KPI Framework for Superior Service by patrickow1

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									MANAGEMENT AND ACCOUNTING




                   KPI FRAMEWORK FOR

                Superior Services
                                  By Patrick PC Ow

     Services are more difficult to measure than production lines. It is more difficult
       to control and measure the workflow and provision of a service because it is
         harder to pin down exactly how individual customers or clients will react
             during service delivery, given a set of expectations and promises.




26                                                                        ACCOUNTANTS TODAY • July 2006
                                                                                                               KPI Framework for Superior Services



There are three categories of services:                                    vice firms. As services are intangible, measurements are always
  Professional services (e.g. auditing, consulting, external reporting);   open to interpretation or challenged. Unfortunately, ‘hard’ finan-
                                                                           cial measures tend to drive out ‘soft’ measures of excellent cus-
  Trade services; and
                                                                           tomer service. We need to be more patient when it comes to see-
  Transactional services.                                                  ing investments in intangibles pay off.
   We need to understand the nature of these services before ob-              In order to understand what and how to measure a service, we
jectively measuring and subsequently rewarding their performance.          need to understand the characteristics of our service and its de-
   Services differ from the production of goods in four key ways:          livery, based on the following service dimensions:
  Intangibility — Services are not objects. Goods, the outputs of            Level of customisation.
  manufacturing, are physical objects. We can touch and feel them.           Front office versus back of fice focus.
  Measuring services requires clear definitions of intangible fac-           Customer contact time required.
  tors like helpfulness of your staff or the feeling you get when            People versus technology focus.
  you wait too long in a queue at the bank. Generally, it is based           Discretion available to staff.
  on promised ser vice levels.
                                                                             Product/process focus.
  Heterogeneity — Most services are people-to-people transactions.           Professional services are generally high-contact services where
  It makes it hard or challenging to deliver the same high quality         customers spend considerable time in our service process. There
  consistently from the same employee day after day, especially            are high levels of customisation, and the service process is tai-
  over long periods.                                                       lored or customised to meet the needs and requirements of indi-
  Simultaneity — Production and consumption of services occur              vidual customers.
  simultaneously (e.g. having a haircut). Therefore, most services           Staff require significant discretion and professional judgement
  cannot be adequately inspected (or counted) prior to their de-           and human courtesy. The ratio of staff to customers is relatively
  livery or consumption. Thus, the customer becomes an inte-               high, with a significant emphasis on how the service is delivered.
  gral part of the service process.                                        Services are managed through short chains of command, profes-
  Perishability — You cannot store them for later use or have              sional development training and shared values.
  them inventoried to cope with fluctuations in demand (e.g. ho-             A comparison is shown in the table below.
  tel rooms, or seats on an airplane). It is an opportunity loss.
                                                                           Characteristics      Professional         Trade      Transactional
  Unlike many goods, services are perishable.                                                   Services             Services   Services
   These four key differences between services and manufactur-             Level of
ing pose a unique set of problems for the collection of data to            customisation        High                 Some       Low

measure service effectiveness. Without effective measurement,              Front office versus
we are unable to objectively reward good employee performance              back office focus Front office focus      Mixed      Back office focus

(financially/non-financial) and most of all, retain good perform-          Customer contact
                                                                           time required        High                 Varies     Low
ers within the organisation (talent management).
   Align all service measures to organisational strategy. We need          People versus
                                                                                                People focus         Both       Technology focus
                                                                           technology focus
to clarify the strategy to those who have to implement it (e.g. our
staff or people). Service measures must make our strategy real             Discretion
                                                                                                High                 Some       Low
                                                                           available to staff
and implementable.
   Front line employees must have a clear “line-of-sight” of what          Product/process
                                                                                                Process focus        Both       Product focus
                                                                           focus
the strategy is and how to execute them. Having a well-written strat-
egy is pointless, if no one understands it or cannot implement it.           We need to objectively measure five properties of service per-
This is particularly important to professional service firms because       formance, which are as follows:
most of the time, front-line people deliver services, not machines.        1 Service utilisation.
   If a professional firm has strategies in place to build stronger        2 Service quality.
relationships with its customers in order to give them greater
                                                                           3 Service flexibility.
benefits, then it should be putting a lot of effort into measuring
service quality and customer outcomes.                                     4 Service innovation.
   Financial measures, particularly budgets, have their rightful           5 Cost per occasion of service.
place in corporate reporting systems. In most cases, unfortunately,          Firstly, service utilisation measures the level of service activity
we over-emphasise financial measures to the exclusion of key non-          relative to the total potential demand for that service, usually ex-
financial service measures, ruling out investing in intangible ser-        pressed as a percentage. If the 
								
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