Chapter 15

:

Organizing for Change Management and Service Leadership

Slide © 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 15 - 1

Overview of Chapter 15 
Effective Marketing Lies at the Heart of Value Creation  Integrating Marketing, Operations, and Human Resources  Creating a Leading Service Organization  In Search of Human Leadership  Change Management

Slide © 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 15 - 2

3 .Effective Marketing Lies at the Heart of Value Creation Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 .

The Service-Profit Chain (Fig 15.4 .1) Internal External Operating strategy and service delivery system Loyalty Satisfaction Productivity and Employees Output Quality Capability Service Quality ‡ Workplace design ‡ Job design ‡ Selection and development ‡ Rewards and recognition ‡ Information and communication ‡ Tools for serving customers Slide © 2007 by Christopher Lovelock and Jochen Wirtz Service Concept Target Market Revenue growth 1 Loyalty Profitability 4-7 Customers Service Value 3 Satisfaction 2 Quality and ‡ Attractive value productivity ‡ Service designed Improvements and delivered to yield higher meet targeted service quality customers¶ needs and lower costs Services Marketing 6/E ‡ Lifetime value ‡ Retention ‡ Repeat business ‡ Referral Chapter 15 .

Value drives customer satisfaction 4. Employee productivity and retention drive value 5.1 1. Employee satisfaction drives loyalty and productivity 7. Top management leadership underlies chain·s success Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 .5 . Internal quality drives employee satisfaction 8. Customer loyalty drives profitability and growth 2. Employee loyalty drives productivity 6.Links in the Service-Profit Chain Table 15. Customer satisfaction drives customer loyalty 3.

Qualities Associated with Service Leaders  Understands mutual dependency among marketing.6 . operations and human resource functions of the firm  Has a coherent vision of what it takes to succeed  Strategies are defined and driven by a strong. effective leadership team  Responsive to various stakeholders  Value creates through customer satisfaction Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 .

Operations.7 .Integrating Marketing. and Human Resources Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 .

Reducing Interfunctional Conflict  One challenge is to avoid creating ´functional silosµ  High-value creating enterprises should be thinking in terms of activities. not functions  Top management needs to establish clear imperatives for each function that defines how a specific function contributes to the overall mission  The marketing imperative  The operations imperative  The human resources imperative Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 .8 .

9 .Defining the Three Functional Imperatives  Marketing Imperative  Target ´rightµ customers and build relationships  Offer solutions that meet their needs  Define quality package with competitive advantage  Operations Imperative  Create and deliver specified service to target customers  Adhere to consistent quality standards  Achieve high productivity to ensure acceptable costs  Human Resource Imperative  Recruit and retain the best employees for each job  Train and motivate them to work well together  Achieve both productivity and customer satisfaction Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 .

Creating a Leading Service Organization Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 .10 .

From Losers to Leaders: Four Levels of Service Performance (1)  Service Losers  Bottom of the barrel from both customer and managerial perspectives  Customers patronize them because there is no viable alternative  New technology introduced only under duress.11 . uncaring workforce  Service Nonentities  Dominated by a traditional operations mindset  Unsophisticated marketing strategies  Consumers neither seek out nor avoid them Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 .

investment-oriented approach to HRM  Service Leaders  The crème da la crème of their respective industries  Names synonymous with outstanding service.12 .From Losers to Leaders: Four Levels of Service Performance (2)  Service Professionals  Clear market positioning strategy  Customers within target segment(s) seek them out  Research used to measure customer satisfaction  Operations and marketing work together  Proactive. customer delight  Service delivery is seamless process organized around customers  Employees empowered and committed to firm·s values and goals Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 .

Dilbert·s Boss Loses Focus and His Audience Fig 15.13 .3 Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 .

they may face difficulties attracting demanding new consumers with different expectations  Companies defending their control of their competitive edge may have encouraged competitors to find higherperforming alternatives  Organizations with a service-oriented culture may turn otherwise as a result of a merger or acquisition that brings in new leaders who emphasize short-term profits Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 .Moving to a Higher Level of Performance  Firms can move either up or down the performance ladder  Organizations that are devoted to satisfying their current customers may miss important shifts in the marketplace  As a result.14 .

15 .In Search of Human Leadership Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 .

16 .Leading a Service Organization Involves Eight Stages (1)  Creating a sense of urgency to develop the impetus for change  Putting together a strong enough team to direct the process  Creating an appropriate vision of where the organization needs to go  Communicating that new vision broadly Source: John Kotter Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 .

Leading a Service Organization Involves Eight Stages (2)  Empowering employees to act on that vision  Producing sufficient short-term results to create credibility and counter cynicism  Building momentum and using that to tackle tougher change problems  Anchoring new behaviors in organizational culture Source: John Kotter Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 .17 .

capital  Works through hierarchy and systems  Keeps current system functioning Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 . staffing.Leadership versus Management  Leadership  Concerned with development of vision and strategies. organizing. budgeting. controlling. technology. and empowerment of people to overcome obstacles³make vision happen  Emphasis on emotional and spiritual resources  Works through people and culture  Produces useful change.18 . especially non-incremental change  Management  Involves keeping current situation operating through planning. and problem solving  Emphasizes physical resources³raw materials.

Setting Direction versus Planning  Planning  A management process. 15.19 . technology. or corporate culture in terms of what it should become over long term and articulating feasible way of achieving goal  Many of best visions and strategies combine basic insights and translate them into realistic competitive strategy  ´Stretchµ²a challenge to attain new levels of performance and competitive advantage that might as first seem to be beyond the organization·s reach  Planning follows and complements direction setting. serving as useful reality check and road map for strategic execution  See Service Persp. designed to produce orderly results³not change  Setting direction  Involves creating visions and strategies that describe a business.1 : Can Cirque du Soleil Stretch Further? Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 .

ferocious resolve.Individual Leadership Qualities  Possesses a special perspective  Able to believe in their employees and make communicating with them a priority  Love of the business  Being driven by a set of core value that they infuse into the organization  Need not be charismatic. but has to be principled  Must have personal humility blended with intensive professional will. and willingness to give credit to others but take blame themselves Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 .20 .

Change Management Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 .21 .

2)  Can be advantageous to bring in a new CEO from outside the organization Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 .Evolution versus Turnaround (1)  Evolution involves continual mutations designed to ensure the survival of the fittest  Top management must proactively evolve the focus and strategy of the firm to take advantage of changing conditions and the advent of new technologies  Turnaround situations are where leaders seek to bring distressed organizations back from the brink of failure and set them on a healthier course  Example: Amex (Service Perspectives 15.22 .

23 .Evolution versus Turnaround (2)  Hurdles that leaders face in reorienting and formulating strategy     Cognitive hurdles Resource hurdles Motivational hurdles Political hurdles  Turning around an organization that has limited resources requires concentrating those resources where the need and the likely payoffs are greatest  Example: William Bratton·s 20-year police career in Boston and New York  A firm·s search for growth often involves expansion³even diversification into new lines of business  Example: IBM Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 .

2  This approach may lead to a recognition that changes are needed in that strategy  A risk of prominent leaders becoming too externally focused at the risk of their internal effectiveness Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 .24 .Role Modeling Desired Behavior  ´Management by walking aroundµ  Provides insights to both backstage and front-stage operations  The ability to observe and meet both employees and customers. and opportunity to see how corporate strategy is implemented on the front line  Best Practice In Action 15.

and Climate (1)  Leadership traits are needed of everyone in supervisory or managerial positions. including those heading teams  Effective communication is essential for a leader  Organizational culture  Shares perceptions or themes regarding what is important in the organization  Shares values about what is right or wrong  Shares understanding about what works and what doesn·t work  Shares beliefs. and assumptions about why these things are important  Shares styles of working and relating to others Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 .25 . Culture.Leadership.

clarity people have about mission and values. perceived aptness of rewards. level of commitment to a common purpose  Creating a new climate for service. operational procedures. may require  Radical rethinking of HRM activities. responsibility. based on understanding of what is needed for market success. and Climate (2)  Organizational climate  The tangible surface layer on top of the organization·s underlying culture  Factors of influence: Flexibility. Culture.Leadership.26 . standards that people set. and the firm·s reward and recognition policies Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 .

and human resource management functions need to be closely coordinated and integrated in service businesses  Four levels of service performance     Service losers Service nonentitites Service professionals Service leaders  Service leadership is not based on outstanding performance within a single dimension.Summary of Chapter 15: Change Management and Service Leadership (1)  Service profit chain provides useful summary of behaviors required of service leaders to manage effectively  Marketing. operations. but must cut across marketing. operations and human resources Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 .27 .

28 .Summary of Chapter 15: Change Management and Service Leadership (2)  Leading a service organization involves eight stages  To be effective. as well as setting direction versus planning  Transformation of organization can take place in two ways:  Evolution  Turnaround  Role modeling is one of traits of successful leaders  Leaders play a big part in nurturing an effective organizational culture that transforms an organization into a successful one Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 . leaders need to understand difference between leadership versus management.

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