1
1.Introductory lecture
TU-E2000
Aalto Introduction to Services
8.9.2015
•
The service economy
•
Services and the Productivity Problem
•
Definition of services
Paul Lillrank
Professor
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
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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)
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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, 2008
SERVICE DEMAND INCREASES
type
share %
1875
share %
1995
Income elasticity of
demand
Food
49
5
0.2
Clothing
12
2
0.3
Housing
13
6
0.7
Healthcare
1
9
1.6
Education
1
5
1.6
Other
6
7
1.1
Leisure
18
66
1.5
100
100
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PRODUCTIVITY: GETTING MORE WITH LESS
INPUT
OUTPUT
•
labour
•
capital
•
products
•
services
•
knowledge
•
processes
PRODUCTION
SYSTEM
THE PRODUCTIVITY OF EDUCATION?
RICHNESS
(Quality)REACH
(Volume, coverage) Sokrates teaches Platon Sokrates gives a lecture Sokrates writes a book Sokrates produces a TED-talk9
SERVICE PRODUCTIVITY GROWTH HAS BEEN SLOW
Change in input-output ratio from previous year, %. Source: Statistics Finland, 24.8.2011 VM/KO
In public services growth has been mostly negative (Finland)
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010* Central
government 2,8 -1,4 -2,1 0,0 1,0 0,9 -1,9 1,3 -2,0 2,2
Municipalities
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THE BAUMOL’S DISEASE
Baumol, William J.: Macroeconomics of Unbalanced Growth: The Anatomy of Urban Crisis. The American Economic
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
-
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)
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SERVICE EVENTS AND SERVICE PRODUCTION SYSTEMS
ARE DIFFERENT
Customer Co-created value Producer Preparations Resources Co-created valueSERVICE
EVENT
SERVICE
PRODUCTION
SYSTEM
• Value and quality depends on time, attention, skills, …
-Teaching, vacations, therapy,…
• Productivity can be improved by technical innovations
- Surgery medication
Info
System productivity improvement:
• Smart IT, coordination
• Integration
• Processes
• Preparations
• Self-service Service Science on Baumol’s Disease:
Line of visibility
Back office
IS MOBILE TELEPHONY A PRODUCT OR A SERVICE?
Handset
marketer
Brand mg., marketing, telecom networkNetwork
operation
Telecom operator
Network
equipment
maker
Contract
manufacturers
Finance
company
sells to leases equipment to buys manufacturing as a service from buys component manufacturing as a service fromVirtual network
performs for toBPO
outsources back office toDesign
contractsConsumer
sells to subscription subscriptionNetwork
maintenance
leases capacity from directed at outsources sells toEngineering
consultants
sells as service sells to billing system local subcontractors15
THE IHIP -DEFINITION OF SERVICES
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
INTANGIBILE
HETEROGENEOUS
INSEPARABLE
PERISHABLE
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
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THE GOODS AND THE SERVICE DOMINANT LOGICS
PRODUCTION SYSTEM CONSUMPTION SYSTEM
Consumption
Co-creation
Outcome
value
GOODS –DOMINANT LOGIC
GDL
SERVICE –DOMINANT LOGIC
SDL
“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)
Exchange
Production
Resources
PRODUCTION SYSTEM CONSUMPTION SYSTEMTHE 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.
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RESOURCE INTEGRATION AND IHIP
Producer resources & capabilities:
PERISHABLE
- Customer requests activate resources
- Unused resource perishes
- Capacity & demand management
Customer resources:
HETEROGENEOUS
- Variety reduction / absorption
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
BOUNDARIES ARE NOT CLEAR
Doctor
does
Patient
does
Degree of cocreation
Emergency Elective Cure Care Prevention
Goods and service components of an offering
Goods
only
Pure
service
Production system
Closed Open21
GOODS OR SERVICE –DOMINANT LOGIC?
GOODS –DOMINANT LOGIC
SERVICE DOMINANT LOGIC
Closed system Open system
Standard processes Routine processes
Identical copies of prototype Each service event is designed Inventory management Capacity management
Value stream additive Value stream includes multiples Value resides in product Value resides in process
Design service for promotional campaign Marketing management agency
P ro v id e r p ro c e s s l a y e r S h a re d p ro c e s s l a y e r C li e n t p ro c e s s l a y e r Identifies campaign need Prepares description of campaign needs Gathers information to back up briefing BRIEFING Client presents campaign initiative Provides a form to structure client’s presentation ANALYSIS of information: main idea & goals
Conducts research on consumers and competitors Are goals realistic? DEBRIEFING 0 Feedback to client DESIGN Develops the creative idea Agreeable initiative found? DESIGN Develops suggestion for media mix Revises initiative no yes yes no DEBRIEFING 1 Provider present’s interpretation of client’s briefing Customer accepts DEBRIEFING 2 Provider presents main idea no yes Customer accepts DEBRIEFING 3 Provider presents media mix yes Customer accepts Consults customer’s media agency yes Plans campaign production Manages creative production Customer accepts Presents materials to client Plans and negotiates production Executes campaign yes Manages production network no Redirects creative production Gathers information on campaign results Client provides feedback to provider Customer is satisfied Discussion about relationship future? no yes no no
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THE DEVELOPMENT PATHS OF SERVICES
PROFESSIONALISM
IN TRANSFORMATIONS
• skills • processes • tools • techniques • facilities • professional ethics • regulatory framework LOW HIGHCOMMERCIALISM IN TRANSACTIONS
• Objectification, monetary exchange, costing & pricing, quality, brands,
profit, contracts, revenue models, service level agreements (SLA), …
LOW HIGH
