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How to Have Your Cake and Eat It Too: Cutting Costs While Increasing Service Levels

Like wanting to eat chocolate cake while having just committed to a new diet, increasing your organization’s service levels at the same time as cutting costs will often leave you falling short of both goals.

To improve your service quality and/or your service levels usually requires investing in staff, training, improved technology or infrastructure, or improved processes and capacity. All these activities require investing time and money.

But a recent study has found that can eat that cake and lose weight - you increase service levels while also cutting costs.

It all depends on your staffing model.

What Was Studied

The study focused on service industries. They followed up on previous studies (here and here) that looked at whether it makes more sense to focus on investing in improved service experience for “high-contact” front end services, or to improve the low-contact back office activities.

High-touch, high quality front end services are hard to standardize repeatedly, require intensive high costs resources and are unpredictable and therefore cause difficulty in achieving efficiency (i.e. reducing costs while maintaining or improving services).

Two models were tested to assess whether it makes sense to invest in the front-end service delivery, back office, or both:

  • Separating the front and back end service, to focus on the customer experience for the service delivery side and in efficiency for the back office (thereby having the savings from the back end used to invest in the front end);

  • Integration of front and back offices operations with flexible resources trained in both ends (achieving benefits by shifting staff from one end of the operations to the other depending on where the pressure lies)

What They Found

The study found that integrating front- and back-end operations resulted in a leaner organization with improved service quality:

It achieves both a lower cost and higher service level, over abroad range of employee costs, efficiencies, average-to-maximum demand ratios, and service-level requirements”.

They also found this model works well even if a versatile employee is paid more but is less efficient.

How Can That Be?

Organizational capacity adjusts to demand, reducing staffing costs and allowing concentration on service levels and quality where it is required.

Instead of staffing up both the front and back end of the end-to-end service (thereby increasing costs), you maintain an overall moderate number of staff that you can then freely move to the front or back end of the service pool as demand requires it. When the front-end service demands are high, you can shift the staff to focus on keeping up with the high demands; alternatively, you can shift the staff to deal with the back-office work (including any stockpiled work).

Since it utilizes capacity pooling of activities with different time sensitivities, you can achieve both lower cost for the entire system and shorter waiting times in the front office, compared with an organizational model where you manage front and back end staff separately.

They found that the key design principle is that improving customer service in the front end is more important than maximizing efficiency in the back office.

In addition:

  • Front end operations are more time sensitive than back office operations (perceptions of service quality and customer satisfaction are more sensitive to time at the front end of a service than the back end);

  • The staffing model should be flexible enough to allow staff to move between front and back office operations as demand requires;

  • You need to allow back office operations work to pile up while the staff focus on front-end services. They can then switch back and concentrate on back office work when the front-end service pressures recede.

They found that versatile employees with higher costs and lower efficiency can still result in better cost performance:

“Even with a significant disadvantage of up to 60 percent higher employee cost or 25 percent lower efficiency than dedicated employees, the integrated design stull has a lower cost than a decoupled design”.

It turns out that versatile employee efficiency has a sufficiently positive impact on process performance that it offsets the negative impact of higher costs. Investments in increasing efficiency are likely to lead to improvements in process service levels and in the end customer satisfaction.

With testing they found that this approach works until service demand is 5 times higher than normal.

So, What Does This Mean For You?

This is just a small study of course, but it can work for any service-oriented organization. I am imagining any broader public-sector organization with an intense front-end service need such as child and youth mental health services, community health centers or community support services.

Some ideas on what this could mean for your organization:

  • When looking to improve your services or create efficiencies, don’t just focus on process models or costs of services. This study underscores the importance of linking staffing to the operational model.

  • The staffing model should allow staff to support both front-end and back-end services. They didn’t get into specifics, but the model they tested had staff focus primarily on one area but were able to help the other area when needed.

  • The flexible approach to where staff work in the service continuum will impact training

  • This approach will likely impact hiring too – ensuring you hire someone who is comfortable with either position, is flexible, etc.

  • This approach also requires a process and operational model that is not fixed, but rather is flexible and supports a versatile workforce and resources

And in the end, if you can invest in only one area to seek operational improvements, Invest in front end process performance!

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