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(originally published by Booz & Company)

Operations & Manufacturing: The Essentials from Booz & Company

Service Operations as a Secret Weapon

Meanwhile, most service organizations, especially in the retail sector, are drowning in data and collecting more every day, yet are still thirsty for insights. To overcome this problem, companies should identify the data that is most relevant to the performance of their service operations and ensure that it is properly collected and used. It is important to collect nonfinancial data, such as customer profitability and customer satisfaction, as well as key financial and operational indicators.

The next step is to align compensation and reward systems with desired employee behaviors. By clearly defining compensation and rewards, and communicating the metrics that determine them, service operations can stimulate employee motivation and provide the clarity that people need in order to change their behaviors.

Further, service operations managers should work with HR to take a more proactive role in establishing and managing compensation and reward systems. They should recognize that tenured workforces come at a higher cost that often cannot be justified in terms of performance; a lack of salary caps and compensation bands can create wide variations in cost among similarly skilled employees; and market-based salary reference points are often inflated and thus serve as a poor guide to compensation. To address the problems that result from unsupported assumptions, companies can act with varying levels of aggressiveness to reduce labor costs. Levels of reduction will depend on internal and external factors that include individual performance, salary benchmarks, the financial condition and goals of the company, and labor supply conditions. (See also “Retooling Labor Costs: How to Fix Workforce Pay Structures,” by Harry Hawkes, Albert Kent, Vikas Bhalla, and Nicholas Buckner, Booz & Company white paper, September 2010.)

Brass Tacks

Service strategy success always comes down to execution. As service operations leaders approach the quality and cost challenge, they should pay particular attention to the first two drivers: product and process design and service-level labor requirements. Too often, these drivers are overlooked because they must be activated in the design stage of products and processes: a stage in which service managers traditionally have not participated. The remaining four drivers — service network structure, service process management, workforce management, and measurement and compensation — are the levers that service leaders can pull to improve the quality and cost of existing operations. Savvy service leaders recognize the interconnected nature of these four drivers and approach them in an integrated and holistic manner.

High-quality, cost-effective service is essential to corporate success, but it is particularly challenging to achieve. Defining unique customer segments and models to profitably serve them requires frequent analysis. Service workforces tend to be large and have high turnover rates; they are difficult to mobilize. Service processes are complex and often dependent on the consistent execution of many detailed steps. And big, dramatic solutions to excessive costs are rare. Nevertheless, companies that take a measured and comprehensive approach to delivering service can improve their bottom line and gain a hard-to-match competitive advantage in the marketplace.

Author Profiles:

  • Harry Hawkes is a partner with Booz & Company based in Cleveland. He leads the firm’s global operations and performance improvement practice for the media and entertainment industries.
  • Curt Bailey is a partner with Booz & Company based in San Francisco. He focuses on operational performance improvement in the healthcare industry.
  • Patricia Riedl is a principal with Booz & Company based in Chicago. She works with consumer packaged goods and retail clients on labor optimization and supply chain improvement strategies.
  • Also contributing to this article was Booz & Company Senior Associate Vikas Bhalla.


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