Service Operations Management; The world of service

Framing service operations

1. Part I Framing service operations Chapter 2 The world of service Service Operations Management Fifth Edition

2. EXPERIENCE PROCESS INPUTS OUTCOMES THE OPERATIONS PERSPECTIVE THE CUSTOMER PERSPECTIVE FRAMING SERVICE OPERATIONS Introduction to service operations (Chapter 1) The world of service (Chapter 2) Service strategy (Chapter 3) The service concept (Chapter 4) SERVICE PEOPLE Customer relationships ( Chapter 5 ) Service quality ( Chapter 6) Designing customer experience (Chapter 7) People in the service operation (Chapter 8) Service culture (Chapter 9) DELIVERING SERVICE Service supply networks (Chapter 10) Designing the service process (Chapter 11) Managing service performance (Chapter 12) Service resources and capacity (Chapter 13) IMPROVING SERVICE OPERATIONS Service innovation (Chapter 14) Service improvement (Chapter 15) Learning from problems (Chapter 16) Learning from other operations (Chapter 17) This chapter Figure 2.1 – This chapter examines the world of service

3. Finance and insurance 12% Public administration and defence 7% Education 6% Professional, scientific and technical 9% Human health and social work 10% Real estate services 11% Information and communications 8% Transport and storage 8% Accommodation and food services 4% Administration and support services 6% Arts, entertainment, recreation 5% Wholesale and retail 14% Source : Data from Black, A. (2018) ‘Hard Brexit: passport to nowhere for British services’, published by The Federal Trust for Education and Research. . Figure 2.2 – UK economy service sectors, share of gross output (2014)

4. From – To Business Government Consumer Business Business-to-business (B2B) services include corporate banking, consultancy, courier services, etc. Business-to-government (B2G) services include outsourced waste disposal, economic research, etc. Business-to-consumer (B2C) services include entertainment streaming, retail (online and high street) Government Government-to-business (G2B) services include legal advice, planning guidance, environmental compliance, etc. Government-to- government (G2G) services include information provision, legal guidance, etc. Government-to-consumer (G2C) services include security, justice and healthcare provision, etc. Consumer Consumer-to-business (C2B) services include online reviews, focus groups, reverse auctions, etc. Consumer-to-government (C2G) services include tax payment, information provision, etc. Consumer-to-consumer (C2C ) sometimes termed peer-to-peer (P2P) services include social networks, video sharing, sales sites, etc. Table 2.1 – A service classification derived from ecommerce

5. C2C facilitation website that posts products and services available Customer A Customer B Customer A wants to sell product or offers service Customer B wants to buy product or service C2C payment website Customer B requests payment to customer A for product or service Customer A receives payment from customer B for product or service Delivery of product or service Figure 2.3 – Two C2C services that facilitate transactions between customers

6. Low-cost airline Full-service airline Business model High volume, low cost Global network, profit made on business travel Network Short haul, with no connections to other carriers Long haul, with connections to global partner airlines Cabin service Basic, no food, no frills Range from economy to first class Locations Secondary, low-cost airports Primary airports to allow interconnections Volume Multiple flights per route each day Range from three flights per day to one flight per week for less popular destinations Booking system Direct through own website, and/or own contact centre Usually through intermediaries (travel agents) or websites Table 2.2 – Comparing airline operations

7. Employment in each sector Time Pre-industrial society Industrial society Post-industrial society Primary activities Secondary activities Tertiary activities Deindustrialisation Quaternary activities Figure 2.4 – The Clark model of employment in each sector

8. 100 10 20 30 40 50 60 70 80 90 US UK Japan Italy Germany France Canada* *Data for Canada is from 2012 Sources : Data from OECD and UK Office of National Statistics (2014) . Figure 2.5 – Percentage of each country’s GDP that comes from the service sector

9. Foundational premises (FPs) of service-dominant logic What the FPs mean FP1 Service is the fundamental basis of exchange When firms trade together, they are essentially exchanging ‘service’, meaning the application of knowledge. Also, note the singular ‘service’, rather than the plural, ‘services’, emphasising the idea of service as a process or activity FP2 Indirect exchange masks the fundamental basis of exchange Because, conventionally, we see trade in terms of complex combinations of money and discrete services, we cannot always recognise that it is the application of knowledge that they are exchanging FP3 Goods are a distribution mechanism for service provision Goods only have value because they are used – that is, the service that they provide (known as ‘value in use’) FP4 Operant resources are the fundamental source of competitive advantage Economists sometimes distinguish between operant and operand resources. Operant resources are skills and knowledge that are usually invisible and intangible, as opposed to operand resources that are tangible assets. SDL views knowledge and skills as the primary basis of a firm’s competitive advantage FP5 All economies are service economies If the basis of all exchange is service, and service is the application of skills and knowledge, then, at the level of whole economies, all economic activity is based on service Table 2.3 – Foundational premises (FPs) of service-dominant logic

10. Foundational premises (FPs) of service-dominant logic What the FPs mean FP6 The customer is always a co-creator of value If SDL is about ‘value in use’, this necessarily implies some kind of interaction, which in turn implies that customers must be involved in some capacity FP7 The enterprise cannot deliver value, but only offer value propositions This again follows from the idea of customer co-creation. If the customer must be involved in the creation of value, then all a firm can do is offer the possibility of value which must be activated by the customer FP8 A service-centered view is inherently customer oriented and relational With co-creation an important element of value creation, the exchange process must be customer-focused FP9 All social and economic actors are resource integrators The creation of value through the application of knowledge means that the knowledge possessed by all the actors in the service exchange will need to be integrated FP10 Value is always uniquely and phenomenologically determined by the beneficiary Customers are individuals with individual needs and individual circumstances. So, only they can judge the value of their service experience in their own context Table 2.3 – Foundational premises (FPs) of service-dominant logic (continued)

11. Sterksteen DIY retailers Builders’ merchants Installers Builders, Civil Engineers Consumers 18% 12% 48% 22% 5 2 % 45% Percentages show the approximate percentage of output (sales) that ‘flows’ through channels (3% from builders merchants to consumers, not shown) 100% (as part of finished projects 100% 100% Figure 2.6 – The current supply network for Sterksteen

12. Sterksteen DIY retailers Builders’ merchants Installers Builders, civil e ngineers Consumers Sterksteen Install Supply network showing proposed Sterksteen installation company Figure 2.7 – Outline of the supply network for Sterksteen , including the proposed ‘ Sterksteen Install’

13. Slides for case study

14. Advantages of servitisation Sterksteen secure Sterksteen install Move to higher margin activity. ✓ Potential for larger firms to apply systematisation, automation and technology generally in operations (smaller intermediaries not have sufficient resource to do this). ✓ ✓ Potential to move into activity domains with, in-turn, the potential to bring greater satisfaction to clients than supply of material goods alone. ✓ Potential to create experiences for end customers which can generate positive word-of-mouth marketing. ✓ ✓ Potential to use the service experience to cross sell. That is, cross sell both services and products. ✓ ✓ The potential to offer and exploit multiple connections with B2B customers. A shift from largely transactional supply to an ongoing relationship which can be exploited in either direction. ✓ The potential to apply expertise and perspectives from multiple elements of the supplying company to the customer company. ✓ Heads-off potential end customer dissatisfaction resulting from product complexity and technical sophistication. Less chance of end user or any other downstream supplier ‘bodging’ delivery. ✓ ✓ Opportunities to enhance product functionality. ✓ ✓ Opportunities to expose and enhance the core brand. ✓ ✓ Opportunities to provide additional revenue from the installed base of products by providing follow-up services such as maintenance, support, repair et cetera. ✓

15. Advantages of servitisation (continued) Sterksteen secure Sterksteen install Support and follow-up services likely to be consistent and stable source of revenue in comparison to the initial sales and installation of products associated with that installation. Revenue streams possibly smaller, but more consistent and less vulnerable to economic cycles or temporary shocks. ✓ Potential to engage B2B and B2C customers in long-term agreements, again for maintenance, support, development et cetera. ✓ ✓ Hedge against commoditisation of product range. ✓ ✓ Opportunities to develop new business streams replacing that which end customers or intermediary suppliers have delivered previously. ✓ Opportunities to create innovative and competitive services … ‘nobody knows our product better than ourselves’. So potentially out-competing both in terms of product quality, and then customer satisfaction, as well as taking margin previously extracted by intermediaries. ✓ The potential to improve relationships with customers by getting to know them. This applies to both intermediaries and end customers. ✓ ✓ Allows B2B customers to focus on their core business and outsource peripheral activities. ✓ Potential to exploit the expertise of intermediaries. ✓

16. Disadvantages of servitisation Sterksteen secure Sterksteen install Investment is likely to be required for shifts to higher margin activity. ✓ New skills and technology development will be required. Service technologies! ✓ ✓ With increased customer intimacy and potential for enhanced customer satisfaction comes greater vulnerability to dissatisfaction. You cannot blame failures on intermediaries or the customer! ✓ Word-of-mouth marketing resulting from negative experiences can be potentially very damaging to the core brand. ✓ ✓ Cross-selling potential is not always possible. Services and underlying products have to be complementary. The customer will not buy from the same brand just because of a positive previous experience. There has to be a need. ✓ The relationship with end customers and especially B2B customers becomes more complex and this complexity has to be managed. Multiple connections provide considerable opportunity for conflicting messages and confused communication. ✓ Great potential to exploit expertise and perspectives from many aspects of the supplying company, but additional service expertise needs to be in place to deploy this technical knowledge. Can be very difficult to educate staff previously familiar with goods production in the intricacies of service provision. ✓ ✓ Both product quality and service quality expectations will likely become higher and so the provider has to deliver. ✓ As a supplier of goods the provider firm is somewhat buffered from product failure in use. As a service provider this buffer disappears. ✓ Long-term revenue potential has a downside in that it creates an expectation of long-term support. Sometimes legacy products and service streams can be expensive to maintain over the very long-term. ✓ Potential to damage relationships with installer base. ✓