Service businesses are similar to manufacturing businesses in that they have the common business objective of making money and achieving growth. Successful service businesses have implemented scorecards. Banks, airlines, hospitals, and restaurants all deploy some form of scorecard. Some organizations have an elaborate set of measurements; others have sketchy ones at best. The Service Scorecard provides an initial and complete framework of a business scorecard that allows organizations to relate their measurements to the financial performance.
In a service organization, the following scenarios may exist:
There is already an existing performance measurement system that is considered to be satisfactory.
The Balanced Scorecard is being used in a limited fashion in a department or two.
Most employees are unaware of the scorecards being used by executives.
Measurement systems are not being used at all.
Employees already feel overwhelmed with putting out fires, and implementing a scorecard will be considered additional work.
Business performance is marginal at best, but executives feel they know what to do.
Other struggles or strategies are more important than having a good scorecard to monitor progress and ensure success.
The value proposition of implementing a good scorecard is not clearly understood.
Considering these situations, a company must look at implementing the Service Scorecard as an opportunity to improve the measurement system, establish an intelligent relationship with corporate financials, and use a holistic measurement model both for the alignment of resources and as a tool to accelerate business performance. With the Service Scorecard, one must be able to answer questions about the current performance, identify areas for improvement, and discern estimated future performance. The important aspect of the scorecard is its ability to aggregate the multidisciplined measurement-based information, and then transform it into business intelligence that can be used to lead the organization in the direction of sustained profitable growth.
To implement a service scorecard, the value proposition and the effort associated with its implementation must be clearly understood. Companies do need a measurement system to ensure profitable growth; however, without leadership support and organizationwide implementation, full benefits of the Service Scorecard cannot be realized. For a service business to be successful, all departments must be aligned and accelerated using the Service Scorecard.
Each company implements its scorecard in a slightly different way depending on the leadership style, corporate culture, business strategy, and performance objectives. Certain steps, however, are recommended to implement the Service Scorecard effectively. The implementation begins with the leadership commitment and ends with the ability to (a) predict corporate performance in the coming months and (b) adjust the business processes proactively to ensure realization of business objectives.
The following steps can be helpful in implementing the Service Scorecard to achieve business objectives:
Committing to the fundamental business strategy of Sustained Profitable Growth.
Achieving executive understanding of the Service Scorecard and its elements.
Getting leadership endorsement of the Service Scorecard.
Having strategic and organizational alignment.
Planning for the Service Scorecard:
Prepare for implementing the scorecard.
Determine the service scorecard measurements.
Determine the data source.
Establish goals for each measurement.
Leverage the technology.
Training for using the Service Scorecard.
Validating and adjusting the measurements.
Institutionalizing the Service Scorecard:
Organizationwide deployment.
Data analysis and communication.
Critical executive review:
Review operations and financial performance.
Review performance against strategic goals.
Actions for improving performance.
Renewing and reigniting the organization.
Most financial structures and stakeholders expect quick return on investment. Wall Street analysts expect quarterly performance to write about. Thus, the bottom line rides over the top line, and executives take actions to make the expected bottom line. This stride to achieve the profit sometimes inspires executives to make short-term decisions that may prove to be detrimental in the longer term. In other words, decisions to make money may stifle corporate creativity and thus revenue growth.
Businesses need both profit and growth, even though sometimes profit and growth appear to be contradictory. Thus, the first critical decision for corporate leadership is to strive for sustained profitable growth (SPG) rather than just to make money. After the leadership commits to SPG, focus changes from action to thoughtful action. To affect the corporate profit, leadership normally focuses on cost reduction, whereas to drive growth, leadership looks into significant investment.
When profitable growth becomes the objective, however, the leadership considers all parts of the business, all assets, and all opportunities for improving the performance. For example, a typical strategy to cut cost is to squeeze out the suppliers by 3 percent. Those who follow such a strategy, however, fail to recognize that in the longer term, the quality of supplies will eventually determine the quality of the organization, customer satisfaction, and retention. Departing customers, a shrinking business due to cost-cutting, and negatively growing revenue are signs of short-sighted leadership leading to a downward spiral of business death through mergers and acquisition or insolvency.
One of the main challenges in service businesses is the process management, which is a building block of a business. A service business is a collection of service processes. Practicing sound process management principles for delivering excellent customer service and ensuring overall business performance are requirements. The recently published 4P model of process management (Gupta, July 2006) presents a sound process management model that will ensure excellence at every step of the service. As shown in Figure 11.1, the 4P model stands for Prepare, Perform, Perfect, and Progress.
The 4P model of process management is an actionable method of achieving desired results. In process management, either failures occur or too much verification of performance happens, which implies that either clearly defined targets are nonexistent, or not enough preparation has happened to deliver the desired service. In the absence of performance targets, we look for acceptable performance.
Acceptable and excellent performance levels are starkly different. Acceptable performance demonstrates the minimal performance to survive, whereas excellence represents maximal performance to be the leader. To be the market leader, one needs to strive for excellence and define clear targets. Processes designed for a target performance will result in more consistent and improving performance in comparison to processes designed within acceptable operating range (which are normally suboptimized and leave much room for variation and failures). The target must be a point value rather than a range, because the target value becomes a criterion for the process design.
Preparation represents doing the homework and ensuring availability of everything needed to perform various process activities well. Root cause analysis highlights the few specific items needed to complete a task well. The four items are material or information, machine or tools, methods or approach, and skills or training. For a service process to produce desired results, the necessary customer information, process information, and input data (if necessary) or raw material must be present. Machine or tools include widgets, software programs, computers, or a hammer. Method or approach represents a process design captured by a defined and documented, step-by-step procedure to produce the target performance. Finally, skills or training represents the competency level to minimize people-dependent inconsistency. The following comments represent experiences with the 4P model of process management:
“The 4P’s methodology is clearly a successor to the brilliant developments of Shewhart, Deming, Ishikawa, Juran, and Taguchi. I am particularly persuaded by the emphasis on excellence obtained by meeting a target. Mere compliance or conformity to specifications is no substitute for true excellence.” | ||
| --Scott Tonk, Consultant | ||
“Using the 4P model of process management at a process, our manpower requirements were decreased approximately 2124 WIP hours or 1.22 man-years. The time saved was applied to more productive endeavors. The government or military, despite public perception, constantly looks for savings in time, money, personnel, and process. Therefore, forward-thinking individuals with concepts/processes ultimately saving the taxpayer money are welcome.” | ||
| --George Stemler, University of Military Intelligence | ||
“The 4P model has helped our Service Delivery area in creating and defining our procedures. Although we are still evolving the approach, the 4P model forces us to determine the skills/materials to execute the step; define the necessary steps from an established beginning and end (scope); and set the required measurements to identify success (performance measurements). Answering all of these questions/needs provides us with an efficient process. We envision the benefits will continue in reducing questions from users unfamiliar with a certain procedure and continuous process improvement, as we’re capturing metrics on critical points of the process.” | ||
| --ISO 9001 Management Representative, A Marketing Services Company | ||
One of the main benefits of using the 4P model of process management is that it points to the design of the process for achieving the target performance rather than blaming people for performing below par. The authors’ experience shows that a process designed and operated to its target will have about a 50 percent less error rate on the average than the process operated to lower and upper specification limits for producing acceptable process output.
To look at the entire organization and its resources to realize the business strategy of sustained profitable growth, the leadership must understand the intent and elements of the Service Scorecard. Recognizing interrelationships of various elements of the Service Scorecard, a simple but purposeful understanding of each element must be developed. For example, leadership must seek answers to questions such as these:
Can I fit the Service Scorecard framework to my business?
How will my company practice various elements of the Service Scorecard?
Will my company need to modify the Service Scorecard?
What measurements are critical to my business?
Do I adapt the Service Scorecard measurements to my organization?
How will I use the Service Performance Index to identify opportunities and enhance the performance of my organization?
What problems should I expect in implementing the Service Scorecard?
How much will it cost me to implement the Service Scorecard, and what will be the return on investment?
Who will I designate as the Service Scorecard champion?
After answering various questions about implementing a sound measurement system such as the Service Scorecard, leadership can focus on sustaining the profitable growth. This requires considering growth strategies through innovation or employee engagement, and profit improvement tactics such as waste reduction and process improvement. With a clear understanding of (a) the value-stream to profit and growth and (b) corresponding measures built into the Service Scorecard framework, leadership must commit and endorse establishing a framework for performance measurements.
Endorsing the Service Scorecard for a corporate performance measurement system implies becoming a passionate user of the scorecard for identifying opportunities for both improving the performance and predicting future performance. Leadership expectation of the necessary measurements will filter down to the mid-level management as well as to the process owners. The best endorsement of the Service Scorecard is communicating business performance with employees throughout the corporation, and sensitizing employees to the Service Scorecard measurements.
Enthusiastically reporting the corporate performance, formally (or informally) measuring performance against goals, and rewarding superior performance in various elements (or measurement) of the Service Scorecard are good ways to demonstrate leadership commitment to the Service Scorecard. Most important, the leadership must expect significant improvement that is reported through Service Scorecard measurements and corresponding aggressive goals for improvement. Finally, providing necessary support to realize return on investment is critical to ensure successful implementation of the Service Scorecard.
After the leadership’s endorsement and the champion’s appointment, the next step is to align the scorecard with the strategic objectives and map it to the organization structure. Effective organizational alignment depends on objectives using the scorecard, which is considered successful if it leads to profitable growth, as shown in Figure 11.2. To that effect, an organization must align with the strategic intent in terms of marketing and sales for growth; customer relationships management; executive, operations, and partnership management; service acquisition and innovation; and excellence management. Modifications to these categories can occur, such as marketing and sales for market research and growth, customer relationships for sustaining the business, operations incorporating sourcing partnerships, service acquisition and innovation needed to introduce new service products, and excellence management replacing quality management. To benefit from the Service Scorecard, innovation, excellence, partnerships, and market research are critical pieces for success.
Planning for implementing the Service Scorecard requires good preparation: identifying stakeholders, determining applicable process measurements aggregating into service scorecard measurements, and setting relevant goals for improvement. In addition, data accuracy and use of technology must also be considered to ensure ease of data collection and timeliness of measurements to initiate improvement actions.
After the leadership and the employees understand the Service Scorecard, preparation for implementing it includes getting necessary IT technology and software, developing a methodology for reporting business performance, discovering trends or areas for improvement, and preparing a preliminary action plan to implement it. The preliminary action plan must incorporate the employee feedback obtained from the employee awareness training. A person of the executive rank is needed to take an overall responsibility for implementing the scorecard.
The scorecard champion first listens to various stakeholders for their main points, needs, and wish list. The input from across the organization can be used in utilizing the Service Scorecard, identifying key service processes, and establishing effective measures of performance. For implementing the Service Scorecard effectively, the champion may utilize the action plan template, as shown in Figure 11.3.
In preparing to implement the Service Scorecard, a company can look into the required necessary information regarding expectations, barriers, information and reporting needs, communication methods, and tools and technology for implementing the scorecard. In addition, a methodology for effectively using the scorecard, including interpretation of data, frequency of review, incentives for success, consequences and corrective actions for questionable performance, and training required for employees and leadership to understand the scorecard, should be examined.
The Service Scorecard has ten executive-level measurements to determine the Service Performance Index (SPIn) and to identify improvement opportunities for sustaining the profitable growth. However, to arrive at the ten top-level measurements, an organization needs several process-level measurements for key processes.
Key process areas are those that perform below excellence level or are critical to meeting business objectives. Some processes such as sales are directly specified as an element in the Service Scorecard. However, collaboration or execution may include multiple processes or multiple partners. To minimize the complexity and burden of measurements, start with key processes or key partners, while monitoring the remaining processes or suppliers sporadically. In an IT corporation, for example, key processes could be requirements gathering, system design and architecture, project management, or product release (which could be more critical than the task of coding itself).
After key processes are identified, a set of questions can be asked to determine process-level measurements. The questions to be answered are as listed here:
Answers to the last question will reveal necessary process measures. Examples of process measures are shown in Table 11.1. These process measures will vary from one organization to another organization based on their priorities. A key process in one organization may not be the key process in another organization due to its performance. If a process is robust and its performance is superior, such that it does not need to be monitored as rigorously as others, it may not have to be used in determining the SPIn (unless it is directly related to the Service Scorecard elements).
Table 11.1. Example of Process Measurements
Element | SPIn Measurements | Process Measurements |
|---|---|---|
Growth | Revenue Growth | Revenue from existing customers with existing products Revenue from existing customers with new products Revenue from new customers with existing products Revenue from new customers with new products Number of new customers added |
Leadership | Employee Recognition Return on Net Assets | Percent of employees recognized by CEO for their exceptional contribution to profitable growth Employee surveys Profit margin from existing products Profit margin from new products Net income or EBITDA |
Acceleration | Rate of Improvement | Management of performance against aggressive improvement goals Number of major improvement projects completed Reduction in recurring problems Reduction in customer complaints Reduction in credits received from suppliers |
Collaboration | Reliability of Partners Trust | Quality performance of partners On-time performance of partners Partnership performance index Cost per transaction Total person-effort per transaction System utilization |
Innovation | Employee Ideas (C) Employee Satisfaction (D) Employee Involvement (R) | Number of new ideas submitted per employee Number of new ideas implemented per employee Value of new business generated/cost saving by the new ideas Employee satisfaction index Annual employee turnover |
Execution | Accuracy Responsiveness | Process sigma level On-time service delivery |
Retention | Customer Loyalty (Equity) Net Promoter Index | Growth in business with existing customers Number of new customers with referrals from existing customers |
For example, to ensure revenue growth, an organization must look into all possibilities for increasing sales. The new sales can be for existing products or new services, and to existing customers or new customers. Knowing that higher margins can be possible from new products, a company should simply not focus on selling existing services to current or new customers at high discounts. To grow revenue on a sustained basis, having a revenue target for new services is critical. As a result, the measure will drive the need for new services, thus requiring an internal focus on innovation. Instilling an innovation culture is good for an organization in the long term, rather than simply finding a way to get revenue at any cost for existing services. An effective measurement leads to process-level activity for impacting the business performance positively.
At the activity level, we can track the number of orders processed, number of visits made to the potential customers for new services, marketing or advertising budget, customer reviews of the service, or the branding effectiveness. A clearly determined measurement ensures that the area needing improvement can easily be identified for specific action items.
While implementing the Service Scorecard, a corporation will typically find many of the scorecard measurements that are in place to be disconnected. In other words, the measurements may be there but not utilized in a proactive manner. These measurements are used to describe the history rather than predict the future performance.
The Service Scorecard highlights linkages among various measurements and identifies missing measurements. Only when relevant measurements are aggregated can the “big” picture of the business, and major areas for strategic adjustments, be identified. When a new measurement has to be established to complete the Service Scorecard, it may take some effort in committing, planning, and preparing for it, as well as overcoming initial barriers, monitoring it, and creating value.
The Service Performance Index is a weighted sum of all the elements, and hence it is robust in terms of minor variation/error in the measurement of the different elements. One can derive value from the Service Scorecard by monitoring trends, to predict performance, and initiating operational correctives to realize strategic business objectives. When the Service Scorecard is working, customers must be receiving better service, and the organization should be achieving sustained profitable growth.
When a good measurement system is being implemented, one of the major challenges is getting good data. Some organizations collect too much irrelevant data, whereas others have too little. Some organizations have no data, whereas others have questionable data. The quality of data is one of the biggest challenges of any organization. Another problem with implementing a measurement system is the analysis and use of the data. Many corporations have identified right measurements, collect good data, and publish several reports. However, no analysis occurs, no follow-up action takes place, and thus no improvement happens. Eventually the measurement system is erroneously blamed for lack of improvement.
When establishing process measurements, a company should look into ease of collecting and analyzing data. Actually, performing backward analysis—that is, determining the type of analysis to be used and reports to be published to establish data collection methods—is sometimes preferable. Collected data must be utilized, communicated, and acted on to be useful. Otherwise, data collection methods start becoming less reliable, because the people collecting the data realize that no one cares for the data and thus adopt a “why bother?” attitude.
After the data to be collected is identified, the collection methods must make the data collection easier for people. When data collection requires a significant effort, employees start collecting less data. Therefore, the data collection method still must make the actual task easier through analysis and improvement actions.
A company can look at the value proposition of data collection using the following equation:
Data-Value Index = (potential benefit of data collection / cost of data collection) × probability of realizing benefits
For people to be convinced of the value of data collection, the minimal probability of realizing benefits must be .7; thus, the data value index must exceed a value of approximately 1.5.
Before establishing goals for individual measurements, the organization must establish an overall strategy for improvement. External benchmarking will determine the market position of the company and the gap, if it exists, with the competition. In addition to external benchmarking, the business opportunity analysis will determine internal opportunities for reducing waste of time or resources. With a combination of the market position and internal opportunity, the organization can establish an overall rate of improvement, which then can be translated into departmental or process improvement goals.
If a company has committed to Six Sigma–like initiatives, which require a lot of improvement quickly, that commitment must be considered in establishing the rate of improvement goals. Normally, companies set goals for their fiscal year by improving the starting baseline by a certain percentage. The new year-end goal then must be broken down into several monthly goals to sustain the improvement over the entire year, instead of expecting a sudden improvement at the end of the year, which rarely happens.
Goals for various measurements are revisited every year for the coming year. One of the challenges is that if a measurement shows significant improvement in one year or two years, then how can managers show improvement in the third year? To overcome such a challenge, the leadership must continually look for new opportunities. If the improvement in a measure of process performance is achieved to the virtual perfection level, the focus must shift to another process and another opportunity and thus a different measure. Unless the business is sustaining profitable growth year after year, and running flawlessly, plenty of opportunities for improvement will exist. After the target performance is realized, processes are monitored at a reduced frequency.
Information technology offers a new capability to accelerate execution of business strategies. Today technology is everywhere, and we are so dependent on technology that we cannot believe that the world existed without it at one time. Technology is the sign of progress, giving human beings time to do something better. Technology is now quite an integral part of the service industry in spite of the human interactions with customers.
Today’s technology makes the data collection process very efficient. Technology can automate the data collection and processing in real time. Data can be easily displayed in various forms in colorful gauges and dashboards. The dashboard or data display methods can help in analyzing and interpreting the information, as well as in making decisions.
Technology sometimes can be a liability as well. Too much dependency on technology renders people helpless. Thus, continual engagement of employees in absorbing the information, internalizing the knowledge, and developing intelligence for being prepared must be maintained to make the best decisions at any given time. In the absence of available technology, the newly gained business intelligence must perpetuate improvement for sustained profitable growth.
Most people know what they are supposed to do, about one-third of people know how well they do, and only 1 person in 20 knows how much he has improved in the past 12 months. Thus, implementing the Service Scorecard for driving improvement is a change and must be managed accordingly. One of the main activities in managing change is to provide education. Employees must understand the intent, categories, measurements, and methodology to implement the Service Scorecard. Building harmony among various departments, a common language and common goals for improvement requires teamwork.
Resistance to accepting aggressive goals for improvement may become an issue with some managers. Agreeing to achieve a lot of improvement requires commitment to think and do things differently. As a result, the leadership must commit to risk-taking, recognizing successes, and demanding a lot of improvement by doing things differently, which includes redesigning processes frequently.
Employee training should also include employee incentives for achieving dramatic improvement. Sharing savings and celebrating successes are great ways to inspire bigger successes. Enlisting employee ideas throughout the improvement journey can be accomplished during the training. Some team activities can be developed, and fun activities can be planned for allowing employees to think freely. After all, happy employees keep customers happy and create more value for the company.
Measuring a performance level using two different measurement systems will yield two different results. In such an instance, the system is not necessarily presenting two different values. The absolute value of a measurement is less significant than its relevance. Thus, to ensure that the Service Scorecard measurements relate to the actual business performance, an initial validation must be performed. The validation can be through regression analysis between financial outcomes and operational measures, and through identification of areas for improvement. As a result of the validation activities, it is possible to fine-tune various measurements, evaluate goals, overcome barriers, review effectiveness of data collection methods, and calibrate SPIn for its relationship to profit and growth.
After validation of the Service Scorecard, the measurement system can be tested over three months for a dry run before its formal release. All elements of the Service Scorecard must be implemented to maximize its benefits. In the absence of one or two categories, the puzzle will be incomplete and follow-up actions will be misleading. Recognizing that the Service Scorecard categories are interdependent is crucial. Critical aspects of the business must be implemented in synchronization to produce resonant results.
The value of the Service Scorecard must be planned through companywide implementation. The organization may have multiple profit and loss centers and be a large organization, a not-for-profit organization, or simply a complex organization. The Service Scorecard can be institutionalized after its initial validation through the leadership commitment to the performance-driven learning organization, the intellectual contribution of employees, and the fundamental strategy of sustaining profitable growth. If these aspects are traded for short-term benefits such as profit only, the organization will be on a downward spiral of cutting costs and causing organizational instability.
Continual deployment of a measurement system depends on its usefulness to executives and employees. A scorecard cannot be designed only for executives without its empowering application to employees. A well-implemented scorecard will challenge and empower employees to excel and produce significant value for the organization. This requires analyzing the data in real time, communicating the results, interpreting the data, and taking necessary actions with a sense of urgency. Without actions, improvement will not be achieved and benefits will not be shared; thus, stakeholders will not perceive any value being added to the company. Data start to appear questionable when (a) employees feel their effort in data collection is not being valued and (b) executives are not taking actions based on the scorecard indicators. After a group of stakeholders starts losing interest in the measurement system, it starts falling apart, eventually looking like a burden and thus rendering it useless and abandoned.
Service Scorecard performance must be reviewed by department managers for operations and financial performance together, as well as by executives for maintaining the scorecard’s strategic suitability to the organization. The departmental review of the performance can be based on the regular reports published by the scorecard owner or by the system. Process owners must review the data daily, department managers must review the data weekly, and executives must review the data monthly. In a departmental review, the management is looking for deviations from the target performance and remedying the causes quickly. The executive review, on the other hand, involves all department managers and is looking for questionable interdepartmental performance and performing remedial actions.
Many times opportunities are identified through the scorecard; however, remedial actions are taken without understanding the causative relationship between the process and its outcomes. Thus, managers and employees must receive training to get to the root cause of the problem quickly. Training in statistical analysis—specifically, statistical thinking—may be very helpful in interpreting the variation or inconsistencies correctly, and thus preventing panicky reactions or overcorrections. The overreaction sometimes is just as responsible as no action for making the scorecard fail.
Implementation of the Service Scorecard is a strategic initiative that must be implemented with passion for creating value and a high return on investment. After the initial implementation, the stability of the process and/or lack of improvement lead to managerial boredom. The leadership starts diluting the significance of the measurement system and questioning its usefulness. In such an environment, sustaining any initiative over the longer term becomes nearly impossible. Therefore, the Service Scorecard must be revisited every year for organizational renewal and reignited for employee power.
Renewal activities may include new measurements as necessary in some categories of the scorecard, simplification of departmental reporting, modification of criteria for recognition, or simple communication with employees. The corporate performance measurement system must be designed such that it (a) encourages change rather than stagnation, (b) promotes risk-taking rather than process preservation, and (c) challenges for growth rather than leaning for profit. Reigniting employee power requires the CEO or equivalent leader to engage, drive, and demand worthwhile performance from employees. Worth can be assessed in terms of societal recognition, visibility, financial incentives, or excitement of newness. Changing the application of the Service Scorecard is a critical aspect of sustaining its usefulness, its excitement, and its profitable growth.
The most important elements of successful implementation of the Service Scorecard are top leadership commitment and alignment with business goals.
A model such as the 4P model provides an actionable agenda to the implementation.
Planning for the Service Scorecard consists of steps including preparing for the implementation, solving information issues, leveraging technology, adjusting measurement and continuous renewal, and institutionalizing the scorecard.