1. DOES SERVICE EXCELLENCE PAY? Dr Louise Boulter -
CENTRE OF QUALITY EXCELLENCE
DOES SERVICE EXCELLENCE PAY?
Dr Louise Boulter -
Customer Care Conference 2006
Athens

2. CENTRE OF QUALITY EXCELLENCE
Presentation
Value – Why so important?
What is it?
Service Quality Judgements
EFQM Excellence Model
Research
- Background
- Methodology
- Results
OK no mods required

3. CENTRE OF QUALITY EXCELLENCE
Why So Important?
Competitiveness
Influences customer purchase intentions
Impacts on customer retention
The bottom line
OK no mods required

4. CENTRE OF QUALITY EXCELLENCE
Value
Customers are 6 x more likely to repurchase
5% reduction in customer defection which can result in a profit increase from 30-85%
2% increase in customer retention is equivalent to cutting operating expenses by 10%
OK no mods required

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Conversely
Dissatisfied customers will tell between 10 and 20 other people!
The average company loses as many as 35% of its customers each year, about two thirds are lost due to poor service
1 in 6 customers is put off making a purchase due to staff attitude
Potential negative effect of not providing a quality service could be devastating!
OK no mods required

6. Service Excellence – What is it?
CENTRE OF QUALITY EXCELLENCE
Service Excellence – What is it?
Hard to grasp and even more difficult to deliver!
Johnson, 2004
- Delivering the promise
- Providing a personal touch
- Going ‘the extra mile’
- Dealing well with problems and queries
OK no mods required

7. Service Quality Judgements
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Service Quality Judgements
Tangibles
Reliability
Responsiveness
Competence
Courtesy
Credibility
Access
Communication
Understanding
(Zeithmal, Parasuraman and Berry)
OK no mods required

8. TQM/ Excellence and Achievement of Customer Satisfaction
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TQM/ Excellence and Achievement of Customer Satisfaction
Good leadership
Customer oriented
Employee empowerment
Process ownership
Team building
Partnering with other organisations
OK no mods required

10. CENTRE OF QUALITY EXCELLENCE
Does it Pay?
Widespread use and popularity of the Excellence Model
Issue raised of its impact on business performance
US comprehensive study but not in Europe
To bridge gap in knowledge international team of researchers commissioned
A purpose of the research is to identify the correlation between the adoption of the EFQM Excellence Model principles as a management system and improved business performance in Europe
Similar methodology to Vinod Singhal in the US
However… More difficult!
OK no mods required

11. Overview of Methodology
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Overview of Methodology
Identify award winners that have effectively implemented the principles of the EFQM Excellence Model
Identify the year in which a company received a first award
Companies need to be publicly traded
Collect accounting data for the award winning companies
Where an award winner is a subsidiary of a publicly listed company account data is collected on the parent company
Identify comparison companies
Collect accounting data for the comparison companies
Calculate the performance differences between each award winner and its comparison company

12. CENTRE OF QUALITY EXCELLENCE
For the award winning companies estimate the magnitude of the impact of the principles of the EFQM Excellence Model on accounting based performance measures
For the award winning companies estimate the magnitude of the impact of the principles of the EFQM Excellence Model on Shareholder value
Identifying Companies that have effectively implemented the principles of the EFQM excellence model
OK no mods required

13. CENTRE OF QUALITY EXCELLENCE
Share Value
Primary measure for the study
Return on shares that an investor would have earned by investing in companies that have effectively implemented the principles of the EFQM Excellence Model
The buy and hold returns for each award winning company has been calculated and compared against buy and hold returns for each comparison company
The returns include capital gains, regular dividends and special dividends, having been already adjusted by Datastream for any stock splits
The aggregate differences gives an estimate of the element of share value that corresponds to the effective implementation of the principles of the EFQM Excellence Model

14. Overview of Other Key Performance Measures
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Overview of Other Key Performance Measures
Revenue/Sales measures
Cost measures
Operating income measures
Other accounting based measures

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Time Period
Determining the implementation and the post implementation time periods for a company that received a first award in 1995

16. Time Period for Analyses
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Time Period for Analyses
Where data exists!
Accounting data for the appropriate time period has been collected on:
The year a company received the first award
5 years before a company received the first award
5 years after a company received the first award
Analyses based on a time period of 11 years, but this has had to be flexible because of the availability of data

17. Creating Matched-Pairs of Companies
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Creating Matched-Pairs of Companies
For each award winning company a comparable company has been identified
This is based on the following key criteria:
same country of incorporation of the parent company
same accounting data available over at least the same time period as the award winning company
has at least the same first digit industry code as classified by Datastream
is closest in size as measured by total assets at the fiscal year end before the winning of a first award, with the constraint that the ratio of value of assets is always less than a factor of 3
This gave us a population of 120 award winning companies

18. CENTRE OF QUALITY EXCELLENCE
Results
Analysis based on the population of 120 companies
85 European companies: 70.8%
35 Non-European companies: 29.2%

19. CENTRE OF QUALITY EXCELLENCE
Results: Share Value

20. CENTRE OF QUALITY EXCELLENCE
Results: Share Value

21. CENTRE OF QUALITY EXCELLENCE
Results: Share Value
Analysis of the share price performance for the population of award winning companies reveals some interesting results
There are differences in the performance between the population of award winning companies and the comparison companies
The comparison companies outperform the award winning companies in most of the reported implementation period but none of the results are statistically significant
For the period up to 3 years after first winning an award, the award winning companies outperform the comparison companies.

22. Results: Revenue/Sales Measures
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Results: Revenue/Sales Measures

23. Summary of Key Results: Revenue/Sales Measures
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Summary of Key Results: Revenue/Sales Measures
%Change in Sales
During the implementation period the comparison companies outperform the award winning companies
However, during the post implementation period the award winning companies outperform the comparison companies

24. Results: Cost Measures
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Results: Cost Measures

25. Summary of Key Results: Cost Measures
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Summary of Key Results: Cost Measures
%Change in Total Cost
The award winning companies are already good at reducing costs
During the implementation period the award winning companies outperform the comparison companies
%Change in Total Cost over Sales
In the post implementation period the award winning companies perform better than the comparison companies
Overall the trends indicate that the award winning companies are more successful in reducing costs when compared with the comparison companies

26. Summary of Key Results: Operating Income
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Summary of Key Results: Operating Income
The results for each of the operating income measures show similar patterns
It takes time for an award winning company to benefit in increases in operating income
The award winning companies outperform the comparison companies in all three operating income measures over a longer time period.

27. Results: Other Measures
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Results: Other Measures

28. Summary of Key Results: Other Measures
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Summary of Key Results: Other Measures
%Change in Number of Employees
During the implementation period compared to the comparison companies, award winning companies have a lower percentage growth in the number of employees
During the post implementation period the results show a mixed picture
- Within a year of a first award there is a greater percentage growth in the number of employees in the award winning companies compared to the comparison companies
- Up to 3-4 years after an award winner received a first award the comparison companies have a larger percentage growth in number of employees compared to the award winning companies
-Over the period from implementation to 5 years after winning an award there is a greater percentage growth in the number of employees in the award winning companies compared to the comparison companies
From a governmental perspective this may be positive!
%Change in Assets
Consistent with the growth of sales, the result shows that change in assets for the award winning companies indicates a greater increase compared to the comparison companies

29. Results: One Year Before to One Year After
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Results: One Year Before to One Year After

30. CENTRE OF QUALITY EXCELLENCE
Award Winners: One Year Improvements in Financial Performance After the First Award
Improvements within a short period of time after having received a first award
Compared to the comparison companies, award winning companies experience greater mean % change increases in:
share value
efficiency measures
capital expenditure over assets
capital expenditure over sales
assets

31. Results: One Year Before to Three Years After
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Results: One Year Before to Three Years After

32. CENTRE OF QUALITY EXCELLENCE
Award Winners: Three Year Improvements in Financial Performance After the First Award
Compared to the comparison companies award winners experience further mean increases in performance by an average of:
36% in share value
17% in Revenue/Sales
20% in Assets
5% in Sales over Assets
1.5% reduction in Total Cost over Sales

33. Results: One Year to Five Years After
CENTRE OF QUALITY EXCELLENCE
Results: One Year to Five Years After

34. CENTRE OF QUALITY EXCELLENCE
Award Winners: Five Year Improvements in Financial Performance After the First Award
Award winners experience even greater increases in growth and cost efficiency measures
Compared to the comparison companies, award winning companies indicate higher performance by an average:
77% in sales
18% in operating income
28% in capital expenditure over assets
30% in expenditure over sales
40% in assets
4.4% reduction in costs

35. CENTRE OF QUALITY EXCELLENCE
Concluding Comments
EFQM Excellence Model framework for service excellence
Acknowledgement - Research jointly sponsored by the European Foundation for Quality Management (EFQM) and the British Quality Foundation (BQF)
Research conducted by an international team of academics including;
Dr Louise Boulter, Centre of Quality Excellence, The University of Leicester, UK
Professor Tony Bendell, Professor of Quality & Reliability, The University of Leicester, UK
Ms Hanida Abas, Centre of Quality Excellence, The University of Leicester, UK
Professor Jens Dahlgaard, Professor of Quality Technology and Management, Linkoping University, Sweden
Professor Vinod Singhal, Professor of Operations Management, Georgia Institute of Technology, US