Welcome to Service Management

Chapter 01Role of Services in an EconomyJames FitzsimmonsSeay Professor of Business EmeritusUniversity of Texas at AustinMcGraw-Hill/IrwinService Management: Operations, Strategy, and Information Technology, 6eCopyright 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.

Learning ObjectivesIdentify traits that all services have in common.Discuss the central role of services in an economy.Identify and differentiate the five stages of economic activity.Describe the features of preindustrial, industrial, and postindustrial societies.Describe the features of the new service economy.Contrast the push vs. pull theories of innovation.Identify the sources of service sector growth.

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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 1-*

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 Fitzsimmons1-*

Role of Services in an EconomyINFRASTRUCTURE SERVICE Communications Transportation Utilities BankingPERSONAL SERVICES Healthcare Restaurants HotelsCONSUMER(Self-service)GOVERNMENT SERVICES Military Education Judicial Police and fire protectionDISTRIBUTION SERVICES Wholesaling Retailing RepairingFINANCIAL SERVICES Financing Leasing InsuranceMANUFACTURINGServices inside company: Finance Accounting Legal R&D and design

BUSINESS SERVICES Consulting Auditing Advertising Waste disposal

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Percent Employment in ServicesTop Ten Postindustrial Nations1-*

Country19651975198519952005United States59.566.470.074.178.6United Kingdom51.358.364.171.477.0The Netherlands52.560.968.373.476.5Sweden46.557.766.171.576.3Canada57.865.870.674.876.0Australia54.661.568.473.175.8France43.951.961.470.074.8Japan44.852.057.061.468.6Germany41.8n/a51.660.868.5Italy36.544.055.362.265.5

*cf. Figure 1.2 in text

Stages of Economic ActivityPrimary (Extractive): Agriculture, Mining, Fishing, ForestrySecondary (Goods-Producing): Manufacturing, ProcessingTertiary (Domestic Services): Restaurants, Hotels, Laundry, Maintenance Quaternary (Trade and Commerce): Transportation, Communications, Retailing, Finance, Government Quinary (Extending Human Potential): Health, Education, Research, Arts, Recreation1-*

Trends in U.S. Employment by Sector 1-*

Chart1

201763

2219.658

27.52350

2823.549.8

28.328.942.5

30.52841

3529.739

4032.529.5

483028

5031.520

54.33614.5

593510

6730.56.5

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Manufacturing

Agriculture

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Proportation of total employement

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ServiceManufacturingAgricultureAgriculture

185020176363

18602219.65858

187027.5235050

18802823.549.849.8

189028.328.942.542.5

190030.5284141

19103529.73939

19204032.529.529.5

193048302828

19405031.52020

195054.33614.514.5

196059351010

19706730.56.56.5

198070294.54.5

199079232.72.7

200085172.652.65

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Service

Manufacturing

Agriculture

Year

Proportation of total employement

Distribution of GDP in the US Economy1-*

Stages of Economic Development Pre- Use of Standard dominant Human Unit of of Living Society Game Activity Labor Social Life Measure Structure Technology

Pre- Against Agriculture Raw Extended Sub- Routine Simple hand Industrial Nature Mining muscle household sistence Traditional tools power Authoritative

Industrial Against Goods Machine Individual Quantity Bureaucratic Machines fabricated production tending of goods Hierarchical nature Post- Among Services Artistic Community Quality of Inter- Information industrial Persons Creative life in terms dependent Intellectual health, education, recreation 1-*Maslow Hierarchy of Needs

Nature of Service Sector1-*Updates of Figure 1.3 and 1.4 can be found at:Occupational Outlook Quarterly http://www.bls.gov/opub/ooq/Percent Distribution of Wage and Salary Employment by Industry Sector, 2006

The 21st Century CareerPercent Change in Wage and Salary Employment by Industry Sector, Projected 2006-2016

The Four Realms of an Experience1-*

Customer Participation

Passive

Active

Environmental

Absorption

Entertainment

(Movie)

Education

(Language)

Relationship

Immersion

Esthetic

(Tourist)

Escapist

(ScubaDiving)

Typology of Services in the 21st Century1-*

Core ExperienceEssential FeatureExamplesCreativePresent ideasAdvertising, theaterEnablingAct as intermediaryTransportation, communicationsExperientialPresence of customerMassage, theme parkExtendingExtend and maintainWarranty, health checkEntrustedContractual agreementService/repair, portfolio mgt.InformationAccess to informationInternet search engineInnovationFacilitate new conceptsR&D services, product testingProblem solvingAccess to specialists Consultants, counselingQuality of lifeImprove well-beingHealthcare, recreation, tourismRegulationEstablish rules and regulationsEnvironment, legal, patents

Economic Evolution1-*

EconomyAgrarianIndustrialServiceExperienceEconomicOfferingFood PackagedgoodsCommodityserviceConsumer servicesBusinessservicesFunctionExtractMakeDeliverStageCo-createNatureFungibleTangibleIntangibleMemorableEffectualAttributeNaturalStandardizedCustomizedPersonalGrowthMethod of SupplyStored in bulkInventoriedDelivered on demandRevealed over timeSustained over timeSellerTraderProducerProviderStagerCollaboratorBuyerMarketCustomerClientGuestCollaboratorExpectationQuantityFeaturesBenefitsSensationsCapability

Experience Design PrinciplesTheme the Experience (Forum shops)Harmonize Impressions with Positive Cues (OHare airport parking garage)Eliminate Negative Cues (Cinemark talking trash containers)Mix in Memorabilia (Hard Rock T-shirts)Engage all Five Senses (Mist in Rainforest)1-*

Source of Service Sector GrowthInformation Technology (e.g. Internet)Innovation Push theory (e.g. Post-it) Pull theory (e.g. Cash Management) Services derived from products (e.g. Netflix) Exploiting information (e.g. Auto part sales) Difficulty of testing service prototypesChanging Demographics Aging of the population Two-income families Growth in number of single people Home as sanctuary1-*

Distribution of GDP in the US Economy1-*

Discussion TopicsIllustrate how the type of work he or she does influences a persons lifestyle. For example, contrast a farmer, a factory worker, and a school teacher.Is it possible for an economy to be based entirely on services?What is the value of self-service in an economy?1-*

Interactive Class ExerciseThe class breaks into small groups. Each group identifies service firms that should be listed in the top Fortune 100 and places them in rank order of estimated annual revenue. Fortune 100 List1-*

***There are many definitions of service depending on the authors orientation. We will adopt Fitzsimmons definition as our working definition in the class.*We would compare this definition to that of a Service System later on in the class.*Figure 1.1Illustrating that Service is indispensable.Good example of division of labor gain in efficiency.Refer to later discussion about quality of life.

*Table 1.1Compare this slide with the IBM slide with graphical representation (next).**See Also Figure 1.4 in textClark-Fisher Hypothesis:As productivity increases in one sector, the labor force moves into another.*Figure 1.6*Table 1.3 some materials from Daniel BellSee also Table 1.2 in text (Stages of economic activities)Primary (Extracting) Pre-industrialSecondary (goods producing) SecondaryTertiary (Domestic Services) Post-IndustrialQuaternary (Trade and Commerce Services)Quinary (Refining and Extending Human Capabilities)Bell: Transformation from industrial to post-industrial societyNatural development of services and utilities to support industrial development2. Growth of population and mass consumption of goods increase wholesale and retail trade, along with banking, insurance, real estate, etc.3. As income increases, the proportion spent on the necessities of food and home decreases, the remainder creates a demand for durables and then for services.The higher the disposable income the higher demand for leisure time and demand for services. Dont want to do menial tasks. Seek higher quality of life. Cf. the creation of Chinas professional middle class.Cf. Marslow Hierarchy of needs: once the basic requirements of food and shelter are satisfied, people seek physical goods, and finally, personal development. http://en.wikipedia.org/wiki/Maslow's_hierarchy_of_needs*This slide is added because the section was not covered in the original slides.Nature of Service Sector - Figure 1.3; Service sector is less cyclic cannot be inventoried; Recession resistant; Services can be postponed Compare this slide with Figure 1.3*Compare this slide with Figure 1.4*Figure 1.5*Table 1.5This slide should be here.*Table 1.4This slide should be here.*Consumer Service ExperienceBusiness Service ExperienceCo-creation of value The customer is co-producer of the value extracted from the relationship customer is an input to the service process.e.g. education. Cf. later discussion of service systems and the co-creation of value.2. Relationship source of innovation, differentiation and personalization3. Service Capability capacity planning to meet fluctuations in demands while retaining quality of service from the perspective of the customer.e.g., restaurants, phone services, travel, etc.*Information Technology (see Figure 1.6 again)Internet 24/7, anywhere, anytime, opportunities for new services and innovationdis-intermediation vs. re-intermediationinformation chain vs. service supply chain

InnovationPush technology and engineeringPull from customers and new needsServices derived from products e.g., automobiles, Netflix, on-demand video streamingExploiting information data miningDifficulty of testing service prototypes service system laboratory?Change in demographicsAging boomers are getting old health care, etc.Two-income family durables, day care, shopping behavior, etc.Growth in number of single people including single parentsHome as sanctuary security services, home entertainment, etc.*Figure 1.6**