Chapter 5:
Service Process Design
McGraw-Hill Education 5-1
The Service Economy
Largest 15 U.S. employers
• 1960
• 12 manufacturers
• 3 services
• 2010
• 3 manufacturers
• 12 services
Copyright © 2018 by The McGraw-Hill Companies, Inc. All rights reserved.
Sources: Government Accountability Office; Bureau of Labor Statistics; S&P Capital IQ; iSuppli
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Defining Service
• Intangibility of the offering
• Simultaneous production and consumption
• No finished goods inventory
• Front office vs. back office
• Cannot be stored/resold
Copyright © 2018 by The McGraw-Hill Companies, Inc. All rights reserved.
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Service-Product Bundle
• Service - explicit service
• what the provider does for customer
• Psychological benefits - implicit service
• how customer feels after service
• Physical goods - facilitating goods
• used during service or received by customer
Enjoyment
Pizza
Pizza
Delivery delivery
Speed/
vehicle convenience
Copyright © 2018 by The McGraw-Hill Companies, Inc. All rights reserved.
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Goods and Services Packages (Figure 5.1)
Goods Services
100% 75% 50% 25% 0% 25% 50% 75% 100%
Self-service groceries
Automobile
Installed carpeting
Fast-food restaurant
Gourmet restaurant
Auto maintenance
Haircut
Consulting services
Copyright © 2018 by The McGraw-Hill Companies, Inc. All rights reserved.
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Service Delivery System Matrix (Figure 5.2)
Customer Wants and Needs in the Service Package
Highly customized with unique Standard with options, using Standardized with highly
process sequence. moderately repeatable repeatable process
sequence. sequence.
Customer has Customer has Customer has
great decision-making power. some decision-making power. low decision-making power.
Many process
pathways.
Jumbled flows,
complex work
Service Delivery System Design
with many
Customer Routed
exceptions.
•Estate planning
Moderate number of
process pathways.
Flexible flows with Co-routed
•Stock brokerage
some dominant
paths, moderate
work complexity.
Limited number of Provider Routed
process •ATM
pathways.
Line flows, low
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The McGraw-Hill Companies, Inc. All rights reserved.
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Customer Contact
• Definition: Extent of interaction between service provider and customer
• Lower contact = provider routed (standardized)
• Higher contact = customer routed (customized)
Potential inefficiency = f (degree of customer contact)
Copyright © 2018 by The McGraw-Hill Companies, Inc. All rights reserved.
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Customer Contact (see Fig. 5.3)
• Low customer contact
• Higher production efficiency
• Lower sales opportunity
• Workers with technical skills
• Focus on paper handling
• Office automation
• High customer contact
• Lower production efficiency
• Higher sales opportunity
• Workers with diagnostic skills, more flexible and personable
• Focus on client mix
• Client/worker teams
Copyright © 2018 by The McGraw-Hill Companies, Inc. All rights reserved.
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Customer-Introduced Variability
• Arrival
• Uncertainty in when customers will arrive to consume a service
• Request
• Uncertainty in what customers ask for in the service-product bundle
• Capability
• Uncertainty in the ability of customers to participate in a service
• Effort
• Uncertainty in the willingness of customers to perform appropriate actions
• Subjective preference
• Uncertainty in the intangible preferences of customers in how service is
carried out
Copyright © 2018 by The McGraw-Hill Companies, Inc. All rights reserved.
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Service Failure / Service Recovery
• Failing right before the customer’s eyes!
• Taking swift and appropriate action to compensate
customer for a failed service.
• Fly in customer’s soup New bowl of soup plus free
dessert!
Copyright © 2018 by The McGraw-Hill Companies, Inc. All rights reserved.
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Manager’s Tool: Service Guarantee
• Benefits to the customer
• Promise of service to be delivered
• Payout to customer if promise not delivered
• FedEx package delivery On time, or it is free!
• Benefits to the organization
• Focuses on customer (service promise)
• Clearly defines payout
• Improves customer loyalty
Copyright © 2018 by The McGraw-Hill Companies, Inc. All rights reserved.
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Technology and Globalization
• Production-line approach (Levitt, 1972)
• Standardize to minimize errors or deviations from standards
• Automate to keep costs low
• Example: McDonald’s
• Employees are the center of service delivery
(Schlesinger & Heskett, 1991)
• Use technology to support front-line employees
• Value investments in both employees & technology
• Focus on recruiting and training front-line employees
• Example: Ritz-Carlton Hotel
Copyright © 2018 by The McGraw-Hill Companies, Inc. All rights reserved.
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Outsourcing & Offshoring Services
• Outsourcing:
• An outside firm performs service activities such as workforce recruiting, payroll
management, accounting services, and call center functions.
• Offshoring:
• Export of these service activities to other countries.
Copyright © 2018 by The McGraw-Hill Companies, Inc. All rights reserved.
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Study of Offshoring (Duke and Booz & Co. 2008)
• Transaction-intensive services (simple, standard, limited
differentiation) are becoming commoditized (call centers,
etc.) – competing on cost.
• Professional services (engineering, data analysis, legal work)
are more commonly offshored.
• Firms are moving fast to scoop up global talent.
• Collaboration and maintaining quality are challenging with
globally dispersed providers.
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Service Profit Chain (Figure 5.4)
• Internal service quality, leads to…
• Employee satisfaction, leads to…
• Employee retention & productivity, lead to…
• External service value (to customer), leads to…
• Customer satisfaction, leads to…
• Customer loyalty, leads to…
• Revenue growth & profitability (the goal)
• feed investment back into internal service quality
Copyright © 2018 by The McGraw-Hill Companies, Inc. All rights reserved.
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