Welcome to Service Management Chapter 01 Role of Services in an Economy

James Fitzsimmons Seay Professor of Business Emeritus University of Texas at Austin

McGraw-Hill/Irwin Service Management: Operations, Strategy, and Information Technology, 6e Copyright 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.

Learning Objectives

Identify traits that all services have in common. Discuss the central role of services in an economy. Identify and differentiate the five stages of economic activity. Describe the features of preindustrial, industrial, and postindustrial societies. Describe the features of the new service economy. Contrast the push vs. pull theories of innovation. Identify the sources of service sector growth.

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Service Definitions
Services are deeds, processes, and performances. Valarie Zeithaml & Mary Jo Bitner A service is a time-perishable, intangible experience performed for a customer acting in the role of a co-producer. James Fitzsimmons
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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

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Role of Services in an Economy

FINANCIAL SERVICES Financing Leasing Insurance

INFRASTRUCTURE SERVICE Communications Transportation Utilities Banking

MANUFACTURING Services inside company: Finance Accounting Legal R&D and design

DISTRIBUTION SERVICES Wholesaling Retailing Repairing

PERSONAL SERVICES Healthcare Restaurants Hotels

CONSUMER (Self-service)

BUSINESS SERVICES Consulting Auditing Advertising Waste disposal

GOVERNMENT SERVICES Military Education Judicial Police and fire protection

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Percent Employment in Services

Top Ten Postindustrial Nations
Country United States United Kingdom The Netherlands 1965 59.5 51.3 52.5 1975 66.4 58.3 60.9 1985 70.0 64.1 68.3 1995 74.1 71.4 73.4 2005 78.6 77.0 76.5

Sweden
Canada

46.5
57.8

57.7
65.8

66.1
70.6

71.5
74.8

76.3
76.0

Australia
France Japan Germany Italy

54.6
43.9 44.8 41.8 36.5

61.5
51.9 52.0 n/a 44.0

68.4
61.4 57.0 51.6 55.3

73.1
70.0 61.4 60.8 62.2

75.8
74.8 68.6 68.5 65.5
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cf. Figure 1.2 in text

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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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Proportation of total employement

10 20 30 40 50 60 70 80 90 0

1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
Service Agriculture Manufacturing Year
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Trends in U.S. Employment by Sector

Distribution of GDP in the US Economy

Product A Physical 6%

Services B 31% 37%

Information

10%

53%

63%

C 16% 84%

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Stages of Economic Development

Society PreIndustrial Game Against Nature Predominant Activity Agriculture Mining Use of Human Labor Raw muscle power Standard Unit of of Living Social Life Measure Structure Extended household Subsistence Technology

Routine Simple hand Traditional tools Authoritative Bureaucratic Machines Hierarchical

Industrial

Against Goods Machine Individual fabricated production tending nature Among Services Persons

Quantity of goods

Postindustrial

Artistic Community Quality of InterCreative life in terms dependent Intellectual health, education, recreation

Information

Maslow Hierarchy of Needs

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Updates of Figure 1.3 and 1.4 can be found at: Occupational Outlook Quarterly http://www.bls.gov/opub/ooq/

Nature of Service Sector

Percent Distribution of Wage and Salary Employment by Industry Sector, 2006

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The 21st Century Career

Percent Change in Wage and Salary Employment by Industry Sector, Projected 2006-2016

The Four Realms of an Experience

Customer Participation Passive Active

Absorption Entertainment Education (Movie) (Language) Environmental Relationship Immersion Esthetic (Tourist) Escapist (ScubaDiving)
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Typology of Services in the 21st Century

Core Experience Creative Enabling Experiential Extending Entrusted Information Innovation Problem solving Quality of life Regulation

Essential Feature Present ideas Act as intermediary Presence of customer Extend and maintain Contractual agreement Access to information Facilitate new concepts Access to specialists Improve well-being Establish rules and regulations

Examples Advertising, theater Transportation, communications Massage, theme park Warranty, health check Service/repair, portfolio mgt. Internet search engine R&D services, product testing Consultants, counseling Healthcare, recreation, tourism Environment, legal, patents
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Economic Evolution
Economy Economic Offering Function Nature Attribute Method of Supply Seller Buyer Expectation Agrarian Food Industrial Packaged goods Make Tangible Standardized Inventoried Producer Customer Features Service Commodity service Deliver Intangible Customized Delivered on demand Provider Client Benefits Experience Consumer services Stage Memorable Personal Revealed over time Stager Guest Sensations Business services Co-create Effectual Growth Sustained over time Collaborator Collaborator Capability
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Extract Fungible Natural Stored in bulk Trader Market Quantity

Experience Design Principles

Theme the Experience (Forum shops) Harmonize Impressions with Positive Cues (OHare airport parking garage) Eliminate Negative Cues (Cinemark talking trash containers) Mix in Memorabilia (Hard Rock T-shirts) Engage all Five Senses (Mist in Rainforest)
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Source of Service Sector Growth

Information Technology (e.g. Internet) Innovation Push theory (e.g. Post-it) Pull theory (e.g. Cash Management) Services derived from products (e.g. Netflix) Exploiting information (e.g. Auto part sales) Difficulty of testing service prototypes Changing Demographics Aging of the population Two-income families Growth in number of single people Home as sanctuary
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Distribution of GDP in the US Economy

Product A Physical 6%

Services B 31% 37%

Information

10%

53%

63%

C 16% 84%

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Discussion Topics

Illustrate how the type of work he or she does influences a persons lifestyle. For example, contrast a farmer, a factory worker, and a school teacher. Is it possible for an economy to be based entirely on services? What is the value of self-service in an economy?
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Interactive Class Exercise

The class breaks into small groups. Each group identifies service firms that should be listed in the top Fortune 100 and places them in rank order of estimated annual revenue.
Fortune 100 List

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