commit to develop a plan and knowledge
sufficiency and Φ4 issue. to engineer the plan or not? sufficiency and

complementarity client+provider deployment resources sufficient and complementary? complementarity
of social-technical requirement agree to embody plan; no gaps in social-technical resources of social-technical
resources decision if can embody the PSS. commit to engineer the plan resources
Φ5 issue. to operationalize the plan or not?

reciprocal client+provider social-technical systems ready? reciprocal obligations,
responsibilities,
requirement operationalize value co-creation social-technical system responsibilities
obligations
decision if ready to operate. commit to taktchronous operations
Φ6 issue. to intervene or not?
client expectations client+provider values threatened? provider expectations
of itself and provider requirement specify in-process and end-process value measurements of itself and client
decision if values are confidential
threatened. commit to fix problems
© v tang.
decision factors mechanism to answer, question decision factors
Φ1. engage? client & provider expectations compatible?
needs, capabilities,
capabilities, requirement exploratory interactions to reach a meeting of the minds. needs,
expectations mechanism exploration expectations
output statement of (co-creation) work (SOW)
Φ2. formalize intent? client and provider reservation prices compatible?
client provider reservation
reservation price, requirement negotiate mutually satisfactory terms and conditions. price,
and affordability mechanism negotiation and financial return
output contract of Terms and Conditions (T&C’s)
sufficiency and Φ3. formulate a plan? knowledge and skills sufficient and complementary? sufficiency and
complementarity requirement agree on doable plan; no gaps in knowledge or skills complementarity
of knowledge mechanism planning of expertise
and expertise output co-defined engineering plan and knowledge
sufficiency and Φ4. engineer the plan? deployment resources sufficient and complementary? sufficiency and
complementarity requirement agree to embody plan; with no gaps in s-t resources complementarity
of social-technical mechanism engineering of social-technical
resources output resources
co-engineered specifications of social-technical system
Φ5 operationalize the plan? client+provider social-technical systems ready?
reciprocal reciprocal
responsibilities and requirement operationalize social-technical systems obligations and
obligations mechanism operations responsibilities
output client and provider taktchronous operations
Φ6.. intervene? client+provider values threatened?
client expectations requirement spec in-process and end-process value measurements provider expectations
of itself and provider mechanism adaptation and control of itself and client
output commit to fix problems that threaten value
confidential
© v tang.
decision factors mechanism, propositions and principles decision factors
Φ mechanism - exploration
needs, Beer (1995, 1996) policy, intelligence functions (req 4, 5) capabilities,
capabilities, Brodie et al. (2011), Badinelli interactive experience, psychological state needs,
expectations et al 2008) context, final purpose, goals (prop 10,11) expectations
Chandler & Vargo (2011) context as framing effect
Vargo et al. (2008) service as value proposition & relationship (PF 7, 8)
Φ mechanism - negotiation
IBM (1993) cost effective solutions versus competition
client reservation Beer (1995, 1996) policy, intelligence functions (req 4, 5) provider reservation price,
price, Aviontis et al. (2006) pricing bases - market, customer, discounts… and financial return
and affordability Tang & Zhou (2009) Nash equilibrium principle
Vargo et al. (2008) value-creation phenomelogy (PF 2, 7, 10)
Otto et al. (2004) service economic value
sufficiency and Φ mechanism - planning Sufficiency

and complementarity IBM (1993) requirements for expertise and complementarity
of knowledge Beer (1995, 1996) policy, intelligence functions (req 4, 5) of expertise
and expertise Badinelli et al 2008) context, final purpose, goals (prop 10,11), viability principle and knowledge
Tang & Zhou (2009) satisficing principle
Φ mechanism - engineering
sufficiency and Beer (1995, 1996) primary activities (req 1), recursion sufficiency and
complementarity Badinelli et al 2008) ontology by system & structure (prop 8) complementarity
of social-technical Tang et al. (2001}, Tang (2011) complexity versus complicatedness of social-technical
resources Badinelli et al 2008) complexity perception (prop 1-6) resources
Tang & Zhou (2009) complex system “ilities” principles
Vargo et al. (2008) resource integration in value co-creation (PF 9)
Φ mechanism - operations
reciprocal Beer (1995, 1996) primary activities (req 1), control and regulations reciprocal
responsibilities and Brodie et al. (2011) Interactive process that co-creates value Obligations and
obligations Badinelli et al 2008) behavioral dimension of system.(prop 9) responsibilities
Tang & Zhou (2009) co-creation taktchronocity principle
Vargo et al. (2008) value as value-in-use (FP 3)
Φ mechanism – adaptations & control
Ashby (1958) requisite variety
Bar Yam (1997, 2003) complexity, scale, abstraction, control
client expectations Von Foester (2002) observer eigen values in complex social systems provider expectations
of itself and provider Luhmann (1995) social systems decisions of itself and client
De sitter and den Hertog (1997) control, adaptation, system disturbances
Achterbergh & Vriens social systems
Beer (1995, 1996) control and coordination (req 2, 3)
Badinelli et al 2008) sys viability, decisions, recursive (prop 7, 9, 10)
© v tang.
Lean
Dramatic results of lean PD
 70% reduction in product development cycle time. 80% reduction in design hours.
 33% reduction in prototype development. 50% reduction in inspections.
 25% time reduction between engineering and manufacturing.
 50% reduction in product cost. 90% conformance of design-to-cost targets.
 5-sigma design quality level.
V. Tang & K. Otto. 2009. Multifunctional Enterprise Readiness: Beyond The Policy Of Build-test-fix Cyclic Rework. Proceedings of the ASME 2009
International Design Engineering Technical Conferences & Design Theory and Design. IDETC/DTM 2009. Aug 30 – Sep 2, 2009, San Diego, CA. USA
MARKET WIRE. 2005. “$300K Typical Gain from Design for Six Sigma Projects”. SEATTLE, WA. July 18.
Oppenheim, B.W. 2004. “Lean Product Development Flow”. Systems Engineering, 7(4), pp. 352-376.
Fiore, C. 2005. “Accelerated Product Development: Combining Lean and Six-Sigma for Peak Performance”. Productivity Press, N.Y. © v tang.
Methods compared and contrasted
measurements,
quantities, units
mechanism
science of
principles
agnostic
end-end
process
Tests of
domain
neutral
validity
units
goal
first
Popper’s experiments, SI units:
Scientific understand
falsibility yes yes yes mathematics, M kg S A yes
Method nature natural laws cd mol
rule
Decision rational decision utility axioms, preference
yes yes yes natural units
Paradigm choice axioms researchers axioms
Axiomatic consistent rules of mathematical sets, math
yes yes yes
Method structures inference consistency elements axioms
sciences: market ,
Engineering useful SI units
natural & no* yes yes engineering, yes
Method products economics
MKS
artificial
SSME, market, too many, very thin,
Service PSS ad hoc, mostly
Tang/Zhou yes yes yes engineering,
Method satisfaction economics unorganized absent
principles
* Truncasted at release to manufacturing, missing are services, maintenance, and end of life processes.
Crawley, E., Malmqvist, J., Ostlund, S., & Brodeur, D. 2007. Rethinking engineering education:: The CDIO approach. NY: Springer.
http://physics.ucr.edu/~wudka/Physics7/Notes_www/node6.html http://www.answers.com/topic/axiom#ixzz1sUz0DZhP
Bell,D.E., H. Raiffa, A. Tversky. 1988. Decision making: Descriptive, normative, and prescriptive interactions. pp 28.Cambride Univ. Press ©vv tang
(c) tang.
Services
 A service is a system of interactions between a client and
service provider.
 Provider’s goal is to solve a client problem, with a solution that is
taktchronously co-produced product-IHIP composite, performed for
consideration to create a stream of benefits.
 Client’s goal is for a provider to taktchronously solution a problem,
obtain a benefit stream, for consideration.
 A service is multidisciplinary with first-principles..
domain first principles
 Value is co-created.
vtang 37
© v tang.
Questions?
(c) v tang © v tang.

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1930. Exclusion. US Department of Commerce classification

1930. Exclusion. US Department of Commerce classification

1980. Scholars characterize service as non-material.

Heterogeneity. Unlike manufactured goods, services

Inseparability. Production and consumption

Takchronicity. Value co-creation

1980. Scholars characterize service as non-material.

Lines of code 25x106

Historical records 82,857

stakeholder their value system dominant factors

Worldwide News Press  data accuracy, timeliness  franchise

1930. Exclusion. US Department of Commerce classification

1980. Scholars characterize service as non-material.

1. Services represent a flow of benefits … derived from either

4. Clients and providers working together for a state transformation, such

5. To organize a solution to a problem. (Gadney, Gallouj, Weinstein 1995,

1. Services represent a flow of benefits … derived from either

4. Clients and providers working together for a state transformation, such

5. To organize a solution to a problem. (Gadney, Gallouj, Weinstein 1995,

1. Services represent a flow of benefits … derived from either

4. Clients and providers working together for a state transformation, such

5. To organize a solution to a problem. (Gadney, Gallouj, Weinstein 1995,

What are services’ first principles?

 distill epistemic rules

with a taktchronously co-produced domains

solution to a customer problem market and customer needs

with a taktchronously co-produced domains

domain epistemic rules

market and customer needs

with a taktchronously co-produced domains

domain first principles

market and customer needs customer satisfaction

with a taktchronously co-produced domains

market and customer needs customer satisfaction

I win and solution

Win-Win requires knowing, exploring, and testing …

ℛOlym >>1 win lose ++ +- win lose

ℛIBM <<1 ℛIBM >>1

ℛOlym >>1 win lose ok not ok win lose

ℛIBM <<1 ℛIBM ok ℛIBM >>1

ℛOlym >>1 win lose ok not ok win lose

ℛIBM <<1 ℛIBM ok ℛIBM >>1

goal: understand nature

goal: rational choice

goal: useful artifacts

goal: consistent structures

The Scientific Method

Canonical Paradigm of decision making

The Engineering Method

The Mathematical Axiomatic Method

3. Prove lemmas, propositions, and theorems

Even the big-bang has a temporal dimension.

Every discipline has its accepted method for professional practice.*

The Service Method

client requires requires provider’s

continue revisit this phase revisit prior phase quit

sufficiency and Φ3 issue. to formulate a plan or not? sufficiency and

sufficiency and Φ4 issue. to engineer the plan or not? sufficiency and

Φ5 issue. to operationalize the plan or not?

sufficiency and Φ mechanism - planning Sufficiency

Dramatic results of lean PD

(c) v tang © v tang.