SERVICE

MANAGEMENT –
NEW SERVICE
DEVELOPMENT
Week 3
 NEW SERVICE
DEVELOPMENT

• Starting with service concept and strategy to provide

service with features that differentiate it from
competition

• 2 basic types of service innovation (Chew, 2010)

– Service enhancement for incremental growth
– New growth idea (Anthony et al., 2008), or new
service idea that could become a new growth
platform (Laurie et al., 2006)

• How to develop new services? -- e.g.,

a) NSD Process Cycle (Johnson et al., 2000)
b) Service Innovation Process (Thomke, 2003)

(Fitzsimmons & Fitzsimmons, 2011)

LEVELS OF SERVICE
INNOVATION
Radical Innovations
Major Innovation:
 new service driven by information and computer based technology
 Wells Fargo Internet banking launched in May 1995

Start-up Business:
 new service for existing market

New Services for the Market Presently Served:

 new services to customers of an organization
 Bank branches in Supermarkets

4-3
INCREMENTAL INNOVATIONS
 Service Line Extensions:
 augmentation of existing service line, such as adding new menu items, new
routes
 Exclusive lounge at Airports for first class passengers for some airlines

 Service Improvements:
 changes in features of currently offered service
 Delta Airlines use of ATM-like kiosks to distribute boarding passes to
passengers
 Style Changes:
 modest visible changes in appearances
 Some funeral homes now arrange for celebration of life instead of mourn
death
4-4
 A) NSD PROCESS
CYCLE
o (Johnson et al., 2000; Fitzsimmons & Fitzsimmons, 2011)
Full-scale launch
o Post-launch review

Full Launch Development

Enablers

o Formulation of new
o Service design services objective/
and testing strategy
People
o Process and o Idea generation and
system design screening
and testing Product o Concept development
o Marketing and testing
program design Techno
- logy Systems
and testing
o Personnel
training Tool
o Service testing s
and pilot run Design
Analysis
o Test marketing
o Business analysis
o Project authorization
 TECHNOLOGY AS
INNOVATION DRIVER
• Technological advances are often basis for service
innovation

• e.g., Amazon: built up a loyalty customer base and

gain competitive advantage as a technology first-mover
(1995)

• e.g., mobiles by Apple combined with app store

represent platform for dozensService
Source of technology
of new services
example Service industry impact

Power/energy Nuclear energy Less dependence on fossil fuel

Materials Synthetic engine oil Fewer oil changes

Information eCommerce Increase (local) market to

worldwide market
 B) SERVICE INNOVATION
PROCESS

• Service innovation process consists of five phases (designed for new

innovations where success is less certain)

(1) Evaluate ideas – Conceive, assess, prioritize ideas from internal

and external sources

(2) Plan and design – Assign design needs, complete design, build rollout
plan

(3) Implement – Develop test plan, implement idea

(4) Test – Monitor performance of idea, report results of fast feedback by

market, improve process in a stable operating environment
(5) Recommend – Complete, review and approve, communicate
recommendation
(Thomke, 2003)
 SERVICE DESIGN
ELEMENTS

• Service design elements -- creating a

consistent service offering

• Structural design elements:

a. Delivery system – process structure,
service blueprint, strategic positioning

b. Facility Design – servicescape, layout

c. Location – geographic demand, site selection,

location strategy

d. Capacity planning – strategic role,

queuing models
(Fitzsimmons & Fitzsimmons, 2011)
 SERVICE DESIGN
ELEMENTS

• Service design elements -- creating a

consistent service offering
Example:
Hairdresser
• Structural design elements:
Co-production of
a. Delivery system – process structure, customers; drying hair
service blueprint, strategic positioning themselves

b. Facility Design – servicescape, layout Modern style; lounge style

with coffee in waiting
area
c. Location – geographic demand, site selection,
location strategy Located in large malls

d. Capacity planning – strategic role, Web-based booking

queuing models system to choose date,
service and employee
(Fitzsimmons & Fitzsimmons, 2011)
 SERVICE DESIGN
ELEMENTS

• Managerial design elements:

a. Information – technology, scalability, use of
Internet

b. Quality – measurement, design quality, recovery,

tools

c. Service encounter – encounter triad, culture,

supply relationships, outsourcing

d. Managing capacity and demand – strategies,

yield management, queue management

(Fitzsimmons & Fitzsimmons, 2011)

 SERVICE DESIGN
ELEMENTS
Example:
Hairdresser
• Managerial design elements:
Looking up current
a. Information – technology, scalability, use of number of customers in
Internet store on web page

Free cutting of fringe and

b. Quality – measurement, design quality, recovery, repairing of cuts
tools

c. Service encounter – encounter triad, culture, Family-type atmosphere

supply relationships, outsourcing

d. Managing capacity and demand – strategies, Walk-in customers –

“Take a number”
yield management, queue management

(Fitzsimmons & Fitzsimmons, 2011)

 SERVICE BLUE
PRINTING

• “The development of a new service is usually characterized by trial and error.

Developers translate a subjective description of a need into an operational
concept that may bear only a remote resemblance to the original idea. No one
systematically quantifies the process or devises tests to ensure that the service is
complete, rational, and fulfills the original need objectively.” (Shostack, 1984, p.
133)

• “A service blueprint allows a company to explore all the issues inherent in

creating or managing a service.” (Shostack, 1984, p. 135)

• Service blueprint - capturing service design in a visual diagram (like building)

• “Service blueprinting, which started as an entirely manual process, has been

automated by companies to provide “living blueprints” accessible to key parties
online […].” (Bitner et al., 2010, p. 210).

(Fitzsimmons & Fitzsimmons, 2011)

 SERVICE BLUE
PRINTING

How to design a service blueprint?

(1) Identifying processes - breakdown of complex processes into steps; identification

of parts of service not seen by customer, e.g. purchasing of supplies

(2) Isolating fail points – build (fail-safe) sub processes to correct possible errors

(3) Establishing time frame – consideration of

execution time of service as major cost
determinant; calculating maximum of deviation
(4) Analyzing profitability – quantifying costs of
delay; establishment of time-of-service-
execution standard to measure
performance / control uniformity and quality;
serves as model for distribution of service

(Shostack, 1984, p. 135)

SERVICE BLUEPRINT OF
LUXURY HOTEL
 CHARACTERISTICS OF SERVICE
PROCESSES

• Complexity – number of steps and

sequences in process

• Divergence – amount of discretion or

freedom that server has to customize the
service

• Object of service process – goods,

information, people

• Type of customer contact – no contact,

indirect, direct
(Fitzsimmons & Fitzsimmons, 2011)
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

4-
16
 AT YOUR OWN
RISK…

Divergence Complexity
• Leads to uniformity that tends to reduce • Steps of functions are dropped
costs, improve productivity • Specialization strategy
• Indicates shift to “economy of • + resources focused on narrower service
scale” (volume-oriented) offering; easier distribution and control;
• + increases in reliability; more quality and expert position
service availability • - perceived as “stripped down”; danger
• - Conformity and inflexibility, limiting of full-service alternatives
customization options

Complexity Divergence
• Expanding service line • Greater customization and flexibility tend
• Greater penetration in market to higher prices
• + increased efficiency by maximizing • Indicates niche positioning strategy
revenue generated from each • + prestige, customization,
customer personalization
• - confusing customers; reduction of • - service difficult to manage, control and
overall service quality; danger of distribute; customers may not be willing
specialized competitors to pay higher prices
Univ.-Prof. Dr.-Ing. Wolfgang Maass (Shostack, 1987)
GENERIC APPROACHES TO SERVICE
DESIGN
1. Production-line

2. Customer as Coproducer

3. Customer Contact

4. Information Empowerment
1. PRODUCTION-LINE
APPROACH
 Characteristics
 Routine and simple services
 High standardization
 Low customer contact

 Limited discretionary action of personnel – to get consistency in service performance

 Division of Labor – total job is broken into groups of simple tasks

 Substitution of technology for people – example ATM machines

 Service standardization – limited service options creates opportunities for

predictability and preplanning
2. CUSTOMER AS CO-PRODUCER
 Characteristics
 For most services, the customer is present when the service is being performed
 We can use the customer as a productive worker – through proper design of the service
 Either compensate the customer for their service or design in such a way that he/she does
not feel as a co-producer
 Self Service – E-tickets over the Internet provide convenience
 Smoothing Service Demand – will allow better use of capacity, which is time-
perishable
 To implement demand-smoothing strategy, customers must participate, adjusting the time
of their demand to match availability of the service.
 Appointments, reservations, price incentives
3. CUSTOMER-CONTACT
APPROACH
 Manufacturing
 is a controlled environment focused on maximizing productivity and capacity utilization;
inventory to decouple production from customer demand
 Services
 When low contact – then run them as manufacturing in back-office, achieving high capacity
utilization and economies of scale
 When high-contact – the quality is determined by customers’ experience – both the process
and the outcome are important
 Separate different components of service into high and low contact areas to bring efficiency

 Considerations that will impact high and low contact are given in table 4.5 (pp 93)
4. INFORMATION
EMPOWERMENT
 Employee empowerment – faster and accurate
 Record keeping
 customer names
 Supplier relationship
 Communication with other firms
 All aspects of an operation can be integrated (ERP systems)

 Customer empowerment
 Customers can use Internet to educate themselves
 A) PRODUCTION-LINE
APPROACH

• Delivery of routine services provided in controlled

environments to ensure consistent quality and
efficiency
• Competitive advantage with cost-leadership
strategy

• Limited discretionary action of personnel – identical

service at any location
• Division of labor – total job is broken into simple
tasks
• Substitution of technology for people – e.g., ATM
• Service standardization – limited service options
guarantee predictability and preplanning; routine
processes; helps to ensure service quality
(Fitzsimmons & Fitzsimmons, 2011)
 B) CUSTOMER AS CO-
PRODUCER

• Customer represents productive labor at the moment

it is needed – opportunity to increase productivity by
shifting some activities to customer (Edvardsson et al.,
2010)
• Increasing degree of customization through co-
creation
– open innovation (van Hippel, 1986)
• Cost leadership strategy with some customization

• Self-Service – customer receives benefits for her labor

in form of convenience
• Smoothing service demand – smoothing variations in
service demand; allows uniform utilization of capacity
(e.g., midweek discounts)
• Customer-generated content
(Fitzsimmons & Fitzsimmons, 2011)
CUSTOMER VALUE
 Results produced for the customer
 It must satisfy the need for which it was purchased

 Process quality
 Since customer is a part of the process of service delivery, therefore improvement in
service quality will be appreciated by the customer
 Price to the customer
 Greater consistency in service quality should lower cost – because that allows
greater alignment between customer perceptions and expectations; resulting in lower
price being offered to customer
 Cost of acquiring the service
 Total cost of acquiring the service is important to customers
CUSTOMER VALUE EQUATION

Value 
 Re sults Pr oduced    Pr ocessQuali ty 
 Pr ice    CostsofAcq uiringtheS ervice 