Lovelock PPT Chapter 15

Chapter 15:
Organizing for
Change
Management
and Service
Leadership
Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 - 1
Overview of Chapter 15
 Effective Marketing Lies at the Heart of Value Creation
 Integrating Marketing, Operations, and Human Resources
 Creating a Leading Service Organization
 In Search of Human Leadership
 Change Management
Effective Marketing Lies at the
Heart of Value Creation
The Service-Profit Chain
(Fig 15.1)
Internal External
Operating strategy and Service
service delivery system Target Market
Concept
Loyalty 4-7
Revenue
growth
Satisfaction Customers
Productivity Service 3 2 1
Employees and Value Satisfaction Loyalty
Output
Quality
Capability Profitability
Service
Quality
• Workplace design Quality and • Attractive value • Lifetime value
• Job design productivity • Service designed • Retention
• Selection and development Improvements and delivered to • Repeat business
• Rewards and recognition yield higher meet targeted • Referral
• Information and communication service quality customers’ needs
• Tools for serving customers and lower costs
Links in the Service-Profit Chain
Table 15.1
1. Customer loyalty drives profitability and

growth
2. Customer satisfaction drives customer loyalty
3. Value drives customer satisfaction
4. Employee productivity and retention drive
value
5. Employee loyalty drives productivity
6. Employee satisfaction drives loyalty and
productivity
7. Internal quality drives employee satisfaction
8. Top management leadership underlies chain’s
success
Qualities Associated with
Service Leaders
 Understands mutual dependency among marketing,

operations and human resource functions of the firm
 Has a coherent vision of what it takes to succeed
 Strategies are defined and driven by a strong, effective

leadership team
 Responsive to various stakeholders
 Value creates through customer satisfaction
Integrating Marketing,
Operations, and Human
Resources
Reducing Interfunctional Conflict
 One challenge is to avoid creating “functional silos”

 High-value creating enterprises should be thinking in terms of
activities, not functions
 Top management needs to establish clear imperatives for

each function that defines how a specific function
contributes to the overall mission
 The marketing imperative
 The operations imperative
 The human resources imperative
Defining the Three Functional Imperatives
 Marketing Imperative
 Target “right” customers and build relationships
 Offer solutions that meet their needs
 Define quality package with competitive advantage
 Operations Imperative
 Create and deliver specified service to target customers
 Adhere to consistent quality standards
 Achieve high productivity to ensure acceptable costs
 Human Resource Imperative

 Recruit and retain the best employees for each job
 Train and motivate them to work well together
 Achieve both productivity and customer satisfaction
Creating a Leading Service
Organization
From Losers to Leaders: Four Levels of
Service Performance (1)
 Service Losers
 Bottom of the barrel from both customer and managerial
perspectives
 Customers patronize them because there is no viable alternative
 New technology introduced only under duress; uncaring workforce
 Service Nonentities
 Dominated by a traditional operations mindset
 Unsophisticated marketing strategies
 Consumers neither seek out nor avoid them
From Losers to Leaders: Four Levels of
Service Performance (2)
 Service Professionals
 Clear market positioning strategy
 Customers within target segment(s) seek them out
 Research used to measure customer satisfaction
 Operations and marketing work together
 Proactive, investment-oriented approach to HRM
 Service Leaders
 The crème da la crème of their respective industries
 Names synonymous with outstanding service, customer delight
 Service delivery is seamless process organized around customers
 Employees empowered and committed to firm’s values and goals
Dilbert’s Boss Loses Focus and His Audience
Fig 15.3
Moving to a Higher Level of Performance
 Firms can move either up or down the

performance ladder
 Organizations that are devoted to
satisfying their current customers may
miss important shifts in the marketplace
 As a result, they may face difficulties
attracting demanding new consumers
with different expectations
 Companies defending their control of
their competitive edge may have
encouraged competitors to find higher-
performing alternatives
 Organizations with a service-oriented
culture may turn otherwise as a result of
a merger or acquisition that brings in new
leaders who emphasize short-term profits
In Search of Human Leadership
Leading a Service Organization
Involves Eight Stages (1)
 Creating a sense of urgency to develop the

impetus for change
 Putting together a strong enough team to

direct the process
 Creating an appropriate vision of where the

organization needs to go
 Communicating that new vision broadly
Source: John Kotter
Leading a Service Organization
Involves Eight Stages (2)
 Empowering employees to act on that vision
 Producing sufficient short-term results to create

credibility and counter cynicism
 Building momentum and using that to tackle tougher

change problems
 Anchoring new behaviors in organizational culture
Source: John Kotter
Leadership versus Management
 Leadership
 Concerned with development of vision and strategies, and
empowerment of people to overcome obstacles—make vision happen
 Emphasis on emotional and spiritual resources
 Works through people and culture
 Produces useful change, especially non-incremental change
 Management
 Involves keeping current situation operating through planning,
budgeting, organizing, staffing, controlling, and problem solving
 Emphasizes physical resources—raw materials, technology, capital
 Works through hierarchy and systems
 Keeps current system functioning
Setting Direction versus Planning
 Planning
 A management process, designed to produce orderly results—not
change
 Setting direction
 Involves creating visions and strategies that describe a business,
technology, or corporate culture in terms of what it should become
over long term and articulating feasible way of achieving goal
 Many of best visions and strategies combine basic insights and
translate them into realistic competitive strategy
 “Stretch”—a challenge to attain new levels of performance and
competitive advantage that might as first seem to be beyond the
organization’s reach
 Planning follows and complements direction setting, serving as
useful reality check and road map for strategic execution
 See Service Persp. 15.1 : Can Cirque du Soleil Stretch Further?
Individual Leadership Qualities
 Possesses a special perspective
 Able to believe in their employees and

make communicating with them a priority
 Love of the business
 Being driven by a set of core value that

they infuse into the organization
 Need not be charismatic, but has to be

principled
 Must have personal humility blended with

intensive professional will, ferocious
resolve, and willingness to give credit to
others but take blame themselves
Change Management
Evolution versus Turnaround (1)
 Evolution involves continual mutations designed to

ensure the survival of the fittest
 Top management must proactively evolve the focus and strategy of
the firm to take advantage of changing conditions and the advent of
new technologies
 Turnaround situations are where leaders seek to bring

distressed organizations back from the brink of failure
and set them on a healthier course
 Example: Amex (Service Perspectives 15.2)
 Can be advantageous to bring in a new CEO from outside the
organization
Evolution versus Turnaround (2)
 Hurdles that leaders face in reorienting and formulating

strategy
 Cognitive hurdles
 Resource hurdles
 Motivational hurdles
 Political hurdles
 Turning around an organization that has limited resources
requires concentrating those resources where the need and
the likely payoffs are greatest
 Example: William Bratton’s 20-year police career in Boston and New
York
 A firm’s search for growth often involves expansion—even
diversification into new lines of business
 Example: IBM
Role Modeling Desired Behavior
 “Management by walking around”

 Provides insights to both backstage and front-stage operations
 The ability to observe and meet both employees and customers,
and opportunity to see how corporate strategy is implemented on
the front line
 Best Practice In Action 15.2
 This approach may lead to a recognition that changes are

needed in that strategy
 A risk of prominent leaders becoming too externally

focused at the risk of their internal effectiveness
Leadership, Culture, and Climate (1)
 Leadership traits are needed of everyone in supervisory

or managerial positions, including those heading teams
 Effective communication is essential for a leader
 Organizational culture
 Shares perceptions or themes regarding what is important in the
organization
 Shares values about what is right or wrong
 Shares understanding about what works and what doesn’t work
 Shares beliefs, and assumptions about why these things are
important
 Shares styles of working and relating to others
Leadership, Culture, and Climate (2)
 Organizational climate
 The tangible surface layer on top of the
organization’s underlying culture
 Factors of influence:
― Flexibility, responsibility, standards that
people set, perceived aptness of rewards,
clarity people have about mission and values,
level of commitment to a common purpose
 Creating a new climate for service,

based on understanding of what is
needed for market success, may require
 Radical rethinking of HRM activities,
operational procedures, and the firm’s reward
and recognition policies
Summary of Chapter 15: Change
Management and Service Leadership (1)
 Service profit chain provides useful summary of behaviors
required of service leaders to manage effectively
 Marketing, operations, and human resource management
functions need to be closely coordinated and integrated in
service businesses
 Four levels of service performance
 Service losers
 Service nonentitites
 Service professionals
 Service leaders
 Service leadership is not based on outstanding performance

within a single dimension, but must cut across marketing,
operations and human resources
Summary of Chapter 15: Change
Management and Service Leadership (2)
 Leading a service organization involves eight stages
 To be effective, leaders need to understand difference
between leadership versus management, as well as
setting direction versus planning
 Transformation of organization can take place in two
ways:
 Evolution
 Turnaround
 Role modeling is one of traits of successful leaders
 Leaders play a big part in nurturing an effective
organizational culture that transforms an organization
into a successful one

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What is the service-profit chain?

What is the service-profit chain?

What are the four levels of service performance?

What are the four levels of service performance?

Chapter 15:

 Effective Marketing Lies at the Heart of Value Creation

 Integrating Marketing, Operations, and Human Resources

 Creating a Leading Service Organization

 In Search of Human Leadership

1. Customer loyalty drives profitability and

 Understands mutual dependency among marketing,

 Has a coherent vision of what it takes to succeed

 Strategies are defined and driven by a strong, effective

 Responsive to various stakeholders

 Value creates through customer satisfaction

 One challenge is to avoid creating “functional silos”

 Top management needs to establish clear imperatives for

 Human Resource Imperative

 Firms can move either up or down the

 Creating a sense of urgency to develop the

 Putting together a strong enough team to

 Creating an appropriate vision of where the

 Communicating that new vision broadly

Source: John Kotter

 Empowering employees to act on that vision

 Producing sufficient short-term results to create

 Building momentum and using that to tackle tougher

 Anchoring new behaviors in organizational culture

Source: John Kotter

 Possesses a special perspective

 Able to believe in their employees and

 Love of the business

 Being driven by a set of core value that

 Need not be charismatic, but has to be

 Must have personal humility blended with

 Evolution involves continual mutations designed to

 Turnaround situations are where leaders seek to bring

 Hurdles that leaders face in reorienting and formulating

 “Management by walking around”

 This approach may lead to a recognition that changes are

 A risk of prominent leaders becoming too externally

 Leadership traits are needed of everyone in supervisory

 Creating a new climate for service,

 Service leadership is not based on outstanding performance

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