Collaboration is defined as a partnership with service value chain partners. Collaboration could be downstream, often described as with suppliers or service chain partners, or it could be upstream, often described as with alliance partners. Collaboration could also be internal, often among various business functions, or external, often among various business entities. Consider a service chain similar to a typical supply chain for a product. The (supply) service chain includes end consumers, as they contribute toward the revenue of the whole value chain. Various collaborators (that is, partners) provide value to end consumers. Often this value is intangible and hard to define in the service environment.
As service chains evolve, a few trends can be noted: fragmentation and outsourcing, complexity reduction, and competition at the service chain level. The service value chain is becoming more fragmented and global in nature. As service firms focus on specific core competencies and a particular customer segment, the firms tend to outsource business processes to other firms. Collaboration becomes increasingly important in this fragmented environment. Service providers also want to reduce the complexity of the value chain processes and stay agile and responsive to customer needs. Reduction in complexity is driven in part due to the nature of services and customer participation in service production. For example, Chase Bank has reduced the complexity of ATM transactions and made transactions simpler, more intuitive, and faster. Customers now set and save preferences, such as the most common amounts withdrawn and the printing of a receipt.
The strategic importance of the collaborative service chain is understood by recognizing the importance of the competitive landscape in a particular service sector. Similar to the manufacturing world, competition is between service delivery chains and not between service firms. For example, the competition is not between Wal-Mart and Target; rather, the supply chain of Wal-Mart is competing with the supply chain of Target. Similarly, the service delivery chain of a financial institution competes with the service chain of its direct competitors.
Therefore, the focus of the Service Scorecard is on collaboration. Collaboration among service chain partners impacts other elements of the scorecard. For example, collaboration is understood to impact customer experience. In Larraine Segil’s book Measuring the Value of Partnering—How to Use Metrics to Plan, Develop, and Implement Successful Alliances, she describes the importance of partnering. The book provides metrics at different stages of alliances and describes the role of each stakeholder.
An understanding of service chain dynamics is obtained by discussing the demand and supply side of the service chain. A service firm typically serves a particular customer segment. This particular customer segment has an expectation about variety, customization of services, quality of services, and availability. All of this “demand-side uncertainty” faced by the service provider needs to be matched by its supply side. Service firms build alliances, partnerships, outsourcing agreements, and joint venture partnerships to provide an appropriate level of responsiveness. Service firms also utilize the existing organization structure consisting of an internal collaborative infrastructure. The health of internal collaboration at a particular service firm impacts the time it takes to bring a new service to market. Good internal collaboration ideally melts away all organizational barriers within a firm, hence improving decision time and reducing time to market.
Various forms of collaborations are possible—alliances, joint venture partnerships, and business process outsourcing. Figure 8.1 shows a pyramid of various strategic partnerships. A transaction-based partnership forms the very first level. At the top level, service innovation and end-to-end partnership are found, where two service firms work together in multiple areas, leading to service innovation and end-to-end service management. Generally speaking, collaboration is driven by the following strategic business decisions:
Market position of the service firm. Market position for all partner firms could likely improve as a result of the partnership. An example is Amazon.com focusing on its core processes and working with UPS for delivering packages. Both UPS and Amazon.com improve their market positions as a result of their partnership. UPS provides supply chain solutions to Amazon and other firms, including inspection, warehousing, and return services. Some important considerations for this form of collaboration are the strategic position of the partner service firm, scale of operations and geographical reach, access to competitive technological advantage, and long-term strategic position.
Cost reduction. Often the reason for collaboration with partners is driven by the cost, because a service firm must focus on its core processes. An example could be a large multinational bank outsourcing check processing, loan processing, and other transaction processes to another provider. In this case, a business process is moved to an external organization, often referred to as business process outsourcing. The transaction processes could also be offshored, or moved to an overseas office of the same service firm. For example, JPMorgan announced in 2005 that a third of its operational staff will be based in India by the year 2008. Goldman Sachs and UBS announced similar plans. JPMorgan cited the cost and quality benefits of these plans. These offshoring operations are often called captive business process outsourcing.
Increased responsiveness. A firm could form a partnership agreement to streamline its activities and stay responsive to customer demands. An example could be a large hotel chain forming a partnership with airline(s) to provide better service to its business customer segment. Customers could print check-in and boarding passes at their convenience within the confines of the hotel. Hotels could also provide luggage check-in services to some of their high-value customers.
Growth. Service firms need to grow to stay competitive in the marketplace. Growth could come through service innovation by tapping into new markets/customer segments. Partnerships, if used properly, help a firm grow. For example, Google, along with 33 mobile-headset makers, cellular carriers, and other partners, has started developing a new platform called Android. (Its phone is called the Gphone.) This new platform, likely to be provided free of charge, is projected to launch during the second half of 2008. This software paves the way for cheaper advanced mobile devices with capabilities of a personal computer. With Android, software makers can write applications that run on any user’s phone regardless of the provider. Carriers traditionally have decided what applications to include within their own cellphones, setting rules and fees for software developers. With a transition to Android, T-Mobile USA wants to develop social networking applications to its devices as well. Applications would include the user’s location, communication history, contact list, and “presence,” a signal of whether someone’s phone is on or off.
Reduce time to market for new services. For example, a service firm could outsource noncore or backroom processes and focus exclusively on core activities to reduce time to market for new services.
Recently, organizations have expressed discomfort with the strategy of single outsourcing to one partner. A long-term collaboration with one partner has its inherent risks. Many firms are exploring a strategy of multisourcing—that is, working with multiple sourcing partners. This way, firms do not get locked in with one particular service chain partner. Firms are still grappling with the challenges of managing multisource projects.
Collaboration health is impacted by various factors, such as the culture of a service firm, strategic considerations and alignment, and trust between partners. Establishing trust is one of the key considerations to a long-term partnership. A partner could become the competition. For example, Solectron or Celestica or Foxconn could become a competition to a large telecommunication provider. Manufacturers such as IBM, Cisco, Nortel, Palm, and Compaq (HP) have outsourced manufacturing to Solectron and Celestica. Trust considerations vary across the cultural landscape. For example, in some business cultures, trust considerations will override financial and economic and strategic considerations. Many Eastern business cultures, such as Chinese and Japanese cultures, place higher emphasis on trust factors. Establishing, sustaining, and measuring trust is a critical consideration for such a partnership.
A typical partnership relationship should focus on the following stakeholders:
Internal
Management: Management needs to consider the definition of success, corporate objectives of the partnership, public perception of the partnership, and effect on brand value.
Employees: What is in it for us? How can we contribute? How can we learn and develop knowledge to do the job better the next time around? Employee buy-in is critical to the success of the process. Employees should participate during the design and development of the measurement system.
External
Competition: What is the impact on market position and business proposition?
Partners: What is the best way to extract value from the relationship?
Competition of partners: How can we work with each other if an opportunity arises?
Customers: Customer experiences are directly impacted by collaboration. Customer participation creates an added challenge—a challenge that did not exist in a manufacturing-dominated world.
Measures for collaboration will depend on the long-term goals of the partnership. If the strategic goal is to reduce cost and improve productivity, the metrics will focus on the process side. If the strategic goal is to improve market position, the measures will focus on the related metrics. Longer-term partnerships will focus on trust development, communication, and learning aspects. Ideally, we should measure the overall health, reach, and relevance of the collaboration.
All measurements related to partnership could be divided into the following categories:
Outcome measures such as financial measures, return on investment, productivity, and effectiveness—. These measures are lagging and often functional indicators of the partnership. The approach is based on the transactional view of the partnership. Cross-functional and enterprisewide measures that truly represent collaboration must be included here.
Partners’ attributes such as cultural differences—. Many of these measures are qualitative in nature and represent the difference between collaborating partners.
Relational attributes such as trust, cooperation, and values alignment—. These enterprisewide measures are based on a relational view of the partnership. These measures represent the strength of the relationship or health of the collaboration.
Relevance measure—. The relevance of the collaboration is often overlooked, and the focus of measurement tends to shift to other measures. However, the relevance and reach of collaboration are extremely important.
Literature on partnership focuses mostly on the benefits of the partnership and not much on the attributes of a successful partnership. As a result, the measures of partnerships are vague and have not been developed. Common metrics used to measure the partnership in a product-centric environment are cost, speed of delivery, and conformance or quality. A broader index called the Collaboration Index has been suggested to measure the strength of a partnership. The index consists of three different elements: information sharing and knowledge management, decision-making alignment, and incentive alignment. Information sharing represents the degree of collaboration. The extent of collaboration could also include measuring the extent of mutual cooperation, which leads to improved quality and mutual assistance in problem solving, which then leads to improved quality.
One obvious measurement, partner satisfaction, was the subject of a recent e-partnership study. The study found that more than 70 percent of firms surveyed did not measure partnership satisfaction! However, a majority of these firms also indicated the need to measure and track partnership satisfaction as an indicator. The study identified the importance of partnership management as an area of performance management. Very little about what drives partner satisfaction has been discussed so far. Factors such as the cooperative nature of the relationship, the understanding of mutual needs, managers’ satisfaction, and open communication contribute to partner satisfaction. Partners and suppliers are considered passive players, and partners take the relationship as a given.
Another measure of the partnership relationship is trust between partners. The trust between partners is an important indicator of the strength of the partnership. Trust affects the performance outcome of a relationship. Performance outcomes could be in the form of time to completion, the financial outcome, or satisfaction. However, no common understanding of the way trust should be measured exists. Measurement of trust should consider the following dimensions:
Trust at multiple levels—. Trust should be considered at the various levels of organization and across cultural/geographical contexts. Trust between partners evolves as the relationship evolves.
Trust evolving with time—. The initial stage of trust could be based on purely transactional needs, followed by mutual learning and understanding. The final stage of trust evolution involves total internalization of each other’s needs.
Similar to the evaluation of a supply chain, a service chain could be evaluated by measuring the surplus of the chain. Considering an integrated service chain with each step owned by one firm, one could calculate the total cost incurred. The surplus could be determined by calculating the difference between total revenue and total cost.
Supply chain performance is often measured using a model called the Supply Chain Operations Reference, or SCOR, approach. The model provides a strong process and technological approach but lacks the social and experience dimensions required for services. The SCOR approach identifies the Source, Make, Deliver, and Return processes as key processes. This model considers the flow of physical inventory (or product), information, and money. Active involvement of customers is not implicitly included in the model, however. The model also fails to include the demand side of the chain. Since the model is heavily process-driven, the direct application of the model to the service chain is not recommended. As mentioned previously, services need to consider the customers’ viewpoint (driven by experience) as opposed to a process viewpoint (driven by the provider).
Partnership directly affects customer retention as documented in the literature. Partners and service chain partners are often in touch with customers. As the service profit chain hypothesizes, employees’ satisfaction drives the customer satisfaction. Similarly, employee satisfaction at the partner firms affects the customer satisfaction. Often, the partner firm is considered as an extension of the firm for customers. Customers do not see any difference between the partner firm and the firm itself.
The Service Scorecard places an unambiguous and clearly identifiable importance on the collaboration measure. A strategic partnership and collaboration could lead to faster new service introductions, added flexibility, and strengthened financial stability. In the Service Scorecard, the focus is on the reliability of the partner and the trust between partners. Reliability represents the tactical and execution orientation of the relationship. A service firm will often depend on its partner to provide a certain level of service quality. A reliable and dependable partner must be found for such collaboration. Trust represents the long-term perspective of the relationship.
A service delivery chain model is shown in Figure 8.2. The figure represents the operational view of a service chain showing service capacity, service inventory, service channels, and information. The design of these drivers is based on the demand facing a service chain.
Depending on the business drivers, the collaboration measurements fall into one of the following four categories:
Customer-related metrics—. Customer retention, errors in dealing with customers, and add-on revenue per customer are included in this category.
Efficiency metrics—. Measures representing volume and productivity fall into this category.
Service Innovation metrics—. Measures bringing new ideas and new services to the market should be included in this category.
Flexibility metrics—. Flexibility in terms of provided extra capacity and added customization fall into this category.
The degree of trust will directly dictate the degree and reach of collaboration. As the relationship between business partners improves, mutual learning is followed by bonding, which leads to a greater degree of trust. Various components of trust include the following:
Business domain expertise and reputation—. Available resources and skills to do the desired job. The firm should also have an established and proven track record that could be verified by an independent party.
Commonality and compatibility—. Reality should match the perception and shared vision to achieve common goals. Cultures should be compatible and aligned.
Reliability (consistency, predictability, and dependability)—. The performance of the collaborating partner should be consistent and predictable. Many of these elements are part of the customer expectations. Customers desire reliable and dependable service experience. Therefore, a partner firm needs to apply protocols and standards consistently.
Communication and information sharing—. Providing the correct and completed information in a meaningful and timely way. Utilizing collaborative tools and techniques enhances both internal and external collaboration. Many of these virtual online tools and techniques allow immediate sharing of information, podcasting, video chats, virtual presentations, and the formation of virtual communities. The information and knowledge management fields at the enterprise levels are complicated enough. When two service firms collaborate, new approaches to information sharing and knowledge management must be considered. The earlier approach to knowledge management was to capture all the knowledge at a depository and let others tap into this information depository. The new approach considers making connections based on skills and interests, or building virtual communities and letting individuals decide what information they want to share and reveal.
Responsiveness—. The capacity and willingness to cater to different needs as circumstances change.
As mentioned previously, trust is an important element of collaboration. However, monitoring and control mechanisms to balance the trust element must exist. The balance between trust and control creates an added level of confidence in the partnership.
A successful partnership should provide measurable results to both parties. Here are some general actions you can take to achieve a successful partnership:
Perform a strength, weakness, and gap analysis and prepare a long-term strategic plan. A first step is to identify the advantages of a partnership and whether a partnership is necessary to achieve required business objectives. Incorporate the strategic plan and likely changes in customer behavior into the plan.
Identify partners’ needs and goals. A firm needs to understand the partners’ needs, culture, and goals to identify commonality of goals.
Drill down the core objective (cost saving, improved market position, add-on revenue, added flexibility and an advantage due to improved new service offerings, shorter time to market). The drill down should provide a detailed analysis of the desired objective, set goals and standards, and identify responsibilities and identity change mechanisms. This exercise is similar to a typical project management process that identifies inherent risks and mitigating mechanisms.
Rank-order opportunities and identify the alignment. Consider the operational aspects of the collaboration.
Perform due diligence about the partner; that is, financial health, reputation, capabilities, resources, commitment, and value alignment.
Jointly identify performance management indicators. Identify key risks and prepare mitigation strategies.
Continuously monitor, improve, and manage the system. Communication is key to a successful win-win partnership. Key performance measures need to be monitored during the process.
Relationships with partners also experience evolution and maturity. For example, service firms are more concerned about cost and quality during the initial one to three years of the outsourcing relationship. As the relationship matures, firms expect flexibility, speed, and innovation in addition to productivity improvement. Partners need to continuously keep track of changing needs. In the long run, service firms expect a partner to contribute toward the profitable growth of the firm.
This section provides three specific cases where collaboration is used as a driver to achieve superior corporate performance.
An outsourced call center is a typical example of a cost-driven partnership agreement. Performance measures include the revenue/cost/total cost per call, the customer retention rate, the percent of downtime, the percent of overflow calls, and the accuracy of calls or errors. Total cost per call is usually calculated by taking the total cost for a particular period and dividing by the total number of calls received. A partner can enhance revenue by suggesting add-on services and by understanding customer needs. Call centers often get calls from customers to cancel or to terminate services. Depending on the skills and competence of the staff, the call center should be able to persuade some of these customers to continue with the service. A high-quality supplier will not only help enhance the revenue per call but also help improve the customer retention rate. The accuracy of orders and calls could be measured by callbacks or by measuring the accuracy of the order taken.
Starbucks has expanded internationally using a partnering model. Starbucks follows a rigorous partner selection process. Starbucks used alliance partners in the local market. The selection process includes an initial phase of checking the financial health and resources available with the firm. Cultural fit and alignment and value alignment are overriding factors in the selection process. The process takes between 18 to 24 months. The company does not consider itself to be process-driven. Some of the metrics used to select partners are consistencies and alignment of values and beliefs and cultural fit.
The recent trend of service firms outsourcing business processes is a common example of a partnering relationship. Most metrics measuring the performance of an outsourcing partnership fall into the following four categories: process outcome, customer outcome, financial outcome, and quality outcome. Process measurement involves identifying key indicators and is an objective measure of productivity and efficiency. Customer output measures, or moment-of-truth measures for services, identify customer interaction measures. Examples of outcome metrics are the percent of customers retained, the add-on revenue per customer, and the profit per customer. Financial measures could be related to the collection rate or any related financial impact measurement. Quality measurement focuses on the accuracy of the transaction and experience. As services focus more on the experience and solution-centric view of the system, quality outcome measures gain an added importance. Service firms strive to transform a transaction with customers into an experience so that customer will keep coming back.
Drivers of outsourcing have also evolved. Firms are not outsourcing for simple cost-reduction reasons. The type of work being outsourced has also moved up the value chain. Knowledge Process Outsourcing, KPO, is expected to be the next wave of outsourcing. KPO requires advanced analytical, technical, and knowledge skills. A GlobalSourcingNow report states that the Global KPO industry is expected to reach USD 17 billion by the year 2010.
KPO is not simply an extension of business process outsourcing. KPO touches the global delivery service chain and is a part of the core processes of a service firm. Initially, the activities were mostly transaction-oriented. These days, it is common to outsource high-value-added activities such as research and development, market research, intellectual property research, equity research, financial modeling and valuation, media and animation, distance education, human resource services, financial services, medical transcription in healthcare, and legal services. For example, legal firms such as Jones Day and Kirkland & Ellis are outsourcing basic legal tasks. Kirkland & Ellis, a Chicago-based legal firm, used offshoring on clients’ requests. Typical outsourced services are legal research/analysis, legal opinion, and contract drafting services.
As mentioned previously, appropriate monitoring and control mechanisms using a proper measurement system are needed. The switching cost to change a collaborating partner is huge for a particular service firm. The costs in terms of customer loss could easily add up due to missteps in the selection process.
Collaboration is an increasingly important measure of the Service Scorecard, primarily because many service firms must outsource important tasks so as to focus on their core competency or objective.
Strategically forming partnerships can help the service firm grow, reduce time to market for new services, increase responsiveness, and improve market position.
In the Service Scorecard, the focus is on the reliability of the partner and the trust between partners.
A service firm will often depend on its partner to provide a certain level of service quality. A reliable and dependable partner must be found for such collaboration.