L01: Understanding Services and the impact SOM 2019, IIM Lucknow

Understanding Services
and the impact

Sushil Kumar, PhD

IIM Lucknow

What is Service?
• Tangible or intangible?
• Customer involvement?
• Standardization or customization?
• Human or machine processing?
• Inventory and leftover?
• A service is a time-perishable, intangible
experience
• performed for a customer acting in the role of co-
producer

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L01: Understanding Services and the impact SOM 2019, IIM Lucknow

Describing Service
• Deed, act, or performance
– Berry (1980)
• All economic activity whose output is not physical product or
construction
– Brian et al (1987)
• A time-perishable, intangible experience performed for a
customer acting as co-producer
– Fitzsimmons & Fitzsimmons (2001)
• A change in condition or state of an economic entity (or thing)
caused by another
– Hill (1977)
• Deeds, processes, performances
– Zeithaml & Bitner(1996)
• Application of specialized competences through deeds,
processes and performances to benefit another
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–Vargo & Lusch(2004)

On Service Management
A service is a means of delivering value to
customers by facilitating outcomes customers
want to achieve, without the ownership of
specific costs and risks.

Service Management is a set of specialized

organizational capabilities for providing value
to customers in the form of service.

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L01: Understanding Services and the impact SOM 2019, IIM Lucknow

Role of Services in an Economy

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The changing structure of employment

during economic development

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L01: Understanding Services and the impact SOM 2019, IIM Lucknow

Percent Employment in Services

Top Ten Postindustrial Nations

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Why is service so important?

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L01: Understanding Services and the impact SOM 2019, IIM Lucknow

• The percentage of the working age population employed has

remained between 50 and 65 percent in most countries covered
over the past 40 years, but the share of the working age population
employed in each sector has shifted over time.
• In agriculture it dropped by more than half in all countries (except
the Netherlands),
• In industry (manufacturing, mining, and construction) it fell in all
countries (except the Republic of Korea and Turkey).
• In contrast, the share of the working age population employed in
services increased in all countries covered,….
and by 2012, the share was nearly at or above 40 percent in the
majority of countries covered.

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Employment shares by sector

(in percent)
1980 2012
Not Not
Agriculture Industry Services Employed Agriculture Industry Services employed
United States 2.0 17.3 39.8 40.8 0.9 10.1 47.6 41.4
Australia 3.8 16.7 37.8 41.7 1.8 12.2 48.7 37.3
Canada 3.0 16.5 40.9 39.7 1.4 12.0 49.1 37.5
France 5.6 19.1 28.1 47.2 1.5 10.3 38.5 49.7
Germany 2.8 22.8 27.6 46.9 0.9 15.0 40.0 44.0
Italy 6.5 17.0 22.4 54.0 1.6 11.6 30.5 56.3
Japan 6.2 21.5 33.6 38.7 2.1 13.9 40.2 43.8
Korea,
19.0 16.0 20.9 44.1 3.7 14.2 41.5 40.6
Republic of
Mexico NA NA NA NA 7.5 13.0 34.9 44.5
Netherlands 2.7 15.5 33.9 47.9 1.7 9.9 49.7 38.6
New Zealand NA NA NA NA 4.3 12.1 47.1 36.5
South Africa NA NA NA NA 2.0 9.4 29.6 59.0
Spain 8.3 16.1 20.3 55.3 1.9 8.8 34.1 55.2
Sweden 3.7 20.7 41.3 34.4 1.3 11.2 47.6 39.9
Turkey NA NA NA NA 10.2 11.4 22.7 55.8
United
1.5 21.1 35.9 41.5 0.7 10.3 47.4 41.6
Kingdom
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Note:

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L01: Understanding Services and the impact SOM 2019, IIM Lucknow

Why is service so important?

Product Services

A B

Physical 6% 31% 37%

Information
10% 53% 63%

C D

16% 84%

Distribution of GDP in the U.S. economy

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Stages of Economic Activity

Quinary (Extending Human Potential):

Health, Education, Research, Arts, Recreation

Quaternary (Trade and Commerce):

Transportation, Communications, Retailing, Finance, Government

Tertiary (Domestic Services): Restaurants, Hotels, Laundry, Maintenance

Secondary (Goods-Producing): Manufacturing, Processing

Primary (Extractive): Agriculture, Mining, Fishing, Forestry

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L01: Understanding Services and the impact SOM 2019, IIM Lucknow

What is service science?

• Services depend critically on people, technology, and
co-creation of value
• People work together and with technology to provide value for
clients
• So a service system is a complex socio-technical system
• Service innovation combines people, technology, value, clients

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What is Service?
“The labor of some of the most respectable orders in
society is like that of menial servants, unproductive of
any value, and does not fix or realize itself in any
vendible commodity which endures after that labor is
past. In the same class must be ranked some both of the
gravest and most important, and some of the most
frivolous professions: churchmen, lawyers, physicians,
men of letters, players, buffoons, musicians, opera-
singers, and so on.”
—Adam Smith

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L01: Understanding Services and the impact SOM 2019, IIM Lucknow

The Experience Economy

Experiences are a distinct offering from services.
Experiences must provide a memorable offering
that will remain with one for a long time, but in
order to achieve this, the consumer — that is, the
guest, must be drawn into the offering such that
they feel a sensation. And to feel the sensation, the
guest must actively participate. This requires
highly skilled actors who can dynamically
personalize each event according to the needs, the
response and the behavioral traits of the guests.

—Pine, Joseph and James Gilmore, The Experience

Economy, Harvard Business School Press.
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Moving Up The Experience Chain

http://www.cafecoffeeday.com/

Rs 150-300?

Rs 20-25

http://www.sunblessedcoffee.com/prducts.html
Rate: Rs 175 per packet of 200 gms (Dark Forest,CCD)
http://www.indiacoffee.org/indiacoffee.php?page=MarketInfo Raw
Coffee Price Rs. 125-228 per Kg (Robusta to Arabica)
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L01: Understanding Services and the impact SOM 2019, IIM Lucknow

The Experience Economy

Providing experiences
requires a new
marketing perspective.

Suppliers of goods
typically see themselves
as manufacturers and
service suppliers as see
themselves as providers.

Those companies that

wish to offer their
customers an experience
need to see themselves
as stagers of events.

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Stages of Economic Development

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L01: Understanding Services and the impact SOM 2019, IIM Lucknow

The New Experience Economy

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Typology of Services in the 21st Century

Core Experience Essential Feature Examples

Creative Present ideas Advertising, theater

Enabling Act as intermediary Transportation, communications

Experiential Presence of customer Massage, theme park

Extending Extend and maintain Warranty, health check

Entrusted Contractual agreement Service/repair, portfolio mgt.

Information Access to information Internet search engine

Innovation Facilitate new concepts R&D services, product testing

Problem solving Access to specialists Consultants, counseling

Quality of life Improve well-being Healthcare, recreation, tourism

Regulation Establish rules and regulations Environment, legal, patents

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L01: Understanding Services and the impact SOM 2019, IIM Lucknow

Moments of Truth

....Last year, each of our 10 million customers came in

contact with approximately five Scandinavian Airlines
employees, and this contact lasted an average of 15
seconds each time. Thus, Scandinavian Airlines is
“created” in the minds of our customers 50 million times
a year, 15 seconds at a time. These 50 million “moments
of truth” are the moments that ultimately determine
whether Scandinavian Airlines will succeed or fail as a
company.
—Jan Carlzon˚ in Moments of Truth

oChief Executive Officer of SAS Group 1981-94

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Service as Transformation

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L01: Understanding Services and the impact SOM 2019, IIM Lucknow

Customer Input is Critical

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Front Stage and Back Stage

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L01: Understanding Services and the impact SOM 2019, IIM Lucknow

Restaurant Example

Meals to be theatrically prepared by a knife-wielding, joke-telling chef at a Teppanyaki

table surrounded by a wooden eating surface in front of the guests (Teppan "steel grill"
and yaki "grilled", "broiled", and "fried"). I
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Service-Intensity Matrix

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L01: Understanding Services and the impact SOM 2019, IIM Lucknow

Front Stage and Back Stage Intensity

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Decreasing Intensity– eBusiness

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L01: Understanding Services and the impact SOM 2019, IIM Lucknow

The Nature of
Services

An Integrated Approach to
Service Management
The Eight Components
• Product Elements
• Place, Cyberspace, and Time
• Promotion and Education
• Price and Other User Outlays
+ Process
+ Productivity and Quality
+ People
+ Physical Evidence
Require the Integration of Marketing, Operations, and
Human Resources
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L01: Understanding Services and the impact SOM 2019, IIM Lucknow

Service/Product Bundle

Element Core Goods Core Service

Example Example
Business Custom clothier Business hotel

Core Business suits Room for the night

Peripheral Goods Garment bag Bath robe

Peripheral Service Deferred payment In house restaurant

plans
Variant Coffee lounge Airport shuttle

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The Service Process Matrix

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L01: Understanding Services and the impact SOM 2019, IIM Lucknow

Low Labor Intensity

• Challenges for managers
– Capital decisions
– Technological advances
– Managing peak/non-peak demand
– Scheduling service delivery

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High Labor Intensity

• Challenges for managers
– Hiring, training
– Methods development
– Employee welfare
– Scheduling workforces
– Control of far-flung locations
– Managing growth

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L01: Understanding Services and the impact SOM 2019, IIM Lucknow

Low Interaction/Customization
• Challenges for managers
– Marketing
– Making service “warm”
– Attention to physical surroundings
– Managing fairly rigid hierarchy with need for
standard operating procedures

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High Interaction/Customization
• Challenges for managers
– Fighting cost increases
– Maintaining quality
– Reacting to consumer intervention in process
– Managing flat hierarchy with loose subordinate-
superior relationships
– Gaining employee loyalty

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L01: Understanding Services and the impact SOM 2019, IIM Lucknow

The Service Package

Supporting Facility

Explicit Services

Service
Experience
Facilitating
Information Implicit Services Goods

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The Service Package

Supporting Facility
Facilitating Goods
Information
Explicit Services
Implicit Services

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L01: Understanding Services and the impact SOM 2019, IIM Lucknow

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 efficient and
customized service. Examples are patient medical
records, seats available on a flight, customer
preferences, location of customer to dispatch a taxi.
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The Service Package (cont.)

• Explicit Services: Benefits readily observable
by the senses. The essential or intrinsic
features. Examples are quality of meal,
attitude of the waiter, on-time departure.

• Implicit Services: Psychological benefits or

extrinsic features which the consumer may
sense only vaguely. Examples are privacy of
loan office, security of a well lighted parking lot.

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L01: Understanding Services and the impact SOM 2019, IIM Lucknow

Distinctive Characteristics of
Services
• Customer Participation in the Service Process: attention
to facility design but opportunities for co-production
• Simultaneity: opportunities for personal selling,
interaction creates customer perceptions of quality
• Perishability: cannot inventory, opportunity loss of idle
capacity, need to match supply with demand
• Intangibility: creative advertising, no patent protection,
importance of reputation
• Heterogeneity: customer participation in delivery process
results in variability

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Strategic Service Classification

• Nature of the Service Act

– Tangible or not, and on people or things
• Relationship with Customers
– Continuous/discrete and membership/unknown (general)
• Customization and Judgment
– High/Low
• Nature of Demand and Supply
– Meeting peak demand, and demand fluctuation (wide/narrow)
• Method of Service Delivery
– Who travels and How many sites

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