Chapter 03 Service Strategy McGraw-Hill/Irwin Service Management: Operations, Strategy, and...

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Chapter 03 Service Strategy McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.

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Page 1: Chapter 03 Service Strategy McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill.

Chapter 03Service Strategy

McGraw-Hill/IrwinService Management: Operations, Strategy, and Information Technology, 6e

Copyright © 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.

Page 2: Chapter 03 Service Strategy McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill.

Learning ObjectivesLearning Objectives

Formulate a strategic service vision. Discuss the competitive environment of services. Describe how a service competes using the three

generic service strategies. Explain what is meant by qualifiers, service winners,

and service losers. Discuss the competitive role of information in services. Explain the concept of the virtual value chain and its

role in service innovation. Identify potential limits in the use of information as a

competitive strategy. Categorize a service firm according to its stage of

competitiveness.

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Page 3: Chapter 03 Service Strategy McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill.

Strategic Service VisionTarget Market Segments

What are common characteristics of important market segments?

What dimensions can be used to segment the market, demographic, psychographic?

How important are various segments? What needs does each have? How well are these needs being served, in

what manner, by whom?

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Page 4: Chapter 03 Service Strategy McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill.

Strategic Service VisionService Concept

What are important elements of the service to be provided, stated in terms of results produced for customers?

How are these elements supposed to be perceived by the target market segment, by the market in general, by employees, by others?

How do customers perceive the service concept?

What efforts does this suggest in terms of the manner in which the service is designed, delivered, marketed?

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Page 5: Chapter 03 Service Strategy McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill.

Strategic Service VisionOperating Strategy

What are important elements of the strategy: operations, financing, marketing, organization, human resources, control?

On which will the most effort be concentrated? Where will investments be made? How will quality and cost be controlled:

measures, incentives, rewards? What results will be expected versus

competition in terms of, quality of service, cost profile, productivity, morale/loyalty of servers?

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Strategic Service VisionService Delivery System

What are important features of the service delivery system including: role of people, technology, equipment, layout, procedures?

What capacity does it provide, normally, at peak levels?

To what extent does it, help insure quality standards, differentiate the service from competition, provide barriers to entry by competitors?

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Page 7: Chapter 03 Service Strategy McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill.

Southwest Airlines StrategicService Vision

Service Delivery System Operating Strategy Service Concept Target Market Segment

• Fun cabin atmosphere to differentiate service

• Use only Boeing 737 aircraft to control maintenance and operating costs

• Hire cabin crew based on attitude

• Quick turnaround at gate results in high utilization of aircraft

• No assigned seating rewards punctuality and promotes on-time performance

• Short flights with frequent departures • Serve peanuts and soft drinks only

• Use of inner-city or low traffic airports avoids congestion

• Carry-on luggage

• State of Texas residents

• Business traveler who drives because of inadequate service

• Inexpensive family travel on weekends

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Page 8: Chapter 03 Service Strategy McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill.

Competitive Environment of ServicesCompetitive Environment of Services

Relatively Low Overall Entry Barriers Economies of Scale Limited High Transportation Costs Erratic Sales Fluctuations No Power Dealing with Buyers or Suppliers Product Substitutions for Service High Customer Loyalty Exit Barriers

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Page 9: Chapter 03 Service Strategy McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill.

Competitive Service Strategies (Overall Cost Leadership)

Competitive Service Strategies (Overall Cost Leadership)

Seeking Out Low-cost Customers Standardizing a Custom Service Reducing the Personal Element in

Service Delivery (promote self-service)

Reducing Network Costs (hub and spoke)

Taking Service Operations Off-line3-9

Page 10: Chapter 03 Service Strategy McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill.

Competitive Service Strategies (Differentiation)

Competitive Service Strategies (Differentiation)

Making the Intangible Tangible (memorable)

Customizing the Standard Product Reducing Perceived Risk Giving Attention to Personnel Training Controlling Quality

Note: Differentiation in service means being unique in brand image, technology use, features, or reputation for customer service.

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Page 11: Chapter 03 Service Strategy McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill.

Competitive Service Strategies (Focus)

Competitive Service Strategies (Focus)

Buyer Group: (e.g. USAA insurance and military officers)

Service Offered: (e.g. Shouldice Hospital and hernia patients)

Geographic Region: (e.g. Austin Cable Vision and TV watchers)

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Page 12: Chapter 03 Service Strategy McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill.

Customer Criteria for Selecting a Service ProviderCustomer Criteria for Selecting a Service Provider

Availability (24 hour ATM) Convenience (Site location) Dependability (On-time performance) Personalization (Know customer’s name) Price (Quality surrogate) Quality (Perceptions important) Reputation (Word-of-mouth) Safety (Customer well-being) Speed (Avoid excessive waiting)

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Page 13: Chapter 03 Service Strategy McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill.

Winning Customers in the MarketplaceWinning Customers in the Marketplace

Service Qualifier: To be taken seriously a certain level must be attained on the competitive dimension, as defined by other market players. Examples are cleanliness for a fast food restaurant or safe aircraft for an airline.

Service Winner: The competitive dimension used to make the final choice among competitors. Example is price.

Service Loser: Failure to deliver at or above the expected level for a competitive dimension. Examples are failure to repair auto (dependability), rude treatment (personalization) or late delivery of package (speed).

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Page 14: Chapter 03 Service Strategy McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill.

Competitive Role of Information in Services

Strategic Focus Competitive Use of Information On-line Off-line (Real time) (Analysis) Creation of barriers to entry: Data base asset: External Reservation system Selling information (Customer) Frequent user club Development of

services Switching costs Micro-marketing

Revenue generation: Productivity enhancement:

Internal Yield management Inventory status (Operations) Point of sale Data envelopment Expert systems analysis (DEA) 3-14

Page 15: Chapter 03 Service Strategy McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill.

The Virtual Value Chain Marketplace vs Marketspace Creating New Markets Using Information (Gather,

Organize, Select, Synthesize, and Distribute) Three Stage Evolution

• 1st Stage (Visibility): See physical operations more effectively with information – Ex. USAA “paperless operation” • 2nd Stage (Mirroring Capability): Substitute virtual activities for physical – Ex. USAA “automate underwriting” • 3rd Stage (New Customer Relationships): Draw on information to deliver value to customer in new ways – Ex. USAA “event oriented service”

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Page 16: Chapter 03 Service Strategy McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill.

Limits in the Use of Information

Anti-competitive (e.g. Barrier to entry)

Fairness (e.g. Yield management) Invasion of Privacy (e.g. Micro-

marketing) Data Security (e.g. Medical records) Reliability (e.g. Credit report)

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Page 17: Chapter 03 Service Strategy McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill.

Using Information to Categorize Customers

Coding grades customers on how profitable their business is.

Routing is used by call centers to place customers in different queues based on customer code.

Targeting allows choice customers to have fees waived and get other hidden discounts.

Sharing data about your transaction history with other firms is a source of revenue.

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Page 18: Chapter 03 Service Strategy McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill.

Stages in Service Firm CompetitivenessStages in Service Firm Competitiveness

1. Available for service 2. Journeyman 3. Distinctive competence 4. World-class service

delivery Customers patronize service Customers neither seek Customers seek out the firm The company’s name is

synonymous firm for reasons other than out nor avoid the firm. on the basis of its sustained with service excellence. Its service performance. reputation for meeting doesn’t just satisfy customers; it customer expectations delights them and thereby expands customer expectations to levels its competitors are unable to fulfill.

Operations is reactive, Operations functions in a Operations continually excels, Operations is a quick learner and fast

at best. mediocre, uninspired reinforced by personnel innovator; it masters every step of the fashion. management and systems service delivery process and provides that support an intense capabilities that are superior to customer focus. competitors. SERVICE QUALITY Is subsidiary to cost, Meets some customer Exceeds customer Raises customer expectations and highly variable. expectations; consistent expectations; consistent seeks challenge; improves on one or two key on multiple dimensions. continuously. dimensions.

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Page 19: Chapter 03 Service Strategy McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill.

Stages in Service Firm CompetitivenessStages in Service Firm Competitiveness

1. Available for service 2. Journeyman 3. Distinctive competence 4. World-class service delivery

BACK OFFICECounting room. Contributes to service, plays Is equally valued with front Is proactive, develops its own an important role in the total office; plays integral role. capabilities, and generates service, is given attention, opportunities.

but is still a separate role.CUSTOMERUnspecified, to be A market segment whose A collection of individuals A source of stimulation, ideas,satisfied at minimum cost. basic needs are understood. whose variation in needs is and opportunity. understood.INTRODUCTION OF NEW TECHNOLOGYWhen necessary for When justified by cost When promises to enhance Source of first-mover advantages,survival, under duress. savings. service. creating ability to do things your

competitors can’t do.WORKFORCENegative constraint. Efficient resource; disciplined; Permitted to select among Innovative; creates procedures. follows procedures. alternative procedures.FRONT-LINE MANAGEMENTControls workers. Controls the process. Listens to customers; coaches Is listened to by top management

and facilitates workers. as a source of new ideas. Mentors works to enhance their career.

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Page 20: Chapter 03 Service Strategy McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill.

Alamo Drafthouse Positioning

MOVIE SELECTIONMOVIE SELECTION

FOOD QUALITYFOOD QUALITY

ManyManyFewFew

PoorPoor

GoodGood

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Page 21: Chapter 03 Service Strategy McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill.

Alamo Drafthouse Strategic Service Vision

Target market segments

Service concept

Operating strategy

Service delivery system

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Page 22: Chapter 03 Service Strategy McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill.

Alamo Drafthouse Winning Customers

Qualifiers

Service winners

Service losers

Make recommendations for Tim and Carrie that would increase profitability.

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Page 23: Chapter 03 Service Strategy McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill.

Discussion Topics1. Give examples of service firms that use both the

strategy of focus and differentiation and the strategy of focus and overall cost leadership.

2. What ethical issues are associated with micro-marketing?

3. For each of the three generic strategies (i.e., cost leadership, differentiation, and focus) which of the four competitive uses of information is most powerful?

4. Give an example of a firm that begin as world-class and has remained in that category.

5. Could firms in the “world-class service delivery” stage of competitiveness be described as “learning organizations”?

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Page 24: Chapter 03 Service Strategy McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright © 2008 by The McGraw-Hill.

Interactive Class Exercise

The class divides and debates the proposition “Frequent flyer award programs are or are not anticompetitive.”

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Creative Strategy: Implementation and Evaluation © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin.

Creative Strategy: Implementation and Evaluation © 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin.

© 2000 The McGraw-Hill Companies, Inc. Irwin/McGraw-Hill 1 Session 19 Strategy Implementation.

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Strategy and Competition - The McGraw-Hill Companies

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