Chapter 04

New Service
Development

McGraw-Hill/Irwin
Service Management: Operations,
Strategy, and Information Technology, Copyright © 2008 by The McGraw-Hill Companies, Inc. All
Rights Reserved.
6e
 Learning Objectives
 Describe the fundamental characteristics of service innovation.
 Describe the four structural and four managerial elements of service
design.
 Describe the components of the customer value equation.
 Explain and differentiate what is meant by the divergence and the
complexity of a service process.
 Describe the sequence of states and the enablers of the new service
development process.
 Prepare a blueprint for a service operation.
 Explain the difference between direct and indirect customer contact.
 Compare and contrast the four approaches to service system design:
production-line, customer as coproducer, and information empowerment.

4-2
Innovation in Services
 Basic Research: Pursue a planned search for
new knowledge regardless of possible
application.
 Applied Research: Apply existing knowledge to
problems in creation of new service.
 Development: Apply knowledge to problems
to improve a current service.

4-3
Challenges for Service
Innovation

 Ability to protect intellectual and

property technologies.
 Incremental nature of innovation.
 Degree of integration required.
 Ability to build prototypes or
conduct tests in a controlled
environment.

4-4
 Levels of Service
Innovation
Radical Innovations
 Major Innovation: new service that customers did not
know they needed.
 Start-up Business: new service for underserved market.
 New Services for the Market Presently Served: new
services to customers of an organization.
Incremental Innovations
 Service Line Extensions: augmentation of existing
service line (e.g. new menu items).
 Service Improvements: changes in service delivery
process (e.g. self-service boarding kiosk).
 Style Changes: modest visible changes in appearances.

4-5
Technology-Driven Service
Innovations

Source of Service Example Service Industry Impact

Technology
Power/energy Jet aircraft International flight is feasible
Nuclear energy Less dependence on fossil fuel

Facility design Hotel atrium Feeling of grandeur/spaciousness

Enclosed sports stadium Year-around use

Materials Photochromic glass Energy conservation

Synthetic engine oil Fewer oil changes

Methods Just-in-time (JIT) Reduce supply-chain inventories

Six Sigma Institutionalize quality effort

Information E-commerce Increase market to world-wide

Satellite TV Alternative to cable TV

4-6
Service Design Elements
Design Elements Topics

Structural

Delivery system Process structure, service blueprint, strategic positioning

Facility design Servicescapes, architecture, process flows, layout
Location Geographic demand, site selection, location strategy
Capacity planning Strategic role, queuing models, planning criteria
Managerial

Information Technology, scalability, use of Internet

Quality Measurement, design quality, recovery, tools, six-sigma
Service encounter Encounter triad, culture, supply relationships, outsourcing
Managing Capacity and Strategies, yield management, queue management
Demand

4-7
 New Service Development
Cycle
• Full-scale launch
• Post-launch review

Full Launch Enablers Development

• Formulation

l
nte na
Co iz atio of new services
objective / strategy
People
xt

Te
• Idea generation
• Service design
n

am
ga

and screening
and testing

s
Or

• Concept
• Process and system
development and
design and testing Product
• Marketing program testing
design and testing
• Personnel training Technology Systems
• Service testing and
pilot run
• Test marketing Tools

Design Analysis
• Business analysis
• Project authorization 4-8
Service Blueprint of Luxury
Hotel

4-9
 Strategic Positioning
Through Process Structure

 Degree of Complexity: Measured by

the number of steps in the service
blueprint. For example a clinic is less
complex than a general hospital.
 Degree of Divergence: Amount of
discretion permitted the server to
customize the service. For example the
activities of an attorney contrasted with
those of a paralegal.

4-10
 Structural Alternatives for a
Restaurant

LOWER COMPLEXITY/DIVERGENCE CURRENT PROCESS HIGHER COMPLEXITY/DIVERGENCE

No Reservations TAKE RESERVATION Specific Table Selection

Self-seating. Menu on Blackboard SEAT GUESTS, GIVE MENUS Recite Menu: Describe Entrees & Specials
Eliminate SERVE WATER AND BREAD Assortment of Hot Breads and Hors D’oeuvres
Customer Fills Out Form TAKE ORDERS At table. Taken Personally by Maltre d’

Pre-prepared: No Choice Salad Bar Salad (4 choices)

Limit to Four Choices Entree (6 choices) Expand to 10 Choices: Add Flaming Dishes;
Bone Fish at Table
Sundae Bar: Self-service Dessert (6 choices) Expand to 12 Choices

Coffee, Tea, Milk only Beverage (6 choices) Add Exotic Coffees; Wine list, Liqueurs
Serve Salad & Entree Together: SERVE ORDERS Separate-courses; Hand Grind Pepper
Bill and Beverage Together

Cash only: Pay when Leaving CASH OR CREDIT CARD Choice of Payment. Including House Accounts:
Serve Mints

4-11
Taxonomy of Service
Processes
Low divergence High divergence
(standardized service) (customized service)
Processing Processing Processing Processing Processing Processing
of goods Information of people of goods Information of people
Dry Check Auto repair Computer
No Cleaning processing Tailoring a programming
Customer Restocking Billing for a suit Designing a
Contact a vending credit card building
machine
Ordering Supervision
Indirect groceries of a landing
customer from a home by an air
contact computer controller

No Operating Withdrawing Operating Sampling Documenting Driving a

customer- a vending cash from an elevator food at a medical rental car
service machine an ATM Riding an buffet dinner history Using a
worker Assembling escalator Bagging of health club
interaction premade groceries Searching for facility
(self- furniture information
Direct service) in a library
Customer Customer Food Giving a Providing Home Portrait Haircutting
Contact service service in a lecture public carpet painting Performing
worker restaurant Handling transit cleaning Counseling a surgical
interaction Hand car routine bank Mass Landscaping operation
washing transactions vaccination service

4-12
Generic Approaches to Service
Design

 Production-line
• Limit Discretion of Personnel
• Division of Labor
• Substitute Technology for People
• Standardize the Service
 Customer as Coproducer
• Self Service
• Smoothing Service Demand
• Customer-Generated Content
 Customer Contact
• Degree of Customer Contact
• Separation of High and Low Contact Operations
• Sales Opportunity and Service Delivery Options
 Information Empowerment
• Employee
• Customer

4-13
 Customer Value Equation

Value =
( Re sults Pr oduced ) + ( Pr ocessQuality )
( Pr ice ) + ( CostsofAcquiringtheService)

4-14
 Discussion Questions

 What are the limits in the production-line approach to

service?
 Give an example of a service in which isolation of the
technical core would be inappropriate.
 What are some drawbacks of customer participation in the
service delivery process?
 What ethical issues are raised in the promotion of sales
during a service transaction?
 Go to http://www.oecd.org/home and find the current non-
manufacturing share of total business R&D for the
countries listed in Table 1.1. Are there any surprises?

4-15
 100 Yen Sushi House
1. Prepare a service blueprint for the 100 Yen Sushi
House.
2. What features differentiate 100 Yen Sushi House and
how do they create a competitive advantage?
3. How has the 100 Yen Sushi House incorporated the
just-in-time system into its operations?
4. Suggest other services that could adopt the 100 Yen
Sushi House service delivery concept.

4-16
 100 Yen Sushi House
Layout
Dishwashing Counter in Back
CONVERSATION AREA
Miso and Tea Station

CONVEYOR
BELT

CONVERSATION AREA
TAKE-OUT
POSITION

ENTRANCE = CHEF

4-17
 Commuter Cleaning - New Venture
Proposal

1. Prepare a service blueprint for Commuter Cleaning.

2. What generic approach to service design is
illustrated by Commuter Cleaning, and what
competitive advantage does this offer?
3. Using the data in Table 4.7 calculate a break-even
price per shirt if monthly demand is expected to be
20,000 shirts and the contract with a cleaning plant
stipulates a charge of $0.50 per shirt.
4. Critique the business concept, and make
recommendations for improvement.

4-18
 Golfsmith
1. Prepare a service blueprint for
Golfsmith.
2. What generic approach to service
design does Golfsmith illustrate and
what competitive advantages does
this design offer?
3. Why is Golfsmith a good candidate for
Internet sales?
4-19
INTERACTIVE CLASS EXERCISE

The class breaks into small groups

and prepares a service blueprint
for Village Volvo.

4-20