Service operations management

New service development

New service development
• Designing a service delivery process is a creative process
• It begins with the service concept and strategy to provide a service with features that differentiate it
from competition
• Designing a service system involves issues such as:
Location
Facility design and layout for effective customer and work flow
Procedures and job definitions for service providers
Measures to ensure quality
Extent of customer involvement
Equipment selection
Adequate service capacity
• The design process is never finished; once the service is operational, modifications in the delivery
systems are introduced as and when the situation warrants
New service development
• Innovation is viewed both as the process of creating something new and also
as the actual product or outcome
• For services the outcome need not be a new service product but rather some
degree of modification to the existing service
• There are two major categories of service innovations, they are:
• Radical innovation- offerings not previously available to customers or new
delivery systems for existing services
• Incremental innovations- changes to existing services that are valued as
improvements
Levels of Service Innovation
Radical Innovations
• Major Innovation: new service driven by information and
computer based technology
• Start-up Business: new service for existing market
• New Services for the Market Presently Served: new
services to customers of an organization
Incremental Innovations
• Service Line Extensions: augmentation of existing service
line (e.g. new menu items)
• Service Improvements: changes in features of currently
offered service
• Style Changes: modest visible changes in appearances
Levels of service innovation
New service category Description Example

Radical innovation
Major Innovation New services for markets Internet banking
as yet undefined- driven
usually by IT

Start-up business New services in a market Smart cards

that is already served by
existing services

New services for markets New service offerings for Kiosks in supermarkets
presently being served existing customers

Incremental
innovations
Service line extensions Augmentation of the New menu items, new
existing service routes and new courses
Levels of service innovation
New service Description Examples
category
Incremental
innovations
Service improvements Changes in features of Auto check-in, frequent flyers
services that are in Singapore have the option
currently offered of auto immigration clearance
using smart cards

Style changes Modest forms of visible Changes in front end colours,

changes that have an look and feel of the customer
impact on customer area, playing music etc
perceptions, emotions
and attitudes. These
changes do not change
the service, only it’s
appearance
New service development
• Ideas for new service innovations can originate from many sources:
Customer suggestions
Front line employees (customer interactions)
Data mining of internal and external databases
Trends in customer demographics
New advances in technology
New business development
• These ideas form the input to the “development” stage of the new service development
(NSD) cycle
• The development and analysis stages together represent the planning phase where market
viability and capability are assessed
• The final two stages, design and launch, represent the execution phase of the NSD cycle
• In the execution phase, service delivery design and cross functional development efforts
become critical for success
• The importance of enablers (teams, tools, organisation context) to facilitate the NSD process
is in the middle of the figure
• The final service product is shown to consider people, systems, and technology
• Technological advances often are the basis for radical service innovation
• Thus a service firm must include technology monitoring as an activity to protect it’s
competitive position
 New Service Development Cycle
• Full-scale launch
• Post-launch
review
Full Launch Enablers Development
• Formulation

t al
of new services

nt ion
objective / strategy

Co izat
People

Te
ex
• Idea generation
• Service design

am
n
and screening

ga
and testing

s
• Concept
Or
• Process and system
development and
design and testing Product
• Marketing program testing
design and testing
• Personnel training Technology Systems
• Service testing and
pilot run
• Test marketing Tools

Design Analysis
• Business analysis
• Project
 New Service Development Process
h Business Strategy Development or Review

h New Service Strategy Development

Front End
h Idea Generation
Planning
Screen ideas against new service strategy
h Concept Development and Evaluation
Test concept with customers and employees

h Business Analysis

Test for profitability and feasibility

h Service Development and Testing

Conduct service prototype test

h Market Testing
Implementation
Test service and other marketing-mix elements
h Commercialization

h Postintroduction Evaluation
 New Service Strategy Matrix for
Identifying Growth Opportunities

Markets

Offerings
Current Customers New Customers

Existing
SHARE BUILDING MARKET
Services
DEVELOPMENT

New
Services SERVICE DIVERSIFICATION
DEVELOPMENT
Technology-driven service innovation
Source of technology Service example
Power/ Energy Jet aircraft permitting
international flight, Nuclear
reactor for electricity generation
Physical design Hotel Atrium, enclosed sports
stadiums
Materials Astroturf for sports
Methods JIT, TQM
Information Internet, E-commerce, Multiple TV
channels
Service Mapping/Blueprinting
A tool for simultaneously depicting the service
process, the points of customer contact, and
the evidence of service from the customer’s
point of view.

Process

Service Points of Contact

Mappin
g Evidence
Service Blueprint Components
CUSTOMER ACTIONS

line of interaction

“ONSTAGE” CONTACT EMPLOYEE ACTIONS

line of visibility

“BACKSTAGE” CONTACT EMPLOYEE ACTIONS

line of internal interaction

SUPPORT PROCESSES
Service design elements
• Service design elements is a blue print that communicates to customers and employees alike what
service they should expect to give and to receive
• These system elements are;
 Structural:
1. Delivery system- Front and Back office, automation, customer participation
2. Facility design- size, aesthetics, layout
3. Location- Customer demographics, single or multiple sites, competition, site characteristics
4. Capacity planning- Managing queues, number of services, accommodating average or peak demand
 Managerial:
1. Service encounter- Service culture, motivation, selection and training, employee empowerment
2. Quality- Measurement, monitoring, methods, expectations versus perceptions
3. Managing capacity and demand- Strategies for altering and controlling demand, queue management
4. Information- Competitive resource, data collection
Service Blueprinting
• Developing a new service based on a service concept, can lead to costly errors, when
translating the concept to reality
• When a building is developed, the design is captured as architectural drawings called
blueprints
• G. Lyn Shostack has proposed that a service delivery system also can be captured in a visual
diagram (a service blueprint) and used in a similar manner for the design of services
• The service blue print is a map or flow chart of all the transactions constituting the service
delivery process
• A blueprint is a precise definition of the service delivery system that allows management to
test the service concept paper before any final commitments are made
• The blueprint also facilitates problem solving and creative thinking by identifying potential
points of failure and highlighting opportunities to enhance customers’ perception of the service
Service Blueprinting
 Express Mail Delivery Service
Truck Truck
Packaging Packaging
Forms Forms

EVIDENCE
CONTACT PERSON CUSTOME PHYSICAL
Hand-held Hand-held
Computer Computer
Uniform Uniform

Customer Customer Receive

Calls Gives Package
Package
(Back Stage) (On Stage) R

Driver
Picks Deliver
Up Pkg. Package

Customer
Service
Order

Airport Fly to
Dispatch
Receives Sort Unload Load
Driver Fly to
& Loads Center & On
Destinatio Sort Truck
SUPPORT

Load on
PROCESS

Airplane
n

Sort
Packages
 Overnight Hotel Stay
Bill

EVIDENCE
CUSTOMER PHYSICAL
Desk
Hotel Cart for Desk Elevators Cart for Room Menu Delivery Food Lobby
Exterior Bags Registration Hallways Bags Amenities Tray Hotel
Parking Papers Room Bath Food Exterior
Lobby Appearance Parking
Key
Arrive Give Bags Call Check out
Go to Receive Sleep Receive
at to Check in Room Eat and
Room Bags Shower Food
Hotel Bellperson Service Leave
SUPPORT PROCESS (Back Stage) (On Stage)
CONTACT PERSON

Greet and
Process Deliver Deliver Process
Take
Registration Bags Food Check Out
Bags

Take
Take Bags Food
to Room Order

Registration Prepare Registration

System Food System
Service Blueprint of Luxury Hotel
Service Blueprinting
• At the top we find the ‘physical evidence’ that the customers will see (hotel
exterior, uniform worn by bell persons, or room décor) and experience (waiting
for check-in, taking a bath, watching television, or eating a meal)
• Management should ask, is the evidence consistence with the customer’s
expectation and hotel image?
• Activities in the first row above the ‘line of interaction’ are customer-initiated
steps, choices, and interactions the customer performs in the process of
purchasing, consuming and evaluating the service
• Any vertical flow crossing the ‘line of interaction’ depicts a direct contact
between the customer and the organisation
• We can ask questions such as, should the customer interact with the same
person or be handed off; are different interpersonal skills required of the bell-
person, check-in clerk, bag handler, and food deliverer?
• Paralleling the customer actions are two areas of contact-employee actions.
• Above the ‘line of visibility’ are actions in full view of the customer and thus
‘onstage’
• Below the ‘line of visibility’ are activities that are ‘backstage’ and not seen by
the customer
• Questions in this area concern appropriate backstage staffing to avoid
Service Blueprinting
• Below the ‘line of internal interaction’ we find the support process that
generate questions concerning the capacity requirements of these back-
office systems, such as reservation information system and kitchen
• Finally the ‘line of visibility’ in a service blueprint can immediately signal of
involvement of the customer in the delivery process
• Example: the line of visibility is relatively high for a gourmet restaurant as
compared to a fast food restaurant
 Figure 8-8
Building a Service Blueprint

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Service Blueprinting
• Generic flow/ process for the process to be blueprinted can be:
1. Identify customer or customer segment
2. Map the process from the customer point of view
3. Map contact employee action onstage and backstage
4. Link customer and contact person needed to support functions
5. Add evidence of service at each customer action step
Application of Service Blueprints

• New Service Development

• concept development
• market testing
• Supporting a “Zero Defects” Culture
• managing reliability
• identifying empowerment issues
• Service Recovery Strategies
• identifying service problems
• conducting root cause analysis
• modifying processes
Blueprints Can Be Used By:
• Service Marketers
• creating realistic customer
expectations
• service system design
• promotion
• Operations Management
• rendering the service as
promised
• managing fail points
• training systems
• quality control
• Human Resources
• empowering the human element
• job descriptions
• selection criteria
• appraisal systems
• System Technology
• providing necessary tools:
• system specifications
• personal preference databases
Utility-based Service Design
Strategic positioning through process structure
• Preparing a blueprint is the first step in developing a service process
structure that will position a firm in the competitive market
• Decisions still remain on the degree of complexity and divergence desired in
the service
• Degree of Complexity: Measured by the number of steps in the service
blueprint. For example a clinic is less complex than a general hospital
• Degree of Divergence: Amount of discretion permitted the server to
customize the service . For example the activities of an attorney contrasted
with those of a paralegal
Structural Alternatives for a Restaurant

LOWER COMPLEXITY/DIVERGENCE CURRENT PROCESS HIGHER COMPLEXITY/DIVERGENCE

No Reservations TAKE RESERVATION Specific Table Selection

Self-seating. Menu on Blackboard SEAT GUESTS, GIVE MENUS Recite Menu: Describe Entrees & Specials
Eliminate SERVE WATER AND BREAD Assortment of Hot Breads and Hors D’oeuvres
Customer Fills Out Form TAKE ORDERS At table. Taken Personally by Maltre d’
PREPARE ORDERS

Pre-prepared: No Choice Salad (4 choices) Individually Prepared at table

Limit to Four Choices Entree (15 choices) Expand to 20 Choices: Add Flaming Dishes;
Bone Fish at Table; Prepare Sauces at Table
Sundae Bar: Self-service Dessert (6 choices) Expand to 12 Choices

Coffee, Tea, Milk only Beverage (6 choices) Add Exotic Coffees; Sherbet between
Serve Salad & Entree Together: SERVE ORDERS Courses; Hand Grind Pepper
Bill and Beverage Together

Cash only: Pay when Leaving COLLECT PAYMENT Choice of Payment. Including House Accounts:
Serve Mints
Taxonomy of service process design
• Service process can be classified by using:
1. The concept of divergence (low to high)
2. The object towards which the service is directed (goods, information,
people)
3. The degree of customer contact (self-service to personal interaction)
Degree of divergence
• A standardised service (low divergence) is designed for high volume with a narrowly
defined and focused service
• The tasks are routine and require a workforce with relatively low levels of technical
skills
• Because of the repetitive nature of the service there are opportunities to automate
• For customised services (high divergence) more flexibility and judgment are required
to perform the service tasks
• More information is exchanged between the customer and the service worker
• These characteristics of customised services require a high levels of technical and
analytical skills, because the service process is not well defined
• To achieve customer satisfaction decision making is delegated to service workers who
can perform tasks with some autonomy and discretion
Object of service process
• When goods are processed, a distinction must be made between goods that
belong to the customer and goods that are provided by the service firm
• Services such as dry cleaning or auto repair the service is performed on the
property of the customer, in this case, the property must be secured from
damage or loss
• Other services such as restaurants supply facilitating goods as a significant
part of the service
Type of customer contact
• Customer contact with the service delivery system can occur in three basic
ways:
First- the customer is physically present and interacts directly with the
service providers in the creation of the service, this can be subdivided into
self service and service through service workers
Second- the contact with the customer is indirect and occurs via electronic
media from the customer’s home or office
Third- some service activities can be performed with no customer contact at
all
Generic approaches to service design
• The service package is a bundle of five features; supporting facility,
facilitating goods, information, explicit services and implicit services
• With a well-designed service system these features are harmoniously
coordinated in light of the desired service package
• So the definition of the service package is key to designing the service
system itself
• At one extreme is the production-line approach and at the other is the
customer as co-producer approach
• The intermediate approach is based on degree of customer contact is the
customer contact approach
 Generic Approaches to Service
Design
• Production-line
• Limit Discretion of Personnel
• Division of Labor
• Substitute Technology for People
• Standardize the Service
• Customer as Coproducer
• Self Service
• Smoothing Service Demand
• Customer Contact
• Degree of Customer Contact
• Separation of High and Low Contact Operations
• Information Empowerment
• Employee
• Customer
Production-line approach
• McDonald’s is a classic example of production-line approach also called Manufacturing-in-the-field
approach
• Raw-materials (eg., burger patties) are measured and pre-packaged off-site, leaving the employees
with no discretion as to size, quality or consistency
• In addition, storage facilities are designed expressly for the predetermined mix of products and no
extra space is available for foods and beverages that are not called for in the service
• The production of fries again is similar including attention to detail for frying and delivery
• The entire system is engineered from beginning to end
• A production-line approach to service system design attempts to translate a successful
manufacturing concept into the service sector
• Also this limits discretionary action by personnel , this helps in ensuring consistent service delivery
across several outlets
• This also helps in breaking down of the total job into groups of simple tasks which helps in
specialisation of skills
Production-line approach
• This does lead to very low end jobs
• But imagine a situation where a doctor has to do all the diagnostics as well,
then what would be the costs???
• The production-line approach also lends itself to technology substitution for
people
• Above all the ability to standardise the service helps in management
Customer as co-producer
• For most services the customer is present when the service is delivered and
this has led to using the customer as part of the service instead of the
customer being a bystander
• Depending on the degree of customer involvement a spectrum of service
delivery systems, from self-service to complete dependence on the service
provider
Customer contact approach
• Customer contact refers to the presence of the customer in the system
• Degree of customer contact
• Separation of high-and low-end contact
• By this separation several routine and low-contact areas (back office) can be
run as a production-line
Information empowerment
• Employee empowerment
• Customer empowerment
Customer Value Equation
• Results produced for the customer
• Process quality
• Price to the customer
• Cost of acquiring the service

Value 
 Re sults Pr oduced    Pr ocessQuality 
 Pr ice   CostsofAcquiringtheService
Examples of Competitive Priorities
• Availability (24 hour ATM)
• Convenience (Site location)
• Dependability (On-time performance)
• Customization (Personalization)
• Price (Quality surrogate)
• Quality (Perceptions important)
• Reputation (Word-of-mouth)
• Safety (Customer well-being)
• Speed (Avoid excessive waiting)
Service Design Elements
• Structural
• Delivery system: Process structure, service blueprint, strategic
positioning
• Facility design: Servicescapes, architecture, process flows, layout
• Location: Geographic demand, site selection, location strategy
• Capacity planning: Strategic role, queuing models, planning criteria
• Managerial
• Information: Technology, scalability, use of Internet
• Quality: Measurement, design quality, recovery, tools, Six Sigma
• Service encounter: Encounter triad, culture, supply relationships,
outsourcing
• Managing capacity and demand: Strategies, yield management,
queue management