Grönroos (1990, 2007) has provided six principles of service management. These principles signal the shifts in traditional management along six dimensions: (1) the business logic and driver of profit; (2) decision-making authority; (3) organizational focus; (4) supervisory control;
(5) reward systems and (6) the monitoring and measurement of tasks and achievements. These principles are discussed below. A summary is provided in Table 5.2.
Dimension Principle of Service Management
The business logic
Customer perceived service quality drives profit.
Managing customer relationships and customer perceived quality are critically important to success. Interest in cost and productivity become secondary.
Decision-making authority
Decision-making has to be decentralized as close as possible to the organization-customer interface.
Employees are empowered, encouraged, and trained, to solve problems arising from deviations from standard procedures so that customer satisfaction is created.
Organizational Focus
The organization has to be structured and functioning so that its main goal is the mobilization of resources to support the front-line operations.
Focus shifts away from structure and control procedures to process and customer perceived quality.
Supervisory Control (or rather Supervisory Support)
Managers and supervisors have to focus on the encouragement and support of employees.
Supervisory focus has to be on encouragement and enablement of employees so they can deliver quality service.
Reward Systems
Production of customer perceived quality has to be the focus of reward systems.
Efforts at producing customer perceived excellence are rewarded rather than compliance to predetermined standards.
Measurement Focus
Customer satisfaction with service quality has to be the focus of measurement of achievements.
The primary variable to be measured becomes customer satisfaction with service quality.
Table 5.2: Principles of Service Management (based on Grönroos, 1990 and 2007)
The profit equation and business logic. Traditionally, the focus of a business has been on making economic gains through management of the internal efficiency of the productivity of capital and labour. This, in turn, leads to an emphasis on economies of scale. According to Grönroos (1990, 2007), this approach can often lead an operation towards disaster (Figure 5.2).
The shift to service management encompasses a shift in focus towards the notion that customer perceived quality, and not just internal efficiency, drives business profits. This means that the strategic focus of the organization shifts from cost considerations and internal efficiency towards management of customer interactions and relationships. Internal efficiency is still important, but it is not the top priority. The top priority is the management of customer perceived quality, customer interactions and customer relationships. The vicious circle of strategic management is transformed into the virtuous circle of service management (Figure 5.3).
Financial
Figure 5.2: The strategic management trap (from Grönroos, 1990 &
2007)
Decision-making authority. Services are characterized by inseparability between production and consumption. Further, in services, quality depends upon how customers perceive the service to be. Also, as stated earlier, service management requires a strategic focus on customer interactions and relationships. All the factors combine to elevate the importance of front-line employees, or customer contact employees, who interact with customers. These employees are the interface between the organization and the customers. Customer contact employees need to be empowered to take operational decisions to ensure the satisfaction of the customers.
Strategically important decisions may still be centralized, however, certain decisions are best taken by customer contact employees. This means that the organization should place a special emphasis on training customer contact employees to use their judgment in tackling tricky
Financial problems or increasing competition
Improving buyer-seller interactions (external
efficiency) with cost control
Improved (or at least controlled) perceived
service quality
More satisfied customers
Improving working atmosphere Improving corporate image
Increasing sales volume
The service-oriented approach
(service-management)
Figure 5.3: The service-oriented approach (from Grönroos, 1990 &
2007)
situations that may arise with any deviations from standard procedures for the benefit of customer satisfaction.
Organizational focus. In traditional management, the organizational focus is on creating and maintaining an organizational structure where management decisions are cascaded through processes involving legislative control. This approach is dysfunctional, and creates a lack of flexibility; it leads to centralization and prevents the easy flow of information throughout the organization. Service management removes this focus on structure and control procedures and instead places it on improved customer perceived quality. The organizational structure needs to be flexible in order to meet the needs of the customers.
Supervisory control. Traditional management requires the supervisory systems to closely monitor the capability of the organization and its various departments in performing their activities to predetermined standards. This rigidity is however unsuitable for service management. By their very nature, services cannot be standardized and there always remains an element of flexibility. In this situation, guidelines and vision are better than pre-determined standards. Thus, instead of monitoring performance in comparison with pre-determined standards, service management requires that the supervisory focus is on the support and encouragement of employees, particularly customer contact employees. In a way, supervisory control could be labelled as ‘supervisory support’ in which the job of management is to both empower and enable their employees to deliver services for the benefit of the organization’s customers.
Reward systems. Reward systems are tied to supervisory focus. With a shift in supervisory focus from control to support, reward systems also need to reflect this shift. Service management requires that the production of customer perceived quality should be rewarded rather than mere compliance with pre-determined standards. Often organizations reward internal efficiency, but this forces employees to shift their focus from customer satisfaction to internal issues. This, frequently, leads to deterioration in customer perceived quality.
Monitoring and measurement of tasks and achievements or measurement focus. For supervisory focus and reward systems to be effective in promoting the service management approach, the measurement focus must also shift. In service management, the “ultimate signs of success are customer satisfaction with total perceived quality, loyal customers and improved profits” (Grönroos, 1990 and 2007). This implies that the focus should be on measuring efforts that boost customer satisfaction and loyalty. Internal efficiency must also be measured, but external efficiency criteria should dominate.