Service effectiveness

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1 Service effectiveness

Service effectiveness

Author M. Berger

1061933

Date February 12, 2004

University

Faculty of Management & Organization Business Development

University of Groningen (RuG)

Supervision University Ir. J. Slagter Assistant Professor Ir. G. Henstra Assistant Professor

Public version - RUG

This version contains 67 of the original 115 pages and remains confidential.

No part of this publication may be reproduced, stored in a retrieval system of any nature, or transmitted in any form or by any means, electronic, mechanical, now known or hereafter invented, including photocopying or recording without written permission of the author. The author is responsible for the content of this thesis.

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2 Service effectiveness Management summary

The supply chain service organization is facing many new challenges. A recent strategy refocus changed the old customer intimacy strategy into a differentiation strategy. Global economic downturn, growing overcapacity, increasing customer power, and intensive price competition are the main characteristics of today’s market. To be successful, market players need to have more than a superior product and a well balanced service portfolio. They have to possess highly cost-efficient organizational processes that enable them to maintain their operating margins even when prices are falling. These developments have their influence on the current supply chain service organization; the perceived increasing need for cost-efficient services is pushing the organization to its operational limits. The supply chain management requires a new perspective to deal with these developments.

The research Question

“To what specifications should the supply chain services fulfillment organization be redesigned to make it more effective?”

Definition

o External effectiveness: customer satisfaction improvements o Internal effectiveness (efficiency): FTE Reductions

Preliminary research identified three bottlenecks within the organization for achieving effectiveness.

1. Knowledge gap customer requirements, 2. Unstructured service proposition,

3. Very complex service allocation processes.

1. (Market needs) Knowledge gap customer service requirements

Company X has over 9000 different customers, all having their own specific service needs.

Customer satisfaction is achieved when individual service expectation is matched by the service offering. Fulfilling individual customer needs proved to be a very complex task. By customer segmentation a model of customer needs is realized that reduces market complexity.

A survey was carried out (81 respondents) to partly fill this knowledge gap, the information was used to validate a segmented customer approach.

Key survey results:

o XXXXXXXXXXX

The knowledge gap has to some extent been closed, not all data gathered during the survey was used in this research. The survey data used in this thesis is valid, though a longitudinal survey (annually) has to proof its significance over time. A new survey with at least 300 respondents is suggested to gather more detailed information on customer needs.

2. (Service offer) Unstructured service proposition

Company X has a very diverse service offering. The complexity of this offering inhibits efficiency through problems with internal and external communication and sub optimized service allocation. The diagnostic phase suggested a structuring framework to reduce the complexity of the service offering.

The services were structured according to their function in the order fulfillment process. Three different service groups have been identified; pre-transaction services, transaction services and post transaction services. The structuring of the service portfolio represents the first step

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3 Service effectiveness towards modular service fulfillment. A modularized service proposition is attractive because it enables service fulfillment to be approached as a provisioning problem.

Additional recommendations are made to include lateral relations between the different services to improve their effectiveness. It is suggested that CPFR services should only be provided when the appropriate information/communication systems/services are installed.

3. (Service allocation) Complex allocation mechanism

A complex decentralized service allocation mechanism inhibits effective service distribution.

The objective of this particular diagnosis was to investigate the relationship between service allocation and the overall effectiveness of the service fulfillment organization. There is evidence to suggest that the dissatisfaction of key customers is a result of an inappropriate allocation mechanism. Requirements have been formulated for each service, but no general allocation logic is supported. Services are allocated on the basis of opportunistic and short- term objectives. Premium services are used to retain eroding xxxx customers, while these resources could have been used to nourish more strategic relations. Once one understands the causal relationship between customer satisfaction and the number of service resources allocated to the specific customer, one can only draw up the conclusion that the allocation mechanisms needs to change. In the first place to make sure that the strategic customers get the services they deserve, and secondly because the allocation process is too complex and is therefore inefficient. A centralized allocation mechanism is suggested to solve the counter strategic allocation of service resources. The delicate balance between strategic significance and customer needs has to be captured in an allocation framework. This will reduce complexity and will improve customer satisfaction by offering better fitting service concepts.

4. (Recommendations) Redesign specification

The main argument resulting from this research is that the service allocation mechanism needs to be changed to the changing business conditions. The following list summarizes the redesign recommendations proposed in the diagnostic chapters to design an alternative modular service demand chain process:

• Supporting the customer needs by sufficient allocating services through differentiated service propositions (segmentation).

• Modularity (decoupling) in service delivery to meet the heterogeneous market requirements.

• Building an organizational structure that enables centralized decisions making on the service levels inline with customer significance (strategic objectives).

• Process optimization within the constraints resulting from the above criteria by means of standardization.

The consequent redesign proposition suggests that instead of allocating capacity to customers by explicit service requests, we should take the much simpler step of aggregating all the services that are within the service proposition of all the customers, and then approach successful allocation as a provisioning problem.

The presented framework gives one way to handle the complexity and interdependencies of differentiated service allocation. It is necessary to link customer characteristics to pure need- based customer analysis in order to create distinct customer service policies for different customer segments. This enables the service organization to allocate the service resources to customers with highest profitability expectations and growth potential.

Three service packages “templates” were developed in line with customer needs. The level of fulfillment is determined by the strategic significance of the customer segment.

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4 Service effectiveness Redesign specification

(CONFIDENTIAL INFORMATION)

The former complex allocation mechanism has become abundant; the service allocation task has become much simpler. The need for case by case studies is eliminated by setting allocation parameters/policies based on tangible data in advance. The new centralized service allocation mechanism needs to be facilitated by the supply chain organizational structure. The formerly decentralized allocation processes need to be replaced by a specialized staff function.

5. Expected outcomes of redesign (CONFIDENTIAL INFORMATION)

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5 Service effectiveness Rich Picture

Redesign proposal Current situation

+/- 9000 individual customers +/- 35 unstructured

service offerings

Centralized allocation mechanism

Customer Segment 1

Customer Segment 2

Customer Segment 3 Service

Template 1

Service Template 2

Service Template 3

Slow, ineffective

allocation mechanism

Strategic objectives Strategic objectives

?

Company x Polymer

Customers

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6 Service effectiveness Visual representation of this thesis

CHAPTER 4

CHAPTER 8 CHAPTER 2

Paragraph 8.6 Formation of basic service

packages

Paragraph 8.5 Customer attractiveness

determination (Mission, vision, objectives )

Paragraph 8.4 Defining customer service

segments (need based segmentation)

Paragraph 8.7

Linking service packages to service segments

Redesign framework

Organizational Effectiveness Customer

satisfaction Efficiency

external internal

Service Effectiveness

-

+ +

CHAPTER 5 Knowledge gap

Service requirements

CHAPTER 7 Inefficient and

ineffective allocation process

CHAPTER 6 Complex

Service proposition

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Chapter 2 Problem definition

§ 2.1 Introduction

This chapter relates to the need for this research project. It will contain the research objective, research question, questions and the research scope. In the end the research method will be shown.

§ 2.2 Research motivation

The management of Company X is facing new challenges. The commoditizing of the product portfolio together with the rising raw material prices and the economic decline completely changes the industry. A recent strategy refocus changed the old customer intimacy strategy into a differentiation strategy. Until a few years ago the industry was booming and the demand was far greater than the global capacity, this allowed manufactures to produce products and services while receiving handsome rewards in return. Nowadays the market is more mature and the products have become generally more available because the global capacity has grown. The majority of the products have reached their mature stage in their life cycle. At maturity, the strong growth in sales diminishes. Competition appears with similar products. The primary objective is generally to defend market share while maximizing profits. Prices more and more dominate the customer procurement decision; Asian manufactures do offer lower priced products, they take a big bite out the market share of Company X.

Services are more-or-less offered without question and usually without a financial compensation. Services are considered to make customers more satisfied and thus increase their loyalty towards COMPANY X. These services use up a lot of the company’s resources and in the new discount environment lose their appeal. One of the company’s objectives is to produce supply chain services more efficiently without reducing the service proposition. The Company X management is constantly looking for new ways to make the service organization more efficient, but it has got its tied hands when it comes organizational resources, the organizational goals and objectives leave little room for management to assess their organization “out-of-the-box”, they are too busy with driving towards operational goals. Recently the management has become more aware of this situation and has created an “intern” position to investigate other options to improve the service efficiency while retaining customer satisfaction.

§ 2.3 The research question raised by the organization.

Mr. X as the customer service manager responsible for the optimization of customer service processes is constantly on the lookout for improvement opportunities. The problem is that he is bound by time and means to look for radically new approaches to this problem. His objective was therefore;

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“Identify possible enhancements to the service organization to increase the overall effectiveness and efficiency. What should we do to get or stay ahead? Keep an open mind, “get out of the box”, look for new market developments.”

Mr. X was curious what trends affect the customer service organizations in the industry. He would further like to see how an “outside” mind would change the service organization to ensure a leaner and a more effective service organization. The result should be a report that clearly gives improvement recommendations. Important is that these recommendations only contain changeable elements, “We do not want to create world peace, be practical while using theories to back up your story.”

The initial research proposal was centered on a new service called VMI (see glossary) and its potential to service more customers in the future. The idea was that this service would become one of the key developments areas for the future. When working on this subject a challenge arose; nobody really knew how the different services were allocated to customers. When digging deeper, other issues arose. The different service processes where chaotic and not very well optimized, adding to this unnecessary complexity was the absence of quality knowledge of customer service requirements. When confronting the supply chain management with these findings the research scope was reset to create a better fit between the service organization and the customers while reducing its complexity. “This is an interesting approach to our challenges, a design for a better service organization is your objective”( X, 2003).

§ 2.4 Problem statement

The problem statement consists of multiple elements; the research objective, the research questions, the definitions, the research scope and finally the restrictions.

These different elements will come forward in the next few paragraphs.

§ 2.4.1 Research objective

The research objective shows for whom the research is conducted and what results expected to serve what purpose. In fact, the main objective of the research goal is to register the relevance of the research on hand (De Leeuw, 1990).

The research objective

“Formulate recommendations to improve the effectiveness of the supply chain service fulfillment organization to support the supply chain management in their ongoing improvement efforts.”

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§ 2.4.2 Research question

The research question is the combination of the diagnostic questions and fits the main objective. As a result the theoretical framework as well as the conceptual model has to fit. According to Verschuren (1996), the research question is an accurate reproduction of the questions that have to be answered by researching them. The research question also has to point out why the research has to be conducted and set clear research boundaries. The research objective combined with the research question forms the problem statement of this thesis.

The research Question

“To what specifications should the supply chain service fulfillment organization be redesigned to make it more effective?”

(Definitions - § 2.5)

§ 2.5 Definitions

§ 2.5.1 Effectiveness

“The extent to which the organization is able to reach its goals and objectives”

In this thesis the two most important organizational goals will be subject to the effectiveness measurements.

1 The customer satisfaction rate (external effectiveness)

2 The amount of resources needed to produce satisfaction. (Internal efficiency)

An improvement in one of the two dimensions without having negative side effects for the other is considered to be improved effectiveness. The initial objective is to achieve improvements in both dimensions. These effectiveness objectives have been deduced from the supply chain goals and objectives for 2003.

§ 2.5.2 Service

“A service is a value adding operation in which information and coordination are provided to add value or lower costs for customers.” (In context of this thesis)

2.5.3 Fulfillment

“The act of executing customer service requirements”

Service fulfillment exists on two levels; the first level is the direct execution of processes needed to achieve satisfaction. The second level constitutes of the allocation of services to customers. In the context of this thesis the second form is meant.

Customers Service offerings

Allocation of Services

Fig 2-1. Service fulfillment

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§ 2.6 Research approach

In this paragraph the conceptual approach to the research problem will be disclosed.

The conceptual model in essence captures the thoughts that form the foundations of this research project. The conceptual model has been solidly anchored in theory to ensure a healthy basis for the rest of this thesis. Finally a research framework will be presented that will be the backbone of this theses.

§ 2.6.1 Conceptual Model

De Leeuw (1996) describes conceptual models as abstract models of real systems. A conceptual model has a relation with the empirical reality in a distinct case. The model represents a view on reality. In this particular case the conceptual model is used the represent the mess of problems and their relations to each other. This representation helps to decompose the problem in to smaller, more understandable, sub-systems. When creating conceptual models, systems boundaries have to be defined and obeyed; this reduces the complexity for the researcher.

§ 2.6.2 Concepts

Contingency theory, the fit of the organization with its environment

In studying the effectiveness of the supply chain service fulfillment organization one theory plays a dominant part, the contingency concept. The contingency concept is based on the need for a delicate balance between the organization and its environment in order to be able to be effective. The contingence theory (Mintzberg, 1983) studies the relation between organizational characteristics and its environment.

These characteristic are a result of the internal and the external situation and the interaction between them (Weggeman, 1997). Galbraith (1973) describes the contingency theory by two statements: “There is no best way to organize” “any way of organization is not equally effective”. In relation to this investigation into the effectiveness of the supply chain services the fit between the organization and its offerings and the market is examined. The contingency theory proves that there is no best way to organize but there are ways to improve the effectiveness because not every organization model is as effective as all others.

Organizational Effectiveness

In paragraph 2.5 effectiveness is split up in two dimensions. First there is the external effectiveness represented through customer satisfaction. The second dimension is internal efficiency represent through the usage of resources to service customers.

Organizational effectiveness is the most centralized objective of the conceptual model. In this thesis only customer satisfaction and internal efficiency and their relation are considered for the effectiveness improvements.

Efficiency (Service productivity)

Service efficiency is largely neglected by current service literature (Grönroos, 2000).

Efficiency is traditionally described as the conversion of production resources into output, or the ratio between output from the production and the input into that

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11 Service effectiveness process, given a constant quality level. In the case of this thesis individual services are a given, efficiency can be improved by reducing the number of allocated services.

Customer satisfaction

The total service offering including core solutions and additional services determines how the quality of this offering is perceived compared to the perceived sacrifice (Grönroos, 2000) of customers. Customers are considered to be satisfied with perceived quality provided that the sacrifice involved is not too high or does not match their needs. Customer satisfaction contributes to the formation of bonds between the supplier and buyer. Bonds can tie customers to the supplier, because they make it easier, more comfortable or more economical for the customer. For this reason customer satisfaction adds to the organizational effectiveness in this model.

Service effectiveness

Service effectiveness is represented by a well balanced fit between service expectations and the delivered services by the organization. A well balanced offering means that the efficiency characteristics are included in the service fulfillment processes; oversupplying services is considered to be ineffective.

external

internal

Bottlenecks X

-

+ +

Fig. 2-2. Conceptual Thesis Model

The conceptual model shows the basic assumption made in this thesis; Service effectiveness enhances the organizational effectiveness through improved internal efficiency and increased customer satisfaction levels. This thesis investigates what can be done by the organization (Bottlenecks X) to improve the organizational

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12 Service effectiveness effectiveness by the improving the service effectiveness. The model is partially complete; service effectiveness bottlenecks (represented by the black box) will complete the model after they have been identified in the preliminary empirical research (paragraph 5.5).

These concepts only represent a small section of the concepts used in this thesis. More theoretical concepts are presented in the diagnostic and redesign chapters. This structure has been chosen because of the sheer number of different concepts and their relationships. Each chapter will start will a presentation of the used concepts.

This improves readability and eliminates the constant need for referring to a central

“concepts” chapter.

§ 2.6.3 Aggregation level

De Leeuw (1990) describes the aggregation level as the degree of detail. The lesser the details, the higher the level of aggregation is.

Customer Service

organization

(Structures)

Service offering

Focus

(processes)

Fig. 2-3. Aggregation level

The aggregation level shown in figure 2-3 represents the interaction of the customer with the Company X services. Services are supported by de service organization and form the COMPANY X Service offering. Customers are serviced by the service offering.

The interrelation of these three elements will be studied by this research. The research is limited to the Company X Supply Chain service organization. The research is also limited to the product portfolio of Company X. Individual services are a given, the total offering is studied in interaction with customers.

§ 2.7 Research framework

§ 2.7.1 Research process explained

In the preface of this thesis the research structure has already been explained. The previous chapter draws up the research question. This paragraph has been created to explain the research process steps.

The thesis starts off with a high level description of developments in the industry and within COMPANY X. This brief overview gives the necessary insight in the business before the preliminary research is started. In paragraph 2.6 the conceptual model was shown in its most simple form. To identify the various influences on customer

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13 Service effectiveness satisfaction and internal efficiency a preliminary investigation is required. This investigation has an iterative and divergent character; the last step of the preliminary research is convergent, it enables the disclosure of the “biggest” areas of interest if one is to increase the organizational effectiveness. For reasons of clarity it was chosen to only incorporate the key findings of this preliminary study directly into the principal thesis. The complete preliminary research can be found in appendix 1.

The preliminary research reveals important bottlenecks for reaching effectiveness.

Three key findings (bottlenecks) are uncovered by chapters 4, 5 & 6 in which they are diagnosed. The external diagnoses will focus on customer value drivers and customer satisfaction, using a specially devised survey. The internal factors influencing effectiveness will be investigated.

These diagnoses will hint improvement recommendations. The separate recommendations are finally incorporated into a combined redesign specification (chapter 8) using a specially devised framework. This redesign is followed by the general conclusion of this thesis.

The conclusion is last of all followed by a reflection on the research process. The research outcomes will be measured against the research objective in chapter 10.

This chapter will incorporate research improvement recommendations.

Completed conceptual model

Preliminary Research

“Bottlenecks”

Redesign recommendations

Diagnoses Bottleneck A Diagnoses Bottleneck B Diagnoses Bottleneck C

Process

Research question

Scope

Divergent approach

Convergent approach

Congruence Intelligence

phase

Diagnostic Phase

Choice Phase

Basic Conceptual model

Fig. 2-4. Visualization of the research framework

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§ 2.8 Research materials

Every research has to have a source of data. Verschuren (1986) describes five different types of data sources.

1. People

2. Media

3. Reality

4. Documentation

5. Literature

This research uses four different types of data sources. The first sources of information are people who are related to the problems. They were interviewed to gather data on the research topic. The second group of data sources used are measurements and documents made by the organization. This source is represented through statistical information stored by the ERP system in different data warehouses.

The third source of information is documentation. All prior improvement initiatives are well documented and prove a valuable source of information. The forth information source is a specially developed customer survey. The final data source is literature;

this data source will validate all assumptions made during the research project, and will guide the investigation into new coordination structures.

§ 2.9 Research approach

The diagnostic question raised by the organization leaves a lot of room for interpretation. To combat the fastness of analyzing the service organization, a funnel approach will be used. The action research method will be used to continually get closer to the core of the potential problems. Action research is deliberate, solution- oriented investigation that is group or personally owned and conducted. It is characterized by spiraling cycles of problem identification, systematic data collection, reflection, analysis, and finally, problem redefinition. This research method will used to get an in-depth understanding of the research topic. According to de Leeuw (1996) this form of research can be qualified as “policy supporting” research. Policy supporting research tries to deliver knowledge that is useful in a specific situation and has identifiable users. De Leeuw (1996) uses a three step method to solve organizational problems. These steps are the diagnostic phase, the design phase and the change phase. This thesis will only cover the first two steps, “diagnose” and

“design”.

Company X specifically asked for an “out-of-the-box” blueprint of the service organization to inspire the supply chain management, change management is considered to be something that requires a lot of hands-on experience. For this reason the change phase will not play a leading role in this thesis, the COMPANY X management rather had a more elaborate design specifications. The feasibility of the proposed organizational changes could be endangered by this approach; this effect is counteracted by the involvement of senior management, thus effectively using their experiences to assess the new service specifications. In this way the realization phase is considered to be indirectly represented.

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§ 2.10 Research boundaries

§ 2.10.1 Process boundaries

• The research is conducted during a 6-month (on-site) period in XXXXXXX) and 3 months (off-site), starting February 15 until December 2003. The research has been done during this period; the months following this period will have been used to complete the thesis.

• The research will be conducted as prescribed by the Faculty of Management and organization, Rijksuniversiteit Groningen.

§ 2.10.2 Product boundaries

• The research will result in a written thesis and must be approved by both Company X and the University of Groningen (Slagter, Ir. J., Department of Product Development, Strategy and Business Research Methods / Henstra, Ir.

G., Department of Product Development, Strategy and Business Research Methods).

• The thesis needs to be written in English.

• The research needs to be conducted at the Supply chain management department.

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16 Service effectiveness Chapter 3: Origin

Before the process of analyses is started a recognizance of the service organization has to be done. This chapter will provide the reader with the necessary back-ground information on the Company X service organization. The chapter gives information on the service proposition of Company X followed by an overview of the direct environment of the service organization. This chapter is concluded by an overview of key issues influencing the service management organization.

(CONFIDENTIAL INFORMATION)

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17 Service effectiveness Chapter 4 Preliminary research

This chapter Organizational

Effectiveness Customer

external

internal

Bottlenecks X

-

+ +

This chapter forms the link between the research question and the diagnostic phase; it reveals the different issues in the service fulfillment organization. This preliminary research is actually a research project on its own, and therefore it is only partly included in the principal thesis (appendix 1), the findings are used in the next chapters. This preliminary-research has its own research objective and research question (paragraph 4.2) this illustrates the importance of this part of the research.

This chapter effectively tries to find bottlenecks in the service fulfillment organization, which will be diagnosed and be used for the redesign specifications in chapter 8. The preliminary research is actually a case study into the recent introduction of a new service called VMI (Vendor Managed Inventory).

The first part of this chapter describes the preliminary-research approach and gives a high level overview of the processes used to uncover bottleneck in the service organization. Finally, the most important bottlenecks will be presented and added to the conceptual model in paragraph 4.5.

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§ 4.2 Diagnostic (Preliminary) Research Question

§ 4.2.1 Preliminary research objective

“To identify different issues concerning the effectiveness of the Company X service fulfillment process, to be able to focus on the most fruitful areas for effectiveness improvements.”

§ 4.2.2 Preliminary research question

“What potential effectiveness problems can be identified in the service fulfillment organization of the new VMI service and do these problems surface in the rest of the organization?”

§ 4.2.3 Research motivation

The recent introduction of the VMI service is not a tremendous success. The supply chain management has the opinion that the service does not do what it was set out to do. Different organization members feel that VMI can be made more effective. The results of this diagnostic research will be tested for possible appearance elsewhere in the organization; confidently this will bring out disruptions in the process of achieving organizational effectiveness.

§ 4.3 Research process

For the identification of bottlenecks in the organization an empirical research approach was used. The first step was to verify the suggested under performance of the new VMI service. This was done by comparing volume, cost and price behavior of VMI to non-VMI customers. The conclusion was that indeed the new service did not perform as it was assigned to do (see appendix 1).

Multiple interviews with different people involved with the introduction of the new service provided the necessary data. This process led to the uncovering of

“bottlenecks” in the service organization. These findings were then discussed with all interviewed people in a group session. This process led the probable sources of the under performance of the new services.

Fig. 4-1. Research process (Iterative).

The bottlenecks identified in the group discussions were then tested for their occurrence in other services. If they were prevalent in other parts of the organization they were ranked to the impact they would potentially have on service effectiveness.

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19 Service effectiveness Eventually three bottlenecks were chosen. These bottlenecks are strongly linked to each other and they all impact the allocation of services to customers.

§ 4.4 Bottlenecks | Most attractive improvement opportunities

This paragraph will present the improvement opportunities that will form the foundations for the rest of this thesis. Each of the presented opportunities will be thoroughly investigated in the next chapters.

1 No knowledge of what truly drives customer value (external perspective)

When studying the introduction of VMI the lack of information on customer needs became apparent. If one wants to achieve customer satisfaction one has to at least know what the customer expects and thinks of you. This knowledge gap inhibits the management in steering towards a more effective organization.

There was no knowledge on the relative position of services in the whole product- value proposition. Furthermore there was no explicit knowledge of customer wishes and requirements for the customer services.

For new services to be successful, the customer needs to appreciate and value services more than other elements of the procurement decision to be willing to pay a premium or become more satisfied. The supply chain management agreed that more knowledge on customer behavior was needed for the optimization of the service organization.

Diagnostic questions

Chapter 5: External diagnoses

1 What drives customer value in the X industry?

2 What services are most attractive to what customers?

3 Are the customers satisfied with the offered services?

2 Service offering chaotic

If one is to develop a new service, one has to have an explicit need for it. The new VMI service was introduced without really knowing what position it would have in the total portfolio of service options. There is no apparent structuring in the service offering of Company X. Services are individual islands of procedures and processes. No relations or policies are nurtured between the individual offerings and customer groups.

Furthermore, the complex structure greatly inhibits effective internal and external allocation of services to customer needs.

Diagnostic question

Chapter 6: Service offering

How can the service offering be structured to improve service effectiveness?

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20 Service effectiveness 3 Service allocation process complex

VMI is a powerful service that delivers value to customers that want their supplier to manage their stock for reasons of efficiency. The current allocation of VMI is based on technological capability testing; the project was initially launched to proof the concept of VMI. After a few months, VMI was allocated to customer that demanded the service and would erode if they were not given this service. No prior assessment, except for a basic ROI calculation, was made to what criteria a customer must life up to able to benefit from VMI. An investigation would have shown that the customers were all in very low margin market segments, and that the services would never be returned in premium pricing. One of the conditions for effective VMI is that it is allocated to the right customers. An investigation revealed that no general service- customer policies were present for any of the services within the service proposition.

Diagnostic question Chapter 7: Allocation

• Is the current service allocation mechanism capable of delivering customer satisfaction efficiently within the new strategic context?

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§ 4.5 Completion of the conceptual model

The preliminary research identified three bottlenecks for the further improvement of service effectiveness. These bottlenecks have been incorporated in the conceptual model. This model will be the framework for this thesis.

external

internal

-

+ +

Knowledge gap customer requirements

Complex allocation process Complex

Service proposition

Fig. 4-2. Completed conceptual model

§ 4.5.1 Knowledge gap and service effectiveness

The absence of knowledge what truly drives customer value inhibits the further optimization of the service proposition. The relationship between service needs and the offered services greatly determines customer satisfaction. The more one knows about the needs of its customer, the more one can do to fulfill these needs. The Company X service organization has too little knowledge to get closer to absolute fulfillment of all needs.

§ 4.5.2 Complexity of service offering

The complexity of the offered services inhibits internal efficiency. By charting the services, a better understanding of the offered services could contribute to a more efficient allocation process.

§ 4.5.3 Allocation of services

A service is of less value if it is not allocated to the right customer. The service portfolio of COMPANY X contains multiple services to satisfy customers, but if these services are not allocated to the right customers they do not optimally leverage customer satisfaction.

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22 Service effectiveness Chapter 5 Customer requirements

-

+ +

Service proposition This chapter

The objective of this chapter is to identify the customer requirements for Company X services. The knowledge gap identified in the previous chapter needs to be closed.

The underlying assumption is that organizations are more effective when they are well matched to their environment; therefore they are required to investigate their environment in order to be able to diagnose their interrelation. This chapter will first bring forward different theoretical concepts on customer behavior and satisfaction studies. After a perspective has been chosen a measurement system is presented.

First the customer value drivers within the industry are presented. This is flowed by an identification of service needs. Then a series of analyses are presented to interpret the customer needs and requirements.

Diagnostic questions

• What drives customer value in the industry?

• Are the customers satisfied with the offered services

• What services are most attractive to what customers?

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§ 5.2 Concepts

§ 5.2.1 Customer satisfaction

Research on customer satisfaction varies from micro-level studies of the individual (Anderson and Sullivan, 1993) to more high level studies of entire market segments and industries (Fornell and Johnson, 1993; Johnson et al., 1995). This thesis focuses on the determinants of satisfaction at a market segment or macro-psychological level (Katona, 1979).

How one conceptualizes customer satisfaction also influences the modeling and measurement methods. Johnson et al. (1995) describe two basic conceptualizations of satisfaction, transaction-specific and cumulative. Transaction-specific satisfaction is a customer's transaction evaluation of a particular product or service experience (Cronin and Taylor, 1992). The cumulative model is more consistent with the literature in both economics and economic psychology (Johnson and Fornell), where customer satisfaction is conceptualized as a cumulative understanding that describes the total consumption experience with a product or service to-date. Although transaction- specific satisfaction may provide insights into particular product or service encounters, cumulative satisfaction is arguably a better predictor of future behavior (customer retention) and firm performance (profitability) (Johnson et al., 1995) and therefore this approach will be used in this thesis.

§ 5.2.2 Customer value drivers

Wilson and Jantrania (1995) studied the creation of value in the industrial buyer- supplier relationships. Based on conceptual research, they developed a three- dimensional categorization of relationship value: economic, strategic and behavior.

Lapierre (2000) distinguishes 13 drivers of relationship value and grouped them into three benefit dimensions (product, service and relationship benefits) and two sacrifice dimensions (price and relationship costs). Both proved hard to operationalize. Ulaga (2003) studied these theories and decided to validate them by testing them in real business situations. Ulaga decribes 8 dimensions of relationship value (Fig. 6-1).

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Product Quality

y Product performance y Product reliability y Product consistency

Service support

y Product-related services y Customer Information y Outsourcing of activities

Delivery

y On-time delivery y Delivery flexibility y Accuracy of delivery

Supplier Know-how

y Knowledge of supply market y Product improvements y Development of new products

Time to Market y Design tasks y Prototype development y Product testing and validation

Personal Interaction y Communication y Problem solving y Mutual goals

Direct product costs

y Price above - below competition y Price developments y Cost reduction programs

Process costs

y Inventory management y Order handling y Incoming inspections

Fig. 5-1. The relationship value drivers, the basic framework for this study.

(Ulaga, 2003)

Ulaga gives a number of indicators to measure the different dimensions. The model by Ulaga is best suited for this research, because is very well operationalized and therefore a practical framework. The indicators (fig. 5-1) Ulaga proposes are used to investigate the importance of services in the total product value proposition.

§ 5.2.3 Customer needs

Customer needs represent the voice of the customer; they are a non-technical statement of what customers expect from a particular service (Ramaswany, 1996). Not all needs are equal, and the fulfillment of needs does not necessarily have the same impact on customer satisfaction. Kano (1984) constructed a model in which needs are categorized according to their impact on customer satisfaction. Three types of needs are identified in this model.

• Basic needs

Basic needs are defined by the basic expectations that customers have about a service. As the level of fulfillment rises, the customer is barely satisfied, though the absence of fulfillment may cause a quick deterioration into dissatisfaction.

• Satisfier needs

The fulfillment of these needs increases customer satisfaction. Most needs fall in to this category. As time goes on, customer will get used to these services and they eventually will fall in the “basic needs” category.

• Delighter needs

These needs form a potential for producing large return. These needs may not be expressed by customers, because they are not conscious knowledge of them.

This framework will be used to categorize the service needs of Company X customers.

Together with the information on the relative position of services in the total value proposition this eventually fill the knowledge gap needed to support the improvement efforts.

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Results

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26 Service effectiveness Chapter 6 Service offering

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Service proposition

This chapter defines the service offering and uses it to explore possible ineffectiveness. In the preliminary research discussed chaotic service offering causes a fragmented view of the service management needs. This chapter tries to integrate the different service aspects into workable elements. A framework is introduced for profiling the service offering that allows the organization to identify issues and inconsistencies between what is offered and what is delivered to customers. In addition a couple of recommendations are made to form strict relationships between individual services. These recommendations are based on this research project, however they do not fit directly into the principal thesis, the complete research can be found in appendix 2.

Diagnostic question

How can the service offering be structured to improve service effectiveness?

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§ 6.2 Concepts

Services are often described as a package or bundle of different services, tangibles and intangibles (Grönroos, 2000). The package can be divided into two main categories, the main service or core service and auxiliary services. In the case of a physical good the core service is replaced by the primary product.

Structuring can reduce complexity (Jäger & Jansen, 1996) and complexity usually leads to inefficiency. A portfolio management approach can offer structure to the total service proposition. By structuring these services by function, time of use or other relevant measurement can help the customer and the producers to better understand the service options. Portfolio management is usually applied in R&D processes to map the different technologies or products. This structuring helps the organization to better understand their capabilities.

Current service literature includes very few portfolio structuring approaches. Many of these structuring frameworks separate services by function. These structuring methods do not relate to the actual use of the services in the fulfillment processes. Peelen (1991) has produced a framework that does incorporate usage in the structuring approach. He recognizes three different dimensions;

• Pre-transaction services,

• Transaction services,

• Post transaction services.

This framework will be used to capture the COMPANY X service offering.

§ 6.3 Diagnoses

Company X is very proud of the level of services it can offer its customers. In total there are XX different services, some very different from each other and some very similar. To add to this complexity, new services are regularly added and old ones removed. These XX services consist of many sub-services, depending on where draw the line as much as XX different sub-services can be identified.

The supply chain management does not use a structure to govern these service offerings. This has had some striking consequences. Individual services are reasonably well documented and communicated throughout the organization, but never has there been an overview of what is actually offered to customers.

Structuring the service offering is important in communication internally but very much so externally. In the earlier described survey there were multiple questions to investigate the customer attitude towards the COMPANY X service offering. XX% of the customers could not reproduce the services available to them (multiple choice questions). The scattered service offering inhibits effective internal and external service relations. The service allocation mechanism relies on customers asking for

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28 Service effectiveness services, if a customer can not reproduce the service proposition, the customer cannot make a rational choice. This can negatively influence customer satisfaction.

§ 6.4 Introducing structure

The diagnosis clearly indicates that part of the service effectiveness problems are the result of its complexity. In this paragraph concepts are introduced for structuring the service proposition. By decoupling services insight can be gained in the assembly of the service offering.

COMPANY X should be aiming to design standard elements which can be mass produced; they should attempt to form the services process as systematically as possible. This makes it more possible to plan and control the service processes, thus improving quality as well as reducing the costs, so that the overall effectiveness will be increased. Individual allocation of standardized service modules will result in better fitting service concepts.

Furthermore COMPANY X should try to standardize their work processes as much as possible to stimulate productivity. By standardization employees can operate more independently thus greatly reducing the need for coordination. Standardization is a very important means of coordinating an organization. It reduces coordination needs and reduces individual uncertainty. Standardization is referred to as: “the level to which the behavior of employees or departments has been programmed” (De Leeuw, 1982). Standardization is often confused with formalization, these stipulations are not interchangeable. These procedural properties (Jägers & Jansen) have their own effect on the organization. Not everything that has been standardized has to be captured by rules, procedures or regulations. Sometimes the standardization is tacit property; this is why a highly standardized company can be informal. Standardization is primarily a coordination mechanism; it contributes to the reduction of uncertainty because it spells out what to do in certain situations. Modularization is an intermediate phase between customized service propositions and standardized service propositions.

Modularization means that a certain service activity and the delivery system will be uniform from customer to customer and from situation to situation, just like manufactured products. The service can be termed a product in contrast to the customization situation, where it is often termed an activity (Illeris, 1989). This means that service propositions are created out of standard elements (modules) that can be combined for the individual customer when needed. Thus, the content of the service is standardized but the standard elements can be combined in many ways when delivered.

The next paragraph will make an attempt at structuring the service proposition by service function. All services are auxiliary processes to the fulfillment of plastics orders. The earlier described model by Peelen (1991) will be used to clarify the COMPANY X service offering. For detailed descriptions of the different services an appendix (3) has been added. The structuring of the service proposition was done in cooperation with different supply chain management members.

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§ 6.4.1 The structured service offering (CONFIDENTIAL INFORMATION)

§ 6.5 Intermezzo: Lateral service relations (See appendix 2) (CONFIDENTIAL INFORMATION)

§ 6.6 Conclusion

(CONFIDENTIAL INFORMATION)

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30 Service effectiveness Chapter 7 Service allocation

external

internal

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Service proposition

The preliminary study revealed a “complex” service resource allocation process. The current mechanism mainly focuses on fulfilling customer requirements. This approach is probably effective in satisfying assertive customers but it does not incorporate the organizational goals and objectives.

It cannot be that all customers are equally important to the Company X business.

Therefore a comparison of the organizational goals (strategy) and the achieved results should show the effectiveness of the service resource allocation process. Finally the appropriateness of the current model will be evaluated. Chapter 5 & 6 already discussed the structuring and content of service portfolio, now it is time to find out if these services are allocated in the right way.

Question

• Is the current service allocation mechanism capable of delivering customer satisfaction efficiently within the new strategic context?

The new commercial strategy clearly identifies key markets where COMPANY X should focus its commercial attention. These recent strategic changes have not been incorporated in the supply chain management strategies. For this reason the allocation