Welcome to Service

Management
Chapter 01
Role of Services in an
James Fitzsimmons
Economy
Seay Professor of Business Emeritus
University of Texas at Austin
McGraw-Hill/Irwin
Service Management: Operations,

Copyright 2008 by The McGraw-Hill Companies, Inc. All

Rights Reserved.

Learning Objectives

Identify traits that all services have in common.

Discuss the central role of services in an economy.
Identify and differentiate the five stages of
economic activity.
Describe the features of preindustrial, industrial,
and postindustrial societies.
Describe the features of the new service economy.
Contrast the push vs. pull theories of innovation.
Identify the sources of service sector growth.

1-2

Service Definitions
Services are deeds, processes, and
performances.
Valarie Zeithaml & Mary Jo Bitner
A service is a time-perishable, intangible
experience performed for a customer
acting in the role of a co-producer.
James Fitzsimmons
1-3

Definition of Service Firms

Service enterprises are
organizations that facilitate the
production and distribution of
goods, support other firms in
meeting their goals, and add value
to our personal lives.
James Fitzsimmons
1-4

Role of Services in an
Economy
FINANCIAL SERVICES
Financing
Leasing
Insurance

MANUFACTURING
Services inside company:
Finance
Accounting
Legal
R&D and design

BUSINESS SERVICES
Consulting
Auditing
Advertising
Waste disposal

INFRASTRUCTURE SERVICE
Communications
Transportation
Utilities
Banking

DISTRIBUTION
SERVICES
Wholesaling
Retailing
Repairing

PERSONAL SERVICES
Healthcare
Restaurants
Hotels

CONSUMER
(Self-service)

GOVERNMENT SERVICES
Military
Education
Judicial
Police and fire protection
1-5

Percent Employment in
Services
Top Ten Postindustrial Nations
Country

1965

1975

1985

1995

2005

United States

59.5

66.4

70.0

74.1

78.6

United Kingdom

51.3

58.3

64.1

71.4

77.0

The Netherlands

52.5

60.9

68.3

73.4

76.5

Sweden

46.5

57.7

66.1

71.5

76.3

Canada

57.8

65.8

70.6

74.8

76.0

Australia

54.6

61.5

68.4

73.1

75.8

France

43.9

51.9

61.4

70.0

74.8

Japan

44.8

52.0

57.0

61.4

68.6

Germany

41.8

n/a

51.6

60.8

68.5

Italy

36.5

44.0

55.3

62.2

65.5
1-6

cf. Figure 1.2 in text

7

Stages of Economic
Activity

Quinary (Extending Human

Potential):
Health, Education, Research, Arts,
Recreation
Quaternary (Trade and Commerce):
Transportation, Communications, Retailing, Finance,
Government
Tertiary (Domestic Services): Restaurants, Hotels, Laundry,
Maintenance
Secondary (Goods-Producing): Manufacturing,
Processing
Primary (Extractive): Agriculture, Mining, Fishing,
Forestry
1-8

Trends in U.S. Employment by

Sector

1-9

Distribution of GDP in the US

Economy

Product

Services

A
Physical

Information

B
6%

31%

37%

10%

53%

63%

D
16%

84%
1-10

Stages of Economic
Development
Society

Game

PreAgainst
Industrial Nature

Industrial

Postindustrial

PreUse of
dominant
Human
Activity
Labor
Agriculture
Mining

Raw
muscle

Standard
Unit of
of Living
Social Life Measure

Extended
household
power

Against
Goods
Machine Individual
fabricated production
tending
nature
Among
Services
Persons

Artistic
Creative
Intellectual

Structure

Technology

SubRoutine
Simple hand
sistence
Traditional
tools
Authoritative
Quantity
of goods

Community Quality of
life in terms
health,
education,
recreation

Maslow Hierarchy of Needs

Bureaucratic Machines
Hierarchical

Interdependent

Information

1-11

Updates of Figure 1.3 and 1.4 can be found at:

Occupational Outlook Quarterly http://www.bls.gov/opub/ooq/

Nature of Service Sector

Percent
Distribution of
Wage and
Salary
Employment by
Industry Sector,
2006

1-12

The 21st Century Career

Percent
Change in
Wage and
Salary
Employment
by Industry
Sector,
Projected
2006-2016

The Four Realms of an

Experience
Customer Participation
Passive

Active

Absorption Entertainment Education

(Movie)
(Language)
Environmental
Relationship

Immersion Esthetic
(Tourist)

Escapist
(ScubaDiving)
1-14

Typology of Services in the 21st

Century
Core Experience

Essential Feature

Examples

Creative

Present ideas

Advertising, theater

Enabling

Act as intermediary

Transportation, communications

Experiential

Presence of customer

Massage, theme park

Extending

Extend and maintain

Warranty, health check

Entrusted

Contractual agreement

Service/repair, portfolio mgt.

Information

Access to information

Internet search engine

Innovation

Facilitate new concepts

R&D services, product testing

Problem solving

Access to specialists

Consultants, counseling

Quality of life

Improve well-being

Healthcare, recreation, tourism

Regulation

Establish rules and regulations

Environment, legal, patents

1-15

Economic Evolution
Economy

Agrarian

Industrial

Service

Experience

Economic
Offering

Food

Packaged
goods

Commodity
service

Consumer
services

Business
services

Function

Extract

Make

Deliver

Stage

Co-create

Nature

Fungible

Tangible

Intangible

Memorable

Effectual

Attribute

Natural

Standardized

Customized

Personal

Growth

Method of
Supply

Stored in
bulk

Inventoried

Delivered on
demand

Revealed over
time

Sustained over
time

Seller

Trader

Producer

Provider

Stager

Collaborator

Buyer

Market

Customer

Client

Guest

Collaborator

Expectation

Quantity

Features

Benefits

Sensations

Capability
1-16

Experience Design
Principles

Theme the Experience (Forum shops)

Harmonize Impressions with Positive Cues
(OHare airport parking garage)
Eliminate Negative Cues
(Cinemark talking trash containers)
Mix in Memorabilia (Hard Rock T-shirts)
Engage all Five Senses (Mist in Rainforest)

1-17

Source of Service Sector

Growth

Information Technology (e.g. Internet)

Innovation
Push theory (e.g. Post-it)
Pull theory (e.g. Cash Management)
Services derived from products (e.g. Netflix)
Exploiting information (e.g. Auto part sales)
Difficulty of testing service prototypes
Changing Demographics
Aging of the population
Two-income families
Growth in number of single people
Home as sanctuary
1-18

Distribution of GDP in the US

Economy

Product

Services

A
Physical

Information

B
6%

31%

37%

10%

53%

63%

D
16%

84%
1-19

Discussion Topics

Illustrate how the type of work he or

she does influences a persons
lifestyle. For example, contrast a
farmer, a factory worker, and a
school teacher.
Is it possible for an economy to be
based entirely on services?
What is the value of self-service in
an economy?
1-20

Interactive Class Exercise

The class breaks into small groups.

Each group identifies service firms
that should be listed in the top
Fortune 100 and places them in rank
order of estimated annual revenue.
Fortune 100 List

1-21