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A service company has to consider

both internal & external issues

Service Internal :
capacity ,
location ,

Strategy inventory ,
quality
External –
customer expectations ,
competitors ,
government

Strategic positioning and service strategy Strategic Positioning

-sets target market
-five forces or core competencies
-decisions: Mission , high –level goals , high level objectives

External Internal
Strategy Strategic Service Service Strategy
positioning strategy -sets service concept , operating system , and service delivery system
-competitive priorities , order winners , order qualifiers
Execution Frontroom Backroom -decisions: location , facility size , type and number , inventory etc.
operation operation

Tactical execution
- Represents managing day to day service operations

-decision : supplier selection , order size and timing , staffing levels

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STRATEGIC POSITIONING -2 VIEWS STRATEGIC POSITIONING

First view – Industry and competitor First view – Industry and competitor
Analysis Analysis
Second view – Core Competency 1. From Michael Porter’s work on
Approach to strategy corporate strategy , generic strategy
and industry analysis
2. Starts with external conditions (O & T
in SWOT) to set internal operations
(SW)

The threat of the entry of new competitors

Porter – five forces to be considered before a
•The existence of barriers of entry (patents ,
company can decide on strategy
rights etc.)
1. The threat of the entry of new competitors
• The most attractive segment is one in which
2. The intensity of competitive rivalry
entry barriers are high and exit barriers are low.
3. The threat of substitute products or services
Few new firms can enter and non-performing
4. The bargaining power of customers
firms can exit easily.
(buyers)
Economies of product differences
5. The bargaining power of suppliers
Brand Equity
Switching costs or sunk costs
Capital requirements
Access to distribution

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•Customer loyalty to established brands
•Absolute cost advantages
•Learning Curve advantages
•Expected retaliation by incumbents –
•Government policies
•Industry profitability; the more profitable the
industry the more attractive it will be to new
competitors
Profitable markets that yield high returns
will attract new firms.
This results in many new entrants, which
eventually will decrease profitability for all
firms in the industry.
Unless the entry of new firms can be
blocked by incumbents, the abnormal
profit rate will fall towards zero ( perfect
competition).

The intensity of competitive rivalry

Competitive rivalry is likely to be based on
dimensions such as
price,
Examples of recent technology advantage in have
quality, and
been mp3 players and mobile telephones.
innovation.
Vertical integration is a strategy to reduce a
Technological advances protect companies from
business' own cost and thereby intensify pressure
competition.
on its rival.
Companies that are successful with introducing
new technology, are able to charge higher prices
and achieve higher profits, until competitors
imitate them.

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•Number of substitute products available in the

The threat of substitute products or
market
services
•Ease of substitution. Information-based
The existence of products outside of the realm of
products are more prone to substitution, as
the common product boundaries increases the
online product can easily replace material
inclination of customers to switch to alternatives:
product.
Buyer inclination to substitute
•Substandard product
Relative price performance of substitute
•Quality depreciation
Perceived level of product differentiation

Buyer information availability

The bargaining power of customers Ability to backward integrate
(buyers) Availability of existing substitute
Degree of dependency upon existing channels of products
distribution Buyer price sensitivity
Bargaining leverage, particularly in industries with Differential advantage (uniqueness) of
high fixed costs industry products
Buyer volume
Buyer switching costs relative to firm switching
costs

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The bargaining power of suppliers
The bargaining power of suppliers is also
described as the market of inputs.
Suppliers of raw materials,
components,
labor, and
services (such as expertise)
to the firm can be a source of power over the firm,
when there are few substitutes.
Suppliers may refuse to work with the firm, or,
e.g., charge excessively high prices for unique
resources.
Three generic strategies emerge
1. Overall cost leadership
2. Differentiation and
3. Focus
Differentiation : serves the broad group ,
perception of specific bundle of product
and service as unique , different from
every one else
Can be achieved through :
unique brand image ,
distribution network or
service delivery system
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•Degree of differentiation of inputs
•Impact of inputs on cost or differentiation
•Presence of substitute inputs
•Strength of distribution channel
•Employee solidarity (e.g.labour unions)
•Supplier competition - ability to forward
vertically integrate and cut out the buyer
Ex. If you are making biscuits and there is
only one person who sells flour, you have
no alternative but to buy it from him.
•
Focus : for only specific needs of a small ,
focused subset of industry
Focus as generic strategy describes who the
customers are & company can still chose
from cost leadership or differentiation
within this segment
e.g. Cost leadership-Motel 6
Differentiation –frequent traveler program
Ritz- carlton Hotel – focus on a particular
market niche
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Industry / Competitor Analysis Approach to STRATEGIC POSITIONING -2 VIEWS

Strategic Consistency Second view
1. From C. K. Prahlad And Gary Hamel’s
Strateg Step Five forces Ste Design the work on core competencies of the
y 1 analysis p2 operating corporation
system 2. Starts with internal competencies (SW)
Executi Step Manage Ste Manage and builds out to address external
on 3a interaction with p internal conditions (O & T in SWOT) to set
external entities 3b operations to internal operations (SW)
like customers meet
and suppliers objectives of
operating
system design

Core competencies Approach to service

strategy
Core competency must
a. Provide access to wide array of potential In service , Southwest Airlines – competency in
markets managing less time of an aeroplane on the ground
b. Contribute to the customers’ perception of Means more flights per day from each plane
the benefits of the end product or service and Leading to less price for tickets
c. Be difficult for other competitors to imitate
e.g. Honda Motors competency with engines

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Core Competence Approach to Strategic Consistency Service Strategy

External Internal
Strategy Step Determine markets Ste Determine core
Competitive Priorities ,
3 to be served by the p2 competencies of Order Winners ,
core competence the corporation Order Qualifiers
Executio Step Manage interaction Ste Scan Operating Competitive Priorities -Set of operationally
n 4a with external p 1 system for oriented dimensions that companies can compete
entities like potential 1. Cost
suppliers competencies 2. Quality( conformance or high performance
Ste Manage internal
p 4 operations to
design)
b meet objectives 3. Time ( delivery , speed , development speed ,
of operating on-time delivery)
system design 4. Service
5. Flexibility( volume flexibility , customization)

Order Qualifier
–those competitive priorities that every
one in the industry must have to be able
to compete
Order Winners- competitive priorities an
individual company emphasizes to cause
a customer to choose it over its
competitors e.g.
Dell – customization , southwest -cheap
Service concept and operating strategy
Is a set of competitive priorities that the target
market values .
It focuses on the results that must be produced for
the customer i.e.
1. Fast and reliable delivery for UPS
2. Inexpensive and no frills flights for southwest
It also describes how the target market ,
employees of the service company and market
as a whole perceive the service elements

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Operating strategy , in comparison,

describes the competitive priorities that
internal operations will emphasize ( both Example of Mismatch
Order Winners & qualifiers) Car rental service concept ( customer desires –
It details how different business functions fast , delivery speed) and the operating strategy
i.e. marketing , strategy , finance , ( Company’s operations- counter agents)
operations will support the service concept Need for designing service delivery system
Operating strategy also defines which puts in place physical and procedural
Measures and assets needed to execute the service concept
Systems that will be used to control costs
& quality of service and how the company
is intended to meet competitors challenge
on these dimensions

Components of service delivery system

a. Job responsibilities
b. Technology requirements
c. Equipment requirements
d. Facility layout
e. Management policies and procedures
f. Service process designs service delivery system should clearly
g. Operating capacity position in different way than its
h. Quality management systems competitors and difficult to imitate

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TACTICAL EXECUTION STRATEGICALLY PLANNING FOR SERVICE GROWTH

Service’s day to day activities to meet requirements of target market
segment
Includes tasks like a. Multi Site Service Life cycle
a. Managing staffing levels to meet capacity strategies
b. Managing quality systems continually improve efficiency Entrepreneurial – local marketing - ( spice up
c. Selecting specific site for a new location
d. Determining what to stock and how much your life – Chordia , Nirma)
Multi-site rationalization
TACTICAL EXECUTION critical & difficult to implement Growth
During execution strategic service vision and competencies may change
Critical component of execution is to develop appropriate strategic Maturity
feedback loops Decline / Regeneration
Example: b. Franchising – helps multi site growth
Gulshan Kumar
ICICI
MOTOROLA IRIDIUM – satellite phone system

Pros and Cons of Franchising Pros and Cons of Franchising

Functional Area Advantages Disadvantages Functional Area Advantages Disadvantages
Finance Self financing Limits income of successful Human Resources Career path for store Ability to influence
concept
owners not needed behavior curtailed
Can finance rapid growth Shifts profit to franchisee
Less risky to franchiser Revenue maximizing Profit maximizing
incentives naturally aligned incentives not aligned

Pros and Cons of Franchising

Pros and Cons of Franchising Functional Area Advantages Disadvantages
Functional Area Advantages Disadvantages Marketing Ability to use national Can limit marketing
Operations Entrepreneurial spirit of Control more difficult marketing media channels
franchisees Local innovations
Operational changes blur marketing
more difficult message
Potential for brand
shirking
Special events more
difficult

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Service excellence : strategic consistency and Tactical Execution

External Internal
Five Forces Capacity , location and
Strategy layout
Core competence Job design and staffing
Service strategy Decoupling
Service life cycle Waste stream management
Outsourcing and Technology infrastructure
offshoring
Six sigma
Execution Service experience Inventory
Customer selection Waiting lines
Supplier selection Staff training and evaluation
Capacity and yield
management
Project management
Internet security and
reliability

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