Sultan Qaboos University
College of Economics and Political Science
Department of Operations Management & Business Statistics
POMG 3715: Service Operations Management
Spring 2020
Midterm Exam (35%)
Total 40 Marks
Date: 4/5/2020
Duration: Monday 8:00 am to Wednesday 8:00 am
Instructor: Dr. Samiya Al-Jabri
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Page 1 of 12
CASE STUDY
Dog-walking startup Wag raised
$300 million to unleash growth.
Then things got messy
By Sara Ashley O'Brien, CNN Business
Updated 1635 GMT (0035 HKT) September 27, 2019
(CNN)At the start of 2018, Wag looked like tech's next Big Thing.
In January, the founders of the dog-walking startup announced they had landed
a $300 million investment from SoftBank's Vision Fund. The world's largest tech
investor, SoftBank had $93 billion at its disposal and a network of global
connections second to none. Unlike almost any other venture capital firm, it was
capable of single-handedly supercharging businesses and shaking up entire
industries.
Launched in 2015 at the height of the on-demand boom, Wag was founded by
brothers Joshua and Jonathan Viner, along with Jason Meltzer, who previously
ran a traditional dog walking business. Together, they followed Uber's playbook:
connect pet owners with Wag's network of dog walkers, who work as
independent contractors.
The startup attracted endorsements from celebrities including singer Mariah
Carey and actress Olivia Munn, who is also an investor. By the time of the
SoftBank deal, Wag had reached 100 US cities. With SoftBank's backing, and
the appointment of a veteran CEO around the same time, Wag looked primed
to become a global pet care services leader.
More than a year and a half later, SoftBank and Wag have fallen short. Wag
has gone through multiple rounds of layoffs, endured management changes,
and shuttered its customer service hub in the Hollywood Hills, according to
interviews with 17 former employees who've recently left Wag, some as part of
layoffs. Most spoke with CNN Business on condition of anonymity, citing nondisclosure agreements or fears of retaliation.
Page 2 of 12
Some of the former employees claim that Hilary Schneider, a veteran tech
executive who joined Wag as CEO in January 2018, has yet to get a handle on
fundamental issues facing the business -- including growth, safety of pets, and
customer service.
Wag's stumbles highlight the challenges that startups face in trying to apply the
popular on-demand model to upend a range of industries in pursuit of rocket
ship growth, even with a war chest of funding. It comes amid broader doubts
about SoftBank's strategy to pump vast amounts of capital into flashy tech
startups. Two of SoftBank's other large investments, Uber and WeWork, have
received pushback from public market investors.
"Senior leadership [at Wag] was disengaged from the company and product
and didn't have a good understanding as to the strategy needed to make it
viable long term," said Eric Weinmann, who was responsible for analytical
reporting, strategy, and analysis concerning growth and user acquisition from
August 2018 to July 2019. "Wag never appeared to have a coherent way to
measure successes and failures."
In a lengthy statement in response to a detailed list of questions from CNN
Business, a Wag spokesperson said its "senior leadership is highly intentional
with its direction of Wag, using a data-driven approach to guide strategy and
growth, while also improving the customer experience."
The company also repeatedly stressed that it is working to "grow thoughtfully"
to add "long term value for the business," while focusing on "driving customer
retention and loyalty."
The company's once compelling growth has declined while Rover, its main
competitor, continues to see increased sales and to dominate over Wag,
according to data provided by research firm Second Measure.
Page 3 of 12
Softbank Group CEO Masayoshi Son has pumped billions into flashy tech startups,
including Uber and WeWork, through the Vision Fund, a massive technology investment
fund. But some of these bets, like Wag, have not performed as well as expected.
While Wag started as a dog-walking startup, Rover launched four years earlier
as a boarding service for canines -- a more costly but typically less frequent
need for pet owners. Both now have expanded upon their original offerings to
become directly competitive. This year, Rover branched out to include services
for cats.
After the SoftBank deal, which rocketed Wag's valuation to north of $600 million
according to Prime Unicorn Index, which tracks valuations of privately-held
companies, Wag was gaining market-share over Rover. It held nearly 23% in
the first quarter of 2018. However, it now holds about 16% of the market
compared to Rover, data from Second Measure shows.
Wag's struggles since raising hundreds of millions of dollars casts doubt on
SoftBank's ability to declare winners in the market with its checkbook alone. It
also highlights the challenges of trying to scale an Uber-style business that
impacts not just real customers, but their beloved pets.
Runaway growth — and dogs
In the wake of the Great Recession, entrepreneurs raced to build every type of
app-based, on-demand service they could think of — from grocery delivery and
meal kits to at-home manicures, laundry pickup, house cleaning and, of course,
getting a ride. So why not dog walking?
That's how Jonathan Viner described the lead-up to founding Wag in a podcast
interview published last fall. His brother, Josh, had wanted to get a dog for years
but was told by family members that he was too busy to take care of one.
"[Josh] got really excited about an opportunity to build an app that was a button
on the phone for dogs. He felt like, if he had this problem then many, many
other people that want to own and rescue dogs also [would have this same]
problem," Jonathan said in the podcast.
The brothers had started businesses together before, most recently a social
dating service ChirpMe, which reportedly sold for an undisclosed amount in
Page 4 of 12
2013. Mike Walsh, a general partner at Structure Capital, which was an early
investor in Wag, described the brothers to CNN Business as "so smart" that it's
"almost difficult to communicate" with them.
Wag was built to be "a button on the phone for dogs," according to one of its founders.
Even with its massive cash infusion last year, the app has struggled to keep pace with
rival Rover.
With Wag, their aim was to help dog owners access its vetted local dog walkers
at any time.
Pet owners can request a lockbox from Wag that allows dog walkers to let
themselves into the home with a simple code to retrieve a dog for a 30-minute
or 60-minute walk, or a 20-minute check-in. A 30-minute walk starts at $20.
Capitalizing on the popularity of animals on social media, Wag uses its social
platforms to post irresistible photos of dogs taken by walkers on the job.
Wag faced all the usual pain points of an on-demand startup relying on contract
workers, including questions about its background checks and its ability to
thoroughly train its workers. On top of those, though, it had added a uniquely
challenging element: the unpredictability of dogs and how they'll react to
strangers leashing them up for a walk.
Local publications across the country have chronicled a long list of concerning
incidents including lost dogs and even some dogs dying in the care of Wag, and
competitor Rover's, service. In response to an incident on its platform, Rover
recently said that incidents are "rare" but should one occur "our team will
conduct an in-depth investigation and take appropriate actions, such as
removing users from our community."
Wag has had at least five allegations made public of dogs being abused or
dying in its care in the past year. The company didn't directly address CNN
Business' questions about safety incidents in its statement but in response to a
recent incident, Wag said that it cares "very deeply about the health and safety
of the dogs walked on our platform." In a blog post earlier this year, Schneider
addressed backlash related to how it has handled some of these issues in the
past.
From the start, the Viners had to deal with runaway dogs, a problem that only
became more frequent as the company scaled. The team, which initially
Page 5 of 12
operated on laptops out of the Viners' home in Los Angeles, would drop
everything to search for dogs that had gotten off leash while under the care of
its walkers, according to one early employee.
The rest of the time, the Viners were relentlessly focused on growth -- adding
more walkers to provide more and more walks, the early employee told CNN.
The Viners did not respond to request for comment for this story.
Some former employees looked back fondly on the early days, describing a
love for dogs and a sense of mission to build up Wag. They also described the
culture as that of a fast-growing startup with some not uncommon issues. For
one, the company didn't have a dedicated human resources person on staff
until around the time the SoftBank deal was announced. And, at least two of
the individuals CNN spoke with mentioned inconsistency in salaries, with
managers at times making less than those in inferior roles or in the same roles,
for instance.
When they started expanding, that's when things got messy.
A FORMER WAG CUSTOMER SERVICE EMPLOYEE
"When they started expanding, that's when things got messy," a former
customer service employee, citing growth that began really ramping up in 2017.
"We couldn't handle our volume, we weren't trained properly, there were no
expectations when it came to incidents. The more clientele we had, the more
incidents that would arise."
Incidents include dogs getting off-leash, injured, or worse. Customer service
workers were tasked with calling local shops around town "hoping someone
would see the dog," but weren't supposed to reveal that Wag was calling,
according to one former employee in the department. "You'd have to say, 'my
friend's dog is lost and we're looking for it,'" the former customer service
employee said.
SoftBank's investment and Schneider's appointment were viewed as steps
necessary to steer a scrappy startup and its internal processes towards
maturity. After naming Schneider as CEO, the brothers officially departed six
months later, sharing plans to launch an investment fund.
Page 6 of 12
WeWork CEO Adam Neumann is stepping down
Earlier this year, the two launched a scooter startup called Wheels. They've
recruited at least a few former Wag employees and their website notably touts
their ability to raise nearly $400 million in capital at Wag.
Cofounder Jason Meltzer, who stayed on after the Viners, told CNN Business
he is also no longer at Wag but did not state when he left. He said he has started
a new company in the entertainment space, and is advising startups. He did not
respond to a list of questions sent over about his time at Wag but said he plans
to write a book about the early days at some point.
A veteran leader takes the reins
Before joining Wag, Schneider had most recently led LifeLock through its $2.3
billion acquisition by Symantec in 2016. Prior to that, Schneider had been
executive vice president at Yahoo! Americas.
After LifeLock, Schneider wasn't sure if she would take on another full-time role,
she said in an on-stage interview at the Spark 2019 conference. She added that
Wag fell into a slim category of companies that would give her the ability to work
on building a consumer brand and doing good for the world.
"The founders of Wag reached out -- and it was like, 'What an incredible
opportunity,'" said Schneider. SoftBank had knowledge that Schneider was
being tapped for the role as part of its due diligence process around the deal, a
source familiar told CNN Business.
Hilary Schneider, a veteran technology executive seen here during her time at Yahoo,
joined Wag around the time of the SoftBank investment. Some former Wag employees
say she has been disengaged.
After the Viners left, there were a slew of departures of early Wag employees,
and Schneider started appointing new leadership in the Bay Area, where she
lives, some of whom have already departed the company. Under her, the
company's Los Angeles operations, once the heart and soul of its business,
have been effectively left behind in favor of its Mountain View office and its
office in San Francisco, some former employees said. Operating out of a
Page 7 of 12
different city from Wag's original headquarters, Schneider is viewed by some
employees as disengaged.
"We invented on-demand dog walking in 2015 in Los Angeles and remain
committed to our Los Angeles headquarters location," according to a Wag
spokesperson.
Schneider hosts weekly internal video conferences called the Weekly Bark
where she addresses staff and solicits Q&A from employees in a bid to stay
connected, some former employees said.
While the typical playbook for fast-growing startups that receive a large
investment is to spend on marketing to fuel growth, three former employees say
Schneider broadly cut back on marketing soon after she took the job. The
rationale for the cutbacks, according to one source, was to manage cash flow
concerns following a struggle to accelerate growth after the SoftBank
investment.
Some of the former employees said Schneider didn't seem intimately familiar
or concerned with growth metrics in a practical sense.
"I don't feel like they have all their ducks in a row," said one former employee
who left the company earlier this year for another job. "I have doubt in the
product and doubt in the leadership."
The company's user and new customer counts, as well as walk volume has
been declining since the fall of 2018, but became more pronounced in the spring
of 2019, a former employee said. Data provided by Second Measure shows
that the company's sales were down nearly 12% in the second quarter of 2019
compared to one year earlier.
SoftBank's big tech ambitions in doubt as it loses billions on WeWork and Uber
Schneider held a series of several-hour meetings throughout April, May and
June with a small group of trusted employees to investigate the declining
volume of walks, a former employee told CNN Business, but there weren't any
clear paths forward. After a roughly two-hour presentation on the business, the
employee said Schneider wasn't interested in or didn't understand ideas
presented to her, such as spending more on acquisitions to grow volume, or
Page 8 of 12
increased discounting, and some left the meeting frustrated and defeated, the
employee said.
Wag did not directly respond to or dispute this and other claims included in the
list of questions CNN Business provided to its spokesperson. The company
instead touted its expanded product offerings, optimizing customer experience,
and "new opportunities for expansion" including hardware and "strategic
partnerships." According to a landing page on Petco's website, the two have a
partnership launching soon.
Perhaps the most glaring evidence that the startup's ambitions have been
tempered: Wag's anticipated global launch has yet to happen.
"They were definitely planning to use some of [the Softbank investment] for
global expansion -- that's what the Viners told me," said Structure Capital's
Walsh, who also invested in the Viner's latest startup, Wheels. Walsh added
that he is no longer close to Wag since the Viners' departure and doesn't have
knowledge into Schneider's thinking.
I really thought the company was going somewhere. It became apparent that the
ship was sailing back to port.
ERIC WEINMANN, A FORMER WAG EMPLOYEE
At the time of the SoftBank investment, SoftBank Vision Fund managing partner
Jeffrey Housenbold referred to Wag as the "clear leader in the rapidly growing
global market for pet care services."
But since the investment, Wag has added 10 new cities to its operating list, all
within the US.
SoftBank declined to comment on the state of Wag's business since its
investment.
"I had very high hopes when I joined Wag. I really thought the company was
going somewhere. It became apparent that the ship was sailing back to port,"
said Weinmann.
Customer service woes
No department at Wag has seen more change, or had more questions, since
the SoftBank deal than its customer service operation, a vital unit for a company
dealing with family pets.
In mid-2018, Wag opened up a call center in the Philippines, which infuriated
some customers calling under the belief they'd be speaking to someone local.
Page 9 of 12
To help open the Philippines call center, some Los Angeles-based employees
went overseas to train workers. Meanwhile, customer service employees in Los
Angeles weren't warned by management their jobs could be at stake, according
to two former employees of the department.
Last fall, employees were notified in an email that Wag would be opening a
Phoenix customer care operations. Phoenix is a popular location for customer
service centers due to factors including a lower cost of living. Companies
including Uber and DoorDash also have hubs in the city.
"We thought we were expanding," said one former employee, who added that
employees in Los Angeles were given the "opportunity" to apply to work in
Arizona. But the company wouldn't pay for relocation fees or guarantee offers,
the employee said.
A couple months later, Wag began terminating employees in the Los Angeles
customer service department. In early 2019, Wag shuttered its Hollywood Hills
office completely where customer service had been located, effectively shifting
the majority of its customer service operations to Arizona
Stressed out and at risk: Inside Uber's special investigations unit
At least 92 employees were laid off this year in Los Angeles — with the most
recent round of layoffs, in June, primarily hitting its walker activation, dispatch
and promotions teams — according to filings with the California Employment
Development Department viewed by CNN Business.
Wag's spokesperson confirmed that it has "centralized" its customer service
team in Arizona, "where we could draw from a base of seasoned customer
service professionals."
Page 10 of 12
Although some of the former employees CNN spoke with said they're hopeful
the company succeeds, a number of them also said they weren't confident in
its future given how the past nearly two years have shaped up. By all accounts,
it should have been a period of exciting growth.
WHO LET THE DOGS OUT?
October 10, 2019
Corinne M. Karuppan, Ph.D.
Like many other start-ups, Wag has been overwhelmed by its own success.
Wag is a dog-walking service that, like Uber, links pet owners and a network of walkers
online. Launched in 2015, it seemed poised for rapid growth, especially after
benefiting from an enormous injection of capital. However, growing pains started
hurting the company, and it lost market share. Former employees put some of the
blame on new management for failing to understand the company and develop a
sound strategy.
Page 11 of 12
Exam Questions (Total: 40 Marks)
Question 1: (10 Marks)
a- Define the concept of service-dominant logic. (2 Marks).
b- Mention six distinctive characteristics of service and then using the given case study
company explain each distinctive characteristic of service of the company. (3 Marks).
c- In general, there are three basic options to be taken by the operations manager to face
the variable demand and time perishable capacity to provide the service, state those
basic options. (2 Marks).
d- In the light of the operations manager three basic options to provide the service (in part
c above) explain how Wag in the given case study applied those options in its service
operations management. (3 Marks).
Question 2: (7 Marks)
a- Referring to the given case study, explain how the company understood the competitive
environment of services by explaining the competitive services strategies adopted by
the company. (3 Marks).
b- Based on the services market environment highlighted in the case study, does the
company developed the right competitive services strategies in the market? Reflect the
company strategies on each element of the strategic service vision by drawing a table
showing the elements of the company strategic service vision. (4 Marks).
Question 3: (9 Marks)
a- State the nine criterias to win customers in marketplace. (2 Marks).
b- Referring to the case study company, analyse and explain how the company
competitive strategies been affected by each of the nine criterias. (4 Marks).
c- Based on the given case study, do you think the company competitive strategies been
well focused on wining customers? Explain. (3 Marks)
Question 4: (7 Marks)
a- Draw the NSD process cycle for the case study company from the start of the company
till the launch of its services and explain details of each stage of the process. (4 Marks)
b- Use the NSD process cycle which you drawn to explain the company strategic
positioning through the process structure. (3 Marks).
Question 5: (7 Marks)
a- In terms of service system design, which generic approach had been adopted in Wag?
Explain with details from the given case study. (3.5 Marks).
b- Highlight the suitability of the generic approach adopted by Wag to the market service
environment. (3.5 Marks).
End of Exam
Page 12 of 12
TABLE 2.1 Elements of the Strategie Service Vision
Source: Adapted and repainted by permission of I. L Hesket WE Smac, and L & Schlesinger, The Service Program
Service Delivery System
What are important
features of the service
delivery system
including:
The role of people?
Technology?
Equipment?
Layout?
Procedures?
Operating Strategy
What are important
elements of the
strategy?
Operations?
Financing?
Marketing?
Organization?
Human resources?
Control?
Service Concept
What are important
elements of the service
to be provided, stated
in terms of results
produced for
customers?
Target Market
Segments
What are common
characteristics of
important market
segments?
On which will the most
effort be concentrated?
What capacity does it
provide?
Normally?
At peak levels?
How are these elements
supposed to be
perceived by the target
market segment?
By the market in
general?
By employees?
By others?
Does the
service
delivery
system
support the
operating
strategy?
What dimensions can be
used to segment the
mark
Demographic?
Psychographic?
How important are
various segments?
What needs does each
have?
Where will investments
be made?
How well is
the service
concept
positioned
in relation
to custom-
ers' needs
and com-
petitors
offering?
To what extent
is the value of
results and
process quality
for customers
leveraged over
cost to the
service
provider?
To what extent does it:
Help ensure quality
standards?
Differentiate the
service from
competition?
Provide barriers to
entry by
competitors?
How will quality and
cost be controlled?
Measures?
Incentives?
Rewards?
How do customers
perceive the service
concept?
How well are these
needs being served?
In what manner?
By whom?
What results will be
expected versus
competition in terms of:
Quality of service?
Cost profile?
Productivity?
Morale/loyalty of
servers?
What efforts does this
suggest in terms of the
manner in which the
service is:
Designed?
Delivered?
Marketed?
Omand
Customer Criteria for Selecting
a Service Provider
Availability
(24 hour ATM)
te
Convenience Site location)
Dependability (On-time performance)ftirling
Personalization
(Know customer's name) resude
)
- Price
(Quality surrogate)
Quality
(Perceptions important)
Reputation
(Word-of-mouth)
Safety
(Customer well-being)
Speed
(Avoid excessive waiting)
Knoto
31
as individuals
than is for
person
peneric Approaches to Service
Design
• Production-line
• Limit Discretion of Personnel
. Division of Labor
• Substitute Technology for People
• Standardize the Service
Customer as Coproducer
. Self Service
• Smoothing Service Demand
. Customer-Generated Content
Customer Contact
• Degree of Customer Contact
• Separation of High and Low Contact Operations
• Sales Opportunity and Service Delivery Options
Information Empowerment
• Employee
• Customer
100 Yen Sushi House Questions
1. Prepare a service blueprint for the 100 Ye
House.
2. What features differentiate 100 Yen Sushi
and how do they create a competitive adv
3. How has the 100 Yen Sushi House incorp
the just-in-time system into its operations
surges in activity. As many students know, flights home are often booked months in
advance of spring break and the year-end holiday.
Faced with variable demand and a time-perishable capacity to provide the service, the
manager has three basic options:
1. Smooth demand by:
a. Using reservations or appointments.
b. Using price incentives (e.g., giving telephone discounts for evening and weekend
calls).
c. Demarketing peak times (e.g., advertising to shop early and avoid the Christmas
rush).
2. Adjust service capacity by:
a. Using part-time help during peak hours.
b. Scheduling work shifts to vary workforce needs according to demand (e.g., call cent-
ers staff their operators to match call demand).
c. Increasing the customer self-service content of the service.
3. Allow customers to wait.
The last option can be viewed as a passive contribution to the service process that car-
ries the risk of losing a dissatisfied customer to a competitor. By waiting, the customer
permits greater utilization of service capacity. The airlines explicitly recognize this by
offering standby passengers an unsold seat on the departing flight.
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