Welcome to Service Management

Chapter 01
Role of Services in an Economy

James Fitzsimmons
Seay Professor of Business Emeritus
University of Texas at Austin

McGraw-Hill/Irwin
Service Management: Operations, Strategy, and
Information Technology, 6e Copyright © 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Learning Objectives
 Identify traits that all services have in common.
 Discuss the central role of services in an economy.
 Identify and differentiate the five stages of economic
activity.
 Describe the features of preindustrial, industrial, and
postindustrial societies.
 Describe the features of the new service economy.
 Contrast the push vs. pull theories of innovation.
 Identify the sources of service sector growth.

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Service Definitions
Services are deeds, processes, and
performances.
Valarie Zeithaml & Mary Jo Bitner

A service is a time-perishable, intangible

experience performed for a customer acting
in the role of a co-producer.
James Fitzsimmons

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Definition of Service Firms
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

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Role of Services in an Economy

FINANCIAL SERVICES INFRASTRUCTURE SERVICE

· Financing · Communications
· Leasing · Transportation
· Insurance · Utilities
· Banking

PERSONAL SERVICES
MANUFACTURING · Healthcare
Services inside company: · Restaurants
· Finance DISTRIBUTION · Hotels
· Accounting SERVICES
· Legal · Wholesaling
· R&D and design · Retailing
· Repairing CONSUMER
(Self-service)

BUSINESS SERVICES
· Consulting GOVERNMENT SERVICES
· Auditing · Military
· Advertising · Education
· Waste disposal · Judicial
· Police and fire protection
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 Percent Employment in Services
Top Ten Postindustrial Nations
Country 1965 1975 1985 1995 2005
United States 59.5 66.4 70.0 74.1 78.6
United Kingdom 51.3 58.3 64.1 71.4 77.0

The Netherlands 52.5 60.9 68.3 73.4 76.5

Sweden 46.5 57.7 66.1 71.5 76.3
Canada 57.8 65.8 70.6 74.8 76.0
Australia 54.6 61.5 68.4 73.1 75.8
France 43.9 51.9 61.4 70.0 74.8
Japan 44.8 52.0 57.0 61.4 68.6
Germany 41.8 n/a 51.6 60.8 68.5
Italy 36.5 44.0 55.3 62.2 65.5

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 Proportation of total employement

0
10
20
30
40
50
60
70
80
90
1850
Sector
1860
1870

1880
1890
1900
1910

1920

Year
1930
1940
1950
1960

1970
1980
1990
2000
Trends in U.S. Employment by

Service

Agriculture
Manufacturing

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Distribution of GDP in the US Economy

Product Services

A B

Physical 6% 31% 37%

Information
10% 53% 63%

C D

16% 84%

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 Stages of Economic
Development
Pre- Use of Standard
dominant Human Unit of of Living
Society Game Activity Labor Social Life Measure Structure Technology

Pre- Against Agriculture Raw Extended Sub- Routine Simple hand

Industrial Nature Mining muscle household sistence Traditional tools
power Authoritative

Industrial Against Goods Machine Individual Quantity Bureaucratic Machines

fabricated production tending of goods Hierarchical
nature

Post- Among Services Artistic Community Quality of Inter- Information

industrial Persons Creative life in terms dependent
Intellectual health,
education,
recreation

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 Economic Evolution

Economy Agrarian Industrial Service Experience

Economic Food Packaged Commodity Consumer Business

Offering goods service services services

Function Extract Make Deliver Stage Co-create

Nature Fungible Tangible Intangible Memorable Effectual

Attribute Natural Standardized Customized Personal Growth

Method of Stored in Inventoried Delivered on Revealed over Sustained over

Supply bulk demand time time
Seller Trader Producer Provider Stager Collaborator

Buyer Market Customer Client Guest Collaborator

Expectation Quantity Features Benefits Sensations Capability

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 The Four Realms of an Experience

Customer Participation

Passive Active

Absorption Entertainment Education

Environmental (Movie) (Language)
Relationship Immersion Esthetic Escapist
(Tourist) (ScubaDiving)

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 Experience Design Principles
 Theme the Experience (Forum shops)
 Harmonize Impressions with Positive Cues
(O’Hare airport parking garage)
 Eliminate Negative Cues
(Cinemark talking trash containers)
 Mix in Memorabilia (Hard Rock T-shirts)
 Engage all Five Senses (Mist in Rainforest)

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Source of Service Sector Growth

 Information Technology (e.g. Internet)

 Innovation
Push theory (e.g. Post-it)
Pull theory (e.g. Cash Management)
Services derived from products (e.g. Netflix)
Exploiting information (e.g. Auto part sales)
Difficulty of testing service prototypes
 Changing Demographics
Aging of the population
Two-income families
Growth in number of single people
Home as sanctuary

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Typology of Services in the 21st Century

Core Experience Essential Feature Examples

Creative Present ideas Advertising, theater

Enabling Act as intermediary Transportation, communications

Experiential Presence of customer Massage, theme park

Extending Extend and maintain Warranty, health check

Entrusted Contractual agreement Service/repair, portfolio mgt.

Information Access to information Internet search engine

Innovation Facilitate new concepts R&D services, product testing

Problem solving Access to specialists Consultants, counseling

Quality of life Improve well-being Healthcare, recreation, tourism

Regulation Establish rules and regulations Environment, legal, patents

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Discussion Topics
 Illustrate how the type of work he or
she does influences a person’s lifestyle.
For example, contrast a farmer, a
factory worker, and a school teacher.
 Is it possible for an economy to be
based entirely on services?
 What is the value of self-service in an
economy?

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Interactive Class Exercise
 The class breaks into small groups.
Each group identifies service firms that
should be listed in the top Fortune 100
and places them in rank order of
estimated annual revenue.

http://www.fortune.com/lists/F500/index.html

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