Chapter 01 - Services in The Economy

Services in the Economy
Chapter 1
1Introduction:ServicesintheEconomy
What is a service?
An idea?
A circumstance?
A convenience?
A physical thing?
Service Definitions
Service is a time-perishable, intangible
experience performed for a customer acting
in the role of a co-producer.
- James
Fitzsimmons
Services are deeds, processes, and

performances.
- Valarie Zeithaml & Mary Jo Bitner
Definition of Service
Firms
Service enterprises are organizations that
facilitate the production and distribution of
goods, support other firms in meeting their
goals, and add value to our personal lives.
- James Fitzsimmons
Why Study Service Operations?

Service firms are a large percentage of
the economies of industrialized nations
and its growing
80% of the US economy (employment and
GDP)
There is little focus on services in the

academic world.
Gain a competitive edge.
Not all management tools that are
1
appropriate for manufacturing are
5
transferable
into a service environment
The Importance of Service

Sector
Historically service is defined by what it is not:
Services are not
Goods Producing Manufacturing & Construction
Extraction Agriculture, forestry, fishing & mining
Services Retailing, Wholesaling,
Transportation, Financial services, etc.

Nowadays service is ubiquitous.
Role of Services in an
Economy
Historical US Employment by
Economic Sector
2
Distribution of GDP in the

US Economy
Product
Services
A
Physical
Information
B
6%
31%
37%
10%
53%
63%
D
16%
84%
Economic Stages
Features
Society
Game
Predomina
nt
Activity
Use of
Human
Labor
Unit of
Social
Life
Standar
d of
Living
Measure
Structur
e
PreIndustri
al
Against
Nature
Agricult
ure,
Mining
Raw
Muscle
Power
Extende
d
Househ
old
Subsiste
nce
Routine, Simple
Tradition hand
al,
tools
Authorit
ative
Industri
al
Against
fabricat
ed
nature
Goods,
Producti
on
Machine
tending
Individu
al
Quantity Bureauc
of
ratic,
Goods
Hierarch
ical
Machine
s
PostIndustri
al
Among
Persons
Services
Artistic,
Creative
,
Intellect
ual
Commu
nity
Quality
Interdep
of life in endent,
terms of Global
health,
educatio
n,
Informat
ion
Technolo
gy
10
a. Preindustrial
Life is characterized as a game against nature
Life is conditioned by the elements such as
the weather, the quality of soil, and

availability of water
Agriculture is the most prominent. More than
80% workforce in Agriculture sector
Service occupations mostly were domestic
servants and sailors
Productivity is low and bears little evidence of
technology
11
b. Industrial
Year 1900 to 1950
Important activity Goods production
Focus of attention is on making more with less
Work is accomplished in the artificial
environment of the factory

Extreme division of labor
Dehumanizing jobs hence labor unions were
formed
Manual workers outnumbered white collar
workers
12
c. Postindustrial
Year 1950 onwards
Service producing industries increased from 50%
to 80% in US
Health, Education, & recreation predominates
and it determines Quality of Life
A small subset of the service economy called
experiences will be a dominant economic force
Information rather than muscle was the focus;
workers value based on judgment, creativity &
theoretical reasoning
13
New Experience
Economy
Service undergoing transformation from the
traditional concept of a service transaction to

one of an experience.
Eg: Disney World, Starbucks, etc.
Economy
Agrarian
Industrial
Service
Experience
Function
Extract
Make
Deliver
Stage
Nature
Exchangeabl
e
Tangible
Intangible
Memorable
Attribute
Natural
Standardized Customized
Personal
Method of
Supply
Stored in
Bulk
Inventoried
Delivered on
demand
Revealed
over time
Seller
Trader
Provider
Stager
Manufacture
r
14
The four realms of

experience
Customer Participation
Passive
Absorption
Environmental
Relationship
Immersion
Active
Entertainment
(Movie)
Education
(Language)
Estheticism
(Tourist)
Escapism
(Scuba diving)
15
Reasons for Transformation from

Industrial to Post Industrial Era
Natural development of services such as transportation
& Utilities to support industrial development

Population growth & mass consumption of goods
increase wholesale & retail trade along with banking,

real estate, & insurance
Changing Demographics
Aging of the population
Two-income families
Urbanisation
16
Importance of studying operations in

services
What is Operations?
The transformation process that turns
inputs into outputs, that is, the act of

combining people, raw materials,
technology, etc. into useable services
and products
Who is in the operations function?
The people who actually make a product or
perform a service
Typically operations has the largest number
of employees of any functional area
3
17
But Im going into marketing,

finance, strategy
Regardless of your functional area, you
will be involved in transformational

processes, in other words, getting
things done
Service operations can help you get
things done more effectively and more
efficiently.
4
18
Opportunities in Service
Sector
Vast & untapped opportunities to improve
service businesses.
Only manufacturing is being considered for a
time being.
Imbalance exists which creates a huge
opportunity
19
Characteristics of services
Rules:
Exceptions:
Services are
Facilitating goods: playbills,
intangible
groceries
Simultaneous
production and
consumption
Computer system upgrades;
janitorial services
Proximity to the
Internet-based services; catalogs
customer
Services cannot be
inventoried
Retailers hold inventory; hotel
rooms, airline seats are

inventory
5
20
Goods Contain Services /

Services Contain Goods
Automobile
Computer
Installed Carpeting
Fast-food Meal
Restaurant Meal
Auto Repair
Hospital Care
Advertising Agency
Investment Management
Consulting Service
Counseling
100
75
50
25
25
50
75
100
Percent of Product that is aPercent

Good of Product that is a Service
1.Operationsmanagement
21
Classification frameworks
Classification helps in finding commonalities
Similarities helps in finding insights
Well known classifications
Customer Contact Model
Service Process Matrix (Proposed by
Schmenner)
22
Customer Contact Model
Services are classified according to the
amount of customer contact

Pure Services
Mixed Services
Quasi-Mfg.
Manufacturing
Medical
Restaurants
Transportation
Branch offices
Home offices
Distribution centers
Low Contact
High Contact
Guiding Principle:
Customer _ Contact _ Time
Potential _ Efficiency f 1
Service _ Creation _ time
6
23
Service Process Matrix

Customer contact
High
Low
Capital
intensive
Service Factory
Airlines
Trucking
Hotels
Custom Shop
Auto repair
Medical treatment
Charter travel service
Labor
intensive
Mass Services
Teaching
Live entertainment
Cafeteria
Professional
Services
Doctors
Lawyers
Architects
Auditing
Rigid process
Flexible Process
Chapter3ServiceEnvironment
24
Low Labor
Intensity
Low Interaction/Customization
Challenges for managers

Capital decisions
Technological advances
Managing peak/non-peak demand
Scheduling service delivery

Marketing
Making
service warm
Attention to physical surroundings
Managing fairly rigid hierarchy with
need for standard operating procedures
High Interaction/Customization
High Labor Intensity
Hiring, training
Methods development
Fighting cost increases

Maintaining quality
Employee welfare
Scheduling workforces
Reacting to consumer intervention in
Control of far-flung locations

Managing growth
process
Managing flat hierarchy with loose
subordinate-superior relationships
Gaining employee loyalty
8
25

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Chapter 01 - Services in The Economy

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Services in the Economy

Services are deeds, processes, and

Why Study Service Operations?

There is little focus on services in the

The Importance of Service

Services Retailing, Wholesaling,

Transportation, Financial services, etc.

Distribution of GDP in the

the weather, the quality of soil, and

environment of the factory

traditional concept of a service transaction to

The four realms of

Reasons for Transformation from

& Utilities to support industrial development

increase wholesale & retail trade along with banking,

Importance of studying operations in

inputs into outputs, that is, the act of

But Im going into marketing,

will be involved in transformational

Facilitating goods: playbills,

Computer system upgrades;

Internet-based services; catalogs

Retailers hold inventory; hotel

rooms, airline seats are

Goods Contain Services /

Percent of Product that is aPercent

Customer Contact Model

Services are classified according to the

amount of customer contact

Customer _ Contact _ Time

Service Process Matrix

Challenges for managers

Challenges for managers

Challenges for managers

Fighting cost increases

Reacting to consumer intervention in

Control of far-flung locations

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