A Measurement System for Service Firms
Manufacturers can choose among numerous systems for measuring performance, including the Balanced Scorecard, Six Sigma Business Scorecard, Performance Prism and Performance Pyramid. Other viable manufacturing audit systems include the Deming framework and the European Quality Model. The options are far fewer on the service provider side, where the limited choices include the Service Model, the Service Profit Chain Model and the ServQual Model. While these are not comprehensive, the new “Complete and Balanced Service Scorecard” is a broader tool that service companies can use to help close this important gap in performance measurement.
“No organization can be any better than its measurement system because management is based on measurement.” (Dean Spitzer, Transforming Performance Measurement)
The Service Scorecard system, a viable structure for modeling and predicting service performance, is based on the Six Sigma Business Scorecard, a combination of the Balanced Scorecard and Six Sigma. The Service Scorecard is the ideal tool for service organizations, whether for-profit or nonprofit, to use to measure operational performance. It enables them to view their enterprises as holistic systems. The Service Scorecard will help service organizations improve performance, boost revenues and control costs. Its ultimate goal: to develop and sustain profitable growth in profit-making companies and to develop and sustain value for nonprofits.
A View of the “GLACIER framework”
The Service Scorecard’s architecture covers seven distinct factors captured by the acronym GLACIER, which stands for “growth, leadership, acceleration, collaboration, innovation, execution and retention,” the essential elements of a viable service organization. Firms use the Service Scorecard to measure their activities in the context of these core elements, though their specific priorities and metrics will vary according to their individual circumstances and goals.
“The performance of a personal service can be somewhat difficult to measure because of human emotions and perceptions.”
To use the scorecard, set up these individual measurement areas as easy-to-read dashboards. Ask three planning questions: What will you measure? How will you measure it? And how will you respond to the information you gain from your measurements? When you implement your Service Scorecard, target opportunities within your operation to sustain profitable growth and improve performance and productivity, as demonstrated by companies that have excelled in each area. Consider each aspect of the framework:
Growth
If you can provide service solutions your customers truly want, your organization will grow. Service firms have an excellent opportunity to expand by developing new offerings. To show growth on your Service Scorecard, measure revenue earned from new services as a percentage of total revenue. Growth requires a totally customer-centric viewpoint. Take IBM, for example.
“Hardly any existing performance measurement system was intentionally designed for services.”
In 2006, IBM earned $91 billion. The sale of business consulting and IT services provided 52% of that revenue, while the rest came from hardware (25%), “software (20%) and financing (3%).” IBM’s service component experienced 270% growth, but its hardware business dropped by more than half. Former CEO Louis Gerstner deserves the praise for switching IBM’s focus from hardware to services. Instead of breaking IBM up – like AT&T’s Baby Bells – Gerstner made the most of the growth opportunities in its service operations. Other service corporations that have grown substantially include “eBay...Starbucks, Southwest Airlines, Amazon.com, Expedia, Apple and Google.”
Leadership
Leaders should drive performance, “handle complexity while keeping things simple,” foster technological advancement and empower people. Great leaders inspire their employees to strive to be the best and to deliver high-quality service. To motivate your troops, recognize and reward their meaningful achievements, because “success breeds more success.” Normally, firms measure leadership by financial results, so use return on equity (ROE) as a prime indicator.
“Measuring human productivity has a negative connotation associated with it, and is sometimes perceived to be detrimental to employee dignity.”
Southwest Airlines, which “has provided superior return on equity in its 36 years,” goes out of its way to recognize its leaders. It presents the “Star of the Month” award to employees who make extraordinary contributions. Southwest is a clear winner in the airline industry. From 1992 through 1996, it received five straight “Triple Crown” awards, winning honors for best performance in “baggage handling, fewest customer complaints” and “on-time performance.”
Acceleration
How rapidly can your organization improve its performance in order to attain its objectives? However quickly you solve problems now, your goal is to accelerate your rate of improvement. That matters a lot in customer service, since consumers want the best service delivered fast and comprehensively. Be aware that when it comes to acceleration, your poorest unit will restrain – and ultimately determine – your performance and acceleration. In today’s shifting environment, your company’s ability to adapt swiftly and to accelerate change is crucial.
“No performance scorecard with only objective measures can present a complete picture...because all businesses incorporate tangible and intangible assets.”
American Express worked hard to improve its capabilities quickly, using leadership development, cost cutting and Six Sigma quality control programming. To speed up performance, the company concentrated on growth.
Collaboration
In the modern world, most organizations are tightly connected, so collaboration is crucial to successful performance. To improve your operations, all your departments and internal business units must collaborate and coordinate their activities. Many companies also depend on the cooperation of their business and channel partners, service providers, and suppliers. For your Service Scorecard measurements, focus on the “overall health, reach and relevance of...collaboration” in your network of operations.
“A robust performance measurement system is a prerequisite for performance improvement and management leading to productivity improvement and business effectiveness.”
Walmart is expert at supply-chain management based on collaboration with its suppliers. The giant retailer, which boasts annual sales of more than $350 billion, insists that all its suppliers excel at order fulfillment. A master at inventory management, Walmart utilizes up-to-the-minute reporting to optimize its product-handling operations. Walmart provides a special “Retail Link” suppliers can use to manage their shipments. It uses automation efficiently and tracks “store-by-store inventory levels, point-of-sales data and trends” in the marketplace.
Innovation
Innovation is a function of collaboration. People who work well together inspire each other’s creativity and new ideas. Improved service platforms require innovation, so firms must make sure their employees remain engaged and learn constantly so they can grow. Assess innovation by noting how many helpful ideas employees routinely generate to improve the company. You may be able to measure innovation more concretely by tracking recruitment, employee capabilities, creativity, “human capital investment,” attitude, productivity and workforce stability.
“Without transforming business objectives into process objectives, strategic results cannot be realized.”
In the little more than 30 years since Starbucks began, it expanded from one outlet to more than 100,000. Innovation accounts for its remarkable success in transforming pedestrian coffee drinking into the “Starbucks lifestyle” experience. Its pace-setting location planning places Starbucks stores almost everywhere people gather, drawn by creative interior design and – in many places – its partnership with Barnes & Noble booksellers, which targets similar customers.
Execution
Superior execution means delivering quality services – efficiently, cost effectively and courteously. Such execution requires superior, measurable performance. Six Sigma and ISO 9000 are excellent methods for assessing accurate and responsive service execution.
“Today, services account for most of the advanced economies in terms of wealth, employment and creativity.”
At the Walt Disney World Resort in Orlando, Florida, the Walt Disney Company offers a truly superior – indeed, unforgettable – customer experience based on flawless execution. Its 58,000 highly trained employees – or, as Disney calls them, “cast members” – help make this possible. Founded in 1923 as the Disney Brothers Studio, Disney is now a $35-billion operation based around one of the world’s most iconic brands – a status it achieved with superior execution.
Retention
Profitable growth depends on customer retention. This is true for all organizations and, in particular, for service organizations, where acquiring new customers is unduly expensive. You cannot retain customers with faulty service. You must treat them well, actively engage them, listen to them, learn what they want and deliver it. When it comes to the Service Scorecard, customer satisfaction is an ideal measurement.
“The transformation of the US economy from an agricultural-based to manufacturing-based leading to a service-based economy has a profound impact on the way corporate performance should be measured.”
The Ritz-Carlton Hotel Company provides customers with exceptional service at all its luxury resorts and hotels based on the motto, “We are ladies and gentlemen serving ladies and gentlemen.” Its service principles demand that staffers always welcome customers, meet all their needs and bid them goodbye with a warm farewell when they leave. By handling things this way, Ritz-Carlton retains its customers over the long haul. The company has received the Malcolm Baldrige National Quality Award twice.
Putting the Right “SPIn” on Service
Today, many manufacturing-based economies have become service-based. Operating successfully amid such drastic change requires a detailed analysis of a firm’s services by both its providers and its customers. Use the Service Scorecard to identify ways you can enhance your service and thus increase the value you provide.
“A pure product or pure service world does not exist these days.”
Your organization’s “Service Performance Index” (SPIn) measures performance in the aggregate. It encompasses the seven GLACIER core elements. Depending on your business, some of these factors will count more than others. Balance your Service Scorecard metrics accordingly. Generally, you can weight the significance of the elements like this: growth – 10%; leadership – 30%; acceleration – 20%; collaboration – 10%; innovation – 10%; execution – 10%; retention – 10%. Always correlate your SPIn to your strategic objectives and financial results.
Implementation
For successful implementation, carefully plan your program. Deploy your performance measurement system throughout your organization. Align your measurement activities with your operations and strategic goals. Validate all your metrics. Train employees so they understand the Service Scorecard’s purpose and use. Each year, revisit the program to find ways to reignite employee and executive enthusiasm. As much as possible, integrate your Service Scorecard measurement activities with any other improvement initiatives, such as 4P methodology, Six Sigma and ISO 9000.
“Enterprises realize that their primary challenge is the disconnect that exists between strategy and execution.”
How you implement your Service Scorecard will vary from the way other organizations handle theirs, but as a leader, you must understand the Service Scorecard and how it applies to each facet of your enterprise. Your commitment to measuring performance and keeping score should not waver. Expect and demand constant service improvement, as indicated by the measurements you and your workforce decide to emphasize in your Service Scorecard system. Many respected companies that track particular Service Scorecard elements report substantial benefits from using an individualized, specialized measurement system. Such benefits range from driving profitable, long-range growth for businesses to sustaining the contribution that a healthy nonprofit organization can provide to its constituents.