Process and IT standardisation as key driver of profitability in the service business

One important driver of performance improvement in the service business is the degree in which service business are able to standardise their service delivery organisation. In our research named “The future of Service Management” (www.thefutureofservice.com) we saw that companies that were able to demonstrate both strong revenue growth and year on year improvements in profit margins were able to deliver high value added services through standardised processes. The less profitable service businesses typically see the complexity of their operations increase exponentially when growth takes of. The intangible nature of the service business with a strong dependency on the performance of individuals makes it one of the most challenging types of businesss to manage.   

Just like in a factory profitability of a service business depends strongly on the degree of standardisation. Service delivery can be highly standardised and therefore benefit from economies of scale. However, customers expect service offering to be adapted to their specific needs and expect a personal treatment. So how can standardisation be implemented in a service business? It will not be either standardization or personalization it will be both that is required at the same time. First we will explore the standardisation issue, secondly personalisation, and we will explain how both can be done at the same time. We named it “Standardised Personalisation”.

Standardisation should be seen at several levels. The objective of standardisation is to improve productivity, hence lower cost while at the same time improving the customer experience and making sure there is consistency regardless of the employee that provides the service or the circumstances in which the service is provided. Customers typically expect the same quality levels of service on a global basis.

In order to achieve end to end standardisation service we distinguish standardisation of:

1. Service propositions
2. Service management practices
3. People competencies and values
4. Processes
5. Information Systems

The levels are in order of importance. If no standardisation of the higher levels can be achieved, the lower levels are also unlikely to be successful in this effort.

We will explain each level of standardisation. 

Most managers aim for standardisation in processed and information systems. At the lowest operational level they want to see the same processes and use the same IT functionality. In our research most respondents agree on the same objective but few actually achieve it. The reason why it is so difficult to achieve is not only the involvement of people.

Standardisation of service propositions

Most companies forget that to be able to standardise operations you first need to achieve consistency in your service offering.

No standardisation is possible if each customer would be treated as unique in terms of the service proposition resulting in as many service agreements as there are customers. Therefore the service propositions need to be standardised first.

This does not mean that companies will have to offer a one size fits all proposition. The service marketing function will play an increasingly important role in understanding customers, segmenting the market, not only on the basic service value drivers such as price, technical competence, reliability, responsiveness and flexibility, but also on the basis of relational value drivers such as the service provider’s brand and its implicit values that drive customer expectations and also drive employee behaviour (see the previous chapter about the new people management).

Service propositions need to be carefully designed, communicated and understood by the entire service organisation and its customers. Productisation of services can be used as a communication tool but is only a means and not the goal. It may help to communicate the most tangible values of the service but not the intangible values. 

The name of the game is to define a limited portfolio of service offerings that will cover an as large as possible part of the potential market. In order to achieve the benefits of standardisation the service delivery, cost and benefits package of each service proposition should be carefully designed.

Customers expect advice and clear cut solutions. If you can not easily and quickly explain the service value propositions, and the differences between them you will be in trouble. Both in terms of selling service (it will require a lot of effort) as well as in delivering service (managing customer expectations).

Trying to cover the market with a limited number of propositions inherently creates the problem that some customers will not be satisfied with the basic service propositions (e.g. basic, plus, and premium service) and are asking for adaptations of your standard offering. If you go along with each special customer request, sooner rather than later, the benefits of standardisation such as productivity improvement and scalability will be long gone.

Not responding to customer needs that do not fit into your standard service propositions may result in sacrifying a substantial part of the market potential and create opportunities for competitors. Therefore each service proposition portfolio is likely to have a number of options. Standardised options that is, those for which enough demand exist for it to be worthwhile and that can be standardised in their delivery.

Many companies seem to be able to design a standardized set of service propositions but fail to implement it. For large multinationals this seems to be a formidable challenge. A key requirement for success is the involvement of many countries and experts that possess the knowledge about local requirements. More importantly it is important that key executives buy in to the propositions and actively support the introduction and roll out in their own operations. A formal proposition development and roll out process can considerably improve the changes of success. 

Designing a balanced service proposition portfolio requires strategic choices. Companies that try to be all things to all customers will face exponential cost increases as they grow. The complexity of non-standardized service growth will restrict a company in its growth or will simply reduce profit margins to unacceptable low levels.

Standardisation of service management practices

Service Management is a relatively young discipline in management theory. Few business schools have formal and very developed course offerings. Most service managers have a predominantly technical back ground such as engineering and received their formation in service management by on the job learning.

Besides the lack of formal business education, Service management as a body of knowledge has been developing rapidly and is still evolving.

The only world widely accepted industry standard for service management practices are defined in the Service Capability and Performance standards (SCP) for which our firms are the program administrators and auditors for certification. (see www.noventum.eu or www.servicestrategies.com for more information)

Managers within a company and across the service industry need to be able to speak the same language with regards to management practices. If that is not the case a lot of the standardisation effort is already stopped in its infancy if managers do not fully understand each other and invest time and money re-inventing management practices that have been defined and are considered Best Practice in the industry.

An important requirement for success in many companies is that at the management level the standardisation of management practices is achieved, preferably at the level of Industry Best Practice.

Standardisation of people competencies and values 

When offering standardised service propositions once should ask the question which competencies will be needed to deliver the service proposition. In order to achieve the same consistently high level of service quality, first of all the management should be able to rely on a certain standard level of competencies. Typically that will be a combination of technical, business, professional, and relationship competencies that is adequate to deliver that proposition, enable by processes, systems, and company policies. 

Once a company offers a portfolio of service propositions for which overlaps in competency profiles exist, it becomes necessary to develop a comprehensive competency framework.

The importance of professional competency management is underlined by the fact that in many service businesses the human resources represent sixty to seventy percent of the total cost of the company.

Having the ability to accurately forecast and plan the quantity and quality of the required people is the first step in competency management. The company should be able to explain to its employees what the desired competencies are and steer all personal development activities in a direction that is both good for the company as well as for the people.

Consistency in available competencies is particularly important for companies pursuing a brand driven service strategy. It should not matter for the customer which employee is standing in front of them, they all should possess the competencies to deliver the required service and understand the brand values to guide their behaviour.

A lot of personalisation of services is done in the treatment of the customer, without changing anything in the service proposition.

“Personalisation in the treatment of the customer” is a result of how the employee is able to modify his or her behaviour to the specific circumstances and needs of the customer.  Again this should be guided by the brand values and is not only a matter of the employee’s competencies but also of the availability of good business processes and information systems.

Standardisation of processes and information systems

Process standardisation is often confused with standardisation of information systems. Process standardisation is successful when people actually have accepted practices in the way work is being carried out and do so in a consistent manner.

Processes must be designed based on the customer requirements in order to be effective (not just efficient). Hence, the design of new service proposition requires the design and testing of business processes.

Business processes must be simplified and designed for the convenience of the customer, and not just for the convenience of the company. Nevertheless process designs are most effective when build in a modular way, reuse of processes or work packages will deliver the economies of scale and productivity improvements. Studying the variation points in processes will identify the elements in a process, sub process or activity that requires adaptation. Process design should aim to maximize customer value, and at the same time be scalable and be cost optimised.

Process standardisation should not be confused with a software package driven re-engineering of processes. The legacy of ERP systems has left many executives thinking that this may work in the service business. A careful reader will have noticed that the process is an important element in the design of the customer experience.

Conclusion:

In order to make a service business more profitable standardised personalisation can be a very powerful concept to introduce to the business. A holistic view of the business is needed at the five levels; the service propositions, the management practices, people’s competencies, business processes and information systems. Companies that achieve such end-to-end standardisation will have to take a multi-functional approach that brings together the best leaders in the business that have to create a shared vision of the business. Any executive with the ambition to dramatically improve the profitability of the service business would be wise to start with creating such a shared vision and form a strong leadership team to implement the vision.