Chapter 14: Improving Service Quality and Productivity

1. Chapter 14: Improving Service Quality and Productivity

2. Overview of Chapter 14 • Integrating service quality and productivity strategies • What is service quality? • The Gaps Model • Measuring and improving service quality • Defining and measuring productivity • Improving service productivity

3. 1. 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 • 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. 2. What Is Service Quality?

6. 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 View

7. Components of Quality: Service-based View* 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

8. Capturing the Customer’s Perspective of Service Quality: SERVQUAL (1) • Survey research instrument based on premise that customers evaluate firm’s service quality by comparing • Their perceptions of service actually received • Their prior expectations of companies in a particular industry* • Poor quality • Perceived performance ratings < expectations • Good quality • Perceived performance ratings > expectations

9. Capturing the Customer’s Perspective of Service Quality: SERVQUAL (2) • Developed primarily in context of face-to-face encounters • Scale contains 22 items reflecting five dimensions of service quality • Subsequent research has highlighted some limitations of SERVQUAL • See Research Insights 14.1: Measuring E-Service Quality*

10. How Customers Might Evaluate Online Businesses: Seven Dimensions of E-S-QUAL • Accessibility : Is site easily found? • Navigation: How easy is it to move around the site? • Design and presentation: Image projected from site? • Content and purpose: Substance and richness of site • Currency and accuracy • Responsiveness:Firm’s propensity to respond to e-mails • Interactivity, customization, and personalization • Reputation and security

11. 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 • 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

12. 3. The Gaps Model

13. 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

14. 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

15. 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

16. 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

17. 4. Measuring and Improving Service Quality

18. 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 • 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

19. 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

20. 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 (Table 14.4)

21. 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

22. 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

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 (more in Ch. 8) • 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. 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

27. 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

28. When Does Improving Service Reliability Become Uneconomical? (Fig 14.7) 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.

29. 5. Defining and Measuring Productivity

30. 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

31. 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

32. 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

33. 6. Improving Service Productivity

34. 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?

35. 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 ? ? ?

36. Long Waiting Times May Indicate Need for Service Process Redesign(Fig 14.8)

37. 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*

38. 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

39. Backstage and Front-stage Productivity Changes: Implications for Customers • Backstage improvements can ripple to front and affect customers • Keep abreast of proposed backstage changes, not only to identify such ripples but also to prepare customers for them • For example: New printing peripherals may affect appearance of bank statements • Front-stage productivity enhancements are especially visible in high contact services • Some improvements only require passive acceptance, while others require customers to change behavior • Must consider impacts on customers and address customer resistance to changes • Better to conduct market research first if changes are substantial • See Service Perspectives 14.1: Managing Customers’ Reluctance to Change* (p. 439)

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