Service Management –

New Service Development

Univ.-Prof. Dr.-Ing. Wolfgang Maass

Chair in Economics – Information and Service Systems (ISS)

Saarland University, Saarbrücken, Germany

WS 2011/2012
Thursdays, 8 –10 a.m.
Room HS 024, B4 1
 New Service Development

•  Starting with service concept and strategy to provide

service with features that differentiate it from
competition (cf. lecture #2 “Service Strategy”)
•  Design process is never finished

•  2 basic types of service innovation (Chew, 2010)

–  Service enhancement for incremental growth
–  New growth idea (Anthony et al., 2008), or new
service idea that could become a new growth
platform (Laurie et al., 2006)

•  How to develop new services? -- e.g.,

a)  NSD Process Cycle (Johnson et al., 2000)
b)  Service Innovation Process (Thomke, 2003)
(Fitzsimmons & Fitzsimmons, 2011)

09.11.11 Univ.-Prof. Dr.-Ing. Wolfgang Maass Slide 2

 
 A) NSD Process Cycle
(Johnson et al., 2000; Fitzsimmons & Fitzsimmons, 2011)
o  Full-scale launch
o  Post-launch review

Full Launch Development

Enablers

o  Formulation of new
o  Service design services objective/
and testing strategy
People
o  Process and o  Idea generation and
system design screening
and testing Product o  Concept development
o  Marketing and testing
program design Techno-
logy Systems
and testing
o  Personnel training
o  Service testing Tools
and pilot run
Design
o  Test marketing Analysis

o  Business analysis
o  Project authorization

09.11.11 Univ.-Prof. Dr.-Ing. Wolfgang Maass Slide 3

 
 Technology as Innovation Driver

•  Technological advances are often basis for service

innovation

•  e.g., Amazon: built up a loyalty customer base and gain

competitive advantage as a technology first-mover (1995)

•  e.g., mobiles by Apple combined with app store represent

platform for dozens of new services

Source  of  technology   Service  example   Service  industry  impact  

Power/energy   Nuclear  energy   Less  dependence  on  fossil  fuel  

Materials   Synthe:c  engine  oil   Fewer  oil  changes  

Increase  (local)  market  to  

Informa:on   eCommerce  
worldwide  market  

09.11.11 Univ.-Prof. Dr.-Ing. Wolfgang Maass Slide 4

 
 B) Service Innovation Process

•  Service innovation process consists of five phases (designed for new

innovations where success is less certain)

(1)  Evaluate ideas – Conceive, assess, prioritize ideas from internal and
external sources

(2)  Plan and design – Assign design needs, complete design, build rollout
plan

(3)  Implement – Develop test plan, implement idea

(4)  Test – Monitor performance of idea, report results of fast feedback by

market, improve process in a stable operating environment
(5)  Recommend – Complete, review and approve, communicate
recommendation
(Thomke, 2003)

09.11.11 Univ.-Prof. Dr.-Ing. Wolfgang Maass Slide 5

 
 Service Design Elements

•  Service design elements -- creating a consistent

service offering

•  Structural design elements:

a.  Delivery system – process structure, service
blueprint, strategic positioning

b.  Facility Design – servicescape, layout

c.  Location – geographic demand, site selection,

location strategy

d.  Capacity planning – strategic role, queuing

models

(Fitzsimmons & Fitzsimmons, 2011)

09.11.11 Univ.-Prof. Dr.-Ing. Wolfgang Maass Slide 6

 
 Service Design Elements

•  Service design elements -- creating a consistent

service offering
Example:
Hairdresser
•  Structural design elements:
Co-production of
a.  Delivery system – process structure, service customers; drying hair
blueprint, strategic positioning themselves

b.  Facility Design – servicescape, layout Modern style; lounge style

with coffee in waiting area

c.  Location – geographic demand, site selection,

location strategy Located in large malls

d.  Capacity planning – strategic role, queuing Web-based booking

models system to choose date,
service and employee
(Fitzsimmons & Fitzsimmons, 2011)

09.11.11 Univ.-Prof. Dr.-Ing. Wolfgang Maass Slide 7

 
 Service Design Elements

•  Managerial design elements:

a.  Information – technology, scalability, use of
Internet

b.  Quality – measurement, design quality, recovery,

tools

c.  Service encounter – encounter triad, culture,

supply relationships, outsourcing

d.  Managing capacity and demand – strategies,

yield management, queue management

(Fitzsimmons & Fitzsimmons, 2011)

09.11.11 Univ.-Prof. Dr.-Ing. Wolfgang Maass Slide 8

 
 Service Design Elements

Example:
Hairdresser
•  Managerial design elements: Looking up current
a.  Information – technology, scalability, use of number of customers in
Internet store on web page

Free cutting of fringe and

b.  Quality – measurement, design quality, recovery, repairing of cuts
tools

c.  Service encounter – encounter triad, culture, Family-type atmosphere

supply relationships, outsourcing

d.  Managing capacity and demand – strategies, Walk-in customers –

“Take a number”
yield management, queue management

(Fitzsimmons & Fitzsimmons, 2011)

09.11.11 Univ.-Prof. Dr.-Ing. Wolfgang Maass Slide 9

 
 Service Blue Printing

•  “The development of a new service is usually characterized by trial and error.

Developers translate a subjective description of a need into an operational
concept that may bear only a remote resemblance to the original idea. No one
systematically quantifies the process or devises tests to ensure that the service is
complete, rational, and fulfills the original need objectively.” (Shostack, 1984, p.
133)

•  “A service blueprint allows a company to explore all the issues inherent in

creating or managing a service.” (Shostack, 1984, p. 135)

•  Service blueprint - capturing service design in a visual diagram (like building)

•  “Service blueprinting, which started as an entirely manual process, has been

automated by companies to provide “living blueprints” accessible to key parties
online […].” (Bitner et al., 2010, p. 210).

(Fitzsimmons & Fitzsimmons, 2011)

09.11.11 Univ.-Prof. Dr.-Ing. Wolfgang Maass Slide 10

 
 Service Blue Printing

How to design a service blueprint?

(1)  Identifying processes - breakdown of complex processes into steps; identification

of parts of service not seen by customer, e.g. purchasing of supplies

(2)  Isolating fail points – build (fail-safe) sub processes to correct possible errors

(3)  Establishing time frame – consideration of

execution time of service as major cost
determinant; calculating maximum of deviation
(4)  Analyzing profitability – quantifying costs of
delay; establishment of time-of-service-
execution standard to measure
performance / control uniformity and quality;
serves as model for distribution of service

(Shostack, 1984, p. 135)

09.11.11 Univ.-Prof. Dr.-Ing. Wolfgang Maass Slide 11

 
 Characteristics of Service Processes

•  Complexity – number of steps and

sequences in process

•  Divergence – amount of discretion or

freedom that server has to customize the
service

•  Object of service process – goods,

information, people

•  Type of customer contact – no contact,

indirect, direct
(Fitzsimmons & Fitzsimmons, 2011)

09.11.11 Univ.-Prof. Dr.-Ing. Wolfgang Maass Slide 12

 
 Brainteaser

•  The taxonomy of services processes

10 (Wemmerlöv, 1990) categorizes services
according to the level of divergence, the
Minutes degree of customer contact as well as the
type of object of the service process.

•  Fill out the table with exemplary service

processes.

•  Discuss it with your neighbor!

09.11.11 Univ.-Prof. Dr.-Ing. Wolfgang Maass Slide 13

 
 At Your Own Risk…

Divergence Complexity
•  Leads to uniformity that tends to reduce •  Steps of functions are dropped
costs, improve productivity •  Specialization strategy
•  Indicates shift to “economy of •  + resources focused on narrower service
scale” (volume-oriented) offering; easier distribution and control;
•  + increases in reliability; more quality and expert position
service availability •  - perceived as “stripped down”; danger
•  - Conformity and inflexibility, limiting of full-service alternatives
customization options

Complexity Divergence
•  Expanding service line •  Greater customization and flexibility tend
•  Greater penetration in market to higher prices
•  + increased efficiency by maximizing •  Indicates niche positioning strategy
revenue generated from each •  + prestige, customization, personalization
customer •  - service difficult to manage, control and
•  - confusing customers; reduction of distribute; customers may not be willing to
overall service quality; danger of pay higher prices
specialized competitors (Shostack, 1987)

09.11.11 Univ.-Prof. Dr.-Ing. Wolfgang Maass Slide 14

 
 How to Design a Service System?

•  Service experience = theater; service design similar to staging a

production (Grove & Fisk, 1992)
•  Experience economy in which service providers compete on the design of
customer experiences (Pine & Gilmore, 1999)

•  Diverse approaches to design the service system

a)  Production-line approach
b)  Customer as co-producer

c)  Customer contact approach – Isolating technical core of low-contact

operations from high-contact operations and design both separately (Chase,
2010); line of visibility; appropriate for processing-of-goods category
d)  Information empowerment – empowerment of employees and customers
through IT
(Spohrer & Maglio, 2010; Fitzsimmons & Fitzsimmons, 2011)

09.11.11 Univ.-Prof. Dr.-Ing. Wolfgang Maass Slide 15

 
 A) Production-Line Approach

•  Delivery of routine services provided in controlled

environments to ensure consistent quality and
efficiency
•  Competitive advantage with cost-leadership strategy

•  Limited discretionary action of personnel – identical

service at any location
•  Division of labor – total job is broken into simple tasks
•  Substitution of technology for people – e.g., ATM
•  Service standardization – limited service options
guarantee predictability and preplanning; routine
processes; helps to ensure service quality

(Fitzsimmons & Fitzsimmons, 2011)

09.11.11 Univ.-Prof. Dr.-Ing. Wolfgang Maass Slide 16

 
 B) Customer as Co-Producer

•  Customer represents productive labor at the moment

it is needed – opportunity to increase productivity by
shifting some activities to customer (Edvardsson et al.,
2010)
•  Increasing degree of customization through co-creation
– open innovation (van Hippel, 1986)
•  Cost leadership strategy with some customization

•  Self-Service – customer receives benefits for her labor

in form of convenience
•  Smoothing service demand – smoothing variations in
service demand; allows uniform utilization of capacity
(e.g., midweek discounts)
•  Customer-generated content
(Fitzsimmons & Fitzsimmons, 2011)

09.11.11 Univ.-Prof. Dr.-Ing. Wolfgang Maass Slide 17

 
 Literature

Books:
•  Fitzsimmons, J. A. & Fitzsimmons, M. J. (2011), Service Management - Operations, Strategy, Information
Technology, McGraw - Hill.
•  Pine, B. J.and Gilmore, J. H. (1999), The Experience Economy: Work is Theatre and Every Business a
Stage, Harvard Business School Press, Boston, MA.

Papers:
•  Anthony, S. D.; Johnson, M. W. & Sinfield, J. V. (2008), 'Institutionalizing Innovation', MIT Sloan
Management Review 49(2), 45-53.
•  Bitner, M. J.; Ostrom, A. L. & Morgan, F. N. (2008), 'Service Blueprinting: A Practical Technique for Service
Innovation', California Management Review, 66-94.
•  Bitner, M. J.; Zeithaml, V. A. & Gremler, D. D. (2010), Technology’s Impact on the Gaps Model of Service
Quality'Handbook of Service Science', Maglio, Paul P. and Kieliszewski, Cheryl A. and Spohrer, James C.
•  Chase, R. B. (2010), Revisiting “Where Does the Customer Fit in a Service Operation?” - Background and
Future Development of Contact Theory'Handbook of Service Science', Maglio, Paul P. and Kieliszewski,
Cheryl A. and Spohrer, James C.
•  Chew, E. K. (2010), A Reflection From Telecommunications Service Perspective'Handbook of Service
Science', Maglio, Paul P. and Kieliszewski, Cheryl A. and Spohrer, James C.
•  Edvardsson, B.; Enquist, B. & Johnston, R. (2005), 'Cocreating customer value through hyperreality in the
prepurchase service experience', Journal of Service Research 8(2), 149-161.

09.11.11 Univ.-Prof. Dr.-Ing. Wolfgang Maass Slide 18

 
 Literature
•  Edvardsson, B.; Gustafsson, A.; Kristensson, P. & Witell, L. (2010), Service Innovation and Customer Co-
Development'Handbook of Service Science', Maglio, Paul P. and Kieliszewski, Cheryl A. and Spohrer, James
C.
•  Grove, S. J. & Fisk, R. P. (1992), 'The service experience as theater', Advances in Consumer Research 19,
455-461.
•  Hippel, E. v. (1986), 'Lead Users. A Source of novel product concepts.', Management Science 32, 791-805.
•  Johnson, S.; Menor, L.; Roth, A. & Chase, R. (2000), A critical evaluation of the new services development
process: integrating service innovation and service design, in J.A. Fitzsimmons & M.J. Fitzsimmons,
ed.,'New Service Development', Sage Publications.
•  Laurie, D. L.; Doz, Y. L. & Sheer, C. P. (2006), 'Creating new Growth Platforms', Harvard Business Review,
80 – 90.
•  Shostack, G. L. (1987), 'Service positioning through structural change', Journal of Marketing 51(1), 34—43.
•  Shostack, G. L. (1984), 'Designing services that deliver', Harvard Business Review 62(1), 133—139.
•  Spohrer, J. C. & Maglio, P. P. (2010), Toward a Science of Service Systems - Value and Symbols'Handbook
of Service Science', Maglio, Paul P. and Kieliszewski, Cheryl A. and Spohrer, James C.
•  Thomke, S. (2003), 'R&D Comes to Services – Bank of America’s Pathbreaking Experiments', Harvard
Business Review, 71 – 79.
•  Wemmerlöv, U. (1990), 'A Taxonomy for Service Processes and its Implications for System Design',
International Journal of Service Industry Management 1(3), 20--40.

09.11.11 Univ.-Prof. Dr.-Ing. Wolfgang Maass Slide 19

 
Univ.-Prof. Dr.-Ing. Wolfgang Maass

Chair in Information and Service Systems

Saarland University, Germany

Univ.-Prof. Dr.-Ing. Wolfgang Maass