Customer defined service standards

Module 4

FedEx’s Service Quality

Marketing research data aren’t the only numbers Federal Express tracks to run its business. The company drives its operations with the aid of the most comprehensive, customer defined index of service standards and measures in the world.

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FedEx’s service quality indicator (SQI) was designed as “unforgiving internal performance measurement” to ensure that the company delivered to its goal of “100 percent customer satisfaction after every interaction and transaction and 100 percent service performance on every package handled”.

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What makes this service index different form those of other companies is its foundation in customer feedback

FedEx has documented customer complaints and used the information to improve internal processes. Its composite listing of the eight most common customer complaints, called the “Hierarchy of Horrors”, included…

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Wrong day deliveryRight day late deliveryPickup not madeLost packageCustomer misinformed by FedExBilling and paper work mistakesEmployee performance failures andDamaged packages.

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The components were based on the relative importance to customers.

Another distinguishing feature of the SQI is the reporting in terms of number of errors rather than percentages. Management of the company strongly believed that percentages didn’t give the correct information about the consumers.

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To report 1 percent of packages late diminished the reality of 15,000 unhappy customers ( 1percent of the approximately 1.5 million packages shipped a day). The service quality indicator report is disseminated weekly to everyone in the company. On receipt of the report, root cause of service failures are investigated.

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With senior officer assigned to each component and with bonuses for everyone in the company tied to performance on the SQI the company drives continuously closer to its goal of 100 percent satisfaction with every transaction.

Customer defined standards

Understanding customer expectations and perceptions is the first step in delivering high service quality. The second critical challenge is using this knowledge to set service quality standards and goals for the organization.

Service companies often experience difficulty in settings standards to match or exceed customer expectations partly because doing so requires that the marketing and operations departments within a company work together.

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In most service companies, integrating the work of the marketing function and the operations function which is called functional integration is not a typical approach. More frequently these two functions operate separately- setting and achieving their own internal goals rather than pursuing a joint goal of developing their operations standards that best meet customer expectations.

Changes in setting service standards

Creating service standards that address customer expectations often requires altering the very process by which work is accomplished which is ingrained in tradition in most companies.

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Often change requires new equipment or technology.Change also necessitates aligning executives

from different parts of the firm to understand collectively the comprehensive view of service quality from the customer’s perspective

Change requires a willingness to be open to different ways of structuring, calibrating and monitoring the way service is provided.

Factors necessary for Appropriate Service Standards

1. Standardization of Service Behaviors and Actions

2. Formal Service Targets and Goals

3. Customer- Not Company – Defined Standards

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1. Standardization of Service Behaviors and Actions

The translation of customer expectations into specific service quality standards depends on the degree to which tasks and behaviors to be performed can be standardized or routinized

Some managers believe that services cannot be standardized- that customization is essential for providing high-quality service.

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Service industry can standardize services in three forms:

Substitution of technologyImprovement in work methodsCombinations of both

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e.g., automatic teller machines, automatic car washes, voice mails, online services etc.

Improvement in work methods: are illustrated by routinized tax and accounting services developed by firms, restaurants, beauty salons etc.

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Combinations of bothTechnology and improvement methods facilitate

the standardization of service necessary to provide consistent delivery to customers. Bu breaking tasks down and providing them efficiently, technology also allows the firms to calibrate service standards such as the length of time takes, the accuracy with which operations are performed.

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****It is important to recognize that standardization does not mean that service is performed in a rigid, mechanical way.

Customer defined standardization insures that the most critical elements of a service are performed as expected by customers, not that every action in a service is executed in a uniform manner.

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Using customer defined standardization can, in fact allow for and be compatible with employee empowerment.

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2. Formal Service Targets and Goals

• Specific targets for individual behavior

• Specific targets for overall company

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3. Customer- Not Company – Defined StandardsVirtually all companies possess service standards and

measures that are company defined- they are established to reach:

Company Defined: Internal- Productivity, Efficiency, Costs, or technical quality.

To close gap 2, standards set by companies must be based on customer requirements and expectations rather than just on internal company goals.

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Company defined standards are not typically successful in driving behaviors that close provider gap 2. therefore , a company must set customer-defined standards

Customer Defined: Requirements that are visible and assessed by consumers.

Operational standards based on pivotal customer requirements

Types of Customer-Defined Service Standards

Two major types of customer-defined service standards can be distinguished as

Hard standardsSoft standards

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• Hard Customer-Defined Standards:things that can be counted, timed, or observed

through audits.

e.g., FedEx: packages on right day, packages on wrong day, missed pickups

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• Soft Customer-Defined Standards:

things that cannot be counted, timed, or observed through audits and are Opinion-based measures.

General Electric Phone operators :understanding customers question, Following through on promises, Being Courteous, Being Knowledgeable

Examples of Measures (Hard)

• Time in Line, Transaction Time

• Number of Errors (Mistakes) per Transaction

• Counts of Smiles, Using Customer Name, Using Protocol.

• Violation of Dress Code

• Availability of Systems (Phone Lines, Power)

Examples of Measures (Hard)

• Number of Complaints Received

• Number of Warranty Claims

• Number or Dollar Value of Sales

• Return on Assets

• Number of Repeat Customers

• Number of Infections per Surgery

• Number of Law Suits Filed

Examples of Measures (Hard)

• Competitive Data

• Accuracy of Order

• Back orders

• Parts Availability

• Exceptions to Procedures

• Violations of Regulatory Codes

Examples of Measures (Soft)

• Safety

• Convenience

• Cleanliness

• Availability

• Consistency

• Hospitality

• Credibility

Examples of Measures (Soft)

• Waiting Time, Transaction Time

• Accuracy of Transaction

• Friendly Personnel

• Knowledgeable Personnel

• Helpful Personnel

• Costs

• Value Received

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• One Time Fixes:

When customer research in undertaken to find out what aspects of service need to be changed, requirements can sometimes be met using one time fixes.

One time fixes are technology, policy, or procedure changes that, when instituted address customer requirements. (ref pg 261)

Process for Developing Customer-Defined Standards

The process of developing standards is as follows:

1. Identify Existing or Desired Service Encounter Sequence

2. Translate Customer Expectations into Behaviors and Actions for Each Service Encounter

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3. Select Behaviors and Actions for Standards

Important criteria for creation of the standards is as follows:

i. The standards are based on behaviors and action that are very important to customers

ii. The standards cover performance that needs to be improved or maintained

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iii. The standards cover behaviors and actions employees can improve.

iv. The standards area accepted by employees

v. The standards are predictive rather than reactive

vi. The standards are challenging but realistic

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4. Decide Whether Hard and Soft Standards are Appropriate

5. Develop Feedback Mechanisms for Measurement

6. Establish measures and target levels

7. Track measures against standards

8. Provide feedback about performance to employees.

9. Periodically Update Target Levels and Measures.

Service Performance Indexes

Service performance indexes are comprehensive composites of the most critical performance standards. Development of an index begins by identifying the set of customer defined standards that the company will use to derive behavior. Not all the service performance indexes contain customer defined standards, nut the best ones, like FedEx’s SQI are based on them.

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Most companies build these indexes by:

1) Understanding the most important requirements of the customer

2) Linking these requirements to tangible and measurable aspects of service provision and

3) Using the feed back from these indexes to identify and improve service problems.