Chapter 1

Introduction:

The Metamorphosis of Service

STUDY OBJECTIVES

Having completed this chapter, readers should be able to:

1. understand the growing importance of service industries in the modern economy, with particular
emphasis on the hospitality and tourism sectors;
2. have a clear understanding about the complex nature of service and of the concept of service
management;understand the evolution of management from traditional or manufacturing focused
management to service management;
4. be clear about the interconnections among tourism, hospitality, and service; and
5. understand the cross-functional nature of services within service provision and the
interdependence of service providers in both the hospitality and tourism industries.

OUTLINE

Introduction
 The service economy
 Growth in the service sector
 The scope/context of this book
 Global tourism and hospitality
The growing importance of tourism
Changing patterns of tourism
Changing patterns in hospitality
Hospitality and tourism as service industries
Basic components of hospitality
Origins of the service management framework
Evolving from product management to service management
Servitization
Interdependency of service provision
Coordinated benefits
Components of a tourism service
Service interrelationship
Core and peripheral services
Applying service management theory
Summary

Introduction

You may have realized that the world economy is dominated by the service sector. In fact, the
service sector permeates the daily existence of every person. Can you think of a job that does not
involve working with either a fellow employee or a customer? Can you think of anything you buy
which does not have at least some service component to it? Within the past few hours, it is likely
that the readers of this book will have listened to the radio; watched television; downloaded/
listened to music or apps on iTunes; been to the cinema; taken a trip on a flight, cab, or bus; used
a mobile or smartphone; consumed a restaurant meal; used a bank, automatic teller machine, or
online banking for their financial needs; used a gym or observed a sporting event; made an
appointment with a doctor or dentist; contacted an insurance agency; had weekly groceries
delivered to their home; had contact with their local city council... In all of these cases, the ultimate
end result for the consumer is a service or value they received through service.

What exactly do we mean when we refer to 'service'? Or 'services'? What seem on the surface as
such simple words are anything but! Service is often defined as an act or a process (a verb),
representing a form of economic exchange (Vargo & Akaka, 2009). Services (with an 's'), on the
other hand, are defined as intangible units of output, or activities (a noun) which in a commercial
sense are offered for sale or as part of a sale (for example, restaurant service accompanies the food
to form a total experience; both food and service are critical to the value perception of the
customer).
We alert readers to the frequent interchanging of the terms service and services. In this text, we
adopt the position that it is the managing of 'service' (i.e., managing the delivery of customer value
which includes aspects of both tangible and intangible offering) which is the predominant focus for
hospitality managers.

Service provision has many parts-including activities, processes, and interactions (tangible and
intangible aspects) (Kandampully, 2007). Take a hotel as an example. What is a guest buying? Is it
a bed? Or is it the tem- porary use of a bed? Are they buying food? Beverage? The use of a meeting
room? Or, are they buying a total experience which ideally includes a seamless check-in by friendly,
welcoming, knowledgeable staff; a clean, safe, and comfortable room; and the convenience to eat
in a restaurant or have food and beverage delivered to their room? A customer would view the
entire offering as a series of service encounters. Be clear that the hotel industry is not so much
about buildings, beds, and food, but rather about service, and about the complexity of creating,
selling, and managing customer experiences. And, as mentioned above, this can apply to a cluster
of individual businesses that make up a destination as well.

Important note: this is a book about service management and marketing. The service literature is
generally shared among marketing, operations, and human resource management, and most of the
concepts in this book can be viewed through either a marketing lens (putting the 'service' out to
the customer) or a management lens (what happens inside the organization to make the service as
good as it can be). We adopt the position that management is a more holistic term in service,
incorporating all management functions, including marketing. This review will generally use the
singular term 'management' throughout the text. Please remember that the applicability of the
principles in this book apply perfectly well to either management or a marketing context. This
review also makes frequent mention of the term 'customers. It is important, in the context of
tourism, to view 'tourists' or 'visitors' in the exact same context as 'customers' or even 'event
attendees. Therefore, these terms are used interchangeably.
THE SERVICE ECONOMY

The service economy plays a significant role in every nation in the world. The national economy of
every coun- try depends on its service-based infrastructure-including transportation,
communication, education, health care, and various government services (e.g., law enforcement,
utilities, garbage collection).

In the second half of the twentieth century, economically developed nations have undergone
extensive social and economic transformation, fueled by industrialization, leading to a significantly
increased rate of spending on service. In the 21st century, advancement in technology has allowed
advancing economies around the world to transform socially and economically, leading to the
significantly increased rate of spending on service. In the early 1950s, service expenditure
accounted for approximately one third of personal consump tion expenditure. It now accounts for
about one half of household expenditure, and is expected to continue to rise. This trend is apparent
in both developed and developing countries over the past 30 years. Figure 1.1 below provides an
illustration of the evolution of total household expenditure in Australia since 1988. Although this
graph shows figures for Australia, we note that the trend line is similar for nearly all developed and
developing countries (although the percentages are often slightly different).

Ernst Engel, a German statistician and economist in the 1800s, undertook research that showed
that prosperity and an increase in service infrastructure go together. More businesses undertake
service-oriented activities-offering service either directly to the final customer, or to other business
operations. The majority of the population within a community subsequently becomes employed in
service-related activities. Services thus lie at the very hub of the economic activity of society. And
we are only just beginning to understand the significance of this change in the way we live and
work.

Engel's Seminal Research

Ernst Engel (1857) showed that an increase in family income has the following effects on spending
behavior:

the percentage of income spent on food decreases;

the percentage of income spent on housing and household operations remains constant, and
the percentage of income spent on other purchases (for example, education, health care,
entertainment, recreation, and transportation) increases rapidly.

On the basis of Engel's work it is apparent that as an economy develops, service become
increasingly significant.

GROWTH IN THE SERVICE SECTOR

The dominance of service industries over the traditional 'primary' and 'secondary' industries (of
agriculture, raw materials, and manufacturing) has become a global economic phenomenon. Most
developed economies have transformed from being farming, mining, and manufacturing economies
into service economies. The ser- vice sector in most of the developed economies (the USA, UK,
Canada, Germany, France, Italy, and Australia) contributes more than 70% of world gross domestic
product (GDP), and offers employment to more than 75% of the population. According to the World
Fact Book published by the Central Intelligence Agency (2011), the service sector currently accounts
for over 63% of the world GDP and over 76% of the US GDP. Figures 1.2 and 1.3 provide evidence of
the growing size and importance of the service sector.

THE SCOPE/CONTEXT OF THIS BOOK

There is a consensus that economic growth, a higher disposable income, and technological
advances have con- tributed to the rapid growth in the service sector. Moreover, this growth has
not been at the expense of mining, farming, or manufacturing. In fact, the service sector has
become an enabling factor in assisting these primary and secondary industries to achieve global
competitiveness. The internationally competitive market has com- pelled primary and secondary
industries to transform themselves into truly customer-oriented, service-focused enterprises,
irrespective of the products that they actually produce and sell. To note, while the service paradigm
can be found and studied through various contexts, this textbook has a specific interest in looking
at service management within a hospitality and tourism context.
This book is about management-but more specifically about the management of service
organizations, drawing knowledge from the fields of service management and marketing. If you
were studying business or hos- pitality or tourism even 20-25 years ago, it is not likely that you
would have learned about service management because it is a relatively new field of practice and
study. One of the aims of this book is to provide an introduc- tion to this subject area because of
its logical connection to the hospitality and tourism industries. The theories, frameworks and
underpinnings of service management are a perfect fit for the hospitality and tourism indus- tries,
yet few other books exist that aim to connect these sectors to the service management framework.

GLOBAL TOURISM AND HOSPITALITY

The growing importance of tourism

The tourism industry has become a crucial com- ponent of national economic development world-
wide, with enormous potential to generate local income and employment. More recently, the
United Nations World Tourism Organization (UNWTO) has described tourism as a crucial
component of worldwide socio-economic devel- opment, particularly for developing countries
where tourism is the primary export (UNWTO, 2012, p. 3). Government agencies in many coun- tries
therefore actively encourage tourism-related entrepreneurial projects, resulting in an increas- ing
number of individuals and organizations ven- turing into tourism-related services. Tourism has
undoubtedly become a major industry worldwide. Forecasts by the World Tourism Organization
continue to predict strong growth in global tourism.

As indicated earlier, tourism now stands as one of the world's leading industries, with tourism's
contribution to worldwide GDP estimated at around 10%, and total contribution to employment
around 10%. For smaller and developing countries these figures tend to be much higher (UNWTO,
2017, p. 3).
Changing patterns of tourism

There are many reasons for the growth of tourism in the world economy, and while this issue is
beyond the scope of this chapter (book), it is important to have an understanding of why managing
service and service organi- zations are growing in importance. This point was well illustrated
recently at the WTTC's (World Travel and Tourism Council) 12th Global Summit in 2012. Frits van
Paasschen, President and CEO of Starwood Hotels & Resorts Worldwide, noted that 3 billion people
will be entering the middle classes over the next 30 years and that another level of travelers-the
high-end leisure group-are looking for new and exotic destinations.

Dr. Michael Frenzel, Chairman of the WTTC, stated that there are three mega trends affecting the
indus- try: the global shift, the digital shift, and the relevance of real experience. The global shift,
toward develop- ing countries such as India, Russia, and China, will generate a vast amount of
tourists and contribute to the expanding tourism industry. This tourism growth will require a shift
in focus to these new markets and their travelling behaviors, patterns, and characteristics. The
digital shift refers to the digital revolution and social media in particular, and the many new
opportunities for companies to reach out and build loyal customers and create new advertising
channels getting customers themselves to tell their story and, therefore, market to others. Finally,
the relevance of customer experiences will always be integral to tourism. As much as we will
depend on digital communication, nothing com- pares to the real thing. For example, there is no
crisp, fresh mountain air that comes out of your computer.

Indeed, many changes, sociodemographic, technological, lifestyle, affluence, and an active aging
population with high spending power, have created a significant change in the social habits of
tourists and of people in general. The influence of technology, demographics, and lifestyle patterns
are expected to continue and accelerate these trends in the present century and for many years to
come; this point is particularly salient in the context of hospitality and tourism.

In parallel with the global transformation of economies and tourism (see above), the hospitality
industry has also become a truly global industry. Economic growth in most countries around the
world has contributed to this growth in the hospitality industry, with economic prosperity
contributing to dramatic changes in social habits.
Socializing outside the family circle has become more common, with the result that gatherings in
restau- rants, pubs, bars, cafes, and so on have become part of everyday life for many people.
Going out with friends and family has become a popular form of social entertainment. Changes in
work schedules have produced changes in lifestyles. Whereas most people in previous generations
lived very close to their workplaces, with their nearby homes providing food and lodging, people
today tend to commute longer distances to work, requiring them to eat and seek lodging outside
their homes.

Many people maintain more than one job to sustain their newly acquired lifestyles. These changes
in social and working habits have con- tributed directly to changes in eating habits, as has the
introduction of fast-food, convenience foods, and international cuisine. In keeping with these
developments, rail catering, sea catering, and airline catering (although less so on short domestic
flights) have adapted to serve chang- ing dietary requirements during travel-both for pleasure and
for business. Catering for these changing requirements has spawned global busi- nesses associated
with the hospitality industry.

There has thus been an exponential growth in the provision of hospitality-related services in almost
every country in the world. In response to this global need, and to take advantage of these
changing social phenomena, hospitality firms have expanded nationally and internationally. Firms,
customers, and employees have all become international and multicultural. Indeed, it is difficult
today to name a city that does not have an international hotel or restaurants that do not serve
international cuisine.

Hospitality and tourism as service industries

In most circumstances, the growth of the tour- ism industry has fuelled the growth of hospitality,
resulting in its development as a global industry. It must be emphasized that hospitality and
tourism businesses are essentially service business enter- prises. They therefore must be studied
within a ser- vice industry framework, and service management theory is perfectly suited to
understanding and explaining hospitality and tourism management.
Historically, the term hospitality goes back thousands of years. The ancient Romans were known to
be obliged to provide hospitality to visi- tors and passing travelers. The word itself far pre- dates
its evolution into an industry. Investigating the meaning of the word hospitality and gaining a
broader understanding about the differences between 'serving' and doing so 'hospitably' is
important for all hospitality managers. Hospitality is not only about 'service' as a process, but
rather about the way guests are meant to be treated, welcomed, entertained, generously greeted,
and so on. However, the development of the hospitality industry and its growing importance as an
economic sector providing jobs and adding to local economies has at times led to a blurring of the
boundaries between hospitality as a busi- ness and hospitality as a 'way of being or an essence.
The differentiation between the word 'hospitality' and the business of hospitality is important, and
is described in the 'commercial hospitality' literature. Although this book will not discuss these
distinctions further, we do adopt a commercial hospitality perspective, in that when we discuss
business we refer to 'for profit' enterprises

Basic components of hospitality

Hospitality as an industry can be seen as comprising three main functional areas-accommodation,

food, and beverage and entertainment-as illustrated in Figure 1.5. These three functions within the
hospitality sector might be offered separately by individual businesses (for example, motels offering
accommodation only, res- taurants offering food and drinks only, and bars and nightclubs offering
entertainment only). Alternatively, and more commonly, some businesses might offer various
combinations of the three elements (for example, hotels offering accommodation, food and
beverage, and entertainment). The degree of specialization, or the combina- tion of functions that
a firm offers, determines the type of clientele it wishes to attract, and the image that the firm
wishes to communicate to its customers.

If they are to compete in the marketplace, tourism sector businesses-and in particular commercial
hospi- tality enterprises-must first satisfy their customers. And if they are to tailor their service
offerings successfully to meet the expectations of customers, it is essential that hospitality
managers understand the perceptions of those customers and also what needs to be done within
an organization to create a working environment con- ducive to enhancing customer satisfaction
(service culture and service climate, discussed further in Chapter 8). This underlines the importance
of the service dimension of the business from a managerial perspective.
But in order to gain a better understanding, let us take a step back and look at the origins of the
service management framework and define 'service.

ORIGINS OF THE SERVICE MANAGEMENT FRAMEWORK

The term 'service management' was not actually introduced into mainstream scholarship until the
early 1980s. One of the earliest, yet still often cited, definitions of service management is that it is:

... a total organizational approach that makes quality of service, as perceived by the customer, the
primary driving force for the operation of any business (Albrecht, 1988, p. 20)

This early definition demonstrates the peripheral nature of the concept at that time, yet clearly
indicates the underlying theme of today's service management approach-that service management
is a comprehensive framework and effective organizations utilize this mindset throughout the entire
organization rather than lim- iting it to parts of an organization.

Ben Schneider (2004), a great advocate of service management from an organizational behavior
perspec- tive, defines service management as "... a multidisciplinary field of practice and research
on service quality that includes services marketing, services operations management, and services
human resources management" (p. 144). Both of these definitions emphasize the multidisciplinary
nature of service management, highlighting the point that, while perhaps not a discipline in its own
right, it is clearly a vital aspect to success in service organizations.

Management

Christian Grönroos similarly proposed that service management is a perspective more than one
discipline or one coherent area of its own. He suggests that, in the face of growing competition,
firms have to understand and manage service elements in order to gain sustainable competi tive
advantage, and that these guidelines apply to separate areas, including management, market- ing,
organizational theory, and human resource management (HRM) (Grönroos, 1993).

Figure 1.6 illustrates some of the various aca- demic areas connected to much of the thinking,
research, and practice in service management. Further discussion and expanded reflection on the
evolution of service management will be covered later in this chapter and throughout the book.
EVOLVING FROM PRODUCT MANAGEMENT TO SERVICE MANAGEMENT

Why is it important to understand the evolution of management thought? Let us think

metaphorically for a moment. Anthropologists in Ethiopia recently unearthed pieces of bones and
other fossilized fragments. This discovery provided a series of new clues in the understanding of the
development of mankind. In fact, the skeletons found have now been dated as being 4.4 million
years old--and have led to a dramatic rethinking about the development of man and the 'family
tree' which distinguishes man from chimp-like animals. This recent discovery has elucidated the
history of man's development, and has inspired many scientists to enter or re-enter the discourse
about mankind's evolutionary history.

Learning about our history, clarifying old and new thought, inciting enthusiasm amongst scholars
and scientists-all of these things are helpful to the research and scholarly communities. These
discoveries and the corresponding papers and discourse help us think, criticize, rethink,
communicate, test, retest, and advance knowledge. Similarly, as we understand the progression of
management thinking-its evolution and consequences-we advance our field and improve research,
theory, and practice in management!

What do we mean when we refer to the evolution of management thought? How is it that the world
can evolve, but academic terminology and theory does not, or does so but much more slowly? This
is clearly evi- dent in the simple example of the traditional 4 Ps of the 'Marketing Mix' (McCarthy,
1960). These Ps (Product, Price, Place, Promotion) were taken for granted for years as the
necessary recipe for successful marketing. When taking an item to market, it was thought, one
must consider what to sell (Product), how much to sell it for (Price), where to sell it (Place), and
how to promote its sale (Promotion).

When service managers and marketers tried to use these 4 Ps for marketing a service (e.g., what
you 'buy' at a bank), they found this mix insufficient. Subsequently, researchers sought to expand
the marketing mix with a series of proposed additions (see Rafiq & Ahmed, 1995).
Of these, the most frequently utilized and accepted mix is the revised 7 Ps (or the 'Extended
Marketing Mix') (Booms & Bitner, 1981), which takes into account People (all people who directly or
indirectly influence the perceived value of the product or service, including knowledge workers,
employees, management, and consumers); Processes (procedures, mechanisms, and flow of
activities which lead to an exchange of value); and Physical Evidence (environment in which the
service is delivered and in which the service provider and consumer interact) (see Chapter 6).

SERVITIZATION

The development of management thought reflects the fast growth of a service economy, which was
discussed earlier in the chapter. Indeed, service has become an important value-assessment
variable in predicting a firm's success in the marketplace. However, technological innovations have
rendered service no longer a choice but a necessity-an inescapable feature of domestic and
professional life.

industry. Twenty or 30 years ago people were able to attend to minor engine problems in their
cars-such as adjusting the carburetor. Today's technology has replaced carburetors with fuel
injectors, and owners now have to take their cars to mechanics for tuning. Similarly, when buying a
wash- ing machine or a dishwasher the concerns of consumers now extend to the various support
services provided by the seller in the event of something going wrong. The competitive advantage
of service has become increasingly evident-because there is little to differentiate competing
products from the customer's perspective. Given that the technical components of products are
very similar, the only differentiating factor for products are the service components; the service
components are therefore incorporated within the products to support customers. The service
component has thus become an integral part of most manufactured products, with the result that
various types of industries have recognized the potential development of service as one of the few
sustainable competitive advantages. This phenomenon is increasingly becoming evident in the
tourism and hospitality industries.

Steadily over the past 30 or so years, more corporations have used service as a way to add value to
their core 'product' offerings and to enhance and strengthen customer relationships. This is a point
which we discuss further below in this chapter in the section about packages or 'bundles. Bundles
are driven by a customer-focused view on how to provide a more holistic and long-term customer
engagement.
In fact, this shift has seen many companies incorporating more 'service' components within their
offers. This concept was coined 'servitization' (Vandermerwe & Rada, 1988) in the late 1980s, and is
evident across nearly all industries that at one stage in their life cycles considered themselves
manufacturing or 'product' companies. Examples include the concep- tual changes in IBM from a
'computer company' to a 'solution provider, and the way that Lexus created their 'Encore Club' for
all buyers of new and used Lexus automobiles in order to overcome competition by adding value to
the overall experience of buying and owning a luxury car.

INTERDEPENDENCY OF SERVICE PROVISION

Coordinated benefits

We introduced the idea of service 'bundles' above in our discussion about servitization. Services are
often offered in sequences or in 'bundles, and fall into two general types:

1. a single provider might offer a number of service provisions in sequence to any given customer;
or
2. a single customer might receive additional service offerings from other providers before and after
the service currently being rendered.

Let us consider, as an example, a tourist or business traveler staying in a hotel. This traveler might
have flown in by plane, or taken a taxi or a limousine hire service before arriving at the hotel. After
leaving the hotel, the traveler might take a taxi or a tour coach to receive the next service. From the
customer's perspective, although these services are experienced separately, they are interrelated.
The linkage between them is important if the traveler's itinerary is to run smoothly. The needs of
customers can thus extend beyond the capabilities of one company's product or service offering.

Although each of these services can be seen as an isolated benefit, they must be compatible,
complemen- tary, and coordinated. Some service providers have realized the value of offering
coordinated service benefits to customers and have utilized technology to do so. Take for example
popular websites such as [Link] and [Link], both of which were primarily
accommodation providers when they initially launched, but have since broadened their scope to
offer flights, car hire, restaurants, and holiday activities as well.
Service firms cannot and do not exist in isolation. Through partnerships and collaborations with
other firms, bundles of services are offered to satisfy the various needs of individual customers.
These partners might or might not be involved in serving the customers directly. The entire system,
however, is internally organized by an interactive web of relationships in which the customer
participates at various stages-in both the produc- tion and consumption of the various services.

This interconnectivity between different actors and services is at the forefront of current thinking in
service management, and is encapsulated in the term 'service ecosystem' (Akaka & Vargo, 2015).
This new conceptual framework emphasizes the complex, holistic, and interrelated nature of
today's service systems. A service eco- systems perspective not only considers how interactions
within networks of actors and technology influence the experience, but also emphasizes the
importance of the multiple institutions within these networks and the central role that they play in
both value creation and exchange. Importantly, the service ecosystem concept also places service
at the basis of all exchange.

Components of a tourism service

Tourism services are a composite of many aspects of a visit, and tourists often view a total experi-
ence as made up of individual units. This poses a major challenge in maintaining a superior ser-
vice, particularly at a destination where a visitor will have many experiences. The overall service
product is composed of a combination of services which, although fundamentally independent, are
consumed by tourists in a continuous chain, one after the other, from the time they leave home,
until the time they return.

Tourism can thus be understood as a system composed of:

▸ a service received at the tourist's place of origin-for example, travel agents, insurance, advice,
and so on;
a service en route-for example, transport and food while traveling; and
▸ a service at the destination-for example, accommodation, food, and attractions at the holiday
site.

Thus, the tourism industry is made up of a network of independent, but interrelated, functions
operating in a range of service sectors. Poor performance within one sector, or by one service
provider, affects the other service providers in the chain.
For example, a tourist losing his or her baggage during a flight is likely to per- ceive every other
service negatively, or at least less favorably.

Service interrelationship

This concept of service interrelationship is critical to the effective management of service. It reflects
the impor- tance of all of the service provision involved in the relationship. And it must be
understood that service inter- relationships apply within a single organization, as well as across
collaborating organizations.

Within any service organization, almost all service needs are cross-functional in nature. Cross-
functional systems are therefore required within an organization-that is, systems capable of
fulfilling customer needs in a coordinated fashion. Thus, within any service organization, all
departments and units must be interdependent and coordinated, with their cross-functionality
managed effectively.

Essentially this means that, in any service interface, every employee should be capable of going
beyond departmental boundaries to assist the customer.

Core and peripheral services

The reality of growing competition among service providers, as well as the interdependency of
service provi- sion, is that there is a need to differentiate the nature of service provision, which
often encompasses a number of different service offerings.

Most service offerings consist of:

 a core service-the major benefit that the consumer is seeking; and
 peripheral service-the little things offered as added bonuses.
For example, in a tour package, the core service is the visit to a specific location, whereas the
peripheral service is the comfortable bus, the friendly tour guide, and the clean toilets at the
location.

The core service is the centerpiece of the service offering-the basic reason for being in business.
Without the core service, a business enterprise makes no sense.
The peripheral service is a naturally compatible set of goods, services, and experiences which,
when combined with the core service, create an impression of high value in the customer's mind
(see Figure 1.7).

The peripheral service should support, complement, and add value to the core service. The
peripheral ser- vice, in most cases, is intended to provide the 'leverage' that helps build the value
of the total package in the eyes of customers. Using a hotel as an example, the core service
includes a clean, properly equipped room, whereas the peripheral service package includes services
additional to accommodation-such as a wake-up call, morn- ing tea, quality of the Wi-Fi
connection, coffee, newspaper, laundry service, shoe-shining service, transport to and from the
airport and so on.

Research suggests that the level of satisfaction necessary to create long-term customer loyalty is
influenced by elements which include peripherals that surround (or add additional value to) the
core service-how the food is served in the restaurant, how the wait staff interact with the customer,
how the receptionist assists the customer when a credit card is not accepted, and so on.

Companies commonly compete in similar markets and offer comparable core offerings. For
example, two 5-star hotels might be located in a city center, with the service and product offered
by the two hotels being virtually indistinguishable from one another in the eyes of the consumer.
Given these circumstances, often the only way in which either of these hotels can gain a
competitive edge is by offering added value.

Thus, from a managerial perspective, the differentiation between core service and peripheral
service can be crucial. Once a core service has proved to be effective-that is, able to meet the
primary needs of the customer-it is the peripherals of the service package that act as the key
factors in a customer's final judgment of the value of the total service product. In many situations,
the only possible difference between competitors lies with these peripherals. The strongest
company in the marketplace will be the one that offers the best- designed package that includes
core (expected) offerings and peripheral (extra) offerings.

APPLYING SERVICE MANAGEMENT THEORY

As noted in the box "The core philosophy of this book' (page 17), the primary function of a com-
mercial service business should be on providing service, and value, to the customer. Hospitality
organizations are not in the business of offering accommodation, food and beverage, or enter-
tainment only. In the marketplace, what the cus- tomer receives from a hospitality establishment is
service. What is important to the customer (the point at which the customer determines the value
of a purchase) is the outcome that is, the ser- vice-not simply the accommodation product, the
food and beverage product, or the entertain- ment product. Indeed, the customer pays for the end
result (the service) and not for the intermedi- ary (the ostensible product being purchased).
Examples of this distinction are well represented by many service firms, such as Starbucks Coffee
Company, who proclaim that they are not in the coffee business serving people, they are in the
people business serving coffee; and Southwest Airlines, who think of themselves as a customer
service company that happens to fly airplanes (on schedule, with personality and perks along the
way). This discussion leads to others in this book, notably about 'value co-creation, where value is
often formed by a customer during the actual delivery and consumption of the service. This is
different from a more tradi- tional perspective on value creation, where value is determined after
the purchase and only once the customer starts to 'use' the product.

Value co-creation represents a movement from goods dominant logic to service dominant logic.
The cus- tomer is now seen as a crucial part of the service process and an active participant who
shares equal responsi- bility with the service provider for creating value. Service organizations
benefit from constantly seeking new ways to engage customers in the processes of delivery and
consumption, which, if executed successfully, will create a stronger value proposition and result in
a more memorable experience. The concept of co-creation will be discussed further in Chapter 2,
and you can read more about service dominant logic in Vargo & Lusch (2004), Vargo & Akaka
(2009), and Shaw, Bailey, & Williams (2011).

It is very important that managers understand the thinking behind this concept-that, through their
hospitality establishments, they are offering an experience which is composed of many service
moments. As managers, it is therefore crucial that they understand in depth what they are offering,
and how it should be offered, to create the best experience for their customers. This perspective
necessitates a re-examination and readjustment of ideas, concepts, systems, and methods.
Fundamentally, this new perspective calls for a better understanding of the real hospitality and
tourism product that is, the nature of service.
Summary

The emerging global economy, and the competitive forces inherent in globalization, are changing
the nature of competition in the international hotel industry. Because hotel products are easily
replicated by various estab- lishments, traditional competitive strategies based on product features
have been rendered inappropriate for sustainable long-term growth. Hospitality and tourism
operators have therefore been forced to search for new ways to differentiate themselves from
competitors. Education in the hospitality and tourism areas has tradi- tionally been viewed as a
distinct subject area that focuses primarily on the technical aspects of hotel and theme park
operations-such as knowledge of lodging products and knowledge of food and beverage skills.

In the current and future marketplace, the practical value of this approach is limited by competitive
forces and by changes in customers' needs, expectations, and perceptions of value. A new
managerial perspective that views hospitality and tourism firms as service providers-rather than
purely as retailers of accommodation and food and beverage products-is an appropriate strategy
to cope with these emerging trends. This represents a major shift in the focus of management-a
change in focus that allows managers to form a new basis of com- petition. And service
management principles are essential to success in the modern competitive marketplace. The rest of
this book explores these basics in further detail, but before we move there let's emphasize the core
philosophy of this book.

HE CORE PHILOSOPHY OF THIS BOOK

This book is essentially about applying the principles of service management to the hospitality and
tourism industry. Three essential principles of this approach are:

1. that hospitality and tourism organizations are business organizations and, hence, their focus
should primarily be on the customer;
2. that hospitality and tourism organizations are service organizations and, hence, their pri- mary
orientation should be on service; and
3. that service in hospitality and tourism organizations is provided by the employees so there must
be equally proportional attention on the service workers.

These three core principles combine to produce an emphasis on service to the customer.
Because hospitality and tourism is composed essentially of service business enterprises, they must
therefore be studied within a service management framework, and service management the oryis
required to understand and explain hospitality and tourism management and operations.

This book thus aims to guide hospitality managers away from the traditional management thinking
of a departmentalized organization selling physical products to a new perspective which sees
hospitality and tourism as essentially service businesses requiring a holistic cross-functional
approach to meeting customers' needs within the context of personal relationships and experience.

Review Questions

1. The service economy exploded in the second half of the 20th century. Explain the underpinning
fac- tors behind this growth.
2. Name the core ongoing trends in tourism and hospitality industries. Why is it important for
service enterprises to be aware of those?
3. Why do some scholars argue that the service management paradigm offers sustainable
competitive advantage to a company's operations?
4. Explain how service interrelationship affects total experience as it's perceived by the customer.
What are the components of a tourism service?
5. Explain the difference between core service and peripheral service (give a few examples) and
why ser- vice companies should devote more attention to the peripheral services.
6. Explain 'servitization' and how it has evolved over the last 25 years.
7. Briefly describe the concept of service bundling. Why is it important, and how might hospitality
man- agers manipulate the different elements of a service package to gain a competitive
advantage?
8. Within the context of service management evolution, explain how a shift in marketing mix from
4Ps to 7Ps might reflect the progression of management thinking.
9. What is the logic behind value co-creation and explain why it has a great impact on service
process and overall customer experience?