Mba program

Addis ababa Campus, Ethiopia

Operations management (mba609)

Lecture 3 Product and service design

by Dawit H.
 Lecture 3
Objectives

After this lecture you should:

 Describe what product and service design does
 Name the key questions of product and service design
 Identify some reasons for design or redesign
 Understand some of the main sources of design ideas
Introduction

 The essence of a business organization is the products and

services it offers, and every aspect of the organization and its
supply chain are structured around those products and services.
 Organizations that have well-designed products or services are
more likely to realize their goals than those with poorly designed
products or services.
 Hence, organizations have a strategic interest in product and
service design.
 Product or service design should be closely tied to an
organization’s strategy.
 It is a major factor in cost, quality, time-to-market, customer
satisfaction, and competitive advantage.

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Cont…

 Consequently, marketing, finance, operations, accounting, IT,

and HR need to be involved.
 Demand forecasts and projected costs are important, as is the
expected impact on the supply chain.
 It is significant to note that an important cause of operations
failures can be traced to faulty design.
 Designs that have not been well thought out, or incorrectly
implemented, or instructions for assembly or usage that are
wrong or unclear, can be the cause of product and service
failures, leading to lawsuits, injuries and deaths, product
recalls, and damaged reputations.

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3.1What Does Product and Service Design Do?

The various activities and responsibilities of product and service

design include the following
1. Translate customer wants and needs into product and service
requirements. (marketing, operations)
2. Refine existing products and services. (marketing)
3. Develop new products and/or services. (marketing, operations)
4. Formulate quality goals. (marketing, operations)
5. Formulate cost targets. (accounting, finance, operations)
6. Construct & test prototypes. (operations, mketing,
engineering)
7. Document specifications.
8. Translate product and service specifications into process
specifications. (engineering, operations)
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3.2. key questions of product and service design

From a buyer’s standpoint, most purchasing decisions entail two

fundamental considerations; one is cost and the other is quality or
performance. From the organization’s standpoint, the key
questions are:
1. Is there demand for it? What is the potential size of the
market, and what is the expected demand profile (will demand be
long term or short term, will it grow slowly or quickly)?
2. Can we do it? Do we have the necessary knowledge, skills,
equipment, capacity, and supply chain capability? For products,
this is known as manufacturability ; for services, this is known
as serviceability . Also, is outsourcing some or all of the work an
option?

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Cont…

3. What level of quality is appropriate?

 What do customers expect?
 What level of quality do competitors provide for similar
items?
 How would it fit with our current offerings?
4. Does it make sense from an economic standpoint?
 What are the potential liability issues, ethical considerations,
sustainability issues, costs, and profits?
 For nonprofits, is the cost within budget?

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3.3 Reasons for Design or Redesign

Product and service design has typically had strategic

implications for the success and prosperity of an organization.
 Furthermore, it has an impact on future activities.
Consequently, decisions in this area are some of the most
fundamental that managers must make.
 Organizations become involved in product and service
design or redesign for a variety of reasons.
 The main forces that initiate design or redesign are market
opportunities and threats. The factors that give rise to market
opportunities and threats can be one or more changes:

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Cont…

 Economic (e.g., low demand, excessive warranty claims,

the need to reduce costs).
 Social and demographic (e.g., aging baby boomers,
population shifts).
 Political, liability, or legal (e.g., government changes,
safety issues, new regulations).
 Competitive (e.g., new or changed products or services,
new advertising/promotions).
 Cost or availability (e.g., of raw materials, components,
labor, water, energy).
 Technological (e.g., in product components, processes).

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Review question 1

1. Which of the following represents an opportunity for

generating a new product?
A. Understanding the customer
B. Demographic change, such as decreasing family size
C. Changes in professional standards
D. Economic change, such as rising household incomes
E. A and D
F. All of the above are such opportunities.

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3.4 IDEA GENERATION

 Ideas for new or redesigned products or services can

come from a variety of sources, including customers, the
supply chain, competitors, employees, and research.
 Customer input can come from surveys, focus groups,
complaints, and unsolicited suggestions for improvement.
 Input from suppliers, distributors, and employees can be
obtained from interviews, direct or indirect suggestions,
and complaints.

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 Cont…

 One of the strongest motivators for new and improved

products or services is competitors’ products and services.
 By studying a competitor’s products or services and how the
competitor operates (pricing policies, return policies,
warranties, location strategies, etc.), an organization can
gather many ideas.
 Beyond that, some companies purchase a competitor’s
product and then carefully dismantle and inspect it,
searching for ways to improve their own product. This is
called reverse engineering .

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 Cont…

 The Ford Motor Company used this tactic in developing its

highly successful Taurus model:
 It examined competitors’ automobiles, searching for best-in-
class components (e.g., best hood release, best dashboard
display, best door handle).
 Sometimes reverse engineering can enable a company to
leapfrog the competition by developing an even better product.
 Suppliers are still another source of ideas, and with increased
emphasis on supply chains and supplier partnerships, suppliers
are becoming an important source of ideas.

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 Cont…

 Research is another source of ideas for new or improved

products or services.
 Research and development (R&D) refers to organized
efforts that are directed toward increasing scientific
knowledge and product or process innovation.
 Most of the advances in semiconductors, medicine,
communications, and space technology can be attributed to
R&D efforts at colleges and universities, research foundations,
government agencies, and private enterprises.
 The costs of R&D can be high. Some companies spend more
than $1 million a day on R&D.

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ENVIRONMENTAL FACTORS: SUSTAINABILITY
Product and service design is a focal point in the quest for
sustainability. Key aspects include cradle-to-grave assessment,
end-of-life programs, reduction of costs and materials used,
reuse of parts of returned products, and recycling.
A. Cradle-to-Grave Assessment
Cradle-to-grave assessment , also known as life cycle
analysis, is the assessment of the environmental impact of a
product or service throughout its useful life, focusing on such
factors as global warming (the amount of carbon dioxide
released into the atmosphere), smog formation, oxygen
depletion, and solid waste generation.

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Cont…
 For products, cradle-to-grave analysis takes into account
impacts in every phase of a product’s life cycle, from raw
material extraction from the earth, or the growing and
harvesting of plant materials, through fabrication of parts
and assembly operations, or other processes used to create
products, as well as the use or consumption of the
product, and final disposal at the end of a product’s useful
life.
 It also considers energy consumption, pollution and
waste, and transportation in all phases.

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 Cont…

B. End-of-Life Programs
End-of-life (EOL) programs deal with products that have reached
the end of their useful lives. The products include both consumer
products and business equipment.
The purpose of these programs is to reduce the dumping of
products, particularly electronic equipment, in landfills or third-
world countries, as has been the common practice, or
incineration, which converts materials into hazardous air and
water emissions and generates toxic ash.
IBM provides a good example of the potential of EOL programs.
Over the last 15 years, it has collected about 2 billion pounds of
product and product waste.

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 Cont…

C. Reduce: Value Analysis

Value analysis refers to an examination of the function of parts
and materials in an effort to reduce the cost and/or improve the
performance of a product. Typical questions that would be
asked as part of the analysis include: Could a cheaper part or
material be used? Is the function necessary? Can the function
of two or more parts or components be performed by a single
part for a lower cost? Can a part be simplified? Could product
specifications be relaxed, and would this result in a lower
price? Could standard parts be substituted for nonstandard
parts?

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 Cont…

D. Reuse: Remanufacturing
Remanufacturing refers to refurbishing used products by
replacing worn-out or defective components, and reselling the
products.
Among the products that have remanufactured components are
automobiles, printers, copiers, cameras, computers, and
telephones.
There are a number of important reasons for doing this. One is
that a remanufactured product can be sold for about 50 percent of
the cost of a new product. Another is that the process requires
mostly unskilled and semiskilled workers.

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 Cont…

E. Recycle
Recycling means recovering materials for future use. This
applies not only to manufactured parts but also to materials used
during production, such as lubricants and solvents.
Companies recycle for a variety of reasons, including
1. Cost savings.
2. Environment concerns.
3. Environmental regulations.
An interesting note: Companies that want to do business in the
European Union must show that a specified proportion of their
products are recyclable.

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Case study

Product Design at McDonald’s: Standardization vs. Localization

In the fast food industry, standardization has always been a
key to success—products that taste and look the same, no
matter which location you visit, builds recognition and
brand loyalty. But when a brand decides to go global,
standardization is not enough.
McDonald’s is a great example of how customizing
products to suit local tastes is a successful strategy.
McDonald’s has managed to harmonize its most
recognizable and highly standardized menu with local

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Cont.

ingredients and flavors in several countries. The most

recognizable of its standardized products is the Big Mac,
which is so widely popular that the “The Economist” uses
it to compare purchasing power parity among nations.
Given the changing consumer preferences,
compounded by material changes, and ever-improving
food technology, McDonald’s realized that designing
innovation was necessary— creating new products suited
to local palates. Et voila! People in Canada can gorge on
the poutine, a local favorite consisting of

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Cont.

French fries covered in cheese, curd, & gravy. Japanese

customers can enjoy the EBI filet-O, a shrimp filet
sandwich, and wash it down with a melon float. In the
Philippines, people can get an odd pairing of fried
chicken with spaghetti on the side. Unique dishes are
also available in regions where you would expect
uniform taste preferences. In Europe, Italy has spinach
and parmesan nuggets, Poland has the cordon bleu
burger, and the Netherlands gets a burger with beef
stew-filled croquette.

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Cont.

To implement its strategy, McDonald’s incorporates

customer satisfaction, strong teamwork, & aggressive
promotion. And customers do respond to McDonald’s
because it delivers value— that is, benefits for costs.
McDonald’s has introduced several different items
globally, and, although not all of them are available
year-round, it shows that there is a demand for localized
products, even in an industry where standardization
dominates.

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Cont.

Discussion Questions
1. What drives McDonald’s need for creating local
products in addition to their traditional menu items?
2. How can phasing out traditional menu items in some
markets be a successful strategy?
3. Which other industries need localized products
despite standardization being an important factor?

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End of lecture 3

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