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Introduction: The Metamorphosis of Service Chapter 1 Defining Service Management • The service sector permeates the daily existence of every person • Service is an act or process representing a form of economic exchange • Services are the means – primarily intangible units of output, or activities which in a commercial sense are offered for sale or as part of a sale o First sold, then produced and consumed simultaneously. • Information technology has had the most impact on the economic growth of today’s service industry. These terms are often interchanging, however for the purposes of this course we adopt the position that it is the managing of ‘service’ (i.e managing the delivery of customer value which includes aspects of both tangible and intangible offering) which is the predominant focus for hospitality managers. The Service Economy Engel’s Seminal Research An increase in family income has the following effects on spending behavior: • the percentage of income spent on food decreases • the percentage of income spent on housing and household operations remains consistent; and • the percentage of income spent on other purchases (e.g. education, health care, dining out/carryout/convenience foods, entertainment, recreation, and transportation) increases rapidly. Therefore, as an economy develops, service becomes increasingly significant! Growth in the Service Sector • The service sector is growing in size and importance • In most developed economies, it contributes more than 70% of GDP and offers employment to more than 75% of the population • Service expenditures account for about 1/2 of household expenditures (this is up for 1/3 in the 1950s) Global Tourism and Hospitality • The growing importance of tourism – One of the world’s leading industries and a crucial component of worldwide socio-economic development. • Changing patterns of tourism – Sociodemographic, technological and lifestyle changes, affluence, and an active ageing population with high spending power have changed the habits of tourists. • Changing patterns in hospitality – Economic growth in most countries has contributed to growth in the hospitality industry, while firms, customers and employees have become international and multicultural. • Hospitality and tourism businesses are essentially service business enterprises. Basic Components of Hospitality The three functions within hospitality: – Accommodation Food and beverage Entertainment • Might be offered separately by individual businesses, or some businesses might offer various combinations of all three elements Origins of the Service Management Framework • Introduced into mainstream scholarship in the early 1980s • One of the earliest definitions of service management is that it is: … a total organizational approach that makes quality of service, as perceived by the customer, the primary driving force for the operation of any business. • Therefore, a service mindset must permeate the entire organization • Multidisciplinary field that relies on consumer behaviour, marketing, operations, and human resources management. Origins of the Service Management Framework Service Management framework is rooted in the following three principles. • • • A ‘perspective’ rather than a discipline in its own right A vital aspect to success in service organizations Multidisciplinary field that relies on consumer behavior, marketing, operations, and human resources management. Evolving from Product Management to Service Management The traditional 4 Ps of the Marketing Mix were found to be insufficient for service: • • • • Product Price Place Promotion The mix was expanded to the 7 Ps adding • People who directly or indirectly influence the perceived value of the product or service including employees, management and consumers • Processes procedures, mechanisms and flow of activities which lead to an exchange of value) • Physical Evidence environment in which the service is delivered and in which the service provider and consumer interact Servitization • Because there is little to differentiate competing products from the customer’s perspective, service is one of the few sustainable competitive advantages • Companies see service as a way of adding value to their core ‘product’ offerings and to enhance and strengthen customer relationships Servitization is a concept that describes how many companies that once considered themselves manufacturing or ‘product’ companies are now incorporating more ‘service’ components within their offers (through ‘bundles’) • e.g. IBM changed from being a ‘computer company’ to a ‘solution provider’ using service offers to add value to the core product. Interdependency of Service Provision: Coordinated Benefits • Services are often offered in sequences or in ‘bundles’ and fall into two general types: 1. A single provider might offer a number of service provisions in sequence to any given customer; or 2. A single customer might receive additional service offerings from other providers before and after the service currently being rendered. • Bundling is a cross-function system including tangibles and intangibles. • Service firms cannot and do not exist in isolation – through partnerships and collaborations with other firms, bundles of services are offered to satisfy the various needs of individual customers Interdependency of Service Provision: Components of a Tourism Service • The overall service product is composed of a combination of services which, although fundamentally independent, are consumed by tourists in a continuous chain • Tourism can thus be understood as a system composed of: Service received at the tourist’s place of origin (e.g. travel agents, insurance, advice, etc.) Service en route (e.g. transport and food while traveling) Service at the destination (e.g. accommodation, food and attractions at the holiday site) Service interrelationship applies within a single organization and across collaborating organizations – it reflects the importance of all the service provision involved in a relationship Interdependency of Service Provision: Core and Peripheral Services Most service offerings consist of: A core service (the major benefit that the consumer is seeking or primary need – the reason for being in business) Peripheral services (the little things offered as added bonuses – should support, compliment and add value to the core service) Applying Service Management Theory • The primary function of a commercial service business should be on providing service, and value, to the customer o e.g. Starbucks proclaim that they are not in the coffee business serving people, they are in the people business serving coffee • Managers must understand that through their hospitality establishments, they are offering an experience which is composed of many service moments • Therefore, managers need to understand in depth what they are offering, and how it should be offered, to create the best experience for their customers Core Philosophies When applying the principles of service management to the hospitality and tourism industry, three essential philosophies are: 1. hospitality and tourism organizations are business organizations and hence their focus should primarily be on the customer; 2. hospitality and tourism organizations are service organizations and hence their primary orientation should be on service; and 3. service in hospitality and tourism organizations is provided by the employees so there must be equally proportional attention on the service workers. These core principles combine to produce an emphasis on service to the customer.
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