Performance Management and Scorecards
- Jul 7, 2008
The service component of the U.S. economy has been growing continually for the past several decades. National economic development moves through stages of growth in agriculture, manufacturing, and service. The dominance of service is influenced by the role of support functions, value-sourcing, and evolving servicing enterprises. These support functions may include sales, purchasing, design, and human resources; value-sourcing really implies sourcing for value irrespective of national boundaries; and servicing enterprises include the service sector, such as finance, insurance, and real estate. More than two-thirds of the U.S. gross domestic product (GDP) has service components. Major corporations, like GM and GE, are shifting manufacturing and focusing more on the service side of the business, to the point where most of their profits are realized through service elements.
The transformation of the U.S. economy from an agricultural-based to manufacturing-based leading to a service-based economy has a profound impact on the way corporate performance should be measured. The agricultural process is inherently nature-dependent and supplemented by machines and people. The process of agriculture was originally learned through apprenticeship. In manufacturing, on the other hand, the definition, measurements, and improvement became more exact and, thus, a science. As a result, the manufacturing processes became learnable, repeatable, and measurable. Thus, the performance of the manufacturing processes improved over time to virtual perfection (i.e., Six Sigma level).
Service Industry Components
The service processes consist of interaction and transaction elements. The transaction-heavy service processes are similar to the manufacturing processes; however, the interaction-heavy service processes have their intricacies. Even the transaction-heavy service processes contain elements of interaction that make their definition and measurement somewhat difficult. The transaction processes are typically high-volume, process-dependent, formatted customer input; thus, they are more efficient and have a low value per transaction. On the other hand, the interaction processes contain low-volume, extensive-people-dependent, flexible customer input; thus, they are more responsive and have a high value per service. Interaction-based services could be classified as traditional services, such as a retail setting or financial services, or as experiences such as theme parks. The length and extent of interaction with the customer separates these types of interaction services.
Based on these types of services, we could describe services as a transaction or as an experience. Considering services as a transaction, the inputs to a service process include customer information, systems, methodologies, interpersonal skills, work environment, and response time. The output of a service process may be a transaction record document or personal service to a customer. The performance of the transaction record can be measured in terms of its accuracy, but the performance of a personal service can be somewhat difficult to measure because of human emotions and perceptions. Considering services as an experience, the firms usually "stage" the experience with customer involvement, and customers leave with a "memorable perception."
A business is a collection of business processes. Each business contains common processes as well as unique processes. The common processes include management, sales, purchasing, human resources, quality, and customer support. The unique processes represent the focus of the business. In financial services, for example, these unique processes could relate to stock buying or selling transactions, loan applications review, dividends distribution, banking services, and many more. Both transaction- and interaction-heavy businesses will contain common as well as unique service processes. The process errors observed in the transaction- and interaction-heavy businesses include information accuracy and integrity errors, product performance errors, delinquencies, errors in the misapplication of a tool, customer service errors, and other human errors.