Category Archives: Services

The Art of Service Management

The Art of Service Management

There were a lot of presentations at INFORMS on services and services management, which only makes sense since services are the most dominant contributor to national GDP (making a significantly larger contribution then manufacturing), but the most interesting was P.T. Harker’s plenary session on Science and the Art of Service Management. In this talk, P.T. Harker discussed the evolution of service management over the last three decades and the technology you are going to need to keep up.

In the eighties, service was all about delighting the customer. The customer was always right … and you went out of your way to delight the customer! However, this strategy almost bankrupted a number of corporations that took it too far and then came the nineties with the corporate backlash strategy which said you should fire the customer – after all, all they do is complain and kill profits. Of course, this didn’t work either – we’re not whiners, schemers, or stupid – we just want a fair product or service at a fair price … and we started fighting back, taking our business to companies that didn’t treat us as whiners, schemers, or idiots. So now that we’re in the noughts, what’s the new strategy? Make the customer efficient. In other words, if you’re not able to delight the customer, at least be decent enough to not waste her time.

How do you do it? Forget CRM (Customer Relationship Management) – the new wave is CEM (Customer Efficiency Management). CRM is good – but if you have systems and processes in place where the customer can find the information and products they need by themselves, then CRM kind of becomes a moot point, doesn’t it?

The goal of CEM is to treat the customer as a true co-producer, manage their contributions by integrating HR and Marketing tools and processes into your traditional CRM processes and technologies, and harness their knowledge. After all, you’re much more likely to sell a product or service if it is in line with what the customer wants AND it’s not a hassle for them to buy it.

However, it’s important to note that the key to success lies in the balance. If you take it too far, two things could happen. You could end up on that slippery slope back to the delight the customer mentality, which is generally not profitable for the vast majority of service providers (there are exceptions, but they serve a marginal consumer, not the average consumer), or you could make the customer too efficient in such a way that you make your service invisible and this would weaken your brand as a side effect. (As far as I’m concerned, there is no such thing as too efficient, but you want to make sure the customer understands who brought them the heightened level of efficiency.)

Magic & Logic II (Procurement and Marketing)

As defined in Part I, this summer the Value Framework Initiative co-sponsored by CIPS (Chartered Institute of Purchasing and Supply), the IPA (Institute of Practitioners in Advertising), and the ISBA (Incorporated Society of British Advertisers) released a report entitled “Magic & Logic: Re-defining sustainable business practices for agencies, marketing, and procurement”.

This report “identifies best practice methodologies that can be used jointly by agencies, marketing, and procurement to work together in their efforts to produce ‘profitable ideas that make profit’. Knowing that profitable ideas result when all three parties recognize the ‘magic/logic’ distinction and vigorously pursue the improvement of both with an appropriate balance”, this report is designed to be a guide for marketing, agencies, and procurements to get more out of their relationship.”

The report also notes that “Procurement can help marketing deal more effectively by disciplining the process and aiding marketing in the identification of precisely what it is they are seeking. They [Procurement] can bring consistency to briefing, standard contracts, fee structures, and reporting, and insure that third party supplies are purchased effectively. They [Procurement] can help control the relationship, maintain consistency in their organization’s dealings, measure effectiveness and outcomes, and help quantify, as well as increase, the value of the relationship (which is not cost, but ROI).” Furthermore, “Procurement can also help the agencies increase their value by working with the agencies to improve their management and processes, thereby increasing the value of the services offered by the agency. Procurement is also the entity that is best suited to identify the win/win during negotiations.”

The report concludes with detailed recommendations for agencies, marketing, and procurement alike, and what I would like to point out are the recommendations for procurement which are:

  • make the effort to understand what you are buying when you buy agency services; understand that quality of outcome is highly correlated with cost and return on investment is a better measure of success,
  • be more open about your agenda … after all “a failure to communicate creates a vaccuum that will be filled by lies, poison, and drivel“,
  • look for ways to work with agencies to help them be more efficient, and
  • help marketing be more disciplined.

The reason I want to point these out are that these are best practices that hold true when working with any third party service provider, procurement outsourcing agencies included! The same maxim holds true for services and direct materials: cheaper is not always better. Quality and return on investment (with the ultimate goal of value) should be your metrics of choice.

Open and honest communications will in turn inspire open and honest communications from your potential provider. (And if it does not, find another provider.)

Finally, you are always in a position to assist third parties in improving their efficiency, just like you are always in a position to help your own organization become more efficient. With the possible exception of engineering/production, no other division needs to be anywhere near as efficient, value conscious, and metric focussed as procurement in order to get business done and look good. Marketing looks good if they boost brand recognition. Sales looks good if they boost sales. Finance looks good if they find ways to trim the buget. But unless procurement measures, manages, and shows value in everything it does, it tends to get overlooked because it will otherwise be looked upon as the division that spends money, not the division that saves it.

Magic & Logic I (Procurement and Marketing)

For readers on this side of the Atlantic, I’d like to point out an interesting report released over the summer by the Value Framework Initiative co-sponsored by CIPS (Chartered Institute of Purchasing and Supply), the IPA (Institute of Practitioners in Advertising), and the ISBA (Incorporated Society of British Advertisers) entitled “Magic and Logic: Re-defining sustainable business practices for agencies, marketing, and procurement”.

This insightful report, authored by Marilyn Baxter, who conducted in-depth interviews with 24 senior respondents with decades of relevant experience at large enterprises (with names like Coca Cola, Honda, Unilever, Fallon London, Lowe London, Proximity, and Willott Kingston Smith), identifies best practice methodologies that can be used jointly by agencies, marketing, and procurement to work together in their efforts to produce “profitable ideas that make profit“. The societies came together and commissioned this report because they found that there was a general lack of alignment between agencies, marketing, and procurement in all but the market leaders. Knowing that profitable ideas result when all three parties recognize the “magic/logic” distinction and vigorously pursue the improvement of both with an appropriate balance, they wanted to provide their members and the community at large insight on how to be more successful.

Magic is defined as the production of brilliant ideas that grow brands and businesses while Logics is defined as project management, financial management, and other non-magical processes that support the innovation effort and the “magic” it produces.

The agency controls the realm of magic, needed by marketing, and procurement controls the realm of logic. The fusing of the three is necessary to ensure that marketing receives maximum value from the agency relationship. Furthermore, the agency can itself benefit from the involvement of procurement.

The agency market is more crowded than ever and agencies are being pressured to be more competitive. However, despite historical indicators to the contrary, successful agencies are run just like any other successful business and the best agencies are those that offer a differentiated product, focus on results, maintain confidence, maintain a high degree of professionalism, and have disciplined business processes that enable them to get their top-line income right and achieve better bottom line profits.

Successful agencies also have strong leaders with clear goals, coherent values, and a strong business focus. They care about cost and efficient use of their resources (the logic) as well as innovation (the magic). They put the quality of their people at the heart of their business, forming a “service/value/profit” chain. The leaders know they are in business to create value, quality, and great ideas.

However, agencies are not alone in their need to improve. Marketing clients have to improve their ability to assist agencies in developing the best possible profitable ideas for them. This includes being professional, disciplined, and well-organized at all times, knowing what they want, committing to quality and expecting to pay for it, regarding agencies as partners, and engaging procurement in the development of efficient, valuable, constructive and productive relationships.

Procurement can help marketing deal more effectively by disciplining the process and aiding marketing in the identification of precisely what it is they are seeking. They can bring consistency to briefing, standard contracts, fee structures, and reporting, and insure that third party supplies are purchased effectively. They can help control the relationship, maintain consistency in their organization’s dealings, measure effectiveness and outcomes, and help quantify, as well as increase, the value of the relationship (which is not cost, but ROI).

Procurement can also help the agencies increase their value by working with the agencies to improve their management and processes, thereby increasing the value of the services offered by the agency. Procurement is also the entity that is best suited to identify the win/win during negotiations.

This extensive report concludes with a number of detailed recommendations for agencies looking to improve the value of their offerings, marketing organizations looking to get more value out of their agency relationships, and procurement organizations seeking to help both parties work together more effectively. It also includes some great appendices that define signature practices of the most profitable client/agency relationships from a financial, workflow, relationship, and value perspective and profitable performance characteristics. All in all, it’s a great read – and I’m not going to give away the ending here to encourage you to add it to your reading list (and maybe take a copy with you on your next flight).

Supply Chain Education is Important

As with any professional field, the appropriate education is often a critical sucess factor. And, as with any professional field that is constantly changing, continual education is often key to continued success. Moreover, although the academics will often tell you this continued education should be delivered by them either through more advanced degrees, specialist degrees, or appropriately designed continuing education courses, the reality is that it is what you learn that is important, not who delivers it. In other words, we are no longer in a world where the medium is the message, we are in a world where the message transcends the medium and we are the message – and the message that we convey is what is important.

This means that professional development courses and certification programs, if appropriately designed and delivered, can be just as effective as academic programs, if not more so – especially if they are tailored to the challenges we address in our daily routines and convey to us the knowledge we need to do our jobs, and do them better.

To this end, I’d like to formally point out that if you are a traditional purchasing manager looking to update your capabilities from those of a twentieth century purchaser to a twenty-first century strategic sourcing professional, you have a professional option through Next Level Purchasing (now the Certitrek-owned NLPA)- the first (and only?) organization to offer training, and certification, over the internet at your pace.

Observant readers may remember that I’ve referenced Next Level Purchasing a few times before and wonder why I’m drawing extra attention to them now – and the answer is simple. First of all, until recently, there were very few academic programs with supply chain components, and most of these programs do not have extensive modules on today’s eSourcing enabled strategic sourcing best practices, as most of this technology is quite new. Therefore, this program provides a great way for you to update your skill set very quickly. Secondly, after a great discussion with Charles Dominick, the founder of Next Level Purchasing about current and future course offerings, I’ve decided to review a course or two* to help you understand the benefit of their unique offering and how you can use their offering to jump start your advancement to a Next Level Purchaser.

* I may not get to it until after the Supply Chain Directions Summit hosted by eyefortransport in San Francisco at the end of the month.

Best Practices from Lessons Learned

One of the best practice-oriented talks at the 2006 Informs Annual meeting was William Hefley’s talk on Identifying Issues in Sourcing: Informing Development of Best Practices. In this talk, William Hefley of the IT Services Qualification Center at CMU discussed lessons learned from dealing with client organizations. The fifteen lessons learned identified point to best practices that you can adopt to improve your sourcing organization.

Lessons Learned

  1. Clients often make decisions to source without considering:
    • fit with broader strategy
    • short term organization performance impact
    • appropriateness
    • risk of losing internal expertise
  2. Clients tend to rely on consultants to conduct source selection without consideration of consequences.
  3. Some client organizations establish special sourcing projects named to convey popular images to investors.
  4. “Distress outsourcing” leads to more distress.
  5. Most clients do not baseline existing operations or benchmark desired states.
  6. Clients tend to abdicate entire responsibility to providers after a deal is signed.
  7. Clients negotiate better deals when internal team bids are involved.
  8. Both clients and service providers are challenged in SLA (Service Level Agreement) interpretation.
  9. Most client and service provider teams interpret scope differently.
  10. Client organizations often have difficulty with expectation management.
  11. Clients typically do not execute communication plans for internal or external audiences.
  12. Buy in of management, power brokers, and other key stakeholders is important for any project.
  13. Clients are seriously challenged by internal and external change management.
  14. Clients need to know skill sets and competencies required to manage services internally and externally.
  15. Clients need to retain, develop, and deploy appropriate technology and management skills to manage, oversee, and coordinate with service providers.

Implied Best practices

  1. Determine appropriate sourcing strategies and anticipated results before considering outsourcing to a service provider. Outsourcing doesn’t always add value.
  2. Bringing in consultants is a great way to augment your expertise, but only if you work with the consultants and actively participate in the process.
  3. Don’t initiate a sourcing project just to please investors – initiate a sourcing project because you expect benefits.
  4. Handing your problems over to someone else will not solve them – identifying the causes and resolutions will. Outsourcing improves efficiencies, it is not a miracle cure.
  5. You can not measure improvement without a baseline, nor can you define an appropriate SLA without a reasonable understanding of expected improvements.
  6. Outsource providers are good at managing their operations – not yours. You need to define your overall sourcing strategy, manage the relationship, and make sure the services provided are in-line with your goals.
  7. Understand your costs before you attempt to negotiate a deal. After all, the goal of outsourcing is to add value, and a service is generally not valuable if it costs you more to outsource the process than to manage it in house.
  8. Adopt a common language consistent with customer service goals, not hard-to-measure quality metrics.
  9. Again, adopt a common language consistent with your organization’s customer service goals and make sure both parties understand the scope of the deal on both sides before it is signed.
  10. Define your outsourcing goals up front and make sure a senior, experienced professional is in charge of managing the relationship.
  11. It’s important to communicate your intent before the deal is inked, gather feedback from the appropriate stakeholders, and update them regularly on results.
  12. Without buy-in, it will be hard to gather the internal support required to make your project a success.
  13. Hire or retain a change management expert and have the team responsible for managing service delivery work with the expert to define and implement appropriate processes.
  14. Seek external training for any skill sets and competencies that your organization is weak on. Consider academic programs and professional programs (such as Next Level Purchasing’s, now the Certitrek NLPA SPSM program).
  15. Define appropriate processes and employ technology to ensure those processes are consistently employed in a best-practice fashion. Strive for six sigma quality.