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(originally published by Booz & Company)

Operations & Manufacturing: The Essentials from Booz & Company

Service Operations as a Secret Weapon

3. Service network structure. Over time, as business and economic growth rates vary, mergers and acquisitions occur, and companies change their product mix and market focus, service costs can get out of whack. Management layers become excessive, processes become less standardized, workloads no longer align with staffing levels, and unnecessary facility expenses are incurred. Sometimes it is necessary to rethink how a service delivery network is structured. One service outsourcer was maintaining two separate organizations to provide hardware installation and repair in the same geographic areas. This model had enabled fast response in the past, but as the volume of service requests declined, partially owing to design and quality improvements, it made more sense to consolidate the two organizations.

The efficiency of service operations also tends to vary greatly among geographic locations. By putting in place the proper tracking and reporting processes, companies can smooth out variances and improve service performance overall. Alternatively, companies can use shared-services models to significantly reduce overhead costs.

Outsourcing will often produce short-term cost savings, but if it negatively affects customer satisfaction and the company’s competitive position, outsourcing can be counterproductive in the long term. The right mix of sourcing balances low costs and service quality in a way that enhances a company’s competitive advantage.

4. Service process management. Service processes are rarely static; they change in response to the needs of the business and its customers. This being the case, they need continual monitoring and adjusting to keep costs in check and ensure their ongoing effectiveness. Continuous improvement is a widely accepted idea, but in many companies, the culture does not easily support it. Further, service processes need gatekeepers who have decision rights for process changes and are accountable for their performance.

Meanwhile, companies can look to identify any process steps that can be standardized across customers and geographies. Process standardization (and automation when possible) can reduce labor requirements and enhance customer satisfaction. For example, one regional hospital reduced the wait time for new admissions from four and a half hours to one and a half hours by standardizing the admissions approval process.

5. Workforce management. The productivity of employees is a major consideration in all service operations. To optimize employee productivity, decision makers need to first calculate the total labor hours they need in each location, either in a bottom-up manner — by identifying labor drivers and creating a model for determining task times and frequencies — or in a top-down manner, one based on comparisons of operational performance to labor hours. Either method works, but the bottom-up approach offers an additional benefit in that it allows labor hours to be more easily adjusted as input drivers change. For example, one company created a detailed model, based on unique store demand patterns, to calculate the necessary staffing required to manage its truck tire service centers, generating a 12 percent savings in labor costs.

Once labor hours per location are determined, management can consider how the hours should be apportioned between full-time and part-time employees, and how these employees should be scheduled to meet customer demand and fulfill operational activities. For example, when one hotel studied its check-in process, it discovered that many guests were experiencing check-in waits of more than 20 minutes. A significant number of guests waited so long that they said they did not intend to stay at the hotel again. However, with the addition of just five part-time employees surgically inserted during peak periods, a small additional expenditure within the hotel’s budget, more than 90 percent of guests could be checked in with less than a 15-minute wait.

6. Measurement and compensation. Unfortunately, few service operations and companies have sophisticated performance measurement and compensation structures. Most fall into one of three groups: those that track metrics in a consistent way at all levels, but have not aligned their compensation systems to the metrics; those that track metrics, but use inconsistent definitions across levels; and those that don’t track metrics at all. Nonexistent, inappropriate, or inconsistent measurements result in missed improvement opportunities, the inability to understand whether process changes are working, and ineffective decision making.

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