MANAGING SERVICES

I.THE UNIQUENESS OF SERVICES

The Four I's of Services

o Services cannot be held, touched, or seen before the
purchase decision.

o Marketing must make them tangible or show the

benefits

o Marketers often use tangible cues to communicate

service nature and quality.
Intangibility
Environment

Atmosphere at facilities

Uniforms

Paperwork

o Quality is often inconsistent.

o Service personnel

have different capabilities

Inconsistency
vary performance from day to day.

o Problems can be reduced through standardization and

training

o Consumers cannot and do not separate the deliverer

of the service from the service itself.
Inseparability
o Interaction between consumer and the service
provider varies based on whether consumer must be
physically present to receive the service.

Inventory
o Inventory carrying costs are more subjective and are
related to idle production capacity

o When the service is available but there is no demand.

 o Cost of paying the people and overhead

o Inventory carrying costs of service vary widely,

High end of airlines and hospitals with highly

trained, salaried specialists and equipment

Low end of real estate agencies and hair salons

with employees working on commission and needing
little expensive equipment

The Service Continuum

Classifying Services

HOW CONSUMERS PURCHASE SERVICES

 The Purchase Process
Consumer's Difficulty Evaluating Service Quality

Fewer
Service characteristics that can be easily assessed
Search
before purchase.
Qualities

More
Service characteristics that can only be assessed
Experience
after use.
Qualities
More
Service characteristics that cannot be easily
Credence
assessed even after purchase and experience.
Qualities
 Assessing Service Quality
The Gap Model of Service Quality
identifies five gaps that can cause problems in service delivery.
What management thinks
Knowledge Gap between What customers want and
customers want.
Quality specifications that
What management
Standards Gap between and management develops to provide
thinks customers want
the service.
Service quality
Delivery Gap between and Service that is actually provide
specifications
Communications What the company What the customer is told it
between and
Gap provides provides.
Service that customers
Service Gap between and Service they want.
receive
 Cost of Quality
Test question: "What are the limitations of using efficiency or productivity to evaluate performance?"

o Answer: Efficiency and productivity do not necessarily account for quality.

Learning objectives:

o Understand and describe the importance of quality in products and services.

o Appreciate the concept of cost of quality: traditional (ECM) and TQM / 'Quality is free'
perspective.

o Familiarity with a few quality control frameworks (Baldridge, ISO, CMM(I), Six Sigma)
(BPM Credit 7).

o Use of poka-yoke as a means to avoid quality failure.

o Quality function deployment ('house of quality').

o Identify key initiatives in developing a quality-minded business (process) culture.

A few statements of notice:

o Reimann (director Baldridge Quality Award): "Quality cannot be seen as separate from
overall performance or the bottom line."

o Chase et al. (2001): "Total Quality Management (TQM) involves managing the entire
organization so that it excels on all dimensions of products and services that are important to
the customer."

o Gallup survey: "service improvement and product quality is the single most critical challenge
facing US business" (Metters et al. p. 179)

Overall: Since early 1980s, strong emphasis on quality improvement.

Why does quality matter?

o American Customer Satisfaction Index (ACSI): reflects consumers' perception of quality of

economic output:

Consumer spending 70% of GDP.

"Economic growth at the expense of customer satisfaction... is not sustainable."

(Metters et al. p. 179).

o Roland & Rust (1995):

Cost of acquiring a new customer is five times that of retaining one.

Likelihood of future retention increases with the length of retention.

 o Porter: bargaining power of customers:

BPM (p. 95): Some service firms differentiate themselves in the marketplace by
offering a "service guarantee."

Examples?

Problem: Why don't you want to ever have to exercise such guarantees?

Quality: degree to which a product or service meets (customer?) expectations:

o Physically-based measures (typical for manufacturing):

Is our white paint really white?

Do the brakes on the motor cycle coming off of the assembly line work?

Does our strawberry jelly contain at least 75% fruit by weight?

Does our wine really contain 12.5% alcohol by volume?

Is the paint on our toys free of lead?

Do the screens of our new iPod properly display dark colors?

Do the airbags in our cars still function ten years from now?

Does the ABS in our new car work?

Do the pieces of chalk arrive unbroken? Are they all of similar length?

Etc.

o Some 'objective' measures of service quality:

Minimum, average, maximum wait time.

Minimum, average, maximum service time and cost.

Number of errors made.

Certification by third party (only an indicator).

Etc.

o Problem: What would be some more subjective measures of quality?

o BPM (p. 96): "Customer satisfaction with a service can be defined by comparing perceptions
of service received with expectations of service desired."

o Problem: How likely is it that measures of service quality have subjective components?

o Perception is influenced by other variables as well!

o ==> (service) quality is a complex and relative measure.

o BPM (pp. 96-97): Five dimensions of service quality (RATER):

Reliability: Capability to deliver dependable, accurate and consistent service.

Assurance: Likelihood that the service will actually be delivered.

Tangibles: facilities' conduciveness to service.

Empathy: Caring, attention to customers.

Responsiveness: Willingness or readiness to provide service.

o Quality Function Deployment (QFD) / House of Quality (Toyota) (p. 103): matrix of
customer expectations and product characteristics ==> quality as weighted average

Rows: dimensions of quality

Columns: service components

Roof: associations between service components

Cells: relevance/applicability of rows to columns

Chimney: customer weights

Basement (weighted score): relevance of service components.

 o SERVQUAL model (pp. 9799) ties service shortcomings or 'service gaps' to differences in
expectations:

Gap 5: difference in expected and perceived quality (by customer).

Gap 1: difference in expectations between customer and those of the provider.

Gap 3: difference between provider's quality specifications and actual delivery.

Etc.

o SERVQUAL overall: Conceptual model of service quality. Offers a way of measuring and
attributing service quality and service quality shortcomings.

Remember!! poor quality is ALWAYS costly.

o Harry & Schroeder (2000): mean cost of poor quality in nonquality-oriented companies: 20-
30% of sales.

o Taguchi quality loss function: cost of lacking quality is the square of the deviation of the
quality target (Figure 6.4).

o Juran's cost of quality (pp.109110):

Cost of failure:
 Internal failure cost: Problem: What are some costs resulting from defects
discovered during production of the product or service?

Yield shortage and scrap.

Rework, correcting mistakes.

Extra parts, material and other resources required.

Complicates the production process!!

External failure cost: Problem: What are some costs resulting from defects
discovered after the customer has received the product or service?

Warranties, returns, product replacements, product recalls.

Technical support.

Dissatisfied customers/lower repeat business.

Poor publicity.

Legal consequences: lawsuits, settlements, damages, etc.

Lousy marketing.

Cost of prevention & detection (inspection & appraisal):

Prevention: costs associated with preventing defects:

Redesign processes to remove quality problems:

poka-yoke (pp. 101102)

Problem: poka yoke examples?

Walkthrough audit (used a lot in information systems design).

Train employees in continuous improvement; culture of quality.

Work with suppliers to improve quality of incoming parts and services.

Work with your customers to improve quality.

Etc.

Detection (appraisal / inspection): costs to assess/appraise quality

(shortcomings):

Quality Assessment (QA).

Identification of problems and their sources; e.g., customer/product

support data collection (Fujitsu!).
o How do we balance these?

Juran: Economic Conformance Model (ECM) / Traditional:

Deming / Crosby: Quality is Free:

 Some quality frameworks / certifications (Ch. 8):

o Malcolm Baldridge National (US) Quality Award:

Established by US Congress; awarded by the President.

Named after Malcolm Baldridge, Secretary of Commerce 19811987.

Meant to focus national interest on continuous quality improvement.

Managed by National Institute for Standards & Technology (NIST).

Three awards annually in each of the areas: manufacturing, service, small business,
education, health care.

Seven criteria of outstanding quality: leadership, strategic planning, customer &

market focus, information & analysis, HR focus, process management, business
results.

o ISO 9000:

Certifications.

1,000,000+ awarded in >150 countries.

Family of standards focused on process quality management:

 Do you know the quality of your products: yesterday, today and tomorrow?

Do you have documented processes?

Do you have a quality and process improvement policy?

Do you document and execute these policies?

ISO certification is a marketing tool as it is a 'stamp of approval' by an external,

independent agency.

o Capability Maturity Model (Integration) (CMM(I)):

Developed at Software Engineering Institute (Carnegie Mellon):

Software CMMI: scales the quality of the software development process.

High CMMI scores correlate to good quality software/IT.

CMM scores Gibbs (1994):

261 teams rated.

Level 1 Initial: 75%.

 Level 2 Repeatable + Stage 3: Defined: 24%.

Level 5: Optimized: 2 (< 1%).

CMM scores 2002:

1,345 teams rated.

Level 1 Initial: 16.9%.

Level 2 Repeatable: 43.2%.

Level 3 Defined: 24.6%.

Level 4 Managed: 8%.

Level 5: Optimized 7.3%.

A word on IT offshoring: cost advantages? quality advantages? both?

CMM(I) 2002: US vs. Offshore:

Initial Repeatable Defined Managed Optimized Total

US 155 335 164 39 19 712
Offshore 72 246 167 69 79 633
Total 227 581 331 108 98 1345

CMMi certification is a marketing tool as it is a 'stamp of approval' by an external,

independent agency.

o How to focus on quality and quality improvement (BPM p. 137)?

Hire the right people.

Educate and train them.

Allow them to fix things or at least ask them for ideas on how to fix things!!

Open Source Software (OSS) culture.

Recognize and reward.

Don't hide the bad news:

Warm or cold crow?

Can you guarantee your product?

o What if it all goes wrong anyway?

Have a service recovery / business continuity plan.

 Act quickly.

Have your people trained to handle service failure.

Empower the front line:

Give away the store?