Service Management and Marketing: Managing the Service Profit Logic, 4th Edition

CHAPTER 3THE SERVICE PROFIT LOGIC AND SERVICE MANAGEMENT PRINCIPLES

“In service, costs and revenues are inseparable. The same resources, activities and processes drive both costs and revenues – and ultimately profits.”

INTRODUCTION

This chapter will discuss the nature of a service strategy, based on the service profit logic, and the importance of customer perceived quality. This includes a discussion of the pitfalls for service organizations of strategic management from a traditional manufacturing perspective, and the development of a service-oriented view of the business logic. Thus, the importance of a service-oriented approach to strategy and management is emphasized. Finally, service management as a management philosophy is defined and principles of this approach to management are discussed. After having read this chapter the reader should understand the Service Profit Logic and how it differs from a conventional manufacturing profit logic, and be familiar with the pitfalls of a traditional management approach in service contexts. Finally the reader should know how to apply a service logic to management and service management principles.

SOME TRADITIONAL AND POTENTIALLY DANGEROUS STRATEGY LESSONS FROM MANUFACTURING

For a manufacturer of goods, conventional managerial thinking generally includes, among other elements, three rules of thumb to follow in order to strengthen or maintain the competitive edge of a firm:

1. Decrease production and administration costs, to decrease the ...