Service Management

Reading and managing service businesses is an exercise in identifying challenges being experienced by firms and in identifying and exploring adaptation strategies. These strategies may include alterations to business models, to operational processes, to supply chains, to logistics and to customer relationship management. This chapter introduces service businesses and the concept of ‘service’. Initially, the focus is on exploring the shift towards service-led or service-dominated economies. This includes exploring alternative approaches to classifying service businesses. An approach based on classifying services by the type of experience or output created is developed. The chapter charts the rise of service businesses, activities and employment, but in relation to the whole economy. An overview of the history of the development of service firms, activities and employment is then provided. The chapter concludes by developing an approach to reading service businesses.

Reading, establishing and managing service businesses is informed by understanding service theory. This chapter explores and reviews the emergence and evolution of service theory. Service theory emerged in the discipline of macro-economics in the eighteenth century. In the 1980s, new insights began to emerge in response to the realization that service sub-sectors were amongst the largest and fastest growing economic sectors in developed market economies. The focus of this theory was on trying to explain the growth in service firms and in service work. Later, the focus shifted to the micro level—firms and management. The emphasis here was on the realization that a service must be consumed at the moment of production and the customer encounter played a decisive role in service transactions. Initially, the focus was on frontline personnel and their management. Later, the focus shifted towards marketing, with emphasis placed on understanding value-in-use and service-dominant logic. This has remained the dominant focus of academic debate.

The chapter explores strategy and development as part of the ongoing debate on business models. The business model approach provides a useful structure for comparing the three different, but linked, elements of a business model—value propositions, value networks and value-capturing mechanisms. Disruptive innovation can occur anywhere within or between these three elements. Disruptive innovation continues to transform service businesses by destroying existing business models and via the development of new business models. The pace of disruption continues to increase, reflecting an escalation in the velocity of change. Central to the development of new service-based business models are innovations in monetarization or in revenue or value capture mechanisms. Multi-sided business models, or triadic business models, represent one form of innovative value capture based on the monetarization of derivative currencies. This, however, is only one form. Globalization has led to intensified competition that has driven innovation in business models but also service operations.

In this chapter, the focus is on exploring the role that technological innovation—including big data, robotics, artificial intelligence, online platforms and algorithms—has played in the emergence of new service business models and in new forms of service business and work. The emphasis is on the digitization of service operational processes and their impacts. This is a tension between the role service workers play in creating and delivering service experiences through face-to-face encounters versus the substitution of service workers by technology. On the one hand, service customization and the quality of a service experience is still founded around interactions between service producers and service consumers. On the other hand, there is the emergence of service encounters in which service workers are a hidden rather than a visible part of the service experience. Reading and managing service businesses must include an appreciation of the ways in which technological innovation is transforming the management of service businesses.

Reading service businesses involves the development of an integrated or systemic approach that recognizes the complex interrelationships between a firm’s business model or models, operational delivery, marketing and customer relationship management. This chapter explores service operations management focusing on the on-going application of operational innovations to the delivery of service outcomes. This is a complex process. Different innovations have been applied to firms that are producing different types of services. Innovative solutions to improve service operational performance reflect current developments in product and process innovation. This discussion of service operations is then placed in the context of the on-going debate over service productivity. Different service operational systems deliver different qualities of service outputs. There is a tension between attempts to increase the productivity of service production processes and service quality. This is to highlight both the difficulties of measuring service productivity and the complex nature of service outputs.

Service work involves the delivery of standardized services, often involving learnt scripts, or customized services. This chapter explores employees’ performance and the management of service personnel. The chapter begins by examining the particular characteristics of service work and the requirements for service personnel. ‘Service’ is enacted in very different industries or economic activities and the nature of the core service work undertaken is often completely different between industries. Service work is extremely heterogeneous, but it involves complex interactions between service employees and their customers. Service employees need to be service minded, flexible and be able to co-create service experiences with customers. The emergence of new forms of service work including employment within the gig economy is explored. The chapter concludes by exploring the management of service personnel focusing on human resource management tasks that service managers must address in response to the peculiar characteristics of service work.

Reading and managing service businesses is an exercise in understanding dynamics and evolution as firms and service subsectors innovate and respond to innovations that arise in other industrial sectors. Service businesses innovate by developing new services or improving existing ones to compete in the marketplace and to develop service solutions that meet societal needs. Innovation management in service companies is thus an act of balancing customization with standardization. Systems can be developed within service organizations to assist managers in balancing top-down decision systems with bottom-up entrepreneurial systems. Service innovation is more complex than research and development (R&D) activity as it involves creating and managing the interface between service providers and service consumers—between people. People play a central role in this process. Sometimes the relationship between producers and consumers is mediated by technology and increasingly the service provider has been replaced with technology.

Customers play a critical role in all businesses, but for services, and the scientific understanding of service businesses, customers are especially important. In this chapter, the service encounter is considered from the perspective of customers including a focus on: ‘what creates customer satisfaction?’ and ‘what do customers want, and why?’ To explore these questions requires a discussion and review of customer lifestyles, preferences or values. Value-in-use needs to be explored in all service transactions, but this value varies between individual consumers and is difficult to measure and evaluate. Value-in-use for service customers is created in the service encounter. Customers’ assessment of the delivered service depends on their beforehand expectations. Service firms have two types of customers: business-to-business (B&B) and business-to-consumers (B-to-C). Each type is very different, and these differences are reflected in the service encounter and in the marketing of services.

Marketing is fundamental for selling services. All businesses must develop strategies for reading markets. This chapter explores marketing theories and models and how they have been applied to services. This chapter’s focus is on the more macro level including how service firms develop market share through the application of marketing models and theories. Services are consumed at the moment of production. This provides service firms with opportunities to sell services and to develop and project reputations in person-to-person encounters and this has led to the development of customer relationship marketing (CRM). Service companies apply special approaches in their attempts to create loyal customers and to increase income and profit. This includes mass customization and subscriptions. CRM is currently challenged by the application of the Internet, smartphones and other IT networks to support innovations in e-commerce and e-services.

Reading service businesses involves understanding the contributions that they make to internationalization. The service sector is a large and growing contributor to international trade and to internationalization. The cross-border provision of services varies by service sub-sector and product. Services businesses play two roles in the on-going development of global economic activity. First, they are internationalizing by foreign direct investment (FDI), mergers and acquisitions (M&A) and by developing approaches to service delivery to meet the needs of clients in many different locations. This reflects different forms of direct internationalization in which services are locally produced and consumed or exported or indirect internationalization in which services are embedded and exported within physical goods and within other services. Second, service businesses provide the supporting service infrastructure to support trade and FDI in goods, raw materials and in the provision of other services. This chapter explores the internationalization of services focusing on direct internationalization via FDI, exports and the movement of service providers and consumers.

No market economy can operate without a complex and extensive service industry that supports flows of people, money, raw materials, components, customers and completed products and service delivery systems. Thus, no business functions in a vacuum as it must be integrated into a set of inter-organizational relationships facilitating innovation, development, manufacturing and the co-creation of services. A key element within this network of inter-organizational relationships is logistics, or the industry that has been developed to transport and manage inputs that flow between places and across space. Thus, logistic services are one of the catalysts behind internationalization. Reading service business involves understanding the ways in which logistic services and supply chain management support outsourcing, offshoring and inter- and inter-firm movements of all types. This includes the services that support flows of raw materials, components, completed goods, people, expertise and information and finance that are the focus of this chapter.

Reading manufacturing businesses now requires understanding how service tasks are incorporated into the business models and operational processes required to produce physical goods. This includes understanding the transformation of some goods into services and the development of additional services that are attached to or embedded into manufactured goods. This chapter considers the ways in which services have been incorporated into the operational processes that support manufacturing and the production of product-related services. This includes the provision of consultancy services, design and development services, retail and distribution services, financial services, logistic services, installation and setup services, management and operating services, maintenance and support services and disposal and conversion services. The focus of this chapter is on understanding the emergence of material product-service systems and the challenges related to their organization and management. The conclusion is that there is not one approach, but many different pathways towards developing a service-orientated business approach within manufacturing.

Measurement plays a critical role in the everyday management of service businesses and in the development, implementation and adaptation of both strategy and operations. It also plays an important role in monitoring and enhancing the quality of the service experience and in the co-creation of service innovations. Measurement plays an important role in underpinning and informing the everyday and strategic management of service businesses. Reading a business is part of a strategic approach to management in which a firm continually observes the business to monitor and evaluate the relationships between strategy, operations and the production of value, or outcomes. This chapter will first present and discuss core instruments for measuring service production performance. This is followed by a discussion of service quality, customer satisfaction and measures of marketing performance. Finally, this chapter explores measurement tools intended to explore firms’ innovation capabilities.

Service businesses exist to create value and value-in-use through the sale of products and services and various combinations of products and services. Multiple values are created through this process including profit or economic rents and surplus value, but also social, community and individual benefits. This chapter uses case studies to explore how different processes work together within service businesses to create value. Five contrasting integrated cases are explored: Rolls-Royce, Flowserve, TikTok, Inditex (including Zara) and Dubai. The last case, Dubai, explores the development of a city-region and the role service businesses play within city-regions. In this account, we explore three dimensions of Dubai: as a service economy, as a location for service spaces—The Dubai Mall—and of service businesses. Here the challenge is to explore the ways in which an observer can ‘read’ a city-region as a service space and can read a particular servicescape—a shopping mall.