Service Design and Delivery

Bill Hefley and Wendy Murphy (Eds.)

Service Science: Research and Innovations
in the Service Economy

For other titles published in this series, go to
www.springer.com/series/8080

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Mairi Macintyre   ● Glenn Parry   ● Jannis Angelis

Editors

Service Design and Delivery

Editors Glenn Parry
Mairi Macintyre Bristol Business School
The University of Warwick University of the West of England
WMG, CV4 7AL Coventry BS16 1QY
UK [email protected]
[email protected]
Jannis Angelis
The University of Warwick
Warwick Business School
CV4 7AL Coventry
UK
[email protected]

ISBN 978-1-4419-8320-6 e-ISBN 978-1-4419-8321-3
DOI 10.1007/978-1-4419-8321-3
Springer New York Dordrecht Heidelberg London

Library of Congress Control Number: 2011924475

© Springer Science+Business Media, LLC 2011
All rights reserved. This work may not be translated or copied in whole or in part without the written
permission of the publisher (Springer Science+Business Media, LLC, 233 Spring Street, New York,
NY 10013, USA), except for brief excerpts in connection with reviews or scholarly analysis. Use in
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or by similar or dissimilar methodology now known or hereafter developed is forbidden.
The use in this publication of trade names, trademarks, service marks, and similar terms, even if they
are not identified as such, is not to be taken as an expression of opinion as to whether or not they are
subject to proprietary rights.

Printed on acid-free paper

Springer is part of Springer Science+Business Media (www.springer.com)

Foreword

In the 1950s a company formalised a new science. The company was IBM, and the
science was Computer Science.

Computer Science took parts of existing scientific and engineering disciplines
and combined them in a new way. IBM recognised the need for the application of
scientific disciplines to the emerging field of computers, and decided to provide the
impetus itself. Today, we are so familiar with computer science that we don’t think
about how its origins were intertwined with the commercial world.

In 2004 a company formalised another new science. The company was IBM, and
the science was Service Science.

Service Science took parts of existing scientific, engineering and management
disciplines and combined them in a new way. Again, IBM recognised the need for
the application of scientific disciplines in this new field. But as yet we are not
familiar with Service Science. It’s new, strange, challenging, amorphous … just
waiting to be defined and explored!

This book is to help you to start to understand Service Science, its importance
to the world and its potential for the future.

Why should you be interested?
Around three-quarters of the GDP of developed nations is service-related. Many
services are highly complex, bringing together a mesh of organisations, people,
technologies and information to deliver value to their customers. Yet, until recently
there has been relatively little work done to understand how these complex service
systems achieve what they do, and therefore how to establish a systematic approach
to the delivery of service. This is Service Science.
The vision of Service Science is “to discover the underlying logic of complex
service systems and to establish a common language and shared frameworks for
service innovation.”1
This is no easy task. It requires a multi-disciplinary approach that integrates
knowledge from the areas of business, people and information technology, and uses
scientific methods to ensure appropriate academic rigour.

1 Succeeding through Service Innovation, ISBN 978-1-902546-65-0, © University of Cambridge
IfM and IBM Corp, 2008.

v

vi Foreword

But why should you be interested?
Service Science is a new field that is of the utmost importance to the world. With
so much of global GDP being service-related, it is essential that we drive improved
effectiveness, efficiency and sustainability in the delivery of services. The world
cannot afford to continue building services mainly on a foundation of “artistic
thinking” rather than scientific discipline.
There is therefore a need for people who can apply a unique combination of
skills, knowledge and experience to this emerging field; people who can coordinate
global resources of all kinds in the delivery of services, people who can identify and
deliver a continuous stream of innovation in service systems in a repeatable and
scientific way.
University classes on Service Science are springing up worldwide, often encour-
aged and supported by IBM. This book aligns with one of these classes. Its develop-
ment was initiated by IBM and WMG, a successful department at the University of
Warwick with decades of experience in manufacturing research. Therefore, this
book uses that expertise to compare the development of a product and a service. It
takes a lifecycle view of a service in the way that we might view a product, consid-
ering its design, development, delivery, maintenance and eventual replacement.
We believe that this approach is a good route into Service Science for those who
have experience in manufacturing. It is very good for those in manufacturing com-
panies who need to move forward from product-centric to service-centric
thinking.
We hope you enjoy this book, and that it helps to explain Service Science in a
way that you find understandable and stimulating. We are in the early stages of
Service Science research but you will see from this book that there is much value
to be gained from applying what is already known. By building your Service
Science skills you will be preparing yourself for success in today’s service-centric
world.

Peter Ward
Client Technical Advisor Programme Manager
North-East Europe
SMS for Life Project Manager, Tanzania

About the Editors

Mairi Macintyre  joined WMG, University of Warwick in 2000 where she has
focused on design and development management. She has led a joint team includ-
ing Warwick, Cardiff, Cranfield, Bristol and Bath to develop master level courses
from emergent service science research. Her interest in combing rigour with rele-
vance has enabled her to repeatedly gain and sustain industry and public sector
engagement in research projects. Mairi has worked collaboratively with the UK
Lean Aerospace Initiative and aerospace companies to develop and deliver lean
insights and practice. She is the Principal Investigator of the EPSRC funded
WIMRC research project Agility in Self Care, with a presence at international con-
ferences in both operations research and in quality improvements in healthcare.
Dr. Glenn Parry  is Principal Lecturer in Strategy and Operations Management at
Bristol Business School, University of the West of England and Senior Visiting
Fellow at the University of Bath’s School of Management. His research is industri-
ally focused and he has managed and contributed towards research consortia within
the automotive, aerospace and construction industries. His research interests include
organisational transformation, service, core competence, costing, lean, and enter-
prise software management. His project involvement includes the £16m EU ILIPT
project which led to the book, Build To Order, published by Springer, Agile
Construction Initiative, UK Lean Aerospace Initiative, Lean Flight Initiative, Supply
Chain 21 and S4T. He holds a PhD in Materials Science from Cambridge University,
a BSc in Chemistry and Business and an MPhil in Materials Science from Swansea
University. He has previously worked for British Steel, LEK Consulting, Warwick
Manufacturing Group and the School of Management at Bath.
Dr. Jannis Angelis  is an Assistant Professor at Warwick Business School, and an
associated researcher with the Centre for Technology, Policy and Industrial
Development at MIT and the Institute for Manufacturing at Cambridge University.
Following doctoral research at Cambridge which investigated numerical flexibility
at P&G across Europe, Dr Angelis worked in venture capital in London. He has
previously researched strategy for sustainable competitiveness at Harvard, flexibility
and productivity in knowledge-intensive firms at Stanford and Berkeley, the human
side of lean at Cambridge, high performance organisations in aerospace at Oxford
and business development and support at the ILO and ITC/WTO of the UN.

vii

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Acknowledgements

The editors would like to acknowledge the significant contribution made by the
authors who together have made this book possible. We would also like to extend
our thanks and appreciation to the many organisations and people who facilitated
the development of the book with case contributions and their time.

We would like to thank Marc McLening, Aftermarket Director GE Aviation
for his considerable contribution to the work on complex deployed service and the
staff of Dowty Propellers. We would like to acknowledge and thank the RAC for
the time they gave to us; Debbie Hewitt, Managing Director of RAC Roadside,
Dr David Bizley, Technical Director, Ian Laughlin and Tony Loyer. We would also
like to acknowledge the support given by the EPSRC who helped make some of the
contributions to this book possible.

Thanks go also to Hannah Reese and Alison Kakoura who have supported the
production of the book.

Finally, we would like to thank our families, Amber Macintyre, Tsui, Lauren and
Emilia Parry, Jelena and Alexandra Angelis and many supportive friends. Producing
a book with so many authors is always a challenging experience, which takes up a
lot of personal time, and this would not have been possible without their ongoing
support and understanding.

ix

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Contents

1 Understanding Services and the Customer Response............................ 1
Jagdeesh S. Dhaliwal, Mairi Macintyre, and Glenn Parry

2 Goods, Products and Services................................................................... 19
Glenn Parry, Linda Newnes, and Xiaoxi Huang

3 The IBM Story........................................................................................... 31
Charles Loving

4 Rethinking Lean Service........................................................................... 41
John Seddon, Brendan O’Donovan, and Keivan Zokaei

5 Designing Competitive Service Models.................................................... 61
Veronica Martinez and Trevor Turner

6 Shifting from Production to Service
to Experience-Based Operations.............................................................. 83
Jannis Angelis and Edson Pinheiro de Lima

7 Complex Deployed Responsive Service................................................... 95
Glenn Parry, Marc McLening, Nigel Caldwell, and Rob Thompson

8 A Multi-organisational Approach to Service Delivery........................... 119
Valerie Purchase, John Mills, and Glenn Parry

9 Through Life Costing................................................................................ 135
Linda Newnes, A.R. Mileham, W.M. Cheung, and Y.M. Goh

xi

xii Contents

10 The Practitioner View............................................................................. 153
Ian Smart, Stuart Bestwick, Neil Jarrett, Richard O’Conner,
and John Gurnett

11 Are You Being Served?............................................................................ 167
Mairi Macintyre, Glenn Parry, and Jannis Angelis

Contributors

Jannis Angelis
OM Group, Warwick Business School, Coventry, CV4 7AL, UK
Stuart Bestwick
Alexander, 5 London Road, Southampton, Hampshire, SO15 2AE
Nigel Caldwell
Research Fellow, University of Bath
W M Cheung
Lecturer in Engineering, Design and Manufacturing Research Group,
Northumbria University, School of Computing, Engineering and Information
Sciences, Ellison Building City Campus, Newcastle Upon Tyne, UK
Edson Pinheiro de Lima
Pontifical Catholic University of Parana, 1155 Imaculada Conceicao Street,
Curitiba 80215-901, Brazil
Jagdeesh S. Dhaliwal
WMS, University of Warwick, CV4 7AL, UK
Y M Goh
Lecturer, TW222, Wolfson School of Mechanical and Manufacturing
Engineering, Loughborough University, Leicestershire, LE11 3TU, UK
John Gurnett
TriloGee Limited, 19 Beamont Close, Lutterworth, Leicestershire, LE17 4GE
Xiaoxi Huang
Department of Mechanical Engineering, University of Bath
Neil Jarrett
CWC (UK) Limited, Warwick House, 25 Buckingham Palace Road,
London, SW1W OPP
Charles Loving
Director of Operations, British Institute of Technology & E-commerce,
London, UK

xiii

xiv Contributors

Mairi Macintyre
WMG, University of Warwick, CV4 7AL, UK

Veronica Martinez
Principal Research Fellow, Centre for Business Performance, Cranfield School
of Management

Marc McLening
Aftermarket Director, Dowty Propellers, GE Aviation

A R Mileham
Professor, University of Bath, Claverton Down, Bath BA2 7AY

John Mills
University of Cambridge

Linda Newnes
Head of Costing Research, University of Bath, Claverton Down,
Bath BA2 7AY

Richard O’Conner
CWC (UK) Limited, Warwick House, 25 Buckingham Palace Road,
London, SW1W 0PP

Brendan O’Donovan
Vanguard

Glenn Parry
Bristol Business School, University of the West of England, BS16 1QY

Valerie Purchase
School of Communication, University of Ulster, Jordanstown Campus,
Northern Ireland

John Seddon
Visiting Professor at both the Universities of Cardiff and Derby
and the Managing Director of Vanguard

Ian Smart
Alexander, 5 London Road, Southampton, Hampshire, SO15 2AE

Rob Thompson
Research Associate, Helen Hamlyn Centre, Royal College of Art

Trevor Turner
Former Deputy Head of Detonators, ICI Explosives UK until 1990;
Honorary Research Fellow, Strathclyde Institute for Operations Management,
Strathclyde University

Keivan Zokaei

LERC, University of Cardiff

Service Perspectives

The following perspectives are provided by experts working in practice and
academia. The perspectives provide an illustration of the breadth of offerings
described as ‘service’. They capture the essence of a number of service operations
and bring focus to the variety of value propositions which create a service experi-
ence. On reading subsequent chapters these perspectives can be used as reference
points to reflect upon how different theories may be applied in different contexts
and how value is created through service.

Total Place, efficient public services: Total Place in Coventry Solihull and
Warwickshire is a sub-regional collaboration between public sector partners which
is aiming to reshape services as we face the major reductions that will come in
public sector funding. We’ve been one of 13 nationally funded pilots and our by-
word is “better for less”. Families and friends are pulling together to face the finan-
cial down-turn and they expect the public sector to do the same. We’ve been
working across the system to redesign Children’s Centres to offer a more stream-
lined service and using design principles to make sure that we bring the views of
the parents and children who use services-as well as front- line staff into the heart
of how we specify and procure services. We have been using Lean to reshape the
human resources teams that support schools. Our early experience is that if you use
a systematic and engaging business redesign process and put quality at the heart of
it, you really can improve services and get better value for money.

Mike Attwood
Programme Director
Total Place in Coventry Solihull and Warwickshire

xv

xvi Service Perspectives

EMI, a service that listens to customer. The Consumer Insight team at EMI Music
offers an important service that helps shape the business. We use quantitative
research exploring consumers interaction with music to guide EMI’s various record
labels across more than 20 countries. First we listen carefully to the key business
questions that EMI has. Too often in companies consumer insight misses opportu-
nities to answer the key questions. At EMI we use insight to understand everything
from which new artists we should invest in, where the opportunities lie for our
artists across and within countries and what the strategic opportunities are for the
business (such as new business models and new product / service opportunities
created by shifting consumer preferences). Next we use our rolling program of
c.500,000 interviews per annum to answer those questions. This requires significant
research and data manipulation skills if the program is to be reactive enough to
meet business needs and cost-effective enough to scale globally. Finally we help the
businesses to do something different as a result. This requires drawing simple but
powerful conclusions from the research, communicating them and making them
available to all EMI employees on their desktops so that whatever they are working
on, then can quickly and easily use consumer insight to help make decisions.

David Boyle
Senior Vice President
Consumer Insight and Validation at EMI Music

Service Perspectives xvii

The Carbon Trust is a not-for-profit company with the mission to accelerate the
move to a low carbon economy. We provide a specialist support service to help
business and the public sector cut carbon emissions, save energy and commercialise
low carbon technologies. Since 2001, the Carbon Trust’s Applied Research scheme
has committed a total of £23 million to 188 projects that have demonstrated poten-
tial to develop into viable commercial technologies that could reduce UK carbon
emissions. When the scheme was created in 2002, we initially took a ‘hands off’
approach to project selection and management. However, following an internal
performance improvement review, we have changed the offering so that we are
much more directly involved with the projects and the innovators. This new part-
nered service approach allows us to draw upon our knowledge base and broad
functional capabilities to provide additional value such as introductions to investors,
mentoring on commercialisation, and partnership development.

Partnered service also allows us to better manage the risks associated with sup-
porting early stage R&D by providing us with a much better understanding project
developments and the context of these. Over the last three years, as we have intro-
duced these changes, we have seen the proportion of projects leading to a tangible
commercial outcomes (patents, investment and/or sales) increase from 55%
to 67%.

Dr Robert Trezona
Head of Research and Development

The Carbon Trust

xviii Service Perspectives

L.E.K. Consulting: Helping business leaders make informed decisions. L.E.K. is a
global consulting firm that specialises in strategy, transaction services and perfor-
mance improvement consulting. It advises the largest private and public sector
organisations, private equity companies and smaller, more entrepreneurial busi-
nesses. With a reputation for resolving the most complex commercial issues, L.E.K.
helps business leaders consistently make better decisions, deliver improved busi-
ness performance and create greater shareholder returns.

Companies come to L.E.K. because they know it offers the deep industry
expertise, insight and practical guidance needed to develop and execute the most
effective commercial strategies. L.E.K. works closely with its clients to understand
and address the critical issues they face, asking the hard questions, gathering and
analysing the most relevant information, and developing innovative strategies that
create value. L.E.K.’s ability to resolve its clients’ most complex challenges is
demonstrated by the fact that more than 90% of its work comes from repeat clients
or referrals.

James Lloyd
Head of Marketing
L.E.K. Consulting LLP

Service Perspectives xix

Managers and professional project managers typically draft implementation plans
paying close attention to design for implementation, conformance to technical
specifications, defining key performance indicators and aligning stakeholder inter-
ests. In my experience most companies (and most project managers) are often able
to design the “system” part of change adequately. On paper, plans are most often
technically “correct”. But a large percentage of implementations fail—due to delay,
missed targets or lack of sustainability. The most common pitfall is neglect of the
“soft” side of change. All implementation projects imply change, and success-
ful change requires leadership. What separates leaders from managers is the ability
to engage and excite stakeholders, to lead by example and to drive the change
agenda. In my opinion most people will be part of change if they understand the
need for change, have the adequate competences to perform in their new role and
have the right incentives. Therefore leaders that are able to communicate the need
for change, provide for adequate training and aligned incentives will be most suc-
cessful. In addition, leaders that engage and motivate their employees through role
modelling and personal involvement will not only succeed in implementation – they
will thrive.

Dr Ian Colotla
Vice President
Novo Nordisk A/S

xx Service Perspectives

BAE Systems; providing complex engineering service. We have been challenged
with delivering a very complex service, the repair, maintenance and upgrade of fast
jets, under a new form of contract; the Availability Transformation: Tornado
Aircraft Contract. BAE Systems was a traditional product manufacturer. We pro-
duced aircraft, systems and spare parts then sold them to our customers, our profits
largely based on volume. The new service contract is very different. BAE Systems
role is to provide availability for the RAF Tornado aircraft. That means maintaining
the RAF’s fleet of aircraft providing spares and technical advice so that they are
ready to fly. We don’t deliver this as a separate organisation, but instead we work
with our partners as there are many different skills and resources that are required
to keep the aircraft flying.

That’s not just the Royal Air Force, who provide over 50% of our service techni-
cians. We also work with numerous supply partners such as the MOD, SELEX,
Claverham, Rolls Royce, to name only a few. BAE Systems has learned to work in
a new way to provide service. We have developed an integrated service enterprise
that brings together experts from many different organisations, providing a more
cost effective service solution for the Ministry of Defence and ultimately saving the
tax payers money, and shareholders returns through both volume and innovation.

Steve Debonnaire
ATTAC Program Director

BAE Systems

Service Perspectives xxi

Estimating Through Life Cost is one of the major challenges of the cleantech indus-
try. As clean technologies are mainly found in the energy, waste management and
water management sectors, clean technology companies typically sell products that
are mission critical, have a high degree of customization, and are designed for a
long life of constant use. One of the key questions of customers is how reliable the
technology will be over its life span – in particular, how likely the technology is to
cause unpredictable costs in addition to its upfront cost, such as costs of mainte-
nance or disruption. When an innovation is launched in such a market, reliable
information about the life cost of the novel product is naturally lacking. This has
proven to be a key obstacle to venture capital funded cleantech companies with
innovations that are conceptually proven and that deliver significant improvements
to conventional alternatives, but that lack enough reference installations to provide
reliable data on life costs. One way out of this dilemma that is increasingly dis-
cussed among practitioners is servitization, i.e., the notion that the owner of the
innovation should be an agency that is specialised in using and maintaining the
product, letting the end customer become a buyer of the product’s service (such as
heat) rather than the product itself.

Harald Overholm
Investment Director
Sustainable Technologies Fund

xxii Service Perspectives

Value drives everything we do so let’s look at the dimensions of value. Value is
contextual in terms of both when we experience and evaluate it. So value depends
on the state of the world at the point of use. Value also has an emotional dimen-
sion. If your watch is worth anything more than £10, you bought it for emotional
value because a functional watch may be purchased for £10 or less. There is also
a practical value, an abstract concept that can be described as function. If you
think of a chair, the practical value of a chair is the abstract notion of a seat.
Conversely, there is nothing abstract about logical value. Its value is defined and
purposeful. If you want to buy a tape measure the measurement on the tape mea-
sure must be accurate i.e. logical value is about objective standards. What is inter-
esting to me is not merely that the dimensions exist, but that many firms just do
not design and deliver all dimensions in their value proposition to the customer.
Delivery across all dimensions is hard. There is also expected and perceived value.
When we decide to buy, we weigh the expected value in the future and decide how
much to pay now. When we experience the service we develop a perception of its
value and compare that to what we expected. We then evaluate if we want to
repurchase.

Go to a café and critically evaluate the experience. What is the outcome of your
experience in value terms? People often completely forget their own role in creating
that experience. Customers cocreate value with the café by accessing their own
resources which impact on the experience, such as selecting the people they take
with them to the café.

What does this mean for firms? Well, to service designers out there – how much
of service design includes the design of the customer and the resources they might
need to co-create value?

Professor Irene Ng
Professor of Marketing Science at the University of Exeter Business School,

Senior Visiting Fellow, University of Cambridge, and
Advanced Institute of Management (AIM) Research Services Fellow

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Chapter 1

Understanding Services and the Customer
Response

Jagdeesh S. Dhaliwal, Mairi Macintyre, and Glenn Parry

1.1  Products and Services

So why have you picked up this book?
Perhaps you are in a bookshop, browsing through titles and were attracted by its

cover.
Perhaps you bought it on-line and are now reading it in your bedroom.
Maybe you’ve borrowed it from a friend and are browsing its pages during your

coffee break.
Whatever the circumstances, you, evidently, are the customer.
But what of this book?
Its title is ‘Service Design and Delivery’. So is this book a product or is it a

service?
The discipline of Economics has traditionally assumed that there is a distinction

between products and services. This convention can be traced back to Adam
Smith’s landmark work, ‘The Wealth of Nations’ (Hill 1999; Smith 1776).

To view products and services as distinct outputs of a productive process is
ingrained in economics, accounting and operations management (Hill 1999). The
distinction has been considered useful since it is assumed that manufacturing and
service industries need to be organised in distinct ways.

Interestingly, however, the division between products and services is not as stark
as you might initially imagine. Indeed a debate has raged in the literature about how
they might be differentiated. Various authors have proposed their own discrimina-
tory criteria (Smith 1776; Levitt 1981; Hill 1999; Gadrey 2000). The fact that this
debate exists at all demonstrates how difficult it can be to distinguish between
products and services.

Surely it’s easy … you can physically touch a product but services are about people inter-
acting... you can’t touch them … they are more difficult to pigeon-hole …?

J.S. Dhaliwal () 1
WMS, University of Warwick, CV4 7AL, UK
e-mail: [email protected]

M. Macintyre et al. (eds.), Service Design and Delivery, Service Science: Research
and Innovations in the Service Economy, DOI 10.1007/978-1-4419-8321-3_1,
© Springer Science+Business Media, LLC 2011

2 J.S. Dhaliwal et al.

Introductory textbooks in Economics focus on the idea of tangibility: Products are
physically present whereas services are not.

Therefore, in the sense that it is physically present, we might think of this book
as a product.

However, we can also think of this book as providing a service: as the authors
of this book, our prime aim is to satisfy and ideally, to surpass, your expectations
(our customer) through presenting core ideas about service design and delivery.
It is the intangible ideas that are key and not the tangible, physical nature of the
book. In other words, we have chosen to communicate our ideas through a book.

But we might have chosen to achieve the same outcome via a different medium,
say an audio book, a DVD, through organising a seminar or perhaps through pitching
up at your house and inviting ourselves in for a chat.

To address this issue, Peter Hill (1999) suggests a classification that includes
Tangible Goods, Services and Intangible Goods. According to Hill, intangible
goods originate from a creative source. Creative sources include authors, film makers,
scientists, architects, software writers, orchestras and so on. As they are created, the
original goods do not have physical tangible properties, but rather, they have to be
captured and recorded on physical media such as a paper, a disk, CD or hard drive.

But it could be argued that all products and services start out as a creative idea:
The year 2020s coolest-looking car may today be a nothing more than a newly
coalescing idea in a design-engineer’s head. This idea will need to be ‘recorded’
and translated into a tangible product. Equally, 2020s brave new health service
may currently just exist as policy statements captured in a government paper:
It will need to be translated into a tangible service that patients can experience in
real life.

Both products and services incorporate productive processes, but the point at
which customers interact with this process tends to differ between products and
services.

Consider Fig. 1.1, which illustrates the classic productive process.
Compare this with a productive process for services as shown in Fig. 1.2.
This appears straight forward. But let us consider the ways in which product
manufacturers are increasingly interested in engaging with customers at a much
earlier stage in the productive process, often through using the advantages of
­automation offered by the Internet.

Fig. 1.1  A productive process

1  Understanding Services and the Customer Response 3

Fig. 1.2  A productive process for a service

For example, a variety of companies allow you to custom-build your own home
computer (PCSpecialist 2009; ComputerPlanet 2009). Car manufacturers allow
customers to ‘build your own car’ (e.g. Jaguar 2009).

Here, the process is more similar to Fig. 1.2 – the classic process for a service,
than Fig. 1.1 – the classic process for a product.

1.2  Scripted vs Customisable Customer Experiences

We have discovered, therefore, that a rigid distinction between services and products
does not exist. Furthermore, there may be a trend of increasing fuzziness around the
difference between products and services.

Think about the degree to which you can personalise your mobile phone:

• You can choose between numerous varieties of charming (or hideous!) fascia
colours.

• A plethora of tones can ring, wake, alert or remind you.
• You can play with the function buttons so that they are set to open up the particu-

lar functions you want.
• You can customise the software so that it does what you want.

Product manufacturers increasingly seek to establish service relationships with
their customers through offering a range of after-sales add-ons.

Think about car manufacturers and their range of services:

• In-house car insurance
• Maintenance contracts
• Breakdown services

Conversely, some services seek to offer highly scripted, highly standardised ser-
vices that offer a near identical experience wherever or whenever they are pur-
chased. Think about some fast-food businesses and hotel chains:

• Walk into any McDonalds in the world and your experience will be similar.
• Ibis hotels have the same furnishing colours and décor whichever country you

go to and again, your experience tends to be similar.

4 J.S. Dhaliwal et al.

The Internet offers new possibilities in terms of making services more tangible and
products more customisable.
• NHS, the UK’s national health service, offers an online diagnostic aid, through

NHS Direct, that supports patients in sifting through their symptoms to arrive at
likely diagnoses linked to management plans, self-help guides and contact num-
bers for support services.
• Virgin Wines, an online retailer helps customers to build up a database of their
drinking preferences which is then translated into the delivery of wine cases
customised for each consumer.
• Many products encourage you to register with their websites which offer ser-
vices such as product information, updates, news and competitions.
Considering the above, we conclude that we have historically found it useful to
conceptualise products and services as distinct types of entities in Operations
Management.
There has traditionally been a perception that this distinction will help in our think-
ing around planning product and service businesses in different ways, but this mental
model of ‘products’ and ‘services’ does not appear to be helpful in thinking about
twenty-first century organisations. Perhaps it is time to jettison this mental model
(Lovelock 2004) and move instead to the concept of a continuum of outputs, Fig. 1.3,
ranging from those that are highly customisable to those that are highly scripted.

Fig. 1.3  The continuum of service outputs

1  Understanding Services and the Customer Response 5

1.3  Why Does This Matter?

Reflecting on products and services using the continuum model offers the possibility
of introducing more tangible, scripted elements to services (e.g. NHS Direct) and
unique, flexible elements to products (e.g. Virgin Wines).

Our mental models are important since they provide a context for our ideas. The
mental models (or paradigms) we hold may focus our thinking, but they may also
limit it. Conversely, paradigms may ‘open out’ our thinking, so stimulating creativity,
but failing to ‘lock down’ carries the risk of scattered, unfocused ideas.

Therefore, it is helpful to think about services and products as a continuum.
This model can aid in either focusing thinking (when considering ‘pure’ products
or services) but it also allows ‘fuzziness’ (when considering scripted services or
customisable products).

1.4  How Scripted? How Customisable?

In designing services, exactly how scripted or how customisable should the client
experience be? This of course, will be a question of deciding on the operations
strategy.

Slack et al. (Slack et al. 2006) identifies five sources of competitive advantage.

Quality Being RIGHT
Speed Being FAST
Dependability Being ON TIME
Flexibility Being ABLE TO CHANGE
Being PRODUCTIVE
Cost

© Nigel Slack and Michael Lewis 2003

Services have to make a trade-off between these different sources of competitive
advantage.

6 J.S. Dhaliwal et al.

The following diagram illustrates how an organisation might map out its priorities:

‘Fit’ is concerned with ensuring comprehensiveness,
correspondence, coherence and criticality

Resource Usage

Performance objectivesQuality Coherence Critical
CorrespondenceSpeed
Dependability Critical
Market CompetitivenessFlexibility
Critical
Cost
Critical Critical

Capacity Supply Process Development
Network Technology and

Organization

Decision areas

Comprehensive?

© Nigel Slack and Michael Lewis 2003

And to work through a concrete example, here are some of the factors an airline
will want to consider in determining its operations strategy for different classes of
travel:

Services First/Business class Economy class
Customers Economy cabin
First/Business - class cabin,
airport lounges, pick-up Travellers (friends and
service family), vacation takers, cost-
sensitive business travel
Wealthy people, business Standardized cabin
people, VIPs
Relatively low
Service range Wide range, may need to be
customised Relatively high volume
Rate of service Low to medium
innovation Relatively high

Volume of activity Relatively low volume

Profit margins Medium to high

Main competitive Customization, extra service, Price, acceptable service
comfort features, convenience
factors

Performance Quality (specification and Cost, Quality (conformance)
objectives
conformance), Flexibility, Speed

Different product groups require different performance objectives

© Nigel Slack and Michael Lewis 2003

1  Understanding Services and the Customer Response 7

It is important to appreciate, however, that high quality-high cost services might
not necessarily choose to offer more flexibility: indeed, the selling point might well
be ‘a consistent, high quality, reliable service’. On the other hand, there may be
circumstances where greater flexibility might enable a service to reduce its costs
through avoiding waste.

The key strategic decision to be taken in designing a service is for an organisation
to define what mix of Quality, Speed, Dependability, Flexibility and Cost it is ­seeking
to provide. This will constitute its Service Concept. As we will see, this service
concept relates to the underlying emotions that the service seeks to provoke.

1.5  Customer Experience: It’s All About Eliciting Emotions

1.5.1  What Is the Ultimate Goal of Any Service or Product?

Airlines want passengers to enjoy their travel experience with the aim of attracting
positive publicity and repeat business. Theme-park operators want their customers
to enjoy a series of thrilling rides…. with the aim of attracting positive publicity
and repeat business. As authors of this book, we would like you to feel stimulated
by the ideas on these page, with the aim of attracting positive publicity (you’ll tell
your friends) and repeat business (you’ll see our names on other publications and
think about reading them).

The goal is the same: through their services or products, organisations seek to
elicit favourable customer experiences that stimulate the behaviours of repetition
(customers buy the service or product again) and service/product promotion (satis-
fied customers advocate use of the service or product amongst their social
network).

1.5.2  But What Exactly Is a ‘Favourable Customer Experience’?

Let’s consider some common service experiences.

• Think about the last time you had a wonderful meal out at a restaurant.
• The relief you felt when the RAC patrol officer managed to get your car going

again.
• How about an exhilarating day at a theme park?
• A reassuring chat with your doctor.
• Or a refreshing swim in the pool of your local gym.

In each case what made the experience ‘favourable’ (or unfavourable) was the
emotional response that the service elicited in you.

• The positive restaurant experience was the result of triggered feelings of antici-
pation, being cared for, feeling energised (or relaxed) by the lighting and décor
and feeling content at the meal’s end.

8 J.S. Dhaliwal et al.

• Your relief at having your car fixed was a result of feelings of fear and anger at
the car not starting being assuaged by a confident, courteous patrol officer who
was able to efficiently carry out the repair.

It’s this emotional response that will motivate you to eat at that restaurant again or
subscribe to the RAC again and tell all of your friends about your great
experience.

We can therefore consider an ‘experience’ to be a ‘set of emotions’.
All of the above allows us to arrive at a fundamental conclusion about the nature
of service design and delivery:

The central goal of service design and delivery is to define and elicit favourable customer
emotions.

1.6  The Importance of Emotions to Service
Design and Delivery

Our increasing understanding of the importance of emotions has turned many of
our former assumptions about their role and importance on their head.

The traditional perspective, the view that we are usually taught either formally or
more often tacitly, is that emotions interfere with rational thought. Decision-making,
is seen as a formal, rational, logical process whereas emotions are seen as irrational
and a hindrance to effective decision making. However, over the past few decades
the field of Experimental Psychology has overturned the whole notion of decision
making proceeding as a linear, logical process: Rather, emotions are demonstrated to
be KEY to rational decision making. (Goleman 1996; Ledoux 1998; Damasio 1999,
2006; Swaminathan 2007; Laibson 2005; Salvador and Folger 2009).

In his paper ‘Decisions and Desire’, Gardner Morse (Morse 2006) succinctly
describes the essence of how our human brains operate:

The closer scientists look, the clearer it becomes how much we’re like animals.
We have dog brains, basically, with a human cortex stuck on top, a veneer of civilization.
This cortex is an evolutionarily recent invention that plans, deliberates, and decides. But
not a second goes by that our ancient dog brains aren’t conferring with our modern cortexes
to influence their choices – for better and for worse – and without us even knowing it.

A glance at Fig. 1.4 demonstrates this concept anatomically: In essence, the human
brain is comprised of the brain stem, which takes care of basic life support functions
such as breathing and digesting food, the limbic system, which is the source of our
emotions and the neocortex which represents Morse’s ‘veneer of civilization’.

Damasio and colleagues have studied the cases of over 50 people who have
suffered targeted brain damage to their limbic system as the result of tumours or
accidents (Morse 2006). The intelligence of these patients is unaffected (since they
have not suffered any neocortical damage) but they are no longer able to interpret
the emotional content of situations as a result of their limbic brain injury. For example
these patients comment that emotion-laden pictures that would previously have
provoked an emotional response no longer trigger specific feelings within them.

1  Understanding Services and the Customer Response 9

NEOCORTEX
Higher order thoughts
and actions

LIMBIC SYSTEM
Pre-programmed patterns
of behaviour i.e. Emotions

BRAIN STEM
Automatic. Basic life support
functions

Fig. 1.4  The human brain

The surprising thing is that with normal IQs, but stripped of emotion, these
u­ nfortunate people are unable to make decisions, particularly individual or social
decisions. In considering the pros and cons of a given situation they try to dispas-
sionately assess every possible ramification in the decision tree, leading to an impos-
sibly large number of permutations. They are unable to rapidly ‘weight’ or ‘give value
to’ the relative importance of the available options. They lack a ‘gut instinct’ which
allows them to filter out low value information and focus on high value information.

This research challenges our traditional view that emotions disrupt decision-
making. Indeed we start to understand that it is emotions that enable us to ‘weight’ or
‘give value’ to different options in the decision-making process (Gladwell 2006).

The concept of value and the importance of the value proposition are discussed
further in the chapter, Designing Competitive Service Models. However, the key
point to appreciate here is that the core essence of ‘value’ depends upon the human
emotions that a service excites (or fails to excite). Neuropsychological research is
revolutionising thinking in Economics and has spawned the growth of a new field
dubbed ‘Neuroeconomics’ (Economist 2005).

In their award-winning paper, Robert Heath and Paul Feldwick (Heath and
Feldwick 2008) discuss the central importance of emotions to successful advertising.
They describe the earlier research of Heath and colleagues (Heath et al. 2006) who
have examined the relationship between the emotional potency of a range of on-air

10 J.S. Dhaliwal et al.

TV advertisements, their rational content (i.e. specific factual knowledge transmitted
about the product) and brand favourability (i.e. the extent to which research partici-
pants thought favourably of the product after viewing the advertisements). They
found that brand favourability varied with the emotional potency of advertisements
but there was no relationship between the factual content and brand favourability.

In other words, ‘it’s emotion that sells’. We buy on the basis of emotions (i.e. our
‘emotional brains decide’) and we THEN use our logical brains to rationalise or
justify the purchasing decision (Hill 2003). Research using the technique of func-
tional Magnetic Resonance Imaging (fMRI), where subjects undergo sophisticated
brain imaging whilst they make decisions, is increasingly being used to explore the
mechanics of our decision making and the interaction between the emotional and
logical parts of our brains (Knutson et al. 2007; Grabenhorst and Parris 2008).

Heath and Feldwick go on to explore the curious phenomenon that, despite
mounting evidence over the past 40 years that emotions are central to advertising,
the industry has clung to a mental model of the centrality rational content to
successful advertising. As Heath and Feldwick (Heath and Feldwick 2008) state:

It is not that people in advertising don’t believe there is a role for creativity, or that building
brand relationships is unimportant. It is that, in practice, these ‘softer’ values are regarded
as less important than, and subservient to the communication of information.

As we have discussed, the evidence suggests that the relationship should actually
be the other way around.

What are the implications for service design and delivery of this new under-
standing of the central importance of emotions? Do we ‘get things the wrong way
around’ and consider the logical, neocortical aspects of service design first and then
seek to tag on emotions (expressed as ‘value’ or ‘design’)?

In a similar way to advertisers, we need to ensure that our mental map or para-
digm places emotions at the centre of service design. In other words, in designing
a new service, the starting point should be a conscious identification of the mix of
emotions that a particular service is seeking to trigger.

Failure to do so can spell disaster.
The once mighty Woolworths can offer a salutary lesson. The brand name con-
tinued to inspire the affection of UK consumers, many of whom associated it with
their childhood Christmas toys and ‘pick N mix’ sweets, but it collapsed neverthe-
less. Jeremy Baker’s analysis (Baker 2009) on the BBC News website sums up the
views of many customers:

“The in-store environment isn’t that good and you’re not sure what they’re good at”, he says.
“If you want a cheap suit you think of Primark and if you want expensive food you think of
Waitrose, but there are no items to associate with Woolworths. It has no unique qualities”.

“Going into Primark, the whole atmosphere says ‘It’s fine, this is cheap’ but you feel good
about yourself,” he says. “But you feel a loser going into Woolworths”.

Consider these two paragraphs and compare them to another quote from the same
BBC article:

When asked, ‘what are its strengths?’ a spokesman for Woolworths says that the answer lies
in its annual report, which says the chain focuses on ‘the home, family and entertainment’,

1  Understanding Services and the Customer Response 11

although the chairman notes in his statement that it is now less dependent on CDs and has
moved more towards books and computer games.

It appears that Woolworths had identified, in a rational ‘neocortical’ way what its
core business was i.e. ‘the home, family and entertainment’.

The missing piece of the jigsaw however is contained in Baker’s final, emotional
(limbic) comment: ‘But you feel a loser going into Woolworths’.

Thinking with an ‘emotions are central’ paradigm would focus attention on
Baker’s comments first which would then allow a logical selection of products:
This model allows us to understand that the key question to ask is ‘How might
Woolworth’s customers “feel good” again?’ A starting point might be the affection
and nostalgia of UK customers for the brand, for example. This should then lead to
rational decisions around product selection – what products ‘fit with the emotions’
that Woolworths is trying to elicit and in fact, rather than specific products, is it
more about store design and organisation?

Contrast this with the risk of ignoring emotions and starting with ‘which products
to sell, how to organise logistics’ and other rational aspects of service design. What
are the chances of recovery if customers, despite the efforts of any rational, neocor-
tical strategy, continue to ‘feel like losers’ going into Woolworths?

Compare Woolworths with the Virgin Group. Virgin does not have a core set of
products or services. Rather, its website identifies a core set of values – in other
words emotions:

Virgin stands for value for money, quality, innovation, fun and a sense of competitive
challenge.

Virgin.com 2009

Clearly, this organisation has blended together a defined set of emotions and these
lie at the core of its business.

The rational, neocortical side of Virgin’s business is productively focused on
triggering this set of emotions in its workforce and its clients. Virgin has a sense of
how it wants us to feel and how it intends to elicit these limbic responses.

1.7  Service Design and Delivery: Putting It All Together

What are the implications for service design and delivery of our discussion so far?
In considering the setting up of a new service or in analysing an existing one,

managers need to start off with two fundamental sets of questions:

1. LIMBIC: What emotional (limbic) response are we seeking to elicit in our clients
and in our own work teams?

a. How are we going to elicit these limbic responses?

2. NEOCORTICAL: What Service are we seeking to provide? What business are
we in? i.e. are we providing after-care product support, rental services, retail
services and so on.

12 J.S. Dhaliwal et al.

a. How are we going to provide these services? Addressing this question forms
the basis of the rest of this book.

The interrelationship between these questions is demonstrated in Fig. 1.5.
Further, we can combine our understanding of limbic and neocortical brain

processes, our idea of a continuum of products and services and Slack’s model of
competitive advantage in the following grid (Fig. 1.6).

To see how this might work, let’s consider a worked example.
A water utility company.
First, it needs to consider the limbic response it wants to elicit.
How about this?!

LIMBIC
Key Emotional Drivers: How Do You Want Customers/Clients to Feel about your Service?
They are
‘luxurious’
‘exclusive’
‘unique’

We can instantly see that this ‘jars’ limbically, we see that it doesn’t ‘feel right’.
In fact, the thought of a water company that’s into ‘luxury and exclusivity’ tend to
raise the annoyance and anger levels and you can just imagine the screaming head-
lines about public utility profligacy.

Compare the above with this:

LIMBIC
Key Emotional Drivers: How Do You Want Customers/Clients to Feel about your Service?
‘safe and secure’
‘reliable’
‘trustworthy’
‘caring’

Fig. 1.5  Fundamental strategy design questions

1  Understanding Services and the Customer Response 13

Fig. 1.6  Service emotion, competitive advantage and degree of pliability

14 J.S. Dhaliwal et al.

You could also add the word ‘seamless’ in the sense that most of us don’t want
much interaction with the water company! Rather the preference would be that
water supply and sewage drainage continued to operate quietly in the background,
seamlessly supplying water and removing effluent.

This then translates into the following service transaction:

They are Offering a Dependability Scripted Electricity

‘safe and secure’ consistent Consistent customer experience service

‘reliable’ experience Low level, scripted human

‘trustworthy’ interaction – ‘friendly,

‘caring’ efficient, safe, secure, service’

In other words, in case a customer did need to contact the water company, the
nature of the transaction should be efficient, friendly but quick and seamless.

An upbeat service where the water company representative ‘wants to become
friends with you’ and seeks to take up your time jars with the emotional colour that
this utility is aiming to paint.

Contrast the above with a visit to a Disney theme park, which would seek to
stimulate a different mixture of emotions:

LIMBIC
Key Emotional Drivers: How Do You Want Customers/Clients to Feel about your Service?
Fun, exciting, fast
But still safe and secure

This could translate into the following model:

They are Offering a consistent Dependability Scripted
experience
‘Fun, exciting, Consistent customer
fast but still experience
safe and
secure’ Scripted human
interaction –
‘high energy, fun,
relaxed yet, safe
and secure’ but
flexible enough to
offer spontaneity.

Some services might want to elicit a powerful positive limbic response by pitching
for emotional drivers that are odds with customer expectations.

Consider car insurance.

1  Understanding Services and the Customer Response 15

The expectation, no doubt, would be this:

LIMBIC
Key Emotional Drivers: How Do You Want Customers/Clients to Feel about your Service?
They are
‘efficient’
‘no nonsense’
‘give me just want I need’
‘cut out the waste’

An example of this might be the Endsleigh Insurance’s website (Endsleigh 2009).

Contrast this with another approach:

LIMBIC
Key Emotional Drivers: How Do You Want Customers/Clients to Feel about your Service?
They are
FUN
‘efficient’
‘no nonsense’
‘give me just want I need’
‘cut out the waste’

16 J.S. Dhaliwal et al.

And now look at Elephant.co.uk’s website (Elephant 2009).

The thought of car insurance being ‘fun’ seems anomalous but this is clearly part
of the limbic response this company is seeking to create.

In a similar vein, one popular Italian restaurant in the West Midlands thrives not
because of the excellence of its food, but the renowned rudeness and indifference
of its waiters! People love to talk about the antics of the waiters and their over-the-
top snootiness!

Much of the remainder of this book will concentrate on the practical, logical
issues surrounding service design and delivery i.e. question 2.
2 . NEOCORTICAL: What Service are we seeking to provide? What business are

we in? i.e. are we providing after-care product support, dental services, retail
services and so on
a. How are we going to provide these services?
But in discussing the importance of emotions in this first chapter and the neuro-
logical basis for emphasising their importance, we hope you will continue to keep
question 1 at the forefront when analysing or designing a service.
1 . LIMBIC: What emotional (limbic) response are we seeking to elicit in our cli-
ents and in our own work teams?
a. How are we going to elicit these limbic responses?
Getting this question order the right way round appears to be critical to designing
and delivering successful services.

1  Understanding Services and the Customer Response 17

Having read through this chapter, practise identifying and assessing your limbic
and neocortical responses to services you encounter:

Exercises

What mixture of limbic responses are WE aiming to elicit from this book?! Take a
look at the cover, the colour scheme, the style of writing, the fonts used, the
diagrams included ….

Take a look at your bank’s website, visit a branch and talk to its employees … is
there consistency in the underlying emotional messages? If the emotional fla-
vour is ‘safe and discrete’ does this carry through? If it’s about being friendly,
open and plain-speaking, is this reflected?

The next time you are annoyed by a service, consider your underlying limbic and
neocortical responses … was it specifically WHAT they did that upset you (i.e.
the rational or neocortical aspect of the service) or was it HOW they did it (the
limbic aspect … typically to do with how a member of staff interacts with
you)?

References

Baker J (2009) BBC News http://news.bbc.co.uk/1/hi/magazine/7741199.stm. Accessed February
2009

ComputerPlanet (2009) http://www.computerplanet.co.uk/. Accessed 16 February 2009
Damasio AR (1999) The Feeling of What Happens. Heinemann, London
Damasio AR (2006) Descartes’ error: emotion, reason and the human brain. Vintage, London
Economist (2005) Mind Games. Economist. 374(8409): 71
Elephant (2009) http://www.elephant.co.uk/?media=adwo5. Accessed 15 February 2009
Endsleigh (2009) http://www.endsleigh.co.uk/car-insurance.html. Accessed February 2009
Gadrey J (2000) The characterization of goods and services: An alternative approach. Review

of income and wealth. 3(3): 369–387
Gladwell M (2006) Blink: The Power of Thinking Without Thinking. Penguin, London
Goleman D (1996) Emotional Intelligence: Why it Can Matter More Than IQ. Bloomsbury

Publishing PLC, London
Grabenhorst FRET, Parris BA (2008) From affective value to decision-making in the prefrontal

cortex. European Journal of Neuroscience 28(9): 1930–1939
Heath RG, Brandt D, Nairn A (2006) Brand relationships – strengthened by emotion, weakened

by attention. Journal of Advertising Research. 46(4): 410–419
Heath R, Feldwick P (2008) Fifty years using the wrong model of advertising. International

Journal of Market Research. 50(1): 29–59
Hill D (2003) Tell Me No Lies: Using Science to Connect with Consumers. Journal of Interactive

Marketing. 17(4): 61–72
Hill P (1999) Tangibles, intangibles and services: A new taxonomy for the classification of output.

Canadian Journal of Economics 32(2): 421–426
Jaguar (2009) http://www.jaguar.co.uk/uk/en/xk/build/buildyourown.htm. Accessed 13 February

2009

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Knutson B, Rick S, Wimmer G, et al. (2007) Neural predictors of purchases. Neuron 53(1): 147–156
Laibson D (2005) Impatience and Savings. NBER Reporter Fall
Ledoux J (1998) The Emotional Brain: The Mysterious Underpinnings of Emotional Life.

Weidenfeld and Nicolson, London
Levitt T (1981) Marketing Intangible Products and Product Intangibles. Harvard Business Review

59(3): 94–102
Lovelock C (2004). The Future of Services Marketing: Trick or Treat for Practitioners, Customers,

Students and Academics? lovelock.com. www.lovelock.com/associates/images/news/
Frontiers2004FutureofServicesMarketing.pdf. Accessed 31 October 2004
Morse G (2006) Decisions and Desire. Harvard Business Review 84(1):4251
PCSpecialist (2009) http://www.pcspecialist.co.uk/index.php?page=formindex&gclid=CPeGltvB
5pgCFcST3wodg33ibw. Accessed 15 February 2009
Salvador R, Folger R G (2009) Business Ethics and the Brain. Business Ethics Quarterly
19(1):131
Smith A (1776) The Wealth of Nations. Wiley, Chichester
Slack N, Lewis M (2003) http://road.uww.edu/road/bramorst/250768/Slack%20PowerPoints/
ch02.ppt. Accessed 14 February 2009
Slack N, Chambers S, Johnston R (2006) Operations Management, Financial Times/Prentice
Hall, London
Swaminathan N (2007) Brain Damage for Easier Moral Choices. Scientific American 296(6): 36
Virgin.com (2009) http://www.virgin.com/AboutVirgin/WhatWeAreAbout/WhatWeAreAbout.
aspx. Accessed 16 February 2009

Chapter 2

Goods, Products and Services

Glenn Parry, Linda Newnes, and Xiaoxi Huang

2.1  Introduction

Defining terminology is a useful starting point when reading or writing on the
subject of service to prevent any confusion or assumptions that we all understand
the terms to mean the same thing. So, what do we mean by goods, products and
services? This is a book about service, but what is a ‘service’ and how is it different
to ‘goods’ or ‘products’? Whilst most people intuitively know the difference
between a product and service, actually defining this difference with clarity and
accuracy of text is not straight forward. The terms ‘goods’ and ‘products’ appear to
be used interchangeably in much of the literature, but even here we can find debate
about meaning (Araujo and Spring 2006; Callon 1991, 2002). However, for the
sake of brevity we will here accept that they both refer to the same thing and focus
on attempts to differentiate goods and services. This quest is far from straightfor-
ward. Since the early eighteenth century academics and scholars from different
domains have attempted to define these terms explicitly (Say 1803; Levitt 1981;
Hill 1999; Gadrey 2000). In this chapter we will attempt to illustrate their findings
in order to provide some background to the debate.

2.2  Goods

In the eighteenth century Adam Smith (1776) stated that goods have exchange-
able value and so a characteristic of a good is that its ownership rights can be
established and exchanged. Goods can be considered as embodying specialised

G. Parry (*) 19
Bristol Business School, University of the West of England, BS16 1QY
e-mail: [email protected]

M. Macintyre et al. (eds.), Service Design and Delivery, Service Science: Research
and Innovations in the Service Economy, DOI 10.1007/978-1-4419-8321-3_2,
© Springer Science+Business Media, LLC 2011

20 G. Parry et al.

knowledge in a way that is highly advantageous for promoting the division of
labour (Smith 1776; Demsetz 1993). Nassau Senior (1863) described goods as
material things, meaning that goods are tangible and have physical dimensions.
These concepts were still accepted over 100 years later when The System of
National Accounts (SNA) (1993) defined goods as physical objects for which a
demand exists, over which ownership rights can be established and whose owner-
ship can be transferred from one institutional unit to another by engaging in
transactions on markets. Hill (1999) summed up the major characteristics of
goods as an entity that exists independently of its owner and preserves its identity
through time; his definition supporting of that of the SNA. Following these defini-
tions we can outline a set of attributes for goods:

• Physical objects for which a demand exists
• Their physical attributes are preserved over time
• Ownership rights can be established
• They exist independently of their owner
• They are exchangeable
• Unit ownership rights can be exchanged between institutions
• They can be traded on markets
• They embody specialised knowledge in a way that is highly advantageous for

promoting the division of labour

These attributes are broadly accepted by academics and reflect 200 years of
ongoing debate.

2.3  Services

Although we have found a long standing agreement over the definition of products/
goods and their characteristics, the definition of services has never reached consen-
sus. Consequently it is hard to obtain full acceptance about the distinction between
goods and services. Here we will present some of the different perspectives on
service from the literature.

2.4  Intangible, Heterogeneous, Inseparable & Perishable
(IHIP) Characteristics

As marketers began to recognise and emphasise the importance of services (Fisk
et al. 1993) they consequently called for services to form a separate part of a com-
panies’ marketing strategy (Lovelock 1983). A major contribution to the services
debate was a classification consisting of four features:

• Intangible
• Heterogeneous

2  Goods, Products and Services 21

• Inseparable
• Perishable

These features of what makes a service, referred to as ‘IHIP’ characteristics, have
formed the basis of a consensus in most of the marketing literature. But what do
they mean in this context and do they provide a strong differentiator? Each charac-
teristic is discussed below.

2.4.1  Intangible

Intangible things are not physical objects and only exist in connection to other
things. Examples include a brands image, or goodwill. Harker (1995) humorously,
though usefully described services as ‘something that you cannot drop on your
foot’, which vividly illustrates the intangible characteristics of services. Although
the habit of describing services as intangible goods comes from the economics lit-
erature (Hill 1999; Miller 2000), this view is common in management and market-
ing sectors (Chase and Aquilano 1992; Bowen and Ford 2002).

However intangibility may have failings as a differentiator between service and
product. What is music, a book or a film? A product or a service? Hill (1999) identi-
fied this group of intangible products in the form of entities that are recorded and
stored on media such as paper, film, tape or disk. Intangible products include the
stories generated by authors, music created by composers or software games
designed by software engineers. Although these have no physical dimensions of
their own, Hill (1999) argues that in their saleable form these intangible products
have the salient economic characteristics of goods and little in ­common with ser-
vices. Therefore he suggests this type of intangible product should be recognised
and marketed as a type of good rather than a service. The intangible nature of ser-
vice is a useful characteristic to employ, but an ambiguity remains.

2.4.2  Heterogeneous

A common service varies according to the context, nature and requirements of each
customer. It may be varied according to different quality standards associated with
different costs; services can be varied across regions or cultural background; services
can also be fluctuated by different characteristics of providers. Therefore heterogeneity,
referring to the multifaceted different experience that may be had from a single type
of service is considered as a factor to distinguish goods from services.

However, numerous exceptions can be invoked to counter this distinction. For
example, some tangible goods can be heterogeneous. For example in the automotive
sector, the Mercedes E Class car is offered with 1024 variations and the claim on the
production line is there has never been two the same (Schaffer and Schleich 2008).
In contrast, services can be standardised. McDonald’s produces food under highly

22 G. Parry et al.

automated and controlled conditions (Levitt 1972) and customers receive the same
taste and quality of a certain type of burger all around the world – a homogeneous
offering. Yet most would consider a car to be a product and fast food a service.

2.4.3  Inseparable

Services may be said to be inextricably linked with customers in terms of
production and consumption and so it is said that service is inseparable. For
instance, a service provider may not provide their services until the customer
engaged. In contrast, a manufacturing company can still manufacture and deliver
goods through channels of distribution without knowing the end customers.
However, this characteristic is also open to challenge and interpretation. Automated
services such as an ATM allow customers access to a predefined set of services,
such as to check bank account balances and withdraw money, without the pre-
knowledge or assistance of banking staff. It could be argued that here the production
and consumption must be separated in order for the service to be mechanised.

2.4.4  Perishable

Using technical criteria to define services, Smith (1776) states a service will
‘perish in the very instant of its performance, and seldom leave any trace or value
behind them for which an equal quantity of services could afterwards be
procured’. Here Smith shows one of the important features of services, which is
perishability. It may be said that services are not a stock of fixed assets and it is
not possible to store services in inventories (Hill 1999; Gadrey 2000). For
example, when operating an airline a seat on a plane may be offered for a Sunday
night flight. If that seat is not sold, it cannot be stored and sold in the future – it
has perished. Likewise, if a traveller buys the seat and flies to their destination,
once the contract ends, the client is no longer entitled to stay in the seat or to
acquire any further services from the airline. Hence, the services provided perish
in the very instant of the contract termination and may be described as leaving no
trace or value behind them.

Jean Gadrey (2000) argued that services were not necessarily perishable, using
the example of the servant to illustrate his point. If it is the servant’s task to clean
and tidy the premises, then the output of their efforts does not vanish when the work
is done. In fact, the visual result is used to evaluate the quality of the work.
Therefore perishability is not a definite feature for all service sectors, but certainly
may be a useful characteristic to recognise in many service domains (Fisk et  al.
1993; Hill 1999; Zeithaml et al. 2006; Araujo and Spring 2006).

Whilst IHIP characteristics are useful to the discussion on services, the charac-
teristics of a service offering they propose cannot be used to distinguish all goods
and services because we can find exceptions in each case.

2  Goods, Products and Services 23

2.5  Experience

The notion of service as experience is provided by Pine and Gilmore (1998), who
suggest: ‘Experiences occur whenever a company intentionally uses services as the
stage and goods as props to engage an individual’. For instance, when a ticket for a
rock concert is bought the buyer is provided a particular seat and is entertained by
musicians. It may be argued that they did not wish to buy a ticket or a seat but in fact
their purchase relates to their desire for a memorable and unique experience. Tangible
goods and intangible services are brought together to create a memorable experience
for customers at a point in time. Following Pine and Gilmore (1998) we can suggest
that the value of experience is a significant intangible characteristic of a service.

2.6  Quality

Customer service and service quality are key issues facing many service operations
managers. For a tangible product, customers can visualise its physical attributes
before purchase (Zeithaml 1981). For example, even though they perform a similar
‘transport’ function one can easily justify why a Rolls Royce is more costly than the
basic Tata Nano motor car from their aesthetic characteristics (Bowen and Ford
2002). However, it is relatively more difficult to compare the banking service pro-
vided by two similar UK based high street banks such as HSBC plc and NatWest plc
objectively. We may, for example, be heavily influenced by our own or our friends
experience. Chase and Dasu (2001) conclude that u­ ltimately a customer’s perception
will be a determining factor on the e­ ffectiveness of a service organisation. Therefore
managers of service operations would usefully have a methodology to evaluate cus-
tomer satisfaction and loyalty subjectively (Heskett et al. 1994; Bowen and Shoemaker
1998; Paulin et al. 2000). Lundberg noted that more often than not, the quality and
value for a particular service can depend wholly on the customer’s judgement at that
particular instance (Lundberg 1991). For example, two people sat together can easily
have different views on a music concert and even the same person can have different
opinions of the service experience if asked at different times (Bowen and Ford 2002).
One commonly cited method that has been developed to assess the subjective quality
of a service is named SERVQUAL which is based on the gaps between expectation
and the perception of the service delivered (Parasuraman et al. 1988). SERVQUAL
enables service and retailing companies to evaluate consumer perceptions of service
quality and helps to identify areas requiring managerial action (Parasuraman et al.
1988). The approach divides the notion of a service into five f­actors that address a
customer’s perception of quality. The factors are:

• Tangibles – physical facilities, equipment, staff appearance, etc.
• Reliability – ability to perform service dependably and accurately
• Responsiveness – willingness to help and respond to customer need
• Assurance – ability of staff to inspire confidence and trust
• Empathy – the extent to which caring individualised service is given

24 G. Parry et al.

Quality is measured for each factor by the gap between the expectation and the
perceived service delivered. Using this method it is possible to gauge how well a
service offered meets the expectation of a customer. Using this model suggests that
manipulation of individual customer expectation through marketing or brand man-
agement can alter perception and hence the quality of the service.

2.7  Tradability

The producer of a certain product is its first owner, but the ownership can be trans-
ferred in terms of money or goods exchange during trading. According to Rathmell
(1966), compared to goods, a service is an act rather than a thing. When a service
is purchased the buyer pays out his money without establishing an ownership right
because there is no actual asset to establish ownership of. In contrast, when a good
is purchased the buyer acquires an asset where he can establish his ownership right.
As such goods and services may be defined with reference to their tradability. The
SNA (1993) definition mentioned earlier defined services as outputs produced to
order and which cannot be traded separately from their production; ownership
rights cannot be established over services and by the time their production is
c­ ompleted they must have been provided to the consumers. From this definition,
two ways to distinguish goods and services are tradability and ownership rights,
with goods often seeming more tradable than services. This is because goods
such as clothes and electronics have a physical presence and therefore may
prove relatively easier to distribute globally, providing sufficient funds and resources.
In the days of Adam Smith it would have appeared near impossible to produce
services in one country and subsequently export them to another country. However,
as a result of the rapid development of technology, such as the internet and telecom-
munication channels, services can now be provided in a way similar to goods. It is
not unusual, for example, to set up a telephone call centre in India and to provide
services back to the UK (Araujo and Spring 2006). Companies adopting this
approach may take advantage of the cheaper labour of one country whilst gaining
the higher price of providing that service in another. Due to this, Hill (1999) con-
cluded that services can be, and are, exported, but only by resident producers pro-
viding the services directly to non-resident consumers.

2.8  A Change of Condition

Hill (1977) defined service as a change in the condition of a unit or a person, or of
goods belonging to some economic unit, which is brought about as a result of the
activity of some other economic unit, with the prior agreement of the former person
or economic unit. Hill emphasises that the institutional structure of production is
essential for the definition of services. Gadrey (2000) then built the service triangle

2  Goods, Products and Services 25

involving producer-user interaction. The concept of the triangular relationship is
illustrated by Gadrey’s garage example. Someone (A) owns a car (B) and the owner
(A) requests a garage (C) to repair the car. Ownership rights are not exchanged, but
value is created for both the owner in terms of having the car fixed and the garage
in terms of financial reward. Gadrey (2000) points out services always involve a
triangular relationship between A, B and C. This main contribution clarifies the
nature of services and places producer-user interaction at the centre of attempts to
distinguish between goods and services.

2.9  Goods and Services, or Is It All Service?

From the analysis so far, it is found that there is no perfect definition for separating
goods from services, though scholars have been trying for a very long time. In their
attempts to identify the differences between goods and services the similarities
between them are often neglected. Firstly, both goods and services can be tradable
which means both entities must at least have one provider and one customer. The
customer often pays an agreed fee to the provider in order to acquire the ownership
of a certain good or gain services for a certain period of time. In addition, there is
always a reason and motivation behind the act of providing certain goods and ser-
vices. It could be the provider who wants to make profit or improve their reputation.
Secondly, the characteristics of goods and services often overlap each other.
It is believed that there are actually very few pure goods and pure services. Instead
they may form a spectrum from pure goods on one side to pure services at the other,
with tangibility as the differentiator, joint entities in between having variations of
joint characteristics (Shostack 1977, 2001). Commodity items which are traded
globally based solely on price may be thought of as a pure form of tangible good
e.g. wheat, gold, crude oil. A purely intangible service may be teaching as each
person in the class will gain something different from the experience. John Rathmell
(1966) took a sculpture as an example of a pure good as ‘no act is performed’ –
though as a sculpture has aesthetic value, which could be seen as intangible, this
may be questioned. He also suggested that the benefit or utility arising from legal
counsel represented a pure service. With these forming the extreme, most goods,
whether consumer or industrial, require supporting services in order to be useful;
most services require supporting goods in order to be useful. Hence they will sit at
a point along this spectrum. It may be more appropriate to take a goods-services
continuum view point rather than defining goods and services explicitly.

Vargo and Lusch (2004, 2006, 2008) develop this line of thinking further and
contend that all products and services only realise their value through their use. All
products and services exist to provide ‘service’ to a customer, hence everything is
a service. They have developed this into a concept they describe as ‘Service
Dominant Logic’ or SD-logic. SD-logic focuses upon the concept of value creation
rather than ‘production’ and places value creation as an interactive process where
the firm and their customer must be considered within their relational context.

26 G. Parry et al.

Firms work in value creation networks, in dialogue with their partners co-creating
value. They state that ‘innovation is not defined by what firms produce as output
but how firms can better serve’. They make a clear distinction between competing
with offerings called services, which reflects a product/service distinction and com-
peting through service to provide value and positive experience for all parties.

We can see the rise of ‘service’ within industry as manufacturing firms provide
more complex product service combinations so that they do not need to compete on
the basis of cost along (Neely 2010). Servitization is the term becoming more
commonly used to describe this process, where companies increase revenue by
offering service options in addition to their products, such as guaranteeing
availability or providing service for the products life (Vandermerwe and Rada 1988;
Oliva and Kallenberg 2003). This integration of products and services has been
labelled a ‘product and service system’ [PSS]. PSS are described as offering ‘value
in use’ (Baines et al. 2007), which means their value is only realised through their
utility – which takes us back towards the concept of service as experience (Pine and
Gilmore 1998).

2.10  What Are Products/Goods and Services?

Despite many years of research clear definitions of product and service has eluded
researchers. Figure 2.1 shows the timeline for some of the debate in the literature,
covering more than 200 years.

From this work the ambiguity of any single definition of service and how any
perspective taken may influence process or value should be recognised. What we
have seen is that the thinking has shifted from a pure service or pure product focus
to a combination or product-service system (PSS). This recognises the offering of
a combination of product and service for which greater revenue may be generated.
Taking a pragmatic view, we should work with the customer to understand how
goods and services best create a service value proposition, meet market require-
ments and generating sustainable profit for the firm and the customer.

Exercises

• Identify three different services that you have used and are familiar with.
° Why are the three cases you chose services and not products?
° How is the service delivered?
° What contribution do you as a client have to make to access value from the
service?
▪ E.g. fill in forms, make decisions etc.
° Could you improve on the design of one of these services to deliver a better
experience for the client and greater profit for the provider?