• 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.

Standardizing operating environments requires the most discipline, since salespeople are strongly tempted to sell as much customization as a client wants. Standardization can yield enormous results: in addition to raising productivity, it helps the workforce become more flexible because people can transfer with less retraining. Where possible, companies should standardize not only service product lines and tasks but also the work environments of employees and the equipment they use to deliver services. Scripted routines help eliminate errors and allow employees to emulate high performers. Furthermore, clearly defined programs limit overdelivery, a common problem in service companies.

What’s more, identifying cost variances can help companies allocate their human resources more effectively. In general, it’s more productive to handle problems with the least expensive resources that can resolve them: calling in experts or sending out field technicians increases costs and slows response times—and therefore makes customers less satisfied. Metrics on costs per call or device demonstrate the benefits of using less expensive labor, thus encouraging companies to keep requests upstream and to place first responders (often a call center) in less costly regions to further increase savings and productivity.

Finally, companies that have a better picture of where costs are incurred can price services more accurately to avoid losing revenue on unprofitable activities. They can write better contracts that take into account cost drivers hitherto written off as inescapable variance.

As services become an ever larger part of the global economy, managers are rightly looking for ways to improve productivity and efficiency. Services may be more difficult to measure and standardize than the manufacture of products, but executives should not abandon hope. Adopting the principles set forth in this article will help companies improve the delivery, pricing, and sales and marketing of services.

About the Authors

Eric Harmon is an associate principal in McKinsey’s Dallas office, Schott Hensel is an associate principal in the Stamford office, and Tim Lukes is a consultant in the Miami office.

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