1.Introductory lecture

Transcription

1 TU-E2000 Aalto Introduction to Services Introductory lecture Paul Lillrank Professor Department of Industrial Engineering and Management The service economy Services and the Productivity Problem Definition of services 1

2 SERVICES ARE BIG AND GROWING, BUT 2015 (A) Agriculture: Value from harvesting nature (G) Goods: Value from making products (S) Services: Value from enhancing the capabilities of things (customizing, distributing, etc.) and interactions between things Source: International Labor Organization 2

3 OFTEN BADLY MANAGED 3

4 THE SERVICE SECTOR Trade, transportation and utilities Wholesale trade Retail trade Transportation and warehousing Utilities Information Financial activities Finance and insurance Real estate, rental and leasing Professional business services Education and health services Educational services Health care and social assistance Leisure and hospitality Arts, entertainment and recreation Accommodation and food services Other services (except public administration) United States Department of Labor; Bureau of Labor Statistics

5 MORE CHOREOGRAPHERS THAN METAL CASTERS U.S. now has more choreographers (16,340) than metal-casters (14,880), according to the Bureau of Labor Statistics. More people make their livings shuffling and dealing cards in casinos (82,960) than running lathes (65,840), and there are almost three times as many security guards (1,004,130) as machinists (385,690). Whereas 30 percent of Americans worked in manufacturing in 1950, fewer than 15 percent do now. The economy as politicians present it is a folkloric thing. CHRISTOPHER CALDWELL New York Times January 27,

6 SERVICE DEMAND INCREASES type share % 1875 share % 1995 Income elasticity of demand Food Clothing Housing Healthcare Education Other Leisure Fogel, R.W.: The Escape from Hunger and Premature Death Cambridge University Press,

7 PRODUCTIVITY: GETTING MORE WITH LESS INPUT PRODUCTION SYSTEM OUTPUT labour capital knowledge processes products services 7

8 THE PRODUCTIVITY OF EDUCATION? Sokrates teaches Platon RICHNESS (Quality) Sokrates produces a TED-talk Sokrates gives a lecture Sokrates writes a book REACH (Volume, coverage) 8

9 SERVICE PRODUCTIVITY GROWTH HAS BEEN SLOW In public services growth has been mostly negative (Finland) * Central government 2,8-1,4-2,1 0,0 1,0 0,9-1,9 1,3-2,0 2,2 Municipalities -3,2-2,2-1,4-1,5 0,0-0,9-1,5-0,7.... Change in input-output ratio from previous year, %. Source: Statistics Finland, VM/KO 9

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11 OPPORTUNITIES IN SERVICES Source: OECD

12 THE BAUMOL S DISEASE The share of services as % of GNP grows In services productivity growth is slow Overall growth slows in service economies Wages in services follow manufacturing (with a delay) The relative cost of services increase Consequences - Less service consumption - Self-services (the last mile in retailing) - McJobs, service proletariat - Offshore outsourcing of services - Services moved to (cost insensitive) public sector - Demand restrictions, rationing (queues) Baumol, William J.: Macroeconomics of Unbalanced Growth: The Anatomy of Urban Crisis. The American Economic Review, Vol.57, No.3 (Jun.,1967),

13 Service Science on Baumol s Disease: SERVICE EVENTS AND SERVICE PRODUCTION SYSTEMS ARE DIFFERENT SERVICE EVENT Producer Customer Co-created value Value and quality depends on time, attention, skills, - Teaching, vacations, therapy, Productivity can be improved by technical innovations - Surgery medication SERVICE PRODUCTION SYSTEM Line of visibility Resources Back office Preparations Info Front office Co-created value System productivity improvement: Smart IT, coordination Integration Processes Preparations Self-service 13

14 IS MOBILE TELEPHONY A PRODUCT OR A SERVICE? Network equipment maker sells to Finance company buys component manufacturing as a service from Contract manufacturers Engineering consultants performs telecom network to Network operation for leases equipment to Telecom operator sells as service buys manufacturing as a service from Handset marketer contracts sells to sells to Design shop sells to Consumer subscription subscription directed at Virtual network operator billing system Brand mg., marketing, leases capacity from outsources back office to outsources back office to BPO Network maintenance local subcontractors 14

15 THE IHIP -DEFINITION OF SERVICES INTANGIBILE HETEROGENEOUS INSEPARABLE PERISHABLE Intangible: Services provide value in forms that are essentially intangible agreement about delivery criteria prior to service production; a promise of service is marketed Heterogeneous: Services are complex bundles of activities Inseparable: Services exist only the moment they are produced and consumed customer affects the service process to varying degree services cannot be owned Perishable: services cannot be stored capacity management, demand management Source: mainstream service literature; e.g. Parasuraman et al. 1985, Grönroos

16 MANY SERVICES DON T FIT THE IHIP -DEFINITION Intangible custom tailored suits are marketed as promises, change of location as the result of a taxi ride is tangible Services are heterogeneous complex bundles of activities yes, but so are products, and product-service hybrids there are standardized services Services exist only the moment they are produced and consumed a new haircut exists as long as it is recognizable, many products are perishable, eg. cut flowers, vegetables, disposable surgical gloves Services cannot be owned yes, but service capacity can be rented or hired, services can be traded Services cannot be stored yes, but demand and capacity can be managed, customers can be kept waiting 16

17 THE GOODS AND THE SERVICE DOMINANT LOGICS GOODS DOMINANT LOGIC GDL SERVICE DOMINANT LOGIC SDL PRODUCTION SYSTEM CONSUMPTION SYSTEM PRODUCTION SYSTEM CONSUMPTION SYSTEM Production Resources Exchange Consumption Co-creation Outcome value With service processes, the customer provides significant inputs into the production process. (Sampson and Froehle 2006). The customer is always a co-producer. (Vargo and Lush 2004) 17

18 THE SERVICE-DOMINANT LOGIC (SDL) Service is the fundamental basis of exchange. Service is exchanged for service. Because service is provided through complex combinations of goods, money, and institutions, the service basis of exchange is not always apparent. Goods derive their value through use the service they provide. All economies are service economies. Service is becoming more apparent with increased specialization and outsourcing. An enterprise cannot deliver value, but only offer value propositions. The value actualization is the job of the customer or citizen. Because service is defined in terms of customer-determined benefit and co-created it is inherently customer oriented and relational. 18

19 RESOURCE INTEGRATION AND IHIP Producer resources & capabilities: PERISHABLE - Customer requests activate resources - Unused resource perishes - Capacity & demand management Service contract: IMMATERIAL -No change of ownership - Promises -Roles, rights, and responsibilities compliance to agreements Service production: INSEPARABLE -Customer participates throug person, possession or information - Production in open systems - Customer-introduced variability Consumption Customer resources: HETEROGENEOUS - Variety reduction / absorption Developed on: Moeller, Sabine: Characteristics of services a new approach uncovers their value. Journal of Service Marketing 2010, 24/5 19

20 BOUNDARIES ARE NOT CLEAR Doctor does Degree of cocreation Patient does Emergency Elective Cure Care Prevention Goods and service components of an offering Goods only Pure service Production system Closed Open 20

21 GOODS OR SERVICE DOMINANT LOGIC? GOODS DOMINANT LOGIC Closed system Standard processes Identical copies of prototype Inventory management Value stream additive Value resides in product Property rights, ownership SERVICE DOMINANT LOGIC Open system Routine processes Each service event is designed Capacity management Value stream includes multiples Value resides in process Rights and responsibilities 21

22 WHAT IS AN OPEN SYSTEM? Marketing management agency Design service for promotional campaign Provider process layer Shared process layer Client process layer Identifies campaign need Prepares description of campaign needs Gathers information to back up briefing BRIEFING Client presents campaign initiative ANALYSIS of information: main idea & goals Provides a form to structure client s presentation Revises initiative no Agreeable initiative found? DEBRIEFING 0 Feedback to client Conducts research on consumers and competitors Are goals realistic? yes yes no no Customer accepts DEBRIEFING 1 Provider present s interpretation of client s briefing DESIGN Develops suggestion for media mix DESIGN Develops the creative idea yes DEBRIEFING 2 Provider presents main idea Customer accepts no yes DEBRIEFING 3 Provider presents media mix Consults customer s media agency Plans campaign production Customer accepts yes Redirects creative production Manages creative production Customer accepts Presents materials to client yes Plans and negotiates production Manages production network Gathers information on campaign results Executes campaign Customer is satisfied Client provides feedback to provider 19 steps, 7 decision points 42 steps, 16 decision points no no yes Discussion about relationship future? no 22

23 THE DEVELOPMENT PATHS OF SERVICES HIGH PROFESSIONALISM IN TRANSFORMATIONS skills processes tools techniques facilities professional ethics regulatory framework LOW Civil society: favours Tax-financed public services Not-for-profit providers Barter Pecuniary economy: services Professional, commercial services Black market LOW HIGH COMMERCIALISM IN TRANSACTIONS Objectification, monetary exchange, costing & pricing, quality, brands, profit, contracts, revenue models, service level agreements (SLA), 23

24 TOWARD A WEIGHTLESS ECONOMY? Materia and money MONETARY (PECUNIARY) ECONOMY The Service Economy MATERIAL Servitization Empowerment IMMATERIAL Monetization Barter trade Social exchange NON-MONETARY ECONOMY 24

25 THE SHARING ECONOMY 25

26 SERVICE SCIENCE SERVICE INNOVATIONS SERVICE ENGINEERING SERVICE MARKETING SERVICE DESIGN SERVICE DISTRIBUTION SERVICE ECONOMICS SUPPORTING TECHNOLOGIES 26