Improving Service Quality and Productivity

1. Improving Service Quality and Productivity

2. Overview • Integrating service quality and productivity strategies • What is service quality? • The Gaps Model—a conceptual tool to identify and correct service quality problems • Measuring and improving service quality • Defining and measuring productivity • Improving service productivity

3. Integrating Service Quality and Productivity Strategies

4. Integrating Service Quality and Productivity Strategies • Quality and productivity are twin paths to creating value for both customers and companies • Quality focuses on the benefits created for customers; productivity addresses financial costs incurred by firm • Importance of productivity: • Keeps costs down to improve profits and/or reduce prices • Enables firms to spend more on improving customer service and supplementary services • Secures firm’s future through increased spending on R&D • May impact service experience—marketers must work to minimize negative effects, promote positive effects

5. What Is Service Quality?

6. Different Perspectives of Service Quality Quality = Excellence. Recognized only through experience Transcendent: Product-based: Quality is precise and measurable User-based: Quality lies in the eyes of the beholder Manufacturing-based: Quality is in conformance to the firm’s developed specifications Value-based: Quality is a trade-off between price and value

7. Performance: Primary operating characteristics Features: Bells and whistles Reliability: Probability of malfunction or failure Conformance: Ability to meet specifications Durability: How long product continues to provide value to customer Serviceability: Speed, courtesy, competence Esthetics: How product appeals to users Perceived Quality: Associations such as brand name Components of Quality: Manufacturing-based

8. Components of Quality: Service-based Tangibles: Appearance of physical elements Reliability: Dependable and accurate performance Responsiveness: Promptness; helpfulness Assurance: Competence, courtesy, credibility, security Empathy: Easy access, good communication, understanding of customer

9. Other Considerations in Service Quality Measurement • In uncompetitive markets or in situations where customers do not have a free choice, researchers should use needs or wants as comparison standards • Time constraints • Services high in credence characteristics may cause consumers to use process factors and tangible cues as proxies to evaluate quality—halo effect • Process factors: Customers’ feelings

10. The Gaps Model—A Conceptual Tool to Identify and Correct Service Quality Problems

11. Seven Service Quality Gaps(Fig 14.3) CUSTOMER Customer needs and expectations 1. Knowledge Gap MANAGEMENT Management definition of these needs 2. Standards Gap Translation into design/delivery specs 4. Internal Communications Gap 3. Delivery Gap Advertising and sales promises Execution of design/delivery specs 4. 6. Interpretation Gap 5. Perceptions Gap Customer perceptions of service execution Customer interpretation of communications 7. Service Gap Customer experience relative to expectations

12. Prescriptions for Closing theSeven Service Quality Gaps (1) (Table 14.3) • Knowledge gap: Learn what customers expect • Understand customer expectations • Improve communication between frontline staff and management • Turn information and insights into action • Standards gap: Specify SQ standards that reflect expectations • Set, communicate, and reinforce customer-oriented service standards for all work units • Measure performance and provide regular feedback • Reward managers and employees

13. Prescriptions for Closing theSeven Service Quality Gaps (2) (Table 14.3) • Delivery gap: Ensure service performance meets standards • Clarify employee roles • Train employees in priority setting and time management • Eliminate role conflict among employees • Develop good reward system • Internal communications gap: Ensure that communications promises are realistic • Seek comments from frontline employees and operations personnel about proposed advertising campaigns • Get sales staff to involve operations staff in meetings with customers • Ensure that communications sets realistic customer expectations

14. Prescriptions for Closing theSeven Service Quality Gaps (3) (Table 14.3) • Perceptions gap: Educate customers to see reality of service quality delivered • Keep customers informed during service delivery and debrief after delivery • Provide physical evidence • Interpretation gap: Pretest communications to make sure message is clear and unambiguous • Present communication materials to a sample of customers in advance of publication • Service gap: Close gaps 1 to 6 to meet customer expectations consistently

15. Measuring and Improving Service Quality

16. Soft and Hard Measures of Service Quality • Soft measures—not easily observed, must be collected by talking to customers, employees, or others • Provide direction, guidance, and feedback to employees on ways to achieve customer satisfaction • Can be quantified by measuring customer perceptions and beliefs • For example: SERVQUAL, surveys, and customer advisory panels • Hard measures—can be counted, timed, or measured through audits • Typically operational processes or outcomes • Standards often set with reference to percentage of occasions on which a particular measure is achieved • Control charts are useful for displaying performance over time against specific quality standards

17. Soft Measures of Service Quality • Key customer-centric SQ measures include: • Total market surveys, annual surveys, transactional surveys • Service feedback cards • Mystery shopping • Analysis of unsolicited feedback—complaints and compliments, focus group discussions, and service reviews • Ongoing surveys of account holders to determine satisfaction in terms of broader relationship issues • Customer advisory panels offer feedback/advice on performance • Employee surveys and panels to determine: • Perceptions of the quality of service delivered to customers on specific dimensions • Barriers to better service • Suggestions for improvement

18. Control charts to monitor a single variable Offer a simple method of displaying performance over time against specific quality standards Are only good if data on which they are based is accurate Enable easy identification of trends Service quality indexes Embrace key activities that have an impact on customers Hard Measures of Service Quality

19. Weighting Factor Number of Incidents Daily Points Failure Type X = Late delivery—right day Late Delivery—wrong day Tracing request unanswered Complaints reopened Missing proofs of delivery Invoice adjustments Missed pickups Lost packages Damaged packages Aircraft delays (minutes) Overcharged (packages missing label) Abandoned calls 1 5 1 5 1 1 10 10 10 5 5 1 Total Failure Points (SQI) = XXX,XXX Composition of FedEx’s Service Quality Index—SQI

20. Control Chart for Departure Delays(Fig 14.4) % FlightsDeparting Within 15 Minutes of Schedule 100% 90% 80% 70% 60% J F M A M J J A S O N D Month

21. Tools to Analyze and Address Service Quality Problems • Fishbone diagram • Cause-and-effect diagram to identify potential causes of problems • Pareto Chart • Separating the trivial from the important. Often, a majority of problems is caused by a minority of causes (i.e. the 80/20 rule) • Blueprinting • Visualization of service delivery, identifying points where failures are most likely to occur

22. Tools to Analyze and Address Service Quality Problems (Appendix) • Total Quality Management (TQM) • ISO 9000 • Comprises requirements, definitions, guidelines, and related standards to provide an independent assessment and certification of a firm’s quality management system • Malcolm Baldrige Model Applied to Services • To promote best practices in quality management, and recognizing, and publicizing quality achievements among U.S. firms • Six Sigma • Statistically, only 3.4 defects per million opportunities (1/294,000) • Has evolved from defect-reduction approach to an overall business-improvement approach

23. Cause-and-Effect Chart for Flight Departure Delays (Fig 14.5) Facilities, Equipment Frontstage Personnel Procedures Front-Stage Procedures Personnel Delayed check-in procedure Aircraft late to gate Gate agents cannot process fast enough Arrive late Oversized bags Mechanical Failures Late pushback Acceptance of late passengers Customers Late/unavailable airline crew Customers Delayed Departures Late food service Late cabin cleaners Other Causes Poor announcement of departures Late fuel Weather Air traffic Late baggage Weight and balance sheet late Materials, Supplies Backstage Personnel Information Materials, Supplies

24. Case: Analysis of Causes of Flight Departure Delays 4.9 % All stations, excluding Chicago-Midway Hub 15.3% 23.1% 19% 33.3% 15.4% 11.7% 9.5% 8.7% 23.1% 33.3% 23.1% 11.3% 53.3% 15% Newark Washington Natl. Late passengers Late weight and balance sheet Late cabin cleaning/supplies Waiting for pushback Waiting for fuelling Other

25. Blueprinting • Depicts sequence of front-stage interactions experienced by customers plus supporting backstage activities • Used to identify potential fall points—where failures are most likely to appear • Shows how failures at one point may have a ripple effect later • Managers can identify points which need urgent attention • Important first step in preventing service quality problems

26. Six Sigma Methodology to Improve and Redesign Service Processes

27. TQM in a Service Context: Twelve Critical Dimensions for Implementation • Top management commitment and visionary leadership • Human resource management • Technical system, including service process design and process management • Information and analysis system • Benchmarking • Continuous improvement • Customer focus • Employee satisfaction • Union intervention and employee relations • Social responsibility • Servicescapes • Service culture

28. Return On Quality (ROQ) • Assess costs and benefits of quality initiatives • ROQ approach is based on four assumptions: • Quality is an investment • Quality efforts must be financially accountable • It’s possible to spend too much on quality • Not all quality expenditures are equally valid • Implication: Quality improvement efforts may benefit from being related to productivity improvement programs • To determine feasibility of new quality improvement efforts, determine costs and then relate to anticipated customer response • Determine optimal level of reliability • Diminishing returns set in as improvements require higher investments • Know when improving service reliability becomes uneconomical

29. When Does Improving Service Reliability Become Uneconomical? Satisfy Target Customers through Service Recovery 100% Optimal Point of Reliability: Cost of Failure = Service Recovery Service Reliability Satisfy Target Customers through Service Delivery as Planned C A B D Investment Large Cost, Small Improvement Small Cost, Large Improvement Assumption: Customers are equally (or even more) satisfied with the service recovery provided than with a service that is delivered as planned.

30. Defining and Measuring Productivity

31. Productivity in a Service Context • Productivity measures amount of output produced relative to the amount of inputs. • Improvement in productivity means an improvement in the ratio of outputs to inputs. • Intangible nature of many service elements makes it hard to measure productivity of service firms, especially for information-based services • Difficult in most services because both input and output are hard to define • Relatively simpler in possession-processing services, as compared to information- and people-processing services

32. Service Efficiency, Productivity, and Effectiveness • Efficiency: Involves comparison to a standard, usually time-based (for example: how long employee takes to perform specific task) • Problem: Focus on inputs rather than outcomes • May ignore variations in service quality/value • Productivity: Involves financial valuation of outputs to inputs • Consistent delivery of outcomes desired by customers should command higher prices • Effectiveness: Degree to which firm meets goals • Cannot divorce productivity from quality and customer satisfaction

33. Measuring Service Productivity:Variability Is a Major Problem • Traditional measures of service output tend to ignore variations in quality or value of service • Focus on outputs rather than outcomes • Stress efficiency but not effectiveness • Firms that consistently deliver outcomes desired by customers can command higher prices; loyal customers are more profitable • Measures with customers as denominator include: • Profitability by customer • Capital employed per customer • Shareholder equity per customer

34. Improving Service Productivity

35. Questions When Developing Strategies to Improve Service Productivity • How to transform inputs into outputs efficiently? • Will improving productivity hurt quality? • Will improving quality hurt productivity? • Are employees or technology the key to productivity? • Can customers contribute to higher productivity?

36. Generic Productivity Improvement Strategies • Typical strategies to improve service productivity: • Careful control of costs at every step in process • Efforts to reduce wasteful use of materials or labor • Replacing workers by automated machines • Installing expert systems that allow paraprofessionals to take on work previously performed by professionals who earn higher salaries • Although improving productivity can be approached incrementally, major gains often require redesigning entire processes ? ? ?

37. Long Waiting Times May Indicate Need for Service Process Redesign

38. Improving Service Productivity:(1) Operations-driven Strategies • Control costs, reduce waste • Set productive capacity to match average demand • Automate labor tasks • Upgrade equipment and systems • Train employees • Broadening array of tasks that a service worker can perform • Leverage less-skilled employees through expert systems • Service process redesign

39. Improving Service Productivity:(2) Customer-driven Strategies • Change timing of customer demand • By shifting demand away from peaks, managers can make better use of firm’s productive assets and provide better service • Involve customers more in production • Get customers to self-serve • Encourage customers to obtain information and buy from firm’s corporate websites • Ask customers to use third parties • Delegate delivery of supplementary service elements to intermediary organizations

40. A Caution on Cost Reduction Strategies • In absence of new technology, most attempts to improve service productivity seek to eliminate waste and reduce labor costs • Workers who try to do several things at once may perform each task poorly • Excessive pressure breeds discontent and frustration among customer contact personnel, who are caught between: • Meeting customer needs • Achieving management's productivity goals • Better to search for service process redesign opportunities that lead to • Improvements in productivity • Simultaneous improvement in service quality • See Service Perspectives 14.2: Biometrics

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