1. ISM 270 Service Engineering and Management Lecture 4: Service Quality

2. Max Maximilien Research Staff Member IBM Almaden Research Center Almaden Services Research group 12+ years experience in software research, architecture, design, and implementation Research interests in SOA, Web services, mashups, OOD/P, SE, and Agile methods Ph.D. in computer science from NC State University, Raleigh

3. Announcements  Project on web Due 13 Feb Due 13 Feb  Homework files Make sure you get confirmation from Geoff/me Make sure you get confirmation from Geoff/me

4. Algorithm for Project  Traveling Salesman-type problems very common in services Delivery of goods Delivery of goods Mail routes Mail routes Sales tour Sales tour  Standard problem: Given the distance between each city pair, visit all N cities in some order, ending back at the base Given the distance between each city pair, visit all N cities in some order, ending back at the base Objective: Minimize total distance traveledObjective: Minimize total distance traveled

5. Traveling salesman  Standard problem is very difficult to solve (NP – complete)  We will use the Clarke-Wright Algorithm (page 499 of text)  C-W algorithm intuition: Start with the path that returns to base between every node Start with the path that returns to base between every node Add links between nodes instead of returning in order of distance gained Add links between nodes instead of returning in order of distance gained Stop when no gain can be made Stop when no gain can be made  Note: This is a good heuristic Performs well in practice, but not guaranteed to find the best solution. Performs well in practice, but not guaranteed to find the best solution.

6. Service Quality

7. Learning Objectives  Describe the five dimensions of service quality.  Use the service quality gap model to diagnose quality problems.  Illustrate how Taguchi methods and poka- yoke methods are applied to quality design.  Perform service quality function deployment.  Construct a statistical process control chart.  Develop unconditional service guarantees.  Plan for service recovery.  Perform a walk-through audit (WtA)

8. Key question  How to we ensure that our customers are having a good experience?

9. Customer Feedback and Word-of-Mouth  The average business only hears from 4% of their customers who are dissatisfied with their products or services. Of the 96% who do not bother to complain, 25% of them have serious problems.  The 4% complainers are more likely to stay with the supplier than are the 96% non-complainers.  About 60% of the complainers would stay as customers if their problem was resolved and 95% would stay if the problem was resolved quickly.  A dissatisfied customer will tell between 10 and 20 other people about their problem.  A customer who has had a problem resolved by a company will tell about 5 people about their situation.

10. Moments of Truth  Each customer contact is called a moment of truth.  You have the ability to either satisfy or dissatisfy them when you contact them.  A service recovery is satisfying a previously dissatisfied customer and making them a loyal customer.

11. Dimensions of Service Quality  Reliability: Perform promised service dependably and accurately. Example: receive mail at same time each day.  Responsiveness: Willingness to help customers promptly. Example: avoid keeping customers waiting for no apparent reason.  Assurance: Ability to convey trust and confidence. Example: being polite and showing respect for customer.  Empathy: Ability to be approachable. Example: being a good listener.  Tangibles: Physical facilities and facilitating goods. Example: cleanliness.

12. Perceived Service Quality Word of mouth Personal needs Past experience Expected service Perceived service Service Quality Dimensions Reliability Responsiveness Assurance Empathy Tangibles Service Quality Assessment 1. Expectations exceeded ES<PS (Quality surprise) 2. Expectations met ES~PS (Satisfactory quality) 3. Expectations not met ES>PS (Unacceptable quality)

13. Service Quality Gap Model

14. Quality Service by Design  Quality in the Service Package Budget Hotel example  Taguchi Methods (Robustness) Notifying maids of rooms for cleaning  Poka-yoke (fail-safing) Height bar at amusement park  Quality Function Deployment House of Quality

15. Classification of Service Failures with Poka-Yoke Opportunities Server Errors Task: Doing work incorrectly Doing work incorrectly Treatment: Failure to listen to customer Tangible: Failure to wear clean uniform Customer Errors Preparation: Failure to bring necessary materials Encounter: Failure to follow system flow Resolution: Failure to signal service failure

16. House of Quality

17. Achieving Service Quality  Cost of Quality (Juran)  Service Process Control  Statistical Process Control (Deming)  Unconditional Service Guarantee

18. Costs of Service Quality (Bank Example) Failure costs Detection costs Prevention costs Failure costs Detection costs Prevention costs External failure: Process control Quality planning Loss of future business Peer review Training program Loss of future business Peer review Training program Negative word-of-mouth Supervision Quality audits Negative word-of-mouth Supervision Quality audits Liability insurance Customer comment card Data acquisition and analysis Liability insurance Customer comment card Data acquisition and analysis Legal judgments Inspection Recruitment and selection Legal judgments Inspection Recruitment and selection Interest penalties Supplier evaluation Interest penalties Supplier evaluation Internal failure: Scrapped forms Scrapped forms Rework Rework Recovery: Expedite disruption Expedite disruption Labor and materials Labor and materials

19. Service Process Control Resources Identify reason for nonconformance Establish measure of performance Monitor conformance to requirements Take corrective action Service concept Customer input Customer output Service process

20. Control Chart of Departure Delays expected Lower Control Limit 19981999

21. Unconditional Service Guarantee: Customer View  Unconditional (L.L. Bean)  Easy to understand and communicate (Bennigan’s)  Meaningful (Domino’s Pizza)  Easy to invoke (Cititravel)  Easy to collect (Manpower)

22. Unconditional Service Guarantee: Management View  Focuses on customers (British Airways)  Sets clear standards (FedEx)  Guarantees feedback (Manpower)  Promotes an understanding of the service delivery system (Bug Killer)  Builds customer loyalty by making expectations explicit

23. Customer Satisfaction  All customers want to be satisfied.  Customer loyalty is only due to the lack of a better alternative  Giving customers some extra value will delight them by exceeding their expectations and insure their return

24. Walk-Through-Audit  Service delivery system should conform to customer expectations.  Customer impression of service influenced by use of all senses.  Service managers lose sensitivity due to familiarity.  Need detailed service audit from a customer’s perspective.

26. Approaches to Service Recovery  Case-by-case addresses each customer’s complaint individually but could lead to perception of unfairness.  Systematic response uses a protocol to handle complaints but needs prior identification of critical failure points and continuous updating.  Early intervention attempts to fix problem before the customer is affected.  Substitute service allows rival firm to provide service but could lead to loss of customer.

27. Discussion  What are the advantages and disadvantages of delivering high service quality, when the service is delivered by web or information systems?

28. The Service Encounter

29. Chapter 7 Learning Objectives  Use the service encounter triad to describe a service firm’s delivery process.  Discuss the role of organizational control systems for employee empowerment.  Prepare abstract questions and write situational vignettes.  Discuss the role of customer as coproducer.  Describe how elements of the service profit chain lead to revenue growth and profitability.

30. The Service Encounter Triad Service Organization Efficiency versus satisfaction Efficiency versus autonomy Customer Contact Personnel Perceived control

31. The Service Organization  Culture ServiceMaster (Service to the Master) Disney (Choice of language)  Empowerment Invest in people Use IT to enable personnel Recruitment and training critical Pay for performance

32. Organizational Control

33. Difficult Interactions with Customers Unrealistic customer expectations Unexpected service failure 1. Unreasonable demands 1. Unavailable service 1. Unreasonable demands 1. Unavailable service 2. Demands against policies 2. Slow performance 2. Demands against policies 2. Slow performance 3. Unacceptable treatment of 3. Unacceptable service 3. Unacceptable treatment of 3. Unacceptable service employees employees 4. Drunkenness 4. Drunkenness 5. Breaking of societal norms 5. Breaking of societal norms 6. Special-needs customers 6. Special-needs customers Use scripts to train for proper response

34. Service Encounter Success Factors

35. Employee Perceptions of Customer Service at a Branch Bank Terrible Outstanding

36. Satisfaction Mirror Higher Customer Satisfaction More Familiarity with Customer Needs and Ways of Meeting Them Greater Opportunity for Recovery from Errors Higher Employee Satisfaction Higher Productivity Improved Quality of Service More Repeat Purchases Stronger Tendency to Complain about Service Errors Lower Costs Better Results

37. Is attitude emphasized? Are job previews utilized? Are customers screened? Are employees encouraged to refer friends? Are referrals from the “best” employees given priority? Is satisfaction measured periodically? Are measurements linked to other functions on the cycle? Careful Employee and Customer Selection (and Self-selection)) High-Quality Training Well-Designed Support Systems  Information  Facilities Greater Latitude to Meet Customer’s Needs Clear Limits on, and Expectations of, Employees Appropriate Rewards and Frequent Recognition Satisfied Employees Employee Referrals of Potential Job Candidates Is training for job and life? Is it an important element of quality of work life? Do they reflect needs of the service encounter? Are they designed to foster relationships? Does it reflect top management “talk”? Is it enough to allow delivery of results to customers? Do they limit the “right” risks? Are they logical to employees? Cycle of Capability Are they linked to service objectives? Are they balanced between monetary and non-monetary?

38. Service Profit Chain Internal Operating strategy and service delivery system Service concept Target market Service value Customers Loyalty Productivity & Output quality Service quality Capability Satisfaction Employees SatisfactionLoyalty Revenue growth External Profitability Customer orientation/quality emphasis Allow decision-making latitude Selection and development Rewards and recognition Information and communication Provide support systems Foster teamwork Quality & productivity improvements yield higher service quality and lower cost Attractive Value Service designed & delivered to meet targeted customers’ needs Solicit customer feedback Lifetime value Retention Repeat Business Referrals