Chapter 15:

Organizing for Change Management and Service Leadership

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 15 - 1

Overview of Chapter 15
 Effective Marketing Lies at the Heart of Value Creation  Integrating Marketing, Operations, and Human Resources  Creating a Leading Service Organization  In Search of Human Leadership  Change Management

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 15 - 2

Effective Marketing Lies at the Heart of Value Creation

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 15 - 3

The Service-Profit Chain

(Fig 15.1)
Internal External

Operating strategy and service delivery system

Loyalty Satisfaction Productivity and Employees Output Quality Capability Service Quality
Workplace design Job design Selection and development Rewards and recognition Information and communication Tools for serving customers
Slide 2007 by Christopher Lovelock and Jochen Wirtz

Service Concept

Target Market
Revenue growth 1 Loyalty Profitability

4-7 Customers Service Value 3 Satisfaction 2

Quality and Attractive value productivity Service designed Improvements and delivered to yield higher meet targeted service quality customers needs and lower costs
Services Marketing 6/E

Lifetime value Retention Repeat business Referral

Chapter 15 - 4

Links in the Service-Profit Chain

Table 15.1

1. Customer loyalty drives profitability and growth 2. Customer satisfaction drives customer loyalty 3. Value drives customer satisfaction 4. Employee productivity and retention drive value 5. Employee loyalty drives productivity 6. Employee satisfaction drives loyalty and productivity 7. Internal quality drives employee satisfaction 8. Top management leadership underlies chains success
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 - 5

Qualities Associated with Service Leaders

 Understands mutual dependency among marketing, operations and human resource functions of the firm  Has a coherent vision of what it takes to succeed  Strategies are defined and driven by a strong, effective leadership team  Responsive to various stakeholders  Value creates through customer satisfaction

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 15 - 6

Integrating Marketing, Operations, and Human Resources

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 15 - 7

Reducing Interfunctional Conflict

 One challenge is to avoid creating functional silos
 High-value creating enterprises should be thinking in terms of activities, not functions

 Top management needs to establish clear imperatives for each function that defines how a specific function contributes to the overall mission
 The marketing imperative  The operations imperative  The human resources imperative

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 15 - 8

Defining the Three Functional Imperatives

 Marketing Imperative
 Target right customers and build relationships  Offer solutions that meet their needs  Define quality package with competitive advantage

 Operations Imperative
 Create and deliver specified service to target customers  Adhere to consistent quality standards  Achieve high productivity to ensure acceptable costs

 Human Resource Imperative

 Recruit and retain the best employees for each job  Train and motivate them to work well together  Achieve both productivity and customer satisfaction

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 15 - 9

Creating a Leading Service Organization

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 15 - 10

From Losers to Leaders: Four Levels of Service Performance (1)

 Service Losers
 Bottom of the barrel from both customer and managerial perspectives  Customers patronize them because there is no viable alternative  New technology introduced only under duress; uncaring workforce

 Service Nonentities
 Dominated by a traditional operations mindset  Unsophisticated marketing strategies  Consumers neither seek out nor avoid them

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 15 - 11

From Losers to Leaders: Four Levels of Service Performance (2)

 Service Professionals
 Clear market positioning strategy  Customers within target segment(s) seek them out  Research used to measure customer satisfaction  Operations and marketing work together  Proactive, investment-oriented approach to HRM

 Service Leaders
 The crme da la crme of their respective industries  Names synonymous with outstanding service, customer delight  Service delivery is seamless process organized around customers  Employees empowered and committed to firms values and goals

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 15 - 12

Dilberts Boss Loses Focus and His Audience

Fig 15.3

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 15 - 13

Moving to a Higher Level of Performance

 Firms can move either up or down the performance ladder  Organizations that are devoted to satisfying their current customers may miss important shifts in the marketplace  As a result, they may face difficulties attracting demanding new consumers with different expectations  Companies defending their control of their competitive edge may have encouraged competitors to find higherperforming alternatives  Organizations with a service-oriented culture may turn otherwise as a result of a merger or acquisition that brings in new leaders who emphasize short-term profits
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 - 14

In Search of Human Leadership

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 15 - 15

Leading a Service Organization Involves Eight Stages (1)

 Creating a sense of urgency to develop the impetus for change  Putting together a strong enough team to direct the process  Creating an appropriate vision of where the organization needs to go  Communicating that new vision broadly

Source: John Kotter Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 - 16

Leading a Service Organization Involves Eight Stages (2)

 Empowering employees to act on that vision  Producing sufficient short-term results to create credibility and counter cynicism  Building momentum and using that to tackle tougher change problems  Anchoring new behaviors in organizational culture

Source: John Kotter Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 - 17

Leadership versus Management

 Leadership
 Concerned with development of vision and strategies, and empowerment of people to overcome obstaclesmake vision happen  Emphasis on emotional and spiritual resources  Works through people and culture  Produces useful change, especially non-incremental change

 Management
 Involves keeping current situation operating through planning, budgeting, organizing, staffing, controlling, and problem solving  Emphasizes physical resourcesraw materials, technology, capital  Works through hierarchy and systems  Keeps current system functioning

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 15 - 18

Setting Direction versus Planning

 Planning  A management process, designed to produce orderly resultsnot change  Setting direction  Involves creating visions and strategies that describe a business, technology, or corporate culture in terms of what it should become over long term and articulating feasible way of achieving goal  Many of best visions and strategies combine basic insights and translate them into realistic competitive strategy  Stretcha challenge to attain new levels of performance and competitive advantage that might as first seem to be beyond the organizations reach  Planning follows and complements direction setting, serving as useful reality check and road map for strategic execution  See Service Persp. 15.1 : Can Cirque du Soleil Stretch Further?
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 - 19

Individual Leadership Qualities

 Possesses a special perspective  Able to believe in their employees and make communicating with them a priority  Love of the business  Being driven by a set of core value that they infuse into the organization  Need not be charismatic, but has to be principled  Must have personal humility blended with intensive professional will, ferocious resolve, and willingness to give credit to others but take blame themselves
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 - 20

Change Management

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 15 - 21

Evolution versus Turnaround (1)

 Evolution involves continual mutations designed to ensure the survival of the fittest
 Top management must proactively evolve the focus and strategy of the firm to take advantage of changing conditions and the advent of new technologies

 Turnaround situations are where leaders seek to bring distressed organizations back from the brink of failure and set them on a healthier course
 Example: Amex (Service Perspectives 15.2)  Can be advantageous to bring in a new CEO from outside the organization

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 15 - 22

Evolution versus Turnaround (2)

 Hurdles that leaders face in reorienting and formulating strategy
    Cognitive hurdles Resource hurdles Motivational hurdles Political hurdles

 Turning around an organization that has limited resources requires concentrating those resources where the need and the likely payoffs are greatest
 Example: William Brattons 20-year police career in Boston and New York

 A firms search for growth often involves expansioneven diversification into new lines of business
 Example: IBM
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 - 23

Role Modeling Desired Behavior

 Management by walking around
 Provides insights to both backstage and front-stage operations  The ability to observe and meet both employees and customers, and opportunity to see how corporate strategy is implemented on the front line  Best Practice In Action 15.2

 This approach may lead to a recognition that changes are needed in that strategy  A risk of prominent leaders becoming too externally focused at the risk of their internal effectiveness

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 15 - 24

Leadership, Culture, and Climate (1)

 Leadership traits are needed of everyone in supervisory or managerial positions, including those heading teams
 Effective communication is essential for a leader

 Organizational culture
 Shares perceptions or themes regarding what is important in the organization  Shares values about what is right or wrong  Shares understanding about what works and what doesnt work  Shares beliefs, and assumptions about why these things are important  Shares styles of working and relating to others

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 15 - 25

Leadership, Culture, and Climate (2)

 Organizational climate
 The tangible surface layer on top of the organizations underlying culture  Factors of influence:
Flexibility, responsibility, standards that people set, perceived aptness of rewards, clarity people have about mission and values, level of commitment to a common purpose

 Creating a new climate for service, based on understanding of what is needed for market success, may require
 Radical rethinking of HRM activities, operational procedures, and the firms reward and recognition policies

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 15 - 26

Summary of Chapter 15: Change Management and Service Leadership (1)

 Service profit chain provides useful summary of behaviors required of service leaders to manage effectively  Marketing, operations, and human resource management functions need to be closely coordinated and integrated in service businesses  Four levels of service performance
    Service losers Service nonentitites Service professionals Service leaders

 Service leadership is not based on outstanding performance within a single dimension, but must cut across marketing, operations and human resources
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 - 27

Summary of Chapter 15: Change Management and Service Leadership (2)

 Leading a service organization involves eight stages  To be effective, leaders need to understand difference between leadership versus management, as well as setting direction versus planning  Transformation of organization can take place in two ways:
 Evolution  Turnaround

 Role modeling is one of traits of successful leaders  Leaders play a big part in nurturing an effective organizational culture that transforms an organization into a successful one
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 15 - 28