Service Performance Measurement

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Service Performance Measurement

In the present business scenario, service organisations across the world encounter various issues such as stiffening competition, highly demanding customers, high labour costs, saturation of markets, etc. while trying to improve their productivity.

Manufacturing businesses can increase their productivity by simply monitoring and reducing wastage and variance in their production and distribution processes. However, the situation is quite complex for service businesses as their customers, activities and transactions vary too widely.

Due to seemingly uncontrollable factors pertaining to service businesses, a high level of variance, wastage and inefficiency is generally tolerated in service costs. Moreover, service businesses may tend to hire more staff than needed to support the extensive degree of variance, cede opportunities to draw up more effective service contracts and deliver services more productively.

However, increased service costs in the long run can adversely affect the revenues and performance of service businesses. Therefore, it is important for service businesses to take timely measures to reduce variance, wastage and inefficiency so as to improve their productivity.

However, top management may be likely to face resistance from middle and lower-level personnel while taking measures to improve productivity as it may create a feeling of work pressure or job insecurity among them. Thus, it is the responsibility of top management to clearly communicate the purpose of improving productivity to middle and lower levels and encourage them to work towards the goal of improving productivity.

The first step towards improving productivity is to measure service performance, which further helps in recognising the best practices so that they can be instilled and adopted throughout the organisation. For this, it is important to identify the instances of variance, wastage and inefficiency in service processes. Although variance, wastage and inefficiency in services cannot be entirely eliminated, it can be controlled to a certain extent.

Principles of Service Measurement

This can be done by following the principles of service measurement given below:

  • Service organisations need to compare themselves against their own performance benchmarks instead of ill-defined external measures. External benchmarks tend to add to the difficulties encountered by service organisations in acquiring comparable measurements from different parts of the organisation.

  • Service organisations should conduct an in-depth analysis of their financial costs to discover the underlying causes of their extraneous expenses.

  • Lastly, service organisations must establish cost measurement systems that would report and compare all expenses incurred to service delivery organisations. This step would help in improving the understanding of cross-functional trade-offs that service companies need to make to control their total costs.

Difficulties in Service Performance Measurement

Service organisations may face a number of challenges while measuring service performance due to highly intangible nature of services.

  • Services are different: Services differ based on regional disparities in labour costs, local geographies and use of capital. In order to make relevant comparisons between services, organisations have to ascertain sources of difference in their businesses.

  • Service-level agreements: The degree of variability exponentially increases in service agreements when an organisation provides multiple services. The service-level agreement for customer support is quite different from that of helpdesk based on costs, shift times, time ofservice delivery and many more.

  • Differences in infrastructure: Each service provider’s infrastructure is characterised by unique aspects that may prove difficult to measure. For example, a logistics provider will face significant differences between managing a huge, automated warehouse and a small, simple one.

  • Volume of work: The business size of a service organisation causes a major variance among business units. Large businesses are more complex having multitude cost trees resulting in higher costs, thereby off-setting the economies of scale.

  • Data problem: Achieving data accuracy proves to be troublesome since data is rarely defined or collected in a uniform manner across an organisation’s service environment. For example, a service call pertaining to installation of two elevators, can be quantified either as a single installation in one part of a company or as two in another.

  • External benchmarks: An organisation should refrain from measuring its performance against competition as external benchmarks are just samples of data with little to no explanation behind them.

    The drawback of external benchmarks is that it aggravates internal difficulties faced by service organisations while trying to normalise their activities. On the other hand, internal benchmarks offer more detailed metrics that enables an organisation to discover its best practices and how to achieve them.

    For example, a company can determine which costs to include or how to allocate asset costs by defining internal benchmarks which may not be possible if the organisation uses external benchmarks.

  • Cost drivers: Service organisations need to discover the root cause of each expense. For example, measuring only the cost of repair calls most likely would not disclose whether repair calls are due to poorly built products or from other factors such as variability in the performance of repair teams.

    If the reason is the former, then the products can be improved or sourced from different vendors which would be less expensive than the cost of repairs.

    Organisations take into account different kinds of cost drivers such as cost per employee (resource metric), incidents per employee per day (productivity metric) and number of incidents per product (volume metric).

Setting Up Measurement Systems

The next step taken up by the top management of a service organisation is to set up effective service measurement systems. This can be done by defining metrics, collecting data and implementing processes. The following are the steps taken for setting up measurement systems:

Build the Cost Tree and Choose Metrics

Cost trees need to be comprehensive and extensive so as to detect efficiency problems and make comparisons across operating units. A service organisation can begin building the cost tree after identifying allocated costs and cost drivers.

In order to identify the most important cost drivers from the cost tree, the top management of the organisation has to take inputs from line managers, engineers and field and service representatives working at middle and lower levels of management.

This step would enable the service organisation to focus on total costs needed to deliver a service to customers. Moreover, the cost tree should be built in a manner that can compare key metrics across several diverse environments be it for 24/7 operations or for organisations operating eight hours a day.

Collect Relevant Data

Organisations face the issue ofwasting too much time on organising data toextract meaningful information. This can be averted by having clearly defined metrics and knowledgeable people to support the data collection process. Data collection methods should be reviewed by managers in collaboration with people who are responsible for developing such methods.

New procedures; however, would still leave much room for interpretation. Therefore, it would be beneficial to show how processes can be misinterpreted apart from collecting data.

For example, a service company, whose teams handled 2 to 5 service calls on an average per day, wondered why one of its teams averaging only a single call per day. It was discovered that particular team’s account belonged to a prison system, where security measures made eachvisit a daylong affair.

By conducting a review of data collection in the initial stages of implementation, managers can ensure that procedures are accurately followed.

Institutionalise Measurement

Managers have to familiarise themselves with new metrics and enforce them throughout all levels of a service organisation. Individuals and work groups present in the organisation would require periodic reviews based on the availability and shelf life of data.

The organisation can show a strong stance with respect to identification of variance and improvement of service performance by performing regional metrics review from time to time.

Ways to Measure Productivity

After the measurement systems have been set up, the top management employs efforts to control wastage and variance in the service delivery process. This can be achieved through the following ways:

Management of Demand

Managing demand is one area that has the largest potential for making improvement. By using cost trees, managers can identify the sources of demand for services. Generally, demand originates from sources such as online advertisements, one-on-one interaction with customers, word-of-mouth, etc.

Once a service is demanded bya customer, it is of utmost importance for the service organisation to timely respond to the customer.

However, the demand for a service is affected in case of negative experience of customers, delay in addressing customer queries, low performance of employees, etc. These issues can be resolved through better training, effective services, automated response systems.


Service organisations strive to standardise their service lines and tasks to deliver services with an aim to eliminate errors and improve employee performance. It helps to make the workforce more flexible since people can be deployed with less retraining. Moreover, standardisation also prevents over-customisation, which may lead to differences in service quality.

Appropriate Allocation of Resources

By identifying cost variances, a service organisation can allocate its human resource in an effective manner. If experts have to be deployed or field technicians need to be sent to resolve an issue, it increases costs and slows response times. This causes customers to be dissatisfied.

Service Productivity Measurement

With the advent of advanced technology and stiff competition in the market, there is an increasing trend of demanding more in services for less time. In other words, to be competitive in present times, there has been a shift towards focusing on improvement of productivity in the service sector.

Service productivity serves as a link between the amount of output generated with the given amount of input. In other words, service productivity refers to the numeric amount represented in the form of ratio that serves as the standard for measuring output generated with respect to input in the service delivery process.

A service organisation has to measure service productivity on a continuous basis in order to assess efficiency of service delivery.

Productivity measures relate real physical output to real input which vary from single factor measures, such as yield per unit of labour input or yield per unit ofcapital input, to measures ofyield per unit of multifactor input.

Productivity measures also take into account changes in technology, scale of production, educational levels of workers, as well as managerial techniques while assessing the contribution of particular inputs.

However, measuring service productivity is not easy for a service organisation as there are a number of problems that the organisation may face.

Some of these problems are explained as follows:

  • It is easy to measure the final output; however, it is difficult to assess transitional activities in the service flow.

    For example, in the trucking industry, the final output would be measured more suitably by the count of the ton-miles of freight moved which would indicate the result of all the activities of the industry.

    The intermediary steps, such as billing, platform work, pickup and delivery and collecting, are incorporated in the final output.

  • It is cumbersome to identify requirements of resources especially labour needed at each intermediate stage of service flow.

Service Productivity Measurement Tools

Service organisations use various tools to measure service productivity. These productivity measurement tools are explained as follows:

  • Customer retention: If a service provider is able to retain customers by providing improved and better services to them, it serves as an indication of high service productivity.

  • Conversion rate: Service productivity can be measured by the amount of prospective customers that are converted into regular customers. Service productivity is said to be low, if prospects are not converted into regular customers.

  • Customer satisfaction: Service organisations regularly conduct surveys to assess the satisfaction level of their customers. This is done to gauge the company’s standing and take necessary steps to assuage their customers based on the responses filled by them.

  • Quality of competitors’ services: Customers tend to compare services received by them with that of other service providers to assess whether they are receiving value for money or not. Therefore, it is of utmost importance for a service organisation to keep modifying its services in order to retain customers and maintain a competitive edge in the market.

  • Grievance redressal: Quick and effective query resolution is an effective measurement tool of service productivity. Customers tend to feel satisfied and remain associated with one service provider if their queries are readily addressed and resolved.

  • Increased revenues: Service productivity has a direct bearing on the organisation’s revenues as efficient and quality services helps the organisation in attracting new customers and retaining the newones.

Service Measurement Methods

A service organisation cannot simply hope and expect that customers are having a positive interaction every single time they interact with the sales staff and customer service executives. It has to undertake certain steps in order to assess the service experience of its customers.

Let us discuss these methods in detail:

Mystery Shopping

Sometimes the employees of the service organisation act as customers, visitors, patients or patrons in order to report on their experience with the service staff of their organisation. This method is generally used by retail stores, hotels and restaurants; however, it can work for any service business.

Mystery shop interactions take place on a scheduled basis. They are useful for delivering consistent results and gathering both quantitative and qualitative data, which can be used for assessing service quality, ensuring compliance with regulations, developing workforce development, etc.

Mystery shopping is advantageous since the data is collected by experienced evaluators who provide unbiased and objective factual results.

Social Media Monitoring

Social media channels such as Facebook, Twitter and Instagram are monitored by organisations for references, positive and negative comments with respect to their business, products or services. This data is accumulated in order to better understand customers’ experience.

The advantage of social media monitoring is that it helps to collect qualitative data and quantify the number of positive responses from customers within a specific period of time frame. It is also useful for gaining insight into public opinion with respect to the organisation’s brand.

Customer Effort Score

In this metric, it is proposed that it is more likely for a customer to punish an organisation for an ineffective service than it is for them to reward the organisation for an ineffective service. Generally, customers perceive a service to be ineffective if they put a lot of efforts in availing that service.

To measure customer efforts, service organisations generally follow the questionnaire method wherein customers are asked questions such as howmuch effort it took for them to avail a service or get their query answered or resolved.

CEB, a US-based best practice insight and technology company, discovered that 96%ofcustomers with a high effort score were lessloyal in the future, compared to only 9% of those with loweffort scores.

Post-service Rating

In this method, customers are asked to rate a service right after they have received it. For example, in Dominos, an employee comes by and asksto leave a review about the service right after customers have finished their meal.

Post- service rating can use different scales for rating such as a number rating wherein the service is given a score ranging from 1 to 10.

Documentation Analysis

In this method, a service organisation goesthrough its written or archived service records. This helps the organisation in identifying and distinguishing between low-rated and high-ranked service delivery instances.

This analysis helps in identifying corrective actions that a service organisation can take to improve customer satisfaction levels and provide better service delivery.

Role of Work Study in Service Productivity Measurement

In the previous section, you have studied about productivity measurement tools used by service organisations. With the growth of the service industry, new innovative ways are being created in order to improve work methods.

In addition to improving work productivity, focus should be on augmenting efficiency, efficacy and reducing the number of defects in the work environment mechanism. This can be possible if a service organisation makes time to time assessment of its existing work methods.

In simple terms, work study is an approach to assess working methods in order to achieve the maximum output and efficiency. It helps in enhancing work productivity, augmenting the existing method of work, eliminating wasteful elements, setting standards of performance and saving time and costs.

According to International Labour Organisation (ILO), work study is “a term used to embrace the techniques of method study and work measurement which is employed to ensure the best possibfo use of human and material resources in carrying out a specified activity.”

In service productivity measurement, work study helps to:

  • standardise activities used for completing a job through standardised processes

  • ensure that the cost of production of doing a unit job is minimised

  • ascertain the amount of time needed to do a particular job

  • minimise the amount of time used for the movement of materials and manpower performing the job

  • reduce or lower wastage

  • ensure effective and efficient utilisation of materials
Article Source
  • Sherman, H. D. & Zhu, J. (2006). Service Productivity Management. Springer.

  • Mudie, P. & Pirrie, A. (2006). Services Marketing Management (3 rd ed.). New York: Routledge.

  • Johnston, R., Clark, G. & Shulver, M. (2012) Service Operations Management: Improving Service Delivery. Pearson Education.

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