Module B Service Strategy & Design PDF

Prof. Jalili Service Operations Management MG316 Module B: Service Strategy & Service Design Table of Contents Module B: Service Strategy & Service Design.................

Prof. Jalili Service Operations Management MG316 Module B: Service Strategy & Service Design Table of Contents Module B: Service Strategy & Service Design............................................................................... 1 Service Strategy: Who, What and How?.......................................................................................... 2 Target Market Segment: Understanding the "Who"................................................................................ 2 Service Concept: Defining the "What"........................................................................................................ 2 Operating Strategy and Service Delivery System: Mastering the "How".......................................... 2 Service Qualifiers, Service Winners, and Service Losers.......................................................... 4 Business Model Canvas....................................................................................................................... 5 Porter's Five Forces.............................................................................................................................. 7 Porter’s Generic Strategies................................................................................................................. 9 1. Cost Leadership Strategy...................................................................................................................... 9 2. Differentiation Strategy......................................................................................................................... 10 3. Focus Strategy........................................................................................................................................ 11 Zero Sum Competition vs. Positive Sum Competition.............................................................. 12 SWOT Analysis..................................................................................................................................... 13 Competitive Use of Information in Services................................................................................. 14 Risks/Limitations of Information in Services............................................................................... 14 Service Design...................................................................................................................................... 16 Structural Decisions....................................................................................................................................... 16 Managerial Decisions..................................................................................................................................... 16 1 Prof. Jalili Service Operations Management MG316 Service Strategy: Who, What and How? A well-devised strategy should not only align with the service founder’s vision and mission, but also clearly provide answers to the following three key questions: Who: Identifying the Target Market What: Defining the Service Concept How: Developing the Operations Strategy and Delivery System Let’s explore each of these components in detail: Target Market Segment: Understanding the "Who" Market Characteristics: Begin by identifying the demographic, psychographic, and behavioral characteristics of the target market. Knowing who the customers are allows for tailored services that directly address their needs and preferences. Segmentation: Explore the methods of segmenting the market, such as by demographics or behaviors, to ensure that services are designed and delivered to meet the specific needs of different customer groups. Needs Assessment: Assess how well the current services address the needs of these segments and identify any gaps where the market may be underserved. Service Concept: Defining the "What" 1. Customer Expectations: Define the expected outcomes that customers seek from the service. Understanding these expectations helps in designing a service that aligns with what customers value most. 2. Perception of Value: Discuss how the service is intended to be perceived by both customers and employees. What value does the service promise, and how is this communicated? 3. Customer Perception: Evaluate the current perception of the service among customers. Are there discrepancies between what is promised and what is delivered, and how can these be addressed? Operating Strategy and Service Delivery System: Mastering the "How" How (Level 1): Operating Strategy: o Business Functions: Outline how operational, financial, and marketing strategies are integrated to enable offering the “what” to “who” o Resource Allocation and Control: Explore where efforts and investments are focused to maintain quality and control costs. Discuss the importance of cost management in ensuring profitability while delivering high-quality services. 2 Prof. Jalili Service Operations Management MG316 o Competitive Benchmarking: Define the key performance indicators (KPIs) that are used to measure success against competitors. What results are expected, and how are they evaluated? How (Level 2): Service Delivery System: o System Features: Identify the critical elements that make up the service delivery system, including people, technology, and processes. How do these features ensure that the service is delivered effectively and consistently? o Capacity and Differentiation: Discuss the capacity of the delivery system to handle demand and how the service differentiates itself from competitors in terms of quality, price, and convenience. o Barriers to Entry: Consider whether the service strategy includes mechanisms to create barriers to entry, protecting the business from new competitors. Who: Target How (Level 2): What: Service How (Level 1): Company Market Service Delivery Concept Operating Strategy Segment) System Leverages economies Subscription- of scale, advanced Utilizes advanced Tech-savvy, based service data analytics, and logistics, extensive Amazon convenience- offering fast cloud computing to distribution network, Prime oriented shipping, optimize operations and partnerships to consumers streaming, and and deliver ensure fast delivery. exclusive deals personalized experiences. Invests in supply chain High-quality Coffee sustainability, local Focuses on barista coffee enthusiasts, store design, and training, store beverages, urban digital customer ambiance, and a Starbucks personalized professionals, engagement to mobile app for service, and a students, and maintain brand ordering and premium café travelers consistency and rewards experience customer loyalty. 3 Prof. Jalili Service Operations Management MG316 Service Qualifiers, Service Winners, and Service Losers In the heart of the “what” component, where the service concept and “value proposition” is homed, it's crucial to understand and distinguish the following three concepts: Service Qualifiers are factors are necessary for the service to be considered by customers? Failing to meet these can disqualify the service provider from the competition. Service Winners are aspects of the service that differentiate it from competitors and lead to a purchase decision. These factors give the business a significant advantage and are pivotal in the customer's choice of one service provider over another. Service Losers are factors that can cause a business to lose customers to other alternatives. These are often the opposite of Service Qualifiers and Winners. Service qualifiers for our Business School: Accreditation: The school must have valid accreditation to ensure that the degree is recognized. Basic Curriculum: The school should offer a comprehensive range of business courses like marketing, finance, and operations. Qualified Faculty: Professors should have at least a minimum level of qualification and experience. Service winners for our Business School: Reputation/Ranking: A top-tier ranking can make a school particularly attractive to high- achieving students. Networking Opportunities: Strong connections with the business community for internships and job placements can be a major draw. Alumni Success: If the school's alumni have a track record of succeeding in high-profile roles, that’s a compelling selling point. Service losers for our Business School: High Attrition Rates: If a significant percentage of students drop out or transfer, it's a red flag. Outdated Curriculum: A curriculum that doesn't keep pace with the evolving business landscape can be a major disadvantage. Poor Facilities: Inadequate libraries, classrooms, or online learning platforms can seriously hurt the school's image. Prepare for class Select a service on campus that interests you (e.g., a class, tutoring, campus meal, …). Speak to one person on the seller side (employee, manager, or owner) and one on the buyer side (customer or user). Ask each person about the service’s order qualifiers, order winners, and order losers. Compare their views to see if they agree or differ on these aspects. 4 Prof. Jalili Service Operations Management MG316 Business Model Canvas1 Business Model Canvas is a simple and strong strategic management tool that provides a framework for developing new business models or documenting existing ones. It consists of nine basic building blocks that show the logic of how a company intends to make money. Lovely Video: The Business Model Canvas - 9 Steps to Creating a Successful Business Model 1. (WHO) Customer Segments: This block identifies the different groups of people or organizations that the business aims to serve. It answers the question, "Who are our target customers?". 2. (WHAT) Value Propositions: This section outlines the unique value that the business offers to its customers. It describes what problem the business solves or what need it fulfills for the customer. It answers the question, "What is our service concept?" 3. (HOW) Channels: This block describes the various ways the business delivers its products or services to customers. These can include physical and online retail outlets, direct sales, and other distribution methos. 4. (HOW) Customer Relationships: This component outlines the type of relationship the business establishes with its customers. This could range from personalized service to automated solutions, and it often ties into customer retention strategies. (get them, keep them, grow them) 5. (HOW) Revenue Streams: This block describes how the business makes money from its customers. Revenue streams can include sales, subscriptions, licensing, and other methods of generating income. 1 Not in your textbook, but one of my most favorite ways to model a business! 5 Prof. Jalili Service Operations Management MG316 6. (HOW) Key Resources: This section lists the essential assets required to deliver the value proposition, reach the target customer, and operate the business. These can be physical, financial, intellectual, or human resources. 7. (HOW) Key Activities: This block describes the most important actions the company must take to operate successfully. These can include production, marketing, sales, and customer support. 8. (HOW) Key Partnerships: This block identifies organizations, suppliers, or individuals who are not part of the company but whose cooperation is essential for the business model to work. Partnerships can help businesses expand their reach, improve their offering, or reduce risk. 9. (HOW) Cost Structure: This final section outlines the expenses and financial structure required to operate the business model. This can include fixed and variable costs, as well as the costs associated with each key activity and resource. Recommendation for your team project You can use a business model canvas as a great tool to organize your findings about the company’s strategic viewpoint on how they run to wish to run their business 6 Prof. Jalili Service Operations Management MG316 Porter's Five Forces Porter's Five Forces Analysis is another strategic framework that helps analyze the level of competition within an industry and the attractiveness of that industry to new or existing competitors. Click to watch this 2 min video as a summary of “5” forces: The Explainer: The 5 Forces That Make Companies Successful 1. Potential New Entrants: This force examines the likelihood and ease with which new competitors can enter the market. Barriers to entry, such as high capital requirements, stringent regulations, and strong brand equity, can protect existing businesses from new competitors. If barriers are low, new entrants can easily enter the market, increasing competition and potentially reducing profitability for established firms. 2. Bargaining Power of Suppliers: This force analyzes the power that suppliers have over the price and quality of inputs used by businesses. When suppliers provide a unique or highly specialized input, they can exert significant power over the service providers by demanding higher prices or reducing quality. This can squeeze the margins of businesses reliant on these inputs, particularly if there are few alternative sources. 3. Bargaining Power of Customers: This force looks at the influence that customers have over the pricing and terms of service. Customers with high bargaining power can demand lower prices, better service, or more features. Factors such as price sensitivity, purchase volume, and the availability of information can increase this power, forcing businesses to adapt to customer demands to maintain loyalty and market share. 4. Threat of Substitutes: This force considers the threat posed by alternative products or services that fulfill the same customer needs.If customers can easily switch to a substitute service with lower 7 Prof. Jalili Service Operations Management MG316 costs or better features, the threat is high. This forces companies to constantly innovate and improve their offerings to avoid losing customers to substitutes. 5. Competition within Industry: This force examines the level of rivalry among existing competitors in the industry. High competition within an industry can lead to price wars, increased marketing costs, and reduced profitability. The number of competitors, the growth rate of the industry, and its overall capacity all contribute to the intensity of competition. Watch this 13 min video where Professor Michael Porter himself explain these five forces applied to the airline industry. Ideas for your blogging project For the chosen industry you want to focus on, can you conduct a five forces analysis? If the airline industry is your chosen industry, summarize the key points Michael Porter made in this video and offer your own insight on how things changed for better or worse this video was made? 8 Prof. Jalili Service Operations Management MG316 Porter’s Generic Strategies Porter's generic strategies outline how a company gains a competitive edge within its market. There are three main strategies: cost leadership, differentiation, and focus. A company can either achieve lower costs than its competitors or differentiate itself by offering unique value that justifies a higher price. Additionally, companies choose between a broad market scope, serving many segments, or a narrow focus, targeting specific segments. These strategies, introduced by Michael Porter in 1980, reflect a company’s approach to achieving competitive advantage through cost or differentiation within a chosen market scope. 1. Cost Leadership Strategy What: The Cost Leadership strategy aims to become the lowest-cost producer in the industry. The value proposition here is centered around offering products or services at a lower price than competitors, thereby attracting price-sensitive customers. How: Operational Strategy: Implementing a cost leadership strategy requires rigorous cost control measures across the entire operation. Companies need to streamline processes, negotiate lower input costs, optimize supply chains, and invest in efficient technologies. Automation and economies of scale are often leveraged to minimize costs. Delivery System: The delivery system focuses on efficiency and standardization. For example, Southwest Airlines, a classic example of cost leadership, uses a point-to-point flight model 9 Prof. Jalili Service Operations Management MG316 instead of the traditional hub-and-spoke system used by many airlines. This reduces turnaround times and operating costs. Additionally, Southwest offers no-frills service, such as not serving meals on flights, further reducing costs. Cost leadership strategy can be implemented in the following ways: Seeking out Low-cost customers: Sam’s Club targets customers willing to buy in quantity and serve themselves. Spirit Airlines targets customers who are willing to travel light and can do without frills. Standardizing a Custom Service: H&R Block is a tax preparation company. Even though tax preparation is custom, the simple tax preps can be standardized. Turbo tax is a product substitute for H&R. Reducing the Personal Element in Service Delivery: ATMs reduced interaction with bank teller, self-checkouts at grocery stores, self-check-in at the airport. Reducing Network Costs: Instead of directly shipping from one location to another use hub and spoke approach. FedEx has hubs where items are sorted first and then transferred to the destination cities. Taking Service Operations Offline: This means that during the service, the customer may not be present. Pickup and drop-off laundry services. 2. Differentiation Strategy What: The Differentiation strategy is centered around creating unique products or services that offer distinctive benefits valued by customers. The value proposition lies in the uniqueness of the product or service, which justifies a premium price. Differentiation can be based on product features, brand image, customer service, or technology. How: Operational Strategy: To implement a differentiation strategy, companies must invest in research and development, innovation, and marketing to create and communicate the unique value of their offerings. Quality control, brand management, and customer service excellence are crucial to sustaining the differentiation. Delivery System: The delivery system for a differentiation strategy often involves high levels of customization and personalized service. For example, Apple differentiates itself through its sleek product design, cutting-edge technology, and seamless ecosystem. Its retail stores are designed to provide an immersive customer experience, with knowledgeable staff offering personalized support. The entire customer journey, from product discovery to post-purchase support, is meticulously crafted to reinforce Apple’s premium brand image. Differentiation strategy can be implemented in the following ways: Making the Intangible Tangible: Hotels provide toiletries with the hotel’s name on them. Customizing the Standard Product: Burger King’s made-to-order policy to differentiate itself from McDonald’s. A spa or hotel addressing the new customer by name. 10 Prof. Jalili Service Operations Management MG316 Reducing Perceived Risk: When a customer is purchasing a service, they usually don’t know what they are going to get. Fedex or UPS or USPS has guaranteed delivery. Giving Attention to Personnel Training: Investment in personnel development and training. McDonald’s Hamburger University. Development programs within Bentley. Controlling Quality: There is variability in services. Trying to remove this variability as much as possible. Student and peer evaluations at schools. 3. Focus Strategy What: The Focus strategy involves targeting a specific market niche, either through cost focus or differentiation focus. The value proposition here is tailored to the unique needs of a narrow segment of customers, offering either lower costs (Cost Focus) or specialized products/services (Differentiation Focus). How: Operational Strategy: Implementing a focus strategy requires a deep understanding of the targeted niche market. Companies must align their resources and capabilities to serve this segment better than competitors who target a broader audience. This may involve specialized production processes, targeted marketing campaigns, and dedicated customer service teams. Delivery System: The delivery system under a focus strategy is highly tailored to meet the specific needs of the niche market. For example, Rolls-Royce operates with a differentiation focus strategy, catering to a niche market of luxury car buyers. Their operations are tailored to produce highly customized, hand-crafted vehicles with a focus on quality and exclusivity. Another example is Allegiant Air, which follows a cost focus strategy by targeting underserved regional airports and offering low-cost flights, primarily catering to leisure travelers. 11 Prof. Jalili Service Operations Management MG316 Zero Sum Competition vs. Positive Sum Competition In the strategic framework proposed by Michael Porter, businesses face a choice between Zero Sum and Positive Sum Competition. This choice significantly influences their approach to the market and overall success. Zero Sum Competition In Zero Sum Competition, businesses directly compete for the same finite market share, assuming that one company's gain is another's loss. This often leads to price wars and aggressive tactics to undermine competitors, which can damage long-term industry profitability. For example, airlines competing solely on ticket prices often find themselves in a profit-eroding race to the bottom. Positive Sum Competition Conversely, Positive Sum Competition encourages businesses to innovate and diversify, expanding the market itself and creating new opportunities for profit. Companies focus on differentiating their offerings and meeting varied customer needs, which allows multiple players to succeed simultaneously. For instance, Apple’s introduction of the iPhone expanded the mobile phone market into what we now know as the smartphone industry, creating vast new value that many companies could tap into. Strategic Implications Opting for Positive Sum Competition involves leveraging unique capabilities to develop products and services that expand the market rather than just capturing more of it. This approach fosters innovation, enhances customer value, and promotes a healthier, more sustainable industry environment. 12 Prof. Jalili Service Operations Management MG316 SWOT Analysis SWOT analysis is a strategic planning technique, that Identifies core strengths, weaknesses, opportunities, and threats: Strengths Weaknesses What could you improve? What do you do better than others? What should you avoid? What unique resources do you have? What factors lose sales? Opportunities Threats What are your competitor’s Do you have cash-flow problems? vulnerabilities? What are your competitors doing? Does technology offer new service Is changing technology threatening your options? position? What are current market trends? A SWOT analysis can be a useful tool for evaluating your CV and overall career: 1. Strengths: Qualities that give you an advantage over others and are within your control. Specialized Skills: List technical skills or certifications that make you stand out. Experience: Number of years in the industry, types of projects you've managed, or roles you've had that demonstrate deep expertise. Network: Having a broad and diverse professional network can be a significant strength. 2. Weaknesses: Qualities that put you at a disadvantage compared to others, but can be improved or managed. Skill Gaps: Are there technical skills or certifications you lack that would make you more competitive? Limited Experience: If you're newer to the industry, this could be a weakness. Poor Networking Skills: Lack of a professional network or mentors to help guide your career. 3. Opportunities: External factors that you can take advantage of to enhance your career. Industry Trends: Is your industry growing? Are there emerging areas where you could become an expert? Job Market: Are there companies opening offices in your area, or is remote work becoming more widely accepted? Educational Programs: Special courses, webinars, or certifications that could help you fill your skill gaps. 4. Threats: External conditions that could damage your career. Industry Decline: Is your industry shrinking, or are jobs in your area becoming less secure? Increased Competition: Are there a significant number of new graduates in your field? Is the industry becoming oversaturated? Technological Changes: Is automation or digitization a threat to your current role? 13 Prof. Jalili Service Operations Management MG316 Competitive Use of Information in Services Information technology plays a crucial role in shaping competitive strategies in the service industry by enabling: A. Creation of Barriers to Entry: Information can serve as a barrier to entry for competitors. When a service company possesses unique, valuable, and extensive data about its customers, market trends, or proprietary processes, it becomes challenging for new entrants to replicate the same value without similar information. Here are some examples: B. Revenue Generation: Information, when utilized properly, can lead to direct and indirect revenue streams. Directly, by selling data (in ethical ways and with user consent) or using data to optimize pricing strategies. Indirectly, by leveraging data to enhance the customer experience, leading to higher retention and loyalty. C. Database asset: Over time, as a company accumulates data, this collection becomes an asset in itself. A well-maintained database can be leveraged for various purposes, from product development to market research, making it invaluable. D. Productivity enhancement: Information can streamline operations, reduce inefficiencies, and enhance overall productivity. Whether it's by automating certain processes, providing employees with better insights to make quicker decisions, or identifying bottlenecks in a service chain, information is crucial. Risks/Limitations of Information in Services Leveraging data in business is a double-edged sword. While it can offer significant advantages, it also presents risks and potential for unethical practices. Let's delve into some of the previously mentioned company examples and discuss potential concerns in the context of the points you listed: 1. Anti-competitive: To create entry barriers, reservations systems and frequent flyer miles have been used. The long-run implication is the removal of price competition on air travel. a. Google Search: Google's dominance in the search engine market has led to antitrust investigations in various countries. Critics argue that Google prioritizes its own services in search results, stifling competition. b. Apple's Ecosystem: Apple has faced scrutiny for its App Store policies, where it's alleged to limit competition by imposing restrictions on third-party apps or prioritizing its own services. c. https://en.wikipedia.org/wiki/Anti-competitive_practices d. Video: Monopolies and Anti-Competitive Markets: Crash Course Economics 2. Fairness: Under yield management (we will cover this in Module D), ticket prices can change. Two people sitting next to each other on a plane might have paid very different amounts for their fare. a. Uber's Surge Pricing: While surge pricing can be seen as a simple supply-demand equation, it has been criticized for being unfair, especially during emergencies or crucial events, leading to accusations of price gouging. 14 Prof. Jalili Service Operations Management MG316 b. Amazon: The company has been under scrutiny for potentially promoting its own products or brands (AmazonBasics) over other sellers, which raises concerns over fair market competition. 3. Invasion of Privacy: Micro-marketing sharing information about customers to other firms. a. Facebook (as mentioned in the barriers to entry section): The platform has faced multiple controversies, like the Cambridge Analytica scandal, where user data was allegedly used without proper consent, leading to significant privacy concerns. b. LinkedIn: Even though it's a professional network, there have been concerns about how user data is utilized for advertising or sold to third-party providers. 4. Data security: How can sensitive information be safe? Allowing information to get into the hands of other for inappropriate use is a significant problem. Blackballing prospective employees or patients. a. Dropbox: In the past, Dropbox faced a significant data breach where millions of account details were compromised. This raised concerns about the company's ability to secure sensitive user data. b. Zillow: Given its vast database, any potential breach could expose sensitive property or financial details of its users. 5. Reliability: Is the data accurate? Credit scores have a big impact on a person’s life, it is important that they are correct. a. Spotify: There are instances where certain artists or albums are suddenly unavailable due to licensing issues. While this is a business decision, it can question the reliability of the platform for users wanting consistent access to content. b. Microsoft's Office Suite: Any software bugs or glitches can severely impact the vast number of businesses that rely on these tools daily, questioning the software's reliability. 15 Prof. Jalili Service Operations Management MG316 Service Design Service design, which focuses on the "How" component of service strategy, plays a crucial role in translating the service strategy into actionable, customer-centric processes. Under service design, decisions can be broadly categorized into structural and managerial decisions: Structural Decisions These decisions lay the groundwork or foundation for how the service will operate. They are the "bones" of the service, providing a structure around which everything else revolves. These are often associated with physical elements or concrete aspects of the service offering. It pertains to the "how" and "where" of service delivery. These decisions, once made, are typically harder and more costly to change due to their foundational nature. Components What is it about? Module How is the service delivered, and what role does the customer play in Delivery System C the process? Facility Design How is the physical space designed to optimize service delivery? C Location Where is the service provided to best meet customer needs? - What size and resources are needed to effectively meet customer Capacity Planning D demand? Managerial Decisions These decisions concern the daily operations and management of the service. They're about optimizing and refining the way the foundational structures are used to deliver the service. They are often easier to adjust or modify than structural decisions. They often concern practices, policies, or procedures. While some managerial decisions might have lasting impacts, they're generally easier to modify, making them adaptable to changing conditions or feedback. Components What is it about? Module Managing Capacity & How can service capacity be aligned with varying customer D Demand demand? How, what, and when should information be communicated Information - internally and to customers? How can the service consistently meet or exceed customer Quality E expectations, and how will this be measured? What defines the interactions between service providers and Service Encounter E customers during the service experience? 16