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Chapter 1 LearningObjectives Describe the central role of services in

an economy.

Discuss the evolution of an economy

from an agrarian society to a servicesociety.

Describe the features of preindustrial,

industrial, and postindustrial societies. Describe the features of the new

service economy

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Service Definitions

Services are deeds, processes, andperformances.

Valarie Zeithaml & Mary Jo

Bitner

A service is a time-perishable,

intangible experience performed for acustomer acting in the role of a co-producer.

James

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Definition of Service Firms

Service enterprises are organizationsthat facilitate the production anddistribution of goods, support other

firms in meeting their goals, and addvalueto our personal lives.

James

Fitzsimmons

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Role of Services in anEconomy

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Percent Service Employment for SelectedNations

Country 1980 1987 1993 2000United States 67.1 71.0 74.3 74.2

Canada 67.2 70.8 74.8 74.1

Israel 63.3 66.0 68.0 73.9

Japan 54.5 58.8 59.9 72.7France 56.9 63.6 66.4 70.8

Italy 48.7 57.7 60.2 62.8

Brazil 46.2 50.0 51.9 56.5

China 13.1 17.8 21.2 40.6

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Trends in U.S. Employment by Sector

0

10

20

30

40

50

60

70

80

90

Pro

portationoftotalemployement

Year

Service

Manufacturing

Agriculture

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Stages of Economic Development

Pre- Use of Standard

dominant human Unit of of living

Society Game activity labor social life measure StructureTechnology

Pre-

Industrial

Industrial

Post-

Industrial

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Stages of Economic Development

Pre- Use of Standarddominant human Unit of of living

Society Game activity labor social life measure StructureTechnology

Pre- Against Agriculture Raw Extended Sub- Routine Simple hand

Industrial Nature Mining muscle household sistence Traditional toolspower Authoritative

Industrial Against Goods Machine Individual Quantity Bureaucratic Machines

fabricated production tending of goods Hierarchical

nature

Post- Among Services Artistic Community Quality of Inter- Information

industrial Persons Creative life in terms dependent

Intellectual of health, Global

education,

recreation

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The Four Realms of an Experience

Customer Participation

Passive Active

Environmental

Absorption Entertainment

(Movie)

Education

(Language)

Relationship Immersion Esthetic(Tourist)

Escapist(ScubaDiving)

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Source of Service SectorGrowth Innovation

Push theory (e.g. Post-it) Product looking for a problem

Pull theory (e.g. Cash Management) Need drives innovation

Services derived from products (Video Rental)Information driven servicesDifficulty of testing service prototypes

Social TrendsAging of the population

Two-income familiesGrowth in number of single peopleHome as sanctuary

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Data Envelopment Analysis(DEA) Method for evaluating efficiency of

similar venues/products

Incorporates inputs and outputs not

just one dimensional Uses LINEAR PROGRAMMING (LP)

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Sample LP: Product MixProblem How much beer and ale to produce from

three scarce resources: 480 pounds of corn 160 ounces of hops

1190 pounds of malt

A barrel of ale consumes 5 pounds of corn,4 ounces of hops, 35 pounds of malt

A barrel of beer consumes 15 pounds ofcorn, 4 ounces of hops and 20 pounds ofmalt

Profits are $13 per barrel of ale, $23 forbeer

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Key terms of LP

Variables

Parameters

Objective function

Constraints

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DEA summary of terms

Define variables E_k = efficiency of unit k

u_j= coefficient for output j (relative decrease in efficiencyper unit reduction of output value)

v_i = coefficient for input i (relative increase in efficiency

per unit decrease of input value) O_jk = observed ouput j units generated by service unit k

during one time period

I_ik = no. units input used by service unit k during oneperiod

Note: k=1..K = service unit counter

j=1..M = output counter

i=1..N = input counter

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DEA Objective andconstraints

Niv

Mju

KkIvIvIv

OuOuOu

ts

IvIvIvOuOuOuE

i

j

NkNkk

MkMkk

NeNee

MeMeee

,...,2,1,0

,...,2,1,0

,...,1,1...

...

..

...

...max

2211

2211

2211

2211

KkIvIvIvOuOuOu

ts

IvIvIv

NkNkkMkMkk

NeNee

,...,1,0).. .(.. .

..

1.. .

22112211

2211

Evaluating unit eTrick = Rescaling to get linear equations