Solution Manual For Service Operations Management Improving Service Delivery, 5th Edition by Robert by digitaldownload87

Contents Introduction to the instructor’s manual for Service Operations Management (Fifth edition)

Answers to case examples, discussion questions and case exercises

Part I

Framing service operations

Introduction to service operations

The world of service

Service strategy

The service concept

Part II

Part III

Part IV

Service people

Customer relationships

Service quality

Designing customer experience

People in the service operation

Service culture

112

Delivering service

123

Service supply networks

124

Designing the service process

137

Managing service performance

153

Service resources and capacity

172

Improving service operations

189

Service innovation

190

Service improvement

203

Learning from problems

213

Learning from other operations

224

Introduction to the instructor’s manual for Service Operations Management (Fifth edition) A tutor support website has been created by the authors at: www.servops.net. This site contains slides, video commentaries, case studies and other resources to support your teaching. Use of site requires you to register. Please be patient during the registration process. For obvious reasons we need to check that tutors are bona fide. If a tutor has an existing login and password to the servops site for fourth edition, then that login will work for the new servops site. This instructor’s manual in pdf form is a more portable, but much simplified version of the resources on the website. The purpose of the manual is to provide you with a basic set of resources to help you make best use of the text. In this document you will find answers to the following, organised by chapter:

Answers to end-of-chapter discussion questions Each chapter contains end-of-chapter discussion questions. These pages will provide answers and teaching notes for the questions, and in some instances, PowerPoint slides to help debrief the questions.

Information on case exercises At the end of every chapter there is a short, focused case study. These pages will provide detailed notes about how to teach and get the most out of each case study. Additional PowerPoint slides have been included in the PowerPoint packs (see below).

PowerPoint slides The figures in the book have been reproduced as PowerPoint slides in a form that you can develop and amend to fit with your style of presentation. We have also included some of the slides that can be used to debrief the end-of-chapter case studies. The slides can be downloaded with this instructor’s manual, or from servops.net.

Comments If you have any comments about this fifth edition, we would be pleased to hear from you. Please email the authors at: servopsreg@gmail.com. Your comments and suggestions will be read with keen interest and noted for future reference.

Answers to case examples, discussion questions and case exercises Discussion questions The questions for the most part relate to real organisations, albeit sometimes disguised. The purpose of the questions in this guide is to stimulate discussion, so there are no definitive answers. However, we have provided some discussion material and the occasional ‘solution’ as guidance. We have provided information on the key issues that we think should be covered in the answers. You will need to adapt the material to meet the needs of your particular students and your own teaching style. Some of the discussion questions require that students apply chapter concepts in their own or other organisations. The latter are therefore left open for you to explore with your students.

End-of-chapter case exercises The text is laid out to conform to the more traditional approach to teaching; text-based supported with cases. If you prefer to take a case-based approach you will find the cases rich enough to base a whole session around each one. We have deliberately kept the cases short to allow them to be read in class. This feature is useful for executive teaching and it also increases the likelihood of students reading the case before class! However, the cases are rich enough to stimulate a great deal of debate and learning. This case exercise section provides for each chapter some ideas on how to teach the cases using support material from the text. Again; the answers we have provided are neither definitive nor exhaustive but should be used as a guide to help your own teaching. Some lecturers prefer brief and broad questions with the case studies (such as ‘analyse the situation and comment’) to encourage their students to develop their own structure to the answer. Others prefer a much more guided approach with detailed and well-structured questions. The choice depends upon personal preference and also the type of students being taught, e.g. undergraduates versus postgraduates. To deal with this issue we have provided brief questions in the textbook and sometimes more detailed questions in this pdf manual.

Servops.net This manual is just a start. Our teaching is dynamic, and as it evolves we will upload additional material to the servops.net website. So, if you think one of the case or discussion question ‘answers’ is lacking, take a look at the relevant pages on the website. If you have your own ideas… if you think we have missed something, please get in touch.

PART I

FRAMING SERVICE OPERATIONS

CHAPTER 1

Introduction to service operations About this chapter This introductory chapter starts by exploring what is meant by service as distinct from the manufacturing of physical goods, and then looks at the general contribution of operations management before exploring what is distinctive about operations management in service organisations, what its responsibilities are and why it is so important.

Learning objectives •

To define the characteristics of services and understand the implications and limitations of these characteristics

•

To be able to explain what service operations management is

•

To understand the importance of service operations management

•

To be able to understand the multiple perspectives on service operations management

•

To gain an appreciation of the challenges faced by service operations managers

Discussion questions and exercises Question 1 Rent the Runway (RTR), is a privately-owned service that rents out clothes, handbags and jewellery. It has a dry-cleaning warehouse that is the biggest in the world, processing 2,000 items per hour. It started renting out formal dresses for weddings and other events. Eventually, it grew to the point where three-quarters of its clients used it to rent work clothes. Subscribers can rent four items at any one time. Turnaround has to be quick: returned clothes are washed, repaired if necessary and any stains removed. Most items are in and out in less than a day. (a) How does this service compare to a conventional garment retailer in terms of its IHIP characteristics? It is not essential, but students can benefit from a little online research in preparing answers to the two parts of question 1. If you allow students to do 10 to 15 minutes of online research then they can quickly get more depth on RTR. After doing so it would be worth sketching the IHIP

Johnston et al, Service Operations Management, 5th Edition, Instructor’s Manual

dimensions on the whiteboard or alternatively use the template slide provided with the instructor pack. Free-form on a whiteboard or visualiser is probably better than slides as you can debate the positioning for each dimension.

In the traditional garment retailer, especially at the high-end, we have a great deal of interaction in a physical shop, comfortable seats, fitting rooms, a cup of coffee is served and so on... so we have many tangible and intangible elements. At RTR, the tangible element of service is the garment and its packaging, and there are several other tangible elements rendered intangible by virtue of physical separation. In garment stores selling the sort clothing offered by RTR there would be an assessment of needs involving several conversations, several visits to the store, possibly modification of the garment to engineer a custom fit. Each service experience is a response to unique set of customer needs. In RTR, garments are ‘off the shelf ’. In a traditional garment retailer there is a degree of separation of production and consumption in that at the very least the base garment will be prepared in advance and the customer selects this. However, the modification of the garment, as well as assistance in choosing garments from retail staff is clearly done ‘in the moment’.

Johnston et al, Service Operations Management, 5th Edition, Instructor’s Manual

At RTR ideally the seamstresses and cleaners would be fully utilised. Albeit that the seamstresses are carrying out repairs in RTR, whereas in a traditional retailer they would be doing alterations. In general, there is a steady inventory of used garments to be processed. Rarely are the back-office workers at RTR idle. This is not true of the traditional garment store. Weekends would be such that we have maximum capacity utilisation for front of house staff, but many weekday mornings will be such that service capacity is underutilised and will obviously perish. In the traditional garment retailer, the seamstresses will need to be available for measuring, fitting, tacking, pinning, etc., though they can postpone some of the alternation work to quiet times. (b) What do you think are its main service operations management responsibilities? The main service operations management responsibilities for RTR are: Processing garments – RTR need to rapidly turnaround garments so as to maximise availability, and inventory of garments generally. So there has to be a focus on shipping and its management. Garments have to be delivered and collected rapidly. When they arrive at the RTR processing centre they are cleaned, repaired and repackaged to put back into inventory. RTR have in the past had some challenges with cleaning and sizing. So clearly there is an important quality management role. Nearly all the key areas of responsibility are in the back office. In terms of the common set of responsibilities of the service operations manager (listed on page 18) the specific responsibilities fit into the following general areas: •

Responsibility for the organisation’s customers (sometimes referred to as clients, users, patients or students, etc.) or surrogates, such as their parcels or orders – Rapid processing of garments.

•

Managing service quality – Ensuring that garments are accurately described, are properly cleaned and repaired.

•

Design of the service operation’s resources and how they impact on their customers’ experience – Ensuring that the capacity of central processing area and its logistics are up to the task of rapid turnaround of garments. Ensuring that there is adequate inventory of garments.

•

Developing the relationships with suppliers and customers in their supply network – Most important of these supply network aspects are the logistics companies that collect and deliver the garments.

•

Managing the match (if appropriate) between an organisation’s capacity to serve its customers and the demand for its services – There are two aspects of capacity to consider. The processing capacity of the cleaning and repair centre, and of inbound and outbound logistics.

Question 2 An increasingly popular service models in business is that companies should earn revenues from subscribers rather than sell products or service as single ‘items’. What do you think are the advantages and disadvantages of this type of service?

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Subscription models are attractive because they promise a recurring stream of revenue. However, acquiring subscribers can be costly. ‘Lock-in’ can also be quite ‘light’ in that customers can still depart. Consumers may have more than one relationship at a time. An obvious example of the ‘mercenary’ behaviour of customers would be in relation to Netflix. There is no real loyalty and it is easy for customers to cancel and then restart the subscription. Customers typically swap amongst providers such as Netflix, Disney plus, Apple TV and so on. Acquiring subscribers is costly because of the necessity to use the ‘drug dealer’ approach for the initial purchase. The first taste is free, or very cheap! For example, the online food ingredient delivery companies such as Hello Fresh and Blue Apron heavily discount or often give away the first few orders without any guarantee of follow-up purchases from customers. The world of software development had to get into subscription models out of necessity. Small-scale developers in particular were burdened with the need to make frequent application updates (often to accommodate new operating systems) and the expectation was that these updates would come free. The development of ‘app stores’ did not help. There was no easy way to charge for updates. The move to subscription models for software was not without pain. Often customers would walk away to alternative ‘outright purchase only’ applications in protest. Dropbox has its freemium model with a considerable amount of storage and syncing service offered for free, and it charges for large capacity online storage. Apple has a similar model with its iCloud storage. Another approach is to load adverts into entertainment services and encourage subscribers to pay-up to get rid of the adverts. The downside to this approach is that it sends inappropriate messaging about the quality of adverts to both customers, and companies that purchase advertising inventory. In terms of the ideas we cover in this textbook, one thing we will look at in Chapter 5 is customer relationships. One could argue that a major benefit of subscription model is it allows the service firm to forge deeper and longer lasting relationships with customers. A subscription model has also the advantage of allowing the service to gain ever greater amounts of intelligence on its users. Data mining means that the insights gained from a sustained relationship are more valuable than before, for customers and firms. The Netflix algorithm knows exactly what viewers want to binge-watch! The subscription model also makes investors more comfortable with intangible businesses. A subscriber base can be thought of as an enduring asset in which firms can invest. Subscription service companies use statistical models to try to ensure that the ‘lifetime value’ of a customer exceeds the cost of acquiring them, but the models are notoriously inaccurate. So we have many advantages but also several disadvantages with subscription services. Probably the main disadvantage is that there is no true lock-in to a subscription service. Customer loyalty is generally illusory. Additionally, customers are becoming increasingly wary of revealing too much about themselves via subscription services, and are becoming more aware of the value of their personal information.

Johnston et al, Service Operations Management, 5th Edition, Instructor’s Manual

(a) For each of the departments described, what aspects of their job do not involve directly ‘making’ something? (b) How would you categorise the ‘non-making’ activity in each department? The ENO Example introduces several issues but is mainly about: •

What is service? and

•

What is service operations management?

You can run the case quite quickly as a warm-up with post experience students, but undergraduates will need a bit more time. The case presents an unusual service environment with which few students will be familiar. Most people will have some experience of the front of house elements of a theatre but not backstage. It might be worth showing students one or two YouTube videos on the ENO before you begin. The ENO has a large selection of videos on its YouTube channel, but most are previews of productions. However, in 2014 and 2018, the ENO made two series looking at back-office activity. Probably the best video to begin with is: How To Stage An Opera – ENO (2014) YouTube video, added by English National Opera [Online]. Available at: https://youtu.be/eCiD4BBAhkM Other ‘production’ videos are located under the playlist: Opera jobs: What it’s like to work for ENO – English National Opera https://www.youtube.com/playlist?list=PL7ShuxblyYmG_plwCMlxKeExMVBpradur

Running the exercise in class Start off by asking students to consider the list of back-office departments in the case. The service departments described in the case do not constitute an exhaustive list of the micro-services back of house at the ENO. (See the end of this teaching note for a longer list.) The indicative questions at the end of the case example are: (a) For each of the departments described above, what aspects of their job do not involve directly ‘making’ something? (b) How would you categorise the ‘non-making’ activity in each department? Ask students to categorise the micro services first of all on the basis of whether they are ‘making’ focused/or service focused. It might be useful to draw a list of the micro services on the whiteboard and allocate percentages to making or service for each. Astute students will ask you to define the categories, especially service. If so just stall and say you will come to that later... one purpose of the exercise is to understand what service is.

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Then draw a third column, and department by department invite students to deconstruct the nature of service. What exactly is being done at each department that is not ‘making’? Typical responses are: •

Doing work for someone or a group

•

Interpretation of creative intentions

•

Designing

•

Budget control

•

Lighting a space

•

Planning and control, in particular coordinating and scheduling

•

Curation of collections

•

Manual labour

•

Counselling

•

Purchasing

•

Searching, etc.

The first answer in the list probably sums up what is service. The ‘doing of work’. Sometimes that work involves tangible objects and some sort of facilitating good but often it does not. The point to note here is that service is just one thing in the sense of doing work for someone or some group, but otherwise it encompasses huge variety of activities, in this case, in just one organisation. Try to mark up the number and type of customers serviced by each of the micro-services. Then ask the students to think about: What are the key activities and responsibilities of each service operations manager? The managers’ work is mostly about managing the ‘makers’ but they also do a great deal of the relational work with the other departments, and also external bodies. The makers are mostly at the lower levels of the organisational hierarchy within each team, and further up the hierarchy the more service elements there are to jobs. Finally, ask the question: What does The Technical Director do? When we look at the Technical Director’s activities we see that he does... pretty much nothing, but he is responsible for making everything happen! The Technical Director coordinates, facilitates and ensures that his services are available to the producer in the development phase, and to the stage manager during a live show. 12 © 2021 Pearson Education Limited. All Rights Reserved.

Johnston et al, Service Operations Management, 5th Edition, Instructor’s Manual

A long list of back-office operations is (students will have to speculate on some of these, or watch the videos): •

Accounting

•

Budget control

•

Catalogue, store and pack show materials

•

Catering – retail – the main restaurant, and snacks in the four bars

•

Catering – the company

•

Cleaning

•

Colourists

•

Conducting health and safety checks

•

Costumes management (curation, storage and cleaning)

•

Directing

•

Drawing

•

Dyers

•

Electrical power management

•

Facilities management

•

Finance

•

Hairdressers

•

Hats

•

Housekeeping

•

Laundry

•

Lighting design

•

Lighting management

•

Logistics and supplies

Johnston et al, Service Operations Management, 5th Edition, Instructor’s Manual

•

Managing risk assessments

•

Masks

•

Multi-media design and management

•

Online shop

•

Online ticket sales

•

Payroll

•

Producing

•

Production scheduling

•

Prop and fabric buyers

•

Prop costumes

•

Prop design

•

Prop production

•

Props management (curation, storage, cleaning)

•

Prosthetics

•

Relating to artists (interpersonal)

•

Set design

•

Set moves – by the backstage team

•

Singing

•

Sound design

•

Sourcing prop materials and new suppliers

•

Staff welfare

•

Stage management (the ‘event’ Service Operations Manager)

•

The orchestra

•

Training

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•

Website management

•

Wigs

•

Work with dancers, puppeteers

Front office (customer-facing) operations at the ENO are: •

Performance operations

•

Programme sales

•

Box office (ticketing)

•

Welcoming the audience

•

Bag checks

•

Cloakroom

•

Disability access support

•

Health and safety

•

Reception/information desk

•

Restaurants – American Bar and restaurant

•

Merchandising

•

Bars: o

Stalls Bar and Lounge

Laidlaw Bar

Sky Bar

Balcony Bar

Other Events: •

London Coliseum Guided tours

•

Afternoon Tea

Johnston et al, Service Operations Management, 5th Edition, Instructor’s Manual

•

Pre-performance talks

•

Eno Supporters Events

House manager responsibility: •

People

•

Front-of-house assistants

•

Retail sales assistants

Questions 4 and 5 Again, thinking about the music industry, where do ‘live performances’ fit on the scales?

Johnston et al, Service Operations Management, 5th Edition, Instructor’s Manual

Question 6 Consider three services: first, a business servicing heating, ventilation and air-conditioning facilities; second, an emergency plumbing service; and third, a disaster emergency charity. Again, using Figure 1.3, how does each service fit on the IHIP scales?

Case exercise – European Airlines Group Questions 1. What problems does Peter Greenwood face? 2. If you were Peter Greenwood, what would you say to the Board? 3. In particular, what recommendations would you make about unbundling the complimentary meals service on long-haul economy?

Johnston et al, Service Operations Management, 5th Edition, Instructor’s Manual

Case analysis Introduction Whilst we usually see and evaluate service organisations from a customer perspective, this first case gives us the chance to see the problems from the point of view of the operational staff. We can evaluate what service is delivered, how it is delivered and see some of the real challenges that operations managers face.

Teaching approach This case can be used to introduce most of the material from Chapter 1. The best place to start is by considering the customer perspective. About 10 to 15 minutes in groups, or pre-class preparation, should provide good answers to question 4 of the supplementary questions (below). Let students get started without structure, but then after five minutes help them by suggesting they structure their ideas with some sort of ranking system like the table below (available in the slide pack). The conflicts (supplementary question 5 below) are good for class discussion of the operations perspective and are ideal for syndicate work to allow students to think about some of the dilemmas faced by service staff (cabin staff mainly). question 6 gives you the opportunity to draw some conclusions from the suggestions and identify the learning points. For post-experience students you can take the supplementary questions in the reverse order and start with question 6. There will be plenty of debate here. You can then try to show the value of formal analysis and evaluation, i.e. list the options and evaluate each.

Supplementary questions 4. Describe Sky’s service product. How would you rate the importance of each element? 5. Describe the conflicts between managing day-to-day operations, improving the operation and supporting strategic developments? 6. Evaluate the options suggested by Angela Carter-Smith, Christina Towers, Justin Maude and David Goh.

The customer perspective – Sky’s service product The service product incorporates the service experience and the service outcome. You may find it best to create the list of the elements before rating them. Some suggestions are provided in the table below. We find it better to start with the outcome.

Johnston et al, Service Operations Management, 5th Edition, Instructor’s Manual

Rating 1−10

Elements

10 = very important 1 = not important Being moved from A to B (not C)

Service

On time

outcome

In one piece (safely)

With your luggage

Efficient check-in

Pleasant cabin crew

On time departure

Drinks

Choice of music and films (for long haul)

Appropriate and good meal

Pleasant temperature

On time arrival

Service experience

If students want to rate everything as 1, ask what would they be prepared to do without, out of necessity forced by price or circumstance, i.e. ‘in one piece’ versus ‘pleasant cabin crew’? Some points worth noting: •

There may be some overlaps between experience and outcome.

•

The experience elements tend to include the intangibles.

•

Outcomes tend to be more important than experience.

•

Many of the most important elements are beyond the control of the airline’s operations managers (‘on time’ and ‘re-routed to C’, are air traffic control (ATC) responsibilities).

•

Other elements are beyond the control of the operations staff (the cabin crew) such as luggage, check-in, on time, choice of music, and type of meal.

•

The cabin crew has an important impact on the passenger in flight but has very little control over the outcome or experience. A somewhat frustrating role!

•

Flying is very much a back-office orientated service. Most of the elements are managed out-ofsight of the customer and the customer’s experience is only a small part of the whole process (which includes ATC, meal preparation, plane servicing, scheduling, ticketing, etc.).

•

Flying is a high volume, low variety service. It is back office orientated, little customisation is available, the focus is on the product, (A-B, on time and safe) and volumes are high, though not as high as mass transit processes.

•

Johnston et al, Service Operations Management, 5th Edition, Instructor’s Manual

Day-to-day operations versus strategy Now is the time to move the focus to the operation’s perspective. Students need to consider this question from Peter Greenwood’s point of view. There are three main tasks for the service operations manager. 1. Developing an operations strategy 2. Improving the operation 3. Managing day-to-day operations

Strategic issues •

Need to reduce complaints

•

Need to reduce delays

•

Need to look after premium-fare passengers

•

Need to increase RASM

Improvement issues •

Pressure to improve on-board catering

•

Suggestions to provide seat-side preparation ‘culturally sensitive’ meals

•

Day-to-day operation issues

•

The consistency of meals from different locations

•

Loading the ‘right’ number of meals whilst minimising weight and cost

•

Providing a limited choice of meal – first choice not always available

•

Special meals not loaded

•

No knowledge of food contents

•

Wrong meals types loaded

•

Planes delayed

You can imagine that Peter spends most of his time trying to resolve the immediate day-to-day issues, in particular coordinating the supply chain and managing the real time needs of his customers. Indeed

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this is part of the ‘excitement of service operations management’ (Chapters 1 and 2). However the problems are: •

Dealing with these day-to-day issues leaves little time for longer term strategic planning.

•

These day-to-day issues are hard enough to resolve. The ‘improvements’ suggested look like a nightmare.

•

There are clear conflicts between the ‘improvements’ suggested and operational capability. They may also conflict with some of the strategic issues (increase RASM, reduce complaints and reduce delays). The suggestion may however support the airline’s concern to look after its premium passengers.

•

There is a possibility of the functions taking up entrenched positions here; marketing seeing only the marketing opportunity, operations only seeing operational problems and senior managers only seeing the need for the right figures.

•

The lack of operational awareness by the marketer and senior managers could create significant problems for the operation and therefore for the viability of the airline.

Evaluating the options It is helpful to sketch out the options:

All the options could be seen to support Bernie Williamson’s desire for ‘improved onboard catering’. Operations’ suggestions are concerned with making operations simpler and easier and could improve the existing service for passengers. The marketing suggestions are about making the service more interesting and possibly better and thus enhancing the service for passengers but this would likely exacerbate the operational problems.

Johnston et al, Service Operations Management, 5th Edition, Instructor’s Manual

Recommendation For us the way to the solution lies in the answer to Supplementary question 4. In the table above we rated meals as 4/10, i.e. not very important. (If your class rated meals 10/10 you had better think of another solution!) The marketing suggestions are based on the assumptions that long haul passengers would want, and want to pay a premium for a degree of seat-side preparation (like in Business Class), and that an Indian person would prefer to eat Indian food on a European airline travelling to London or Paris, for example. They might, however, expect decent, pre-prepared European food, be delighted with pre-prepared and good Indian food, but highly dissatisfied with no food, poor food, delays in seat-side delivery or lack of a promised choice. There is a real need to solve the existing problems or at least recognise them as constraints. Unless, of course, the marketing suggestion could alleviate some of the existing problems. In this case it is fair to assume it would exacerbate them. The (operational) problems that need resolving are listed above. It is possible that one of the choices of meals could be a ‘culturally sensitive’ meal to test out the caterers’ capability to provide such meals and the desire of customers for them. In sum, what we would say to the board is the archetypal operations retort ‘Yes we can do that, but…’.

Learning points An airline is not a restaurant; it faces particular problems of space, weight, galley size, cooking capabilities, inability to call up more supplies and different levels of catering (economy versus premium passengers). Marketing’s role is to push the envelope and to challenge operational constraints and thinking. Operations have to consider what is realistic, affordable and doable which will meet the needs of all customers and fulfil strategic objectives. Managers of all functions should have some understanding of operations activities and issues.

What happened next? This airline was a ‘full-service’ airline not a ‘no-frills’ airline and it was felt to be important to provide a full meal service to all passengers. Indeed this was in line with the other airlines which formed the ‘global alliance’ of which Sky and Airandor were members. Because of the complexity and cost implications of trying to provide seat-side preparation and culturally sensitive meals the airline, in line with many others, retreated back to its core competency and provided a service style and catering which related to its home market, and with delivery being via pre-made and re-heated meals. Earlier attempts to provide culturally sensitive meals had met with criticisms from passengers in terms of quality and inauthenticity. The trail runs of seat-side delivery in the relatively cramped economy cabins proved to be an operational disaster. The airline argued that as part of a global alliance the airlines together provided customers with a rich diversity of meals to meet local and global customer needs. 22 © 2021 Pearson Education Limited. All Rights Reserved.

CHAPTER 2

The world of service About this chapter Chapter 2 looks at the many different types of service organisation that exist, the importance of service in most economies and some developments in how we think about service.

Learning objectives •

To be able to identify the main types of service organisation

•

To understand the importance and growing significance of service in most economies

•

To be able to describe some of the more recent developments in how we think about service

Discussion questions and exercises Question 1 Nespresso has been described as ‘Starbucks without the drive’. It supplies coffee machines that brew coffee from capsules, or pods, for home or professional use. The company is an autonomous globally managed business within the Nestlé Group. With corporate headquarters in Lausanne, Switzerland, Nespresso is present in over 60 countries and counts over 12,000 employees worldwide. The company offers its ubiquitous coffee-filled capsules and machines for brewing espresso, latte and cappuccino one cup at a time, boasting on its website that ‘the world’s best café is in your home’. Investigate Nespresso and (a) explore how the company uses the concepts of experience-based service and ‘servitisation’ to promote its offerings, and (b) how it tries to fulfil its social and environmental responsibilities. Nespresso, an arm of the Nestlé Group of Switzerland, wraps an experience around a food product. The company offers its ubiquitous coffee-filled capsules and machines for brewing espresso, latte and cappuccino one cup at a time, boasting on its website that ‘the world’s best café is in your home’. The flavors are color-coded to match consumers’ moods and play to ‘an endless passion to stay at home’. In short, Nespresso is Starbucks without the drive. Nespresso clearly understands its customers’ wants and needs. According to a 2010 report, the company’s sales have grown an average of 30 per cent each of the past 10 years, with more than 20 billion capsules sold since 2000. The company also offers a club for customers to order capsules, receive personalised advice and obtain technical support.

Johnston et al, Service Operations Management, 5th Edition, Instructor’s Manual

Another great experience is offered by Paris Miki, a Japanese company that collaborates with its customers to mass-customise eyewear to their exact specifications. The company’s Mikissimes Design System offers customers an “exploring experience,” using computer graphics supported by artificial intelligence to analyse distinctive attributes of each customer’s face. These attributes are combined with customer-provided adjectives that describe the type of look they desire, such as sporty or elegant. The system uses this information to design, refine and virtually prototype the custom glasses, which can be produced in as little as an hour.

Question 2 A supplier of branded kitchen appliances that sells to the domestic market is considering offering its equipment and tools not as products but as ‘a culinary lifestyle’. To help customers experience this lifestyle, it is considering establishing a network of cooking schools. Offer a justification of how this idea could provide a competitive advantage for the company. Cooking schools could conceivably offer some kind of reward scheme or specific product discounts to students/participants and so the rewards end up coming right back into the company in the form of a revenue stream. If the cooking schools work, then clearly there is the opportunity to strengthen the brand and generate word-of-mouth awareness. Another example of this concept in practice would be the off-road skills courses offered by BMW motorcycles in which participants receive two days of training riding difficult and muddy terrain but at the same time they are exposed to the current line-up of BMW motorcycles. Land Rover vehicles do similar with their off-road skills experience. The customer becomes intimately connected to the product via the provision of the education service. This is relatively simple but classic servitisation in action.

Question 3 How do you think that the big manufacturers of cars will respond to: (a) the general move from products to services; and (b) changes in vehicle technology? For many years the larger automobile manufacturers have been moving to the provision of the car as a service as opposed to a product. Consider that if a customer turns up at the dealership with a suitcase full of crisp pound notes or dollar bills then it is actually quite difficult for them to buy a car outright. The dealership is incentivised to sell the customer a lease, or some other form of personal contract purchase. The automobile manufacturers do not want a one-off sale, but what a steady revenue stream from customers. The lease and PCP deals do not quite ‘lock in’ the customer, but they make it quite difficult for the customer to switch to an alternate brand at the end of the lease period. If the customer buys a new vehicle from the same brand then the deal is sweetened considerably with discounts and a decent final trade-in value for their car. By contrast if a customer elects to hand back the car, then a rigourous inspection regime with penalties for anything but minor wear and tear provides a major deterrent to switch. The lease deals, with the built-in service packages, also ensure that there is a ready supply of approved used cars which the major brands that can also be used to ensure sustained revenue.

Johnston et al, Service Operations Management, 5th Edition, Instructor’s Manual

So the question is kind of already answered, part ‘a’ anyway in that the automobile manufacturers are already going down the servitisation route. Additionally, they support the customer journey down that path with a plethora of credit offerings from the Bank of BMW, Bank of Mercedes et cetera. The technological change that may well accelerate the servitisation is the automation of the vehicle including the ultimate self-driving/autonomous vehicle. Tesla cars are already essentially autonomous and self-driving though some of this functionality is inhibited. There is some evidence that Apple Inc. is skirmishing with self-driving vehicles, though it makes little sense for Apple, even with its very deep pockets to go up against the major automotive OEMs. More likely that Apple could get into the game with a ride-sharing service ‘sans’ drivers. In the early years of self-driving vehicles, companies providing the technology will have to manage it very carefully. In practice, the risks of such technology are way less than they are for cars driven by humans. However, perception is everything, and so the ride service, using a fleet of branded and tightly controlled vehicles makes a lot of sense for the likes of Apple, Tesla, and possibly Uber. The point is then, that newer players are already moving into the ‘car as service’ domain and so the traditional automobile manufacturers can do little but follow with their own offerings. Transportation is worth $5tn if narrowly defined, but may be as big as $15tn broadly defined. Car ownership may well plummet with autonomous driving. Companies like Apple and Google are building expertise in sensor, driving, and mapping technologies. It very much looks like they will get into the transportation game and they are not going to be selling cars. The car as a smart service offering is inevitable.

Question 4 The Earthy Construction Equipment Company sells its products (large earth-moving equipment) to building and mining customers around the world. The company’s CEO has read about the idea of the ‘experience economy’, but feels it only applies to consumer companies, not business equipment companies such as hers. What could such a company do to provide ‘experiences’ for its customers? This question is channelling the philosophy of ‘Case Construction Equipment’. For the last 60 years or so Case entices potential purchasers and users of its earthmoving equipment by providing junkets in which they can play with the company’s range of more than 60 types of construction equipment. The company has a dedicated outside ‘play’ area which it calls ‘the Tomahawk Centre’. Visitors stay in lakeside lodges and has served hearty, homestyle meals. Case entices approximately 2,000 customers per year to spend up to 3 days at the centre. The cost is large but the benefits are considerable as each machine purchased may cost hundreds of thousands of dollars. More often than not equipment is leased, providing multi-thousand dollar revenue streams for many years. Staff from Case dealerships accompany potential purchasers on the visits to reinforce the levels of support they can expect after any purchase. The approach is a success with the company’s close rate being greater than 75 per cent when purchasers visit the tomahawk centre. In the tourism industry similar practices are used to expose tour companies to the benefits of sending their customers to a specific hotel or resort.

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Question 5 Describe the customer experience and outcomes for a fast-food restaurant, a doctor’s surgery and an internet-based fashion-clothing retailer. Compare and contrast the services of these three organisations. Fast-food restaurant In the fast-food restaurant the customer experience is limited. There is little interaction with any server and increasingly there is zero interaction in that food is selected from a touchscreen menu or ordered via an app. If the customer ‘eats in’ then the surroundings will be comfortable but not overly so. In fact, on occasion, fast-food environments had been deliberately designed to encourage customers to move on and not linger after eating. Often upbeat music is playing and this can be irritating for some. It possibly enhances the experience for the young, but only for a limited amount of time. The outcome is tasty, and sometimes healthy meal which is fairly good value for money. The doctor’s surgery As we will see later on when we look at the concept of ‘the zone of tolerance’ in Chapter 6, the experience in operations such as a doctor’s surgery is critically dependent on the mind state of the customer. If the visit was a routine check-up then possibly the customer or patient will not be anxious. But more often not the visit occurs because the patient has a problem. The patient is predisposed to possibly judge harshly certain experience elements. For example, they will be sensitive to the way reception staff relate to them, how their privacy is addressed, etc. If they have to wait, as they inevitably do, what is the waiting room like? Critically, what are the other customers in the waiting room like? ‘Are they ill? Am I going to catch their diseases?’. The experience in such environments is fluid and complex. Similarly with the outcomes. There is a critical dependence on the reason for the visit. If the visit was for example, to get a prescription of standby antibiotics for an adventure travel trip then the outcome may well just be the prescription, and the judgement is straightforward. By contrast, if the visit was because of stomach pain and in the consultation the doctor reveals the possibility of dangerous conditions such as cancer, then ‘finding out’ is a useful outcome, but may not be perceived as good. Certainly, the customer would not be happy about the outcome. For many complex conditions that are not necessarily life-and-death, the patient has no way of making a judgement on the quality of the outcome. Instead, they judge the outcome on peripheral services and aspects of the experience. The internet-based fashion clothing retailer Most of the experience will be the interaction with the retailer’s webpages. The experience will be judged on things like the quality of photographs of garments and accessories, videos, functionality such as 3D viewing of models wearing clothes, the ability to perform custom searches and so on. Another aspect of the experience will be posted availability of inventory in a particular size and colour-way. In some respects, this latter experience element is also related to an important outcome.

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Stock outs would be considered to be negative outcomes especially if was notified to the customer after ordering. One of the most common reasons for disappointment with online retailers is when the retailer advertises stock that they don’t really have. The customer orders and are soon informed of the delay in delivery. The desirable outcome would obviously be prompt delivery of the stock as ordered. Other bonus outcomes would be discount vouchers, early delivery and so on.

Case exercise – Servitisation at Sterksteen Questions 1. What are the broad advantages and disadvantages of each proposal? 2. Although cost and revenue estimates of each proposal are not yet available, which one do you favour? This Sterksteen case study provides several opportunities to explore issues discussed in Chapter 2. The case can be used with undergraduate students to explore types or categories of service. For example, we have a B2B business that is predominantly goods focused moving into B2B services, and also considering B2C service. The B2B service being the Sterksteen Secure service, and the B2B, Sterksteen Install. If either service goes ahead, especially Sterksteen Install, the company will have effectively created a new set of internal service relationships. Similarly, one could envisage that the newly services would in-turn exploit centralised shared services which are also used by the existing manufacturing business. Acknowledging these two conceptual ideas is not complete exploration, but is a way to reinforce the need to frame analysis using conceptual material from the textbook and your course. At the highest level, you can frame the evolution, or potential evolution of Sterksteen using the Clark model on page 48. Certainly, we will likely have the development of services relating to information provision, training quality standards and so on. The manufacturing activities of the company are currently ‘repetitive and relatively low margin’ and there is going to be an almost inevitable shift towards tertiary and possibly quaternary activities in order to take some of the value currently being eaten up by the installers. The core of the case study however is a look at the implications of potential servitisation for a manufacturing organisation. Question one could almost be reframed as what are the general advantages and disadvantages of servitisation. Clearly, there are nuances which will be applicable to the industrial context of the case, but if students struggle, then I would recommend that they look at the material on ‘why this shift to services’? at the bottom of page 50, and certainly the material at the bottom of page 54 and the head of page 55 on servitisation. The factors that explain the emergence of servitisation generally, act as a framework for listing the benefits of the two proposals for Sterksteen. Both are obviously examples of servitisation, but differ in degree. An approach to question one that can work quite well is to try to tease out the general benefits and disbenefits of servitisation and list these on a board or via visualiser. The checklist can then be used to unpick the case study. The analysis should allow you to come to a view on the answer to

Johnston et al, Service Operations Management, 5th Edition, Instructor’s Manual

question 2. In the table below general benefits and potential disbenefits of servitisation are listed in the first column. In the second and third column, a tick indicates whether the benefit or disbenefit is applicable in respect of either option. Sterksteen Secure

Sterksteen Install

Advantages of servitisation ✓

Move to higher margin activity. Potential for larger firms to apply systematisation, automation and technology generally in operations (smaller intermediaries not have sufficient resource to do this).

✓

Potential to move into activity domains with, in-turn, the potential to bring greater satisfaction to clients than supply of material goods alone. Potential to create experiences for end customers which can generate positive word-of-mouth marketing.

✓

Potential to use the service experience to cross sell. That is, cross sell both services and products.

✓

The potential to offer and exploit multiple connections with B2B customers. A shift from largely transactional supply to an ongoing relationship which can be exploited in either direction.

✓

The potential to apply expertise and perspectives from multiple elements of the supplying company to the customer company.

✓

Heads-off potential end customer dissatisfaction resulting from product complexity and technical sophistication. Less chance of end user or any other downstream supplier ‘bodging’ delivery.

✓

Opportunities to enhance product functionality.

✓

Opportunities to expose and enhance the core brand.

✓

Opportunities to provide additional revenue from the installed base of products by providing follow-up services such as maintenance, support, repair, etc.

✓

Opportunities to provide complimentary products and services and to entice the customer to purchase with offers/vouchers, etc.

✓

Johnston et al, Service Operations Management, 5th Edition, Instructor’s Manual

✓

Support and follow-up services likely to be consistent and stable source of revenue in comparison to the initial sales and installation of products associated with that installation. Revenue streams possibly smaller, but more consistent and less vulnerable to economic cycles or temporary shocks. Potential to engage B2B and B2C customers in long-term agreements, again for maintenance, support, development, etc.

✓

Hedge against commoditisation of product range.

✓

Opportunities to develop new business streams replacing that which end customers or intermediary suppliers have delivered previously.

✓

Opportunities to create innovative and competitive services… ‘nobody knows our product better than ourselves’. So potentially outcompeting both in terms of product quality, and then customer satisfaction, as well as taking margin previously extracted by intermediaries.

✓

The potential to improve relationships with customers by getting to know them. This applies to both intermediaries and end customers.

✓

Allows B2B customers to focus on their core business and outsource peripheral activities.

✓

Potential to exploit the expertise of intermediaries.

✓

Disadvantages of servitisation ✓

Investment is likely to be required for shifts to higher margin activity. New skills and technology development will be required. Service technologies!

✓

With increased customer intimacy and potential for enhanced customer satisfaction comes greater vulnerability to dissatisfaction. You cannot blame failures on intermediaries or the customer! Word-of-mouth marketing resulting from negative experiences can be potentially very damaging to the core brand.

✓

Johnston et al, Service Operations Management, 5th Edition, Instructor’s Manual

Cross-selling potential is not always possible. Services and underlying products have to be complementary. The customer will not buy from the same brand just because of a positive previous experience. There has to be a need.

✓

The relationship with end customers and especially B2B customers becomes more complex and this complexity has to be managed. Multiple connections provide considerable opportunity for conflicting messages and confused communication.

✓

Great potential to exploit expertise and perspectives from many aspects of the supplying company, but additional service expertise needs to be in place to deploy this technical knowledge. Can be very difficult to educate staff previously familiar with goods production in the intricacies of service provision.

✓

Both product quality and service quality expectations will likely become higher and so the provider has to deliver.

✓

As a supplier of goods the provider firm is somewhat buffered from product failure in use. As a service provider this buffer disappears.

✓

Long-term revenue potential has a downside in that it creates an expectation of long-term support. Sometimes legacy products and service streams can be expensive to maintain over the very long-term.

✓

Potential to damage relationships with installer base.

✓

There is considerable scope too argue about the detail. For example, if you look at the potential for cross-selling it is clearly different in respect of Sterksteen Secure than it is for Sterksteen Install. The ranges of products available for cross selling will potentially overlap, but they may not be exactly the same. One important conclusion that can be drawn from looking at the table is that – at least in this case – with more benefits being applicable, there is a corresponding increase in disbenefits. Another way of looking at this issue is to consider risk. Many of the disbenefits are not ‘actual’, they are merely risks. Most can be mitigated by appropriate and comprehensive new service development. However, as we will see in Chapter 14 on Service Innovation, common reasons for failure of new service innovation is lack of attention to operational support of new marketing aspects of the service concept. Both options sound like good, and relatively lucrative future pathways for the company, but both require considerable development of new skills, technologies and most likely different ways of organising. This requirement is much greater for Sterksteen Install, but there are also considerably more potential benefits. The two options represent very different views, both of how to improve service to the market, and the degree of risk Sterksteen should take.