Service Quality Moments of Truth Each

Service Quality

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.

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.

Dimensions of Service Quality • 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.

Perceived Service Quality Word of mouth Service Quality Dimensions Reliability Responsiveness Assurance Empathy Tangibles Personal needs Expected service Perceived service Past experience Service Quality Assessment 1. Expectations exceeded ESPS (Unacceptable quality)

Service Quality Gap Model

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

Classification of Service Failures with Poka-Yoke Opportunities Server Errors Task: 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

House of Quality

Achieving Service Quality • Cost of Quality (Juran) • Service Process Control • Statistical Process Control (Deming) • Unconditional Service Guarantee

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

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

Control Chart of Departure Delays expected Lower Control Limit 1998 1999

Unconditional Service Guarantee: Customer View • • • Unconditional (Big Bazaar) Easy to understand communicate (dish tv) Meaningful (Domino’s Pizza) Easy to invoke (Apparel) Easy to collect (Manpower)

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

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

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.

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.

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.

Service Quality Gap Model

The key drivers of the Knowledge Gap Ø Ineffective market research Ø Insufficient market research Ø Market research that asks the wrong questions Ø Inadequate use of marketing research Ø Lack of upward communication Ø Lack of direct interaction between management and customers Ø Insufficient communication between contact employees and managers Ø Too many layers between customers and top management Ø Insufficient relationship focus Ø Lack of market segmentation – doing too little for too many Ø Focus on transaction rather than relationships Ø Focus on new customers at the cost of existing customers Ø Inadequate service recovery Ø Lack of listening to customer complaints Ø Failure to make amends when things so wrong Ø No recovery mechanisms in place 23

The key drivers of the Standards Gap Ø Poor service design Ø Unsystematic new service development process Ø Fuzzy service designs Ø Failure to connect service design to service positioning Ø Absence of customer-driven standards Ø Lack of standards Ø Absence of process management to focus on customer requirements Ø Absence of formal process for setting service quality goals Ø Inappropriate physical infrastructure and servicescape Ø Failure to develop tangibles in line with customer expectations Ø Servicescape design does not meet customer and employee needs Ø Inadequate maintenance and updating of the servicescape 24

The key drivers of the Delivery Gap Ø Poor human resource policies Ø Ineffective recruitment Ø Role ambiguity and role conflict Ø Poor employee-technology fit Ø Inappropriate evaluation and compensation Ø Lack of empowerment, control and teamwork Ø Customers who do not fulfill roles Ø Customers who lack knowledge of their roles and responsibilities Ø Customers who negatively impact each other Ø Problems with service intermediaries Ø Conflict over objectives and performance Ø Difficulty controlling quality and consistency Ø Tension between empowerment and control Ø Failure to match supply and demand Ø Failure to smooth peaks and valleys of demand Ø Inappropriate customer mix 25

The key drivers of the Communications Gap Ø Lack of integrated service marketing communications Ø Tendency not to coordinate distinct pieces of communication Ø Absence of interactive element Ø Absence of strong internal marketing program Ø Ineffective management of customer expectations Ø Absence of expectation management Ø Lack of adequate education for customers Ø Overpromising Ø In advertising Ø In personal selling Ø Through physical infrastructure cues Ø Inadequate horizontal communication Ø Between sales and operations Ø Between advertising and operations Ø Differences in policies and procedures across branches and units 26

Remember Knowledge – Standards – Delivery – Communications Do I know what the customers wants? If I know what the customer wants, have I designed the service standards accordingly? If I have designed the service standards well, am I delivering to those standards? Am I managing communications with the customer to set expectations and influence service perceptions in the best way possible? K-S-D-C! 27

Potential projects Ø Apply the GAP model of services to the project you have chosen Ø Evaluate what are the main gaps that negatively effect the service experience. You may conduct in-depth interviews of customers at some stage to make sure the gaps are what you “think” they are. Ø Following from your analysis, what strategy should your client adopt to address each of the gaps? Detail the specific, actionable steps. Copyright Dr. AK Rao 28

Topic 3: Two broad service “metaphors” Ø Two extreme metaphorical interpretations of services: Ø Service as drama (the emotional criterion) Ø Service as process (the efficiency criterion) Ø Most services are designed according to the efficiency criterion. Adding some drama can help distinguish services and make them memorable. Copyright Dr. AK Rao 29

Combining the metaphors Mix of drama AND process All process Copyright Dr. AK Rao Many great services reside here!! All drama 30

Most services are process-intensive … some drama can help! Dramatic gestures need not be expensive ones! Small hole-in-the wall eatery owners (in India) will often cool down your boiling hot tea of coffee by pouring it between two vessels from a height. Copyright Dr. AK Rao 31

Ways to inject drama Pizza dough takes a leap… Rumali Roti cooked on a tawa Copyright Dr. AK Rao 32

Ways to inject drama At the Jasmine Seafood Restaurant in San Diego, you can order fresh seafood or pick live seafood from one of six fish tanks. The claim: “Nothing is fresher than picking your own seafood swimming in the tanks. ” Copyright Dr. AK Rao 33

Topic 4: Setting Standards and Designing services – Approaches and Tools Employee-focused design Service quality-focused design Customer experience-focused design Process flow-focused design Time target-focused design Physical environment-focused design Activity ownership-focused design Efficiency-focused design Rewards and retention-focused design Copyright Dr. AK Rao 34

Standards and Design Approach 1: Employee-focused standards and design Old model: Puts workers who deliver customer-service last. New model: Puts frontline workers first and designs the business system around them. Ø Value investments in people as much as investments in machines and sometimes more. Ø Use technology to support, not replace, the frontline. Ø Make recruitment and training as crucial for the frontline workers as for the top-line managers. Ø Link compensation to performance at every level. 35

Core rationale for employee-focused standards and design The service-profit chain: Discuss Let’s focus within the box… Courtesy: http: //www. marlow. com/About. Marlow/Quality/profit 5. gif 36

How employee satisfaction drives employee loyalty and employee productivity: The Wegmans grocery chain Wegmans does not hesitate to pay to attract really top culinary talent. The company has shelled out $54 million for college scholarships to more than 17, 500 full- and part-time employees over the past 20 years. It thinks nothing of sending, say, cheese manager Terri Zodarecky on a ten-day sojourn to cheesemakers in London, Paris, and Italy. It invests in making employees experts in the foods they deal with. It gives employees great flexibility in terms of what they can do to deliver great customer satisfaction. www. fortune. com 37

How does this impact employee loyalty? All that means Wegmans' labor costs run between 15% and 17% of sales, compared with 12% for industry. But its annual turnover rate for full-time employees is just 6%, compared to 19% for similar grocery chains. Almost 6, 000 Wegmans employees—about 20%—have ten or more years of service, and 806 have a quartercentury under their belts. All this in an industry where annual turnover costs can exceed profits by more than 40%, While it has no publicly traded stock, its operating margins are about 7. 5%, double what the big four grocers earn. Its sales per square foot are 50% higher than the $9. 29 industry average. www. fortune. com 38

An important point If a service delivery fails, look for both “human” and “systemic” failures. Don’t just yell at the human, that’s the easy thing to do! Ø Horst Schulze, the legendary leader of Ritz-Carlton Hotels describes how a manager solved the problem of room-service breakfasts arriving late and cold. Ø If you were the hotel manager and received complaints about meals arriving cold, what would you do? Ø Typical response: The hotel manager yells at the room-service manager, the room service managers yells at his subordinates, who in turn yell at the cooks, and the food delivery staff. Ø What really happened? Copyright Dr. AK Rao 39

Employee-focused standards and design: What do you focus on? Are you hiring employees right? Ø Are you hiring the right kind of people in terms of skills and capabilities? Ø Are you hiring the right kind of people in terms of personality fit? Are you training employees right? Ø Are you providing your people with the depth and width of knowledge they require to perform excellently at their jobs? Ø Have you designed jobs so that your people can find meaning and joy at work? Are you treating and motivating employees right? Ø Have you made employees feel valued? Ø Have you done away with dead-end jobs in your company? Ø Are you compensating your people well and saving money via higher retention, rather than trying to save by paying less in the short term? Copyright Dr. AK Rao 40

Standards and Design Approach 2: Service quality-focused standards and design How do customers evaluate service quality? The SERVQUAL framework Tangible aspects Physical facilities, equipment, appearance of personnel Reliability Ability to perform promised service dependably and accurately Responsiveness Willingness to help customers and provide prompt service Assurance Knowledge and courtesy of employees and their ability to inspire trust and confidence. Empathy Caring, individualized attention the firm provides its customers Copyright Dr. AK Rao 41

SERVQUAL Scale Items ASSURANCE RELIABILITY n n n Providing service as promised Dependability in handling customers’ service problems Performing services right the first time Providing services at the promised time Maintaining error-free records n n n EMPATHY n n n RESPONSIVENESS n n Keeping customers informed as to when services will be performed Prompt service to customers Willingness to help customers Readiness to respond to customers’ requests Copyright Dr. Valarie Zeithaml Employees who instill confidence in customers Making customers feel safe in their transactions Employees who are consistently courteous Employees who have the knowledge to answer customer questions n n Giving customers individual attention Employees who deal with customers in a caring fashion Having the customer’s best interest at heart Employees who understand the needs of their customers Convenient business hours TANGIBLES n n Modern equipment Visually appealing facilities Employees who have a neat, professional appearance Visually appealing materials associated with the service

Implementing SERVQUAL Ø SERVQUAL is best implemented in a Satisfaction = Performance – Expectations framework. Ø Therefore, ideally, one should measure both expectations and performance. Ø Ideally, one should temporally separate the measures of expectations and performance. Ø Here are the systematic steps to follow… Copyright Dr. AK Rao 43

Implementing SERVQUAL: Step 1 Ø Measure expectations using a 7 point Likert scale. Measure expectations for each item under Reliability, Assurance, Responsiveness, Empathy and Tangibles. Ø A typical item in this Expectations measurement survey could be: Survey header: These questions pertain what you consider to be the absolutely excellent firms in the service category. When customers have a problem, excellent firms will show a sincere interest in solving it. Strongly disagree 1 2 Strongly agree. 3 4 5 6 7 Ø Ask these expectations for the “excellent firms” for all the items in the SERVQUAL instrument (see previous slide). Ø Important: At the end of the survey, ask participants to allocate 100 points between Reliability, Assurance, Responsiveness, Empathy and Tangibles Copyright Dr. AK Rao 44

Implementing SERVQUAL: Step 2 Ø Let some time pass. Ø Measure performance evaluations for the target company using a 7 point Likert scale. Measure expectations for each item under Reliability, Assurance, Responsiveness, Empathy and Tangibles. Ø A typical item in this Expectations measurement survey could be: When customers have a problem, company XYZ shows a sincere interest in solving it. Strongly disagree 1 2 Strongly agree. 3 4 5 6 7 Ø Ask these evaluations for firm XYZ for all the items in the SERVQUAL instrument (see previous slide). Use consistent wordings as for the Expectations survey. Ø Important: At the end of the survey, ask the respondents for an overall measure of satisfaction with company XYZ’s service, using a 7 point scale (“Not at all satisfied” to “Very satisfied. ”) 45 Copyright Dr. AK Rao

Implementing SERVQUAL: Step 3 Ø Analyze and report the data. Consider using the following format. Ø Alternatively, you can report the data at the level of the individual items. Ø You can also perform a regression with overall satisfaction as the dependent variable and the gap scores as the explanatory variables to understand what exactly is driving customer satisfaction… Copyright Dr. AK Rao 46

Service-quality focused standards and design: Summary Ø The SERVQUAL approach offers a well-tested, robust approach to measure service quality. Ø The focus here is on designing services that ultimately rate well when their quality is measured using the SERVQUAL framework. Copyright Dr. AK Rao 47

Standards and Design Approach 3: Customer experience-focused standards and design Ø Careful attention to the pattern of customer experiences Ø Application of knowledge regarding customer perceptions and cognitions Ø Here are the systematic steps to follow… Copyright Dr. AK Rao 48

Step 1: Manage the timing of payments and consumption Payments and consumption at a Chicago health club… Figure from “Pricing and the Psychology of Consumption” by John Gourville and Dilip Soman in Harvard Business Review, September 2002. 49

Quality of service experience Step 2: Manage the sequence of the service experience with care Copyright Dr. AK Rao Quiz: What would determine the final customer memories of the experience? Time 50

Finish strong and maintain strong “high points” Finish strong: Ø Cruise lines end each day with raffles, contests, shows. Ø End cruise with the captain’s dinner Ø Pass out keepsakes or wine bottles on reaching the home port Copyright Dr. AK Rao 51

Get the bad experiences out of the way early Ø Delayed planes: Let customers know about the delay and the reason as soon as possible. Ø Doctors: Perform uncomfortable procedures first. Ø Deliver the bad news as soon as possible. Copyright Dr. AK Rao 52

Step 3: Build commitment through choice Ø Giving customers choices makes them feel empowered. Ø XEROX: Had problems with providing service for customers on account of crossscheduling and lack of timely appearance. Ø Xerox implemented a system that allowed customers to rate the severity of the problem and the time by which they needed attention. Ø personnel would arrive more quickly for an urgent problem than for a minor one. Ø Customer satisfaction increased sharply, and the number of repair calls went down. Discuss: Why? Copyright Dr. AK Rao 53

Step 4: Given people rituals and stick to them Ø Rituals help customers find comfort, familiarity, and order. Ø The famous Mc. Kinsey “uhhuh, uh-huh. . ” Copyright Dr. AK Rao 54

Step 5: Reduce the amount of “uncertain” wait Ø You have a doctor’s appointment at 9 AM. Ø You arrive at 8. 40 AM. Ø You cheerfully wait until 9 AM. Ø But, by 9. 04 AM, you are restless and unhappy. Ø You don’t know how much longer it is going to take. Copyright Dr. AK Rao 55

Summary: Customer experience-focused standards and design Ø Careful attention to the pattern of customer experiences Ø 5 Steps to keep in mind towards designing the customer experience in the service environment. Copyright Dr. AK Rao 56

Standards and Design Approach 4: Process flow-focused standards and design Ø Key tool: “Service blueprint” Ø Breakdown of the service delivery process into: Ø Physical evidence Ø Customer actions Ø Onstage employee actions (employee “in touch” with customers) Ø Backstage employee actions Ø Service support processes Ø Example… Copyright Dr. AK Rao 57

Reproduced from “Services Marketing” by Zeithaml, Bitner and Gremler. 58

Summary: Process flow-focused standards and design Ø Key tool: “Service blueprint” Ø Useful because: Ø It provides a certain concreteness to the service experience Ø It helps managers build new services Ø It helps managers redesign existing services Ø It helps managers understand how some actions at one part of the service process can affect outcomes that may seem distant from that part of the process (e. g. , It helps ALL hotel staff to know that a particular guest has been let down by the hotel staff in some context. ) Copyright Dr. AK Rao 59

Standards and Design Approach 5: Time target-focused standards and design Ø Careful attention to bringing down the total elapsed time between order and service delivery. Ø The story of Jefferson Pilot Financial*: Ø JPF undertook a detailed examination of its New Business Unit’s operations. Ø Considerable variation on service quality: Ø Applications requiring physician’s statement took 1 -2 months for processing. Ø Processing times for other applications were even more variable – 35% standard deviation. Ø 10% of all applications required rework. Ø JPF decided to learn from the manufacturing industry – a 5 -person “lean team” was set up… *Adapted from “The Lean Service Machine” by Cynthia Karen Swank in Harvard Business Review, October 2003. 60

Targets and results at Jefferson Pilot Financial Figure from “The Lean Service Machine” by Cynthia Karen Swank in Harvard Business Review, October 2003. 61

The secret? Ø Adoption of the “model-cell” approach in which the company sets up a fully functioning microcosm of its entire process in one of its businesses. Ø The serves almost as an experiment – learning helps refine the process design. Ø Broad transformation approach follows. Ø Steps to be followed… Copyright Dr. AK Rao 62

Cellular production The cellular approach is to organize the entire manufacturing process for particular or similar products into one group of team members and machines known as a "Cell". These "cells" are arranged in continuous layout to facilitate a variety of operations. Steps to design such a process in a service context… From: http: //www. cellularmanufacturing. com/Pages/whatmain. html Copyright Dr. AK Rao 63

Cellular service “production” : Step 1: Co-locate linked processes Ø All steps in the process should physically proximate. Ø At JPF, work groups were located by function. Ø Employees receiving applications from independent advisors/agents and those sorting them were on different floors – one day or more for the files to be transferred by internal mail. Ø Once receivers and sorters were co-located, it took just a few minutes. Another advantage: The old attitude: “All I’m responsible for is XYZ” began to fade. 64 Copyright Dr. AK Rao

Step 2: Standardize procedures Ø JPF had given employees considerable latitude in managing their work. Ø What resulted was a mix of filing and sorting systems – some did it by policy holder, others by policy numbers… Ø When employees were absent, substitutes found it difficult to manage. Ø The lean team insisted that all files be stored alphabetically in a specific drawer at each work station. Ø Physical workspace was reconfigured so that the supervisor could, while walking by, determine the level of pending and processed files. Copyright Dr. AK Rao 65

Step 3: Eliminate “loopbacks” Ø A loopback occurs when work returns to a previous stage for processing. Ø JPL recognized that all sections of the initial application were sent back to the receiver to be sorted, physically assembled and turned in to the insurance advisor interacting with the client…this led to delays in processing new applications…leaving the downstream idle. Ø JPL split the receiving team in half, allocating the halves separately to receiving and to reassembling policies. Ø The change also eliminated role and effort allocation confusion on the part of employees and reduced delays. Copyright Dr. AK Rao 66

Step 4: Set a common tempo Ø JPL smoothed out the work flow by applying the concept of “takt” time (German for musical meter) Ø To satisfy market demand, each cell in the New Bus. division had to process 10 applications/hour. Ø The takt time was one application every 6 minutes. Ø The lean team members timed each work element of the model cell, such as retrieving the application, keying in information, etc. Ø They established a “base time” for each application, and challenged the cell members to beat it. Copyright Dr. AK Rao 67

Step 5: Balance loads in the service production line Ø JPL recognized that its work allocation system was inefficient. JPF had allocated incoming applications by channel (doctor/no-doctor) and then alphabetically. Ø Therefore, an application from Tom Anderson would go to the A-C team even if another team was idle. Ø In the model cell, alphabetical allocation was replaced by sequential allocation so each team received the same number of allocations. Ø This utilized employees better and was also perceived to be more fair. Copyright Dr. AK Rao 68

Step 6: Segregate complexity Ø Ever stood in line at a bank behind a customer who took forever? Ø At JPL, applications that needed and did not need a physician’ statement were all processed together. Ø The model cell divided itself into two groups to handle each of these application types. Ø The turnaround time for cases not needing a doctor’s statement fell more than 80%! Copyright Dr. AK Rao 69

Step 7: Establish appropriate target metrics and post results Ø A firm’s metrics may impede productivity. For example, a call center that measures time spent on phone by reps could suffer from repeat calls and unsatisfied customers. Ø Lean production principle: Measure performance and productivity from the customer’s perspective. Ø Old metric: Time from application receipt by the New Business division to the time the approved policy was bound and printed. New metric: Time from application mailing by customer to the time the independent advisor receives a completed policy. Copyright Dr. AK Rao 70

Step 7: Establish appropriate target metrics and post results Figure from “The Lean Service Machine” by Cynthia Karen Swank in Harvard Business Review, October 2003. 71

Summary: Time target-focused standards and design Ø Careful attention to the time spent in processing customer services. Ø Redesign of the service “factory” using lessons from cellular manufacturing. Ø 7 Steps to keep in mind towards reducing the total time required to deliver the customer service (as viewed from the customer’s perspective). Copyright Dr. AK Rao 72

Copyright Dr. AK Rao 73

Standards and Design Approach 6: Physical environment-focused standards and design Ø Careful attention to designing the “props” or the elements of the physical environment in which the service is delivered. Ø The story of the Mayo Clinic*: Ø Mayo understands that its customers look for evidence of competence, caring and integrity, drawing inferences about what they cannot see from what they can see. Ø Mayo does not leave the nature of the physical evidence to chance – instead it uses every opportunity to offer patients and their families concrete and convincing evidence of its strengths and values. Ø This process of “evidence management” is an organized, explicit approach to present customers with coherent, honest evidence of your capabilities. Ø How does the evidence management process work at Mayo Clinic? *Based on “Clueing in Customers” by Leonard L. Berry and Neeli Bendapudi in Harvard Business Review. 74

STEP 1: Setting up the clues in people Make customers the center of the organization Ø Mayo patients describe their care as being organized around their needs rather than the doctor’s schedule or the hospital’s processes. Ø Consistent focus on patients is the Mayo culture: Ø “When I had a colonoscopy, my doctor waited personally to tell me I had a polyp because he remembered my husband died from small bowel cancer and he knew I would be worried I had the same thing. ” Ø “My oncologist is…the kindest man I have ever met. He related some of his personal life to me. I was more than my problem to him. He related to me as a person. ” Copyright Dr. AK Rao ØWilliam Mayo’s credo: The best interest of the patient is the only interest to be considered. ” 75

Setting up the clues in people Hire customer-oriented people Ø Mayo’s interviews of prospective employees are focused on eliciting information about their values, rather than getting them to choose the correct “answer. ” Ø For example, an applicant who identifies making a difference in a patient’s life as their proudest moment is more likely to fit in with the Mayo culture than one who recounts achieving a career milestone. Ø The feeling of pride and the alignment of the employees’ attitudes with the Mayo culture lowers turnover across the board – 4% versus industry-wide 20% for nurses. Copyright Dr. AK Rao 76

Setting up the clues in people Use storytelling to set lofty employee standards Another STORY recounted during training… Ø A critically ill patient was admitted to the Scottsdale hospital just before her daughter’s wedding and was unlikely to live to see it. Ø The bride told the hospital chaplain how much she wanted her mother to witness the wedding. Ø Within hours, the hospital atrium was transformed into a wedding chapel with flowers, balloons and confetti. The cake was supplied by the employees, and hospital chaplain officiated. A volunteer played the piano. Copyright Dr. AK Rao Ø On every floor, hospital staff, patients, and visiting families ringed the atrium balconies, like “angels from above” to quote the bride. 77

STEP 2: Setting up the clues in collaboration Coordinate resources towards delivering customer service Ø From Mayo, patients perceive an integrated coordinated response to their medical conditions, AND to their psychological, social, spiritual, and financial needs. Ø If a doctor cannot answer a question, she freely admits it to the patient and brings the relevant expert into the team. Ø Patient: “I have a lot of problems, and I like that I can go to Mayo and be seen by a team of specialists who work together to see the big picture. ” Copyright Dr. AK Rao 78

STEP 2: Setting up the clues in collaboration Design incentives to support coordination Ø All physicians are salaried so they don’t lose money by referring patients to colleagues. Ø A cardiac surgeon: “By not having our economics tied to our cases, we are free to do what comes naturally…to help one another. ” Ø The “star billing” system is discouraged… doctors who want to shine alone and maximize income don’t work at Mayo. Ø A physician: “I never feel I am in a room by myself, even when I am. ” Copyright Dr. AK Rao 79

STEP 2: Setting up the clues in collaboration Create technologies and abilities that support coordination Ø Mayo admitted a skin cancer patient at risk for metastasis, and owing to impending surgery at risk for nerve injury and disfigurement. Ø The Mayo ENT specialist in Scottsdale called together 20 doctors from 3 campuses to discuss the case. Ø The team, assembled in a day, met by videoconference for 1. 5 hours and reached a consensus on the course of treatment, including how to sample the patient’s lymph nodes and reconstruct the surgical wound. Copyright Dr. AK Rao 80

STEP 2: Setting up the clues in collaboration Make the coordination transparent to the patient Ø Mayo’s electronic medical record (EMR) system improves the clinic’s ability to present a seamless, collaborative organization to the patient. Ø A patient: “On my last visit, the doctor pulled up all my test scores from the past five years on a computer and showed me the trends and we discussed what to do. I thought that was excellent. ” Copyright Dr. AK Rao 81

STEP 3: Setting up the clues in tangibles Make the “entry” and public spaces friendly Ø Mayo’s facilities have been designed explicitly to relieve stress, offer refuge, and create positive distractions. Ø Architect: “I would like the patients to feel a little better before they see their doctors. ” Ø The Gonda building has spectacular open spaces, marble stairwell and floor, and a multistory wall of windows overlooking a garden. Mayo Clinic’s Gonda Building in Rochester, MN. Copyright Dr. AK Rao 82

STEP 3: Setting up the clues in tangibles Make the private spaces more accessible and friendly Ø In examination rooms, the physician’s desk is adjacent to a sofa large enough for the patient and family members – this removes the desk as a barrier between doctors and patients. Mammography room at Mayo Clinic’s Gonda Building in Rochester, MN. Ø Staff members write down the names of attending doctors and nurses in every patient’s room, which helps patients keep track of multiple caregivers and lets them know that there’s a real person in charge. Ø In hospital showers, microwaves, and chairs that convert to beds are available for family members. Copyright Dr. AK Rao 83

STEP 3: Setting up the clues in tangibles Make the private spaces more accessible and friendly Ø The resuscitation equipment in pediatric examination is hidden behind a large picture (which slides out of the way when the equipment is needed). Ø At the Scottsdale campus, a car was lifted into the building to help patients in physical rehabilitation practice getting in and out in the privacy of the hospital. Mayo Clinic’s Gonda Building in Rochester, MN: A library is available for patients to learn more about their diagnosis, with access to health educators to assist in their research. Copyright Dr. AK Rao Ø Buildings include quiet, darkened spaces where patients can rest between appointments. Ø A patient: “It did not seem like a doctor’s office when we went to Mayo. There was no 84 tension. ”

STEP 3: Setting up the clues in tangibles Pay attention to detailed physical evidence Story of the dirty shoelace, as recounted by employee Mary Ann Morris Ø A supervisor noticed that her shoelaces were dirty where they were threaded through the eyelets of the shoes and asked her to clean them. Ø Morris was offended and noted that she worked in a lab, not with patients. Ø Her boss replied that Morris has contact with patients in ways she did not recognize – in the street with her badge on, or passing them on the hospital floors. Ø Morris understood, over time, that everything she did, down to her shoelaces, represented her commitment and that of the Mayo Clinic to patients and visitors. Copyright Dr. AK Rao 85

Summary: Physical environment-focused standards and design Ø Careful attention to designing the “props” or the elements of the physical environment in which the service. Ø Organizations must “clue-in” customers by paying attention to: Ø Setting up clues in people Ø Setting up clues in the collaborative process Ø Setting up clues in the tangibles Copyright Dr. AK Rao 86

Standards and Design Approach 7: Activity ownership-focused standards and design Ø Careful attention to how you can design services that address the customer’s broader problem “scenario. ” Particularly useful in the context of the Internet. Ø The story of National Semiconductor’s Webench*: Ø Design engineers construct electronic devices for their companies or for their manufacturing agents. Ø The design engineers do not buy in bulk but their role early in the product development process can lead to large orders down the road. Ø In 1994, NS established a website to provide product information to design engineers – the website was successful, but Phil Gibson, NA’s vice-President of Web business believed it could do much more. Ø In the late 1990 s, Gibson launched an ambitious effort to better understanding how design engineers work and how they could be supported… * Based on “Get inside the lives of your customers” by Patricia B. Seybold in Harvard Business Review (May 2001). 87

Going about it: Map customer activities On studying the design engineer’s scenario in the context of building a power supply unit, the SWAT team assembled by Gibson broke down their tasks into 4 steps: Ø Choose a part Ø Create a design Ø Analyze the design (using powerful simulation tools) Ø Build a prototype Copyright Dr. AK Rao 88

Going about it: Facilitating the mapped activities NS created a set of online applications called Webench: Ø The engineer specifies the overall parameters of the power supply unit and identify key components. Ø Webench automatically generates possible designs, tech specs, parts lists, prices, and cost-benefit analyses. Ø The engineer refines designs until a satisfactory one appears. Ø The engineer can run real-time simulations of the design, using a software NS has licensed and offers on the site. Ø The engineer can alter the design and rerun the simulation as often as needed. Ø The engineer can save all the iterations in a private portfolio or e-mail them to colleagues who can run the simulations. Copyright Dr. AK Rao Ø With a mouse click, the system can generate a bill of material for the final prototype that may include parts from NS and 89 other companies.

Going about it: Some early missteps Ø At the outset, NS decided to charge engineers to use the simulation tool to recoup the costs of licensing the software. Ø Engineers came to the site in droves but backed out when asked to input their credit card number. Comment? Solution Ø NS realized that instead of nickel and dime-ing customers, the bigger rewards were down the road –large orders! Ø Gibson: “One integrated-socket win with Nokia translates into 40 million units for us” Ø It provided the simulation facility for free. Copyright Dr. AK Rao 90

The result Ø Webench configured 20, 000 power supplies/year. Ø Engineers finished in hours what took them days. Ø They explored alternatives they would never have before…one engineer went through 250 iterations. Ø Engineer: “Using these tools, I can go from an idea to a prototype in a few clicks. NS has thought of everything I need—from a huge catalog of parts to fast simulations. ” Ø By Fall 2000, 31000 individuals were visiting the website and generating 3000 orders every day. Ø NS estimates it saves customers an average of 50 hours, or $3000 in monetary savings per design. Ø Expanded concept to design circuitry as well. Copyright Dr. AK Rao 91

Summary: Activity ownership-focused standards and design Ø Careful attention to how you can design services that address the customer’s broader problem “scenario. ” Ø By focusing on the problems that customers face rather than the offerings that they buy, you can find ways to make life easier for them. Copyright Dr. AK Rao 92

Standards and Design Approach 8: Efficiency-focused design Ø Careful attention to how you can design services that give the greatest (output/input) ratio. * Ø Need to consider both the customer and the provider perspectives. Ø The following principles can help find opportunities for designing efficient services… * Based on “Lean Consumption” by James P. Womack and Daniel T. Jones in Harvard Business Review (March 2005). 93

Principle 1: Tackle the source, not the symptoms of inefficiency Ø Fujitsu Services provides IT services and call centers globally. Fujitsu was often paid “per complaint handled. ” Ø Fujitsu took over the desk contract for BMI Airlines in 2001. Fujitsu found that over half the calls to the help desks were from airline agents whose printers broke down. – they could not print boarding passes and baggage tags. Even flights were delayed on this account. Ø Fujitsu determined that the problem was with the low quality printers deployed by BMI. Fujitsu convinced BMI to upgrade these printers. Ø The number of printer related calls were cut down by more than 80% in 18 months. Copyright Dr. AK Rao Ø Simultaneously, Fujitsu negotiated with BMI to change its payment terms to “number of potential users of the IT desk services. ” 94

Principle 2: Manipulate demand to maximize asset utilization Ø Demand for tennis at a Southeastern US resort peaked in July and August, way beyond capacity. Ø New, distant courts would cost $12, 000 each. Ø How the resort managers reacted: Ø Warned guests about overcrowding. Ø Reservation system that steered demand to non -peak times of the day Ø Charged double play the same as single play Ø Set up tennis mixers and round robins to facilitate partner picking for doubles play Ø Opened courts at 6 AM Ø Added floodlights for night play Ø Intensively promoted alternative activities Ø Tennis became a profitable operation! * Based on “Match supply and demand in service industries ” by Earl Sasser in Harvard Business Review (December 1976). 95

Principle 3: Increase customer participation Vinoklet Winery in Cincinnati takes self-serve to a new level: On weekend evenings, you grill your own meal. Customer review: “After helping ourselves to bread and crunchy green salad (included), our uncooked entrees arrived at our outdoor table. With some trepidation I headed toward the huge industrial grill, surrounded by repeat Vinoklet visitors who extolled the virtues of this beautiful place while deftly seasoning and turning their own meals, not needing the posted directions. ” Some of the foods available for self grilling at include chicken, steak, fish, and pork chops. Copyright Dr. AK Rao I did a bang-up job on our New York strip steak ($17. 95)…” 96

Principle 4: Move away from the culture of “face time” Ø Marriott managers had to cope with a historical culture of “face time”—the longer you were at work, the better. Ø Result: Discontented employees who did not see their future there. Ø “Management Flexibility” test program was launched at 3 Marriott hotels. Ø Only truly necessary meeting were scheduled. Ø Managers attended only those parts of the meeting that were relevant to them. Ø Front desk managers’ schedules traditionally overlapped one hour—reduced to 15 minutes. Boston’s Copley Marriott was one of the program test sites. Ø At the end of the test, managers at the 3 hotels were working 5 -7 hours less per week. Ø Customer satisfaction and managerial productivity stayed strong; retention improved. 97 * Based on “Changing a culture of face time” by Bill Munck in Harvard Business Review (November 2001).

Move away from the culture of “face time” PERCENTAGE OF MARRIOTT MANAGERS WHO SAID… “The emphasis is on hours worked, not on things accomplished. ” “My job is so demanding, I can’t take care of personal/family responsibilities” 43% 15% 77% 36% 83% “I feel drained at the end of the day” 59% “Management is supportive of less facetime. ” Before pilot test 56% 73% After pilot test 98

Summary: Efficiency-focused design Ø Careful attention to how you can design services that give the greatest (output/input) ratio. * Ø Need to focus on creating both internal (within-firm/operational) and external (customer-focused) efficiencies. Ø We covered 4 principles can help find opportunities for designing efficient services. 99

Standards and Design Approach 9: Rewards and retention-focused design Ø Careful attention to how you can design services and associated rewards that promote customer loyalty and increased spending. Ø Closely related to the customer lifetime value concept. Ø The following principles can help managers design the RIGHT kind of loyalty and retention programs… Copyright Dr. AK Rao 100

Design discount programs and other customer incentives that create, rather than transfer, value Ø Rewards Network offers discounts at chosen restaurants for an upfront payment. Ø Rewards Network pays restaurant owners some cash upfront to participate in the program – mostly cash-strapped ones jump in. Ø Faced with this competition, other wellperforming restaurants have jumped in. Ø In the long run, the restaurants do not benefit – customers and Rewards Network do! Why? Ø Problem with incentive design: Restaurant goers get the same discount at any restaurant – not linked to consumption patterns. Ø The fact that the discount is available at multiple restaurants promotes switching. Ø Little real value is created – the program does not ensure that customers will dine out more often or that they will focus on a single or a few restaurants. 101 Copyright Dr. AK Rao

Summary: Rewards and retention-focused design Ø Rewards and retention strategies must aim to reward the right customers, must ideally be linked to usage patterns and must ultimately benefit the FIRM that provides the rewards. Ø Your best customers may not need the rewards…make sure you are not overspending on them. Ø Managers must design the RIGHT kind of loyalty and retention programs… Copyright Dr. AK Rao 102

Designing and delivering quality services – done so far… Employee-focused design Service quality-focused design Customer experience-focused design Process flow-focused design Time target-focused design Physical environment-focused design Activity ownership-focused design Efficiency-focused design Rewards and retention-focused design Copyright Dr. AK Rao 103

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