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Managing customers and employees in a service organization

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Managing customers and employees in a service organization

  1. 1. TAMPERE UNIVERSITY Department of Management Studies YHALA601 – Service Logic as a Foundation for Service Management Service quality through managing customers and employees in a service organization Author Timo Pernu, 88966 Revisor Ritva Höykinpuro Returned on 8.5.2011
  2. 2. 2 1 Introduction The importance of service management and marketing has become increasingly important during the last few decades. Vargo and Lusch (2004) have been pushing this emergence of service into the forefront of marketing thought. As was already discussed in the pre-assignment essay, they have come to the conclusion that the producer- and goods-centered paradigm of thought has come to the end of the road. What people are buying is benefits, not things per se. This has led Vargo and Lusch (2004) to the conclusion that essentially every economy is a service economy. The same thinking is echoed and carried further in the quote from Christian Grönroos: “Every business is service business.” If we raise this thought to the center of doing business, we have to change our approach to it fundamentally. Certainly we cannot restrict our focus in costs and internal efficiency alone as this leads straight to the producer-centered paradigm that Grönroos, Vargo & Lusch to name but a few are trying to break. The concept of quality has an altogether different meaning as well. It goes far beyond the quantitative and measurable attributes of a tangible product. Rather it is something qualitative, fuzzy, subjective and experiential often times even something irrational or subconscious. How then is service business done profitably? Or any business, for that matter? What is the role of service quality? Parasuraman, Zeithaml and Berry (1985) offer a useful gap model (see Fig. 1 below) that helps crystallize what constitutes to the service quality experienced by the customer. The five gaps represent discrepancies which might become hurdles in delivering a service which customers would perceive as being of high quality. The gaps are: • Gap 1: Consumer expectation–management perception gap • Gap 2: Management perception–service quality specification gap • Gap 3: Service quality specifications–service delivery gap • Gap 4: Service delivery–external communications gap • Gap 5: Expected service–perceived service gap
  3. 3. 3 Fig. 1. Service quality model (Parasuraman et al. 1985). Word of mouth communications Personal needs Past experience CONSUMER Expected service Perceived service External communications to consumers Service delivery (including pre- and post-contacts) Translation of perceptions into service quality specs Management perceptions of consumer expectations MARKETER GAP 1 GAP 5 GAP 4 GAP 3 GAP 2
  4. 4. 4 Another useful device for understanding service quality is presented by Zeithaml and Bitner (2003). The services marketing triangle (Fig. 2) identifies the key players and activities in delivering service quality. The triangle sums up thoughts of key service marketing thinkers. Most clearly it connects with Grönroos’ (2009) views of marketing as promise management – making, enabling and keeping promises. The service quality gaps provided by Parasuraman et. al (1985) can also be sketched in the picture. Fig. 2. The services marketing triangle (modified from Zeithaml & Bitner 2003). As was discussed on the course lectures, service quality – or external efficiency – is an important contributor to the financial income of a service business. In this essay, we shall seek in our crosshairs two very important stakeholder groups – customers and employees – and try to understand how managing these two helps us close gaps in service quality and lead to profitable service business. Internal marketing Enabling promises External marketing Making promises Interactive marketing Keeping promises COMPANY EMPLOYEES CUSTOMERS GAP 4 GAP 3 GAP 5 GAP 1 GAP 2
  5. 5. 5 2 Managing employees In this section we focus on employees in direct customer contact. It is these contact personnel, or boundary spanners as Zeithaml and Bitner (2003) put it, which have a crucial role in building high service quality. Why is their role so important? First of all they might be the only people in the company who are in direct contact with customers. They might possess deep knowledge of customers, their needs and wants. They should also be the first ones to notice if those needs are not aligned with the company’s offerings. This vast pool of knowledge has a huge potential impact on the company’s performance if harnessed effectively. This can only be done if the boundary spanners can be turned into part-time marketers as Grönroos (2007) and Gummesson (2007) suggest. The importance of the employees is clearly visible in the services marketing triangle (Fig. 2) as well. Of the service quality gaps identified in the introduction (Fig. 1), especially gaps 3 and 4 relate to the contact personnel of the organization. Gap 3 – or the gap between service quality specifications and service delivery – acknowledges that even the best guidelines or instruction manuals for delivering high quality services aren’t enough to guarantee customer satisfaction. Standards should be set, but adhering to them can be difficult as employee performance is varied. (Parasuraman et. al 1985). Variability in performance can stem from many reasons. Especially in high touch (vs. high tech) services working in the customer interface can be highly emotional labor. Living up to the service quality specs can be a daunting task, especially when servicing the customer requires concealing or faking emotions – for example always smiling to customers. Potential conflict is always present when working directly with customers. Zeithaml and Bitner recognize four essential conflict possibilities in a service situation: 1. Person/role conflicts • Happen when serving the customer clashes with the employee’s personal beliefs and values • Is the customer always right?
  6. 6. 6 • What is the extent of subordination one can expect from the employee serving the customer? 2. Organization/client conflicts • Occur when quality specs are not customer based or the customer makes excessive demands • Follow the rules or satisfy the demands? • Or – lose the customer or lose your job? 3. Interclient conflicts • Can take place when serving many customers in turn or simultaneously • Which client is the most important? Who to satisfy? 4. Quality/productivity trade-offs • Employees need to balance high service quality with low service cost • Both quality and quantity are required Certainly emotions and conflicts aren’t the only things explaining variation in employee performance. Personal inclinations and skills for instance play an important role. Zeithaml and Bitner (2003) make a myriad of suggestions on how to close gap 3. The four central strategies are hiring the right people, developing the people to deliver service quality, providing needed support systems and retaining the best people. Many of these strategies deal with internal marketing as suggested by the services marketing triangle (Fig. 2). Internal marketing is also the viewpoint of Grönroos (2007). Recruitment is certainly one of the best ways to close gap 3. Collins (2001), after researching hundreds of well-performing companies, goes as far as stating that getting the right people in and the wrong people out of the company outweighs the importance of business strategy and vision. Zeithaml and Bitner (2003) claim that service businesses need to compete for the best people, as measured on their service competencies and service inclination and try to be the preferred employer in their respective industry. Among other things this could mean raising unnecessarily low job qualifications, interviewing hordes of applicants, checking degrees and certifications and assessing service-oriented personality characteristics such as helpfulness, thoughtfulness and sociability.
  7. 7. 7 After getting the right people in, they need to be developed to deliver service quality. According to Zeithaml and Bitner (2003) this is done by training, empowering and promoting teamwork. They underline the importance of training technical skills like operating a cash machine or learning underwriting procedures as well as interactive skills that allow them to provide courteous, caring, responsive and empathetic service. Grönroos (2007) suggests three basic types of training: • Developing a holistic view of strategy and marketing process and the role of each individual in relation to processes, people and customers • Developing and enhancing favorable attitudes toward strategy and part-time marketing performance • Developing and enhancing communications, sales and service skills According to Zeithaml and Bitner (2003) teamwork should alleviate the stresses and strains of the often frustrating, demanding and challenging emotional labor in service jobs thus enhancing employee motivation. An even more important source of motivation is empowerment, which should give service employees the authority to make decisions on the customer’s behalf along with the knowledge and tools enabling them to make these decisions. Grönroos (2007) further clarifies the importance of both empowering and enabling employees. With adequate management support (managers taking over decision-making when needed but not interfering unnecessarily), knowledge support (for sound analysis of situations to make proper decisions) and technical support (systems, technology, databases needed for handling situations) the company should be able to reap the rewards of empowerment, some of which are: 1. Quicker and more direct response to customer needs. 2. Quicker and more direct response to dissatisfied customers in service recovery situations. 3. Employees are more satisfied with their job and feel better about themselves. 4. Employees will treat customers more enthusiastically. 5. Empowered employees can be a valuable source of new ideas.
  8. 8. 8 6. Empowered employees are instrumental in creating good word of mouth referrals and increasing customer retention. The third strategy is providing the needed support systems. Zeithaml and Bitner (2003) advise companies to measure internal service quality in internal customer service audits. The purpose of these audits is to shed light on the quality of activities and processes away from the direct customer interface. One essential part of the quality of internal processes is internal service recovery (Grönroos 2007). It should be remembered that every activity in a service business should directly or indirectly support the delivery of final service to customers. As was mentioned before, employees need to be enabled to become empowered. This means that supportive technology and equipment as well as internal processes need to be designed with customer value and customer satisfaction in mind (Zeithaml & Bitner 2003). Grönroos (2007) gives the development of intranets, databases, websites and e- mail as examples of developing supportive technology. He gives these examples with a word of warning though – the rise of IT might alienate employees from each other and from the work community. Another pitfall of IT is information overload. Aside from technological support employees also need managerial support. According to Grönroos (2007) this means that managers, supervisors and team leaders need to show leadership to assure effective internal marketing. Management support might be something in the vein of: • Continuation of formal training programs by everyday management actions • Active encouragement of employees as part of everyday management tasks • Involving employees in planning and decision-making • Feedback to employees and flow of information and two-way communication in formal and informal interactions • Establishing an open and encouraging internal climate Finally a service business must attempt to retain the best people. According to Zeithaml and Bitner (2003) this is done by including the employees in the company’s vision,
  9. 9. 9 treating employees as customers and measuring and rewarding strong service performers. Much of the employee retention is achieved through excellence in human resources management. According to Grönroos (2007) things like accurate job descriptions, recruitment procedures, career planning, salary, bonus systems and incentive programs go a long way in keeping the talented people in the company. That is, if these tasks are used actively and harmful HRM practices like promoting great service persons to so-and-so managers are suppressed. Gap 4 – or the gap between external communications and service delivery is the other gap with straight connection to service employees. A firm can affect customer expectations through media advertising and other communications. The firm must be careful not to promise more than it can deliver as it lowers the customer’s perception of quality when the promises are not fulfilled. (Parasuraman et. al 1985). Grönroos (2007) presents us a way of narrowing gap 4. He claims that the internal effects of external communications are seldom fully recognized. Employees might be an interested and responsive target audience for advertising campaigns and other communications. Presenting advertising campaigns, brochures and commercials to employees before their external launch might be just the sanity check needed to ensure that the firm does not overpromise. As employees develop as part-time marketers they might even be able to co-operate in developing external communications. The third gap that lies completely within the boundaries of the organization is gap 2 – or the gap between management perception of customers’ expectations and specifying service quality. Grönroos (2007) speaks of defining a service concept (what? to whom? how? with which resources? what benefits?) which is basically all about narrowing this gap and is an essential part of crafting service strategy. Strategy is part of the big picture of service business. Suitable strategy, organizational structure, management, knowledge and attitude lay the foundations for a service-oriented culture. In such a culture appreciation for good service exists and giving good service to internal and external customers is considered by everyone a natural way of life and one of the most important values (Grönroos 2007).
  10. 10. 3 Fig. 1. Service quality model (Parasuraman et al. 1985). Word of mouth communications Personal needs Past experience CONSUMER Expected service Perceived service External communications to consumers Service delivery (including pre- and post-contacts) Translation of perceptions into service quality specs Management perceptions of consumer expectations MARKETER GAP 1 GAP 5 GAP 4 GAP 3 GAP 2
  11. 11. 11 Crafting of value propositions is clearly a job for marketing professionals. Marketing based on service-dominant logic is something completely different. The majority of it is done close to the customer in intertwined value co-creation or co-production processes by people who might not have any marketing training whatsoever. Grönroos (2009) boils it down to three simple issues: Making, enabling, and keeping promises. Promises are kept in interaction between employees and customer. Referring back to the services marketing triangle in Fig. 2, keeping promises is the thing that finally closes gap 5, which is the product of all the other gaps in Parasuraman et al’s (1985) model. 4 Conclusions This essay had a strong focus on managing employees and customers as a way to ensure high service quality. Gummesson (2007) reminds us that this most definitely isn’t enough. The marketing of service business is literally many-to-many. A savvy marketer tries to involve as many of the relevant stakeholder groups as possible. It is this “balanced centricity” and a stakeholder and network approach that Gummesson (2007) is trying to advocate. I have personally found internal marketing a strong motivator and coordinator in working life. Usually I have taken the effort to identify the customer to my work – be they internal or external. For the past few years my job has been developing internal processes supporting the delivery of service to customers. To be more exact my responsibility has been developing internal material logistics in a hospital. In this job I was maybe three or four tiers of employees from the customer interface. That did not matter though as I thought of transportation workers as my customers. This was because they were the stakeholder group that my work had the greatest impact on. In most cases this kind of thinking will lead to managers thinking of their subordinates as customers, which might be a bitter pill to swallow for some old-school white collars. But actually the thinking is quite analogous with Grönroos’ (2009) revolutionary thoughts on roles of customer and company in value co-creation. As an endnote it could be said that in service business customer is the king. This does not mean that the old adage “The customer is always right.” would stand true. Au
  12. 12. 12 contraire! Often the customer is blatantly and self-evidently wrong. Sometimes the customer does not even have a clue of what he needs or wants. But that is not the point at all! Putting the customers first means owning their problems and solving them in spite of possible resistance from the customer. Everything done in the business should be for the benefit of the customer. In my opinion value can be captured only if it is produced in the first place. References Collins J. (2001) Good to Great – Why Some Companies Make the Leap… and Others Don’t. HarperCollins Publishers, New York, NY. Grönroos C. (2007) Service management and marketing: Customer management in service competition. John Wiley & Sons, Chichester, UK. Grönroos C. (2009) Marketing as promise management: regaining customer management for marketing. Journal of Business & Industrial Marketing vol. 24 no. 5/6: 1–17. Gummesson E. (2007) Exit services marketing – enter service marketing. Journal of Customer Behavior vol. 6 no. 2: 113–141. Parasuraman A., Zeithaml V.A. & Berry L.L. (1985) A conceptual model of service quality and its implications for future research. Journal of Marketing vol. 49 (Fall 1985): 41–50. Vargo S.L. & Lusch R.F. (2004) Evolving to a new dominant logic for marketing. Journal of Marketing vol. 68 (Jan. 2004): 1–17. Zeithaml V.A. & Bitner M.J. (2003) Services marketing: integrating customer focus across the firm. McGraw-Hill, New York, NY.