Part I

Introduction to Service
Management
Lecture Service Operations
Management
Dr. Rainer Kleber
 Learning Objectives
1. You understand the importance of services in an
economy.
2. You can apply the I-T-O model from operations
management to analyze a service system.
3. You know the fundamental differences between
services and goods.
4. You can describe a service by means of the five
dimensions of the service package.
5. You can classify services using the service
process matrix.

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 Roadmap
1. Importance of services in the societies
2. Basic Principles

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Introduction to Service Operations Management

1. IMPORTANCE OF SERVICES IN
THE SOCIETIES

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 What Is Service?

Source: www.maritim.de

All other pictures: Sources: office.microsoft.com, wikipedia.org 5

 Service in the Economy
FINANCIAL SERVICES INFRASTRUCTURE SERVICE and LOGISTICS
Financing Communications
Leasing Transportation
Insurance Utilities
Banking

PERSONAL SERVICES
MANUFACTURING DISTRIBUTION Healthcare
Services inside company: SERVICES Restaurants
Finance Wholesaling Hotels
Accounting Retailing Entertainment
Legal Repairing
R&D and design
CONSUMER
(Self-service)

BUSINESS SERVICES
Consulting GOVERNMENT SERVICES
Auditing Military
Advertising Education
Waste disposal Judicial
Police and fire protection
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Trends in the US Employment
by sector, 1800-2050 (projected)

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 Sector Employment in 2010
Nation % of World % Agriculture % Goods % Services
Labor producing
industries
China 21.0 50 15 35
India 17.0 60 17 23
USA 4.8 2 20 78
Indonesia 3.9 45 16 39
Brazil 3.0 23 24 53
Russia 2.5 12 23 65
Japan 2.4 5 26 69
Nigeria 2.2 70 10 20
Bangladesh 2.2 63 11 26
Germany 1.4 3 28 69 8
 Recent Developments
Service Economies: Service sector accounted for all net
job growth in high-income economies 1995-2005.
(McKinsey Technical Report, 2010)
Service-Dominant Logic: all markets are centered on
the exchange of services. Services are focus of
economic and social exchange.
Electronic Services: e.g. digitalization of
governmental services in the UK and NZ
Mobile and Cloud Services: Digital services available
from everywhere and at any point in time.
Outsourcing of Services: Companies increasingly buy
services not contributing to their core business.

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Introduction to Service Operations Management

2. BASIC PRINCIPLES

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 What is service?
A service is a change in the
condition of a person, or a
good belonging to some
economic unit, which is
brought about as a result of
the activity of some other
economic unit, with the prior
agreement of the former
person or economic unit. (Hill,
1977)

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 Service Delivery System
Services are provided by a service delivery
system which includes facilities, processes,
and skills needed to provide the service.
A Service Delivery System consists of
elements (people, facilities, tools, and
computer programs) that have a structure (i.e.
an organization), a behavior (possibly
described as a process), and a purpose. (Fromm
and Cardoso, 2015)

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Service Scenarios

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 Service Categorization
Labor vs. capital-intensive services
Knowledge-intensive services
Information and technology intensive services

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 Operations Management View on
Services
Operations Management (OM) deals with the
activities that create goods and services
through transformation of inputs to outputs.
Input Transformation Output

Input-Transformation-Output (I-T-O) models

for goods and services Resources from
Service Provider:
Assets
Resources: Material
Assets Transformation
People
Material Transformation Good Assets = Output
People Material Service
Customer
Inputs provided
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by customer
 Characteristics of Services
How to distinguish goods from services?
OM view:
Goods are things being output of manufacturing
processes.
Services are the transformation processes.
Distinctive properties to characterize services
(marketing view):
IHIP criteria: Intangibility, Heterogeneity, Inseparability,
Perishability
(extended) Fitzimmons et al., 2014 criteria: Intangibility,
Heterogeneity, Simultaneity, Perishability, Customer
Participation, Nontransferable ownership

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 Comparing Services and Products
Characteristics of services Characteristics of goods Implications for Service Management
Intangibility: Services are Goods are things. Inability to patent novel services.
ideas and concepts. Limited picturability of service.
Heterogeneity: Services vary Goods are (often) Suitable performance measures.
from customer to customer. standardized. Reduction of variability through
automation.
Simultaneity: Service is pro- Goods are pre-produced Service system must adapt to
produced
duced andand
consumed
consumed
at the
at and kept on inventory varying demand.
the same
same time.
time.
(= Inseparability) until consumption.
(Time-)Perishability: Excess capacity can be Smooth capacity demand through
Capacity not facing used to pre-produce. revenue management, flexible
immediate demand is lost. capacity, customer waiting
Customer Participation: Customers are not part Customers affect system
Customer co-produces of the production performance.
service. process. Service facilities must account for
presence of the customer.
Nontransferable ownership: Customers assume Customers share resources.
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No change in ownership. ownership on good.
 The Goods-Service Continuum
Pure goods Core goods Core services Pure services
Food products Automobiles with Beauty salons Teaching
Chemicals maintenance selling cosmetics Medical Advise
(printed) Books Heavy equipment Airlines selling Management
with full service duty-free Consulting
contracts merchandise Communication
Services
Transportation

Goods Services
Servitization

Servitization: a strategy of adding services to core products

with the intent to increase revenues and profits.

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 The Service Package
Physical resources
Sup- required to provide
porting service.
Facility

Data required to Facili- Goods purchased or

Infor-
provide efficient and tating consumed during
mation
customized service. Service Goods service.
Package

Explicit Implicit
Services Services
Intrinsic (essential) Extrinsic features of
features of service. service.
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 Service Process Matrix
Degree of interaction and customization
Low High
Service factory Service shop
Airlines Hospitals
Transportation Auto repair
Degree of labor intensity

Low Hotels
Resorts and
recreation
Mass service Professional service
Retailing Physicians
Wholesaling Lawyers
High Schools Architects

Different challenges for management 20

 Service Science in Research
Application Areas Journals
Sports and Entertainment Manufacturing & Service
Transportation Planning Operations Management
Reservation Management Service Science
Banking Services Flexible Services and
Health Care Management Manufacturing Journal
Workforce Scheduling Health Services Research
Journal of Service
Management
Journal of Service Research

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 Further Reading
Chapter 1 in Fitzsimmons, J.A., Fitzsimmons,
M.J., Bordoloi, S.K. (2014) Service
Management, 8th edition, McGraw-Hill.
Fromm, H., Cardoso, J. (2015) Foundations, in:
Cardoso et al. (eds.) Fundamentals of service
systems, Springer.

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 References
Manyika, J. et al. (2010) How to compete and
grow: a sector guide to policy. Technical
report, McKinsey Global Institute.
Hill, P. (1977) On goods and services. Review
of Income and Wealth 23:31538.

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