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Internal Service Quality:

Winning From the Inside Out

URING THE PAST don’t change the way they operate, they likely will fall off
SEVERAL YEARS, the chart - that is, go out of business. Eastern Airlines

D management gurus have been


preaching the virtues of
being outwardly di-rected.
Executives have been told to
look globally, learn how to
operate in a borderless society, and
develop network organi- zations that
and Pan Am are examples of quadrant IV companies.
Companies with excellent internal but poor external
customer relationships (quadrant II) are on the edge and
risk falling off the chart. Many companies that operate in
a regulated environment can be found in this cell of the
matrix; because they have a guaranteed customer base,
they tend to be completely focused on the internal
forge new kinds of market relationships, workplace and ignore the external marketplace. AT&T
Internal from information cooperatives to once occupied quadrant II and, with deregulation, found
strategic alliances. They have also been itself on the edge. AT&T was strategically vulnerable and
customer told that they must be customer driven risked being outmaneuvered by more externally
and learn to “love” their customers. customer-focused competitors.
service can None of this is bad advice, but there is Similarly, companies with excellent external and poor
real danger. In casting their gaze far and internal customer service (quadrant Ill) are on the edge.
provide an wide, executives will likely overlook a Consider Nordstrom’s, a retail store that offers external
crucial source of differentiation and customers a host of services such as valet parking and
important competitive advantage: the quality and personal shoppers. But Nordstrom’s internal relations are
competitive responsiveness of internal staff functions. problematic. A number of employees have filed Equal
Internal customer service might well Employment Opportunity suits for unfair practices. These
advantage. provide the critical edge needed to win in problems could be devastating and put Nordstrom’s over
the marketplace wars of the future. the edge.
Winning companies know that internal service quality
The critical difference is not just a feel-good strategy to enhance the work
Companies cannot win without environment. According to T. Kerry McCarter, vice
superior internal customer service. president of quality management at Johnson & Johnson’s
Consider the customer service matrix in
by Figure 1. It categorizes companies into
Mary four different types of organizations, Figure 1: The Customer Service Matrix
Azzolini based on the quality of their internal and
external customer service. External service performance
and
Internal Service Performance

Companies that focus on both inter- + -


James nal and external customer service
Shillaber (quadrant I) tend to be winners. These
companies are masters at anticipating the Winners At risk
changing needs of their customers, and + I II
they have the internal strength, service
orientation, and capability to deliver
high-quality products and services on
time. Based on their actions in the
marketplace, companies such as At risk Losers
WalMart, Federal Express, and General
Electric can be placed in this quadrant. - III IV
Companies with poor internal and
external customer relationships (quadrant
IV) tend to be losers. If these companies
Internal Service Quality cont.
Quality Institute: “Internal customer service is meeting the of which were positive - about the financial reports and services
expectations and requirements for success of those people they were receiving. For example, a number of customers thought
inside the company so they can delight customers in the the finance department was more focused on producing reports
marketplace.”1 Thus, internal customer service can have each month than on satisfying their needs. Inflexible formats in
immediate cash value. some financial reports made the user hostile, while other reports
contained excessive information that made their effective use
A case In point impractical. The customer verdict came through loud and clear:
Produce less written material each month.
Welcome to the finance department of Berlex In addition, customers pointed to an emerging need that never
Laboratories, a $277 million U.S. subsidiary of the
had been a department priority. As the company and industry
German pharmaceutical giant Schering AG. Berlex
became increasingly complex, decision making was becoming
Laboratories, located in Wayne, NJ, manufactures more dicey and difficult. The department needed to shift its role
pharmaceutical and medical diagnostic products. The away from financial control to adding value to company-wide
company’s rapid growth was fueled by two recent acquisi-
decision making. The finance department had to spend more time
tions that broadened its product portfolio and research
understanding the business and helping its customers understand
capabilities. To provide the focus required in today’s
the capabilities and services that it could offer. Beyond the
complex pharmaceutical business, Berlex reorganized traditional roles of corporate policeman and number cruncher,
operations into three commercial strategic units, two both the finance department and its customers wanted the
research and technology units, and two corporate service
department to become a partner in decision making. Yet, in some
groups.
areas, wide gaps existed between customer expectations and
This change dramatically increased the volume and
actual service.
complexity of work for the company’s finance department. Feedback is great, if you use it. At a two-day department-wide
But rather than go, cup in hand, to the corporate till to seek meeting, the finance staff assessed all the data and set priorities.
funds for additional staff, Marvin Tancer, the finance
Everyone was asked: Where is customer need the greatest and
department’s director and corporate controller, decided to
service gaps the widest? The staff developed a short list of not
closely examine the quality and proficiency of his only specific problems relating to such areas as monthly reports,
department’s services and their delivery. the accounts payable process, the general ledger system, and
The function of any type of department - as well as the budgeting, but also more elusive, organization-wide issues that
function of any type of company - can be identified by
stem from a lack of alignment between customers’ needs and the
answering two questions:
department’s structure, systems, technology, capability, and
• What products or services does the organization offer? culture. Misalignment is a big crippler of internal service quality.
• To whom are those products or services offered? Teams were formed and set into motion. They considered
Tancer and his team developed a matrix identifying the customer and staff feedback, searched for the root causes of the
services the department provides and the customers it
service gaps, and planned corrective action.
serves. When they were finished with this analysis, they
While the effort to improve internal service quality is still
had a clear snapshot of the department’s basic function. under way, it is already paying dividends. Despite the new
Like the typical finance function, the Berlex finance demands placed on the finance department, there was no need to
department produced a monthly operating summary and
bring in additional personnel. Thanks to the customers’ input, the
statements comparing actual results vs. budget for
amount of data the department tracks is being reduced. A number
department heads and members of the company’s
of work processes, such as accounts payable and the monthly
executive committee. It also provided treasury services for closing of the books, are being revamped. Perhaps most
the company, assistance with the annual budget process, important, the focus on the customers’ needs has prompted
and a financial review of operating decisions.
department members to view themselves and their customers in a
Organizations are littered with matrixes of one sort or
new way.
another. They usually wind up in desk drawers or in three-
Don’t be misled by all of the gee-whiz success stories you read
ring binders. But in the hands of the Berlex finance team, about in management journals. There are no quick and easy
the matrix of services and customers became a tool for solutions. As Tancer said, “Sustaining the energy and momentum
action.
for the change process is difficult but crucial. As we continue to
Finance department members were interviewed to
implement change, we realize that some things will be easy to fix
obtain their views about the range, availability, and and others will be real tough.” Robert Milos, Berlex Laboratories
priority of services being offered. They were also asked vice president of finance, added: “Change is never easy. It comes
about the department’s structure, systems, technology, one step at a time.”
capabilities, and culture - the five pillars that support
quality service - to uncover possible service disconnects.
Pushing the assessment one step further, a core sample What does It take to win?
of finance customers was contacted and asked: How Two fundamental distinctions characterize departments that are
satisfied are you with the products and services you helping their companies from the inside out:
receive? How important are those products and services to 1. Every action the departments take is guided by what is
the effectiveness of your operation and to your ability to called a “customer construct” - an orientation to satisfying cus-
serve external customers? tomers that underlies everything a department does. The customer
There’s a lot of talk these days about empowering
employees, but what about empowering customers?
Tancer found that putting the department’s customers in
the feedback loop sent them a “we care” signal. He also
found that his customers had thoughtful opinions - not all
Figure 2. The Customer Construct

Infrastructure

Departmental Structure Products and Customer


Strategy Gap Systems service Expectations
Technology attributes
Culture

construct cannot be acquired by merely exhorting staff as teamwork, trust, and cooperation shape how we relate
members to love their customers. It comes about when to one another internally and to our customers
forward thinking executives organize their departments externally.”2 The ownership phase takes hard work
and base decisions on two principles: because the department has to determine which values
• Customers’ needs determine the department’s should be its guiding force. The department can make this
strategy. determination by conducting a self-evaluation and asking
• The department’s structure, systems, technology, customers for their views.
culture, and capabilities must be aligned with the During the ownership phase, the department also
strategy in order to achieve it. creates an improvement plan, helps staff members
The customer construct links the department’s develop the skills needed for the change effort, forms a
customer expectations, strategy, infrastructure (i.e., transition structure (such as a steering committee) to
structure, systems, technology, culture, and capabilities), launch the improvement process, and identifies and
and specific attributes or characteristics of the products or enlists the help of key stakeholders in the department’s
services being offered. These relationships are shown in improvement efforts.
Figure 2.
In Figure 2, note the gap between customer Phase II: assessment
expectations and the department strategy and between the This is referred to as the great awakening phase of the
department strategy and the department infrastructure. As internal service improvement process. Typically,
the finance department at Berlex Laboratories discovered, departments make decisions about what service to
closing these two gaps had great payoffs in terms of provide or how to provide it based on “the way it’s
jump-starting improvements in service quality. always been done” or on “gut feelings.” They fail to treat
2. The departments avoid helter-skelter improvement data as a strategic ally of service improvement.
activities. Using an orderly process, they focus on value- The finance department at Berlex had always worked
added improvements. Priorities are paramount. hard to satisfy its customers. There was only one
To achieve these two fundamental distinctions, problem: Much of what it provided was not needed. The
departments can use an improvement approach that department’s great awakening took place when customers
involves four phases: ownership, assessment, quality were asked for their input.
conformance, and continuous improvement. The key to high-quality internal service performance is
finding out what products or services your internal
Phase I: ownership customers require to serve their external customers better.
The private revolution is always the hardest. Deep- Begin by segmenting current services and customers; the
seated change requires commitment, which can only be Berlex Laboratories executives did this by developing a
gained by a sense of ownership. In the Berlex matrix of services and customers. Assess customers’
Laboratories example, recall how both department needs and reactions, along with feedback from your staff.
members and customers were involved. They owned the Zero in on the service gaps.
outcome. One frequently overlooked assessment tool is the
Critical to this phase is developing and committing to survey. As Joann Jones, director of Quest for Quality at
values that promote the customer construct. According to Honeywell TAC, commented, “Many organizations
David Lenz, the manager of public affairs for JC Penney: survey external customers, but how many survey the
“Step one in internal customer service is having the right
set of organizational values....At JC Penney, values such
Internal Service Quality cont.
quality and effectiveness of internal customer service?”3 environment, a department could become extinct.
T. Kerry McCarter said: “Surveys hold up a mirror to an Keep these key points about continuous improvement in mind:
organization. They enable you to say, ‘Surprise! We’re • If it's not planned, it probably won’t happen. Your plan
not doing well in those areas. What can we do to for continuous improvement requires timeliness,
improve?’ “4 accountability, and mechanisms for reviewing action plans.
• If it’s not measured, it’s not real. Measuring current levels
Phase III: quality conformance of performance and comparing those results to baseline
Once key gaps are identified, the trick is to close them. measures brings validity to the service improvement effort. It
The last thing an organization needs is more critical issues is also a way of gaining and maintaining key stakeholders’
that become organizational thorns because the issues are commitment.
never resolved or because the wrong action is taken. • If it's not evaluated frequently it might become a monster-
Organizations commonly fall into two major traps in this in-waiting. Interim progress reviews provide an opportunity to
phase: failure to set priorities for closing service gaps and revise action plans, which keeps the plans realistic and
incomplete or incorrect analysis of the root causes of the sustains improvement. Success breeds success.
gaps. • If it’s not true in the customers’ eyes, it just ain’t true.
Setting priorities sounds relatively ho-hum, but it can Everyone likes to believe that great effort breeds success. But
be a difficult exercise. For example, customers of has the effort led to satisfied customers? Customer satisfaction
corporate travel departments typically want fewer indexes must be evaluated before and after the effort to ensure
questions and even fewer restrictions when making travel that improvement continues to be achieved in the customers’
arrangements. Yet the department must remain true to eyes.
company guidelines. Thus, there is a perplexing question:
What if one customer’s needs conflict with another’s or Requirements for success
with another service the department provides? Executives who run such departments as information ser-
In determining priorities, answering this question is vices, marketing, finance, human resources, customer service,
especially useful: What is the impact on the department’s facilities, and purchasing must consider themselves
competitive advantage if nothing is done to close this gap? entrepreneurs. They and their colleagues are in business to
Most searches for root causes of service gaps are one- supply quality service to their customers. This requires
dimensional exercises. They tend to identify human developing the department’s customer construct, communicating
performers, inadequate corporate support, or demanding it to staff members, and using the step-by-step process to guide
and insensitive customers as the culprit. A far more quality improvement efforts.
effective approach is to use the organizational Quality service to internal customers converts to quality
infrastructure as a template for problem solving. In what service to external customers. If you think of your internal
ways do the department’s structure, systems, technology, customers as part of a chain that ultimately reaches and affects
culture, and capabilities cause a particular service gap? external customers, your department will be well on its way to
This approach usually uncovers a number of root causes helping your company win from the inside out.
requiring an integrated plan of attack.
For example, the finance department at Berlex
Laboratories found that there was a critical gap between References
the customers’ requirements for service quality and what 1. Personal interview with T. Keny McCarter by Wm.
was actually being delivered. When the infrastructure Schiemann & Associates. Fall 1992.
template was used to examine this gap, company 2. Personal interview with David Lenz by Wm. Schiemann &
controller Tancer discovered that there were a number of Associates, Fall 1992.
organizational root causes involved. This led to broad and 3. Personal interview with Joann Jones by Wm. Schiemann &
effective corrective action on many fronts: placing a Associates, Fall 1992.
member of the finance staff in each of the strategic 4. Personal interview with T. Keny McCarter by Wm.
business units, making major changes in information Schiemann & Associates, Fall 1992.
reporting and systems review, providing skill
development opportunities to strengthen department Mary Azzolini is the director of internal performance
members’ capabilities, and having the department’s top improvement practice at Wm. Schiemann & Associates, Inc. in
managers focus on the customer construct to reinforce the Somerville, NJ. She received a master’s degree in industrial and
staff’s customer orientation. organizational psychology at the University of New Haven in
Connecticut. Azzolini is a member of ASQC.
Phase IV: continuous improvement
Improving internal service quality is an ongoing James Shillaber is the director of corporate training and
process. Internal customer expectations are constantly organization development at Berlex Laboratories in Wayne, NJ.
changing as the department anticipates and reacts to the He received a doctorate in clinical psychology from Rutgers
changing needs of external customers. If service University in Piscataway, NJ.
improvement efforts do not keep pace with this dynamic

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