role of service in an economy

1. ROLE OF SERVICE IN AN ECONOMY

2. WHAT IS OPERATIONS?
• The transformation process that turns inputs
into outputs, that is, the act of combining
people, raw materials, technology, etc. into
useable services and products
• Who are in the operations function?
• The people who actually make a product or
perform a service
• Typically operations has the largest number of
employees of any functional area

3. BUT I’M GOING INTO MARKETING,
FINANCE, STRATEGY…
• Regardless of your functional area, you will be
involved in “transformational processes”, in other
words, “getting things done”
• Service operations can help you get things done
more effectively and more efficiently.

4. SERVICE DEFINITIONS
Services are deeds, processes, and
performances.
Valarie Zeithaml & Mary Jo Bitner
A service is a time-perishable, intangible
experience performed for a customer
acting in the role of a co-producer.
James Fitzsimmons

5. DEFINITION OF SERVICE FIRMS
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.
James Fitzsimmons

6. ROLE OF SERVICES IN AN ECONOMY

7. WHY STUDY SERVICE OPERATIONS?
• Service firms are a large percentage of the
economies of industrialized nations
• 80% of the US economy (employment and GDP)
• Gain a competitive edge. There is little focus on
services in the academic world
• Not all management tools that are appropriate for
manufacturing are transferable into a service
environment

8. Chapter 1 - Services in the Economy
HISTORICAL US EMPLOYMENT BY
ECONOMIC SECTOR

9. PERCENT SERVICE EMPLOYMENT FOR
SELECTED NATIONS
Country 1980 1987 1993 2000
United States 67.1 71.0 74.3 74.2
Canada 67.2 70.8 74.8 74.1
Israel 63.3 66.0 68.0 73.9
Japan 54.5 58.8 59.9 72.7
France 56.9 63.6 66.4 70.8
Italy 48.7 57.7 60.2 62.8
Brazil 46.2 50.0 51.9 56.5
China 13.1 17.8 21.2 40.6

10. TRENDS IN U.S. EMPLOYMENT BY
SECTOR
0
10
20
30
40
50
60
70
80
90
Proportationoftotalemployement
Year
Service
Manufacturing
Agriculture

11. STAGES OF ECONOMIC DEVELOPMENT
Society
Game
Pre-
dominant
activity
Use of
human
labor
Unit of
social life
Standard
of living
measure Structure Technology
Pre-
Industrial
Against
Nature
Agriculture
Mining
Raw
muscle
power
Extended
household
Sub-
sistence
Routine
Traditional
Authoritative
Simple
hand tools
Industrial Against
fabricated
nature
Goods
production
Machine
tending
Individual Quantity
of goods
Bureaucratic
Hierarchical
Machines
Post-
industrial
Among
Persons
Services Artistic
Creative
Intellectual
Community Quality of
life in
terms of
health,
education,
recreation
Inter-
dependent
Global
Information

12. CHARACTERISTICS OF SERVICES …
• Rules:
• Services are intangible
• Simultaneous production
and consumption
• Proximity to the customer
• Services cannot be
inventoried
• Exceptions:
• Facilitating goods: playbills,
groceries
• Computer system
upgrades; janitorial services
• Internet-based services;
catalogs
• Retailers hold inventory;
hotel rooms, airline seats
are inventory

13. INPUTS
Materials
Equipment
Customers
Staff
Technology
Facilities
PROCESS
SERVICE OPERATION
Operation
Goods and
services
OUTPUTS
Figure: The service operation

14. EXPERIENCE
OUTCOMES
Value
Emotions
Judgements
Intentions
SERVICE PRODUCT
Customer
INPUTS
Time
Effort
Cost
Figure: Service = experience + outcome

15. INPUTS
Materials
Equipment
Customers
Staff
Technology
Facilities
PROCESS
SERVICE OPERATION
EXPERIENCE
OUTCOMES
Value
Emotions
Judgements
Intentions
SERVICE PRODUCT
Customer
Operation
Figure: Managing service and service operations

16. BUSINESS DECISIONS & INTEGRATIVE
ELEMENTS

17. PERCEIVED DIFFERENCES BETWEEN
MANUFACTURING AND SERVICES

18. Low High
High
Low
Capability
Commodity
Complexity
Simplicity
Process
variety
Volume per unit
Increasing
process
definition
Decreasing unit costs
Figure: Four main types of service processes

19. THE NEW EXPERIENCE ECONOMY
Economy Agrarian Industrial Service Experience
Function Extract Make Deliver Stage
Nature Fungible Tangible Intangible Memorable
Attribute Natural Standardized Customized Personal
Method of
supply
Stored in
bulk
Inventoried Delivered on
demand
Revealed
over time
Seller Trader Manufacturer Provider Stager
Buyer Market User Client Guest

20. THE FOUR REALMS OF AN EXPERIENCE
Customer Participation
Passive Active
Environmental
Absorption Entertainment
(Movie): least
involved level
of experience
Education
(Language)
Relationship Immersion Esthetic
(Tourist)
Escapist
(Scuba
Diving):
requires the
most
commitment
from the
customer

22. EXPERIENCE DESIGN PRINCIPLES
• Theme the Experience (Forum shops in Las
Vegas that are decorated with Roman
columns and where the salespeople wear
togas)
• Harmonize Impressions with Positive Cues
(O’Hare airport parking garage, each floor is
painted with a distinctive colour and unique
music – hard rock on the first floor and
classical on the second)

23. EXPERIENCE DESIGN PRINCIPLES
• Eliminate Negative Cues
(Cinemark (Austin, Texas) talking trash
containers that says ‘thank you’ when an
item s discarded )
• Mix in Memorabilia (Hard Rock T-shirts or
group pictures of vacationers)
• Engage all Five Senses (Jungle sounds and
mist in the air at the Rainforest Café in Las
Vegas)

24. Service value:
• All-inclusive price
• Car parking is extra
• Expensive ticket but well worth it
• Few additional costs
• Food reasonably priced
• Overall excellent value for money
Service operation:
• Good signage to the park
• Large car parks
• Clear site maps
• Different queuing systems
• Range of food outlets
• Over 100 rides and attractions
Organising idea: A great day out at a theme park
Organisation: Alton Towers, Staffordshire, UK
Service outcome:
• Great day out
• Fun time
• Thrilling rides
• Never a dull moment
• Great experience with friends/family
• Exhausting
Service experience:
• Quick and easy to buy ticket
• Exhilarating and entertaining
• Fun and lively, for all ages
• Range of attractions
• Plenty of food and drinks
• Long queues for main rides at peak
Service concept (summary): A UK theme park that provides an inclusive
package of over 100 rides and attractions to suit all ages and tastes with thrills, fun, fantasy,
fast food, historic heritage and magnificent gardens.
Figure: Alton Towers’ service concept

25. SOURCES OF SERVICE SECTOR GROWTH
• Innovation
Push theory (e.g. 3M, Post-it, discovery of a poor
adhesive translated into a glue for notes for temporary
attachment; www as a place of commerce is changing
the delivery of services)
Pull theory (e.g. Cash Management Account introduced
by Merrill Lynch(during the period of high interest rates in
the 1980s, a need arose to finance short-term corporate
cash flows, and individual investors were interested in
obtaining an interest rate that was higher than those
currently available on passbook bank deposits); after the
French Revolution, the chefs employed by the
dispossessed nobles opened their own restaurants)
Services derived from products (Video Rental creating a
renewed demand for old movies)

26. SOURCES OF SERVICE SECTOR GROWTH
• Innovation (contd.)
• Information driven services (records of sales by
auto parts stores can be used to identify
frequent failure areas in particular models of
cars – the information having value both for the
manufacturer who can accomplish engineering
changes, and the retailer who can diagnose
customer problems)
Difficulty of testing service prototypes, providing
a partial explanation for the high failure rate of
service innovations, particularly in retailing and
restaurants, (Burger King mock restaurant in
Miami, beta versions of software)

27. SOURCES OF SERVICE SECTOR GROWTH
• Social Trends
Aging of the population
(in USA, the Traveller’s Insurance Company has
developed a Retirement Job Bank of its retired
employees to fill-in during hard times)
• Two-income families
(day-care, pres-school, home delivery, eating out
services)
• Growth in number of single people (recreational sports
and other group-oriented activities will be in demand)
All these social trends support the notion that Home
will become a sanctuary for people in future (with IT-
enabled connectivity in various forms)

28. Service
delivery
Customer
relationships
Performance
management
Supplier
relationships
Strategy
Service concept

29. THE SERVICE MANAGEMENT SYSTEM
(BASED ON NORMAN, 2000)

30. THE MANUFACTURING-SERVICE
INTERFACE IN THE OFFER TO THE
CUSTOMER

31. NORMAN’S ICERBERG PRINCIPLE IN
SERVICE OPERATIONS