• Strategy
  • McKinsey & Co.

Measuring Performance in Services

Services are more difficult to measure and monitor than manufacturing processes, but executives can rein in variance and boost productivity if they implement rigorous metrics.

As the data arrive, management will want to monitor the top level of the tree as well as the key metrics below. In most cases, we find, three to five metrics monitor 80 percent of the variance in costs.

Collect with care. Without clearly defined metrics and knowledgeable people to support the gathering of data throughout the organization, companies can spend too much time cleaning up messy data. Training and improved processes can alleviate this problem.

Managers should review the data collection rules and templates with the people who develop them — usually employees from different regions or accounts. Even with new procedures in place, however, there will be much room for interpretation. It’s therefore helpful to show not only how data should be collected and entered but also how users occasionally misinterpreted these processes in the past — an approach that sheds light on gray areas the rules might not address. Guidelines for identifying problems early on can save time later. It’s also important to establish boundaries beyond which suspect metrics should be investigated. One service company, whose teams handled from two to five service calls a day, wondered why one of its teams was reporting an average of only a single call. It found a good reason: the account belonged to a prison system, where security procedures made each visit a daylong affair.

Reviewing data collection in the early stages of implementation can help to ensure that procedures are followed. Equally, sharing reports with regional and account leaders gives them an early view of their standing and can help identify unusual patterns in the data.

Institutionalize measurement. Managers accustomed to tracking costs in accordance with accounting needs will have to understand these new metrics and make them consistent throughout all levels of the organization. Periodic reviews, whose frequency should be based on the availability and shelf life of data, are essential for individuals and work groups. Visible interest from senior management — such as sending an executive vice president to attend a regional metrics review — promotes a strong message to everyone that a company is intent on identifying variance and improving service performance. Compensation should be tied to these metrics.

What’s Measured Can Be Managed

Once executives have learned to measure the variance inherent in service companies, they can begin to manage processes to eliminate waste, to improve the delivery of services, to price services more accurately, and to write better contracts. Although a company can do many things to control the variance of its service delivery, most of them fall into three main areas: managing demand, standardizing environments, and applying appropriate resources to tasks.

Managing demand offers the biggest potential for improvement. Cost trees help managers identify the sources of demand for services — sources that might include faulty products, poorly performing service units, or any number of other causes. Some fixes must be made within the organization (better training, better products, automated-response systems); others depend on shaping the behavior of customers (for instance, by offering tools and guidance to help them resolve problems themselves).

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