1

Role of Service in an
Economy
Welcome to
Service Operations Management

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Learning Objectives
Describe

the central role of services in an economy.

Discuss

the evolution of an economy from an agrarian

society to a service society.

Describe

the features of preindustrial, industrial, and

postindustrial societies.

Describe

the features of the new service economy

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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

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Services Firm Role

Services

are not peripheral but form the integral part of

society
Success and profitability and profitability of manufacturing
firms dependent on services eg otis.
Discussion

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Stages of economic dev

Pre-industrial
agriculture

Industrial
Post

Society

industrial society

Natural

development
Mass consumption
Income increases

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Percent Service Employment for Selected Nations

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Trends in U.S. Employment by Sector

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Stages of Economic Development

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The New Experience Economy

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The Four Realms of an Experience

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Source of Service Sector Growth

Innovation

Push theory (e.g. Post-it)

Pull theory (e.g. Cash Management)
Services derived from products (Video Rental)
Information driven services

Social

Trends
Aging of the population
Two-income families
Growth in number of single people

The Nature of Services

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An Integrated Approach to Service Management

The Eight Components

Product Elements
Place, Cyberspace, and Time
Promotion and Education
Price and Other User Outlays
+ Process
+ Productivity and Quality
+ People
+ Physical Evidence
Require the Integration of Marketing, Operations, and Human
Resources

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Service/Product Bundle
Element

Core Goods
Example

Core Service
Example

Business

Custom clothier

Business hotel

Core

Business suits

Room for the night

Peripheral
Goods

Garment bag

Bath robe

Peripheral
Service

Deferred payment
plans

In house restaurant

Variant

Coffee lounge

Airport shuttle

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The Service Process Matrix

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The Service Package

Supporting

Facility: The physical resources that must be in

place before a service can be sold. Examples are golf
course, ski lift, hospital, airplane.

Facilitating

Goods: The material consumed by the buyer or

items provided by the consumer. Examples are food items,
legal documents, golf clubs, medical history.

Information:

Operations data or information that is provided

by the customer to enable efficient and customized service.
Examples are patient medical records, seats available on a
flight, customer preferences, location of customer to
dispatch a taxi.

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The Service Package (cont.)

Explicit

Services: Benefits readily observable by the senses.

The essential or intrinsic features. Examples are quality of
meal, attitude of the waiter, on-time departure.

Implicit

Services: Psychological benefits or extrinsic

features which the consumer may sense only vaguely.
Examples are privacy of loan office, security of a well lighted
parking lot.

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Distinctive Characteristics of Services

Customer

Participation in the Service Process: attention to

facility design but opportunities for co-production

Simultaneity:

opportunities for personal selling, interaction

creates customer perceptions of quality

Perishability:

cannot inventory, opportunity loss of idle

capacity, need to match supply with demand

Intangibility:

creative advertising, no patent protection,

importance of reputation

Heterogeneity:

customer participation in delivery process

results in variability

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Strategic Service Classification (Nature

of the Service Act)

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Strategic Service Classification

(Method of Service Delivery)

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Village Volvos Service Package

Supporting

Facility

Facilitating

Goods

Information
Explicit

Services

Implicit

Services

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Village Volvos Distinctive Service

Characteristics
Intangibility
Perishability
Heterogeneity
Simultaneity
Customer

Participation in the Service Process

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Village Volvos Service Classification

Nature

of the service act

Relationship

with customers

Customization
Nature

and judgement

of demand and supply

Method

of service delivery

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Managing Village Volvo

How

could Village Volvo manage its back office (repair

operations) like a factory?

How

can Village Volvo differentiate itself from Volvo dealers?