ISM 270

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ISM 270

• Service Engineering and Management
• Lecture 3 Technology in Services

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Announcements

• Homework 1 due today
• Homework 2 due next week 1/30
• Project 1 given today, due 2/13

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Todays Lecture

• Review of Strategic Advantage (Porter Model)
• Role of Technology in Services
• Alan Karp, HP Labs

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Understanding the Competitive Environment of a
Company
Companies do not exist in a vacuum It is
necessary to understand the competitive
environment to assess the current competitive
position of a company. It has become
increasingly necessary to posture a company for
challenges in its future.
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Porter Competitive Model
Potential New Entrants
Bargaining Power of Suppliers
Intra-Industry Rivalry Strategic Business Unit
Bargaining Power of Buyers
Substitute Products and Services
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Competitive Model Focus

• What is driving competition in the current or
• future industry?

• What are current or future competitors likely
• to do and how can a company respond?

• How can a company best posture itself to
• achieve and sustain a competitive advantage?

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Competitive Model Forces
Intra-industry Rivals Strategic Business Unit
(SBU) and major rivals. Buyers Categories of
major customers. Suppliers Categories of major
suppliers that play a significant role in
enabling the SBU to conduct its business. New
Entrants Companies that are new as competitors
in a geographic market or existing companies that
through a major shift in business strategy will
now directly compete with the SBU. Substitutes
An alternative to doing business with the SBU.
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Porter Competitive Model Education Industry
Universities U.S. Market

• Foreign Universities
• Shift in Strategy by Universities
• or Companies

Potential New Entrants
Intra-Industry Rivalry SBU UCSC
Rivals UC campuses, CSU, Private
universities, Community Colleges
Bargaining Power of Suppliers
Bargaining Power of Buyers

• Faculty
• Staff
• Equipment and
• Service Suppliers
• Alumni
• Foundations
• Governments
• IT Vendors

• Students
• Parents
• Businesses
• Employers
• Legislators

Substitute Products and Services

• Internet Distance Learning
• Books and Videotapes
• Computer-Based Training
• Company Education Programs

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Role of Technology through Porter perspective
Can we
1. Build barriers to prevent a company from
entering an industry?
2. Build in costs that would make it difficult
for a customer to switch to another
supplier?
3. Change the basis for competition within the
industry?
4. Change the balance of power in the
relationship that a company has with
customers or suppliers?
5. Provide the basis for new products and
services, new markets or other new business
opportunities
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Porter Competitive Strategies
Cost Leadership Strategies
Primary Strategies
Differentiation Strategies
Innovation Strategies
Growth Strategies
Supporting Strategies
Alliance Strategies
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Porter Primary Strategies

• Differentiationcustomer values the differences
  that you
• provide in products, services or capabilities.

Costis least cost. If this is the primary
strategy, over time there will only one ultimate
winner.
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Porter Supporting Strategies

• Innovationeither with business strategies or use
  of
• information systems or both.

Growthdeals with growth in revenue and other
business volumes. Can be a key factor in
establishing a market position. Can also be a
major requirement to offset high fixed operating
costs.
Alliancesimportance of establishing a strong
relationship with suppliers and other business
partners often on a contractual basis.
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Dell, Inc. Strategies
Primary Strategy Differentiation Least Cost
Supporting Strategies Innovation Growth Allian
ces
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IT Significance
Information Technology can change the way that an
organization (business or public sector) competes.

• As the foundation for organizational renewal.
• As a necessary investment that should help
• achieve and sustain strategic objectives.
• As an increasingly important communication
• network among employees and with customers,
• suppliers, business partners and even
• competitors.

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Strategic Roles of Information Systems

• Specific Examples
• Lower Costs
• Differentiate
• Innovate
• Promote Growth
• Develop Alliances
• Improve Quality and Efficiency
• Build an IT Platform
• Support (enable) other Strategies

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New Service Development
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Learning Objectives

• Discuss the new service development process.
• Prepare a blueprint for a service operation.
• Describe a service process using the dimensions
  of divergence and complexity.
• Use the taxonomy of service processes to classify
  a service operation.
• Compare and contrast the generic approaches to
  service system design.

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Levels of Service Innovation

• Radical Innovations
• Major Innovation new service driven by
  information and computer based technology
• Start-up Business new service for existing
  market
• New Services for the Market Presently Served new
  services to customers of an organization
• Incremental Innovations
• Service Line Extensions augmentation of existing
  service line (e.g. new menu items)
• Service Improvements changes in features of
  currently offered service
• Style Changes modest visible changes in
  appearances

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Technology Driven Service Innovation

• Power/energy - International flights with jet
  aircraft
• Physical design - Enclosed sports stadiums
• Materials - Astroturf
• Methods - JIT and TQM
• Information - E-commerce using the Internet

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Service Design Elements

• Structural- Delivery system- Facility design-
  Location- Capacity planning
• Managerial- Service encounter- Quality-
  Managing capacity and demand- Information

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New Service Development Cycle

• Full-scale launch
• Post-launch review

Full Launch
Development
Enablers

• Formulation
• of new services
• objective / strategy
• Idea generation
• and screening
• Concept
• development and
• testing

People
Organizational Context
Teams

• Service design
• and testing
• Process and system
• design and testing
• Marketing program
• design and testing
• Personnel training
• Service testing and
• pilot run
• Test marketing

Product
Technology
Systems
Tools
Analysis
Design

• Business analysis
• Project authorization

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Service Blueprint of Luxury Hotel
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Strategic Positioning Through Process Structure

• Degree of Complexity Measured by the number of
  steps in the service blueprint. For example a
  clinic is less complex than a general hospital.
• Degree of Divergence Amount of discretion
  permitted the server to customize the service.
  For example the activities of an attorney
  contrasted with those of a paralegal.

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Structural Alternatives for a Restaurant

TAKE RESERVATION SEAT GUESTS, GIVE MENUS SERVE
WATER AND BREAD TAKE ORDERS PREPARE ORDERS Salad
(4 choices) Entree (15 choices) Dessert (6
choices) Beverage (6 choices) SERVE
ORDERS COLLECT PAYMENT
LOWER COMPLEXITY/DIVERGENCE
CURRENT PROCESS HIGHER
COMPLEXITY/DIVERGENCE
No Reservations Self-seating. Menu on
Blackboard Eliminate Customer Fills Out
Form Pre-prepared No Choice Limit to Four
Choices Sundae Bar Self-service Coffee, Tea,
Milk only Serve Salad Entree Together Bill and
Beverage Together Cash only Pay when Leaving
Specific Table Selection Recite Menu Describe
Entrees Specials Assortment of Hot Breads and
Hors Doeuvres At table. Taken Personally by
Maltre d Individually Prepared at
table Expand to 20 Choices Add Flaming
Dishes Bone Fish at Table Prepare Sauces at
Table Expand to 12 Choices Add Exotic Coffees
Sherbet between Courses Hand Grind
Pepper Choice of Payment. Including House
Accounts Serve Mints
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Taxonomy of Service Processes

• 
  Low divergence
  High divergence
• 
  (standardized service)
  (customized service)
• 
  Processing Processing Processing
  Processing Processing Processing
• of
  goods Information of people
  of goods Information of people
• Dry
  Check
  Auto repair Computer
• No Cleaning
  processing
  Tailoring a programming
• Customer Restocking
  Billing for a
  suit Designing a
• Contact a vending
  credit card
  building
• 
  machine
• 
  Ordering
  Supervision
• Indirect
  groceries
  of a landing
• customer
  from a home
  by an air
• contact
  computer
  controller
• 
  
  
• No Operating
  Withdrawing Operating Sampling
  Documenting Driving a
• customer- a vending
  cash from an elevator food at
  a medical rental car

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Generic Approaches to Service Design

• Production-line
• Limit Discretion of Personnel
• Division of Labor
• Substitute Technology for People
• Standardize the Service
• Customer as Coproducer Self Service
  Smoothing Service Demand
• Customer Contact Degree of Customer Contact
  Separation of High and Low Contact Operations
• Information Empowerment Employee
• Customer

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Customer Value Equation
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Project 1
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Technology in Service
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Learning Objectives

• Discuss the of technology in the service
  encounter.
• Describe the emergence of self-service.
• Place an example of service automation in its
  proper category.
• Describe different Internet business models.
• Understand the importance of scalability to
  e-commerce success.
• Discuss the managerial issues associated with the
  adoption of new technology.

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Role of Technology in the Service Encounter
 

Technology
Technology
Technology
Customer
Customer
Server
Server
Server
Customer
A. Technology-Free Service Encounter
B. Technology-Assisted Service Encounter
C. Technology-Facilitated Service Encounter
Technology
Technology
Server  
Server  
Customer
Customer
D. Technology-Mediated Service Encounter
E. Technology-Generated Service Encounter
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Evolution of Self-service
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Self-service Technologies (SST)

• Does customer adoption of self-service follow a
  predictable pattern?
• How do we measure self-service quality (e.g.,
  ease of use, enjoyment, and/or control)?
• What is the optimal mix of SST and personal
  service for a service delivery system?
• How do we achieve continuous improvement when
  using SST?
• What are the limits of self-service given the
  loss of human interaction?

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Classification of Service Automation

• Fixed-sequence (F) - parking lot gate
• Variable-sequence (V) - ATM
• Playback (P) - answering machine
• Numerical controlled (N) - animation
• Intelligent (I) - autopilot
• Expert system (E) - medical diagnosis
• Totally automated system (T) - EFT

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Purpose of Web-site

• A retail channel (Amazon.com)
• Supplemental channel (Barnes Nobel)
• Technical support (Dell Computer)
• Embellish existing service (HBS Press)
• Order processing (Delta Airline)
• Convey information (Kelly Blue Book)
• Organization membership (POMS.org)
• Games (Treeloot.com)

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Technology Convergence Enabling E-Business

• Internet
• Global telephone system
• Communications standard TCP/IP (Transfer Control
  Protocol/Internet Protocol)
• Addressing system of URLs
• Personal computers and cable TV
• Customer databases
• Sound and graphics
• User-friendly free browser

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E-Business Models(Weill Vitale, Place to
Space, HBS Press, 2001)

• Content Provider Reuters
• Direct to Customer Dell
• Full-Service Provider GE Supply Co.
• Intermediary eBay
• Shared Infrastructure SABRE
• Value Net Integrator 7-Eleven Japan
• Virtual Community Monster.com
• Whole-of-Enterprise Government

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Economics of E-Business

• Sources of Revenue- Transaction fees-
  Information and advice- Fees for services and
  commissions- Advertising and listing fees
• Ownership- Customer relationship- Customer
  data- Customer transaction

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Electronic and Traditional Services
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Grocery Shopping Comparison
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Economics of Scalability
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Adoption of New Technology in Services

• Challenges of Adopting New Technology The
  Process is the Product Back Office vs Front
  Office Changes Need for Standardization
• Managing the New Technology Adoption Process Ten
  step process with concern for employees and
  customers

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Discussion

• Name an Internet site you believe will be
  successful in the long run - explain why.

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E-Business Supply Chain (Network) Elements

• Major entities including firm of interest and its
  customers, suppliers, and allies
• Major flows of product, information, and money
• Revenues and other benefits each participant
  receives
• Critical aspects participants, relationships,
  and flows
• Example 7-Eleven Japan

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Evolution of B2C E-Commerce in Japan

• What features of the 7-Eleven Japan distribution
  system illustrate the Value Net Integrator
  e-business model?
• Does the 7-Eleven Japan distribution system
  exhibit scalability economics?
• How does the 7-Eleven example of B2C e-commerce
  in Japan illustrate the impact of culture on
  service system design?
• Will the 7-Eleven Konbini and Mobile system be
  adopted in the United States?

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Alan Karp

• Head of Virus Safe Computing Initiative, HP Labs
• Ph.D. Astronomy, University of Maryland
• 15 years at IBM, 15 years at HP Labs
• Expert in large scale scientific computing,
  distributed service development