CHAPTER 3

NEW SERVICE
DEVELOPMENT
 LEARNING OBJECTIVES
1. Describe the sources of service sector growth,
2. Describe the fundamental characteristics of service
innovation,
3. Describe the managerial issues associated with the adoption of
new technology,
4. Explain and differentiate what is meant by the divergence and
the complexity of a service process,
5. Describe the sequence of stages and the enablers of the new
service development process cycle.
6. Prepare a service blueprint,
7. Compare and contrast the four approaches to service system
design: production-line, customer as coproducer, customer contact,
and information empowerment,
8. Explain how intellectual property rights protect a service brand.
SOURCES OF SERVICE SECTOR GROWTH
Advances in information
technology, innovation, and
changing demographics that
create new demands,
“Information sector” dominates
the U.S economy.

Direction of projected
growth in the services and
information components of
the economy.
SOURCES OF SERVICE SECTOR GROWTH
INFORMATION TECHNOLOGY

Information technology has affected the process of service delivery and created
new service value chains with new business opportunities as creative
intermediaries.
The major part of the U.S. GDP will be generated by “information chains” rather
than supply chains, and most managers will be employed in information sectors.
Management of these information chains and sectors has a great deal to do with
process economics and its impact on the configuration and operation of
information chains and processes.
Technological developments underlie and drive the economics of processes
and value chains.
 SOURCES OF SERVICE
SECTOR GROWTH

INTERNET AS A SERVICE ENABLER

 SOURCES OF SERVICE SECTOR GROWTH
The push and pull theory of innovation
suggests that innovation can be driven either
by technological advancements (push) or
by market demand (pull).

INNOVATION DRIVERS

Push innovation focusing on Pull innovation prioritizes identifying

developing new technologies first and customer needs and then developing
then finding applications. solutions.
SOURCES OF SERVICE SECTOR GROWTH
INNOVATION DRIVERS
The introduction of new product
technology have an ancillary effect on
service innovation.

Unexpected events can generate

innovative services.
 SOURCES OF SERVICE SECTOR GROWTH
A new service concept often originates
with an observant contact employee who
INNOVATION DRIVERS
identifies an unmet customer need.

Service innovation also can arise from

exploiting information available from other
activities.
SOURCES OF SERVICE SECTOR GROWTH
CHANGING
DEMOGRAPHICS

A social change (French

Revolution...) resulted in a
new service industry,
The aging of population in
one country (US, Japan...),
A new time available for
leisure activities,
 INNOVATION IN SERVICES
THREE CATEGORIES
Basic research is research directed toward increases in the
knowledge or understanding of fundamental aspects of phenomena
and of observable facts without specific application toward
process or products (limited to the federal, university, and nonprofit
sectors).

Applied research is research directed toward gaining knowledge that

will meet a specific need (research for specific commercial
objectives).

Development is the systematic use of knowledge directed toward

the production of a product, service, or method. This includes the
design and development of prototypes and processes. However,
it excludes quality control, routine product testing, and
production.
 INNOVATION IN SERVICES
THREE MAIN GOALS:

Pursue a planned search for new knowledge, regardless of whether

or not the search has reference to a specific application.

Apply existing knowledge to problems involved in creating a new

service or process, including work to evaluate feasibility.

Apply existing knowledge to problems related to improving a current

service or process.
 INNOVATION IN SERVICES
CHALLENGES FOR SERVICE INNOVATION INCLUDE:
Ability to protect intellectual and property technologies: The
transparency of service systems makes imitation simpler, and patents
are difficult to obtain.
Incremental nature of innovation: Customers participate in service
systems, innovation tends to be evolutionary rather than radical to
allow for acceptance.
Degree of integration required: Service innovation requires
interactions among people, products, and technology and thus
requires systems integration.
Ability to build prototypes or conduct tests in a controlled
environment: Services cannot be tested realistically in an isolated
laboratory, so they run the risk of failure or poor performance upon
launch.
 INNOVATION IN SERVICES
LEVELS OF SERVICE INNOVATION:

Radical innovations are offerings not

previously available to customers or new
delivery systems for existing services (e.g.,
Fahasa website).

Incremental innovations are changes to

existing services that are valued as
improvements (e.g., the addition of
playscapes at Hadilao restaurants).
 INNOVATION IN SERVICES

Eight technology-related
Challenges when introducing
Readiness to embrace paradoxes:
new technology:
new technology control/chaos,
The overall level of readiness
• Technology readiness refers freedom/enslavement,
of the customer,
to a person’s propensity to new/obsolete,
Understanding the
embrace and use new competence/incompetence,
technology readiness of
technologies for efficiency/inefficiency,
employees (good candidates -
accomplishing goals in life at fulfills/creates needs,
both interpersonal skills and
home or at work. assimilation/isolation, and
technology readiness).
engaging/disengaging.
 INNOVATION IN SERVICES
Blockchain - a radical Blockchain offers a trusted, The ledger contains not just
immutable digital ledger, visible financial data but anything of
innovation
to all participants, that value (e.g., titles, deeds, music,
shows every transaction, or art) and can be moved and
Blockchain is the technical
stored securely and privately.
innovation and foundation
A blockchain is a secure globally
underlying the digital currency
distributed ledger running on Security depends only on
Bitcoin, where it serves as the
millions of individual computer keeping the private key
public ledger
devices (with no central computer private, and the public key may
for all transactions or
to hack) and open to anyone with be published without
blocks.
access to the Internet. compromising security.
 NEW SERVICE
DEVELOPMENT
01 Ideas for new service
innovations can originate from
many sources (customers’
suggestion, frontline employees,
customer databases, new trends
in demographics, advances in
technology...)

02 The input to the

“development” stage of the
new service development cycle.
 NEW SERVICE DEVELOPMENT
The new service development process cycle Enablers:
Cross-functional teams,
Tools - spreadsheets,
Organizational context -
culture of accepting
innovation.

People - both employees

and customers,
Systems,
Technology.
NEW SERVICE DEVELOPMENT
 NEW SERVICE DEVELOPMENT
SERVICE DESIGN ELEMENTS
Two categories of system elements: structural (delivery system,
facility design, location, capacity planning) and managerial
(information, quality, service encounter, capacity and demand
management),
Must be engineered to create a consistent service offering that
achieves the strategic service vision,
Become a template that communicates to customers and
employees alike what service they should expect to give and to
receive.
 SERVICE
BLUEPRINTING
01 Focus on the customer process flow showing
the interactions among staff and support
services.

02 A blueprint is a precise definition of the service

delivery system that allows management to test
the service concept on paper before any final
commitments are made.

03 The blueprint also facilitates problem solving

and creative thinking by identifying potential
points of failure and highlighting
opportunities to enhance customers’
perceptions of the service.
SERVICE BLUEPRINTING
SERVICE BLUEPRINTING
STRATEGIC POSITIONING THROUGH TWO
DIMENSIONS OF PROCESS STRUCTURE
In a service process, the number and intricacy of the steps represent the

degree of complexity of the service delivery structure,

High complexity vs. low complexity:
High complexity: To gain greater market penetration or maximize the
revenue from each customer, a strategy of adding more services can be

initiated,
Low complexity: to narrow the scope of a service by specializing is a

focused strategy.
STRATEGIC POSITIONING THROUGH TWO
DIMENSIONS OF PROCESS STRUCTURE
The amount of discretion or freedom that the server has to customize the
service is the degree of divergence that is allowed at each service process step.

High divergence vs. low divergence:

High divergence: a niche strategy that seeks out customers who are willing

to pay extra for the personalization,

Low divergence: the service can be provided with narrowly skilled

employees performing routine tasks, and the result is consistent quality at
reduced cost.
TAXONOMY FOR SERVICE PROCESS DESIGN
DEGREE OF DIVERGENCE
A standardized service (low divergence) - designed for high volume
with a narrowly defined and focused service.
The tasks are routine and require a workforce with relatively low
levels of technical skills,
Opportunities to substitute automation for labor abound (because of
the repetitive nature of the service),
Reducing the discretion of service workers is one approach to
achieving consistent service quality,
Production-line approach to service design.
TAXONOMY FOR SERVICE PROCESS DESIGN
DEGREE OF DIVERGENCE
A standardized service (low divergence) - designed for high volume
with a narrowly defined and focused service.
TAXONOMY FOR SERVICE PROCESS DESIGN
DEGREE OF DIVERGENCE
For customized services (high divergence) - more flexibility and
judgment are required to perform the service tasks.
More information is exchanged between the customer and the
service worker,
Require high levels of technical and analytic skills (because the
service process is not programmed and not well defined),
To achieve customer satisfaction, decision making is delegated to
service workers who can perform their tasks with some
autonomy and discretion.
TAXONOMY FOR SERVICE PROCESS DESIGN
DEGREE OF DIVERGENCE
For customized services (high divergence) - more flexibility and
judgment are required to perform the service tasks.
TAXONOMY FOR SERVICE PROCESS DESIGN
OBJECT OF THE SERVICE PROCESS
Processing goods - belong to the customer or are provided by the service
firm:
Property of the customer - dry cleaning or auto repair,
Service firm - appropriate stock levels and the quality of facilitating
goods in restaurants,
Processing information occurs in all service systems - direct or indirect:
Direct - counseling...
Indirect - OPT, faceID...
Processing people involves physical changes or geographic changes.
TAXONOMY FOR SERVICE PROCESS DESIGN

TYPE OF CUSTOMER CONTACT

Three basic ways:
Customer can be present in the system physically and interact
directly with the service providers in the creation of the service,
The contact may be indirect and occur via the Internet from the
customer’s home or office.
Some service activities can be performed with no customer
contact at all.
TAXONOMY FOR SERVICE PROCESS DESIGN
TYPE OF CUSTOMER CONTACT
Direct customer contact is subdivided into two categories:
No interaction with service workers - self-service,
=> Cost effective applications: self check in kiosks, ATM...
=> Rely on a market segment of customers who are willing to learn how to
interact with machines.
Customer interaction with service workers.
=>The processing of people: training in interpersonal & technical skills,
=> Facility issues of location, layout, and design.
=> Additional management problems (waiting line, negative image...) arise.
TAXONOMY
OF SERVICE
PROCESS
GENERIC APPROACHES TO SERVICE SYSTEM DESIGN

PRODUCTION CUSTOMER CUSTOMER

INFORMATION
LINE AS CONTACT EMPOWERMENT
APPROACH COPRODUCER APPROACH
 PRODUCTION-LINE
APPROACH

Limited Discretionary Action of Personnel -

standardization and quality are hallmarks,
Division of Labor - the total job is broken down into
groups of simple tasks,
Substitution of Technology for People - source of
progress in manufacturing,
Service Standardization - helps to provide
uniformity in service quality.
CUSTOMER AS
COPRODUCER
01 Self-Service
The substitution of customer
labor for personalized service
is the highest level of
coproduction.

02 Smoothing Service Demand

Adjust the timing of customers’
demand to match the
availability of the service.

03 Customer-Generated Content
The Internet has opened a new
opportunity for customer
coproduction - the actual
generation of content used by
others.
 CUSTOMER CONTACT
APPROACH
Degree of Customer Contact - physical presence
of the customer in the system,
Separation of High- and Low-Contact Operations
- each area can be designed separately to achieve
improved performance,
Sales Opportunity and Service Delivery Options
- trade-off between operations efficiency and sales
opportunity.
 SALES
OPPORTUNITY
AND
SERVICE DESIGN
 INFORMATION
EMPOWERMENT
01 Employee empowerment
Computerized database,
Relational or integrated
databases,
Sharing information (direct
and indirect).

02 Customer empowerment
Customers can be
empowered directly by IT
and take an active part in the
service process.
Internet - very powerful tool.
INTELLECTUAL PROPERTY
01 Intellectual property rights are
exclusive rights over creations
of the mind such as inventions,
literary and artistic works,
symbols, names, images, and
designs used in commerce.

02 Divided into categories:

(1) industrial properties,
(2) a trademark,
(3) industrial design rights,
(4) a trade secret.
 THANK YOU
FOR YOUR ATTENTION!