Date Published May 22, 2012 - Last Updated 7 Years, 138 Days, 18 Hours, 48 Minutes ago
Customers and service providers sometimes have different opinions of what value is. Getting the right mix of benefits, features, quality, guarantees, and costs is paramount to happy customers and a good night’s sleep. Let’s call this right mix “the zone.” You want to be in the zone at all times. Focus too much in one area—say, low cost—you put other areas at risk, like quality. As the old saying goes, “Good, fast, or cheap. Pick two.” You get the point.
What Is Value?
Value is in the eye of the beholder, which simply means that it depends who you ask and when you ask them. Value is often subjective, and it is based on your customers’ perception of what is important them. Some questions need to be answered. How does your service address those things that are important to you customer? Specifically, what is the benefit or positive outcome they will get from your service? Will they be more successful, save money, sleep better at night, get a raise, win the Nobel Peace Prize, etc.? Does it help them meet their goals and objectives? How does your service impact your customer in terms of benefits or positive outcomes?
What Is a Service?
A service is a means of achieving an end result without the hard work or risks. This typically means paying someone else (an expert with tools) for guaranteed (no risk) instant gratification (the benefits). For example, you (the customer) need to get to work (goal) on time, in one piece, and for a reasonable cost (objectives). Your choices are taking the bus (public transit) or driving a car (depreciating asset + driver’s license + the driving experience + up-to-date insurance and license tags + rush-hour traffic + gas, repairs, and car washes + … ). Services are intangibles; you cannot touch or see them. You experience them. Because of this, they often come with service level guarantees to set your expectations for your experience. These are known as service levels.
Customer satisfaction is the measure of how well the service met your expectations: Was the desired outcome achieved? Was the actual experience as expected? Was the cost what you agreed upon? Did you derive value from the transaction? Was it worth it? Customer satisfaction happens when you consistently provide value, as agreed upon and for a good price. Summed up, this is the perception of quality. If you exceed expectations, you will have loyal customers who use your services again and again.
Why Is Efficiency Important?
Customers have a good idea of what they are willing to pay for a given outcome or benefit, and they often have multiple options for achieving a single outcome from different cost/risk structures: DIY, service provider A, service provider B, etc. Efficiency is the measure of resources expended for the benefit received. It is important for service providers to know what it costs to deliver a service and how it compares to alternative service delivery options. It answers the question, Are our services cost competitive?
How Do You Measure Value?
Service providers need to think like business owners and measure four key areas to get their services in the zone:
- Customers are getting the benefits and outcomes they require.
- Services are delivered within the set expectations.
- Customers are satisfied, expectations are being met, and they are receiving value.
- Services are cost-competitive (i.e., good value for money).
As you can see, a balanced approach is required to measure customer impact, service levels, satisfaction levels, and cost effectiveness. This principle is illustrated by the diagram below.
Here are some tips and tricks for measuring service value.
Establish a Measurement Framework
Start by establishing a measurement framework that supports a continual service improvement feedback loop. It should be designed from the top down, but built from the bottom up. Articulate your strategy by setting goals, and determine what to measure by breaking your goals into measureable objectives using metrics and targets. Measure your results and intervene when there is deviation from the target. Build a knowledge base of lessons learned and make improvements that drive you to and keep you in the zone.
There are four critical success factors for an effective measurement framework:
- Enables validation of the strategy and vision (aligns with the customer’s expectations of outcomes, validates alignment, and confirms that expectations and outcomes are met);
- Provides direction with service level targets (sets targets through metrics, controls and manages service delivery processes, and verifies that service level targets are being met);
- Provides a means of gauging value realized/delivered (justifies service improvements with a solid fact base, quantifies service benefits realized, and communicates value realized with factual evidence); and
- Intervenes and takes corrective action (identifies deviations when they occur, understands the root causes, and minimizes consequences).
Develop a Balanced Scorecard
Use a simple scoring system for each state (i.e., 1 = danger, 2 = warning, 3 = in the zone). Aggregate the four key themes into a single service performance index, and then select the key performance metrics that best represent the themes. The diagram below illustrates the concept of rolling up or aggregating individual metrics into performance indexes.
Choose the Metrics
Individual measures are selected using mix of contexts, positive (more is better) and negative (less is better). Positive measures work best to describe improvements. Negative measures work best to describe the degree of “badness.” This helps to prioritize actions and create a sense of urgency. The table below provides examples of metrics grouped by themes.
Some of the secrets to getting your services into the high-value zone include:
- Thinking like a business owner (the value-for-money mindset);
- Using a measurement framework to set goals and objectives, take corrective actions, acquire knowledge, and translate that knowledge into wisdom;
- Using the zone approach to measuring outcomes, service levels, satisfaction, and efficiencies;
- Using positive and negative measures where appropriate and advantageous;
- Creating a service value index, measuring often to gain feedback, and making small corrections to your services to improve service value;
- Accumulating and sharing lessons learned to become more proactive and predictive; and
- Communicating your results externally to your customers and internally to your service delivery team. Recognize and reward fire prevention as much as firefighting. Acknowledge the successes and redress the shortcomings.
Metrics help organizations improve service performance, align goals, and realize value. The positive benefits can be weighed against the negative consequences of not having a measurements program. Some of the good things about having a measurement program are that it provides the instrumentation necessary to control a service organization and improve service delivery, it verifies results and brings attention to specific service performance issues, it makes it easier to spot danger in time to correct it before your customer gets upset, and it drives service delivery efficiency, effectiveness, and quality. In addition, it improves morale (when people are recognized for doing the right things), stimulates healthy competition between service owners and teams, inspires continual improvements that are fit for purpose and fit for use, and helps align IT with the outcomes that are important to the business.
Without a measurement program, bad things can happen, including reduced visibility resulting in loss of control and unpredictable service delivery, too much focus on “noise,” a service organization that is too reactive and always in firefighting mode, low morale, and unhealthy competition between staff members. These outcomes can, in turn, result in negative customer perceptions, especially when cost effectiveness, service levels, and quality of service are poorly understood, leading to disagreements in value perception and situations where customer complaints drive improvements, forming an unhealthy negative feedback loop. Likewise, if customer benefits are not apparent or realized, this, too, can cause dissatisfaction leading to a loss of repeat customers.
Implementing a measurement framework for your key services helps maximize value creation for your customers. Without it, the effort involved in balancing value, cost, quality, and service levels can make you want to pull your hair out (if you still have any, that is).
If you want to get in the zone, a measurement framework is your map, the business outcomes are the destination, service level objectives are the directions, quality indicators are the signposts that keep you on course, and efficiency metrics keep your costs in check. Whether you implement your measurement framework as a comprehensive measurement program for all portfolios of services, or selectively for individual key services, any organization can use the approach and the techniques discussed here to measure and improve service value.
David Smith is the president of Micromation, Inc., an IT consultancy that specializes in IT service optimization. He has more than thirty years of experience managing and improving the quality, efficiency and effectiveness of IT service delivery. David is a certified TCO Expert, ITSM Expert, and ISO 20000 Consultant. He is also the author of Implementing Metrics for IT Service Management and contributing coauthor of IT Service Management: Global Best Practices (both Van Haren Publishing, 2008).