Advances in Services Innovations

Dieter Spath · Klaus-Peter Fähnrich (Eds.) Advances in Services Innovations Dieter Spath · Klaus-Peter Fähnrich (Eds...

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Dieter Spath · Klaus-Peter Fähnrich (Eds.) Advances in Services Innovations

Dieter Spath · Klaus-Peter Fähnrich (Eds.)

Advances in Services Innovations With 106 ﬁgures and 11 tables

123

Professor Dr.-Ing. Dieter Spath IAT Institut für Arbeitswissenschaft und Technologiemanagement Universität Stuttgart Nobelstraße 12 70569 Stuttgart Professor Dr.-Ing. habil. Dipl.-Math. Klaus-Peter Fähnrich IfI Institut für Informatik Universität Leipzig Augustusplatz 10–11 04109 Leipzig

Library of Congress Control Number: 2006934195 ISBN-10 3-540-29858-4 Springer Berlin Heidelberg New York ISBN-13 978-3-540-29858-8 Springer Berlin Heidelberg New York This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, speciﬁcally the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microﬁlm or in any other way, and storage in data banks. Duplication of this publication or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its current version, and permission for use must always be obtained from Springer. Violations are liable for prosecution under the German Copyright Law. Springer is a part of Springer Science+Business Media springer.com © Springer-Verlag Berlin Heidelberg 2007 The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply, even in the absence of a speciﬁc statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Typesetting by the authors using a Springer TEX macro package Production by LE-TEX Jelonek, Schmidt & Vöckler GbR, Leipzig Cover design by deblik Berlin SPIN 11573623

7/3100YL - 5 4 3 2 1 0

Printed on acid-free paper

Preface Developing innovative services and launching them successfully in international markets – these are major challenges for enterprises and national economies which aim to benefit from the opportunities of the service sector by achieving more growth and employment. Those enterprises and sites which succeed in creating “a special service experience” by offering outstanding service solutions and by excellent performance in service delivery to the customer will be successful in competition. Nevertheless, it is exactly the current discussion about innovation, particularly in Germany, which reveals that we do not primarily suffer from a lack of good ideas but rather that the translation of new findings and ideas into new services, products and processes must be substantially improved. All in all, it is obviously very urgent to increase innovative ability and to accelerate the speed of innovation. Progress on this path can be accelerated if science and research increasingly face up to the challenges of how to improve innovative power in the service sector. In my opinion, service innovations address very different fields of innovation such as, for example, linking not only new technologies and services, performance and process innovations, but also market-related innovations, for example, for the establishment of new distribution channels. On the one hand, distinct improvements have occurred in the past few years with regard to the willingness to also invest in research and development in the domain of services in order to meet these challenges and, on the other hand, the boundaries of the research disciplines are more and more often transcended for an interdisciplinary and international cooperation and for a holistic view. Accordingly, the international workshops at the Fraunhofer Institute for Industrial Engineering (IAO) in Stuttgart were not only an attempt to devise a roadmap for future R&D activities but also to present different views of the challenges of improving innovative ability in the service sector from the point of view of various disciplines of research – ranging from service marketing and management to service engineering. This book documents many of the opinions presented by the experts during these workshops and as such will hopefully provide valuable input to the community. Stuttgart, Summer 2006 Hans-Jörg Bullinger, President of Fraunhofer - Gesellschaft, Germany

Table of Content Preface ...................................................................................................................V

I

Service Engineering

Service Engineering: State of the Art and Future Trends Klaus-Peter Fähnrich, Thomas Meiren ....................................................................3 The Palm/Erlang-A Queue, with Applications to Call Centers Avishai Mandelbaum, Sergey Zeltyn ....................................................................17 The Design and Development of Industrial Service Work Holger Luczak, Christian Gill and Bernhard Sander .............................................47 An Engineering Tool for the Conceptual Design of Service Systems Reuven Karni, Maya Kaner ...................................................................................65 Integrated Development of Software and Service Dieter Spath, Christian van Husen, Kyrill Meyer, Romy Elze ..............................85

II

Service Management

From Service Management towards Service Competence Urs Fueglistaller...................................................................................................113 Innovation and Learning in Services - The Involvement of Employees Jon Sundbo...........................................................................................................131 Managing Service Networks’ Success Heiner Evanschitzky, Dieter Ahlert .....................................................................151 Success Factors in New Service Development and Value Creation through Services Bo Edvardsson, Anders Gustafsson, Bo Enquist .................................................165

III

Service Marketing

Sustainable Advantages in Service Industries Thorsten Posselt, Pablo Berger ............................................................................187 Satisfaction Measurement within the Customer Relationship Life Cycle Bernd Stauss, Matthias Gouthier, Wolfgang Seidel.............................................205

VIII

IV

Sustainable Service Research

Strengthening the Services Sector – Needs for Action and Research Walter Ganz.........................................................................................................223 Standardisation in the Service Sector for Global Markets Inka Mörschel, Hermann Behrens, Klaus-Peter Fähnrich, Romy Elze................257 Research and Development for a Sustainable Services Sector Veronika Pahl ......................................................................................................279 Future Research and Needs for Action Klaus Peter Fähnrich, Romy Elze........................................................................289 Index of Authors ................................................................................................307 Index ...................................................................................................................311

I Service Engineering

Service Engineering in Action: The Palm/Erlang-A Queue, with Applications to Call Centers Avishai Mandelbaum, Sergey Zeltyn Faculty of Industrial Engineering and Management, Technion, Haifa, Israel

1 Introduction.......................................................................................................18 2 Significance of abandonment in modelling and practice...............................20 3 Birth-and-death process representation .........................................................22 4 Operational measures of performance............................................................24 4.1 Practical measures: accounting for abandonment....................................24 4.2 Calculations: the 4CallCenters software..................................................24 4.3 A general approach for computing operational performance measures ..26 4.4 Relation between average wait and the fraction abandoning...................26 5 Parameter estimation in a call center environment .......................................27 6 Approximations.................................................................................................29 7 Applications to call centers ..............................................................................32 7.1 Erlang-A performance measures: comparison against real data..............32 7.2 Erlang-A approximations: comparison against real data .........................33 8 Some advanced features of 4CallCenters......................................................334 9 Some open research topics ...............................................................................36 9.1 Cost and revenue analysis .......................................................................36 9.2 Extending Erlang-A: human behavior .....................................................38 9.3 Extending Erlang-A: structure of modern call centers ............................40 9.4 Uncertainty in parameter values ..............................................................40 References.............................................................................................................41 Appendix: The Erlang-A queue: Useful formulae for the steady-state distribution and some performance measures ..........................................44

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Avishai Mandelbaum, Sergey Zeltyn

1 Introduction Service Engineering is a newly emerging scientific discipline. As we perceive it, it caters to operational service-challenges that arise in our post-industrial society. To this end, researchers in the area develop scientifically-based engineering principles and tools, often culminating in software, which support the design and management of service operations. Moreover, a multi-disciplinary approach is called for in order to balance service quality and efficiency, from the likely conflicting perspectives of customers, service-providers, managers and society. In our research, and clearly biased by our scientific roots, we focus on methodologies from Operations Research (OR) and Statistics. See Pollock et al. [32] for various applications of OR to public services (including an abridged history of OR). An older, but still very relevant, is Larson's [23] excellent collection of OR applications in service industries. Readers are also referred to Fitzsimmons and Fitzsimmons [14] and Lovelock [24] for broad introductions to service-related disciplines, specifically Operations Management, Industrial Engineering, Information Technology, Marketing and Human Resource Management. In our contribution, we are concerned with Contact Centers. These are service organizations for customers who seek service via the phone, fax, e-mail, chat or other tele-communication channels. A particularly important type of contact centers are Call Centers, which predominantly serve phone calls. Due to advances in Information and Communication Technology, the number, size and scope of contact/call centers, as well as the number of people who are employed there or use them as customers, grows explosively. Indeed, in the U.S. alone, the call center industry is estimated to employ several million agents that, in fact, outnumber agriculture. In Europe, the number of call center employees in 1999-2000 was estimated, for example, by 600,000 in the UK (2.3% of the total workforce) and 200,000 in Holland (almost 3%) [5]. Bittner et al. [7] assess that, in Germany in 2001, there were between 300,000 to 400,000 (1-2%) employed in the call center industry. See Gans et al. [16] for a review of state-of-the-art research on telephone call centers. Mandelbaum [25] provides a comprehensive bibliography, namely references plus abstracts, of call-center-related academic papers. Finally, Cleveland and Mayben [12] and Helber and Stolletz [22] are textbooks (the latter in German) on the operations management and design of call centers. In a large performance-leader call center, many hundreds of agents could serve many thousands of calling customers per hour; agents' utilization levels exceed 90%, yet about 50% of the customers are answered immediately upon calling; callers who are delayed demand a response within seconds, the vast majority gets it, and few of the rest, say 1-2% of those calling, abandon during peak-congestion due to impatience. But most call centers are far from achieving such levels of operational performance. To these, scientific models are prerequisites for climbing the performance ladder.

The Palm/Erlang-A Queue, with Applications to Call Centers

lost calls retrials arrivals

retrials

19

agents

busy

1

ACD

1 2 3 queue k

abandonment

2 … n returns

lost calls Fig. 1. Schematic representation of a telephone call center

It will become clear below that call center operations can be naturally viewed as queueing systems. A particular mathematical queueing model, which we refer to as the Palm/Erlang-A model, is an appropriate starting point: it is basic enough to provide insight and be useful, yet it is complex enough to capture some central features in call center operations. The Palm/Erlang-A model is thus the main subject of our paper. Modelling a Call Center. A simplified representation of traffic flows in a call center is given in Fig. 1. Incoming calls form a single queue, waiting for service from one of n statistically identical agents. There are k + n telephone trunk-lines. These are connected to an Automatic Call Distributor (ACD) that manages the queue, connects customers to available agents, and also archives operational data. Customers arriving when all lines are occupied encounter a busy signal. Such customers might try again later (‘retrial’) or give up (‘lost call’). Customers who succeed in getting through at a time when all agents are busy (that is, when there are at least n but fewer than k + n customers within the call center) are placed in the queue. If waiting customers run out of patience before their service begins, they hang up (‘abandon’). After abandoning, customers might try calling again later while others are lost. After service, there are ‘positive’ returns of satisfied customers, or ‘negative’ returns due to complaints. Note that the model in Fig. 1 ignores multiple service types and skilled-based routing that are present in many modern call centers. However, a lot of interesting questions still remain open (see Section 9) even for models with homogeneous servers/customers. In basic models, the already simple representation in Fig. 1 is simplified even further. Specifically, in the present paper we assume that there are enough trunk-lines to avoid busy signals (k = f). This assumption prevails in today's call centers. In addition, we assume out retrials and return calls, which corresponds to absorbing them within the arrivals. (See, for example, Aguir et al. [2] for an analysis that takes retrials into account.) However, and unlike most models used in practice,

20

Avishai Mandelbaum, Sergey Zeltyn

here we do acknowledge and accommodate abandonment. The reasons for this will become clear momentarily.

2 Significance of abandonment in modelling and practice The classical M/M/n queueing model, also called the Erlang-C model, is the one most frequently used in workforce management of call centers. Erlang-C assumes Poisson arrivals at a constant rate Ȝ, exponentially distributed service times with a rate µ, and n independent statistically-identical agents. (Time-varying arrival rates are accommodated via piecewise constant approximations.) But Erlang-C does not allow abandonment. This, as will now be argued, is a significant deficiency: customer abandonment is not a minor, let alone a negligible, aspect of call center operations. We now support this last statement, first qualitatively and then quantitatively. x Abandonment statistics constitute the only ACD measurement that is customersubjective: those who abandon declare that the service offered is not worth its wait. (Other ACD data, such as average waiting times, are ‘objective’; they also do not include the only other customer-subjective operational measures, namely retrial/return statistics.) x Some call centers focus on the average waits of only those who get served, which does not acknowledge abandoning customers. But under such circumstances, the service-order that optimizes performance is LIFO = Last-In-FirstOut [17], which clearly suggests that a distorted focus has been chosen. x Ignoring abandonment can cause either under- or over-staffing: On the one hand, if service level is measured only for those customers who reach service, the result is unjustly optimistic - the effect of an abandonment is less delay for those further back in line, as well as for future arrivals. This would lead to under-staffing. On the other hand, using workforce management tools that ignore abandonment would result in over-staffing as actually fewer agents are needed in order to meet most abandonment-ignorant service goals. The Palm/Erlang-A model: Palm [31] introduced a simple (tractable) way to model abandonment. He suggested to enrich Erlang-C (M/M/n) in the following manner. Associated with each arriving caller there is an exponentially distributed 1 patience time with mean T . An arriving customer encounters an offered waiting time, which is defined as the time that this customer would have to wait given that her or his patience is infinite. If the offered wait exceeds the customer's patience time, the call is then abandoned, otherwise the customer awaits service. The patience parameter ș will be referred to as the individual abandonment rate. (We shall omit ‘individual’, when obvious.) We denote this model by M/M/n + M, and refer to it as Palm/Erlang-A, or Erlang-A for short. Here the A stands for Abandonment, as well as for the fact that the model interpolates between Erlang-C and

The Palm/Erlang-A Queue, with Applications to Call Centers

21

Erlang-B. (The latter is the M/M/n/n model, in which there are n trunk lines (k = 0), hence customers that cannot be served immediately are blocked.) Delay probability

Average wait

Fig. 2. Comparison between Erlang-A and Erlang-C 18,42] 48 calls per min., 1 min. average service time, 2 min. average patience

With Erlang-A, the quantitative significance of abandonment can be demonstrated through simple numerical examples. We start with Fig. 2, which shows the fraction of delayed customers and the average wait, when calculated via Erlang-C (M/M/n), and a corresponding Erlang-A (M/M/n + M) model. In both models, the arrival rate is 48 calls per minutes, the average service time equals 1 minute, and the number of agents is varied from 35 to 70. Average patience is taken to be 2 minutes for the Erlang-A model. Clearly, the two curves convey rather different pictures of what is happening in the system they depict, especially within the range of 40 to 50 agents: in particular, and as shown below, Erlang-C is stable only with 49 or more agents, while Erlang-A is always stable. The above M/M/n and M/M/n + M models are further compared in Table 1. Note that exponential patience with an average of 2 minutes gives rise to 3.1% abandonment. Then note that the average wait and queue length are both strikingly shorter with only 3.1% abandonment taking place. Indeed, ‘The fittest survive’ and wait less – much less. (Significantly, this high-level performance is not achieved if the arrival rate to the M/M/n system is decreased by 3.1%; for example, the ‘average speed of answer’ in such a case is 8.8 seconds, compared with 3.7 seconds. The reason is that abandonment reduces workload precisely when needed, namely when congestion is high.) Finally, note that system performance in such heavy traffic is very sensitive to staffing levels. In our example, adding 3 or 4 agents (from 50 to say 54) to M/M/n would result in M/M/n + M performance, as emerging from the horizontal distance between the graphs in Fig. 2. Nonetheless, since personnel costs are the major operational costs of running call centers (prevalent estimates run at about 60-75% of the total), even a 6-8% reduction in personnel is economically significant (and much more so for large call centers that employ thousands of agents).

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Avishai Mandelbaum, Sergey Zeltyn

Table 1. Comparing models with/without abandonment 50 agents, 48 calls per min., 1 min. average service time, 2 min. average patience

M/M/n Fraction abandoning Average waiting time 20.8 sec Waiting time's 90th percentile 58.1 sec Average queue length 17 Agents' utilization 96%

M/M/n + M 3.1% 3.7 sec 12.5 sec 3 93%

M/M/n, Ȝ p 3.1% 6.8 sec 28.2 sec 7 93%

As a final demonstration of the significance of abandonment, we now use it to explain a phenomenon that has puzzled queueing theorists: It is the observation that, in practice, simple deterministic approaches often lead to surprisingly good results. For example, consider a call center with averages of 6000 calls per hour and service time of 4 minutes. Such a call center gets an average of (6000: 60) · 4 = 400 minutes of work per minute. The deterministic approach then prescribes 400 service agents to cope with this load (1 agent-minute per 1 work-minute), which is a questionable recommendation according to standard queueing models. For example, Erlang-C would then be unstable, and its waiting times and queue-lengths would increase indefinitely. But now assume that customers abandon, as they actually do, and assign a reasonable parameter to their average patience, say equal to the average service time. Then, under Erlang-A, about 50% of the customers would be answered immediately upon calling, the average wait would be a mere 5 seconds, agents' utilization would be 98%, and all this at the cost of 2% abandonment – a remarkable performance indeed. (See the Remark in Section 6 for a more formal explanation.)

3 Birth-and-death process representation Figure 3 provides a representation of the traffic flows in Erlang-A, and a comparison with Fig. 1 clearly reveals its limitations. (Nevertheless, and as we hope to demonstrate, Erlang-A still turns out to be very useful and insightful, both theoretically and practically.) Erlang-A is characterized by 4 parameters: O , P ,T and n. Here Ȝ is the calling rate (calls per unit of time); µ is the service rate (1/µ is the average duration of service); 1/ș is the average patience of a customer; and n is the number of servers/agents. More formally, in the Erlang-A model customers arrive to the queueing system according to a Poisson (Ȝ) process. Customers are equipped with patience times W that are exp(ș), iid across customers. And service times are iid exp(µ). Finally, the processes of arrivals, patience and service are mutually independent.

The Palm/Erlang-A Queue, with Applications to Call Centers

23

agents 1

queue

arrivals

2 …

O

abandonment

n P

T

Fig. 3. Schematic representation of the Erlang-A model

For a given customer, the patience time W is the time that the customer is willing to wait for service – a wait that reaches W results in an abandonment. Let V denote the offered waiting time – the time a customer, equipped with infinite patience, must wait in order to get service. The actual waiting/queueing time then equals W = min {V, W} Denote by L(t) the number-in-system at time t (includes both customers being served and waiting in the queue). Then L {L (t ), t t 0} is a Markov birth-anddeath process, with the following transition-rate diagram:

0

O

P

O 1

P

O n-1

2

nP

O

O

nPT

n+1 n+2 nPT

n

Fig. 4. Transition-rate diagram of the Erlang-A model

An analysis of a birth-and-death process usually starts with verifying that it reaches steady-state (it always does, in our case), and it then continues with calculation of its limiting/steady-state distribution, defined by:

S j lim P{L(t ) t of

Alternatively,

Sj

j},

j

0,1, 2,...

(3.1)

can be characterized as the fraction of time that the system

spends in state j, when in steady-state. Formulae for the steady-state distribution of Erlang-A are presented in the Appendix.

24

Avishai Mandelbaum, Sergey Zeltyn

4 Operational measures of performance In order to understand and apply the Erlang-A model, one must first define its measures of performance, and then be able to calculate them. Moreover, since a call center can get very large (thousands of agents), the implementation of these calculations must be both fast and numerically stable. 4.1 Practical measures: accounting for abandonment

The most popular measure of operational (positive) performance is the fraction of served customers that have been waiting less than some given time, or formally P{W d T , Sr} , where W is the (random) waiting time in steady-state, {Sr} is the event ‘customer gets service’ and T is a target time that is determined by Management/Marketing. However, as explained before, performance measures must take into account those customers who abandon. Indeed, if forced into choosing a single number as a proxy for operational performance, we recommend the probability to abandon P{Ab}, the fraction of customers who explicitly declare that the service offered is not worth its wait. Some managers actually opt for a refinement that excludes those who abandon within a very short time, formally P{W > İ; Ab}, for some small İ > 0, e.g. İ = 3 seconds. The justification is that those who abandon within 3 seconds cannot be characterized as poorly served. There is also a practical rational that arises from physical limitations, specifically that such ‘immediate’ abandonment could in fact be a malfunction or an inaccuracy of the measurement devices. The single abandonment measure P{Ab} can be in fact refined to account explicitly for those customers who were or were not well-served. To this end, we propose the following four-dimensional service measure, given 2 parameters T and İ: x x x x

P{W d T; Sr} P{W > T; Sr} P{W > İ; Ab} P{W d İ; Ab} -

fraction of well-served; fraction of served, with a potential for improvement; fraction of poorly-served; fraction of those whose service-level is undetermined see the above for an elaboration.

Our proposed 4-component measure is not commonly used and most workforce management software tools are incapable of calculating it. To have it practical, we now describe how it can be implemented via the software tool 4CallCenters [15]. 4.2 Calculations: the 4CallCenters software

Black-box Erlang-A calculations, as well as many other useful features, are provided by the free-to-use software 4CallCenters [15]. (This software is being regularly upgraded.) The calculation methods are described in Appendix B of [18];

The Palm/Erlang-A Queue, with Applications to Call Centers

25

they were developed in the Technion's M.Sc. thesis of the first author, Ofer Garnett. Figure 5 displays a 4CallCenters output and demonstrates how to calculate the four-dimensional service measure, introduced in Subsection 4.1. The values of the four Erlang-A parameters are displayed in the middle of the upper half of the screen. Let T = 30 seconds and İ = 10 seconds. Then one should perform computations twice: with Target Time 30 and 10 seconds. (Both computations appear in Fig. 5.) We get: x P{W d T; Sr} x P{W > T; Sr} x P{W > İ; Ab} x P{W d İ; Ab} -

fraction of well-served is equal to 71.1%; fraction of served, with a potential for improvement is 16.4% (87.5% –71.1%); fraction of poorly-served is 8.6% (12.5% – 3.9%); fraction of those whose service-level is undetermined is 3.9%.

Note that the 4CallCenters output includes many more performance measures than those displayed in Fig. 5: one could scroll the screen to values of agents' occupancy, average waiting time, average queue length, etc. In Section 8 we describe several examples of the more advanced capabilities of 4CallCenters.

Fig. 5. 4CallCenters. Example of output

26

Avishai Mandelbaum, Sergey Zeltyn

4.3 A general approach for computing operational performance measures

Some explicit expressions of Erlang-A performance measures are provided in the Appendix. (See also Riordan [33].) However, we recommend to use more general M/M/n + G formulae, as the main alternative to 4CallCenters software. Indeed, Erlang-A is a special case of the M/M/n + G queue, in which patience times are generally distributed. A comprehensive list of M/M/n + G formulae, as well as guidance for their application, appears in Mandelbaum and Zeltyn [28]. The preparation of [28] was triggered by a request from a large U.S. bank. Consequently, this bank has been routinely applying Erlang-A in the workforce management of its 10,000 telephone agents, who handle close to 150 million calls yearly. The handout [28] also explains how to adapt the M/M/n + G formulae to Erlang-A, in which patience is exponentially distributed. Specifically, see Sections 1,2 and 5 of [28]. 4.4 Relation between average wait and the fraction abandoning

A remarkable property of Erlang-A, which in fact generalizes to other models with patience that is exp(ș), is the following linear relation between the fraction abandoning P{Ab} and average wait E[W]: P{Ab} = T E[W ]

(4.1)

Proof:

The proof is based on the balance equation

T E[Q ] O P{Ab} ,

(4.2)

and on Little's formula

E[Q ] O E[W ]

(4.3)

where Q is the steady-state queue length. The balance equation (4.2) is a steady-state equality between the rate that customers abandon the queue (left-hand side) and the rate that abandoning customers (i.e. – customers who eventually abandon) enter the system. Substituting Little's formula (4.3) into (4.2) yields formula (4.1). Figure 6 illustrates the relation (4.1). It was plotted using yearly data of an Israeli bank call center [11], which is analyzed in a Service Engineering course that is taught at the Technion [34, 11]. (See also Brown et al. 10 for statistical analysis of this call center data.) First, P{Ab} and E[W] were computed for the 4158 hour

The Palm/Erlang-A Queue, with Applications to Call Centers

27

intervals that constitute the year 1999. The left plot of Fig. 6 presents the resulting ‘cloud’ of points, as they scatter on the plane. For the right plot, we are using an aggregation procedure that is designed to emphasize dominating patterns. Specifically, the 4158 intervals were ordered according to their average waiting times, and adjacent groups of 40 points were aggregated (further averaged): this forms the 104 points of the second plot in Fig. 6. (The last point of the aggregated plot is an average of only 38 hour intervals.)

Fig. 6. Probability to abandon vs. average waiting time [10]

We observe a convincing linear relation (line) between P{Ab} and E[W]. Based on (4.1) and Fig. 6, the slope of this line is an estimate of the average patience, which here equals 446 seconds. In Brown et al. [10] and Mandelbaum et al. [30] it is shown that some M/M/n +M assumptions do not prevail for the data [11]. Although arrivals are essentially Poisson, the service times are not exponential (in fact, they are very close to being lognormal). Patience times were shown to be non-exponential either. Yet, Erlang-A is proved useful for the performance analysis, which we demonstrate further in Section 7. It is therefore important to understand the circumstances under which one can practically use simple relations that, theoretically, apply perhaps only to models with exponential patience. A recent paper of Mandelbaum and Zeltyn [27] addresses this question for (4.1), demonstrating that the linear relation is practically rather robust. See also [43] where we demonstrate a similar linear relation on another data set.

5 Parameter estimation in a call center environment In order to apply Erlang-A, it is necessary to input values for its four parameters: O , P ,T and n. Typical applications use estimates, which are based on historical ACD data, and here we briefly outline procedures for their estimation/prediction. For a more detailed exposition, including some subtleties that occur in practice, readers are referred to [10].

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Avishai Mandelbaum, Sergey Zeltyn

Arrivals: Arrivals of incoming calls are typically assumed Poisson, with timevarying arrival rates. The goal is to estimate/predict these arrival rates, over short time-intervals (15, 30 minutes or one hour), chosen so that the rates are approximately constant during an interval. Then the time-homogeneous model is applied separately over each such interval. The goal can be achieved in two stages. First, time-series algorithms are used to predict daily volumes, taking into account trends and special days (eg. holidays, ‘Mondays’, special sales). Second, one uses (non)parametric regression techniques for predicting the fraction of arrivals per time-interval, out of the daily-total. This fraction, combined with the daily total, yields actual arrival rates per each timeinterval. (See Section 4 in [10] for a detailed treatment.) Services: Service durations are assumed exponential. Average service times tend to be relatively stable from day to day and from hour to hour. (However, they often change depending on the time-of-day! See [10].) In practice, service consists of several phases: mainly talk time, wrap-up time (after-call work), and what is sometimes referred to as auxiliary time. An easierto-grasp notion is thus ‘idle-time’, namely the time that an agent is immediately accessible for service. It is thus also possible to estimate the average service time during a time interval by:

Total Working Time - Total Idle Time , Number of Served Customers where Total Working Time is the product of the Number of Agents by the Interval Duration. (See Adler et al. [1] for an application of this approach, in the context of product development.) Number of agents: In performance analysis, the number of agents n is an Erlang-A input. In staffing decisions, n is typically an output. In both cases, n is in fact the needed number of FTE's (Full Time Equivalent positions), and hence it must be normalized by the rostered staff factor (RSF), or shrinkage factor, which accounts for absenteeism, unscheduled breaks, etc. (See Cleveland and Mayben [12].) For example, if 100 agents are required for answering calls, in fact more agents (105, 110,}) should be assigned to shift, depending on RSF. Patience: (Im)patience time is assumed exponential, say exp(ș). One must then estimate the individual abandonment rate ș, or equivalently, the average patience (1/ș). A difficulty arises from the fact that direct observations are censored – indeed, one can only measure the patience of customers who abandon the system before their service began. For the customers receiving service, their waiting time in queue is only a lower bound for their patience. There are statistical methods for ‘un-censoring’ data; see [10]. Another, more basic problem for estimating ș, is that most ACD data contain only averages, as opposed to call-by-call statistics that are required by the available ‘uncensoring’ methods. To this end, we suggest here two methods for estimating average patience. The first is based on the relation (4.1) between the probability to abandon and average wait. The average wait in queue, E[W], and the fraction of customers abandoning, P{Ab}, are in fact stan-

The Palm/Erlang-A Queue, with Applications to Call Centers

29

dard ACD data outputs, thus, providing the means for estimating ș as follows:

Tˆ

P{Ab} E[W ]

% Abandonment . Average wait

A second more general approach is to calculate some performance measure (see Section 4) and compare the result to the value derived from ACD data. (This approach is applied in [10].) The goal is to calibrate the patience parameter until these estimates closely match. One advantage of this method is the flexibility in choosing the performance measure being matched, which might depend on the given ACD data. Furthermore, this calibration represents a form of validation of the model's assumptions, and can compensate for discrepancies.

6 Approximations Although exact formulae for the Erlang-A system are available and can be incorporated in software (see Sections 3 and 4) they are too complicated for providing guidelines and insights to call center researchers and managers. Consequently, some useful and insightful approximations have been developed, which we now describe. It has been found useful to distinguish three operational regimes, as in Garnett et al. [18] and Zeltyn and Mandelbaum [43]. Each regime represents a different philosophy for operating a call center. One regime is Efficiency-Driven (ED), another is service Quality-Driven (QD), and the third one rationalizes efficiency and quality, namely it is Quality and Efficiency-Driven (QED). We are interested mainly in not-too-small call centers. Hence, we think of the service and abandonment rates, µ and ș, as fixed, and the arrival rate Ȝ is large enough (formally, it increases indefinitely). Actually, the regimes are determined by the offered load parameter R, which is defined as

R

O ; R represents the amount of work, measured in time-units of P

service, that arrives to the system per unit of time. ( R

O P1

is thus a more tell-

ing representation.) R is also the staffing level n that would be prescribed by the deterministic approach (see the end of Section 0), which ignores stochastic variability. An emphasis of efficiency (service quality) would conceivably lead to n < R (n > R); the deviation of n from R then increases with the intensity of the emphasis. We now proceed with a formal description of the three operational regimes. QED (Quality and Efficiency-Driven) regime

n| RE R ,

f E f;

(6.1)

30

Avishai Mandelbaum, Sergey Zeltyn

ȕ is a service-grade parameter – the larger it is, the better is the service-level. The staffing regime, described by (6.1), is governed by the so-called Square Root Rule. This rule was already described by Erlang [13], as early as 1924. He reported that it has been in use at the Copenhagen Telephone Company since 1913. A formal QED analysis for the Erlang-C queue appeared only in 1981, in the seminal paper of Halfin and Whitt [19]. (The service grade ȕ must be positive in this case.) Garnett et al. [18] explored Erlang-A in the QED regime and Zeltyn and Mandelbaum [43] treated the M/M/n + G queue with a general patience distribution. (With abandonment, ȕ can be also 0 or negative.) In the QED regime, the delay probability P{W > 0} converges to a constant that is a function of the service grade ȕ and the ratio P / T (or 1/ T , which is average 1/ P patience that is measured in units of average service time). The probability to abandon and average wait vanish, as O , n n f , at rate 1 . Formulae for differn ent performance measures can be found in [18] or [28]. It is significant and useful to mention that the QED approximations are often valid over a wide range of parameters, from the very large call centers (1000's of agents) to the moderate-size ones (10's of agents).

Fig. 7. Asymptotic relations between service grade and delay probability

Figure 7 illustrates the dependence between ȕ and P{W > 0}, for varying values of the ratio P / T . In addition, we plotted the curve for the Erlang-C queue, which is meaningful for positive ȕ only. Note that for large values of P / T (very patient customers) the Erlang-A curves get close to the Erlang-C curve.

The Palm/Erlang-A Queue, with Applications to Call Centers

31

Remark. When ȕ = 0 in (6.1), the staffing level corresponds to the simple rule that does not take into account stochastic considerations: assign the number of agents equal to the offered load O / P . In Erlang-C, this ‘naive’ approach would lead to system instability. However, in Erlang-A (which is a much better fit to the real world of call centers than Erlang-C) one would get a reasonable-to-good performance level. For example, if the service rate µ is equal to the individual abandonment rate ș and ȕ = 0 then 50% of customers would get service immediately upon arrival. (Check it in Fig. 7. Note that for Erlang-C, 50% delay probability corresponds to ȕ = 0.5.) This suggests why some call centers that are managed using simplified deterministic models, actually perform at reasonable service levels. (One obtains the ‘right answer’ from the ‘wrong reasons’.) The QED regime enables one to combine high levels of efficiency (agents' utilization close to 100%) and service quality (agents' accessibility). The scatterplots in Fig. 8 illustrate this point. The plots display data from ACD reports of two call centers: Italian and American, collected in half-hour intervals during a single working day. The service grade ȕ is calculated via

E

nR . R

We observe moderate-to-small values of abandonment for the service grade

1 d E d 2 . Plots of average waiting time exhibit a similar behavior – see [29]. U.S. data

Italian data

Fig. 8. Service grade for call centers - correlation with abandonment

ED (Efficiency-Driven) regime

n | R (1 J ),

J ! 0.

(6.2)

In this case, virtually all customers wait, the probability to abandon converges to J and average wait is close to J / T . (See Mandelbaum and Zeltyn [28] for additional performance measures.) This regime could be used if efficiency considerations are of main significance. Indeed, it has gained importance in recent re-

32

Avishai Mandelbaum, Sergey Zeltyn

search (see, for example, few papers of Whitt [37, 41]), following the observation that ED could yield performance that is acceptable for many call centers, for example those operating in not-for-profit environments. QD (Quality-Driven) regime

n | R (1 J ),

J ! 0.

(6.3)

The staffing regime (6.3) should be implemented if quality considerations far dominate efficiency considerations (e.g. high-valued customers or emergency phones). Major performance measures (delay probability, fraction abandoning, average wait) vanish here at an exponential rate in n. Remark. Above, we considered steady-state performance measures. Processlimit results for the number-in-system process L = {L(t), t t 0} are available for the QED and ED regimes in Garnett et al. [18] and Whitt [37], respectively.

7 Applications to call centers 7.1 Erlang-A performance measures: comparison against real data

We now validate the Erlang-A model against the hourly data for the Israeli bank call center, already used for the example in Section 4. Three performance measures are considered: probability to abandon, average waiting time and delay probability. Their values are calculated for the hourly intervals using exact Erlang-A formulae. Then the results are aggregated along the same method employed in Fig. 6. The resulting 86 points are compared against the line y = x: the better the fit the better Erlang-A describes reality. Computation of the Erlang-A parameters. Parameters Ȝ and µ are calculated for every hourly interval. We also calculate each hour's average number of agents n. Because the resulting n's need not be integral, we apply a continuous extrapolation of the Erlang-A formulae, obtained from relationships developed in [31]. Finally, for ș we use formula (4.1). The results are displayed in Fig. 9. The figure's two left-hand graphs exhibit a relatively small yet consistent overestimation with respect to empirical values, for moderately and highly loaded hours. The right-hand graph shows a very good fit everywhere, except for very lightly and very heavily loaded hours. The underestimation for small values of P{W > 0} can be probably attributed to violations of work conservation (idle agents do not always answer a call immediately). Summarizing, it seems that these Erlang-A estimates can be used as close upper bounds for the main performance characteristics of our call center.

The Palm/Erlang-A Queue, with Applications to Call Centers

33

Fig. 9. Erlang-A formulae vs. data averages [10]

7.2 Erlang-A approximations: comparison against real data

In Section 6 we discussed approximations of various performance measures for the Erlang-A (M/M/n + M) model. Such approximations require significantly less computational effort than exact Erlang-A formulae. Figure 10, based on the same data as Fig. 9, demonstrates a good fit between data averages and the approximations. In fact, the fits for the probability of abandonment and average waiting time are somewhat superior to those in Fig. 9 (the approximations provide somewhat larger values than the exact formulae). This phenomenon suggests two interrelated research questions of interest: explaining the overestimation in Fig. 9 and better understanding the relationship between Erlang-A formulae and their approximations.

Fig. 10. Erlang-A approximations vs. data averages [10]

The empirical fit of the simple Erlang-A model and its approximation turns out to be very (perhaps surprisingly) accurate. Thus, for the call center in considera-

34

Avishai Mandelbaum, Sergey Zeltyn

tion – and those like it – use of Erlang-A for workforce management could and should improve operational performance.

8 Some advanced features of 4CallCenters The 4CallCenters software [10] provides a valuable tool for implementing ErlangA calculations. Its basic feature is ‘Performance Profiler’ that enables calculation of all the useful performance measures, given the four Erlang-A parameters as input. In addition, 4CallCenters allows many advanced options: staffing queries, graphs, export and import of data and more. Here we demonstrate, as an example, two advanced capabilities of 4CallCenters. Example 1: Advanced profiling: One can vary any input parameters of the Erlang-A queue and display the corresponding model output (performance measures) either in a table or graphically. For example, let the average service time equal 2 minutes and average patience 3 minutes. Let the arrival rate vary from 40 to 230 calls per hour, in steps of 10, and the number of agents from 2 to 12. Then one can immediately produce a table that contains values of different performance measures for all combinations of the two input parameters. Probability to abandon

Average wait

Fig. 11. 4CallCenters. Advanced profiling

Figure 11 shows the dependence of the probability to abandon and average wait on different number of agents. Note that the two plots look identical: the reason is relation (4.1). In addition, the red curves on both plots in Fig. 11 illustrate Economies of Scale (EOS): while offered load per server remains constant along this

The Palm/Erlang-A Queue, with Applications to Call Centers

35

O 2 , performance significantly improves as the number of agents innP 3 creases. For example, the probability to abandon is equal to 13.7% for n = 2, 5.1% for n = 5 and 1.5% for n = 12. Finally, note that both P{Ab} and E[W] actually vanish as n gets large. curve

Example 2: Advanced staffing queries: 4CallCenters enables staffing queries with several performance goals. For example, assume that the average service time is equal to 4 minutes, and average patience is 5 minutes. Our goal is to calculate appropriate staffing levels for arrival-rate values that vary from 100 to 1200, in steps of 50. The performance targets are:

x Probability to abandon less than 3%; x 80% of customers served within 20 seconds.

Fig. 12 presents the screen output of 4CallCenters.

Fig. 12. 4Callcenters. Advanced staffing queries

The first plot of Fig. 13 displays the minimal staffing level that adheres to both goals. The EOS phenomenon is observed here as well: 10 agents are needed for 100 calls per hour but only 83 (rather than 10 12 120 ) for 1200 calls per hour. (Despite its look, the curve in the first plot is not a straight line.) The second plot displays the values of the two target performance measures. (This plot, unlike the

36

Avishai Mandelbaum, Sergey Zeltyn

first one, is not an immediate output graph of 4CallCenters but rather an edited version of it.) Remark. Since the number of agents must be an integer, we observe performance ‘zigzags’ in the right plot of Fig. 13.

Fig. 13. 4CallCenters. Dynamics of staffing level and performance

9 Some open research topics Here we discuss some important extensions of the models and methods presented above. We elaborate on several topics that are directly relevant to our current research, while others are only briefly reviewed. See Gans et al. [16] for an extensive review on research prospects in the area of call centers. 9.1 Cost and revenue analysis

One can search for an optimal staffing level, given the trade-off between staffing cost, cost of customers' waiting and cost of abandonment. Borst et al. [8] referred to this problem as dimensioning and solved it for the Erlang-C queue (no abandonment): if the staffing cost and the cost of waiting are comparable, the optimal staffing should take place in the QED regime, described in Section 6 (with positive ȕ in formula (6.1)). Ongoing research by Borst et al. [9] is dedicated to the same question for the Erlang-A queue. For example, let the average operational cost (per unit of time) be equal to

The Palm/Erlang-A Queue, with Applications to Call Centers

37

U (n, O ) c n O a P{Ab} , where c is the staffing cost, and a is the abandonment cost. Our goal is to minimize cost. (Note that this is in fact mathematically equivalent to maximizing revenues.) Define the abandonment/staffing cost ratio by r a / c , and let

s P /T .

Assume that a ! c / P . (Otherwise, the asymptotic optimal policy is n* = 0: not to provide service at all.) Then we suggest that the asymptotic optimal staffing level is equal to

n*

ª R y* ( r ; s ) R º , ¬ ¼

(9.1)

where the square brackets in (9.1) denote the nearest integer value and the func* tion y () is defined by

and h() I () /(1 ) ()) is the hazard rate of the standard normal distribution ( I () is its density function and ) () is the cumulative distribution function). As in [8], Fig. 14 compares the rule (9.1) with the exact optimal staffing values. We consider five exponential patience distributions with different means and perform comparisons by varying the value of the ratio r. A perfect fit is observed for all the special cases! Arrival rate Ȝ = 100, service rate µ = 1. Small patience means

Large patience means

Fig. 14. Cost optimization. Approximation vs. exact optimum

38

Avishai Mandelbaum, Sergey Zeltyn

Numerical experiments for other cost optimization problems (e.g. with waiting cost, instead of abandonment cost) also demonstrate a very close correspondence between exact values and the corresponding analogs of (9.1). Hence the goal is to develop a theoretical framework, parallel to [8], that will support our experimental research. In addition, we are working on a constraint satisfaction version where one chooses the least number of agents that adheres to a given constraint on the waiting and/or the abandonment cost. This latter formulation is in fact closer to the way that managers perceive their staffing problems in practice. A more general analysis of revenues and costs should combine call-by-call data (for example, waiting and service times) and Customer Relationship Management data, where customers’ transactions are recorded (e.g. purchasing information). Hopefully, this kind of research will provide insight on the interaction of service experience and marketing behavior of customers. 9.2 Extending Erlang-A: human behavior Non-exponential patience. The Erlang-A model assumes exponential iid patience times that do not depend on the state of the system, time-of-day, etc. In practice, these assumptions are not always valid. In Fig. 15, we display estimates of the hazard rates of the customers' patience for two banks: a large U.S. bank and a small Israeli one. In the two cases we observe different, but clearly non-exponential patterns. (Recall that the hazard rate of an exponential random variable is a constant.) American customers are very impatient at the beginning of their wait, but their patience stabilizes after approximately 10 seconds. In contrast, Israeli customers have two clear peaks of abandonment: approximately at 15 and at 60 seconds. (It turns out that these two surges of abandonment take place immediately after two recorded messages to which customers are exposed: the first one when they enter the queue and the second after approximately one minute.)

American bank

Fig. 15. Bank data: hazard rates of patience times

Israeli bank

The Palm/Erlang-A Queue, with Applications to Call Centers

39

Therefore, at least in some applications customers' patience times are nonexponential and applicability of the Erlang-A formulae to such systems should be studied. (Recall Section 7.) Zeltyn and Mandelbaum [43] study the M/M/n+G model with generally distributed patience times, providing both a convenient framework for exact calculations and approximations for the three operational regimes defined in Section 6. Whitt [40] provides approximations for the M/G/n+G queue with general service and patience distributions. (Exact formulae are not available for this model.) Patience index. In search for a better understanding of customers' (im)patience, we have found a relative definition to be of use. Specifically, we define the patience index to be

Theoretical Patience Index

time a customer is willing to wait time a customer is required to wait average patience E[W ] . average offered wait E[V ]

While this patience index makes sense intuitively, its calculation requires the application of survival analysis techniques to call-by-call data. Such data may not be available in certain circumstances. Therefore, we wish to find an empirical index that will work as an auxiliary measure for the patience index. We found the following to be a very useful definition:

Empirical Patience Index

% served . % abandoned

The empirical index is easily calculable since both the numbers of served and of abandoned calls are very easy to obtain from call-center reports.

Fig. 16. Patience index – empirical vs. theoretical [10]

40

Avishai Mandelbaum, Sergey Zeltyn

Figure 16 demonstrates how well the empirical patience index estimates the theoretical patience index for the Israeli bank data [10]. (Aggregated data of 68 quarter hours between 7 a.m. and midnight is used.) Under certain circumstances, one can explain the closeness of the theoretical and empirical indices [10]. However, these explanations are unsatisfactory and hence leave open this research direction. Adaptive behavior. In Zohar at al. [44] and Mandelbaum and Shimkin [26, 35], the authors analyze models for an adaptive behavior of tele-customers, which ‘tune’ their patience according to anticipated or perceived systems congestion. Data from the call center of our Israeli bank supports the applicability of these models, but more is to be done in this direction. 9.3 Extending Erlang-A: structure of modern call centers

As we mentioned in Section 1, the Erlang-A model ignores some important features of modern call centers. Below we discuss the following two central features. IVR and speech recognition. Many large call centers use Interactive Voice Response (IVR) units, which either provide full service to customers or perform its preliminary stage. Current development of speech recognition technologies increases the range of IVR-supported self-service, motivating the study of related models. See, for example, Srivasanan et al. 36] that analyze a two-station network model: IVR followed by an agent. Mandelbaum et al. [30] provides a description of IVR service-time distributions in a banking call center. However, research in this direction is still scarce and should be pursued. Skills-based routing (SBR) technology allows to distinguish between many types of calls and many skills of agents. It turns out that the asymptotic operational regimes, introduced in Section 6, can be analyzed in some SBR models. For example, Armony and Mandelbaum [3] and Armony et al. [4] explore two classical and basic SBR models in the QED regime. Bassamboo et al. [6] and Harrison and Zeevi [20] use ED-related approximations, which enable the analysis of very general models. See Gans et al. [16] for a detailed review on SBR technologies and related research. 9.4 Uncertainty in parameter values

In the real world, one hardly knows the exact values of the four Erlang-A parameters. Therefore, it is essential to study the sensitivity of the model's performance measures. In a recent paper [39], Whitt calculates elasticities in Erlang-A, which measure the percentage change of a performance measure caused by a small percentage change in a parameter. Both exact numerical algorithm and several types of approximations are used. It turns out that Erlang-A performance is quite sensitive to small changes in the arrival rate, service rate, or number of agents, but relatively insensitive to small changes in the abandonment rate.

The Palm/Erlang-A Queue, with Applications to Call Centers

41

In staffing planning, of which the number of agents is the output, it is reasonable to assume knowledge of the service rate. Thus, the problem of uncertainty in the arrival rate surfaces as the most significant. In Brown et al. [10] it was demonstrated that the Poisson arrival rate in an Israeli call center varies from day to day and its prediction raised statistical and practical challenges. This motivates the study of queueing models, in which the Poisson arrival rate / (the arrival-rate function) is a random variable (random process). If E( / ) o f and its standard deviation is of the order

E(/ ) , we expect

that the QED operational regime and the square-root staffing rule will play a role that is similar to the one with known (deterministic) arrival rate; the offered load R in (6.1) will be replaced by the average offered load E( / ) / P , and uncertainty will manifest itself through a different value of the service grade ȕ. However, if V (/ ) is of the order E (/ ) , the ‘cruder’ ED regime seems to be the most appropriate; see Whitt [0], and Bassamboo et al. [6].

References 1.

2.

3.

4.

5.

5. 7.

8.

Adler PS, Mandelbaum A, Nguyen V, Schwerer E (1995) From project to process management: An empirically-based framework for analyzing product development time. Management Science 41: 458–484 Aguir MS, Karaesmen F, Aksin OZ, Chauvet F (2004) The impact of retrials on call center performance. OR Spectrum, Special Issue on Call Center Management 26 (3): 353-376 Armony M, Mandelbaum A (2004) Design, staffing and control of large service systems: The case of a single customer class and multiple server types. Working paper, available at http://iew3.technion.ac.il/serveng/References/references.html Armony M, Gurvich I, Mandelbaum A (2004) Staffing and control of large-scale service systems with multiple customer classes and fully flexible servers. Working paper, available at http://iew3.technion.ac.il/serveng/References/references.html Bain P, Taylor P (2002) Consolidation, ‘Cowboys’ and the developing employment relationship in British, Dutch and US call centres. In: Holtgrewe U, Kerst C, Shire K (eds.), Re-Organising Service Work. Ashgate Publishing Limited, pp 42-62 Bassamboo A, Harrison JM, Zeevi A (2004) Design and control of a large call center: Asymptotic analysis of an LP-based method. Submitted for publication Bittner S, Schietinger M, Schroth J, Weinkopf C (2002) Call centres in Germany: Employment, training and job design. In: Holtgrewe U, Kerst C, Shire K (eds), ReOrganising Service Work. Ashgate Publishing Limited, pp 63-85 Borst S, Mandelbaum A, Reiman M (2004) Dimensioning large call centers. Operations Research 52 (1): 17-34

42 9. 10.

11. 12. 13.

14. 15. 16.

17.

18. 19. 20. 21. 22. 23.

24. 25. 26. 27.

28. 29.

Avishai Mandelbaum, Sergey Zeltyn Borst S, Mandelbaum A, Reiman M, Zeltyn S (2004) Dimensioning call centers with abandonment, in preparation Brown LD, Gans N, Mandelbaum A, Sakov A, Shen H, Zeltyn S, Zhao L (2002) Statistical analysis of a telephone call center: A queueing science perspective. Journal of the American Statistical Association (JASA) 100 (469): 36-50 Call Center Data (2002) Technion, Israel Institute of Technology, available at http://iew3.technion.ac.il/serveng/callcenterdata/index.html Cleveland B, Mayben J (1997) Call Center Management on Fast Forward. Call Center Press, Annapolis Erlang AK (1948) On the rational determination of the number of circuits. In Brockmeyer E, Halstrom HL, Jensen A (eds), The life and Works of A.K.Erlang. The Copenhagen Telephone Company, Copenhagen Fitzsimmons JA, Fitzsimmons MJ (2004) Service Management: Operations, Strategy and Information Technology. 4th edn., McGraw-Hill/Irwin 4CallCenters Software (2002), available at http://iew3.technion.ac.il/serveng/4CallCenters/Downloads.html Gans N, Koole G, Mandelbaum A (2003) Telephone call centers: a tutorial and literature review. Invited review paper, Manufacturing and Service Operations Management 5 (2): 79-141 Garnett O, Mandelbaum A (2000) An Introduction to Skills-Based Routing and its Operational Complexities. Teaching note, Technion, Israel, available at http://iew3.technion.ac.il/serveng2004/Lectures/SBR.pdf Garnett O, Mandelbaum A, Reiman M (2002) Designing a telephone call-center with impatient customers. Manufacturing and Service Operations Management 4: 208-227 Halfin S, Whitt W (1981) Heavy-traffic limits for queues with many exponential servers. Operations Research 29: 567-588 Harrison JM, Zeevi A (2004) A method for staffing large call centers using stochastic fluid models. To appear in Manufacturing and Service Operations Management Helber S, Mandelbaum A (2004) GIF Research Proposal Helber S, Stolletz R (2004) Call Center Management in der Praxis. Springer, Berlin Heidelberg New York, in German Larson RC (1988) Operations research and service industries. In: Guiles BR, Quinn JB (eds), Managing innovation: cases from the services industries. National Academy Press, Washington D.C., pp 115-143 Lovelock CG (1992) Managing Services: Marketing, Operations and Human Resources, Prentice-Hall Mandelbaum A (2003) Call Centers. Research Bibliography with Abstracts. Version 5, available at http://iew3.technion.ac.il/serveng/References/references.html Mandelbaum A, Shimkin N (2000) A model for rational abandonment from invisible queues. Queueing Systems: Theory and Applications (QUESTA) 36: 141-173 Mandelbaum A, Zeltyn S (2004) The impact of customers’ patience on delay and abandonment: Some empirically-driven experiments with the M/M/n + G queue. OR Spectrum, Special Issue on Call Center Management 26 (3): 377-411 Mandelbaum A, Zeltyn S (2004) M/M/n + G queue. Summary of performance measures, available at http://iew3.technion.ac.il/serveng/References/references.html Mandelbaum A, Zeltyn S (2004) The Palm/Erlang-A Queue, with Applications to Call Centers. Teaching note to Service Engineering course, available at http://iew3.technion.ac.il/serveng/References/references.html

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30. Mandelbaum A, Sakov A, Zeltyn S (2001) Empirical analysis of a call center. Technical report, Technion, available at http://iew3.technion.ac.il/serveng/References/references.html. 31. Palm C (1957) Research on telephone traffic carried by full availability groups. Tele, Vol. 1, 107 pp (English translation of results first published in 1946 in Swedish in the same journal, which was then entitled Tekniska Meddelanden fran Kungl. Telegrafstyrelsen.) 32. Pollock SM, Rothkopf MH, Barnett A (eds) (1994) Operations Research and the Public Sector. Handbooks in Operations Research and Management Science, Vol.6, NorthHolland 33. Riordan J (1962) Stochastic Service Systems, Wiley 34. ‘Service Engineering’ course website, Technion, available at http://iew3.technion.ac.il/serveng 35. Shimkin N, Mandelbaum A (2004) Rational abandonment from tele-queues: non-linear waiting costs with heterogeneous preferences, Queueing Systems: Theory and Applications (QUESTA) 47: 117-146 36. Srinivasan R, Talim J, Wang J (2004) Performance analysis of a call center with interactive voice response units. Sociedad de Estadistica e Investigacion Operativa Top 12 (1): 91-110 37. Whitt W (2004) Fluid models for many-server queues with abandonments. To appear in Operations Research 38. Whitt W (2004) Staffing a call center with uncertain arrival rate and absenteeism. Submitted to Management Science 39. Whitt W (2004) Sensitivity of performance in the Erlang A model to changes in the model parameters. Submitted to Operations Research 40. Whitt W (2005) Engineering solution of a basic call-center model. Management Science 51 (2): 221-235 41. Whitt W (2005) Two fluid approximations for multi-server queues with abandonments. Operations Research Letters 33: 363-372 42. Zeltyn S (2004) Call centers with impatient customers: Exact analysis and many-server asymptotics of the M/M/n + G queue, Ph.D. thesis, Technion, available at http://iew3.technion.ac.il/serveng/References/references.html 43. Zeltyn S, Mandelbaum A (2004) Call centers with impatient customers: many-server asymptotics of the M/M/n + G queue. Submitted to QUESTA, available at http://iew3.technion.ac.il/serveng/References/references.html 44. Zohar E, Mandelbaum A, Shimkin N (2002).Adaptive behavior of impatient customers in tele-queues: Theory and empirical support. Management Science 48: 566-583

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The Erlang-A queue: Useful formulae for the steady-state distribution and some performance measures Steady-state distribution. Palm [31] derived the following representation for the steady-state distribution, defined in (3.1):

Sj

n! S n , j ! ( O / P )n j ° ° ® (O / T ) j n , °S n j n nP k 1 T k °¯

0 d j d n, j t n 1

where

Sn

E1, n

nP O 1 ª A , 1º E1, n «¬ T T »¼

A( x, y )

xe y yx

,

J ( x, y ),

and y

J ( x, y ) ³ t x 1et dt ,

x ! 0, y t 0

0

is the incomplete Gamma function; E1,n denotes the blocking probability in the M/M/n/n (Erlang-B) system: (O / P ) n n! (O / P ) j ¦ nj 0 j !

E1, n

Remark. A simple way for calculating E1,n is the recursion

E1,0 in which

U

0;

E1, n

U E1, n 1 , 1 U E1, n 1

is the offered load per agent, namely

U

O . nP

n t 1,

The Palm/Erlang-A Queue, with Applications to Call Centers

45

Performance measures. As discussed above, 4CallCenters [15] provides a convenient tool for Erlang-A calculations. Mandelbaum and Zeltyn [28] present a theoretical framework for computations in the more general M/M/n + G system and explain how to adapt it to Erlang-A. Both approaches can be used for calculation of the practical measures from Subsection 4.1. Below we present several explicit expressions. Average wait and the probability to abandon are the most widely used performance measures in practice. To these we add the delay probability, which is important in view of the fact that it characterizes the operational regime (ED, QD or QED) – recall Section 6. Delay probability. Following Palm [31],

P{W ! 0}

1 A

nP

1 E

A T , TO E1, n nP O ,

T

T

(A.1)

1, n

Probability to abandon. The probability to abandon of delayed customers is equal to

P[ Ab | W ! 0]

The

fraction

abandoning,

1

1

nP U A T , TO

P{Ab},

is

1

U

(A.2)

.

simply

the

product

P[ Ab | W ! 0] u P[W ! 0} . Average waiting time. Average waiting time of delayed customers is computed via (A.2) and (4.1):

ª º 1 « 1 1» E[W | W ! 0] 1 » . T « U A nP , O U « » T T ¬ ¼

(A.3)

The unconditional average wait E[W] equals the product of (A.1) with (A.3).

Architecture for Service Engineering – The Design and Development of Industrial Service Work Holger Luczak, Christian Gill and Bernhard Sander Forschungsinstitut für Rationalisierung (FIR), RWTH Aachen, Germany (Research Institute for Operations Management (FIR), Aachen University of Technology)

1 Introduction.......................................................................................................48 2 Service Engineering as a New Research Discipline for Successful Service Design and Service Development ...............................................................48 3 Service Planning for Promising Service Ideas................................................50 4 An Architecture for Service Conception.........................................................51 4.1 The Service Result Branch of the Architecture .......................................53 4.2 The Service Process Branch of the Architecture .....................................55 4.3 The Service Skills and Resources Branch of the Architecture ................57 5 Application of the Architecture – Lessons Learned.......................................59 6 Outlook ..............................................................................................................60 Acknowledgements ..............................................................................................61 References.............................................................................................................62

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Holger Luczak, Christian Gill, Bernhard Sander

1 Introduction As indices of ‘tertiarization’ not only for Germany but also on a worldwide basis show, the service sector has become increasingly important compared to the agriculture and physical goods production sectors (European Commission 2002). Service companies contribute about 70% of the total GDP of Western Europe’s economies. Despite these figures of GDP share and the strategic intention to successfully run the service business, knowledge on how to develop service products and who should design them is marginal. This is in strong contrast to the profound knowledge and skills in the engineering of physical goods. Although some methods for designing and developing physical goods can also be used for services, recent surveys show a fundamental lack of knowledge and specialized skills in the use of procedures, methods and tools to design and develop professional services. This shortage of adequate procedures, methods and tools is mainly based on the immanent characteristics of services that strongly differ from those of products (Luczak et al. 2000). In consequence of the lack of supporting methods and procedures, service operations frequently deliver ineffective and low quality services that do not meet the customer’s needs. Furthermore, service processes, which have been inadequately planned and developed, are hard to reproduce with constant quality, requiring strong improvisation efforts by the service personnel. Combined with an insufficiently designed and developed working environment, profitability is negatively affected since only motivated personnel can deliver high quality services that satisfy the customers in the long term (Heskett et al. 1997; Liestmann and Meiren 2002). Based on this balance of arguments this paper presents an architecture that comprises steps to be taken to successfully design and develop professional services.

2 Service Engineering as a New Research Discipline for Successful Service Design and Service Development A new research discipline moving from scientific discourse into business is called ‘Service Engineering’. Service Engineering mainly deals with the following aspects (Luczak et al. 2002): 1. Improving the procedures for designing and developing services more professionally 2. Establishing service design and development as a corporate function 3. Adapting a service specific human resource management The term ‘Service Engineering’ implies a basis of engineering knowledge and originates from the assumption that services can be designed and redeveloped in a

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similar way to physical products (Bitran and Pedrosa 1998; Meyer and DeTore 1999; Luczak et al. 2000). Accordingly, engineering procedures, methods and tools form the core of this approach (VDI 1980, 1993). Service engineering encompasses what Ramaswamy (1996) established as ‘Service Design’, stretching its focus with regard to the extent of the innovation process and the addressed aspects as listed above. This approach differs to some extent from the proximate research field of New Service Development (NSD), which also deals with the issues of how to develop new service products (Easingwood 1986; Bowers 1989; Scheuing and Johnson 1989; Edvardsson and Olsson 1996; Sundbo 1997; Edvardsson et al. 2000). NSD has its roots in service quality, because quality is said to strongly contribute to the understanding of the service logic and the drivers of customer satisfaction (Parasuraman et al. 1988). In contrast to Service Engineering, NSD mainly addresses consumer services rather than business-to-business (B2B) services and approaches the issues of service innovation from a marketing perspective (Johne and Storey 1998). Service Engineering Organization

Develop. & Design Results

Design & Development Develop. & Design Processes

Develop. & Design Methods / Tools

Service Planning Capability Analysis

Market Analysis

Idea Finding

Idea Idea Description Assessment

Service Conception Functional Concept Human Resource Management

Human Resource Concept

Marketing Concept

Sales Concept

Implementation Planning Detailed ER Plan

Resource Setup

Pilot Implementation

Fig. 1. Aspects of Service Engineering and phases of the design and development of services

Within Service Engineering the process of service design and development consists of three major phases, namely the service planning, service conception and service implementation, as shown in Fig. 1 (Luczak et al. 2003). The first phase, service planning, is centered on idea generation, forming and evaluation. The subsequent phase, service conception, leads to a more precise description of

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Holger Luczak, Christian Gill, Bernhard Sander

these ideas in terms of their content, eventually resulting in a service that is ready to be launched. The launch itself takes place in the implementation phase. This paper will focus on service planning and service conception and thus contributes to the first aspect within the framework of the discipline of Service Engineering as mentioned above.

3 Service Planning for Promising Service Ideas The phase of service planning starts with a systematic idea generation. The use of the contradictory expressions ‘systematic generation’ and ‘idea’ might cause confusion. Obviously, the search for ideas can only be supported by systematic approaches, however it cannot be systematized in the sense of an automatic generation, as generating ideas will always remain a creative process. Depending on the size and the strategic goals of a company, the idea generation might have different focuses. One can distinguish the resource-oriented and the market-oriented idea generation (Luczak et al. 2000). The starting point of a resource-oriented idea generation is a firm’s set of capabilities and new possibilities to put them into effect. During the planning process this input focus moves to the needs of the market. In the B2B sector these needs are mainly determined by the customer problems in the sense of services being a solution to an existing problem. The market-oriented approach starts with the analysis of market opportunities and customer problems as source for ideas and subsequently takes necessary capabilities and resources into account (Luczak et al. 2000, 2003). An adequate method, which brings together both mentioned aspects, is the policy deployment (Akao 1991). In any case, both the company’s core capabilities and customer problems serve as valuable resources for idea generation. The main criterion for identifying and selecting core capabilities is their potential to redound to the company’s sustainable competitive advantage. According to Barney (1991) this is the case if the resources are rare, valuable and can neither be imitated nor substituted. A Value Chain Analysis helps to gather this input data (Sontow 2000). Result of this analysis with respect to the Barney criteria is a catalogue of sustainable and superior core capabilities and underlying resources. For gathering customer problems internal and external information sources can serve as input. Departments with a high degree of interaction with the customer, i.e. sales or after-sales services usually have a huge amount of information about customer problems and customer needs. Even if this knowledge is rarely documented, it can be processed by means of workshops. Of course, one can also directly ask key customers (e.g. in workshops) what their problems are and how they think one can solve them. This is especially useful for professional services, where business relations are close and intimate. The Purpose of this analysis of customer problems is to gain a better understanding of what the problems are, what effects they have and how services can be applied as a problem solution. By bringing together sustainable competitive capabilities and problems with the help of Interdependence Analysis Method, the creation of ideas takes place sys-

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tematically. Thus, combinations of sustainable competitive capabilities that highly contribute to the solution of a severe customer problem build an attractive basis for a service idea. The actual creation of an idea, again, is a matter of creativity suitably assisted by creativity techniques like BrainBlooming, Mind-Mapping or the 6-3-5 Method. The description of the addressed customer problems, the necessary capabilities / resources and a rough description of the solution process combine to form the service idea and conclude the phase of service planning.

4 An Architecture for Service Conception Based on the formulated service ideas, the main focus of the service conception phase is to bring more substance and depth to the ideas. The architecture as shown in Fig. 2 consists of five essential components for designing and developing professional services: The Service Development Process Model (SDPM) comprises development steps that are necessary to determine requirements and to form the functions and processes that fulfill these requirements. This model also contains steps to identify the skills and resources that are essential to perform these processes professionally. The steps included in the SDPM will be described in detail in the following sections. The architecture component Service Development Methods (SDMe) comprises methods that enable a systematic approach to the development targets. The methods best suited to support the design and development will also be shown in depth in subsequent sections. The architecture component Service Development Tools (SDTo) only contains tools that directly support distinct methods. In the understanding of this architecture, the tools of the SDTo operationalize the methods of the SDMe. The Service Development Result Description Model (SDRDM) documents the respective outcomes of the design and development steps, as well as of the service work itself. Thereby, this model also builds a common understanding among the design and development team members. The SDRDM combines functional and graphical aspects of the representation of development results. The Service Development Management Model (SDMM) integrates the four other components. The SDMM connects the development steps of the SDPM with the methods and tools of the SDMe and SDTo respectively in order to archive the development result represented in the SDRDM. Furthermore, the first practical experiences have shown that the SDMM can be used as a guideline for developing and designing professional services as well.

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Holger Luczak, Christian Gill, Bernhard Sander

Service Development Result Description Model (SDRDM)

Service Development Process Model (SDPM)

Service Development Methods (SDMe)

Service Development Tools (SDTo)

Development Step

Methods Tools

Dev. Step Result

Service Development Management Model (SDMM)

Service Results

Service Processes

Service Resources/Skills

Total System

Subsystems … Components

Fig. 2. Essential components of the architecture

To minimize the complexity of a development project, one should not attempt to outline every detail of the service from the very beginning. Instead, the development can be commenced in such a way, that the identified requirements for the service system are implemented first in a general concept. Afterwards, the general concept can be divided into components. The determined characteristics of the general concept result in requirements for those components. Each component can then be considered independently. This procedure of specifying concepts into partial concepts and their subsequent configuration can be continued at all levels of detail in the same way. An appropriate method to detail a service system is the Function Tree Analysis under consideration of Sun’s axiomatic design (Akiyama 1991; Suh 1990). Among other things, Suh states that one can only detail a function tree with the embodying concept in mind. Based on the essential characteristics of professional services, the architecture itself is divided into three partial models with regard to the constituent elements of services: results, processes and resources. The partial models are closely connected in the sense of means-end relationships. Since results are generated by a set of processes, which still have to be specified, a certain service result for its part implies requirements for the service processes. Hence, service processes are means, which generate predetermined results. The processes in turn necessitate resources for their implementation. For this reason processes and resources represent a means-end relationship. Therefore, a complete service concept always contains a result concept, a process concept and a resources/skills concept.

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4.1 The Service Result Branch of the Architecture This partial model of the architecture comprises activities to incorporate the external requirements of customers, as well as the internal requirements on behalf of the company, to check their plausibility, to prioritize and to substantiate them. The first step on this level is the investigation of customer and company requirements (Fig. 3). One recommended method for this is the Advanced Sequential Incident Method (Parasuraman et al. 1988; Kamiske 1997). Advanced Sequential Incident Technique (SIT)

Adv. SIT-Structure / Information Sources List

Customer Requirements

Gathering Internal Requirements

Advanced Sequential Incident Technique (SIT)

Adv. SIT-Structure / Information Sources List

Internal Requirements

Plausibility Check of Requirements

Qualitative Interdependence Analysis

L-Matrix

Service Requirements

Prioritization of the Requirements

Pairwise Comparison

Comparisons Scheme

Prioritized Service Requirements

Concretion of Requirements

Progressive Abstraction

Abstraction Scheme

Precise Service Requirements

Plausibility Check of Precise Requirements

Qualitative Interdependence Analysis

V-Matrix

Consistent Service Requirements

Benchmarking of Requirements

Advanced Competitive Product Analysis

Assessment Scheme / Information Sources List

Assessed Service Requirements

Attributes:

! Customer reception

Customer decision

Easy to find Permanent opening hours

Working

<

Relaxing Product information

Cleanliness Data security

Payment

“Easy cash”

Customer disbanding

ABC Exit

ABC Entrance

Gathering Customer Requirements

Direction sign Baggage claim

Fig. 3. The Service Result Branch of the Architecture for Service Conception - Gathering Customer Requirements

In this method, individual process steps are identified along the chronological course of the service creation. It is then analyzed on the level where customers and suppliers are in direct contact. In the following development step ‘plausibility analysis of the service requirements’ the requirements that have been identified from the perspective of customers and the company are brought together and analyzed with respect to their plausibility. The Qualitative Interdependence Analysis is employed to show the mutual dependence between requirements (which are regarded as coequal), by analyzing the response of elements to changes in another element (Clausing 1994; Schütze 2001). For this purpose, the requirements for the service from the customers´ perspective are confronted and compared with those from the company’s perspective in a matrix. Criteria for the Qualitative Interdependence Analysis are ‘targetneutrality’, ‘target-harmony’ and ‘target-conflict’. The results of this development step are consistent service requirements from the perspective of customers and the company. As a next step, the service requirements are prioritized from the customer perspective with respect to their impact on the success of the service (Fig.

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Holger Luczak, Christian Gill, Bernhard Sander

4). The Pairwise Comparison has been identified as a suitable method for this prioritization (REFA 1990; Eversheim et al. 2002). Gathering Customer Requirements

Advanced Sequential Incident Technique (SIT)

Adv. SIT-Structure / Information Sources List

Customer Requirements

Gathering Internal Requirements

Advanced Sequential Incident Technique (SIT)

Adv. SIT-Structure / Information Sources List

Internal Requirements

Plausibility Check of Requirements

Qualitative Interdependence Analysis

L-Matrix

Service Requirements

Prioritization of the Requirements

Pairwise Comparison

Comparisons Scheme

Prioritized Service Requirements

Concretion of Requirements

Progressive Abstraction

Abstraction Scheme

Precise Service Requirements

Plausibility Check of Precise Requirements

Qualitative Interdependence Analysis

V-Matrix

Consistent Service Requirements

Benchmarking of Requirements

Advanced Competitive Product Analysis

Assessment Scheme / Information Sources List

Assessed Service Requirements

Environment of the ABC

Cleanliness

Easy to find

Data security

Catering

...

Sum

Sequence

Service requirements

Service requirements

Environment of the ABC

---

0.5

1

0

1

...

19,5

1

…

...

---

...

...

...

...

...

...

Rating scale: 1 more important 0.5 equally important 0 less important

Fig. 4. The Service Result Branch of the Architecture for Service Conception - Prioritization of Requirements

For this purpose, the service requirements are compared head-to-head. Criteria of comparison are the ordinal rating scale ‘more important’, ‘less important’ and ‘equally important’. After that the ordinal rating scale has to be transformed into a metric scale as e.g. 1 = more important, 0 = less important and 0.5 = equally important. Finally, a ranking order of the service requirements can be drawn up based on the sum of the rows in the matrix. In the development step ‘concretion of the service requirements’ the method of Progressive Abstraction is used in the architecture. With the Progressive Abstraction the requirements in terms of their benefit of use are edited and the levels of measures which contribute to a large extent to the achieved objectives of the development are revealed (Botschen and Mühlbacher 1998). The results are requirement-solution combinations, which are more exact and more precise than the originally formulated service requirements. Since the processed service requirements could have changed while implementing the Progressive Abstraction, a new Plausibility Analysis has to be conducted. In the last step of the result section of the service development architecture, the processed requirements are compared with the characteristics of services already available on the market. For this evaluation, the Advanced Competitive Product Analyses has been identified as a suitable method (Hildebrandt and Klapper 2000). For this purpose, it is first necessary to identify competitive services. Integrating aspects of customer expectation into the evaluation enlarges the perspective to-

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wards a rival service. The criteria used for this are the characteristics ‘must-be requirements’, ‘revealed requirements’ and ‘exiting requirements’, introduced by Kano (1984). As an evaluation criterion for the degree of performance by the rival product, the ordinal rating scale ‘better performance’ and ‘worse performance’ is used respectively. The objective is the design of marketable services. Therefore, requirements have to be further specified as long as the sum of the revealed and exiting requirements (which are already fulfilled by the competitive service) is smaller than that of the service to be developed. No further design should be considered in case this measure cannot be achieved. Otherwise this section of the architecture ‘determination of the service result’ is completed. 4.2 The Service Process Branch of the Architecture Starting from the service requirements, the respective tasks are identified and defined by means of noun/verb-combinations in this partial model of the architecture. The main question for this task can be formulated as follows: ‘How can the individual service requirements are implemented?’ After having found implementation methods for each requirement, the requirements are summarized hierarchically with the help of Transfer Graphs as a tool of the Affinity Method (Schaude 1992). The results of using this method are hierarchically structured service tasks, which are deduced from the requirements. In the next step, the service tasks have to be analyzed with respect to their type. By allocating the service tasks to the types ‘overall task’, ‘primary task’ and ‘secondary task’ distinctions can be made. The overall task shall be defined as: being able to meet the maximum amount of service requirements the customer is willing to pay for. The primary task fulfils at least one service requirement and can also be priced. Although a secondary task also functionally fulfills at least one requirement, the customer is often not willing to pay for this. In order to benefit from synergies, service tasks, which are already implemented and the service to be developed need to be aligned. For this purpose, the Interdependence Analysis is again a suitable method. Therefore, an ordinal rating scale, which distinguishes ‘target is covered by existing task and target is not covered by existing task’, should be used to evaluate all primary service tasks respectively. In the following development step ‘transfer of service tasks into service delivery processes’, a Process Modeling Method further details those primary service tasks, which are necessary to fulfill the customer requirements. Service Blueprinting by Shostack (1984) has been identified as a supporting tool for this step (Fig. 5). Service Blueprinting is a method used for analyzing the service delivery process. Using a flow chart-like presentation, several types of customer interaction are distinguished and visually separated by so called lines-of-visibility. The customer section contains only processes the customer is directly involved in. The onstage processes are visible to the customers, but they do not take an active part in it. The third section of the process flow chart comprises the backstage activities that are

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entirely performed by the employees without any contact with the customer. With this differentiation the service delivery processes can be adjusted with respect to performance, robustness and reproducibility. Mapping of Service Functions and Requirements

Affinity Method

Transfer Graph

Service Functions

Analysis of Function Types

Affinity Method

Service Types

Typed Service Functions

Target / Actual Comparison of the Function Portfolio

Qualitative Interdependence Analysis

Function Target / Actual Comparison Matrix

Balance of Functions

Transfer of Functions into Service Processes

Process Modeling Method

Symbol List

Process Flow Chart of the Service Delivery

Quality Analysis of Selected Processes

Service-FMEA

Service-FMEA Scheme

Measures to be Taken

Customer Customer Entry (ABC) Line of interaction

Customer order Customer asks for translation service at the information

Front Office (Onstage) Order confirmation

Line of visibility

Yes

ABC-employee proves availability

Back Office (Backstage)

No Translation service available?

F

Fig. 5. The Service Process Branch of the Architecture for Service Conception - Transfer of Functions into Service Processes

The Service-FMEA (Failure Mode and Effects Analysis) is implemented into the architecture (Fig. 6) providing a detailed analysis of potential risks associated with service delivery processes. When using the Service-FMEA, first, potential failures linked to the process steps are determined and rated on a 1-10 scale with respect to their severity (s) and their detectability (d) (DIN 1990; Eversheim 2000). For processes with direct customer interaction as ascertained in the Service Blueprinting, the detectability is irrelevant as there is no chance of preventing the customer from experiencing the failure. Following this, the causes of each potential failure need to be discovered and evaluated with regard to their probability of occurrence on a 1-10 scale. Subsequently, these three values of severity, occurrence and detectability (if applicable) are multiplied. The result is the so-called Risk Priority Number (RPN), which identifies the greatest areas of concern and indicates what kind of corrective actions should be taken. Preferable to this is the use of preventive measures, which helps to avoid cost-intensive failures before they occur. Once the development steps for all identified primary service tasks have been undertaken, the development of the service delivery concept is complete.

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Mapping of Service Functions and Requirements

Affinity Method

Transfer Graph

Service Functions

Analysis of Function Types

Affinity Method

Service Types

Typed Service Functions

Target / Actual Comparison of the Function Portfolio

Qualitative Interdependence Analysis

Function Target / Actual Comparison Matrix

Balance of Functions

Transfer of Functions into Service Processes

Process Modeling Method

Symbol List

Process Flow Chart of the Service Delivery

Quality Analysis of Selected Processes

Service-FMEA

Service-FMEA Scheme

Measures to be Taken

Detection

Risk Priority Number

Appointment with customer

Relevance

Process description

Appearance

Rating

One Appointment is made twice

3

10

7

210

...

...

... ... ...

Potential failure mode

Failure causes

Effects

Actions

Appointments are made by more than one employee

Cancellation of the appointment by one of the customers

One person in charge

...

...

...

Fig. 6. The Service Process Branch of the Architecture for Service Conception - Quality Analysis of Selected Processes

4.3 The Service Skills and Resources Branch of the Architecture This partial model of the architecture helps to develop a concept for the essential service resources. The skills, which are necessary to perform the identified service tasks and service processes, are identified first with the help of the Affinity Method and hierarchically structured by means of a Transfer Graph. The result of this development step is a target skills profile, which should be understood as the sum of skills necessary for delivering the service. Next, individual skills are analyzed with regard to their type: professional competence, social competence, personality competence and method competence. In addition to allocating the identified skills to the relevant types, a qualitative evaluation of the categories ‘no competence necessary’, ‘basic understanding necessary’, ‘first practical experience and advanced understanding necessary’ as well as ‘management, practical experience and distinct understanding necessary’ is undertaken (Fig. 7). In order to benefit from synergies, a target/actual comparison should be conducted with the skills, which are already available within the company and the determined skill profile. The interdependence Analysis is again a suitable method for this.

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Holger Luczak, Christian Gill, Bernhard Sander Identification of Required Skills

Affinity Method

Transfer Graph

Profile of Required Skills

Analysis of Skill Types

Affinity Method

Skill Types

Typed Skills

Target / Actual Comparison of the Skill Profiles

Qualitative Interdependence Analysis

Skills Target / Actual Comparison Matrix

Balance of Skills

Identification of Required Resources

Affinity Method

Transfer Graph

Profile of Required Resources

Target / Actual Comparison of the Resource Profiles

Qualitative Interdependence Analysis

Resources Target / Actual Comparison Matrix

Balance of Resources

Social skills

Personal skills

Methodic skills

Professional skills

Competence

Competence rating: No competence required

Product knowledge

Basic understanding required

Product portfolio

IT-Support

First practical experience and advanced understanding required

Resolving problems

...

...

... ... ...

Management, practical experience and distinct understanding required

Fig. 7. The Service Skills and Resources Branch of the Architecture for Service Conception - Analysis of Skill Types

Subsequently, the key resources related to the skills for the service delivery have to be identified with the help of the Affinity Method. It is important to find as many resources as possible, which embody the required skills (Fig. 8). A Transfer Graph is again an adequate tool for the structuring. Identification of Required Skills

Affinity Method

Transfer Graph

Profile of Required Skills

Analysis of Skill Types

Affinity Method

Skill Types

Typed Skills

Target / Actual Comparison of the Skill Profiles

Qualitative Interdependence Analysis

Skills Target / Actual Comparison Matrix

Balance of Skills

Identification of Required Resources

Affinity Method

Transfer Graph

Profile of Required Resources

Target / Actual Comparison of the Resource Profiles

Qualitative Interdependence Analysis

Resources Target / Actual Comparison Matrix

Balance of Resources

Product knowledge Product portfolio Resolving problems

Technical staff (hardware) Technical staff (software)

Presentation Technical staff (mobile solutions) Work-flow Management ...

Target competences

Target resources

Fig. 8. The Service Skills and Resources Branch of the Architecture for Service Conception - Identification of Required Resources

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Next, a target/actual comparison is conducted between those resources that are necessary for the service delivery and those that are already available throughout the company. Again, an adequate method is the Interdependency Analysis with an ordinal rating scale of ‘target is covered by existing resources’ and ‘target is not covered by existing resources’ respectively. In case of resource coverage or resource excess, the service which should be developed can be generated with the already available resources of the company. In case of resource deficit, the corresponding resources have to be obtained. When the development steps for the identified competencies and resources are finished, the development of a potential conforming service provision concept is completed.

5 Application of the Architecture – Lessons Learned So far, a telecommunications service provider has used the architecture for service conception in two cases. The company’s revenues amounted to 40 billion euros in 2001 and, by the end of 2001, the company employed around 250,000 employees. The company offers a spectrum of around 4000 products and services in nearly all sectors. At the beginning of the project there were only generic development steps on a non-practicable level and no corresponding support of tools or use of established methods. Until then, the average effort for the development of a new service product was 45 man-days with a team of 10 people and a time frame of 6-12 months. The major goal of the project was to provide the development team with an architecture, which included the necessary components for developing professional services on a practical level as well as improving the information content about the developed service e.g. as a starting point for further cost effectiveness studies. Two ideas, which had been generated, formulated and prioritized in a pool of ideas, served as starting points for the development process. In particular, these were an ‘airport business centre’ and a ‘web portal for failure logging, dispatching and progress tracking’. The major idea of the airport business centre is to offer ‘frequent flyers’ adequate accommodation for their stay between two flights without having to leave the customs area of the airport. Making use of this offer, business travelers are able to work in a professional working environment with IT-Support etc., as well as being able to relax during their stay at the airport. The origin of the web portal idea resulted from the fact, that the telecommunications service provider offers only specific hotlines for repair services with no further customer involvement at any point of the procedure. In order to improve the information quality, which should lead to higher customer satisfaction and reduce internal processing efforts, a web portal should support the whole process of failure logging, dispatching and progress tracking. Approximately 250,000 midsize companies with contracted service level agreements constitute the target customer segment for the web portal.

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The exemplary results obtained by application of the described architecture for the development of services have shown that this is a workable approach for the development of services and for the design phase as an early phase within service design. Overall development effort was reduced by 30% compared to similar projects. The development efficiency has been regarded as adequate by the project team and the project management. Due to the overall manageable development effort, the architecture also exhibits the possibility to generate service ideas, which at first glance seem outside the company’s scope. On an operational basis, experience has shown, that participatory workshops are the most suitable way to apply the architecture. This way knowledge of the development of services as well as the handling of the architecture for Service Engineering can be passed on.

6 Outlook The architecture presented in this paper contributes to a general framework not only for the successful development of services on a practical level, but also as part of the new research discipline of Service Engineering, which is currently being established. Looking to the future, there are three main trends within the research discipline of Service Engineering: First of all and similar to advances made in product development, the development of services will be increasingly supported by systems for Computer Aided Service Engineering. Such systems require further specification of their components and interrelations, as current understanding of such systems is still rather vague. In regard to the presented architecture, supporting systems will have to include a configuration of the components of the architecture depending on the type of service, which is being focused on Nüttgens et al. 1998. This is due to the different characteristics of services (e.g. industrial and consumer-oriented services or stand-alone services and service bundles) and the subsequent differences in the complexity of the development process (Fähnrich 1999, Jaschinski 1998). Possible evolution in the area of Service Development is depicted in Fig. 9. A second avenue for future research is the development of so-called hybrid products i.e. a combination of material goods and services. In particular, the integration of the two (up to now separate) development processes poses an innovative research area. Furthermore, taking into account the different life cycles of products and services, future research should lead to an integrated complexity management. This, combined with the afore mentioned IT-based systems, would lead to the ‘virtual development of hybrid products’. Using efficient simulation tools, rapid prototyping strategies and the integration of processes should lead to an overall reduction in development time and due to the possibility of early failure analysis, to higher product and process quality (Radtke 1995).

Degree of IT-support

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Virtuelle Virtual Dienstleistungsentwicklung Service Development • Virtual Development • Digital models for services • Digital models for service development process

Rechnerunterstützte Computer Aided Dienstleistungsentwicklung Service Development

Methodische Methodical Dienstleistungsentwicklung Service Development • Product Modelling

„Ad-hoc“ Development Entwicklung

1980

• ...

1990

• Rapid Prototyping • Knowledge Management

• ...

• Simulation Life cycle • ...

2005

2010

Jahr

Fig. 9. Trends in Service Development

Last but not least, a third major possibility for future research lies in the organizational integration of the development process (Luczak et al. 2000). Service development seen as a process embedded in the company’s innovation management has to be examined regarding the relevant factors influencing service development and their impact on service performance. Subsequently, this would lead to standardized evaluation and measurement models for the service development process.

Acknowledgements Funding for the research leading to these findings was provided by the Federal Ministry of Education and Research (Bundesministerium für Bildung und Forschung, BMBF), grant number 01HR0019.

References Akao Y (1991) Policy deployment for successful TQM. Productivity Press, Cambridge Akiyama K (1991) Function Analysis. Systematic Improvement of Quality and Performance. Productivity Press, Cambridge Barney J (1991) Firm Resources and Sustained Competitive Advantage. Journal of Management 17 (1): 99-120

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Bitran G, Pedrosa L (1998). A Structured Product Development Perspective for Service Operations. European Management Journal 16 (2): 169-189 Botschen G, Mühlbacher H (1998) Zielgruppenprogramm – Zielgruppenorientierung durch Nutzensegmentierung. In A. Meyer (eds): Handbuch Dienstleistungs-Marketing, Vol. 1, Schäffer-Poeschel, Stuttgart, pp 681-692 Bowers M (1989) Developing new services: Improving the process makes it better. Journal of Services Marketing 3 (1): 15-20 Clausing D (1994) Total Quality Development. A Step - By - Step Guide to World - Class Concurrent Engineering, ASME, New York DIN (1990) DIN 25 448. Ausfalleffektanalyse (Fehler-Möglichkeits und Einfluß-Analyse). Beuth, Berlin Wien Zürich DIN (1998) DIN-Fachbericht 75 – Service Engineering – Entwicklungsbegleitende Normung (EBN) für Dienstleistungen. Beuth, Berlin Wien Zürich Easingwood CJ (1986) New Product Development for Services Companies. Journal of Product Innovation Management 3 (4): 264-275 Edvardsson B, Gustafsson A, Johnson M, Sanden B (eds) (2000). New Service Development and Innovation in the New Economy. Studentlitteratur, Lund Edvardsson B, Olsson J (1996) Key concepts for new service development. Service Industries Journal 16 (2): 140-164 Eversheim W (2000) Qualitätsmanagement für Dienstleister – Grundlagen, Selbstanalyse, Umsetzungshilfen. Springer, Berlin Heidelberg New York Eversheim W, Kuster J, Liestmann V (2003) Anwendungspotenziale ingenieurwissenschaftlicher Methoden für das Service Engineering. In: Bullinger HJ, Scheer AW (eds) Service Engineering: Entwicklung und Gestaltung innovativer Dienstleistungen Springer, Berlin Heidelberg New York, pp 417-442 Fähnrich K-P, Meiren T, Barth T, Hertweck A, Baumeister M, Demuß L, Gaiser B, Zerr K (1999) Service Engineering. Ergebnisse einer empirischen Studie zum Stand der Dienstleistungsentwicklung in Deutschland. Fraunhofer IRB, Stuttgart Heskett JL, Sasser WE, Schlesinger LA (1997) The Service Profit Chain. The Free Press, New York Hildebrandt L, Klapper D (2002) Wettbewerbsanalyse. In: Albers S, Hermann A (eds), Handbuch Produktmanagement Gabler, Wiesbaden, pp 461 – 485 Jaschinski C (1998) Qualitätsorientiertes Redesign von Dienstleistungen. Dissertation RWTH Aachen, Shaker, Aachen Johne A, Storey C (1998) New Service Development: A Review of Literature and Annotated Bibliography. European Journal of Marketing 32 (3): 184-251 Kamiske G (1997) Qualitätstechniken für die Dienstleistung: Die D 7. Hanser, München Wien Kommission der Europäischen Gemeinschaften (2002) Bericht der Kommission an den Rat und das Europäische Parlament: Der Stand des Binnenmarktes für Dienstleistungen – Bericht im Rahmen der ersten Stufe der Binnenmarktstrategie für den Dienstleistungssektor. Amt für amtliche Veröffentlichungen der Europäischen Gemeinschaften, Luxemburg Kano N, Seraku N, Takahashi F, Tsuji S (1984) Attractive Quality and Must-Be Quality. Hinshitsu, (April), pp 39-48 Liestmann V, Kuster J (2002, June) Applying a Platform Approach to Redesign Industrial Services. Paper presented at the Quis8 – Quality in Service: Victoria, Canada, Crossing Borders

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Liestmann V, Meiren T (2002) Service Engineering in der Praxis. Kurzstudie zu Dienstleistungsentwicklung in deutschen Unternehmen. Fraunhofer IRB, Stuttgart Liestmann V, Gill C, Keith H, Kuster J, Scherrer U, Schmitt I, Thimm S (2002) Dienstleistungsentwicklung durch Service Engineering. Von der Idee zum Produkt. In: Luczak H, Eversheim W. (eds) FIR+IAW-Praxis Edition Vol. 2. FIR, Aachen Luczak H, Keith H, Gill C (2002) HAB-Jahrestagung 2002. Kompetenzentwicklung für das Service Engineering. Aachen Luczak H, Liestmann V, Gill C (2003) Service Engineering industrieller Dienstleistungen. In Bullinger HJ, Scheer AW (eds) Service Engineering: Entwicklung und Gestaltung innovativer Dienstleistungen. Springer, Berlin Heidelberg New York, pp 443-466 Luczak H, Kuster J, Reddemann A, Scherrer U, Sontow K (2000) Service Engineering Der systematische Weg von der Idee zum Leistungsangebot. TCW Transfer Centrum, München Meyer MH, DeTore A (1999) Product Development for Services. Academy of Management Executive 13 (3): 64-76 Nüttgens M, Heckmann M, Luzius M (1998) Service Engineering Rahmenkonzept. In: Information Management & Consulting, Sonderausgabe Service Engineering 13, pp 1419 Radtke M (1995) Konzept zur Gestaltung prozess- und integrationsgerechter Produktmodelle. Dissertation Kaiserslautern. Produktionstechnische Berichte, Kaiserslautern Ramaswamy R (1996) Design and Management of Service Processes - Keeping Customers for Life. Addison-Wesley, Reading REFA (1990) Planung und Gestaltung komplexer Produktionssysteme. Carl Hanser, München Schaude G (1992) Kreativitäts-, Problemlösungs-, und Präsentationstechniken. RKW, Eschborn Scheuing EE, Johnson EM (1989) A Proposed Model for New Service Development. Journal of Service Marketing 3 (2): 25-34 Schütze A (2001) Ansatz zur prozessorientierten Planung industrieller Dienstleistungen. Dissertation. Dortmund Shostack L (1984) Designing Services that deliver. Harvard Business Review 62 (1): 133139 Sontow K (2000) Frühe Phasen des Service Engineering – Dienstleistungsplanung in Unternehmen des Maschinen und Anlagenbaus. Dissertation. Shaker, Aachen Suh NP (1990) The Principles of Design. Oxford University Press, New York Sundbo J (1997) Management of Innovation in Services. Service Industries Journal 17 (3): 432-455 VDI (1980) VDI-Richtlinie 2220 - Produktplanung. Ablauf, Begriffe und Organisation. VDI, Düsseldorf. VDI (1993) VDI-Richtlinie 2221- Methodik zum Entwickeln und Konstruieren technischer Systeme und Produkte. VDI, Düsseldorf Zeithaml VA, Parasuraman A, Berry LL (1985) Problems and Strategies in Service Marketing. Journal of Marketing 49 (2): 33-46

An engineering tool for the conceptual design of service systems Reuven Karni1, Maya Kaner2 1

Faculty of Industrial Engineering and Management, Technion, Haifa, Israel Department of Industrial Engineering and Management, Ort-Braude College, Karmiel, Israel

2

1 Services and service engineering .....................................................................66 2 The system concept ...........................................................................................67 2.1 General definition of a system.................................................................67 2.2 Distinctive characteristics of a service system ........................................67 2.3 A system as an hierarchy of classifications and actualizations ....................68 2.4 The metamodel construct ........................................................................68 2.5 A provisional metamodel for service systems .........................................70 3 Fundamentals of service system design...........................................................75 3.1 Basic definitions ......................................................................................75 3.2 Conceptual design ...................................................................................76 3.3 Partitions of system attributes .................................................................76 4 Service system design methodology.................................................................76 4.1 Design methodology overview................................................................76 4.2 Conceptual design of a product repair facility.........................................77 5 Functions of the service system design tool.....................................................79 6 Further research ...............................................................................................80 6.1 Correlations between problem/solution attributes and values .................80 6.2 Eliciting owner requirements ..................................................................81 6.3 Service typologies as a guide to service system design...........................81 References.............................................................................................................82

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1 Services and service engineering We present and illustrate a formalized method for the conceptual design of service systems. We visualize a design space spanning a superset of qualitative attributes that could describe the necessary objects to constitute a system. The designer selects a subset of objects and attributes from the design space and assigns a value to each attribute which best accords with the objectives and constraints specified by the service owner and the designer. The synthesis of these attributes and values constitutes a conceptual design of the service system. Our engineering design tool thus accomplishes one of the principal activities within service engineering. Industry is classically divided into manufacturing and service sectors. However, in reality, all purchases of goods are accompanied by services; and almost every service purchase is accompanied by goods (Haksever et al. 2000). Thus the key lies in the realization that the two sectors are not completely distinct, but are rather two poles on a continuum. Manufactured goods and services are intrinsically related. Savvy manufacturers are as interested in the quality of their facilitating services as of their goods; whilst shrewd service providers are as interested in the quality of their facilitating goods as of their services. These companies realize that customers buy products or obtain services whose core benefit is delivered not by a good or service, but by both (Berry and Parasurman 1991). Grönroos (2000) puts it even more pithily: ‘Goods and services merge – but on the conditions of services’. Service system design must take this continuum into account. Moreover, services are becoming industrialized (Karmarkar 2004), in the same way that manufacturing is today almost synonymous with ‘industrialization’. Grönroos (2000) discusses the problems posed by attempting to define a ‘service’. A ‘service’ is a complicated phenomenon. The word has many meanings, ranging from personal service to service as a product. Furthermore, almost any physical product can be turned into a service to a customer, whilst administrative or maintenance services can constitute ‘hidden services’ when a customer is not necessarily present. No ultimate definition has been agreed upon. According to him: ‘A service is a process constituting of a series of more or less intangible activities that normally, but not necessarily always, take place in interactions between the customer and service employees and/or physical resources and goods and/or systems [processes] of the service provider, which are provided as solutions to customer problems’. For most services, three basic characteristics can be identified. (a) Services are processes consisting of activities rather than things. (b) Services are to some degree produced and consumed simultaneously. (c) The customer participates in the service production process at least to some extent. Specifically, services are distinguished by ‘the fact that the customer is present to a certain degree in the service process, where the service is produced and delivered to him, and that [he] also participates in the process and perceives how the process functions [during execution. Thus he] is not only a receiver of the service; the customer participates in the service process as a production resource as well’ (Grönroos, 2000). This is echoed by Opitz and Schwengels (2005), who apply the

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terms ‘co-inventor’, ‘co-designer’ and ‘co-producer’ to the involvement of service owners and customers during service conceptualization and operation.

2 The system concept 2.1 General definition of a system A system is an organized set of objects which processes inputs into outputs that achieve an organizational purpose and meet the need of customers through the use of human, physical and informatic enablers in a sociological and physical environment (adapted from Nadler 1981; Checkland 1981). It is architectured as a set of nine interlinked classes of objects: (1) customers – those benefiting from the system (or otherwise affected by it); (2) goals – aims, purposes or central meaning of the system and the organization; (3) inputs – physical, human, financial or informational entities to be processed by the system; (4) outputs – physical, informational or human entities after processing by the system; (5) processes – transformations for obtaining outputs from inputs; (6) human enablers – human resources owning and/or operating the system; (7) physical enablers – physical resources which aid in operating the system; (8) informatic enablers – information and knowledge resources supporting the system; and (9) environment – physical, economic, technological, social, ecological or legal factors influencing the system. In accordance with our viewpoint that manufactured goods and services are intrinsically related, we utilize this general representation of a system for our service engineering design tool. 2.2 Distinctive characteristics of a service system A service system is nevertheless distinguished from other types of systems by the fact that the customer may be actively involved in all nine classes: (1) customer – as initiator and receiver of the service (e.g. the customer is characterized as looking for novelty, reliability – or both); (2) goals – as setting the primary objectives for the design and operation of the service (e.g. the service should enable an Internet shopper to configure the product variant he wishes to purchase); (3) input – as a client upon whom a service is to be performed (e.g. a patient coming for treatment); (4) output – as a client upon whom a service has been performed (e.g. the patient after treatment); (5) process – as a participant in the process (e.g. an Internet sales transaction incorporates a dialogue facility between a customer and a sales agent); (6) human enabler – as a resource in the process (e.g. an Internet sales transaction involves the customer as an independent agent); (7) physical enabler – as providing a resource to the process (e.g. an Internet shopper uses his own computer to access the vendor site); (8) informatic enabler – as applying his own knowledge to the process (e.g. an Internet shopper uses his own know-how regarding the product to configure the model he wishes to buy); and (9) environ-

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ment – as setting constraints or standards for acceptable service levels (e.g. an Internet shopper demands 24-hour availability of a dialogue facility). 2.3 A system as an hierarchy of classifications and actualizations Our system architecture embodies a four-level hierarchy of actualizations (components) and classifications (taxonomies). System actualization is expressed ‘in terms of abstract objects (the functionally essential system components), depicted by nominal attributes, and qualitative values for these attributes. The objects are associated by general relations – taxonomies or categories’ (Arciszewski et al. 1995). The hierarchy comprises four levels. (a) A class is a functionally homogeneous category of the objects of a system. (b) An object is a functionally homogeneous component of a system. (c) An attribute is a symbolic or numeric descriptor of an object. (d) Attributes can take symbolic values from an unordered or partially ordered set; or numeric values representing quantities or measurements (adapted from Arciszewski et al. 1995). Relations are expressed by the nine classes which organize and associate objects through taxonomies or categories. The system is effectuated through its objects, their attributes and the attribute values. A specific system is defined by a specific set or synthesis of attributes with one or more specific values for each attribute. A system alternative is specified by the same set of attributes, but with different values for at least one attribute. 2.4 The metamodel construct A specific system is modelled by a distinct attribute space. This evokes the idea of a metamodel of systems. This is a generalized multi-dimensional representation space spanned over a superset of objects and attributes that potentially specifies a wide range of systems at the conceptual level. We divide the metamodel into three constituent levels. (a) The total suite of nine classes and associated objects constitute the top-level view of range of systems as a whole. We refer to this primary level as the ‘Capstone model’ (Fig. 1). (b) For each class, the total suite of objects and associated attributes constitute the basic decomposition of the class. We refer to the set of models at this secondary level as ‘Decomposition models’ (Fig. 2). (c) For each object, the suite of attributes and values constitutes the final decomposition of the object. We refer to the total set of attributes for all objects, at this tertiary level, as the ‘Attribute base’.

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Customers

Customer features

Customer attitudes

Customer preferences

Goals

Business goals

Service goals

Customer goals

Inputs

Physical

Human be- Information Knowledge ings

Currency

Constraints

Outputs

Physical

Human be- Information Knowledge ings

Currency

Waste

Processes

Service provision

Service operations

Service support

Customer relationships

Human enablers

Service providers

Support providers

Management

Owner organization

Physical enablers

Buildings

Equipment Furnishings

Location

Owner organization

Procedures and processes Technological factors

Decision support

Skill acquisition

Social factors

Ecological factors

Informatic enablers Environment

Information Knowledge Physical factors

Economic factors

Culture goals

Planning Call center and control management

Legal factors

Fig. 1. The service system capstone model

Customers

Goals

Customer features

Customer attitudes

Customer preferences

Type of customer

Economic level

Number of customers

Social level

Functionality versus cost Novelty versus reliability Versatilit versus reliability

Dispersion of customers Nationality of customers Age of customers

Business goals

Service goals

Customer goals

Culture goals

Survival

Service level

Service response

Organizational culture

Growth

Service flexibility

Service variety

Employee welfare

Market share

Service uniqueness Service effectiveness

Leadership

Service efficiency

Service personalization Customer participation Customer empowerment

Profits

Fig. 2. Examples of decomposition models – ‘Customers’ and ‘Goals’

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The metamodel incorporates the superset of components for systems of a given type – e.g. service systems. An individual system design is composed of a subset of objects, attributes and values derived from the metamodel. The evolution of a specialized service system model from the generalized metamodel lies at the heart of the service system design tool. 2.5 A provisional metamodel for service systems To provide content to the service metamodel, 150 student design projects, covering about 100 service domains, have been analyzed (Kaner 1999; Karni and Kaner 2000). The study revealed that the nine classes constituted an excellent generic top-level categorization of objects, and that over 40 objects could be considered to be ‘common to all or most service systems’ (Karni and Kaner 2000). The attribute base derived from the projects contained over 700 attributes linked to these objects. Our capstone and decomposition models are based on this research, as well as a typical attribute base focused on a product repair facility. (i) The capstone model comprises the nine classes and related major objects 1. 2. 3. 4. 5. 6. 7. 8. 9.

Customers: customer features, customer attitudes, customer preferences Goals: business goals, service goals, customer goals, enterprise culture goals Inputs: physical, human beings, information, knowledge, currency, constraints Outputs: physical, human beings, information, knowledge, currency, waste Processes: service provision, service operations, service support, customer relationships, planning and control, call center management Human enablers: service providers, support providers, management, owner organization (enterprise) Physical enablers: owner organization (physical) , buildings, equipment, furnishings, location Informatic enablers: information, knowledge, procedures and processes, decision support, skill acquisition Environment: physical factors, economic factors, technological factors, social factors, ecological factors, legal factors

(ii) The decomposition models comprise major objects and their main attributes (a) Customers x customer features: type of customer, number of customers, dispersion of customers, nationality of customers, age of customers x customer attitudes: economic level, social level x customer preferences: functionality versus cost, novelty versus reliability, versatility versus reliability

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(b) Goals x business goals: survival growth, market, profits, leadership x service goals: service level, service flexibility, service uniqueness, service effectiveness, service efficiency x customer goals: service response, service variety, service personalization, customer participation, customer empowerment x culture goals: organizational culture, employee welfare (c)Inputs x physical: materials, goods x human beings: clients (before service) x information: referrals, queries, complaints, authorizations, orders x knowledge: assumptions, plans x constraints: client limitations (physical), client limitations (financial), client limitations (availability) x money: accounts receivable (d) Outputs x physical: materials, goods x human beings: clients (after service) x information: authorizations, contracts, information (statements) x knowledge: lessons learned, plans, warranties x waste: materials x money: payments, earning, profits (e)Processes x service provision: service transformation, after-sales service, field service, customer contact x service operations: operating regime, operating hours x service support: registration, procurement, billing, payment x customer relationships: lead handling, promoting and marketing, customer loyalty management, CRM analytics x planning and control: system constraints, performance measurement, scheduling channels x call center management: call center service (f) Human enablers x service providers: skills, numbers, qualifications, organization, evaluation x support providers: skills, numbers, qualifications, organization, evaluation x management: recruitment, advancement, compensation, style x ownership: ownership type (g) Physical enablers x service organization (owner): type of organization, location of organization x buildings: service facilities, reception facilities, support facilities x equipment: service equipment, support equipment

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x furnishings: service / support / general furnishings x location: service location, location dispersion, access to facility (h) Informatic enablers x information: own catalogues, supplier catalogues, videos, data bases, knowledge bases, contract templates x knowledge: service provision, service support, standards x procedures and processes: service provision, service support, service operations, customer relationships planning and control x decision support: decisionmaking procedures, decision support systems x skill acquisition : training procedures, qualification procedures (i) Environment x physical factors: market location, competitor location, supplier location, subcontractor location x economic factors: economic climate, competitors, suppliers, subcontractors (outsourcing) x technological factors: availability of technologies, availability of procedures, availability of manpower, availability of skills x social factors: political climate, social climate x ecological factors: seasonality, constraints on waste, constraints on noise x legal factors: constraints on customer, constraints on employees, constraints on location, constraints on service fees, standards (iii) A typical attribute base for a repair facility service system (a) Customers (1) economic sector of main customer group: private customers, specialized groups (e.g. hobbyists), industrial customers, government customers, military customers (customer features – type of customer) (2) number of units at customer: single, few, fair number, large number (customer features – type of customer) (3) importance of customer: marginal importance, regular importance, valued importance, trend setter, highly important (customer features – type of customer) (4) size of organization: small-sized organization, medium-sized organization, large-sized organization (customers – customer features – type of customer) (5) number of customers requiring service: very few customers, a fair number of customers, many customers, a large number of customers (customers – customer features) (6) location of customers requiring service: centrally located, located in specific areas, dispersed throughout the country (customer features – dispersion of customers)

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(b) Goals (7) service as a competitive strategy: no competitive service facilities, some competitive service facilities, many competitive service facilities (business goals – survival) (8) service as a selling strategy: an insignificant factor in deciding to buy, a minor factor in deciding to buy, a major factor in deciding to buy, a vital factor in deciding to buy (business goals – market share) (9) methods to reduce operational expense: reduce staffing cost, reduce facility cost, no particular action (business goals – profits) (10) increase availability of product: fast turnaround (time to repair), provide substitute product during repair, no particular action (service goals – service effectiveness) (c)Inputs (11) general reason for service requirement: clarification of usage or operation, minor malfunction and repair, major malfunction and repair, multiple malfunction and repair (information – queries) (12) input to service/repair facility: telephone call – query, telephone call – complaint, part to be inspected/repaired, product to be inspected/repaired (physical – materials) (13) location of spare parts: spare parts inventory maintained on site, spare parts ordered from (local) stock, spare parts ordered from (overseas) stock, spare parts made to customer order (physical – materials) (14) price of individual purchased items: very cheap, inexpensive, expensive, very expensive (physical – goods) (15) intensity of product usage: used infrequently, used fairly frequently, used frequently, used intensively expensive (physical – goods) (16) product life: one-time usage, short life (up to one year), fairly long life (up to five years), long life (more than five years) expensive (physical – goods) (17) product maintenance requirement: no maintenance required, infrequent maintenance required, frequent maintenance required, annual maintenance required (physical – goods) (18) vulnerability to damage in transit: robust, strong, somewhat fragile, fragile and delicate (physical – goods) (19) transportability of product: cannot be transported, transported with difficulty, fairly transportable, easily transportable (physical – goods) (20) how urgently the service is needed: no particular urgency, required within a reasonable time, fairly urgent, required immediately (information – queries) (21) impact if service delayed: minimal negative impact, moderate negative impact, major negative impact, catastrophic impact (constraints – client limitations) (22) problem identification (by customer): immediately identifiable, identifiable with some difficulty, customer cannot identify problem (constraints – client limitations)

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(d) Outputs (23) output to service/repair facility: telephone call – query clarification, telephone call – complaint resolution, part inspected/repaired, product inspected/repaired (physical – materials) (e) Processes (24) usual type of repair required: replacement of minor/standard parts, replacement of major/special parts, rework of damaged parts (service provision – service transformation) (25) customer safety (home repair): not dangerous at all, some danger if customer careless, fairly dangerous, very dangerous (service provision – field service) (26) method of communicating with service: regular company switchboard, special service number (at manufacturer), special service number (to pager), special toll-free number (service provision – customer contact) (27) person receiving customer: reception clerk receives customer, repair person receives customer, repair person receives mobile call (service provision – customer contact) (28) personnel organization for service/repair: single shift (no overtime), single shift with overtime, double shift, round the clock availability (with mobile callin) (service operations – operating regime) (29) service turnaround time: on the spot, overnight, within a few days (service operations – operating regime) (30) service availability: normal working hours (8 through 4), extended hours (8 through 8), according to neighborhood lifestyle, round the clock availability (24/7) (service operations – operating hours) (31) method of registering a repair job: handwritten report, bar code labels and readers, specialized check lists, computerized system (service support – registration) (32) method of advertising the facility: pamphlet with product, mailing to customers, mall advertising, media advertising (customer relationships – promoting and marketing) (f) Human enablers (33) personnel required for service/repair: call center operator, reception clerk, repair technician (service providers – skills) (g) Physical enablers (34) economic sector of organization: general retail, specialized retail, manufacturer/supplier – agency, manufacturer/supplier – direct (owner – type of organization) (35) location of organization: centrally located, located in specific areas, dispersed over the country (owner – location of organization) (36) equipment used to diagnose faults: regular professional equipment, specialized equipment for the product (equipment – service equipment)

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(37) nature of amenity for waiting customers: no amenity (stand in line and leave), special waiting room (furnishings – general furnishings) (38) location of the service center: service is at the manufacturer, service is at a localized service depot, service is at general retail outlets, service is at specialized retail outlets, service is at the customer site (location – service location) (39) method of access to facility: mobile service vans (to customer), special parking facilities, public (mall area) parking facilities (location – access to service facility) (h) Informatic enablers (40) service or repair charge basis: no charge (covered by warranty), standard charge (price list), cost plus, actual cost (information – own catalogues) (41) price of equipment to diagnose faults: inexpensive, expensive (information – supplier catalogues) (i) Environment (42) availability of repair personnel: freely available, fairly available, scarce (technological factors – availability of manpower) (43) method of disposal of rejected parts: local waste collection, return to organization (ecological factors – constraints on waste) We note that the capstone and decomposition models are directly analogous to the two-level business solution maps used by SAP to present its business processes (SAP 2004).

3 Fundamentals of service system design 3.1 Basic definitions Arciszewski et al. (1995) provide general concepts for design, based upon the architecture described in the previous section. A design is a description of a future system in terms of objects, their attributes, and values for these attributes. It consists of two major components: a design concept and detailed design. A conceptual design is a qualitative description of a future system in terms of abstract objects (the functionally essential system components), characterized by nominal attributes and qualitative values for these attributes. The objects are interconnected by general relations – taxonomies or categories. A detailed design is a quantitative description of a future system in terms of concrete objects (the functionally essential system components), characterized by attributes and quantitative values for these attributes. Objects are interconnected by specific relations – functional or mathematical. A design space is a generalized multi-dimensional representation space spanned over attributes (descriptive terms or descriptors) that are used to describe an engineering design (a design concept and a detailed design description).

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3.2 Conceptual design The design space for conceptual design comprises abstract objects, nominal attributes, and qualitative values for these attributes. The associated conceptual design process involves two interrelated searches. The first ‘divergent’ search explores the metamodel to generate a design domain representation space of attributes and possible values relevant to the system being designed. (If pertinent attributes and/or values are not found in the metamodel, the designer can add these to his design space.) Divergence involves a broad search for alternatives. The second ‘convergent’ search analyzes the resultant design space to determine the ‘best’ set of values for the attributes. Thus convergence involves a narrowing down of the alternatives to seek a specific solution (Arciszewski and Michalski 1994; Arciszewski et al. 1995; Karni and Arciszewski 1997). 3.3 Partitions of system attributes At some stage within the design process (section 4), the attributes within the specialized design space become partitioned into two groups. Problem attributes – usually comprising goals, designer intent and environmental aspects – represent the objectives the system is intended to achieve and the circumstances in which the system is intended to operate. They constitute the design ‘input’ and are provided by the system owner and supplemented by the designer. Solution attributes – usually comprising configuration, organization, operations and control aspects – represent the components of the system and are provided by the system designer. They constitute the ‘design output’. In QFD terminology, problem attributes constitute the ‘voice of the customer’; solution attributes constitute the ‘response of the engineer’ (Akao 1990).

4 Service system design methodology 4.1 Design methodology overview The service system design process derives a specialized design space (specific attributes and values) from the generalized design space of the metamodel. The designer selects a subset of objects and attributes and assigns a value to each attribute which best accords with the objectives and constraints specified by the service owner and by him. The synthesis of these attributes and values constitutes a conceptual design of the service system. The process is made up of five stages: (a) Ascertain the requirements of the service owner and design intent – i.e. derive an initial problem model from the metamodel at the nominal attribute level. (b) Develop a design space of nominal attributes for the required system – i.e. derive a system model – candidate problem and solution attributes - from the metamodel at the nominal attribute level.

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(c) Determine a set of potential values for each attribute – i.e. derive a system model from the metamodel at the attribute value level. (d) Create a problem partition (final design requirements) and solution partition – i.e. derive a design problem model from the system model at the attribute value level. (e) Determine the ‘best’ value for each solution attribute (the ‘design’) – i.e. derive a design solution model from the system model at the attribute value level. 4.2 Conceptual design of a product repair facility (see section 2.5 (iii) for the attribute base) (a) Ascertain the requirements of the service owner and design intent 1. Create a preliminary system requirement definition with the owner. The requirement is to design a repair facility for a product manufactured by the owner 2. Specify the system goals with the owner (from the attributes in the metamodel). Adopt service to compete (7) Service as a competitive strategy Reduce operational costs (9) Methods to reduce repair expense Make service hours flexible (30) Service availability 3. Specify the design intent with the owner and designer (from the attributes in the metamodel). Keep waiting customers relaxed (10) Increase availability of product 4. Finalize an initial requirement definition (problem attributes and values). (7) Service as a competitive strategy {some competitive services} (9) Methods to reduce repair expense {reduce facility cost} (10) Increase availability of product {fast turnaround (time to repair)} (30) Service availability {according to neighborhood lifestyle} (b) Develop a design space of nominal attributes for the required system 5. Search for the same or a similar service system in the metamodel system index. The designer locates ‘Product repair facility’ in the metamodel system index and retrieves all attributes and values associated with this service system. 6. Search for the same or a similar service system in the metamodel system typology index. Not required, as ‘product repair facility’ is included in the metamodel. 7. Retrieve a set of attributes using the metamodel capstone (major and main) functionalities inferred from the initial requirement definition, or correlated with the system identified in the system or typology indexes. The designer selects the following attributes from the set retrieved (1) Economic sector of main customer group (5) Number of customers requiring service (14) Price of individual purchased items (26) Method of communicating with service

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(27) Person receiving customer (29) Service turnaround time (38) Location of service center 8. Check the comprehensiveness of the attribute set. The designer checks the retrieved set and the functionalities of the capstone model and decides to add several attributes relating to manpower (human enablers) and equipment (physical enablers). (28) Personnel organization for service and repair (33) Personnel requirement for service and repair (36) Equipment used to diagnose faults 9. If necessary, add a particularized set of specific problem and solution attributes (in addition to those found in the metamodel) inferred from the initial requirement definition, and add to the system model. The designer knows that the given product fault has to be diagnosed by special equipment. Therefore he decides to add an attribute relating to the price of the equipment. (41) Price of test equipment used to diagnose faults (c) Determine a set of potential values for each attribute 10. Retrieve a set of potential attribute values from the metamodel for each attribute. The designer retrieves the potential values for the attributes from the metamodel. 11. If necessary, add further potential particularized attribute values (in addition to those found in the metamodel) for those attributes where the metamodel values are not applicable, or are insufficient or non-existent. (41) Price of equipment to diagnose faults {inexpensive, expensive} (d) Create a problem partition (final design requirements) and solution partition 12. Review the initial requirement definition and infer and assign specific values to the subset of all relevant attributes in the system model. This subset constitutes the set of problem attributes (the problem partition) and comprises the final requirement definition. (1) Economic sector of main customer group {private customers} (5) Number of customers requiring service {fair number of customers} (7) Service as a competitive strategy {some competitive services} (9) Methods to reduce repair expense {reduce facility cost} (10) Increase availability of product {fast turnaround (time to repair)} (14) Price of individual purchased items {very expensive} (30) Service availability {according to neighborhood lifestyle} (41) Price of equipment to diagnose faults {expensive} 13. The complementary subset of attributes constitutes the set of solution attributes (the solution partition) whose values, when determined, comprise the system design. (26) Method of communicating with service (27) Person receiving customer (28) Personnel organization for service and repair

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Service turnaround time Personnel requirement for service and repair Equipment used to diagnose faults Location of service center

(e) Determine the ‘best’ value for each solution attribute (the ‘design’) 14. Prioritize the problem definition by assigning an importance weight to each problem attribute (using AHP (Armacost et al. 1994) or any other weight assignment methodology). 15. Develop a correlation matrix of affinity scores between each value of each problem attribute and each value of each solution attribute. 16. Determine whether there are any interactions (correlations) between the problem attributes. For example, one of the interactions recognized by the designer is that there is a negative correlation between increased availability of product to customer and reduction of repair expenses. 17. Develop a correlation matrix of interactions between solution attributes. 18. Derive a weighted affinity score for each value of each solution attribute. 19. Assign the value with the highest affinity score (the ‘best’ value) to each solution attribute 20. The set of solution attributes and their ‘best’ values constitutes the design synthesis (26) Method of communicating with service {special toll-free number} (27) Person receiving customer {repair person receives customer} (28) Personnel organization for service/repair {single shift with overtime} (29) Service turnaround time {on the spot} (33) Personnel requirement for service and repair {repair technician} (36) Equipment used to diagnose faults {specialized for product} (38) Location of service center {service is at specialized retail outlets} 21. Review the synthesis of problem and solution attributes and values and determine whether a further iteration of the design process is required, or the design can be accepted as final. We note that the attribute base and the final design space are illustrative. Obviously, a comprehensive generalized compilation of metamodel attributes and an inclusive specialized conceptual design will incorporate far more objects and attributes.

5 Functions of the service system design tool The engineering design tool is expected to have the following significant applications: x Service design – the ability to create an individualized conceptual service model as the first step towards detailed design and implementation of a service (For example: an archaeological site needs to set up a tourist bureau to attract

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more visitors. As a first stage, the site operators wish to develop a concept of how the bureau should look and operate.) Model-guided service acquisition – the ability to compare the individualized service model with that proposed by a consultant (For example: the site operators have received proposals from several consultants and wish to compare these suggestions with their own concept of how the bureau should look and operate.) Model-guided service improvement – the ability to use a service model on a what-if? basis to improve the current service structure (For example: an archaeological site wishes to upgrade its tourist bureau as the number of visitors is decreasing. As a first stage, the site operators wish to develop a concept of how a better quality bureau should look and operate.) Model-guided management – the ability to use the individualized service model to plan and implement service management strategies (For example: the tourist bureau employs guides, maintains the signs along the site route, and provides handouts to tourists. All these resources need to be defined, and then planned and managed.) Model-guided service benchmarking – the ability to compare the individualized service model with the structure of other service organizations (For example: the site operators have visited other sites – especially those having success in attracting visitors – and wish to compare the tourist bureaus at these sites with their own concept of how their bureau should look and operate.)

6 Further research We have outlined an engineering tool and design procedure for the conceptual design of service systems. In order to render the tool operative, further research is required in several areas. 6.1 Correlations between problem/solution attributes and values The design process posited in section 4.1 is directly equivalent to ‘the basic concept of QFD … to translate the desires of customers into product design or engineering characteristics’ (Park and Kim 1998). The components of the ‘house of quality’ – customer requirements, design requirements, correlations between design requirements (the ‘roof’), and correlations between customer and design requirements (the ‘matrix’) – find their counterpart in problem attributes and values, solution attributes and values, correlations between problem attributes and between solution attributes, and correlations between problem and solution attributes and values. One step in the QFD process is the calculation of ‘technological weights’, based upon customer weights, the matrix and the roof. This translates into steps 14 through 20 in the design process – computation of an affinity score

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for each value of each solution attribute. Several theories and algorithms have been developed for this purpose within QFD (Wasserman 1993; Park and Kim 1998; Askin and Dawson 2000; Streckfuss 2001a, 2001b; Reich and Levy 2004). Their applicability to our topic will be investigated. The main difference between service system design and product design, using a QFD-based process, is that the dimensions of the design matrix are far larger as they encompass all relevant attributes and all potential values. Further research will contend with practical methods to elaborate the matrix and the roof, and to derive the affinity scores. 6.2 Eliciting owner requirements A methodology will be developed to elicit and analyze characteristic owner needs, preferences and constraints, as expressing the objectives of the system to be designed. These will be based upon marketing research methods and QFD-based technologies for ‘listening to the voice of the customer’ (Griffin and Hauser 1993; Gershenson and Stauffer 1999; Herrmann et al. 2000). Such attributes and values, in turn, will be incorporated into the metamodel to serve as a future guide for ascertaining the requirements of the service owner and designer intent. Further research will investigate issues concerned with prioritization of owner needs and interactions between these needs. 6.3 Service typologies as a guide to service system design In our example, a ‘product repair facility’ model was imbedded in the metamodel (step 5). This served as a springboard for developing the service design. In general, in order to be able to derive recommendations for service structures and operations management it is useful to identify characteristic service ‘types’ as a further viewpoint for service characterization and design (Bullinger et al. 2003) and link these to the metamodel. Fähnrich et al. (1999) have surveyed 282 companies; and have found that ‘customer contact intensity’ and ‘service product variety’ are the most critical typological attributes. Further data will be collected and analyzed together with the current data to develop a taxonomy of typological attributes to be integrated into the metamodel and the design scheme. This will also require research into similarity-based methods for relating organizations and system attributes (cf. Kaner 2004; Kaner and Karni 2004) and similarity-based methods for analyzing and relating typologies and system attributes (cf. Fähnrich et al. 1999; Kaner 2004; Kaner and Karni 2004)

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References Akao Y (1990) Quality function deployment: integrating customer requirements into product design. Productivity Press, Cambridge MA Arciszewski T, Michalski RS (1994) Inferential design theory: a conceptual outline. In: Gero JS, Sudweeks F (eds) Artificial Intelligence in Design. Kluwer, Dordrecht, pp. 295-308 Arciszewski T, Michalski RS, Wnek J (1995) Constructive induction: the key to design creativity. In: Gero JS, Mahler ML (eds) International Round Table Workshop on Mathematical Modelling of Design Creativity. Workshop Notes, Australia Armacost RL, Componation PJ, Mullens MA, Swart WW (1994) An AHP framework for prioritizing customer requirements in QFD: An industrialized housing application. IIE Transactions 26 (4): 72-79 Askin RG, Dawson, D,W, (2000) Maximizing customer satisfaction by optimal specification of engineering characteristics. IIE Transactions 32 (1): 9-20 Berry LL, Parasurman A (1991) Marketing services: competing through quality. The Free Press, New York NY Bullinger HJ, Fähnrich KP, Meiren T (2003) Service engineering – methodical development of new service products. International Journal of Production Economics 85: 275287 Checkland PB (1981) Systems thinking: systems practice. Wiley, Chichester UK Fähnrich K-P, Meiren T, Barth T, Hertweck A, Baumeister M, Demuss L, Gaiser B, Zerr K (1999) Service Engineering: Ergebnisse einer empirischen Studie zum Stand der Dienstleistingsentwicklung in Deutschland. IRB-Verlag, Stuttgart, Germany Gershenson JK, Stauffer LA (1999) A taxonomy for design requirements from corporate customers. Research in Engineering Design 11 (2): 103-115 Griffin A, Hauser JR (1993) The voice of the customer. Marketing Science 12 (1): 1-27 Grönroos C (2000) Service management and marketing: a customer relationship management approach. Wiley, Chichester UK Haksever C, Render B, Russell RS, Murdick RG (2000) Service management and operations. Prentice Hall, Upper Saddle River NJ Herrmann A, Huber F, Braunstein C (2000) Market-driven product and service design: Bridging the gap between customer needs, quality management, and customer satisfaction. International Journal of Production Economics 66 (1): 77-96 Kaner M (1999) A generic description of operations systems. Unpublished M.Sc. Dissertation (in Hebrew). Faculty of Industrial Engineering and Management, Technion, Haifa, Israel Kaner M (2004) Project knowledge management using hierarchical retrieval networks. Unpublished Ph.D. Dissertation. Faculty of Industrial Engineering and Management, Technion, Haifa, Israel Kaner M, Karni R (2004) Training in decision making within project management processes using a knowledge-focusing approach. Working Paper. Faculty of Industrial Engineering and Management, Technion, Haifa, Israel Karmarkar U (2004) Will you survive the services revolution? Harvard Business Review, June: 100-107 Karni R, Arciszewski T (1997) A tool for the conceptual design of production and operations systems. Research in Engineering Design 9: 146-167

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Karni R, Kaner M (2000) Teaching innovative conceptual design of systems in the service sector. Technological Forecasting and Social Change 64: 225-240 Nadler G (1981) Planning and design. Wiley, New York NY Opitz M, Schwengels C (2005) Unterstützung der Dienstleistungsstandardisierung durch Service Systems Engineering. In: Deutsches Institut für Normung (ed) Wege zur erfolgreichen Dienstleistungen. Beuth, Berlin, Germany, pp 22-45 Park T, Kim K-J (1998) Determination of an optimal set of design requirements using house of quality. Journal of Operations Management 16: 569-581 Reich Y, Levy E (2004) Managing product design quality under resource constraints. International Journal of Production Research 42 (13): 2555-2572 SAP (2004) Business Solutions. URL = www.sap.com/business_solutions/industries Streckfuss G (2001a) Das Dach des HoQ. In: QFD-Institut Deutschland (eds) QFD-Forum (Part 14) July: 22-23 Streckfuss G (2001b) Die Dachmatrix und ihre Mehrfachkorrelationen. In: QFD-Institut Deutschland (eds) QFD-Forum (Part 15) July: 24-30 Wasserman GS (1993) On how to prioritize design requirements during the QFD planning process. IIE Transactions 25 (3): 59-65

Integrated Development of Software and Service – The Challenges of IT-Enabled Service Products Dieter Spath1, Christian van Husen1, Kyrill Meyer2, Romy Elze2 1

Fraunhofer Institute for Industrial Engineering IAO, Germany Chair of Business Information Systems, Institute for Computer Science, University of Leipzig, Germany

2

1 Introduction.......................................................................................................86 1.1 Service engineering for IT enabled service products...............................86 1.2 Information Technology for IT enabled Service Products ......................88 2 IT enabled service products as development objects .....................................92 2.1 Definition of IT enabled service products ...............................................92 2.2 System leadership and the interaction of software and services..............94 2.3 Characteristics of IT enabled service products ........................................95 3 Challenges of an Integrated Development ......................................................97 3.1 Problem areas and deficits of an integrated development approach........97 3.2 Success factors ........................................................................................98 4 Procedure model for the integrated development of IT enabled services ....99 4.1 Requirements of the procedure model...................................................100 4.2 Specific procedure model for IT enabled service products ...................101 4.3 Usage of the procedure model...............................................................103 5 Software support.............................................................................................103 5.1 Computer Aided Software Engineering ................................................104 5.2 Computer Aided Service Engineering ...................................................104 5.3 Computer Aided Engineering for IT enabled Services..........................106 6 Conclusions and Future Research Topics.....................................................107 Acknowledgments ..............................................................................................108 References...........................................................................................................109

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1 Introduction Significant parts of the established service economy are being ‘industrialised’ as a result of automation by information and communication technologies. As a result, services in today’s world are increasingly delivered using information technology. The individual configuration and marketing of services on the internet provides a typical example. Suitable software for facilitating interaction with customers on the one hand and supportive back-office activities on the other hand are thus emerging more and more as success factors. At the same time, technological innovations and ever shorter product lifecycles demand accelerated development processes, while customer expectations regarding the quality of service products are rising continuously. These demands can only be met if the services themselves and the supporting software are covered by integrated development processes and adequate account is taken of interrelationships. Scientifically verified and empirically tested procedure models are available in different levels of sophistication for both software engineering and service engineering. To this day, however, there are no models or procedures, which describe the integrated development of software and service products. The reason seems to be the high level of complexity and the issues specific to those development tasks. Therefore, more sophisticated approaches to the integrated development of both software and service components are needed. The authors work in the areas of Service Engineering and Software Engineering. It has been stated repeatedly that a systematically accomplished service development is a cross-sectional task (Bullinger and Scheer 2003). Therefore, the areas of Service Engineering and Computer Science will be described briefly in their role toward an integrated development process for IT enabled Services in the remainder of this chapter. After this, an approach from a research project dealing with the development of IT enabled service products, and in particular with the integrated co-design of software and services, will be discussed. For this task, the first step involves defining what is meant by IT enabled service products. Moving on from this definition, the interaction between software and service products is explained, and the task of service engineering for IT enabled service products is described. This is followed by a description of typical problem areas as well as the success factors and deficits identified in business practice. Finally, a procedure model for the co-design of software and services is presented taking particular account of application related requirements, modular structure and the use to which it is put. 1.1 Service engineering for IT enabled service products ‘Service engineering’ is the specialist discipline, which focuses on the systematic development and design of service products with the aid of appropriate procedures, methods and tools. At the individual service level the issue is which services can be developed and what the associated development tasks are. As far as

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the management of service development is concerned, service engineering also considers the whole range of service development systems within organisations (Fähnrich et al. 1999). Constitutive approaches founded on three dimensions have proved to be suitable for the conceptualisation of services on the basis of various definitions of services (Donabedian 1980; refer also to Maleri 1997; Kleinaltenkamp 1998). These three dimensions are structure, process, and outcome. Concepts and models have to be elaborated for all three, in order to be able to develop service products. The outcomes of the development of service products are thus resource concepts, process models and product models (Fähnrich et al. 1999; Meiren 1999). It is useful to develop a marketing concept in parallel to this, in order to safeguard the envisaged market success of the new service. Figure 1 shows the relationships.

Outcome

Process

What?

Product model

Structure

How?

?

Process model

What with?

Resource concept

Marketing concept

Fig. 1. Design of services

The product model describes the service product to be developed. All the service contents and the structure which links them must be specified in a product model (DIN 1998; Grabowski et al. 1993). Ideally, therefore, the sub-services that make up extensive service products should be modular, so that the overall product structure can be kept as simple and as transparent as possible. Specific customer requirements can then be taken into account by combining different modules (‘customising’) and satisfied efficiently by the offering company thanks to their clearly defined structure. The product models, which describe what a service does, must be followed by process models, which specify how the service is provided. It is important to ensure that all the process steps are specified and the associated interfaces defined. Above all, the processes must be represented transparently and lucidly, because they need to be understood by every single employee. Process optimisation should be a further priority from the beginning on. Subsequent modifications, which are likely to be costly, can be avoided this way. Process steps, which add no value, should be eliminated along with unnecessary media discontinuities, while parallel,

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timesaving handling of sub-processes should be actively encouraged (Bullinger and Meiren 2001). The role of resource concepts is to plan the deployment of resources – an essential precondition for the efficient provision of a service. They cover planning activities relating not only to personnel requirements but also to the use of operating facilities as well as information and communication technologies. The planning of personnel requirements is particularly important (Freitag 2002). As shown in Fig. 1, a marketing concept needs to be developed parallel to the product model, the process model, and the resource concept. This specifies not only the marketing strategy but also the marketing mix. The marketing strategy identifies the target groups, positions the new service product strategically within the overall portfolio, and defines the internal competencies for marketing activities. The marketing mix then specifies all the measures and instruments that are necessary to support sales of the new service product. In other words, the ‘four Ps’ (product, promotion, place, price) must be realised in the marketing mix. Procedure models support the planning, steering, and monitoring of service projects by stipulating the documentation of project flows, project structures, and project responsibilities (Bullinger and Meiren 2001). In practice, phase models are used most often as they are not only easier to understand and to use, but they also provide a high degree of process transparency (Bullinger and Meiren 2001; Schneider et al. 2003). Commercial, engineering, and specifically service-related methods may all find their way into the service development process and are used in the analysis, modelling, and design of products and processes, in innovation management, or to involve customers. Ideally, the implementation of methods is supported by appropriate tools. 1.2 Information Technology for IT enabled Service Products The role of computer science in general in the context of the development of IT enabled Service Products is multilayered. On the one hand, the service engineering process is supported through the employment of information and communication technology. For example, software must be provided to support the development process of services and the persons taking part in the engineering process as well as possible. On the other hand, nearly all projects, for which service products are to be developed, make more or less use of information and communication technology. In nearly all cases, there is a need for new developments or adjustments of software and hardware components. Due to the organization of these systems, the efficiency of the services is often considerably affected and their degree of flexibility is specified. Therefore, software engineering plays a special role in the development of IT enabled Service Products. In comparison to service engineering, software development has a longer tradition. Extensive procedure models and support tools are established and are available for the production of software (Balzert 2000). In regard to the development of IT based services in particular, a

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close co-operation between the existing concepts in service engineering and software engineering is required. Because the requirements for software are very high and are still increasing, the software development process is not an easy task to handle. This is the field that the scientific discipline of software engineering, whose goal it is to accompany the development and utilization process of software with extensive engineering knowledge, works in. Software Engineering, or also software technology, describes the branch of computer science that deals with the ‘goal-oriented provision and systematic utilization of principles, methods, and tools for the distributive engineering development and application of extensive software systems’ (Balzert 2000, p. 36). The development process of systematically developed software is complex and includes a series of sub-disciplines, which correlate closely throughout the whole process. These comprise the development and management of software as well as software quality management (Fig. 2). A development process is usually considered one project. Within the scope of such a software development project it is determined how long the software development will take, which goals are pursued, which problems must be solved, and which methods will be used as well as which persons will take part in which roles, which risks exist, and what the costs will be. software engineering

software management

software development

software quality management

planning

planning

quality assurance

organisation

definition

inspection methods

control

draft

process quality

checkup

implementation

product quality

acceptance and introduction maintenance and support Fig. 2. Sub-disciplines of software engineering (following Balzert 2000, S. 39)

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Therefore, several individual sub-disciplines must be applied in a software project (Fig. 3). This presents various tasks and activities, which must be put in a logical order within the structuring process. This can be done with the help of procedure models. A procedure model is an abstract presentation of the software process in its development (see Sommerville 2001, p. 56). A procedure model can thus be seen as a process model, which determines the general procedures when developing and operating a software product. Within the procedure model it is specified, which activities must be done by which person in which order, what this results in and how the results can be validated. In software engineering there are several procedure models that can be differentiated according to the type of their postulated procedures. In principle, there are sequential and iterative procedure models (Bunse and Knethen 2002). Furthermore, there are some special types of models, such as prototype models, which can be run sequentially or iteratively, or reverse engineering, which analyses and copies known products only. Beyond that, so called agile procedure models gain more and more in importance. These can indeed also be considered sequential or iterative process models, but the crucial point in the approach here is mainly flexibility during the development. 1.2.1 Sequential procedure models Sequential phase models, such as the waterfall model, the V-model, and the OMTModel have a linear course of development. All actions are performed one after another in several stages. The individual phases are assigned to stages of development (see Fig. 3). stage 1 action a

result

stage 2 action a

stage n

result …

action a

action b

action b

action b

…

…

…

action x

action x

action x

result

Fig. 3. Sequential course of development

The results of a stage are recorded as documents, which serve as starting points for the following stages. The transition to a new stage, however, is only possible if the preceding stage was completed. Regresses, loops, and the repeated execution of previously performed development steps are normally not permitted, and are only possible in individual cases, such as the recognition of errors in the results of a previous development stage or altered requirements for the development. This restriction requires the persons taking part in the development process to deter-

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mine the prerequisites very early, which can be seen as a disadvantage. An advantage, however, is the simple management and the usually clear separation of draft and implementation, out of which very robust systems can evolve. The waterfall model is considered the most famous example of sequential procedure models (Sommerville 2001, p. 57). 1.2.2 Iterative procedure models In contrast to the sequential succession of linear procedure models, with iterative procedure models, not only one run of the procedure model but several repetitions of individual development steps are intended (see Fig. 4). The main idea here is to develop a software product in increments. This leads to a course of development that performs individual development steps based on an increasing amount of requirements. With each cycle, functionality, compared to the results of the last run, is increased. The advantage of such an approach is that it allows postponing detailed decisions about requirements and concept until first experiences with prototypes have been made. Of course in this case, too, requirements and performance parameters have to be specified roughly first. With such an approach, it appears to be difficult to determine which sub-systems of which size influence which development cycle. The most known example for an iterative procedure model is the spiral model (Sommerville 2001, p. 65). stage 1

stage 2

result

action a

action a

action b

action b

…

…

action x

action x

result

stage 2 action a action b … action x

Fig. 4. Iterative development process

result …

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2 IT enabled service products as development objects The term ‘IT enabled service product’ (Backhaus et al. 2002; Böttcher and Meyer 2004) has been coined to articulate the development of an economic system whose peculiar feature is the support, which information technology provides in the context of service provision. As such, the term provides an intuitive catchall phrase, which captures the general trend towards an ever closer interaction between services and information technology in the development and delivery of services. Given that in the past it has usually been approached in an extremely vague manner, and bearing in mind that a generally accepted scientific definition is lacking, the authors will begin by providing a definition of ‘IT enabled service product’. Furthermore there will subsequently be a consideration of the interrelationships between information technologies on the one hand and software and services on the other, as well as approaches for co-design. 2.1 Definition of IT enabled service products Any investigation of the process of developing IT enabled service products must assume that the services produced can be made tangible and can be unambiguously differentiated from other products. In order to place the topic in its proper context, we will first explain what is meant by IT enabled service products. An overview and examples are provided by an enumerative list in the form of a generic classification of IT enabled service products drawn up by the Government of India’s Ministry of Communications & Information Technology: x x x x x x x x

x x x

‘Customer interaction services such as call centres Finance and accounting services such as back office data processing for airlines, etc. Engineering and design services such as outsourced design activities Human resources services such as outsourced payroll preparations, etc. Animation for movies and TV serials, cartoon strips, etc. Translation, transcription, and localisation such as medical transcription services. Network consulting and management covering outsourced network designing and maintenance. Data search, integration, and analysis covering areas such as preparation of legal data bases, research & preparation of reports based on data bases on past records, etc. Marketing services such as bureaus for marketing products or services based on call centres or local market databases, etc. Web site services for creating site contents, advertising, etc. Remote education for utilising IT infrastructure to strengthen formal education system for remote and expertise starved areas.

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Medical consultancy by providing expert advice based on data or making available databases. Secretarial services through bureaus which utilise information technology for offering secretarial help.’ (‘IT enabled services’ 2005)

This procedure must, however, be criticized from a scientific point of view as it is not only very difficult to draw up an exhaustive list of all existing IT enabled service products – such a list would also have to be continually extended and this would make it practically impossible to arrive at a final definition of IT enabled service products. The most promising method of distinguishing these services from other fields is to come up with a definition of IT enabled service products, which draws on their constitutive features. In this context the term ‘IT enabled service products’ encompasses three areas, which are characterised by the different nature of the links between the relevant services and information technology in each case (Fig. 5). These may be software products enhanced by accompanying services, services provided by means of information and communications technology, or complex hybrid forms of services and information technology. IT enabled service products

IT accompanying service products

Service and IT as hybrid product

IT supported service products

Fig. 5. Forms of IT enabled service products (Böttcher and Meyer 2004)

This three-way categorisation of IT enabled service products leads to the following definitions – each of which follows from the one before and none of which are mutually exclusive. ‘A service may be referred to as IT enabled if, in order to deliver the service efficiently, it is absolutely essential that information technology is deployed in the processes which are relevant to the creation of value.’ (Fähnrich 2004) As IT systems play a supportive role in almost all companies today, this definition also states that the sheer existence of general computer systems (including operating systems and additional programs such as MS-Office programs, browser, etc.) is not sufficient in itself to classify a service as being ‘IT enabled’. Bearing in mind IT enabled service products whose basic product is information technology itself, and taking additional account of enhanced efficiency and customer requirements, this definition could be expanded as follows:

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IT enabled service products are services, which provide customer benefits that are largely generated by the use of information and communications technology. They manifest themselves in the form of services, which can only be delivered efficiently and in their entirety by using information and communications technology, or alternatively as services in support of information and communications technology products, as well as complex hybrid products consisting of services combined with information and communications technology products. (Böttcher and Meyer 2004)

2.2 System leadership and the interaction of software and services

Software/IT complexity

Consideration of the different forms of IT enabled services always leads to the issue of system leadership of services or software (or information technology) and the resulting interaction of both. This also implies a statement as to which of the two components actually constitutes the real basis product. This can be visualised using a 9-field matrix (Fig. 6).

High

Co-design of Software

software and

Engineering

services

Medium

Service Engineering

Low

Low

Medium

High

Service complexity

Fig. 6. System leadership and the interplay between software and services in the case of IT enabled services

The term complexity used in this diagram refers to the complexity involved in delivering the relevant product. There is a particularly close correlation between the complexity of the product and that of its development when writing software programs. A similar relationship can also be assumed regarding the complexity of the development and delivery of services. The complexity of software can be defined as follows: Software complexity is a characteristic of the software and describes the work involved in its development, testing and maintenance. In this context, it is essential to bear in mind that a significant relationship exists between the level of complexity and the number of er-

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rors found during testing and operation. A number of different ways of measuring this complexity are dealt with in the literature: x x x x

Measuring lines of code (LoC) excluding comments and space lines. Structural complexity based on McCabe – evaluation of the complexity of process structures. Halstaedt – Focus on operands and operators. Rechenberg – Total complexity is the product of the complexity of instructions, expressions and data.

The complexity of the service itself has not been defined as succinctly in the scientific literature and very little use has been made of measurement methods. One way of describing service complexity states that the complexity should ‘not be understood in terms of the complexity of problems or structures. In this context, complexity relates to the ability of systems to take on a number of different statuses over a specified period of time and the way this influences how they are grasped intellectually and controlled by people. In terms of service complexity, the system is seen to consist of the service provider, customers, type of service, and other environmental influences. A service is thus categorised as increasingly more complex the more different statuses this system is able to assume during the service creation process, whereby the service process incorporates the potential, creation and output phases.’ (Ahlert 2001) With regard to system leadership, only if a product’s software and service elements both evince a medium to high degree of complexity – in other words if it is a product of the type defined in the four fields to the top right – can it be defined as an IT enabled service product and as such taken into account in the following. It becomes apparent that in each case the basic products also play the key role in the creation and provision of the overall product. This means in effect that the terms of reference and production specifications are stipulated either by the department concerned (if the service is the system leader) or by the IT department (if the software is the system leader). Closer cooperation is only observed to take place between both departments if both aspects of the product form a tightly interwoven whole. 2.3 Characteristics of IT enabled service products IT enabled services exhibit all the characteristics of typical services as well as being strongly influenced by the associated software. As a result, the relevant special features not only have to be taken into account in the service development process, but the software and service development processes must also be coordinated or even become integrated. The specific problem that regards IT-enabled services relates to the interdependencies between the two components: service and software. While the specification of the service will usually influence the specification of the software, the feasibility of the IT solutions also usually needs to be taken into account when conceptualising the service itself. In fact, the quality of the service deliverable can

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in many cases only ever be as good as the quality of the supporting software. Appropriate account must also be taken of this relationship during the development process. If the development engineer for the subordinate component is integrated at too late a stage, the efficiency of the overall process will suffer in practice and it will be more difficult to take account of interrelationships. An additional hurdle to be surmounted is not so much the current status of research as everyday practice at the company level – in other words, the fundamental way in which services are understood as products that need to be developed and delivered in a systematic manner. However, no such systematic approach will be possible until services are regarded as products on a par with tangible goods or software. All in all, companies have most of their catching up to do in the field of service development. Three different categories of products can be distinguished, each of which places different demands on the development process. In the case of services that merely require IT support during the delivery phase, the focus is squarely on the development of the service product itself; the software process, in contrast, must be integrated into the overarching service development process. Despite the subordinate role of the software, the feasibility and given IT setting still needs to be verified and taken into account in the early phases. The second case describes solutions, which encompass a total package of software and services, which is offered to the customer as a tailored solution. The third group consists of a service bundle in which the software is the main component and is supplemented by product-related services. Service driven

Software driven

Total solution

Development outlay

Development outlay

Development outlay

Service

Software

Software

Service

Software

Service t Idea

Market launch

t Idea

Market launch

t Idea

Market launch

Fig. 7. Development outlay involved in IT enabled service products (Husen 2004a)

Company studies have shown that the development processes for IT enabled service products have a number of special characteristics (Husen 2004). Most of the work and expense involved in developing software components is usually incurred in the second half of the development process. Figure 7 shows the typical development process in each of three different cases considered. Depending on the components driving the development process, the actual development phases for each type of project are likely to be out of sync with each other. On the other hand, inverse curves are characteristic for total solutions. While the work and expenses involved in software development increase slowly, peak, and finally drop down again at the end of the process, the work and expenses entailed by service

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product development begin at a very high level during the early phases, decline during the middle phases, and increase again during the concluding phases leading up to market launch. This is the pattern for solution providers, who provide a service in the form of a detailed requirements analysis, use the analysis to create the software, and finally provide implementation services (Husen and Opitz 2004).

3 Challenges of an Integrated Development The challenges that are addressed in the context of an integrated development of IT enabled service products are subject to current studies. Recent work of the authors includes an empirical survey and 20 interviews with company experts (Husen 2004a). This integrated study identified current software and service development weaknesses in an integrated consideration and – particularly in service development – practical implementation and requirements management. In contrast to the existing technical perspective, there is also a need to strengthen companies’ customer orientation. 3.1 Problem areas and deficits of an integrated development approach Most of the companies interviewed in this survey did not operate a formalised service development process. In fact, services tended to be developed on a predominantly ad hoc basis, drawing on individual experiences. However, there is a recognised need for a more systematic approach. The survey also revealed a desire for more intensive support for the development process from suitable methods and tools, or even a corresponding IT platform. The interviews showed that business management methods are mostly brought to bear on current development processes, although the picture is a great deal more varied when it comes to special service design methods. While procedure modelling is used quite frequently, methods such as service blueprinting, QFD (Quality Function Deployment) or FMEA (Failure Mode and Effect Analysis) are rarely employed in practice. Among the specific tools available, only the process modelling software plays a significant role. Further weaknesses, and need for action, within the development process were also apparent with regard to the performance of a sound requirements analysis and in the field of requirements management. The development phase plays a decisive role in terms of the quality of service deliverables, as it is here that the groundwork is laid for stable processes as well as for possible sources of error. A quality orientation in the development phase is thus closely associated with a formalised or structured approach. Many companies that have tended in the past to focus more on the technical issues in the field of software engineering are now going through a process of change and are increasingly placing greater emphasis on quality in the development process. A number of promising approaches are being taken by companies that show a rather mid-

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dling performance in terms of the quality aspects of the development process. However, there is still much which needs to be done by these companies, particularly in comparison with the development process for goods or software. In the realm of practical implementation, improved cooperation between service and IT functions is seen as desirable. Software and service developers often come from different areas of professional activity, so therefore different perspectives, language, ways of thinking and of understanding their roles all represent considerable obstacles in the practical implementation of development projects. Given that, in addition to an integrated process, good collaboration between both areas is a prerequisite for success, co-design in the companies should not be understood as just a project or as process-related but also as a cultural challenge. 3.2 Success factors To date, four positive influencing factors can be identified in the development of IT enabled service products: x x x x

Formalised approach based on a defined process, Customer focus and integration in the development process, Detailed requirements analysis, Speed and flexibility.

Companies, which already pursue a formalised development process in the form of a defined project approach or procedure model, see this as being a strength. Product models, procedure models, resource concepts, and marketing concepts are used during the service conceptualisation phase, whereby the degree to which these are used varies from company to company – in some cases this may even be restricted to single elements. Companies that already see themselves as placing an above-average degree of emphasis on quality issues are particularly likely to identify a defined development process as the source of their quality achievements. This is also put into formal practice by an orientation towards quality models such as Bootstrap, EQA (European Quality Award) or ISO 9000. The most significant factor for success is probably the matching of final products to customer requirements. The best way of achieving this is by integrating customers in the development process itself. An orientation towards customer requirements plays an increasingly crucial role the more individual the product offering is. The IT enabled service products observed were often very customer specific, which in turn explains why most of the companies surveyed involve their customers in the service development phase, in many cases throughout the entire development process. Customer information is recorded indirectly and taken into account even in those cases in which customers are not integrated in the process. In many cases, integration occurs on a continuous basis throughout the entire development process. Customer information obtained from surveys, feedback, and a satisfaction index are also used as yardsticks to measure quality-oriented development. One third of the companies even confirmed that ideas for new services regularly originate with their customers. The need for new or improved services is

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identified by meeting and discussing issues with the customer or undertaking collaborative project work. Many ideas are also generated by employees in contact with the customer. Another phase that plays a key role in terms of customer integration is the requirements analysis. The precise nature of customer requirements is determined indirectly in such cases and, in some companies, the customer may even have a major influence on the prioritisation of requirements. At the end of the development process pilot customers are involved for testing purposes. The most frequently used tools for ensuring that customers are integrated consistently throughout the process are customer focus groups and prototyping. Closely related to customer integration is the performance of a detailed requirements analysis. Only if the correct requirements are recorded from the outset it is possible to ensure that the product under development will be both functional and marketable without the need for subsequent and expensive modifications. As companies often have experience with the systematic analysis of requirements for software projects, this is an excellent starting point for an integrated development approach. In some companies parallels exist between the requirements analysis for service and software development. The same methods and tools are used, and an integrated list of requirements may even be collated. The classification of requirements into strategic, functional, organisational and market-related requirements, for example, facilitates prioritisation, conceptualisation and verification. The IT industry – in both its hardware and software segments – is increasingly characterised by innovations and shorter product lifecycles. Whenever services make fundamental use of information and communications technology, these developments also influence the framework conditions for service development. Many of the companies studied therefore believe that speed and flexibility are important strengths of their development processes. The interpenetration of resources and knowledge, the reusability, customisability, and modification of existing elements as well as a basic ability to change and the know-how required for the purposes of methodical implementation are essential prerequisites for operating flexibly in a dynamic environment (Husen 2004b).

4 Procedure model for the integrated development of IT enabled services Procedure models play a basic role in the systematic development of IT enabled service products. A process model for the integrated development of software and services must describe which activities need to be performed and in which order, what the responsibilities are for these activities, and what the outcomes are. Furthermore, suggestions are provided about how activities might best be carried out. The procedure model thus forms the basis of project and quality management in development projects. A procedure model for the integrated development of software and services for IT enabled service products is described in the following part.

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4.1 Requirements of the procedure model IT enabled service products confront project managers with the challenge of selecting a suitable procedure model at the crossroads between two contrary paradigms. Owing to the mix of service and information technology, a decision needs to be made as to which element plays the pivotal role. If the final product is primarily a service which makes use of information technology, a service engineering model is likely to be chosen in most cases – the IT will ‘get done on the side’ somehow. If the final product is a piece of software, for example, a tried and tested software engineering model will be used and the associated service will be dealt with incidentally. This does, however, bring with it the danger that part of the final product is designed and planned in a highly structured way with the other part growing in a rather perfunctory and uncoordinated way alongside it. The limitations of this approach are confronted at the latest, however, when an attempt is made to engineer a project with service complexities which are on a par with the information technology complexities – this is when the lack of an overarching or parallel co-development strategy is most likely to become apparent. A procedure model for the development of IT enabled service products must therefore meet the following requirements: x Strong claim to universality – the procedure model must exhaustively describe the process by which an IT enabled service product is created. x Applicability – it must be possible for the product development process to be constructively supported by the procedure. Software and service engineering elements must be taken into account in particular. x Customisability – the procedure model must be suitable for use in many different types of potential development projects in areas in which software and service development each play a more or less dominant role. x Task centred – the outcome of the development process is an IT enabled service product. x Reusability – both the procedure model itself and the information generated during the service creation process must be stored in an appropriate manner and be made available as and when required. If these requirements are met, the procedure model can be used in the development of an IT enabled service product. This means that development projects, in which the complexity of the service development and the software may be regarded as medium to high, can be completed more efficiently and with higher quality outcomes by following a procedure that takes explicit account of co-design interdependencies. Furthermore, it must be clear what exactly the procedure model should describe. It is obvious that the activities to be performed within the model must elaborate the constituents of IT enabled services. These constituents must reflect the parts typically constructed by software engineering and service engineering (see Fig. 8). Ideally, these parts should be considered components, since this enables the reuse of individual constituents of an IT enabled service via well-defined interfaces in other services. In the context of research for an integrated develop-

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ment of software and service, this characterisation called a meta-model for IT enabled services plays an important role. IT enabled service products

components for IT enabled service products parts typically constructed by software engineering

parts typically constructed by service engineering

Fig. 8. Meta-model for IT enabled services

4.2 Specific procedure model for IT enabled service products A number of different procedure models are known and used in the field of software development. Examples include the waterfall method, the V model, objectoriented models, the spiral model or prototype models. In the real service development world, however, only quasi-phase models – with widely varying numbers and types of phases – tend to be used. As far as the authors are aware, procedure models which deal explicitly with the integrated development of software and services have not yet been developed and used in research and practice – despite the significance, as shown in the previous sections, of such an integrated development approach. One of the reasons for this omission is a narrow focus on individual disciplines. Software developers (in their role as IT experts) and service developers (who often come from a business management background) quite simply speak different professional languages, as a result, and the scope for cooperation is limited. New complex tasks, such as the integrated development of software and services, are dependent on a co-working approach, however. This collaboration should be supported by providing a suitable conceptual framework. In addition to service engineering methods and tools, procedure models play a basic role in the systematic development of IT enabled service products. A process model for the co-design of software and services must describe which activities need to be performed and in which order, what the responsibilities are for these activities, and what the outcomes are. Furthermore, suggestions are provided about how activities might best be carried out. The procedure model thus forms the basis of project and quality management in development projects. A procedure model, which is currently under development in a research project, can be used for the co-design of software and services. This procedure model is

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phase-oriented and integrates individual process steps in the form of modules. The following product development phases are distinguished: x Project initiation (may include finding and selecting ideas as well as the initial project management) x Definition phase, x Analysis phase, x Conceptualisation phase, x Realisation phase x Test, x Launch / Rollout x Project completion (continuing improvements during the operation as well as issues of use, project results and termination of an IT enabled service may play a role here)

Rollout

Project completion

Test

Realisation phase

Analysis phase

Definition phase

Project initiation

Conceptualisation phase

The special co-design element is taken into account by distinguishing three development module layers (Fig. 9), whereby project initiation and completion are applicable to all types of development. Depending on whether the priority is service or software engineering or integrated development, one layer is defined as a master and the other development modules are subordinated to it. Each of the modules assigned within each layer includes the procedural steps required for the processing of one phase.

Integrated Engineering Layer

termination

Software Engineering Layer

further improvements

initial project management

finding ideas

Service Engineering Layer

Fig. 9. Basic procedure model structure

In this context, the service engineering layer contains the service development process steps while the software engineering layer contains the software development process steps, and the integrated engineering layer encompasses complex dovetailing process steps as well as consultation and review elements.

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The development modules that can be combined to form an integrated procedure model should have a standard structure. Elements of the modules may include a suitable name, initial information, an outcome, role descriptions, methods and support tools. 4.3 Usage of the procedure model Development projects for IT enabled service products can be performed with the help of the procedure model described in the last section. As the claim to universality means that the procedure model will generally describe more process steps than are required for a specific project, the model should be used as follows. 1. Determine the scenario. Is the aim of the project to develop software products that will be supplemented by services, or services that will be provided by means of information and communications technology, or complex hybrid forms of service and information technology? 2. Select a reference model. A reference procedure is chosen according to the selected scenario as well as additional key data (project volume, number of participants, etc.), which consists of a subset of the modules in the procedure model. 3. Tailoring. The proposed reference model must be adapted to the specific project. This involves both final decisions regarding process steps as well as the assignment of resources. 4. Performance of the development project. The process steps are undertaken and the product is developed. Ideally, the procedure model is used in the way described here with the support of appropriate software.

5 Software support In order to guarantee the application and manipulation of the above procedure model in daily practice, software support is necessary due to the complexity of the model. To date there are, however, no standardised and consistent information technological support tools. In the following chapters, the approaches to service engineering and software engineering will be introduced shortly, since they might serve as the basis for an integrated development approach. Afterwards, a first prototype of a software for supporting the development of IT enabled services will be presented.

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5.1 Computer Aided Software Engineering The support of software development through tools has a long tradition. Typical tools are, for example, text editors, assemblers, translators, testing aids, module libraries, and other tools with limited functionality. In addition, for a few years there have also been tools for the early phases of software development, such as editors for data flow diagrams, entity-relationship-diagrams, Petri nets, etc. Usually, these tools serve the purpose of analysing and modelling, and thus support primarily the draft as well as the development of technical concepts with the help of graphically oriented drafting methods. Since only a certain part of the development process can be supported with these tools, other tools have been established, which are supposed to support the whole software development process with the help of information and communication technology. These CASE tools (Computer Aided Software Engineering) are based on the assumption that professional software development is no longer possible without the support of computers throughout the whole process. Computer Aided Software Engineering (CASE) therefore describes software, which is used to support software processes such as requirements analysis, draft, program development, and tests (Sommerville 2001, p. 75). With the help of the CASE technology, it will be possible to support software development processes by automating some operations and supporting efficiently the exchange of information between the individual development phases. In order to develop software, the utilization of such tools is recommended and often even necessary, however, it does not guarantee a broad and sufficient development. There is a differentiation between x CASE tools that offer single or multiple functions or services needed for the development of software, x CASE platforms that can provide basic services as frameworks such as a general user interface, a repository for data management and a news service (Balzert 1998), and x CASE environments, or also called software development environments, which consist of CASE tools and CASE platforms. 5.2 Computer Aided Service Engineering In service development as well, an integrated tool support similar to the CASE environments is aspired. This is expected to increase quality and efficiency of the service product development significantly. In practice, a series of information technological tools is used in the field of service engineering. Many of these tools facilitate the operative day trade, however, without being able to provide the aspired extensive methodical and textual support. This includes classic office applications such as text programs, spreadsheet programs, as well as presentation and graphics programs, which can be used throughout the entire development process as documentation tools (see Spath

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2003, p. 66). Furthermore, there are also tools that provide methodical or textual support. The focus of these is mainly on supporting the individual phases of the development process. In the first phase of finding and assessing ideas, programs are used, which can be summed up with the term ‘groupware’. These systems mainly support the communication and coordination between persons and their tasks that have to be performed cooperatively or are difficult to standardize or automate. In this phase of design, tools from the field of business process re-engineering are utilized, which allows for a systematic and structured modelling of operations. In addition, tools from project and business process management as well as tools for supporting individual methods and knowledge management software are used (Heckmann 1998). These tools, however, are much less common (Spath 2003, p. 66). In the following part, further differing information and communication techniques, which play a role in service development, will be presented (Heckmann 1998). x x x x x x x x x x x x x

Decision support systems, Process modelling tools, Desktop conferencing, Document management, Electronic discussion forums, Electronic group calendars, Virtual meeting rooms, E-mail, Mobile agents, Project management tools, Shared databases, Shared editing tools, and Workflow management tools.

So far, there are, however, no widespread extensive tools that support a consistent development of services. Usually, the tools are limited to a certain phase, without communicating with the systems about preceding or succeeding processes. So the difficulties that the tools present are mostly the insufficient possibility for integration in superordinate platforms and environments, and therefore the related issue of interfaces and media break. The field of service development therefore aims to develop and establish a Computer Aided Service Engineering. This would include appropriate platforms or service development environments, which, in addition to textually and methodically supporting the service development process, could influence and control the coordination of information flow between the individual phases of development and the contributors, and thus better enable collaborative working. Some of the first approaches in this regard are discussed within the scope of the research project CASET in (Scheer 2004).

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5.3 Computer Aided Engineering for IT enabled Services IT enabled services are marked by the interaction between software and service. Methods and tools from Software and Service Engineering thus play a role in developing such a product package. Individual tools from Software and Service Engineering can therefore serve as tools for the development process of IT enabled services. The possibility of using these tools, however, implies at the same time a clear separation of the development of the service and the software parts. To date no consistent environments for an integrated development exist. An integrated tool for the engineering of IT enabled services must support all the phases of the development processes of software and service. For this reason it seems appropriate to realise a software-based support by supporting the preceding model. Such assistance means that the operation must first be configured for the development of an IT enabled service in a specific case, from a general or domainspecific model to a customized procedure. This procedure must then be able to be edited and run with the help of an appropriate project management and a workflow support. During the individual steps of this procedure, it will be necessary to have the possibility of addressing the accordant tools of service and software engineering. Ideally, an exchange of information should be able to take place, meaning a joint data basis should exist or the meta-model of the IT enabled service should be available in the form of an appropriate descriptive language. This is shown in Fig. 10.

general model

domain-specific model

project-specific model

description and adaptation of the preceding model

workflow control

project control

data basis and interfaces

project operation

Computer Aided Software Enginering

Computer Aided Service Engineering

application of tools

Fig. 10. Parts of a Computer Aided Engineering for IT enabled services

In the context of the current research, a prototype for the realization of such a supportive architecture could be realized (Fig. 11). Thereby, the initial modelling of the procedure model is realised as a process model within the ARIS tool envi-

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ronment of IDS Scheer AG. After the adaptation of the model, the project is implemented with the help of a web-based tool, which carries out the workflow and project control and has appropriate interfaces to tools of software engineering and service engineering at its disposal. At the same time, with the help of this tool, a common data basis is created for the results generated in the individual steps.

Fig. 11. Screenshot of the prototype for the development of IT enabled services

6 Conclusions and Future Research Topics As services grow in importance, they also tend to be accompanied by IT support to an increasing extent. IT enabled service products have consequently become a highly relevant object of study. In such contexts the relevant software represents a resource that requires a considerable amount of development input – in certain circumstances more than even the service product itself. The integration of these processes is a key task in the development of both components – software and service. The implementation options using supporting software should be taken into account at the very outset of the service development process, and interdependencies between services and software play an important role during the entire process. The integration of customers in the development process is of crucial importance

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and in practice this currently takes the form of customer focus groups, prototyping and pilot projects. Company-based studies of the development of IT enabled service products have demonstrated that, at the present time, predominant use is made of commercially oriented business management methods. The picture is a great deal more varied, however, as far as special service design methods are concerned. While process modelling is used quite frequently, methods such as service blueprinting, QFD or FMEA are seldom employed in practice. Among the specific tools, only the process modelling software plays a significant role. Alongside issues relating to the coordinated development of services and software, weaknesses and need for companies to take action are currently identified in the fields of service development and the management of requirements. A formalised development process, methods and support, as well as an IT platform, are all regarded as necessary resources for the future development of services. Bearing in mind that IT enabled service products manifest themselves in a wide variety of extremely heterogeneous ways, a formalised development process would need to do justice to both common features and differences. Solutions should therefore be sought in a module-based procedure model. Drawing on specific types of criteria a reference model is adopted and tailored to enable suitable methods and tools to be used for the concrete development project. This modular concept should be realised step by step. At the end of this process there should be a software-based support that implements the generally described framework. Studies undertaken to date have again clearly underlined the need for further research into the co-design of software and services. More attention may also need to be paid to the implementation of the insights provided by service engineering, as everyday practice still appears to differ considerably from the current research findings. Above and beyond the co-design of software and services, IT enabled service products represent a highly topical field, which is constantly growing in relevance. The deficits currently existing in this area, are matched by the potential which is likely to be generated by research into new strategies, methods and instruments. IT enabled service products offer a fruitful topic for further research.

Acknowledgments Funding for the research leading to these findings was provided by the German Federal Ministry of Education and Research (Bundesministerium für Bildung und Forschung BMBF) in context of the ServCASE research project, grant number 01ISC36B.

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II Service Management

From Service Management towards Service Competence An Entrepreneurial Approach Urs Fueglistaller Swiss Research Institute for Small Business and Entrepreneurship, University of St. Gallen, Switzerland

1 Introduction.....................................................................................................114 2 Service Competence – Challenge for SMEs..................................................116 3 The Core Capacities of Service Competence ................................................120 4 Future Research Topics in Service Competence ..........................................126 References...........................................................................................................127

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1 Introduction The shift in entrepreneurial approach from service management to service competence can be demonstrated by using examples from everyday, real life situations. The following examples outline the different dimensions of service competence. A direct comparison of service management and what is termed service competence is used to highlight the necessity of a sustainable competence and a thorough comprehension in the context of the service. Example 1: As a father of two young boys, both active skiers and snowboarders, I make every effort to go on an annual ski vacation. On our way to a nice ski resort I usually remain in office mode making numerous phone calls while travelling with my family. Upon arrival the real stress starts: I have to rush my wife and tell the children to hurry, up to put ski boots, caps, gloves, scarfs, and skis on and to shoulder the snowboard – and then we go for it. Try to visualize this picture: Me – the father – leading the trail shouting commands while the slightly irritated family hurries to stay on track. That is how we approach the chair lift, which is supposed to transport us to the ski slopes. The lift operator spots me, the rest of the family on my coat tails, sees my helpless attempts to mobilize my family and the moment of truth is approaching. Can you imagine how the operator reacts? He decides to take the only action possible: His hand slowly reaches for the lift’s emergency stop button and all chairs come to a full stop. He addresses me with the following words: ‘Good morning, dear father, you are very welcome at our beautiful ski resort. Take it easy and have a seat with your family on this chair lift.’ To my family he adds: ‘That is how we always handle stressed-out fathers.’ Thanks to his approach I finally relax and start enjoying the vacation. We now know that every time the lift stops on the ride up, another stressed-out father is beginning his family-vacation. This story happened four years ago and the amazing part is that we returned the following season where the same lift operator was waiting for us and history repeated itself. Needless to say my family loves the resort by now because they know that x we will go there again next year, x the operator will speed up my transition into holiday mode no matter what happens in my office, x to me this is service competence. Example 2: A friend and I were travelling by a train from Geneva to St.Gallen. In Zurich we had to change trains. Shortly before arriving at Zurich main station, the conductor checked our tickets. As usual we were intensely discussing academic issues and were hardly even aware of his presence. In Zurich we got off the train, went to the other side of the platform and boarded the car with the very small sign ‘St.Gallen’ on it. What we did not realize was the fact that the train arrived from St.Gallen and was heading towards Hamburg, Germany, in totally the opposite direction. As we were settling comfortably in the train the same conductor arrived breathlessly at our car and said: ‘Dear Sirs, you are in the wrong train, your tickets are for a trip to St.Gallen and not to Hamburg’. He saved us from a

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long detour. As you can imagine we were very pleased with his service competence! I am confident that there is no rule in any railway quality assurance handbook stating that conductors have to go out of their way to get absent-minded professors onto the right train. In this example, I would label the conductor’s action service competent. Example 3: The third example is again a very simple yet impressive one. The last time I had to fly from Zurich to Berlin, the desk clerk told me at check-in that there is another professor from the same university booked on that plane. She then asked me whether we would like to be seated together. When I boarded the plane, my colleague was very pleased with the attentiveness and service level of the ground personnel. We had a very pleasant flight, again a perfect example of service competence. The themes common to these examples of service competence are: x They came as a surprise and exceeded customer expectations. x They are the kind of services with a unique human touch that can only be delivered by dedicated, motivated and proactive people. x They not only leave a deep impression but also create sustainable customers trust to the service provider, which is based on mutual respect and is of immense importance for customer loyalty. Additionally they can also generate good revenue for the service provider. x At first glance, customers believe that the services are of a spontaneous nature. After further consideration customers might realize that the way those services are provided is based on a company-wide understanding of customer-service. These examples demonstrate that customer value is not simply the result of a sophisticated top-down service management system, but is in fact based on a far more comprehensive concept that we call service competence. While this concept allows for spontaneous actions without top-down instructions, it can also be embedded in a comprehensible structure, a recognizable culture of the service provider and the brand. Following this perspective and based on a system-oriented understanding of management, which includes the design and governance of socio-technologic systems, service competence features a wider comprehension than service management. The increasing complexity of the corporate environment as well as the internal structures in the field of strategic management historically focused on different aspects (see Fig. 1).

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Business administration = Financial decisions

• Yearly budget • Functional focus

I. Financial planning Context:

Strategy

Comlexity of the firm : Low

Business administration = Financial management

• Budget for several years • deviation analysis • Predefinition of resource needs

II. Long term planning

Business administration = Performance planning

• Corporate strategy focused on value added • Business unit strategy aimed at sustainable competition advantages • Interactive strategy development process

III. Strategic planning

Business administration = Governance, development and design of systems

• Visions and leadership • Explicit defined strategic framework • Broadly distributed ability to think strategically • Coordinated supporting management methods • Beneficial value system and corporate culture

IV. Strategic management

Business administration = Adaptation of Performance oriented and social trends and requirements • Customer Value is the focal point, network economics • Balanced scorecard approach for institutional economics • Competence models • Service orientation • Coordinated management approaches in networks • IT orientation

V. Global, network - oriented Management

Change

Instability

Surprise

Network Structures

Medium

High

Very High

Interorganizational

Complexity

Fig. 1. Stages of corporate management focus (own illustration following Welge et al. 1999)

This illustration leads us to some basic conceptual thoughts and to the derivation of the term service competence.

2 Service Competence – Challenge for SMEs The product oriented economic sector loses its importance to the service oriented sector in an ever growing dynamic market. The emancipated customer takes the functional performance of a product for granted. In general a product is defined as any core competence of a supplier: The purchase of consumer articles for daily use, the car, the train journey, the gourmet dinner, the one-family house, the consultancy service or the training event. The customer expects far more than the simple ‘consumption’ and experience of a quality product: the person should be considered as an individual, he/she wants to feel valued while purchasing the selected product and hopes that they will never have to complain about it. Small and medium-sized enterprises (SMEs) are both initiators and objects of this development. Traditionally productive companies face a massive pressure for change, which causes them to assess their range of services more closely than ever. Companies in the service sector need to reconsider their core services due to growing customer expectations. The future challenge can be described as the necessity to

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acknowledge the growing customer needs and to enhance the customer benefit concerning the service offers, while also considering and improving the companies. In response to this needs we have developed a consistent and convincing model of service competence which has undergone several tests concerning its practical applicability and acceptance in firms during the last six years (Fueglistaller 1999ad, 2001). Company Company philosophy, philosophy, comprehensive comprehensive strategy strategy and politics and politics

Service competence Service management: service strategy, Service management: service strategy, organization, service accounting controll,organization, Controll, service accounting Service culture, service ethics Service culture, service ethics

Service process

C ustomer and Customer and her/his specific her/his specific needs needs

Phase ofacknowledge acknowledgePhase of ment – evaluation Ment - evaluation

Service phase service accomplis hment Service phase –– service accomplishment

Phase of results Phase of results

Customer Customer and his/her and her/his benefit benefit

Inno vation andand knowledge management involved in service process Innovation knowledge management involved in service process

Servicemarketing, marketing , customer service Service customer service

Supportiveprocedures: procedures: personnel, knowledge, information management, infrastructure infrastructure, ect. Supportive personnel, knowledge, information management, etc.

Fig. 2. The model of service competence (simplified overview)

The service process and thereby its outcome is determined by the cooperation between customer and merchandise, the application, depth and interaction of service abilities. The service competence covers the entire spectrum of coordinate procedures between service consumers and service merchandise. The service oriented innovation and knowledge management supports the complete process of the service accomplishment. Thereby continuous development in the sense of organizational learning is guaranteed.1 Service oriented knowledge management can be defined as the ability to create a benefit from the knowledge basis by employing service competence2. Innovation management helps to adjust

1 The term organization learning is closely connected to the terminology organization development. 2 Knowledge is a central element in the organizational process. Knowledge potential consists of the creative combination of individual and collective knowledge transfer. Efficient and long-lasting knowledge management requires the constant development and enhancement of the necessary data (Schüppel 1994). An essential condition of the beneficial customer integration is the practice of open and transparent information politics. For more on this topic see Stadelmann 2000.

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the range of services to the constantly changing and relevant environment (Haist and Fromm 1991). As the focus for service is placed on potentials, performance and results, the procedures and structure of services sectors are discussed from a process oriented perspective. Based on the probable and actual customer needs, the entrepreneur has to consider the customer needs and even initiate them.3 This is only possible when customer and distributor maintain close communication for the sake of orientation. Only by mutual agreement on actual and potential customer needs will supply and demand interact successfully. This initial phase of determination and orientation leads up to the (partially at the same time) composition of the offer and the negotiation and decision phases. In case the customer reaches a positive decision the agreed service initiates a process. In the service accomplishment phase the customer needs are transformed into products or services. The quality of the service accomplishment depends upon the professional control over the service process and the ability to integrate the customer into the performance process. This integration can be accomplished by various means. We can distinguish the productional technical integration, the requiremental integration and the informational integration (Lehmann 1998), which can all be observed within a combined process. According to its specifics the service can become part of a service system. The service process can be determined by similar standards which apply to the production process: quality, costs, functionality and time (Kaplan and Norton 1996). Innovation and knowledge management are closely connected with the service process. Creative solutions resulting from the cooperation between customer and merchandise not only offer new insights and knowledge, but also form a closer connection between the two partners (Tomczak and Dittrich 1997; Reichheld 1997). There are additional determining elements specific to service when focusing on the process: customer integration, customer orientation or the degree of individuality of the service performance. In case the service has not already been beneficial for the customer as part of the performance phase the transfer must occur in the results phase. Following this, the service provider has no further responsibilities to the customer. The final judgment of customer satisfaction will provide insights to the customer habits and their satisfaction with the business management. This information will influence the service and supportive procedures as well as the values (service culture) by means of the service management. As service competence can be different for various levels of perception it has many definitions/implications. On the staff members’ level competent service behaviour implies the application of capacities according to the situation and customer, resulting in professional and customer oriented services.

3 See Haeckel`s ‘Sense-and-Respond’ model (Haeckel 1999). Haeckel suggests that the business has to react ‘adaptively’ to the changes in customer demands (thinking Customer-Back, not Firm-Forward). The company should seriously consider external signals and concentrate on the coordination of capacities (resources).

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Top-down approach

On the value chain level, service competence is treated as comprehensive, integrated and efficient cooperation between several companies, which manifests itself for the customer during the entire value adding process. Service competence has various perspectives and can play different roles within the business. The service process is connected to the service management cycle (service strategy in development and shaping services, controll and organization). Additionally, the service process has strong ties to the service marketing, to the longterm customer service and to the business culture, which we call service culture in this context. The diverse definitions of service competence in relation to the business levels are illustrated in Fig. 3. This representation not only shows the demand of a topdown and bottom-up approach, but also offers a solution to the discussion of priorities concerning service management and service competence. On the management level in service competence is a crucial element of service management. The level which covers the entire company service competence represents a core business competence. This level relies on the process oriented service competence and the personnel service competence, thereby stressing the bottom-up approach.

Level of integrated service competence: Service competence ruling all companies which are involved in the same value-added chain .

Level of comprehensive service competence: Service competence is applied on all business levels and fosters core business competence .

Level of management oriented service competence: On the management level service management is an important element of the service competence .

Bottom-up approach

Customer orientation on all levels

Customers, theirneeds and benefits

Level of process oriented service competence: Service competence is influenced by effectiveness, efficiency and progressiveness of procedures and their organizational value

Level of personnel service competence: Service competence is determinded by the abilities of the staff me mbers.

Fig. 3. Service competence and business levels (Fueglistaller 2001)

This direction of approach implies the definition of service. Service competence will be found within companies or organization units only if the economic individual shows competent behaviour and acknowledges that his action is part of

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the entire business behaviour.4 The different levels of service competence are characterized by their strong interaction. The top-down approach determines the important controlling efforts which the management has to implement in order to shape the service competence. The service competence of the business or value chain takes the role of coordination or leadership. Successful service competence relies on the symbiosis of both types of approach. They both aim for customer orientation on all business levels, which ultimately maintains the existence and progress of the company. The following paragraphs give an overview of the essential elements of service competence for SME and compare them with theoretical models. Business company philosophy, strategy and culture Businesspolitics, politics, company philosophy , strategy and culture Service competence Service competence

Service management: Service management: service strategy, serviceControll, strategy, controll, organization organization Service cultureservice , serviceethics ethics Service culture,

Service pr ocess Service process

Customer and The customer and his/her specific her/his specific needs needs Customer Customer relations

Phase of acknowledgePhase of acknow ment – evaluating ledgement – evalua needs ting facing the facingneeds: the customer customer needs as a needs as a company company

Service phase – service accomplishement: Needs in application as: - services, service types - performance process - integrating service into the performance system - integrating customers in the service process

Phase of results -transaction (according the service type) - accounting - Evaluation customer satisfaction - maintaining customer relations

Benefit for the Benefit customer

for the customer

Innovation process and knowledge management, continuously developing and improving the service and procedures as well as the knowledge concerning service competence

Service marketing, customer service

Supportive procedure for the service competence: personnel and training management, knowledge and information management, infrastructure, rights

Fig. 4. Model of Service Competence (extended version)

3 The Core Capacities of Service Competence Service competence can be described as the individual confidence of the competence bearer to demonstrate the necessary capacities to enable successful service. From an objective point of view service competence is manifested in the constellation of capacities which are involved in a situation or obligation connected to service. These capacities are directly dependent upon the aspects of offered and potential services. The conscious consideration of experience, innovation, knowledge and cultural positioning (ethical, personal) of the service merchandise in favour of service obligations and involved parties are influential on service competence. In an ideal case the efficient application of service competence would match the (potential) expectations of the customer group and the perception of the entrepreneur concerning the ideal stage of service competence (target service 4 Kailer claims that SME mainly concentrate their development of service competence on the personnel level by sending staff members to external seminars (Kailer 1998).

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competence). The service competence should constantly be adapted to the market conditions. The competence bearer can be the individual economic entity or the value-added chain which might exceed the single business. The successful marketing of services depends upon the service competence of the entrepreneur. Regardless of the service focus the positive correlation between success and business capacities has been proven by empirical studies (Zwick 2000). This therefore strengthens the thesis that companies with service competence are more successful than companies lacking service competence. Based on the given definition of service competence, we can assume that the entire company shows service competent behaviour. If all employees offer their service competence for the benefit of the company and if all competence types are similar then we can speak of a business comprehensive service competence, which would be clear for the customer to see. To be able to represent the service competence as an actual model the individual components need to be analyzed. If competence is defined as individual confidence of the acting person to make the correct use of given capacities, then the subject of the service competence can be described as the direct manifestation of the specific service capacities. This raises the question, which capacities are crucial for service competence, for example, which capacities will be utilized by the competence bearer. Based on these questions the immediate answer could lead to speculation about which capacities might be expected from a service competent business by its customers. Capacities that are frequently mentioned are ‘friendliness’, ‘customer orientation’, ‘professional service performance’, ‘price-timequality awareness’ and ‘creativity’. Service merchandising could also be questioned about which capacities they consider vital for service competence. Table 1. Degree of acceptance in surveyed companies concerning capacity groups (Fueglistaller 1999c)

Companies find the following capacity groups most acceptable: Group of process and customer oriented capacities: 2.41 Group of strategy and management oriented capacities: 2.07 Group of cultural capacities: 1.49 (Figures represent average acceptance: 1= absolutely appropriate / 5= absolutely inappropriate, n = 440 Entrepreneurs)

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Entrepreneurs claim capacities which belong to service competence: (Figures represent average acceptance: 1= absolutely appropriate / 5= absolutely not appropriate, n=825 Entrepreneurs in Switzerland and Germany)

Group of process oriented capacities: - examining customer needs rsp. time scheme, quality and price - integrating customer into performance process - ability to account for the services Average of process oriented capacities:

Average (1.85) (2.66) (2.74) (2.41)

Group of strategy capacities: - self-motivation due to customer satisfaction - avoiding too complex offers of services - construct customer segments and discover needs - cooperative internal treatment of information and experience Average of strategic capacities

Average (1.81) (2.22) (2.39) (1.86) (2.07)

Group of cultural capacities: - creating trustworthy relationship to customers - realize customer needs and adapt services to them - make customer aware of our service commitment - friendliness and honesty towards customers Average of cultural capacities

Average (1.43) (1.56) (1.57) (1.38) (1.49)

Fig. 5. Written Questionnaire – Representation of evaluated capacities concerning service competence, subdivided according to capacity groups (Fueglistaller 2001)

Based on these research data we can outline our central findings concerning the following questions: x How can service oriented companies improve the innovation of their employees? x Is there a correlation between service competence and economic profit? x Which services are profit drivers in all industries and sectors? The impact on the innovation ability of employees by entrepreneurs, trainers or third persons is rather complex. However, only some basic questions are necessary for an initial overview: x Where do the ideas originate from? x How can we transform ideas into innovation? x How can we make innovations profitable?

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The first question was addressed by a survey, which we started together with Austrian colleagues (see Fig. 6).

Sources of Ideas (within the company = 24% / outside the company = 76%)

Other 1% Holidays 13%

Recreational sport/ Clubs 9%

Workplace 4% Interessting meetings 6% Boring meetings 10% Breaks 3% Creative methods (Metaplan etc.) 1%

In nature (e.g. hiking) 28%

Business travelling/ commuting 11%

At home while watching TV, dining, hobby etc. 14%

Fig. 6. Sources of Ideas (Fueglistaller 2001)

As shown in Fig. 6, the somewhat surprising finding is that most ideas do not originate from within the company environment: 76 % of all ideas are generated externally. Regarding the transformation of ideas into innovation, our experience with clients suggests that coaching the employees as well as the entrepreneur is becoming increasingly important. At the same time, delegating responsibility to employees, e.g. project responsibility or key account management, creates the same effect in terms of motivation as encouraging them to become ‘entrepreneurs’ within the company. In this process, the leader can be a significant role model (see Fig. 7).

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Comparision of average values: Service How would you estimate the value of the following measures and Your company service / innovation culture 1,7

2,1

1,8

2,0

2,2

2,1

2,4

2,4

2,2

2,2

2,4

2,4 2,8

2,5

2,9

2,6

2,6

3,3

2,8 3,2 3,3

Internal employee training*

Promotion of Continuous entrepreneurial convincing of responsibilities * employees*

Recruitment of Stressing of service focused customer focused employees* awareness*

Straight forward orders*

Incentive and Quality reward systems* assurance groups*

External employee training*

Presentation of customer surveys*

3,5

External consultants*

Measures and instruments High service competence

Low service competence

* = Significant difference in average

Fig. 7. Value of instruments for the companies service and innovation culture (Fueglistaller 2001)

In 1999, we investigated the service competence focus in over 800 SMEs in Switzerland and the Southern part of Germany. During this process, we uncovered three dimensions of service competence: ethics, process, and strategy. Two clusters of SMEs emerged from this analysis; the ‘high-service competence focus firms’, and the ‘low-service competence focus firms’. It should be noted that we did not find any firms that did not have a service competence focus.

Rating

very good

very bad

Comparision of average values: Service Competence - how do you rate the results of your company during the last three years? 1 2 3

2,17 2,53 2,68

2,29

2,18

2,20

2,46

2,34

4 5 Corporate financial results*

Personal success*

Success due to marketorientation of core competencies*

Development potential of the company*

Dimension high service competence focus low service competence focus * = significant difference of average values Example: Companies with a strong service competence focus rate their financial results higher than peers with little service competence focus. .

Fig. 8. Service competence and the correlation with success (Fueglistaller 2001)

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We found a significant difference in respect to financial results, the personal success of the entrepreneur, the success due to market orientation of core competencies, and the development potential of the company between the two clusters. As depicted in Fig. 8, these differences are small but nevertheless significant. In addition, these differences are often critical in building a competitive advantage. We further examined the customer focus services (personal customer, advice, customer needs estimation, customer satisfaction monitoring, social events, training and customer focused R&D). In our sample of 800 SMEs, we uncovered three clusters in relation to the success level: highly successful companies, successful companies, and less successful companies. Based on these three clusters, we measured the influence of customer focused services on economic profit. Data were obtained by gathering the opinion of SME owner-managers on a five-point Likert scale. The differences observed between the three clusters were all statistically significant. As shown in Fig. 9, SMEs from the three clusters found that personal customer care and advice had the biggest influence on economic profit. The other customer focused services ranked as follows: customer need estimation, customer satisfaction monitoring, social event and fairs, training and finally customer focused R&D. However, the biggest divergence of opinion between the three clusters was observed in the fields of social events and fairs, training, and customer focused R&D. It is therefore suggested, that these three types of services constitute the critical factors that separate highly successful firms from less successful firms.

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4 Future Research Topics in Service Competence The future research topics will focus more on service competence than on service management. As management itself is bounded in a specific economic view, service competence investigates service themes with a wider scope. Whereas service management deals with the configuration, control and development of sociotechnological systems, service competence integrates both the service management view and the behavioural and socio-psychological aspects. Research on service competence will provide a more sophisticated understanding of the selforganisation of human beings, organisations and/or value chains. Behavioural and constructive awareness will lead the direction of research projects for the next few years. Effective and successful service competence determines two things: an established system and individual behaviour reflecting the unique service competence of the participant. Both aspects can been considered from three different points of view; the entrepreneur's, the employee's and the client's. Future research topics in the system-approach will focus on the following questions: x How can firms tackle the normative and strategic challenges facing service management? x How can firms combine the trends in service marketing, information / communication technology and strategic service management? x How can firms adapt the ‘flock of birds’- syndrome of customer-communities and how can they act when confronted with these movements? x How can customer's needs be involved in service processes? x How can firms build sustainable communities and networks, i.e. coopetition or overlapping customer value management? By taking a behavioural and social-psychological approach we are confronted with three further considerations: x What are the success factors for firms facing both altruistic and egoistic behaviour in the above mentioned groups of people? For this question it is insightful to refer to existing literature, for example, research findings on altruistic punishment. x Further analysis of other theories (e.g. stewardship theory) should be conducted with a view to providing sufficient insight into the field of service competence, to overcome the inadequate explicative power of principal (agent theory). x How do emotions, desires, beliefs, intentions and culture influence the individual behaviour and what are the consequences for an appropriate concept of service competence (e.g. the Bagozzi-model)?

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Jeschke K, Schulze H (1999) Internes Marketing und Beziehungsorientierung als Grundlage eines kunden- und mitarbeiterorientierten Beschwerdemanagement. In: Jahrbuch der Absatz- und Verbrauchsforschung 4, Berlin, pp 403–417 Kailer N (1998) Entwicklung von kleinen und mittleren Unternehmen durch Kompetenzentwicklung. In: Mugler J, Kailer N (eds) Die Entwicklung von kleinen und mittleren Unternehmen: Konzepte, Praxiserfahrungen, Entwicklungsperspektiven. Wien Kailer N, Scheff J (1998) Wissensmanagement als Dienstleistung: Die Zusammenarbeit zwischen kleinen und mittleren Unternehmen und Bildungs-, Beratungs- und Forschungsinstitutionen. In: Mugler J, Kailer N (eds): Die Entwicklung von kleinen und mittleren Unternehmen: Konzepte, Praxiserfahrungen, Entwicklungsperspektiven. Wien Kaplan N, Norton D (1996) The Balanced Scorecard. Translating Strategy Into Action. Boston (Mass.) Meffert H (1993) Marktorientierte Führung von Dienstleistungsunternehmen – neuere Entwicklungen in Theorie und Praxis. Arbeitspapier Nr. 78 der Wissenschaftlichen Gesellschaft für Marketing und Unternehmensführung e. V., Münster Meffert H, Bruhn M (eds.) Dienstleistungsmarketing – Grundlagen, Konzepte, Methoden. 2nd edn. Wiesbaden Mehta SC, Lalwani AK, Li Han S (2000) Service quality in retailing: relative efficiency of alternative measurement scales for different product-service environments. International Journal of Retail & Distribution Management 28 (2): 62-72 Merker R (1998) Organisationsmatrix und -tableau: Zwei Instrumente zur Erfassung organisatorischer Veränderungen in KMU. In: Mugler J, Kailer N (eds.): Die Entwicklung von kleinen und mittleren Unternehmen Konzepte – Praxiserfahrungen – Entwicklungsperspektiven. Wien Nerdinger FW (1998) Interaktionsmanagement – verbale und nonverbale Kommunikation als Erfolgsfaktoren in den Augenblicken der Wahrheit. In: Meyer A (ed.): Handbuch Dienstleistungs-Marketing. Vol. 2, Stuttgart, pp 1180 Parasuraman A, Zeithaml VA, Berry LL (1988) SERVQUAL – A Multiple-Item Scale für Measirung Consumer Perseptions of Service Quality. Journal of Retailing 64: 12-40 Pichler JH, Pleitner HJ, Schmidt KH (2000) Management in KMU – Die Führung von Klein- und Mittelunternehmen. 3. edn. Bern Pleitner HJ (1986) Aspekte einer Managementlehre für kleinere Unternehmen. IGA – Zeitschrift für Klein- und Mittelunternehmen. Sonderheft I Pleitner HJ, Fueglistaller U, Rusch C (2002) Buchhandel in der Schweiz – eine ökonomische Situationsanalyse. Neue Zürcher Zeitung, 9./10.02.2002, p 27 Porter M (1991) Nationale Wettbewerbsvorteile – Erfolgreich konkurrieren auf dem Weltmarkt. München Ramaswamy R (1996) Design and Management of Service Processes – Keeping Customers for Life. Reading (Mass.) Reichheld F (1997) Der Loyalitätseffekt – Die verborgene Kraft hinter Wachstum, Gewinnen und Unternehmenswert. Frankfurt a. M., New York Rusch C (2001) Betriebsvergleich Buchhandel Schweiz 2001. Schweizerisches Institut für gewerbliche Wirtschaft an der Universität St. Gallen im Auftrag des Buchhändlerverbands der deutschsprachigen Schweiz (BVDS), St. Gallen Schüppel J (1994) Organisationslernen und Wissensmanagement. Diskusionsbeiträge, Institut für Betriebswirtschaft an der Universität St. Gallen (HSG), St. Gallen

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Schulte T (1999) Konzepte, Referenzrahmen und Implementierungsansätze kooperativer Infornations- und Kommunikationstechnologien für die Vernetzung des Wissens in Unternehmen. Bamberg Schwaninger M (1994) Managementsysteme. In: St. Galler Management-Konzept. Vol. 4, Frankfurt a. M. Tomczak T, Dittrich S (1997) Kunden binden. Zürich Vazquez R, Rodriguez-Del Bosque IA, Diaz AM, Ruiz AV (2000) Service quality in supermarket retailing: identifying critical service experiences. Journal of retailing and consumer services 76 (8): 1-14 Zwick I (2000) Ergebnisse einer schriftlichen Befragung zu den Fähigkeiten und Kompetenzen der Unternehmer von KMU. Unveröffentlichte Studie, Schweizerisches Institut für gewerbliche Wirtschaft an der Universität St. Gallen, St. Gallen Zacharias R (1998) Ansätze zur Messung der Kundenzufriedenheit – Was ist dem Kunden wichtig. Absatzwirtschaft 46 (9)

Innovation and Learning in Services - The Involvement of Employees Jon Sundbo Centre of Service Studies, Roskilde University, Denmark

1 Area of research ..............................................................................................132 2 State of the art and research needed .............................................................133 2.1 Economic models and theories ..............................................................133 2.2 Strategic industry studies.......................................................................134 2.3 KIBS' interplay with the national innovation system ............................134 2.4 Management and organisation of innovation ........................................134 2.5 Entrepreneurship in services..................................................................135 2.6 The service-manufacturing dimension in innovation ............................135 2.7 The overview: Statistics and surveys.....................................................136 3 Involvement of employees in innovation and learning in services ..............137 3.1 Introduction ...........................................................................................137 3.2 The innovation concept and services.....................................................137 3.3 Taxonomy of innovative organizations .................................................140 3.4 Large top-strategic organisations and the involvement of employees ...141 3.5 Organizational learning .........................................................................144 4 Conclusion: Future research needed.............................................................146 4.1 Future research fields ............................................................................146 4.2 Transforming research into practical results..........................................148 References...........................................................................................................149

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1 Area of research This presentation concerns innovation in services. While the study of innovation and entrepreneurship in manufacturing is an old and by now well-established discipline, innovation in services has received relatively little attention. Only within the last seven to eight years has this topic been brought into focus. A few minor research projects were carried out in the 1980s and early 1990s. These resulted in some preliminary information, however, such publications were rare and did not lead to the establishment of a tradition where researchers communicated regularly. The research was not - with the exception of Barras (1986, 1990) - related to research into innovation in manufacturing, and to the comprehensive innovation theory that was developed in the 20th century based on studies of manufacturing. From the early 1990’s, interest in innovation in services began to grow and an international community of researchers within the field started to establish itself. However, this community is still small and does not have its own journals, regular meetings such as conferences, research institutions and so forth. At the national level, the topic is not highly prioritised in any country with the possible exception of Canada where the statistical investigation of innovation in services has a high priority. Consequently, the national groups of researchers within the field are small, and the researchers are simultaneously engaged in other projects. The current advantage of the international community is that it is small thus it can function on the basis of informal networks. This, however, is insufficient if the field is to expand. The more extended and permanent interest in innovation in services started with three larger projects, all based on case studies. A large French investigation of innovation in services was published in 1993 (Gadrey et al. 1993) and was followed by several analyses carried out by some of the same authors (Gallouj 1994; Gallouj and Gallouj 1996). Another investigation, which emphasised the organisation, entrepreneurship and management of innovation was undertaken by Sundbo in Denmark, and resulted in several publications (Sundbo 1996, 1998a). Another research team investigated innovation in knowledge service firms (which was called KIBS - Knowledge Intensive Business Services, Miles et al. 1994). The publication of the results of that investigation was unpretentious, but it influenced later research, particularly by conceptualising innovation-related conditions. The research has continued (e.g. Andersen et al. 2000). An integrated European project was carried out between 1995 and 1998 which included, among others, the researchers from the three groups mentioned above (the so-called SI4S project, see Hauknes 1998; Boden and Miles 2000). Another approach to studying innovation in services has come from a service management and marketing tradition under the concept of service design (e.g. Edvardsson et al. 2000). The basis for this is the service quality tradition. Despite the different place of departure, this approach has moved towards the former thus the two traditions are now melting into one. More recently, several conferences and workshops have been organised concerning the theme of innovation in services, these have resulted in the publication

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of several anthologies (e.g. Metcalf and Miles 2000; Sundbo and Fuglsang 2002). Furthermore, several other publications have also been launched (i.e. the publication of a series of Nijmegen lectures on innovation management, published by the University of Nijmegen in the Netherlands). Although the amount of research conducted has been on the increase, there are still many unsolved questions which need to be investigated. The level of research of innovation in the service sector is still far from that of the research concerning the manufacturing sector. The understanding of innovation in services has been developed theoretically within the last seven to eight years (see particularly Gallouj 1994, 2002; Sundbo 1998a, b, 2001; Sundbo and Gallouj 2000; Vermeulen 2001; Howells 2001). It has been discussed whether innovation in services deserves its own theory or whether the innovation theories developed from studies of manufacturing can be used to understand innovation in services. The result is, generally speaking, that these theories can be used, but they require some modifications on several points. However, some specific activities that are peculiar to services have also been discovered, particularly concerning the way innovations are developed and managed as service employees are more involved than is traditionally the case in manufacturing. These results have been the basis for the development of the new theoretical approach, which might also be applied to manufacturing and provide it with some theoretical insights. There is much contemporary discussion of whether the theoretical basis for understanding innovation in services and manufacturing should be unified, or, indeed whether service and manufacturing innovation processes are, in practice, becoming one (Howells 2001). While the studies of innovation in services have included all service industries, the financial services industry has been investigated the most. According to several surveys, this is the most innovative service industry, it is well organised, and the firms are generally large. This may be the reason why this industry has been so popular.

2 State of the art and research needed I will now move on to the specific research topics within the field. There are seven of these and I will outline them in turn. 2.1 Economic models and theories Innovation research within manufacturing has been the basis for the Schumpeterian tradition or, as it is sometimes called, evolutionary economics which while not being completely accepted by mainstream economics is nonetheless recognised. The studies of innovation in services have led to the formulation of theoretical economic models and contributions to the development of Schumpeterian/evolutionary theory. This contribution is a development of the theoretical

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discussion referred to above, about whether the manufacturing based theories can be used to explain innovation in services. It uses service studies to develop the economic tradition. The seminal work in this area has mostly been done by Richard Barras (1986, 1990) and Faïz Gallouj (1994, 2002) both of whom have contributed to the development of economic models and economic innovation theory. Whilst they are not alone, this line of thought is still in its embryonic stage. Much work remains to be done if the results from studies of services are to be utilised to enrich economic innovation theory in general. 2.2 Strategic industry studies Michael Porter’s work on international strategic alliances has led to a new way of studying national industries from a world market perspective. Particularly in Denmark, this has led to a series of so-called resource studies in which the strategic situation and future challenges of selected industries, including several service industries, were investigated. The studies were carried out by the Danish Ministry of Industry (the service studies are: Erhvervsfremmestyrelsen 1993a,b, 1994, Erhvervsministeriet 2000a,b). These are relatively unique studies, which have not been carried out in other countries. Such strategic industry studies only maintain their value for a limited period of time because the strategic situation changes. They should therefore be carried out regularly, however, given their cost, this might not always be practical. 2.3 KIBS' interplay with the national innovation system Knowledge service firms (or Knowledge Intensive Business Services - KIBS - as they have been called) play an important role in national, regional and local innovation systems. They transmit new knowledge to agriculture, manufacturing and service firms and thus provide them with a basis for innovation. Furthermore, KIBS' sometimes participate actively in these firms' innovation process. This topic has been studied in several projects, which have produced some new knowledge. Even though this topic has yet to be investigated thoroughly, it may nevertheless be considered as one of the topics that is - or will soon be - relatively well researched due to the fact that it appeals to researchers within innovation systems - which is one of the most popular topics within traditional innovation research. 2.4 Management and organisation of innovation How innovation processes emerge, are managed and organised in firms is an important issue that has been investigated in several countries. The results of this research show that innovation in service firms is carried out in ways that are differ-

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ent from the traditional R&D-based model of manufacturing innovation. This point will be explained further in section 3. The case studies have resulted in a new innovation theory, based on organisational, managerial and sociological factors. Most of the work in this area has been carried out by Sundbo (1998a, 2002) based on a large number of case studies, which cover many service industries and countries. The result has been the production of new, fundamental, knowledge and the topic is therefore among those most thoroughly investigated within this field. However, this does not mean that case studies should be prioritised less in the future. As service firms develop their innovations, new forms of management and organisation are introduced. To keep up to date, research needs to follow these developments and regularly undertake case studies. This is a realistic objective given the relatively small cost of conducting theses case studies in comparison to statistical and survey studies and the strategic industry studies. 2.5 Entrepreneurship in services The formation of new, innovative firms (entrepreneurship) has been a discussion point in industrial policy and a topic within research on manufacturing, however it has not been discussed within service research. General investigations of entrepreneurship have included service firms as objects, but they have not been analysed as specific service firms. This means that we do not know what the particularities of being within a service industry mean in terms of entrepreneurship. Within service research, there are only a few examples of studies of entrepreneurship. Thus it is an under-investigated topic. 2.6 The service-manufacturing dimension in innovation One of the classic discussions within service research concerns whether services and manufacturing are qualitatively different with the consequence that production and delivery systems within these two sectors will always be different, or whether they are opposite ends of the same scale and the difference is only a matter of degree. This leads us to the question of whether or not the innovation process for both goods and services is the same. Manufacturing firms create new services that are added to their goods (which also may be new), and service firms introduce new goods in addition to their new services (e.g. new cleaning chemicals or ITequipment such as ATMs in banks). Another way of putting this that it is important to study service innovations in manufacturing firms because they invent many service products. This topic has not been studied much. Yet another way of seeing it, which again has not received much attention, is that one can study the innovation of goods in service firms (e.g. many knowledge service firms have contributed to the development of new technology, particularly IT).

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2.7 The overview: Statistics and surveys A general overview of industrial activities and their development can be obtained from surveys and statistics, which include surveys on innovation in services. One survey has been carried out in Germany (Hipp et al. 2000), similar ones have been made in Denmark and France (SIC 1999; Djellal and Gallouj 1999) and another one in Denmark (Erhvervsministeriet 2000b). Furthermore, Eurostat has extended its regular innovation survey (the so-called CIS) to also cover services (Eurostat 2001). However, this survey has received criticism from service innovation researchers for not reflecting the new knowledge of how innovations are carried out in service firms. Instead it repeats questions to manufacturing firms, which emphasise R&D, that is not common place in services. Further, there remain many unsolved methodological problems related to surveys on innovation in services and the field is not well covered. Both national and international statistics are to an increasing degree covering innovation activities in service firms, but generally this is a neglected area. The conclusion of this state of the art survey is that all the topics need more research, however, to a varying degree. If one should state what is generally the most needed work for the future, four points may be stressed: x The development of statistical and survey measures There is a need for a general overview that surveys and statistics can provide, but there are great methodological problems in measuring innovativeness in services by using these instruments. x The development of theory Even though there has already been some theorising about innovation in services, this is not sufficiently developed. x Practical tools for enterprises Only a few of the scientific results obtained about innovation in services have been translated into practical tools which enterprises can use. One example of this is a tool developed by the Centre of Service Studies in Denmark to measure and develop the innovativeness in service firms. x Further field work As stated above, there have been many case studies of innovation in services. This aspect is thus generally covered. However, as also argued above, further field studies could be an easy (and cheap) way of following the development of the firms' management and organisational systems. Research issues relating to these points will be developed further in section 4.

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3 Involvement of employees in innovation and learning in services 3.1 Introduction The topic In this section I will emphasise how employees and managers are involved in the innovation process in service firms. This involvement is a core element in service innovation as will be demonstrated. The section will primarily, but not exclusively, be based on my own research (Sundbo 1996, 1998a, 2002). Approach My way to this topic has been through raising two fundamental questions: Firstly, do service firms innovate and if so how? Secondly, can the innovation theories, which have been developed on the basis of manufacturing studies, be applied to services? I started raising these questions ten years ago when there was very little knowledge about innovation in services. I investigated the questions by undertaking case studies in different service firms. I found that service firms do innovate (although they generally do not call it innovation or even have a word for it). Based on these case studies I created models of how the service firms innovate. The conclusion relating to the second question was stated earlier: those innovation theories can be applied to services, but I found some aspects which are specific to services – particularly the involvement of employees. I have used these findings as the basis for proposing the development of the general innovation theory (Sundbo 2002). I shall not go into this further here, but concentrate on the results gained from the case studies and surveys and the models of innovation in service firms. The models, and indeed the whole approach, are placed within an organisational approach which emphasises the sociological aspects of innovation. However, that innovation is an activity which has the goal of increasing turnover and profits and has been an explicit element in the analyses. 3.2 The innovation concept and services I will start by summarising the conclusions of the research concerning what innovation in services is. These conclusions raise the discussion of which concepts or approaches we should use to understand the development of service firms. This discussion has not only a theoretical academic interest, but also has direct implications for how we should consider the employees’ role in innovation processes. What is service innovation? Innovation in services is not necessarily as technological as commonly thought, and as it is in manufacturing. Some innovations are technological such as a new credit card system or a web site service, but many are non-technological or social.

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Examples of the latter could be a new management model that a consultancy develops, or a new way of organising cleaning services. In my case studies of the financial services sector in the 1990s, I found that 54% of the innovations were social. 30% were social, but dependent on technology (e.g. a new insurance policy which in itself is not a technology, but which cannot be introduced unless IT can be used to administer the policy). Only 16% were purely technological innovations (such as a new home banking system). Subsequent studies have shown that the proportion of technological and technology dependent innovations is increasing. It is easy to understand why the innovations in services are social. The sale of a service is a sale of behaviour or of knowledge, which are social phenomena. The employees naturally have a core role in the innovation process. An innovation implies that employees’ behaviour must be changed. In contrast to this is manufacturing or sale of physical products, which naturally leads to innovations becoming technological (often very complex technology) the innovation of which must be left to specialised experts, normally researchers or specialised developers. There can be many different types of innovation in services. They can be product innovations, process innovations, organisational innovations or market innovations; the latter can be a new positioning on the market (such as when SAS invented ‘the businessman’s airline’) or it could be innovation in the customer relation and delivery system. Very often innovation in services is integrated, by which I mean that they incorporate all these dimensions. This is also logical since production and delivery in services is integrated into the same process (‘the moment of truth’). The following are examples of service innovations from our research: Examples of service innovations Modular bicycle insurance The premium for the insurance depends on its validity area (e.g. most expensive if it covers bicycle stands by stations) Method to handle sludge arising from the cleaning of sewage A method invented in an engineering consultancy firm Establishment of a lawyer chain tied together by an IT-network The IT-network allows the lawyers to utilise each other’s special competencies Organisational change and new manager roles in cleaning A special profile of and selection mechanism for managers of self-governing teams has created a new organisational behaviour. Are service innovations really innovations? The question of what innovation in services is, can be solved by letting the researchers define it. Another way is to let the service firms themselves define what they consider as innovations. The latter method has generally been used within the service innovation research. This has resulted in examples which manufacturing

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innovation researchers would not consider innovations, so much as small changes in some employees’ behaviour. Because of the nature of services we can have situations where one employee changes her or his behaviour towards one customer, which results in a better solution for this customer. This solution may not be repeated or may only be repeated by this individual employee. Is this an innovation? It is not a phenomenon that heavily influences the country’s GNP, but if there are many of such phenomena it will increase the service firm’s market position and customer satisfaction, which will lead to greater turnover and possibly greater profit. These small changes may together increase BNP. Furthermore, many examples stated by the firms are comprehensive changes and without doubt innovations. This criticism must therefore be rejected. The service firms say that these changes develop the firm in a Schumpeterian sense: they create profit and growth. This is the crucial point. One must admit that there are methodological problems and challenges that have not yet been completely solved. However, these problems may not eliminate the fact that this is an important phenomenon for the development of service firms. The methodological problems could be partly solved by distinguishing between innovation and organisational learning. The distinction is a matter of reproduction. One may suggest that to be an innovation it is necessary that the phenomenon (a new product or a new behaviour) is reproduced. A new service product should be sold in many copies and a new behaviour should be repeated by other people in the firm. Even if it is not extensively reproduced, it may lead to knowledge that is useful for the firm. The individual employee, who has invented a new behaviour, may repeat it in other customer situations and even other employees could learn the behaviour. Many such small changes could lead to a general organisational learning process, which could help to develop the firm. If a sufficient number of employees imitate the behaviour, it can be developed into a ‘real’ innovation. This may be expressed by the following model (see Fig. 1): Radical innovations

Large incremental innovations

large change

Small incremental innovations

General instances of learning

Individual instances of learning small change

Fig. 1. Change scale

The change scale represents different degrees of innovation distinctness: How distinctly new each innovation is and how widespread it is. The left side of the scale represents innovations where one radical act creates a large, sudden change in turnover or profit, which influences the whole firm, while the right side represents organizational learning from many small instances which create small changes that together may change the turnover or profit. The learning process can be individual, meaning that only one individual in the organization has the same

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experience. General learning is what happens when the entire organization, or most of it, learns the same thing. Service innovations are normally within the marked area. 3.3 Taxonomy of innovative organizations In the case studies I found that different types of firms had different innovation processes. I developed a taxonomy to characterize this. In the following text, I shall outline the different types, however, the emphasis will be on large topstrategic organizations, which is the most common type. The studies show that innovation is carried out in the same way in all service industries (including for example financial services, tourism and technical services). Differences occur not between industries, but between size and character of firms, irrespective of the industry. Following types of organization can be identified: x x x x

Artisan firms Dynamic entrepreneur firms Professional organizations Large top-strategic organizations

Artisan firms In services there are many small firms that are not innovation oriented. These are firms which are owner-managed or where the manager has involved his or her private family life in the firm (family business). The owners or managers often do not want to be entrepreneurs (and therefore innovate), but to have an independent life where the limits between leisure, family life and business are fluid. They do not want too many changes, among the staff because that may influence their family life in an undesirable way. The owners or managers often take great care of the employees, but they rarely want them to be innovative. This type of company, which may be termed artisan firms, are common in retail, tourism and trade. A major problem facing these firms is attempting to make the owner or manager interested in innovation, which also means getting them to accept a change which may affect their life in general. Experience shows that this is very difficult therefore one may not expect an increase in service innovation to come from this type of firm, and it is doubtful whether it would be worth while establishing for example, a development program to aimed at making these firms innovative. Dynamic entrepreneur firms Other small service firms are more dynamic and innovative. These firms are often started as entrepreneurial firms, where the entrepreneur is the innovator and carries out the entire innovation process and the employees just implement the entrepreneur’s ideas. As the dynamic entrepreneur firms grow older and larger, the founder’s dominance over the innovation process is loosened and innovation becomes more of an

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organizational process in which many employees and managers participate. The company is therefore transformed into the fourth type, large top-strategic organizations. Professional organizations These are firms that operate within professions (e.g. law, medicine, accountancy, consultancy). This type is similar to the previous one because the professional firms are normally established by entrepreneurs. They may be of the artisan type, but generally professional firms are innovative. This is a part of the professional’s nature; he or she has in his/her education learned that things are changing and one has to follow the professional developments within the field and change one’s business accordingly. Innovation within this type is considered a collective task, almost a professional duty, for all the highly educated professionals. They are so dominant in the innovation activities that other categories of employees (for example secretaries) have no possibilities of participating. There is much innovation within this type of organization, but it is generally limited innovation because it is ‘disciplined’, i.e. it is kept within the paradigms and trajectories of the profession. Therefore, an accountancy firm, for example, which needs for competitive reasons to introduce new product areas from outside the normal accountancy practices has severe difficulties in developing innovations in the new areas. The results of the case studies demonstrate that this type is generally moving towards the fourth type, i.e. the top-strategic organisations. The professional firms become larger, more strategic, and less professionally oriented. 3.4 Large top-strategic organisations and the involvement of employees Most service firms are what could be called large top-strategic organizations. To fit into this category the firm neither needs to be large (it can be medium sized or even smaller), nor to have a top-down management style. It is, however, essential that the top management makes the decisions in the innovation process. Innovation in this type can be described by a set of characteristics, which together constitute a model of the management and organization of innovation. I will now describe these characteristics. Innovations are ad hoc Innovations very often come as spontaneous ideas from an employee or a manager. The inspiration can come from many sources, for example interaction with customers, reading newspapers or watching television. The innovations are pulloriented. They occur because an employee sees that there is a need or a possibility for selling a new service or a new way of producing and delivering an existing service. There is generally no systematic push-oriented expert innovation work such as the R&D work in manufacturing companies. R&D departments are practically non-existent in service firms. Service innovations are related to practice, not

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to research and innovation activities are generally not very systematic in service firms. This situation where many ideas arise from practice means that employees have a mission. They are the ones who meet the customers, they know about problems with existing procedures and products and have ideas about how to solve them. Furthermore they have knowledge about what is going on in society, which may lead to ideas about innovations. Thus, they are active partners in the innovation process. A dual organization of innovation Not all ideas for innovations come from the bottom-up, although this is the most common source. Some come from the top-down, either as sudden ideas that the top manager has, or as a more systematic development program initiated by the top management. Both types can take place concurrently. There is a dual organization in this type of firm. The employees and middle managers are often innovative people. They participate in an informal, loosely coupled interaction structure. One employee may have a new idea, but to develop it, he or she will discuss it informally with colleagues. Often the idea comes up in discussions with colleagues or customers thus the idea generation is a collective process. The top managers are dependent on this informal idea-generating system because they can not get all the ideas themselves and the employees can not be replaced be experts in a particular department. Such experts would not be in contact with all customers and they would not know about all the small problems in the organization and the solutions to them. On the other hand, the top management also initiates innovation processes and the top managers want to have control over the innovation activities. A hierarchical top-down management structure exists alongside the informal interaction structure. These two structures can exist in a mutually stimulating relationship, at the same time as having different power directions. The latter may, however, also lead to conflict. The dual organization may be expressed in the following model (see Fig. 2):

Roles

Fig. 2. The dual principle

Ona task for the top management is to create a balance between the two structures thus they become mutually stimulating and not destructive through conflict. Development of ideas After an idea has been presented, the top management decides whether to continue with it or not. In rare cases the employee will develop the idea for practical

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implementation, but normally that will not be allowed. Some managers will intervene and send the idea to the top management to decide whether the idea is acceptable. Normally the ideas are not immediately practicable, they need to be developed. The development and subsequent implementation is more organized, typically as project work. The implementation phase (where the idea is realized in practice) is often given to a department. The longer the innovation process is developing, the more organized the project will be, and the less single employees will need to decide. This is expressed in the following model (see Fig. 3): Idea or problem identification Individual (intrapreneurship) Organization

Intrapreneurs (individual employees)

Loosely coupled interactive structure

Managerial structure

Development time

Fig. 3. Model of the innovation process

Innovations are strategic and market determined The top managers make decisions about the ideas and the following steps of the innovation process. The framework they use for these decisions is the strategy. The strategy is oriented towards market possibilities and the innovation process in services firms therefore becomes very market- or pull -oriented. The service firm’s strategy (whether very formalized or just rough ideas) indicates which way the firm wants to develop. The top managers’ task is to ensure that the firm follows the chosen path. Innovations guide the way and it is therefore important that all innovations adhere to the strategy. If an insurance company has decided to sell insurance to the high-income market segment, there is no point in developing a cheap insurance with appeal to low-income groups. From time to time employees present an innovative idea that breaks the strategic binding and which is accepted. Then the strategy is changed, which is a more radical change than just an innovation. The strategy expresses to the employees the route the firm should follow and can thus be a source of inspiration for innovative ideas. Employees play different roles Innovation is a social process in which employees and managers have different roles (as indicated in the model of the dual organization). These roles must there-

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fore be present in the firm to ensure an optimal innovation process. I have found three roles in my research: x entrepreneur (action-oriented); x analyst (knowledge-oriented); and x interactor (interaction-oriented). All of these roles are important for strategic, interactive innovative behaviour. They are not limited to one individual in the sense that each employee carries out one or the other of the roles. Most employees undertake several roles at different times of the day or at different points in their lives. Innovation departments Some service firms have a specific department, which has the responsibility for innovation. These departments are not R&D, because there is no research and no development. The innovation departments are communication departments that ensure that new ideas are developed by the employees. They collect the ideas and ensure that development groups are established. Increasing systematization The situation referred to above leads to many small, incremental innovations, but rarely to radical ones. These demand a more systematized innovation approach. Recent research shows that service firms increasingly systematize their innovation activities. Possible innovations receive greater consideration and become more organized. A kind of research laboratory has even emerged within ITbased knowledge services. Customers are brought into a room where they can use different forms of IT-based services and personnel observe the customers’ reactions. The systematization tendency will continue and will improve the service firms’ innovation efforts. However it is more likely to supplement the employee based system described above rather than replace it. 3.5 Organizational learning As mentioned earlier an important part of the innovation process is organizational learning. In this section I will describe in detail the employees’ participation in organizational learning. Both the employees and the managers play a core role in the learning process. Learning about innovation may mean two different things: 1. What: Which field should the firm innovate in and what would be the best innovations. This includes knowledge of the potential customer's needs and wants, new technological possibilities (inventions and technical development), new models of management and organization and so forth. This is learning about the inputs to the innovation process. It also covers knowledge sharing about the individual solutions to customer problems throughout the whole organization, allowing it to be transformed into a real, reproducible innovation.

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2. How: How is the innovation process organized? Which factors are success factors for the innovation process and which are barriers? This is collection of experiences about the process plus knowledge about formal methods of organizing the innovation process. The employees and managers (who play a core role in the learning process) have the experience and the knowledge, however, for the firm the task is to transform that individual knowledge into organizational knowledge, so it is available to all employees. This requires the fulfilment of two conditions: 1. The employees and the managers should share their experiences with others (knowledge sharing). 2. These experiences should be stored in a way that allows future employees to access and utilize them. The first condition is difficult to fulfil because the employees (and managers) are often not motivated enough to spend time and energy on explaining and delivering their experiences to others. Using Argyris and Schön's (1978) concepts single loop, double loop and deutero learning, one can say that the type of learning I am describing here concerns single loop learning (the ‘what’) and deutero learning (the ‘how’). The ‘what’ concerns the basis for innovation – i.e. knowledge about the customers, technology and other input – factors. This is useful knowledge for the employees, which they can use to there advantage if they are, for example, looking for a new job. They are eager to share this learning because it demonstrates that they are competent workers, probably with a high level of prestige within the organization. However, they may sometimes choose to keep the knowledge to themselves, especially if working in an internally competitive environment. The ‘how’ concerns learning about how the process went and the explaining and storing that must be done after the process has been completed and the employee often has a new task to perform. It is therefore easy to understand that neither the employees nor the managers are particularly motivated to share their experiences. The second condition also seems to be difficult to fulfil. The service firms have not developed efficient storing mechanisms, not even if they use IT-based files. The organizational learning about the innovation process (experiences about what was good and what was bad) is the least successful part of the innovation process in service firms. This can be demonstrated by an example from my own research, of a case study of a small Danish bank (Sundbo 1999). The bank, L&S Bank, launched a large organization development project to create an innovative learning organization. All employees and managers went through several courses and seminars. The initiative was aimed at developing efforts made by the employees (including middle managers) at three levels, which may best be explained by using Argyris and Schon's (1978) concepts: 1. A general awareness of and positive attitude towards innovation, change and flexibility (double loop learning in Argyris and Schon's model) This should lead to the next step: 2. Creation of innovative ideas and corporate entrepreneurship – the ‘what’ (single loop learning) which again should be followed by:

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3. Systematization and storage of general learning about the innovation process – the ‘how’ (deutero learning) The employees were very engaged in the process, used their leisure time and presented many innovative ideas, several of which became concrete innovations. However, the success became lesser the further one goes down the steps. The decisive factor explaining why employees will or will not participate in this learning process is known as the extended barter (Bevort, Pedersen and Sundbo 1995). Examples of extended barter include the following: The firm gets: Innovations Dynamism Flexibility Learning

The employee gets: Competence Career Interesting work Freedom in work

The employees could see that they would benefit from participating in the first two steps, while neither they, nor the top management could see the benefit of participating in the third step. Explaining and storing the knowledge is often considered troublesome and unnecessary and contains no formal reward of competence and/or prestige (in many of the case studies it is considered as ‘bureaucratic’ work).

4 Conclusion: Future research needed There are two issues currently facing research within innovation in service. One is to continue current research by investigating new developments in service firms' innovation activities. Current knowledge is only general, but specific fields will be investigated more thoroughly in the future. In some areas we already know that new forms probably will emerge. Further, the work of developing general measuring instruments to create an overview at a societal level should continue. The other issue is to develop the research knowledge into practical action at societal and firm levels. These two issues will now be discussed and proposals for research and funding will be stated. 4.1 Future research fields Based on the description given earlier and some further considerations, I find the topics mentioned below the most important research areas of the next 3-8 years. Innovation when knowledge services introduce ICT-networks When information and communication technology networks (such as the web network) are introduced into knowledge service firms, it may change the service products and the delivery systems dramatically. The Innovations can change their

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character completely. For example, knowledge services can be transformed to self-service, innovations could be more technical, and the innovation process more systematic (like the R&D process). This would be an important new step in service innovation, which research should investigate. It could be advantageous for the research to be internationally co-operative projects, which could be EU/state or industry funded. One such project has already been proposed within the EU's 6 Framework Program. Development of indicators for service innovation As mentioned earlier, there is a need for development of measures and indicators, which can measure the macro level of innovativeness in service industries. Such indicators could also be advantageous for future research if developed internationally. The research could, for example, be co-operative European projects, which could be state/EU/OECD or eventually industry funded. Service innovation in manufacturing firms Some research has pointed to the fact that services and manufacturing converge in the way that manufacturing firms also introduce services in addition to goods. This shifts the focus for studying service innovation and organization of service innovation towards manufacturing. This trend should be studied by investigating how much and how manufacturing firms innovate service products, how they organize this innovation process and how the process influences the way in which they innovate goods. Such research could be funded by states (research councils or ministries) or by industries. Firms may also be interested in funding such research. Theory development As also mentioned there is a need for the development of theory to deepen and generalize the understanding of innovation in service. This development should emphasize the implications of this understanding for general innovation theory and for service management and marketing theory. The theoretical research will naturally be university based and financed by either universities or national or international research councils. Case studies Case studies in different service industries have also been mentioned as a method to see if new forms of managing and organizing innovation emerge in service firms. This should not be a major research topic, but case studies should be carried out from time to time. This approach will probably also be used within diverse research projects. In particular, research should investigate whether innovation activities become more systematized – for example whether they get an R&D form. This is a very broad task, which should be included in most types of projects and thus be financed by all types of resources.

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Innovation in the experience economy The ideas of the experience economy raise new questions. One may see experience service firms (such as tourist attractions, art and culture firms, sport organizations, advertising agencies etc.) as a specific service sector, which is currently coming more into focus. The employees in this sector have particular characteristics and may be considered as very creative, but perhaps organizationally less disciplined. Is innovation emerging in new ways in this sector? How are innovation activities managed and organized? Can the experience service firms learn from other service firms or visa versa? It could proof important to investigate this development. Research should be carried out at the macro level (statistical, strategic cluster analyses, international trade analyses etc.) as well as the micro level (explorative case studies, intensive case analyses etc.). This research could be state, eventually EU or OECD funded. It could also be firm funded. 4.2 Transforming research into practical results The research results should be turned into practical concepts and tools that can be used in practice. Previous experience has shown that this is a very difficult and problematic task. These difficulties have several causes. One is that the society is still not as focused on services as on manufacturing. This characterizes the political system, the public debate, the press and people in society in general. This means that it is difficult for researchers to raise interest in the economic and societal importance of innovation in services. Another reason is that trade associations, unions, and other institutions within service are weak and scattered compared to, for example, their counterparts within agriculture and manufacturing. Also, when service interest organizations compete with each other, it becomes very difficult for researchers to co-operate and develop practical tools and results. A third reason is that there is a barrier between researchers and service firms. The two parties have different cultures, languages etc. Researchers are also afraid of their work becoming insufficiently academic and more like practical consultancy work. However, the resistance from service firms to collaborate is also great. This is particularly the case in small firms of which there are many. Many (but off course not all) service firms do not see any benefits in research results. In many cases they may be right and they should only act from a benefit perspective. However, they seem to be so resistant that they do not even open up to the possibility of considering whether they could (in some situations and fields) benefit from co-operating with researchers or using research results. Despite these difficulties, it is extremely important that researchers in cooperation with practitioners carry out the following task in the near future:

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Development of practical tools for managing and organizing innovation activities in service firms The study of innovation in services has now developed to such a point that it is ready to transform research results into practical tools that may be utilized by firms. This transformation could be carried out by consultants or change agents such as public or semi-public knowledge institutions in co-operation with firms. However, researchers could advantageously participate in the transformation and could be necessary initiators. The development of practical tools could be financed by service firms, consulting firms (that could see this as a future business field) or by industrial organizations (such as service trade associations).

References Andersen B, Howells J, Hull R, Miles I, Roberts J (eds.) (2000) Knowledge and Innovation in the New Service Economy. Cheltenham (Elgar) Argyris C, Schön D (1978) Organizational Learning: A Theory of Action Perspective. Reading Mass. (Addison-Wesley) Barras R (1986) Towards a Theory of Innovation in Services. Research Policy vol. 15 no. 4 p. 161-73 Barras R (1990) Interactive Innovation in Financial and Business Services: The Vanguard of the Service Revolution. Research Policy vol 19, no. 3 pp 215-237 Barcet A, Bonamy J, Mayere A (1987) Modernisation et innovation dans les services aux enterprises, Lyon (CEDES) Boden M, Miles I (eds.) (2000) Service and the Knowledge-Based Economy. London (Continuum) Djellal F, Gallouj F (1999) Services and the Search for Relevant Innovation Indicators: A Review for National and International Surveys. Science and Public Policy vol 26 no. 4 pp 218-32 Edvardsson B, Gustafsson A, Johnson M, Sandén B (2000) New Service Development and Innovation in the New Economy. Lund (Studentlitteratur) Erhvervsfremmestyrelsen (1993a) Transport/Kommunikation. [Transport/Communication.] Copenhagen (Erhvervsfremmestyrelsen) Erhvervsfremmestyrelsen (1993b) Turisme/Fritid. [Tourism/Leisure.] Copenhagen (Erhvervsfremmestyrelsen) Erhvervsfremmestyrelsen (1994) Serviceydelser. [Services.] Copenhagen (Erhvervsfremmestyrelsen) Erhvervsministeriet (1999a) Videnservice i vækst. [Knowledge Services in Growth.] Copenhagen (Erhvervsministeriet) Erhvervsministeriet (1999b) Service i forandring. [Services in Change.] Copenhagen Eurostats (2001) Statistics on Innovation in Europe. (Data 1996-1997), Luxemburg (European Communities) Gadrey J, Gallouj F, Lhuillery S, Weinstein O, Ribault T (1993) Etude effectuée pour le ministère de l’enseignement superieur et de la recherche. [Reports from a project for

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the Ministry of Education and Research on innovation in service.] Lille (Universit'e de Lille1) Gallouj F (1994a) Économie de l’innovation dans les services. Paris (Harmattan) Gallouj F (2002) Innovation in the Service Economy. Cheltenham (Edward Elgar) Gallouj C, Gallouj F (1996) L’innovation dans les Services. Paris (Economica) Haukness J (1998) Services in Innovation – Innovation in Services. SI4S final report, STEP group, Oslo (STEP group) Hipp C, Thether B, Miles I (2000) The Incidence and Effects of Innovation in Services: Evidence from Germany. International Journal of Innovation Management vol. 4 no.4 pp 417-53 Howells J (2001) The Nature of Innovation in Services. In: OECD, Innovation and Productivity in Services, Paris (OECD) Metcalfe JS, Miles I (eds.) (2000) Innovation Systems in the Service Economy. Norwell Mass. (Kluwer) Miles I, Kastrinos N, Flanagan K, Bilderbek R, den Hertog P, Huntink W, Bouman M (1994) Knowledge-Intensive Business Services: Their Role as Users, Carriers and Sources of Innovation. PREST, University of Manchester, Manchester (PREST) SIC (Service development, Internationalisation and Competence development) (1999) Danish Service Firms’ Innovation Activities and Use of ICT. Based on a Survey, Report no. 2, Roskilde (Centre of Service Studies, Roskilde University) (http://www.ssc.ruc.dk/css/sic/published.html) Sundbo J (1996) The balancing of empowerment. A strategic resource based model of organizing innovation activities in service and low-tech firms. Technovation, vol. 16, no. 8, pp 397–409 Sundbo J (1998a) The Organisation of Innovation in Services. Copenhagen (Roskilde University Press) Sundbo J (1998b) The Theory of Innovation – Entrepreneurs, Technology and Strategy. Cheltenham (Edward Elgar) Sundbo J (1999) Empowerment of Employees in Small and Medium-sized Service Firms. Employee Relations vol. 21 no. 2 pp 105-27 Sundbo J (2001) The Strategic Management of Innovation. Cheltenham (Edward Elgar). Sundbo J (2002) Innovation as a Strategic Process. In: Sundbo J, Fuglsang L Sundbo J, Fuglsang L, (eds.) (2002) Innovation as Strategic Reflexivity. London (Routledge) Sundbo J, Gallouj F (2000) Innovation as a loosely coupled system in services. International Journal of Service Technologies and Management vol. 1 no. 1, 2000 pp 15-36 Vermeulen P (2001) Organizing Product Innovation in Financial Services. Nijmegen (Nijmegen University Press)

Managing Service Networks’ Success Heiner Evanschitzky, Dieter Ahlert Department of Trade Management and Network Marketing Münster, Department of Retailing and Distribution, Germany

1 Introduction.....................................................................................................152 2 Theoretical Framework and Derivation of Hypotheses...............................153 2.1 The Resource-Based View Approach....................................................153 2.2 The Industrial Organization Approach ..................................................154 2.3 The Market Orientation of Networks (MONW) Approach ...................154 3 Methodology....................................................................................................156 3.1 Sample Selection ...................................................................................156 3.2 Measures................................................................................................157 4 Results..............................................................................................................158 5 Discussion, Limitation, and Further Research.............................................160 References...........................................................................................................161

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1 Introduction Managing Service Networks’ Success is one of the key challenges in the service economy nowadays. Services constitute the fastest growing industry in Europe in the 21st century. They account for roughly 70% of gross value-added and employment. Also, services continue to be offered through ‘service networks.’ In order to successfully manage service networks, one has to analyze factors explaining the sustained competitive advantage of networks. Strategic Marketing and Management Theory offers theoretical explanations for that. But, before discussing that, the object of analysis (service networks) must first be defined. There are many approaches towards classifying services (e.g. Chase 1978; Kellog and Nie 1995; Lovelock 1983; Rathmal 1974; Schmenner 1986; Wemmerlov 1990) and towards classifying networks as well (e.g. Hakansson and Snehota 1995; Iacobucci 1996; Jarillo 1988; Miles, Snow and Coleman 1992; Powell 1990). This paper defines service networks as relating to the provision of a service-oriented cooperation of more than two legally independent partners which, nonetheless, are not independent in terms of economic cooperation. The relationships between enterprises which provide the services go beyond pure market aspects (‘spot contracts’). That is, they continue for a specific time frame and are not ‘one off’, but ongoing in the market. Likewise, there is an exchange of resources between the participating network partners (Pfeffer and Salancik 1978) resulting in mutual resource dependency (Ahlert and Evanschitzky 2003; Evanschitzky 2003). The rationale behind engaging in a network-like form is the search for the exchange mechanism that minimizes the sum of service ‘production’ costs and transaction cost deriving mainly from negotiating the contract and controlling agreedupon rules (for a summary: see Rindfleisch & Heide 1997). Potential inefficiencies of arms-length transaction and the rigidity of hierarchy have led firms to explore the continuum between these two extremes (O'Driscoll, Carson, & Gilmore 2000). Adding to this essentially transaction-cost-based approach towards networks, a more managerial approach leads to the question of which type of configuration best fits the relatively resource-induced power between the servicecentral (‘back-office’) and the service-provider (‘front-office’). The rationale behind this resource-based approach towards networks is not to minimize costs, but to maximize value through gaining access to other firms’ valuable resources (Das & Teng 2000: 35). Resource Dependency Theory proposes three factors (resource importance, availability of alternatives and degree of discretion) that determine the degree of dependency between two units (Pfeffer & Salancik 1978). Maximum dependency occurs when one unit has unfettered discretion over an important resource to which no alternatives exist (Medcof 2001). Based on this reasoning and the definition of service networks introduced above, the main objective of this study is to ‘break down’ and explain the success of service networks. By means of resource theory and industrial organization economics, two generally recognized but competing views that explain success are presented. Through the construct of network marketing, the authors attempt to de-

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velop a basis for integrating both explanatory approaches. Subsequently, hypotheses are developed and tested empirically on a sample of 122 service networks of predominantly German origin. Finally, managerial implications are highlighted and direction for further research is suggested.

2 Theoretical Framework and Derivation of Hypotheses 2.1 The Resource-Based View Approach The resource-based view (RBV) (Barney 1991; Mahoney and Pandian 1992; Penrose 1959; Peteraf 1993; Wernerfeld 1984) treats enterprises as a bundle of resources. However, there is no consensus as to what exactly constitutes resources. Here, Hofer and Schendel’s (1978: 145) systematization will be used, but with modifications. Because the units of analysis are service networks, service-specific resources will be considered, rather than technological resources. Secondly, the approach of Grant (1991), which identifies intangible resources as a distinct kind of resources, will also be used as well. On the basis of resources that have been tested for completeness and relevance in an exploratory Delphi-study executed by the author prior to this research, the following types of resources should thus be taken into account: financial resources, physical resources, human resources, organizational resources, service-specific resources, intangible resources. The RBV works on the hypothesis that these (organizationally internal) resources influence the success of an enterprise; which is an essentially ‘inside-out’ perspective. However, not all resources are equally suitable for the development of competitive advantages. Only when resources reveal certain attributes is the necessary condition for developing competitive advantage fulfilled. Of the numerous catalogs of attributes developed in the literature that of Barney (1991) is most widely accepted. According to this criteria catalog, resources must reveal the following four criteria (‘VRIS-criteria’) if they are to contribute towards generating sustained competitive advantages (SCA): value, scarcity, uncertain immutability (Lippman and Rumelt 1982), and non-substitutability (Dierickx and Cool 1989; Rumelt 1984). Based on the VRIS-criteria stated above, the following hypotheses can be formulated: HRBV:

Superior resources (resulting from superior financial, physical, human, organizational, service-specific and intangible resources) lead to SCA.

2.2 The Industrial Organization Approach The research orientation of the industrial organization (IO) states that the structure of a market influences corporate success (Bain 1956; Mason 1939; McGahan and Porter 1997; Porter 1980 and 1985; Rumelt 1991; Schmalensee 1985). IO places

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the focus of observation on the competitive forces at play. Porter in particular, extends the IO by two aspects: strategic groups and the concept of mobility barriers (Caves and Porter 1977; Porter 1973). Accordingly, the success of an enterprise depends on its market positioning. IO adopts an ‘outside-in’ perspective that views strategic choice as the product of a sophisticated understanding of industry structure. The ability to create barriers for the competition (market entry barriers for potential new competitors and mobility barriers for current competitors in the market), renders a competitive advantage sustainable. Each enterprise finds itself confronted by the following five forces: the power of buyers and suppliers, the danger of substitution by new products and sellers, and market rivalry. This impacts the success of an enterprise in its relevant market. Consequently, the following hypotheses can be formulated: HIO:

A superior position in the market (resulting from decreased buyer and supplier power, lower threat of new firms entering the market and product/service offering substitution and decreased rivalry) leads to SCA.

2.3 The Market Orientation of Networks (MONW) Approach Market orientation of networks (MONW) is an extension of the construct of market orientation (Jaworski and Kohli 1993; Kohli and Jaworski 1990; Narver and Slater 1990) consisting of two main dimensions. It is applied here to a network setting. Based on market orientation (which, in its first dimension models the customer orientation and in the second dimensions models the competitor orientation) and interfunctional coordination (called ‘intra-partner coordination’ in a networksetting), market orientation of networks also has a fourth dimension: inter-partner coordination. This dimension depicts how network partners interact with each other and respect their mutual interdependence. MONW is thus characterized as the market orientation of a network, meaning that it is an organizational culture that creates the necessary conditions for an efficient and effective creation of superior customer value through a network of partners and, by doing so, creates sustained competitive advantages. Following the reasoning of the market orientation construct, it can be assumed that market orientation of networks leads to SCA: HMONW:

Superior market orientation of networks (resulting from customer and competitor orientation; intra-partner and interpartner coordination) leads to SCA.

Apart from the direct effects of NOMW on the success of a service network, it can be assumed that mediating and moderating effects of MONW are present. These assumptions appear to be sensible since market orientation of networks can be seen as part of the corporate culture (Day 1994; Deshpandé and Webster 1989; Narver and Slater 1990). A mediating impact of resources on market orientation of networks can be assumed, because the impact on success is not only direct: the

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contribution of resources is a sufficient condition for market orientation of networks to be of value (Gatignon and Xuereb 1997). Han et al. (1998) and Matear et al. (2002) find support for such a mediating effect of certain resources. Their argument holds for market orientation of networks and resources: market orientation of networks provides input on the ways in which resources must be employed in order to be a source of competitive advantage. Therefore, market orientation of networks’ contributions to success is mediated by the resources of the network. A mediating effect of the industry structure is also plausible. Gathering market intelligence on the competitive forces can reduce the negative impact of these forces by highlighting opportunities for repositioning. This can put the service network as a whole in a stronger bargaining position with suppliers and customers alike. That leads to the following hypotheses: HMed_1.1: HMed_1.2:

The contribution of market orientation of networks to SCA is mediated by resources. The contribution of market orientation of networks to SCA is mediated by the industry structure.

Market orientation of networks can moderate the impact of resources on success. Market orientation of networks as an organization-wide concept that affects all activities within the organization creates the necessary conditions for generating business success by delivering superior customer value. Consequently, a better market orientation of networks could increase the positive contribution of resources on success. The industry structure can be expected to moderate the contribution of market orientation of networks to success (e.g. Greenley 1995). In markets with a low level of hostility, customer preferences and competitors’ actions remain relatively predictable, whereas in dynamic, hostile markets, firms have to constantly seek new opportunities. Hence, market orientation of networks (especially the generation and dissemination of market intelligence) becomes more important: HMod_1.1: HMod_1.2:

Market orientation of networks moderates the contribution of resources to SCA. Industry structure moderates the contribution of market orientation of networks to SCA.

The integration of the three models results in the construct of network marketing (NWM). NWM can be understood as the market-oriented management of a network, the management of resources and the positioning in the market. It starts with systematic generation of market intelligence such as customer preferences and competitors’ actions (external market orientation of networks). That information is disseminated through the network (internal market orientation of networks) so that the strengths and weaknesses of the network (resources) just as the opportunities and threads (industry) of the competitive environment can be detected. By doing that, the network resources can be used effectively and efficiently to create superior customer value and, thus, sustainable competitive advantages. Figure 1

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summarizes the relationships and provides an overview of the hypotheses of this study.

Sustained Competitive Advantage HMed_1.1

HMed_1.2 HMONW

HRBV HMod_1.1

Resources

HMod_1.2

HIO

Industry Structure

Market Orientation of Networks

Network Marketing Fig. 1. Conceptual Model of Network Marketing

3 Methodology 3.1 Sample Selection The sample for this study was drawn from a list containing roughly 1,000 service networks across all sectors of the service industry (selection was based on Standardized Industrial Codes). The aim of the study was initially outlined through contact by post. By returning this mail (usually by fax), the recipient agreed to receive a questionnaire. 265 questionnaires were distributed and 122 were returned complete. Respondents were members of top-management teams, thus guaranteeing the validity of responses (Reve 1982). Using the method suggested by Armstrong and Overton (1977), t-test between mean responses of early and late respondents indicated no statistically significant differences.

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3.2 Measures Direct Measure of Success: This study uses five subjective measures of success: customer satisfaction, turnover, market-share, ROI and profit. Unfortunately, objective measures were not available due to legal restrictions (small and medium size companies need not report financial data in Germany). Nevertheless, Dess and Robinson (1984) argue that organizational performance can be measured using subjective data when these measures are carefully selected and key informants are reliable (Reve 1982). Five success indicators are formed by multiplying the ‘significance of the objective’ (‘How important do you rate customer satisfaction, turnover, market-share, ROI, profit?’) with ‘satisfaction with goal attainment’. This ‘goal approach’ has been introduced by Etzioni (1964) as a valuable tool to measure organizational success. Resources: Given the scarcity of prior empirical research on specific scales for resources, the scales for financial, physical, human, organizational, service specific and intangible resources were newly generated (resulting from qualitative analysis and a Delphi-study performed prior to this research). Reliability and validity were assessed using confirmatory factor analysis (CFA) (Anderson and Gerbing 1988; Fornell and Larcker 1981). In addition, Cronbach’s Alpha (Cronbach 1951) was calculated. The constructs manifest a composite reliability of at least 0.6 as suggested by Bagozzi and Yi (1988) and Cronbach’s Alpha was well above 0.7 (Nunnally 1978). Competitive forces: With respect to the IO, numerous measurement scales from the literature can be used to depict competitive conditions. These relate mainly to the work of Porter (1980 and 1985), who, in his model of the five competitive forces, offers approaches to operationalization. Here, the scale of Cool and Henderson (1998) has been selected and used in a slightly modified way. As anticipated when using borrowed scales, reliability and validity (using CFA and Cronbach’s Alpha) were satisfactory. Market orientation of networks: This is a new construct. Because it has arisen through an extension of the construct of the market orientation, for the three original factors, the measurement scales of Narver and Slater (1990) are used. Even though these scales were originally designed for the measurement of the market orientation in industrial enterprises, they have proven valid for the service sector as well (e.g. Estaban et al. 2002). The fourth dimension, or ‘inter-partner coordination,’ extends the perspective of market orientation by the aspect of ‘cooperation between the network partners’, which is a unique aspect of service networks. As above, scales have been assessed using CFA and Cronbach’s Alpha. Both yielded acceptable values. Hypotheses were tested using structural equation modeling (SEM) and regression analysis.

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4 Results The RBV-Model comprises six factors: financial, physical, human, organizational, service specific and intangible resources. With the fulfillment of all fit-criteria (Hair et al. 1998), the model as a whole cannot be rejected (GFI = 0.922; AGFI = 0.914; RMR = 0.093; F2/df = 1.631). The IO-Model comprises five factors, specifically Porter’s (1980) five forces. All in all, the model shows a good match between the hypothetical and empirical covariance matrix (GFI = 0.973; AGFI = 0.923; RMR = 0.080; F2/df = 1.697). The MONW-Model comprises four factors: ‘customer orientation,’ ‘competitive orientation,’ ‘intra-partner orientation,’ and ‘inter-partner coordination.’ The global goodness criteria of the model exceeds the required minima (GFI = 0.960; AGFI = 0.953; RMR = 0.080; F2/df = 1.977). Table 1 provides an overview of the regression-coefficients of the three models. Table 1. Results of the Three Models RBV financial resources

0.672**

buyer power

physical resources

-0.100

supplier power

human resources

0.147

organizational resources service specific resources intangible resources R2 * p < 0.05 ** p < 0.01

IO

thread of new market entries

-0.107

MONW customer orientation

0.673**

0.262*

competitor orientation

0.194*

0.409**

intra-partner coordination

0.191*

inter-partner coordination

0.180*

R2

38%

0.334**

thread of substitution

0.478**

0.669**

rivalry

0.507**

R2

35%

-0.058 65%

It appears that financial, organizational and service-specific resources positively influence the quality of the resource position: thread of new market entry, thread of substitution, supplier power and market rivalry influence the competitiveness in the market and customer and competitor orientation, just as intrapartner as well as inter-partner coordination influence market orientation of the service network. All three effects (when considered individually) build the basis

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for sustained success (explaining the variance of between 35% and 65% in firm performance). Mediating effects were calculated using the procedure suggested by Baron and Kenny (1986). All conditions for ‘Resources’ and ‘Industry Structure’ were satisfied, showing them to be mediators of the relation-ship between ‘MONW’ and success. That means that ‘MONW’ contributes to service network success insofar as it enables a better deployment of the resources at hand or demonstrates the opportunities and threads of the industry. Therefore, hypotheses HMed_1.1 and 1.2 cannot be rejected. Next, the moderating effects were assessed. Again, a set of regression equations was used to test for moderating effects (Cohen and Cohen 1983). First, ‘MONW’ was examined as the moderator of the relationship between resources and success (HMod_1.1). Although ‘resources’ and ‘MONW’ show significant effects in a hierarchical moderated regression analysis, the interaction term is not significant. Next, industry structure was examined as the moderator of the relationship between ‘MONW’ and success (HMod_1.2). ‘MONW’ and ‘industry structure’ show significant effects, but again, the interaction term just failed to meet the significance criteria. Therefore, HMod_1.1 and 1.2 are not supported. However, Sharma et al. (1981) suggest that when the interaction effects of potential moderator variables are not significant, but the moderator is related to the dependent variable, the ‘moderator’ may be an antecedent variable. Path analysis is used to test if ‘MONW’ is antecedent to resource and industry structure effects. Table 2. Antecedent and Direct Effects Effect market orientation of networks Æ resources market orientation of networks Æ industry structure resources Æ success industry structure Æ success market orientation of networks Æ success R2 * p < 0,05 ** p < 0,001

Path Coefficient ‘Antecedent Effects only’

Path Coefficient ‘Direct and Antecedent Effects’

0.555**

0.556**

0.176*

0.177*

0.567**

0.492**

0.274*

0.272* 0.103

0.471

0.483

With all fit criteria being met (GFI = 0.972; AGFI = 0.916; RMR = 0.022; F2/df = 1.544), ‘MONW’ seems to be antecedent to both ‘Resource’ and ‘Industry Structure.’

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5 Discussion, Limitation, and Further Research The primary aim of this paper was to identify factors that affect service networks’ success in order to better manage the service operations. Three direct effects have been analyzed separately. The first is a resource effect, which explains 65% of variation in firm performance. Furthermore, industry structure effects explain 36% of variation in firm performance and the newly introduced ‘market orientation of networks’ construct, accounts for 38%. This paper broadens an understanding of the causes of firm success in at least two ways. First, it uses a methodology that accounts for measurement errors of the latent constructs and develops measurement models for these constructs. Therefore, there is no need for proxies to measure constructs (an often articulated shortfalling of ‘traditional’ regression analysis in estimating firm and industry effects). Second and more importantly, this work attempts to integrate the RBV of the firm and the IO approach. These two approaches are viewed with respect to a prominent marketing construct: market orientation. Since market orientation itself is the object of an ongoing debate in marketing science, the authors choose to expand that construct to meet the particular requirements of service networks, the unit of analysis in this study. Networks are considered as cooperation between legally independent entities that are economically (at least partially) dependent and that pool resources with the goal of maximizing utility and minimizing (transaction) costs. Therefore, a market-oriented network must also be network-oriented. This means that it has to take into account the fact that coordination between partners cannot be implemented by means of ‘orders’, but through ‘persuasion’ in a quasidemocratic process. That calls for different management abilities of network managers. The extended construct is called ‘market orientation of networks,’ a certain type of corporate culture. If analyzed in isolation, MONW proves to have a direct, significant and positive effect on success. The simultaneous analysis of all three effects (resource-, industry structure- and MONW-effects) yields even more insight into the interacting effects at work. MONW is mediated by resource and industry structure effects and functions as the antecedent of re-source and industry structure effects as well. Mediating means that MONW contributes to success via resources and industry structure so that it, (1) enhances a more efficient and effective use of resources through better coordination of pooled (asymmetric) resources and, (2) makes the management aware of positive and negative influences of the industry structure by giving hints on rivalry and existing market entry barriers. It suggests improving bargaining positions towards customers and suppliers alike. MONW is also antecedent to both resource and industry effects and their contribution to success. This provides further support for the earlier consideration of MONW as a type of organizational culture that must exist in order to create superior value for the customer and superior success for the network by not neglecting competitors’ actions. This approach emphasizes the need for an integrated view of the constructs. The introduction of the concept of network marketing was one attempt to achieve this.

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As with all empirical studies, ours suffers some limitations. Key informants for our study are members of the top-management team of the hub firm of the service network. We specifically identified those managers in charge of ‘network development’ or ‘partner management.’ Since we only considered service networks with a clearly structured, long-term oriented organization such as franchise systems, we are confident that managers of the hub are able to speak for the network as a whole. We specifically asked these managers to rate the network resources, the competitive structure of the market and the market orientation of the network as a whole. Further studies may have to investigate whether the perceptions of managers from the hub-firm correlate with responses given by the other network partners. We would expect correlations to be highly significant. Therefore, we anticipate no severe limitation as to the generalization of our findings to all franchise-like service networks. From a scientific point of view, the concept of service networks needs to be further analyzed in more detail. After identifying possible factors of success, a logical next step would be to analyze best practices in terms of management strategies. Identifying benchmarks could lead to a deeper understanding of those success factors that can be influenced by the management. On a methodological level, SEMs (as used in this study) have been criticized for modeling only linear relationships. This type of relationship might not be present in the case of MONW. Narver and Slater (1990, p. 32) already suspect that the relationship between market orientation and profitability is ‘some form of Ushape.’ A similar relationship could be present here and it is reasonable to hypothesize some optimal level of market orientation of networks. That would turn a maximization problem into an optimization problem. Latent class analysis (Larzarsfeld and Henry 1968) or multi-level analysis (Raudenbush and Bryk 2002) could offer solutions to modeling these kinds of relationships and also prove a fruitful avenue for further research.

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Success Factors in New Service Development and Value Creation through Services Bo Edvardsson, Anders Gustafsson, Bo Enquist Service Research Center, Department of Business and Economics, Karlstad University, Sweden

1 Background .....................................................................................................166 2 Service competition and strategy...................................................................167 3 The experience concept and experience-based service value ......................169 4 Critical success factors for developing new services and suggestions for future research...........................................................................................171 4.1 Develop a Deep and Thorough Understanding of the Customer and what Creates Value through the Eye of the Customer ........................172 4.2 Create a Customer-Centric Service Culture and Strategy within the Company.............................................................................................172 4.3 Stay Focused on your Customers ..........................................................173 4.4 Apply a Multi-Method Approach ..........................................................173 4.5 Involve the Customer in the Development Process ...............................174 4.6 Appoint Multi-Teams ............................................................................175 4.7 Manage Internal and External Communication .....................................176 4.8 Appoint a Project Leader with the Skills to Lead, Coach, and Develop Team Members ...................................................................................176 4.9 Take on a Holistic Approach .................................................................177 4.10 Focus on the Whole Integrated Customer Solution and the service experience ...........................................................................................178 4.11 Monitor and Understand Market and Future Trends ...........................179 5 Strategic perspectives on future research .....................................................180 References...........................................................................................................181

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1 Background Many markets are undergoing dramatic structural changes that enable the service sector and services within manufacturing companies to grow in importance. There are many different forces at play that contribute to these changes (Gustafsson and Johnson 2003). Individuals in developed countries seem to have less time available to do things for themselves. The result is more restaurant meals, more inhome services, and less time spent physically shopping. People seem to be willing to trade personal time for money and therefore buy services and experiences directly. Paying bills, investing and shopping online from home are increasingly common ways to cope with the growing complexity of our lives. These examples illustrate that services are becoming more technological in their nature, which is sometimes referred to as technology infusion in services. Self-service technology enables customers to produce and perform a service independently, without any direct interaction with a firm’s employees (Bitner, Brown and Meuter 2000). Technology-enabled services such as telecom services, ATM (cash machine), self service technology and service infrastructure through the Internet have created completely new consumer behaviors, new marketplaces (spaces) and competition patterns. Empowered customers become part-time employees who co-create services which render value, with support from different service providers. Services can be personalized in new ways, for instance, using individualized home pages. There can be mass-production but at the same time personalized service experiences. Service providers offer a resource-base for customers to use when creating and producing services. This new technology can also be used for direct access to a service provider. Instead of having to rely on a travel agent to book a trip or make a reservation, the customer can contact a specific service provider directly. This puts more power into the hands of the customer; it is easier for the customers to choose among the best deals available from any service provider. A service provider can in turn have easy access directly to a customer and thus is able to cut out the middle player. Dell Computers, for example, are using this approach as part of their marketing strategy with the slogan ‘direct from the source’. A company can also use this new technology to retrieve more information from their customers in order to become more knowledgeable about their needs and actual behaviors and as a consequence adapt their service offerings. New technologies can thus be used to change the rules of a market. This chapter examines the choices facing many companies that attempt to remain competitive and create value through service development. This Process uncovers the prerequisites for favorable customer experiences. We also discuss some aspects and success factors in new service development and suggest areas for future research. Our focus is not on issues directly related to the new service development process as such, which has often been the case in the service literature (Gupta and Wilemon 1990; Martin and Horne 1993, 1995; Edvardsson et al. 1995, 2000; John and Storey 1998; Scheuing and Johnson 1989; Kelly and Storey 2000). Our focus is firstly on challenges in the new business landscape, where service

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competition and value creation through service put pressure on companies and markets to develop service offerings preferred by the customers. Secondly we focus on service value creation through favorable customer experiences. We have chosen IKEA (the largest and for many years, most successful retail furniture company in the world) as our empirical illustration. We use data from our studies of IKEA to illustrate critical success factors. IKEA focuses not on the furniture but on solutions to real life problems and emphasizes value in use for the customer. The chapter begins with a discussion of service competition and the challenges companies face in order to stay competitive. Following that is an analysis of the role of experiences in value creation through services and finally we suggest strategic guidelines for the development of new services and future research.

2 Service competition and strategy Companies are searching for new and better ways to differentiate their market offerings in order to stay competitive and make a profit (Shaw and Ivins 2002). We believe that the move toward services is a fundamental reaction to the evolution of competition and offers companies a valuable means to differentiate by creating new customer value through service. We often hear about service infusion in manufacturing. For instance, Ford Motor Company claims that ‘If you go back to even a very short while ago, our whole idea of a customer was that we would wholesale a car to a dealer, the dealer would then sell the car to the customer, and we hoped we never heard from the customer – because if we did, it meant something was wrong’. Ford continues and states ‘Today we want to establish a dialogue with the customer throughout the entire ownership experience. We want to talk to and touch our customers at every step of the way. We want to be a consumer products and services company that just happens to be in the automotive business.’ (Garten 2001, p. 137) As a consequence, manufacturers of physical products emphasize not only product features, but also services and the next step is to stress experience-based values. SAAB uses the slogan ‘welcome to the experience industry in Trollhättan’ in their promotions. Cars become platforms for transportation services which create favorable customer experiences. We believe that service and service constellations that include favorable customer experiences and not physical goods are fueling modern economic growth. A physical product of good quality can be seen as a pre-requisite. It is an entry ticket for a company to start to compete. But other traits are also needed for success in a market. Even the niches become hosts to similar competitors where quality is guaranteed and price is the main way to compete. New technology, such as service outsourcing, is making it possible to produce services in parts of the world where labor is cheaper. Products become platforms for services and experiences which render value. This evolution has forced companies to look downstream, or down the value chain, to the possibility of competing through the services that surround their products. Rather than sell the cake mix, you help the customers create a

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memorable birthday party. For a company to change from offering only products to one that stages experiences is quite a challenge. This is exemplified in Fig. 1. Figure 1 illustrates some of the challenges we find in our research (Edvardsson et al. 2000). It also shows why the importance of new services will continue to increase. The figure should be read by starting at the origin. The arrows indicate time. The different arrows followed from the origin indicate what will need to happen in different areas over time. The model is best interpreted if the customer demand trends are studied first. Changes in these trends will affect the other areas. The effects can be seen following the arches around the figure. The model illustrates what happens as more customer demands are met; change must be made in the areas of customer options, supplier relations, organization and management style in order to adapt to these changes.

Fig. 1. Strategy and view of market development and trends (Edvardsson et al. 2000)

At the origin we have a mass market with mostly standardized services. All customers are offered the same service and treated in the same way. Consequently, the customers have limited options. A company in this situation can have a pure business relationship with their suppliers and simply pick the lowest bidders as partners. This organization tends to be very hierarchical with multiple layers of managers. The managers have an inactive role and merely act as observers. The present market challenge for a company, however, is to create with a larger number of service variations and to supply the customers with flexible services with few limits. In this way, a company tries to provide services that will allow cus-

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tomers to design and tailor their own service experience. In order to accomplish this, a company needs to have a thorough understanding of their customers, preferably at an individual level. The key term is customer knowledge. A company needs to develop new service processes and a service structure that contains and supports a number of different and changing customer processes. This will affect the supplier relationship. A company will have to think in terms of allied production, by not only working closely together, but also relying on suppliers to invent and deliver superior value to the company’s customers. In other words, outsource everything that is not a core competence of the company. A key term is networking, where different companies’ competencies are combined to deliver superior value to customers. In terms of leadership, the managers must not only be team-leaders (as opposed to ‘the big boss’) making sure that everyone is allowed to do their best, but they must also be active in society. Managers have a responsibility to provide appropriate tools for personnel to support the customer throughout the service process. These tools, along with more and better information and training, are important aspects of the service system and a prerequisite for success. By empowering the staff, a company stands a better chance of satisfying its customers or recovering dissatisfied customers. The term empowerment also applies to customers. In service industries it has become popular to let customers take care of more than simply routine tasks themselves. Furthermore, companies too often become locked into their own business models. These companies are reluctant to take risks with their own business by installing new technology, products, services, or distribution channels. They become so focused on providing customers with what they wanted yesterday, that they miss the opportunities to create markets for tomorrow. We suggest that improving the prerequisites for new service development processes is one way of staying in business. We will focus on the creation of favorable customer experiences and experience-based value. The focus is not only on value from physical products and services per se but also on experiences. Customers become co-creators or coproducers of attractive experiences which may result in lasting customer value and long-term relationships. ‘Value-in-use’ (Vargo and Lusch 2004a, b) and ‘consumption judgments’ are related concepts. In both cases the traditional focus on cognitive evaluation has been extended to include service-elicited emotions and experiences.

3 The experience concept and experience-based service value In their book ‘The Future of Competition’, Prahalad and Ramaswamy (2004) focus on co-creating unique value together with customers and argue that ‘value is now centered in the experiences of consumers’ (p. 137) and not just embedded in products and services. Customer delight and customer perceived value are linked to memorable and favorable customer experiences (Pine and Gillmore 1999; John-

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son and Gustafson 2000; Berry et al. 2002). It is often these experiences, not just a logical, value for money outcome and cognitive assessment (Johnston and Clark 2001) that distinguish excellent companies from average companies. Customers must experience the intangible service in order to understand it. As opposed to goods, intangibility makes services more difficult for customers to imagine and desire and thus assess their value. Customers purchasing professional tax advice have no knobs to turn, buttons to push, or pictures to see. Customers’ perceptions of risk tends to be high for services because services cannot be touched, smelled, tasted, or tried on before purchase. Customers can test-drive a new automobile and kick the tires, but in order to try a new vacation resort they must first register as guests (Reichheld and Sasser 1990). The concept experience is used with different implicit content. In some literature the concept is used to denote positive and emotionally loaded perceptions of any situation. Traditionally, the experience concept is used to describe and understand experience-intensive situations, where people integrate what they perceive and encounter according to a script during and after consumption. Customers’ fantasies are staged and, at least to some extent, controlled in relation to attractive solutions where products and services become platforms for experiences and not just a means to an end in a logical and calculative way. The concept experience has been a focus in psychology (Ariely and Carmon 2000; McKnight and Sechrest 2003) and other disciplines within the social sciences and there are many different ways of describing and defining human experiences. One way is to describe what people experience in different situations, for instance while they are purchasing and/or consuming services, or when the customer is in the flow of experiences or peak experiences and is not aware of anything else other than the experience. A second approach is a linked experience in which experiences are interdependent and customer experiences may be understood by studying constellations of experiences. A third approach is to focus on the outcome or the result and effect of one or many experiences. Companies need to define what they mean by experiences and the definition should be understood through the eyes of their customers, focusing on solutions to real life problems and consumption experiences. We define a service experience as the service encounter and/or service process that creates the customer’s cognitive, emotional and behavioral responses resulting in a mental mark or a memory (in line with Johnston and Clark 2000). Some of the experiences are especially favorable and others are particularly unfavorable. Both tend to stay in the customer’s (long-term) memory. We call these experiences memorable. Berry et al. (2002) emphasise the necessity of ‘managing the total customer experience’ when discussing service experiences. They advocate recognizing clues of experience related to functionality and clues of experience related to emotions. According to Voss (2003), organizations focus more and more on experiences to engage customers, to create and support brands and to differentiate themselves from the competition (ibid. p. 26). In this paper we use IKEA as an illustration: ‘The parking is the first encounter with the customer and when leaving IKEA the parking lot is the last experience room. Therefore we stress the parking and want to make it as attractive as possible’. ‘Service-orientation in the front line is most

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important for customer satisfaction and for the creation of favorable experiences’. ‘Shopping at IKEA should be a nice experience for all the members of the family. The first and last impressions are most important. The last experience of a customer leaving IKEA store is ‘low cost’, re-enforcing through the low-price of hot dogs (SGD 1)’. Customers respond to an event in certain ways in order to maintain positive emotions and to avoid negative emotions (Stauss and Neuhaus 1997). ‘During the consumption experience, various types of emotions can be elicited and these customer emotions convey important information on how the customer will ultimately assess the service encounter and subsequently, the overall relationship quality’ (Wong 2004, p. 369). Hence, the more we know about drivers of negative and positive customer emotions, the better we understand the focus in developing new services with built-in experiences and the better we can manage service competition. Emotions are expressed in critical incidents when customers perceive disappointment or delight. Customer feedback, complaints, and praise (or compliment) contain information about positive and negative emotions. Emotions are evoked during service consumption or use. The narrative approach is a useful way of collecting data; it describes customers’ different emotions when thinking about or exposed to situations creating both favorable and unfavorable customer experiences.

4 Critical success factors for developing new services and suggestions for future research Our findings from a number of research projects and publications (Edvardsson et al. 1995, 2000; Johnson and Gustafsson 2000; Gustafsson and Johnson 2003) about how to successfully develop and launch new services, are listed below in order to ‘co-create unique value with customers’ (Prahalad and Ramaswamy 2004): x develop a deep and thorough understanding of the customer and what creates value through the eye of the customer x create a customer-centric service culture within the company x stay focused on your customers x apply a multi-method approach x involve the customer in the development process x appoint multi-teams x manage internal and external communication x appoint a project leader with the skills to lead, coach and develop team members x take a holistic approach x focus on the whole integrated customer solution and the total customer experience x monitor and understand market and future trends

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4.1 Develop a Deep and Thorough Understanding of the Customer and what Creates Value through the Eye of the Customer Understanding the customer is the key to commercial success. To survive, a company must understand the problems and needs of the customers who use their products and services and use that information to create a competitive advantage. It is not enough to simply run a couple of focus groups and assume an understanding of the customers’ needs. Understanding requires a much deeper knowledge of the following: x customers’ needs, priorities, requirements, expectations and preferences x customers’ service context, or when, what, how, why and where the service is used x customers’ knowledge and probability of using the service x customers’ values and cognitive structures x customers’ experiences, emotions and behaviors when using the services Unfortunately, many companies outsource the task of collecting and interpreting customer information and thus introduce a filter. We feel that it is extremely important for companies to develop their own skills for understanding customers and thereby take charge of one of their most important assets. IKEA places a great deal of importance on the customers’ perspective, the customers’ language and the solutions to real life problems. IKEA focuses on the customers whole experience and how it is formed throughout use and consumption. These experiences are filled with emotional energy since they are established during periods of tension and adventure. They are articulated and may be objectified during an institutionalization process that turns them into identity carrying traditions. Some become narratives and thus reproduce the company culture. 4.2 Create a Customer-Centric Service Culture and Strategy within the Company Unfortunately, it is not enough to just gain a deep understanding of the customers’ needs, expectations, usability process, quality perceptions and values. The real challenge is to create a service strategy and a culture within a company, which is in line with customers’ value perceptions and priorities. This both creates the foundation for and gives support to a company’s ability to realize powerful service concepts where the technical infrastructure often plays a key role. Service concepts and the latest technology itself, however, will not be enough. Services always rely on service encounters and moments of truth where people interact. Personal interactions both inside the company and with external customers always play a key role in creating loyal and profitable customer relationships. Customer delight is a product of high quality service encounters and customer relationships where the customers’ expectations are exceeded and favorable customer experiences are created. How do we build a customer-centric organization? IKEA sug-

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gests that the values of the customers need to be understood and through design, advertising, catalogues, development teams etc., the furniture becomes a physical artifact which represents and expresses these core customer values. This is important to attract, touch and retain customers. Values among the ‘majority of people’ and the internal culture of IKEA must match. This is what customer focus, customer centricity and being customer driven is all about. This means that the company culture needs to change (at least to some extent) over time and that the local adaptation in a global company needs to be managed. At the same time they must keep the core company values. In the case of IKEA this is expressed through for example Swedishness. Berry (1999) found in his research that the sustainable, successful service companies have a ‘soul of service’ and a passion for great service. Service culture is based on customer related norms and values as in the case of IKEA with ‘the values among the majority of people’. Values serve as a compass to make sense of a complex world. The values become a compass for how to act when guidelines and instructions are not enough. The direction of the compass is not the North Pole but customer value and customer satisfaction. The soul of service gives the company energy and direction to know when and how to go the extra mile for the customer. The value logic for the customers and the value logic within the IKEA culture interact dialectally (Edvardsson and Enquist 2002). In IKEA’s philosophy, the service culture drives the service strategy (ibid.). 4.3 Stay Focused on your Customers Building and maintaining a service advantage requires market segmentation. Your ability to build the culture and subsequently link activities depends on remaining strategically focused on a particular customer population. Deciding whom to serve and whom not to serve is essential, or the ‘seams’ in the system will rupture (Treacy and Wiersema 1997). How does IKEA address the question of staying focused on the customers? IKEA focuses on designing ‘solutions to real life problems’. The focus is not on the furniture as such, but on the value in use at home that addresses ‘every day life needs’. Functional quality is important because design creates attraction, but the total customer experience in the form of individualized customer solutions is the ultimate challenge. IKEA focuses on excellent customer service towards ‘attitude and behavior in interaction with customer’. The challenge is to develop customer solutions which fit into the IKEA standard (‘price tag’, quality, environmental requirements) of well-designed, functional home furnishing products at prices so low that many people will be able to afford them. 4.4 Apply a Multi-Method Approach In some cases it is enough to simply ask customers what they want and then design and offer what they require. In many cases, however, customers have a hard

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time verbalizing what they want in a way that gives sufficient information to direct the service development processes, especially when developing innovative new services. In order to collect all the different data needed to get to know the customer, a multi-method approach is needed. Surveys and customer satisfaction studies based on verbal methods are simply not enough. A number of different methods are needed to capture in great detail different, relevant and important aspects of the customers’ needs, value-drivers and usability process. 4.5 Involve the Customer in the Development Process Many new services are technology driven rather than customer driven. Furthermore, these new services do not seem to be tested in a systematic way before they are launched. This may be due to a lack of customer-centric culture in many companies. We are surprised to find that only a few of the service companies we have studied over the years proactively involve demanding and knowledgeable customers in project teams and new service development processes. In the automobile industry, for example, customers are heavily involved when new cars are being developed. During the past 25 years, Honda has worked very closely with customers in different phases of the development process. The customers even have a veto right, which means that the project must get their acceptance to continue from one phase to the next. In contrast, service companies seem to rely more on simple verbal input or feedback from customers. Our experience shows that many successful organizations work in close cooperation with real and demanding customers on their premises. This approach makes efficient use of a company’s resources, obtains more useful results and is faster. Having heavily motivated and engaged customers in the process, may prove to be important in the launching of a new service in a timely fashion. The Internet is an excellent tool for involving customers and enabling companies to have easy and direct access to almost anyone in the world. In IKEA, touch-points are important for creating great experiences and mental marks. Customers are involved in creating these touch-points and in managing experience design. IKEA customers are involved by designing their own solutions, assembling the furniture, using the catalogue, using the Internet, getting advice from professionals, (e.g., architects in the store) and using technology to simulate the solution and test it before purchase and consumption. ‘Work IKEA’ is a good example. You can design your own ideal workplace with the IKEA free internet 3D planner, but you can also talk to an IKEA expert who is ready to listen and give advice. Customer value is increased through the co-creation of personalized customer experiences in stores, where the company encourages customers to see, test, and enjoy (test drive) home design solutions. Using its catalogue and in-store customer experiences, IKEA tries to make its service tangible through the use of experience rooms such as kitchens, living rooms etc., in order to create favorable experiences and greater value for the customer and the organization. As Pine and Gilmore (1999) stated, ‘while economic offerings become more and more intangi-

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ble with each step up to the next echelon, the value of that offering becomes more and more tangible’. 4.6 Appoint Multi-Teams Successful service development requires organizations to first decide on working methods and to determine the role of the project manager (leadership, responsibilities, and authorities). Thereafter, development activities are usually organized into project teams. We argue that a close and working co-operation between functions, professional groups and customers within the organization is a key success factor. Such multi-teams should include different kinds of experiences and expertise such as sales people, customer service employees, computer software specialists, netservices and technicians. The teams may benefit from including external experts from partner companies and research institutions. The primary benefits of using multi-teams are increased communication and the ability to view the opportunity or problem from many different perspectives. The use of multi-teams not only brings in expertise and knowledge, but also results in team members taking information back to share with their own functional area or organization. Once a consensus is reached at a meeting that involves many different parties, the multi-team also feels obliged to take responsibility for the decision. IKEA develops all concepts, products and product ranges in IKEA’s Swedish stores. This is always done within multi-teams representing, for example, designers and architects as well as specialists in packaging, material quality, and logistics. They always work from the customers’ needs and ‘means to ends’. The first phase takes a business perspective where they attempt to uncover the real customer needs and estimate the sales volume and price level required to make a profit. A project leader from the unit ‘product range strategy’ selects employees with competencies from different business units, for examples, purchasing, logistics etc. When the teams are formed, the whole IKEA network is used to understand ‘the real customer needs’. The challenge lies in finding ‘smart solutions for a better everyday life’. External experts are brought in from around the world and different cultural contexts are considered. When an employee has a good idea for a solution, he/she makes a specification and contracts a new multi-team for the next phase of the development project. This results in the final solution for that product which covers all the requirements of the specification. The multi-team in each phase is responsible for managing problems that may occur from the idea to the physical product stages, using attractive customer solutions. The first phase is more business/customer and need oriented and the second phase is more design and production oriented.

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4.7 Manage Internal and External Communication New services are becoming more complicated and are often based on a technical solution. Consequently, more people are involved in projects today and companies frequently need to work within in a network to complete the new service. Internal and external communication is crucial for the success of a new service development project. Lufthansa has developed an interesting approach where posters or learning maps are used to illustrate the customer process, provide information on how customers come in contact with the company, list their goals and state the type of customers they have. Information is available and interactive systems make communication with the customers possible before, during and after, for example, a visit to the store. How is this managed within IKEA? Mr. and Mrs. Sanders have been looking through the IKEA catalogue for a few weeks now because they need new beds for their bedroom. Looking through the catalogue is a way of getting inspiration and new ideas. They also feel comfortable with the IKEA approach of ‘low priced but high minded’, which they can read about in the catalogue and which means that IKEA shows social responsibility. Mrs. Sanders saves the catalogue for a whole year and uses it during the weeks just before she goes to the store. Last Saturday, Mr. and Mrs. Sanders decided to go to the IKEA store and bring their two kids along. While seated in their car and approaching the store they can see a yellow and blue building. They are surprised that this enormous, nice-looking building says ‘IKEA’. On arriving at the store, they notice that it is quite easy to find a parking space. After all, the IKEA store has 1,600 parking spaces, which are free as well. On entering the building, the smell of freshly-baked rolls and coffee takes control of Mr. Sanders. And before you know it, the whole family are going their separate ways; Mrs. Sanders wants to put her jacket in one of the lockers and is desperate to visit the toilets, while the kids run off to ‘Småland’ where they can play to their hearts’ content. Mr. Sanders decides that he deserves a cup of coffee before entering the store. …When the family arrives on the top floor, they are surprised about the amount of space in the store. It is so open in the middle and there is natural light coming in from the roof, something they have hardly ever seen before in other big stores. Mr. Sanders takes a look at the information board to find out what there is on each floor. He takes a pencil, a piece of paper, and a paper tape-measure and the family are ready for an inspirational walk... 4.8 Appoint a Project Leader with the Skills to Lead, Coach, and Develop Team Members It is rare in today’s business environment to have project managers who are both strong leaders and responsible for all the important project decisions. To handle a multi-team, a talented individual is required with the skills to lead, coach and develop team members. Empowering the team is extremely important. A leader must be agile and flexible enough to meet the challenges facing the organization. A team-based approach for developing new services also requires methods and struc-

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tures to work on projects in a customer-centric way. If the team loses sight of the customer, the end results are jeopardized. The product/concept developer in IKEA has a role as a coach and ‘design developer’. Their result will be audited from a customer value perspective. 4.9 Take on a Holistic Approach Time to market is a key success factor. In order to keep the development time to a minimum, it is necessary to work on different issues while at the same time using a holistic approach with a number of parallel and simultaneous activities, rather than using a sequential approach in which one problem is solved at a time. Taking a holistic view also means widening the scope, looking at the total offering and looking at both the cognitive and emotional assessment of the service experience. In IKEA the holistic approach is customer based. Traditional show rooms in which furniture is displayed become experience rooms where solutions to real life problems express the holistic approach. Examples of total customer solutions are complete kitchens, living rooms and bedrooms. The Communications Manager for Sweden provides us with his view of this expertise; he gives the expression ‘a holistic view’ a specific IKEA meaning. ‘I think this is quite unique for IKEA where we try to tell the customer that we have everything under one roof and we carefully create a space and show solutions to the customer. We try to help them make their lives at home better. This can be how you set up your room, how you set up your furniture, how you light your room and tips and ideas about how you can improve your room. It can be a living room, a kitchen, a bedroom or different spaces within the house where we try (with our expertise and products) to create a better environment at your home. This is something we are very much aware of. This is probably one of our strengths. We are able to do that because of the assortment of goods that we are selling. We are able to put everything together in a good way and we try keeping it fresh and giving new experience to the customers every time.’ IKEA uses the whole organization for co-creating value, using three unique spheres: 1. IKEA – the global networking organization which is the network of all suppliers. 2. IKEA – the prosumer organization, the IKEA customers for co-creating value (Prahalad and Ramaswamy 2004) and acting as co-producers (Ramirez 1999). 3. IKEA – the empowered organization (the IKEA co-workers). Through IKEA’s unique corporate and service culture, these three spheres can (re)produce values and meanings (Edvardsson and Enquist 2002) for co-creating value.

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4.10 Focus on the Whole Integrated Customer Solution and the service experience Integrated customer solutions are usually further developments of existing services and are only to some extent based on radically new service offerings. Many new services are inspired by, or more or less copied from, competitors. Most new products and services previously existed in some shape or form. From the customer’s perspective, services are most often packages or functions that form integrated customer solutions. These must be understood by the customer and also easy to use. For some services a physical product provides the platform for the service, such as a washing machine for laundry services. In the telecom field, the customer’s technical infrastructure may be crucial. When a new service is developed it is important that it fits into a larger context. New services are natural extensions of existing ones, and not separate parts. In the world of physical goods, competitors may use either segmentation or differentiation to compete. Segmentation means focusing on a subset of the market, or market segment, to better serve the needs of that segment. The development of a low-fat food product, for example, is designed to meet the needs of a health conscious customer. Differentiation means making a product different or better in some way so that it appeals to customers, such as a food product that tastes better than competing products. What makes a service context fundamentally different is that segmentation and differentiation are inherently intertwined. Successful service companies combine segmentation and differentiation as part of their ‘seamless system’ of linked activities. It is the linked activities that provide the differentiation. The following describes a family shopping experience to IKEA in Shaumburg, Chicago: When the family arrives at the top floor, they are surprised about the space in the shop. It is so open in the middle and there is natural light coming in from the rooftop, something they have hardly ever seen before in other big stores in the U.S. First they have a look at the kitchens. The kitchens look as if they have been ripped out of houses and placed in the store. The kids however, do not care much about that fact and start to get annoyed. Therefore, the family decides to go to the restaurant, which is placed in the middle of the third floor. When entering the restaurant they can look down over the railing to all the other floors, and then the family realises that it is going to take a little while in order to see the whole store. The family takes a seat in the restaurant and Al walks to the kitchen and orders something to drink. He orders for himself and his wife some coffee, which by the way has the weird name ‘Löfbergs Lila’, and the kids drink some soda. He also takes some typical Swedish snacks for the whole family. While enjoying their Swedish coffee, the kids notice that there is a play corner for children next to the restaurant. After their coffee they have a look at the children’s corner, called ‘Småland’. The kids right away start playing with the other children and they don’t want to leave anymore. Well, that’s perfect for Al and Peggy, because now they can walk through the store in peace and quietness. They agree with the children that they will pick them up in one hour. Finally, Al and Peggy can walk around in peace.

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IKEA works with scenario techniques and multi-teams to identify and meet new customers’ needs based on different life situations. ‘Meet seven new customers in a changing world’ can be such a scenario. The scenario technique can give ideas for new integrated customer solutions and service experience. 4.11 Monitor and Understand Market and Future Trends New markets are opening up (such as China, India and Eastern Europe) while other markets are becoming more competitive (such as telecommunications, airlines and electricity) or evolving (such as call centers, computer solutions and PC software). As a result, companies are constantly discovering new customer needs. To further complicate the picture, the Internet is opening up new ways to trade. A consumer will soon be able to buy a product from the cheapest source. This means that customers will alter their behavior and it is important to understand these new trends. One current trend is for customers to want more control. Some factors feed this desire for control: x advances in communications and information technology that are constantly and drastically reducing the cost of information x substantially higher levels of education x availability of more information through expanded media x a widespread distrust of experts and of authority in general x a strong consumer-advocacy movement x a resistance to arbitrary pricing practices The local adjustment of the IKEA culture is mainly managed through local staff on the frontline. They know the language, the local conditions and the values among, for example, Muslim and Chinese customers. In IKEA, employees are hired not only because of their skills, but more importantly because of their attitude (matching IKEA’s values). The majority of the managers were promoted from within the store and they therefore feel that they have a career at IKEA. Conversely, many companies in Singapore are hierarchical and employees coming from such an organization therefore have difficulties adjusting to and understanding the ‘IKEA Way’ and what is expected from employees at all levels. What impact does the local condition have on IKEA as a whole? Anders Dahlwig (the CEO for the IKEA Group) admitted in a Financial Times interview (November 2003) that competition is ‘hotting up’. But he argues that the IKEA concept is hard to imitate. ‘The difficulty is when you try to create the totality of what we have. You might be able to copy our low prices, but you need our volumes and global sourcing presence. You have to be able to copy our Scandinavian design, which is not easy without a Scandinavian heritage. You have to be able to copy our distribution concept with the flat-pack. And you have to be able to copy our interior competence the way we set out our stores and catalogues.’ IKEA has a successful concept but is always working with new challenges in new markets like China, Russia and soon Japan. How can IKEA meet the specific environmental requirements in Japan? How can IKEA meet a lower price profile in China? All

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these new challenges mean new solutions and improving the old ones. These challenges in new segments and new markets result in improvements for IKEA as a whole.

5 Strategic perspectives on future research Services have come to dominate many economies around the world and value creation through service is the focus in industries, government and public service organizations. The emphasis is on value in use for customers rather than on quality attributes linked to service offerings or service providers. Thus, we cannot continue to treat service development and innovation as a simple extension of product development and innovation. Value creation through services has a somewhat different logic. Services are, at least to some extent, co-created with customers at a time and place of the customer’s choosing. Generally speaking, the problem of understanding how customers think is commonly simplified to the understanding of customer needs. This is a static and simplified view of the customers’ usage. We need more dynamic models and, for instance, need to know more about customers’ co-creation of value for themselves, how total customer solutions are assessed and also the meaning of a holistic approach through the eyes of the customer. Furthermore, services that are being delivered to the customer are dependent on an organization’s employees, culture and strategy. It is rare that a service provider only offers one service to its customer, it is more common to have bundles of services that co-exist. Services can not be inventoried or checked for quality assurance. However, we try to adopt models of new service development from new product development theories. New service development and innovation require their own frameworks and tools. We are still in the early stages of the development of concepts, models and theories to describe, analyze and explain prerequisites and mechanisms in new service development. There is a need to understand more about drivers of favorable and unfavorable customer experiences when using different type of services. According to sequence theory, customers recall their relationships with service providers as snap shots, not movies. By identifying, describing, and analyzing these snapshots or critical incidents, we may get to know our customers better. It is difficult for companies to identify when these critical incidents occur in real time, but there are some exceptions to this rule. Take for example, Harrah’s, a casino entertainment company (McGovern et al. 2004). Harrah’s can monitor their customers in real time using a loyalty card. With the card Harrah’s knows who is playing where, how much they are playing for and how the game is going. If, for instance, a customer starts to loose too much on one specific game, an employee can be sent to this customer and talk to him and maybe offer a meal or suggest another game. There are other companies that have started to think about how to do this and we feel that research should be directed to this area. There is also a need to understand more about the role of a vibrant and dynamic service culture that combines customer focus and the creation of long-term value

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for shareholders and employees. Some of these traits can be found in IKEA. The leadership that Ingvar Kamprad provides is basically love and care combined with a focus on cost; you can offer to help out with a good solution and at the same time make a profit. Ingvar Kamprad has always asked the same questions to encourage ongoing development. How can we make this cheaper? What do you think? Can we make it? He has great faith in the employees a faith that may have its origins from the farm in Småland where he grew up. It appears that the IKEA culture can be successfully exported to different countries around the world, or is it just that it is successfully adapted to wherever the IKEA concept is being exported to? If so, how is the company culture adjusted? We are entering a competitive situation in which the product is a given entity and does not really offer any competitive advantage. Also, prices of the product are constantly pushed down. The differentiation and the long-term survival for companies need to be based on some other entity. We believe the answer lies in services and that anything can be viewed as a service. We call this the service perspective. A service perspective is fundamentally a management perspective. It offers insight and assistance for any type of organization that needs to expand the competitive advantage beyond the core solution of a customer problem. One of the cornerstones of the service perspective, is to realize that we need to understand the internal value-generating processes of the customer. Similarly, the market orientation literature suggests that a customer oriented development process yields superior innovation and greater new service success and advocates customer input throughout the development process. It is then possible to develop offerings that serve these value-generating processes and accordingly meet the competitive situation of today. While the literature provides important insights into the role of customers in new service development, it is not explicit on how the concept of customer orientation can be incorporated into a new service development.

References Ariely D, Carmon Z, (2000) Gestalt Characteristics of Experiences: The Defining Features of Summarized Events. Journal of Behavioral Decision Making 13 (2): 191-201 Bateson J, (2000) Perceived Control and the Service Experience. In: Handbook of Services Marketing & Management. Swart T, Iacobucci D, Sage Publication Berry L (2001) The Soul of Service. Free Press. New York Berry L (2002) Relationship Marketing of Services - Perspectives from 1983 and 2000. Journal of Relationship Marketing 1 (1): 59-77 Berry L, Carbone L, Haeckel S (2002) Managing the total customer experience. MIT Sloan Management Review, spring 2002 Bitner MJ, Brown SW, Meuter ML (2000) Technology infusion in service encounters. Journal of the Academy of Marketing Science 28 (1): 138-149 Brown-Humes C (2003) An empire built on a flat-pack, Interview with Anders Dahlwig. CEO of IKEA Group, Financial Times, November 2003 Cronin J (2003) Looking back to see forward in services marketing: some ideas to consider. Managing Service Quality 13 (5): 332-337

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Edvardsson B, Haglund L, Mattsson J (1995) Analysis, Planning, Improvisation and Control in the Development of New Services. International Journal of Service Industry Management 6 (3): 24-35 Edvardsson B, Gustafsson A, Roos I (2005) Service Portraits in Service Research – A Critical Review. International Journal of Service Industry Management. Forthcoming Edvardsson B, Gustafsson A, Johnson M, Sande´n B (2000) Service development and Innovation in the New Economy. Studentlitteratur, Lund Edvardsson B, Enquist B (2002) Service Culture and Service Strategy - The IKEA Saga, The Service Industries Journal 22 (4): 153-186 Edvardsson B, Enquist B, Johnston B (2004) Co-creating Customer Value through Hyperreality in the Pre-purchase Service Experience. Working paper. Service Research Center, University of Karlstad. Sweden Garten J (2001) The Mind of the CEO. Basic Books Gustafsson A, Johnson M (2003) Competing in a Service Economy: How to Create a Competitive Advantage through Service Development and Innovation. Jossey-Bass, San Francisco Gupta A, Wilemon DL (1990) Accelerating the Development of Technology-Based New Products. California Management Review 32 (2): 24-44 Johne A, Storey C (1998) New Service Development: a Review of the Literature and Annotated Bibliography. European Journal of Marketing 32 (3/4): 184-251 Johnson M, Gustafsson A (2000) Improving Customer Satisfaction, Loyalty, and Profit. An Integrated Measurement and Management System. Jossey Bass, Inc., San Francisco, California Johnston R, Clark G (2001) Service Operations Management. Prentice Hall. London Kelly D, Storey C (2000) New Service Development: Initiation Strategies. International Journal of Service Industry Management 11 (1): 45-62 Liljander V, Strandvik T (1997) Emotions in Service Satisfaction. International Journal of Service Industry Management 8 (2): 148-169 Mano H, Oliver RL (1993) Assessing the Dimensionality and Structure of the Consumption. Experience: Evaluation, Feeling, and Satisfaction, Journal of Consumer Research, 20 (December): 451-466 Martin CR, Horne DA (1993) Service Innovations: Successful versus Unsuccessful Firms. International Journal of Service Industry Management 4: 48-64 Martin CR, Horne DA (1995) Level of Success Inputs for Service Innovations in the Same Firm. International Journal of Service Industry Management 6 (4): 40-56 McGovern GJ, Court D, Quelch JA, Crawford B (2004) Bringing the Customer to the Boardroom. Harvard Business Review, November pp 70-81 McKnight P, Sechrest L (2003) The Use and Misuse of the term ‘Experience’ on Contemporary Psychology: A Reanalysis of the Experience-performance Relationship. Philosophical Psychology 16 (3): 431-460 Normann R (2001) Reframing Business. When the Map Changes the Landscape. John Wiley & Sons, New York Padgett D, Allen D (1997) Communicating Experiences: A Narrative Approach to Creating Service Brand Image. Journal of Advertising 26 (4): 52 Prahalad CK, Ramaswamy V (2004) The Future of Competition – Co-Creating Unique Value with Customers. Harvard Business School Press, Boston Pine BJ, Gilmore JH (1999) The experience economy – Work is theatre & every business a stage. Harvard business school press, Boston, Massachusetts

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Ramírez R (1999) Value co-production: Intellectual origins and implications for practice and research. Strategic Management Journal 20: 49-65 Reichheld F, Sasser EW (1990) Zero Defections: Quality comes to Services. Harvard Business Review, September-October, pp 105-111 Scheuing E, Johnson E (1989b) A Proposed Model for New Service Development. The Journal of Service Marketing, Spring 3 (2): 25-34 Shaw C, Ivins J (2002) Building Great Customer Experiences. Palgrave, London Sherry JrJ (ed) (1998) ServiceScapes The Concept of Place in Contemporary Markets. American Marketing Association, Illinois Stauss B, Neuhaus P (1997) The Qualitative Satisfaction Model. International Journal of Service Industry Management 8 (3): 236-249 Ström L, Tillberg E (2003) Smart Tillväxt Kunddriven förändring i företag och organisationer Stockholm: Ekerlids (In Swedish) Torekull B (1999) Leading by Design. The IKEA story, Harper Business, New York Treacy M, Wiersema F (1997) The Discipline of Market Leaders: Choose Your Customers. Narrow Your Focus, Dominate Your Market, Perseus Press Zeithaml VA (1981) How Consumers Evaluation Processes Differ Between Goods and Services. In: Marketing of Services, James H. Donnelly and William George (eds) Chicago: American Marketing Association Venkatesh A (1998) Cyberculture: Consumers and Cypermarketscapes. In: Sherry ServiceScapes The Concept of Place in Contemporary Markets. American Marketing Association, Illinois Venkatesh A (1999) Postmodernism Perspectives for Macromarketing: An Inquiry into the Global Information and Sign Economy. Journal of Macromarketing 18 (2): 153-169 Vargo SL, Lusch RF (2004a) Evolving to a New Dominant Logic of Marketing. Journal of Marketing 68 (January): 1-17 Vargo SL, Lusch RF (2004b) The Four Service Marketing Myths – Remnants of a GoodsBased, Manufacturing Model. Journal of Service Research 6 (4): 324-335 Voss C (2003) The Experience Profit Cycle Research Report. Center for Operations and Technology Management, London Business School, London Wong A (2004) The Role of Emotions in Service Encounters. Managing Service Quality 14 (5): 365-376

III Service Marketing

Sustainable Advantages in Service Industries How Can Early Entrants Outperform Latecomers in Service Markets? Thorsten Posselt1, Pablo Berger2 1

Chair for Business Economics, esp. Trade and Service Management, University of Wuppertal, Germany 2 A.U.B. AG, Germany

1 Introduction.....................................................................................................188 2 Early Entrant Advantages in Consumer Goods and Industrial Goods Markets ......................................................................................................189 3 Early Entrant Advantages in Service Markets ............................................190 3.1 Theoretical and Empirical Arguments Concerning Early Entrant Advantages in Service Markets...........................................................190 3.2 Early Entrant Advantage in Service Markets ........................................194 4 Discussion ........................................................................................................199 References...........................................................................................................201

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1 Introduction The sustainability of competitive advantage is today one of the most important issues in strategic management research. Traditional arguments suggest that strategic advantages can be attained or maintained through entry barriers e.g. economies of scale, economies of scope, differentiation, cost advantages, technological leadership, the use of scarce resources, or the skillful use of different instruments of the marketing-mix [14, 19, 33]. The sustainability and the extent of competitive advantages also depend on the forces driving industry competition, the skills of the strategic management and the strengths and weaknesses of firms. It has often been shown that these key issues and patterns have a tremendous impact on the competitive advantages of firms in manufacturing and service industries [24, 25, 34]. However, there is one particular source of competitive advantage that affects all the others: the timing of market entry [4, 10, 26]. Much theoretical and empirical research has analyzed whether firms can create sustainable competitive advantage solely through the timing of their entry into new markets. An extensive body of literature exists on attempts to measure the intensity of first and early-entrant advantages [5, 26, 31, 33]. A strong market position is of paramount importance to firms for many reasons. A strong market position may be the result of early market entry. Research on order of entry in service markets is rare. Early-mover advantages have their roots in two different perspectives: the economic theory related to barriers-to-entry and behavioral theories describing consumer response to early-mover and late-mover brands based on psychological arguments. The barriers-to-entry concept analyses the threat of new entrants for current competitors on a market. In general, entry barriers are defined as costs that an entrant, but not incumbents must bear. Typical entry barriers are production cost advantages or product differentiation of incumbents, sunk costs or expected retaliatory reactions from the incumbents to the entry of new competitors. If barriers to entry are low new competitors will be able to enter the market easily and attract market share from the incumbents. High entry barriers protect the incumbents against potential entrants, e.g. measured as current profits. The willingness to enter a market segment is also influenced by its attractiveness. Behavioral theories explain early mover advantages at the product or brand level. These theories have an enormous influence on current economic research. The success of any organization is based on its ability to satisfy the needs of its customers. Consumer learning and consumer expectations are analyzed to identify customer needs and to enhance customer satisfaction. Behavioral analyses focus on the consumer behavioral e.g. on the willingness to pay, price perception, consumer reaction to different advertising strategies and consumer uncertainty in different buying situations. The latter is important for the analysis of early entrant advantages in service industries.

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Surprisingly, only a small number of studies have examined order-of-entry effects and advantages in service industries. Important questions address the orderof-entry concept in service industries and the origin and sustainability of competitive advantage. New services are generally imitated quickly; many service markets (there is generally no patent protection for new services) have low barriers to entry for potential competitors [7, 15, 18]. Does it pay to introduce innovations in service markets? Can early entrants keep potential innovation rents proprietary? How can first and early entrant advantages in service markets against rivals be achieved when facing potentially fastmoving later entrants and short lead-times? Are mechanisms that lead to early entrant advantages in consumer and industrial goods markets the same in service markets? If not, what are the potential driving forces for early entrant advantages in service markets? To answer these questions this article is organized as follows: First, a short summary of important factors leading to early entrant advantages in consumer and industrial goods markets is given. Second, empirical and theoretical findings concerning early entrant advantages in service markets are discussed. Then, sources of early entrant advantages in service markets are suggested, followed finally by the conclusion, with a discussion of the results and their implications, and suggestions for future research.

2 Early Entrant Advantages in Consumer Goods and Industrial Goods Markets Considerable theoretical and empirical research [2, 16, 17, 22, 26, 29, 33] has been done to investigate the effects of the market entry order on long-term market share. The market entry order is defined with respect to pioneers, early followers and late entrants. A time advantage can be used in various ways to derive a sustainable advantage. The identified mechanisms that lead to early entrant advantages in consumer and industrial goods markets arise mainly from: economic factors (economies of scale and scope), technological effects, preemption of scarce resources and behavioral factors [12, 19, 23]: x An early entrant may achieve a scale-dependent cost advantage over later entrants through pre-emptive investment in production capacity. Unit costs decline with higher production quantity. Early entrants can use their head-start to build facilities of huge capacity. This will prevent late entrants from competing efficiently with early entrants, or preclude them from entering the market [14]. x Early entrants gain an experience curve advantage over rivals with more relative time in a market. The learning-curve model shows that average costs drop as production experience is accumulated. If learning can be kept proprietary, early entrants generate a sustainable cost advantage over late entrants [19, 27].

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x If early entrants gain a technological advantage, or if they improve their technological standard continually, later entrants will face a technological gap. Early entrants often transform this gap into a competitive advantage. The technological advantage can even be used to enlarge production capacity, which in turn helps obtain a cost advantage [14]. x Pre-emptive factors help early entrants achieve absolute cost advantages (e.g. pre-emption of input factors, geographic realm and marketing channels). This may lead to a direct cost advantage for early entrants. Early entrants may select the most attractive niches of geographic locations, perceptual space (product characteristic space), distribution and shelf space and they can block these desirable or profitable market channels for late entrants [19]. x Behavioral theories explain advantages at the product or brand level. Early entrant advantages may arise from switching costs and buyer information asymmetry. Types of switching costs include initial transaction costs or consumer investments in early entrants’ products, contractual switching costs and costs due to supplier-specific learning by the buyers. Facing these switching costs, later entrants must invest extra resources to attract consumers away from the early entrants. Information asymmetry accrues when consumers are likely to know more about the early entrant’s than about late entrant’s offerings. When consumers happily use a brand in a new product category, they will favor it over later entrant’s offerings whose quality can be evaluated only with uncertainty. This information advantage leads to early entrant advantages [11, 29].

3 Early Entrant Advantages in Service Markets Presented below, are theoretical arguments against early entrant advantages in service markets. However, empirical results from 8,000 German and 30,000 Italian firms, including service firms, show that early entrant advantages obviously exist in service markets. This contradiction will be discussed later in this section, where arguments for the rise of early entrant advantages in service markets are presented. 3.1 Theoretical and Empirical Arguments Concerning Early Entrant Advantages in Service Markets Why is it usually hard for early entrants in service markets to achieve a sustainable advantage and why can imitators easily copy service innovations? Theoretical arguments suggest two main reasons: x The intangibility of services makes them impossible to protect through patents [28]. x Because of the impossibility of patent protection, imitation costs are generally low and innovations can be copied quickly and easily [1, 13, 20].

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Intangibility is one major characteristic of services. Pure services such as insurances or consulting cannot be seen, touched or smelled. Therefore, it is impossible to protect services by patents. Firms usually try to gain compensation for their costly research for new products or processes with patents. However, since an early entrant in a service market cannot protect their innovation through patents, imitators have the legal right to copy a successful service innovation. With the ability of competitors to duplicate innovations quickly, cheaply and easily, one key source of a sustainable competitive advantage for early entrants is lost. Often, competitors are able to copy new services quickly, easily and cheaply. Therefore, it is difficult to achieve sustainable competitive advantage in service markets. Here, one could expect that the innovator’s monopoly phase and the time advantage of early entrants against followers might be shortened. The shorter the period during which the market is the exclusive purview of early entrants, the shorter the period during which companies can profit gain from such factors as the learning curve and economies of scale. Considering these theoretical arguments, it would seem unprofitable to enter a service market first or early. It takes time to build entry barriers, to establish an efficient communication strategy, or to search for the best distribution channels. As expected, if early entrants have no long time advantages over their rivals, no early entrant advantage should be possible in the service markets. There should therefore be no incentive to introduce new services to markets, so one would expect a small number of innovations in the service markets. In contradiction to the theoretical arguments, the following empirical findings show that firms do indeed introduce new services to markets and that they experience a low risk of being imitated by competitors. Figures 1 and 2 show that services were successfully introduced to markets by German firms during the years 1997-2000. 70%

62%

% of Innovators

60%

60%

50%

41%

40% 30% 20% 10% 0% Consumer Goods Industries

Business Services

Distributive Services

Fig. 1. German firms with innovations in the years 1997-2000. Source: Janz et al. (2002)

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Figure 1 shows that 60% of the firms in business services introduced at least one successful innovation during the years 1997-2000, and that 41% did so in the markets for distributive services. 50

% of firms

40 30 20 10

e/O ptic s cin

s

istr y

Me di

Ch em

E-T ec h nic

nee ring En gi

Tec hni cal Se rvic es Tel eco mm uni cat i on

s/In sur anc es

ram ics

Ba nk

Gla ss/ Ce

Wo od/ Pa

per

0

Fig. 2. German firms with market innovations in the years 1997-2000. Source: Janz et al. (2002)

Figure 2 underlines the previous perception. Service firms do innovate, and obviously have enough incentive to do so. For example, more than 30% of banks and insurance companies in Germany introduced at least one innovation to their market in the years 1997-2000. Table 1 lists factors that hamper the introduction of innovations in service firms. Evangilista and Srilli (1998) asked 758 Italian service firms about potential factors that could hinder innovations. The most important factor deterring service innovation is high innovation costs, followed by resistance to change inside the firm. Interestingly, only 16.8% of the innovating firms fear the risk of being imitated by competitors. This might suggest that innovative service firms are aware of potential fast imitators, but that they are willing to face the risk, and introduce their innovations anyway.

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Table 1. Factors hampering innovations in service firms. Source: Evangelista and Sirilli (1998)

Obstacles Innovation cost too high Resistance to change inside the firm Pay-off period of innovation too long Lack of skilled personal Innovation costs hard to control Lack of customer responsiveness to new services Lack of appropriate sources for funding Insufficient innovation potential (R&D, design, etc.) Constraints due to laws, regulations, and standards Lack of information on technologies Perceived risk too high Lack of appropriate external technical services Lack of technological opportunities Lack of information on markets Risk of imitation by competitors Innovation not a strategic factor Innovation not needed, due to previous introduction

Firms for which the obstacles are relevant Number of % of total firms Innovation firms 347 45.8 287 37.9 260 34.3 260 34.3 240 31.7 239 31.5 236 31.1 233 30.7 228 30.1 203 26.8 194 25.6 189 24.9 159 21.0 147 19.4 127 16.8 48 6.3 25 3.3

Another interesting point arises from the results shown in Table 2. Srilli and Evangelista (1998) list factors which hamper innovation in the manufacturing and service sectors, based on a survey of more than 12,000 Italian service firms and more than 18,000 Italian manufacturing firms. The firms were asked to rank fifteen given obstacles to innovation from the most serious hurdle to the less dangerous factors. The risk of imitation by competitors was ranked fifteenth in the service sector, but fifth in the manufacturing sector. This is another piece of evidence showing that service firms do not fear imitators and that imitators are not a serious problem when a service innovation is being introduced.

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Table 2. Factors hampering innovations in service and manufacturing firms. Source: Sirilli and Evangelista (1998) Obstacles

Ranking in the service sector

Lack of appropriate sources for funding Innovation cost too high Pay-off period of innovation too long Constraints due to laws, regulations and standards Lack of skilled personnel Lack of customer responsiveness to new services Insufficient innovation potential (R&D, design, etc.) Resistance to change inside the firm Innovation costs hard to control Perceived risk too high Lack of information on technologies Lack of information on markets Lack of appropriate external technical services Lack of technological opportunities Risk of imitation by competitors

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Ranking in the manufacturing sector 2 1 3 4 6 10 11 12 8 7 13 9 10 14 5

The following disparity is thus identified: the theoretical arguments (short time advantage, no patent protection, difficulty in building entry barriers) suggest no or only a few sources of early-entrant advantage. The empirical findings however, show that many service firms do innovate and do so continuously. Moreover, service firms do not worry about imitators; rather, other factors are more likely to prevent them from making innovations. The primary goals of the following section are to: x Eliminate the disparity between theoretical arguments and empirical findings; x Make a contribution to the research on early-entrant advantage in service markets. 3.2 Early Entrant Advantage in Service Markets The traditional perspective suggests that the factors in favor of early entrant advantage include economic factors, technological effects, pre-emption of scarce resources and behavioral factors. In this section, these factors will be examined with regard to their relevance for early-entrant advantage in service markets. Economic factors: A main characteristic of services is their perishability. This time dependence distinguishes services from goods. Services cannot be produced in advance and they cannot be stored. Moreover, most services are produced and consumed when a customer arrives and uses the service. Perishability presents a tremendous difficulty in planning production capacity in advance. When a service capacity is not used to its full potential, e.g. when a flight is not fully booked, the

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corresponding capacity parts are lost. In order to merge the demand variable and perishable capacity, service managers can smooth the demand, adjust capacity, or leave customers waiting. Often, service firms face fluctuations and problems in demand or capacity. These arguments show that the opportunities to gain economies of scale for services are limited. Economies of scope can be an important factor for early entrant advantages in service markets. By entering the market early, fast entrants are in the position to benefit from their market experience. Moreover, the longer the firms are in a market, or the greater the firms’ time advantage over its rivals, the greater the opportunity to gain from their knowledge and the greater the effects of the learning curve will be. One critical point is that service firms often do not know their customers’ expectations and needs exactly. However, early entrants have the opportunity to use market experiences and information about their customers’ needs in order to satisfy customers. Knowing the customers’ needs is especially important for service firms, because services seldom are clearly defined and often have intangible cues. In order to satisfy customers and to provide excellent services, the firm must know the customers’ expectations. ‘Being a little bit wrong can mean expending money, time, and other resources on things that don’t count to customers.’ [36] An early entrant can collect information about the customers to understand their expectations in order to ascertain their needs. If a firm knows the customers’ needs and preferences before late entrants arrive, it can build a stable customer–firm relationship, and gain a competitive advantage. To explore the customers’ needs an early entrant can use complaints strategically, can collect information about problems in the service process, can create customer panels, can interview actual and potential customers and can learn from previous consumer attitudes and behavior. The information gained from the various sources can be used to provide an excellent service quality, even before later entrants arrive. Technological Factors: Service firms which become owners of proprietary technology may use this advantage to bolster their service delivery. An excellent technology can be used to analyze consumer purchases, to do research on consumer preferences, and to increase productivity. Both factors play an important role in creating customer-oriented services. This, in turn, helps customers reduce their uncertainty over the early entrant’s service offers. Preemption of Scarce Resources: Besides the preemption of technology resources, early entrants in service markets may be able to gain advantage by preempting rivals in the acquisition of scarce assets. These may be anything from exceptional employees and exclusive facilities and premises to exclusive information and preemptive investment in employees. Exceptional and well-trained employees are a strategic human capital factor. Early entrants can select the best employee in advance, which limits the recruiting possibilities for late entrants. The introduction of the brand Quam (a late-mover brand) by Telefónica and Sonera to the German cellular market failed because most skilled employees already worked for the early entrants [35]. Pre-emptive investment in exclusive facilities and premises is another way in which established early entrants can deter further entry to the market. An excellent

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location, high quality facilities, or appealing showrooms or salesrooms are investments that signal high service quality. Another advantage for early entrants is the exclusiveness of information. A time advantage is a good opportunity to search for and collect possibly useful information. Information about customers’ expectations and their preferences, about cheap market prices for input factors, about appropriate distribution channels, etc., can be transformed into economic rents, used to build barriers to further market entry, or to serve as the basis for new strategic investments. Services with high rates of intangibility cannot signal their quality by themselves, employees play an important role in doing that. Training employees on customer orientation and flexibility is a strategic investment. Behavioral Factors: Behavioral theories help to explain early-entrant advantages. Behavioral factors such as switching costs and buyer choice under uncertainty are important factors of early-entrant advantages in service markets. Why and how do switching costs and buyer uncertainty play a role in service markets? Why do these factors have a major impact on early-entrant advantages, and why do they usually punish late entrants in service markets? Switching costs arise when consumers have tried a product or service and by doing so, are able to state its quality with some certainty. If trial is necessary to verify the quality of an early entrant’s offer and if it achieves a high rate of penetration, that offer will be less risky than those of late entrants, which have not yet been tried. The higher the switching costs, the lower the probability that consumers will try the unknown and risky late entrant’s offer and the higher the probability that they will stay loyal to the known early entrant’s offer. When consumers first try a new service, their uncertainty about quality will be reduced by the amount experience qualities are learned. The more consumers trust a new service provider, and the more they learn about the service, the lower the uncertainty about the service. As a consequence, low uncertainty will cause high switching costs to unknown late-entrant service offers. However, the high rate of intangibility and the high rates of experience and credence qualities of services make it difficult for customers to examine the service quality. This fact is a danger, but also an enormous opportunity for early entrants to build entry barriers and create sustainable advantages. Services are intangible. This makes it difficult for customers to evaluate service quality. In general, the quality of highly tangible services is easier to evaluate than that of services with more intangible items. Figure 3 shows how different types of qualities influence the evaluation processes of consumers. Services or goods that are high in experience or credence qualities are difficult to evaluate for consumers in advance. Usually, it is more difficult to investigate the quality of services than to examine the quality of goods, because most goods have search and experience qualities, whereas most services have experience and credence qualities.

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Easy to Evaluate Clothing Jewelry Furniture

High in Search Qualities

Houses MOST GOODS

Automobiles Restaurant meals Vacations Haircuts

High in Experience Qualities

Child care MOST SERVICES

Television repair Legal Services Root-canal jobs

High in Credence Qualities

Auto repair Medical diagnoses Difficult to Evaluate

Fig. 3. Consumer evaluation processes for goods and services Source: Zeithaml (1981)

The only way a consumer can resolve the problem of uncertainty about the quality of a service is by purchasing the service and by trying it. Marketers ought to help consumers reduce the perceived risk and particularly the uncertainty about credence qualities. Reducing the perceived uncertainty of consumers is a great opportunity for early entrants to build an early-entrant advantage in service markets. By these means, early entrants can erect switching costs and confine their customers. The stability and extent of these switching costs depend directly on the ability of a service firm to reduce the uncertainty regarding its offer, its willingness to help consumers learn experience qualities and to signal high quality concerning credence qualities. When consumers feel very secure about the service quality,

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they remain loyal and are unlikely to change to an unknown service offer from a late entrant. When a new service meets consumer preferences, it will have taken a first important step toward building consumer trust. Uncertainty about late entrant service offers still exists. Given high uncertainty about the quality of subsequent service providers (which is usually present in service markets), stable switching costs arise. Satisfied consumers are extremely loyal to their service provider. Early entrants should signal positive service quality. One major source of earlyentrant advantage in services is the reduction of uncertainty about quality. On the one hand, early entrants can convince their customers of their service quality. On the other, the uncertainty of late entrants’ quality remains as long as consumers have not tried their service. The early-entrant advantage depends on the company’s ability to reduce perceived uncertainty and on the amount of perceived uncertainty about an unexperienced late entrant’s services. This point is shown in Table 3. Table 3. Early-entrant advantage and uncertainty Level and sustainability of early-entrant advantage Level of reduced uncertainty over the low early-entrant service quality high

Level of uncertainty of unexperienced lateentrant service-quality low High ––

–+

+–

++

The above arguments and the consequences of the relationship shown in Table 3 suggest that early entrants in service markets should primarily focus on reducing consumer uncertainty about quality. What instruments can early entrants in service markets use to reduce uncertainty, erect switching costs and build barriers to further entry? The uncertainty will be greater for a first-time buy than in a re-buy situation. Early entrants must use loyalty-behavioral strategies to reduce uncertainty and to encourage customers to buy the service again in the future. The following instruments help early entrants signal high service quality and reduce consumer uncertainty. Distribution: A broad distribution network helps early entrants extend the services throughout the market. In so doing, early entrants block efficient distribution channels for late entrants, who have to turn to less productive distribution channels. A broad distribution network alleviates the search and uncertainty costs for consumers when looking for a new service. The customization of the service distribution is an excellent signal for customer orientation. Price: Price can be a quality indicator that helps reduce consumer risk. Early entrants may set a high price to signal better services. Most costumers assume that high price indicates high service quality. Gerstner (1985) found some empirical support for the linkage between high price and high quality. Price-quality correlations are relevant when quality is important [32], yet, consumers should be aware that a high price is not automatically linked to high service quality. Some low quality firms signal high service quality by establishing high prices.

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Advertising: Early-entrants can signal high service quality by the quantity of advertising that they used. If an early entrant spends heavily on advertising, that is a credible signal for high service quality. It helps customers resolve their uncertainty about a new service. The quality must be high, otherwise firms will not be able to recoup their advertising expenditures. However, advertising can also be used to influence consumer expectations and preferences. In early market stages, messages will reach customers relatively unaffected by other messages. Early entrants can reduce customers’ quality uncertainty through advertising. In early market stages, this will be more effective than later, when late entrants will also be spreading their information throughout the market. Brand name: Establishing a brand name usually requires patience and time, but early entrants are able to use the head start as an excellent and meaningful criterion for differentiation. Even short-term advantage over rivals provides an opportunity to identify core customer needs, to build initial customer-brand relationships, to position the brand and to communicate its values and attributes. Service brands can communicate and signal unobservable quality. Building a brand includes several types of investment (advertising, positioning, design), which constitute current expenditures that must be redeemed through future sales. Under certain conditions, customers can derive the quality from the service brand. Guarantees: Guarantees help customers reduce initial uncertainty and restore their confidence in the service. Customers can be sure that only high-quality service firms will offer guarantees. Low-quality firms will face higher guarantee costs for the same level of guarantee than high-quality firms. Low-quality firms will, therefore offer relatively poor guarantees and consumers will be able to discern this low quality indirectly through the guarantee level. Internal: Train and motivate the employees to serve customers well: Most services require interactions between customers and firms’ employees. This interaction strongly affects the customer’s perception of service quality. In order to reduce initial uncertainty, early entrants may signal service quality by building-up the human capital factor of their business. Early entrants can train the personnel which is to have direct contact with the customers. The management must select and train their personnel to care for customers, help them explain the service and manage complaints. These firms might even consider to introduce empowerment for their employees. All these instruments have the goal of reducing customer uncertainty and signaling high quality. Increased value in the relationship between the provider and the customer leads to a higher probability that customers will become repeaters.

4 Discussion By examining early-entrant advantage in service markets empirically and theoretically, this study addresses a major gap. Important theoretical arguments suggest that it is hard for early entrants in service markets to keep the advantages of their innovations proprietary. The main arguments are therefore a short monopoly

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phase, fast-following imitators, low entry barriers and low imitation costs. Contrary to this, the empirical results document shows that successfully innovating service firms exist and that these firms introduce innovations even when facing of potential imitators. Therefore, traditional sources of early entrant advantages in consumer and industrial goods markets are investigated on the basis of whether they explain early-entrant advantages in service markets as well. The argument here is that economies of scale play a minor role in service markets, but that economies of scope are an important factor for explaining early-entrant advantage in service markets. Early entrants should particularly collect information on market action and development, especially on customers’ expectations and preferences. This information can be used to provide better services and improve current service offers. Technological aspects can support service quality and help analyze customer needs. Preemption of scarce resources is another interesting way to build and bolster early entrant advantage in service markets. Excellent and well-trained employees or exclusive facilities to signal a high service quality are scarce resources, which, if kept by early entrants, are blocked for late entrants. Late entrants must then use less effective resources and compete for these resources with early entrants. The most important sources for early entrant advantages in service markets arise from behavioral factors. The solving of customer uncertainty about service innovations is a major and important task for early entrant advantages. As discussed earlier, if early entrants can signal high service quality, customers may be encouraged to use a new and unknown innovation. Several instruments (e.g. advertising, guarantees, establishing a strong brand) help service firms signal high service quality. When consumers buy a new service, they learn about it through the amount they learn about the experience qualities. They invest in the search, evaluation, and uncertain cost of making a purchasing mistake. When they invest in these costs, switching costs regarding unknown services from late entrants arise. When consumers inspect the quality of a service once purchased and this service meets their preferences, switching costs are increased through a potential re-buy. Of course, these are open research topics. First, insights are needed on how an early entrant into a service market should use their skills and resources to construct a sustainable advantage. Recent empirical research [2, 3, 21] has shown the important linkage of early-entrant advantage and its strategies and resources. Research related to this linkage requires a database that includes early and late entrants in service markets, their successes and strategies. Therefore, longitudinal research is needed. Second, service firms can use a combination of the instruments discussed to build an advantage. Their interactive effects should be considered. For example, the interactive effects of the different qualities (search, experience, and credence qualities) and customers’ uncertainty about the amount and sustainability of earlyentrant advantage should be an interesting research topic. Third, initial behavioral insights into early market entry strategies in service markets are encouraging. As mentioned above, these insights indicate that consumers’ risk aversion (i.e. learning processes, and uncertainty about service quality), tends to benefit early entrants. But how important are these instruments in a

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particular buying environment? Are all instruments equally important, or is one more important than the others? These questions can only be answered through direct empirical research. Fourth, research on late-entrant advantage could be a productive area that opens another view on market-entry strategies and long-term market performance. Under what conditions do early entrants fail, and is the late-entrant strategy a successful approach? Which strategies might be interesting and may enable late entrants in service markets to become market leaders? The general research question is: What are the determinants of success in service industries? What are the determinants of success for innovators and for imitators? What are relevant market entry barriers in service markets? Can firms, because of low entry and imitation barriers in service markets, identify and copy innovations successfully? Stable consumer preferences that have evolved with respect to early entrants services have been identified as one major barrier to entry. To test the consequences of stable consumer preferences on the success of early movers in an empirical model could be a major research task. What are other critical resources in service industries that help early movers to outperform latecomers? Intangible assets and capabilities such as innovativeness, technical expertise and knowledge might have a qualitative impact on early- and late-mover advantages. Many firms in service markets are protected by knowledge barriers. The protection of knowledge barriers is hardly ever perfect but it can give service firms time to develop its skills further. What role does service quality play in protecting early movers? It might be fruitful to examine the relationship between service quality and early mover advantage. Another question is, to what extent will firms concentrate on achieving short term profit as compared to market share or revenue and cost development. The phenomena of consumer learning and consumer preferences should be considered to a greater depth in the context of service-innovations. Do consumer preferences affect the development of new services or can new services themselves determine the evolution of consumer preferences? Perhaps firms with successful innovative services may be able to adjust consumer preferences to their own market position.

References 1. 2.

3. 4.

Bharadwaj SG, Menon A (1993) Determinants of Success in Service Industries. Journal of Services Marketing 7: 19-40 Bohlmann JD, Golder PN, Mitra D (2002) Deconstructing the Pioneer’s Advantage: Examining Vintage Effects and Consumer Valuations of Quality and Variety. Management Science 49 (9): 1175-1195 Boulding W, Christen M (2003) Sustainable Pioneering Advantage? Profit Implications of Market Entry Order. Marketing Science 22 (3): 371-392 Bowman D, Gatignon H (1996) Order of Entry as a Moderator of the Effect of the Marketing Mix on Market Share. Marketing Science 15 (3): 222-242

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Thorsten Posselt, Pablo Berger Carpenter G, Nakamoto K (1989) Consumer Preference Formation and Pioneering Advantage. Journal of Marketing Research 26 (3): 285-298 Evangelista R, Sirilli G (1998) Innovation in the Service Sector, Results from the Italian Statistical Survey. http://www.step.no/old/Projectarea/IDEA/Idea7.pdf Fitzsimmons JA, Fitzsimmons MJ (1997) Service Management: Operations, Strategy, and Information Technology. 2nd Ed., Boston, Massachusetts Gerstner E (1985) Do Higher Prices Signal Higher Quality? Journal of Marketing Research 22 (May): 209-215 Janz N, Ebling G, Gottschalk S, Peters B, Schmidt T (2002) Innovationsverhalten der deutschen Wirtschaft. Zentrum für Europäische Wirtschaftsforschung, Mannheim Kalyanaram G, Wittink DR (1994) Heterogeneity in Entry Effects between Nondurable Consumer Product Categories. International Journal of Research in Marketing 11 (3): 219-231 Kamins MA, Alpert FH, Elliott MT (2000) Independent and Interactive Effects of Exposure Sequence, Pioneering Awareness, and Product Trial on Consumer Evaluation of a Pioneering Brand. Journal of Consumer Psychology 9 (4): 223-229 Kardes F, Kalyanaram G (1992) Order of Entry: Effects on Consumer Memory and Judgement: An Information Integration Perspective. Journal of Marketing Research 29 (3): 343-357 Kasper H, van Helsdingen P, de Vries jr W (1999) Services Marketing Management. An International Perspective, Chichester Kerin R, Varadarajan R, Peterson R (1992) First Mover Advantage: A Synthesis, Conceptual Framework, and Research Proposition. Journal of Marketing 56 (4): 33-52 Kurtz DL, Clow KE (1998) Services Marketing. John Wiley & Sons, New York et al. Lambkin M (1988) Order of Entry and Performance in New Markets. Strategic Management Journal 9 (2): 127-140 Lane WJ (1980) Product Differentiation in a Market with Endogenous Sequential Entry. Bell Journal of Economics 11 (1): 237-260 Lovelock C, Vandermerwe S, Lewis B (1996) Services Marketing: A European Perspective. Prentice Hall Europe, London et al. Lieberman MB, Montgomery DB (1988) First-Mover Advantages. Strategic Management Journal 9 (1): 41-58 Makadok R (1998) Can First-Mover and Early-Mover Advantages be Sustained in an Industry with low Barriers to Entry/Imitation? Strategic Management Journal 19: 683-696 Mitra D, Golder PN (2002) Whose Culture Matters? Near-Market Knowledge and its Impact on Foreign Market Entry Timing. Journal of Marketing Research 39 (3); 550565 Nti K, Shubik M (1981) Duopoly with Differentiated Products and Entry Barriers. Southern Economic Journal 48 (1): 179-186 Parry M, Bass FM (1990) When to Lead or Follow? It Depends. Marketing Letters 1:3, pp 187-198 Porter MJ (1980) Competitive Strategy. New York Porter MJ (1985) Competitive Advantage. New York Robinson WT, Fornell C (1985) Sources of Market Pioneer Advantages in Consumer Goods Industries. Journal of Marketing Research 22 (3): 305-317

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27. Robinson WT, Kalyanaram G, Urban GL (1994) First-Mover Advantages from Pioneering New Markets: A Survey of Empirical Evidence. Review of Industrial Organization 9 (1): 1-23 28. Rust RT, Zahorik AJ, Keiningham TL (1996) Service Marketing, Harper Collins College Publishers, New York 29. Schmalensee R (1982) Product Differentiation Advantages of Pioneering Brands. American Economic Review 72 (3): 349-365 30. Sirilli G, Evangelista R (1998) Technological Innovation in Service and Manufacturing: Results from Italian Surveys. Research Policy 27 (9): 881-899 31. Szymanski D, Troy L, Bharadwaj S (1995) Order of Entry and Business Performance: An Empirical Synthesis and Reexamination. Journal of Marketing 59 (4): 17-33 32. Tellis GJ, Wernerfeld B (1987) Competitive Price and Quality under Asymmetric Information. Marketing Science 6 (Summer): 240-253 33. Urban G, Carter T, Gaskin S, Mucha Z (1986) Market Share Rewards to Pioneering Brands: An Empirical Analysis and Strategic Implications. Management Science 32 (6): 645-659 34. von Weizsäcker CC (1980) A Welfare Analysis of Barriers to Entry. Bell Journal of Economics 11 (2): 399-420 35. Xonio-Mobilfunkreport (1993-2000) Xonio GmbH, Stuttgart 36. Zeithaml VA (1981) How Consumer Evaluation Processes Differ between Goods and Services. Donnelly JH, George WR, Marketing of Services, pp 186-190

Satisfaction Measurement within the Customer Relationship Life Cycle Bernd Stauss, Matthias Gouthier, Wolfgang Seidel Chair of Service Management, Catholic University of Ingolstadt, Germany

1 Introduction.....................................................................................................206 2 The Customer Relationship Life Cycle .........................................................207 3 Phase-oriented Customer Satisfaction Measurement ..................................209 3.1 Dual Satisfaction States during the Customer Relationship Life Cycle 209 3.2 Phase-oriented Modules in the Context of Satisfaction Measurement ..212 4 Evaluation and Consequences .......................................................................217 5 Implications and Outlook for Research ........................................................218 5.1 Positioning this Contribution within Customer Satisfaction Research..218 5.2 Questions for Future Research ..............................................................219 References...........................................................................................................219

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1 Introduction The relevance of customer satisfaction has continuously increased in the scientific and practical discussion of the last decade. Indeed, customer satisfaction has been a key performance indicator for market-oriented management in recent years. However, its significance as a performance goal has increased as a multitude of buyer-market situations occurred and the need for enhanced customer retention through customer satisfaction became more and more obvious. Apart from marketing, new general management concepts became accepted due to this development (e.g. Total Quality Management). These concepts integrated the maxims of customer orientation and satisfaction as key indicators. All the relevant quality management concepts (e.g. the ISO 9000 series) and international business excellence models (e.g. the concept of the European Foundation for Quality Management EFQM) are now laying a strong focus on customer satisfaction. At the latest since controlling abandoned the one-sided orientation on financial indicators and started to integrate the customer perspective with tools as the Balanced Scorecard, has customer satisfaction unchallengedly become an essential target indicator and control indicator. Defining clear objectives concerning customer satisfaction, assessing to what extent these were met as well as managing a company based on customer satisfaction data, requires constant measurement (Bruhn 2004). In many companies a certain practice of satisfaction measurement has prevailed accordingly. As a result, reasons, contents, time intervals and methods of measuring satisfaction vary strongly. However, it can be observed that in general companies tend to implement a constant, attribute-oriented data collection in the sense of a monitoring for the basic controlling of the customer relationship. This includes written, electronic or telephone surveys, during which customers are asked to state their degree of (dis-)satisfaction with certain attributes of product or service quality. Although this approach might seem reasonable, it shows significant deficiencies (Stauss and Hentschel 1991). These include the disregard of the customer relationship life cycle phase a customer is in, when dealing with business relationships. The customer relationship life cycle characterizes the different stages of a customer relationship, from potential customers, over different phases a retained customer passes through to lost customers (ex-customers), who terminated an existing relationship but might be willing to renew the relationship in the future. In each phase of this cycle, the customer experiences a specific situation that determines the expectations towards the company and the perceptions of products or services. In addition, the customer is addressee of phase-specific activities within the scope of a differentiated Customer Relationship Management (CRM). Therefore, it is of general interest to the company and of special interest to CRM to not only determine the customer satisfaction with consumed products or services in different life cycle phases, but to additionally identify the satisfaction with phase-specific activities of relationship management. Only upon the condition of such a differentiated analysis, does it become possible to identify the determining factors of cus-

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tomer behavior in business relationships and especially to successfully apply customer-directed measures. The objective of this article is to develop a customer satisfaction measurement concept based on the phases of the customer relationship life cycle. In this context it is essential to not only describe the phase-specific modules with their corresponding survey targets and contents, but also to highlight how the respective key results can be used.

2 The Customer Relationship Life Cycle The customer relationship life cycle describes the development of a business relationship over time. This development is expressed by the initially rising, later declining relationship intensity, whereby the level of total customer-related revenues functions as an indicator for relationship intensity. This is a pragmatic approach because almost every company has access to the customer-related data mentioned. However, it is far more significant for the determination of the business relationship phase and for the development of targeted activities, if customer relationship intensity is measured using a more extensive customer equity figure. In this figure, next to total revenue additional customer-specific benefits (such as reference and synergy potentials) should be considered and so should customer-individual costs. Different approaches exist concerning the classification of the over-all business relationship development, most of which are built on the well-known product life cycle concept (Dubinsky and Ingram 1984; Dwyer et al. 1987; Hentschel 1991; Homburg and Daum 1997). The following examination is based on an enhancement of these concepts. This further development allows for a more differentiated comprehension of the customer relationship phases and therefore for a more targeted relationship management (Stauss 2000a, 2004a). In this context the following phases can be distinguished: initiation phase, socialization phase, growth phase, maturity phase, endangerment phase(s), termination phase, abstinence phase and revitalization phase (Fig. 1). During the initiation phase the customer is enquiring about the details of the offer or is reacting to specific communication measures. The customer-related revenue contribution is negative because no transaction takes place. The first purchase marks the customer’s entry into the socialization phase and the beginning of a business relationship. The customer makes first experiences with products and services as well as with corporate support through customer retention management. Customers enter the growth phase through repurchase, i.e. by demanding the same products or services repeatedly or expanding the usage on other products or services for example. When the customer equity curve has reached its turning point and customer equity is only increasing with decreasing growth rates, the maturity phase has been reached.

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Intensity of the relationship (e.g. customer value)

Endangerment phase

Endangerment phase

Endangerment phase

(Degeneration phase) Initiation phase

Socialization phase

Growth phase

Maturity phase

Termination Abstinence phase phase

Revitalization phase

Potential customers

Current customers

Lost customers

Acquisition management

Retention management

Regain management

Time

Fig. 1. The Customer Relationship Life Cycle (Stauss 2004a)

Transition to the degeneration phase takes place if there is no more positive growth, or if revenue contributions stagnate or decrease compared to the previous period. Provided that the customer has not yet terminated the business relationship, the degeneration phase can also be referred to as an endangerment phase. Customer equity depreciation is, in many cases, an indicator for the decreasing attractiveness of the provider from the customer’s point of view. This could result in the termination of the business relationship, if the company does not take any countermeasures. Endangerment phases, however, cannot only be observed at the end, but also during the overall duration of the customer relationship. Endangerment phases occur every time customers have a reason for being dissatisfied or think about terminating the relationship and/or restricting their commitment for other reasons. To prevent the termination through purposeful measures, it is of vital importance for the company to identify typical ‘points of rupture’ of the business relationship as well as early warning indicators. These indicators can be determined by means of an evaluation of previous migration behavior. Within the termination phase customers have made their decision to quit the business relationship and have already articulated their decision towards the company. With the presence of a contractual relation they are, however, still customers and can probably be convinced to withdraw their notice. A certain part of those customers that eventually terminated the business relationship will never again be willing to resume the relationship. This might be due to certain factual circumstances as for example moving to another city or massive dissatisfaction. For those customers the customer relationship life cycle ends with the termination phase. Other customers can be contacted again after a so called abstinence phase, because

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the circumstances in which they are living as well as their demand situation have once again changed, e.g. because contractual obligations entered in the meantime are expiring or because of general dissatisfaction with competition. Former customers can be regained during that revitalization phase (Stauss and Friege 1999, 2003) and a second cycle begins.

3 Phase-oriented Customer Satisfaction Measurement 3.1 Dual Satisfaction States during the Customer Relationship Life Cycle According to the widely accepted disconfirmation paradigm, satisfaction arises, if a considerable discrepancy (positive and/or negative) between expectations and perceptions occurs (Bearden and Teel 1983; Homburg et al. 1999; Oliver 1980; Stauss 1999). In a business relationship expectations and perceptions can refer, however, to different aspects. In this context, two relevant indicators influence customer satisfaction: on the one hand the quality of the respective products or services (product/service quality), on the other the hand the quality of the perceived customer relationship management measures (relationship management quality), which are used during the individual phases of the customer relationship life cycle. The two dual satisfaction states, namely the product/service satisfaction and the relationship management satisfaction can be distinguished correspondingly. In the case of product/service satisfaction, customer expectations and perceptions refer to the respective products or services. Expectations, perceptions as well as resulting customer satisfaction are, however, not static but dynamic variables. They vary over time and therefore they also vary in the different relationship phases, due to customers’ increasing experience or changes of problems and requirements. New customers, for example, can be distinguished from retained customers through their partial knowledge of the range of products or services and their satisfaction judgments, which are drawn upon different criteria (Mittal and Katrichis 2000). Complainants and migrating customers either had negative experiences with the products or services, or they are convinced that competing offers are of superior quality. These factors strongly influence customers’ expectations and perceptions. Lost customers have already stopped their product or service usage, so that satisfaction judgments given ex-post do not refer to the present, but to previous quality experiences. Lost customers are, by all means, in a position to declare whether the consumed products or services met their expectations. Nevertheless, their judgments are influenced all the more by further cognitive processes the longer the product usage dates back. Faced with this differentiated situation it seems necessary to separately measure product/service satisfaction of different customer types within the customer relationship life cycle. This also pertains to the not yet mentioned group of potential customers. In general, potential custom-

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ers have not used the products or services up to that point and have therefore not been able to develop an actual product/service satisfaction. As potential customers they deal, however, with the providers’ offers and evaluate available products or services with regard to their own expectations. The result of this consideration, which determines customers’ purchase decision, can be referred to and measured as ‘anticipated’ product/service satisfaction. Next to product/service satisfaction it has to be considered that customers are addressees of specific measures in every phase of the customer relationship life cycle. During the initiation phase acquisition management is targeted at stirring the attention and interest of potential customers (potential customer generation) and convincing them to make a first purchase (potential customer conversion). Within the scope of customer retention management, different tasks are to be fulfilled. Firstly, the goal of the socialization phase is to attentively look after new customers, confirming them in their purchase decision and establishing a relationship based on trust (new customer management). Secondly, the relationships with generally satisfied, regular customers have to be strengthened, in order to consolidate customer retention (retention management – narrowly defined –). Thirdly, the relationships with dissatisfied customers have to be stabilized through a complaint management during the endangerment phases (Stauss and Seidel 2005). Fourthly, it is essential to identify potential migrants through a pro-active monitoring and to convince those customers, by means of switching prevention management, to continue their business relationships. Since customer migration cannot be avoided completely, the strategic customer relationship management mix is complemented with a regain management to win back those customers, who have explicitly terminated or in fact have left the business relationship (Stauss and Friege 1999, 2003). If customers are within the termination phase they can be addressed directly on that occasion (termination management). Another customer segment is formed by ex-customers. After a certain abstinence phase these discontinued relationships should be reinitiated (revitalization management). Figure 2 shows the Customer Relationship Management tasks at a glance. Because potential, current and lost customers are addressees of specific activities of relationship management in each phase of the customer relationship life cycle, they also develop expectations concerning customer care and support and measure the actually perceived activities based on this benchmark. Therefore, next to product/service quality, there is also a phase-specific relationship management satisfaction to be considered. It is to assume that on the one hand interactions between these two types of satisfaction exist and that on the other hand both satisfactions determine customer behavior, especially the willingness to become, stay and return to a certain company as a customer. Figure 3 illustrates this connection exemplary for new customer management in the socialization phase.

Satisfaction Measurement within the Customer Relationship Life Cycle

Potential customers

Current customers

211

Lost customers

TIME Customer relationship life cycle phase

Initiation phase

Socialization phase

Growth and Maturity phase

Customer type

Potential customer

New customer

Regular customer

Initiation of new business relationships

Consolidation of new business relationships

Fortification of stable business relationships

New customer management

Goal

Customer orientated management task

Acquisition management

Endangerment phase

Termination phase

Revitalization phase

Complainant

Potential migrant

Terminating customer

Excustomer

Stabilization of endangered relationships with complaining customers

Prevention of terminations

Revocation of notices

Reinitiation of business relationships

Retention Complaint management management

Switching prevention management

Termination management

Revitalization management

narrowly defined

Retention management

Regain management

Fig. 2. Customer Relationship Management Tasks (adapted from: Stauss/Seidel 2005) New customers’ expectations concerning products/services

New customers’ perceptions of products/services

New customer product/service satisfaction

Satisfaction of new customers Expectations regarding activities of new customer management New customer management satisfaction Perceptions regarding activities of new customer management

Fig. 3. Dual Satisfaction States within the Socialization Phase

Retention of new customers

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In this context it becomes the goal of the phase-oriented satisfaction measurement to answer the following questions: x Which actual values can be obtained for the phase-specific product/service satisfaction and for the according relationship management satisfaction? x How strong is the customer retention in each individual relationship phase? x Which factors can be identified as satisfaction drivers and loyalty drivers? x Which factors can be identified as dissatisfaction drivers and disloyalty drivers? In the following, the individual modules of the phase-oriented satisfaction measurement will be derived from the phases of the customer relationship life cycle. The specifics of those modules with regard to the identification of product/service satisfaction and relationship management satisfaction, as well as the identification of loyalty drivers and disloyalty drivers, will be described accordingly. 3.2 Phase-oriented Modules in the Context of Satisfaction Measurement The presentation of the phase-oriented measurement modules given below follows the assignment to the three main groups of relationship management: acquisition management, retention management and regain management. 3.2.1 Satisfaction Measurement during the Initiation Phase: Satisfaction of Potential Customers Success within acquisition management is normally measured by means of objective key indicators, such as response rates und factual transactions. These by all means relevant indicators, however, do not give any hints with regard to an emerging interest for a company’s product or service. Based on these figures it can not be predicted, if potential customers will turn away from the company or if they will eventually become customers. Correspondingly, the traditional (regular customers’) satisfaction survey needs to be complemented by the measurement of potential customers’ satisfaction. The general goal of this satisfaction measurement module is the determination of vital reasons for (not) initiating a business relationship, thereby identifying improvement opportunities regarding the range of products or services to be offered as well as regarding acquisition management. The ‘anticipated’ product/service satisfaction is used to analyze which expectations potential customers had when they expressed their initial interest and whether experiences with comparable products or services already existed. If it turns out that the company does not succeed in stirring an actual interest for purchase at this early stage, the product/service-related reasons for this (e.g. customer associates better price/performance ratio with competing offers) have to be identified. Within the relationship management satisfaction context the satisfaction of the customer with activities to generate potential customers (stirring of interest) and to

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converse potential customers (realizing a transaction) [Haas 2004] has to be registered. Particularly the quality of the provided information (e.g. direct mail, outbound calls, coupon advertisements), the service-oriented counseling (e.g. competencies of sales and marketing personnel), the contact process (e.g. speed and correctness of product/service offerings or the consistency of information distributed over different channels) as well as the stimulating effect of sales promotion measures (e.g. discounts or free product/service trials) has to be determined in this context. As a central result the ‘anticipated’ product/service satisfaction as well as the vital factors for acquiring (attraction drivers) and deterring (deterrent factors) potential customers can be approximated. 3.2.2 Satisfaction Measurement during the Customer Retention Phase: Satisfaction of New Customers, Regular Customers, Complainants and Potential Migrants A differentiated satisfaction measurement should be carried out for all four types of current customers: new customers, regular customers, complainants and potential migrants. Satisfaction of New Customers

The goal of new customer satisfaction measurement (so called Novice Survey or Honeymoon Survey (Schrick 2000; Gouthier 2004)) is to find out, based on the customers’ satisfaction with products or services as well as the applied instruments of new customer management, to what extent these measures have succeeded in establishing a mutual, trust-based relationship with the customer and in strengthening the customers’ purchase decision. Service satisfaction measurement for new customers is of relevance because the assessment of service attributes and especially their weighting through the new customer can be totally different from the evaluation of a regular customer. In the investment banking context for example, new customers attach great importance to confidence building attributes (e.g. time for detailed counseling), while for regular customers speed and efficiency attributes are more important (e.g. solving problems during one meeting) (Mittal and Katrichis 2000). In addition to the service-specific quality features a company can collect data about the satisfaction with different aspects of the entry to the business relationship (e.g. attributes such as speed and convenience when closing the contract as well as the understandability of manuals provided). Within services that are similar to memberships (e.g. energy supply), the plausibility of the first invoice is an important driver of new customers’ satisfaction. Additionally, the satisfaction with specific new customer management measures (e.g. welcome letters/packages, events such as customer trainings and seminars) has to be identified. But also general measures that influence the socialization phase (guarantee and fair dealing policies) should be evaluated by the new customer. In order to connect the acquisition phase with the socialization phase, new customers have to be questioned

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about the vital reasons for starting a business relationship. With respect to building new customers’ loyalty, it is furthermore important to assess early retention effects such as repurchase behavior, recommendation behavior and cross-buying-behavior of new customers. Thereby the key results of new customers’ satisfaction measurement are the identification of satisfaction and dissatisfaction drivers specific to this particular phase as well as early hints to loyalty and disloyalty drivers. Satisfaction of Regular Customers

Regular customers’ satisfaction measurement aims at determining the satisfaction of regular customers with products or services and with measures of customer retention (narrowly defined) on the one hand as well as the resulting loyalty effects on the other hand. Customer retention had to be slowly established during the socialization phase. In the context of customer retention management, now customer stabilization and fortification play the central role. Thus, the assessment of the degree of customer retention gains in importance. Product/service satisfaction of regular customers is adequately determined by the identification of the relevant quality characteristics referred to by the customer and the integration of the resulting data into a measurement tool. The fact that these customers normally have a longer product/service experience, consume a broader spectrum of products/services and are of special importance for the company because of their customer life time value, should be considered. Due to these circumstances it seems reasonable not to limit the satisfaction measurement to standardized, attribute-oriented methods but to increasingly implement qualitative, incident-oriented techniques. This includes in particular the critical incident technique, which facilitates the registration of positive and negative experiences made by regular customers. By this means the company obtains dependable information about the characteristics that are perceived as minimum qualities and valueenhancing qualities (Stauss 2000b). During the growth phase and maturity phase relationship, management satisfaction means the satisfaction of regular customers with customer retention measures such as bonus cards, customer clubs, customer magazines and service hotlines. In addition to specific satisfaction and dissatisfaction drivers, strong emphasis is at the same time laid on the analysis of retention effects from the regular customer’s perspective. The point is to particularly identify emotional retention effects (e.g. commitment and trust) as well as factual loyalty behavior (e.g. repurchase, recommendation or cross-buying). Satisfaction of Complainants

Complainants’ satisfaction consists of the customers’ satisfaction with the product or service (product/service satisfaction) and the satisfaction with the handling of the complaint (complaint management satisfaction). As a rule the group of complainants should not be included in a general product/service satisfaction survey, especially if their reason for complaining is the

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dissatisfaction with a product/service component. Instead the problems of the customer which have led to a complaint have to be registered systematically as part of the complaint analysis. These complaints can then be analyzed as dissatisfaction drivers. It makes sense to carry out different analyses for new customers, regular customers and maybe even ex-customers. Within the different customer groups different problems can occur that can be seen as early warning indicators for a possible termination of the business relationship. The determination of complaint management satisfaction (i.e. the satisfaction of the customer with complaint handling) is of special importance. Empirical studies congruently prove that especially dissatisfied customers, who have been repeatedly disappointed by the company’s reaction to their complaints, tend to migrate. On the other hand, complainants who received a convincing response to their complaint from the company are characterized by a high degree of loyalty (Stauss and Seidel 2005). Therefore, the central quality dimensions of complaint management from the customer’s perspective have to be determined by a specific complaint management satisfaction survey. This survey has to consider the central complaint handling dimensions: accessibility, interaction quality (friendliness/politeness, empathy/understanding, activity/initiative and reliability), reaction time as well as appropriateness/fairness of the result (Stauss 2004b; Stauss and Seidel 2005). The central results of the complainant survey are thereby reflected in a refined analysis of the dissatisfaction causes as well as in the deduction of the central dissatisfaction drivers. At the same time, specific customer retention effects are identified for the segment of complainants in the form of corresponding loyalty and disloyalty drivers. Satisfaction of Potential Migrants

If customers have been identified as potential migrants (endangerment phases) by means of data mining analyses and if they are being addressed with specific measures to make them carry on their commitment to the company, it is useful to not only revise the evaluation of the consumed products or services, but also to control the success of these measures using an additional survey. When determining product/service satisfaction of potential migrants, the aim is to identify possible product-related or service-related reasons for the intention to migrate. These causes can then be used for general product/service improvements or measures to boost the desirability of individual product/service offerings. The quality of these activities has to be revised from the customer’s perspective, if measures are being applied in terms of switching prevention management (e.g. by offering revised conditions or improved products/services to the customer). This idea is realized by determining the customer’s satisfaction with specific offerings as well as the resulting loyalty effects. As key results of switching prevention management the measurement particularly delivers insights into specific dissatisfaction and disloyalty drivers on the one hand and on loyalty drivers of specific switching prevention activities on the other hand.

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3.2.3 Satisfaction Measurement during the Regain Phase: Satisfaction of Terminating Customers and Ex-Customers Customers who have already canceled or terminated their business relationship are also a relevant target group for satisfaction surveys. They normally are addressed in the context of a lost customer analysis. The goal is to identify reasons for migrating by questioning customers that have terminated the business relationship. That way it is possible to get an insight into those reasons that can not be influenced (e.g. moving, death, closure of business) or reasons that can (more or less) be influenced (e.g. customer dissatisfaction, perceived superiority of competing offers) (Stauss and Friege 2003). The part of the lost customer survey that focuses on the perceived product/service satisfaction of lost customers aims at identifying the extent to which customer dissatisfaction is accountable for migration and at determining the relative importance of the perceived product/service defects (dissatisfaction and disloyalty drivers (Michalski 2004)). The group of terminating customers and the group of ex-customers can be addressees of well-directed regain activities (e.g. by offering price and service advantages to customers that decide to retain or resume their business relationship). The satisfaction with these measures has to be determined in order to estimate the regain management efficiency (regain satisfaction). This also allows for identifying factors that account for regaining lost customers (re-attraction drivers). Table 1 outlines the respective modules of a satisfaction measurement based on the customer relationship life cycle, including phase-specific satisfaction, dual satisfaction states and key results. Table 1. Phase-Specific Customer Satisfaction Survey Modules Management Task

Satisfaction Survey Module Phaserelated Product/Service Satisfaction

Phaserelated Relationship Management Satisfaction

Key Results

Acquisition management

New customer management

Retention management (narrowly defined)

Complaint management

Switching prevention management

Regain management

Satisfaction of potential customers

Satisfaction of new customers

Satisfaction of regular customers

Satisfaction of complainants

Satisfaction of (potential) migrants

Satisfaction of terminating customers and excustomers

‘Anticipated’ satisfaction of potential customers with the product/service quality

Satisfaction of new customers with the product/service quality

Satisfaction of regular customers with the product/service quality

Cause analyses of dissatisfaction

Satisfaction of potential migrants with the product/service quality

Satisfaction of terminating customers and excustomers with the product/service quality

Satisfaction of potential customers with activities of acquisition management

Satisfaction of new customers with activities of new customer management

Satisfaction of regular customers with activities of retention management

Satisfaction of complainants with activities of complaint management

Satisfaction of potential migrants with activities of switching prevention management

Satisfaction of terminating customers and excustomers with activities of regain management

‘Anticipated’ satisfaction; product/servicerelated and acquisition managementrelated attraction drivers and deterrent factors

Product/servicerelated and new customer managementrelated satisfaction and dissatisfaction drivers: early loyalty und disloyalty drivers

Product/servicerelated and retention managementrelated satisfaction and dissatisfaction; loyalty and disloyalty drivers

Product/servicerelated and complaint managementrelated dissatisfaction and loyalty/disloyalty drivers

Product/servicerelated and switching prevention managementrelated dissatisfaction drivers; loyalty and disloyalty drivers

Product/serviceand regain managementrelated dissatisfaction und disloyalty drivers; reattraction drivers

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4 Evaluation and Consequences The management and measurement of customer satisfaction form a central crosssectional function of customer relationship management. Customer relationships can only be designed adequately if companies know the ‘state of health’ of a relationship. Exactly this information, however, is missing in many companies. The instrument of satisfaction measurement is indeed used to a large extent, but often in an undifferentiated manner. The fact that customers reside in completely different phases of the customer relationship life cycle is not considered. By neglecting this fact, it is also disregarded that customers have different expectations and perceptions concerning products or services and that they are furthermore addressees of entirely different measures of relationship management, which determine their overall satisfaction. The suggested phase-specific satisfaction measurement eliminates these deficits and provides a couple of benefits: x The measurement of customer satisfaction and customer retention gains a new quality through the particular consideration of relationship phases. A segmentspecific determination of service satisfaction according to the customer types (potential customer, new customer, regular customer, complainant, potential migrant, terminating customer and ex-customer) enables not only the general but also the phase-specific identification of the relevant product/service expectations and perceptions, and thereby the uncovering of the differences between the customer types. Thus, it is possible to adjust the product or service presentation to the customer, according to the relevant customer relationship phase. x It is also considered that not only the satisfaction with the product or service range but also the satisfaction with customer relationship measures does have a strong impact on customer satisfaction. x Within a longitudinal analysis, different satisfaction-based changes during the course of the relationship and interdependencies between the various partial satisfactions become apparent. x Such analyses form the basis for the identification and initiation of specific activity bundles to positively influence the satisfaction developing and the associated customer retention during the complete customer relationship. x The phase-specific determination of the corresponding relationship management satisfaction accounts for revising all the Customer Relationship Management elements (acquisition management, new customer management, retention management (narrowly defined), complaint management, switching prevention management and regain management) from the customer’s perspective. On this basis, precise and differentiated recommendations for the improvement of Customer Relationship Management can be derived and so can recommendations on how to prioritize and mutually adjust customer relationship measures.

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5 Implications and Outlook for Research The phase-specific view of customer satisfaction also gives important new impulses for research. This is valid in particular for these fields of satisfaction research that deal with the relevance of satisfaction for the loyalty behavior of customers and with the use of satisfaction figures for management purposes. In addition the phase-specific perspective draws attention to innovative questions for future research in these fields. 5.1 Positioning this Contribution within Customer Satisfaction Research When analyzing the risen number of scientific contributions on customer satisfaction within the last few decades, it is possible to differentiate between four central research directions: the construct dimension, the measurement dimension, the behavioral relevance dimension and the management dimension (Stauss 1999). Construct dimension: The focus of these contributions is to develop a theoretical understanding of the customer satisfaction construct. In this context the usefulness of competing theoretical concepts (e.g. disconfirmation paradigm, equity theory or attribution theory) is evaluated. Furthermore, the way in which satisfaction can be differentiated from related constructs like ‘attitude’ or ‘perceived service quality’ is discussed. Measurement dimension: Which methods are best suited for measuring customer satisfaction are discussed here. One of the vital aspects of this discussion is the identification of advantages and disadvantages of fundamental methodical alternatives, especially attribute-oriented methods on the one hand and incidentoriented methods on the other hand. Moreover, detailed questions of methodical procedure are object of research (e.g. concerning the selection of relevant attributes or the determination of attribute weightings). Behavioral relevance dimension: The object of this research is the relevance of customer satisfaction for future customer behavior. In particular, the relationship between the intensity of customer satisfaction on the one hand and aspects of customer retention (commitment, repatronage behavior, word-of-mouth) on the other hand is analyzed. Management dimension: Centre of research is the question, how the findings of customer satisfaction measurement can be actually used by management for controlling business processes. In this context the usage of satisfaction figures for quality assurance, customer-oriented design of internal processes and for influencing the behavior of employees and business partners is analyzed. The phase-specific customer satisfaction measurement gives important impulses within the behavioral relevance dimension and the management dimension. This perspective calls attention to the fact that customers have dual satisfaction states because expectations and perceptions do not only refer to the quality of products or services (product/service quality), but also to the quality of the instru-

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ments used in each phase of the customer relationship life cycle (relationship management quality). Concerning the behavioral relevance, a better understanding of the relation between customer satisfaction and customer retention is thereby realized. The concept also offers an approach for explaining the normally observed weak connection between service quality satisfaction and customer retention. That is because the dissatisfaction with the phase-specific usage of relationship management measures can have a weakening effect. Concerning the management dimension, the phase-specific perspective provides a good basis for analyzing the effectiveness of relationship management measures in a differentiated way. 5.2 Questions for Future Research Regarding the recommended phase-specific satisfaction measurement, little or no experiences exist in practice. Furthermore, the corresponding research is in its early stages, so future satisfaction research faces some promising challenges: x The relevance of dual satisfaction states for different aspects of customer retention is yet to be explained. Therefore, which of the two customer satisfaction states has the greatest impact in each phase of the customer relationship life cycle, remains to be analyzed. x In this context the impact of product/service satisfaction as compared to the impact of relationship management satisfaction has to be analyzed for the different aspects of customer retention (commitment, repatronage behavior, wordof-mouth). Furthermore, whether segment-specific differences or industryspecific differences appear, remains to be verified. x Concerning the development of customer satisfaction over time (satisfaction dynamics) a number of questions are unanswered. On the one hand it has to be ascertained, how satisfaction in one phase of the relationship life cycle affects satisfaction in the succeeding phase. On the other hand, the question is whether customer expectations and perceptions (and thereby satisfaction) evolve with time spent in a particular phase. x Regarding the management dimension it is vital to specify an integrated reporting and controlling concept for product/service quality and relationship management quality.

References Bearden WO, Teel JE (1983) Selected Determinants of Consumer Satisfaction and Complaint Reports. In: Journal of Marketing Research 20 (1): 21-28 Bruhn M (2004) Zufriedenheits- und Kundenbindungsmanagement. In: Hippner, H, Wilde KD (eds) Grundlagen des CRM. Wiesbaden, pp 427-455 Dubinsky AJ, Ingram TN (1984) A Portfolio Approach to Account Profitability. In: Industrial Marketing Management 13 (1): 33-41

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Dwyer FR, Schurr PH, Oh S (1987) Developing Buyer-Seller Relationships. In: Journal of Marketing 51 (2): 11-27 Gouthier MHJ (2004) Neukundenmanagement. In: Hippner H, Wilde KD (eds) Grundlagen des CRM, Wiesbaden, pp 393-593 Haas A (2004) Interessentenmanagement. In: Hippner H, Wilde KD (eds) Grundlagen des CRM, Wiesbaden, pp 363-391 Hentschel B (1991) Beziehungsmarketing. In: WISU 20 (1): 25-28 Homburg C, Daum D (1997) Die Kundenstruktur als Controlling-Herausforderung. In: Controlling 9 (6): 394-405 Homburg C, Giering A, Hentschel F (1999) Der Zusammenhang zwischen Kundenzufriedenheit und Kundenbindung. In: DBW - Die Betriebswirtschaft, vol. 59, pp 174-195 Michalski S (2004) Kündigungspräventionsmanagement. In: Hippner H, Wilde KD (eds): Grundlagen des CRM, Wiesbaden, pp 495-516 Mittal V, Katrichis JM (2000) Distinctions Between New and Loyal Customers. In: Marketing Research 12 (1): 26-32 Oliver RL (1980) A Cognitive Model of the Antecedents and Consequences of Satisfaction Decisions. In: Journal of Marketing Research 17 (4): 460-469 Schrick K (2000) Management von Dienstleistungsqualität im Call Center der Advance Bank. In: Bruhn M, Stauss B (eds) Dienstleistungsqualität. 3rd edn., Wiesbaden, pp 461-486 Stauss B (1999) Kundenzufriedenheit. In: Marketing ZFP 21 (1): 5-24 Stauss B (2000a) Perspektivenwandel: Vom Produkt-Lebenszyklus zum Kundenbeziehungs-Lebenszyklus. In: Thexis 17 (2): 15-18 Stauss B (2000b) „Augenblicke der Wahrheit“ in der Dienstleistungserstellung - Ihre Relevanz und ihre Messung mit Hilfe der Kontaktpunkt-Analyse. In: Bruhn M, Stauss B (eds) Dienstleistungsqualität. 3rd edn., Wiesbaden, pp 321-340 Stauss B (2004a) Grundlagen und Phasen der Kundenbeziehung: Der Kundenbeziehungs-Lebenszyklus. In: Hippner H, Wilde KD (eds): Grundlagen des CRM, Wiesbaden, pp 339-360 Stauss B (2004b) Beschwerdemanagement als Instrument der Kundenbindung. In: Hinterhuber HH, Matzler K (eds) Kundenorientierte Unternehmensführung, 4th edn., Wiesbaden, pp 341-360 Stauss B, Friege C (1999) Regaining Service Customers – Costs and Benefits of Regain Management. In: Journal of Service Research 1 (4): 347-361 Stauss B, Friege C (2003) Kundenwertorientiertes Rückgewinnungsmanagement. In: Günter B, Helm S (eds) Kundenwert. 2nd edn., Wiesbaden, pp 523-544 Stauss B, Hentschel B (1991) Dienstleistungsqualität. In: Wirtschaftswissenschaftliches Studium (WiSt) 20 (5): 238-244 Stauss B, Seidel W (2005) Complaint Management – The Heart of CRM, Mason Zirkler, S. (2004) Neukundenmanagement im Versandhandel, Diplomarbeit am Lehrstuhl für Dienstleistungsmanagement, Wirtschaftswissenschaftliche Fakultät der Katholischen Universität Eichstätt-Ingolstadt, Ingolstadt

IV Sustainable Service Research

Strengthening the Services Sector – Needs for Action and Research Walter Ganz Fraunhofer Institute for Industrial Engineering IAO, Germany

1 On the way towards the Service Society .......................................................224 2 Spotlight on international research activities on Services ...........................226 2.1 Service research topics ..........................................................................227 2.2 Basic research topics .............................................................................228 2.3 Applied research topics and mega trends ..............................................229 2.4 Relevant growth sectors ........................................................................231 2.5 Service research – paving the way for a paradigm shift? ......................232 2.6 Service research – on the threshold to a multidiscipline?......................233 3 The European Forum on Business Related Services....................................234 3.1 Key characteristics and development trends in the service sector .........235 3.2 Dealing with the productivity gap .........................................................236 3.3 Addressing the challenge of global sourcing of services.......................236 3.4 Dealing with the lack of knowledge and information about the sector .238 3.5 The need for standards and quality assessment .....................................238 3.6 The special role of innovation, skills, and research...............................239 3.7 Dealing with the intangible nature of services ......................................240 4 Challenges for Research & Development .....................................................241 4.1 Developing sustainability, with 'Service Life Cycle Management' .......244 4.2 Recognising new challenges, with 'Service Productivity'......................246 4.3 Co-designing current trends, with 'Internationalisation of Services' .....248 4.4 Renewing established tasks, with 'Service Engineering' .......................250 5 Needs for Action for Strengthening the Service Research ..........................252 References...........................................................................................................254

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‘Services have come to dominate our economies. Whether you manage a traditional service firm or a manufacturing company, adding value through services has become an essential way to compete. …Today customers are looking for service value, comprehensive solutions, and memorable experiences’ (Gustafsson, Johnson, 2003).

1 On the way towards the Service Society The development towards the ‘Service Society’ has long viewed to be just an academic vision but has already become a reality to a large extent. Innovative services drive and go along with economic change. They act as a motor for social renewal and contribute significantly to strengthening the competitiveness. However, products and services of European enterprises will only be able to stand their ground in the international markets in the long run if we succeed in accelerating the dynamic innovation even more with suitable services. The tertiarisation processes which can be observed are impressive and can hardly be denied. Nevertheless the development cannot be grasped adequately with a purely sector focused view, let alone be sufficiently explained. For example, today in Germany, the share of services in the gross value added has already reached about 70 percent. It looks more or less similar in the EU. Even though this figure includes the sector of public services, this is still an indication that we have arrived in the service society at least statistically. However, this does not mean that our institutions are also prepared for this change. Rather, our complete institutional structure – from qualification and advanced training offerings to the organisation of work – is predominantly characterised by the concept of ‘good’ production work. In other words: The predominant models of an industrial organisation of operations and work are still strongly present in the minds and institutional structures – sometimes even where it is rather counterproductive. This will still require quite some convincing on the part of service research. Nevertheless it can be noted that both the academic and the public discussion about services tends to succeed in overcoming one-dimensional views and the associated preconceptions. It is hardly denied any more that the potential of services is not limited to haircutting and pizza service. However, people often forget about the fact that the cause/effect relationships of such services have not yet been investigated completely. This is especially true for the design of the complex interaction processes between customers and service providers. As a matter of fact, the rapid growth of services is an indication of fundamental changes in the production and consumption structures of our societies. Especially the use of new information and telecommunication technologies results in valueaddition processes characterised by a more intensive division of labour and a higher degree of specialisation. Knowledge and labour intensive services are separated from traditional working processes and linked back to the original service creation process as independent services by market-economy transactions. In gen-

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eral, this phenomenon is referred to as ‘outsourcing’, which is a rather insufficient concept for the profound transformation processes taking place. All in all, research does not know a lot about the interrelations of such processes.

Have We Already Arrived in the Service Society? »Statistically, yes; institutionally, no = not yet« (Martin Baethge, 2003)

Fields of action with a backlog in the service sector: Development of specific patterns of specialisation and organisation of work Development of specific qualification formats Development of an independent concept of efficiency and productivity and service-specific design solutions Utilising the full potential for innovation

Fig. 1. Have We Already Arrived in the Service Society in Europe?

Over the past years, the significance of the service sector in Europe has increased steadily. Over two-thirds of those employed in Europe now work in the service sector and between 60 and 70 percent of the annual gross value added figure achieved by the majority of European states can be attributed to services. This trend will also continue in the next few years because most economic growth is currently coming from the service sector. In particular, the liberalisation or deregulation of services in many markets, increased efforts with respect to globalisation and internationalisation of many European service companies, and the increased use of innovative information and communications technology – all this will favour the positive development of the service sector further. To date, the service sector has tended to be neglected in Europe. There is still a very intense fixation on production, i.e. the producing sectors are the focus of the economy, politics, public attention, research and training. The opportunities offered by the service sector to tap into new areas of business and to create new jobs – in particular through the export of sophisticated services – have, in contrast, not been exploited often enough. However, in recent years many European countries have started to change their thinking in this respect and have taken up the challenge to play an active role in organizing the change towards a society orientated to services. During this process, it has become increasingly clear that services play

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a crucial role in furthering the development of Europe as a place to live and do business. The economic potential is vastly far from being fully exploited. It is widely accepted that the growth of services can not be comprehended, nor be explained, by a mere sectoral view. In the course of changed patterns of value adding we observe complex interaction processes between the production of goods and services. Particularly the use of new information and telecommunication technologies causes forms of value adding, which are characterised by a more intensive division of work and a higher degree of specialisation. Especially knowledge and labour intensive tasks are organised as independent services which are coupled back to the value adding chains by market transactions. The changed patterns of value adding are most obviously reflected in the massively growing sector of business-related services. These services provide an enormous potential of high quality premium jobs, which has been insufficiently exploited up to now. Qualified services are also highly connected to the competitiveness and the innovation power of business firms. Empirical studies show that companies which shape their business processes towards a logic of services achieve high competitive advantages and are able to enter new markets. Nevertheless, there is little knowledge about how to develop, design and to model service driven innovation processes systematically. A better understanding of the interrelationship of services and innovation processes could lead to sustainable enforcements of international competitiveness. This does not only affect the providers of investment and consumer goods but also the providers of pure services.

2 Spotlight on international research activities on Services The main focus of the study ‘Service research today and tomorrow’ (Ganz; Meiren 2002) of the Fraunhofer Institute of Industrial Engineering in Stuttgart, Germany, was the investigation and analysis of the current state of knowledge in the field of methodologically-oriented service research. A key aim of the study was to identify long-term trends and to reveal deficits in current research. The study picks up the thread of earlier research work undertaken in the years 1995 to 2000, in particular activities in the framework of ‘initial projects of priority’ launched as part of the ‘Services for the 21st Century’ programme initiated by the German Federal Ministry of Education and Research. A great deal has been learnt in the meantime and the focus of research has shifted to some extent. While research work performed in the past – heavily influenced by Anglo-American members of the service research community – concentrated mainly on service marketing and quality, disciplines such as work design and engineering sciences have made a stronger impression on more recent service research. Given that the study was based on 25 interviews of international Experts, it is important at this point to emphasis that it would be inappropriate to claim that the results generated were in any sense representative. Despite this, the results of the interviews with

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recognised experts in the field of service research are of considerable moment and offer valuable support for planning further research. 2.1 Service research topics The following table quantifies the statements relating to service research topics from the study ‘Service research today and tomorrow’ (Ganz; Meiren 2002). The figures represent the number of ratings for each item. The fact that the ratings in one row may not always add up to 25 is due to the fact that not all the interview partners felt able to give a qualified opinion about all the sub-topics addressed. A ‘0’ means that none of the interviewees selected this scale value. Table 1. Distribution of expert weightings of issues related to service research Research intensity (in the past) Low High 1 1.1 1.2 1.3 2 2.1 2.2 2.3 3

Basic research topics Definitions, typologies and morphologies of services Models and systems of services Specifications and standards of services Applied research topics Service innovation (NSD, design, engineering) Service management (marketing, HR, operations) Benchmarking and assessment

Need for action (in the future) Low High

2

3

9

4

5

1

8

3

6

5

1

8

9

3

1

0

1

5

11

4

2

5

14

0

1

3

0

10

5

4

3

9

6

5

0

0

1

2

7

13

0

5

9

8

1

0

1

1

14

7

1

7

11

3

0

0

1

8

10

3

4

9

6

4

0

0

0

5

9

9

5

9

4

3

1

0

0

11

5

6

5

9

6

2

1

0

0

5

13

4

3.3

Mega trends Internationalisation of the service economy Professionalisation of the service economy (outsrc., automat.) Quality of service employment

4

Growth sectors

4.1

Business services

1

8

8

4

1

0

0

5

7

10

4.2

Educational services

1

6

10

5

1

0

1

8

8

6

4.3

Financial services

0

1

5

9

7

0

1

12

8

1

4.4

Information services Media and telecommunications services

1

3

8

9

1

0

0

3

9

10

1

4

11

6

1

0

0

3

13

7

3.1 3.2

4.5

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Need for action (in the future) Low High

4.7

Non-professional services (‘unskilled jobs’) Public services

4.8

Services in manufacturing industries

2

14

3

4

0

0

0

1

13

9

4.9

Social and health services

0

2

11 10

0

0

0

4

15

4

4.6

3

14

2

1

2

4

6

4

3

5

0

6

14

2

1

0

2

7

9

5

2.2 Basic research topics As far as basic research topics are concerned, the table values highlight the fact that issues dealt with in the realm of pure research are considered by the experts to be of growing relevance. A more detailed view shows that the widest variance in the experts’ ratings of research requirements is expressed in their responses to the definitions, typologies and morphologies item1. This suggests that the experts’ views divide sharply on the value or futility of pursuing theoretical and methodological work on definitions, typologies and methodologies, the benefits such work has generated in the past and, in particular, the need for research in this area in the future. There is however broad consensus regarding the current status of basic research topics. The majority of interviewees believe that the research work undertaken to date has been mediocre. The picture as far as future research requirements is quite different however. While a third of the interviewees argued that work undertaken in the past was adequate, or that service research was unlikely to profit from further basic definitional, theoretical or methodological input, just under half of the experts believe that there is an urgent, or even very urgent, need for more research in this area. The experts also perceive a growing need for research on the development of new, meta models capable of structuring, explaining and operationalising complex interrelationships in the services sector. While researchers resort time and again to the main established models, such as the service profit-chain, the gap model, and SERVQUAL, there is a growing awareness that if service research is to develop further, improvements will have to be made to current models which are too generic in nature and yet which focus on highly specific aspects and are difficult to use in applied research. The analysis of the responses to the specifications and standards item show that significance of this topic has changed more fundamentally than any other in the section on basic research topics. While the intensity of past research in this area was only regarded as very high by one of the experts, more than a third believes that there was a great need or very great need for research in the future. Despite the increased importance attached to this item, a more detailed evaluation of the 1

An equal degree of variance also occurs for ‘Non-professional services’. Refer to the statement on relevant growth sectors in this chapter.

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qualitative responses presents a more differentiated picture. Some of the responses indicate that, although there is a need for action, this is more the responsibility of the service industry than that of the research community. Others, on the contrary, believe this would be a relevant area of research. However, the interviewees believe that it would only be sensible to carry out further activities in this area if progress were also made in the realm of theories and models. If such new models and theories are not forthcoming, there is believed to be a danger that standardisations may be oriented towards the realities governing the production of goods and would fail to do justice to the specific characteristics of services. The aim must be to understand the logic of services in general as well as in specific cases, from the gastronomy services provided by McDonalds through to the educational and research services provided by an university. Many experts also believe that more needs to be known about where specifications and standardisation would be useful and where not. One of the key questions in this area is ‘Does standardization make customers and employees any happier?’ The general tenor of the qualitative responses regarding basic research issues reveals both an awareness of the need for more research as well as a considerable air of uncertainty as far as the direction, feasibility and benefits of basic service research. Responses are coloured simultaneously by both a degree of resignation and scientific curiosity. This resignation can be explained by the heterogeneity and complexity of services as a research object and the concomitant problems of adequately expressing this diversity in theoretical terms. However, resignation is also counter-balanced by the unmistakable scientific appeal exercised by the gradual emergence of service research as an increasingly autonomous and distinct academic discipline. It would be fair to assume that the perceived need for the formation of autonomous, basic and meta theory from an academic and researchoriented standpoint is all the greater the more that research issues relating to the broad field of services emerge from the shadow of established business management sub-disciplines such as marketing. In fact, a large number of the responses provided by experts stress that the ongoing development of this area of research depends in particular on integrated theories and models capable of encompassing and describing the basic ‘nature’ rather than just particular aspects of services. 2.3 Applied research topics and mega trends The questions asked with regard to applied research topics focused on the status of research and future research needs in terms of service innovation, benchmarking and assessment as well as management issues such as marketing, operations management and human resources. With regard to mega trends, the focus was on the internationalisation of the service economy, rationalization strategies in the service economy, and the quality of service work and services themselves. In the view of the experts the greatest need for applied research and research into mega trends will be in the areas ‘service innovation’, ‘internationalisation of the service economy’ and ‘service management’.

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The detailed responses reveal that in the field of ‘service innovation’ in particular, research will (or should) focus on the process of developing new services in the sense of service engineering and service design. Here, too, the experts clearly expressed the view that it would be desirable if future research activities were to take better account of the specific characteristics of services: ‘What we need is the development of a new field – service engineering – that will parallel industrial engineering in manufacturing. Industrial engineering as currently practised in services doesn’t adequately address the psychological side of service, nor draw upon the extensive body of literature that exists in the behavioural sciences’ (Richard Chase). In the field of ‘service management’ there is a perceived need for more research relating in particular to aspects of human resource management and work organisation. In contrast, the state of the art in marketing is already regarded as extraordinarily advanced. Finally, with regard to the ‘internationalisation of the service economy’ the experts believe more research is required in order to meet the need for more knowledge about cultural factors affecting service supply and demand and with regard to expectations and perceptions of service quality. As far as the need for future research is concerned, the interviewees believe that – alongside the three favourites referred to above – all applied research topics and mega trends are assuming growing significance. The following aspects in particular should be emphasised: More research needs to be undertaken on ‘service excellence’ in terms of the high quality of the processes involved in both service performance and service products. This is closely linked with the need to development ‘performance management systems’. In the context of such systems special significance attaches to the adequate measurement and evaluation of service-specific quality and performance parameters. In the view of the experts, technologies and services represent a cross-sectional topic of enduring interest. Particular attention needs to be paid to information and communication technologies – facilitating service processes and creating e-services – as well as to service automation technologies. A need for more research is also identified with regard, in particular, to the role of technology in the provision, support, brokerage and sale of services. Researches into service excellence in settings heavily dependent on technological support and the creation of high levels of service quality via the deployment of technology are also regarded as particularly relevant. A further area of discussion – particularly in the USA – is the subfield of service quality. While the exceptionally broad discussion engaged in to date2 has mainly focused on the measurement of quality, experts now believe that this perspective needs to be extended in order to more easily identify the relationship between service quality and profitability, as well as between market share and customer retention. Research into the quality of service employment and work is also regarded as of equally enhanced significance. In this case a clear country bias is apparent. While experts in Europe and in the Asian-Pacific region (and particularly in Australia) are clearly aware of past research deficits and thus identify an 2

Cf. amongst others Grove, Fisk and John (2002): The Future of Services Marketing, Forecasts from Ten Services Experts.

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urgent or very urgent need for research into this subtopic, the quality of service employment and work elicits much less research interest in the USA. 2.4 Relevant growth sectors The surveyed fields included business services, education services, financial services, information, media and telecommunications services, non-professional services, public services, industrial services, and social and health services. The survey responses to selected growth sectors reveal that most experts believe that there is a clear increase in the need for research in the three fields of ‘business services’, ‘information services’ and ‘industrial services’. Responses generally tally to the extent that ‘B2B’ services – in other words services provided by businesses for other businesses – are regarded as representing the most growth intensive field of service with the most relevance for the future. This is also associated with an urgent need for more research despite the acknowledged high level of knowledge already available in this area. The challenge now is to exploit the results of appropriate research activities to support higher-quality and more productive service provision taking particular account of the deployment of technology. Future research should, in the view of experts, also concentrate on the growth sector of services associated with the production of goods. Such research should in particular shed light on the process of change in which tertiarisation evolves as companies shift from the (predominant) production of goods to the (predominant) provision of services, how these two perceptions differ, and in what way this process of change can be successfully supported. Respondents also believe that research should be invested in the increasing interpenetration and interaction between service and goods production. The survey reveals that there is not only a perceived need for more research in these three front running topics but also in all other growth sectors – with the exception of financial services where a great deal of research has already been undertaken and where experts believe there will be less need for research in the future3. Specifically interesting aspects emphasized include: Research into service orientation and digitisation in the field of public services (i.e. e-government), a hot topic in the USA particularly; research into the quality aspects of the provision of education and health and social services. Special account needs to be taken of both the individual aspects of customers’ perceptions of service quality and technological or – in the field of education services – the quality of service content in those areas in which this cannot be competently assessed by individual customers. Many experts would welcome more research work geared to the sustained measurement of outcomes to complement and extend current modes of output measurement.

3

The perceived relevance of research in the field of financial services in Germany is quite different however. Key terms in this area include, for example, innovation strategies, the metamorphosis of the branch system, and employment alternatives (cf. Bullinger et al. 2002: IT-Szenarien Finanzdienstleister 2002plus.

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2.5 Service research – paving the way for a paradigm shift? Is the persistently dominant mindset in the academic world which continues to regard economic activity chiefly in terms of ‘manufacturing’, i.e., the production of industrial goods, and thus perceives research activity as coupled to this paradigm, still adequate in today’s world? Surely the time has come – and particularly for those disciplines which take an ever-broadening approach to service research which goes beyond the latter’s sub-disciplinary aspects – to seriously question our understanding of what we mean when we talk about ‘economic activity’? Have we not reached a stage at which academic efforts need to be concentrated on developing and establishing new conceptual and procedural assumptions for the analysis of the economy and society as a whole which reflect the current economic weight and the future potential of services? These questions address a central aspect of the current discussion of service research in the countries surveyed. A significant number of experts believe that it is imperative that work begin immediately on the continuing development of the theoretical underpinning and foundations of ‘services’ as a research object. The key challenge in generating a new pattern of thought which focuses squarely on services is not to make do with a negative definition which merely distinguishes services from goods production. On the contrary, the decisive task must be to identify the quintessential nature of services, to ‘understand the logic of services’ both generally and in specific fields. In order to achieve this, theoretical and empirical research work is required which provides descriptions of a service perspective which are backed up by real-life examples. Researchers in the USA, in particular, are currently engaged in theoretical and conceptual work which represents a departure from previous assumptions – firstly, by the IHIP model (Intangibility, Heterogeneity, Inseparability, Perishability4) and, secondly, by calls for the critical scrutiny – or more radically in some cases, the complete rejection – of the previously widely accepted dichotomy of services and goods. This dichotomous view of economic activity in terms of the production of goods and services should, it is argued, be replaced by a holistic perspective and integrative theories and models in which – in the most extreme view – services rather than goods are regarded as paramount and thus of prime significance. However, what a future holistic ‘service perspective’ of this sort might look like is only now beginning to take on elementary shape in current discussion. In terms of a burgeoning theoretical description, a number of different views are becoming apparent. Some argue that services should be regarded as an equally-valid ‘element of business’ in the context of economic activity and not, as previously, as a separate and in most cases neglected category. This point of view asserts that whatever is being offered, it should be regarded as a combination of ‘things’ and ‘activities’ or as a ‘totality of intangibles and tangibles’. The core idea here is the creation of a ‘holistic consumption experience’.

4

Cf. amongst others Grove, Fisk and John (2002): The Future of Services Marketing, Forecasts from Ten Services Experts.

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Other experts take a more radical view and emphasize that a new service perspective is contingent on a new perception of economic activity itself. One aspect of this would be to regard the customer rather than the product as the starting point. The aim, it is argued, must be to see everything from a service angle and to focus on various forms of relationship. ‘It´s all a relationship game’. Attention should not only be paid to the offering itself, but also to the structures, processes, resources, partners, etc. involved in delivering it. There is broad consensus that ‘human aspects’ will play a central role in the creation of new, service-oriented patterns of thought. Services consist of ‘people work’ in which social-interactive components are of considerably greater importance than in the production of goods. Special attention must therefore be given to people as customers and employees in the service economy – as central business ‘assets’. Summing up, it is clear that the theoretical underpinning of ‘services’ as a research object is currently a high priority topic in the current debate. One of the most eminent authorities in the field regards the apparent deficit in terms of a common theoretical understanding and a lack of fundamental models and systems as one of the key problems confronting the development and management of services. Most observers identify the challenge as accelerating the creation of generally applicable theory relating to both generic aspects of services and – given the breadth and heterogeneity of the field – of sub-theories and concepts applicable to both individual service sectors and aspects of these sectors. Intensive exchange – including at the international level – would be welcomed as a positive step towards the creation of a new service paradigm. In this context it would be interesting if the ideas, insights and experiences regarding the creation of a service perspective currently circulating in various research communities were, for example, to be presented, described in theoretical terms and illustrated with concrete examples from the service economy at a specialist conference. 2.6 Service research – on the threshold to a multidiscipline? The international survey revealed that service research today has (still) not managed to establish itself as an autonomous academic discipline confident of its own institutional legitimacy as is the case, for example, with engineering or economic science. Fragmentation is a central feature of research activities in the field of services. Service research activities are often carried out in isolation from one another in the context of many other disciplines and sub-disciplines, and bearing this in mind a multidisciplinary approach promises to become a central factor in the success of research in this field fulfilling a dual function. Firstly, the creation of conscious links between research in various (sub)disciplines may help to reach a ‘critical mass’ on the academic agenda which the fragmented approach adopted to date has not been able to achieve, or at least not visibly. Secondly, given the relevance – demonstrated in the previous section – accruing from the formation of meta theory as a common point of reference for future research in various (sub)disciplines, and the creation of a new service perspective, multidisciplinary

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research endeavours would be warmly welcomed by many of the interviewed experts. It is important to emphasise both the broadly-shared view that it will no longer be possible to pack the knowledge of the future into traditionally neat ‘boxes’ and the conviction that it will only be possible to generate robust ideas in the future in the context of an international exchange of research work. In contrast to current scientific practise – particularly in the USA, but also in Europe – research needs to be organised around the object of research – in this case services – and not within the bounds of established academic tradition. In the future it will be important to become familiar with, adapt and use ideas from other fields in order to foster research and development progress. The aim must be to go a step beyond the simple exchange of ideas and thoughts and to develop cross-functional, concrete collaboration between researchers and research groups from various countries. Disciplines frequently cited as key (sub)disciplines in the drive for greater interdisciplinary collaboration include marketing, operations management and human resource management, as well as engineering and computer science. This perspective could, however, be extended even further and, in this sense, one expert commented that ‘every area of human knowledge has the potential to give insight into services’. Summing up it is clear that – owing to its multi-facetted nature – the field of service research is perhaps more than many other areas of academic endeavour not only a particularly suitable candidate for multidisciplinary strategies, it is in fact practically dependent upon such approaches if it is to continue to generate new insights. Researchers and those responsible for supporting institutional research both have a role to play in working towards greater multidisciplinary approaches and for ensuring that the recognition of the need for and benefits of cooperative research translates into concrete joint transfer projects and cross-functional transfers.

3 The European Forum on Business Related Services The Communication from the Commission ‘The competitiveness of business related services and their contribution to the performance of European enterprises’ of December 2003 to the Council, the European parliament, the European economic and social committee and the committee of the regions, signals the Commission’s commitment to improve the framework conditions of Services in the EU. The discussions derived from this Communication about policy challenges should lead to more targeted actions, meeting the requirements of business related services. Business related services (BRS) account for about 55% of value added in the EU, but only account for about 13% of all business expenditure on R&D. This means that it will be difficult to reach the target of 3% of GDP to be devoted to R&D unless it is possible to connect more strongly with the needs of the service sectors. The Commission therefore organised a European Forum on Business Related Services (BRS) with different working groups, composed of the Community insti-

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tutions, Member states representatives, professional organisations, workers representations, research institutions, focussing on issues like human skills, productivity enhancing factors in services, knowledge and statistics, public-private partnership and regional policy in an enlarged Europe. In November 2004 the Forum got out a first ‘Interim Report of the Working Groups’. The aim was to provide the Forum with a consolidated overview of the findings and recommendations of the working groups. Consecutively you find a summary of the Interim Report of the Working Groups. 3.1 Key characteristics and development trends in the service sector One of the key features of the knowledge-based economy is the importance of interaction between suppliers and clients, and relations between enterprises, both within and also across sectors. The quality of any service depends on many factors. These include the qualifications of staff involved in its delivery, the process of interaction with the client, and of course the final result that is delivered. The intangible nature of services raises a large number of problems. Statistical treatment is hampered by the difficulty of quantifying the input and output measures. Company reports are virtually intangibles-free, which means that managers and investors have little reliable information about the assets which constitute the main drivers of value creation in the service economy. Nevertheless, some services are amenable to codification, embodiment in software packages, and therefore stockpiling for future use, rather than being merely consumed when the service function has been performed. In the services sector, substantial rationalisation has been achieved by breaking down the process of service delivery into smaller components, which can then be provided by specialised companies. This ‘industrialisation’ of service processes is greatly facilitated by ICT infrastructures that enable companies to access talented labour pools virtually anywhere in the world. The increased specialisation opens new opportunities for entrepreneurial companies, and also economies of scale, since highly specialised services could be more easily standardised and codified, and to some extent entirely delivered electronically. There is an observable trend towards ‘commoditisation’ of service functions. In this context, a number of terms such as outsourcing, off-shoring, global sourcing, delocalisation etc. have come to be widely used, but often in a loosely defined way. The borderline between manufacturing and services has become increasingly blurred and sometimes outdated. We have to focus on service activities, because many manufacturers also provide services to their clients. They also perform internally service activities which in many cases they could procure externally, but lack the methodology to arrive at a ‘make or buy’ decision in the way that they would do in the case of manufactured components. The interaction between manufacturing and services should be increasingly in focus. Many services activities – as well as services produced in-house by companies not classified as services companies – are relevant in this context. The most demanding challenges are to be found on the blurred edges. The increasing presence of embedded ICT in all types

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of products is a key driver of developments in manufacturing, as well as the demand from customers for delivery of a wide range of product related services. This illustrates the difficulties in capturing modern business realities in statistically relevant categories. 3.2 Dealing with the productivity gap The recent development in overall productivity growth in the EU has caused concern and threatens the possibility of achieving the goals of the Lisbon strategy. Without competitive business-related services, it will not be possible to fulfil the Lisbon objective of the EU becoming the most competitive knowledge based economy in the world. There appear to be three possible explanations for slow productivity growth in services, namely measurement problems, insufficient innovation, and rigid markets in Europe which hamper development. Measurement problems arise due to the increased complexity of services being provided, and changes in the quality. However, adjusting the measurement to take account of quality changes will not necessarily increase productivity. There are also differing methodologies related to services prices measurement. Labour is also an important input, but the labour volume has to be identified based on existing statistical information (such as hours worked, part-time, temporary and seasonal employment) which are only partially available. Furthermore, labour input and its impact on productivity has to be measured in qualitative and not only quantitative terms, i.e. taking account of skills and competencies. Customers also play a crucial role in productivity gains. This is partly the explanation for productivity growth in certain services, such as financial services, where transfer of part of the labour input involved to the client has reduced the labour input of the service provider (e.g. home-banking). This area is methodologically less developed, but an even more complex one to measure. Differences between countries in terms of productivity cannot be solely attributed to differences in ICT use. However, even if the increased use of ICT – and especially e-business processes – is a major factor contributing to productivity gains, factors such as innovation, especially non-technological innovation, organisational changes, and competitive pressure play a major role. From the enterprise perspective, issues such as continuous improvement, and the integration of ICT into the business processes are seen as key factors for better productivity. However, in the long term, productivity gains are viewed by businesses as being less important than indicators of sustainable competitiveness, such as client satisfaction and loyalty. 3.3 Addressing the challenge of global sourcing of services Industrial restructuring has been part of the economic development in the EU in the last decades, especially influencing the manufacturing sector, and leading to a

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concern about a process of deindustrialisation in Europe. A more recent trend, which has caught high political attention, is the apparent increasing global sourcing of services. The concern has been based on numerous reports and studies, but no comprehensive official statistical data covering the issue, giving a global picture, are currently available. As the majority of services functions require a proximity to the market and clients, the services being internationally sourced in this initial round are mainly back-office functions, e.g. IT services or finance/accounting, enabled by the increased use of ICT and Internet connectivity by enterprises worldwide. But also functions focusing on customer contacts are being delocalised, e.g. by the use of intelligent telephone software since the late 1990’s, especially call centre functions. A number of companies within business-related services, especially banks, telecoms operators, travel agents and IT companies have already moved parts of their services functions outside Europe. The main driver of global sourcing is reduction of labour costs due to the large differences in wages paid for equivalent jobs between the EU and developing countries such as India and the Philippines. But it is important to underline that the benefits of increased quality of the services offered by the company such as the capability of offering services around the clock to customers is also an important driver of global sourcing. A further motivation for international sourcing is the availability of a well educated workforce with the required skills in order to avoid possible scarcity of skills in the country of domiciliation, also in the foreseeable future. As a consequence, many sources report on increasing delocalisation of more knowledge-intensive jobs as IT engineers, researchers and analysts. Global sourcing of services as a business model is being facilitated by the increased globalisation of services markets as a consequence of market deregulations and trade liberalisations, including the recent enlargement of the EU. Another significant facilitator is the technological development, especially within ICT, allowing companies to codify and transfer information and knowledge globally. The impact of international sourcing of services functions is a sensitive and complex issue. The expected cost savings make the companies more competitive and also offer the companies new market opportunities and, via reengineering processes, foster organisational innovations again improving competitiveness and sustainable development implying new job creations. On the other hand, delocalisation of services inevitably causes immediate job losses in the European countries affected, challenging the capability of the European labour market to reemploy the persons who lost their jobs via new job opportunities based on increased competitiveness and growth of European enterprises and sufficient training opportunities to upgrade skills required for the new jobs being created.

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3.4 Dealing with the lack of knowledge and information about the sector Improvement of the knowledge and statistical coverage of the business-related services is important in order to better understand the real forces behind the development and competitiveness of the sector. This is an essential instrument for giving guidance to decision making by business operators, policymakers and other stakeholders and for monitoring of progress of the Lisbon agenda. Policymaking can only be effective when it is based on reliable statistics about the structure and development of the sector. Following the structural shift in employment into the service sectors, there is now a severe imbalance between statistics on manufacturing and services. As the business-related services are very heterogeneous, ranging from highly specialised, knowledge intensive activities such as computer services and engineering services to less skilled jobs in industrial cleaning, there is a demand for more detailed activity breakdowns of the basic structural data, enabling detailed analysis of the services sector equivalent to the possibilities for manufacturing. Another example of the imbalanced statistical data collection is the collection of product information which currently only exists for manufactured goods (Prodcom). Product data and producer prices for the services sector are needed. The interrelations between productivity, quality and innovations are particular outstanding for further research projects. 3.5 The need for standards and quality assessment European standards are an essential feature of the single market. For decades, they have enabled products to be manufactured and sold throughout the Union. In the field of information technology and communications, the role of standards is crucial. Now, they are increasingly being used to support a single market for services, to the benefit of both suppliers and users. The number of voluntary European standards available for services is extremely low given the huge contribution the sector makes to the Union's economy. Superficially that may not be surprising, since it is clearly harder to set norms for activities without obvious physical characteristics than it is for manufactured goods. Given the volume of trade in business-related services it is of paramount importance to avoid any misunderstanding between customer and provider. Standards help to achieve this and to give users confidence in the final result by setting a benchmark against which they can measure the quality of the service they are purchasing. They can act as a guarantee of the quality being supplied, reduce the time spent explaining what is on offer, and strengthen negotiating positions. Suppliers should be able to expand their markets as customers become more aware of what is available and demand is stimulated for new services and products. Voluntary European standards give users a yardstick to compare products and prices enabling them to make a better choice, and to stimulate competition be-

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tween suppliers. Breaking the process by which services are supplied into individual stages also gives providers a better insight into their business, helping to increase efficiency and reduce costs. Companies are more willing to pay a higher price for a service which they perceive as being innovative or of higher quality. This is particularly true where inhouse services are outsourced to an external service provider. In such cases companies are also willing to pay a premium for the transfer of business risk to another company. Innovation in service delivery can be seen as making an increment with respect to what is accepted as the current standard practice, state of the art, or norm. 3.6 The special role of innovation, skills, and research It is not always easy to identify issues which are specific to companies that solely provide services, and separate these from issues that are common to manufacturers, who increasingly provide services in order to offer ‘solutions’ to their customers, rather than simply selling a physical product. Innovation in services is generally the result of a collective effort of management, sales, IT specialists and other staff within a company to respond to new market needs. It is diffused throughout a company, rather than concentrated in an R&D function, as is usually the case in companies that manufacture products. As a result, it is difficult to estimate the amount of effort that a company devotes to development of new and innovative services. Many service companies are believed to invest substantially in innovation related activities, but for three reasons the situation is very intransparent. Firstly, the definitions of R&D and innovation, as set out in the OECD’s Frascati and Oslo manuals, are highly technology oriented. As a result, expenditure that companies might regard as ‘R&D-equivalent’ remains unreported, and does not qualify the company for the R&D incentives available in some countries. Secondly, the study of innovation in the service sectors, and the investment in innovation made by service providers, is hampered by the technology bias of survey methods, such as the Community Innovation Survey (CIS). Thirdly, the overall level of systematic treatment of an organisation’s intellectual capital, and its intangible assets and investments, remain poor. Innovation in services is only driven to a limited extent by technological advances. More important is the way that a company can respond to customer demand, and develop new service offerings. Demanding and sophisticated customers are one of the major drivers of service innovation. One of the most important nontechnological factors is organisational change. Whilst services companies vary in their level of innovation, an increase in the innovative capacity of a given company will generally depend on the acquisition of new skills, or the upgrading of existing skills. This is also the case where service innovation depends on the introduction of new technology.

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The skills and competencies of the European workforce are crucial for keeping or improving the competitiveness of European businesses. Thus, an increasing need for making the qualifications of the workforce transparent throughout the entire internal market is evident. Common principles for learning, as well as mutual recognition of qualifications, are key elements. There appears to be a strong demand from service companies for skill enhancement, but there is evidence at company level of a tendency to focus on new entrants rather than the long-term development of the workforce, e.g. life-long learning strategies, supported and promoted by Member States and the Commission. There was also a reported preference for in-house training, targeted at companies’ specific needs. When discussing services research, it is important to note that some research is primarily aimed at increasing the competitiveness and productivity of service companies, whilst some research is more focused on providing knowledge and statistics about the structure and economic performance of the sector. The latter type is, of course, also needed by the managers of service companies for planning purposes, but is principally used for policy development and economic analysis. 3.7 Dealing with the intangible nature of services Development of the service sector depends heavily on making effective use of the intangible assets of enterprises, in particular their intellectual capital. These assets are frequently classified as human capital, structural capital and relationship capital. More effective management of these assets requires more systematic reporting, both at the level of the enterprise, and in the economy as a whole. Many services can be provided without heavy capital investment in equipment, and without the cost of raw materials and transportation of physical goods. Allocation of the appropriate level of resources to service innovation requires, as a minimum, internal reporting of expenditure on many categories of intangibles, such as training, software, etc. The extent to which these expenditures result in the buildup of assets than can be used to generate future revenues is an issue not yet adequately addressed by the regulations on financial reporting. Voluntary disclosure of intangible investment could provide greater confidence to investors and could also provide public authorities with a basis for introducing additional fiscal incentives (as is sometimes the case with R&D expenses being subject to tax relief). An adequate level of reporting on intangibles could probably be achieved using data that is currently available within companies. There is already considerable voluntary disclosure of relevant information on intellectual capital and intangibles in various forms of extended corporate reporting, in addition to that which is found in the financial statement and annual report. There are a number of reporting guidelines available, but companies need assistance in applying them. The good experience obtained in Denmark, where a large number of companies apply the Danish guidelines for reporting on intellectual capital, could be used in other Member States as an example of good practice.

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Although a number of services can be ‘materialised’ and retained for later consumption (such as software), the outputs of service activities are intangible in nature and largely not capable of adequate protection by the existing intellectual property system. At present, service companies make little use of the available instruments of intellectual property protection (patents, copyright, etc.). Patent activity is, however, a reliable indicator of innovative capacity in R&D intensive sectors. The existing IPR instruments are not particularly favourable to protection of innovation in services. There is also some evidence of increased R&D activity in the service sector (albeit from a very low base), and the efforts to increase overall R&D expenditure to 3% of GDP is likely to stimulate further growth. As a consequence, there is expected to be a demand for a suitable instrument of intellectual property protection which is more in line with the needs of the service sectors than those currently available.

4 Challenges for Research & Development ‘We know no more about services today than people knew about iron in the Iron Age.’ (Evert Gummesson 2000) Nevertheless, appreciable progress has been made in the field of service research in the past few years. Despite a relatively modest public funding volume, it has been possible to reach a prominent position in certain fields since the early nineties. For example, with the subject of ‘Service Engineering’ it has been possible to successfully occupy an interface between traditional service research and engineering sciences. The know-how of industrial production process engineering available in Europe and highly esteemed worldwide provides an optimum basis for taking the international opinion lead in the field of production-oriented service engineering. International experts acknowledge that this has already been achieved to a large extent with the research field of ‘Service Engineering’. As far as the use of methods to develop services is concerned, an undifferentiated approach is most definitely inappropriate owing to the heterogeneous nature of the service sector. In order to be able to perform meaningful analyses and derive recommendations for action regarding method deployment, it is useful to identify characteristic service ‘types’ and then take these as a basis for a more detailed examination. Although previous academic studies have already devised a set of so-called typologies for the service sector (e.g. Schmenner 1986; Kellog and Nie 1995; Buzacott 2000), hardly any of them are explicitly geared to service development. The typology approach evolved by Barth et al. (2000) represents an exception. It moreover offers the advantage that it was derived empirically from a survey of 282 companies and can hence claim a considerable degree of practical relevance. Contact intensity and variety were revealed by a factorial analysis to be the critical typology attributes. Contact intensity can be seen as a yardstick of the interrelationships between employees and customers, whereas variety describes the

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total number of determined manifestations of the service product. These typology attributes allow four service types to be defined (see Fig. 2): x Service Type A is characterised by a low contact intensity and a low variety, making it particularly suitable for highly standardised service delivery, x Service Type B has a low contact intensity and a high variety, whereby from the developer's point of view the focus is on the systematic variant creation aspect, x ҏService Type C is typified by a high contact intensity and a low variety. It essentially consists of a single, clearly defined standard service, which may however be influenced by the customer within certain limits, x Service Type D is distinguished by a high contact intensity and a high variety, so that its performance typically necessitates a considerable amount of customising.

Service is not alike service

high

Service Servicetype typeCC Examples: Examples: Call Callcenter center Fast Fastfood foodrestaurant restaurant

Service Servicetype typeDD Examples: Examples: Consulting Consulting Medical Medicalexamination examination

low

Contact intensity

Contact Intensity and Variety are critical key factors for a servicetypology

Service Servicetype typeAA Examples: Examples: Teller Tellermachine machine Customer Customerself-service self-service

Service Servicetype typeBB Examples: Examples: IT ITOutsourcing Outsourcingservice service Life Lifeinsurance insurance

low

high Variety

Ref.:Barth/Hertweck/Meiren, 2000

© Fraunhofer IAO

AST 112003

Fig. 2. Typology of Services

When drawing the balance of service research as a whole, it is obvious that application-related research results have been achieved in many fields which have strengthened the sustained innovation ability of enterprises and even complete service industries. In this connection, the development of innovative concepts and methods for service management, the strengthening of specific fields of growth of the service economy and the establishment of interplant service networks should be highlighted. Notwithstanding such appreciable results, there are fields of action where a specific need for research can be noted. This offers the opportunity to de-

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tect weak points at an early stage, analyse and turn them into strong points so that service research is enabled to reach an international leading position on the basis of the prior achievements. There is no doubt that service research faces challenges in content. Last but not least this is due to the fact that the complexity and dynamics of services can only be penetrated analytically if research takes the courage to follow innovative approaches and wider perspectives. This includes critical questioning of previous (and meanwhile convenient) findings, definitions of terms and paradigms if they do not come up to the current requirements and developments any more. Hence, substantial challenges for research & development result from a modified or wider view of the object of research. The 5th Service Conference of the German Federal Ministry of Education and Research (BMBF) 2004 provided a suitable platform for a daring look at the future perspective and to peg out some relevant fields of research. Four overall fields of activity can be identified, each of which entails further research issues. These are selected subjects of research which we – by discourse with our colleagues in the scientific community and with our partners from the business sector – believe to be important starting points for research activities that we should address now in order to be able to keep pace in international competition today and tomorrow. The resulting tasks can be structured as follows (see Fig. 3): 1. Established tasks of service research need to be further developed whenever they appear in a different light on the background of current developments and findings. 2. The central drivers for technological and socio-structural change must be identified and understood with their interrelations with services if we do not only want to analyse current trends in retrospective but participate in their servicespecific design. 3. Important research tasks for safeguarding the long-term competitiveness are also derive from a more intensive consideration of the relationship of tension between innovativeness, attractiveness and productivity of service activities. 4. It will only be possible to develop sustainable service solutions if we succeed in improving our ability to grasp, understand and shape the interactive processes of services.

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Challenges in Content for Research & Development 11

Renewing Established tasks

Design of service work Service quality Service engineering

22

Stimulus for new views and working methods

33

Recognising new challenges

Experimental design and testing Simulation of services Serviceproductivity

Co-designing current trends

Transformation processes in business Technologisation of services Internationalisation of services Influencing new , current and future trends

44

Developing sustainability

Service culture Interaction management Service life cycle management

Safeguarding the long-term competitiveness

Recognising and designing future challenges

Fig. 3. Challenges in Content for Service Research

The individual fields of research are briefly outlined below. First we want to take a look at the future and then proceed towards the presence, discussing each of the fields with a specific subject of research. 4.1 Developing sustainability, with ‘Service Life Cycle Management’ With the field of activities of ‘Developing sustainability’, trends are addressed which are empirically relevant as early as today and require new design solutions, but are not yet sufficiently defined and structured. An instructive example for this is the subject of ‘Service Life Cycle Management’. In this field we have been observing for some time already that services – similar to products – are subject to a certain life cycle. The Service Life Cycle Management approach aims at developing new opportunities for potential yield beyond the service providing phase for those services which have already had their best time with regard to proceeds from customers by modifying and/or extending the spectrum of services.

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Service Life Cycle Management Utilising the Full Potential for Yield Throughout the Life Cycle Service Life Cycle Management = Consideration of the benefit of a service to both the customer and the enterprise Customer yield throughout its life cycle involving the phases potential of development, launch, provision and 100 % replacement

Developing sustainable

Utilising the full potential for yield by SLCM

Challenges: Support for the decision about further development or replacement of services -volume Strategies for supporting low services (e.g. bundling, enrichment) Support for life cycle management by suitable IT systems (e.g. data management, decision support)

Critical customer benefit and service quality!

0%

(Cf. AMR Research, 2002)

Service life cycle

Fig. 4. Service Life Cycle Management

Service Life Cycle Management Example: From Support Service to BOT Model

Developing sustainability

Challenges: Configuring system services Developing co-operative business Models and design concepts for complex interaction relationships of the actors involved Developing design solutions for flexible structures and processes Defining strategies for the legal design of operational interfaces

Service intensity

Traditional product-related services e.g. teleservice “Warranty ”

Pay for Equipment

Fig. 5. Service Life Cycle Management

• • • •

„Full Service“ Maintenance Modernisation Take back Financing

“Availability ”

Pay for Availibilty

Complete Production service („Full Service“) including plant operation (with in-house or external personnel, or with remote monitoring)

“Result”

Pay for Production

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An essential characteristic of Service Life Cycle Management are new arrangements between providers and customers with respect to the design of the service portfolio. A holistic view of the life cycle of a service confronts enterprises with the challenge of reassessing the potential yield and the investment risks. The graphic (see Fig. 4) shows that the life cycle of a service is characterised by decreasing benefit to the customer and thus a declining potential yield unless investments are made in service innovations. The art is to flatten the slope of the declining curve or even make it rise again by applying life cycle management concepts. One business model which consistently follows the concept of service life cycle management is referred to as ‘BOT model’ (Build-Operate-Transfer). It does not focus on the individual service but rather on integrated management from a system perspective. With BOT models, it is hardly possible to make a clear distinction between the shares of services and production elements since a complete production process is virtually managed as a system of services. The challenge for research is to develop categories, methods and tools that are suitable for analytically penetrating the interrelationship and interactivity between the actors involved in these complex service systems. Since the success of BOT models is strongly dependent on production technology issues as well as business economic calculations, they offer an ideal and at the same time typical field for consistent interdisciplinary service research (see Fig. 5). 4.2 Recognising new challenges, with ‘Service Productivity’ Even though the competitive and cost pressure in the service sector increases, there is little empirical research with regard to cause/effect relationships and productivity-related influence factors in service settings. This is one of the reasons why there is hardly any application-related engineering knowledge available at present for sustained improvement or increased productivity in the service sector. However, we do know that the ‘logic’ of service work is different from the one of production work. Of course, this has an influence on the issues of productivity and value addition of service activities. The fact that the customer is more or less a component in the service providing process is one of the prime reasons for the traditional input/output models for productivity mapping reaching their limits in the service sector. Just consider the consulting services of a lawyer or doctor. Obviously the quality and productivity of the service decisively depend on the customer’s collaboration, i.e. on his active contribution to service providing. How can the input and/or output of a service be determined and made measurable? For example, how can you measure the productivity of a nurse? By the shortest time for a patient to check out of hospital? By the shortest time for him to check in again? Or is it about the sustained effect of provident care? These questions suggest that the quality of a service as perceived by the customer is a decisive factor for assessing the productivity. Eventually the customer’s readiness to take on parts of the service process himself has also an effect on the overall productivity (e.g. self-service settings).

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Service Productivity Understanding and Increasing the Productivity of Service

Recognising new challenges

»The characteristics of services… makes traditional productivity models and measurement instruments more or less useless for service providers « (Grönroos/Ojassalo, 2000) Aspect level

Tangible goods production

Service settings

Production/ consumption

Separate processes

Simultaneous processes

Customers

Hardlyinvolvedin production

Involved in »production«

Quality

Largely constant

Depends on process

Input/ output factors

Relatively homogeneous

Largely heterogeneous

Demand

No influence on productivity

Influences productivity

Output

Mostly tangible

Predominantly intangible

With resulting consequences for the evaluation and the design of service productivity (Cf. (Grönroos/Ojassalo, 2000)

Fig. 6. Service Productivity

Service Productivity

Understanding the Service-specific »Logic of Productivity« to Design Recognising new challenges Services in a Productive Way The overall productivity of services can only be assessed by simultaneous consideration of the service provider and customer perspectives!

Challenges: Identification of the factors influencing productivity on both the input and output side Analysis of service process and service experience factors with respect to their impact on productivity Tapping productivity potentials by developing Concepts for the synchronous design of Service processes and service experience

Provider Service process Input: Engineering the service process Material Equipment Customer Customers Employees Technology Process Output: Facilities ... Benefit Experience Emotions Opinions Intentions ... Engineering the service experience

Service product (Cf. Johnston & Clark 2001)

Fig. 7. Service Productivity

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The scientific challenge is to understand the interrelations between the service ‘event’ as perceived by the customer (and by employees) and the design of productive working processes. This is the basis for the subsequent development of design concepts contributing to a substantial improvement of the productivity of services. It will only be possible to achieve a sustained increase in productivity if such concepts take the specific characteristics of service activities into due consideration and can be customised to the work requirements for each specific situation. 4.3 Co-designing current trends, with ‘Internationalisation of Services’ It has become a matter of common knowledge that Germany is world champion in product export. Less frequently it is reported that Germany has a negative balance of trade in the service sector in international comparison. This means that more services are currently purchased abroad than can be exported (see Fig. 8). As far as we know today, the place of manufacture and assembly of investment and consumer goods will certainly be less decisive for their production in the future. In this regard, Germany would not be able to stand its ground in many areas in international competition anyway because of its high labour costs. Rather, the decisive factor will be the system leadership for the development, manufacture and marketing of such goods. We will therefore have to ask ourselves in the future if we cannot profitably export our knowledge about the design of working and organisational processes to a greater extent. These are not only areas where we have innovative competitive advantages but also sectors providing the high-quality jobs which we want to keep or even extend in Germany. As we have already seen with the BOT model example above, the knowledge about complex and internationally active value-addition networks – the structures and processes of which follow the logic of services to a large extent – plays a central role. In this regard, the knowledge of how services and service processes can be customised quickly and efficiently to different national needs is increasingly in demand. The need for research and action calls for the development of business strategies and options for the internationalisation of services. Knowledge about the standardisation potential of services plays an especially important role in an international context, in order to keep the transaction costs low when making the service available on an international level. The internationalisation of services also requires knowledge about the influence and impact of cultural factors on service offerings, the demand for and quality of services. Finally, there are quite a few obstacles blocking the international trade with services on a wide scale. More research is needed in this regard to advance the establishment of international valueaddition co-operations and strengthen or improve positions attained.

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Internationalisation of Services Current Development Current trends:

Co-designing current trends Germany is a (net) exporter of goods …

Service trade gets more and more international

648.4

Changes in the general legal setting increase the international pressure of competition

The progressive integration of goods and services (”hybrid” products) calls for international service competence

Balance

126.1

-100

0

100

200

300

400

500

600

700

in 1,000 million Euros

... but a (net) importer of services Export

109.0

Import

143.9

The exportability of services is gaining in importance at an International level

Import

522.3

Powerful ICT systems reduce the cost of mobility and transactions

Export

Balance

-34.9

-100

Source: German Federal Bank, 2003 (figures for the year 2000)

0

100

200

300

400

500

600

700

in 1,000 million Euros

Fig. 8. Internationalisation of Services

Internationalisation of Services Fields of Research and Need for Action

Co-designing current trends

Challenges for research and action:

Sample Project: Service Standards

Develop business strategies and options for internationalisation Recognise, develop and use potentials for standardisation Generate knowledge about the influence and impact of cultural factors on service offerings, the demand for and quality of services Drive the creation of international co-operative value-addition structures Analyse obstacles in the international service trade

Fig. 9. Internationalisation of Services

Useful service standards offer Competitive advantages:

Support impulses for growth Safeguard consumer protection Support trade Safeguard high quality Offer benefits from scaling effects Minimise overhead

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4.4 Renewing established tasks, with ‘Service Engineering’ In addition to the future-relevant tasks, there are fields of issues which have been familiar to us for some time but now appear in a different light on the background of current knowledge we were able to acquire about services in the meantime. Wherever this is the case, we need to address these tasks in order to renew them. One of these subject fields which are both familiar and new is the field of ‘Service Engineering’ (see Fig. 10). Although it was possible to achieve substantial progress in the field of systematic service engineering with the research field of ‘Service Engineering’, we are far from having investigated all aspects completely. For example, we do not know a lot about how aesthetics influence the customer interaction and also the design of working processes. The research subject of ‘Service Aesthetics’ addresses exactly these effects of services on customers and employees, investigating subjective factors (personality, demographic aspects, expectations, motivation, etc.) and objective influence factors (e.g. interior design, climate, noise level, etc.). At present, especially the interrelations between subjective and objective influence factors are largely unknown.

Service Engineering More topical than ever …

Renewing established tasks

»There is no lack of ideas for new services in business. Rather, there is a lack of procedures describing how to translate these ideas directly into successful service products.« (Rohit Ramaswamy)

To what extent are the development processes for services standardised in your business? Not standardised

Current challenges: Increasing the dynamics of innovation by service prototyping Designing the effect on the customer by service aesthetics

48%

28% 28%

Hardly standardised 9%

Standardised, but not in writing

13% 15%

Standardised and put into writing 0

10

35%

20

24% 30

40

(%)

Less successful enterprises Successful enterprises Source IAO study, 2003

Fig. 10. Service Engineering

Successful examples from the international environment, e.g. the Mayo Clinic in the U.S.A., show that systematic consideration of aesthetic issues in the design of services can boost innovation and produce competitive advantages (see Fig. 11). In the case of the Mayo Clinic, the design of the physical environment of the clinic has a special significance – last but not least because patients usually asso-

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ciate the appearance of a hospital (e.g. cleanliness, attitude of the personnel) directly with the quality of care. The overall design of this hospital rather resembles a first-class hotel setting with a marked attentiveness for details. It goes without saying that the actual medical service must also have a good quality level.

Service Engineering

»Aesthetics = The Power Creating Emotions « Renewing established tasks

Example: Mayo Clinic (U.S.A.)

Service aesthetics: A special field of design for service engineering relates to the aesthetics effects of services on customers and employees.

Objective influence factors:

Open rooms with natural light Therapeutic colour design Rest rooms and retreat areas Water fountains, piano music, etc.

Interior design and furnishing Sensory elements Symbolic elements

Subjective influence factors: Customer behaviour Employee behaviour Cultural context

Demanding clients Care is the highest maxim Personal attendance Teamwork among doctors

Fig. 11. Service Engineering

There is much evidence that the customers’ expectations with regard to highquality service offerings will continue to rise. At the same time we observe that the customers’ wishes tend to individualise; it is more and more difficult for highquality service providers to tune the services offered to the customers’ specific needs. In this context, service research is challenged to deal with the subject of service engineering from a more aesthetic and cognitive view. This will be the basis for developing concepts that are suitable for minimising or even closing any ‘gaps’ occurring between the service provider and customer sides. The research fields outlined above demonstrate that there are still fundamental questions waiting to be answered by an international oriented service research. This is mainly caused by the fact that services draw their social and economical benefits from breaking with well known traditions, creating new needs and giving answers to social transformation processes. One can state that services are a central driving force and a result of social innovation processes at the same time. A more intensive analysis of the principles and cohesive actions of this rapid changing research field is necessary, if these processes should not only to be analysed retrospectively but shaped actively.

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Hence, an integrated European service research has to present itself as a provider of international (research) services. This will require the setup of international research networks which work on relevant questions in close cooperation with practitioners and business companies. In the USA such a research infrastructure has been existing for a long time. So it is not surprising that US service researchers dominate certain research fields. It is important to stress that due to different political and cultural conditions the concepts developed in the USA can hardly be transferred to the European sector. A European service research which aims to strengthen European competitiveness has to develop analytical approaches, methods and instruments which are systematically adjusted to the European characteristics.

5 Needs for Action for Strengthening the Service Research Four essential research fields have been outlined above for the service research community, reaching from the future back to the immediate presence. The challenges are great, but so are the associated opportunities. So far, however, the future-oriented success stories are predominantly found overseas. For example, the Bank of America was able to successfully implement service innovations by a systematic process of service engineering and an innovative approach for testing new service products and processes. The customer consulting service was subjected to a process of realistic modelling, prototype evaluation and optimisation in several iteration loops. We can learn from such examples without having to copy them. Copying appears little promising alone because of the cultural environment, which plays an important role for successful innovations in the service sector. In order to foster service innovation, firm-internal conditions are playing a crucial role. A culture for service innovation and of course also the organisational conditions in companies for service innovation have to be fostered. Still it should be our objective to benefit from market opportunities more directly than before by service-driven innovations. In order to achieve this in a better way in the future, service research will have to increase its efforts to translate the acquired research findings into systemic design concepts without losing sight of future developments. Furthermore, it will also be necessary to cope with structural challenges aiming at an institutional strengthening of the service research; these can be summarised in five points (see Fig. 12):

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Needs for Action for Strengthen Service Research Challenges

;

Reduce deficits in the perception as a relevant pioneer programme

;

Understand the »logic« of services and develop service-specific engineering knowledge

;

Safeguard the international catch-up capability and set (new) core competencies

;

Develop knowledge about sustainability and continuity of research results in a joint effort with the world of practice

;

Bundling resources in subject-specific networks

Need for action Reinforce the own research profile

Strengthen international lead positions Create service excellence centres Intensify R&D co-operation with the world Of practice

Advance subject specialisation

Fig. 12. Needs for Action for Strengthening the Service Research

In view of the high relevance of services for the EU economy, research and its supporters face the challenge of developing an independent research profile, communicating this more intensively and achieving widespread acceptance for it. Service research needs to be attached adequate importance in the perception of the public. We do not have sufficient knowledge yet about the constitutive and designable elements in service processes and we have to consider differentiated development of the three main forms of services – personal (such as care services), operational (manual such as cleaning) and knowledge intensive services. They may have different developments concerning productivity, growth, internationalisation etc. Especially the interactive sphere of the human-human interface has been a black box to date. Starting points for analytically grasping this black box can only result from further specialisation of subjects. Similar to other fields of research, deeper penetration of various fields of application is required in order to develop solutions that are suitable for practical use. It has already been possible to establish international catch-up capability for certain subjects (e.g. service quality, service marketing). Furthermore it becomes apparent that a core competence – the subject of Service Engineering, knowing that there is a similar field called service operations – has been anchored at an international level. There is also a good chance for placing our knowledge about the design of service work. It is now necessary to consistently make use of all these opportunities.

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The potential for innovation in the service economy is far from being exhausted. On the one hand, it is necessary to raise the so far limited readiness/tradition of service enterprises for systematic research & development and for participating in collaborative development projects with science. On the other hand, science should also make more efforts to ensure the sustained implementation of its research findings in close cooperation with partners in practice. All in all, the groups of actors in the service economy and in research present a rather fragmented image. In many cases there is an insufficient ‘critical mass’ to be able to advance and explore the subjects more deeply. The establishment of Service Excellence Centres could be one way of accelerating the dynamics of innovation and strengthening the international competitiveness of service research. It is therefore obvious that a successful future with innovative services relies on the interaction of very different actors. In addition to exploring new paths between science and practice and taking a more international orientation in science, we need to work on achieving a more widespread awareness of the significance and the cause/effect relationships of services at an institutional level and – last but not least – in our minds.

References Albrecht K, Zemke R (1985) Service America! Doing Business in the New Economy. Dow Jones-Irwin, Homewood Armistead C, Machin S (1998) Business process management: implications for productivity in multistage service networks. In: International Journal of Service Industry Management 9 (4): 323-336 Barth T, Hertweck A, Meiren T (2000) Typologisierung von Dienstleistungen: Basis für wettbewerborientierte Strategien im Rahmen eines erfolgreichen Service-Engineering. In: Barske H, Gerybadze A, Hünninghausen L, Sommerlatte T (eds): Das innovative Unternehmen: Produkte, Prozesse Dienstleistungen. Wiesbaden: Gabler, pp 07.11/1 07.11/16 Bienzeisler B, Meiren T (2005) Trendstudie Dienstleistungen, Ergebnisse der Befragung zu Dienstleistungsproduktivität und Dienstleistungsinternationalisierung. Fraunhofer IAO, Stuttgart Bowers MR (1985) An Exploration into New Service Development: Process, Structure and Organization. Texas A&M University Bullinger HJ, Meiren T (2001) Service Engineering. In: Bruhn M, Meffert H (eds) Handbuch Dienstleistungsmanagement. Von der strategischen Konzeption zur praktischen Umsetzung. Gabler, Wiesbaden, pp 149-175 Bullinger HJ, Scheer AW (eds) (2003): Service Engineering. Entwicklung und Gestaltung innovativer Dienstleistungen, Springer, Berlin Bullinger HJ, Stille F (eds) (2000) Dienstleistungsheadquarter Deutschland – Entwicklungstrends und Erfahrungsberichte. Gabler, Wiesbaden Bundesverband der Deutschen Industrie e.V. (2001) Den Weltmarkt für Dienstleistungen öffnen. BDI, Berlin

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Buzacott JA (2000) Service system structure, In: International Journal of Production Economics 68: 15-27 Commission of the European Community (2003) The competitiveness of business-related services and their contribution to the performance of European enterprises. Communication from the Commission COM 747, Brüssel Cooper RG, Edgett SJ (1999) Product Development for the Service Sector. Perseus Books, Cambridge Edvardsson B, Gustafsson A, Johnson MD, Sandén B (2000) New Service Development and Innovation in the New Economy. Studentlitteratur, Lund Erlhoff M, Mager B, Manzini E (eds) (1997) Dienstleistung braucht Design. Luchterhand Verlag, Neuwied Fitzsimmons J, Fitzsimmons M (eds) (2000) New Service Development. Sage Publications, London Ganz W, Hofmann J (eds) (2002) Fit for Service Report 2002. IRB-Verlag, Stuttgart Ganz W, Meiren T (eds) (2002) Service research today and tomorrow. Spotlight on international activities, IRB-Verlag, Stuttgart Gehrke B, Legler H (2004) Technologische Dienstleistungen in der Zahlungsbilanz, Deutschlands Position, aktuelle Entwicklungen und Interpretation. Niedersächsisches Institut für Wirtschaftsforschung, Hannover Grönroos C (1999) Internationalization strategies for services. In: Journal of Services Marketing 13 (4/5): 290-297 Grönroos C, Ojasalo K (2004) Service Productivity. Towards a conceptualization of the transformation of inputs into economic results in services. In: Journal of Business Research 57 (4): 414-423 Gummesson E (1994) Service Management: An Evaluation and the Future. In: International Journal of Service Industry Management 05 (1): 77-96 Gustafsson A, Johnston M (2003) Competing in a Service Economy. Jossey-Bass A Wiley imprint Hild R, Hofmann H, Ochel W, Wilhelm M (1999) Unternehmensbezogene Dienstleistungen: Deutschlands Position im internationalen Vergleich. Ifo Schnelldienst, 10/11 Hudson M, Smart A, Bourne M (2001) Theory and practice in SME performance measurement systems. In: International Journal of Operations & Production Management 21 (8): 1096-1115 Kaplan RS, Norton DP (1992) The Balanced Scorecard – Measures That Drive Performance. In: Harvard Busies Review, Jan-Feb, pp 71-79 Karmarkar U (2004) Will You Survive the Service Revolution? In: Harvard Business Review 06/2004, pp 101-107 Kellog DL, Nie W (1995) A framework for strategic service management. In: Journal of Operations Management 13: 323-337 Meiren T, Barth T (2002) Service Engineering in Unternehmen umsetzen. Leitfaden für die Entwicklung von Dienstleistungen. IRB-Verlag, Stuttgart Meyer A, Blümelhuber C (2001) Wettbewerbsorientierte Strategien im Dienstleistungsbereich. In: Bruhn M, Meffert H (eds): Handbuch Dienstleistungsmanagement. Von der strategischen Konzeption zur praktischen Umsetzung, Gabler, Wiesbaden, pp 369-399 Patterson P, Styles C, La V (2001) Determinants of export performance across service types: a conceptual model. University of New South Wales Ramaswamy R (1996) Design and Management of Service Processes. Addison-Wesley, Reading

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Schmenner RW (1995) Service operations management. Englewood Cliffs, New Jersey: Prentice Hall Shostak L (1982) How to Design a Service. In: European Journal of Marketing 16 (1): 4963 Stille F, Preissl B, Schupp J (2003) Zur Dienstleistungslücke – Dienstleistungsmuster im internationalen Vergleich. Duncker, Berlin Vuorinen I, Järvinen R, Lehtinen U (1998) Content and measurement of productivity in the service sector. In: International Journal of Service Industry Management 9 (4): 377396

Standardisation in the Service Sector for Global Markets Inka Mörschel1, Hermann Behrens2, Klaus-Peter Fähnrich3, Romy Elze3 1

Fraunhofer Institute for Industrial Engineering IAO, Germany DIN German Institute for Standardization, R&D Phase Standardization Division, Germany 3 Chair of Business Information Systems, Institute of Computer Science, University of Leipzig, Germany 2

1 Introduction.....................................................................................................258 2 Normisation and standardisation in the service sector................................259 3 Systemising standardisation demands ..........................................................260 3.1 Method of systemising ..........................................................................260 3.2 Results of an empirical study ................................................................264 4 Balancing previous company-spanning measures........................................267 4.1 Measures on a national level .................................................................267 4.3 Measures on European Level ................................................................272 5 Conclusions and recommendations for action..............................................273 References...........................................................................................................275

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1 Introduction For many European countries, the last few years were characterised by rationalisation and often defensive strategies. This is typical for phases of stagnation. Offensive strategies, in contrast, counted on product and process innovation as well as an active advanced market expansion. Especially effective for the German economy are the strategies tertiarisation, industrialization, and internationalisation. In many sectors of goods production, globalised competition cannot be achieved. In this context, tertiarisation enabled a value-added strategy by professionalising customer-oriented value chains and offering standard services as a product. This strategy is successfully applied in engineering, plant construction, architecture, and textile industry. There is also a high potential in vehicle construction, medical technology, and craft. Industrialisation as a second strategy is concerned with core areas of the service economy. Thereby, structures and methods of classic goods production such as division of labour, productisation, reduction of vertical integration, disaggregation of value chains and globalisation, were assigned to the service sector. In this context it can be alluded to industrialisation in the service sector. Eminently concerned thereof are the ‘ripe’ service branches such as finance services, media services, IT-services and telecommunication services. The internationalisation concerns all branches of the national economy and also increasingly the service sector. (Eurostat 2004) The service sector is part of the classic strength of the German economy as a leader in world export. Economically, the service sector has the most potential. For a long time the service sector was wrongly interpreted as labour intensive. It was, furthermore, said to exhibit high customer contact intensity and thus strongly resists standardisation and rationalisation. This impression has been rebutted in many branches (banking, insurance, tourism, trade, telecommunication, logistics, etc.). In the majority of cases, the use of information and communication technology was the main impulse. Meanwhile it can safely be assumed that information technology is the ‘product engineering’ of the service industries. In this approach, communication technology can surely be considered to be the ‘logistics’ of the service industries. Therefore the service sector displays much more radical possibilities for globalising value-added chains than the classic goods production sector. The whole extent of this development has not yet been established and will not be suddenly implemented overnight. It will, however, show a dominant trend within the next 20 years. Yet there are several important conditions to be met: political stability, continued international distribution of labour (globalisation) and most importantly, productisation and standardisation in the service sector. It is furthermore presumed that standardisation is legitimate and reasonable in the service sector. There will be an attempt to transfer procedures for product, process and resource standards, etc., from the classic fields of standardisation to the service sector. On the other hand, there is also the question of where the limits of transferability lie.

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2 Normisation and standardisation in the service sector The initial question is whether standardisation in the service sector displays differences to classic standardisation. The answer is a definite yes, as will be explained later-on. In principal, a standard in the broadest sense is the result of a simplification (e.g. of products, processes, interfaces, etc.). This simplification can be performed in various systems, such as companies, branches, or economic area; nationally or internationally (Blum et al. 2001). Standards are created in various fields, with various participants, for various purposes. This process creates standardisation results (cp Table 1). One important type of standard is the norm. A norm is a specification, which is established in a predetermined method by a standards organisation recognized by the legislature. For Germany this is DIN (German Institute of Standardisation). The most important international standardisation organisation is the ISO (International Organisation for Standardisation) in Geneva. There, the company-spanning standardisation is realized, as will be further described in this article. Table 1. Different types of standards and regulations result from their scope and the goals of those involved in their development Providers

Æ Types and Examples of standards/ regulations ... Individual companies or groups Æ Company standards ... Business consortia Æ Industrial standards, specifications ... Professional or trade associations Æ Association standards, e.g. VDI Guidelines ... National standards bodies Æ National standards ... International standards bodies Æ European and international standards ... State- or partly state-controlled bodies Æ Laws, regulations ... International organizations Æ EU guidelines ... Employees’ organizations Æ Collective agreements, regulations on working hours ... Consumer organizations and other Æ Consumer standards, quality marks interest groups

The production and service sectors are related insofar as the full repertoire of product standards, process standards, standards for client interaction and resource standards is needed for ‘industrialised’ service sectors. This is especially true if an intensification of international exchange relations occurs in a relevant sector, such as, for example, in the financial sector. It can thus be assumed that there is a certain basic amount of similarities between the classic goods production and the industrialised service sector, which leads to similar approaches in the work of standardising. On the other hand, through demand from related fields such as software technology, structures and processes of the current work in normisation were supplemented with faster methods of standardising. For example:

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x Germany and other National Standards Bodies (NSB) were given the opportunity of creating Publicly Available Specifications (PAS). The PAS do not go through the classic normisation process and can quickly be published as a first normative result. x In Europe, the publication of CEN-Workshop-Agreements (CWA) as a standard before the normisation was rendered possible by the European Committee for Normisation (CEN). x The international normisation bodies ISO and IEC also offer corresponding possibilities.

3 Systemising standardisation demands 3.1 Method of systemising The various ways of standardising and forming standards, independent of the content to be standardised, show that before a reasonable standardisation can be performed, an exhaustive examination of the standardisation content is necessary. This is especially true for services and their occasionally hard to grasp characteristics, since only few scientific works focusing on standardisation are known and businesses have not spread any efficient procedures so far. The first research in service standardisation and normisation of services appeared in the 90s (e.g. Burghart and Kleinaltenkamp 1996, Corsten 1991, Dichtl 1998, Fließ and Möller 2002, Gersch 1995, Mühlbauer and Cornelissen 1998, Vries de 1999) and show that standardisation of services as a field of research is still in its early stages. Different viewpoints from economy and science show that due to the complexity of services, there is no one and only standardisation of services, but that differentiation is necessary. By means of the Service Standards Engineering (Mörschel 2002), a general method for developing service standards, (an example for systemising standardising demands) will be described in the following section. The complex action of developing standards for services can be simplified in a phase model (cp Fig. 1). Phases

Pre-phase

Results Sectorand subjectbased know-how

Phase I: Survey

Data and statements Standardization potential Æ requirements

Phase II: Analysis

Phase III: Phase IV: Phase V: Assessment Realization Evaluation

Structured Standardstandardization ization strategies requirements appropriate course of action

Fig. 1. Reference model of service standards engineering

Standards

Benefits

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The phases in this case are not to be seen as a strict chronology but rather as an iterative procedure. The procedure is presented very generically und thus allows for adaption to further detail levels as well as orientation towards the specific conditions of a field, a company, or a topic. Users of the reference model are made up of businesses that render services and businesses that accept services as clients, as well as organisations that accompany standardisation processes (such as normisation institutions, research institutes, associations, etc.). It is the goal of Service Standards Engineering to identify company-specific and -spanning standardisation potential in services as well as to initiate, support and perform activities to standardise services. The reference model is composed of a selection of activities and instruments, which are recommended for the development of service standards. As an example, several structuring patterns serve as decision support for deriving standardising strategies. They have been derived from services, scientific approaches and general standardisation activities, which all withstood the test in practice. Systemising service standards can be ascribed to the systemisation of standards as well as the systemisation of services. A systemisation is thereby always aimed towards a certain purpose. The foundation for this is usually already provided in the pre-phase, which serves the characterisation and limitation of the object of investigation. Pre-structuring is then performed in the survey phase (Phase I) with the help of the survey instrument, for example, by means of a questionnaire or its structure. This allows for potential standardisation contents to be divided into the topics of basics, client interaction, organisation and contributors (for further subordinated topics see also chapter 3.2). In the analysis phase (Phase II), information, which was gathered from various sources (scientific publications, expert talks, internet inquiry, workshops, research activities, etc.) in Phase I, is analysed. The results can, for example, be integrated into the structuring scheme shown in Fig. 2. and thus create a three-dimensional matrix. The structuring criteria in this example can be distinguished into one dimension according to the integral, system-oriented division (human, technology, organisation), a second dimension according to the service process (evaluation, performance and description of services), as well as a third dimension according to the extent of the effects of the standardisation (specific to company, specific to a branch, overall). This matrix points out that the sweeping statement that ‘a service can be standardised’ can not generally be agreed on but that a differentiation between standardisation contents is necessary. At the same time this will question whether services in their entirety can be standardised. At this point it is to be noted that the authors of this article also use this sweeping statement, but they understand it rather as individual aspects of services and choose not to use a more differentiating statement at some points in the article for reasons of practicability.

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of se rv ic e

overall

de sc rip tio n

de liv er y

of of se se rv rv ic ic e e

specific to a company

ev alu at io n

specific to a branch

human beeing

technology

organization

Fig. 2. Scheme for structuring standardisation potential of services

For further structuring and grouping, the socio-technical system shown in Fig. 3 can be consulted. It attempts to display as broadly as possible the fields of standardisation and its interfaces, which can occur in a service system, at a general level. The system is based on scientifically and practically recognized viewpoints of services using the dimensions of potential, process, result, and market (Bullinger and Meiren 2001) that have been transferred into standardisation fields. This created general, yet meaningful types of service standards. Society

Qualification Quality management

Management standards

Assessment Specification

Consumer

Product Process Process model

Product model

Infrastructures Basic standards Terminology

Typology/Morphology

Classification

System model

Fig. 3. Scheme for categorising standardisation potential in socio-technical terms

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hardware/ software

methods/ tools

The goal of the evaluation is to determine an appropriate strategy for standardising a certain content. An example for the derivation of standardisation strategies is the typology shown in Fig. 4, which was established for services involving IT. It is based on the organisation of standardisation processes in general, as will be substantiated with examples in Chapter 4. The dimensions regarded are, for example, ‘effect’ and therefore vertical (within a branch) and horizontal (branch-spanning, general) standards as well as ‘content’, which is distinguished by methods and tools as well as hardware and software. In the example in the lower left quadrant, this means that the more general and more far-reaching topics focusing on hardware or software, should be standardised in international standardising bodies.

broad need for regulations in society

sectorial regulations

international standards committees

sectoral ITStandards

overall

branch-/ company specific

Fig. 4. Example for fields of action and strategies for standardisation

After an appropriate standardisation strategy is derived, the next step is the implementation phase (Phase IV). It comprises the initiation of standardising bodies with all necessary affected and participating parties. Following this is the development of the standard. Due to the extent of this article, this specific procedure will not be covered here. The results of such standardisation processes will be recapitulated in chapter 4 of this article. Finally, the evaluation of the standardisation process and investigations about the usefulness of the developed standard takes place. Such new and complex processes must undergo a critical reflection, the goal of which is to identify success and failure factors as well as potential for optimisation. The experiences can be documented in the form of ‘Lessons Learned’. The following subchapter gives an example of the application of this method.

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3.2 Results of an empirical study The presented method was performed exemplarily in the BMBF research project ‘Service standards for global markets’. The following will outline a section with examples for the standardisation potential for services, which sums up partial results from the survey and analysis phases. For the survey about standardisation demands for services, a branch-spanning written survey including several secondary surveys was conducted in 2001. The feedback was 115 questionnaires, which is a feedback ratio of 5.0 percent. Developers and users of standards were the target group of this survey. Among other things, the participants were asked to evaluate service-specific topics concerning necessity of standardisation and identification of demand for future standards for services. The four main topics were ‘basics’, ‘customer interaction’, ‘organisation’ and ‘personnel’. Figure 5 shows the relevance of basic topics of service management. In the answer categories standards were given, which might have a high relevance for material products but are not yet that common for services. Thereby, so-called ‘soft’ topics were disregarded in this group, but were examined at another point. The result was that ‘terminology’, ‘specification of services’, and ‘evaluation of services’ had a high relevance. A more detailed inquiry about the used form and the preferred form of a standard, showed that currently an average of 50 percent of the used ‘basics’-standards are company-specific in nature. There is a significant deficit in the field of branch-spanning and national standards. Multiple nomination was possible n=115 terminology 4 10,4% service description

5

evaluation of services

6

classification of services

13,9%

evaluation of service providers

40,0%

36,5%

18,3%

5

13,9%

product models

5

13,0% 10,4%

classification of service providers

11,3%

not assessable

10%

20%

29,6%

33,0% 20,0%

unimportant

40%

20,9%

33,0%

29,6% 30%

26,1%

23,5%

17,4%

7 7,8% 14,8% 0%

29,6%

37,4%

6 7,8% 10,4% 13,0%

methods for service development

no answer

42,6%

30,4%

7 7,8%

6 4 5,2

49,6%

32,2%

50%

less important

Fig. 5. Importance of service standardisation aspects: basics

15,7%

25,2% 60%

70%

80%

rather important

90% 100% important

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In a second main field, topics of client interaction were asked about (cp. Fig. 6). The interaction between client and service provider from the first contact up until the provision of the service, is a central feature of services. As can be seen by comparing topics from other main fields, the respondents see a high relevance in all topics. The form of used standards is mainly company-specific, however, branch-specific and national standards are used in many companies as well. There is still a demand for development in the field of international and branch-spanning standards. Multiple nomination was possible n=115 information

customer contact

product liability for services

7,0 1 3 5%

7,0 4 3 8%

7,8

4 4

10%

9,6% 6% 4

customer satisfaction

7,0 5 6% 7%

no answer

10%

not assessable

54,8%

24,3%

consumer protection

0%

57,4%

27,0%

11%

20%

52,2%

22,6%

43,5%

26,1%

42,6%

32,2%

30%

unimportant

40%

50%

less important

60%

70%

80%

rather important

90%

100%

important

Fig. 6. Importance of service standardisation aspects: customer interaction

The third main field inquires about the relevance of standards for organisation, that is to say standards, which lead to more efficient performance through transparency and interface coordination. In particular technical topics, such as data security, data exchange formats and information systems, were evaluated by the respondents as needing a high level of standardisation (cp. Fig. 7). It is also in these topics that the orientation towards international standards as opposed to less technical standards is the strongest. The last main field of topics about identification of standardisation demands for services focuses on the human being as a resource. Labour and health protection as well as continuing education about standardisation are especially relevant here (cp. Fig. 8). The percentage of used company-specific and branch-specific standards is average. This trend of applying a large portion of such standards should be continued in the future. Compared to the other fields of topics, the percentage of favoured international standards is lower here.

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Multiple nomination was possible n=115 data security

7% 3 2 4

data flow formats 5% 4 4 7% ICT systems

9%

business process models

6%

role definition

7%

transactions

8%

organization models

7% 0%

no answer

65,2%

19,1%

4 2 5 16%

13%

24% 4

10%

not assessable

7%

11%

30%

20,0%

26,1%

19,1%

36,5%

17%

20%

29,6%

32,2%

10%

21% 9%

44,3%

35,7% 5

11%

57,4%

22,6%

17,4%

42,6% 40%

unimportant

50%

60%

70%

less important

80%

90%

rather important

100%

important

Fig. 7. Importance of service standardisation aspects: organisation Multiple nomination was possible n=115 health protection and 6% 21 8% safety at work qualification and training ergonomics

wage models

7% 3 2 5%

7%

working time models

9% 6% 0%

9% 6%

10%

not assessable

35,7%

23,5%

unimportant

27,8%

38,3%

20,9% 30%

28,7%

27,0%

17,4%

12% 20%

57,4%

15,7%

8% 6% 8%

7%

66,1%

26,1%

9% 4

ecological efficiency

no answer

17,4%

40%

22,6%

29,6% 50%

less important

60%

70%

22,6% 80%

rather important

Fig. 8. Importance of services standardisation aspects: personnel

90% 100% important

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The survey has shown that there is a demand for development, distribution and application of standards for services on a general level. The questioned companies see advantages not only in the company-spanning standardisation but also in the company-internal standardisation. The demand concerns mainly international standards, but also branch-specific and -spanning standards. In conclusion it can be noted that three priority fields of action have been identified and confirmed: 1. Basic standards, such as terminologies, specifications and evaluation procedures 2. The development of supporting standards concerning security and information technological topics 3. The client interface.

4 Balancing previous company-spanning measures 4.1 Measures on a national level Chances for developing strategic advantages in international competition are boosted by increased normisation and standardisation. This clear statement in favour of the instrument of normisation was the main focus in the 2004 agenda of the federal government's ‘Innovations and future technologies in medium-sized businesses High tech master plan’. Furthermore, the agenda presented several measures, which are meant to strengthen the innovative power of in particular small and medium-sized businesses. The government's goal was to broaden the field of use for normisation in Europe and internationally and thus enhance the capability of new technologies and services entering the worldwide market. With the above mentioned project ‘Service standards for global markets’, measures were initiated early in Germany in order to set the course for standardisation in the service sector. One significant goal of the project, which was successfully completed in 2004 after a duration of four years, was to strengthen lastingly the innovation and competition capability of the German service industry by applying European and international standardisation processes more broadly. The project goals and central questions defined for this purpose were the following: Project goals: x Identification of company-specific and -spanning standardisation potential x Initiating and supporting activities for the standardisation of services x Derivation of recommendations for action Central questions: x x x x

Where is the standardisation demand in certain fields and certain topics? Which services are suitable for standardisation? Which services are not suitable? Which standards exist so far?

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x Which existing standards are branch-specific or branch-neutral? x What can be standardised, or more specifically, which components, processes, methods and tools can be standardised? x Which type of standard or which procedure model can be applied to which standardisation potential? The main objective of the project was a long-term improvement of the German participation in national and international standardization. This included raising the awareness of all parties involved in order to stimulate their interest in international standards activities, defining the German position in international standardization and creating innovative standardization models. The aim was to build up conditions which enable a free and fair trade, bring forward the competition, support economic growth and contribute to the opening of markets. The conditions are formed by the development of national and international standards. The project partners started by focusing on four themes: advanced vocational training, e-commerce, infrastructural services, and public services. Figure 9 shows the areas for standardisation activities in the German service sector, as identified by the project ‘Service Standards for global Markets’. Overall

E-commerce

Infrastructure services

Public services

Training

Public

Relations

Survey and assessment of existing standards and regulations Increasing awareness of and assessing need for standardization Initiation of and participation in standards work Basic research Structuring the areas »customer, product, processes« Industry-specific questions Regulations required in social partnership

Fig. 9. Areas for standardisation activities in the German service sector (Fähnrich 2002)

The results have been published in, among others, the DIN Technical Report 116 ‘Standardisation in the German Service Economy Potentials and Demand for Action’ (see DIN 2002). The insights gained in the project ‘Service Standards for Global Markets’ will now be briefly described. In order to make services describable, it is important to proceed systematically and to take into account all standardisation relevant components. For this, the use of Service System Engineering (Opitz and Schwengels 2005) is recommended. This system enables existing Service Engineering approaches to be complemented with system-theoretic approaches in order to develop theory-based concepts for

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services. Depending on the definition and modelling of service systems, approaches (e.g. product-, process- and resource-related approaches) arise here. Products and services can be described by product models. As opposed to material products, there are only a few approaches for service product models. They deal mainly with the information technology presentation of services, which makes unambiguously specified products out of hard to describe services. Although these approaches have a high potential for service companies and their partners, according to Mörschel 2005, there are yet a few aspects to resolve. x Taking into account strategic aspects in modelling (namely aspects beyond the information technology presentation) x Integrated and interdisciplinary product models x Linking of non-cash benefits, services and software x Integration of process models in product models x Procedures for the establishment of special service product models x Typing product models depending on the application purpose x Standardising product models (e.g. within a branch) x Electronic catalogues and uniform data exchange formats for service There are two approaches in practice, which especially have the potential to advance the electronic trade with services. One of them is the classification system eCl@ss, which helps vendors and purchasers by electronically supporting acts of acquisition, describing products effectively, defining subjects of contract and meeting business-internal demands as well. The other one is the DIN encyclopaedia of features, which provides standardised product features. In order to make these classification approaches internationally recognised, constant revision is necessary. (Mörschel and Hoeck 2005) Standardisation from the client's point of view is another important component of service standardisation. The client is usually a user/consumer as well as the producer of a service. The client must thus be integrated into the value-added chain of the service provider, which results in the following potential for standardisation (Jehle 2005). x Transaction models (cooperation between the participants is supported) x Standards for construction of the physical environment (the client contributes to the value-added chain) x Standardised performance categories (performance portions of clients and producers are determined) x Security standards x Instruments for avoiding and eliminating errors x Procedures for assessing client performance Standardisation in the public field have not only positive effects on the provision of services but also have consequences for fields such as work (rates, qualification, work organisation, etc.). In a survey of E-Government, standardisation demands were identified in the fields of human-machine-interfaces, data ex-

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change, data security, basic technologies, as well as quality of employee performance. Employee representatives did, however, fear a violation of personal rights from the introduction of standards concerning the quality of employee performance and thus rejected it. In the field of E-Learning/continuing training, standardisation creates both advantages and disadvantages. One advantage of standardisation in the market of continuing education is higher transparency. Standardised continuing education modules can be expanded flexibly. Problems arise from the increasing amount of certificates. A structure must be set, which provides an overview over the certificates. The resulting lack of flexibility of continuing education companies with respect to client desires is, furthermore, considered a problem. If the opportunities for internationalisation in the market of continuing training are to be made use of, a higher level of quality in performance and in qualification of the employees is necessary. (Waller 2005) A review of progress achieved and of the various approaches in creating standards for services was presented at the conference ‘Service Standards for Global Markets’, which brought together approximately 120 experts from around the world at the DIN on 30 September 2002. On 1 October 2002, within the scope of a CEN (European Committee for Standardisation) STAR Trend Analysis Workshop, demands in the fields of E-Learning, E-Commerce and E-Government for future work in Europe were discussed and a large variety of fields of action were identified. Erwin Staudt, the former head of IBM in Germany, pointed out the eminent importance of confidence building for the increasingly complex market of information and communication technology in general and the internet in particular. Furthermore, international examples of service standardisation of fields such as fair and exhibition management, personal finance consulting, maintenance contracts and quality assessment in regional railway traffic were discussed. The representatives of the various fields of application agreed about the strengths of service standardisation. The explanation of the terms and the establishment of a basis for comparison cause a higher market transparency for the standardisation of services and thus boost international competitiveness. George Willingmyre (GTW Associates, USA) stressed the potential for progression for the German service sector. At that time, approximately 79.9 percent of the employees in the United States were working in the service sector and the share of services in the gross national product was 78.4 percent (approximately 70 percent in Germany), (Willingmyre 2002). At 19.7 percent the United States were leaders in the world export of services. Germany ranked after Great Britain and France with 6.3 percent. George Willingmyre presented the results of a study, which was ordered in the context of the project (see Willingmyre 2002). The study was a report concerning the ongoing activities and current issues of service standardisation in the United States. Two Publicly Available Specifications (PAS) were published in December 2002 by the DIN (German Institute of Normisation), as two further results of the

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research project ‘Service Standards for Global Markets’. They aim at increasing transparency of the service variety: PAS 1018 (see DIN 2002a) describes a ‘basic structure for the description of services in the bidding phase’, PAS 1019 (see DIN 2002b) specifies a ‘structure model and criteria for the selection and evaluation of investive services’. PAS 1018: Essential structure for the description of services in the procurement stage x Requirements for an essential structure to describe services x Definition of a procurement process x Elements of specification for services in the procurement stage x Further needs of action x Terminology

PAS 1019: Structured model and criteria for the selection and evaluation of capital services x Requirements and features for the selection and evaluation of services x Approaches to the measurement of service quality x Structured model and information process of the systematic evaluation x Criteria for selection and evaluation of capital services x Definition of parameter value and implementation Fig. 10. Two basic standards for the specification and evaluation of services

The two documents have evolved from the research groups ‘Specification of Services’ and ‘Quality and Performance Assessment of Services’, which the Fraunhofer IAO has conducted together with further research partners and several

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industrial businesses from 2001 to 2002. The assessment systematics introduced in PAS 1019 is meant to reduce the insecurity of the client as much as possible before the procurement decision, and to quickly and easily evaluate the actual achievement potential of the service supplier by means of appropriate features. The insights gained this way can be consulted for long-term observation of the suppliers and their purposeful advancement. Subject of the assessment systematics introduced in PAS 1019 are the so-called investive services. This includes all those services that businesses provide to one another (Business-to-Businessservices). In cooperation with the project VAWI (Virtual Training and Continuing Education for Information Management) DIN managed to form a national mirror committee of the ISO SC 36 works about E-Learning. The foundation was significantly influenced by the project ‘Service Standards for Global Markets’. Standards for this topic have been published in the DIN as PAS 1032 Training and Continuing Education with special consideration of E-Learning Part 1: Reference Model for Quality Management and Assurance Planning, Development, Implementation, and Evaluation of Educational Processes and Choices and Part 2: Didactic Object Model, Modelling and Description of Didactic Scenarios (see DIN 2004). Part 1 has meanwhile been incorporated into the international normisation and is about to become an international norm. In cooperation with the Media@Komm project, boards for the unification of communal business processes have been established at DIN and first results have been developed. With support from the project ‘Service Standards for Global Markets’, PAS 1021 Procedure Model for Designing Business Processes in Public Administration Change from Functional to Process-Oriented Administration has been compiled. This topic has also been integrated into an official national normisation plan. 4.3 Measures on European Level After preparatory work has been done on a national level and standards have been suggested and developed, another important step has been initiated. Service standardisation and research is now being promoted on the European level as well. More than 60 percent of all employees in the EU work in the service sector (e.g. services for businesses, trade, hotel and restaurant trade, transportation, power supply, telecommunication, tourism and recreation, etc.). As a part of the internal market strategy, the European Commission published an extensive compilation of the limits that hinder the transborder provision of services in the EU. It lists, for example, lacking transparency, lacking trust when using service providers of other member states and differences in regulations. As follow-up action, a notice concerning the competitiveness of services for companies was presented in 2003. Various non-legislative measures are generated in this notice and European normisation is named as one of those measures.

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On 6 July 2003 the European Commission accepted a report to the European Parliament and Council about the security of services. On the one hand the report describes and assesses the regulatory and factual situation on a communal level and in the member states and on the other hand, options for future initiatives are introduced and preparatory measures of the Commission are illustrated. At the same time it points out that national measures and laws concerning service security can be supported by the development of European normisation and the creating of a specific framework is announced, which, after determining demand, allows for the issuing of appropriate assignments. European normisation could thus contribute distinctly to politics in this field. The programme, which will be developed by CEN (European Committee for Standardisation), CENELEC (European Committee for Electrotechnical Standardisation) and ETSI (European Telecommunication Standards Institute), can then serve as a basis for further normisation orders, which will determine the political and financial support that is necessary for the enhancement of existing standards. This order has deliberately been kept broad. This is meant to guarantee that all possibilities of normisation for services are considered appropriately. The variety and number of service fields and the numerous functional areas require that the normisation committees are in no way limited in this early stage of planning. In an order from the EU to the European Normisation institutions, CEN, CENELEC and ETSI have been asked to draw up a normisation programme for the promotion of the internal market in the service sector. Service fields, which already are or will be part of the intra-community service traffic are prioritised. A second focal point will be the fields, in which the (commercial and corporate) interest groups push exceptionally for normisation. During the compilation of the normisation programme, CEN, CENELEC and ETSI will incorporate existing standards and norms, which are being prepared on a national, international, or European level. In CEN's follow-up survey in national normisation institutions, DIN has presented the results of the research project ‘Service Standards for Global Markets’ for Germany.

5 Conclusions and recommendations for action The following conclusions are drawn from the current observations: x The disaggregation of value-added chains (establishing new value-added chains, outsourcing) transforms intra-business interfaces into inter-business interfaces. This reduces the success of the increased degree of specialisation and work distribution, which in turn enforces standardisation of the interfaces. x Using communication and information technology as automation technology requires massive standardisation concerning the practical system integration (which equals factory integration) as well as ‘business objects’ and fundamental ‘handling processes’. A typology evolves for handling processes, proce-

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dures and objects in the same way as for product engineering. The demand for standardisation of components of this novel automation technology is high here. x Currently, the service sector is hardly familiar with vertical structures in education, methodology and tools used. The reason for that is the high degree of diversification. In the course of justifying ‘industrial engineering’ for mature service branches, however, horizontal knowledge structures (generalized procedures, methods and tools) - just as in product engineering and construction design - will evolve. The demand for formalisation and standardisation there is high, especially for basic standards (terminology, classification, typologies, morphologies, system models, architectures, modelling methods). x Productisation in the service sector can only be promoted successfully if the relevant suitable fields of service economy accept and use the definition of the product entirely (and not only as a metaphor). This has far-reaching consequences. In order to realise customer orientation and productivity at the same time, services from parameterised components must be configured clientspecifically. Formalised product descriptions and subsequently performance agreements must be rendered possible. In the field of IT services, the term Service Level Agreement is used. The result of this is a high demand for standardisation of product models, product catalogues and client-oriented product descriptions including the derived artefacts such as performance agreements as well as quality and conformity standards. x The service industries announce a high demand for integrating process standards. These incorporate product standards and standards of client interaction and are based on resource standards (e.g. IT infrastructure). In most cases, however, it will not be reasonable to standardise processes in a branch-spanning way, but rather to standardise a ‘kit’ for processes. Services exhibit several characteristics, which are generally more pronounced than in goods production. Their structure is more abstract or immaterial than goods and can therefore be better compared to the software field. The so-called soft factors (human factors, client interaction, emotionality) play a more important role. The client is potentially active in all phases of the life cycle of a service. The product model and provision of services are subject to limitations, which are not necessarily justified in themselves but are rather of a regulatory nature. Similar to the software sector, standardisation in the service sector requires standards on a high level of abstraction: Reference models, architectures, logical component models and especially standardisation of interfaces. Description methods for this purpose are still partly to be developed, but definitely to be standardised. The development of ‘horizontal’ standards should be promoted in particular. They are of branch-spanning importance. They include on the one hand basic standards for terminologies, classifications and system models, but on the other hand also technical basic standards or general resource standards, especially for IT-based services. There is also a demand for standards in the fields of client in-

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teraction and product description. Management standards and beyond that regulations with commercial importance also belong to the class of horizontal standards. As opposed to horizontal standards, there are already comprehensive activities for vertical, branch-specific standards. Unlike the horizontal standards, which are of broad concern, vertical standards should be initiated and financed ‘bottom-up’ as an initiative of relevant branches including the relevant associations. For horizontal standards, however, funding from public sources (e.g. in the context of development-accompanying normisation) is still necessary and reasonable, since an economically relevant innovative infrastructure is being established. As mentioned before, standards in the service sector evolve mostly ‘bottom-up’ while integrating the corresponding ‘stakeholder’ (affected and participating parties). This development can clearly be seen in the allied software sector. Special value is placed on customers or users (e.g. in the field of pubic service providers). The classic structures of normisation are complemented with innovative services. The choice affected by tradition is endorsed with services such as cooperation management, knowledge management, process and document management, and consensus processes. Innovative ‘products’ in terms of services for standardisation have been and must further be developed. They must be embedded in a master plan (reference process), but should divide it up into independent partial products with increasing complexity and consensus needs according to a shell model. The hard to balance demands ‘speed’, ‘justifiable input’ and ‘liability’ can thus be optimised step by step. Extremes range from open source models through public specifications to a classic standard. In Germany, a lot of effort has been invested into a German Normisation Strategy. In order to develop this future-oriented strategy, which is supported by all interested parties, a circle with representatives from economics, politics, research and normisation has discussed the vision of the German normisation work and elaborated five strategic goals (DIN 2004a). In conclusion, the perhaps most important development should be pointed out. In the context of European integration and worldwide globalisation it will be very important that Germany (i.e. politics, economics and science) plays an active role, or maybe even leads the way in standardisation. Supported service research in particular is in great demand here.

References Blum U, Töpfer A, Eickhoff G, Jänchen I (2001) Nutzen der Normung. In: DINMitteilungen 80 / 5, pp 350-361 DIN Deutsches Institut für Normung e. V. (2002) DIN-Fachbericht 116 „Standardisierung in der deutschen Dienstleistungswirtschaft – Potenziale und Handlungsbedarf". Berlin, Wien, Zürich: Beuth, 2002 DIN Deutsches Institut für Normung e. V. (2002a) PAS 1018 Grundstruktur für die Beschreibung von Dienstleistungen in der Ausschreibungsphase. Berlin, Wien, Zürich: Beuth, 2002

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DIN Deutsches Institut für Normung e. V. (2002b) PAS 1019 Strukturmodell und Kriterien für die Auswahl und Bewertung investiver Dienstleistungen. Berlin, Wien, Zürich: Beuth, 2002 DIN Deutsches Institut für Normung e. V. (2002c) Fachgliederung für Dienstleistungen. (CD-ROM Demo Version), Berlin: Deutsches Informationszentrum für technische Regeln (DITR) im DIN Deutsches Institut für Normung e. V. DIN Deutsches Institut für Normung e. V. (2003) PAS 1021 Verfahrensmodell zur Gestaltung von Geschäftsprozessen der öffentlichen Verwaltung — Wandel von der funktionalen zur prozessorientierten Verwaltung. Berlin, Wien, Zürich: Beuth, 2003 DIN Deutsches Institut für Normung e. V. (2004) PAS 1032 Aus- und Weiterbildung unter besonderer Berücksichtigung von e-Learning - Teil 1: Referenzmodell für Qualitätsmanagement und Qualitätssicherung - Planung, Entwicklung, Durchführung und Evaluation von Bildungsprozessen und Bildungsangebot. Berlin, Wien, Zürich: Beuth, 2004 DIN Deutsches Institut für Normung e. V. (2004a) Die Deutsche Normungsstrategie. Berlin, DIN, 2004 Eurostat (2004) Eurostat Jahrbuch 2004. Der statistische Wegweiser durch Europa. Amt für amtliche Veröffentlichungen der Europäischen Gemeinschaften Fähnrich KP (2002) Basic Standards for Global Services (lecture at the International Conference ‚Service Standards for Global Markets’, 30. September 2002 Fähnrich KP (2005) Zur Entwicklung der Standardisierung im Dienstleistungssektor. In: DIN Deutsches Institut für Normung e.V. (eds) Wege zu erfolgreichen Dienstleistungen. Beuth, Berlin, pp 225-230 Jehle U (2005) Im Mittelpunkt – die Sicht des Kunden. In: DIN Deutsches Institut für Normung e.V. (eds) Wege zu erfolgreichen Dienstleistungen. Beuth, Berlin, pp 150184 Mörschel IC (2005) Produktmodelle für Dienstleistungen – Möglichkeiten zur Strukturierung und Beschreibung von Dienstleistungen. In: DIN Deutsches Institut für Normung e.V. (eds) Wege zu erfolgreichen Dienstleistungen. Beuth, Berlin, pp 46-125 Mörschel IC, Hoeck H (2005) Dienstleistungsklassifikation – Grundlagen für Kommunikation und Transaktion im Dienstleistungssektor. In: DIN Deutsches Institut für Normung e.V. (eds) Wege zu erfolgreichen Dienstleistungen. Beuth, Berlin, pp 129-149 Opitz M., Schwengels C (2005) Unterstützung der Dienstleistungsstandardisierung durch Service Systems Engineering. In: DIN Deutsches Institut für Normung e.V. (eds) Wege zu erfolgreichen Dienstleistungen. Beuth, Berlin, pp 22-45 Waller N (2005) Standards im Dienstleistungssektor: Handlungsbedarfe der Sozialpartner Willigmyre GT (2002) Service Standardization in the United States. Overview of current activities and issues. http://www.gtwassociates.com/alerts/servicesreport.html, 10.05.2004 Bullinger HJ, Meiren T (2001) Service Engineering – Entwicklung und Gestaltung von Dienstleistungen. In: Bruhn M, Meffert H (eds): Handbuch Dienstleistungsmanagement: von der strategischen Konzeption zur praktischen Umsetzung. 2. Aufl., Gabler, Wiesbaden, pp 149-175 Burghart W, Kleinaltenkamp M (1996) Standardisierung und Individualisierung – Konzeption der Schnittstelle zum Kunden. In: Kleinaltenkamp M, Fließ S, Jacob F CustomerIntegration – Von der Kundenorientierung zur Kundenintegration, Wiesbaden, Gabler, pp 163-176

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Corsten H (1991) Externalisierung und Internalisierung als strategische Optionen von Dienstleistungsunternehmen. In: Bruhn, M, Stauss, B (eds) Dienstleistungsqualität. Konzepte – Methoden – Erfahrungen. Wiesbaden, Gabler, pp 165-182 Dichtl M (1998) Standardisierung von Beratungsdienstleistungen. Wiesbaden, Shaker Fliess S, Möller S (2002) Dienstleistungsmanagement III: Standardisierung und Individualisierung von Dienstleistungen. Hagen Gersch M (1995) Die Standardisierung integrativ erstellter Leistungen. Arbeitsbericht Nr. 57. Ruhr-Universität Bochum Mörschel I (2002) Ein Referenzmodell zur Entwicklung von Dienstleistungs-Standards: Service Standards Engineering. In: DIN Deutsches Institut für Normung e. V. (2002): DIN-Fachbericht 116 „Standardisierung in der deutschen Dienstleistungswirtschaft – Potenziale und Handlungsbedarf". Beuth, Berlin, pp 37-50 Mörschel I, Schwengels C (2002) Standardisierungspotenziale für Dienstleistungen – Ergebnisse einer allgemeinen Bedarfserhebung. In: DIN Deutsches Institut für Normung e. V. (2002): DIN-Fachbericht 116 „Standardisierung in der deutschen Dienstleistungswirtschaft – Potenziale und Handlungsbedarf". Beuth, Berlin, pp 51-65 Mühlbauer H, Cornelissen G (1998) Normung von Dienstleistungen. In: DIN-Mitteilungen. Bd. 77, Heft 11, pp 809-833 Vries HJ de (1999) Standardization: A business approach to the role of national standardization organizations. Kluwer Academic Publishers, Boston

Research and Development for a Sustainable Services Sector Veronika Pahl Educational Reform in the Federal Ministry of Education and Research (BMBF)

1 German services research – a look at the past .............................................280 2 The present: services research with promise................................................280 2.1 A summary of what has been achieved – also a success story ..............281 3 The aim: sustainable, internationally oriented German services research ......................................................................................................284 3.1 Orientation of services research for 2005 and beyond ..........................285 References...........................................................................................................287

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1 German services research – a look at the past Germany is considered a production-oriented country. England and the U.S., on the other hand, have long been oriented to both production and services. For example, they brought forth international financial services companies in the 19th century. The financial markets in London and New York evolved at a similarly early time. Into the 1980s, the U.S. was the undisputed international leader in distribution and use of information and communications technologies and thus, also in the area of IT services. The relevant standards were and continue to be defined there. The success of the ‘German economic model’, on the other hand, was based on machine tools, vehicle construction, electronics and the chemical industry. The country's high level of international competitiveness is based on its technical performance and its outstanding technical education for its skilled workers and engineers. Clearly, this technology-based approach to competition has strengthened the technological problem-solving competence of German corporate services. At the same time, it has tended to cause less technologically oriented providers of economic or social-scientific services to lag behind in their competitive development. This trend in Germany's services sector is also reflected in German services research. This research has played virtually no role in driving German innovation. Until the mid-1990s, Germany had no well-rounded concept for supporting research in services and certainly nothing comparable to that with which it supported production-oriented research, via the BMBF's relevant programme and industrial research at the German Ministry of Economics. It was long the norm for services research to be supported by many different agencies, especially relevant specialised ministries (Transport, Health, etc.). As a result, it tended to focus on specific areas and it was neither concentrated nor strategically oriented. Due to the great diversity of research, R&D expenditures for the services sector were lower than those for production-oriented research. Significantly, this fragmentation was not a ‘German’ phenomenon. Comparable structures were found throughout the European Union.

2 The present: services research with promise In the 1990s, the services sector became the leading sector for innovation, growth and employment. In all economic sectors, in both Germany and Europe as a whole, services are now the force driving economic growth and employment. Approximately 70 % of Germany's gross domestic product is generated in the services sector and 70 % of the country's employees work in services. Employment has been growing in the services sector and development of successful services is thus a key part of Germany's strategy for strengthening its global competitiveness. In 1995, in response to the poor orientation to services seen in German industry and research, the Federal Ministry of Education and Research (BMBF) launched

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the initiative ‘Services for the 21st century’. The aim of this effort was to support a successful, stable development of services in Germany, in order to contribute to competitiveness and help protect employment. Relevant instruments are provided in the form of support for ideas, concepts, strategies and models that can promote services development. 2.1 A summary of what has been achieved – also a success story The services initiative has three phases. x The first phase, which took place from 1995-1996, was an inventory: Services 2000plus. The aim of this phase (which was structured as basic research) was to carry out a comprehensive inventory of services in Germany. A total of 14 working groups analysed the relevant research fields on the basis of central themes. Over 300 experts from the areas of industry, science, intermediary organisations and the political sector took part in the relevant research and discussions. The scientific co-ordinator was Professor Bullinger, while the chairman of the advisory board was Dr. Klaus Mangold from Daimler Chrysler Services AG. The work was also supported by an international group of consultants under the direction of Dr. John Diebold (Diebold Institute for Public Policy Studies, Inc.). x One result of this work was the definition of research areas. This was followed, from 1997-1998, by support for initial research projects, so-called priority initial measures that were based on these definitions. The aim of the priority initial measures was to reduce barriers to innovation and to promote co-operation between industry and researchers in the services sector. x The experience and results gained from these initial measures then provided the basis for Support Phase I – Innovative Services, which took place from 19992001/02. Since 1999, a total of 120 research projects have been carried out, covering the following areas: x Management procedures and methods in the services sector x Growth sectors and sector clusters x Transfer and overarching issues The spectrum of topics included: x Standardisation and quality in the services sector, work organisation, management and tartarisation x Strategies for innovation and employment in the financial sector x A special focus on development of innovative services by small and mediumsized enterprises – especially crafts companies

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Other topics included: x Benchmarking for strengthening innovation, growth and employment in the services sector x Service engineering and service design x Knowledge-intensive services These were all important topic areas for our support of research into services. All in all, since 1999 we have spent 80 million euros on research support. German industry can be assumed to have invested a similar sum, meaning that total expenditures to date for research and development within the ‘Innovative Services’ funding emphasis have amounted to about 160 million euros. A summary with more information is available on the Internet at: WWW.DL2100.DE. 2.1.1 Service engineering: a combination of engineering know-how and services The growing importance of services for western economies and societies is unquestioned. In keeping with this importance, it is necessary to develop and design services systematically. It now goes without saying that production of material goods must always be backed by systematic, engineering-based development, design and work organisation, drawing on nearly a century-long tradition of research, teaching and practice. The situation in the services sector is still quite different. Concepts for developing new services are needed, if services are to be designed that companies can offer cost-effectively, at the desired quality and efficiency levels. This is proven by the many instances in which the introduction of new services has failed. In response to this need, new approaches to systematic services development have been explored and tested in companies and organisations within a framework referred to as ‘service engineering and service design’. The services initiative has pioneered an explicit focus on service engineering as a research area in its own right; this is a young discipline in terms of both theory and practice. The parallels to systematic development of material goods illustrate this area's close relationship with the engineering sciences. Engineers are being encouraged to apply their know-how to the services sector and to develop relevant new areas of endeavour. At the same time, numerous other disciplines, such as business management, information technology, work science and psychology, are also involved. This effort is aimed at identifying new business models, developing and testing suitable approaches, role concepts and tools, developing qualification concepts and designing suitable standards. Another emphasis in this area involves combining goods production and services development. The important questions we are studying include conversion of manufacturing companies into services companies. Throughout extensive areas, the many possible ways of structuring such a conversion and the growth potential inherent in this tertiarisation process, are still unexplored.

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The service-engineering area that is studying these questions comprises 11 collaborative research projects and a funding volume of about 10 million euros. It is the largest within the overall framework of research on ‘innovative services’. Service engineering has acquired considerable importance for German manufacturing and services companies. This is why, as this workshop unfolds, we will concentrate on involving companies and workplace experts in our work. R&D results in this area to date include successful identification of services technologies, within products and services spectrums (including those of manufacturing companies) that lend themselves to systematic structuring. A first group of useful methods and tools for service engineering is now available. We have also succeeded in making service-engineering research a topic of instruction and academic education. Nearly all of the universities involved in the supported projects now offer relevant course work. A number of other universities that are not yet participating have also become interested in this topic. A highlight of this development represents the specially endowed academic chair for ‘Service Engineering’, which is being planned by the state of North Rhine-Westphalia, in co-operation with the Technical University of Aachen (RWTH Aachen). 2.1.2 Small and medium-sized companies in the services sector Especially for small and medium-sized companies, (systematic) development of new services is both a necessity and a challenge. More and more complex customer requirements and a changing economic framework (with changes including increasingly intensive use of mobility and market-access opportunities for services within the European single market) are creating new requirements for all companies. However these developments present special challenges for the competitiveness of small and medium-sized services companies. This applies especially to ‘micro-companies’ (companies with fewer than ten employees) and to crafts companies, which normally tend to be small, (fewer than 50 employees). Enhancing the services competence of such companies is an important way of helping them to meet these challenges effectively. The key is to make active use of opportunities to strengthen and expand customer relationships, including both business-to-consumer and business-to-business relationships. Product-oriented business needs to be enriched by, and combined with, services-oriented components. The aim is to support small and medium-sized companies in diversifying and expanding their products and services via innovative business ideas. For the crafts sector, for example, a special support procedure was developed, working in close co-operation with the Central Association of the German Crafts Sector (Zentralverband des Deutschen Handwerks). The basic idea consisted of a competition that supported development of some 200 business plans for new services of small companies. The resulting business plans concentrated especially on overarching cooperation and on IT-supported services in the crafts sector. Special supporting re-

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search was introduced in order to evaluate the effectiveness of this new support instrument. The results to date document the success of this concept: By developing innovative ideas for business areas, many crafts companies have been able to develop new, additional customers and markets. Many have been able to develop new co-operation relationships. The implementation of the business ideas (which were not supported from the public sector) created a total of 130 new jobs that are viable without further subsidies. In summary, research and development in this area has to date produced the following: x The services initiative has succeeded in identifying and developing relevant topics for innovation in the services sector. x The results, which have been achieved in close co-operation between researchers and users, have been welcomed by business and industry and are providing the basis for regional Länder initiatives for development of the services sector. x We have succeeded in providing impetus for the development of a ‘services community’ of researchers and business; this community is being supported by an Internet platform (dl 2100) that is serving as an information clearinghouse and central focal point. Nonetheless, a great deal remains to be done. This applies especially to the international orientation and co-operation of services research in Germany. Careful thought must also be given to the selection of ‘hot’ topics for the future, given our limited financial resources and our need to ensure that results have a lasting effect.

3 The aim: sustainable, internationally oriented German services research German services research is integrated within the strategic aims of the European economic and monetary union. Pursuant to decisions of the European Council, one such strategic aim is to make the Union the world's most competitive and dynamic knowledge-based economic area. Ideally, this economic area will generate permanent economic growth that creates large numbers of high-quality jobs and improves social cohesion. Ongoing updating of the workforce's specialised knowledge and skills, along with a continuing emphasis on lifelong learning and work excellence, will play a central role in this effort, since these elements are the keys to the full economic and social benefits of the knowledge-based economy. The European Council thus attaches great importance to human resources and investments in human capital. The forces driving growth and employment in Europe are innovation and technological change, based on extensive investments in human capital. The sectoral make-up of employment in Europe is undergoing profound changes. 60 % of the 10 million jobs created between 1995 and 2000 are found in the areas of health care, social and educational services, corporate services, information technology and databases.

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In German services research, we have taken account of these developments with the major work emphasis ‘Research and development for knowledgeintensive services’. Now we must apply the relevant results to the strategic aim of creating a successful knowledge-based economy and we must apply them with lasting effect. When we consider Europe, we must also consider central and eastern European countries. These countries are facing enormous challenges in the areas of innovation and employment – and not only in light of expansion of the EU. For example, raising employment rates in central and eastern European countries to the EU average will mean creating about three million new jobs. At the same time, losses of jobs in agriculture and in manufacturing will continue. Employment in services thus plays a special role. Employment in these countries' services sectors is still only at 75 % of the EU average. Employment growth overall thus depends on job creation in the services sector. The financial services, corporate services and personal services play a special role in such a job creation. 3.1 Orientation of services research for 2005 and beyond In the coming years, the European stage will be the stage on which the German services sector must prove itself. BMBF plans to support this process by means of research and development. The central aims will include: x Development of new services and protection of the quality of existing services, in order to create a viable, competitive services sector x Creation of the basis for job growth, with attractive services-sector employment opportunities that promote learning and personal growth These aims represent a holistic innovation model that combines economic aims with personality-developing employment and expansion of the overall knowledge base. This approach promises innovative solutions for development towards the knowledge society. Research and development will address three levels of action: 1. The development and testing of innovation and technology management for the services sector 2. The development of exemplary growth areas (e.g. in light of demographic change, efforts must be made to develop services and technologies for senior citizens) such as senior citizens industry, health industry, financial services 3. People in the service industry 3.1.1 Exportability and internationalization of services In light of European integration and economic globalisation, top priority must be placed on research and development for supporting the exportability of services; A first step in this direction was the announcement of funding regulations on the ‘Exportability and Internationalization of Services’. Funding is provided for basic

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issues related to the export of services, questions of innovation management and of organizational design as well as interactions between technology and organization. These interactions are particularly important since many new services can only be provided owing to the use of technology. Information and communication technologies and automation technology play an important role in this connection. In some cases, they are preconditions for the trading of services and for crossborder provision of service transactions. Funding to the amount of 15 to 20 million euros will be made available for this important area. 3.1.2 Future challenges: integration of products and services; productivity of services; skilled work in the services sector Company-related services have become a central part of the value added activities of business enterprises. Customers increasingly demand integrated solutions instead of the provision of individual goods or services, that is the creation of a ‘hybrid product’. These complex demands can only be met if efforts are made to ensure the production-orientation of service providers as well as integrated close-to-production services in the industrial sector. Services research will focus on the design of a hybrid value added chains. By enhancing services provision through inclusion of hybrid products, services research will contribute to further strengthening the services sector as part of the value added chains. Another important area will be the understanding, measuring and increasing of services productivity. This topic is closely linked to the area of service engineering. We will only succeed in systematically developing new services if we achieve a new understanding of productivity and profitability which includes the contributions of providers and customers as well as their interaction in the provision of services. Proven productivity strategies from industrial production are not automatically applicable in the services sector. Increasing productivity by reducing costs is not sufficient for services if this means neglecting the demands or service experience of customers. Success in the service industry presupposes the targeted development of human resources, i.e. targeted personnel development and staff orientation, as well as intensive use and assessment of knowledge. Enterprises will only be able to benefit from their high investments in innovative technologies if they have qualified and motivated staff. Interaction with customers, the knowledge intensity of numerous services and the significance of implicit knowledge are further reasons why economic success can in future only be achieved with a sufficient number of qualified and motivated workers. Research for people in the service industry will therefore play an important role in creating the conditions for attractive jobs. At the same time, additional efforts are required in the area of international exchange and co-operation. This applies both to integration of international experience within Germany's services sector and to application of German services research at the international level. Therefore it is necessary to intensify co-operation with the international services-research community. The BMBF wants to invite re-

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searchers from other countries to work with the German researchers and help them shape and design services research. Also, the German research community is called on to make use of this opportunity for co-operation with partners from throughout Europe and overseas. The BMBF also plans to help intensify cooperation, within the context of its own means. So the 6th Congress of Service Research in 2006 will be a co-operative Congress of the BMBF and the European Commission.

References Böttcher M, Meyer K (2004) Software Engineering für IT- basierende Dienstleistungen. In: Klaus-Peter Fähnrich, Christian van Husen, Entwicklung IT-basierter Dienstleistungen in der Praxis, Kurzstudie zum Co-Design von Software und Services in deutschen Unternehmen, Fraunhofer IRB Verlag, Stuttgard, 2004, pp 28-35 Bullinger HJ(1999) Entwicklung innovativer Dienstleistungen. In: Bullinger HJ (ed): Dienstleistungen-Innovation für Wachstum und Beschäftigung, Gabler Verlag, Wiesbaden, pp 49-68 Bullinger HJ, Scheer AW (2003) Service Engineering- Entwicklung und Gestaltung innovativer Dienstleistungen, Springer Verlag, Berlin, Heidelberg, New York DIN e.V. (1998) Service Engineering: Entwicklungsbegleitende Normung (EBN) für Dienstleistungen. DIN Fachbericht 75, Beuth Verlag GmbH, Berlin Ernst G (1998) Dienstleistungen als Leitsektor in einer zukunftsfähigen, humanen Gesellschaft. IM Information Management & Consulting, Heft 13, Sonderausgabe Ernst G, Rinke S, Schmied MW (2003) Innovative Dienstleistungen - Zwischenbilanz im Schwerpunkt Service Engineering (unter Mitarbeit von Hüttemann E, Kopp I, Sarkar R und Zühlke-Robinet) K. In: Risch W (ed): Gewinnen durch Service Engineering und Service Design-Ergebnisse für Unternehmen der Wasserwirtschaft. Chemnitz: Schriftenreihe ATB, pp 7-24 Fähnrich KP, Optiz M (2003) Service Engineering- Entwicklungspfad und Bild einer jungen Disziplin. In: Bullinger HJ, Scheer AW (eds): Service Engineering - Entwicklung und Gestaltung innovativer Dienstleistungen, Springer Verlag, Berlin, Heidelberg, New York, pp 83-116 Fähnrich KP, Ganz W, Meiren T (2003) State of the art in service engineering and management. In: Harris D. (ed): Proceedings of the 10th International conference on Human-Computer-Interaction, Vol 3.: Cognitive, Social and Ergonomic Aspects, Mahwah/NJ, Erlbaum, pp 961-965 Hofmann H (1999) Sicherung der Wettbewerbsposition durch innovative hybride Produkte. In: Bullinger, H.-J. (ed): Dienstleistungen-Innovation für Wachstum und Beschäftigung, Gabler Verlag, Wiesbaden, pp 592-599 Kamphoff B (2003) Europäische grenzüberschreitende Entsendung von deutschen Arbeitnehmern in EU- und Nicht-EU-Staaten - Eine allgemeine Darstellung sowie eingehende Erörterung in Bezug auf die Republiken Irland und Polen. Verlag Dr. Kovac, Hamburg Keith H, Liestmann V (2003) An Empirical Study of New Service Development in Germany. Japan and USA -Skills for the Development of Services, In: Human Factors in Organisational Design and Management VII7, Proceeding of the Seventh International

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Symposium on Human Factors in Organisational Design and Management held in Aachen, October 2003, pp 249-254 Komischke K, Risch M (2003) Chancen beim Dienstleistungsexport kommunaler Unternehmen - Rechtliche Aspekte in Sachsen und Thüringen. In: Risch W (ed): Gewinnen durch Service Engineering und Service Design - Ergebnisse für Unternehmen der Wasserwirtschaft. Chemnitz: ATB-Schriftenreihe, pp 53-61 Luczak H, Reichwald R, Spath D (2004) Service Engineering in Wissenschaft und Praxis. Die ganzheitliche Entwicklung von Dienstleistungen, Gabler Edition Wissenschaft, Deutscher Universitäts-Verlag/GWV Fachverlage GmbH, Wiesbaden 2004 Schlegel T, Spath D (2005) Entwicklung innovativer Dienstleistungen. Wissen, Kreativität,Lernen, Fraunhofer IRB Verlag, Stuttgart Speckmann S (2001) Service Engineering: Klassifikation von Dienstleistungen. Vorgehensmodelle und Methoden der Dienstleistungsentwicklung im Vergleich der Produktentwicklung, Universität Paderborn Thomas M, Lange U (2005) ServCHECK: Verbesserungspotenziale für den Service, UDZ Unternehmen der Zukunft 1: 13-14 Zahn E, Foschiani S, Lienhard P, Meyer S (2004) Kundenorientierte Servicestrategien für hybride Produkte. In: In: Luczak H (ed), Betriebliche Tertiarisierung: Der ganzheitliche Wandel vom Produktionsbetrieb zum dienstleistenden Problemlöser. Deutscher Universitäts-Verlag, Wiesbaden, pp 207-230

Future research topics and calls for action Klaus Peter Fähnrich, Romy Elze Chair of Business Information Systems, Institute for Computer Science, University of Leipzig, Germany

1 Concept of the Study.......................................................................................290 2 Research needs in Services Science and general calls for action ................292 2.1 Macro level:Societal change, economic potential and development of structures.............................................................................................292 2.2 Business/Industry Level ........................................................................296 2.3 Effects on Individual and Group level...................................................300 2.4 Development of tools and methods .......................................................302 3 Conclusion .......................................................................................................305

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1 Concept of the Study The following systematization (Fig. 1) was applied as a grouping pattern for the analysis of calls for action and research. The core of the systematization is a layer model. On the lowest layer, effects on the individual and group level are addressed. The sciences discussed there are Human Factors as well as Organizational Psychology. The next two layers are concerned with operational and business-to-business research needs, for example in the form of collaboration networks and value chains. Business Studies and Engineering Sciences as well as Computer Science and Information Management are also discussed on this layer. development of structures

x integration of stake holder x creation of intermediary organizations x creation of structures in instruction and training x creation of structures in universities and research institutions x F + E marketing and transfer x contribution to national research and F + E diversification x creation of excellence clusters x positioning within EU initiatives x standardization

societal change x from industrial to service society x becoming a knowledge society x globalization and internationalization of services x networked world economic potentials x strengthening growth clusters x arranging industrialization of service sectors x reinventing the concept of innovation x holistic, non-sectoral solution patterns in the service sector requirements/effects in sectors/clusters x increase degree of integration/organization/qualification x creation of new clusters/value chains/collaboration models x integration in internationalized value chains x creation of admission barriers (competence, quality, innovation) requirements/effects on operational level x product innovation x process innovation x sustainability of resource use x improved client interaction/client orientation x creation of a service culture x development of an innovation culture requirements/effects on individual and group level x concept of skilled service work x enhancing personal qualification x maintaining performance potential x developing creativity

development of methods

x x x x

x

x

x

x

x

product design process optimization quality management sociotechnical system design innovative management operational system design flexibilization and new labor time models application of I + K technology analysis of success factors

Fig. 1. Systematization approach for research needs in the field of Services Science and general calls for action

The two upper layers are the economic level and last but not least, society as a whole as it is affected by the transformation into a knowledge-based service society.

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Alongside this layer model, the development of procedures, methods and tools on all layers is also considered. There are strong correlations to the individual levels of the layer model. One further issue is the generation of structures relating to the respective layers. Figure 1 presents examples for the individual sectors. Corresponding to this systematization, a general overview of the articles in this book will be given below. Please bear in mind that not all fields addressed were covered consistently by the authors. The majority of the authors deal with the respective research studies on the operational and business-to-business level and the corresponding methods and tools. The fields of development of structures, societal change and economic potential are therefore joined into a so-called m ‘ acro level’(see Fig. 2). The second block is comprised of the Business/Industry layer, in which the economic level and requirements/effects in sectors/clusters are combined. The third block focuses on the individual and group level. In the last block, the respective methods and tools are presented. Service Engineering

service innovation new service development service networks R: 9

Service Management

service potential/ resources service processes

2 Business/Industry Level

experience economy R: 8

growth sectors R: 13

Industry Clusters

consider differentiated development of three main forms of services R: 13

sustainable communities and networks

Towards a service based society

R: 7

Service based economics research in an international context

customer retention customer needs

1 Makrolevel

co-operation between research and economy

customer satisfaction Infrastructure

standardisation

Customer

Advances in Services Innovations

R: 14

R: 10

customer behaviour and percerption

Categorisation, Typology

suitablility of new service concepts for employees

Methods Standardised Methods and Tools

usefulness and usability of service

4 Methods and Tools

R: 2

3 Individual and Group Level

systems and processes that meet customers and employee needs

IT-based Tools

R: 2

human centered research in the service industry Employee

R: 15

success factors influenced by altruistic and egoistic behaviour R: 7

ascertain the interactive sphere of the human-human interface R: 13

Fig. 2. Advances in Services Innovations:Master Mind Map

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The results of these 4 focus points will be presented in detail in the following chapter with 4 subchapters based on a M ‘ aster Mind Map’. The corresponding sources will be annotated as numbers. The following chart establishes the relation between numbers and authors. Table 1. Contributors to the survey No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Author Hans-Jörg Bullinger Klaus-Peter Fähnrich, Thomas Meiren Avishai Mandelbaum, Sergey Zeltyn Holger Luczak, Christian Gill and Bernhard Sander Reuven Karni, Maya Kaner Dieter Spath, Christian van Husen, Kyrill Meyer, Romy Elze Urs Fueglistaller Jon Sundbo Heiner Evanschitzky, Dieter Ahlert Bo Edvardsson, Anders Gustafsson, Bo Enquist Thorsten Posselt, Pablo Berger Bernd Stauss, Matthias Gouthier, Wolfgang Seidel Walter Ganz Inka Mörschel, Hermann Behrens, Klaus-Peter Fähnrich, Romy Elze Veronika Pahl

Contribution Preface Service Engineering:State of the Art and Future Trends The Palm/Erlang-A uQeue, with Applications to Call Centers The Design and Development of Industrial Service Work An Engineering Tool for the Conceptual Design of Service Systems Integrated Development of Software and Service From Service Management towards Service Competence Innovation and Learning in Services The Involvement of Employees Managing Service Networks’Success Success Factors in New Service Development and Value Creation through Services Sustainable Advantages in Service Industries Satisfaction Measurementwithin the Customer Relationship Life Cycle Strengthening the Services Sector –Needs for Action and Research Standardisation in the Service Sector for Global Markets Research and Development for a Sustainable Services Sector

2 Research needs in Services Science and general calls for action 2.1 Macro level: Societal change, economic potential and development of structures Based on the selection of authors for this book, it was never expected that the individual areas would be strongly emphasized. The existing calls for action will therefore be combined in this chapter. In the field of Service-based Society, innovation of a society as well as training and knowledge were identified as factors of success that call for research and ac-

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tion. It was demanded that awareness is raised for the essential need for services research. This is especially the case, since the development in the employment market is so strongly connected with this awareness. For the highly developed nations, services need to become a major pillar of export. Various barriers were also identified:too strong a focus on industrial past, lack of understanding for complex innovations, only few existing structures between social partners, great divide between research and exercise in many areas of the service economy. achieving a more widespread awareness of the significance and the inherent logic (cause/effect relationships) of services at an institutional and conceptual level R: 13

knowledge-based economy R: 15

life-long learning work excellence

innovation and technological change R: 15

employment depends on job creation in the service sector Towards a service based society

R: 15

exportability and internationalization of services R: 15

society is still not as focused on services as on manufacturing difficult for researchers to raise interest in the economic and societal importance of innovation in services barriers R: 8

trade associations, unions and other institutions within services are weak and scattered compared to, for example, their counter parts within agriculture and manufacturing barrier between researchers and service firms - many service firms do not see any benefits in research results

Fig. 3. Mind Map:service based society

As the economy is undergoing a transformation into a Service-based Society (see Fig. 3 and 4), growth strategies, international division of labor and competitiveness, the generation of new forms of labor and new lifestyles are becoming subjects of discussion. Service based economics

attractive service sector employment opportunities that promote learning and personal growth R: 15

targeted development of human resources R: 15

Fig. 4. Mind Map:service based economics

The main focus of recommendations is put on the development of structures (see Fig. 5, 6 and 7). Research is a main issue there. Various recommendations for action were presented for research infrastructures. The main assumption is that stronger internationalization of research and the formation of collaboration structures (scientific associations, conferences, etc.) can and should lead to a higher degree of specialization and division of labor. Several research groups are appealed to to touch up their profiles.

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Klaus-Peter Fähnrich, Romy Elze internationally co-operative projects R: 8

co-operative European projects R: 15,8

service research will have to increase its efforts to translate the aquired research findings into systemic design concepts without losing sight of future developments R: 13

strengthen international lead position R: 13

reinforce their own research profile R: 13

more international orientation in science R: 13

advance subject specialisation R: 13

create service excellence centres R: 13

accelerating dynamics of innovation strengthening international competitiveness

the public should perceive service research as more important R: 13

service enterprises should raise systematic R&D and participate in collaborative development projects with science research in an international context

R: 13

science should ensure implementation of its research findings in close co-operation with partners in practice R: 13

leads the way into standardisation R: 14

intensify co-operation with the international services-research community R: 15

should consider central and eastern European topics R: 15

apply research results about knowledge intensive services to create a succsessful knowledge-based economy Infrastructur

R: 15

innovative solutions for development towards a knowledge based society R: 15

development and testing of innovation and technology management development of referential growth areas people in the service industry

exportability and internationalisation of services R: 15

international exchange and co-operation R: 15

integration of international experience within Germany's service sector application of German services research at the international level

Fig. 5. Mind Map:infrastructure/research in an international context The issue of collaboration between science and economy was also broached. An increased transfer of research results to the economy was particularly admonished. For that, new forms of cooperation as well as new methods and strategies for the practical implementation of research results must be developed.

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research results should be turned into practical concepts and tools R: 8

Infrastructure

develop the research knowledge into practical action at societal and firm levels R: 8

co-operation between research and economy

transform research results into practical tools by consultants or change agents such as public or semi-public knowledge institutions in co-operation with firms R: 8

intensify R&D co-operation within the world of practice R: 13

collaborative development projects with science R: 13,

new paths between science and practice R: 13

Fig. 6. Mind Map:infrastructure/co-operation between research and economy

Standardization and the organizations entrusted with it are considered one of the main pillars for the development of structures. Respective recommendations for action have been operationalized and elaborated in detail. terminology classification typologies basic standards

morphologies system models architectures modelling methods product models product catalogues

product standards

performance agreements client-oriented product descriptions

quality agreement conformity agreement

integrating process standards

including product standards, client-interaction standards based on resource standards

standardisation

reference models

R: 14

architectures logical component models standards on a high level of abstraction

interfaces processes business objects handling processes

basic standards for terminologies basic standards for classifcation and system models horizontal standardisation

technical basic standards/general resource standards for IT-based Services client interaction product description managment standards

vertical standardisation

industry specific standards

Fig. 7. Mind Map:infrastructure/standardization

The analysis of the combined macro field produces a clear dominance for the development of better infrastructures in research, economy and society for the service sector (see Fig. 8). The previous structures are commonly vertical and thus correspond tightly with a sector or a sector cluster.

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Klaus-Peter Fähnrich, Romy Elze

Service based Economics

service based Economics

Towards a service based society

towards a service based society

research in an international context

Infrastructure

standardization co-operation between research and economy

0

10

20

30

40

50

60

Fig. 8. Weighting of entries on the macro level

Continuous horizontal structures, such as an International Society of Service Science as an umbrella organization for all service researchers, scarcely exist. They are, however, more common with producing businesses. There are, for example, global scientific associations, publication agencies and respective structures in the training sector. Standardization is much more advanced in this area as well. The scientific community is massively focusing on the more strongly developed infrastructures. 2.2 Business/Industry Level The level of individual enterprises or from business federations to whole sectors was, naturally, much addressed. This yielded the fields of Service Engineering, Service Management, and Industry Clusters as prominent themes.

Future research topics and calls for action

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new services R: 2,15

organisation of service innovation towards manufacturing R: 8

how service firms innovate service products how service firms organize this innovation process how the process influences the way in which they innovate goods

knowledge services introduce ICT-networks - it may change the service products and the delivery systems R: 8

innovations could be more technical innovation process becomes more systematic

service innovation

customer expectations and preferences how to signal a high service quality and to achieve a high experience quality determinants of success for innovators and for imitators in service industries

Service Engineering

knowledge services can be transformed to self-service

R: 11

use skills and resources to construct a sustainable advantage database that includes early and late entrants in service markets, their success and strategies interactive effects of the different qualities (search, experience, credence quality) consumers' risk aversion market entry barriers critical resources service quailty

services for standardisation R: 14

development of concepts, models, theories to describe, analyze and explain prerequisites and mechanism new service development

R: 10

incorporate the concept of customer orientation into new service development R: 10

development of new services, protection of the quality of existing services R: 15

Fig. 9. Mind Map:service engineering

In the field of service engineering, topics related to service innovation dominate (Fig. 9). This demonstrates a high demand for the formalization of the concept of innovation, respective procedures, methods, and tools, as well as Best Practices collections. This is an important prerequisite for the development of service engineering. co-ordination through persuasion improve service operations management market orientation of networks service networks R: 9

do perceptions of several managers from the hub-firm correlate with responses given by the other network partners integrated view concept of service networks needs to be further analysed

factors of success best practices

identifiying benchmarks kinds of relationships (linear, U-shape, ...)

Fig. 10. Mind Map:service management/service networks

For service enterprises, the development of networks as an extension to classic organization concepts is propagated in particular. Demand for action and research is mainly seen in the operative design of networks, basic network topology, the common definition of processes as well as in the soft factors (accountability, trust, perception).

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The potentials, which can be transformed into resources, have become an issue concerning competence, living in a service culture and the creation of hybrid value chains. In the complex of service processes, further topics of process organization in service businesses have been addressed. sociotechnological systems service competence R: 7

sociopsychological aspects self-organisation of human beings, organisations and/or value chains behavioural and constructive awareness stewardship theory vs. agent theory services are dependent on organisations' employees, culture and strategy

service potential/ resources

R: 10

service culture

understand more about the role of a vibrant and dynamic service culture that combines customers focus and the creation of long-term value for shareholders and employees R: 10

Service Management

culture for service innovation and the organisational conditions R: 13

service creation of value

organisational integration

hybrid value added chain R: 15

development process embedded in the company's innovation management

R: 4

integration of processes should lead to reduction of development time and early failure analysis R: 4

normative and stategic challenges facing service management R: 7

service processes

combine the trends in service marketing, information/communication technology and strategic service management R: 7

integrated reporting and controlling concept for product/service quality and relationship management quality. R: 12

shape their business processes towards a logic of services R: 13

organisation of the innovation process R: 15

interactions between technology and organisation R: 15

development and testing of innovation and technology managmenet for service sector R: 15

Fig. 11. Mind Map:service management/ service potential resources/ service processes

Three strong topics emerge in Service Management:Service Networks, Service Potential and Resources, and Service Processes (Fig. 11). The field of Service Management is the field with the highest number of entries within the Business/Industry layer. Furthermore, a dedicated preoccupation with individual Industry Clusters was suggested (see Fig. 12). Especially fields in a so-called experience economy (e.g. tourism, art, culture, sports, media) but also strong growth sectors such as services in manufacturing industries or business services were named here

Future research topics and calls for action

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tourist attraction experience based service firms as a specific service sector

art/culture firms sport organisation advertising ...

employees characteristics

innovation emerging innovation activities learning from other service firms

experience economy R: 8

explorative case studies micro level research

intensive case analyses ... statistical

macro level research

strategic cluster analyses international trade analyses ...

Industry Clusters business services educational services financial service economy information services growth sectors

media and communication services

R: 13

non-professional services public services services in manufacturing industries social and health services personal (care services)

consider differentiated development of three main forms of services operational (cleaning) R: 13

knowledge intensive services

sustainable communities and networks R: 7

co-operation overlapping customer value management

Fig. 12. Mind Map:industry clusters

Service Engineering/ Innovation

new service development service innovation

Service Management

service networks service processes service potential/ resources growth sectors consider differentiated development of 3 main forms of services experience economy

Industry Cluster 0

5

10

15

20

25

Fig. 13. Weighting of entries on the Business/Industry level

30

sustainable communities and networks

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Klaus-Peter Fähnrich, Romy Elze

As expected, the number of entries for the Business/Industry level was very high. As a vertical theme, the importance of singled out clusters (growth sectors, experience economy) was emphasized. According to the dominant trend in service research, two horizontal themes are weighted strongly: Service Management and Service Operations Management and Service Engineering and Service Innovation (see Fig. 13). 2.3 Effects on Individual and Group level The classic research areas in the field of human factors are primarily divided into the fields of Customer and Employee (Fig. 14). In service systems the customer plays a much more active role than in classic goods production. For this reason and because customer centering has been the main focus of many research studies in recent years, a large number of problems arise in the field of customer orientation. customer retention customer needs customer satisfaction

Customer

usefulness and usability of service customer behavior and perception

Employee

Employee

0

5

10

15

20

25

30

35

Fig. 14. Weighting of entries on individual and group level

In the field of research works relating to the customer, five clusters with similar weighting emerged: customer retention, customer needs, customer satisfaction, usefulness and usability of services, as well as customer behavior and perceptions (Fig. 15). In part, these suggested research topics have already been described in detail. This shows the high level of insight that has been reached in this field.

Future research topics and calls for action

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combine call-by-call data and CRM data R: 3

cost and revenue analysis call centre R: 3

human behaviour structure of modern call centre uncertainty in parameter values

adapt the "flock of birds" syndrome of customer communities R: 7

customer retention

identifying customers recall their relationship as a snapshot

describing

R: 10

analyzing

impact of product/service satisfaction and relationship management satisfaction R: 12

impact of customer expectations and the instruments used in customer relationship life cycle R: 12

are new service concepts suitable for customers R: 2

Quality Function Deployment (QFD)

practical methods to translate the desires of customers into product design

correlation between problem/solution attributes and values

R: 5

customer focus groups

customer needs integration of customers in the development process R: 6,7

Customer

prototyping pilot projects ...

client-specific service parametrization R: 14

e.g. performance agreements service level agreements

drivers of favorable and unfavorable customer experiences when using different types of services R: 10

how does satisfaction in one phase of the relationship life cycle affect satisfaction in the succeeding phase phase-specific satisfaction measurement R: 12

customer satisfaction

specify an integrated reporting and controlling concept for product/service quality and relationship management quality

relevance of satisfaction for the loyalty behavior of customers R: 12

use of satisfaction figures for management purposes R: 12

service experience of customers R: 15

customers' co-creation of value by customers

usefulness and usability of service

through the eyes of the customer

R: 10

understanding the internal value-generating processes of the customer interaction of service experience and marketing behavior of customers R: 3

customer behaviour and percerption

success factors influenced by altruistic and egoistic behaviour R: 7

how do emotions, desires, beliefs, intentions and culture influence individual behaviour R: 7

Fig. 15. Mind Map:customer

Surprisingly, the concerns of employees take a back seat with the authors represented here. It is yet to be established whether in the future more stress should be put on concepts such as skilled service labor, new occupations and respective training, motivation of employees and development of service competence. It is to

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be noted that there are still related problems to be found in the area of service culture. suitablility of new service concepts for employees R: 2

systems and processes that meet customers and employee needs R: 2

development of human resources human centred research in the service industry Employee

R: 15

R: 15

motivated staff R: 15

success factors influenced by altruistic and egoistic behaviour R: 7

further specialisation of subjects ascertain the interactive sphere of the human-human interface deeper penetration of various fields of R: 13 application is required

Fig. 16. Mind Map:employee

The service sector is neglected, especially from the viewpoint of Human Factors and Industrial Psychology. This might be due to the fact that the classic production sector has had a significantly longer tradition as a field of application. 2.4 Development of tools and methods As was expected, the fields of models, methods and tools have been substantiated extensively and in detail. Duplication of themes with other fields do exist. Entries were only assigned to the field discussed here when authors indicated clearly and explicitly that they not only wanted to see a theme analyzed but have also expressed a concrete demand for models, methods and tools. The following figure (Fig. 17) shows a general overview of the weighting of the four main fields. Categorisation, Typology

Categorization, Typology

Methods

Methods

Standardised Methods and Tools

Standardised Methods and Tools CASE-Tools Simulation/ Test Tools

IT-based Tools

Innovation 0

5

10

15

Fig. 17. Weighting of entries in the field of methods and tools

20

25

Future research topics and calls for action

303

A smaller number demands works relating to categorizing and typologizing. These are basic works necessary for an emerging Services Science. integration of two (up to now seperate) development processes R: 4

hybrid products

different life cycles of products and services R: 4

design of a hybrid value added chain R: 15

Categorisation, Typology

identify characteristic service types for service characterisation and design and link these to the metamodel R: 5

strategies IT enabled service products R: 6

methods tools

Fig. 18. Mind Map:categorization, typology

Similarly important (like CASE-Tools) is the field of isolated methods of Services Science, which, however, does not necessarily need to be IT-based; they might also not be integrated into an entire methodology. Y et they do have a higher probability of application in practice as entire toolsuites, especially if they are complex and require extensive IT support. systematic development, design of development process, specific fields R: 2,6,8,15

multi-disciplinary approaches R: 2

integrated methods R: 2

modelling services (e.g. prototyping models) R: 2

failure analysis, service tests R: 2,4

standardized evaluation and measurement models for the service development process R: 4

integrated complexity management R: 4

module based procedural model Methods

R: 6

co-design of software and services R: 6

integration of customers in the development process R: 6

theory development of innovation in services R: 8

case studies

systemizing innovation activites

R: 8

do consumer preferences affect the development of new services or can new services determine the evolution of consumer preferences R: 11

understand constitutive and designable elements in service processes R: 13

service productivity/ profitability R: 15

understanding, measuring, increasing including the contributions of providers and customers as well as their interaction

Fig. 19. Mind Map:methods

Standardized Methods and Tools (Fig. 20) present an interlink between integrated IT-based tool suites and simple methods; they possess a higher degree of formalization than plain methods. Several suggestions were made by the authors here as well.

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Klaus-Peter Fähnrich, Romy Elze terminology classification typologies basics R: 14

morphologies system models architectures modelling methods

Standardised Methods and Tools

product models product catalogues performance agreements

product R: 14

client-oriented product descriptions

quality agreement conformity agreement

process R: 14

including product standards, client-interaction standards based on resource standards

Fig. 20. Mind Map:standardized methods and tools

The strongest field is that of the so-called CASE tools (Computer Aided Service Engineering). integrated tools and IT platforms R: 2,6

develop systems and processes, which will enable new services to be launched on markets efficientliy R: 2

further specification of their components and interrelations R: 4

configuration of the components of the architecture depending on the type of service and the subsequent differences in the complexity of the development process R: 4

IT-based systems would lead to the virtual development of hybrid products R: 4

Product Modelling

computer aided Servcie Engineering (CASE)-Tools

today from methodical service development to computer aided service development increasing degree of IT-support of service development

Rapid Prototyping Knowledge Management Simulation Life Cycle ...

R: 4

Virtual Development IT-based Tools

tomorrow Virtual Service Development

Digital Models for services Digital Models for service development process ...

software for development of IT-based services R: 6

new service development requires it's own frameworks and tools R: 10

Virtual Realtiy visualising and staging services and processes simulation/test tools

R: 2

Service Theater Prototyping

simulation tools R: 4

managing and organizing innovation activities R: 8

innovation

to create an overview at a societal level instruments and indicators R: 8

Fig. 21. Mind Map:IT-based tools

to measure the macro level of innovativeness in service industries

Future research topics and calls for action

305

The analogy to CAD/CAE systems (Computer Aided Design/Engineering) from the development of urgent products or established CASE systems in the software field (Computer Aided Software Engineering) is sought after. By this, the IT-based development, simulation, and management of productized services are meant. This concept applies especially to services in which core processes are IT-based. Related to this field are also tools for simulation, prototyping, and supporting creativity and innovation. Further, simulation and test tools, for example in the form of a so-called Service Simulator, a Customer Interaction Simulator, or even a Service Theater, are considered necessary. The field of creativity and innovation tools is rather innovative. They can be applied in operational and business-to-business innovation management.

3 Conclusion The results of the study depend strongly on the type of authors involved in it. Therefore the model representing Services Science (see Fig. 1) is compacted. In this way, the ‘fish eye view’ of the authors who exceed their primary research field is accommodated. In addition, authors representing global and national top research are procured for the study. If they are in favor of a certain focus, this is an important result by itself. The goal of the method discussed here was to obtain a pristine view, inasmuch as this is possible in an explorative study. The following diagram (Fig. 22) summarizes the weighted results and allows for comparison of their weighting. Infrastructure

Towards a service based society

Makrolevel

Service based Economics Industry Cluster Service Management Service Engineering/ Innovation

Business/Industry Level Individual/ Group Level

Employee Customer IT–based Tools

Methods and Tools

Standardised Methods and Tools Methods

0

10

20

30

40

50

60

70

80

Categorisation, Typology

Fig. 22. Summary of the weighting of the 4 fields of analysis in the study

The analysis shows that the fields of macro level and business/industry level dominate. This emphasizes the economic and social meaning of the topic.

306

Klaus-Peter Fähnrich, Romy Elze

It is of paramount importance to the economy of developed nations. The demand for development of appropriate infrastructures is high. Formalized and IT based methods and tools are demanded. The role of the customer (not necessarily the consumer) can be considered very important. The role of the employer and the labor system is considered (too) low for the experience of the author or this article. The approach to socio-technical system design could be a possible field here. In Services Science, horizontal and methodical topics are clearly preferred to vertical sector-oriented topics. On the other hand, even though the service sector is organized vertically, there are intelligent models for field studies to be found. In general, a high demand for research work was stated. The corresponding organizations are called on to increase their efforts in the field of Services Science.

Index of Authors

Ahlert, D., Prof. Dr. Marketing Centrum Münster (MCM), Lehrstuhl für Distribution & Handel Am Stadtgraben 13-15, 48143 Münster Germany Behrens, H., Dipl.-Ing. DIN Deutsches Institut für Normung e.V. 10772 Berlin Germany Berger, P., Dr. A.U.B. AKTIENGESELLSCHAFT UMSETZUNG + BERATUNG, Kurfürstendamm 96, 10709 Berlin Germany Bullinger, H.-J., Prof. Dr.-Ing. habil. Prof. e.h. Dr. h.c. mult. Fraunhofer IAO Nobelstraße 12, 70569 Stuttgart Germany Edvardsson, B., Prof. Service Research Center, Department of Business and Economies Karlstad University 65188 Karlstad Sweden Elze, R., Dipl.-Kffr. Betriebliche Informationssysteme, Institut für Informatik, Universität Leipzig Augustusplatz 10-11, 04109 Leipzig Germany Enquist, B. Service Research Center, Department of Business and Economies Karlstad University 65188 Karlstad Sweden

308

Index of Authors

Evanschitzky, H., Dr. Marketing Centrum Münster (MCM), Lehrstuhl für Distribution & Handel Am Stadtgraben 13-15, 48143 Münster Germany Fähnrich, K.-P., Univ.-Prof. Dr. habil. Dipl.-Math. Betriebliche Informationssysteme, Institut für Informatik, Universität Leipzig Augustusplatz 10-11, 04109 Leipzig Germany Fueglistaller, U., Prof. Dr. KMU-HSG, Schweizerisches Institut für Klein- und Mittelunternehmen Universität St. Gallen Dufourstrasse 40a, 9000 St. Gallen Switzerland Ganz, W., M.A. Fraunhofer IAO Nobelstraße 12, 70569 Stuttgart Germany Gill, C., Dr. SKF GmbH Gunnar-Wester-Straße 12, 97421 Schweinfurt Germany Gouthier, M., Dr. Wirtschaftswissenschaftliche Fakultät Institut Lehrstuhl für Dienstleistungsmanagement Auf der Schanz 49, 85049 Ingolstadt Germany Gustafsson, A. Service Research Center, Department of Business and Economies Karlstad University 65188 Karlstad Sweden Husen, C. v. Fraunhofer IAO Nobelstraße 12, 70569 Stuttgart Germany

Index of Authors

309

Kaner, M. William Davidson Faculty of Industrial Engineering and Management Technion - Israel Institute of Technology Technion City, Haifa 32000 Israel Karni, R., Prof. William Davidson Faculty of Industrial Engineering and Management Technion - Israel Institute of Technology Technion City, Haifa 32000 Israel Luczak, H., Prof. em. Dr.-Ing. Dipl.-Wirt.-Ing. Forschungsinstitut für Rationalisierung e.V. Rheinisch Westfälische Technische Hochschule Aachen Pontdriesch 14/16, 52062 Aachen Germany Mandelbaum, A., Prof. William Davidson Faculty of Industrial Engineering and Management Technion - Israel Institute of Technology Technion City, Haifa 32000 Israel Meiren, T. Fraunhofer IAO Nobelstraße 12, 70569 Stuttgart Germany Meyer, K., Dipl.-Inf. Betriebliche Informationssysteme, Institut für Informatik, Universität Leipzig Augustusplatz 10-11, 04109 Leipzig Germany Mörschel, I. C., Dipl.-Wirtsch.-Ing. Fraunhofer IAO Nobelstraße 12, 70569 Stuttgart Germany Pahl, V. Bundesministerium für Bildung und Forschung Berlin Hannoversche Straße 28-30, 10115 Berlin Germany

310

Index of Authors

Posselt, T., Prof. Dr. Universität Wuppertal, Lehrstuhl für Betriebswirtschaftslehre, insb. Handel und Service Management, Gaußstraße 20, 42097 Wuppertal Germany Sander, B., Dipl.-Ing. Forschungsinstitut für Rationalisierung e.V. Rheinisch Westfälische Technische Hochschule Aachen Pontdriesch 14/16, 52062 Aachen Germany Seidel, W., Dipl.-Kfm. servmark - The Customer Evolution Company Untere Hauptstraße 2, 85386 Eching bei München Germany Spath, D., Prof. Dr.-Ing. Fraunhofer IAO Nobelstraße 12, 70569 Stuttgart Germany Stauss, B., Prof. Dr. Wirtschaftswissenschaftliche Fakultät Institut Lehrstuhl für Dienstleistungsmanagement Auf der Schanz 49, 85049 Ingolstadt Germany Sundbo, J., Prof. PhD Roskilde University, Department of Social Sciences PO Box 260, DK-4000 Roskilde Denmark Zeltyn, S. William Davidson Faculty of Industrial Engineering and Management Technion - Israel Institute of Technology Technion City, Haifa 32000 Israel

Index attractive services-sector employment opportunities 291 benchmarking 288 call centers 17 capstone model 70, 72 collaborative development 260 complexity management 63 computer aided engineering for IT enabled services 87, 108 computer aided service engineering 63, 87, 107 computer aided software engineering 87, 106 conceptual design 67, 78 configuration of the components 63 contact centers 18 corporate services 286 customer expectations 213 customer orientation 210 customer relationship life cycle 210, 211 customer relationship management 210 customer satisfaction 210

hybrid products 63 importance of interaction 241 industrial organization 156, 157 information technology 87, 90 innovation in services 136 innovation research 137 integrated development 87, 99 integrated reporting and controlling concept for product/service quality 224 integration of processes 63 integration of products and services 292 internationalisation of services 254 internationalisation of the service economy 235 IT enabled service 87, 94 IT enabled service product 87, 94 IT-based knowledge services 148 IT-based services 148 knowledge intensive business services 138 knowledge intensive services 288, 291 life cycles of products and services 63

design 288 developing standards for services 266 development of innovative services 287 development of new services 291 development processes 63 early entrant advantages 193 early entrants 193 european forum on business related services 240 evolutionary economics 137 exemplary growth areas 291 experience economy 152 exportability and internationalization of service 291 globalisation 264 growth sectors 237

management and organisation of innovation 138 management procedures 287 market orientation of networks 158 new service development 2, 51 normisation 265 organizational integration 63 organizational learning 148 orientation to services 286 outsourcing 231 performance management systems 236 procedure model 87, 102 process models 4, 5 product models 4

312

Index

product/service satisfaction 214 productivity of services 292 promote co-operation 287 prototyping models 12 quality assessment 244 reduce barriers to innovation 287 relationship management quality 224 relationship management satisfaction 213 resource models 4 resource theory 156 resource-based view 157 satisfaction measurement 217 service blueprinting 58 service competition 171, 175 service conception 53 service design 3, 50 service development 50, 170, 173, 178, 179, 180, 184, 185 service development methods 53 service development process model 53 service development result description model 53 service development tools 53 service engineering 1, 3, 18, 50, 87, 88, 256, 288 service excellence centres 260 service experience 169, 170, 173, 174, 181, 182, 183 service innovation 141, 142, 235, 236 service level agreement 281 service life cycle management 250 service management 235 service markets 194 service networks 156

service planning 52 service processes 50 service productivity 252 service quality 199, 200 service research topics 233 service sector 231 service society 230 service system 67, 69 service system design 67, 77 service system design methodology 67, 78 service system design tool 67, 81 service systems 67, 72 service typologies 67, 83 service-FMEA 58 services research 286 significance 2 simulation tools 63 skilled work in the services sector 292 software engineering 90 sources of ideas 127 standardisation 263, 264, 265, 287 standardized evaluation and measurement models 64 standards 244 strategic management 192 strategies for innovation 287 sustainable advantage 194, 200, 204 sustainable services sector 285 taxonomy of innovative organizations 144 technology management 291 The Palm/Erlang-A Queue 17 typologies 7 value creation 169, 171, 184