a a Introduction Learning Objecti + Identity the major diferences between + Demonstrate how technology is changing services end goods. the ways services are created and + Introduce several broad perspectives for oo categorizing the diferenttypes of services + Present ahistorical perspective on services, that exist in an economy. and show how services have evolved. OCP Delivers Orders to Paris Pharmacies in Less than Two Hours mam ‘customer walks into the pharmacy on rue de Fivolin Pats, France, with a prescriston to be filed. The pharmacist, after verifying that she does not have the medication in stock, goes to her computer where she places an order forthe medication with OCP, the leading pharmaceutical distributor in Paris, along with several other items that she vd ang needs, The order is trensmitted through ED! (electronic data interchange) to OCP’ cistr- bution center, which is located in St. Quen, a Paris suburb. Upon receipt of the electronic order, a paper requisition is generated, listing the re quested items and the quantities of each. The requisition is deposited in aplastic tote bin, which has @ bar code attached tothe outside identifying the order. The tote bin i immedi- ately placed on a conveyor where it wends its way through the distribution center collect- | ing the items that were ordered, Automatic order picking equipment deposits some items in the bin without any human intervention, while other bulkier tems are picked by hand. At teach stop, the tote bin is weighed to ensure thatthe proper number of items has been putChapter One sntrdtion 3 init. Forty-five minutes after the order was received, a cover is placed on the tote box and secured with an elastic cord, and the tote box is placed in a delivery van along with other tote boxes, Less than two hours after the pharmacist placed the order, itis delivered to the pharmacy, ust as the customer arrives to pick up his prescription Objectives of th ae ¢ Book As the opening vignette illustrates, technology is changing how organizations provide ser- vice. At the same time, itis more critical today than ever for service managers to under- stand that the fundamentals of doing business have remained virtually unchanged. To be successful, companies sill need to provide value to their customers. Those firms that do will grow and prosper; those that don’t will fail and will either be absorbed by their com- petitors or go out of business. Ample evidence demonstrates that firms need to continually. change to meet the ever increasing and changing demands of their customers. A&P super- ‘markets, W.T. Grants variety stores, and the First National Bank of Boston were once lead ers in their respective industries, but today either no longer exist or are mere shadows of their glory years. They ignored the fundamentals of doing business and stopped providing value to their customers. Value, as we shall lear, is defined by the customer, and in today's fast-paced ever-changing business environment, technology often plays @ major role in how that value can be added. ‘The objectives ofthis book are to: Present the unique characteristics that services have in common, regardless of their spe- cific industries. Identify the ways in which services can add value for their customers. Introduce the elements or basic building blocks that managers must address in design- ing and delivering services. Provide some insights into how technology is changing the ways services are being Aesigned and delivered, Introduce management tools and concepts that can be applied to a wide range of Recognize the need for an organization's different functional elements, such as opera tions, marketing, and human resources, to interact with each other on a continuous basis. Gu =e Why the Emphasis on Services? _) Services have become the focus of increasing managerial attention for several reasons, First, as we can see in Exhibit 1.1, services have experienced significant growth over the past several decades; they now represent a major portion of the economies of the world’s ‘more industrialized nations. Even in lesser developed countries, services still represent a significant portion of their economies, as shown in Exhibit 1.2.4 Managing Services EXHIBIT 1.1. The Growth in Services in Industrial 1ed Countries & United States An Canada a3 = Sem 2 Senan Ba “= France Bes s2 2 Germany ce tay : Netetands : sa= Swesen o m= United Kingdom 73601865 Tvs aso 198s 1200 1908 2000 exwior 12 a EXHIBIT 2 cat oO Percent of GOP efGross Domestic» Bras 50% Productin Lesser Thar 3s Developed Counties Peru 5 iia 5 Ghana 0 Secondly, many manufacturing companies now realize they can create more value for their customers with services. These new services not only provide manufacturers with a ‘competitive advantage but also are proving to be very profitable. ‘Advances in technology have also increa is on services. Many products are no longer sold as products, but instead are sold as services through the Internet. For ex ample, you no longer need to purchase a road atlas to find a route to a particular destina- tion, Instead, you can request the information on the Internet, from an applications service provider (ASP) that specializes in providing maps and directions. In a similar manner, ‘many software packages are now offered on the Internet by ASPs, eliminating the nocd to buy and install shrink-wrapped software packages and then having to frequently upgrade them, As Sian Davis and Chris Myers point out in their book Blur technology is the underly- ing cause for the vast majority of changes occurring today. They identify three major ele ments or forces that managers need to recognize in this rapidly changing environment (which is offen blurred because the changes are happening so quickly). These are: (a) speed, or quick delivery; (b) intangibility, or less focus on goods; and (c) connectivity, of electronic communications between organizations and individuals and even within orga nizations, Services appear to be the common factor that link all three elements, as illus trated in Exhibit 1.3. For example, ners of the world, allowing services in the form of e+ he Internet now connects virtually all the distant cor- Is and online purchases to beChapter One Invoduetion 5 qui 13 — Fores Increting >, angty the Emphasis [ connectvty on Services transmitted quickly and at any time. Likewise, satellite communication now permits firms such as FedEx and Wal-Mart to provide up-to-the-minute company information on an on~ going basis to their employees around the world. Differences Between Goods and Services The vast majority of products that we purchase consist of both a “goods component” and 2 “services component,” as seen in Exhibit 1.4. Products that consist primarily of the goods ‘component, such as automobiles and clothing, are considered to be goods, while products ‘that consist primarily of services, such as a restaurant or a bank, are typically considered to be services, fe a common set of attributes that distinguish them from manufactured such as automobiles, computers, clothing, of microwave ovens (which are ‘often referred to as “things you can drop on your foot”). These characteristics of services, which, as we shall see, are interrelated, include: + Direct customer interaction + Intangibility + Perishability Direct Customer Interaction A key factor that distinguishes manufacturing from service environments is that the cus- tomer is often present during the actual delivery of the service, Few of us have actually vis- ited an automobile factory or a beer brewery, although many of us have purchased a car or indulged in an occasional beer. The physical presence of the customer is not required to produce the ear or the beer because finished goods (FG) inventories separate the customer fiom the manufacturing process. However, as seen in Exhibit 1.5, the same cannot be said for services, for which the presence and participation of the customer is required as part of the service delivery process. For example, customers must be present to have their hair done ata hair salon; to dine ata restaurant; to travel by plane, bus, oF train; or to receive medical treatment at the emergency room of a hospital. In some cases, the customer is not present in the service process, but services are performed on the property ofthe customer, In these instances the ‘customer's property acts as @ surrogate for the customer, for the property must be present5 Managing Services EXHIBIT 1.4 Products Are “Bundle” of Goods tnd Services EXHIBIT 15 Difference in Customer Interaction for Goods and Services 100% Goods 100% Services groceries, Manufacturing: in the performance of the service. Examples of these types of services include dry clean- ing, lawn mowing, and automobile repair. Still other services are performed using infor- ‘mation provided by the customer, for example, processing bill payments through Internet, banking, Technology is dramatically changing the way in which customers interact with many services. Bank customers now have several options for conducting their transactions, in ad- dition to the more traditional face-to-face interaction with a bank teller, They can use an ATM of conduct online transactions through the Internet. Similarly, customers no longer hhave to go to a retail store location such as Barnes & Noble or Borders to purchase books. Instead they can buy their books online, For another example of how technology affects customer interaction with services, we look at EMC Corp., which manufactures data stor= age equipment, Advances in technology permit EMC's equipment to self-diagnase prob- lems and even potential problems, many of which can be corrected remotely by a service technician or engineer who is located at EMC's headquarters in Hopkinton, Massachusets Before the introduction of this technology, the technician or engineer needed to visit the customer's facility in person to make the necessary repairs.Chapter One invoducrion 7 Intangibility An automobile, an overcoat, ora box of cereal are tangible goods, objects that can been seen and touched and can be used or consumed now or later. Services, on the other hand, are acts that are performed forthe benefit of customers, and those acts usually take place inthe pres- ence of customers (or their possessions). Services are intangible. We cannot actually touch ‘medical examination performed by a doctor, a financial transaction ata bank, the purchase of grocer at a supermarket, or a teacher's lecture in a classroom. These are services: the doctor performs a series of tests on the patient; the bank teller enters financial data into a ‘computer for the customer; the cashier at the supermarket rings up the price of each item into a cash register; and the teacher provides knowledge and information to the students, Perishability Because the customer is present and participates inthe delivery of a service, the the service operation is considered to be perishable. Service capacity that is not used imme- diately and remains idle cannot be saved for use in the future. For example, the empty seats on airplanes cannot be accumulated and saved for use during the peak demand periods of ‘Thanksgiving and Christmas. Similarly, empty rooms cannot be acerued during the slow win ter season ata summer resort for use during the peak periods of July and August. Customers who watt to eat ina busy restaurant on a Friday or Saturday night are highly unlikely to come bback on Monday morning when there is more than ample capacity to serve them, Instead, they will simply find another restaurant on Friday or Saturday night. Types of Servic: aw earlier in this chapter, services account for the vast majority of the economies | of industrialized countries, A more detailed classification of the many different types of services is presented later in this book as an introduction to understanding service strategy. As a first step, however, Exhibit 1.6 describes services in terms of sectors, types of processes, and objects of each process. Exhibit 1.7 provides a closer look at the two major types of service processes (trans- formation or transportation) and who or what is being processed (people, goods, or data), providing examples of each. The managers within each of these categories have much in common, particularly at the operational level, but at the same time, they each face their own unique set of challenges. We shall also see that technology affects each of these cate- ories differently ~ « Service Sectors ‘As shown in Exhibit 1.6, another way to look at services i to divide them into the follow= ing three broad sectors, recognizing that there is some degree of overlap: + Service industries + Ancillary and support services ces in manufacturing Service Industries In looking at services by industry, we take a macro view of the categories traditionally used in determining employment by various industries within an economy, Organizations thatManaging Services EXHIBIT 16 Categorizing Types of Services EXHIBIT 1.7 Differentiating Services by Type of Process and Who or What Is Being Processed Service Industries Ancillary and Support Services Service Sector tp Loe Services in Manufacturing of Transformation Transportation Type of Process: Transform Transport People: Restaurant, hospital Aline, bus, rain Goods: Carwash, ry cleaning Freigh line, etal sales Data: Payrals, data analysis E-mail elecvonic data interchange (ED!) fall within the service industry category focus on providing a specific type of service as their primary mission or objective. We present here some of the larger service industries that exist in every economy, recognizing that in our descriptions there is some overlap, Health Care Organizations in this category include primary care facilities such as hospitals (for-profit ‘and not-for-profit), health maintenance organizations (HMOs), walk-in and specialty clin- ics, and health research organizations. Also included in this category are ambulance ser- vices and the professional services of doctors, nurses, and emergency medical technicians. Hospitality ‘The hospitality industry covers a wide range of services from hotels and resorts to restau rants, nightclubs, and car rental agencies. Each of these can be further divided into several subcategories or market segments. Restaurants, for example, range from gourmet dining. to fast food; hotels similarly range from luxury full-service hotels that are typically located in the center of major cities to budget, no-frills motels located on highways, Financial Services Here again there is a broad range of services, including banking, insurance, and investment brokerage services. Deregulation and advances in technology have blurred industry lines in this sector. For example, many banks now offer insurance and investment services while brokerage services such as Fidelity Investments offer check-writing services.Chapter One Iurduction 9 Professional Services Included in this category are the services provided by doctors, ryers, architects, ac. qqaintants, teachers, and other service professionals. Often thea sionals function in ica gf independent contractors, each with their own clint ake the ease of med. ical doctors and lawyers, Retail ui_onerations similarity cover abroad spectrum of businesses, anging from supermar- kKet chains such as Safeway to mom-and-pop va stores; from large, upscale department Siates like Nordstrom and Saks Fifth Avenue to small highly speciis ca boutiques and dis- count operations such as Wal-Mart and Target. Also includegl this category are dry clean- ing establishments, barbershops and hair salons, gas stations, and auto repair shops. These are just a few of the types of retail services available Transportation This category as su rr rib 16, can be subdivided into the transportation of peo- ble the transportation of products, and the transportation of dave tie transportation of prope includes services that use airplanes, buses, ships, and tian: Then ansportation ri Considered pat of supply chain management and is addrenced only tangentially aaa orttion of data is accomplished eletronically trough the eae and EDI el magnetically though computer discs, aswell 5 by fax andthe einen ul systems, Han se done orally by telephone, as when a customer speats te clog ‘hotel reserva tions e: Ancillary and Support Services Gneillary and support services come under the umbrela of what we call service supply Shain management (as distinguished from manufecturing supply chain management, Wel focuses exclusively onthe delivery of products), While thoes ices are performed within an organization, they are not the primary missfon ofthe company. Examples of ane Fee acrite include the cafeteria in an automobile assembly plans the security at an of fice building, an the lawn care service ata university mats been a growing trend to outsource ancillary services instead of ‘managing them as in-house operations, for two main reasons. Firs. its ose wee costly to out increasing tenet allows firms to focus resources on their primary misses trace the son, Ni competitive position in the marketplace. Second. because the fang to which Lit Service is outsourced typically specializes in that particular eres service, it ohn Provide a beter level of service than i the service were provided heereey in ctaluating whether or nt to outsource a service, itis importa fee a to detor- that serves fain 2tvice adds significant value for its eustomers and whether coe that service is part of the firm's competitive advantage. It would be foolhardy for a man. competitors Se at! ofa facet ofthe business that clearly differentiates it honey competitors Some types of services within this category include Temporary Help arent of nbor is temporary help. Increasingly, firms use temporary fips an altsnative to hiring permanent fll-time workers Beene provides flexibil serra lo makeiplace changes. Service managers, in particular needy ware of the renege and disadvantages of using temporary help interme of cosy knowledge re- ‘erton, and development of long-term customer relationshipsJanitorial Services ‘Many companies subcontract custodial care of offices and factories to outside firms that specialize in this area. ServiceMaster is one of the leading firms that provides this type of Security Guard service on either a full-time or temporary basis is also often subcontracted. This has been a strong growth industry in recent years for several reasons. More and more compa- nies want to protect their proprietary information from getting into the hands of competi- tots. Another factor contributing to the growth of security services is the growth in the eld- erly population. Many senior citizen communities provide security to ensure the safety of ‘members and their possessions. As this segment of the population continues to grow, so will the demand for security. The destruetion of the World Trade Center towers in New York City on September 1, 2001, further fueled growth in security services. Food Service ‘Many businesses, including manufacturing companies and services such as colleges and hospitals that need to provide meals to workers or “customers” (be they students or pa tients), often outsource these food services to firms that specialize in this area, such as \ ARAMARK and Sodexho. Services in Manufacturing Atone time, manufacturing and services were viewed as two distinct segments of the econ- ‘omy. More recently, however, the distinetion is becoming blurred, and there is moee inte- gration between the two. This merging of manufacturing and services within an organiza- tion has been driven in large part by the growing trend toward shorter product life eycles. As life cycles become shorter, the goods component of a product more quickly becomes commodity-like in nature, making it less distinguishable from its competition. Companies turn to services in many instances to obtain a competitive advantage. Examples include the support service and upgrading advertised by Gateway Computers, which makes the Gate- ‘way product bundle more attractive to many users, and the global positioning system (GPS) offered by Lincoln automobiles, which enables drivers to know where they are at any time and to obtain directions to their destinations. Defining Value ‘We often hear the expression “Customers want their money's worth.” Unfortunately, from ‘a manager's point of view, satisfying customers is not that easy. Customers want more than, their money's worth, and the more they receive for their money, the more value they see in the services they purchase. In determining the value of a service, customers consider all the benefits derived from the service and compare it with all the costs ofthat service. If, in the customer's opinion, the benefits exceed the costs, then customers perceive value in the service. The more the benefits exceed the costs, the more value the service provides. In other words, Perceived Customer Value = Total Benefits Total Costs When this ratio is greater than 1, customers perceive value; the greater the number, the more value. When this ratio is less than 1, customers feel they have overpaid for theChapter One Iivoduction Service, that they have been “ripped off” and are highly unlikely to use that seevice again Another way of looking at this is Perceived Customer Value = Total Benefits ~ Total Costs When the difference between the benefits and costs is positive, customers perceive value ‘when itis negative, they believe they have overpaid for the service. Total Benefits Total benefits consist of all the factors (which are presented in detail in Chapter 12) that affect the quality ofthe service being provided. Customers weight these factors differently, depending on the service. The weights for these factors will also vary from customer to customer for a given service and might even vary for the same customer at different times under different circumstances, Total Costs ‘Total costs include monetary costs, but customers also can incur several other types of costs. Christopher Lovelock identifies four of these! Time In today’s fast-paced environment, time is precious. Therefore, services that require sige nificant amounts of time can be viewed as “not being worth it” to many customers. Time ccan take several forms, including traveling to the service and then waiting for the service Physical Effort Here the cost includes the customer’s need to exert physical effort in the delivery of the service. Self-service operations are a good example of this, At a self-service gas station, customers are required to get out of their cars and pump their own gas. At a self-service Supermarket, customers are required to scan their own groceries and then bag them. Psychic Costs These often apply to new customers, who might feel inadequate or unable to properly use « service the first time. This again would apply to some self-service operations. For some customers, purchasing goods and services the first time over the Internet may be anxiety- producing and so might be an example of psychic cost, Sensory Costs These costs are experienced physically by the customer, over and above the physical effort, Sensory costs pertain to the environment in which the service is being provided and can include such factors as temperature (t00 hot or cold), poor lighting, noise, and unpleasant smells, For example, if we go to a restaurant for dinner on a Saturday night, the benefits of this experience include all the factors that define service quality (as presented ia Chapter 12). These might include the quality of the food, its presentation and portion size, the speed of service, the atmosphere of the restaurant, the friendliness and knowledge of the Staff, and the cleanliness of the restaurant. The costs, in addition tothe price and tip ofthe 'Christpher Lovelock, Product Pus: How Product + Servic = Competitive Advantage New Yor: McGraw pp. 60-1.12 Managing Services A Historical Perspective on Si ‘meal, also include the time it took to get to the restaurant and wait to get a table, the ‘cost of gas for the car (or the cost of a taxi) and parking, Thus, in determining the value of going to this restaurant, we would consider all the benefits and compare them with all the costs How to Create or Add Value ‘Value can take many forms and mean different things to different customers. Value can ‘mean something is less expensive, as when you buy books at Amazon.com. Value can ‘mean it is more convenient, as when you order groceries online, or faster, as when you use the fast lane on the highway to pay a toll automatically. Value may take the form of infor- mation, as when Amazon.com tells you what other books have been purchased by buyers who bought the same book you did, or when Expedia.com provides a list of different air- lines going to a particular city and a comparison of their airfares. Valug can also take the form of more personalized service, as when you check into a hotel like the Ritz-Carlton and the staff knows you have stayed there before and have certain preferences. ‘The key for the service firm in creating or adding value for the customer is to provide additional benefits at an increase in cost that is perceived by the customer to be less than or equal to those benefits. ervices ‘The word service, like the words servant and servitude, is derived from the Latin word servus, which means slave. Services have often been associated with menial work that is performed by low or unskilled workers. Technological advances in manufacturing during the Industrial Revolution of the 19th century decreased the labor required to produce goods and at the same time improved the standard of living. As a result, both the demand for services and the labor available to provide them increased. But it has been only within the past 50 years or so that there has been significant growth in services in industrialized countries, catalyzed in lange part by advances in information technology. The current eco- ‘nomic period is often referred to as the information or service economy, which is consid- cred the successor to the manufacturing or industrial economy, which succeeded the agrar~ jan economy that was dominant through the middle of the 19th century Services, until recently, were not considered to add value to an economy. As a result, measures of service activities were not even included in the calculation of the gross na- tional product (GNP) of a country, Instead, services were usually lumped into a miscella- neous or tertiary category behind agriculture, and mining and manufacturing, In many ‘Third World or undeveloped countries, services are still iste in the tertiary category, ‘Today, as we saw earlier in this chapter, services constitute a major portion of the economies in the more highly developed countries, and economic data are now available ‘on many of the major service sectors within these economies, In some countries, such as France, negative connotations are still associated with ser- vvice, as memories linger ofthe oppression under the French monarchy and its need for mi ‘merous servants to support overindulgent lifestyles. As a result, many services are now fully automated, eliminating the need for service workers. For example, you ean park your ccar in a garage in Paris and never come in contact with a parking attendant. You take a ticket as you enter, and you pay with either cash or a ctedit card at a machine that calcu- fates how long you parked and the amount due. After receiving payment, the machine is sues a receipt that you use to exit the garageChapter One cuction 13 Se The Evolution of Services in an Economy __) As an economy evolves from a primarily agrarian society to an industrial society to the ‘modern society of today, different types of services are emphasized. While nations around the world are in different stages of this transition, it appears that the role of services within these stages remains relatively consistent, Infrastructure Services In the early agrarian stages of an economy's development, services play a relatively minimal role, Individuals tend to be self-sufficient and have little or no discretionary income. As a con- sequence, there i litle or no need for services. The focus at this stage is primarily on infra structure services in the form of transportation, government agencies, and health i Support Services As an economy begins to develop trade and commerce, the need for support services sows. These include banking, retail operations, hotels for business travelers, and perhaps insurance companies, Recreational and Leisure Services ith the growth of the economy driven by industry, salaries tend to increase and so do the standard of living and the proportion of income that can be used for discretionary spend ing. People are very likely to spend their discretionary income eating in restaurants and ‘aking more and better vacations or even frequent long weekend trips, thereby providing the growth for many services in the hospitality industry. Examples include restaurants, ho- tels, destination resorts, health clubs, and amusement parks. Time-Saving Services ‘To sustain the increase in their standard of living, workers find themselves working lon, hours. In many households, all adults work full time, In such an environment, time be- comes more precious and people look to time-saving services as a way to cope with the time pressures and to improve their lifestyles. Examples here include mail-order busi nesses that save time from shopping in department stores, baby-sitting services that free both parents to work, and a wide variety of shop-at-home services that include the deliv- ery of groceries and dry cleaning. One reason for the tremendous growth in shopping on the Internet is that it saves people time, The Service Experience : Today, many customers are looking for something more than just good service; they are looking for a memorable experience as part of that service.? Customers see added value in these service experiences and are willing to pay for them, Examples of firms that provide such service experiences include Disney World, Rain Forest Café, The Discovery Zone, and Universal Studios Information Services With the explosive growth of information technology and the Intemet, a new type of service is emerging, which is often provided by an infomediary. Infomediaries act as 8, Joseph Pin and James H.Gimar, “Welcome tothe Experience Ezonomy,” Harvard Business Review JulAugus 985, pp 87-106,14 Managing Services “brokers” between buyers and sellers, providing information to each. The services they provide occur in electronic marketplaces. Marketplaces that bring companies together are referted to as business-to-business (B28), which typically focus on a particular commod- ity, such as chemicals or steel, Marketplaces that bring companies and consumers together ate referred to as business fo consumer (B2C). Examples of B2C marketplaces include shopping for an automobile and finding a bank mortgage for a house. Marketplaces that bring consumers together are referred to as consumer 10 consumer (C2C), an example of which is eBay. — @ ite impact of Technology EXHIBIT 1.84, ‘Traditional Trade-off between Speed of Delivery and Cost EXHIBIT 1.88 ‘Traditional Trade-off between Degree of Customization and Speed of Delivery Technology is transforming the way services are delivered today and will continue to do so for the foreseeable future. In the past, service managers typically faced a trade-off in terms of what to provide to the customer. For example, if customers wanted low cost, then it was provided with slower service or less personalized service, as shown in Exhibit 1.8A. ‘Similarly, a trade-off existed between the degree of customization and the speed of deliv- ery, as shown in Exhibit 1.8B. While these trade-offs still exist, technology is allowing managers to move to a supe rior performance or trade-off curve, as seen in Exhibit 1.9, thereby creating or adding value for the customer in the form of faster, lower cost, and/or more personalized services, 4 Hon A i ‘ ~S ~ ow Fast Sow Speed of Delvery 4 = Fast Z A z 4 i XS i 2 stow {______, Tew ion Degte of CustomizationEXHIBIT 1.9 Creating Value by Moving to a Superior Performance Curve Chapter One aduction 18 Fast Slow ‘Speed of Delivery For example, in moving from A, to By, speed of delivery increases but at no additional cost. ‘Similary, in moving fiom A, to B, the speed of delivery remains the same, but the cost is sig nificantly reduced. Both approaches increase the value of the service being provided. Managers must also recognize thatthe installation of new technology must be accompanied by the proper technical support. In addition, sufficient time must be allocated inthe initial start- up phase to provide proper training to both workers and, wien necessary, customers, When de- ciding to purchase new technology, the service manager must ensure that there is compatibility between the desired technology and the overall long-term goals of the firm, Technology will continue to advance in the form of faster and more accurate transmis- sion lines, more powerful computers, and larger electronic data storage equipment that is capable of storing perabytes (a petabyte equals 25° or 1,125,899,906,842,624 bytes) of ‘ata. At the same time, unit costs in all ofthese areas will continue to decrease, The result, will be more and more innovative approaches to providing services, and this trend will continue in the coming years Challenges for the Service Manager) As we begin the 21st century, we can see significant changes in the design and delivery of services, and the underlying cause of these dramatic changes is technology, Self-service gas, stations and checkout counters in supermarkets, online financial transactions including banking and stock trading, online purchases of goods formerly bought in traditional brick and-mortar retail operations, e-tickets for air travel, and speed pass lanes on toll roads and ‘urnpikes are just a few of the many examples of how technology is changing both the way in which services are provided and the way in which customers behave, We have already seen many trends emerging in services as a result of technology, in- cluding a greater reliance on self-service, an increase in availability (24> 7), a decrease in the importance of location, and a shift from traditional synchronous communication in the form of person-to-person telephone calls to [T-based asynchronous communication such as e-mail and the Internet, At the same time, there isa reverse trend toward more IT-based synchronous communication such as teleconferencing and videoconferencing. In such turbulent times, the challenges facing service managers are many, including Developing new ways of adding value for customers by understanding how the Internet and other technologies affect the delivery of services, Managing services in an increasingly competitive global environment where customer expectations and perceptions can vary significantly from country to country,16 Managing Services * Working ina fast-paced and constantly changing business environment, caused in large part by the continuous introduction of state-of-the-art technologies. * Managing a workforce where entirely new types of jobs are being created as a result of technology, and recruiting and training individuals from an increasingly diverse population, * Providing higher levels of service to increasingly demanding customers, while main- taining or even reducing prices. Key Terms Review and Discussion Questions Selected ibliography Everywhere we go we encounter services of one type or another, in the education we pecive, the vax cations we take, the medical exams by our doctors, the repairs to our crs, andthe processing of our checks at our banks, to name a few. The growth in services, especially inthe industrialized nations ‘ofthe world has Feached a point where services now comprise the vast majority oftheir economies Consequently, services ean no longer be ignored or relegated to thir-class status. ‘This rapid growth n services has stimulated competition. As technology continues to shrink the world, Services once provided only by local or national firms are now offered by international competitors ‘Advances in technology are changing the very serves that ean be provided-—and thexe changes will continue into the foreseable future ‘To be successful, today's service managers need to understand, now more than ever, the basic building blocks oftheir businesses beeause these fundamentals can easly become overlooked in such a fastpaced environment, These managers also need to understand how technology ean add value to their services, and how to manage the change brought on by technology. Only ia this way will they be able to make intelligent, well-informed business decisions. {nfomediary: service that provides customers with information. (p. 13) Intangible: services are acts or deeds that cannot be touched. (p. 7) Derishable: services are time sensitive and cannot be stored for future use, (p. 7) value: the worth of service as determined by what a customer is willing t pay fori (p 10) 1. Identify the different types of services you come in contact with during a “normal” week 2. What are the characteristics ofthe services you really like? What ae the characteristics of ser- vices you dislike and as a consequence are looking to purchase elsewhere? 3. Name a product that is totally composed of service with no goods component. Name a product ‘hat is 100 percent goods with no service component. 4. Identity and compare the value created by each ofthe following pairs of services. {2 Shopping ata conventional supermarket versus an online service ‘ating ata fine dining restaurant versu a fast-food operation Employing an Internet travel service versus your neighbothood travel agent. 44, Buying stocks and bonds online versus throgh a traditional investment broker, ‘5. What does the term service supply chain mean? 6. Why are services more important i today’s business environment? Brady, Diane, “Why Service Stinks" Business Week, October 23, 2000, pp. 118-28. Davis, Stan, and Christopher Meyer. Blur: Reading, MA: Addison-Wesley, 1998, Gale, Bradley T: Managing Customer Value: Creating Quality and Service That Customers Can ‘See. New York: Free Press Division of MacMillan, Inc, 1994 Heskett, James L. Managing in the Service Economy, Boston: Harvard Business School Press 1986,Chapter One Inrodsction 17 Levit, Theodore, “Produetion-Line Approach to Service.” Harvard Business Review, vol. $0, no. $ (Geptember-October 1972), pp. 41-52. Levitt, Theodore. “The Industialization of Service" Harvard Business Review, vol. $4, no. 5 (Geptember-October 1976), pp. 63-74 Lovelock, Christopher. Produet Plus: How Product + Service = Competitive Advantage. New York: McGraw-Hill, Ine, 1994, pp. 60-61 Pine, B, Joseph, I, and James H. 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