ISM 270Service Engineering and ManagementLecture 3: Technology in Services

AnnouncementsHomework 1 due todayHomework 2 due next week 1/30Project 1 given today, due 2/13

Todays LectureReview of Strategic Advantage (Porter Model)Role of Technology in ServicesAlan Karp, HP Labs

Understanding the Competitive Environment of a CompanyCompanies do not exist in a vacuum:It is necessary to understand the competitive environment to assess the current competitive position of a company. It has become increasingly necessary to posture a company for challenges in its future.

Porter Competitive ModelIntra-Industry RivalryStrategic Business UnitBargainingPower of Buyers

Bargaining Power of SuppliersSubstitute Products and Services

PotentialNew Entrants

Competitive Model FocusWhat is driving competition in the current or future industry?

What are current or future competitors likely to do and how can a company respond?

How can a company best posture itself to achieve and sustain a competitive advantage?

Competitive Model ForcesIntra-industry Rivals: Strategic Business Unit (SBU) and major rivals.Buyers: Categories of major customers.Suppliers: Categories of major suppliers that play a significant role in enabling the SBU to conduct its business.New Entrants: Companies that are new as competitors in a geographic market or existing companies that through a major shift in business strategy will now directly compete with the SBU.Substitutes: An alternative to doing business with the SBU.

Porter Competitive Model Education Industry Universities U.S. Market

Intra-Industry Rivalry SBU: UCSC Rivals: UC campuses, CSU, Private universities, Community Colleges BargainingPower of BuyersBargaining Power of Suppliers

Substitute Products and Services

PotentialNew Entrants Faculty Staff Equipment and Service Suppliers Alumni Foundations Governments IT Vendors Internet Distance Learning Books and Videotapes Computer-Based Training Company Education Programs Students Parents Businesses Employers Legislators Foreign Universities Shift in Strategy by Universities or Companies

Role of Technology through Porter perspective: Can we1. Build barriers to prevent a company from entering an industry?2. Build in costs that would make it difficult for a customer to switch to another supplier?3. Change the basis for competition within the industry?4. Change the balance of power in the relationship that a company has with customers or suppliers?5. Provide the basis for new products and services, new markets or other new business opportunities

Porter Competitive StrategiesDifferentiation StrategiesInnovation StrategiesGrowth StrategiesAlliance StrategiesCost Leadership StrategiesPrimaryStrategiesSupportingStrategies

Porter Primary StrategiesDifferentiationcustomer values the differences that you provide in products, services or capabilities.Costis least cost. If this is the primary strategy, over time there will only one ultimate winner.

Porter Supporting StrategiesInnovationeither with business strategies or use of information systems or both.Growthdeals with growth in revenue and other business volumes. Can be a key factor in establishing a market position. Can also be a major requirement to offset high fixed operating costs.Alliancesimportance of establishing a strong relationship with suppliers and other business partners often on a contractual basis.

Dell, Inc. StrategiesPrimary Strategy:DifferentiationLeast CostSupporting Strategies:InnovationGrowthAlliances

IT SignificanceInformation Technology can change the way that an organization (business or public sector) competes. As the foundation for organizational renewal. As a necessary investment that should help achieve and sustain strategic objectives. As an increasingly important communication network among employees and with customers, suppliers, business partners and even competitors.

Strategic Roles of Information SystemsSpecific Examples:Lower CostsDifferentiateInnovatePromote GrowthDevelop AlliancesImprove Quality and EfficiencyBuild an IT PlatformSupport (enable) other Strategies

New Service Development

Learning ObjectivesDiscuss the new service development process.Prepare a blueprint for a service operation.Describe a service process using the dimensions of divergence and complexity.Use the taxonomy of service processes to classify a service operation.Compare and contrast the generic approaches to service system design.

Levels of Service InnovationRadical InnovationsMajor Innovation: new service driven by information and computer based technologyStart-up Business: new service for existing marketNew Services for the Market Presently Served: new services to customers of an organizationIncremental InnovationsService Line Extensions: augmentation of existing service line (e.g. new menu items)Service Improvements: changes in features of currently offered serviceStyle Changes: modest visible changes in appearances

Technology Driven Service InnovationPower/energy - International flights with jet aircraftPhysical design - Enclosed sports stadiumsMaterials - Astroturf Methods - JIT and TQMInformation - E-commerce using the Internet

Service Design ElementsStructural - Delivery system - Facility design - Location - Capacity planningManagerial - Service encounter - Quality - Managing capacity and demand - Information

New Service Development Cycle PeopleTechnology Systems ProductFull LaunchDevelopmentDesignAnalysisOrganizationalContextTeamsToolsEnablers Formulation of new services objective / strategy Idea generation and screening Concept development and testing Business analysis Project authorization Full-scale launch Post-launch review Service design and testing Process and system design and testing Marketing program design and testing Personnel training Service testing and pilot run Test marketing

Service Blueprint of Luxury Hotel

Strategic Positioning Through Process StructureDegree of Complexity: Measured by the number of steps in the service blueprint. For example a clinic is less complex than a general hospital. Degree of Divergence: Amount of discretion permitted the server to customize the service. For example the activities of an attorney contrasted with those of a paralegal.

Structural Alternatives for a Restaurant No ReservationsSelf-seating. Menu on BlackboardEliminateCustomer Fills Out Form

Pre-prepared: No Choice

Limit to Four Choices

Sundae Bar: Self-service

Coffee, Tea, Milk onlyServe Salad & Entree Together:Bill and Beverage Together

Cash only: Pay when Leaving

TAKE RESERVATIONSEAT GUESTS, GIVE MENUSSERVE WATER AND BREADTAKE ORDERSPREPARE ORDERS

Salad (4 choices)

Entree (15 choices)

Dessert (6 choices)

Beverage (6 choices)SERVE ORDERS

COLLECT PAYMENT

Specific Table SelectionRecite Menu: Describe Entrees & SpecialsAssortment of Hot Breads and Hors DoeuvresAt table. Taken Personally by Maltre d

Individually Prepared at table

Expand to 20 Choices: Add Flaming Dishes;Bone Fish at Table; Prepare Sauces at TableExpand to 12 Choices

Add Exotic Coffees; Sherbet betweenCourses; Hand Grind Pepper

Choice of Payment. Including House Accounts:Serve Mints

LOWER COMPLEXITY/DIVERGENCE CURRENT PROCESS HIGHER COMPLEXITY/DIVERGENCE

Taxonomy of Service Processes Low divergence High divergence (standardized service) (customized service)

Processing Processing Processing Processing Processing Processing of goods Information of people of goods Information of people

Dry Check Auto repair Computer No Cleaning processing Tailoring a programming Customer Restocking Billing for a suit Designing a Contact a vending credit card building machine

Ordering Supervision Indirect groceries of a landing customer from a home by an air contact computer controller No Operating Withdrawing Operating Sampling Documenting Driving a customer- a vending cash from an elevator food at a medical rental car service machine an ATM Riding an buffet dinner history Using a worker Assembling escalator Bagging of health club interaction premade groceries Searching for facility (self- furniture informationservice) in a libraryDirectCustomer Food Giving a Providing Home Portrait HaircuttingCustomer Contact service service in a lecture public carpet painting Performing worker restaurant Handling transport- cleaning Counseling a surgical interaction Hand car routine bank ation Landscaping operation washing transactions Providing service mass vaccination

Generic Approaches to Service DesignProduction-line Limit Discretion of Personnel Division of Labor Substitute Technology for People Standardize the ServiceCustomer as Coproducer Self Service Smoothing Service DemandCustomer Contact Degree of Customer Contact Separation of High and Low Contact OperationsInformation Empowerment Employee Customer

Customer Value Equation

Project 1

Technology in Service

Learning ObjectivesDiscuss the of technology in the service encounter.Describe the emergence of self-service.Place an example of service automation in its proper category.Describe different Internet business models.Understand the importance of scalability to e-commerce success.Discuss the managerial issues associated with the adoption of new technology.

Role of Technology in the Service EncounterTechnologyTechnologyTechnologyTechnology

Technology

CustomerCustomerServerServerServer

Server

ServerCustomer

Customer

Customer

D. Technology-MediatedService EncounterE. Technology-GeneratedService EncounterA. Technology-FreeService EncounterB. Technology-AssistedService EncounterC. Technology-FacilitatedService Encounter

Evolution of Self-service

Self-service Technologies (SST) Does customer adoption of self-service follow a predictable pattern?How do we measure self-service quality (e.g., ease of use, enjoyment, and/or control)?What is the optimal mix of SST and personal service for a service delivery system?How do we achieve continuous improvement when using SST?What are the limits of self-service given the loss of human interaction?

Classification of Service AutomationFixed-sequence (F) - parking lot gateVariable-sequence (V) - ATMPlayback (P) - answering machineNumerical controlled (N) - animationIntelligent (I) - autopilotExpert system (E) - medical diagnosisTotally automated system (T) - EFT

Purpose of Web-siteA retail channel (Amazon.com)Supplemental channel (Barnes & Nobel)Technical support (Dell Computer)Embellish existing service (HBS Press)Order processing (Delta Airline)Convey information (Kelly Blue Book)Organization membership (POMS.org)Games (Treeloot.com)

Technology Convergence Enabling E-BusinessInternetGlobal telephone systemCommunications standard TCP/IP (Transfer Control Protocol/Internet Protocol)Addressing system of URLsPersonal computers and cable TVCustomer databasesSound and graphicsUser-friendly free browser

E-Business Models(Weill & Vitale, Place to Space, HBS Press, 2001)Content Provider: Reuters Direct to Customer: DellFull-Service Provider: GE Supply Co.Intermediary: eBayShared Infrastructure: SABREValue Net Integrator: 7-Eleven JapanVirtual Community: Monster.comWhole-of-Enterprise: Government

Economics of E-BusinessSources of Revenue: - Transaction fees - Information and advice - Fees for services and commissions - Advertising and listing feesOwnership - Customer relationship - Customer data - Customer transaction

Electronic and Traditional Services

Features

Electronic

Traditional

Encounter

Screen-to-face

Face-to-face

Availability

Anytime

Working hours

Access

From anywhere

Travel to location

Market Area

Worldwide

Local

Ambiance

Electronic interface

Physical environment

Payment

Credit card

Cash or check

Differentiation

Convenience

Personalization

Privacy

Anonymity

Social interaction

Grocery Shopping Comparison

On-line Shopping

Traditional Shopping

Advantages

Convenience

Saves time

Less impulse buying

See new items

Memory trigger

Product sampling

Social interaction

Disadvantages

Forget items

Less control

Need computer

Delivery fee

Time consuming

Waiting lines

Carry groceries

Impulse buying

Economics of Scalability

Adoption of New Technology in ServicesChallenges of Adopting New Technology The Process is the Product Back Office vs Front Office Changes Need for StandardizationManaging the New Technology Adoption Process Ten step process with concern for employees and customers

DiscussionName an Internet site you believe will be successful in the long run - explain why.

E-Business Supply Chain (Network) ElementsMajor entities including firm of interest and its customers, suppliers, and alliesMajor flows of product, information, and moneyRevenues and other benefits each participant receivesCritical aspects: participants, relationships, and flows Example: 7-Eleven Japan

Evolution of B2C E-Commerce in JapanWhat features of the 7-Eleven Japan distribution system illustrate the Value Net Integrator e-business model?Does the 7-Eleven Japan distribution system exhibit scalability economics?How does the 7-Eleven example of B2C e-commerce in Japan illustrate the impact of culture on service system design?Will the 7-Eleven Konbini and Mobile system be adopted in the United States?

Alan KarpHead of Virus Safe Computing Initiative, HP LabsPh.D. Astronomy, University of Maryland15 years at IBM, 15 years at HP LabsExpert in large scale scientific computing, distributed service development

Companies may counter the competitive forces they face with one or more of five competitive strategies:Cost Leadership Strategies. This involves becoming a low-cost producer of products and services in the industry. Such firms can also help their suppliers or customers reduce costs.Differentiation Strategies. This involves making the products of the firm distinct from those of the competition in the marketplace. Differentiation variables valued by the market reduce the threat of substitution. Innovation Strategies. This involves finding new ways of doing business. This may involve developing new products, entry into new markets or radical change in business processes for production or distribution.Growth Strategies. This involves significantly expanding a company's capacity to produce goods and services, expanding into global markets, diversifying into new products or services, or integrating into related products and services. Alliance Strategies. This involves forming new business relationships or new ways of doing business with existing suppliers, customers, consultants, or even competitors. Such linkages may include mergers, acquisitions, joint ventures, or "virtual companies" (the pooling of resources on a per project basis).

Teaching TipsThis slide relates to the material on pp. 50-51.