John Murtagh Hetac Notes


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Lecturer: John Murtagh

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John Murtagh Hetac Notes

  1. 1. Service Management Review
  2. 2. The Role of Services in the Economy
  3. 3. Service Definitions <ul><li>Services are deeds, processes, and performances. </li></ul><ul><li>Valarie Zeithaml & Mary Jo Bitner </li></ul><ul><li>A service is a time-perishable, intangible experience performed for a customer acting in the role of a co-producer. </li></ul><ul><li> James Fitzsimmons </li></ul>
  4. 4. Definition of Service Firms <ul><li>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. </li></ul><ul><li> James Fitzsimmons </li></ul>
  5. 5. Economic Evolution <ul><li>Clark-Fisher Hypotheses: </li></ul><ul><ul><li>“ As productivity increases in one sector the labour force moves into another” </li></ul></ul><ul><ul><li>This leads to a classification of economies by noting the activity of the majority of the workforce, this classification is divided across 5 stages of economic activities. </li></ul></ul>
  6. 6. Economic Evolution <ul><li>1.Primary (Extractive) </li></ul><ul><ul><li>Agriculture, mining, fishing and forestry </li></ul></ul><ul><li>2. Secondary (Goods – Producing) </li></ul><ul><ul><li>Manufacturing / Processing </li></ul></ul><ul><li>3. Tertiary (Domestic service) </li></ul><ul><ul><li>Hotels, restaurants, maintenance and repair etc </li></ul></ul>
  7. 7. Economic Evolution <ul><li>4. Quaternary (Trade & Commerce Services) </li></ul><ul><ul><li>Retail, Transportation, Communications, Finance & Insurance, Government, Real Estate </li></ul></ul><ul><li>5 Quinary (Refining and Extending Human Capacities) </li></ul><ul><ul><li>Health, Education, Research, Recreation, Arts </li></ul></ul>
  8. 8. Economic Evolution <ul><li>The majority of countries are still in the Primary stage of development. These economies are based on extracting natural resources from the land </li></ul><ul><ul><li>Their productivity is low, and incomes are subject to fluctuations based on the prices of the commodities such as copper and sugar etc. </li></ul></ul><ul><ul><li>In much of Africa and parts of Asia , more than 70% of the labour force is engaged in extractive activities. </li></ul></ul>
  9. 9. Stages of Economic Development <ul><li>Daniel Bell, The Coming of Post-Industrial Society ( 1973) argues that to place the concept of post-industrial society in perspective, we must compare its features with those of pre-industrial and industrial societies </li></ul>
  10. 10. Stages of Economic Development <ul><li>Pre-industrial Society: </li></ul><ul><ul><li>This is the condition of majority of the worlds population today </li></ul></ul><ul><ul><li>Life is characterised as a game against nature </li></ul></ul><ul><ul><li>Working with muscle power and tradition, the labour force is engaged in agriculture, mining and fishing. </li></ul></ul>
  11. 11. Stages of Economic Development <ul><ul><li>Life is conditioned by the elements: </li></ul></ul><ul><ul><ul><li>Weather </li></ul></ul></ul><ul><ul><ul><li>Soil condition </li></ul></ul></ul><ul><ul><ul><li>Availability of water </li></ul></ul></ul><ul><ul><li>Productivity is low and bears little evidence of the use of technology </li></ul></ul><ul><ul><li>Social life revolves around the extended household </li></ul></ul>
  12. 12. Stages of Economic Development <ul><ul><li>This combination of low productivity and large population results in high rates of unemployment </li></ul></ul><ul><ul><li>Many seek jobs in the service sector, but of personal or household variety (servants) </li></ul></ul><ul><ul><li>Pre-industrial societies are agrarian (farming) and structured around tradition, routine and authority </li></ul></ul>
  13. 13. Stages of Economic Development <ul><li>Industrial Society: </li></ul><ul><ul><li>The main activity is the production of goods </li></ul></ul><ul><ul><li>The focus is on making more for less cost </li></ul></ul><ul><ul><li>Energy and machines multiply the output per labour hour and structure the nature of work </li></ul></ul><ul><ul><li>Work is accomplished in the artificial environment of the factory, and the workers tend the machines. </li></ul></ul>
  14. 14. Stages of Economic Development <ul><ul><li>Society is a world of schedules and an awareness of the value of time </li></ul></ul><ul><ul><li>Standard of living is measured by the quantity of goods owned </li></ul></ul><ul><ul><li>Characterised by large bureaucratic and hierarchic organisations </li></ul></ul><ul><ul><li>Members have specific roles, and their operation tends to be impersonal, with people treated as units of production </li></ul></ul>
  15. 15. Stages of Economic Development <ul><ul><li>The individual worker is the unit of social life in a society that is considered to be the total sum of all the individual decisions being made in he market place </li></ul></ul><ul><ul><li>Trade Unions </li></ul></ul>
  16. 16. Stages of Economic Development <ul><li>Post-industrial Society: </li></ul><ul><ul><li>Is concerned with the quality of life, as measured by services such as health, education, and recreation </li></ul></ul><ul><ul><li>The central figure is the professional person, because instead of physical strength, information is the key resource </li></ul></ul><ul><ul><li>Life is now a game played among persons </li></ul></ul>
  17. 17. Stages of Economic Development <ul><ul><li>Social life becomes more difficult because political claims and social rights multiply </li></ul></ul><ul><ul><li>Society becomes aware that independent action of individuals can create havoc for everyone (traffic congestion / air pollution) </li></ul></ul><ul><ul><li>The community rather than the individual becomes the social unit </li></ul></ul>
  18. 18. The Nature of Services
  19. 19. The Service Package <ul><li>The service package is defined as a bundle of goods and services with information that is provided in some environment. This bundle consists of the following five features: </li></ul><ul><li>Supporting Facility : The physical resources that must be in place before a service can be sold. Examples are golf course, ski lift, hospital, airplane. </li></ul><ul><li>Facilitating Goods : The material consumed by the buyer or items provided by the consumer. Examples are food items, legal documents, golf clubs, medical history. </li></ul>
  20. 20. The Service Package <ul><li>3. Information : Operations data or information that is provided by the customer to enable efficient and customized service. Examples are </li></ul><ul><ul><li>patient medical records </li></ul></ul><ul><ul><li>seats available on a flight </li></ul></ul><ul><ul><li>customer preference </li></ul></ul><ul><ul><li>location of customer to dispatch a taxi. </li></ul></ul>
  21. 21. The Service Package (cont.) <ul><li>4. Explicit Services : Benefits readily observable by the senses. The essential or intrinsic features. Examples are quality of meal, attitude of the waiter, on-time departure. </li></ul><ul><li>5 Implicit Services : Psychological benefits or extrinsic features which the consumer may sense only vaguely. Examples are privacy of loan office, security of a well lighted parking lot. </li></ul>
  22. 22. The Service Package (cont.) <ul><li>Criteria for Evaluating the Service package: </li></ul><ul><li>1.Supporting Facility </li></ul><ul><ul><li>Location </li></ul></ul><ul><ul><li>Interior decorating </li></ul></ul><ul><ul><li>Supporting equipment </li></ul></ul><ul><ul><li>Architectural appropriateness </li></ul></ul><ul><ul><li>Facility layout </li></ul></ul>
  23. 23. The Service Package (cont.) <ul><li>2. Facilitating Goods </li></ul><ul><ul><li>Consistency of product </li></ul></ul><ul><ul><li>Quantity – small, large or medium drink </li></ul></ul><ul><ul><li>Selection – number of menu items, rental skies available etc </li></ul></ul><ul><li>3. Information </li></ul><ul><ul><li>Accuracy </li></ul></ul><ul><ul><li>Timely </li></ul></ul><ul><ul><li>Useful </li></ul></ul>
  24. 24. The Service Package (cont.) <ul><li>4. Explicit Service </li></ul><ul><ul><li>Training of service personnel </li></ul></ul><ul><ul><li>Comprehensiveness, how does the service compare it an alternative e.g. discount broker versus full service </li></ul></ul><ul><ul><li>Consistency </li></ul></ul><ul><ul><li>Availability e.g. 24 hour ATM service </li></ul></ul>
  25. 25. The Service Package (cont.) <ul><li>5. Implicit Service </li></ul><ul><ul><li>Attitude of service providers </li></ul></ul><ul><ul><li>Atmosphere - decor </li></ul></ul><ul><ul><li>Waiting – being placed on hold </li></ul></ul><ul><ul><li>Status – college degree </li></ul></ul><ul><ul><li>Sense of well-being – well lighted car park </li></ul></ul><ul><ul><li>Privacy and security – advising clients in a private office </li></ul></ul><ul><ul><li>Convenience – use of appointments / free parking </li></ul></ul>
  26. 26. Process Improvement
  27. 27. Quality and Productivity Improvement Process <ul><li>Foundations of Continuous Improvement </li></ul><ul><li>- Customer Satisfaction - Management by Facts - Respect for People </li></ul>
  28. 28. Quality and Productivity Improvement Process <ul><li>Plan-Do-Check-Act (PDCA) Cycle </li></ul><ul><ul><li>Planning begins with the selection of the problem </li></ul></ul><ul><ul><ul><li>The problem is documented using perhaps a flow chart </li></ul></ul></ul><ul><ul><ul><li>Ideas to solve the problem are generated – brain storming etc. </li></ul></ul></ul><ul><ul><ul><li>Workable solutions and measures of success are agreed </li></ul></ul></ul><ul><ul><ul><li>Implement targets agreed </li></ul></ul></ul>
  29. 29. Quality and Productivity Improvement Process <ul><li>DO </li></ul><ul><ul><li>Implement the solution or process change perhaps on a trial basis </li></ul></ul><ul><ul><li>Monitor the implementation plan </li></ul></ul><ul><ul><li>Note progress against milestones </li></ul></ul>
  30. 30. Quality and Productivity Improvement Process <ul><li>Check </li></ul><ul><ul><li>Revue and evaluate the results of the change. </li></ul></ul><ul><ul><li>Check that the solution is having intended effect and note any unforeseen consequences </li></ul></ul>
  31. 31. Quality and Productivity Improvement Process <ul><li>Act </li></ul><ul><ul><li>Reflect and act on learning from the experience. </li></ul></ul><ul><ul><li>If successful, the process changes are standardised and communicated to all involved workers with training in the new methods as needed. </li></ul></ul><ul><ul><li>In some cases this will include Customers and suppliers </li></ul></ul>
  32. 32. Quality Improvement Programmes <ul><li>G.M.Hostage believes that the success of Marriott Corporation results in part from personal programmes that stress training, standards of performance, career development and rewards. </li></ul><ul><li>He argues that service quality is enhances by the attitude of the company towards its employees. </li></ul><ul><li>The following eight programmes have been the most effective </li></ul>
  33. 33. Quality Improvement Programmes <ul><li>Individual Development : Using programme instruction manuals, new management trainees acquire the skills and techno ledge that are needed for the entry-level position of assistant manager. For geographically dispersed organisations, these manuals ensure that job skills are taught in a consistent manner. </li></ul><ul><li>Management Training: Management personnel through the middle levels should attend at least management one development session each year. </li></ul><ul><li>Human Resource Planning: The kinds of people who will be needed to fill key company positions over the coming rime period are identified, and a list of people with good prospects is created for future posts that may become vacant or available. </li></ul>
  34. 34. Quality Improvement Programmes <ul><li>Standards and Performance: A set of booklets was developed to instruct employees in how to conduct themselves when dealing with guests and, in some cases, even how to speak with a guests and handle a variety of situations. The Housekeeper tells exactly how a room is to be made up, right down to the detail of placing the wrapped soap baron the proper corner of he washbasin with the label upright. In many cases a DVD accompanies the book to demonstrate proper procedure. Adherence to these standards is checked by random visits from a group of inspectors </li></ul><ul><li>Career Progression: A job-advancement programme with a ladder of positions of increasing skills and responsibility gives each employee the opportunity to grow with the company </li></ul><ul><li>Opinion Surveys: A rank-and-file survey is conducted each year by trained personnel at each unit. The results are discussed at meetings. The survey has acted as a early warning system to head off any build up of unfavourable attitudes with staff. </li></ul>
  35. 35. Quality Improvement Programmes <ul><li>Fair Treatment: Employees are issued with a handbook of company expectations and obligations to its employees. The formal grievance procedure includes access to an ombudsperson to help resolve difficulties. </li></ul><ul><li>Profit Sharing: A profit-sharing plan recognises that employees are responsible for much of the company's success and that they deserve more than just a pay check for their efforts. </li></ul>
  36. 36. Six Sigma DMAIC Process Steps Develop mechanisms for controlling the improved process Control Identify how the process can be improved to eliminate the problems Improve Determine causes of current problems Analyze Measure current level of performance Measure Define project objectives, internal and external customers Define Definition Step
  37. 37. Service Strategy
  38. 38. Competitive Service Strategies (Overall Cost Leadership) <ul><li>A overall cost leadership strategy requires: </li></ul><ul><ul><li>Efficient-scale facilities </li></ul></ul><ul><ul><li>Tight costs </li></ul></ul><ul><ul><li>Overhead control </li></ul></ul><ul><ul><li>Innovative technology </li></ul></ul><ul><li>Having a low cost position provides a defence against competition </li></ul><ul><li>A low cost strategy usually requires: </li></ul><ul><ul><li>a high capital investment in state of the art equipment </li></ul></ul><ul><ul><li>Aggressive pricing </li></ul></ul>
  39. 39. Competitive Service Strategies (Overall Cost Leadership) <ul><li>Seeking Out Low-cost Customers </li></ul><ul><ul><li>Some customers cost less to service than others </li></ul></ul><ul><li>Standardizing a Custom Service </li></ul><ul><li>Reducing the Personal Element in Service Delivery (promote self-service) </li></ul><ul><ul><li>ATMs </li></ul></ul><ul><li>Reducing Network Costs (hub and spoke) </li></ul><ul><ul><li>Federal Express US network from Memphis. </li></ul></ul><ul><ul><li>DHL European network from Amsterdam </li></ul></ul><ul><li>Taking Service Operations Off-line </li></ul><ul><ul><li>Collections points where customers leave in goods for repair and are forwarded to repair centre </li></ul></ul>
  40. 40. Competitive Service Strategies (Differentiation) <ul><li>The essence of differentiation lies in creating a service that is perceived as unique. </li></ul><ul><ul><li>Brown Thomas, Grafton St. </li></ul></ul><ul><ul><li>McDonalds golden arches </li></ul></ul>
  41. 41. Service Quality
  42. 42. Moments of Truth <ul><li>Each customer contact is called a moment of truth. </li></ul><ul><li>You have the ability to either satisfy or dissatisfy them when you contact them. </li></ul><ul><li>A service recovery is satisfying a previously dissatisfied customer and making them a loyal customer. </li></ul>
  43. 43. Five Dimensions of Service Quality <ul><li>Reliability : Perform promised service dependably and accurately. Example : receive mail at same time each day. </li></ul><ul><li>Responsiveness : Willingness to help customers promptly. Example : avoid keeping customers waiting for no apparent reason. </li></ul>
  44. 44. 5 Dimensions of Service Quality <ul><li>Assurance : Ability to convey trust and confidence. Example : being polite and showing respect for customer. </li></ul><ul><li>Empathy : Ability to be approachable. Example : being a good listener. </li></ul><ul><li>Tangibles : Physical facilities and facilitating goods. Example : cleanliness. </li></ul>
  45. 45. Approaches to Service Recovery <ul><li>Case-by-case addresses each customer’s complaint individually but could lead to perception of unfairness. </li></ul><ul><li>Systematic response uses a protocol to handle complaints but needs prior identification of critical failure points and continuous updating. </li></ul><ul><li>Early intervention attempts to fix problem before the customer is affected. </li></ul><ul><li>Substitute service allows rival firm to provide service but could lead to loss of customer. </li></ul>
  46. 46. Managing Capacity and Demand
  47. 47. Managing Capacity and Demand <ul><li>Service capacity is a perishable commodity </li></ul><ul><li>Unlike products that are stored , a service is intangible personal experience that cannot be transferred from one person to another </li></ul><ul><li>A service is produced and consumed simultaneously </li></ul>
  48. 48. Strategies for Matching Capacity and Demand for Services <ul><li>Customer induced variability </li></ul><ul><ul><li>The variability in customer arrival rates is a well known challenge for customer service managers attempting to match demand with capacity. </li></ul></ul><ul><ul><li>Frances Frei describes 5 sources of customer induced variability in service operations: </li></ul></ul>
  49. 49. Customer-induced Variability <ul><li>Arrival : customer arrivals are independent decisions not evenly spaced. </li></ul><ul><li>Capability : level of knowledge and skills vary resulting in some hand-holding. </li></ul><ul><li>Request : uneven service times result from unique demands. </li></ul><ul><li>Effort : level of commitment to coproduction or self-service varies. </li></ul><ul><li>Subjective Preference : personal preferences introduce unpredictability. </li></ul>
  50. 50. Strategies for Managing Capacity <ul><li>Defining Service Capacity: </li></ul><ul><ul><li>Service capacity is defined in terms of an achievable level of output per unit time (e.g. transactions per day for a busy bank cashier) For service providers the measure must be based on a bust employee and not on observed total output that must always be less than capacity. </li></ul></ul><ul><ul><li>Many services , demand cannot be smoothed very effectively see the example for a call centre on the following slide </li></ul></ul>
  51. 51. Strategies for Managing Capacity <ul><li>Daily Work shift Scheduling – by scheduling work shifts carefully during the day, the profile of service capacity can be made to approximate demand </li></ul><ul><li>Forecast demand </li></ul><ul><li>Increase Customer Participation </li></ul>
  52. 52. Yield management <ul><li>Yield management is a comprehensive system that incorporates many of the strategies discussed earlier (e.g. reservation systems etc) </li></ul><ul><li>It maximises revenue through price discrimination and capacity allocation in real time </li></ul>
  53. 53. Ideal Characteristics for Yield Management <ul><li>Relatively Fixed Capacity </li></ul><ul><ul><li>Once all hotel rooms or airline seats are sold you can take no extra business – you can however divert to another location or flight </li></ul></ul><ul><li>Ability to Segment Markets </li></ul><ul><ul><li>Different customer classes – must stay 2 nights to qualify for weekend rate </li></ul></ul><ul><li>Perishable Inventory </li></ul><ul><li>Product Sold in Advance </li></ul><ul><ul><li>Sell capacity in advance at a discount price or wait until later and possible sale at full price </li></ul></ul><ul><li>Fluctuating Demand </li></ul><ul><ul><li>Using demand forecasting allows managers to increase utilasation during slow demand and to increase revenue during peak demand </li></ul></ul>