ISM 270

Service Engineering and

Management
Lecture 3: Technology in Services

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

Todays Lecture
Review of Strategic Advantage (Porter

Model)
Role of Technology in Services
Alan Karp, HP Labs

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.

Porter Competitive Model

Potential
New Entrants

Bargaining
Power
of Suppliers

Intra-Industry Rivalry
Strategic Business Unit

Substitute
Products
and Services

Bargaining
Power of Buyers

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?

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.

Porter Competitive Model Education Industry

Universities U.S. Market
Potential
New Entrants

Bargaining
Power
of Suppliers
Faculty
Staff
Equipment and
Service Suppliers
Alumni
Foundations
Governments
IT Vendors

Foreign Universities
Shift in Strategy by Universities
or Companies

Intra-Industry Rivalry
SBU: UCSC
Rivals: UC campuses, CSU,
Private universities,
Community Colleges

Substitute
Products
and Services
Internet Distance Learning
Books and Videotapes
Computer-Based Training
Company Education Programs

Bargaining
Power of Buyers
Students
Parents
Businesses
Employers
Legislators

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

Porter Competitive
Strategies
Cost
Cost Leadership
Leadership Strategies
Strategies
Differentiation
Differentiation Strategies
Strategies

Primary
Strategies

Innovation
Innovation Strategies
Strategies

Supporting
Strategies

Growth
Growth Strategies
Strategies
Alliance
Alliance Strategies
Strategies

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.

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.

Dell, Inc. Strategies

Primary Strategy:
Differentiation
Least Cost
Supporting Strategies:
Innovation
Growth
Alliances

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.

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

New Service Development

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.

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

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

Service Design
Elements

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

New Service Development Cycle

Full-scale launch
Post-launch review

Full Launch
Or
ga
n
Co iz atio
nte na
l
xt

Design

People

m
Tea

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

Development

Enablers

Product

Technology

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

Systems
Tools

Analysis
Business analysis
Project authorization

Service Blueprint of Luxury Hotel

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.

Structural Alternatives for a Restaurant

LOWER COMPLEXITY/DIVERGENCE

CURRENT PROCESS

No Reservations
Self-seating. Menu on Blackboard
Eliminate
Customer Fills Out Form

TAKE RESERVATION
SEAT GUESTS, GIVE MENUS
SERVE WATER AND BREAD
TAKE ORDERS
PREPARE ORDERS

Pre-prepared: No Choice

Salad (4 choices)

Limit to Four Choices

Entree (15 choices)

Sundae Bar: Self-service

Dessert (6 choices)

Coffee, Tea, Milk only

Serve Salad & Entree Together:
Bill and Beverage Together
Cash only: Pay when Leaving

Beverage (6 choices)
SERVE ORDERS
COLLECT PAYMENT

HIGHER COMPLEXITY/DIVERGENCE
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

Taxonomy of Service Processes

Low divergence
(standardized service)

No
Customer
Contact

Processing
of goods

Processing
Information

Dry
Cleaning
Restocking
a vending
machine

Check
processing
Billing for a
credit card

High divergence
(customized service)
Processing
of people

Processing
of goods

Processing
Information

Auto repair
Tailoring a
suit

Computer
programming
Designing a
building

Ordering
groceries
from a home
computer

Indirect
customer
contact
No
customerservice
worker
interaction
(selfservice)

Operating
a vending
machine
Assembling
premade
furniture

Withdrawing
cash from
an ATM

Direct
Customer
Food
Giving a
Providing
Customer Contact
service
service in a
worker
restaurant
Handling
interaction
Hand car
routine bank
washing
transactions

Processing
of people

Supervision
of a landing
by an air
controller
Operating
an elevator
Riding an
escalator

Home
lecture
transportation
Providing
mass
vaccination

Sampling
food at a
buffet dinner
Bagging of
groceries

Documenting
medical
history

Portrait
public
cleaning
Landscaping
service

Haircutting
carpet
Counseling

Searching for
information
in a library

Driving a
rental car
Using a
health club
facility

painting
a surgical
operation

Performing

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

Customer Value Equation

ResultsProduced ProcessQuality
Value
Price CostsofAcquiringtheService

Project 1

Technology in Service

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 ecommerce success.
Discuss the managerial issues associated with
the adoption of new technology.

Role of Technology in the Service Encounter

Technology

Customer

Technology

Server

A. Technology-Free
Service Encounter

Customer

Technology

Server

B. Technology-Assisted
Service Encounter

Technology

Customer

Customer

C. Technology-Facilitated
Service Encounter

Technology

Server

D. Technology-Mediated
Service Encounter

Customer

Server

Server

E. Technology-Generated
Service Encounter

Evolution of Self-service
Service Industry

Human Contact

Machine Assisted Service

Electronic Service

Banking

Teller

ATM

Online banking

Grocery

Checkout clerk

Self-checkout station

Online order/ pickup

Airlines

Ticket agent

Check-in kiosk

Print boarding pass

Restaurants

Wait person

Vending machine

Online order/ delivery

Movie theater

Ticket sale

Kiosk ticketing

Pay-for-view

Book store

Information clerk

Stock-availability terminal

Online shopping

Education

Teacher

Computer tutorial

Distance learning

Gambling

Poker dealer

Computer poker

Online poker

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?

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

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)

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

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

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

Electronic and Traditional

Services

Features

Electronic

Traditional

Encounter

Screen-to-face

Face-to-face

Availability

Anytime

Working hours

Access

From anywhere

Travel to location

Market Area

Worldwide

Local

Ambiance
Payment

Electronic
interface
Credit card

Physical
environment
Cash or check

Differentiation

Convenience

Personalization

Privacy

Anonymity

Social interaction

Grocery Shopping Comparison

On-line
Shopping
Advantages

Convenience
Saves time
Less impulse
buying
Disadvantages Forget items
Less control
Need computer
Delivery fee

Traditional
Shopping
See new items
Memory trigger
Product sampling
Social interaction
Time consuming
Waiting lines
Carry groceries
Impulse buying

Economics of Scalability
Dimensions

High

Scalability

Low

E-commerce
continuum

Selling
information
(E-service)

Selling valueadded service

Selling
services with
goods

Selling goods
(E-commerce)

Information vs.
Goods Content

Information
dominates

Information with
some service

Goods with support

services

Goods dominate

Degree of Customer
Content

Self-service

Call center backup

Call center support

Call center order

processing

Standardization vs.
Customization

Mass distribution

Some
personalization

Limited
customization

Fill individual orders

Shipping and
Handling Costs

Digital asset

Mailing

Shipping

Shipping, order
fulfillment, and
warehousing

After-sales service

None

Answer questions

Remote maintenance

Returns possible

Example Service

Used car prices

Online travel agent

Computer support

Online retailer

Example Firm

Kbb.com

Biztravel.com

Everdream.com

Amazon.com

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

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

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

Evolution of B2C E-Commerce in

Japan
1.

2.
3.

4.

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 ecommerce 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?

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