L01: Understanding Services and the impact SOM 2020, 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
SK/SOM20/L01/2
Dr. Sushil 1
L01: Understanding Services and the impact SOM 2020, 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
SK/SOM20/L01/3
–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.
SK/SOM20/L01/4
Dr. Sushil 2
L01: Understanding Services and the impact SOM 2020, IIM Lucknow
Role of Services in an Economy
SK/SOM20/L01/5
The changing structure of employment
during economic development
SK/SOM20/L01/6
Dr. Sushil 3
L01: Understanding Services and the impact SOM 2020, IIM Lucknow
Percent Employment in Services
Top Ten Postindustrial Nations
SK/SOM20/L01/7
Why is service so important?
SK/SOM20/L01/8
Dr. Sushil 4
L01: Understanding Services and the impact SOM 2020, 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.
SK/SOM20/L01/9
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
SK/SOM20/L01/10
Note:
Dr. Sushil 5
L01: Understanding Services and the impact SOM 2020, 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
SK/SOM20/L01/11
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
SK/SOM20/L01/12
Dr. Sushil 6
L01: Understanding Services and the impact SOM 2020, 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
SK/SOM20/L01/13
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
SK/SOM20/L01/14
Dr. Sushil 7
L01: Understanding Services and the impact SOM 2020, 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.
SK/SOM20/L01/15
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)
SK/SOM20/L01/16
Dr. Sushil 8
L01: Understanding Services and the impact SOM 2020, 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.
SK/SOM20/L01/17
Stages of Economic Development
SK/SOM20/L01/18
Dr. Sushil 9
L01: Understanding Services and the impact SOM 2020, IIM Lucknow
The New Experience Economy
SK/SOM20/L01/19
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
SK/SOM20/L01/20 1-20
Dr. Sushil 10
L01: Understanding Services and the impact SOM 2020, 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
SK/SOM20/L01/21
Service as Transformation
SK/SOM20/L01/22
Dr. Sushil 11
L01: Understanding Services and the impact SOM 2020, IIM Lucknow
Customer Input is Critical
SK/SOM20/L01/23
Front Stage and Back Stage
SK/SOM20/L01/24
Dr. Sushil 12
L01: Understanding Services and the impact SOM 2020, 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
SK/SOM20/L01/25
Service-Intensity Matrix
SK/SOM20/L01/26
Dr. Sushil 13
L01: Understanding Services and the impact SOM 2020, IIM Lucknow
Front Stage and Back Stage Intensity
SK/SOM20/L01/27
Decreasing Intensity– eBusiness
SK/SOM20/L01/28
Dr. Sushil 14
L01: Understanding Services and the impact SOM 2020, 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
SK/SOM20/L01/30
Dr. Sushil 15
L01: Understanding Services and the impact SOM 2020, 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
SK/SOM20/L01/31
The Service Process Matrix
SK/SOM20/L01/32
Dr. Sushil 16
L01: Understanding Services and the impact SOM 2020, IIM Lucknow
Low Labor Intensity
• Challenges for managers
– Capital decisions
– Technological advances
– Managing peak/non-peak demand
– Scheduling service delivery
SK/SOM20/L01/33
High Labor Intensity
• Challenges for managers
– Hiring, training
– Methods development
– Employee welfare
– Scheduling workforces
– Control of far-flung locations
– Managing growth
SK/SOM20/L01/34
Dr. Sushil 17
L01: Understanding Services and the impact SOM 2020, 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
SK/SOM20/L01/35
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
SK/SOM20/L01/36
Dr. Sushil 18
L01: Understanding Services and the impact SOM 2020, IIM Lucknow
The Service Package
Supporting Facility
Explicit Services
Service
Experience
Facilitating
Information Implicit Services Goods
SK/SOM20/L01/37
The Service Package
Supporting Facility
Facilitating Goods
Information
Explicit Services
Implicit Services
SK/SOM20/L01/38
Dr. Sushil 19
L01: Understanding Services and the impact SOM 2020, 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.
SK/SOM20/L01/39
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.
SK/SOM20/L01/40
Dr. Sushil 20
L01: Understanding Services and the impact SOM 2020, 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
• Nontransferable Ownership: Access to asset for the service
duration, sharing, rental: goods, place/space, labour, facility
usage, network usage
SK/SOM20/L01/41
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
SK/SOM20/L01/42
Dr. Sushil 21
