Services Science and Management
Services Science and Management MGMT 150
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Service Design and Engineering Paul P Maglio UC Merced MGMT 150COGS 152 Fall 2007 Agenda Guest Doug Morse Oracle Corporation Break Service Blueprinting Lovelock and Wirtz 2007d Chapter 8 Next time Lecture 9 MGMT 150COGS 152 Fall 2007 Front Stage and Back Stage INDUSTRY SECTOR SERVICE SECTOR Back Front Any business Stage Stage is made of deSiQN two parts manufacturing Front stage Back stage In industry we focus In services we focus on the backstage on the frontstage operations but we experience but we still need a front still need backstage stage to sell operations to prepare distribute repair products and develop solutions components or and help and process information train customers Teboul 2006 Lecture 9 MGMT 150COGS 152 Fall 2007 3 The Service Package Supporting Facility The physical resources that must be in place before a service can be sold Examples are golf course ski lift hospital airplane Facilitating Goods The material consumed by the buyer or items provided by the consumer Examples are food items legal documents golf clubs medical history Information Operations data or information that is provided by the customer to enable ef cient and customized service Examples are patient medical records seats available on a ight customer preferences location of customer to dispatch a taxi Explicit Services Bene ts readily observable by the senses The essential or intrinsic features Examples are quality of meal attitude of the waiter ontime departure Implicit Services Psychological bene ts or extrinsic features that the consumer may sense only vaguely Examples are privacy of loan of ce security of a well lighted parking lot Fitzsimmons and Fitzsimmons 2005 Lecture 9 MGMT 150COGS 152 Fall 2007 4 Customer Input is Critical supplie rs suppliers us nil 4 FII39EIDEEEE DFDCESE manufacturing transfurmati ni purl mess nutp ma service process transfurmatian inputs process transformed customer inputs sustome I S customers Sampson S E 2001 Understanding service businesses Applying principles of the uni ed services theory 2nd ed New York John V ley amp Sons Lecture 9 MGMT 150COGS 152 Fall 2007 ServiceProfit Triangle Product and process formulation Highquality internal services and good internal management Revenue growth and profitability Frontline Relationship employee Customer gt Value of service provided Low turnover Loyalty Productivity Teboul 2006 Lecture 9 MGMT 150COGS 152 Fall 2007 6 Service Blueprinting A method for simultaneously depicting the service process the points of customer contact and the evidence of service from the customer s point of view Blueprmtmg Evidence Lecture 9 MGMT 150COGS 152 Fall 2007 Service Blueprint Components Physical evidence Customer actions Line of interaction Onstage Employee actions Line of visibility Backstage Employee actions Line of internal interaction Support processes Lecture 9 MGMT 150COGS 152 Fall 2007 Service Blueprint Components Physical evidence Desktop PC and applications ticket records Customer actions IT request problem call to help desk etc Line ofinteraction Onstage Employee actions Takes call opens ticket visit to employee desk side Line of visibility Backstage Employee actions Refers to manuals asks for help from team Line of internal interaction Support processes Time recording payroll training etc Lecture 9 MGMT 150COGS 152 Fall 2007 Service Blueprint Components Physical evidence Customer actions Cl Line of interaction Onstage contact Employee actions i ED Line of visibility Backstage contact Employee actions D Line of internal interaction Support processes Lecture 9 MGMT 150COGS 152 Fall 2007 10 Express Mail Delivery Service 4 Lu Truck 6 E Packaging Packaging 5 m Forms Forms gt 9 Handheld Computer Handeheld Computer E a Uniform Uniform Customer Customer Receive 5 calls Gives Package E Package m D U l 39 I Driver g0 PiCKS Deliver z i Up Pkg Package 5 E g A 2 0 0 a Customer 0 A4 SenIce g Order 3 Airport Flyto D39sPatCh Receives Sort F1 to Unload Load Dnver amp Loads Center y amp On Destination Son Truck Load on Airplane SUPPORT PROCESS Lecture 9 MGMT 150COGS 152 Fall 2007 11 Overnight Hotel Stay Bill i 1 a Desk 5 z Hotel Cart for Desk Elevators Cart for Room Menu Delivery Food Lobby a E Exterior Bags RegistrationHallways Bags Amenities Tray H 0t 81 E gt Parking Papers Room Bath Food Ext 8 r10 r m m Lobby Appearance Parking Key m Lu 2 Arrive Call Check out 8 at Check in Go to Recelve Sleep oom Rece39ve Eat and 8 Room Bags Shower r ce Food Leave U T T T T 3 on g a Process Deliver Deliver Process E 5 Registration Bags Food Check Out m k 5 lt E E 3 o x ake Bag U 5 to Room 3 LU 8 Registration Prepare Registration E System Food System E O m i Lecture 9 MGMT 150COGS 152 Fall 2007 Building a Service Blueprint Step 1 Step 2 Step 4 Identify the Identify the Y Map process to customer contact be blue or titre 3 employee printed customer glgmier E actions seg ment 1mm 1 it onstage Miami i and back stage Lecture 9 MGMT 150COGS 152 Fall 2007 13 Building a Service Blueprint 1 Clearly articulate the service process or subprocess to be blueprinted 2 Specify which customer segment is the focus of the blueprint eg check in process for frequent flyer or for first class passenger vs other 3 Specify customer actions the foundation for all other elements this can be more challenging than you think Consider When does the service start and stop from the customer s point of view Specify contact employee actions both onstage and backstage Specify support processes 9075 Add links connecting customer to employee activities and to support functions 7 Physical evidence is typically the last component added Lecture 9 MGMT 150COGS 152 Fall 2007 14 Basic Advice on Blueprinting Identify key activities in creating and delivering the service Distinguish between front stage and back stage Chart activities in sequence Show how interactions between customers and employees are supported by backstage activities and systems Establish service standards for each step Identify potential fail points Focus initially on big picture later can drill down for more detail in specific areas Lecture 9 MGMT 150COGS 152 Fall 2007 15 Improving Reliability by FailureProofing Analysis of reasons for failure often reveals opportunities for failure proofing to reduce or eliminate risk of errors Errors include treatment errors human failures during contact with customers tangible errors failures in physical elements of service Failsafe procedures include measures to prevent omission of tasks or performance of tasks incorrectly in wrong order too slowly not needed or specified Need failsafe methods for both employees and customers Lecture 9 MGMT 150COGS 152 Fall 2007 16 Customers as CoProducers Levels of Participation in Service Production Low Employees and systems do all the work Medium Customer inputs required to assist provider Provide needed information instructions Make personal effort May share physical possessions High Customer works actively with provider to coproduce the service Lecture 9 MGMT 150COGS 152 Fall 2007 17 Service Firms as Teachers Welltrained Customers Perform Better Firms must teach customers roles as coproducers of service Customers need to know how to achieve best results Education can be provided through Brochures Advertising Posted instructions Machinebased instructions Websites including FAQs Service providers Fellow customers Employees must be welltrained to help advise assist customers Lecture 9 MGMT 150COGS 152 Fall 2007 18 Managing Customers as Partial Employees to Increase Productivity and Quality Analyze customers present roles and compare to management s ideal Determine if customers know how to perform and have necessary skills Motivate customers by ensuring that will be rewarded for performing well Regularly appraise customers performance if unsatisfactory consider changing roles or termination Lecture 9 MGMT 150COGS 152 Fall 2007 19 Why Blueprinting Better than verbal descriptions of service Can solve problems before they happen Can identify potential failure points Illustrates customer role in service operation Illustrates employee role in operation Lecture 9 MGMT 150COGS 152 Fall 2007 20 Blueprinting in Practice Worst to First Innovative new services Core service improvements Customercentric change Results Bitner M J Ostrom A L amp Morgan F N 2007 Service blueprinting A practical tool forservice innovation UC Berkeey Tekes Innovation in Services Conference Available at httpwwwtekesfiberkeleyserviceinnovationPapersBitnerpdf Lecture 9 MGMT 150COGS 152 Fall 2007 21 Exercise Build a Service Blueprint Step 1 Step 2 Step 4 Identify the Identify the Map process to customer cOntact be blue or employee printed customer actijonsr segment onstage and back stage Lecture 9 MGMT 150COGS 152 Fall 2007 22 Exercise Build a Service Blueprint Step 1 Step 2 Identify the Identify the process to customer be blue or Exam printed customer 39 0 9 segment 5 item Lucky Pizza amp Video Step 4 Map contact employee actions onstage and back stage Lucky39s Pizza is a ddeo nizza delivery store run by the guy who managed 112 HaW fard Ave r the now defunct Mlnskv39s Pizza Located in the old Battle39s BBQ pad they Ames IA l offer pizzas calzones and DVD rentals for carryout or delivery 5152680000 7 Rating Shm39quot Map tar 355 with 13 votes Add Rating Pizza deliver The Fastest E aaiast g Wath Order America39s Price Range Favorite Pizza Onllrle i S E Moderately Expensive wwwcizzahutocm Tell A Friend M5 by GOOSIE AIM Yahoo Email a Find listings For local pizza to gu sitdownr pickup a delivery Lecture 9 MGMT 150COGS 152 Fall 2007 23 Service Blueprint Physical evidence Customer actions Line of interaction Onstage Employee actions Line of visibility Backstage Employee actions Line of internal interaction Support processes Lecture 9 MGMT 150COGS 152 Fall 2007 24 Discussion Lecture 9 MGMT 150COGS 152 Fall 2007 25 Next Time Nov 12 No Class Veterans Day Nov 19 Lecture 12 Service Supply Chain Guest Hans Bjornsson UC Merced Reading Fitzsimmons amp Fitzsimmons 2005c Fitzsimmons amp Fitzsimmons 2005d Fitzsimmons amp Fitzsimmons 2005e Lecture 9 MGMT 150COGS 152 Fall 2007 26 Service Science Paul P Maglio UC Merced Monday 6 9 PM Room 088 120 MGMT 150COGS 152 Fall 2007 What the heck is service science Lecture 1 MGMT 150COGS 152 Fall 2007 What the heck is service science Service science is the study of service Lecture 1 MGMT 150COGS 152 Fall 2007 What are some services Lecture 1 MGMT 150COGS 152 Fall 2007 What are some services Transportation Trains planes Hospitality Hotels restaurants Infrastructure Telephone electricity Government Police fire Financial Banking investments Entertainment Television movies Professional Services Doctors lawyers Education K 12 colleges universities IT Services Outsourcing consulting Business Services Consulting outsourcing Lecture 1 MGMT 150COGS 152 Fall 2007 So what the heck is service In economics and marketing a service is the nonmaterial equivalent of a good Service provision has been defined as an economic activity that does not result in ownership and this is what differentiates it from providing physical goods It is claimed to be a process that creates benefits by facilitating either a change in customers a change in their physical possessions or a change in their intangible assets By supplying some level of skill ingenuity and experience providers of a service participate in an economy without the restrictions of carrying stock inventory or the need to concern themselves with bulky raw materials On the other hand their investment in expertise does require marketing and upgrading in the face of competition which has equally few physical restrictions 39 from Wikipedia see httpenwikipediaorgwikiSenices Lecture 1 MGMT 150COGS 152 Fall 2007 6 So what the heck is service Deed act or performance Berry 1980 All economic activity whose output is not physical product or construction Brian et al 1987 A timeperishable intangible experience performed for a customer acting as coproducer Fitzsimmons amp Fitzsimmons 2001 A change in condition or state of an economic entity or thing caused by another Hill 1977 Deeds processes performances Zeithaml amp Bitner 1996 Application of specialized competences through deeds processes and performances to benefit another Vargo amp Lusch 2004 Lecture 1 MGMT 150COGS 152 Fall 2007 7 Who am I Why am I here Paul P Maglio Senior Manager Service Systems Research IBM Almaden Research Center Associate Adjunct Professor Cognitive Science UC Merced email pmaglioucmercededu tel 4089272857 Lecture 1 MGMT 150COGS 152 Fall 2007 8 Who am I Why am I here F i m fi 5 r gm 3 i i39r mii hqquot I 739 r r L T 1 iin I g guwlwq l I r 39 7 39 Who am I Why am I here Lecture 1 MGMT 150COGS 152 Fall 2007 Who are you Why are you here Lecture 1 MGMT 150COGS 152 Fall 2007 11 What will you learn You will learn about service You will learn what service is why it is different from other sectors and otherjobs and why it is important You will learn about problems in service such as measuring performance increasing quality and creating innovation You will learn how some have recently begun to study service from a variety of different perspectives including social sciences cognitive science management engineering and others to address these problems You will learn how interdisciplinary research might be effective in studying and understanding service In the end you will be able to have an informed and intelligent conversation about the nature of service how to think about measurement in service and how to increase innovation in service And you will be at least a little more ready for the workforce you are about to enter Lecture 1 MGMT 150COGS 152 Fall 2007 12 Syllabus Aug 27 Sept 3 Sept 10 Sept 17 Sept 14 Del 1 Oct 8 Del 15 0122 VVhatmNHy Lecmre 1 Senice Science Na Learne Labor D11 Leeuue 2 Sentee Systems Reading Tebclll 2006 Chaptess 1 e 1 Spohrel er a1 2007 First Assignment Due Lecuue 3 Service Design Readulg Tebcul 2006 Chapters 5 5 Fine ns amp itzsinuuons 2005 Chapters 1 2 Opuonal lliu 1977 1999 Gadley 2002 Lecture 4 Senice Workl Readmg Hulchms 1995 Magho Kandegau amp Haber 2007 Oplwual Btyseu er a1 2004 Leeuue 5 Semee Work 11 Guest Jeanette Blumheig IBM Almatlen Resenieli 39emer Reading Bmler et n1 9 7 etzenbeie et a1 1998 Iohnso lal 0 optional Bealdsley et a1 2005 Schullze amp Bhappu 2005 Lecnlxe 6 Service Malkelmg Guest Steve nigu University uanwnii Reading Lovelock amp sz 2007 Chapters 1 2 Yugo amp Lusch 2004 Opuonal Rusl amp Clmng 2006 Secund Assignment e Lecture 7 Sauce Informaliou Gllesl Rm 1 Vemnna 39C Belkale Reading Spangler amp Kreulen 2007 Chaplets l 1 Lm39elock Sc Wu39rz 2007 Case 14 Lecture 8 Semce Compmmg Guest Bob Glushkn llc Berkeley Reading Glushko amp McGraLh 2005 Glushko amp Tabas 2007 Optional Clieibnleov et a1 2005 oudo Oct 39 Nov 5 Nov 26 Dec 3 Dec 10 Lecture 9 Fiua1 Paper Diseussiou eenue 10 Semee Desnm amp Engmeermg Gnesr Doug Manse oinele Co oration Reading Lm39elock amp win 2007 Chapters 4 s 10 T Optional Papazoglu 2003 unill Assignment Due No Lecrure Veterans Day Lecture 12 Sen lc Supply Chain Guesl Hans Bjornsson 7C Marts Reading Fxlzsimmous amp Fltzsxmmons 2005 Chapter 15 Lecture 13 Sernce Economics Guesl Todd Nenmann UC Merced Reading Harmon el al 2006 Optional Axlth 1999 Cease 1937 Smilh 17 76 Leenue 14 Service ValllesCreallou Reading Neuuan amp Ramuez 1993 Feminine 2005 Opno al Heskerl et a1 1994 KMmaIkar 2004 Mann 2003 Lecture 15 Saints Innovation and Service Scmxce Readmg Mag o er a1 2006 Lol elock amp K mz 2007 Case 4 16 Optional Fm 2006 Final Paper Due Lecture 1 MGMT 150COGS 152 Fall 2007 13 What will you do Syllabus Oct 9 Lecture 9 Fmal Paper Discus mu Aug 27 Lecmre 1 Servme Science Y Nov 5 ecmre 10 Seniee Design amp Engmeermg 591 9 1 0 We L050quot Dquot Guest Doug Mme Oracle 0 nrnn39on Readmg39 Lm39eloek amp sz 2007 Chapters 4 s 10 hep 10 Lecture 2 Semee Sysrems m amp m Readmg Teboul 2006 Chapters 17 lt nnhr r rzT nnnm Opfmmj39 ap g1 003 Fi Sepr 3 Eva Lecnn e Labor Day Sept 17 Le Re e r Sept 10 Lecture 2 bervrce bysteuls 0 Reading Teboul 2006 Chapters 1 4 er 15 Sept 14 Le Spohrer er 611 2007 Re First Assignment D119 01 0m Le bept 1 Lecture 3 bernce Desrgn El Reading Teboul 2006 Chapters 3 6 e r r Frtzsmmrons amp Frrzsunmons 2003 Chapters 1 2 0 Optional Hill 1939 I 7 1999 Cradle 2002 l on 8 Le Sept 24 Lecture 4 Service Vork I 5 Reading Hutchins 1995 Re Maglio Kandogan 8 Haber 2007 0 Optional Bryson er a1 2004 Se On 15 Lecture 7 Sauce Informarion Guesr Ran Vemna rc Berkeley Readmg Spanng amp Kreulen 2007 Chapme 1 1 Lm39elock Sc Wu39rz 2007 Case 14 Oct 2 Lecture 8 Semce Compmmg Guest Bob Glushku UC Berkeley Readmg39 Glushkn amp McGraLh 1005 Glushko amp Tabas 2007 Opuonal39 Cherbakov er a 1005 Lecture 1 MGMT 150COGS 152 Fall 2007 14 What will you do Syllabus Oct 9 Lecture 9 Final Paper Dummou Aug 27 Lecmre 1 SetVice Science Supra N Oct 1 Lecture 5 Senate Vork H 0 551 10 I Guest Jeanette Blomberg IBI Almaden Research Center Reading Butler et a1 1997 H Herzenberg et a1 1998 Sam 17 Le Johnson et a1 2005 Re Optional Beardsley et al 2006 0 Schultze amp Bhappu 3005 615 Sept 14 Le Re Oct 8 Lecture 6 Service Marketing 0 Guest Steve Yargo University uf Hawaii 0H1 Le Reading Lovelock amp Vinz 2007 Chapters ll 392 GI Vargo amp Lusch 2004 RE Optional Rust amp Chung 2006 0 Second Assignment Due OHS Le Oct 15 Lecture 7 Servrce Information 5 Guest Ravi Nemana 17C Berkeley Re Reading Spangler amp Kreulen 3007 Chapters 1 2 o Lox elock amp 12 200 Case 14 Se On 15 Le Oct 23 Lecture 8 Service Computing 3 Guest Bob Glushko UC Berkeley Reading Glushko 8 McGrath 2005 0 Le Gillsllk 8 Tabas 3007 Optional Cherbakov et a1 2005 opumlztxk221152I Lecture 1 MGMT 150COGS 152 Fall 2007 15 What will you do Syllabus Oct 9 Lecture 9 Fmal Paper Discus mu Aug 27 Lecmre 1 Servme Science v Nov 5 ecmre 10 Seniee Design amp Engmeermg Saws 39 39 551 10 Oct 29 Lecture 9 Final Paper Discussion Nov 5 Lecture 10 Service Design amp Engineering Sept 17 Guest Doug Morse Oracle Corporation Reading Lovelock amp W39irtz 2007 Chapters AL 8 10 Tien amp Berg 2003 H 15 Sap 14 Optional Papazoglu 2003 Third Assignment Due Nov 12 M9 Lecr ure Veterans Dm39 0m Nov 19 Lecture 12 Service Supply Chain Guest Hans Bjornssum II llel ced Reading Fitzgimmons amp Fitzsimmons 2005 Chapter 15 OM Nov 26 Lecture 13 Service Economics Guest Todd Neumann UC Mercer Reading Harmon et a1 2006 Optional Arthur 1999 On 15 Come 1937 Smith 1776 Oct 2 Lecture 8 Semce Compmmg Guest Bob Glushku UC Berkeley Reading Glushkn amp McGraLh 1003 Glushko amp Tabas 2007 Opuonal39 Cherbakov er a 1005 Lecture 1 MGMT 150COGS 152 Fall 2007 16 What will you do Syllabus Oct 9 Lecture 9 nal Paper Discusemu Aug 27 Lecmre 1 Servme imenee Y Nov 5 ecmre 10 Senice Desigx amp Engmeermg 591 9 1 0 We L050quot Dquot Guest Doug Mme Orncle 0 arntion Readmg39 Lm39elock amp sz 2007 Chapters 1 s 10 gtepl 10 Lecture 2 Santa Systems Tl Readmg reboul 20067 Chapters 1 7 1 Optional Papmglu 2003 51mm e I 007 Third A iunme 1 SW 17 Dec 3 Lecture 14 Service Value Creation Reading Norman amp Ramirez 1993 Palmisano 2006 pter 3 S 74 Opnonal Heskett er a1 1994 epl V y karmarkar 2004 Mann 2003 0 Dec 10 Lecture 15 Service Imammien and Service Science Reading Maglio er a1 3006 Lovelock 1539 71112 2007 Case 4 16 Optional Frei 2006 Final Paper Due Oct 8 Rea l39g Lavage 1 39III22507C11aprers 1 2 Dec 10 Lecture 15 Same Innovation and Service Scneuce Virgo amp Luschcom Readmg Magho ela12906 0PM Ru amp mm 3006 Lm39elock amp 1 m2 007 CMe 4 16 Secuud Assignment u OPHOWZ Fm 1005 Final Paper Due On 15 Lecture 7 Sauce Informariou Guest Ran Vemna L39C Berkeley Readmg Spanng amp Kreulen 2007 Chapme 1 1 Lm39elock Sc Wu39rz 2007 Case 14 Oct 2 Lecture 8 Semce Compmmg Guest Bob Glushkn UC Berkeley Readmg39 Glushkn s McGraLh 2003 Glushko amp Tabas 2007 Opuonal39 Chrrbakov er a1 1005 Lecture 1 MGMT 150COGS 152 Fall 2007 17 What will you read Teboul J 2006 Service is front stage Positioning services for value advantage Insead Business l James 1 cimul SERVICE IS FRONT STAGE7 Positioning services for value advantage Press Cnmz iknils tTerm andD p Sale gt54 use mm Select39rexumnks Te m FALL 07 Name 065152001 eeee n 1535 Ins cm MAGLIO Course ID 1535 L nnnnnn n39 ssvac in mass Image 1 Thls Book Not Aumar Avcllable mm 5 N r y 3403 aaaaaa En Qusnniy li Addin MGMT 150COGS 152 Fall 2007 18 Lecture 1 What will you read Fitzsimmons J A amp Fitzsimmons M J 2005 MIIIIIIg Service management Operations strategy and information technology 4th Edition WWWWWLW the Talk IrwinMcGrawHill Chapters 1 2 5 6 15 Unlockingthe Business Value in Unstructured N Information Glushko R J amp McGrath T 2005 Document engineering Analyzing and designing documents for business informatics and web services MIT Press Chapters 1 4 Herzenberg S Alic J amp Wial H 1998 New rules for a new economy Employment and opportunity in postindustria america Cornell University Press Chapter 5 Lovelock C amp Wirtz J 2007 Service marketing People technology and strategy 6th Edition PearsonPrentice Hall Chapters 1 2 4 8 10 and Cases 4 14 and 16 Spangler S amp Kreulen J 2007 Mining the r talk Unlocking the business value in DOCUMENT unstructured information IBM Press Chapters ENGNEERlu oggjggmgm Lecture 1 MGMT 150COGS 152 Fall 2007 19 What will you read Articles Optional Butler P Hall T W Hanna A M Mendonca L Auguste B Manyika J 8 Sahay A 1997 A revolution in interaction The McKinsey Quarterly 19971 4 23 Glushko B 8 Tabas L 2007 Bridging the front stage and back stage in service system design Manuscript under review Harmon E Hensel S C 8 Lukes T E 2006 Measuring performance in services The McKinsey Quarterly 20061 31 39 Hutchins E 1995 How a cockpit remembers its speeds Cognitive Science 19 265288 Availab e at htt hciucsdeduIabhci Johnson B C Manyika J M 8 Yee L A 2005 The next revolution in interactions The McKinsey Quarterly 20054 20 33 Maglio P P Kandogan E 8 Haber E 2007 Distrbuted cognition and joint activity in computersystem administration In M S Ackerman C Halverson T Erickson 8 W A Kellogg Eds Resources coevolution and artifacts Theory in CSCW New York Springer Maglio P P Srinivasan S Kreulen J T Spohrer J 2006 Service systems service scientists SSME and innovation Communications of the ACM 49 8185 Normann R 8 Ramirez R 1993 From value chain to value constellation Designing interactive strategy Harvard Business Review 71 5 7 Palmisano S J 2006 The globally integrated enterprise Foreign Affairs 85 127 136 Available at h tn39llwww ihm m 39 39 nrlf Spohrer J Maglio P P Bailey J 8 Gruhl D 2007 Steps toward a science of service systems Computer 40 7177 Tien J M 8 Berg D 2003 A case for service systems engineering Journalof Systems Science and Systems Engineering 12 13 38 Vargo S L 8 Lusch R F 2004 Evolving to a new dominant logic for marketing Journal ofMarketing 68 1 17 a ersEH1995 3 df Arthur W B 1999 Complexity and the economy Science 284 107 109 Available at httpwwwsantafeeduwbarthurPapersPdf lesEcon 8 Complex Webpdf Beardsley S C Johnson B C 8 Manyika J M 2006 Competitive advantage through better interactions The McKinsey Quarterly 20062 52 63 Bryson J R Daniels P W 8 Warf B 2004 Service worlds People organisations and technologies Chapters 1 2 New York RoutledgeTaylor 8 Francis pp 1 Cherbakov L Galambos G Harishankar R Kalyana S 8 Rackham G 2005 Impact of service orientation at the business level IBM Systems Journal 44 653 658 Available at httn39lwww re earch hm 39 quot L 39 nrlf Coase R 1937 The nature ofthe rm Economica 4 386 405 Available at httn39lWww cerna en mn Frei F X 2006 Breaking the tradeoff between ef ciency and service Harvard Business Review 84 93 101 Gadrey J 2002 The misuse of productivity concepts in services Lessons from a comparison between France and the United States In J Gadrey 8 F Gallouj Eds Productivity Innovation an Knowledge in Services New conomic and Socioeconomic Approaches Cheltenham UK Edward Elgar pp 26 5 Heskett J L Jones T 0 Loveman G O Sasser W E Schlesinger L A 1994 Putting the service pro t chain to work Harvard Business Review 72 164 174 Hill T P 1977 On goods and services The Review oflncome and Wealth 23 315 338 Hill P 1999 Tang bles intang bles and services A new taxonomy for the classi cation of output Canadian Journal ofEconomics 32 426 446 Available at httpwwwcslscaournalssissggv32n2 09pdf Karmarkar U 2004 Will you survive the services revolution Harvard Business Review 82 100 107 Mann C 2003 Globalization of IT services and white collarjobs the next wave of productivity growth httpwwwiiecompublicationspbpb03 11pdf Papazoglu M 2003 Serviceoriented computing Concepts characteristics and directions In Proceedings of the Fourth International Conference on Web Information ystems Engineering Available at http nfolabuvtnlpubpapazogloump 2003 51 pdf Rust R T 8 Chung T S 2006 Marketing models of service and relationships Marketing Science 25 560 580 Schultze U 8 Bhappu A D 2005 Incorporating selfserve technology into co production design International Journalof E Collaboration 1 1 23 Smith A 1776 The wealth of nations Chapter 1 Available at httn39lwww ernnlih nrnll rm r 39 html nIIr lr nAQF nrlf International Economics Policy Briefs IIE No PBO3 11 Available at Lecture 1 MGMT 150COGS 152 Fall 2007 20 Will this be on the test Lecture 1 MGMT 150COGS 152 Fall 2007 21 Will this be on the test There is no test Lecture 1 MGMT 150COGS 152 Fall 2007 22 Will this be on the test Grades Three short papers 10 points each Class participation 10 points Final paper 60 points Assignment Schedule Sept 10 Onepage paper due Describe a specific business service you use explaining how it relates to Teboul s or other definition of service Oct 8 Onepage paper due Describe a potential topic for your final paper Nov 5 Twopage paper due Explain the topic of your final paper Dec 10 Final paper due Maximum length 10 pages Lecture 1 MGMT 150COGS 152 Fall 2007 23 What are the rules If you re in lecture be in lecture If you don t understand something ask If you send me email put MGMT 150 or COGS 152 in the subject Papers must be doublespaced blah blah blah Lecture 1 MGMT 150COGS 152 Fall 2007 24 UCMCROPS i Q ucncuoys ssionmenm EiugEer Chat Room i run Drag Em P02 tEm Resources eduie 1 Resources Site Resnurces UglaadDownluad Mulugie Resources Location El FD IVMGMT150COGS152 LEC Resources Cupy I Flamev9 1 Move Permissions Cations 9 I Title 5 Access Created y Modi ed 5E E FU7MGMT150CUGSISZ LEC Resources Add Action I E Course Overview and Syllabus Adm Entire sita PaulMagliu Aug 26 20071242 pm 441 KB 39 ai jes Add Actidns Entire Site Pgi Aaglio Aug 26 ZURMZ pm 0 items 39 Readiigs Add v Actidns Entire site PauiMagiio Aug 26 20071ZI2 pm 3 items i 3 Week I 7 Aug 27 Add Actions Entire sine Paul Magiio Aug 26 2007 1242 pm 1 item 1 Week 2 7 Sept 3 Add Acddns Entire site PaulMagiio Aug 26 200712242 pm 1 item 39 week 3 r SEEUU Add Actidns Entire site PauiMagiio Aug 26 100712362 pm 2 items 39 Week 4 r Segt 17 Add Actions Entire site PauiMagiio Aug 26 20071Z42 pm 2 items i H Ludi v Atmnn PM quot w W 2 Shaw other sites Lecture 1 MGMT 150COGS 152 Fall 2007 25 UCMCROPS Q ucncnovs Mu Nathan 1 HJ39 uni 3911 w i rw Mum Home a Resource i Site Resnurces UgloadDuwniuad Muitigie Resources Permissions Ogtions Location i FD IVMGMT1SDCOGS152 LEC Resources cipy I 13 9 1 Title 5 Access Created gy Mndi ed S39 E F07MGMT150COGSISZ LEC Resources Add Acddds 39 Cuurse Overview and Syliabus Among Entire site PaulMagliu Aug 26 20071242 pm 441 KB i l Lectures Add v Actidns Entire Site PaulMaglio Aug 26 20071242 pm 0 items 39 Readings v Add V Adm5 Entire site PauiMagiio Aug 26 20071247 pm 3 items 1 Week I 7 Aug 27 Add v Actions Entire site PaulMagiio Aug 26 20071242 pm 1 item p935 i 3 Week 2 r Segt 3 Add Actions Entire site PaulMagiio Aug 26 200712242 pm 1 item Resources 7 7 MW i 133 week 3 r Jegtm v Add Actions Entire site PauiMagivo Aug 26 20071242 pm 2 items i WEek 4 r Segt 17 V Add Action Entire site PauiMagiio Aug 26 20071242 pm 2 items 39 i 4 Nd 2 4mm Em a ram Jag u 113 39 4 um 1 ram Show ether sites Lecture 1 MGMT 150COGS 152 Fall 2007 26 UCMCROPS 1 Resources 9 Site Resnurces UglaadDuwniuad Muitigie Resourcis Permissions Ogtions Location ij FD IVMGMT15DCOGS152 LEC Resources W p quoti 5 l w Access Created Ey Modi ed S39 E F07MGMT150c065152 LEC Resources Add Acddns l Course Overview and Syliabus Adm Entire site PaulMagliu Aug 26 20071242 pm 441 KB i diLECKiES r Add 7 v Actidns Entire Site PgilMaglio Aug uwiizmz pm 0 items MEET 7 Riaadiggs V Add V Amid Entir siie PauiNia iio gug726720071242 pm 3 items BELLE E i Week I 7 Aug 27 Add 7 Actions Entire site Paul Magiio Aug 26 20071242 pm 1 item 1 3 Week 2 7 Segt 3 Add Acddns Entire site PaulMagiio Aug 26 200712242 pm 1 item i week 3 r SEEHU Add 7 ACE Entire site PauiMagiio Aug 26 20071242 pm 2 items 39 Week 4 r Sag 17 V Add Actions Entire site PauiMagiio Aug 26 20071242 pm 2 items i m i LUji Amw 53m 22 M Lecture 1 MGMT 150COGS 152 Fall 2007 27 UCMCROPS ucncumls El A J HDmE 39 Resources it Annuuniem 5 Site nasuurceeuemauoowniuadMuingleaesoumes lPermissions IOgtinns Assmnmem my Location FO7MGMT150COGS152 LEE Resources Char Rm im Com Remove I Move 9 l TitL 5 Access Created By Modi ed g E 1 F07 MGMT150C055152 g Resume v Add v Actions E aliLichWE 7 7 7 pom l a Course Overview and Syiiabus Actions Entire site PauiMaglia Aug 26 20071242 pm 441 KB F El Lectures 7 Add Actiuns Entire site PaulMagliu Aug 26 20071242 pm 0 items MaiiTUUi i l Readings 7 Add Actions Entire site PautMaglin Aug 26 200712142pm 3 items I LI Week 1 Aug 27 Add v Admquot Entire site PauiMagliu Aug 26 20071242 pm 1 item FL I v Add Actions Entire site PauiMaglin Aug 26 2007 1242 pm 1 item I a Week 3 7 Sept Add Actions Entire site PauiMaglio Aug 26 20071242 pm 2 items r Sgohi39er et al 20079df Actions Entire site PauiMagliu Aug 26 2007 735 am 18 MB 1 ii Week 7 Overview Actions Public Paul Magliu Aug 26 2007 757 am 103 KB I Add Actions Entire site PauiMaglia Aug 26 2007 1242 pm 2 items quotdd w Emu F iii we nm i 4 iii 1 new gt Show other Sites Lecture 1 MGMT 150COGS 152 Fall 2007 28 Now some bad news Fitzsimmons J A amp Fitzsimmons M J 2005 Mllllllg Service management Operations strategy and information technology 4th Edition WWWWWWW the Talk IrwinMcGrawHill Chapters 1 2 5 6 15 Value in Unstructured Unlocking the Business m Information Glushko R J amp McGrath T 2005 Document engineering Analyzing and designing documents for business informatics and web services MIT Press Chapters 1 4 Herzenberg S Alic J amp Wial H 1998 New rules for a new economy Employment and opportunity in postindustria america Cornell University Press Chapter 5 Lovelock C amp Wirtz J 2007 Service marketing People technology and strategy 6th Edition PearsonPrentice Hall Chapters 1 2 4 8 10 and Cases 4 14 and 16 Spangler S amp Kreulen J 2007 Mining the r talk Unlocking the business value in DOCUMENT unstructured information IBM Press Chapters ENGNEERN5039Qm Lecture 1 MGMT 150COGS 152 Fall 2007 29 Now some bad news Fitzsimmons J A amp Fitzsimmons M J 2005 Service management Operations strategy and information technology 4th Edition lrwinMcGraw Hill Chapters 1 2 5 6 15 Glushko R J amp McGrath T 2005 Document engineering Analyzing and designing documents for business informatics and web services MIT Press Chapters 1 Herzenberg S Alic J amp Wial H 1998 New rules for a new economy Employment and opportunity in postindustria america Cornell University Press Chapter 5 Lovelock C amp Wirtz J 2007 Service marketing People technology and strategy 6th Edition PearsonPrentice Hall Chapters 1 2 4 8 10 and Cases 4 14 and 16 Spangler S amp Kreulen J 2007 Mining the talk Unlocking the business value in Siestructured information IBM Press Chapters 2 Celebraimg 15 Years Since 1992 over 1m rustrumurs a DIglIaI Packs r Cusmm Textbooks Cuurse Packs s llnw 4 nWmlu39 nrlill m 9 Publish Your Worksquot r Browse Our Llhr l39y s Sea Mum 7 Mam p 105m My Dlgiul rim Go Now r Submit Projects v Adopt Textbooks v Standing Orders m LUW prlras v DOORJO DOOR aelvery xlnan39nu r Adam is Texlbook 5 w 7 nlww a mamas guaranlee ZDDYUnwe ih ReaderleK l Terms l somzomma Jobs drum l Refuitwllzique l 5mm Lecture 1 MGMT 150COGS 152 Fall 2007 30 So if you had to choose No one likes this but copyrights cost money 104 for a Print reader tax and shipping 100 for a Digital Only reader tax 112 for a Print Digital reader tax and shipping all costs approximate with digital only you get 2 chances to print out chapters Lecture 1 MGMT 150COGS 152 Fall 2007 31 Why is service so important agriculture 1 services United states 1968 1988 828 1848 1868 1888 1988 1928 1948 2888 Germany 1828 848 1868 1888 1988 1928 1948 1968 1988 2888 India 1828 1848 1868 1888 1988 1928 1948 1968 1988 2888 L dwe1 MGMTWEWCOGST O 2 Source 2004 IBM Study based on national labor data 30 70 60 50 1335 1360 1335 1910 1935 1960 1935 2010 1835 1860 1885 1910 1935 1960 1985 2010 1835 1860 1885 1910 1935 1960 raH2007 2010 Why is service so important US Gross National Product Products Services 0 0 Materlal 1 1 A 3 0 A 0 I 9 50 A Informatlon from Uday Karmarkar UCLA Lecture 1 MGMT 150COGS 152 Fall 2007 33 Why is service so important r WMEI39K wagea ridsalary emphymeru byindumytype 20M and Injected 2014 with IR BIS m Manilaquot Imm Lemmy Servleean39w ing industries are projected to acwunl for most job 210mb gemnlimg almosl 19 million new jobs between 2004 and 2014 This is due in pan 0 increased d mmd fnf mines and the dif culty cur attun mmlnc senice tasks US Bureau of Labor Statistics httpwwwbsgovopubooq2005winterart03pdf MGMT 150COGS 152 Lecture 1 Empioyment mange Numeric change in wage and salary emplwmmt by industry senor projected 200414 mm mm and hisquot mum Healthcare anti social 1mm team am Magnum Rats and whuimle made 39 h 39 in may my 46 m umjahs Grow in this mcmris 1rd Mr 13mm mum in mites and emitting mn39m Fall 2007 34 What do service jobs look like Government Health amp Financial amp Professional Information amp Retail amp Leisure amp Transportation amp security education insurance amp business communication wholesale hospitality amp utilities High skill xecutive doctor broker executive executive executive producer pilot executive judge professor partner lawyer engineer proprietor director engineer dean scientist proprietor engineer deSlgnerl architect star athlete entrepreneur Performer Semi legislator pharmacist analyst manager technician buyer high actor attendant autonomous policy nurse t accountant system end sales performer maintenance researcher teacher underwriters HR administrator a ist technician patent technician marketing journalist writer technician plumber analyst business dev announcer electrician Unrationalized police nurses aid adjustors admin call center sales clerk maid truck driver labor intensive firefighter day care auditor assistant specialist stocker janitor field force security worker investigators hiring librarian shipping amp waiter technician guard ambulance specialist receiving gardener machine driver door to door cook operator sales barber Tightly inspectors data entry bank teller inspectors telephone sales fast food inspectors constrained data entry check receptionist operator counter worker proofers clerks Client citizen patient shareholder client subscriber consumer guest subscriber plaintiff student client shopper commuter defendant subscriber subscriber inventor based on Herzeberg et al 1998 All occupations span a range placement is representative only Lecture 1 MGMT 150COGS 152 Fall 2007 35 What is involved in service Service Provider service Client Forms of ndVdua A Service Relationship Individual Organization cocreate value 7 Organization TeChI IOOgy Public or Private Forms of Forms of Forms of Responsibility Relationship Service Interventions Ownership Relationship Service Target The reality to be transformed or operated on by provider for the sake of client Peope dimensions of Business dimensions of Products technology artifacts amp env nformation codi ed knowedge based on Gadrey 2002 4 x a 1 r 39 fan 7 JV I gt L n 33 J can52L iUJ gth1 t Js39m39AJK A 39 5 run E can Ak b t What is a service system Service systems are value cocreation configurations of people technology internal and external service systems connected by value propositions and shared information such as language laws measures models Service science is the study of service systems Lecture 1 MGMT 150COGS 152 Fall 2007 37 What is service science again Services depend critically on people technology and cocreation of value People work together and with technology to provide value for clients So a service system is a complex sociotechnical system Service innovation combines people technology value clients Science amp Business amp Engineering Technology Busmejss Management Innovation Innovation Economics Socral amp Cognitive Social Demand amp M ark et 8 sc ences Innovation Innovation Lecture 1 MGMT 150COGS 152 Fall 2007 38 What s next Sept 3 No Lecture Labor Day Sept 10 Lecture 2 Service Systems Reading Teboul 2006 Chapters 1 4 Spohrer et al 2007 First Assignment Due Lecture 1 MGMT 150COGS 152 Fall 2007 39 Wait something is due next time Sept 10 Onepage paper due Describe a specific business service you use explaining how it relates to Teboul s or other definition of service Papers must be doublespaced with 1inch margins on all sides and formatted in a legible font such as Times Roman with fontsize 12 Papers must have a title your name must be at the top of each page and each page must be numbered All papers must include references formatted in a standard style either following The Chicago Manual of Style 15th edition or the Publication Manual of the American Psychological Association 5th Edition All papers must be clearly written see Strunk and White s classic Elements of Style and must be proofread so they contain minimal typos and the like Lecture 1 MGMT 150COGS 152 Fall 2007 40 Service Value Creation Paul P Maglio UC Merced MGMT 150COGS 152 Fall 2007 Agenda Questions Value Creation The ServiceProfit Chain and Value Networks Heskettetal 1994 Normann and Ramirez 1993 IBM and the Globally Integrated Enterprise Palmisano 2006 Bonus Video Lecture Brian Arthur on Complexity and Economics Arthur 1999 Next time Lecture 14 MGMT 150COGS 152 Fall 2007 The ServiceProfit Chain Operating w and Sonic Mirl7 Syrian 39 mics concept 39 Men 5 mph his maul x mom L mpum businesx I bah dulyquot m L IIIplow lmquot and Jutlqu quotplum I M l dl 39l wviw and 1 tool by among calm dullwud to and kth unionvquot woods The serviceprofit chain establishes the link between profitability customer satisfaction and employee satisfaction Heskett et al 1994 Lecture 14 MGMT 150COGS 152 Fall 2007 Principles of the ServiceProfit Chain Customer Loyalty Drives Profitability and Growth Customer Satisfaction Drives Customer Loyalty Value Drives Customer Satisfaction Employee Productivity Drives Value Employee Loyalty Drives Productivity Employee Satisfaction Drives Loyalty Internal Quality Drives Employee Satisfaction Heskett et al 1994 Lecture 14 MGMT 150COGS 152 Fall 2007 Customer Loyalty Drives Profitability and Growth Loyal customers are the most valuable most loyal 20 provide all the profit and cover the costs incurred in dealing with less loyal customers Loyalty is measured by the duration and the depth of the relationship Banc One based in Columbus Ohio has developed a sophisticated system to track several factors involved in customer loyalty and satisfaction Once driven strictly by financial measures Banc One now conducts quarterly measures of customer retention the number of services used by each customer or depth of relationship and the level of customer satisfaction The strategies derived from this information help explain why Banc One has achieved a return on assets more than double that of its competitors in recent years Heskett et al 1994 Lecture 14 MGMT 150COGS 152 Fall 2007 Customer Satisfaction Drives Customer Loyalty Only the most satisfied customers are truly loyal on 15 satisfaction scale 55 are substantially more loyal than 45 Companies strive to create apostles and to avoid creating terrorists w Xerox has polled 480000 customers per year regarding product and service satisfaction using a vepoint scale from 5 high to 1 low In 1991 an analysis of customers who gave Xerox 4s and 55 on satisfaction found that the relationships between the scores and actual loyalty differed greatly depending on whether the customers were very satis ed or satis ed Customers giving Xerox 55 were six times more likely to repurchase Xerox equipment than those giving 4s This analysis led Xerox to extend its efforts to create apostlescustomers so satisfied that they convert the uninitiated to a product or service Xerox39s management currently wants to achieve 100 apostles or 5s by the end of 1996 by upgrading service levels and guaranteeing customer satisfaction But just as important I a a quot 5 for Xerox39s pro tability is to avoid creating terrorists munI7 maul I m may customers so unhappy that they speak out against a W W m m poorly delivered service at every opportunity Terrorists munm can reach hundreds of potential customers Heskett et al 1994 lavhr WIII S l Lecture 14 MGMT 150COGS 152 Fall 2007 6 Value Drives Customer Satisfaction But value is often tricky to measure because there are both absolute or objective measures of value and subjective ones based on customer expectations Studies show that people will sometimes rate a service experience more highly if they had to wait The insurance company Progressive is creating value for its customers by processing and paying claims quickly and with little policyholder effort Members ofthe company39s CAT catastrophe team fly to the scene of major accidents providing support services like transportation and housing and handling claims rapidly By reducing legal costs and actually placing more money in the hands of the injured parties the CAT team more than makes up for the added expenses the organization incurs by maintaining the team In addition the CAT team delivers value to customers which helps explain why Progressive has one of the highest margins in the propertyandcasualty insurance industry Heskett et al 1994 Lecture 14 MGMT 150COGS 152 Fall 2007 7 Employee Productivity Drives Value At Southwest Airlines positions are designed so that employees can do several jobs if necessary The faster turnaround time for planes increases their utilization Southwest was the most profitable airline at the time this paper was written and remains highly profitable today Southwest deplanes and reloads twothirds of its flights in 15 minutes or less Because of aircraft availability and shorthaul routes that don39t require long layovers for flight crews Southwest has roughly 40 more pilot and aircraft utilization than its major competitors its pilots fly on average 70 hours per month versus 50 hours at other airlines These factors explain how the company can charge fares from 60 to 70 lower than existing fares in markets it enters Heskett et al 1994 Lecture 14 MGMT 150COGS 152 Fall 2007 Employee Loyalty Drives Productivity The cost of employee turnover is usually measured in terms of the costs of recruiting hiring and training replacements But in most service jobs the real cost of turnover is the loss of productivity which in turn results in lower customer satisfaction A study of automobile dealer39s sales personnel concluded that the average monthly cost of replacing a sales representative who had five to eight years of experience with an employee who had less than one year of experience was as much as 36000 in sales And the costs of losing a valued broker at a securities firm can be still more dire Conservativer estimated it takes nearly five years for a broker to rebuild relationships with customers that can return 1 million per year in commissions to the brokerage house a cumulative loss of at least 25 million in commissions Heskett et al 1994 Lecture 14 MGMT 150COGS 152 Fall 2007 Employee Satisfaction Drives Loyalty This may be the most obvious principle that if you like yourjob you probably want to keep it for a long time Too often firms don39t bother to measure whether their employees are satisfied especially when they don39t perceive that employees have many options to leave Southwest Airlines recently named one ofthe country39s ten best places to work experiences the highest rate of employee retention in the airline industry Satisfaction levels are so high that at some of its operating locations employee turnover rates are less than 5 per year Heskett et al 1994 Lecture 14 MGMT 150COGS 152 Fall 2007 10 lnternal Quality Drives Employee Satisfaction Internal quality is a measurement of the attitudes that employees have toward theirjobs colleagues and the firm as a whole A key contributor to internal quality is whether employees feel empowered to meet customer needs What do service employees value most on the job Although our data are preliminary at best they point increasingly to the ability and authority of service workers to achieve results for customers At USAA for example telephone sales and service representatives are backed by a sophisticated information system that puts complete customer information files at their fingertips the instant they receive a customer39s call In addition stateof theart jobrelated training is made available to USAA employees And the curriculum goes still further with 200 courses in 75 classrooms on a wide range of subjects Heskett et al 1994 Lecture 14 MGMT 150COGS 152 Fall 2007 Principles of the ServiceProfit Chain Customer Loyalty Drives Profitability and Growth Customer Satisfaction Drives Customer Loyalty Value Drives Customer Satisfaction Employee Productivity Drives Value Employee Loyalty Drives Productivity Employee Satisfaction Drives Loyalty Internal Quality Drives Employee Satisfaction Heskett et al 1994 Lecture 14 MGMT 150COGS 152 Fall 2007 12 Taco Bell No organization has made a more comprehensive effort to measure relationships in the service profit chain and fashion a strategy around them than the fastfood company Taco Bell a subsidiary of PepsiCo Taco Bell39s management tracks profits daily by unit market manager zone and country By integrating this information with the results of exit interviews that Taco Bell conducts with 800000 customers annually management has found that stores in the top quadrant of customer satisfaction ratings outperform the others by all measures As a result it has linked no less than 20 of all operations managers39 compensation in companyowned stores to customer satisfaction ratings realizing a subsequent increase in both customer satisfaction ratings and profits However Taco Bell39s efforts don39t stop there By examining employee turnover records for individual stores Taco Bell has discovered that the 20 of the stores with the lowest turnover rates enjoy double the sales and 55 higher profits than the 20 of stores with the highest employee turnover rates As a result of this selfexamination Taco Bell has instituted financial and other incentives in order to reverse the cycle of failure that is associated with poor employee selection subpartraining low pay and high turnover In addition Taco Bell monitors internal quality through a network of 800 numbers created to answer employees39 questions field their complaints remedy situations and alert toplevel management to potential trouble spots It also conducts periodic employee roundtable meetings interviews as well as a comprehensive companywide survey every two or three years in order to measure satisfaction As a result of all this work Taco Bell39s employee satisfaction program features a new selection process improved skill building increased latitude for decision making on thejob further automation of unpleasant quotback room labor and finally greater opportunities for employee promotion into management positions Heskett et al 1994 Lecture 14 MGMT 150COGS 152 Fall 2007 13 ServiceProfit Triangle Product and process formulation Highquality internal services and good internal management Revenue growth and profitability low turnover loyalty higher productivity Teboul 2006 Lecture 14 MGMT 150COGS 152 Fall 2007 14 From ValueChain to ValueConstellation Strategy is the art of creating value Strategy is the way a company defines its business and links together the only two resources that really matter in today s economy Normann amp Ramirez 1993 Lecture 14 MGMT 150COGS 152 Fall 2007 15 From ValueChain to ValueConstellation Strategy is the art of creating value Strategy is the way a company defines its business and links together the only two resources that really matter in today s economy knowledge and relationships Normann amp Ramirez 1993 Lecture 14 MGMT 150COGS 152 Fall 2007 16 Traditional ValueChain View Every company occupies a position on a value chain Suppliers provide input Company adds value to inputs Passes along to the next actor in the chain the customer Strategy is the art of positioning a company in the right place on the chain Lecture 14 MGMT 150COGS 152 Fall 2007 17 The ValueConstellation View Strategy is not about positioning a fixed set of activities along a chain Strategic focus is not about the company or the industry Focus is the valuecreating system Main task is the reconfiguration of roles and relationships among players Aim to mobilize valuecreation in new forms and in new ways Goal is to create everimproving fit between competencies and customers Strategy is systematic social innovation Continuous design and redesign of complex business systems Lecture 14 MGMT 150COGS 152 Fall 2007 18 IKEA Innovation What s the big idea at IKEA Lecture 14 MGMT 150COGS 152 Fall 2007 19 IKEA Innovation What s the big idea at IKEA The IKEA business idea is to offer a wide range of home furnishings with good design and function at prices so low that as many people as possible will be able to afford them httpwww ikeacommsenU Slaboutikeaourvisionbetterlife html Lecture 14 MGMT 150COGS 152 Fall 2007 20 IKEA Facts and Figures sales by region Asa mstraixa J 5 Norm Amen 5 39 Euroae 6 quot purchasing by region An e c 3 Ass 30 I Enron Ilo coworkers by region zsu nsln ia 30 North rrerlca 53000 I group employs a rats or 50 DOG Tie quot C J WN LEFS in 44 coumres There are 254 IKEA stores in 35 countriesterritories IKEA stores stock everything for the home under one roof sofas beds tables chairs textiles kitchen utensils ooring rugs kitchens bathrooms lamps and plants By displaying the range in room settings they aim to inspire customers with ideas and share hints and tips about smart new solutions 410 million customers visited IKEA stores last year The catalog is their most important marketing channel Last year a total of 160 million copies were printed in 52 editions and 25 languages The Internet is being used by more and more people as a source of information Last year the IKEA website attracted 125 million visits worldwide Internet business accounts for a small but increasing percentage oftotal IKEA sales httpwwwikeacommsenUSaboutikeafacts gures gureshtml Lecture 14 MGMT 150COGS 152 Fall 2007 21 lKEA s Vision It39s not difficult to manufacture expensive fine furniture Just spend the money and let the customers pay To manufacture beautiful durable furniture at low prices is not so easy It requires a different approach Finding simple solutions scrimping and saving in every direction But we can39t do it alone Our business idea is based on a partnership with the customer First we do our part Our designers work with manufacturers to find smart ways to make furniture using existing production processes Then our buyers look all over the world for good suppliers with the most suitable raw materials Next we buy in bulk on a global scale so that we can get the best deals and you can get the lowest price Then you do your part Using the IKEA catalog and visiting the store you choose the furniture yourself and pick it up at the selfserve warehouse Because most items are packed flat you can get them home easily and assemble them yourself This means we don39t charge you for things you can easily do on your own 80 together we save moneyfor a better everyday life httpwwwikeaoommsenUSaboutikeaourvisionbetterlife html Lecture 14 MGMT 150COGS 152 Fall 2007 22 lKEA s Service Innovation Redefined roles relationships and organizational practices Division of labor Customer transports and assembles furniture Catalog Script education for customer involvement Store Family destination equips customers for their parts Customer s role is NOT to consume value but to cocreate it IKEA mobilizes customers and suppliers to create value Lecture 14 MGMT 150COGS 152 Fall 2007 23 Chains and Constellations The image of a value chain fails to capture the complexity of roles and relationships in the IKEA business system IKEA did not position itself to add value at any one point in a predetermined sequence of activities IKEA set out systematically to reinvent value and the business system that delivers it for an entire cast of economic actors The worksharing coproductive arrangements the company offers to customers and suppliers alike force both to think about value in a new wayone in which customers are also suppliers oftime labor information and transportation suppliers are also customers of IKEA39s business and technical services and IKEA itself is not so much a retailer as the central star in a constellation of services goods design management support and even entertainment The result IKEA has succeeded in creating more value per person customer supplier and employee and in securing greater total profit from and for its financial and human resources than all but a handful of other companies in any consumer industry Lecture 14 MGMT 150COGS 152 Fall 2007 24 Discussion Does IKEA offer products or services How is the IKEA value constellation like the ATM constellation What are some other examples of redefined roles and relationships in innovative business systems Lecture 14 MGMT 150COGS 152 Fall 2007 25 WalMart is in whole different kind of constellation WalMar t Put mg inure out a Lugiuegg go I he he get a nd at WalMart Thank to Wall Mart I dam new 011131 af39Fnrzl to aha at Wal M art Enjoy Quarrying at W art 23993 Lecture 14 MGMT 150COGS 152 Fall 2007 26 IBM and the Globally Integrated Enterprise 39l39hc Globally 0quot 1 lllllbl lEUJ Llle pl 18L Sam Palmisano is Chairman ofthe Board President and Chief Executive Of cer of the IBM Corporation Mr Palmisano was appointed to this position on January 6 2003 S Jnimu39 IIIHuier arrow MUL TlNNITIOK vi TH E l N 39rixi39rinm 1 mm amnion 1 M Nc imr39rzn mii 2 1 primary Agonr ni39glabiilimrimi i taking on I ruw farm mic that isprom in for Imrh hudncw and vicinity me 1 husincs licnpvcrivc this new kind ot39cmcxprisc is best undercmud h quotglnbml39 ml hnr rlun quotmiiliinntinmlf iv corpLilian hm L V llrl il mummili39 during in lung library Tim MNK ii39rliu m mriirivih tummy had little in mx39nmon with the international Firm of lmiiiiml man L Jrl39un and lime mmlmnics writ cn ili 39uimt mm riii grunt 39dllquotquot rumorprises at L v ill i700 139er a H u i hi 2le39 ism rated CITch lXiBL lnilk39v39jlh ax Hi i J fin parties In mi globalization him quotmmnig project He began his career In 1973 In Baltimore Maryland Since inrn rhc i iiriire l ridiuc nr39 Ulrlwinlllluh 139th i iiiichzingui r39rnm KILIIIIThid ll39uf u1 lliTllihili r t i lxlwiIk llllnf39llikIrL39lthL iki l39 therquot Mr39 Palmlsano has helq a senes Of leadershlp pOSItlons Jami i i u inminigwwue mmn L uglnhmliMiim But during his IBM career including senior Vice president for the businrx w39x m lungmg in iiimlziniLutiil 39Ji Trrucrliril39 uprm Enterprise Systems and Personal Systems groups Mr rinimll Lulmnlly in lut PunhL in tin iitiiwmmus iii globalization inidlicwtcclumlu Abuzoandcliairofrlxc mid umi1 rim Palmisano also played a key role in creating and leading UlJSL IVt39Ll this within insi and alluring uur Clllul39lh And I helium IBMIS Global Services rising to senior Vice president and that nitlicr Juri unitinuing in 1mm on p151 mmluls Nguhiuu wininnnungzui crnuiuni minimummummi iLlcrIiid building the largest and most diversi ed IT serwces imamw kM L lihi39m would l k he wrvmi by thinking ulmm the organization in the industry He also served as senior J aerial2 ind m managing director of operations for IBM Japan 39 v1 5 Exciun fc 0mm yr IB o PalmisanO S J 2006 The globally integrated httpwwwOBibmcompressusenbiography i 0055wss enterprise Foreign Affairs 85 127 136 Lecture 14 MGMT 150COGS 152 Fall 2007 27 IBM Video Lecture 14 MGMT 150COGS 152 Fall 2007 28 What does IBM do makes you special our Senwoes ourfmancwa strengths ourc stomerbase our Suppw chew Whatever it is that makes you unique mfuse n A v39 bum modem earn hwgherpro tsmenetrate new market dnve if 3 productmty H NH u w u W nnm the Focus on Enterprises tha Lecture 14 MGMT 150COGS 152 Fall 2007 29 Forces of Change v rA 7 r V will a i re in A is In salami Mm Limitglfe we M New client needs generated by these new possibilities The rising tide of globalization Lecture 14 MGMT 150COGS 152 Fall 2007 30 IBM s Strategy 1 397 i l it 0 Deliver integration and innovation to clients Become the premier Globally Integrated Enterprise Lecture 14 MGMT 150COGS 152 Fall 2007 31 Five Historical Waves of Economic amp Social Transformation Installation Crasl39lr Deployment lrru ption Frenzy Synergy Maturity Pan ic 1797 Panic 1847 Depression 1893 Crash 1929 Dotcom lb mg Wool of Col lapse quot limoiilitmtiio if liwgsilrniamt Source Perez 0 Technological RelduIons and nancial Capital 2002 Lecture 14 MGMT 150COGS 152 Fall 2007 32 The Particular Characteristics of the Coming Deployment Installation 7 Deployment lrruption Frenzy Synergy Maturity Coming Period of Institutional Adjustment Globalization increases the labor pool but also sociopolitical tensions Componentization proliferates accompanied by open standards Collaboration is enabled by new organizational models and tools 7 Personalization empowers individuals demanding better solutions Lecture 14 MGMT 150COGS 152 Fall 2007 33 The Global Landscape is Changing Global Resources 39 K Global Production J 39 r quot rJrAf V Eu I II t g 5 f j 7 J 9 I x T J 4 Technology Landscape Changes Business Landscape Changes Localized Systems G Jobal Di ital 394 LocaltResources wiGlobZalfR esourcing Infrastructure amp artn rs amp Partnerships quot J r i ll J Open Proprietary Systems EganSystems Cigntrolled Proprietar e ra or ve and Platforms nfdJPlatforms Innovation Innov jtjijgn 5 Custom Laborbased IEE Asset based Simple Value Chain Business Services S rvices Management Componentization Lecture 14 MGMT 150COGS 152 Fall 2007 34 A Globally Integrated Enterprise Whether Small or Large an Open Modular Business that is Integrated Into the Fabric of the Networked Economy Makes informed choices Secures unique value within a global s via specialization in a competitive market network of open partners The Globally Integrated Enterprise Leverages the power of global assets Taps into a universe of modular services Embraces open Operates seamlessy collaboration and across boundaries via shared lP policies and global values skills and practices processes Lecture 14 MGMT 150COGS 152 Fall 2007 35 Companies employ different business designs based on unique backgrounds specialization and value propositions Iiisweater 7 l a Al 39 TC f is n us ry WAIMART 59H Zoff Client Fashionconscio us Costconscrous buyers Valueconscrous buyers Selection buyers Value Lowcost High quality Good value fashionable Proposition medical device fashion statement choice and eye care Scope of Activities Within Within Within Which activities firm firm firm do we perform WSSZiZSSh6H I What networks of I trust center and I Wher39e can the Ouzside Outside hlgh quallty I Outside Korea for work best be 77 quot 77397quot workforce firm lenses China performed for mfg Lecture 14 MGMT 150COGS 152 Fall 2007 36 A Universe of Modular Business Services Allows Even small Businesses and Startups to Become Globally Integrated Setup Your Build Your Reach Your Service Your Support Your Resources Product Customers Customers Business 3 u mom 39 i FULFllLILMENT 39 Allbabsom I I ml An Amazon Ful llment Semen Group Global wade sums here I if E llzTechnorati39i E mu Sicil a mazpn IRJNLINX C00 le mm P YCHH Airing E Pa39ypal E t L 5 39 5 5 Lecture 14 MGMT 150COGS 152 Fall 2007 37 Open business environments Work flows to the places where it can best be done Enable Global With Seamless Open Standards Componentization Integration 9 Trade Regulations Global centers of excellence Global marketplaces Internet and Wireless Best in class partnerships Global resource Communications Flexible sourcing capabilities optimization Shared Intellectual Property Practices and Policies Enterprise Resource Planning Services Oriented Architecture Streamlined infrastructure Internal amp external collaboration Lecture 14 MGMT 150COGS 152 Fall 2007 38 Summary Product and process formu a ion Highquality lmemal services and good internal management Revenue gmwtll and prn tabilily low hmmvar loyalty higher productivily Lecture 14 MGMT 150COGS 152 Fall 2007 39 Agenda Questions Value Creation The ServiceProfit Chain and Value Networks Heskettetal 1994 Normann and Ramirez 1993 IBM and the Globally Integrated Enterprise Palmisano 2006 Bonus Video Lecture Brian Arthur on Complexity and Economics Arthur 1999 Next time Lecture 14 MGMT 150COGS 152 Fall 2007 40 Complexity and Economics Arthur W B 1999 Complexity and the economy Science 284 107 109 Available at httpwww santafe ed uwbarthu rPapersPdffi leeEco nampCom pIeXWeb pdf httpwww almaden ibmcominstituteresources2007PresentationsArthurArthur Almaden ppt Lecture 14 MGMT 150COGS 152 Fall 2007 41 Next Time Dec 10 Lecture 15 Service Innovation and Service Science Reading Maglio et al 2006 Moon amp Quelch 2007 Optional Frei 2006 Final Paper Due Lecture 14 MGMT 150COGS 152 Fall 2007 42 Service Computing Paul P Maglio UC Merced MGMT 150COGS 152 Fall 2007 Agenda Guest Bob Glushko UC Berkeley Unstructured Information Mining Spengler amp Kreulen 2007 Next time Lecture 8 MGMT 150COGS 152 Fall 2007 Unstructured Information I 7 People ill39E talking about yum biisinrss erer daft Are you ll TL l llng l V V Your customers are tallting 39i hcy39rr trillzinir about you to your race and 39 l behind your back They39rr saying how much their likt39 you and how much A i thtj hate you They re describing what Iht y wish you would dn For them and what tllt tiimprtitmn is alrciady Lining liar them They am writing Emails to you posting hlogs about you and discussing yiin L ndlussly in public forums Are you listtning UTth businesses and organizations are talking mo Hrseartlitrs tzillc about new tecltnologits and approaches you might be interestch in Other busn iessts 1 Irritnll lmvi givitwl 3 dtscribc innovations you could leverant in your products Your Ct impctiu irs It revealing tethriiigiii apprtt39clt l39li i and broadcasting Ii39IClI straitgins in various publications They tall about what inc atu working on and What they think is important Arc you listrningr Your tn39iployats 39JI39C39 also talking Timr airt producing gtcat idem that are languishing For Lile of tlit tight tontm to Apply them They are looking For ht right partners to help them intimati and i39rcati the next hipr thing for yum company Titty It i t l iiw ways to impriwe your inrtrniil processes and Hen change the entire v lSi D or your company re you listeningJ All nfthis talk is going nn out ti39lt rtf now even L15 you read tlit sc pages And youcan lisrtn iii y39ou know how This book 15 iliout how we learned to llEEED g to the talk and in turn it iniii Slllahlf business insights for our company and I i Erbrwrwstometsi Now we would like to Shart that kni39iwlirdge With you iill iEDICGGS i Fall 2amp0 391 Contact Centers Lecture 8 MGMT 150COGS 152 Fall 2007 Service Levels Lecture 8 MGMT 150COGS 152 Fall 2007 Data Data Data Lecture 8 MGMT 150COGS 152 Fall 2007 What Can We Learn from Customer Interactions What are the most common issues that customers have This can be important because it may reveal quotlow hanging fruitquot or areas where automation or other process changes will have the greatest business impact Where are the areas of dissatisfaction These are the areas where you have a chance to have the biggest impact on improving overall customer satisfaction Sometimes even customers who were dissatis ed in the past may be won back if you can identify them and offer appropriate incentives to make up for any perceived lack of performance on your part Ifthe customer interaction process is breaking down at what point does that usually occur Knowing the weak points in your customer interaction process is the first step toward improving it Unstructured customer interaction information is often the only place where such details are kept Who is doing a good job and who is doing a poorjob of customer interaction Once you know the weak points in the process the next step is to take appropriate measures to ensure change What are the major drivers of cost in typical customer interaction Combining unstructured analysis with structured information concerning call duration or time required to close a customer issue can lead to Identi cation of key cost drivers in the customer interaction process What are the emerging trends in customer issues Trends are helpful in pointing you toward emerging issues that can be headed off before they become major headaches Spangler amp Kreulen 2007 Lecture 8 MGMT 150COGS 152 Fall 2007 7 Mining Requirements and Process Business objectives defined up front Significant amounts of data consisting of structured and unstructured elements Taxonomies created automatically and refined via domain knowledge to match business needs Analysis based on statistical correlations between categories and structured elements in the data Generation of reports that highlight the most relevant correlations to business objectives along with supporting examples and business case for changes to process Lecture 8 MGMT 150COGS 152 Fall 2007 8 IOHS Interact mm M I BiLSMSS Human Fall 2007 MGMT 150COGS 152 Lecture 8 Moore s Law of Service Moore s Law Computational power doubles at a predictable rate Are there capabilitydoubling laws in service Consider Amazon s book recommendations Quality of recommendations depends on accurate statistics the more purchases made the better the statistics for recommendations Consider call centers Speed and quality of call center responses can be improved given accurate statistics about the kinds and number ofqueries that are likely to be received In both traces of activity are used to improve productivity and quality Imagine three improvement laws for service The more an activity is performed the more opportunities to improve The better an activity can be measured and modeled the more opportunities to improve The more activities that depend on a common substep or process the more likely investment can be raised to improve the substep Lecture 8 MGMT 150COGS 152 Fall 2007 10 Questions Lecture 8 MGMT 150COGS 152 Fall 2007 Next Time Oct 29 Lecture 9 Final Paper Discussion Bring your draft or your plan Be ready to discuss it with me and others Come if you want help Lecture 8 MGMT 150COGS 152 Fall 2007 12 Service Economics Paul P Maglio UC Merced MGMT 150COGS 152 Fall 2007 Agenda Guest Todd Neumann UC Merced Break Harmon et al 2006 Measuring Performance Fitzsimmons amp Fitzsimmons 2005 Service Quality Next time Lecture 13 MGMT 150COGS 152 Fall 2007 Harmon et al 2006 Article ata glance Service companies can t measure and ren uu e variance 39 I I S e c e S as easiiv as manufacturers can Service tasks vary depending on the person performing tire senice differences in customer Dena vier and the business environment Services are more difficult to measure and monitor than manufacturing processes are but executives can rein in variance and boost productivity Senrices can be measurea ann their variance if they implement rigorous metrics cantr iien by f iiDMi g n39iree princrpies benchmark in rnaiiy measure tire drivers of cost and make metrics accurate enough to identify aii reievanr cost A cost tree is an invaluable tour for sporting activities and in cations in which variance destrnys margins Eri c P H arm on Scott C H enseI39 lnipiernenung a measurement system is a tricky r 39 i v r w39 r m and Tlm othy E Lukas nu inrnarrent rst step to redeem rename and improving the predtreti39wtv of services Lecture 13 MGMT 150COGS 152 Fall 2007 3 Is Variance Just a Fact of Service Life Manufacturing businesses can manufacturer improve performance capital labor knowledge facilities reducing variance inputs outputs gt customer critical audience For service businesses customers activities and deals vary widely service provider knowledge facilities Services are highly customizable people are often the basic unit of productivity and they bring differing levels of expertise experience etc Discussion What are some examples of service and variance in performance manufacturer capitai iabor knowledge facrlitiee inputs outputs p cueiomer critical audience service provider knowledge facilities 7quot I K H f A labor f u caplial ii i i maierialinput39s b millWEI UL VLi LS critical audience r is J u r iii A Sources of Service Variance Servicelevel agreements The more types of services offered the more variability Environment equipment infrastructure Each customer environment has unique aspects that are difficult to measure Work volume Size of the account matters Harmon et al 2006 Lecture 13 MGMT 150COGS 152 Fall 2007 6 Measuring Performance Use internal benchmarks Compare yourself against yourself rather than others Measure cost drivers Consider how details of activities drive costs Measure deep and broad Don t limit where you look for activities and costs Harmon et al 2006 Lecture 13 MGMT 150COGS 152 Fall 2007 7 Service Performance at Disney Lecture 13 MGMT 150COGS 152 Fall 2007 Discussion How does Disney think about service performance What are their benchmarks How did they measure them How worried do they seem about cost What did they seem concerned about Lecture 13 MGMT 150COGS 152 Fall 2007 Moments of Truth Each customer contact is called a moment of truth You have the ability to either satisfy or dissatisfy them when you contact them A service recovery is satisfying a previously dissatisfied customer and making them a loyal customer Fitzsimmons amp Fitzsimmons 2005d Lecture 13 MGMT 150COGS 152 Fall 2007 10 Dimensions of Service Quality Reliability Perform promised service dependany and accurately Example receive mail at same time each day Responsiveness V llingness to help customers promptly Example avoid keeping customers waiting for no apparent reason Assurance Ability to convey trust and confidence Example being polite and showing respect for customer Empathy Ability to be approachable Example being a good listener Tangibles Physical facilities and facilitating goods Example cleanliness Fitzsimmons amp Fitzsimmons 2005d Lecture 13 MGMT 150COGS 152 Fall 2007 11 Perceived Service Quality Word of Personal Past mouth needs experience Service Quality Expecfted Service Quality Assessment Dimensions serVICe 1 Expectations exceeded Reliability ESltPS Quality surprise Responsiveness 2 Expectations met Assurance ESPS Satisfactory quality Empathy seFVice 3 Expectations not met Tangibles ESgtPS Unacceptable quality Fitzsimmons amp Fitzsimmons 2005d Lecture 13 MGMT 150COGS 152 Fall 2007 12 Service Quality Gap Model Customer S atisfaction APS Customer quot x M arketing Research 39 GAP 1 Communication GAP 4 C onform anc e A P 3 D e s ig n G A P 2 Fitzsimmons amp Fitzsimmons 2005d Lecture 13 MGMT 150COGS 152 Fall 2007 13 Tradeoff Money vs Quality HonvEFAeelmvaEs mmmm was mosTFaFuuil nmesm lcsl 61quot New unrk Elms Travel WORLD LES 3939 REGIO39 BL39SD39ESS TECHNOLOGY SCIENCE HEALTH SPORTS OPD39IOX Class Conflict experience you ve had Why What is the best service experience you ve had Why OVER Elm p154 few years and this will probably come as no surprise lo anyone he lur gollon on 1 plane owr his Thanksgiving weekend ling in nasal has become an increasingly xxxLierable experience Legroom is practically nonexistent Passengers are more tightly packed together Hot meals have been eliminated Ditto pillows and blankets And mu um time that guy in from oi you loam hi war back dirtell imo your he few of your fellow passengers art likely a bl me you if you feel a brief murderous urge to strike back Have service failures or service recoveries played a role How All this has created a gemration of fliers name who nnlr View setting an a plum a In me Back Nu All Carmen roughly akin in entering ihe ninth circle Equal November 3 200 of 1911 httptravelnytimescom20071 125travel2500n icthtm Lecture 13 MGMT 150COGS 152 Fall 2007 14 Next Time Dec 3 Lecture 14 Service ValueCreation Reading Norman amp Ramirez 1993 Palmisano 2006 Optional Heskett et al 1994 Karmarkar 2004 Mann 2003 Lecture 13 MGMT 150COGS 152 Fall 2007 15 Service Work Paul P Maglio UC Merced MGMT 150COGS 152 Fall 2007 Questions Lecture 5 MGMT 150COGS 152 Fall 2007 Agenda Jeanette Blomberg IBM Almaden Research Center Quick Survey Interactions and Work Reconfiguration Tacit Work Butler Johnson Beardsley Economies of Depth and Coordination Herzenberg Selfservice Schultze Next time Lecture 5 MGMT 150COGS 152 Fall 2007 Service Jobs are High Skill Jobs 1979 1996 Examp39e All Services Goods Tightly 6 5 4 10 Call center Constrained Fast food Unrationalized 25 25 26 15 Maid child Labor care Intensive Semi 35 30 30 35 Admin Autonomous Manager Highskill 34 40 40 40 Executive AUtonomOUS Engineer from Herzenberg et al 1998 Lecture 5 MGMT 150COGS 152 Fall 2007 Lecture 5 TacHJobs The growth of interactions represents a broad shift in the nature of economic activity At the turn of the last century most nonagricultural labor in business involved extracting raw materials or converting them into nished goods We call these activities transtrnmtiondl because they involve more than just jobs in production By the turn of the 11 st century however only 15 percent of US employees undertook transformational work such as mining coal runningr heavy machinery or operating production lines in part because in a globalizing economy many such jobs are shifting from developed to developing nations The rest of the workforce now consists of people who largely or wholly spend their time interacting Complex interactions typically require people to deal with ambiguity there are no rule books to follow and to exercise high levels of judgment These men and women such as managers salespeople nurses lawyers judges and mediators must often draw on deep experience which economists call tacit knowledge For the sake of clarity we will therefore refer to the more complex interactions as tacit and to the more routine ones as transactional Transactional interactions include not just clerical and accounting work which companies have long been automating or eliminating but also most of what IT specialists auditors biochemists and many others do see sidebar About the researchquot Johnson et al 2005 MGMT 150COGS 152 Fall 2007 5 Tacit Job Growth Tolal US emplnymenl CAGE thanua number 0 employees in 1993 2004 1393721 miumns 9g ltK mxlllonsol robs Newjahsiullnitedr Slams 19952904 100 125 126 05 35 100 54 million Tacit l 5 4 5 Iransacllnnal jobs Transactional 0 6 1 9 Translormanonal n 23 23 13 W16 1938 2004 Annual wage per emplnyee CHER3 Change Dislribulian 01 average wage In quanile thousands in Uniled Slates nominal 19862004 19962004 S thousands 9 9 5 thousands 90 370 3 73 so Ema quotwager Average wane 29 7 m 4 U 99 50 TM 50 Awnunnam Q 40 V 2 9 43 rgsumim mums 133 Transaclmnal 30 ffmeter I M d k lrrmmnmiw 20 hammervi 3 gures Translormauonal 27 3 1 4 5 Fm39mwd 998 2004 Transformational Transactional Tacit NW w Group man a yewage h I la f I mm 335 Johnson et al 2005 Lecture 5 MGMT 150COGS 152 Fall 2007 6 Job Mix Distribution ofiobiype1 by industry 2004 is of workforce Clianga in distribution oftacit 951998 2004 percentage points Hospitals an h39l 26 Securities 81 Hetaitrade a Real estate 14 Air transportation 201 Computer manufacturing 6 743 iiiiiiiisiii i EI zi n Construction 08 Electrical equipment 52 n 02 Paper manufacturing Ih 14 Mining 39 o5 remiss In an I Transformational I Transactional I Tacit Johnson et al 2005 Lecture 5 MGMT 150COGS 152 Fall 2007 7 Technology Support for Tacit Work Second technology makes it possible to boost the quality speed and scalability of the deeisions employees make IT for instance can give them easier access to ltered and structured informatiom thereby helping to present such time wasters as volumes of unproductixv39e email Useful databases could say provide details about the performance of offshore suppliers or expanded lists of experts in a given eld Technology tools can also help employees to identify key trends such as the buying behavior of a customer segment quielg39ljr and accurately Johnson et al 2005 Lecture 5 MGMT 150COGS 152 Fall 2007 8 Contact Centers A Large Global Industry illinllljw l luzl v l is a Will 2139 Right toLe RemoIeResqullnnl g Servica Desk I Selenahlemen14 9 Problem Ems Avoidance Technology 0 E Desktop Management gt E m 1 6 E 39177 ltd Multichannel enduser portal with selfhelp chat with agent Top solutions best practices 1 Intelligent scheduling and routing infrastructure New Hire luv alum Top solutions t o ractics Multich annel ag ent desktop with knowledge management social networking Fall 2qu 1 WMquot 7 Li A f c to The Microstructure of Service Work Study of work practices and info technology use of individuals at a large head hunting firm over 5 years Findings info technology use correlated with increased revenue info technology use correlated with decreased project completion time asynchronous info activities email DB use increased multitasking synchronous info activities meetings phone decreased multitasking structure of individual s communication network correlates with performance farOctohermM biHamster mm Sinan A Brynjolfsson E amp Van Alstyne M 2006 Information Technology and Information Worker Productivity Task Level Evidence In Proceedings of the Twentyseventh International Conference on Information Systems Milwaukee WI Lecture 5 MGMT 150COGS 152 Fall 2007 10 Technology Support for Tacit Work Kaiser Permanente is one of the organizations now pioneering the use of such technologies to improve the quality of complex interactions The health care provider has developed not only uni ed digital records on its patients but also innovative decision support tools such as programs that track the schedules of caregivers for patients with diabetes and heart disease Although it is hard to determine quantitatively whether plnv sicians are making better judgments about medical care data suggest that Kaiser has cut its patients mortality rate for heart disease to levels well below the US national average Johnson et al 2005 Lecture 5 MGMT 150COGS 152 Fall 2007 11 Vassar Brothers Medical Center Case Study Small regional hospital in NY 365 bed facility Member of Health Quest Highly rated for quality Leader in Cardiovascular care m quotI httpwww304ibmcomjctOQOOZcu 39 391 J oulwwiu39html 1 l Lecture 5 MGMT 150COGS 152 Fall 2007 Six Challenges Facing Health Care Accountability Hospitals and physicians must be accountable for their performance and outcomes Transparency The Wall of Secrecy is becoming a Barrier to Trustquot As such Full Disclosure policies are becoming more prevalent Safety 97000 die annually in US hospitals because of mistakes errors are 6th leading cause of death in US hospitals Capacity Baby Boomers are expected to inundate the system in a Tidal Wave of sheer numbers longevity and utilization Cost Total US Healthcare spending is greater than 15 Trillion annually equating to 16 of GDP Efficiency Estimates are that 13 or 500 Billion is wasted annually httpWWW304ibmComjctOQOOZCul39 quot i 39 oulwwiu39html Lecture 5 MGMT 150COGS 152 Fall 2007 13 The Cost of Medication Dispensing Errors 510K per incident Patients Doctors amp Nurses Hospitals Government Insurers Known as AdVerse Drug Events ADE these Dispensing quoterrors were both costy calculated at 5 000 to 10 000 per incident or up to 13 million for a 300 bed hospital disruptive and dangerous 2 million doses of medication dispensed per year at Vassar Industry wide error rate by experienced nurses is 20 Industry wide average share of doses resulting in serious error 14 Implied number of errors for Vassar per year 28000 Lecture 5 MGMT 150COGS 152 Fall 2007 14 Improve Efficiency Reduce Movement EIThe average nurse walks 5 miles a day on a typical unit EIThe average nurse spends 50 minutes per day communicating with physicians over a phone EIThe average communitybased physician spends 2 hours a day making rounds within the hosp al Fall ZOO l vllBlvl39lquot lEDiCGGS quot C Search Results E quipment Printable Close T campusl CIRCLE IO VER FLOOR 1 0 CENTRAL STERllE Location CSP InDit39E l Cain39s quot39C3999 CE339quotPB3999 0 CENTRAL STERJLE Location CS Storage 3 Unit 5 CEA quotPild VPO9S CEAW PDS S V91 19 CEA VPMT C a15 1 CEA 5 133 CEANP 33 campusl CIRCLE IO WER FLOOR 3 PCU Location PCU 338 l Unitfs 391 14 CEANPI H PCU Location PCU Lobby 1 Unit s VP464 2344139464 campusl CIRCLE IOW ER IFLOOR 2 o CTSD Location CTSD Lobby 1 Unit s39 00 1 CEA 39PDUv l Advanced Search PDAs Voice Recognition Barcode Scanners RFID 39 Laptops Lecture 5 MGMT 150COGS 152 Fall 2007 16 Process Transformation Bar Codes Scanners RFID Laptops PDAs Voice Recognition Full disclosure accountability No reprimands How to locate equipment How to dispense medication Lecture 5 MGMT 150COGS 152 Fall 2007 17 Vassar Brothers Results Increase customer satisfaction Optimize services labor Substitute technology for labor Improve labor productivity Improve labor satisfaction 87 Reduction in Errors 1500 fewer Adverse Drug Effects in 6 months Improved patient care and efficiency increased job satisfaction by nurses doctors staff and finance systematic processes for purchasing stocking allocating and maintaining IV pumps httpWWW304ibmComjctOQOOZCul 39 quot l 39 oulwwiu39html Lecture 5 MGMT 150COGS 152 Fall 2007 18 Service Work Systems 1979 1996 Examp39e All Services Goods Tightly 6 5 4 10 Call center Constrained Fast food Unrationalized 25 25 26 15 Maid child Labor care Intensive Semi 35 30 30 35 Admin Autonomous Manager Highskill 34 40 40 40 Executive AUtonomOUS Engineer from Herzenberg et al 1998 Lecture 5 MGMT 150COGS 152 Fall 2007 19 Service System Service Provider Service Client Service Target based on Gadrey 2002 Lecture 5 MGMT 150COGS 152 Fall 2007 20 Reorganizing Service Work Service Provider Service Client Service Target TransformationalTransactional Tightly Constrained Unrationalized LaborIntensive Lecture 5 MGMT 150COGS 152 TacitTransactional SemiAutonomous Highskill Autonomous Herzenberg et al 1998 Fall 2007 21 Reorganizing Service Work Service Provider Service Client Welldefined Service Target Ambiguous TransformationalTransactional Tightly Constrained Unrationalized LaborIntensive Lecture 5 MGMT 150COGS 152 TacitTransactional SemiAutonomous Highskill Autonomous Herzenberg et al 1998 Fall 2007 22 Reorganizing and Improving Service Work Service Provider Engineered Solutions Technology Support Welldefined TransformationalTransactional Tightly Constrained Unrationalized LaborIntensive Lecture 5 Service Client Casebycase Interpretation Service Target Increased Skill Coordination Ambiguous MGMT 150COGS 152 TacitTransactional SemiAutonomous Highskill Autonomous Herzenberg et al 1998 Fall 2007 23 Economies of Depth and Coordination Economies of depth are attained through deeper understanding of work processes and greater skill in executing them They result when a worker improves his ability to interpret situational needs and respond appropriately Customers bene t because the work goes faster because the worker can grasp and respond to a greater variety of needs or because those responses are more effective or some combination of the three Economies of depth in the services especially where the interpretive model applies depend heavily on quotknowing howquot Diagnosing a patient39s illness or a copier39s malfunctioning taring for a nursinghome resident helping a shopper pick a dress teaching a child to read are all skills of quotknowing howquot even though performance may also depend on explicit knowledge Economies of coordination operate when people work in groups and coordinate their efforts through mutual adjustment Workers must coordinate both their efforts to achieve a common goal and their efforts to de ne that goal In a hospital for example physicians nurses laboratory technicians and others contribute to both diagnosis and treatment of patients Economies of coordination may appear to the customer as gains in speed variety of service output or functional effectiveness Economies of coordination may result when workers in the same occupation cooperate as when engineers design a new car They may be crossfunctional involving different occupations as when pilots flight attendants baggage handlers gate agents and mechanics work together to prepare an airplane for takeoff Economies of coordination may also be crossworksite as when nurses from a hospital and a home health care agency cooperate to plan the continuing care of a patient scheduled for discharge The importance of economies of depth and economies of coordination varies with work system and setting Depth is important in copier repair because the essence ofthe job is the often puzzling matter of diagnosis Coordination is less important because technicians generally work alone In some ofthe jobs associated with the airline ight departure process such as gate agent depth Is a minor consideration whereas coordination with pilots igh attendants and others is paramount For surgical nurses both depth and coordination are important Fastfood restaurants have limited scope for either depth or coordination economies because work is organized on the engineering model with managers doing much ofthe coordination Herzenberg et al 1998 Lecture 5 MGMT 150COGS 152 Fall 2007 24 SelfService Self service is the practice of serving oneself usually when purchasing items Common examples include many gas stations where the customer pumps their own g rather than have an attendant do it selfservice gas pumping is illegal in New Jersey amp Oregon most American stores where the customer uses a shopping cart in the store placing the items they want to buy into the cart and then proceeding to the checkout counteraisles or at buffetstyle restaurants where the customer serves their own plate of food from a large central selection of dishes Self service is used on the phone web and email to facilitate customer service interactions using automation httpenwikipediaorgwikiSelfservice Lecture 5 MGMT 150COGS 152 Fall 2007 25 SelfService What selfservice do you use um um you ls l l o DO you like it Why or Why not H mm 997mm an mama hrmuvmwul Does it save you time money hassle Gall suwummaud 51 mm Lecture 5 MGMT 150COGS 152 Fall 2007 26 SelfService Stats Airlines It costs airlines more than 3 per customer when agents check them in versus as little as 14 cents each with a kiosk By yearend 2007 38 percent of passengers are expected to use checkin kiosks Purchases In 2006 consumers throughout the world purchased 300 billion in goods and services through selfservice channels In North America in 2006 consumers purchased 178 billion in goods through retail self checkout systems ATMs 72 percent of consumers say that biometrics such as fingerprintidentification capabilities on ATMs would create a positive feeling about their financial institutions 68 percent of consumers say they think more positively oftheir financial institutions when offered a receiptno receipt preference httpwwwselfserviceworldcomrc2phpcatid1 Lecture 5 MGMT 150COGS 152 Fall 2007 27 Selfservice Technology Study Coverage Plan designs and rates l Health I Insurance IIII Haggmg gm Broker 4 Small Blz Carrier guidelines Override Commission Premium Schultze U 2002 Selfserve internet technology and social embeddness Balancing rationalization and relationships In Proceedings of TwentyThird International Conference on Information Systems Lecture 5 MGMT 150COGS 152 Fall 2007 Issues for WebGA Structured activities associated with quoting ie matching the needs ofthe group seeking insurance with available plans could be automated thus freeing the WebGA reps up to engage in consulting activities which include less structured tasks such as gathering market intelligence from brokers and providing them in turn with advice and privileged information as well as handson assistance such as accompanying the broker on sales calls Prior to the introduction of the SST quoting and consulting activities were inextricably intertwined as WebGA reps exchanged privileged information with their broker customers as part of quoting In the new SSTenabled interaction quoting and consulting are separated in space and time As brokers relied increasingly on the SST to do their quoting the reps opportunities to personally interact with them declined making it more difficult to build the rapport and trust needed to add value through consulting activities As brokers used the SST channel more than they did their WebGA rep they also began to feel less beholden to their rep and less obliged to write their cases through WebGA the lack of seamless integration between WebGA s provider and SSTbased channels began to undermine the customerprovider relationship This presented a problem forWebGA as it did not price its quoting senices separately from its consulting senices Schultze amp Bhappu 2005 Lecture 5 MGMT 150COGS 152 Fall 2007 29 Interactions and Coordination AS more letcentury companies come to specialize in core activities and outsource the rest they have greater need for workers who can interact with other companies their customers and their suppliers Thus the traditional organization where a few top managers coordinate the pyramid below them is being upended Raising the productivity of employees whose jobs can t be automated is the next great performance challenge and the stakes are hlgh Companies that get it right will build complex talent based competitive advantages that competitors won39t be able to duplicate easilyeif at all Johnson et al 2005 Lecture 5 MGMT 150COGS 152 Fall 2007 30 Agenda Jeanette Blomberg IBM Almaden Research Center Quick Survey Interactions and Work Reconfiguration Tacit Work Butler Johnson Beardsley Economies of Depth and Coordination Herzenberg Selfservice Schultze Next time Lecture 5 MGMT 150COGS 152 Fall 2007 31 Next Time Oct 8 Lecture 6 Service Marketing Guest Steve Vargo University of Hawaii Reading Lovelock amp Wirtz 2007a 2007b Vargo amp Lusch 2004 Optional Rust amp Chung 2006 Second Assignment Due OnePage Paper Proposal Lecture 5 MGMT 150COGS 152 Fall 2007 32
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