CSR321 Service Engineering

Topic 05
Service Strategy

Reference:
(Fitzsimmon, 2006)

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 ISH3I3 - Service Management - Introduction to IT Service Management

Services

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IT Services

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 ISH3I3 - Service Management - Introduction to IT Service Management

Quality of IT Services

Quality is the ability of a set of inherent characteristics of a product,

system or process to fulfill requirements of customers and other
interested parties

1. Availability
2. Performance
3. Capacity
4. Security
5. Confidentiality
6. Scalability
7. Adjustability
8. Portability
9. Other attributes agreed

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 ISH3I3 - Service Management - Introduction to IT Service Management

Rumah Makan Padang

What are their services?

Do they have service providers? What
services provided by their suppliers?
Are their customers satisfied with their
services? What characteristics perceived as
a “good service” by customers?
How do they know whether their
customers are satisfied or not?
How do they handle the customer
complaints?

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 ISH3I3 - Service Management - Introduction to IT Service Management

Bukalapak

What are their services?

Do they have service providers? What
services provided by their suppliers?
Are their customers satisfied with their
services? What characteristics perceived as
a “good service” by customers?
How do they know whether their
customers are satisfied or not?
How do they handle the customer
complaints?
How can customers differentiate their
services with Tokopedia Services?

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 ISH3I3 - Service Management - Introduction to IT Service Management

Framework: IT Infrastructure Library

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Learning Objectives
Formulate a strategic service vision.
Discuss the competitive environment of services.
Describe how a service competes using the three generic service
strategies.
Discuss the service purchase decision.
Discuss the competitive role of information in services.
Explain the role of the virtual value chain in service innovation.
Discuss the limits in the use of information.
Categorize a service firm according to its stage of competitiveness.
Conduct a data envelopment analysis (DEA).

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Strategic Service Vision

1. Target Market Segments
 What are common characteristics of important market segments?
 What dimensions can be used to segment the market, demographic,
psychographic?
 How important are various segments?
 What needs does each have?
 How well are these needs being served, in what manner, by whom?

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 Market Segment

Segmentasi pasar adalah kegiatan membagi pasar yang luas menjadi

terpetak-petak sesuai kebutuhan dan karakteristik konsumen. Tujuannya ialah
supaya perusahaan bisa melahirkan produk yang memang dibutuhkan oleh
mereka.

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Strategic Service Vision

2. Service Concept
What are important elements of the service to be provided,
stated in terms of results produced for customers?
How are these elements supposed to be perceived by the target
market segment, by the market in general, by employees, by
others?
How do customers perceive the service concept?
What efforts does this suggest in terms of the manner in which
the service is designed, delivered, marketed?

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Strategic Service Vision

3. Operating Strategy
What are important elements of the strategy: operations,
financing, marketing, organization, human resources, control?
On which will the most effort be concentrated?
Where will investments be made?
How will quality and cost be controlled: measures, incentives,
rewards?
What results will be expected versus competition in terms of,
quality of service, cost profile, productivity, morale/loyalty of
servers?

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Strategic Service Vision

4. Service Delivery System
What are important features of the service delivery system
including: role of people, technology, equipment, layout,
procedures?
What capacity does it provide, normally, at peak levels?
To what extent does it, help insure quality standards,
differentiate the service from competition, provide barriers to
entry by competitors?

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South-west Airlines
Target market segment
 Interstate business travelers with carry-on luggage who are currently driving
 Short flights
Service Concept
 On time performance
 Frequent departures
Operating Strategy
 Fast airport turnaround to allow productive use of aircraft and provide
frequent departures
Service delivery system
 Cabin crew with good interpersonal skills to create ‘fun’ atmosphere
 Assigned seating system
 Short distance – mostly carry-on luggage – less ground crew

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Competitive Environment of Services

Relatively Low Overall Entry Barriers
not patentable
Typically not capital intensive
Exception – when you are first in a small market,
or prized location advantage

Economies of Scale Limited

limited opportunities for economies of scale
because of simultaneous production and
consumption

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Continued…
No Power Dealing with Buyers or Suppliers
Typically service firms are small, so they have less
power
Exception are McDonald’s buying beef
Product Substitutions for Service
For example blood pressure or diabetes checking
can be done at home due to innovations. So
service firms need to watch for competition from
other service firms and product innovations.
High Customer Loyalty
This can act as a barrier to entry
Exit Barriers
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Competitive Service Strategies

Porter argues that three generic competitive
strategies exist:
1. Overall cost leadership
2. Differentiation
3. Focus

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1. Overall Cost Leadership

Requires efficient scale facilities, tight cost and overhead control, and use of
innovative technology
Implementation of this strategy typically requires high capital investment in
state of the art equipment, and aggressive pricing (even when it may lead to
start up losses).
Examples, Wal-Mart, McDonald’s

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How to attain cost leadership?

Seeking Out Low-cost Customers
 Some customers cost less to serve than others
 Sam’s club and Costco serve customers who buy bulk and ask for little to no
service
Standardizing a Custom Service
 Example H&R block has taken only routine preparation though tax forms can
be customized
Reducing the Personal Element in Service Delivery (promote self-service)
 Technology use has allowed banks to provide access to ATMs and reduce
human interface
Reducing Network Costs (hub and spoke)
Taking Service Operations Off-line when customer is not required to be
present – ex. drop off for laundry in Chicago

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2. Differentiation

Differentiation in service means being unique in brand image, technology use,

features, or reputation for customer service.
HOW?
 Making the Intangible Tangible (memorable)
 For example giving toiletries in hotels to remind of the comfortable stay
 Customizing the Standard Product
 For example addressing a customer by the name can give an impression of
customization of otherwise a standardized service
 Reducing Perceived Risk
 By providing guarantee, example pest control
 Giving Attention to Personnel Training
 Service providers will ultimately make the difference
 Delivering consistent level of high Quality at multiple sites
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3. Focus

This strategy is built around providing a target market with very specific
need.
Works on the assumption that the firm can serve its narrow market more
effectively and efficiently.
Example
Service Offered: (e.g. Shouldice Hospital and
hernia patients).
Harley Davidson

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Customer Criteria for Selecting

a Service Provider
Availability (24 hour ATM)
Convenience (Site location)
Dependability (On-time performance)
Personalization (Know customer’s name)
Price (Quality surrogate because of intangibility)
Quality (both outcome & process; Perceptions important)
Reputation (Word-of-mouth)
Safety (Customer well-being)
Speed (Avoid excessive waiting)

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Service Purchase Decision

Service Qualifier
 To be taken seriously a certain level must be attained by
the service provider on the competitive dimension, as
defined by other market players.
 Examples are cleanliness for a fast food restaurant or safe
aircraft for an airline.
Service Winner
 The competitive dimension used to make the final choice
among competitors.
 Example is price, convenience, reputation.

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Service Purchase Decision (cont.)

Service Loser
 Failure to deliver at or above the expected level for a
competitive dimension.
 Examples are failure to repair auto (dependability), rude
treatment (personalization) or late delivery of package
(speed).

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 Competitive Role of Information in Services

Strategic Focus Competitive Use of Information

On-line Off-line
(Real time) (Analysis)
Creation of barriers to entry: Data base asset:
External Reservation system Selling information
(Customer) Frequent flyer user club Development of services
Switching costs Micro-marketing
Revenue generation: Productivity enhancement:
Internal Yield management Inventory status
(Operations) Point of sale Data envelopment
Expert systems analysis (DEA)

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1. Creation of Barriers to Entry

Reservation system
American Airline’s Sabre System

Frequent User club

American airlines used its reservation system to
also create frequent flyer club to reward people to
accumulate credit

Switching cost
Data transfer
New software and hardware requirements
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2. Revenue Generation
Yield management
Real time pricing by monitoring demand and supply

Point of sale
information can travel to suppliers for real time
inventory management
Server can transmit order information directly to the
kitchen and to the cashier at the same time

Expert system
Past data can be fed to create expert systems – which
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3. Database Asset
Selling information

Developing services
Data mining to find new trends for new services or
improving existing services

Micromarketing
To target your advertisements

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The Virtual Value Chain

Marketplace vs Marketspace
Physical versus virtual
Creating New Marketspace Using Information - 5 steps
Gather
Organize
Select
Synthesize
Distribute

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Example of USAA
United Service Automobile Association (USAA), which provides financial
services to military personnel and their families has become a world class
competitor by exploiting the virtual value chain.

Three Stage Evolution

 1st Stage (Visibility): See physical operations more effectively with
information – Ex. USAA “paperless operation
 2nd Stage (Mirroring Capability): Substitute virtual activities for physical
– Ex. USAA “automate underwriting”
 3rd Stage (New Customer Relationships): Draw on information to
deliver value to customer in new ways – Ex. USAA “event oriented
service”

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Limits in the Use of Information

Anti-competitive (Barrier to entry)
 How to account the expense on frequent flyer service?

Fairness (Yield management)

 How to justify different price paid for same service by customers?

Invasion of Privacy (Micro-marketing)

Data Security (Medical records)

 How to protect sensitive information about people?

Reliability (Credit report)

 How to challenge erroneous information?

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 Stages in Service Firm Competitiveness
1. Available for service 2. Journeyman 3. Distinctive competence 4. World-class service delivery

Customers patronize Customers neither seek Customers seek out the firm The company’s name is
service firm for reasons out nor avoid the firm. on the basis of its sustained synonymous with service
other than performance. reputation for meeting excellence. Its service doesn’t just
customer expectations satisfy customers; it delights them
and thereby expands customer
expectations to levels its
competitors are unable to fulfill.

Operations is reactive, at Operations functions in Operations continually Operations is a quick learner and
best. a mediocre, uninspired excels, reinforced by fast innovator; it masters every
fashion. personnel management and step of the service delivery
systems that support an process and provides capabilities
intense customer focus. that are superior to competitors.

SERVICE QUALITY
Is subsidiary to cost, Meets some customer Exceeds customer Raises customer expectations and
highly variable. expectations; consistent expectations; consistent on seeks challenge; improves
on one or two key multiple dimensions. continuously.
dimensions.

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Stages in Service Firm Competitiveness

1. Available for service 2. Journeyman
BACK OFFICE
Counting room. Contributes to service, plays
an important role in the total
service, is given attention, but
is still a separate role.
3. Distinctive competence 4. World-class service delivery
Is equally valued with front Is proactive, develops its own
office; plays integral role. capabilities, and generates
opportunities.

CUSTOMER
Unspecified, to be A market segment whose A collection of individuals A source of stimulation, ideas,
satisfied at minimum cost. basic needs are understood. whose variation in needs is and opportunity.
understood.
INTRODUCTION OF NEW TECHNOLOGY
When necessary for When justified by cost savings. When promises to enhance Source of first-mover
survival, under duress. service. advantages, creating ability to do
things your competitors can’t do.
WORKFORCE
Negative constraint. Efficient resource; disciplined; Permitted to select among Innovative; creates procedures.
follows procedures. alternative procedures.

FRONT-LINE MANAGEMENT
Controls workers. Controls the process. Listens to customers;
coaches and facilitates
workers. Works to enhance
their career.
Is listened to by top management
as a source of new ideas.
Mentors

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 Group Discussion

Silakan bentuk kelompok 3-4 orang

(boleh sesuai tugas di elearning / boleh tidak)

Pilih satu studi kasus dari 5 perusahaan ini

Identifikasi Service Strategy meliputi hal-hal di bawah

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Identifikasi / Tentukan Service Strategy

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