Module A Service Operations Management PDF

Prof. Jalili Service Operations Management MG316 Module A: Service Concepts Table of Contents Module A: Service Concepts.......................................................

Prof. Jalili Service Operations Management MG316 Module A: Service Concepts Table of Contents Module A: Service Concepts........................................................................................................1 What are “Services”?..........................................................................................................................2 Distinctive Characteristics of Services.................................................................................................3 Non-ownership Classification of Service..............................................................................................5 Service Package..................................................................................................................................6 Service-Dominant Logic......................................................................................................................8 Stages of Economic Evolution.............................................................................................................9 Why Shift Towards Services?............................................................................................................ 10 The Role of Services in an Economy................................................................................................... 12 Experience Economy......................................................................................................................... 14 Consumer Service Experience............................................................................................................ 16 1 Prof. Jalili Service Operations Management MG316 What are “Services”? Services are economic activities where customers obtain value from access to labor, professional skills, facilities, etc. In the field of business and operations, "Services" are defined as activities or processes aimed at delivering value to a customer by achieving certain desired outcomes. Unlike goods, which are tangible and can be owned, services are generally intangible and provide value through the benefits they offer, such as convenience, comfort, or problem-solving. The concept of co-creation of value is integral to many service operations. Unlike traditional goods, where value is primarily created by the producer and consumed by the customer, services often involve the customer in the value-creation process. For example, in a consultancy service, the consultant provides specialized knowledge, while the client provides essential context and information. Both parties actively engage in the process, thereby co-creating value. Access to resources is another vital aspect of services. Services often grant the customer access to specialized resources that they don't have but need. These resources can range from physical assets, like specialized machinery in a manufacturing process, to intangible assets, like professional expertise in legal or financial planning services. By accessing these specialized resources through the service, the customer gains value that would be expensive or difficult to obtain otherwise. Services: are activities or processes aimed at delivering value to a customer by achieving certain outcomes. Services are generally intangible & provide value through the bene ts they o er, such as convenience, comfort or problem - solving. Co creation services often involve the customer in the value creation process access to resources servicesgrantcustomer access to have but need specialized resources that theydo not These could be physicalassets to intangible resources these resources thecustomer assets By accessing gains value that would otherwisebeexpensive or difficultto obtain 2 Prof. Jalili Service Operations Management MG316 Distinctive Characteristics of Services Service operations exhibit unique features that set them apart from goods production, influencing management strategies significantly. Here’s an exploration of these characteristics: 1. Customer Participation Definition: Customer participation refers to the requirement that customers be actively involved in the service process. Their input often influences the service outcome. Example: A custom tailoring service where the customer must be present for measurements and fittings, and their preferences affect the final product. Challenges: Managing variability in customer input can be difficult. Service quality can fluctuate based on how well customers articulate their needs and how they participate in the process. 2. Simultaneity Definition: Simultaneity in services means that production and consumption occur simultaneously, requiring the presence of the customer during the service creation. Example: In a live online class, the lecture is delivered (produced) and consumed by students at the same time. Challenges: It’s challenging to manage demand fluctuations and maintain consistent service quality when services cannot be pre-produced or stored for later use. 3. Perishability Definition: Services are perishable in that they cannot be stored, saved, returned, or inventoried. Example: An airline seat that remains unfilled cannot be sold after the flight has departed. Challenges: Managers face difficulties in demand management and capacity utilization because unused service capacity at any time is lost revenue that cannot be recaptured. 4. Intangibility Definition: Services are intangible; they cannot be seen, touched, or possessed before they are delivered. Example: Insurance policies or consultancy services are intangible, offering advice or risk coverage that customers cannot physically inspect before purchase. Challenges: Marketing and selling services can be more complex due to the difficulty of displaying and quantifying the service benefits and quality before consumption. 3 Prof. Jalili Service Operations Management MG316 5. Heterogeneity Definition: Services are heterogeneous, meaning their quality and consistency can vary significantly from one service provider to another, or even from one service encounter to another. Example: A restaurant visit may differ in food quality and service depending on the chef and waitstaff on a particular day. Challenges: Ensuring consistent service quality is a major management challenge, especially when human performance factors into the service delivery. 6. Non-transferrable Ownership Definition: In services, ownership of the actual service cannot be transferred from provider to consumer. Instead, customers obtain temporary access or the benefit of expertise. Example: Joining a gym provides access to fitness equipment and classes but does not transfer ownership of these resources to the gym members. Challenges: The inability to transfer ownership complicates the relationship between cost, value perception, and customer satisfaction, making it challenging to set prices that reflect the true value of the service. Reflective questions for class discussions: 1. Customer Participation: Reflect on a recent service experience where your participation significantly influenced the outcome. What aspects of your involvement do you think were most critical to the service's success or failure? 2. Simultaneity: Think of a time when you received a service as it was being produced. How did the simultaneous nature of production and consumption affect your perception of the service quality? 3. Perishability: Consider a service you use that is highly perishable (like fitness classes or live entertainment). What challenges do you think the provider faces in balancing supply and demand, and how could they improve? 4. Intangibility: Recall a service you purchased based primarily on intangible benefits (like insurance or educational courses). What made you decide to purchase this service, and how was the value communicated to you before purchase? 5. Heterogeneity: Can you remember a service encounter that varied greatly from previous experiences with the same provider? What factors contributed to this variability, and how did it impact your satisfaction? 6. Non-transferrable Ownership: Discuss a service where you have access but no ownership (like digital streaming services). How does the lack of physical ownership influence your valuation and use of the service? 4 Prof. Jalili Service Operations Management MG316 Non-ownership Classification of Service Services are essentially intangible economic activities where value is created and delivered in various forms, ranging from access to physical goods and spaces to the provision of specialized labor and expertise. Each type of service operation in the table below offers a unique value proposition to the customer, whether it's temporary use of a physical good, exclusive access to a specific location, or the benefits derived from professional skills. The classification also highlights the management challenges associated with each type of service, underscoring the need for strategies tailored to the specific characteristics of services such as intangibility, perishability, and variability. Reflective questions for class discussions: 1. Think of a service you have used recently that falls into one of the categories listed in the table. How did the management challenges identified in the table manifest in your experience? For example, if you rented a car (Goods Rental), did you notice any issues related to site selection or maintenance? 2. Choose a type of service from the table and imagine you are managing a business within that category. What strategies would you implement to overcome the management challenges specific to that type of service? For instance, if you managed a network usage service like an internet provider, how would you ensure network availability and make effective pricing decisions? 5 Prof. Jalili Service Operations Management MG316 Service Package A service package encompasses all the elements that make up the entirety of a service offering. Here’s how each component plays a role: 1. Explicit Services are the primary services that the customer explicitly receives. They represent the main reason for the customer’s purchase and are usually clearly defined and measurable. 2. Implicit Services are the additional benefits that are not always visible or stated outright but are intrinsic to the service. They contribute to the overall customer experience and satisfaction. 3. Supporting Facility refers to the physical resources that must be in place for the service to be delivered. These include the buildings, equipment, and other tangible elements involved in service delivery. 4. Facilitating Goods are the tangible elements that are consumed or used up during the delivery of the service. Unlike supporting facilities, facilitating goods are part of the service transaction itself. 5. Information is crucial as it supports and facilitates the effective delivery of the service. It includes data used by the service provider to tailor or perform the service and information given to customers to enhance their understanding or utilization of the service. Using these components, let’s design a comprehensive service package for a hair salon: 1. Hair Salon Explicit Services: a. Haircut, coloring, and styling services. b. Special treatments like keratin treatments or scalp therapies. c. Each service is clearly defined in terms of what it involves, the expected outcomes, and the duration. 2. Hair Salon Implicit Services: a. A welcoming environment that makes clients feel relaxed and valued. b. Consultation and personalized advice on hair care and styling. c. Follow-up care instructions and recommendations for maintaining hair health post-visit. 3. Hair Salon Supporting Facility: a. The salon location, which should be easily accessible and visually appealing. 6 Prof. Jalili Service Operations Management MG316 b. Well-maintained and comfortable salon chairs, hair washing stations, and adequate lighting. c. A waiting area with amenities like magazines, beverages, and possibly Wi-Fi. 4. Hair Salon Facilitating Goods: a. Hair care products like shampoos, conditioners, dyes, and styling products. b. Towels, capes, and other disposables used during various treatments. c. Tools such as scissors, hairdryers, curling irons, and brushes. 5. Hair Salon Information: a. Detailed descriptions of services offered on the salon’s website, in brochures, or displayed within the salon. b. Information about the qualifications and experience of the hairstylists. c. Booking system that provides information about available slots, the duration of services, and the specific hairstylists available. Reflective questions for class discussions: 1. Reflect on a recent visit to a service provider, like a hair salon or a similar establishment. Which explicit and implicit services impacted your overall experience the most, and why? 2. Considering the supporting facilities and facilitating goods discussed in the hair salon example, identify a service encounter where the quality or lack of these components significantly influenced your satisfaction. How did this affect your perception of the service? 3. Information is a crucial part of any service package. Recall an experience where poor or excellent communication (information sharing) by the service provider changed your service experience. What improvements or strategies would you suggest for better information flow? 4. Implicit services often go unnoticed until they are absent. Think of a time when an implicit service element was missing from your service experience. How did its absence affect your overall satisfaction and likelihood of returning to the service provider? 7 Prof. Jalili Service Operations Management MG316 Service-Dominant Logic Goods-Dominant (G-D) Logic: Goods-Dominant Logic is a traditional business perspective that focuses on the production and distribution of tangible goods. In this view, value is predominantly created by the firm and embedded within physical products, which are then exchanged with customers. The primary focus is on transactions where goods are sold and purchased, and customer interaction is often limited to the point of sale. This approach tends to emphasize efficiency in production, product quality, and features as the main drivers of consumer choice and value perception. Service-Dominant (S-D) Logic: Service-Dominant Logic represents a shift in business thinking and practice, emphasizing that value is co-created between providers and consumers through service exchanges. According to S-D Logic, all businesses are service-based at their core, even those traditionally seen as product-centric. This logic views goods simply as a medium for service delivery. Value is not inherent in products themselves but is realized in the use of a product or service and through the interactions between the provider and the consumer. It highlights the importance of relationships, experiences, and customer involvement in the value creation process Attributes Goods-Dominant (G-D) Logic: Service-Dominant (S-D) Logic: G-D logic is centered on tangible S-D logic is centered on intangible goods and outputs. The value is processes and relationships. It Centricity embedded in the product and is emphasizes the co-creation of value transferred to the customer upon through interactions between providers purchase. and beneficiaries. Value is not just created by the Value is primarily produced by the manufacturer; instead, it's co-created manufacturer and consumed by the with the customer and other Value Creation customer. The manufacturer-centric stakeholders. Value is realized when view assumes the value is created the customer uses the service or good when the product is produced. in their own context. Emphasis is on discrete transactions – Focus is on ongoing relationships and Transactions one-time exchanges where the services rather than one-off customer pays for a product transactions. The customer is an active co-creator of The customer is typically passive, value. They're not just passive Role of playing the role of the recipient of recipients but play an integral role in Customer value. defining and generating value from the services or goods. 8 Prof. Jalili Service Operations Management MG316 Stages of Economic Evolution Understanding the stages of economic development provides critical insights into the evolution of societies. Here are the main stages and their features: 1. Preindustrial (Agrarian) Society: An argrarian society (or agricultural society) is any society whose economy is based on producing and maintaining crops and farmland. Goods are produced for the consumption and survival of a family or a group. People traded/sold items to each other but at low volumes in their rural communities but nothing like the mass production we have today. Subsistence Farming: Agriculture dominates the economy, and the primary aim is to produce enough food to sustain the community. Manual Labor: The majority of work is done manually or with the help of animals. Limited Specialization: Most people are involved in farming, and there's limited occupational specialization. Low Technological Advancement: Limited technology and innovation. Limited Infrastructure: Poor roads, lack of schools and hospitals. Social Structures: Social hierarchy is often based on land ownership or tribal affiliations. 9 Prof. Jalili Service Operations Management MG316 2. Industrial Society: Industrial societies support large populations with mass production of goods using technology. Division of labor is the operational law where work is divided into tasks. Main Features are: Factory System: Introduction of factories and mass production techniques. Specialization: Increased occupational specialization and division of labor. Urbanization: Population shift from rural areas to cities. Technological Advancements: Rapid advancements in machinery, transportation, and communication. Capitalism: Emergence of capital markets, commercial banking, and the stock exchange. Higher Living Standards: Improved sanitation, healthcare, and education. Class Structure: Class stratification is often based on employment and income. 3. Postindustrial (Service) Society: The post-industrial society is the stage of society's development when the service sector generates more wealth than the manufacturing sector of the economy. Main Features are: Service-Dominant: The economy is largely driven by services like healthcare, education, and information technology. Knowledge Economy: Increased importance of intellectual services and skills. Automation: Significant automation of manual and routine tasks. Globalization: Highly interconnected global economy. Information Technology: Pervasive use of computers, the internet, and other digital technologies. Flexible Work: More freelancers, contract workers, and flexible working arrangements. Social Mobility: More opportunities for social mobility based on education and skills rather than lineage or capital ownership. Each stage of economic development is characterized by a set of features that distinguish it from the others. Societies transition from one stage to another through complex processes involving technological innovation, social change, and economic restructuring. These stages are not strictly linear, as some societies may show features of more than one stage, but they provide a useful framework for understanding economic development. 10 Prof. Jalili Service Operations Management MG316 Why Shift Towards Services? The transition towards service-oriented economies can be understood through several key dynamics: 1. Increasing Productivity: As productivity (measured as output per hour) increases within a specific sector, it often leads to a redistribution of the labor force into other sectors. This shift is typically towards services that require more specialized skills or offer new opportunities for employment. 2. Support for Industrial Development: Initially, the rise of services was driven by the need to support expanding industrial sectors. This included the development of services like transportation, utilities, sales, marketing, maintenance, and repair, which are foundational for industrial growth. 3. Demographic and Consumption Changes: With population growth and increased mass consumption, there's a heightened demand for services such as wholesale, retailing, banking, insurance, and real estate. These services facilitate the daily transactions and financial activities that underpin a consumer-driven economy. 4. Rising Incomes: As personal and national incomes increase, people allocate more of their finances to discretionary spending. This leads to higher spending on services that enhance quality of life, such as higher education, investment opportunities, entertainment, and personalized services. These factors collectively drive the shift towards a more service-oriented economic structure, reflecting changes in productivity patterns, consumer behavior, and economic development. Check your knowledge Which factor contributes to the transition towards service-oriented economies? a) Decrease in population b) Decrease in manual labor c) Increase in productivity leading to labor redistribution d) Stagnation in technological development What role do services related to transportation, utilities, and marketing play in economic development? a) They diminish the importance of the industrial sector. b) They support the expansion of the industrial sector. O c) They are irrelevant to industrial growth. d) They replace all industrial activities. 11 Prof. Jalili Service Operations Management MG316 The Role of Services in an Economy The figure below shows various categories of services within the service industry. The input/output arrows highlight the exchange of value and output between different sections of the industry: Government Services provides essential public goods and services like law enforcement, education, and healthcare. Sets policies and regulations that shape economic activities. Financial Services offers banking, insurance, and investment services. These facilitate business expansion, safeguard assets, and stimulate economic growth through the provision of capital. Business-to-Consumer (B2C) Services includes retail, hospitality, and other services aimed at individual consumers. Drives consumer spending and contributes to GDP. Business-to-Business (B2B) Services consists of services like logistics, consulting, and IT services that help businesses operate efficiently and competitively. Healthcare Services ensures the well-being of the population, allowing for a healthier and more productive workforce. Educational Services develops human capital by providing skills and knowledge, which are key factors in driving economic innovation and productivity. 12 Prof. Jalili Service Operations Management MG316 Information and Communication Technology (ICT) Services enables efficient communication and data processing, which are vital for modern economies. Transportation and Logistics Services facilitates the movement of goods and people, integral for both domestic and international trade. Utility Services provides essential utilities like electricity, water, and gas, which are foundational to both individual well-being and industrial activity. 13 Prof. Jalili Service Operations Management MG316 Experience Economy The next stage of economic development could be what is sometimes called the "Experience Economy", a shift from selling services to selling memorable experiences. Main Characteristics of the Experience Economy 1. Staging Experiences: Instead of merely offering goods or services, companies in the Experience Economy stage memorable events around their offerings, turning a service into an experience. 2. Personalization: Tailoring experiences to individual customers is crucial. Personalization enhances the emotional connection and relevance of the experience to each customer. 3. Engagement: In the Experience Economy, engagement is paramount. Businesses strive to involve customers actively and immersively, often transforming passive consumers into active participants. 4. Emotional Connection: The goal is to elicit strong emotional responses that forge a deep, lasting connection between the customer and the brand. This emotional engagement is what makes an experience memorable and encourages customer loyalty. 5. Memorability: An experience must be memorable for it to be valuable. Businesses focus on creating unique and unforgettable moments that are likely to be cherished and shared. 6. Transformation: Experiences in this economy often seek to provide transformational value, improve meaning they aim to have a lasting impact on the consumer's life, such as improving their skills, knowledge, emotional state, or even personal growth. quality 7. Integration: This involves blending the experience seamlessly with the customer's lifestyle and values. The experience should feel like a natural extension of the consumer's identity or aspirations. 8. Exclusivity: Providing exclusive experiences that cannot be easily replicated by competitors is another key principle. Exclusivity can enhance the perceived value and desirability of the experience. 9. Thematic Cohesion: Effective experiences often revolve around a cohesive theme, which helps to integrate various elements of the experience into a unified whole, making it more comprehensive and enjoyable. 10. Attention to Detail: In the Experience Economy, the smallest details can make the biggest difference. Attention to detail ensures that every aspect of the experience is aligned with the desired emotional and psychological effects. 14 Prof. Jalili Service Operations Management MG316 Reflective questions for class discussions: Exclusivity vs. Accessibility: Exclusivity is a principle of the Experience Economy, but it can sometimes lead to elitism or reduced accessibility. How should companies address the balance between creating exclusive experiences and ensuring broader accessibility? Personalization and Technology: How can businesses use technology to enhance personalization in the Experience Economy? Provide examples where technology could tailor experiences in ways that deeply connect with individual preferences and emotions. Future Career: As future professionals, how do you think the rise of the Experience Economy will affect your chosen field? Consider professions in areas like marketing, design, healthcare, and education. Long-Term Impact: What long-term impacts might the Experience Economy have on consumer expectations and business models? Predict how companies will need to evolve their strategies to continue captivating customers Disney World stages immersive experiences for its visitors by creating themed lands like 'Star Wars: Galaxy’s Edge' which offers a complete Star Wars experience from rides to dining in theme. What principle of the Experience Economy does Disney World exemplify by creating themed lands? Starbucks allows customers to customize their coffee orders down to the smallest detail, including temperature, flavor, milk type, and syrup additions. How does Starbucks utilize the Experience Economy in their service model? Escape rooms are popular experiences where players are actively involved in solving puzzles to 'escape' from a themed room within a set time limit. Which principle of the Experience Economy is primarily utilized by escape rooms to ensure customer satisfaction? Apple launches its products through high-profile events and advertisements focusing on design and user experience, which resonates emotionally with its customers. Which Experience Economy principle does Apple employ to build brand loyalty? 15 Prof. Jalili Service Operations Management MG316 Consumer Service Experience One way to think about customer experiences is across two dimensions. 1. The first corresponds to customer participation: active or passive. 2. The second dimension of experience describes the connection, or environmental relationship, that unites customers with the event or performance. Absorption: As the name suggests, the customer absorbs the service. This can be active or passive in terms of customer participation. While watching a movie, the customer is passive and does not interact with the service provider. In class, a student is listening to the instructor but also can participate. This is active. Immersion: In immersion, customers are surrounded by the service, not just “watching” it. Again, the customer can be passive or active. A tourist is immersed in the culture, but they are not a part of it. This is passive. On the other hand, in Scuba diving, the customer is immersed in the activity but also the person performing it. How can a service provider use this information about the four realms of service to their advantage? Depending on whether the customers are active or not will tell you whether you need to train your customers. An example of this is Starbucks, as the service you are receiving is highly customized you need customers to know the names of different sizes. They have their own language. When it comes to the level of interaction with the environment, this gives you information about how you need to manage things. For example, in escape rooms usually at the end of the session, you will find the room dismantled, you as the service provider need to prepare it for the next one. 1. Passive-Absorption: In this quadrant, consumers are mainly passive and only mentally engaged with the service. Example: Watching a movie in a theater. The consumer is passive in the sense that they are not actively participating in the creation or delivery of the experience, but they are absorbed in the narrative. 2. Active-Absorption: Here, consumers are active but still primarily mentally engaged. 16 Prof. Jalili Service Operations Management MG316 Example: Attending a cooking class where they follow along with an instructor. They're actively participating but remain focused on absorbing the knowledge and skills being imparted. 3. Passive-Immersion: In this quadrant, consumers are physically involved but their activity level is low. Example: Sitting in a spa or a sensory deprivation tank. Although consumers are physically immersed in the experience, their level of activity is low—they simply 'experience' the service. 4. Active-Immersion: In this quadrant, consumers are both physically involved and highly active. Example: Participating in an escape room challenge. Consumers are both mentally and physically active as they engage with the environment, solve puzzles, and interact with other participants. 17