Chapter 7Monitoring and Controlling

Relationships

Introduction

• Monitoring and control form an

integral part of planning and

implementation

• Monitoring systems provide the

information that informs the

planning process, while control

mechanisms ensure

implementation of the plan.

Approaches to monitoring and control

1) Hard vs Soft Monitoring and Control 1a) Hard monitoring and control

- Relies on quantitative measures of activity or achievement, and reward or punishment systems that are directly linked to those measures.

- appropriate in circumstances where an employee’s output or performance levels are easily defined and measured and critical to the success of the organization.

- example: Budgetary control -It is based on the principle that employees

must be closely monitored and constantly offered incentives in order to optimize their performance.

1b) Soft monitoring and control- Less clearly defined.

-It is based on principle that properly selected and trained employees do not need constant attention from senior management and indeed will perform better if not directly monitored and control.

- appropriate when employees achievements are difficult to define or where variations in activity or output are not critical.

- example: in the area customer service.- Emphasis on mechanism which motivate the

employee to achieve as highly possible and support -mechanism such as training programs which enable them

to do their jobs to their best of their ability.

Approaches to monitoring and control

Approaches to monitoring and control2) Performance vs Diagnostic monitoring

2a)Performance monitoring - Indicators of corporate performance.

- Performance indicators such as profitability and customer satisfaction measure the effects of a company’s actions,

providing feedback on its success or failure. - Provide reassurance that the company is a success or a warning

that a change of strategy is required to senior management, shareholders and stakeholders.

2b) Diagnostic monitoring - useful to those that responsible to manage success or react to

failure. -example: service quality measurement and cost benefit analysis.

- These measures look into depth at actions of the company and their effects on the customer and allow the managers to learn from failures

and identify the causes of success. -provide information for remedy problems and effects

continuous improvement.

- comprehensive monitoring system should include both the performance and diagnostic monitoring systems.

Approaches to monitoring and control

3) The balance scorecard approach - financial measures only indicate the effects of business

success rather than it causes. - organisational should have both financial and

operational performance measures. - the balance scorecard approach advocated by Kaplan and Norton (1992) established 4 ranges of performance indicators of corporate performance measures:

1. financial (sales, profit, $ flow), 2. customer (loyalty & satisfaction, new & existing

business), 3. internal business (focus on operational

effectiveness such as production cost, cycle times, reliability and defects) and

4. innovation and learning (organization’s capacity for continuous improvement, i.e measuring improvements to customer value and production process).

RM Oriented scorecard measures

• Use of balanced scorecard prevents the organization from becoming fixated on a single aspect of its business, ie. npd and production efficiency.

• For RM focused organization, the scorecard should reflect the relational perspectives. Ex: 1. Financial-profitability & turnover.

2. Customer-retention, satisfaction, communication.

3. Internal business-keeping promises, efficiency, staff satisfaction.

4. Innovation & learning- customer input, innovativeness.

• Balance scorecard portrays the broad picture of organisational performance and conveys little diagnostic information.

• This broad picture is appropriate at corporate level• More specific diagnosis and rectification of

problems are delegated to managers responsible for managing specific relationships.

• Managers therefore must have access to information about for example, a) profitability of each customer b) market segment c) types of customers.

• This detail information will allow the managers to identify

and rectify problems. • This information that relevant to corporate performance will then be filtered up to the next level.

Different levels of monitoring

• Relationship-level monitoring centers on 3 main areas (elements) and they are:-

1) Relationship facilitators - factors that contribute to the development of the strong, long term

relationship

2) Relationship features - factors that describe the nature of the relationship itself

3) Relationship returns- The monetary rewards accruing to the supplier from the

relationship

Measures of relationship success

Relationship facilitator

Relationship features

(LOYALTY)

Relationship returns

Share of customer

Length of relationship Commitment

QualitySatisfaction

Trust

Present income

Customer lifetime value

Cost

Areas of Relationship level monitoring

RELATIONSHIP FACILITATORSatisfaction 1) Customer satisfaction• The measurement of customer satisfaction level is commonly used

to monitor relationship quality (Gummesson, 1999) • Satisfaction however, is relatively short lived and subjective

state, and customer often find it is difficult to make reliable judgments about their satisfaction levels, particularly in retrospect

• Therefore the organization should take a structure approach to measure satisfactions

2) Employee satisfaction • Virtuous circle model claims that the relationship between satisfaction and loyalty works in the same way for

internal or external customer (Reichheld et al. (2000)• Staff satisfaction lead to staff loyalty and retention, lowering training cost and increasing experience,

skills, motivation and productivity• The relationship success of staff and customers also depend whether the employee derive satisfaction from such relationship.

RELATIONSHIP FACILITATORService quality

• Satisfaction arises from a positive judgment of service quality received and cost incurred

• The rationale for quality measurement therefore is that it focuses on the cause of satisfactions rather than result and therefore has greater diagnostic power.

2 mains models exist

a) SERVQUAL• It is a questionnaire designed by Parasuraman, Zeithaml and Bery

(1988)• It is based on 2 principles a) customer’s judgement of service quality are

made by comparing perceptions with expectations

b) The judgements are made on 5 quality dimensions of reliability, assurance, tangibles, empathy and responsiveness • Likert scale is used to gain customer rating• Quality scores are then derived by subtracting expected quality ratings from perceived quality ratings.

b) SERVPERF• Cronin and Taylor (1992) disputes the 2 key principles

underpinning SERVQUAL

Which to use?• SERVPERF may provide a more reliable performance

measure of service quality compare from SERVQUAL since expectations are

poorly defined in customers’ minds and not a reliable benchmark to measure quality• The 5 dimensions of quality also differ form industry to industry

Relationship features: measuring loyalty

• Loyalty is customer’s willingness to continue patronizing a firm over the long term, purchasing and using its goods and services on a repeated and preferably exclusive basis and voluntarily recommending the firm’s products to friends and associates.

• Loyalty has 2 important advantagesa) it measures behavior (conative attitudes)b) it can derived from internal data

Measuring behaviour• satisfaction and perceived quality has not been found to be reliable or

accurate predictor of customer behaviour• They can only provide useful general information on relationship

performance and the diagnosis of problems

Internal records• Loyalty monitoring can be built into sales data means that the customers need not be troubled by request to complete satisfaction or quality surveys

Measures of loyalty• Loyalty can be measured :-

a) Length of relationship - According to the theory of the relationship, the relationship

become more profitable as the relationship lengthens.

b) share of customer - this measures assess the extent to which the customer uses competitor's products along side the supplier

c) Commitment - Suppliers can look for evidence of commitment in the

volume of ongoing business a customer places with the organization and its willingness to invest in the relationship.

Relationship returns: measuring financial performance

• financial measures serve as an indicator of the contribution made by a specific relationship to corporate financial objectives.

• measures of relationship performance different from traditional financial performance indicators in terms of their :

(1) Long term focus

• RM centres on long term gain

• building relationship often requires a significant investment in the early stages, which is then recouped as the relationship matures.

→ care should be taken to assess income and costs of a relationship over

its entire life cycle, rather than at a particular point in time.

(2) Indirect benefits

• increases in income arise from cross selling and referral business.

• costs may be reduced by saving on promotional spending and

the ability to plan and develop products and processes with greater certainty.

→ hard to quantify but should seek to include as many as possible in its financial measures, in order to recognise the financial benefits of RM as fully as possible.

Measuring financial performance• Profitability• Income• Cross purchasing • Referrals• Customer lifetime value• Servicing cost

THE IMPORTANCE OF COMPLAINTS• A customer who complains is offering the service

provider the opportunities to continue the relationship.• Many customers, however, will simply defect after an

unsatisfactory service encounter. Generally, customers dislike complaining as it costs them time, effort and emotional stress.

• In the study of Stewart (1988), the most frequently stated cause of customer exit was the sense of frustration, anger, disappointment or other negative emotion caused by the bank’s failure to respond positively to the complaint.

Principles of service recovery

(1) make it easy to complain

• Procedures and channels should be as clear and as flexible as possible.

• Complaints-handling staff should be trained in the interpersonal skills necessary

to set customers at ease.

(2) establish the grounds for complaint

• Customers will be more willing to complain if they are confident that they will be successful.

• The publication of a simple, comprehensive guarantee, a customer charter or a similar definition of acceptable service levels will provide such confidence.

(3) offer immediate redress where possible

• The more quickly the complaint is resolved, the lower the negative impact on the customer’s attitudes. It is therefore advisable to delegate authority and responsibility for resolving complaints to customer-facing staff, so that problems can be resolved as they arise.

(4) communicate

• All that is needed in order to diffuse customer dissatisfaction is an apology, together with an explanation of why the failure occurred, and the steps that have been/will be taken to ensure that it does not recur.

Complaint analysis and Handling

Encourage feedback

Listen to complaints

Apologise and redress

Record all complaints

Identify common failings

Remedycommon failings

Strategic complaints analysis for continuous improvement

Service recovery for individual relationship maintenance

Figure 7.3

Complaint analysis and Handling

Encourage feedback

Listen to complaints

Apologise and redress

Record all complaints

Identify common failings

Remedycommon failings

Strategic complaints analysis for continuous improvement

Service recovery for individual relationship maintenance

Figure 7.3

facilitate customer retention

To ensure services provided

matching with customer

expectation

Conclusion

• The key value of RM strategies lies in the human elements of service quality.

• Studies of successful relationships stress the importance of personal relationships between individuals.

• As such, soft monitoring and control techniques are more appropriate to a RM strategy.