Services Operations and Quality Management - RM PDF

Unit 1: Nature of Service
Nature of Service
Table of Contents
1. Introduction to Customer Service ................................................................................................... 6
1.1 Customer Service in Banks ...................................................................................................... 6
1.1.1 Telephone Banking/Call Centre ...................................................................................... 7
1.1.2 Mobile Banking ............................................................................................................... 7
1.1.3 Internet Banking.............................................................................................................. 8
1.1.4 Branch Transactions ........................................................................................................ 9
1.1.5 ATM/CDM ....................................................................................................................... 9
1.2 Evolution of Customer Service .............................................................................................. 10
2. Characteristics of Service Operations ........................................................................................... 13
3. Types of Customer Service ............................................................................................................ 15
3.1 Self-service Knowledge Base ................................................................................................. 15
3.2 Social Media Support ............................................................................................................ 16
3.3 Live Chat Support .................................................................................................................. 17
3.4 Email Support ........................................................................................................................ 18
3.5 IVR and Call Support ............................................................................................................. 18
4. Role of a Service Manager ............................................................................................................ 19
4.1 Hiring and Training ................................................................................................................ 19
4.2 Maintaining Customer Relationships .................................................................................... 20
4.3 Ensuring Adherence .............................................................................................................. 21
4.4 Setting Goals ......................................................................................................................... 22
4.5 Assessing Feedbacks ............................................................................................................. 22
5. Measuring Productivity ................................................................................................................. 23
5.1 Turnaround Time (TAT) ......................................................................................................... 24
5.2 Service Level Agreement (SLA) Adherence ........................................................................... 24
5.3 Total Productivity (TP) Method............................................................................................. 25
6. Assessment of Manpower Requirements ..................................................................................... 26
6.1 Retirement/Transfers............................................................................................................ 26
6.2 Expansion .............................................................................................................................. 27
6.3 New Services and Functions ................................................................................................. 28
6.4 Mergers, Acquisitions and Take-overs .................................................................................. 29
6.5 Technological Interventions:................................................................................................. 29
7. Customer Relationship Management (CRM) in Banks .................................................................. 29
7.1 Phases of CRM ...................................................................................................................... 31
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Nature of Service
7.2 Importance of CRM in Banking Sector .................................................................................. 32

7.3 Customer Relationship Ladder .............................................................................................. 33
8. Service Blueprint ........................................................................................................................... 35
9. Customer Service Policy ................................................................................................................ 36
9.1 Components of Customer Service Policy .............................................................................. 37
9.1.1 The Policy Statement .................................................................................................... 38
9.1.2 Organisational Values ................................................................................................... 39
9.1.3 Code of Bank’s Commitment to Customers .................................................................. 39
10. Summary ....................................................................................................................................... 42
11. References .................................................................................................................................... 43
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Unit Description
Today, customer service is one of the most important Unique Selling Propositions (USPs) of
companies. The concept of customer service has evolved over the years to match the needs
and preferences of customers. Good customer service is a norm and this holds good for all
the sectors, including banking and financial services. Every year, bank brands strive to achieve
a good customer satisfaction score and feature in the list of the most trusted brands.
Rising competition and consumption levels have made it extremely tough for companies to
attain long-term market differentiation and improve customer retention. Nowadays, more
number of consumers demand excellent service and assign value to companies based on the
quality of their interactions and services. As a result, customer service has now emerged as a
critical factor in gaining and maintaining long-term competitive advantage.
These quantum shifts in consumer behaviour have created a need for change in the way
companies approach, care and respond to their customers. Companies can no longer afford
to ignore customers or neglect their demands. Those that choose to do so will find
themselves lagging behind quick-reacting competitors. In short, the company that provides
the most satisfying customer experience across all access points succeeds.
When we talk about customer service, we tend to think it as a very simple issue of customer
satisfaction. However, it’s a very complex issue because customers of banks come from all
walks of life and have varied tastes and preferences. Servicing the requests of all customers
in a timely and efficient manner, consistently remains a challenge for banks and bankers.
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Learning Objectives
At the end of this unit, you will be able to:
• Define customer service.

• Explain the importance of customer service.
• Explain the characteristics of service operations.
• Outline different types of customer service.
• Summarise the role of a service manager.
• Explain the methods of measuring productivity in service operations.
• Interpret the manpower requirements in banks.
• Explain customer relationship management in banks.
• List the components of a service blueprint.
• Explain service policy.
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1. Introduction to Customer Service
“"You are what you do, not what you say you'll do."
Carl Jung
Customer service is the act of taking care of the customers’ needs by providing and delivering
professional, helpful, high-quality service and assisting customers before, during and after
the required service. Customer service is not a one-time activity, but an ongoing series of
activities to fulfil the needs and requirements of then customers in a satisfactory manner.
The Institute of Customer Service defines customer service as, “the sum total of what an
organisation does to meet customer expectations and produce customer satisfaction.”
The vision, values, mission and credo of a company don’t mean much, unless they are
practiced by the employees of the organisation in letter and spirit. The same is true for
customer service. Many a time, the largest of banks fail to deliver good customer service.
They have a lot to say about their customer service standards, but they don’t inculcate these
standards into the customer service practices. This gap can lead to a great deal of
dissatisfaction for the customers.
Most companies take several constructive measures to implement good customer service
practices and regularly audit the customer service levels to understand the perception of
their customers.
1.1 Customer Service in Banks
As managers in the domain of banking and financial services, it’s essential for us to
understand the different customer service channels in this domain. Each of these channels is
an opportunity for us to deliver great customer service. There are several channels of
engagement for banks and each channel needs to be analysed from a customer service
perspective. Let us understand some important service delivery channels in the banking
domain.
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1.1.1 Telephone Banking/Call Centre

Customer service representatives or telephone banking executives maybe the initial point of
contact for customer enquiries. They try to:
• Solve problems.
• Direct calls to specialists within the banking organisation for specific type of queries.
Fig. 1.1: Call Centre Representative/Telephone Banking Executive
Call centre representatives or telephone banking executives must possess the following skills:
• Good communication
• Good listening and
• Problem-solving abilities
Customers in this case expect their issues to be resolved without the need to visit the branch.
1.1.2 Mobile Banking

This channel is typically used to carry out banking transactions conveniently and the
customers want to experience, ‘Anytime, Anywhere and Anything’ in terms of banking
transactions. The interface, ease of use and speed are some of the factors that are critical in
terms of providing good customer service.
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Fig. 1.2: Mobile Banking
The number of customers using mobile banking has been rising exponentially in India over
the last few years, owing to:
• The emphasis on digital transactions and

• Better access to high speed data
Banking and financial services companies invest a great deal of time and effort in enhancing
their mobile applications to achieve high number of app downloads and positive reviews.
They also try and increase the app features to reduce foot-falls and decrease costs.
1.1.3 Internet Banking

This channel is equally important and many customers actively use internet banking for their
transactions. Similar to mobile banking, there is a great deal of importance for User Interface
(UI) and the ease of carrying out transactions online in an effective manner.
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Fig. 1.3: Internet Banking
1.1.4 Branch Transactions

Though the advent of internet banking and mobile banking have reduced the number of foot-
falls in bank branches, there are several customers who prefer to carry out their transactions
in the branch. Further, there are certain types of transactions which require the customer to
visit the branch. Hence the role of the branch staff in providing good customer service is critical.
Fig. 1.4: Banking Operations at the Branch
1.1.5 ATM/CDM
Automated Teller Machine (ATM) and Cash Deposit Machine (CDM) are also channels of
customer service delivery. Customers frequently use these channels for cash withdrawal and
cash deposit. Failure of these services can be damaging and banks need to take due care to
ensure good customer service.
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Fig. 1.5: Banking Operations through ATM and CDM
1.2 Evolution of Customer Service
To understand customer service and its relevance in today’s world, we must understand how
it evolved and how it became an integral part of any business.
This evolution is all about the social customer, but in many ways, it was caused by the shift in
the companies’ perspective of looking at customer service as a cost centre rather than
relationship centre. The following table provides an introduction to various developmental
stages of customer service:
Era Description
Customer Service 1.0 - The One-on-One Era This is the era of origin of customer service.
The emphasis was on personal interactions
and relationships.
Customer Service 2.0 - Expanding the Reach “Mail” completely changed the relationship
between the business and the customer.
The only disadvantage in this era was the
speed of service.
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Customer Service 2.5 - Era of Telephone With the invention of telephone, customer
service gained the necessary momentum.
This truly was the golden age of service.
Companies now had the ability to help
customers anywhere, at any time.
Customer Service 3.0 - Efficiency Era of This era began with a point of interaction –
Service Interactive Voice Response (IVR). This
technology automates interactions with
telephone callers. Enterprises are
increasingly turning to IVR to reduce the
cost of common sales, service, collections,
inquiry and support calls to and from their
company.
Customer Service 3 - Era of Email The next advancement in this era was
email, a great easy way to assist customers
and offer support. When email was
introduced, many companies were resistant
due to fear of scalability and legal fears of
having interactions in writing.
Customer Service 3.5 - Era of Web Self- The biggest leap in efficiency was the
Service implementation of web self-service. For
many businesses, allowing customers to do
their work themselves was a great way to
reduce calls.
Customer Service 3.7 and 3.8 - Era of Chat Starting from late 1990s, there was a huge
increase in outsourcing and implementation
of chat. Chat was helpful because of its
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quick mode of interaction and low cost. It is

easy for an agent to handle more than one
chat session at the same time. Outsourcing
became popular because companies had a
deep view that customer service is a cost
centre and in many cases they could offer
the same level of support through
outsourcing for less money.
Customer Service 4.0 - Customer Strikes This era began with the extensive use of
Back social web (World-wide Web) by customers
to communicate their thoughts.
The internal workforce demanded
improvements such as aiding tools to create
the right experience.
This led to development of various tools like
Sales Force Automation (SFA) to support
sales persons, toll-free numbers, call
centres, after sales support (help desk),
tele-selling, telemarketing and
informational sites. This was followed by
the integration of SFA, call centre, web, etc.,
into Customer Relationship Management
(CRM) suites. Intelligence offered through
these tools was aimed at enabling the
customer to have a good experience in the
same manner as it would be, if they were to
call a company for service. Examples of
CRM tools are:
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• Speech analytics from call

recordings that convert calls to
searchable text (Example: Impact
360 from Verint)
• Social media bring in customer
discussions
• Direct from the web to the top
executives (Example: Radian 6)
It is true that customers prefer fewer
interactions with companies. But in case of
assistance, customers want it to be more
personal and less scripted. Crowdsourcing is
a way, which is available to customers to
build knowledge, and help when products
and services cross between companies.
Table 1.1: Evolutionary Stages of Customer Service
The banking industry in India during the early stages was heavily regulated and the focus was
on expansion and reach. Liberalisation paved the way for private players to participate in the
industry and this led to a paradigm shift in the customer service perspective.
The new generation banks implemented innovative forms of banking like ATMs, mobile
banking, phone banking, internet banking and debit/credit cards. The private banks
constantly improved services in order to retain customers and win over competition that had
become a feature of the Indian banking industry. They have been effective in harnessing
technological and human resources to put in place an effective customer service system.
2. Characteristics of Service Operations

According to James Fitzsimmons, “A service is a time-perishable, intangible experience
performed for a customer acting in the role of a co-producer.” Service operations refers to
the series of activities involved in service delivery, as detailed in the Standard Operating
Procedure (SOP). Service operations is a complex activity since it involves multiple
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stakeholders (customers, service provider, time, vendors, etc). These stakeholders are
dependent on each other to ensure the success of the service delivery. The service
operations and related activities are handled by service operations manager. Typically,
branches have Branch Operations Manager (BOM), who reports to the Branch Manager (BM).
The role of a Service Operations Manager (SOM) is very critical and includes a great deal of
detailing. Service operations management needs to ensure:
• Timely delivery of service

• Efficient delivery of service
• Service delivery in line with the SOP
• Standardised delivery of services
Proper management of service delivery maybe challenging in many cases because services
are complex in nature and service delivery has several factors that are dependent on each
other. In this context we will have to understand the different characteristics of services.
They are:
Customer Participation: The customer acts a co-producer of the service and is an integral part
of the service delivery. There is a great need to show high concern for customers, good
design of the service location and empathetic behaviour by the employees.
Simultaneous Consumption: There is simultaneous production and consumption of the

service i.e. both the elements of service, production and consumption happen in parallel. For
example, a customer avails transfer of cash to another account while the teller processes the
transaction.
Perishability: The services are perishable and cannot be stored. The act of service delivery is
something that only lasts for the defined duration of the service delivery. For instance, the
customer may call the helpline to know a particular process and the tele-caller or phone-
banking executive may explain the process in a minute or two. This transaction/service
delivery is perishable.
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Intangibility: Services are intangible by nature and cannot be seen or touched. However,
customers perceive different things about the service delivery and carry these impressions
even after the actual service delivery is over.
Heterogeneity: The delivery of services differs for each customer, even if the service provider
is the same. The same customer could have a different experience every time he avails the
same service from the same service provider.
When compared to the manufacturing sector, these characteristics present higher

uncertainty in the service operating system and process with lesser options for managing
uncertainty. These characteristics create an operational focus on managing the customer
experience throughout the service delivery process.
3. Types of Customer Service

Customer service channels and offerings are classified based on the type of interactions
carried out. We have read about banking specific customer service channels in 1.1 Customer
Service in Banks. In this part we will discuss the types of customer service, as applicable to all
the service sector organisations. Typically, the different types of customer service are as
follows:
1. Self-service Knowledge Base

2. Social Media Support
3. Live Chat Support
4. Email Support
5. IVR and Call Support
Before the start of service delivery process, both parties go through a preparation phase
which we will discuss later. All the phases of the negotiations are important.
3.1 Self-service Knowledge Base
Several customers like to solve their product/service-related issues on their own. Some of the
preferences and characteristics of such customers are:
• They prefer to carry out some basic research and arrive at solutions.
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• They expect easy access to all information and processes relating to the
product/service.
• They prefer referring FAQ’s, instruction manual, reference guides, video guides and
flow charts instead of calling the customer care number. For instance, they would like
to invest online by referring to an online pdf/brochure/video rather than calling the
phone-banking number or visiting the branch.
Fig. 1.6: Online Investigations

However, a knowledge base of this sort may not always have updated information and may
not be comprehensive in many cases.
3.2 Social Media Support
Until recently, most companies did not provide any form of social media support to their
customers. However, based on the demand and changing customer behaviour, most
companies including banks and financial institutions are now offering extensive social media
support. Organisations have dedicated teams and social media managers who manage pages
on Facebook, Twitter, Instagram, etc. Further, several companies interact with their
customers on WhatsApp and solve queries/offer support on this channel.
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Fig. 1.7: Social Media Interactions

The reach of the companies increases substantially due to the number or people who access
information and interact with brands on social media. Companies also have dedicated apps for
different products and services and encourage customers to install and use these apps.
Customers routinely ask questions, leave comments and reviews on social media pages,
thereby leaving a huge impact on other existing/prospective customers.
3.3 Live Chat Support
Live chat is a very good alternative for many customers who wish to chat/text to get their
issues resolved, but don’t necessarily prefer to use the phone or email services. Based on the
operational hours, a customer can get live support, often while he/she in the middle of
purchasing or evaluating or buying a product/service.
Fig. 1.8: Live Chat

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Electronic Virtual Assistant Chatbot (EVA Chatbot) by HDFC is a good example for live chat
support. However, in some cases, the live chat support option may not properly comprehend
the requirements of the customer and may not offer adequate solutions.
3.4 Email Support
Many customers are busy and don’t like to use options like live chat support/call centre
support. However, they may find email to be a better alternative, since it’s a fast and easy-to-
use way to get queries resolved. Emails allow customer support team include links to
websites and attach files that provide specific information that customers are searching for.
However, customers expect a proper response time and most emails need to be answered
within 24 hours of receipt. In case of banking and financial services, the service Turnaround
Time (TAT) may have to be lesser for critical service requests like cancellation of cheques,
availing overdraft facilities, etc.
Fig. 1.9: Email Support for Banking
3.5 IVR and Call Support
Interactive Voice Response (IVR) system refers to an automated telephony system that
interacts with callers, gathers information and routes calls to the appropriate recipients. The
intention in this case is to reduce dependency on call centres and offer quick solutions to
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routine issues. Call support (phone banking) on the other hand, is a traditional channel of
customer service and several customers prefer using this channel to resolve their queries.
However, call centre is a costly proposition for the company and involves huge costs. Hence,
most companies try to reduce the dependency on call centre and try to enhance the usage of
other channels.
Fig. 1.10: IVR
4. Role of a Service Manager

Service managers have a very daunting task of fulfilling the customer service expectations.
This role involves:
• Ensuring staff members’ awareness of their duties and responsibilities towards

customers.
• Overseeing customer service functions.
• Intervening wherever necessary, thereby preventing lapses or escalations.
Let us further understand various roles of the service manager.
4.1 Hiring and Training
This is one of the primary responsibilities of the service manager. He/she should be able to
recruit, select and train the customer service team, which can manage the customer service
requirements of the organisation. Training the customer service team is critical and must
match the industry standards and necessities. The service manager should also integrate
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customer feedback, customer satisfaction scores and Net Promoter Score (NPS) in the
training initiatives, after analysing the gaps in the customer service.
Fig. 1.11: Recruiting and Training the Staff
4.2 Maintaining Customer Relationships
Another important mandate for service managers is to build and maintain long term
relationships with their customers. They need to take new initiatives to establish and
maintain meaningful customer relationships that can help in increasing Customer Lifetime
Value (CLV) and Net Present Value (NPV). Customer relationships need to be nurtured, to
have a long-term mutual benefit equation with the customers. This leads to a boost in the
profit and revenues of the company.
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Fig. 1.12: Maintaining Customer Relationship
4.3 Ensuring Adherence
One of the key responsibilities of the service manager is to ensure strict adherence to Service
Level Agreements (SLA’s) and SOPs. Non-adherence to SLA’s and SOPs may lead to customer
dissatisfaction and negative reviews. Sometime non-adherence may also add to the liability in
the form of penalties. The service manager must regularly audit SLA and SOP aspects to ensure
high-level customer satisfaction and repeat purchase of products/services. The listed aspects
should act as the roadmap for the customer service team.
Fig. 1.13: Compliance to Standards
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4.4 Setting Goals
Goal setting for the customer service team is another important aspect and the service
managers are expected to set SMART goals, which are:
• Specific
• Measurable
• Achievable
• Realistic
• Time-bound
These goals should be communicated effectively to the customer service staff to enable
proper goal achievement. The manner in which the goals are set and communicated to team
members, determines how they translate these goals to meaningful practices on the floor.
Truly empowered service staff can be change agents and convert the customers to loyalists
and ambassadors over a period of time.
Fig. 1.14: Smart Goals
4.5 Assessing Feedback
Something which is extremely important for any business and is not different in banking and
financial services is to know the Voice of the Customer (VOC):
• How the customers feel about your customer service

• What do they think of you as a customer service brand
• What are their expectations
• What are their concerns
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This can be a major differentiator because most companies fail to adequately assess, analyse
and measure the VOC.
Fig. 1.15: Assessing Customer Feedback
5. Measuring Productivity
There are several methods of measuring productivity in service operations. Productivity
measures the efficiency and effectiveness with which resources are used in economic
activity. Whereas, in service operations, the best manner to measure productivity is a matter
of discussion and deliberation amongst academic circles. Most of these methods are based
on the time and motion studies (staff members’ tasks and time spent) and the related
concepts. These methods measure the ratio of output to input and try to measure
productivity. Productivity measurement includes:
• Assessing the completed task

• Estimating the time taken
• Analysing the efficiency component of the task
However, methods of measuring productivity in service operations is subjective and differs

based on the sector functions. The tools used for measurement of productivity in banking
service operations are very different from the tools used in the airlines segment. Ultimately, a
happy and satisfied customer is a true indicator of the efficiency of your processes and
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productivity in service operations. The input factor in measuring the productivity in service
operations is heterogeneous by nature. For instance, the skill level in some banking functions
like invest advisory services is extremely heterogeneous. For service mangers in banking, it
might be important to measure output as an immediate indicator in many cases. Some
important methods of measuring output/productivity in service operations are as follows:
1) TAT
2) SLA
3) Total Productivity (TP)
5.1 Turnaround Time (TAT)
TAT is a method of measuring the ‘time’ component in the service delivery, which is a
measurement of one of the important output related factors i.e. the factor which determines
completion of the service or service component. TAT is a very important measure in the
banking industry and most banks have a well-defined TAT for most processes and expect
adherence in the purview of task achievement. Customers are also made aware of the TAT
for processes and they could escalate an issue if the TAT for some process is not met. Hence,
bankers try to ensure that they complete all tasks like issue of demand drafts or debit cards,
processing of loan applications, etc., within the stipulated TAT.
5.2 Service Level Agreement (SLA) Adherence
SLA is a contract between a service provider and its internal or external customers that
clearly defines:
• the complete service

• the conditions to be provided
• the minimum standards that must be met during the service delivery process
Companies require SLAs to:
• Manage the expectations of the customers/clients.

• Outline the conditions under which they are not liable for deviations or performance
lapses.
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The primary advantage for the customer is that SLAs describe the performance
characteristics of the service and act as a performance guarantee on behalf of the service
provider. Further customers also have the advantage of comparing the SLAs of different
service providers and choose the best ones.
For a service provider, the SLA is usually one of the two foundational agreements with
customers. Several service providers maintain a master services agreement to establish the
general terms and conditions for customers. The SLA is often incorporated by reference into
the master services agreement. Between the two service contracts, the SLA adds greater
specificity regarding the services provided and the metrics to be used in measuring
performance.
5.3 Total Productivity (TP) Method
This method is a comprehensive method of considering the different inputs and outputs.
Kendrick (1985) stated that the broadest measure is called Total Productivity (TP) or the Total
Output (TO) - Total Input (TI) ratio:
TP = TO/TI = TO/L+K+M
The total inputs of production factor (F) are:
• Labour (L)
• Capital (K) that includes natural resources as well as structures, equipment and
inventories
• Intermediate products (M) that include materials, components, supplies, energy, and
services purchased from other producers
Total productivity can be written as the weighted average of the partial productivity of L, K
and M. Total productivity measurement is particularly useful at the company or plant. This is
because the management is concerned about saving on all cost elements and TP enables
direct analysis of the savings achieved.
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6. Assessment of Manpower Requirements

The assessment of manpower requirements for customer service is detrimental in enabling
good customer service in banks. Since there are a number of customer-facing roles, the
quality and quantity of manpower is important. Any lack of manpower can lead to
dissatisfaction and thereby customer attrition. However, excessive manpower deployment
can lead to decrease in profitability, as there is an increase in the costs. Therefore, optimal
manpower deployment is needed. Manpower planning in banks is done based on the
following factors:
• Retirement/Transfers
• Expansion - New branches
• New services and functions
• Mergers, acquisitions and take-overs
• Technological interventions
6.1 Retirement/Transfers
Every year many employees retire or get transferred in banks. Transfers can be routine or
need-based. In all such cases, the HR department needs to plan for replacements and
maintain a proper inventory. There cannot be a lag in this process, especially in the case of
customer-facing roles. Customer service is a function, which requires a great deal of human
intervention. The ‘human touch’ can be critical in the case of customer service. There may be
several positions which need succession planning. Some of these positions may be highly
critical and need to be filled within a minimum time possible. For example, roles such as BOM
at the branch level and the Head of Customer Services are very critical and require due
attention.
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Fig. 1.16: Replacing Staff
6.2 Expansion
There is high level of competition among banks to expand the reach and the range of
services. Hence, banks constantly try to expand their reach by introducing new branches. As a
result of this kind of expansion, there is a need for proper manpower assessment. Since new
business demands lots of manpower, customer service officers and managers may be hired in
large numbers. Sometimes existing branches may require more staff members owing to
increased business requirement. These manpower needs have to be assessed periodically to
recruit, select and train people in the available time-frame.
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Fig. 1.17: Need for Manpower during Expansion
6.3 New Services and Functions
Whenever the bank introduces some new function/service there may be an additional
requirement of staff members. Many banks in the past needed additional staff members
when third-party products were introduced. An emphasis by the banks on digital banking has
led to a spike in the number of digital banking professionals in the past few years.
Fig. 1.18: Digital Banking
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6.4 Mergers, Acquisitions and Take-overs
In the recent years, India has witnessed several mergers, amalgamations, acquisitions and
take-overs in the banking industry. These scenarios could also lead to increased manpower
requirement. However, the situation may also be the opposite in some cases. Post
restructuring, there may be excess resources. In such cases, banks may have to strategically
deploy excess resources. The customer service aspect must not/cannot be neglected or
disregarded in any situation. Huge customer base may translate to difficulty in servicing the
customer and this is common among banks having thousands of branches.
Fig. 1.19: Merger of Banks
6.5 Technological Interventions:
The advent of new technological interventions has led to a drastic change with regards to
customer engagement and customer service. Apps, ATMs, CDMs, self-service kiosks and
smart banking options have led to a situation where the dependency on customer service is
lesser. Hence, technological interventions are an important factor that affects the manpower
assessment and planning process.
7. Customer Relationship Management (CRM) in Banks

“The use of CRM in banking has gained importance with the aggressive strategies for
customer acquisition and retention being employed by banks in today’s competitive milieu.
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This has resulted in the adoption of various CRM initiatives by the banks to enable them to
achieve their objectives. “
Definition
The total integrated activity which aims to satisfy, serve and create a mutually beneficial
relation with the customer is CRM.
Fig. 1.20: Customer Retention
CRM basically means working with the customers, so that they are provided with better
service and are motivated to return repeatedly to do more business with the company. Apart
from this, CRM can be understood from the following perspectives:
• CRM is an integrated information system, specific software and a business strategy

built around the concept of customer centricity.
• CRM helps the company to plan, schedule, control, and measure customer
satisfaction during presales and post sales.
• CRM includes all the entities dealing with customers such as call centre, sales force,
marketing, technical support and services offered through phone, fax, mail and email
and aims to get a better understanding of customers, based on their purchasing
patterns and demographics with an objective of enhancing all the customer
touchpoints.
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• CRM can also be considered a business strategy that applies to every organisation and
goes beyond increasing the transaction volume.
The main objective of CRM is to increase profitability, revenue and customer satisfaction. To
establish CRM, company-wide tools, technologies and procedures need to be set in place.
Thus, CRM is a strategic business and process feature rather than a technical feature.
7.1 Phases of CRM
CRM involves three phases which support the relationship between the bank (business) and
its customers. The tree phases are:
Acquire Enhance Retain
Fig. 1.21: Three Phases of CRM
Acquire: A CRM initiative helps the business to acquire new customers through contact
management, direct marketing and selling.
Enhance: A web-enabled CRM combined with the customer service tools help offer a one-
stop shopping experience and an excellent customer service with the help of trained sales
and service specialists.
Retain: CRM software and database enable businesses to identify and acknowledge its loyal
customers and ensure customer retention.
31
Nature of Service
7.2 Importance of CRM in Banking Sector
CRM enables interaction with the customers (current and potential) across multiple customer
touchpoints such as face-to-face (bank branch), telephonic (call centre) and remote
operation (ATM).
CRM helps banks in the following ways:
Campaign Management: To be successful, banks need to identify customers and customise

products and services to meet their individual needs. By analysing and using data from bank’s
internal applications, the campaign management feature of CRM helps to:
• Evaluate the customer profitability

• Design customer profiles based on individual life style preferences, income and other
such customer-centric criteria
Based on these profiles, bank can identify the most profitable segments, organise multi-
channel campaigns for the target segments and enhance the life-time value.
Customer Information Consolidation: CRM helps store customer information in a customer-

centric manner (covering all the products of the bank) rather than product-centric (separate
databases for savings accounts or credit cards). CRM provides a 3600 view to the company.
Irrespective of whom the customer contacts, may be the sales, marketing, support service or
any other department, all these departments are aware of the customer’s history of
interaction with the bank. This removes data inconsistency and makes the interaction
efficient.
Personalised Sales Home Page: CRM provides one-point information regarding opportunities,
accounts and expenses to the sales manager and agents. This make sales decision faster and
quicker.
Activity Management: CRM helps to assign and track activities of all the members involved in
customer service. This enables transparency and builds efficiency.
Operational Inefficiency Removal: CRM supports all channels of customer interaction such as
telephone, fax, email, online portals, ATMs, and face-to-face with banking personnel. It helps
32
Nature of Service
to link the customer touchpoints with the operation centre, which in turn is linked to the
internal process of bank.
Enhanced Productivity: CRM enables the customer service agents to do their jobs better by
focusing on the customers. By using CRM, the service agents could drive collaboration,
improve productivity and reduce training cost.
CRM with Business Intelligence: Banks should always analyse and update themselves with the
performance of customer relationship and uncover the hidden aspects of customer
behaviour. CRM with business intelligence allows the banks to:
• Assess customer segments

• Calculate the NPV of customer segment over a period
• Derive the life-time value of customers
With this data, the bank can allocate their resources to the most profitable segments.
7.3 Customer Relationship Ladder
CRM helps to build customer relationships over time and concentrate on the most profitable
customers. Organisations adopting a CRM approach consider the relationship with a
customer as a 5-stepped ladder. The service provider’s aim is to ensure that the customer
goes through these steps and reach the advocate’s stage where he/she actively provides a
positive word-of-mouth for the products and services.
33
Nature of Service
Advocates
Clients
Customers
Prospect
Suspect
Fig. 1.22: 5-stepped Ladder
Suspect: A suspect is someone who comes across your company’s promotion. They are
potential customers for your company.
Prospect: If the person is interested in your promotion, they become a potential prospect.
Customers: A customer is someone who purchases either your product or service.
Clients: Clients are those who come back to you.
Advocates: Promote your business on your behalf. They are so happy about your
product/service that they spread a positive word-of-mouth.
From the ladder, it is clear that a company’s systems in place must help to retain customers
to the extent that the customer starts to advocate the product/service. It makes sense for
the company on spending money to retain customers and ensure customer satisfaction by
providing expected service, so that they become advocates and bring in new business.
34
Nature of Service
8. Service Blueprint
Service design is a domain that specialises in the design and development of different service
elements needed to satisfy the customers. Considering the range of services available today,
it’s challenging to create tools commonly applicable to all sectors. However, “Service
blueprint is an important tool in service operations and it visually maps/explains a service, the
components and the flow of events in the service delivery.” It clearly defines the service
delivery process from the viewpoint of the end user. This technique was first described by G.
Lynn Shostack, a bank executive, in the Harvard Business Review in 1984. However, many
management thinkers like Kingman Brundage (1988) and Polaine et al. (2013) have
contributed to the evolution of the service blueprint over the last few years.
In other words, a service blueprint:
• Acts as a service requirement for the final service outcome.

• Serves as a utility tool for managing all the service operations.
• Provides comprehensive and visual description.
• Places customers at the core.
• Acts as a reference process map for service components.
What are the uses of a service blueprint?
• Enables clear understanding of the service components.

• Helps in analysis of service-related issues
• Builds accountability for different service touchpoints.
• Defines the flow of the service process.
• Useful is process improvement or process enhancements.
• Useful reference to carry out service audits.
• Improves service quality and efficiency.
Who should use the service blueprint?
• Process Owners
• Service Managers
• Process Executives
35
Nature of Service
• Audit Teams
• Head of Operations
The following diagram explains a service blueprint in banks, specific to lending operations:
Fig. 1.23: Service Blueprint Sample
Source: https://www.slideshare.net/prakashsurya758/bank-blue-print
The service blueprint can be customised for different processes and can be recreated after a
review. For example, phone banking process can have a customised service blueprint, which
maps all the service touchpoints in the process. As a banker, you could create a service
blueprint for the process that you are a part. Whenever new elements are added to the
process for improvement or design, the service blueprint has to be recreated. The service
blueprint is a critical input for new product/service development, business heads, product
managers, designers and operations teams.
9. Customer Service Policy

A customer service policy can be defined as:
36
Nature of Service
A set of rules and laws or a minimum set of standards that a business would like the
employees to adhere to when it comes to servicing the customers.
A customer service policy is a written code of conduct for employees to utilise for serving
customers. It could include how to respond to questions or deal with disgruntled customers
who want refunds. A policy can be short or it can be detailed in more than a page. The policy
may state what is expected in a situation or appropriate steps of action in a situation.
Typically, managers determine the policy and include it within the employee handbook.
Banks establish policies based on operation manuals, which are drafted by combining
Reserve Bank regulations and each bank's own set of operating principles. Policies are
designed to protect consumer assets, while establishing methods for efficient and positive
customer service.
A bank’s business policy normally defines the extent or field within which decisions can be
taken by its subordinates. It permits the lower-level management to deal with the problems
and issues without consulting top-level management every time.
The Banking Codes and Standards Board of India (BCSBI) (independent and autonomous
body) has developed a code that can be followed by all banks as a minimum standard for
fairness and transparency in the day-to-day functioning of the bank. Banks as such may
develop further policies and standards, which they would like to adhere to showcase their
vision or commitment towards customer service and satisfaction.
9.1 Components of Customer Service Policy
A policy developed by the bank should ideally aim at minimising customer complaints and
grievances through efficient service and review mechanism. This will ensure prompt redressal
of grievances. Such review mechanisms should also aim at identifying possible shortcomings in
the process methodology and service delivery.
The Customer Service Policy Components

1. Policy statement
37
Nature of Service
2. Goal/purpose of the policy

3. Organisational values that promote the policy
4. Key commitments
5. Scope of policy – The services guided by this policy include, after-hours service, returning
phone calls, emails, etc.; bank’s policy for grievance redressal/complaint handling, cheque
collection, compensation, collection of dues, collection of deposits and privacy.
6. Code of practice for application of policy
7. Strategies for policy implementation
8. Policy review
Table 1.2: Components of Customer Service Policy
9.1.1 The Policy Statement

This statement gives a broad view of the respective bank’s perspective of customer service. It
brings out the essence of the complete customer service policy.
Let’s look at a few examples.
Example 1: Bank A is committed to delivering excellent customer service. The customer care
policy of the bank sets out the following:
1. What commitment actually means in practice?

2. What can customers expect and what the bank expects from customers?
Example 2: The staff and board of directors of Bank B pledge to offer their current and future
customers the highest quality service and provide a level of customer care, which will at the
very least, meet their expectation. Their policy to serve is as follows: “Our commitment is to,
at all times, act in the best interest of our customers and continually improve our standards
of quality in every aspect of our service. We strive to deliver highest quality services in ways
that fully meet customer needs. To do this, we must ensure that our standards of customer
care are shaped and designed with their involvement.”
Example 3: Bank C’s service philosophy is to provide the highest quality customer service at
all times.
38
Nature of Service
9.1.2 Organisational Values

It is always important to inculcate and reiterate the values of the bank. This can be
accomplished with an emphasis on employees adopting attitudes and behaviour that will
translate visions into a reality.
Examples of Organisational Values:
• Integrity
• Punctuality
• Accuracy
• Transparency
• Truthfulness
• Discipline
• Respect
• Smartness
• Loyalty
• Trustworthy
• Customer-centric
• Friendly
• Technologically driven
• World class
• Modern
• Customer first
• Fair corporate governance
9.1.3 Code of Bank’s Commitment to Customers

This section provides a voluntary code, which sets minimum standards of banking practices
for banks to follow when they are dealing with individual customers. It provides protection to
the customers and explains how banks are expected to deal with the customers in day-to-day
operations.
In the code, “you” denotes the customer and “we”, the bank the customer deals with.
The code applies to:
39
Nature of Service
• Current, savings and all other deposit accounts
• Pension, PPF accounts etc. operated as agents of RBI/Government
• Collection and remittance services offered by the bank
• Loans and overdrafts
• Foreign exchange services
• Card products
• Third-party products offered through our network
A Simple Format of Code of Practice
The following points cover some important practices that should be inculcated by the
customer service staff towards successful implementation of a customer service policy:
• Welcome a customer with a smile.
• Put the needs of the customer first.
• Treat a customer with courtesy, consideration and respect.
• Listen and respond appropriately to every customer.
• Have qualified and supportive staff to deal with every customer directly.
• Deal with all customer issues with efficiency, fairness and integrity.
• Provide customers with relevant written information wherever suitable.
• Be as reliable, honest, friendly as customers would like us to be.
• We must ensure that the product we give our customer is of good quality.
• Be cautious when handling customers.
• Never quarrel with a customer, never abuse a customer - even when he/she is
abusive and arrogant.
• Know that the customer is always right, even when he is wrong.
• Never engage a customer in a defensive argument.
• Always serve a customer with a smile.
40
Nature of Service
• Aim at winning and retaining a customer.
• All staff must be smart – clean uniform and protective clothes must be provided and
always carry identification.
• Serve customers effectively, just in time and avoid long procedures in handling
customers’ complaints.
• Be knowledgeable staff where they are to be exposed to customers.
• Be patient when handling a customer.
• Never be arrogant to customers.
• Be responsive to customer demands.
• Be unique in the eyes of a customer.
• Increase customer knowledge.
• Listen to the customer.
• Always answer customer queries whether verbal or written.
• Be available to customers.
• Always offer help to a customer.
• Always know that “Customer” is King and the reason for your existence.
Fig. 1.24: Serving the Customer
41
Nature of Service
10. Summary
• Customer service is the act of taking care of the customer's needs by providing and
delivering professional, helpful, high-quality service and assisting customers before,
during, and after the required service.
• There are several service delivery channels in a banking domain such as telephone
banking/call centre, mobile banking, internet banking, branch transactions,
ATM/CDM, etc.
• Customer service has evolved through may stages and it has given way to
technological advancements.
• Any service operations management needs to ensure timely delivery of service
through standard operating procedures.
• A service can be perceived with many characteristic features such as perishability,
intangibility, heterogeneity, etc.
• Customer service channels and offerings are classified based on the type of
interactions carried out and they range from self-service Knowledge base to IVR
support.
• The role of a service manager is critical in providing quality service in any organisation
and it involves many activities such as hiring and training a team, setting SMART goals,
assessing VOC, etc.
• Some important methods of measuring output/productivity in service operations are
TAT, SLA and TP.
• Lack of manpower can lead to dissatisfaction and thereby customer attrition. Ensuring
optimal manpower is one of the necessities in providing quality customer service.
Manpower planning in case of staff retirements, expansion of branches, mergers and
acquisitions is critical to establish continuous service.
• CRM is a total integrated activity which aims to satisfy, serve and create a mutually
beneficial relation with the customer.
42
Nature of Service
• Many features of CRM such as campaign management, customer information

consolidation, activity management, etc., allow efficient management of customer
database in banks.
• CRM helps turn a customer into a product advocate.
• A service blueprint clearly defines a service delivery process from the viewpoint of the
end user.
• Customer service policy is a set of rules and laws, or a minimum set of standards that
a business would like the employees to adhere to when it comes to servicing the
customers.
11. References
Book References
1. Services Marketing - Text and Cases by Rajendra Nargundkar, 3rd Edition, Tata
McGraw Hill.
2. Marketing Channels by Ann T. Coughlan, Evin Anderson, Louis W. Stern, Adel I. El-
Ansary, R. C. Natarajan, 7th Edition, Pearson Education.
3. Customer Relationship Management by Roger J. Baran, Robert J. Galka, Daniel P.
Strunk, Cengage Learning.
4. The CRM Handbook A business Guide to Customer Relationship Management by Jill
Dyche, Pearson Education, 2009.
5. CRM Concepts and Application by Alok Kumar, Chhabi Sinha, Rakesh Sharma,
Biztantra.
6. Customer Relationship Management by R. K. Sugandhi, 1st edition, 2008, New Age
International publisher.
Web References
• https://www.oliverwyman.com/content/dam/oliver-
wyman/global/en/2014/oct/service-operations-rise-of-the-
chameleon_Final_1014.pdf
• https://hbr.org/1988/01/no-nonsense-guide-to-measuring-productivity
• https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Economic%20
Studies%20TEMP/Our%20Insights/Service%20sector%20productivity/MGI_Service_se
ctor_productivity_Report.ashx
• https://www.researchgate.net/publication/268440342_Measuring_Productivity_in_t
he_Service_Sector
43
Unit 2
Customer Expectations and Satisfaction
Table of Contents
1. Customer Expectations ................................................................................................................... 6
1.1 Customer Satisfaction ............................................................................................................. 6
1.2 Customer Satisfaction in Banks ............................................................................................... 7
1.2.1 Determining What Satisfies the Customer ............................................................................ 7
1.2.2 Devising Suitable Quantitative Determinants........................................................................ 8
2. Factors Affecting Service Quality .................................................................................................... 9
2.1 Five SERVQUAL Dimensions .................................................................................................... 9
2.1.1 Tangibility ............................................................................................................................... 9
2.1.2 Reliability.............................................................................................................................. 10
2.1.3 Responsiveness .................................................................................................................... 11
2.1.4 Assurance ............................................................................................................................. 11
2.1.5 Empathy ............................................................................................................................... 11
2.2 Not All Dimensions Are Equal ............................................................................................... 12
3. Importance of Customer Feedback............................................................................................... 12
3.1 Benefits of Customer Feedback ............................................................................................ 14
3.1.1 Increased Customer Retention ............................................................................................ 14
3.1.2 Performance Feedback ........................................................................................................ 14
3.1.3 Innovative Ideas ................................................................................................................... 15
3.1.4 Spotting Trends .................................................................................................................... 15
3.1.5 Effective Communication ..................................................................................................... 15
4. Conducting a Customer Feedback Survey .................................................................................... 15
4.1 Steps to Conduct the Customer Feedback Survey ................................................................ 16
4.1.1 Define objectives.................................................................................................................. 17
4.1.2 Plan the survey and research design ................................................................................... 17
4.1.3 Collect data .......................................................................................................................... 19
4.1.3.1 Secondary Data ............................................................................................................. 19
4.1.3.2 Primary Data ................................................................................................................. 20
4.1.4 Compile and analyse data .................................................................................................... 24
4.1.4.1 Regressions Analysis ..................................................................................................... 24
4.1.4.2 Factor Analysis .............................................................................................................. 24
4.1.4.3 Cluster Analysis ............................................................................................................. 24
4.1.4.4 Conjoint Analysis ........................................................................................................... 25
4.1.5 Prepare and recommend reports ........................................................................................ 25
2
4.2 Types of Surveys for Banks ................................................................................................... 26

4.2.1 How do you ask whether customers are satisfied? ............................................................. 27
4.2.2 A Few Instances of Qualitative and Quantitative Determinants for Banks ......................... 28
5. SERVQUAL Model.......................................................................................................................... 29
5.1 Gaps in Service Quality ......................................................................................................... 30
5.1.1 GAP 1 – Not knowing what the customers expect .............................................................. 30
5.1.2 GAP 2 – Wrong service quality standards ............................................................................ 31
5.1.3 GAP 3 – The service-performance gap................................................................................. 31
5.1.4 GAP 4 – When promises do not match actual delivery ....................................................... 31
5.1.5 GAP 5 – The difference between customer perception and expectation ........................... 32
5.2 Uses of SERVQUAL Data ........................................................................................................ 32
6. Customer Retention and CLTV ...................................................................................................... 32
6.1 Customer Lifetime Value....................................................................................................... 34
6.1.1 Calculation of Lifetime Value for a Bank .............................................................................. 34
7. Grievance Handling ....................................................................................................................... 35
7.1 Grievance Handling Procedure ............................................................................................. 36
7.1.1 Identify the issue .................................................................................................................. 36
7.1.2 Direct the customer to the right service point .................................................................... 37
7.1.3 Inform the resolution path and details to the customer ..................................................... 37
7.1.4 Resolve the issue.................................................................................................................. 37
7.1.5 Take feedback on the issue resolution ................................................................................ 38
8. Summary ....................................................................................................................................... 39
9. References .................................................................................................................................... 42
10. Web References ............................................................................................................................ 42
3
Introduction
In the previous unit, we have discussed the concept of customer service and its implications
in terms of business success. In this unit, we will look at aspects that relate to the
measurement and analysis of customer service and how the aspect of customer service is
critical to the business.
We will also understand the concept of customer satisfaction and the ground rules for
measuring customer satisfaction. Even though the world of banking has changed
tremendously in the past few years, the emphasis on customer satisfaction has not changed
and will not change. The advent of new technology may have decreased the sheer number of
transactions and the mode of delivery of banking services, but the expectations of the
customers have only increased greatly. Banks are trying to innovative means of measuring
and enhancing customer satisfaction.
Different factors contributing to service quality play an important role in long-term customer
engagement. There are many theories and models that try to explain the factors contributing
to service quality. The most prominent amongst them is the SERVQUAL model. In this unit,
we will look at the application of this model in the context of banking and financial services.
Another essential element of customer retention is good grievance handling. While there are
defined processes and procedures for handling most types of grievances, the customer is
only interested in resolution of the grievance. Failure in handling grievances could prove to
be very costly for the banks. Increased choice of service providers in the market has been an
opportunity for the customers and challenge for the banks.
There is an increased emphasis on gaining maximum business from the customers. Gaining
maximum business value without proper customer service or proper grievance handling, is
not possible. The concept of customer lifetime value (CLTV) has been discussed in this unit, in
the light of business value with respect to consumer behaviour in banking.
4
Learning Objectives
By the end of this unit, the learner will be able to:
• Describe customer expectations.

• Explain the factors contributing to service quality.
• Explain the importance of customer feedback.
• Describe the process of customer feedback survey.
• Discuss the SERVQUAL model.
• Explain the concept of customer retention.
• Discuss the concept of CLTV.
• Explain the concept of grievance handling in banks.
5
1. Customer Expectations
Customer expectations in the context of banking
“The key is to set realistic expectations, then exceed them, preferably in unexpected and
helpful ways.”
- Richard Branson
‘Customer expectations’ refers to the list of the deliverables that the customers have in mind,
with regard to the product or service purchased. The concept of value delivery is an integral
part of the set of customer expectations. The expectations are based on previous
experiences, reviews, company’s positioning and in certain cases, they may be unrealistic.
However, customers constantly look forward to fulfilment of their expectations in most
cases. These expectations may not always be stated or is explicit. However, it is important for
service providers to address the expectations of the customers appropriately. The question
we should ask ourselves is, “What if you don’t address the expectations appropriately?” The
response is likely to be, “Someone else will.” Hence, it is in their own best interest that
organisations address the expectations appropriately. For example, in case of certain banks,
higher savings account interest is an expectation of the customer for all types of savings
account due to the banks positioning. (Instance: Kotak Mahindra bank)
Consistent customer satisfaction can be the biggest marketer for the company. The world of
social media has made ‘customer satisfaction’ more important than ever before. Negative
reviews and dissatisfied customers could act as major dissuaders for prospective customers.
1.1 Customer Satisfaction
The idea of customer satisfaction is very diverse and comprehensive. The degree of customer
satisfaction varies greatly with respect to the sector of operations, geography, economic
value, and the competition that exists in that sector. Hence, it is challenging to define
customer satisfaction accurately. However, the concept of customer satisfaction is very
significant in the context of banking and financial services.
6
If we were to analyse what it means to be a satisfied customer, we would have the

explanation that can be categorised as an evaluation of:
• A purchase based on pre-purchase expectations

• The difference in state because of the purchase
For example: The sanctioning of loans in minimum timeframe, processing of service
request in a hassle free manner can greatly add to the satisfaction.
Customer satisfaction is a function of customer expectation and

perception of service received.
1.2 Customer Satisfaction in Banks
What can banks do in order to ensure customer satisfaction? This is a very complex question
and may not have a standard template or answer. Nevertheless, there are certain measures
that banks can take towards ensuring higher levels of customer satisfaction amongst their
customers. How does the bank ensure that the customer is satisfied?
Fig 2.1 Customer Interaction in a Bank
1.2.1 Determining What Satisfies the Customer
The best way to determine what satisfies the customer is to ask the customer. Several
organisations regularly send out questionnaires and direct mailers to their customers (both
internal and external), analyse the feedback received, and initiate appropriate action.
7
1.2.2 Devising Suitable Quantitative Determinants
Based on various feedback results and on the bank’s internal research, a bank may devise
suitable quantitative measures that can be tracked regularly. After the system of tracking has
stabilised, suitable standards can be set. Interface with customers results in several
“moments of truth” that must be handled every day; bank must ensure that these
experiences result in total customer satisfaction. For example, a bank’s customer service
standards may stipulate that:
• All incoming phone calls be answered within three rings

• All queries be attended to within five minutes
• No call be transferred more than twice
• All messages be recorded and communicated to the concerned person or department
within thirty minutes
Where there is direct interface with the bank’s employees, they must ensure that all
customers go back with a sense of satisfaction. Generally, banks set some standards;
examples are as follows:
• Not more than three people should be waiting in a queue at any counter
• Queues should be deposed off in 3 minutes
• All deposits to be accepted and receipt issued in 10 minutes
Customer satisfaction is a function of customer expectation and perception of service

received. Customer satisfaction can be facilitated by:
• Continually measuring and improving these parameters

• Seeking customer feedback from time to time to ensure alignment with customer
needs
To ensure that the needs of the customer are indeed what the bank perceives, the bank must
continually seek customer feedback and act upon them to ensure that they cater to the
needs of the customers.
8
2. Factors Affecting Service Quality

There are several factors that affect service quality and they comprise aspects that emanate
from the nature of services and that of service delivery. These factors have been adequately
captured and classified in the SERVQUAL model, which is a tool to measure:
• The impact of service quality on the final customer satisfaction level

• The identification of gaps in the service delivery
As service organisations, these factors affecting customer service can be essential in:
• Retaining the customers

• Creating a positive word-of-mouth
These factors are also known as SERVQUAL dimensions. Zeithaml, Parasuraman, and Berry
(1998) proposed these dimensions after carrying out extensive study in this domain and
stated that there are five dimensions that customers usually have in their minds when they
evaluate service quality.
In simple terms, if companies and service organisations or service providers get these
dimensions right, most customers can be expected to be long-term loyalists, because they
will have received service excellence according to what is important to them.
2.1 Five SERVQUAL Dimensions
The five SERVQUAL dimensions are tangibility, reliability, responsiveness, assurance, and
empathy.
2.1.1 Tangibility
Appearance of physical facilities, equipment, personnel, and communication materials
In case of banks, the aspect of tangibility refers to:
• The physical appearance of the branch

• The furnishing of the branch
• The layout of the branch
9
• The kind of instruments used in the ATM or CDM

• The kind of facilities that are provided
• The ambience of the branch
• The condition of the equipment
• The ease of use
Further, the appearance of the branch staff, including the security personnel, the
communication resources such as brochures, pamphlets, the pass book, the ATM card or
credit card, the cheque book of the bank, etc., are a part of this dimension i.e. tangibility.
Though these aspects might seem to be minor aspects, they can be a major reason for
satisfaction or dissatisfaction.
For instance, an ATM that is not in working condition or a faulty que-ticket vending machine
at the branch, may lead to a great deal of confusion and dissatisfaction amongst the
customers.
2.1.2 Reliability
Ability to perform the promised service dependably and accurately
There are many customers who would rate this dimension as being the most important
dimension. The dimension of reliability talks about the extent to which the service meets the
criterion of ‘accuracy’ or ‘dependability’. Critical incidents and situations are occasions when
this dimension gains prominence compared to others.
For instance, when there have been fraudulent transactions in a customer’s account and he
reports the same, he is expecting the service provider to score high on reliability. The same
holds true in the case of aspects like investment advice. When you are suggesting an
investment product of a high transaction value, the customer expects that you advise him
accurately, thereby expecting you to score high on reliability.
10
2.1.3 Responsiveness
Willingness to help customers and provide prompt service
This is the extent to which you are willing to help or assist your customer in routine and non-
routine cases. The aspect of responsiveness in banks is usually found lacking in cases when
there are many customers who have to be serviced in a short duration or in case there is a
lack of staff members at a branch, on a given day. Customers look forward to visiting service
providers who display a high level of responsiveness and could add to the list of loyalists.
However, responsiveness also happens to be a tough dimension for banks due to the sheer
volume of people and transactions.
2.1.4 Assurance
Knowledge and courtesy of employees, and their ability to convey trust and confidence
The customer expects that the service providers ‘assure’ him/her about the service delivery.
The assurance is not always stated or written but something that can just be a standard
practice that is carried out by the service provider. This factor is also closely correlated to the
‘competence’ of the individuals who are engaged in the service delivery process. Several bank
customers in segments like the HNI (High Net Worth Individuals) customers would expect
extremely high levels of knowledge and courtesy form the employees of bank. For example, a
customer would feel a higher level of ‘assurance’ if he knows that bank employee is certified
in handling a certain type of task. That is the reason for the high level of emphasis laid on the
bankers to display ‘assurance’ in the service delivery process. This could also go a long way in
retaining customers in the long run as well as accelerating cross-selling and up-selling efforts.
2.1.5 Empathy
Caring and individualised attention the firm provides its customers
The aspect of empathy can be seen as a minimum requirement in most service-sector

organisations and can become vital and critical in certain sectors such as healthcare, since
11
the crux of service delivery in this domain is empathy-intensive. This can be seen in certain
instances in banking and financial services too.
For instance, in the case of services being offered to senior citizens, customers who are
illiterate etc., the staff needs to display high levels of empathy in the service delivery.
Empathy can create a sense of belongingness and satisfaction in the minds of the customers.
2.2 Not All Dimensions Are Equal
All dimensions are important to customers, but some are more important than others.
Service providers, including bankers, need to analyse and concentrate on the major ones, in
the given situation or scenario. At the same time, they cannot focus on only one dimension
and let the others be sacrificed. There are some customers who value responsiveness as the
most important attribute or factor and there are others who would probably value reliability
as the most important attribute in the service delivery process.
SERVQUAL, as a tool, tries to measure these aspects and tells the service providers what are
the most important attributes that need to be addressed in the service delivery process.
These dimensions are vital to the efficiency of the service delivery process and support in the
various phases of the service delivery process. There are many touch-points, elements or
people who the customer meets in the service delivery process, and the customers expect
the different dimensions of service quality are considered at each point in the service delivery
process.
3. Importance of Customer Feedback

The aspect of customer feedback is important for banks due to several reasons. Banks invest
significant time, effort, and resource in gathering customer feedback. Customer feedback can
help banks by:
• Indicating the lapses in customer service

• Specifying process gaps
• Indicating overall satisfaction levels
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• Stating customer issues

• Specifying new customer expectations
• Giving feedback on specific product or service
• Stating service level benchmarking or performance when compared to competition
• Giving ideas for better redressal of issues or problems faced by them
• Providing data for preventive and corrective action
• Indicating inputs for customer engagement enhancement
For instance, one of the important points of feedback given by customers was that that of
‘ease of transactions’ seemed to be missing. HSBC worked on this point and concentrated on
this issue by innovatively taking steps to ensure ‘ease of transactions’ leading to higher levels
of customer satisfaction.
Customer feedback can provide accurate information to service providers in all aspects of
customer relationship, namely:
• Customer behaviour
• Loyalty
• Customer satisfaction
• Service
• Response
• Complaint redressal
• Customer needs
However, the uses of data that are derived through such research are infinite. For instance,
banks can use the data about customer behaviour to anticipate changes in the demand of
certain products or services, and update or change the service to make it more appealing to
the customers.
13
Fig 2.2 Customer Feedback
3.1 Benefits of Customer Feedback
There are many benefits to getting customer feedback. Collecting feedback through tools
such as customer surveys is an inexpensive way to gather valuable customer opinions and
input on company’s products and services. These online customer or telephonic surveys also
act as a source of innovative ideas and at the same time provide constant feedback on the
company.
Some of the important benefits of collecting customer feedback are as follows:
3.1.1 Increased Customer Retention
A well–laid-out customer survey allows organisations to obtain customer feedback, which can
tremendously help to improve customer retention.
For instance, as bankers, we could get important data on the pointers to increase customer
loyalty.
3.1.2 Performance Feedback
Customers are the best judge of products or services of companies, and hence, a customer
survey can help companies decide on which products and services need improvement.
For instance, if the bank has released a new app, the customers can give inputs on the
performance feedback, leading to a better and improved version 2.
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3.1.3 Innovative Ideas
Customers can be the best source to derive innovative ideas. It is more often the customers
who suggest new ideas in order to improve a product or launch a new one. For example, a
defence personnel came up with an innovative idea of having ‘defence personnel’ specific
products, which prompted banks to come up with this kind of a savings bank account.
3.1.4 Spotting Trends
Beyond understanding the drivers behind loyalty and satisfaction of your customers, you can
benefit from the wisdom of the masses by asking them for their ideas and spotting patterns
in their feedback. Spotting such trends ahead of competition can offer you a significant
advantage. For example, the bundled products/services are designed based on the ‘trends’ in
the market.
3.1.5 Effective Communication
By inviting customers to talk to you and through careful design of your survey, you can
effectively inform your customers about things they may not know or remind them of
important changes or innovations in your organisation. This is clever because customers are
likely to read your survey more carefully than most other communications you send them.
4. Conducting a Customer Feedback Survey

A customer feedback survey can be tasking and time consuming, especially if organisations
such as banks have a huge customer base. For example, ICICI Bank has over 4,500 branches
and caters to lakhs of customers. In such cases, the design of the feedback form or
mechanism has to be comprehensive and should meet the requirements in terms of valuable
inputs as discussed earlier in this unit.
15
Fig 2.3 Customer Feedback Survey
4.1 Steps to Conduct the Customer Feedback Survey
There are six steps in conducting a successful survey. They are:
Fig 2.4 Steps to Conduct the Customer Feedback Survey
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4.1.1 Define objectives
Before undertaking the research or survey, it is necessary to define the basic objectives of the
work. These objectives can include parameters such as:
• Satisfaction level of customers with the bank in general, and more specifically, with its
technology, quality, service, and performance
• Feedback and background information on potential customers
• Reasons for poor profitability
• Identification of major areas in which the company is ahead of its peers and where it
is lagging behind
• Identification of strong points for leveraging and weak points for improvements, to
further increase customer satisfaction
4.1.2 Plan the survey and research design
After fixing the objectives, the next stage is to identify activities and plan for them.
Planning includes:
• Identification of the information required from the survey/research being carried out.
• Decision on the methodology
• Measurement and result-scaling the methodology: Clearly defining the
scale/measurement tool and the methodology being adopted
• Budget: Fixing the resources and budget limits for various stages of research
• Time schedule: Fixing a time schedule for each activity
• Analysis method: Choose a proper method of result analysis
Decision on the Methodology
The methodology adopted could vary depending upon the needs and the quantity of
information required. For instance, while sales data, unsolicited letters of thanks or a few
customer complaints can actually be an indicator of customer satisfaction, a bank needs
17
concrete proof of such satisfaction levels. These can be achieved through focus groups or
depth interviews, which provide valuable insights into the levels of satisfaction.
Planning a Research Design
This is probably the most important step in this process, since this will really decide how
effective the process is going to be. If you look at the figure provided below, you can see how
exploratory, descriptive and causal researches are the major types of research conducted.
Exploratory research is conducted to convert broad vague problem statements into smaller
and more precise problem statements in order to develop an apt hypothesis.
Example: Consider this statement: “Our sales are down because the quality of our sales
personnel is low.” This is rather too vague and it needs to be made more specific. This kind of
a statement will not provide the right direction for the research. In fact, no concrete and
clear results will come out of it. A statement that is specific will allow the researchers to be
able to look for the answers in the right manner.
Research
Design
Exploratory Conclusive
Study Research
Descriptive Experimental
Case Study Observation
Research Research
Group
Interview Panel Study After-Only Factorial
Discussion
Focus Group
Fig 2.5 Steps to Conduct the Customer Feedback Survey
On the other hand, a descriptive process, widely used in marketing research, basically
describes something.
18
For example, a descriptive research will provide information about the proportions of high-
or low- income customers in a particular territory. Usually, such studies are used to
determine the characteristics of the market, the association between advertising and sales,
estimation of a percentage of population that would behave in a certain manner and so on.
Lastly, a causal research is usually conducted when the issue is to find a cause-and-effect
relationship. Usually, experiments are conducted to support the findings under this form of
research.
4.1.3 Collect data
Once the research objectives and the needed information are written, the next logical step is
to collect data. There are two methods for data collection:
• Desk research (secondary source)
• Field survey (primary source)
Sources of Data
Primary Secondary
Census Sample
Fig 2.6 Data Collection
4.1.3.1 Secondary Data
Researchers should check if the data required is available within company records or outside
sources. This would represent secondary data. The secondary source of information can be
as follows:
• Past records of companies
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• Data from government

• Business journals
• Libraries
• Professional and trade associations
• Published data and Internet
• Census: Refers to a technique wherein data is collected from the whole population.
For example, if a bank has 40,000 customers, the bank will collect data (through a tool
like questionnaire) from all the 40,000 customers.
• Sample: Unlike census, in the case of sample, data is collected from a ‘representative
group’ chosen on a statistical basis. For example, if 10% of the population could be
the sample, and if the bank has 40,000, then 4,000 customers could be chosen as the
sample and data could be collected from these customers.
4.1.3.2 Primary Data
Primary data collection can be done through:

• Observation
• Experimentation
• Survey
• Focus Group or Focus Group Discussions
The tools that can be used are:
• Questionnaires
• Interview schedules
Quantitative Analysis: Quantitative research is statistically and numerically oriented. This will
require a study of the marketing trends that involve statistical analysis. For example, Bank
Red asks its customer to rate the banking services as Exceptional, Very Good, Good, Not So
Good or Bad. This will provide the bank’s quantitative information that can be further
analysed using statistical methods.
The thing that is considered most important in such analysis is that all respondents are asked
the same set of questions, with the approach being structured and methodical. Such an
approach can also be identified by the number of respondents or the huge number of
20
questions involved. Market surveys are the most common form of such quantitative research
techniques. Usually, they are tasks that involve accumulation of data from multiple sources
such as customers, both internal and external, vendors, etc. These surveys are typically
conducted using a number of methods such as post (self-completion), face-to-face (branch or
customer’s home), and telephone, email or web techniques. Questionnaires in such surveys
are only one of the many wide-ranging tools that are commonly used to gather data from
such surveys.
Quantitative Analysis: It is often used where numerical data is required. The most high-end
version of such analysis will be used to build customer behaviour models or forecasts, helping
in segmenting groups into customers with certain values, lifestyles, or socio-demographics.
Qualitative Research Methods: Qualitative research methods are used by banks in order to
tackle a specific issue or address a specific demand of the bank. For instance, banks may
employ the services of a focus group or a set of students who conduct interviews. They
would ask questions specifically relating to a persistent problem being reported by customers
in a certain service.
Qualitative research methods would be directed towards deeper understanding of the

customer expectations through tools like:
• In-Depth Interviews (IDIs): In-depth interviews are usually conducted when the subject
matter to be discussed is highly sensitive. These interviews are normally carried out
over the phone or face-to-face. This allows the interviewer to question according to
the respondent and his responses.
• Focus Group Discussions (FGDs): Focus groups are more naturalistic than other
methods, since they are not restricted by the choice of answers, which is usually the
case in a survey. Since the participants in the group being interviewed are allowed to
say anything they like, the results are not just facts but the actual meaning behind
such facts.
• Projective Techniques: They are usually unplanned suggestions or prompts that
encourage a response from the interviewees in order to understand their underlying
attitudes, beliefs or feelings in an imaginary and vague situation.
21
The findings from such surveys are usually limited to a small sample size and cannot be
generalised over a larger set of people. For instance, they may be used to develop ideas for
new promotional campaigns.
Qualitative Research Versus Quantitative Research
The following table of comparison can help us understand the significant differences
between qualitative research and quantitative research:
Factor of Comparison Qualitative Research Quantitative Research

Object Gaining a qualitative Picking a sample population
understanding of the of interest, analysing the
fundamental reasons and result and quantifying the
motivation data
Sample A small number of non- A large number of
representative cases representative cases
Data Collection Usually unstructured A well-defined and
structured methodology
Data Analysis Non-statistical Statistical
Type of Analysis Both subjective and Statistical and a

interpretative in nature summarisation of the results
Outcome The main idea is gaining an initial Usually undertaken to
understanding recommend a course of
action for a problem or issue
Subjects that they need Psychology, sociology, consumer Statistics, decision support
to be trained in behaviour, marketing and systems, computer
marketing research programming, decision
models, marketing, and
marketing research
22
Source: Customer Relationship Management – Concepts & Application by Alok Kumar, Chhabi
Sinha and Rakesh Sharma
Questionnaires
A questionnaire is a pre-formulated set of questions to which the customers are requested to
provide answers for. These questions will usually have a pre-defined set of close alternatives
within which answers are supposed to be provided. Questionnaires can actually prove to be a
very effective tool, but only when the researchers are clear about the direction of the
research, have a clear picture of the objectives of the study and know how to analyse the
variables involved.
Better responses may be possible when they are done through a third party like a research
agency. Usually, an effectively designed questionnaire will work under all circumstances once
an understanding of the objectives of research is reached. The effectiveness of the
questionnaire depends on the choice of the questions, order of questions and the way the
questions are structured. The responses should give us a clear idea of the actionable steps to
be taken.
Example: If the objective was to collect information about customer satisfaction, then the
questions would be designed to collect information on the following aspects:
• Understanding of customer behaviour

• Customer preference mapping
• Critical customer satisfaction factors
• Evaluation of the customer opinion on the following factors:
o Price sensitivity
o Quality
o Service
o Appearance
o Complaint redressed
Broadly we can get customer feedback on the following:
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• Bank’s performance on critical satisfaction factors

• Competitor’s performance on critical satisfaction factors
4.1.4 Compile and analyse data
Compilation of data is necessary to do a systematic analysis. It is done in the following ways:
a. Revisit the main objectives of the research.

b. Divide main objectives into different segments.
c. Classify and assign the questions of questionnaire to each of these segments.
d. Convert the replies to the questions in numerical form.
A wide range of analytical tools are used in the quantitative analysis. Some of the most
common ones are as follows:
4.1.4.1 Regressions Analysis
This is usually used to measure the strength of a relationship based on one or two known
variables as against another variable. Example: How will the score change when satisfaction
with the product quality goes up from 5 to 6? Such an analysis is typically used for customer
satisfaction and employee studies. For instance, what qualities in the product or service
contribute to satisfaction or to customer loyalty?
4.1.4.2 Factor Analysis
This kind of an analysis is often used to identify underlying service dimensions in a business.
As a part of a survey being conducted to find out the satisfaction levels of the customers,
responses may be given in three parts: Service Quality, Pricing and Value. Eventually, factor
analysis can be used to ascertain whether all the three parts actually measure the same
thing. This can help when the questionnaires are extra lengthy and need to be cut down.
4.1.4.3 Cluster Analysis
This is designed or used to find out natural groupings within a larger group of observations.
For instance: Responses in a questionnaire will be grouped on the basis of similarities in
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answers. Similar answers will fall in a cluster, while the ones with different answers will fall in
a different cluster. The main advantage this has is that it can identify groupings where it is
not obvious for segmentation or specific groupings in a market.
4.1.4.4 Conjoint Analysis
This kind of an analysis is used to identify those attributes in a product or a service that are
preferable. This is an effective method to devise new or improved services. This analysis has a
two-fold benefit. One is to understand the importance of the attributes and the preferred
levels of each of those attributes. For instance: When the customers are asked “Would you
have one bank manage all of your needs, costing more or manage your account in a number
of banks, costing much lesser?” In order to understand the importance of attributes,
customers could be asked about their preference for comfort in the branch, quick service and
cross-selling by representatives, and to understand the levels they could be asked, how quick
they want the service to be?
4.1.5 Prepare and recommend reports
Report preparation is an essential step in the process of a research conducted. This will make
the information concrete and available for further actions based on such results. Since we are
talking about banks doing customer survey to enhance the quality of services, it obviously
makes sense for the banks to make this information available to the employees who actually
deal with customers directly, whether the results are positive or negative. This will allow
employees to understand that changes are being suggested as results of the findings.
Most reports will vary depending upon the person who is writing such a report and the firm
that is doing it. A lot of information can be put in to add depth and make it more appealing as
well.
But there are some essentials that they cannot ignore and they are. These are as follows:
• Executive Summary: To provide a quick read of major findings, conclusions and

recommendations
• Problem: To state the problems and the background of the problems
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• Research Design: Thinking behind it, data collections methods, sampling techniques
and so on
• Analysis: Methods used
• Results: Appraising the readers about the findings
• Additional Information: In the form of questionnaires, statistical information and so
on
4.1.5 Create action plan or implement survey findings
The purpose of research is two-fold:
• To better the services being offered

• To innovate and introduce products that will continue to “delight” customers and
create a stronger brand in the minds of the customers
The end purpose is, however, to constantly create satisfied customers who are compelled to
come back. Customers themselves help in this process by contributing their time to provide
feedback, assuming that corrective action will be taken where necessary. Therefore, unless a
sound action plan is developed to make the necessary changes in the system, such research
is a wasted affair.
Action plans as such can take two forms:
• Provide a quick-fix solution.

• Commence a long-term strategy that will focus on creating a better experience for
customers based on the findings as a result of study.
4.2 Types of Surveys for Banks
Today's competitive marketplace requires every organisation to listen to the voice of its
customers.
A customer service survey can provide management with valuable input on both short-term
and long-term decision-making. It can offer critical operational and strategic advantages over
the competition.
26
Business relationships are complex. Your customers' views of your products, services, pricing,
as well as your business relationship are invariably multi-dimensional.
A customer satisfaction survey helps you get to the heart of these critical relationships in
ways that help you move your business forward. The satisfaction, loyalty and reference-
ability of your customers directly affect growth and profitability.
Losing customers can be devastating to an organisation. A customer loss review survey can
help you identify the root causes of problems so that direct action can be taken to minimise
the loss of customers in the future.
• Customer Satisfaction Surveys: A customer satisfaction survey accesses the desires,

needs, and wants of customers.
• Customer Service Surveys: Analyse the performance of work for another unit or
department and improve the service provided to your customers with a customer
service survey.
• Customer Loss Review Surveys: Uncover why customers stop doing business with your
organisation and what you can do to prevent additional losses with a customer loss.
4.2.1 How do you ask whether customers are satisfied?
There are many ways to ask customers whether they are satisfied with their services.
The researcher can ask them:
• Face-to-face: As they are about to walk out of the branch, ask them.
• Call them on the phone: If their phone number is available and their permission is
obtained, one can call them after their visit and ask how satisfied they are.
• Mail them a questionnaire: This technique has been used for a long time. The results
are predictable.
• Email them a customer satisfaction survey: Be careful to not violate Spam laws.
• Email them an invitation to take a customer satisfaction survey.
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4.2.2 A Few Instances of Qualitative and Quantitative Determinants for Banks

Quantitative determinants could be, for example:
• Time taken to accept a cash deposit

• Time taken to accept a cheque deposit
• Time taken to complete a cash withdrawal
• Time taken to complete a cheque withdrawal
• Time taken to act on an account opening request
• Time taken to open an account, provided everything is in order
• Time taken to issue a draft
• Time taken to issue a cheque book
• Time taken to issue an ATM card
• Time taken to issue an account statement
• Time taken to give a locker
• Time taken to update a passbook
• Time taken to clear an outstation cheque
• Time taken to answer routine customer queries, account balance, cheque clearing
status interest rates and so on
• Time taken to answer other customer queries, forex rates and so on that may require
information from other departments
• Number of complaints received per period month, quarter, etc.
Quantitative determinates could be:
• Is the branch easy to reach?

• Are the branch premises pleasing and comfortable?
• Are the customer lounges well maintained?
• Are there sufficient sofas for waiting customers? Is drinking water available to
customers?
• Is there adequate reading material?
• Is the ATM conveniently located?
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• Is it easy to access?
• Is there adequate parking space available?
• Are the ATM premises well maintained?
5. SERVQUAL Model
The SERVQUAL model is a multi-dimensional scale that records customer perceptions and
expectations of service quality. This model compares customer expectations with their
experience of the service that was actually delivered. The SERVQUAL model is an empiric
model by Zeithaml, Parasuraman and Berry to compare service quality performance with the
customer service quality needs. It is used to do a ‘gap’ analysis of an organisation’s service
quality performance against the service quality needs of its customers. That is why it is also
called the GAP model. The basis of this model includes the factors affecting service quality,
which are discussed in section 2 of this unit.
The model takes into account the perceptions of customers of the relative importance of
service attributes. This allows an organisation to prioritise. The following diagram is a
representation of the SERVQUAL model:
Fig 2.7 Conceptual Model of Service Delivery
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• Gap between expectation of client and perception of management. In order to be

able to exceed customer expectations, and in this way to insure customer satisfaction
service company management has to have a clear and accurate perception about
customer expectations. A lack of such knowledge creates a gap that can be one of the
main reasons for service customers not being satisfied.
• Gap between perception of management and service quality specification. Even if
management accurately perceive customer expectations there are still chances of
customer dissatisfaction that can be caused by the gap in planning quality of the
service according to customer expectations
• Gap between specification of quality and the delivery of service. Another potential
area for customer dissatisfaction relates to the failure of efficiently specified quality
service due to various reasons, including incompetent workforce, and inefficient
working conditions.
• The gap between the delivery of service and external communications. In cases where
service company employees have relevant skills and willingness to offer efficiently
specified quality service, still customers may be left unsatisfied due to external factors
• Gap between perceived and expected service. Lastly, one of the common causes for
customer dissatisfaction in service sector relates to the gap between what customers
expect from the service and what they think they have received.
5.1 Gaps in Service Quality
The GAP model consists of 5 Gaps in the service quality, which are as follows:
5.1.1 GAP 1 – Not knowing what the customers expect
• This gap consists of lack of a marketing orientation.

• There is inadequate upward communication (from contact staff to management).
• There are too many levels of management; hence, there may be lack of information
at certain levels, on customer expectations. For example, the bank may not have a
clear idea of the customer expectation in terms of product design or features.
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For example, the bank may not have a clear idea of the customer expectation in terms
of product design or features.
5.1.2 GAP 2 – Wrong service quality standards
• In this case, there is inadequate commitment to service quality.

• There is lack of perception of feasibility in the minds of the employees – ‘it cannot be
done’, maybe the perception of the employees.
• There is inadequate task standardisation in the organisation.
• There is absence of right goal setting. The employees are unsure of the goals that
have been set and the nature of the goals is unclear. For instance, there can be a
faulty service standard set for a particular banking service such as printing of
passbook.
For instance, there can be a faulty service standard set for a particular banking
service, such as printing of passbook.
5.1.3 GAP 3 – The service-performance gap
• There is role ambiguity and role conflict – Employees are unsure of what their role is
and the responsibilities that come along with the role.
• There is poor employee or technology fit – The wrong person or system for the job,
especially in technology intensive roles.
• There is inappropriate supervisory control or lack of perceived control – Too much or
too little control, leading to improper work in the organisation.
• There is an observed lack of teamwork and co-operation amongst the employees.
5.1.4 GAP 4 – When promises do not match actual delivery
• This gap occurs when promises made do not match actual delivery
o There can be inadequate horizontal communication, between departments or

peers in the same department.
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o This gap maybe caused when there is a propensity to overpromise.
5.1.5 GAP 5 – The difference between customer perception and expectation
• In this case, the expectations of the customers are made up of experience, word-of-
mouth and needs or wants of customers.
• The measurement is on the basis of two sets of statements in groups according to the
five key service dimensions.
5.2 Uses of SERVQUAL Data
• We can use data on customer needs, expectations and priorities, and integrate the
same with the quality management system and new quality initiatives.
• Customer priorities and their ranking can become the actionable points for the
business to improve customer service and satisfaction levels.
• These findings can be compared to the existing customer design factors and changes
can be made through business process re-engineering.
• Business heads can determine revenue potential due to service improvement using
this data.
• This can also act as a benchmarking exercise and this data can help in comparing the
service levels and satisfaction levels with that of competition.
6. Customer Retention and CLTV

In today's competitive business world, retaining and expanding the customer base is
important. Customer retention and satisfaction drive profits. It is far less expensive to
cultivate your existing customer base and sell more services to them, than it is to seek new,
single-transaction customers. Most surveys across industries show that keeping one existing
customer is five to seven times more profitable than attracting one new one.
Customer retention can be beneficial to the business in the following ways:
• Higher revenues
• Higher profitability
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• Positive word-of-mouth
• Referrals
• Better understanding of the needs of customers
It is far too expensive to bring in new customers who may be considered fragile as they are
willing to leave at the drop of a penny. It is much easier to retain an existing customer. This
can be observed in case of banking and financial services too, especially in the current era of
increased competition.
Fig 2.8 Impact of Increased Customer Retention Over Time
The graph above demonstrates the impact of a customer retention rate increase of 5% when
two companies start with the same amount of customers and the same customer acquisition
rate.
The result: Company B doubles its customer base around the ninth year, while it takes
Company A slightly more than 15 years to double its customer base. On an average, this
means Company B also profited by a higher percentage.
Assumptions: Both companies start with a customer base of 100,000 customers and an
acquisition rate of 20%. For example, yearly, each company's customer base grows by 20%.
33
Company A has 85% customer retention rate and Company B has a customer retention rate
of 90%. The graph assumes that the customer retention and acquisition rates remain the
same year after year.
6.1 Customer Lifetime Value
The customer satisfaction level should be judged based on their profitability to the firm over
the total time they make purchases.
The only person who makes any difference to the customer is the employee handling his
request. It is very important for the employee to realise that proper handling of his request
could enhance the lifetime value of the customer. The lifetime value of the customer is
simply the value of the customer to the organisation over the period of time he stays with
the organisation.
Lifetime Value (LTV) = Total Customer Revenue – Total Customer Costs
The best part of doing this extra mile and retaining the customer is that the employee does
not need any kind of specialised knowledge. Even product and process knowledge is not
required at this stage. The employee makes the difference here. If the allied needs are met,
the employee has earned some space with the customer to actually go ahead and meet the
core needs. Even if today you cannot meet his core need or make a mistake in meeting them,
the customer will still allow you some space to recover if the allied needs are met to his
satisfaction.
6.1.1 Calculation of Lifetime Value for a Bank
Illustration:
The Delhi branch of ABC Bank has a customer base of 5,000. The total number of savings
account customers is 3,000. The branch has 3 sales personnel who are able to close one in
every four sales call they make. The branch incurs a cost of ₹50 per sales call. The stationery
expenses on savings account as well as courier expenses and expenses of the welcome kit
work out to ₹500 per customer. The savings account average is ₹7.5 crores. The NII on
34
Savings Bank balances is 2.8%. Calculate the cost of acquiring a new SB account customer as
also the customer lifetime value of a savings account customer.
Cost of average sales call ₹50

Number of calls required to covert an 4
average prospect into a customer
Administrative cost (average) per customer ₹500
Cost of attracting a new customer ₹700
Savings account balances (based on last ₹25,000
year’s average per customer)
Net Interest Income (assuming 2.8% on SB) ₹700
Average number of loyal years (assumption) 5
Customer lifetime value ₹3,500
Table 2.1 Illustration of Calculation of Lifetime Value for a Bank
Note:
(All the above calculations are based on assumptions, and have not factored in inflation and
other key variables, and the fact that customer value in a bank increases over a period of
time.)
It is clear from the above that the customer would be profitable only if he stays on for a period
of more than a year. Since the cost of acquiring a new customer is ₹700, it is in the interest of
the Delhi branch to ensure that the customer continues to bank with them for as long as
possible.
7. Grievance Handling
Grievance handling is one of the key aspects of service delivery in banks. Good grievance
handling can be a crucial differentiator in terms of customer service. Some of the best service
brands in the banking and finance domain are those which handle grievances of their
customers adequately. Many a time, faulty handling of grievances leads to a great amount of
35
dissatisfaction on the part of customers and they might choose to close their account. Hence,
banks need to handle grievances carefully and avoid disgruntled customers.
7.1 Grievance Handling Procedure
A simple 5-step grievance handling procedure that can be followed by banks is:
Fig 2.9 Grievance Handling Procedure
7.1.1 Identify the issue
Unless we have a proper understanding of the problem and unless we define the problem
clearly, we may not be able to proceed with the issue resolution. It is important to get all the
relevant details about the service issue. The teller or customer care executive can re-phrase
the issue to get an agreement on the scope of the service issue and the resolution being
expected by the customer. Further, the banker can categorise the issue and prioritise it based
on the criticality and urgency. For instance, loss of credit card is a critical issue, whereas
36
excess time taken for processing a car loan may not be a critical service issue. Sometimes, if
the customer needs to fill out a form or raise a service request, he or she may be guided
accordingly.
7.1.2 Direct the customer to the right service point
The next step is to direct the customer to the right service point. Provide complete contact
details of the SPOC or the representative who can help the customer resolve the issue. It is
essential to consider alternatives and make the process convenient for the customer.
Customers prefer interacting with employees who are empathetic and communicate well.
Hence, the role of the employee in the redressal process is very critical and can be
instrumental in getting good feedback from the customer. In case the service touch point is
the call centre, the response time should be less and the call should be answered within
three rings. There should be no confusion amongst the employees about the right service
point or banker. Sometimes, employees may try to avoid customers who are irritated and
disgruntled, adding to the agony of the customers. This should be avoided at all costs.
7.1.3 Inform the resolution path and details to the customer
The next step in this case is to inform the customer about the resolution path and the details
of the expected resolution. The customer needs to be updated on the following aspects:
• The expected time for issue resolution

• The person who will resolve the issue
• The process that will be followed in the issue resolution
• The escalation details in case of non-resolution within the stipulated time
• Details and actionable points that may be required from the customer
7.1.4 Resolve the issue
The next step is to ensure the issue resolution within the stipulated time. The executive
needs to be able to resolve the issue in the minimum time possible. The executive or SPOC
should take the necessary steps from the backend towards the issue resolution. The issue
37
resolution needs to be completed satisfactorily. Due care should be taken in case of issues
that are critical and sensitive.
7.1.5 Take feedback on the issue resolution
The last step in this process is to take feedback on the issue resolution. If the issue resolution
is completed in a satisfactory manner, the customer will give a positive feedback. The
feedback tool can be based on the SERVQUAL model. An illustration of the same is provided
below:
1. When Bank ABC promises to do something by a certain time, it does so.
Strongly Agree----------------------------------------------------Strongly Disagree
2. When you have a problem, Bank ABC shows a sincere interest in solving it.
3. Bank ABC performs the service right the first time.
4. Bank ABC performs its service at the time it promises to do so.
5. Bank ABC insists on error-free records.
The feedback collected in this process has to be used constructively to strengthen the service
design and delivery process. The integration of the feedback into the system has to be
planned and executed in the minimum possible time, so that the customers are benefitted by
getting better customer service.
38
8. Summary
Here is a quick recap of what we have learnt so far:
• ‘Customer expectations’ refers to the list of the deliverables that the customers have
in mind, with regard to the product or service purchased.
• Negative reviews and dissatisfied customers could act as major dissuaders for
prospective customers.
• Customer satisfaction can be categorised as an evaluation of:
o A purchase based on pre-purchase expectations
o An evaluation of the difference in state because of the purchase
• A bank facilitates customer satisfaction by:
o Determining what satisfies the customer
o Devising suitable quantitative determinants
• To ensure that the needs of the customer are indeed what the bank perceives, the
bank must continually seek customer feedback and act upon them to ensure that they
cater to the needs of customers.
• The five SERVQUAL dimensions are tangibility, reliability, responsiveness, assurance,
and empathy.
• Not all dimensions are equal.
• Customer feedback can help banks by:
o Indicating the lapses in customer service
o Specifying process gaps
o Indicating overall satisfaction levels
o Stating customer issues
o Specifying new customer expectations
o Giving feedback on specific product or service
o Stating service-level benchmarking or performance when compared to
competition
39
o Giving ideas for better redressal of issues or problems faced by them

o Providing data for preventive and corrective action
o Indicating inputs for customer engagement and enhancement
• Some of the important benefits of collecting customer feedback are:
o Increased customer retention
o Providing performance feedback
o Providing innovative ideas
o Spotting trends
o Communicating effectively
• There are six steps in conducting a successful survey. They are:
i. Define objectives.
ii. Plan the survey and research design.
iii. Collect data.
iv. Compile and analyse data.
v. Prepare report and provide recommendations.
vi. Provide action plan and implement survey findings.
• Compilation of data is necessary to do a systematic analysis. It is done in the following
ways:
i. Revisit the main objectives of the research.
ii. Divide main objectives into different segments.
iii. Classify and assign the questions of questionnaire to each of these segments.
iv. Convert the replies to the questions in numerical form.
• The report format is as follows:
o Executive Summary
o Problem
o Research Design
o Analysis
o Results
o Additional Information: In the form of questionnaires, statistical information,
etc.
40
• Common types of surveys for banks are:

o Customer satisfaction surveys
o Customer service surveys
o Customer loss review surveys
• There are many ways to ask customers whether they are satisfied with their services.
The most important ones are:
o Face-to-face interaction
o Telephonic surveys
o E-mail forms
o E-mail invites
• The SERVQUAL model is a multi-dimensional scale that records customer perceptions
and expectations of service quality.
• The GAP model consists of 5 Gaps in the service quality, which are as follows:
o GAP 1 – Not knowing what customers expect
o GAP 2 – The wrong service quality standards
o GAP 3 – The service-performance gap
o GAP 4 – When promises do not match actual delivery
o GAP 5 – The difference between customer perception and expectation
• Customer retention can be beneficial to the business in the following ways:
o Higher revenues
o Higher profitability
o Positive word-of-mouth
o Referrals
o Better understanding of the needs of customers
• A simple 5-step grievance handling procedure that banks can use is as follows:
i. Identify the issue.
ii. Direct the customer to the right service point.
iii. Inform the resolution path and details to the customer.
iv. Resolve the issue.
v. Take feedback on the issue resolution.
41
9. References
• Service Marketing – Integrating Customer Focus Across the Firm by Valarie Zeithaml,
Mary Jo Bitner, Dwayne D Gremler and Ajay Pandit, McGraw Hill Companies, 4th
Edition
• Customer Relationship Management Concepts and Application by Alok Kumar, Chhabi
Sinha and Rakesh Sharma, Biztantra
• Research Methods for Business – A Skill Building Approach by Uma Sekaran, Wiley
India Edition, 4th Edition
• Marketing Research – An Applied Orientation by Naresh K. Malhotra, Pearson
Education Asia, 3rd Edition
• Business Research Methods by S N Murthy, U Bhojanna
• Marketing Research by A. Parasuraman, Dhruv Grewal and P Krishnan, Biztantra
10. Web References

http://www.proserv.nu/b/Docs/Servqual.pdf
http://www.serviceperformance.com/the-5-service-dimensions-all-customers-care-about/
http://dspace.bracu.ac.bd/xmlui/bitstream/handle/10361/8635/13104242_BBA.pdf?sequence=
1&isAllowed=y
https://www.mymarketresearchmethods.com/an-overview-of-market-research-methods/
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Unit 3
Service Encounter
Service Encounter
Table of Contents
1. Service Delivery Process.................................................................................................................. 6
2. Service Effectiveness ....................................................................................................................... 8
2.1. Four Qualities Customers Seek in a Service Encounter .......................................................... 9
2.2. Assessment of Service Effectiveness ...................................................................................... 9
2.2.1. Internal Service Measurement Techniques .................................................................. 10
2.2.1.1. Call Monitoring.......................................................................................................... 10
2.2.1.2. Mystery Shopping ..................................................................................................... 11
2.2.1.3. Service Quality Audits ............................................................................................... 12
3.1.1. External Service Measurement Techniques.................................................................. 13
3.1.1.1. Unsolicited Comments .............................................................................................. 13
3.1.1.2. Personal Interviews ................................................................................................... 14
3.1.1.3. Focus Groups............................................................................................................. 14
3.1.1.4. User Group Feedback................................................................................................ 15
3.1.1.5. Mass Administered Surveys ...................................................................................... 16
4. Strategies for Improving Service Delivery ..................................................................................... 17
4.1. Strategy 1: Clearly Know What the Customer Expects ......................................................... 17
4.2. Strategy 2: Deliver on What the Customer Perceives as Good Service ................................ 18
5. Customer as a Co-producer of Service.......................................................................................... 20
6. Service Profit Chain ....................................................................................................................... 21
7. Service Supply Chain ..................................................................................................................... 24
7.1. Functions of the Service Supply Chain .................................................................................. 24
7.2. Source of Value in Service Supply Relationships .................................................................. 25
7.3. Outsourcing Service Components......................................................................................... 27
8. Service Level Agreements ............................................................................................................. 28
8.1. Design of SLA Structures ....................................................................................................... 29
9. Summary ....................................................................................................................................... 31
10. References .................................................................................................................................... 33
11. Web References ............................................................................................................................ 34
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Service Encounter
Unit Description
In the previous unit, we have discussed the concept of SERVQUAL and different ‘gaps’ in the
service delivery process. In this unit, we will look at aspects such as:
• The components and phases of service delivery

• The assessment of service effectiveness
• The aspect of co-production of services
• The elements of the profit chain
Service delivery has many dimensions and is dependent on several parties. Factors such as
the timing of service provision, the mode of service provision and the relationship with the
customer can significantly affect the service evaluation.
The assessment of service delivery is essential for the service provider since it gives an
opportunity to understand the service gaps and issue if any. The customer, on the other
hand, is also benefitted, since good service evaluation can lead to improvement in the service
delivery process. Sometimes the service delivery improvement and in some rare cases, the
service improvement can be substantial.
The ‘customer’ plays a key role in this evaluation process and can become the anchor for
service improvement through proper service evaluation and assessment. Every interaction
with the customer is an opportunity for the service provider to make deep inroads into the
buying behaviour and the loyalty of the customer. The extent to which the service brand can
convince the customer of the value provided determines the likeability of the service brand.
Fig 3.1: Customer Feedback
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Service Encounter
The ‘moment of truth’ can be the most critical point in relationship management. It is not the
magical moments of great service delivery interspersed among many moments of average
service delivery, but a consistently effective service delivery mechanism that can create long-
term loyalists and ambassadors. The road to long-term profitability starts with consistency.
Fig 3.2: Moment of Truth
The ‘wow’ factors can only add to the number of loyalists and add to the value delivery. The
mutual benefit proposition takes centre-stage and becomes extremely important for service
brands. All this can affect the profit chain and the elements in the profit chain, which we will
discuss in this chapter. The role of intermediaries and third-party vendors cannot be
neglected since they are an integral part of the service delivery process. Further, the
customer does not differentiate between intermediaries or third-party service providers and
others. For him, all these are a part of the same service delivery process.
Fig 3.3: Third-party Service Provider
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Service Encounter
Service Level Agreements (SLA) act as a tool of commitment and bind all the parties in the
service delivery process by clearly defining the roles and responsibilities of the service
partners involved. The SLA document is the reference document to confirm service delivery,
and then all the stakeholders mentioned in the document are expected to fulfil the
conditions stipulated in the document. Banks and financial institutions have an opportunity
for multiple service interactions with their customers, and they do it through multiple modes
too. Hence, the service assessment component gains more prominence in this domain.
Learning Objectives
• Describe the service delivery process.

• Explain the assessment of service effectiveness.
• Discuss the strategies for improving service delivery.
• Describe the concept ‘Customer as a co-producer of service’.
• Discuss the elements of the profit chain.
• Explain the service supply chain.
• Discuss the service level agreements.
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Service Encounter
1. Service Delivery Process
“Products and services can easily be replicated. So, if your company's competitive advantage is
based on products and services alone, you are at risk. But if it's based upon products, services and
quality service, then you'll have a competitive advantage that's very difficult to match."
- Lee Cockerell
A service delivery process is a sequential description of the integrated approach that is

required to carry out certain tasks/transactions. It’s detailed and comprehensive in nature
and provides an end-to-end lifecycle management depiction for the service aspect. It can be
used as a reference point for similar processes. For example, the service delivery process for
the ATM-specific functions can act as a reference point for CDM-related functions too. This
can also relate to simple in-house functions like the issue of demand draft and allocation of
lockers for existing or new customers.
The service definition is crucial to support good service management. Service definition
allows both the customer and the process facilitator or service provider to identify what to
expect and what not to expect from a service. When services are clearly defined, the
customer gets a clear idea of the offerings, the inclusions, the exclusions and the limitations
in terms of service delivery.
A well-defined service:
• Guides the customer towards proper service channels

• Explains the service request process
• Help the customer to understand the path for service delivery
• Identifies internal processes necessary to provide and support the service delivery
Service delivery is an important constituent of service business that clearly defines the
interaction path between providers and customers; wherein the provider offers a service,
whether its information or a task and the customer finds either value or loses value because
of the processes. Good service delivery provides clients with an increase in value, which is
substantial in case of satisfied customers.
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Service Encounter
Fig 3.4: Satisfied Customer
Probably, one of the most common domains of service delivery is the Information Technology
Infrastructure Library (ITIL). During the service delivery process of ITIL, the service providers
clearly:
• Specify the content of services
• Detail the roles and responsibilities of the customers and users in the service delivery
• Define the roles and responsibilities of the service providers and set service quality
expectations as well as availability and timelines in the process
Thus, there is a clear onus on the service providers to meet the commitments in terms of the
service delivery, and the customers have a realistic list of expectations from the service
delivery.
Service delivery is common to different service-related functions and companies or

organisations such as information technology, hospitality, healthcare, education and BFSI
sectors. Different sectors have specific service design and delivery related templates for the
process. For instance, the airline segment has its own set of standard service delivery
practices that are followed by most companies in this domain. Similarly, banks have a specific
template that meets the needs of this sector.
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Service Encounter
Nowadays the IT and IT infrastructure component are given a lot of prominence since most
processes of any sector have a dependency on IT. In these practices, service level
management is as important as service level delivery and can be crucial in terms of the
pricing of the service and continued business. Service level management provides a
comprehensive framework wherein, services are defined, and levels of service support are
agreed upon by all the parties involved. There are service level agreements and operational
level agreements that are created. Additionally, the costs of services are developed. Service
level management defines the IT and business roles and establishes clear goals for both roles.
2. Service Effectiveness
Service effectiveness relates to the effectiveness of all the components (such as service
provider, service delivery process and customer) involved in service delivery. The aspect of
service encounter and the moment of truth could determine the service effectiveness.
Service Encounter
A period of time during which a customer directly interacts with a service through any
channel or point in the service delivery process.
Moment of Truth
It’s an interaction that the customer has with the brand, product or service and not
necessarily during the service delivery process. The moment of truth refers to the creation or
change of impression created in the mind of the customer.
Though service effectiveness is subjective, some methods and tools can be used to measure
service quality and service effectiveness. It’s essential to utilise the service encounters and
convert these opportunities into successful service delivery ‘moments’.
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Service Encounter
2.1. Four Qualities Customers Seek in a Service Encounter
The four qualities that customers seek in a service encounter are referred to as the STAR
Qualities and are listed below:
• Seamless – Customers do not want to speak to too many people and expect one point
of contact while availing the service.
• Trustworthy – Customers evaluate the ability of the firm to provide what was
promised, dependably and accurately.
• Attentive – Customers want to be acknowledged quickly, politely and treated with
respect. They expect the service providers to be attentive and respond to them
immediately with interest.
• Resourceful – Customers expect the firms to meet and handle their requests or needs
in prompt and creative ways.
2.2. Assessment of Service Effectiveness
Assessment of service effectiveness can help a company answer questions like:
Are we on the right track?
Are the customers happy with our

service delivery?
Are we meeting the service

expectations of our customers?
Where can we improve?
Are there any gaps in the service

effectiveness?
Fig 3.5: Evaluation of Effectiveness of Service
However, it is not simple, obvious or easy to evaluate the service effectiveness.
9
Service Encounter
Two broad approaches are used to assess the effectiveness of service, which are internal and
external service measurement techniques.
2.2.1. Internal Service Measurement Techniques
By internal service measurement techniques, we mean that we don’t involve the customer
directly in the measurement process. A balanced scorecard 360-degree approach that
combines these tools and approaches to assess the services delivery from a holistic
standpoint effectively. In this case, employees or service providers put themselves in the
shoes of the customer. Three internal service measurement techniques can be applied.
2.2.1.1. Call Monitoring
This kind of evaluation technique is typically used in back-end operations/phone banking kind
of roles. In this case, trained call evaluators listen to the service interactions and evaluate the
quality of the service delivered along with a standard service scorecard. The evaluator might
do more than listening; they may also be “shadow monitoring” by watching the executive’s
software usage chart or the computer screens from a remote location.
Fig 3.6: Call Monitoring
There are several advantages for the company by using this technique.
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Service Encounter
1. The first advantage is that this technique is not obtrusive. The call centre executives or
phone banking executives do not know when and how they are being monitored.
2. The second advantage is that this kind of evaluation can be done in real time. Thus, the
process gaps, if any, can be addressed and remedied quickly.
3. The third advantage is that the executive is evaluated against an established set of
criteria, thus outlining the scope of improvement.
The technique also has certain limitations. For example, there may be some subjective
element in the evaluation. The evaluators need to be trained to use the evaluation tool, and
the evaluation tool needs to be reviewed and updated constantly.
2.2.1.2. Mystery Shopping
This technique is widely known for its utility in areas like retail. However, service industries
including banks are now using this technique to assess service effectiveness. In the case of
mystery shopping, the mystery shopper or evaluator pretends to be an actual customer and
explores the various paths possible in a service interaction in terms of availing the service(s).
The mystery shopper or evaluator would have a scorecard with a detailed scoring description
against each parameter.
Fig 3.7: Mystery Shopping
An important advantage of this measurement approach is the ability to test different service
points or personnel specifically and has the first-hand experience of the service. It is stepping
11
Service Encounter
into the shoes of the customer. In case of some other assessment techniques, you take what
you get. Further, an evaluator does waste an executive’s time. However, no real customers
are directly affected in the process and the time spent overall is minimal.
The limitations start with the cost. Hence, this technique cannot be used to scale. Further,
the experiences may sometimes be biased, based on the evaluator’s mood and thought
process. Mystery shopping is not very widely used in banking. However, some banks use it to
test new services or new service departments like digital banking.
2.2.1.3. Service Quality Audits
Audits are an important exercise in the service assessment or service delivery process.
Service quality auditors are qualifiers and need to go beyond the documentation mandate.
Service quality auditors are usually seniors in the system and have a clear understanding of all
the service-related aspects. They are also formally certified based on the organisational
requirements.
Fig 3.8: Service Quality Audits
These audits can help the company to take preventive steps and avoid service failures or
service risks. In most cases, service quality audits are periodic and happen without prior
notice or preparation time being given to the service provision team.
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Service Encounter
3.1.1. External Service Measurement Techniques
External service measurement techniques are dependent on external parties or agents to

help them in gathering the required data points relating to customer service and satisfaction
levels. In this case, the customer may be directly involved in the process and is an active
participant in the evaluation process. Let’s look at some of external service measurement
techniques in detail.
3.1.1.1. Unsolicited Comments
Fig 3.9: Unsolicited Comments
Many a time customers leave unsolicited comments or feedback. Means they give important
information to the service providers about the levels of service effectiveness and the level of
service-related satisfaction. Some aspects which may not be detected by any other forms of
feedback, but may be detected through unsolicited comments or feedback from the
customers. Unsolicited comments have to be integrated into the service improvement plan.
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Service Encounter
3.1.1.2. Personal Interviews
Fig 3.10: Personal Interview
Personal interviews can give service providers an in-depth understanding of service delivery.
From the service effectiveness angle, these subjective insights give service brands a great
deal of detail with regard to service effectiveness. Personal interviews are most effective
when a structured schedule is used for the exercise. The nature of the questions determines
the quality of the responses being elicited. The interviewer should be trained in interview
techniques and methods so that the interviewee is at ease and responds in a proper manner.
For example, the interviewer should be aware of the rapport building, introduction, core of
the interview questions and the closing stages. To start the process, the interviewer can
make the interviewee comfortable by asking questions about general topics like weather,
local cuisine etc. and then he can introduce himself to the interviewee and then proceed to
the next stage of the actual interview and questions on the customer service experience.
3.1.1.3. Focus Groups
Focus groups are also known as “small group interviews”. In this case, rather than
interviewing each person individually, people are interviewed in small groups, typically
known as ‘focus groups’. The key advantage of this technique is the level of interaction
14
Service Encounter
among the participants gives the service provider a great deal of information. The data is also
more efficient since it is gathered from a large number of people at once.
Fig 3.11: Focus Group
However, logistics can be an issue. This exercise needs meticulous planning and execution.
Ideally, the customers must be geographically clustered, unless online discussion group is
being used. The moderator must have the ability to facilitate a good discussion and avoid the
trap of excessive detailing and excessive repetition.
3.1.1.4. User Group Feedback
User group meetings give the service provides an excellent opportunity to collect and collate
a wealth of information relating to the service process. Gathering feedback at user group
meets through interviews or focus groups is a very common, plain vanilla method. In this
case, the service providers have a group of people who have a very strong sense of
commitment to the products or services. They are likely to be very willing to tell you what
they feel and what they would like to see in the service being provided. User groups consist
of customers who have been associated with the service provider for a long time. They are
usually a voluntary group offering to give feedback and inputs unlike focus groups, who may
be purposive and not voluntary in nature.
15
Service Encounter
Fig 3.12: User Group Feedback
In a way, this strength is also the limitation of the approach. These are current customers,
and they will drive product ideas towards improving their own use of the product or service
rather than product ideas that may be the need of an expanded market, at a later point of
time. These customers may also now feel ownership for product direction and become
disenchanted or disengaged in case they don’t see what they proposed being accepted.
Positioning is critical to user groups.
3.1.1.5. Mass Administered Surveys
Fig 3.13: Mass Administered Surveys
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Service Encounter
Typically, mass administered surveys are the ones which are administered to a massive group
of people. Mass administered surveys are applicable in case of service brands who have a
very large customer base and need to get valuable feedback from them. The data collected
through this method is considered strong and has more validity compared to some other
methods like focus groups since they provide data collected from a wide database of
customers.
4. Strategies for Improving Service Delivery

The two important strategies for improving service delivery are as follows:
Strategy 1: Clearly know what the customer expects
Strategy 2: Deliver on what the customer perceives as good service
4.1. Strategy 1: Clearly Know What the Customer Expects
Customer expectations may differ from customer to customer and depend on the product or
service. Some of the basic expectations from a bank are mentioned below along with ways to
meet or exceed these expectations.
Expectation 1: Value me, my business and my time
• Welcome and greet him when the customer walks in

• Personalise the interaction by using his/her name
• Respect his/her time and attend to him/her immediately
• If he/she needs to wait, explain the reason
• Do not trivialise his/her issue
• Thank him/her for banking with you
Expectation 2: Understand me
• Listen to him/her
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Service Encounter
• See the issue from his/her point of view

• Acknowledge his/her feelings
Expectation 3: Be reliable
• Be reliable both in delivery and commitment (do not overpromise)

• Zero errors in what we do for him/her
• Get it right in the first time itself
• Communicate correct information to him/her
• Follow-up on commitments made
Expectation 4: Give me solutions, not excuses
• Offer to help
• Take action
• Provide a solution
• Suggest alternatives
Expectation 5: Advise me. What are my alternatives and possibilities?
• Know your product, procedure and service deliverables

• It is not the customer’s responsibility to ask us about services
• It is our job to tell him!
4.2. Strategy 2: Deliver on What the Customer Perceives as Good Service
Consistency, differentiation and the service proposition impacts customer perception of

service.
• Consistency in delivering that experience over time and all locations where the same
service is delivered
• Consistency requires the systemisation of processes and behaviours so that all know
what to do and when
• Consistency = predictable service quality not lack of flexibility
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Service Encounter
• Consistency builds trust by making experience predictable

• Lack of consistency erodes trust because the customer does not know what to believe
• Differentiation from competing brands – proactivity and care and courtesy
• Proactivity is the behaviour that shows customers that you are taking the first step
• It is not about fulfilling their request or finding an answer to their question but of
determining whether they have a request or question that you can help them with
before they ask (unstated needs)
• Greet customers and ask what we can do for them before they tell us
• Suggest better alternatives
The perception of the quality of banking services will differ from customer to customer and
even for the same customer at different points of time, depending on the mood and mindset
of the same user at a particular point of time. For example, a customer, who needs money
and comes to an ATM on a Sunday to find that it is not working, is likely to be much more
dissatisfied than if he/she was to see the same ATM temporarily out of order on a day when
on his/her way to work.
Fig 3.14: Perceptions of Banking Service Quality
Some other factors that may influence perceptions of banking service quality are:
• Overall ambience at the bank

• Past experiences with the bank
• Familiarity with the services offered by the bank, the procedures followed etc.
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Service Encounter
• Knowledge of or experience with competitor’s products and services

• Banking with a particular bank which may be regarded as a status symbol
5. Customer as a Co-producer of Service

In several primary service environments, the customers could play a comparatively passive
role, while they wait to avail the service but act as co-producer of services. As long as the
customers can clearly express their needs and are willing to pay promptly for the services
availed by them, they play a very small role in the process of service delivery (you could think
about different branch transactions). However, in certain cases, customers are required to
participate in the production process actively, and the level of participation of the customers
in the production process can be a very important input to determine the outcome in terms
of customer satisfaction. An investment decision is one such instance wherein active
participation of the customer is expected so that the end outcome or level of satisfaction
would be high.
Customer participation refers to the actions and resources supplied by customers during
service production and/or delivery. It includes customers' mental, physical and emotional
inputs.
Service Firms as Teachers
Although service providers try to integrate the ideal level of customer participation in the
service delivery process, in reality, customers’ behaviour and preferences will determine the
actual amount of participation.
A lower rate of participation can cause customers to experience a decrease in service

benefits (a good example is that of the learner in the classroom environment or a patient
who is expected to follow a prescribed diet).
A higher rate of participation may lead to a situation; wherein the firm may spend more
resources in customising a service that was originally intended (it may be a request for
customisation of the different loan options).
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Service Encounter
Service providers need to teach their customers the kind of roles, the level of participation
and the service production pattern that can be termed as an optimal service provision.
Whenever the customers are expected to do more than necessary, the greater their need for
guidance the performance measures. The necessary training or guidance can be given to
customers in several ways. Information brochures/manuals/charts and instructional videos
are the approaches that are being widely used today. Automated machines or instruments
often consist of detailed operating guidelines and flow charts (unfortunately, these are
complicated for the customers).
Thoughtful banks could place a phone banking solution besides their ATMs/CDM so that the
customers can call a phone banking executive for guidance and get advice at any time if they
are not clear about the on-screen instructions. Advertising for new services often contains
significant educational content.
In the case of several service providers, customers could look towards the employees for
advice, and guidance and they could become frustrated if they cannot obtain it. All the
service partners, backend customer support team and customer service representatives must
be effectively trained to help them improve their teaching skills. In certain cases, the last
resort, people may turn to other customers for help, which is not an ideal situation for the
service provider.
Service preview: a demonstration of how a service works to educate customers about the
roles that they are expected to perform in the service delivery process. Some researchers
argue that firms should view customers as "partial employees", who can influence the
productivity and quality of service processes and outputs.
6. Service Profit Chain

The service profit chain is a theory and business model evolved by a group of researchers
from Harvard University in the nineties. It establishes relationships between profitability,
customer loyalty, employee satisfaction, loyalty and productivity. Profit and growth are
encouraged primarily by customer loyalty. Loyalty is a direct result of customer satisfaction.
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Service Encounter
Satisfaction is largely influenced by the value of services provided to the customers. Satisfied,
loyal and productive employees create value. Employee satisfaction, in turn, results primarily
from high-quality support services and policies that enable employees to deliver results to
the customers.
The service profit chain dissects the levers that translate good service into profitability. The
outcome of having clear numbers and understanding these factors for the companies that
have done it, is an increased focus on empowering employees.
Leaders, who understand the service profit chain, develop and maintain a corporate culture
centred on service to customers and employees. They display a willingness and ability to
listen. There are several links in the profit chain, which act as the points of succession for the
value delivery and enabling profits for the company. The below-mentioned diagram clearly
outlines the important links, which are:
• Internal service quality

• Employee satisfaction
• Employee retention
• Employee productivity
• External service value
• Customer satisfaction
• Customer Loyalty
• Revenue Growth
• Profitability
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Service Encounter
Fig 3.15: The Links in the Service Profit Chain
The service profit chain is also defined by a special kind of leadership. CEOs of exemplary
service companies emphasise the importance of each employee and customer. For these
CEOs, the focus on customers and employees is no empty slogan tailored to an annual
management meeting. For example, Herbert Kelleher, CEO of Southwest Airlines, can be
found aboard aeroplanes, on tarmacs and in terminals, interacting with employees and
customers. Kelleher believes that hiring employees who have the right attitude is so
important that the hiring process takes on a “patina of spirituality”. In addition, he believes
that “anyone who looks at things solely in terms of factors that can easily be quantified is
missing the heart of the business, which is people”.
William Pollard, the chairman of ServiceMaster, continually underscores the importance of

“teacher-learner” managers, who have what he calls “a servant’s heart.”
And John McCoy, CEO of Banc One, stresses the “uncommon partnership,” a system of
support that provides maximum latitude to individual bank presidents while supplying
information systems and common measurements of customer satisfaction and financial
measures.
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Service Encounter
7. Service Supply Chain

The service supply chain drives the service delivery and is the end-to-end connector of all the
process components usually mentioned in the service blueprint. For instance, in banking the
service supply chain for ‘forex’ service provided to the customer will relate to the elements
like the bank, the exchange mechanism, the other financial institutions involved and the
customers themselves.
The service supply chain consists of four important elements:
• Supplier: Refers to the primary supplier or company that is involved in the supply of
materials or information in the service supply chain eco-system. This could usually
refer to third-party vendors, who are the suppliers as defined in the service level
agreement.
• Service Design: Refers to the aspect of how the service design and the service
standards that have been specified. The service design aspect is extremely critical
since this could be a primary differentiator of service leading to the set of
expectations on the part of the customers.
• Service Provider: Refers to the brand or the company or organisation that is offering
the service to the customers. The service providers are the front-end of the service
supply chain, and they are the ones who absorb the cost at different junctures in the
service supply chain.
• Customer: The customer is at the other end of the service supply chain relationship
and sets the expectations in the service supply chain eco-system. The customer is also
an evaluator of the ‘value’ proposition being offered by the different elements in the
service supply chain.
7.1. Functions of the Service Supply Chain
There are two important functions in the service supply chain:
Material Transfer: Refers to all tangibles being transferred from one point to another in the
service supply chain. Tracking and evaluation of these elements are comparatively easier in
this case.
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Service Encounter
Information Transfer: Refers to the non-tangibles or the information or data that flows from
one point to another in the service supply chain. Proper information transfer is critical for the
smooth functioning of the service process and tests the service design element to a great
extent. Sometimes, tracking and evaluation of the information transfer aspect may be
difficult depending on the service environment. For example, in the banking context, the
data that relates to the total credit provided by a branch, the branch targets for this
functions, affirmative action for increase in the level of credit, the averages to be met in
specified period and the sector wise credit allocation are the data points and this data flows
from one point to another in the service supply chain.
7.2. Source of Value in Service Supply Relationships
1) Bi-directional Optimisation
• Bi-directional optimisation implies the possibility of doing what is the best from the
customer’s perspective while doing the best for the service enterprise.
• It is simultaneous optimisation of both supply and demand for the service.
2) Managing Productive Capacity

• Management of the productive capacity in a service supply chain can be carried out
through:
a) Transfer: By making knowledge available to the customers and the end-users of
the services through tools like web-based FAQ’s or instructional videos and
flowcharts.
b) Replacement: Providing substitute technology for availing of the services, which
can make the service delivery easier and more convenient through tools like
mobile banking app or internet banking solutions.
c) Embellishment: Enable self-service by teaching the customer about a certain
process or task. For example, investment awareness workshops or seminars
carried for the customers that give them an idea of investment options, opening
a demat account online, operating a demat account etc.
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Service Encounter
3) Management of Perishability (Mobile workers)

• Reduce idle time of workers because that is lost capacity.
• If you can communicate with workers, then you can change their schedule to
optimise capacity. If no communication is available, then you have to work with a
fixed schedule and cannot deal with uncertainties in the best possible way.
• Managing perishability also involves training and extending the skills and capabilities
of workers to work at more than one station – to match changing needs. For
example, banks train their employees to handle more than one function, so that
they are able to manage perishability and reduce idle time. This could be a necessary
trait in the future to lower manpower in each branch, wherein the existing
employees will need to know and contribute to more than one function like cash
handling, loan desk, digital banking etc.
Fig 3.16: Links in the Service Supply Relationship
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Service Encounter
7.3. Outsourcing Service Components
The role of service intermediaries and service partners is critical in the service delivery
process and can be detrimental in addressing customer expectations and ensuring customer
satisfaction. The service intermediaries could be third-party vendors, technology partners,
outsourced employees and contract staff. The customer does not differentiate between the
direct employees or service representatives and the service intermediaries in terms of
expectations from the service staff. Hence, the service provider has to be extremely careful
while choosing service intermediaries and service partners.
Whenever any service component has to be outsourced, the service provider has to focus on
the following aspects:
1. Focus on Property
2. Focus on People
3. Focus on Process
1. Focus on Property
Facility Support Service:
• Low cost
• Identify the responsible party to evaluate the performance
• Precise specifications can be written
Equipment Support Service:
• Experience and reputation of the vendor

• Availability of vendor for emergency response
• Designate a person to make service call and to check that service is satisfactory
2. Focus on People
Employee Support Service:
• Contact vendor clients for references
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Service Encounter
• Specifications prepared with end-user input

• Evaluate performance periodically
Employee Development Service:
• Experience with particular industry important

• Involve high-levels of management in vendor identification and selection
• Contact vendor clients for references
• Use employees to evaluate vendor performance
3. Focus on Process
Facilitator Service:
• Knowledge of alternate vendors important

• Involve end-user in vendor identification
• References or third-party evaluations useful
• Have user write detailed specifications
Professional Service:
• Involve high-level management in vendor identification and selection

• Reputation and experience very important
• Performance evaluation by top management
8. Service Level Agreements

Service Level Management (SLM) can be defined as being “responsible for ensuring that all its
service management processes, operational level plans or agreements and underlying
contracts, are suitable for the agreed-upon service level targets. SLM monitors and reports
on service levels and holds regular customer reviews”.
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Service Encounter
In other words, the primary criterion for any specified information to be included within a
Service Level Agreement (SLA) is that it must be specific and measurable and that the
language used is simple and clear to help the readers understand the document easily.
8.1. Design of SLA Structures
There are several ways in which SLM can be deployed in designing the structure of the SLAs.
In this process, we need to consider the following factors carefully:
• Will the SLA structure permit flexibility in the levels of service to be delivered for various
customers?
• Will the SLA structure necessitate duplication of effort?
• Who are the stakeholders who will be the signatories of the SLAs?
What is SLA Content?
SLA document typically consists of:
• Introduction: What does this agreement propose?

• Service description: What service this SLA supports and details of the service?
• Mutual responsibilities: Who is responsible for what part of the service?
• Scope of SLA: What is the detailed requirement of service?
• Applicable service hours: From what time till what time is the service available
according to the agreement.
• Service availability: How much is the service available during the service window and
outside of the service window?
• Customer support arrangements
• Contact points and escalation: A communication matrix
• Service performance
• Security
• Costs and charging method used
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Service Encounter
Therefore, an SLA is a comprehensive document that acts as a guarantee of the service

provider according to mutually agreed terms between the customer and the service provider.
The SLA document is also an evaluation instrument that can determine the effectiveness of
service delivery.
Information Technology Information Library (ITIL) emphasises on three types of possibilities

for structuring the SLA:
• Service-based SLA: Refers to single service or standalone service SLAs

• Customer-based SLA: Customized SLA which may be different from the template, to suit
the needs of the customer.
• Multi-level or Hierarchical SLAs.
Several important factors have to be considered while deciding the type of SLA structure that
has to be adopted by the organisation.
Commonly known multi-level SLA structure components include:
1. Corporate level: Most of the generic problems or decision choices of the organisation
should be covered in SLA, and they are the same throughout the entire organisation.
For example, with a specific security SLA at the organisation level:
• Every employee needs to create passwords of 6 multiple-characters and needs to
change it every sixty days (or)

• Every employee should have an identity or organisational access card with his/her
latest photograph (or)
• Every employee needs to adhere to the biometric-related specifications as mentioned
in the SLA.
2. Customer level: Those problems that are specific to a customer that can be covered using
this type of SLA.
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Service Encounter
Security requirements of one or more units in the organisation may be higher compared to
that of other departments or units. For instance, the CCTV monitoring unit needs higher
security measures by virtue of the confidentiality that needs to be maintained by this unit
since it involves privacy issues.
3. Service Level: All problems or issues of a specific service (to the customer) can be covered
in this type of SLA.
This kind of SLA can apply to all customers having a contract with the same service provider.
For example, contracting IT support services for everyone who uses a particular network
service provider.
Using a multi-level structure for a large organisation reduces the duplication of effort while
still providing customisation for customers and services. Therefore, corporate level SLAs
apply to everybody and every department in that organisation; customer level SLAs apply to
the department and so on.
9. Summary
• A service delivery process is a sequential description of the integrated approach that

is required to carry out certain tasks or transactions.
• The service definition is crucial to support good service management. Service
definition allows both the customer and the process facilitator or service provider to
identify what to expect and what not to expect from a service.
• Service delivery is an important constituent of service business that clearly defines the
interaction path between providers and customers; wherein the provider offers a
service, whether its information or a task and the customer finds either value or loses
value because of the processes.
• Service level management provides a comprehensive framework wherein, services
are defined, and levels of service support are agreed upon by all the parties involved.
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Service Encounter
• Service effectiveness relates to the effectiveness of all the components involved in

service delivery. The aspect of service encounter and the moment of truth could
determine the service effectiveness.
• Four Qualities that Customers Seek in a Service Encounter are:
o Seamless
o Trustworthy
o Attentive
o Resourceful
• Assessment of service effectiveness is an evaluation or assessment of the service
delivery process.
o Internal Service Measurement Techniques
▪ Call Monitoring
▪ Mystery Shopping
▪ Service Quality Audits
o External Service Measurement Techniques
▪ Unsolicited Comments
▪ Personal Interviews
▪ Focus Groups
▪ User Group Feedback
▪ Mass Administered Surveys
• Strategies for improving service delivery are:
o Strategy 1: Clearly know what the customer expects
o Strategy 2: Deliver on what the customer perceives as good service
• The service profit chain establishes relationships between profitability, customer

loyalty, employee satisfaction, loyalty and productivity.
• The service supply chain consists of four important elements, which are:
o Supplier
o Service Design
o Service Provider
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Service Encounter
o Customer
• Two important functions in the service supply chain are:

o Material transfer
o Information transfer
• An SLA document typically consists of:

o Introduction
o Service description
o Mutual responsibilities
o Scope of SLA
o Applicable service hours
o Service availability
o Customer support arrangements
o Contact points and escalation
o Service performance
o Security
o Costs and charging method used
10. References
• Service Marketing – Integrating customer focus across the firm by Valarie Zeithaml,
Mary Jo Bitner, Dwayne D Gremler and Ajay Pandit. Mc Graw Hill Companies, 4th
Edition.
Sinha and Rakesh Sharma. Biztantra.
• Research Methods for Business-A Skill Building Approach by Uma Sekaran, Wiley India
Edition, Fourth Edition.
• Marketing Research-An Applied Orientation by Naresh K. Malhotra, Pearson
Education Asia. Third Edition.
• Business Research Methods – S N Murthy, U Bhojanna.
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Service Encounter
• Marketing Research by A. Parasuraman, Dhruv Grewal and P Krishnan, Biz tantra.
11. Web References

https://www.wisdomjobs.com/e-university/principles-of-service-marketing-management-
tutorial-310/the-customer-as-coproducer-10425.html
https://www.reference.com/business-finance/service-delivery-b40d5bbd6275c5da
https://www.linkedin.com/pulse/important-service-delivery-support-kumar-chetan
https://www.business2community.com/customer-experience/service-profit-chain-works-
care-01639838
https://hbr.org/2008/07/putting-the-service-profit-chain-to-work
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Unit 4 – Service Strategy
Service Strategy
Table of Contents
1. Service Culture ................................................................................................................................ 5
1.1 Developing a Customer Service Culture ................................................................................. 6
1.2 Strategies to Promote a Positive Service Culture ................................................................... 9
2. Service as a Competitive Advantage ............................................................................................. 10
2.1 Steps to Achieve Customer Service as a Competitive Advantage ........................................ 11
3. Service Strategy Formulation ........................................................................................................ 14
3.1 Steps to Establish a Service Strategy .................................................................................... 15
3.2 Factors Affecting Formulation of a Service Strategy ............................................................ 17
3.3 Determination of Service Strategy Formulation ................................................................... 18
4. Technology in Services .................................................................................................................. 18
4.1 Transformational Challenges and Opportunities for the Future of Banking ........................ 20
4.2 Challenges in Adopting New Technologies ........................................................................... 21
5. Driving Operational Improvement in Services .............................................................................. 22
5.1 Technique for Operational Improvement of Services .......................................................... 24
6. Social Media as a Service Tool ...................................................................................................... 27
6.1 Advantages and Disadvantages of Social Media................................................................... 28
7. New Service Development Process............................................................................................... 29
8. Digital Banking and Customer Service .......................................................................................... 31
9. Summary ....................................................................................................................................... 33
10. References .................................................................................................................................... 35
11.1 Web References .................................................................................................................... 36
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Service Strategy
Unit Description
In the previous unit, we have discussed the concept of ‘service encounter’ and its ultimate
impact on the profit chain and the role of intermediaries. In this unit, we will examine and
analyse service culture, the process of new service development and the role of technology
in service delivery.
In the last few years, there has been a rapid change in the way a customer is being served.
These changes, especially in the area of technology, have affected all service industry
including banking industry. Banks and financial institutions are trying their best to support
customers with the ‘best technology experience’. This is evident in the advertisements by the
banks wherein features like net banking, mobile banking and tab banking are presented
prominently. Great customer service is no more a value-add. It is the heart of all business and
service components. The ‘service strategy’ revolves around the theme of designing and
delivering great customer service in all possible service opportunities. From the service
conceptualisation stage to the customer delivery stage, options to delight the customer
consistently are being explored.
Fig 4.1: Best Technology Experience
As discussed in the previous unit, the customer acts as co-producer of the service, and
he/she is an integral part of this framework for great service delivery. In sectors like banking,
technology plays a key role in the delivery of services and greatly determines customer
satisfaction. Customers simply hate it when there is a failure in the technology part. Any
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Service Strategy
failure on the technology has a significant effect on the customer’s perception of the bank.
When the customer sees any message like, “Server busy. Please try again” or “This service is
currently unavailable. Please try again later”, he/she loses confidence on the bank and
becomes a case of possible attrition. In the case of millennials, ‘Technology’ and ‘Digital
Banking’ form a major part of their service experience, since they prefer to carry out most of
the transactions by themselves. Technology is driving the constant refinement of the digital
banking experience offered to the customers, and many banks aim to position themselves as
great digital banking brands.
Further, social media has revolutionised the world of banking and financial services, much
like many other sectors. Banks are actively engaging with their customers on social media
options like Facebook, WhatsApp, Twitter, Instagram etc., and trying to explore avenues for
service delivery through social media. Social media is the new ‘virtual word of mouth’ and has
the potential to make messages ‘viral’. This can help or hurt any brand and hence companies
are investing their resources in effectively managing the social media accounts. Many
customers share their stories, experiences, frustrations and expectations on social media
networks. These are important inputs or feedback for companies to improve their service
delivery.
Learning Objectives
• Describe service culture.

• Explain the concept of service as a competitive advantage.
• Explain the service strategy formulation and development.
• Discuss the technology in services.
• Discuss the driving operational improvement in services.
• Explain the role of social media as a service tool.
• Explain the process of new service development.
• Describe digital banking.
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Service Strategy
1. Service Culture
“Customer service should not be a department. It

should be the entire company.” -Tony Hsieh
In Richard
a broadBranson
sense, service culture consists of different aspects that affect the common
understanding of ‘service’ in the company and includes values, beliefs, norms, rituals and
practices of a group or organisation, aimed at serving the customer in a better manner.
Fig 4.2: Customer-centric Approach
A service culture is said to exist when the company is able to motivate their employees to
take a ‘customer-centric approach’ to their regular tasks and responsibilities in the
organisation. Employees, primarily in the sales and service, need to put customer needs first
while proposing service solutions and providing any kind of customer support. Other
employees work behind the scenes to ensure the customers get a good product experience.
Developing a service culture requires time and consistency.
Zappos is an excellent example of how a service culture can be developed and strengthened
over a period. Zappos customer service is the envy of any company looking to brand itself as
one that promotes great support as one of its core values. First, Zappos culture (which cares
about more than just shoes) obsesses about the employee experience and then focusing on
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Service Strategy
all touch points related to engagement, and evangelism. Zappos customer service has
developed a reputation as a company of choice and a loyalty champion.
Service culture can be defined as “an organisational culture where there is a collective way in
which the employees think about providing outstanding service, act to provide it and
understand how and why they do it”.
1.1 Developing a Customer Service Culture
Developing a customer service culture is not an easy task, which involves collective effort and
consistency. A company can gain a cult appeal or a distinct competitive advantage using
service culture. For every company that has successfully developed a robust customer service
culture, several others have not been able to do so. Hence, it’s important for companies to
learn from each other and develop a good customer service culture. There are four important
steps involved in the development of a service culture. They are not sequential but are
interdependent. They are as follows:
Seek Feedback
Fig 4.3: Seek Feedback
The first step with respect to developing a service culture is to show genuine interest in
discovering what your customers want from your company, products and services.
Continuous and intensive research can:
• Help organisations in understanding how they are currently performing in the

customer service domain.
• Give some useful insights into the improvements that are necessary to strengthen
loyal relationships.
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Service Strategy
Employees are usually more involved in customer service and inculcate a ‘customer-first’
mindset if they feel that the company as a whole is working towards this objective through
research and affirmative action.
Communicate and Establish Consistency
Fig 4.4: Set Vision & Mission
Company culture is an aspect that usually begins from the top-level management and
percolates to the lower-levels in an organisation. The top-level management sets the vision
and mission, which act as an input into strategy, policy and practices in the organisation.
Hence, the actions and words of the top-level management set the tone for what employees
view as core philosophies of the company or organisation. If the top-level management is
able to project service attitude as being important in customers transactions, that benefits
the structure aspect of driving the customer service culture. Therefore, there is a need to
establish and effectively communicate the vision and company objectives that emphasise
customer service. The mid-level managers also play an important role in driving this message
to the lower-level employees or customer service executives who interact with the
customers on a regular basis.
Reward and Recognise
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Service Strategy
Fig 4.5: Reward and Recognise
In order to incorporate viability in any kind of a cultural component in an organisation, there

must be the reinforcement of its importance through actions. To establish and maintain a
proper service culture, you need to include the appropriate service standards in the job
descriptions, employee evaluation and fixing of compensation and benefits. If you highlight
customer service in audits, assessment of candidates and promotion decisions as a part of
the overall performance management system, then the effectiveness is increased multi-fold.
Publicly recognising the top service performers with a structured rewards and recognition
program will surely help in encouraging employees to work on their reputations as elite
customer service performers. You may also have to re-train and improve the performance of
workers who may not understand the service culture set by the organisation.
Set Policies and Train
Fig 4.6: Set Policies and Train
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Service Strategy
The service culture in any organisation can be established, developed and improved through
formal documentation and proper communication. The customer service ethos of the
organisation can be communicated through the vision and mission of the company, the
company’s website, the customer service policy of the company and the standard customer
service practices. This can reflect in all forms of communication with internal and external
customers of the company. After the development of these policies, the employees must be
adequately trained in order to deploy these policies in their customer service efforts. This
process should be a part of the induction or orientation program for the new employees of
the company.
1.2 Strategies to Promote a Positive Service Culture
Successfully developing and establishing a strong service culture in any company is one of the
best ways to enhance client satisfaction, keep your employees satisfied and create a healthy
work environment that can help service teams to thrive and improve continuously.
Ultimately, a good service culture means that every activity is completed with a ‘customer-
centric’ frame of mind, irrespective of whether the task directly impacts them. In a high-
performance service culture, the employees should put customers first, prioritise quality and
always maintain a high level of integrity. However, the aspect of a strong service culture is so
much more. It is a state of mind, a set of beliefs and a core value for employees to rally
around.
The following strategies can help companies in promoting a positive service culture:
• Explore organisational vision and establish connection with the service culture
• Clearly communicate culture and vision to the employees
• Demonstrate ethical behaviour in your dealings with the customer
• Identify or improve service skills consistently
• Become an expert in service delivery
• Demonstrate commitment to your customers
• Partner with customers on all possible avenues
• Work with customer’s interest in mind
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Service Strategy
• Treat vendors or suppliers as customers
• Share resources with your customers
• Work with customers in a concrete manner
• Provide proper service follow-up
• Train, un-train and re-train employees as and when needed
• Establish open communication channels
• Empower your employees
• Believe that ‘status quo is not acceptable’ and let that reflect in your actions
2. Service as a Competitive Advantage

Competitive advantage refers to the edge that a company may have over other companies by
virtue of its expertise in a certain domain or a function.
It can be defined as, “A superiority gained by an organisation when it can provide the same
value as its competitors but at a lower price or can charge higher prices by providing greater
value through differentiation”.
Fig 4.7: Service as a Competitive Advantage
Competitive advantage results from matching core competencies to the opportunities.

‘Customer service as a competitive advantage’ means different things to different companies.
Often, this aspect is overlooked in the overall scheme of things. However, this is a critical
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Service Strategy
requirement for companies to grow and thrive in a constantly changing market scenario.
Brands fiercely compete with each other to gain customer attention and struggle to bring
customers to their doorsteps. Once this is achieved, the customer service part should do the
finishing job. New customer acquisition is only a partial job. Products and brands may come
and go, but customer service should stay forever.
Customer service is one of the last frontiers of a sustainable competitive advantage. It is one
of the best avenues to increase the company’s profits. Yet many companies still treat it like a
cost function, which is surely a misnomer. Top-level management leaders often pay lip
service to the actual value of customer service, while taking several initiatives to decrease
costs. However, it is ideal to adequately invest in good customer service, which is a
remarkable opportunity for consistent growth. Further, many mid-level management
executives may try to codify and narrowly define good service and fail to capture the essence
of good customer service. They can try to simplify and be generic in approach by saying
things like “the customer is always right,” “the customer is the king” or they can choose to
properly invest in creating detailed processes and procedures for their employees to follow
to achieve customer service as a competitive advantage.
This kind of strategy can surely work if the company’s goal is to meet customer expectations.
However, the excellent customer will strive to achieve more than a five-star rating or a
positive review from a small group of customers. The core philosophy, in this case, is built
around caring for the customers, more than anyone else or anything else.
2.1 Steps to Achieve Customer Service as a Competitive Advantage
Simple actions by the employees of the company communicate a lot about the customer-
centricity and the ‘customer first’ approach. For instance, if the bank’s employees invest their
time and effort in helping the customers, evaluating and comparing different investment
products or services instead of just pitching standard products or services; then it clearly
displays a customer-centric approach.
This leads us to some important questions.
• How can you create exceptional customer service?
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Service Strategy
• How can you turn genuine care into a true competitive advantage?
• What are the steps in achieving customer service as a competitive advantage?
• Who is responsible for achieving customer service as a competitive advantage?
There are five important steps with respect to achieving customer service as a competitive
advantage.
Start at the top
Hire people that care
Create a culture that cares
Shift from win/lose to win/win or no deal
Train your people to embrace conflict
Fig 4.8: steps to Achieving Customer Service as a Competitive Advantage
1. Start at the top.

If you really intend to build an organisation that genuinely cares, you have to start
with leaders that care. The actual point of contention with regard to organisational
leadership is not “what do you value?”, but it is “what do you value more?”. All
employees need to inculcate a set of values:
• Building a positive culture
• Being able to provide exceptional service constantly
• Helping people to grow and prosper
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Service Strategy
They should care about these aspects, more than any other aspects like short-term
profitability or cost savings. The actions of the employees should symbolise the spirit
of service.
2. Hire people that care.

The recruitment and selection process of companies should include the aspect of
‘customer-centricity’ and the empathy quotient of the employees. It is essential to
understand the potential and the ability of the employee to embody the service
culture of the organisation. The following questions need to be asked in order to
screen and evaluate the employees:
• How courteous were they?
• How much did they genuinely care about the people around them?
• How do they view the aspect of customer service?
• How do they plan to enhance the levels of customer service?
The company hires equally based on character and competence. The candidates are
qualified for the next rounds of the selection based on the responses to the customer
service theme.
3. Create a culture that cares.

Building a service culture in organisations is an uphill task and requires a huge effort.
This is a tough aspect and requires consistent efforts. If we want to know how much
an organisation really cares about customer service and service culture, examine and
analyse their budget set for customer service enhancement.
Are they investing adequately in their customer service initiatives?
If not, a culture of compliance, overstress and short-term thinking could be easily set
into this organisation.
4. A shift from win/lose to win/win or no deal.
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Service Strategy
The customer is not always right, and sometimes, the expectations of customers may
be unrealistic. However, organisations must look for opportunities to look for the
win/win first and serve the customers. Not just at the policy level, but at the ground
level practices need to reflect the true intentions of the organisations. Companies
should not look at the relationship as a short-term, zero-sum game. The customer
service teams need to look beyond the readily available options or the standard or
template options that are available. Going beyond what is easy will help companies
project themselves as true followers of the customer-first philosophy.
5. Train your people to embrace conflict.

The factual test of a company’s customer service is not what happens when things are
ideal, but when circumstances are challenging. In addition, it is not just about meeting
the expectations of the customers. In many cases, this may just be enough to survive.
Exceptional service is about understanding and addressing customer service related
to conflict situations. In the face of conflict, most people drop into a stress-based,
fight or flight reaction. However, with training, it can become an opportunity to
“wow” people with your response. When a conflict related to the service aspect
emerges, companies need to recognise it and embrace it as an opportunity and create
some very loyal customers in return. When companies completely embrace the
aspect of conflict as being an integral part of the customer service, it gives the
organisation an edge over other companies who don’t practise this.
3. Service Strategy Formulation

Service strategy is an organisation-wide long-term plan, which aims at serving the customers
in the best possible manner and addressing the service requirements of the customers in a
meaningful manner. The service strategy plays a very important role in helping the service
team to understand and inculcate the service culture. Usually, service strategy is formulated
by the top-level management of the company with inputs from various stakeholders. The
service strategy has to be customised to meet the specific service-related aspects of an
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Service Strategy
organisation. Typically, the following stakeholders’ inputs are considered as being important
in the formulation of the service strategy:
• Customers
• Service Teams
• Top-level Management
• Research Team
• Consultants
3.1 Steps to Establish a Service Strategy
There are three important steps in establishing a service strategy:
Inspect systems and practices
Review how customer needs are

addressed
Clarify provider roles
Fig 4.9: Steps to Establish a Service Strategy
• Inspect Systems and Practices
The first step in the process of establishing a service strategy is that of inspecting the
systems and practices that relate to customer service. All the systems and practices
related to customer service have to be carefully examined and analysed. Any flaws in the
systems and practices have to be rectified and addressed. Ad-hoc measures in this regard
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Service Strategy
cannot help in retaining the customers. A strict review has to be mandated to ensure that
there are no gaps or issues in the formulation of a good service strategy.
Every aspect of the service framework can become critical to the service delivery, at some
point of time or the other. For instance, the service aspects that relate to the processing
of service requests at the branch can have some issues, and that may have been pointed
put by the customers in the feedback forms.
• Review How Customer Needs are Addressed
The manner in which customer needs are addressed has to be reviewed. The review is
mostly done using a comprehensive checklist or based on the complaints and the
feedback given to the service providers. Nowadays, customers are very vocal about their
needs and complaints. Companies have to ensure that they integrate these inputs into
their service strategy. If you fail to address the needs of your customer, retaining them in
the long run may be nearly impossible.
The level of contact that you have with your customers, the communication modes used,
the turnaround time, the resolution process, the industry standards for customer service
aspects have to be considered while formulating the service strategy.
• Clarify Provider Roles
The next step in service strategy formulation id to clarify the provider roles. In this step,
the organisation clarifies the provider roles. Specific roles are defined for each
position/designation and function in customer service. When the provider roles are
clarified, there is very little ambiguity and confusion on the part of the service provider.
The role definitions also capture the service boundaries so that there is no overlap of
efforts amongst various departments and individuals in the service systems.
Accountability is established for various roles and the expectations in a holistic manner.
Thus, the customer service strategy can be formulated in organisations, making them
more customer-centric.
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Service Strategy
3.2 Factors Affecting Formulation of a Service Strategy
Some important factors that we have to consider in the formulation of a service strategy:
• Product or Service Being Offered

The total products or services that are being offered by the service provider including
third-party products or services and value add services, which may not be a part of
the core offering.
• Industry Standards
Market leaders follow the industry standards. The industry standards may be set a
higher level in certain sectors where there may be for some amount of customisation.
• Service Delivery Process
The service delivery processes help in formulating the customer service strategy by
providing valuable inputs into the incremental steps or functions that can be included
in the future.
• Expertise or Service USP
Every company has its own strengths and USPs (Unique Selling Proposition). The
service strategy should consider this factor and help in strengthening the service
delivery in line with the USP of the company. For instance, if an NBFC prides itself in
the ability to provide good gold loan solutions, they have to build this factor into their
service strategy, which can ultimately help them in achieving a significant market
advantage.
• Service Levels
The service levels that are defined for each service can also act as an important factor
in the service strategy formulation. The service levels could be different in the same
sector depending on the service blueprint defined for each process or service request
flow. For example, address change requests in banks may be handled differently by
different banks or financial institutions.
• Stage of Review
This factor relates to how long the company has been operating in this space and how
long have they been offering a specific service. When services constantly undergo
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Service Strategy
review, they become better over a period of time and help companies to operate
optimally. The companies, processes and services mature over a period of time. Thus,
the service strategy formulation is different for different stages of review.
3.3 Determination of Service Strategy Formulation
Service strategy formulation can be detrimental in terms of the service-related position of

the company in the market. The following possibilities are a result of how the service strategy
is formulated and deployed. Based on the success of the company’s service strategy, they
could be service qualifiers, service winners or service losers.
Service Qualifier
To be taken seriously a certain level must be attained on the competitive dimension, as

defined by other market players. Examples are cleanliness for a fast food restaurant or safe
aircraft for an airline.
Service Winner
The competitive dimension used to make the final choice among competitors. An example is
price.
Service Loser
Failure to deliver at or above the expected level for a competitive dimension. Examples are
the failure to repair auto (dependability), rude treatment (personalisation) or late delivery of
the package (speed).
4. Technology in Services
Technology and innovation are not exclusive to manufacturing, and they play a critical role in
the service offering and service strategy. Furthermore, service-related businesses contribute
greatly to the GDP worldwide, and we can derive from the latest trend that shows how this is
being observed across most developed and developing economies. Technology has played a
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Service Strategy
crucial role in this rise of the service-related companies and has led to the creation of many
service companies in the new age digital era. However, there is a fresh and renewed role for
technology in services, which has its origins in rapid technological changes in the payments
and aggregator space.
Fig 4.10: Technology in Services
Technology has now turned out to be the primary source for innovation and rapid growth
since it is enabling and facilitating innovation in the services space at a rapid pace.
Understanding this new role and the contribution to service companies can help us
appreciate the magnanimity of this element.
Technology can support businesses to respond adequately and proactively to the

requirements of the customers and help them in gaining a sustainable competitive advantage
in the service space. Technology can help companies to improve performance, provide
innovative service solutions and generate practical solutions in service solutions. Services
sector companies, like consultancy firms that sell their expertise to other establishments and
banks/financial institutions that offer information to their customers, require a highly trained
workforce with specialised knowledge and specialised skills to manage customers.
Additionally, core skills are becoming more important in the service business, especially
technical and client skills, considering the need for a high level of contact with the client. The
adoption of technology in the services space has led to a high level of productivity amongst
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Service Strategy
the employee in this sector. ‘Services’ can be understood as the composition of four basic
components which are production, offering, delivery and finance.
4.1 Transformational Challenges and Opportunities for the Future of Banking
Technology plays an important role in:
• Service production aspects
• Promotion of services offered by the company
• Service delivery: Different steps in the service delivery
• Self-service options provided to the customers like ATM/Scanners/CDM
• Payment processing
There are several challenges in the BFSI space, where technology can play a crucial role.
According to research from Atos, the four most transformational challenges and
opportunities for the future of banking through the next 5 years include:
Response to Customer Needs
Ranked as the most important trend in each of the last 4 years in research done by the Digital
Banking Report, financial institutions need to shift from physical interactions to digital
engagement. For banks and credit unions that digitise customer journeys, there can be a
significant benefit in revenues, cost reductions and customer satisfaction.
Optimisation of Costs
Because of the efficiencies of digital-only competition, banks and credit unions will need to
consider divesting from non-core operations and leveraging intelligent automation. In
addition, organisations will need to reinvent back office processes and replace ageing
infrastructure.
Creation of New Revenue Streams
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Service Strategy
Open banking and the use of APIs will open new opportunities for both cost reduction and
revenue growth. As the banking ecosystem expands beyond traditional banking services, new
products will be developed, and segments served that will provide differentiated offerings
and monetisation opportunities.
Development of Security and Compliance Systems
With customer data becoming a ‘product’ for many financial institutions, the need for
enhanced security and Advanced Insights (AI) will become a differentiator from both a
compliance and customer trust perspective. This can lead to reducing costs and potential
business growth.
4.2 Challenges in Adopting New Technologies
However, the adoption of new technologies has its own challenges. Some of the challenges
are:
Loss of Personal Attention
Sometimes, the adoption of new technologies can lead to loss of personal attention, which
may not be preferred by many. For instance, many senior citizens feel that there is a loss of
personal attention and personal touch due to the advent of mobile banking and internet
banking.
Customer Acceptance
In certain cases, the customer may not accept the new technology being introduced by the
banks. This may be because he/she is not able to understand and use the technology easily.
For instance, full-scale self-service branches have not been successful in many instances due
to lack of customer acceptance.
Customer Skills
This is related to the previous point discussed. The customers may not have requisite skills
needed to use the technology or may find it difficult to adapt to the new skill requirements in
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Service Strategy
using this technology. This can be seen in cases wherein customers don’t select apps for their
transactions, since they may not have the necessary skills.
Trade-offs (Example: Convenience vs. Cost or Time)
An essential element in technology adoption is that of the trade-off. Some customers would
have time as a preference point whereas some of them may have cost as a preference point.
Balancing these in the technology adoption process may be difficult for the company.
Standardisation (Example: RFID)
Standardisation is another challenge especially when there is a problem of scale. Any new
technology will need standardisation, especially in sectors like banking. If one particular
software or tool like FINACLE is being used in one branch, then it has to be adopted in all the
branches. In the case of banks like SBI, ICICI Bank etc., this may mean the adoption of the
new tool in several thousands of branches.
Lack of Patent Protection Impedes Innovation
Sometimes patent protection may be a hindrance and lead to non-adoption of new

technology. Companies try to protect home-grown innovations and technological solutions.
Lack of patent protection could be an impediment in adopting new technological solutions.
Hence, technology plays a key role in the service delivery process and involves multiple
factors. New technology adoption provides multiple opportunities for companies but has its
own challenges and limitations. Despite all this, the adoption of technological solutions and
new technology development will continue to remain an important focus area for banks and
other financial institutions alike.
5. Driving Operational Improvement in Services

Operational improvement in services is very challenging to achieve. Companies with great
service cultures can also become complacent and neglect continuous improvement. It’s
important to understand the need for operational improvement in services. It’s a constantly
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Service Strategy
changing business environment and rapidly changing technology and IT frameworks,

necessitating operational improvement in services.
Driving operational improvement means that the company has to be on the watch and
consistently look for areas of improvement in the operations space. Operations related issues
can be a major stumble block and can hamper the efforts of the service staff, to a great
extent. Poorly defined processes, improper staff training and badly implemented service
infrastructure can lead to significant reductions in the efficiency of a service operation.
The results are:
• Slower response times

• Longer resolution windows
• Higher case backlogs
• Poor utilisation of service staff
• Poor morale
• Higher turnover of service staff
Finally, all these can lead to a dip in the revenues or profitability of the company.
This has a direct impact on the company’s reputation as well. That’s the reason why
operational improvements must receive due care and attention of the top-level
management. Operational improvement in services can help streamline processes, improve
operational efficiency and drive significant gains in service effectiveness. In addition, we can
provide a framework for service excellence that will enable continuous improvement and
measurement of service effectiveness thereby driving significant operational improvement in
services. These actions should try to:
• Create repeatable and predictable process outcomes
• Implement service industry best practices
• Leverage service industry standards drive success
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Service Strategy
5.1 Technique for Operational Improvement of Services
Service offerings are mostly dynamic, and they are perishable in nature. More often, this can
lead to occurrences of idle capacity or opportunity loss for the service providers. When
compared to the traditional manufacturing processes, the processes in the service industry
are less obvious, and therefore it is tough to recognise waste in a service process. Further,
the definition of quality and quality parameters in the service environment is subjective, and
the development of proper measurement tools can be challenging. In order to overcome
these challenges, the service industry has to innovate and continuously improve its processes
through the use of customised tools and techniques. Some important technique for
operational improvement of services are as follows:
1. Develop a Process Manual
A process manual is a document that contains detailed instructions or directions to carry out
day-to-day operations for a specified service process. It is one of the most cost-effective ways
of attaining a definite degree of process standardisation. Though it does not reduce human
involvement in the process, it avoids service providers from deviating from suggested process
steps in the service delivery.
An important benefit of this technique is that it helps in increasing consistency in service

outcome as all service providers refer to the same process manual. It acts as a quick
reference guide for the employees to handle exceptions and questions by customers. It
assists in transitioning process from one resource to another.
2. Automate Processes
Service processes are labour intensive tasks in most cases, and hence there is a very high
probability that the variations could be infused in the processes during the service delivery
process. Across the service sector, several companies have accomplished process
standardisation in several areas to a large extent by deploying process automation tools and
customised solutions. Certain examples of process automation are ATMs (Automatic Teller
Machine), Self-checking kiosks, IVR (Interactive Voice Response).
Some of the advantages of this technique are as follows:
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Service Strategy
• It reduces the dependency on people in the service delivery process.
• It helps in improving the process efficiency.
• Standardisation can be achieved.
• It eradicates variations at different service instances.
3. Reduce Failure Demand
Service providers can experience two types of demands: ‘value demand’ and ‘failure
demand’.
Value demand is the demand for a service from the customers when they need a service
solution and is a revenue opportunity whereas failure demand is a demand caused by a
service deficiency or failure and is a cost activity for the service provider. Hence, we can
conclude that failure demand is a type of demand that only exists because the initial demand
was not met appropriately. For instance; several follow-up calls received by the call centre
executives are either enquire pertaining to the request made earlier or requests to correct
earlier work that was not done properly.
Failure demand represents a common type of waste in service organisations and sunk effort.
Service organisations need to identify the proportion of failure demand in total demand
received. Further, they need to conduct root cause analysis for the failure demand and take
steps to reduce the occurrence of failure demand. For example, if the call centre of a service
organisation receives numerous failure demands, then the organisation needs to analyse the
reason why the customers are calling and should try to control the volume of failure demand
instead of focusing on reducing the call costs.
• It reduces wastes and increases the efficiency of the service delivery process.
• It increases customer satisfaction as more value per transaction or interaction is

delivered.
• It frees up capacity for new services.
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Service Strategy
4. Conduct a Service Review of the Blueprinting Exercise
Service blueprinting is a customer-centric operations approach that aims to service

innovation and service improvement. It is a review and analysis exercise which involves
mapping out the service journey undertaken by the customer. It includes identifying and
revisiting the key target customer segment, detailing the processes that constitute the
service and graphically depicting the sequence of user actions, service responses and touch
points or interfaces that enable the service relationship.
The steps of service operations improvement using review of blueprinting are:
1. Choose a service which needs to be review.

2. Determine the goal of the exercise.
3. Identify the focal customer segment the expected service experience.
4. Identify other stakeholders of the service delivery.
5. Conduct a comprehensive review using a review chart drawn from the customer
feedback.
6. Map the service from the customer perspective.
7. Map the actions of contact employees (both onstage and backstage).
8. Link the contact activities to the required support functions including improvisations,
if any.
9. Add evidence of service for every customer action.
10. Note insights and action items throughout the process and close the gaps.
• It helps in recognising service failure points and opportunities for service

improvement.
• It provides a common point of discussion for new service development initiatives.
• It provides a customer-focused approach for developing metrics to track service

performance.
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Service Strategy
6. Social Media as a Service Tool

Today, social media is being used by brands across the world, to communicate with their
customers effectively. Social media tools help companies in enabling two-way conversations
and establishing social connections in a world that are largely adapting to social media tools.
Social media platforms can help business in many ways like:
• Creating brand awareness
• Marketing of products or services
• Convenient communication channel for the customers

Social media effort is also an integral part of the PR efforts of companies and organisations,
which are aggregating their efforts to help in achieving overall satisfaction of customers. It
facilitates better customer service efforts. Several companies have witnessed the power of
social media in the context of branding and customer service channels. In fact, social media
presence is considered a major part of the business strategy of any company including banks.
An active presence on social media can help project the company’s products and services and
can help companies connect with different customer segments, and this can act as an
important service channel.
The utility of social media channels by organisations is an effective way to carve the image of
a brand in the minds of customers to provide better accessibility. Today customers across age
groups have adopted social media and customers strongly feel that they will receive better
service and prompt response from companies or organisations having an active presence on
social media. They also feel that it is a transparent medium to express their opinions and
views about brands.
By providing customised support to the customers through different social media tools, a
brand gains the potential to increase revenue, and get proper reviews and build a good
reputation for business and service excellence. This is all through the convenience of using
social media tools.
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Service Strategy
Fig 4.11: Axis Bank’s Customer Service Team Responding to the Customer Query
Though there are hundreds of social media channels and options, companies (including
banks) use social media channels selectively. Some of the important social media channels
used by different organisations are as follows:
1. Facebook
2. WhatsApp
3. Instagram
4. Twitter
5. LinkedIn
6.1 Advantages and Disadvantages of Social Media
By providing more personalised customer support through social media, a brand gains the
potential to increase revenue, earn good business reviews and build a good reputation for
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Service Strategy
excellence. This is all through the convenience of using social media. Below are the ways on
how social media can be used as a customer service tool for companies:
• Customer Engagement Tool: Helps brands in engaging with their customers

constantly.
• Post Business Promotions: Helps in creating brand awareness and promoting products
or services.
• Monitoring Tool: Can help in monitoring customer preferences and customer service-
related issues and providing reviews and inputs in the service domain.
• Product Pricing Decisions: Help in taking a product or service-related decisions.
• Real-time Assistance: Acts as a channel to offer real-time assistance to customers.

Though social media offers several advantages to companies, there are certain limitations
too. Some of the limitations are:
• Credibility of Data: Sometimes, the data provided on social media can be unauthentic
or false. Hence there is a need to validate the data on social media.
• Viral Messages: Negative messages or reviews or complaints on social media can

sometimes lead to the messages becoming viral and dent the brand image of the
company.
• Cost: Social media channels require dedicated social media teams, meaning that the
cost of such an initiative can be very high for companies.
7. New Service Development Process

New service development and innovation are important functions in the BFSI space and help
in meeting the emerging market requirements. New service development process tries to
capture and address the needs of the customers in an adequate manner while taking care of
aspects like organisational objectives, cost factor, resources available and the timelines
within which the new service development process has to be completed. Typically, in
competitive market environments like banking, the timelines for new service development
are very short. The new service development process is customised, and companies have
their own considerations with regard to the expectations of the board and the top-level
management of the companies.
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Service Strategy
The phases can be split up into 13 steps. The steps in the new service development process
are as follows:
1. Formulation of New Service Objectives
The first step in the new service development process is the formulation of the service
objectives. The service objectives capture the new service requirements and customer
expectations. This helps in mapping the journey of the new service development.
2. Idea Generation and Screening
The next step is idea generation and screening wherein different ideas are floated. One idea
is selected collectively by a panel of experts, and they select idea/ideas that can be
considered as the most appropriate idea.
3. Concept Development and Testing
The next step would be that of concept testing, wherein the concept that has been proposed
will be tested on some defined parameters like acceptance, variations and robustness of the
concept.
4. Business Analysis
The next two steps are business analysis and project authorisation. Both these steps are
inter-related, and the viability of the proposed solutions is considered in this case.
5. Project Authorisation
The authorisation is a formal indication of permission granted to scale this idea into an actual
service.
6. Test Marketing
In the test marketing phase, the service idea is presented to a group (sample), and their
views and opinions are collected.
7. Service Testing or Pilot Run
Pilot testing is held, wherein a pilot or model of the service is tested for effectiveness.
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Service Strategy
8. Personnel Training
The next step is that of personnel training wherein the employees are trained on the service
delivery for the new service being launched.
9. Marketing Program Design
Further, a service-based marketing program is designed to enhance the service awareness of

customers.
10. Process and System Design and Testing
Further, process and systems to support the service delivery are designed and tested for
practical applicability.
11. Service Design and Testing
Final service design and testing are carried out in simulated environments or the actual
service environment.
12. Full-scale Launch
The final phases of the full-service launch and review are carried out after the final service
design and testing are completed.
13. Post Launch Review
The post launch review helps companies to learn from the new service development process
so that they can integrate the learning into their future product/service development
endeavours.
8. Digital Banking and Customer Service

If you are a ‘banker’, ‘online shopper’, ‘tech-savvy person’ or even a ‘regular bank customer’,
you must have certainly come across the word “digital banking”. Remarkably, several experts
and industry leaders have different opinions on the digital banking space. Though we may not
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Service Strategy
immediately realise it, there is a lot more to the world of digital banking than just a few
features that we can see on the surface. The digital banking space is yet to be explored fully
and there seem to be many possibilities in this pace that can transform the customer service
function.
Digital banking is converting the brick and mortar banks into more environment-friendly and
efficient places to operate. There are a plethora of options that people can opt for when it
comes to banking. Now people can check their bank account details, pay their bills online,
transfer money to other accounts, and all of this can be done from the very comfort of their
home. All that the people need for banking these days is an internet connection.
Digital Banking solutions are seen as the futuristic and preferred form of customer service in
banks, lately. Digital banking has led to a shift in banking space and led to new solutions in
the service space as well. Digital banking has led to a decrease in branch level transactions
and greater internet adaptation is helping the cause. Millennials and digital natives prefer to
use digital banking channel to any other banking channel, because it’s fast and convenient.
Some important advantages of digital banking are:
• Convenience: Comfort and convenience being offered to customers are very high, and
they can operate their accounts from their homes or offices.
• Low Cost: They decrease the overall operating costs in processing transactions.
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Service Strategy
• Improved Efficiency: There is a high level of efficiency in the transactions or service

requests on digital baking platforms.
• Features: Digital banking offers service providers and customers a plethora of features
to enable better customer service.
• Environment Friendly: Digital banking solutions are considered paper-less, and hence
they are environment friendly.
• Advanced Security Features: Banks and financial institutions now offer advanced
security features through options biometrics, scheduled OTPs etc.
• Ease of Access: They are easy to use, and the customer can adapt digital banking
solutions easily.
Above mentioned are just some of the areas that we have seen in digital banking. However,
when we see the growth rate and applications in online banking, we can get a fair idea about
what all things we can expect in the future. Even with hundreds of features to offer, it is right
to say that digital banking has many more features to offer in the future.
This huge revolution in the banking world has benefited everyone. From the employee
working in a small office to a businessman running a million-dollar business, online banking
has proved to be important in their success. With so many benefits offered for us, it is highly
impossible for us to think a world without digital banking. However, still several people are
reluctant to use digital banking, or there are some who do not know how to make the best
use of this important feature. Digital banking is the face of advanced technology, and so it is
vital to embrace it in most of our personal and business banking areas.
9. Summary
• Service culture can be defined as “an organisational culture where there is a collective
way in which the employees think about providing outstanding service, act to provide
it and understand how and why they do it”.
• Steps involved in the development of a service culture are:
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Service Strategy
o Seek Feedback
o Communicate and Establish Consistency
o Reward and Recognise
o Set Policies and Train
• Successfully developing and establishing a strong service culture in any company is
one of the best ways to enhance client satisfaction, keep your employees satisfied
and create a healthy working environment that can help service teams to thrive and
improve continuously.
• Competitive advantage refers to the edge that a company may have over other
companies by virtue of its expertise in a certain domain or a function.
• Steps with respect to achieving customer service as a competitive advantage are:
o Start at the top
o Hire people that care
o Create a culture that cares
o Shift from win/lose to win/win or no deal
o Train your people to embrace conflict
• Service strategy is an organisation-wide long-term plan, which aims at serving the
customers in the best possible manner and addressing the service requirements of
the customers in a meaningful manner.
• Steps in establishing a service strategy are:
o Inspect systems and practices
o Review how customer needs are addressed
o Clarify provider roles
• The four most transformational challenges and opportunities for the future of
banking through the next 5 years include:
o Response to customer needs
o Optimisation of costs
o Creation of new revenue streams
o Development of security and compliance systems
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Service Strategy
• Social media tools help companies in enabling two-way conversations and

establishing social connections in a world that are largely adopting social media tools.
• Social media platforms can help business in many ways like:
o Creating brand awareness
o Marketing of products/services
• Ways on how social media can be used as a customer service tool for companies:
o Customer Engagement Tool
o Post Business Promotions
o Monitoring Tool
o Product Pricing Decisions
o Real-time Assistance
• Some important advantages of digital banking are:
o Convenience
o Low Cost
o Improved Efficiency
o Features
o Environment Friendly
o Advanced Security Features
o Ease of Access
10. References
• Service Marketing – Integrating Customer Focus Across the Firm by Valarie Zeithaml,
Mary Jo Bitner, Dwayne D Gremler and Ajay Pandit, McGraw Hill Companies, 4th
Edition
Sinha and Rakesh Sharma, Biztantra
• Research Methods for Business – A Skill Building Approach by Uma Sekaran, Wiley
India Edition, 4th Edition
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Service Strategy
• Marketing Research – An Applied Orientation by Naresh K. Malhotra, Pearson

Education Asia, 3rd Edition
• Business Research Methods by S N Murthy, U Bhojanna
• Marketing Research by A. Parasuraman, Dhruv Grewal and P Krishnan, Biztantra
11.1 Web References
https://www.zendesk.com/resources/the-zappos-experience/
http://www.businessdictionary.com/definition/competitive-advantage.html
https://thefinancialbrand.com/77228/technology-trends-disrupting-financial-services-banking-
future/
https://www.processexcellencenetwork.com/innovation/articles/four-key-process-improvement-
techniques-for-service
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Unit 5
Introduction to Quality Management
Table of Contents
1. Quality ............................................................................................................................................. 5
1.1 Key Principles of Quality ......................................................................................................... 6
2. History of Quality Management ..................................................................................................... 8
2.1 History of Quality - Before and After the Second World War ................................................ 9
2.2 Evolution of Quality Revolution ............................................................................................ 10
2.3 Various Eras of Quality Evolution.......................................................................................... 11
2.4 Japanese Contribution to Quality ......................................................................................... 12
2.4.1 The Japanese Miracle .................................................................................................... 12
2.4.2 Japanese Terms and Quality Initiatives......................................................................... 14
2.5 Quality Philosophies from the Early Pioneers....................................................................... 15
2.6 Seven Deadly Sins in Quality Management .......................................................................... 18
2.7 Deming’s Wheel or Deming’s Cycle ...................................................................................... 19
2.7.1 Activities in PDCA .......................................................................................................... 20
2.7.2 Illustration ..................................................................................................................... 21
3. Quality Audit ................................................................................................................................. 22
3.1 Categories of Audits .............................................................................................................. 22
4. Quality Standards .......................................................................................................................... 24
4.1 ISO 9000 Family of Standards ............................................................................................... 25
4.2 ISO 14000 Family of Standards ............................................................................................. 26
4.3 Evaluating ISO Standards as a Brand .................................................................................... 27
4.4 Procedures to Adopt ISO Standards ..................................................................................... 28
4.5 Key Elements Involved in the Management of ISO Systems ................................................ 28
4.6 ISO Standard Certification..................................................................................................... 29
4.6.1 Advantages of ISO Certification .................................................................................... 29
4.6.2 Different Phases of ISO Certification Process ............................................................... 30
4.6.3 Elements in ISO Certification ........................................................................................ 31
4.6.4 Steps involved in ISO Certification ................................................................................ 31
4.6.5 Certification Agencies ................................................................................................... 33
4.7 ISO 9001 Implementation: A Business Case ......................................................................... 34
5. Quality as a Competitive Advantage and Business Excellence ..................................................... 35
5.1 The Malcolm Baldrige Criteria for Performance Excellence ................................................. 36
5.2 EFQM Business Excellence Model......................................................................................... 37
6. Summary ....................................................................................................................................... 39
7. References .................................................................................................................................... 41
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8. Web references ............................................................................................................................. 41
Unit Description
In any sphere of activity, we expect quality. If we are the customers, we expect quality in the
products or service that we require. Similarly, our customers expect quality in the products or
services delivered by us. Customers have also become more informed and highly demanding,
and have a higher degree of expectations. In this scenario, it is important to understand the
concepts of quality and the related framework for a business to survive and compete in the
global environment.
Any organisation with a focus on customer satisfaction, operational efficiency, improved

market share, cost optimisation, and better risk management needs to apply quality principles.
Quality management has evolved from the concepts of just ‘inspection’ to Total Quality
Management and to the usage of tools and techniques such as Six Sigma, Lean, and so on.
These play an important role in organisational development, change management, and
performance improvement that are needed for individuals, teams, and organisations.
Further, a Quality Management System (QMS) provides a framework to help in handling risks
and to monitor and measure business performance. An understanding of the Quality
Management System enables the learner to look for improvements. It is also important to
understand how the framework provided by a Quality Management System enables
monitoring of any chosen area and improve its performance.
Standards such as ISO are applicable across industries, in any area of operation and at a global
level. This sets the standard for management systems in general. Learning the quality concepts
and techniques provides an understanding of the importance of result-oriented continuous
improvements and how it impacts the culture of an organisation. An understanding of the
concepts and principles of Total Quality Management enables the learner to apply these tools
in their area of work and to focus on obtaining the desired outcome.
3
Learning Objectives
• Define quality.
• Explain the key principles of quality.
• Describe the history of quality management.
• State quality audit and different categories of audits.
• Describe various quality standards and its key elements.
• Describe quality as a competitive advantage and business excellence.
4
1. Quality
Fig 5.1: Quote on Quality

(Source: thequotes.in)
Even before we define the meaning of the term quality, most of you may be aware of that it is
based on experience, expectation, perception, and judgment. Quality is nothing but the
practices adopted by the companies to meet or exceed the customer expectations.
Definitions of Quality
Let us look at some of the definitions of quality.
Joseph Juran: “Quality is fitness for use.”
Philip B. Crosby: “Quality means conformance to requirements.”
W. Edwards Deming: “Just to have the customer satisfied is not enough...You have to do better
than that.”
A user-based definition: “Quality is a product’s ability to satisfy human needs.”
Quality is typically applicable in the manufacture of goods. However, it can also be applicable in
the delivery of services. Some of the aspects that reflect on the quality in a service scenario
include reliability, responsiveness, and ease of access, innovation, communication,
competence, courtesy, and credibility.
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1.1 Key Principles of Quality

Let us now discuss the key principles of quality specified by the International Organisation for
Standardisation (ISO).
The key principles of quality are:
1. Customer Focus
2. Leadership
3. Involvement of People
4. Process Approach
5. System Approach to Management
6. Continual Improvement
7. Factual Approach to Decision Making
8. Mutually Beneficial Supplier Relationships
Let us discuss the core aspects behind each principle.
Principle – 1: Customer Focus
Organisations need to understand the present and future needs of customers, meet the
customer requirements, and strive to exceed the customer expectations.
Reason for its significance:
Organisations depend on customers for their business and growth.
Principle – 2: Leadership
Leaders need to focus on creating an environment that provides encouragement to people for
achieving the organisational objectives.
The establishment of the unity of purpose and organisational direction is done by the leaders.
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Principle – 3: Involvement of People
Organisations need to encourage people involvement at all levels and enable them to utilise
and develop their abilities.
People at all levels constitute the essence of organisations. An organisation obtains benefits by
the utilisation of abilities of people through their complete involvement.
Principle – 4: Process Approach
Organisations need to utilise a process-oriented approach for the management of activities

and related resources.
When activities and related resources are managed using a process-oriented approach, the
desired results could be achieved with greater efficiency.
Principle – 5: System Approach to Management
Organisations need to use a systems approach for the identification and management of
interrelated processes.
When organisations utilise a systems approach, they have greater efficiency and effectiveness
in achieving the objectives.
Principle – 6: Continual Improvement
Organisations need to commit permanently for continual improvement of their overall

performance.
The effectiveness and efficiency of organisations is enhanced when oragnisations try to

improve on a continuous basis.
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Principle – 7: Factual Approach to Decision Making
Organisations need to obtain facts before making a decision. They need to arrive at decisions
after analysing factual information and data.
When decisions are based on facts, organisations show a better performance.
Principle – 8: Mutually Beneficial Supplier Relationships
Organisations need to look at establishing and maintaining a relationship with their suppliers
such that it is mutually beneficial.
There is a lot of interdependence between an organisation and its suppliers. The ability of both
these parties to create value is enhanced by a mutually beneficial relationship.
2. History of Quality Management

The roots of the quality movement can be traced back to the 13th century when craftsmen
were operating in medieval Europe. Goods without defects were marked with a specialised
symbol. These symbols, made by the inspection committees and by the craftsmen themselves,
denoted a sign of quality for their customers. Thus, the master craftsmen ensured a form of
quality control by inspection of the crafted items prior to selling them.
The craftsmanship model towards quality was followed by the manufacturing sector until the
Industrial Revolution took place. A factory approach towards quality had a focus on inspection
of products and was initiated in Great Britain during the mid-19th century. As the 20th century
progressed, quality processes and quality-oriented practices were followed in the
manufacturing industry.
The following table represents the evolution of quality from a historical perspective
highlighting the quality approach during various periods.
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Approximate Timeline Quality Approach

13th century until the early Craftsmanship approach
19th century
Early - mid 19th century (after Factory approach Incorporation of processes in quality
the Industrial Revolution) practices
Late 19th century Taylor’s system
1920’s Concepts of Statistical Process Control

Since 1990’s Greater focus on customer satisfaction, Six Sigma
deployment, Development of sector-wise quality
management standards (for example, TL9000 for the
Telecom sector, AS9100 for the Aerospace industry,
TS16949 for the automobile sector etc.), Evolution of
new quality systems based on the core foundations
Table 5.1: Evolution of Quality from a Historical Perspective
2.1 History of Quality - Before and After the Second World War
Quality: Before World War II
In the mid-1920s, Walter Shewhart of Bell Laboratories started focusing on process control and
introduced the concept of Statistical Quality Control (SQC). According to an SQC approach,
quality is important even for the process that created a product. This led to the concept of
adopting statistical techniques to determine the stability of a process by identifying if it is
within the control or not.
The concept of SQC also served as the building block for control charts that are being used
even now as an important quality tool.
Quality: During World War II and After
During World War II, the safety of military equipment was vital and hence quality was pursued
with greater focus.
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Initial Approach to Quality and its Limitations
The inspection of almost every produced item was carried out by the U.S. Army to ensure that
the equipment could be safely deployed. However, the practice of inspecting almost every
produced item had a few limitations such as the need for a large number of personnel for
inspection, difficulty in recruiting a lot of skilled personnel for inspection, issues in retaining a
huge pool of personnel with inspection competence and so on.
Implementation of a Modified Quality Approach
The U.S. Armed Forces could not afford to compromise on the quality and safety of military
equipment. At the same time, they also had to overcome the above limitations and
implemented the Modified Quality Approach.
U.S. Armed Forces adopted a sampling technique for inspection (that is, inspecting a sample of
the total lot instead of inspecting each and every item). They took the help of industry
consultants and adopted sampling tables, which were then published as a standard for military
usage. They included these tables in the military contracts while providing them to the
suppliers. This was done to clearly indicate to the suppliers what was expected from them.
They sponsored suppliers for training programs in Statistical Quality Control techniques. This
was done to enable quality improvement among the suppliers.
Challenges in the Modified Quality Approach
There were a few challenges to the modified approach as well.
A lot of suppliers were not keen on completely integrating the SQC techniques. The suppliers
had a greater focus in achieving the timelines for production. When the contracts signed with
the government ended, the SQC programs were not continued.
2.2 Evolution of Quality Revolution

After the completion of World War II, large-scale manufacturers in Japan shifted from the
production of military goods to consumer goods. The U.S. responded to the competition from
Japan by lowering costs of domestic production and through import restrictions. However,
over a period of time, the focus was more on quality-based competition rather than price-
based competition. This made it necessary for the U.S. to overcome an increasing quality crisis.
10
Over a period of time, the quality revolution gained momentum and growth based on the
foundation of the “early pioneers of quality.” The 21st century witnessed an increased level of
maturity in the quality movement. There has been an evolution of quality systems based on
the core principles laid out earlier.
A new set of thinkers called “Quality Gurus” contributed a lot to the quality movement. Their
philosophies facilitated the growth of quality management in the modern era. Some of the
notable “Quality Gurus” include Edwards Deming, Joseph Juran, Philip Crosby, Argand
Fiegenbaum, Kaoru Ishikawa, and Genichi Taguchi.
Chief Executive Officers (CEOs) of various organisations in the United States of America began
to actively contribute to the quality movement by means of personal leadership. The emphasis
was on statistical control and also on approaches that involved the whole organisation. This
quality initiative came to be known as Total Quality Management (TQM).
There were other quality initiatives that were put into practice included the ISO 9000 series of
Quality Management Standards, establishment of Deming’s Prize, Malcolm Baldrige award,
and the Baldrige National Quality Program.
2.3 Various Eras of Quality Evolution

In a nutshell, the concept of quality that was initiated in the ancient times has been evolving
steadily on a continuous basis. The following figure displays the complete evolution of quality
that could be presented over four different eras.
Statistical Strategic Quality

Quality
Inspection Era Quality Control Management
Assurance Era
Era Era
Fig 5.2: Eras of Quality Evolution
Let us discuss briefly the four eras of quality evolution.
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Inspection Era
In the Inspection era, the focus was on inspecting goods before shipping them to the
customer, and rejecting those that were defective.
Statistical Quality Control Era
The Statistical Quality Control era highlighted the significance of the quality of a process that
creates a product. The focus was on the deployment of statistical techniques to determine the
stability of a process.
Quality Assurance Era
In the Quality Assurance era, the trend shifted from a reactive approach to a more proactive
approach. The shift was from a scenario of inspection and quality control to that of defect
prevention.
Strategic Quality Management Era
The Strategic Quality Management era highlighted the significance of Total Quality and had a
greater focus on principles of Total Quality Management and its deployment. In this era, the
shift was towards aligning quality with business strategies, and linking quality processes with
business excellence.
2.4 Japanese Contribution to Quality

Let us look at the significance of the contribution of the Japanese to the quality revolution. The
Japanese industry witnessed total destruction at the end of the World War II. However, Japan
emerged as the world’s second largest economy in less than 20 years from the end of the
World War II. How did this miracle happen?
2.4.1 The Japanese Miracle

The Japanese deployed the same philosophy of manufacturing that had caused destruction to
them in the World War II. The U.S. Armed Forces required arms to be manufactured in a rapid
and safe manner on a very large-scale basis, but with zero defects. William Edwards Deming, a
mathematician developed the manufacturing model to meet the objective.
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Dr. Deming who is considered as one of the ‘Quality Guru’ was part of the team of specialists
who were in Japan after the World War II, to aid in rebuilding the nation. The Japanese Union
of Scientists and Engineers (JUSU) invited Dr. Deming to deliver lectures on techniques related
to statistical Quality.
A professor who attended Deming’s lectures advised his past students who were currently
CEOs, to attend lectures of Dr. Deming. He conveyed that this would enable them to focus on
achieving quality at a lower cost, and help to bring a turn-around in the economy of Japan in
five years. A lot of CEOs attended Dr. Deming’s lectures as suggested by the professor.
The CEOs were instrumental in the adoption of the theories of Dr. Deming. The top
management, along with plant managers and engineers of industries in Japan, keenly put into
practice the SQC approach.
In a period of about 10 years, a greater proportion of industries in Japan were using SQC and
related methods compared to any other nation across the globe. This resulted in the cost-
effective production of high-quality products and increased competitiveness of Japan in the
global market.
Strategies behind the Japanese Miracle
The following are the strategies behind the Japanese miracle.
After the Second World War, industries in the U.S. started to consider profit maximisation and
large volume production as top priorities instead of quality. This provided an opportunity for
the Japanese. The Quality Gurus communicated to the Japanese politicians and managers that
making quality products and delivering quality service had to be made as a national paradigm.
According to Quality Gurus, as Japan is an island nation with almost no natural resources, a
strong quality focus is the only choice to survive.
Japan had their strategies based on the ‘Total Quality’ approach. The focus of Japanese
manufacturers towards quality was on improving all organisational processes rather than
limiting to the inspection of products. They looked more at defect prevention rather than
inspection and rejection. In other words, their objective was more in preventing defects from
occurring in the first place rather than segregating defective products before shipping. Japan
demonstrated to the world the importance of SQC and making it a management movement.
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This resulted in a tremendous rate of improvement in quality. Their low-cost and high-quality
products enabled them to have a large foothold in the American markets. Consumers across
the globe were also benefited due to the export of products of high quality and low price from
Japan.
Quality control developed and progressed much better in Japan than any other nation in the
world due to various reasons, some of which are given below:
• Enhanced focus on processes, quality, and continuous quality improvement

• Leveraging the knowledge of Quality Gurus such as Deming, Juran, and Crosby
• A notable contribution to the quality movement by Japanese pioneers such as Kaoru
Ishikawa, Genichi Taguchi, and Taiichi Ohno
• Organisation of training programs and promotional methods on a massive scale
extensive involvement of the general public
Above factors contributed to the achievement of the Japanese miracle.
2.4.2 Japanese Terms and Quality Initiatives

The fact that Japanese words are widely deployed in quality initiatives that highlights the
importance of Japanese contribution to the quality.
Japanese word Meaning

Muda Waste (for example, overproduction, unnecessary processing)
Mura Uneven production levels
Muri Overworking the resources (people, machines and so on)
Kaizen Continuous improvement
Jidoka Quality
Heijunka Continuous improvement
Table 5.2: Japanese Terms and Meaning
One of the very famous principles is Kaizen that denotes continuous improvement. This
principle was a contributing factor to the stamp of quality of Japanese products and the growth
of the Japanese economy. Hence, the quality revolution that started in Japan impacted greatly
the whole western world.
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2.5 Quality Philosophies from the Early Pioneers

There are various pioneers such as Frederick Taylor, Radford and Walter Shewhart whose
philosophies contributed to the beginning of the quality revolution. Let us discuss the thoughts
and philosophies of some of the early pioneers.
Frederick Winslow Taylor

- Father of Scientific Management
Frederick Winslow Taylor initiated thoughts relating to continuous quality improvement. His
thoughts were refined and expanded by the various Quality Gurus. He preached a few basic
concepts that could also enable quality improvement. His idea was to focus on:
• Looking at the best possible way of doing a task
• Identification of best practices at the places where it exists
• Breaking down a task into its basic constituents and eliminating things that do not add
value
The focus was on inspection and gauging in the management of manufacturing processes.
According to Taylor’s philosophy, those who developed the process were responsible for
quality rather than those who made the product.
Walter Shewart
- Statistical Quality Control
Walter Shewhart, who worked for Bell Laboratories as a statistician, focused on process
control. He emphasised that quality is important for the processes that create a product and
not just for the product alone. According to Shewhart, statistical techniques could be applied
to the data obtained from industrial processes. This would enable analysing the data to know
about the stability of a process.
These concepts propounded by Shewhart are known as Statistical Quality Control (SQC).
Shewhart is also considered to have provided the basis for control charts, which is one of the
Quality tools of today.
Shewhart’s contributions include the following:
• Segregating variation on occurrence due to special causes or due to common causes
• Establishing control charts (he is considered to be the founder of control charts)
• Establishing the PDCA (Plan-Do-Check-Act) cycle
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• Contributing to the successful integration of engineering, statistics, and economics

• Categorising quality as objective quality and subjective quality
G. S. Radford
- Importance of inspection
G. S. Radford highlighted the importance of inspection and his thoughts relate to the
consideration of quality aspects in the early stages of product design. He also emphasised that
high quality is linked with productivity increase and cost reduction.
W. Edwards Deming
Deming is widely credited with improving production and business effectiveness in Japanese
organisations after the Second World War. Deming was a student of Shewart at Bell
Laboratories, and is considered as one of the Quality Gurus. He enabled Japanese companies
to deploy the statistical process control techniques propounded by Shewart. He also
formulated the fourteen rules of quality, which are relevant even now.
Deming’s 14 points for Management
Deming formulated the 14 points for management which summarises his thoughts on the
relationship between management and quality. These 14 points are applicable to small and
large organisations and even for a division in an organisation. It is valid for the service as well
as manufacturing industries.
The 14 points for management are listed below:
1. Be constant and purposeful in achieving product and service improvement. The
objective is to be competitive with a long-term direction for the business and
employees.
2. Adopt the new philosophy and a customer-driven approach to achieve economic
stability in a changing environment.
3. End dependence on inspection for achieving quality. Inspection on a mass-scale needs
to be eliminated and quality needs to be initially built into the product.
4. Stop the practice of awarding business based on price. Look at a long-term
relationship with a supplier based on loyalty and trust.
5. Improve continually the system of production and service, with the objective of
achieving better quality, higher productivity, and lower costs.
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6. Institute on-the-job training through modern methods. This is required to handle

changes in product development and service delivery. The management also needs to
be involved in training.
7. Institute modern methods of leadership. Leadership is required to provide guidance to
employees for performing better in their job with reduced effort.
8. Drive out fear to enable people to work effectively for the organisation. It is required
to create an environment wherein employees are encouraged to try out new ideas,
ask queries, and report problems.
9. Remove barriers between departments. It is required for people in different
departments to work as a team to anticipate problems that could occur in a product or
service.
10. Eliminate targets and slogans for the workers. Slogans such as “Do it right the First
time” and such posters assume that quality problems occur only because of human
behavior. Most quality problems arise due to systems and processes that are beyond
the control of employees.
11. Eliminate standards of work that suggest numerical quotas for the employees and
managers. The numerical goals are to be replaced with useful aids and support to
improve quality and enhance productivity.
12. Eliminate barriers that prevent the hourly paid workers from obtaining pride through
workmanship. It is required to abolish “merit ratings” and “management by
objectives.”
13. Institute a vigorous programme of education and retraining. Continued education
should be provided to people for their improvement.
14. Put everyone in the company to work in order to achieve the transformation. It is also
required for the top management to demonstrate the commitment to improve quality
and productivity on a continuous basis.
Joseph Juran
- Juran trilogy
Juran was another Quality Guru who contributed to the growth of quality in Japan and was
responsible for developing the Juran Trilogy related to quality management. Juran Trilogy
covers the areas of Quality Planning, Quality Control and Quality Improvement. Juran also
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propounded the concept of vital few, trivial many that formed the basis for Pareto charts. He
also proposed the Cost of Quality approach.
Armand V. Feigenbaum
- Total Quality Control
Armand Vallin Feigenbaum proposed the concept of “Total Quality Control.” This enabled
enhancing the quality control focus from manufacturing to additionally cover incoming raw
material and design of products.
Philip B. Crosby
- Zero Defects concept
Philip Crosby contributed to management theory and quality management practices. He
championed the concept of “Zero Defects.” His focus was on awareness and motivation of
employees.
Genichi Taguchi
- Importance of Robustness in Design
Genichi Taguchi helped U.S. companies in the improved statistical control of processes related
to production. He emphasised the importance of robustness in the design of products for their
satisfactory functioning.
2.6 Seven Deadly Sins in Quality Management

There are seven deadly sins that need to be avoided for proper quality management. This is
applicable in all quality frameworks.
Sl. No. Deadly Disease / Sin Description

1. Lack of constancy The philosophy of quality has to be embedded
into the organisational culture. It is also
required to look at a long-term approach to
quality for it to be effective.
2. Emphasis on A focus on short-term profits leads to thinking
short-term profits and acting from a short-term perspective. This
18
impacts a long-term approach to quality and

business growth.
3. Excessive reliance on Over-reliance on performance appraisals could
performance appraisals increase fear and rivalry. It could also impact
mutual respect and teamwork.
4. Mobility of management Frequent and continuous job hopping by
managers cause instability. It is also an obstacle
for managers to take decisions based on a
comprehensive understanding of the business.
It also prevents them from understanding the
outcome of actions from a long-term
perspective.
5. Excessive reliance on There is a tendency for managers to evaluate
visible figures performance based on easily visible
quantitative measures. This may cause an
important but unknown qualitative measure to
be overlooked.
6.. Excessive costs The extent of absenteeism owing to illness and
for employee increased medical costs for employee
healthcare healthcare has increased the cost of goods and
services and impacted competitiveness.
7 Excessive costs The increased level of lawsuits and applicability
of warranty and of huge quantum of compensation amounts
legal-related could result in excessive charges and over-
costs pricing.
Table 5.3: Seven Deadly Diseases and Sins in Quality Implementation
2.7 Deming’s Wheel or Deming’s Cycle

What is PDCA Cycle?
19
Fig 5.3: PDCA Cycle

PDCA (Plan-Do-Check-Act) cycle is a tool that is used for continuous improvement, and
comprises the following steps:
PLAN: Setting the objectives and establishing plans
DO: Implementation of the plan
CHECK: Measurement of current performance against the plan
ACT: Improvement of the plan for subsequent implementation
The following are some of the instances where PDCA could be utilised effectively:
• PDCA cycle serves as a continuous improvement model.
• It helps in the implementation of a change.
• It helps in the initiation of a new improvement project.
• It helps in the development of a new process.
• It helps in the improvement of existing process/product/service design.
2.7.1 Activities in PDCA

PLAN:
1. Identify the process that needs improvement
2. Document the identified process
3. Identify alternative ways to achieve the desired objective
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4. Assess the benefits and costs of alternatives
5. Develop a plan with tangible measures for improvement
DO:
1. Implement the plan and monitor progress

2. Collect data on a continuous basis and measure process improvements.
3. Document any changes in the process
4. Make revisions as required
CHECK:
1. Analyse the data collected during the ‘DO’ phase
2. Determine how the results correspond to the defined goals (in ‘PLAN’ phase)
3. Re-evaluate plan or terminate the project if there are major deficiencies
ACT:
1. Document the revised process if the results are found to be successful
2. Make this the standard procedure for usage
3. Repeat the PDCA cycle as and when required
2.7.2 Illustration
Scenario - PDCA Deployment in the Banking Sector
ABC Bank Ltd. is looking at creating a new product/service to have a competitive edge in the
banking sector. Let us consider an example of how PDCA could be deployed as a tool in this
scenario.
PLAN: Identify and create a new banking product/service based on customer needs
DO: Offer the new banking product/service to customers (on a trial basis)
CHECK: Obtain customer opinion/feedback about the new product/service
ACT: Management review and implementation (Carry out large-scale Implementation or fine-
tune the offering)
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3. Quality Audit
Quality audit is the process of systematic examination of a quality system carried out by an
internal or external quality auditor or an audit team. It is an important part of an organisation's
quality management system and is a key element in the ISO quality system standard.
3.1 Categories of Audits

Audits could be classified as either Compliance audits or Performance audits. These could be
further categorised as given below.
1. System Audits
2. Process Audits
3. Product Audits
System Audits
The following are the significant aspects of system audits.
• It audits the system processes and management controls within an organisation.

• It examines an enterprise at the macro level.
• They usually cover many activities and cut across organisation, product, and process
boundaries.
• It could include the training system, quality circle system, maintenance system and so
on.
System audits could be horizontal or vertical.
Horizontal System Audit: A horizontal system audit looks at how processes and controls have
been applied across various functional groups. It provides an understanding of the manner in
which common rules have been implemented across the organisation. A horizontal system
audit is useful in analysing consistency.
Vertical System Audit: A vertical system audit looks at how various processes and controls have
been applied within a single unit. It enables a view of whether the various rules work together
effectively and efficiently.
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It is necessary to have a mix of horizontal and vertical system audits within an organisation.
System audits could be done on various elements, examples of which include:
▪ Process Areas
▪ Functional Departments
▪ Quality Systems
▪ Customers
▪ Specific Projects
Process Audits
A process audit is an examination of results to determine whether the activities, resources and
behaviours that cause them are being managed efficiently and effectively. A process audit is
not simply following a trail through a department from input to output. This is a transaction
audit.
Product Audits
The product audit is the assessment of the final product/service and its qualification for use
evaluated versus the intent of the purpose of the product/service. It ensures a thorough
inspection of a final product before delivery to a supplier or a customer.
Compliance and Performance of audit categories are shown in the following table:
Compliance Performance
System Audit Looks at the consistency in the Looks at the ability to

implementation of a defined achieve organisational
system. It helps to promote goals. It helps to promote
stability. change.
Process Audit Looks at the ability to perform Looks at the ability of the
according to the defined processes to achieve
processes. desired characteristics.
Product Audit Looks at the production of Looks at the suitability of
goods or delivery of services the goods/services for the
according to the defined intended use.
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requirements.
Table 5.4: Compliance and Performance of Audit Categories
System compliance audits are usually external audits conducted by the third-party agencies.
This includes conformity assessments and regulatory audits. The auditors look at the products
(goods and/or services) and the processes (operational and management) during their visit to
determine the compliance with system requirements.
4. Quality Standards
ISO 9000 standards have a philosophy of “Document it and do it like you document it. If it
moves, train it. If not, calibrate it.”
Certification for ISO standards may not represent an order winner, but it is rapidly
becoming a universal order qualifier.
Quality standards play an important role in quality management function and help in
determining the level of quality implementation. Quality management became an important
strategic objective, and it was decided to achieve standardisation of quality requirements. This
led to the establishment of a specialised agency for standardisation called the International
Organisation for Standardisation (ISO). ISO quality standards are accepted globally as a
benchmark of the quality management process.
ISO agency consisted of representatives from the national standards bodies of 91 countries. A
series of written quality standards caked as ISO 9000 standards were adopted in 1987. These
standards were revised in 1994. The International Organisation for Standardisation used the
ISO prefix while naming the standards.
ISO standards are the minimum standards of quality that must be met by the industries. These
standards are universal in nature and are specific to a particular product, material, or process.
ISO standards enable an organisation to implement a structure for meeting the objectives
related to quality management or environmental management.
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There are various ISO standards relating to the different elements such as safety, customer
service, usability, and quality-related aspects. ISO standards are applicable to any organisation
irrespective of its size, type, or function. These standards could be applied in any scenario such
as:
• Large or Small Organisations
• Manufacturing or Service Organisations
• Business or Organisation involved in any type of activity
• Business Enterprises, Public Administration Entities, or Government Departments
The key objectives of ISO standards include:

• Achieving, maintaining and seeking continuous improvement in product/service quality
in relation to the requirements
• Improving the quality of operations for continuously meeting the stated and implied
needs of customers and stakeholders
• Providing confidence in internal management and other employees regarding
fulfillment of quality requirements and occurrence of improvement
• Providing confidence to customers and other stakeholders regarding achievement of
quality requirements in the delivered product
• Providing confidence regarding fulfillment of quality system requirements
Let us look at two important ISO standards, namely, ISO 9000 and ISO 14000.
4.1 ISO 9000 Family of Standards
Fig 5.4: ISO 9000
25
The ISO 9000 family of standards is associated with “management of quality.” ISO 9000 is
considered to be an international reference for requirements relating to quality management
in the dealings between businesses.
ISO 9000 has an objective to ensure the high quality of the produced product and the
maintenance of quality for all productions.
ISO 9000 would ensure that an organisation meets the specified standards while considering
• Quality requirements of the customer
• Regulatory requirements that are applicable
• Enhancement of customer satisfaction
• Achievement of continued improvement in performance
ISO 9000:2000
A version of ISO 9000, namely ISO 9000:2000 provides guidance on creating a customer-
oriented culture. The guidance is provided for meeting the customer needs instead of
prescribing a set of quality control practices to be implemented for achieving compliance. The
ISO 9000:2000 standard was closely aligned to the quality management principles established
by Philip Crosby.
ISO 9000 and TQM

ISO 9000 is a sub-component of Total Quality Management (TQM). ISO 9000 is the minimum
quality standard that is to be demonstrated by a supplier for receiving the ISO 9000
accreditation, whereas TQM is more comprehensive.
4.2 ISO 14000 Family of Standards

The ISO 14000 family of standards is associated with “management of the environment.” ISO
14000 is a standard that facilitates organisations in meeting their environmental challenges.
ISO 14000 has an objective to ensure that the environment was protected during the
production of the product.
ISO 14000 would ensure that an organisation meets the specified standards while considering
26
• Minimisation of harmful effects on the environment as a result of the organisation’s

activities
• Achievement of continued improvement of environmental performance
4.3 Evaluating ISO Standards as a Brand

International standardisation organisations such as ISO are “well-known brands.” There is a
significant impact of the identification of this brand on the adoption of standards. The ISO
brand seemed to have a positive impact on the adoption of the standards.
The aspect of mentioning to users about conformance to a standard, such as ISO, has greater
impact than mentioning a product that has conformance to some specifications. It is also
perceived that the adoption of the standards could be positively influenced by effectively
marketing the standards. ISO needs to treat their brands as an asset from a strategic
perspective.
The following figure depicts the impact of issues relating to standardisation for adopting and
diffusing standards.
Fig 5.5: Impact of Issues Relating to Standardisation for Adopting and Diffusing Standards
(Source: Data-Exchange Standards and International Organisations: Adoption and Diffusion,
Josephine Wapakabulo Thomas)
27
4.4 Procedures to Adopt ISO Standards

The following procedures are involved in the adoption of ISO standards:
• Establishment of a steering committee consisting of representatives from various
functions (such as, purchasing, production, design, quality assurance)
• Coordination of project tasks by the steering committee (for example, collection of
existing procedures, and their review and revision as required)
• Establishment of a “quality policy”
• Development of a “corrective action process” for monitoring and controlling non-
conformances
• Writing “document control” procedures
• Completion of “drafts of detailed procedures” for each element of ISO and their review
and approval
• Consolidation of all procedures in the “quality manual”
• Providing training to all employees on the quality policy and audit procedures of the
organisation
• Conducting internal audits
• Preparing for registration audit
The adoption of ISO standards requires the support of the top management in an organisation.
Since employees will apply the procedures and take care of the details, they need to be trained
well. The employees also need to anticipate questions that might be asked by the external
auditors.
4.5 Key Elements Involved in the Management of ISO Systems

The following are the key elements involved in the management of ISO-based systems.
• Planning: The activities that are to be performed need to be planned ahead. It is also
required to establish clear responsibility and accountability. All requirements and
documents are the base against which quality is measured.
• Performance: The records need to be maintained so that measurement could be done.
The people performing the tasks have to be given appropriate tools and the necessary
training to complete the job as specified.
28
• Measurement: The success or failure of activity needs to be measured against an

accepted standard. Some of the tools of measurement are audit, inspection, appraisal,
evaluation, and review.
• Improvement: Based on the measured data, problems need to be corrected, and the
process has to be improved.
4.6 ISO Standard Certification

The International Organisation for Standardisation (ISO) maintains the ISO 9000 standards. It is
administered by the agencies involved in accreditation and certification. An organisation could
be considered to be “ISO 9001 certified” once it has been independently audited and certified
to conform to ISO 9001 standards.
ISO 9000 certification provides an assurance to customers that an organisation has designed
and managed its processes for delivering a quality product. According to ISO 9000 standards,
third-party audits need to be performed leading to certification of the suppliers. This
certification has acceptance by all customers, (thus, eliminating the need to conduct 10 to 20
different audits by many organisations) who are interested in business transactions with a
supplier.
In the beginning, ISO 9000 standards had the following objectives:
• To be advisory in nature
• To be used in contractual scenarios between two parties (customer and supplier)
• To be used for internal auditing
Later, the ISO standards evolved into criteria for organisations intending to “certify” their
quality management or achieve “registration” through a third-party auditor. Generally, a
registration agency is known as registrar.
The registrar certifies the company and the certificate is acceptable to all the supplier’s
customers. This eliminates the need for each customer to audit a supplier for compliance to
the standards.
4.6.1 Advantages of ISO Certification

The following are some of the advantages of ISO certification.
1. Provides a set of good common practices for quality assurance systems
29
2. Helps reinforcement of the stated quality system due to the requirements for periodic
audits until the quality system becomes in-built into the organisation
3. Facilitates the discovery of problems and improvement of processes
4. Helps to enforce a discipline of control
5. Enables organisations to have a competitive advantage and better marketability of their
products/services
6. Helps organisations to meet contractual obligations with their customers
7. Makes the selection process easier if a potential supplier has ISO certification
4.6.2 Different Phases of ISO Certification Process
Documentation Performance Verification Filing
Fig 5.6: Phases of ISO Certification Process

The following are the different phases of ISO 9000 certification:
• Documentation: It is required to develop the necessary documentation of
procedures for carrying out all activities.
• Performance: The documentation is to be used as a working tool by doing
everything that is recorded.
• Verification: It is required to verify that the developed and documented procedures
are followed by all the parties concerned and in all cases.
• Filing: It is required to retain a written trace of all procedures. This should be
updated and made available to all the persons concerned.
An independent third party does the certification. The cost towards certification could be quite
high, and it could take up to two years to obtain certification. Examiners who are accredited to
the national standards setting agency assess the adherence to procedures on an annual basis.
Re-certification for ISO standards is required once in three years. Individual departments or
divisions must achieve registration on an individual basis.
Let us see the various elements in the ISO certification process.
30
4.6.3 Elements in ISO Certification

• Document Review: It involves a review of quality manual or quality system documents
by the registrar.
• Pre-assessment: It involves the identification of potential non-compliance in the quality
system and its documentation. This serves as a final check facilitating correction of last-
minute issues.
• Assessment: An assessment of the quality system and its documentation is done by a
team of two or three auditors. After the audit, corrective actions need to be taken and
re-audit is to be done if required. After passing the audit, the registrar could certify if
ISO standards have been followed. The organisation is provided with a letter and a
certificate that could be used to announce to the external world about the ISO
certification.
• Surveillance: It is a periodic re-audit for verification of conformance with the practices
and systems registered.
4.6.4 Steps involved in ISO Certification

The following table displays the key steps involved in ISO 9001 certification.
Steps Explanation
Step – 1: Gap Analysis It involves the assessment of existing quality
management practices against ISO 9001
requirements.
Step – 2: Orientation Training It involves providing training on ISO 9001
requirements and action plans to the
Top/Senior Management.
Step – 3: Documentation of the System It involves the preparation of quality manuals
and designing quality record formats.
Step – 4: Implementation of the System Implementation of a quality system in the
organisation will be according to the quality
manual.
Step – 5: Organisation-wide Training Organising for training on ISO 9001 clauses,
31
Statistical Quality Control Techniques,

Housekeeping (Japanese 5S), and Quality
Audit in the entire organisation is done in this
phase.
Step – 6: Internal Quality It is a periodic assessment of quality system
Audits implementation and corrective actions.
Step – 7: Pre-assessment It is an initial audit by the certifying agency,
and involves implementation of corrective
actions.
Step – 8: Final Assessment It involves certification audit by the certifying
agency and providing recommendation for
certification.
Table 5.5: Key Steps Involved in ISO 9001 Certification
(Source: http://www.globalqualityvillage.com)
32
Likely Questions during the Assessment
The questions that are usually asked by the auditors during the assessment phase
of ISO certification include the following.
• Is there a documented policy on quality?
• Are management objectives for quality defined?
• Are the quality policy and objectives transmitted and explained at all levels
of the organisation?
• Is there a documentation of the job descriptions for people who manage or

perform work that impacts quality?
• Are the functions that impact quality described?
• Has the management designated an individual or group with the authority

to prevent non-conformities in products, identify and record quality issues
and also recommend solutions?
• What are the mechanisms used for verification of solutions?
Table 5.6: Likely Questions during the Assessment
4.6.5 Certification Agencies

The ISO does not directly certify organisations. It is required to engage an external organisation
that has specialisation in assessing compliance with the standard certification agencies (also
called as registrars). These standard certification agencies are usually authorised by
accreditation agencies that are set up for accreditation purpose.
The certification agencies audit the organisations that apply for ISO compliance certification.
The certification agencies charge fees for providing services. The certifications issued by any of
the certification agencies are accepted worldwide.
The following are some of the factors involved in selecting a certification agency.
33
• Credibility of the Certifying Agency: All countries have a body to control the activities of
registrars and also to ensure that they have their own quality systems which are
equivalent to ISO. Lists of approved registrars are also maintained in most countries.
• Recognition of Certification: It is better to consider agencies that are recognised in the
home country of an organisation.
• Focus on Specific Industry by Registrar: It may be better to select a registrar who
focuses on a specific industry due to better familiarity with the processes generally
used in that industry.
• References: A registrar’s process needs to be reviewed and references are to be
checked to have an idea about the quality of service.
• Costs and Charges: A comparison of the costs and charges involved such as application
fees, administrative fees, document assessment fees, fees for annual or semi-annual
review of quality process and so on needs to be done. It also needs to be ensured that
there are no hidden costs.
4.7 ISO 9001 Implementation: A Business Case
Bank of Boston became the first bank in South America to be awarded ISO 9000
certification. It received ISO 9000 certification for its international safekeeping services (a
banking service wherein the bank acts as a foreign investor’s attorney, liquidator and
representative for operations such as securities and stock brokerage).
34
The Bank is required to ensure that all the local rules and regulations are thoroughly
followed. The American Bureau of Shipping issued the ISO 9000 certificate to Bank of
Boston.
The Chairman of Bank of Boston, Charles K. Gifford expressed that ISO 9000 certification
being an internationally standardized process was a good measure of the ability of a
company to deliver the highest level of service quality.
Charles K. Gifford mentioned that any company, irrespective of the industry needs to meet
the same rigorous management requirements for obtaining the certificate. He also added
that Bank of Boston actively pursued ISO 9000 certification to demonstrate the
commitment of the bank to its existing and potential customers in providing products and
services of the highest quality.
5. Quality as a Competitive Advantage and Business Excellence

There are multiple instances wherein companies have proven that quality can be an important
competitive advantage. Companies can successfully leverage on this and achieve market
leadership in multiple territories. An excellent example in this case is ‘Toyota’. Even in the BFSI
(Banking, financial services and insurance) sector, banks are constantly striving to achieve
business excellence through quality initiatives. However, an important point that needs to be
discussed has to do with quality strategies for business excellence. In the following section, we
will try to understand the Business Excellence Models in quality which can help in successfully
achieving competitive advantage.
The evolution of the Excellence model and its usage has facilitated the development of Total
Quality Management (TQM) and Business Excellence within organisations.
The management of quality is a continuous process. There are various Business Excellence
Models and awards that have been instituted for quality management and business excellence.
35
The following figure displays the Business Excellence Models.
Fig 5.7: Business Excellence Models
(Sources: “Measuring Business Excellence” by Gopal K. Kanji, “Total Quality Management: Text
and Cases” by K. Shridhara Bhat)
5.1 The Malcolm Baldrige Criteria for Performance Excellence

The following key aspects are the Baldrige Criteria for Performance Excellence.
• Leadership: The leadership system, values, expectations, and public responsibilities of

the organisation.
• Strategic Planning: The effectiveness of strategic planning and its deployment with a
focus on customer needs and operational performance requirements.
• Customer and Market Focus: The manner in which an organisation determines the
customer needs, market requirements and expectations, enhancement of relationships
with customers, and assessment of customer satisfaction.
• Information and Analysis: The level of effectiveness in collecting information and
analysing it for supporting customer-driven performance excellence and success in the
market.
• Human Resource Focus (Workforce Focus): The success of efforts to achieve the entire
potential of the employees for creating a high-performing organisation.
• Process Management: The extent of effectiveness of systems and processes to assure
the quality of products and services.
36
• Business Results: The results of performance, trends, and comparison with competitors
in key business areas.
5.2 EFQM Business Excellence Model

The EFQM (European Foundation for Quality Management) Business Excellence Model is a
non-prescriptive framework which recognises the existence of many approaches in achieving
sustainable excellence. The EFQM Business Excellence Model is based on the following aspect.
“Excellent results with respect to Performance, Customers, People and Society are achieved
through Leadership driving Policy and Strategy, People, Partnerships and Resources, and
Processe.”
The fundamental concepts that form the essence of the model are:
• Results Orientation
• Customer Focus
• Management by Processes and Facts
• Leadership and Constancy of Purpose
• Continuous Learning
• People Development and Involvement
• Partnership Development
• Innovation and Improvement
• Public Responsibility
According to EFQM, excellence is an outstanding practice in managing the organisation and

achieving results based on the fundamental concepts highlighted above. The EFQM Business
Excellence Model has the “enablers” and “results” criteria, with each of them constituting a
total of 50 percentage of the total weight.
Following figure depicts the EFQM Business Excellence Model.
37
Fig 5.8: EFQM Business Excellence Model
Enablers are the set of factors that “enable” an organisation to achieve model performance.
The Enablers are leadership, policy and strategy, people, partnership and resources, and
processes.
Results are basically what an organisation achieves in relation to the criteria established in the
results category. They are the outcome of the Enablers. The Results include customer results,
people results, society results, and key performance results.
There are nine boxes in the EFQM model, which represent the criteria used for assessment of
the organisation’s progress towards excellence. Each of these nine criteria has a definition
explaining the high-level meaning of that criterion. Each criterion is supported by sub-criteria.
Each of the sub-criteria has lists of possible areas to be addressed.
38
6. Summary
• Any organisation with a focus on customer satisfaction, operational efficiency,

improved market share, cost optimisation, and better risk management needs to apply
quality principles.
• Quality is typically applicable in the manufacture of goods. However, it can also be
applicable in the delivery of services.
• The key principles of quality are customer focus, leadership, involvement of people,
process approach, system approach to management, continual improvement, factual
approach to decision making and mutually beneficial supplier relationships.
• The roots of the quality movement can be traced back to the 13th century when
craftsmen were operating in medieval Europe.
• A new set of thinkers called “Quality Gurus” contributed a lot to the quality movement.
Some of the notable “Quality Gurus” include Edwards Deming, Joseph Juran, Philip
Crosby, Argand Fiegenbaum, Kaoru Ishikawa, and Genichi Taguchi.
• Four eras of quality evolution are Inspection Era, Statistical Quality Control Era, Quality
Assurance Era and Strategic Quality Management Era.
• Japan had their strategies based on the ‘Total Quality’ approach. Japan demonstrated
to the world the importance of Statistical Quality Control (SQC) and making it a
management movement.
• Frederick Winslow Taylor initiated thoughts relating to continuous quality
improvement. He is considered as father of Scientific Management.
• PDCA (Plan-Do-Check-Act) cycle is a tool that is used for continuous improvement.
• Quality audit is the process of systematic examination of a quality system carried out by
an internal or external quality auditor or an audit team.
• International Organisation for Standardisation (ISO) quality standards are accepted
globally as a benchmark of the quality management process. ISO standards are the
minimum standards of quality that must be met by the industries.
39
• The ISO 9000 family of standards is associated with “management of quality.” ISO 9000
is considered to be an international reference for requirements relating to quality
management in the dealings between businesses.
• The ISO 14000 family of standards is associated with “management of the
environment.” ISO 14000 is a standard that facilitates organisations in meeting their
environmental challenges.
• An organisation could be considered to be “ISO 9001 certified” once it has been
independently audited and certified to conform to ISO 9001 standards.
• The key steps involved in ISO 9001 certification are Gap Analysis, Orientation Training,
Documentation of the System, Implementation of the System, Organisation-wide
Training, Internal Quality Audits, Pre-assessment and Final Assessment.
• The ISO does not directly certify organisations. It is required to engage an external
organisation that has specialisation in assessing compliance with the standard
certification agencies (also called as registrars).
• The EFQM (European Foundation for Quality Management) Business Excellence Model
is a non-prescriptive framework that recognises the existence of many approaches in
achieving sustainable excellence.
40
7. References
1. Gryna, Chua, Defeo, Juran`s Quality Planning & Analysis for Enterprise Quality, 5th
Edition, Tata McGraw Hill, 2008
2. Gitlow, Oppenheim, Levine, Quality Management, 3rd Edition, Tata McGraw Hill, 2009
3. Debashis Sarkar, Quality in Business, Sage/Response Books, 2003
4. Debashis Sarkar, Lessons in Six Sigma - 72 Must know truths for managers,
Sage/Response Books, 2004
8. Web references
1. http://www.asq.org/ http://www.deming.org/ http://www.juran.com/
2. http://www.Quality.nist.gov/ (Baldridge) http://www.taketenminutes.com
3. http://www.iso.org/iso/iso_catalogue/management_standards/iso_9000_iso_14000/q
mp
4. http://www2.toyota.co.jp/en/vision/traditions/sep_oct_05.html
41
Unit 6: Lean Management
Lean Management
Table of Contents
1. Lean Management .......................................................................................................................... 5

2. Application of Lean Principles ......................................................................................................... 6
2.1 What is the Outcome of a Lean Approach? ................................................................................ 7
2.2 Important Aspects of Implementation of Lean ........................................................................... 8
2.3 Lean in Different Industry ........................................................................................................... 8
2.4 Best Practices in Lean Management ............................................................................................. 9
3. Techniques in Lean Management ................................................................................................. 10
3.1 Value Stream Mapping .............................................................................................................. 11
3.2 5S Methodology ........................................................................................................................ 12
3.2.1 Advantages of Using 5S Methodology .......................................................................... 15
3.2.2 5S in Services ................................................................................................................. 15
3.2.3 Benefits of Implementing 5S Methodology .................................................................. 16
3.3 Quality Initiatives to Improve Productivity in Banks................................................................... 17
4. The Concept of ‘Wastes’ in Lean Management ............................................................................ 18
4.1 Eight Types of Waste ................................................................................................................. 18
4.2 Wastes in the Service Industry .................................................................................................. 19
5. Service Quality in a Digitised Environment ................................................................................... 21
6. Lean Transformation ..................................................................................................................... 22
6.1 DEB-LOREX Model for Lean Transformation ............................................................................. 22
6.1.1 What is the DEB-LOREX model? .................................................................................... 22
6.1.2 Philosophies that Drive the DEB-LOREX Model ............................................................ 23
6.1.3 Enablers in the DEB-LOREX Model ................................................................................ 24
6.1.4 Benefits of Using the DEB-LOREX Model ...................................................................... 25
6.1.5 Considerations of an Organisation Deploying the DEB-LOREX Model.......................... 25
6.1.6 Lessons from Lean Implementation in the Service Industry......................................... 26
7. Sales Quality Management ........................................................................................................... 27
8. Summary ....................................................................................................................................... 31
9. References .................................................................................................................................... 33
2
Lean Management
Unit Description
In the previous unit, we have gone through the basic principles of quality management. We
have discussed many quality management principles in brief. In this unit, let us now learn more
about lean management and its applications/effects in the service scenario.
If we look at manufacturing companies around the world, they use several lean manufacturing
tools to meet the increasing demands and requirements. This philosophy of lean management
was developed as a methodology in order to create highly efficient production processes. A
majority of the manufacturing-based companies in the country have adopted ‘Lean’ tools and
techniques. Lately, several service sector companies have also joined in this league of
companies. For several companies, these tools and techniques have helped them to
exponentially enhance their competitive edge while continuing to remove wasteful practices
and contribute a lot to their profitability.
The ‘core idea’ behind the philosophy of ‘lean’ manufacturing is that of enhancing customer-
value while minimising the waste in the processes; thus, realising manufacturing excellence
through the creation of higher value with lesser resources. Waste in quality management is
defined as an activity that does not add any kind of value to the product/service delivered.
Through the eradication of ‘waste’ along with the entire manufacturing/service delivery
process, companies are able to generate processes that require less human effort, less space,
less capital and less time to produce high-quality and low-cost products/service compared with
traditional business systems. This can also be observed in the banking and financial sector.
The success of lean and its tools are tested and tried in the manufacturing sector with great
results. Since the service sector is now growing at a rapid pace across the globe in scope and
size, the applicability of different lean principles is being tested in different service
environments. Several quality management thinkers are sceptical about the applicability of all
3
Lean Management
the lean tools in services management and believe that tools should be customised to meet
the requirements instead of using ‘standard templates’.
However, after becoming familiarised with the core principles of lean, many companies believe
that it is not just specific to physical products and that it can be easily shaped and adapted to
suit other sectors too.
The central notion of ‘lean’ is to help businesses:

• Establish what is valuable for their customers
• Optimise their value-creating processes by eliminating out waste
• Optimise the entire operation so that the service delivery is dined at its best
Even though it can be tough to locate ‘intangible wastes’ in a service environment, the
principles and concepts of lean remain the same – to achieve maximum productivity and
performance with the fewest resources.
Learning Objectives
• Discuss the basics of lean.

• Explain the techniques of lean implementation.
• Discuss the 5S methodology.
• Describe the eight wastes in quality.
• Explain quality initiatives to improve productivity.
• Describe sales quality management.
4
Lean Management
1. Lean Management
Things which matter most must never be at the mercy of things which
matter least.
Johann Wolfgang von Goethe
Basics of Lean
There has been a transformation in the operation of businesses and the delivery of services in
various sectors. Lean concepts have been applied not only in a manufacturing environment but
also in other industries/sectors that involve the delivery of products or services. It can be said
that lean is not a one-off achievement or goal but a continuous journey.
What is Lean?
Lean is getting the right things at the right time to the right place the first time while focusing
on waste minimisation and being open to change.
In a lean model, the emphasis is on the continued evolution of change and adaptation, and on
building mutually beneficial processes and relationships with the various stakeholders.
Fig 6.1: Lean

Why is Lean Required?
The adoption of lean principles is the key to the long-term survival of a business, as it enables
continuous improvement of efficiency in operations and performance of the business by
5
Lean Management
eliminating waste. This principle is also applicable for banks since there is a great deal of
operations and transactional elements wherein lean is applicable. The banking industry is also
witnessing a great pace of change in the way business and processes are carried out, making
lean implementation all the more necessary.
Key Principles of Lean

The following are some of the key principles of lean:
• Minimisation of waste by eliminating activities that are not adding value
• Continuous improvement
• First-time right quality
• Flexibility
• Long-term relationships with customers and suppliers
2. Application of Lean Principles

How are the Lean Principles Applied in Practice?
S. No. Lean Principle Objective How it is Achieved?

1 Waste Minimisation Elimination of non-value Efficiency in the utilisation
added activities of resources (people, space,
funds, raw materials and so
on) by deploying JIT (Just-in-
time)
2 Continuous Cost reduction, Quality • Integrated development
Improvement improvement, Productivity of products and processes
increase • Reduced time-to-market
• Sharing of information
• Transparency
3 First-time Right Quality Zero defects • Problem solving at the
source
• Following best practices
through benchmarking
4 Flexibility Diversification of products or • Reduced set-up time
services without • Manufacturing in smaller
compromising on efficiency lot sizes
5 Long-term Establishing mutually • Collaborative sharing of
Relationships beneficial relationships with risks
6
Lean Management
suppliers and those involved • Sharing of costs

in the supply chain • Sharing of information
Table 6.1: How are the Lean Principles Applied in Practice?
2.1 What is the Outcome of a Lean Approach?
Fig 6.2: Outcome of a Lean Approach
A lean approach has several advantages and positive outcomes, whether it’s applied in the
manufacturing/service sector. When designed and executed in a proper manner, a lean
approach facilitates:
• Reduction in waste
• Reduced time for design
• Lesser number of layers in the organisation
• Lesser number of suppliers
• Increased flexibility
• Enhanced capability
• Improved empowerment of employees
• Better productivity
• Increased customer satisfaction
• Long-term success in a competitive environment
7
Lean Management
Benefits of Lean
The following are the benefits of lean:
• Improved quality at lower cost

• Increased level of flexibility
• Shorter product development cycle time
• Efficient utilisation of resources
• Better cash flow through inventory reduction
• Improved ability in meeting customer requirements
2.2 Important Aspects of Implementation of Lean
A few important aspects that are critical for lean implementation are:
• Clarity of purpose (that is why implementation of lean is required)

• Top management commitment
• Leadership
• Integration of lean with the business objectives
• Thinking lean and focusing on lean principles
2.3 Lean in Different Industry
Lean in a Service Scenario
The principles of lean were utilised initially in the manufacturing sector. However, there is a lot
of potential for deploying lean in the services sector due to the following aspects:
• A majority of activities in the services industry utilise only people as a resource and hence
it becomes difficult to control their efficiency (unlike machines). This results in a high
variation in performance and causes a lot of waste.
• The difficulty exists in the identification and classification of waste since it is relating to
the activities and actions done by human beings.
8
Lean Management
In a service scenario, lean enables business performance improvement through a focus on

aspects that do not add any value. Considering an operational perspective, lean helps to
eliminate those activities that are not “value-adding” to the product or the customer. This
results in cycle time reduction, which results in the improvement of process effectiveness and
efficiency.
Lean in Banking:
In the words of Larry Mead, VP with Guidon Performance Solutions (Mesa, Ariz.):
“Lean focuses on making things flow, like a mortgage loan request. It's an end-to-end
perspective that focuses on eliminating waste and engages the workforce. A lot of it involves
dealing with cultural change.”
The key for banks is to use “Lean” and “Six” as the means of reducing service times. They want
to take out a lot of the hand-offs and simplify processes to reduce errors. There's always a
danger when a company says that they are going to cut costs because they sometimes end up
doing things that make the service suffer. With lean, you're reducing cost by helping to smooth
your processes.
You also want to make sure you have the discipline in place to create a culture of continuous
improvement rather than blindly cutting costs and making service suffer.
(Source: Maria, Bruno-Britz, “Lessons for Banks to Learn from Lean Principles During Financial
Crisis”, October 2008 - http://www.banktech.com)
2.4 Best Practices in Lean Management
From the service industry point of view, it is essential to be aware of the different solutions
and templates being adopted and applied to lean service management. The best practices that
are usually deployed utilise the four most commonly used tools: Value Stream Mapping (VSM),
Production-balancing (Heijunka), Just in Time (JIT) and 5S standardisation. The best practices
are refined and customised based on the requirements of the bank. Some banks have a huge
customer base and the transactional load is quite high. However, some small finance banks on
9
Lean Management
the other hand, may have lesser transactional workload. Further, adaptation of the best
practices in lean management requires:
• Cost benefit analysis

• Top management support
• Resource allocation/Budgeting
• Change management effort in the organisation
• Clear communication to the employees involved
• Support from all the respective departments being affected
• Facilitation by internal quality team/Consultants
Some of the best practices deployed in the banking sector include:
• Service request management for online and offline modes

• Functional enhancement of the account servicing activities for different customer
segments
• Capacity management
• Deploying the 5S in the documentation process for activities such as loans using value
stream mapping
• Deploying production balancing for some of the key activities such as back-end support
and coordination of sales/ops teams
• Diagnostics and analysis of emerging service requirements
The concept of lean in services and particularly in the banking space is evolving very fast. BFSI
(Banking, Financial Services, and Insurance) is adopting from lean manufacturing best practices
and developing newer and improved versions of the best practices.
3. Techniques in Lean Management

Techniques for Lean Implementation
There are various techniques used during the implementation of lean. Some of the techniques
that could be used in a services scenario include:
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• Value Stream Mapping

• 5S
• Visual Management (usage of visual controls or signals to provide a quick picture of
the condition or scenario)
• Poka-Yoke (mistake proofing which involves elimination of defects as and when
they occur)
The most relevant amongst them in the services sector is value stream mapping which we will
discuss in detail.
Let us learn in detail about two of the techniques, namely, value stream mapping and 5S in this
context.
3.1 Value Stream Mapping
Value stream mapping is one of the lean techniques for the successful improvement of
processes. According to the value stream mapping concept, the outcome is reliable only if the
process generating that outcome is right. This technique could be deployed when the
processes are routine and standardised to a reasonable extent.
This involves creating a pictorial representation of the way in which a process works by
highlighting the links between material and information flows. The flow of items (materials,
customer requirements and so on) could be viewed through the value stream right from the
raw materials stage to the end product.
Value stream mapping provides an enhanced understanding of how the various work activities
fit together. This enables understanding those activities that do not add any value and to take
action for waste elimination. This, in turn, would facilitate increased profitability.
The following are the steps involved in value stream mapping:
1. Identify the product or service for mapping

2. Draw the value stream map for the current scenario by considering the tasks, their
operational sequence, and the cost and/or time duration involved for each task
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3. Consider the delays within the process and adding them

4. Assess the value stream as applicable in the current scenario
5. Create a value stream map for the future by simplifying and grouping the activities and
identifying bottlenecks and critical events
6. Create a plan for implementing the desired state
7. Review the outcome and repeat the above steps
The following figure displays the diagrammatic representation of the value stream map:
Fig 6.3: Diagrammatic Representation of the Value Stream Map
3.2 5S Methodology
The 5S methodology aims at organising environments in the workplace. It is being deployed in

various industries.
5S comprises five different words in Japanese, namely, Seiri, Seiton, Seiso, Seiketsu and
Shitsuke. These 5S have been specified in English as follows.
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• Sort
• Set (in order)
• Shine
• Standardise
• Sustain
Fig 6.4: 5S Methodology
Let us look at each of the 5S in more detail.
Sort (Seiri meaning ‘tidiness’)
The following explains in brief about Sort:
• Sort process is related to the process of discarding materials in the workplace that
are neither required nor relevant.
• It helps in ensuring that only those materials/items relevant for the work are
available in the workplace.
• It helps in effective space utilisation, simplification of tasks and purchasing only the
relevant items.
Set (Seiton meaning ‘orderliness’)
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The following are considered under Set:
• This is concerned with the concept of a place for everything and everything in its
place.
• It involves keeping everything in the place assigned for it and returning it back to
the same place after usage.
• The location or place for keeping the tools, items and materials need to be selected
based on the way in which the work will be done and also depending on who would
be utilising them.
• Labels need to be provided for each assigned place to facilitate easy identification
and quick access.
• Maintaining orderliness helps in increased productivity of workers, thus resulting in
improved efficiency.
Shine (Seiso meaning ‘cleanliness’)
The following are considered under Shine.
• Focus on a totally clean work area and maintaining it free of clutter.

• Ensure that keeping the place clean is the responsibility of all.
• Each person or group of people needs to be assigned an area of the workplace to
ensure that the assigned area is kept clean.
Standardise (Seiketsu meaning ‘standardisation’)
Standardisation includes mainly the following processes:
• It is required to standardise the best practices in each work area.

• Employees need to be encouraged for participating in the development of such
standards.
• Visual techniques such as colour coding and standardisation of colours in the
surroundings help to identify abnormalities or non-standardisation and rectify
them easily.
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Sustain (Shitsuke meaning ‘discipline’)
Sustain includes mainly the following processes:
• It is concerned with continuously practising the good habits mentioned in the other
4S and eliminating the bad ones.
• This is the final step in 5S, and it focuses on the commitment to put into practice
the above mentioned 4S regularly such that it becomes a way of life.
• This is the most difficult of the 5S to implement and achieve since human beings
tend to go back to the ways that they were doing earlier (that is, tendency to return
to the comfort zone).
(Source: Managing Quality by B.G. Dale)
3.2.1 Advantages of Using 5S Methodology

The following are some of the advantages of using 5S methodology.
5S methodology:
• Helps for efficient and safer operations

• Saves time and costs thus resulting in enhanced profitability
• Decreases the space requirements
• Decreases the time wasted by searching for equipment and tools
• Improves the morale of employees by providing a sense of pride in work and
ownership
3.2.2 5S in Services
5S drives workplace efficiency and productivity improvement.
Based on a simple set of principles, it not only helps to identify wastes in the workplace but
also creates an environment wherein teams get involved in improvements.
It is a movement to make sure that all the elements of a “workplace system” function in
harmony in order to allow teams to deliver an optimum level of performance. The words
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“workplace organisation” refer to the way the various components of a workplace system are
managed and organised.
This organisation is with respect to components such as workplace procedures, rules, inventory
management, policies, asset-ownership and infrastructure maintenance and so on.
3.2.3 Benefits of Implementing 5S Methodology

Implementing 5S within a service business delivers the following benefits:
• Reduces process lead times

• Facilitates workplace organisation
• Standardises operating procedures
• Improves customer response times
• Installs policies/guidelines that drive workplace
• Contributes to cost efficiency
• Helps to identify wastes
• Builds a culture of continual improvement
• Removes workplace clutter
• Reduces waste in the workplace
• Improves look-and-feel
Whether it’s investment banking, healthcare, hospitality, government, retail banking,

information technology or education, 5S is applicable everywhere. The brilliance of 5S is that
it can be adopted by any organisation. There are no burdens of complicated tools or difficult
data analysis. 5S is a set of practices that needs to be practised every day until it becomes a
habit. An example of 5S implementation in banks is the implementation of tokens for queue
management, thereby improving customer service time, using ‘Sort’.
(Source: Extracted from the web posting titled 5S for a Service business by Debashis Sarkar)
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3.3 Quality Initiatives to Improve Productivity in Banks
The BFSI sector has a target-specific requirement of servicing the customers in the least
possible at low cost. With increasing competition, banks and financial institutions find it
difficult to remain competitive and profitable due to high costs and rising demands of the
customers. Many banks have taken several measures to increase their productivity and thereby
increase the bottom line. The challenge is to achieve this objective without compromising on
the quality parameters. Though some measures are only short-term, many long-term
productivity enhancement measures are also usually undertaken by banks, in line with the best
practices in the industry.
The following points capture the contemporary productivity enhancement measures carried
out by banks:
• Setting branch-wise, department-wise and employee targets for their respective

functions so that productivity efforts are mapped, measured and evaluated
• Strategic resource deployment after the annual review of the productivity of
employees
• Business realignment using the latest technology and service tools available
• Automation of select processes after a systematic effort and resource estimation
exercise
• Periodic meeting of cluster heads and regional managers to determine productivity
related issues and the solutions
• Optimising of channels: Emphasis and extensive usage/focus on channels that are
productive and limiting usage of non-productive channels. For example, emphasis on
the usage of ATM/Net banking/Apps to decrease the branch traffic which is not very
productive
• Process enhancements: Carry out process enhancements that can help in increasing
the productivity of the staff. For example, adopting newer versions of CRM software
such as FINACLE can help increase employee productivity due to enhanced features.
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4. The Concept of ‘Wastes’ in Lean Management

4.1 Eight Types of Waste
Waste is a key obstacle, and if not eliminated, can restrict the progress of a business over a
period of time. Any activity that is not value contributing (that is, not adding value to the
product or service) is called waste. Such wastes utilise resources but do not generate value.
An activity is said to be non-value-adding if the customer does not require it and is also not
inclined to pay additionally for doing this activity.
The following table represents the 8 types of waste that need to be addressed in a lean
approach:
S. No. Type of Waste Description
1 Overproduction Producing more than what is actually required
2 Waiting Idle time involved as a result of waiting for material

or service
3 Transportation Movement of products such that there is no value

addition to the product or service
4 Non-value-added processing Any activity or processing involved that does not

result in value addition to the product or service
5 Inventory Maintaining more material or items than what is

required
6 Motion Unnecessary movement of equipment or people

for doing the processing
7 Defects Inspection / repair work / fixing of errors
8 Under-utilisation of people Not utilising people to the best of their abilities
Table 6.2: Eight Types of Waste
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Initially, seven types of waste were defined. An eighth type namely “manufacturing goods or
services not meeting customer requirements or specifications” was added by Womack in 2003.
However, others added the aspect of ‘unused human talent’ as the eighth waste.
4.2 Wastes in the Service Industry
The following are examples of wastes in the service industry:
Type of Waste Description Example

Overproduction Doing a lot of paperwork or Providing a lot of
generating reports of more than what applications for term
is required or making something deposits as part of a deposit
available before it is really needed is mobilisation drive, but the
referred to as over-production. back-office being unable to
process the applications in a
timely manner is considered
overproduction. This could
lead to customer
dissatisfaction.
Waiting Waiting refers to the time spent that Idle time expecting
is not adding value to the product or approvals/responses,
service. waiting for signatures and
system not being
operational are examples of
waiting.
Unnecessary Unnecessary transportation relates to If the process of issuing a

Transportation the movement of documents / papers credit card involves a
that do not add any value. complex flow wherein the
application forms move
multiple times across zones
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unnecessarily, across
locations and across
departments, instead of a
straightforward flow, it
constitutes a waste.
Non-value-Added Non-value-added processing relates Printing many copies of the
Processing to doing processing that need not be same document for usage
done. by each department,
processing of all interest
payments and printing the
pay orders before correcting
an error in the interest
calculation module are
examples of non-value-
added processing.
Unnecessary Unnecessary inventory relates to the The dispatch section waiting
Inventory unwanted pile-up of documents or for all the departments to
activities. send the letters /
documents before initiating
the dispatch process is an
example of unnecessary
inventory. This leads to a
huge pile-up at the dispatch
section.
Unnecessary The unnecessary movement of An executive assistant to the
Motion people could arise due to improper CEO has seated many floors
layout planning, non-standardised away from the office of the
work processes and badly designed CEO, thus causing repeated
workflows.
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and unnecessary movement

up and down the floors.
Defects Rework occurs as a result of defects Re-printing a statement for
and not doing things right the first the customer since an
time. incorrect statement was
provided; re-entering data
to correct errors are
examples of defects.
Underutilisation of Underutilisation of people relates to Making a financial expert do
people assigning work to people such that data entry is an example of
their talents and skills are not underutilisation of people.
appropriately utilised.
Table 6.3: Examples of Wastes in the Service Industry
5. Service Quality in a Digitised Environment

Service quality in digitised environment has emerged as an area of great interest in strategic
web services management and the e-commerce industry as a whole. The fact the service
provider does not see the customer and online consumer behaviour have added new
dimensions to the definition of service quality. In many cases, functionality and speed
overshadow all other elements in terms of service quality in the digitised environment.
However, the phenomenon of the mammoth size of e-commerce/online service is yet to be
fully realised in the BFSI space. These developments have given way to new
instruments/frameworks for measuring and evaluating the service quality in the digitised
environment context.
Typically, all the SERVQUAL factors including reliability and responsiveness can be in some way
measured in the online environment. Banks also use survey tools on popular social networking
sites such as YouTube, Facebook, and Twitter for this purpose. Banks and financial institutions
also use OSQ (Online Service Quality) which is constructed as a multi-dimensional concept
consisting of factors such as information quality, website design and service responsiveness.
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Surveys are conducted based on purposive sampling techniques. The most common analysis
tools used are factor analysis, structural equation modeling, and the OSQ measurement model.
These tools have to be tested and validated. The OSQ measurement instrument has to exhibit
a high level of reliability and validity in order to be shortlisted for usage.
BFSI companies will be able to use this instrument to gauge their service quality to improve
customer satisfaction in the digitised environments. Considering the scope of the application
of SERVQUAL in the digital environment, future tools and techniques in this domain could
examine the generalisability of the OSQ instrument across geographies and range of financial
services.
6. Lean Transformation
Organisations continually strive to achieve business excellence through quality and innovation.
However, the variables in each business are different and the environment, especially in the
services sector, may play a major role in these initiatives. In the context of these variations,
companies adapt models to suit their business requirements.
One of the useful models in the lean transformation is DEB-LOREX model. Let us discuss this
model in detail.
6.1 DEB-LOREX Model for Lean Transformation
The DEB-LOREX model is one of the approaches that could be deployed by service
organisations while adopting the lean philosophy. However, it could also be utilised by
manufacturing organisations.
(Source: Lean for Service organisations and offices – A Holistic Approach for Achieving
Operational Excellence and Improvements by Debashis Sarkar)
6.1.1 What is the DEB-LOREX model?

DEB-LOREX model is an acronym for Deb’s Lean Organisational Excellence Model. This model is
also known by other names such as DEB LOREX Management System, House of Lean
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Management System and D-LMS (DEB-LOREX Lean Management System). This model was
proposed to enable organisations to achieve a lean transformation.
The following are the key aspects relating to the DEB-LOREX model:
• It is an approach for lean transformation.

• It is a management system to attain organisational excellence.
• It is based on lean principles.
• It is a change management program.
• It looks at changing the way of managing an organisation.
• It focuses on service time improvement, cost reduction and quality improvement at the
enterprise level.
• It considers the total ownership of value streams and processes for altering the manner
in which a company is managed.
• It looks at waste elimination in business systems, processes and the work environment.
• It enables modification of the mindset of employees.
• It is oriented towards capability enhancement and culture development such that they
provide support for improving on a continuous basis, preventing problems and
achieving excellence in the work environment.
6.1.2 Philosophies that Drive the DEB-LOREX Model

Two philosophies drive the DEB-LOREX model are:
1. Lean Thinking
2. Systems Thinking
Lean Thinking
The key aspects of an approach based on lean thinking include:
1. Specifying Value
Specification of value from the customer perspective for each product family.
2. Identifying Value Stream

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Value stream identification for all product families and eliminating non-value-adding steps.
3. Flow Introduction
Introduction of proper flow by ensuring the correct sequence of steps that add value and
enabling the downstream flow of the product to the subsequent activity.
4. Introduction of Pull
Enabling customers to pull value from the previous activity.
5. Repeating the Process
Repeat the process until a perfect state having total value without any waste is achieved.
Systems Thinking
The following are the key aspects involved in systems thinking:
• It enables understanding of the way things work and viewing problems differently.
• The objective in problem solving is not just on problem correction but on prevention of
the problem from occurring in future.
• Focus is on the integration of components with one another.
• It helps to understand the causes and their influence on the outcome.
6.1.3 Enablers in the DEB-LOREX Model

The following elements act as enablers in the DEB-LOREX model:
• Leadership
• Functions
• Value streams
• Lean thinking
• Anchors (includes People, Processes, Partners, Promotions and Problem solving)
Each of the above enablers will directly influence the performance of others. Hence, they have
to be properly implemented to function in a harmonious manner.
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6.1.4 Benefits of Using the DEB-LOREX Model

The benefits of using the DEB-LOREX model are:
• It provides a basis for lean transformation.

• It facilitates the realignment of the resources and efforts of the organisation with the
organisational goals for the future.
• It helps in creating a culture of continuous change that includes incremental as well as
breakthrough improvements.
• It helps to meet the changing requirements of customers and the environment.
• It facilitates identification of the cause-effect relationships in the total performance
obtained by applying principles of lean.
• It enables identification of the processes and value streams in the lean management
system and the interactions between them.
• It ensures that the resolution of problems in one part of an organisation does not
adversely affect another.
6.1.5 Considerations of an Organisation Deploying the DEB-LOREX Model

An organisation deploying the DEB-LOREX model looks at the following:
• Consideration of the entire set of processes in the organisation from a complete

perspective
• Developing execution capabilities and enablers for sustenance
• Process-based management at the company level cutting across functions, with well-
defined ownership of an entire set of processes
• Customer-centric focus
• Declaration of war on all wasteful activities (those activities that do not add value and
for which payment cannot be expected from the customer)
• Lean management being adopted as a strategy for business
• Commitment for lean transformation by the leadership team
• A clear vision for lean transformation
• Clarity of plan for implementation of lean
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• Enhanced level of awareness about processes and lean among employees

• A high degree of involvement of employees in lean implementation
• Focus on improvement with the involvement of all levels of personnel
• Linkage of performance appraisal with metrics of the lean management system
• Value-based segregation of processes
• Proactively understanding customer needs
• Developing a mindset with a focus on prevention of problems
• Measurement of efficiency of value-creating processes on a regular basis
• Service innovations as differentiators in the organisation
• Creation of extended enterprise comprising vendors and outsourced agencies
6.1.6 Lessons from Lean Implementation in the Service Industry

Some of the lessons from implementation in the service sector include the following:
• It is important to obtain quick results even if they are not the best.
• There is a need to eliminate 20% of activities that consume 80% of the time.
• Time is an important parameter in lean.
• The entire organisation needs to participate in lean.
• The focus should be on action and not only on planning and analysis.
• Opportunity for waste reduction exists even in the best processes.
• Customers may create variation and waste in processes.
• Processes need to have end-to-end ownership.
• Focusing on optimisation within individual functional units without considering the
outcome of the larger value stream generates a lot of waste.
Metrics need to be:
• Aligned to strategic needs of the organisation

• Customer-focused and user-friendly
• Linked to the levers that will improve performance
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Lean Management
• There is a need to look at improving the end-to-end process rather than broken
processes to have a greater impact
• Even if processes are efficient, employees need to be well-trained and in a proper frame
of mind to minimise errors
• Workplace organisation using 5S methodology could be applied
• Process standardisation is important for sustaining Lean in an organisation
• Creating flow in service processes is not easy and solutions will have to be adapted
without losing sight of fundamental lean principles
• The flow needs to be created gradually in an end-to-end process
• Visual management techniques and visual tools support functioning of lean
management at the workplace
• Employees need to be skilled in performing multiple activities
• Emerging technologies could be used to introduce efficiency
• Automation of processes needs to be done only after eliminating waste
• Complexity in operations introduces waste
• Ensure that customers do not produce waste due to organisational inefficiencies
7. Sales Quality Management

Sales quality management refers to a concept wherein TQM (Total Quality Management)
concept of measurable and predictable error reduction been applied to sales management.
Sales quality management can be challenging and complex for any organisation. Though the
result in the sales is always quantitative and the sales outcomes are very clear, the ‘sales effort’
or ‘sales quality’ can be multivariate in nature and may not correlate with the results positively
in all cases. A classic example in that of sales follow-up cases. The result of the sales effort of
one quarter may show up in the successive quarters or some cases in the next financial year.
However, the aim of quality management and lean techniques is to optimise the sales effort
and ensure that the results are in line with the quality and sales objectives that have been set.
TQM needs a scheme of accurate measures – objective and precise enough for statistical
correlation and analysis. However, as discussed earlier, the measurement of the sales
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performance of the workforce usually includes subjective and mostly-general data that proves
to be imperfect to provide the level of accuracy that TQM may need.
Lately, lean as a tool has been deployed in pre-sales and post sales process too. Several global
organisations with worldwide presence have adopted a measurable and quantifiable lean-
based process, which is usually defined and documented to help address these error-prone,
human aspects of sales management. The initial requirement is an accurate measure of an
individual’s skills, competencies, motivational drivers, work habits and potential for developing
future competencies. The assessment instrument must be criterion validated to be predictively
accurate of measured productivity improvements and/or reduction in “unwanted” turnover
well beyond the 55-65% accuracy most commonly reported.
Research suggests that only a Six Sigma or TQM approach can accomplish the necessary level
of quality improvement in the management of intellectual capital. Using a TQM for sales or
Total Quality Sales Management (TQSM) requires focusing primarily on identifying the “causes
of failure” of otherwise qualified sales and service people. This is an opposite counter approach
to the more common identification of the criteria for success as typically seen in job analyses
and competency studies. A TQSM approach is capable of establishing a single instrument that
can measure all of the relevant competencies with an accuracy level robust enough to support
substantial quality gains in the management of a company’s most valuable “Human” assets.
The result in this direction is a TQSM Audit system – an information repository where
organisations have a complete inventory of strengths and weaknesses for all employees in
every key position and the past and possible error rates for sales related process.
A successful and customised TQSM model should measure:
• Pre-sales Effort
• Sales Effort
• Post Sales Effort
• Conversions
• Revenue Quantum
• Error Rates in the Sales Process
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Lean Management
This relational database can distinguish the job performance potentials for key talent located
anywhere in the organisation. This brief reviews the causes of less effective talent
management and how a Six Sigma/TQSM approach helps minimise the following common
criteria for sales force effectiveness:
• Increasing productivity and achieving sales goals

• Reducing unwanted turnover
• Motivating top performers
• Putting the right salespeople in the right sales job
• Maximising your training investment
Unlike popular belief, the key to increasing productivity is not based on trying to find more
sales superstars but instead, to eliminate faulty hiring and to invest in poor performers. In fact,
TQSM focuses on finding and reducing the failure points in every step of the sales management
process.
For example, if your organisation has 100 salespeople and ₹100 crores in sales and the 80/20
rule (or close) apply to you, then your top 20 salespeople bring in ₹80 crores. However, your
bottom 20 salespeople are bringing in only ₹3 crores. If you could guarantee to replace your
bottom performers with only “average” salespeople (assuming that it may be unrealistic to find
20 more superstars) your increase in sales would be approximately ₹17 crores and the average
salesperson productivity would increase greatly. Hence, the application part involves aspects
like hiring and talent management.
The following exhibit shows how the Six Sigma Framework can be applied to the talent
management part and follows the DMAIC (Define, Measure, Analyse, Improve, Control)
principle in the mapping of the talent benchmark metrics.
Process Talent Benchmark Metrics

Define
Company Standards Productivity Unwanted Turnover Reduce Costs,
Increase Profits
Measure
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Accurate Statistics Competencies Limitations Improvable

Weaknesses
Analyse
Errors and Best Job Fit Career Potential Level of Engagement
Improvements
Improve
Repeatable Processes Selection and Career Path Recognition and
Assignment Compensation
Control
Processes and Accurate Development and Succession Planning
Measures Assessment Training
Measure
Table 6.4: The Six Sigma Framework Applied to Talent Management
Hence, companies have to invest time and effort to evolve a customised TQSM model that can
help in improving their sales efforts through TQM tools. This requires the active involvement
and coordination amongst the quality department, sales team and the human resources
development team.
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8. Summary
Here are the key points what we discussed in this unit.
• Lean is getting the right things at the right time to the right place the first time while
focusing on waste minimisation and being open to change.
• The following are some of the key principles of lean:
o Minimisation of waste by eliminating activities that are not adding value
o Continuous improvement
o First time right quality
o Flexibility
o Long-term relationships with customers and suppliers
• When designed and executed in a proper manner, a lean approach facilitates:
o Reduction in waste
o Reduced time for design
o Lesser number of layers in the organisation
o Lesser number of suppliers
o Increased flexibility
o Enhanced capability
o Improved empowerment of employees
o Better productivity
o Increased customer satisfaction
o Long-term success in a competitive environment
• The key for banks is to use “Lean” and “Six” as the means of reducing service times.
• Some of the techniques used during the implementation of lean are:
o Value Stream Mapping
o 5S
o Visual Management
o Poka-Yoke
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Lean Management
• According to the value stream mapping concept, the outcome is reliable only if the
process generating that outcome is right. This technique could be deployed when the
processes are routine and standardised to a reasonable extent.
• The 5S methodology aims at organising environments in the workplace. 5S drives
workplace efficiency and productivity improvement.
• The best practices that are usually deployed utilise the four most commonly used tools:
Value Stream Mapping (VSM), Production-balancing (Heijunka), Just in Time (JIT) and
5S standardisation.
• Banks and financial institutions use most common analysis tools such as factor analysis,
structural equation modeling, and the OSQ measurement model.
• Waste is a key obstacle, and if not eliminated, can restrict the progress of a business
over a period of time.
• The 8 types of waste that need to be addressed in a lean approach are:
1. Overproduction
2. Waiting
3. Transportation
4. Non-value-added processing
5. Inventory
6. Motion
7. Defects
8. Under-utilisation of people
• DEB-LOREX model was proposed to enable organisations to achieve lean

transformation.
• Two philosophies that drive the DEB-LOREX model are Lean Thinking and Systems
Thinking.
• Sales quality management refers to a concept wherein TQM (Total Quality
Management) concept of measurable and predictable error reduction been applied
to sales management.
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• A successful and customised TQSM model should measure:

o Pre-sales Effort
o Sales Effort
o Post Sales Effort
o Conversions
o Revenue Quantum
o Error rates in the Sales Process
9. References
Book References
• The Certified Six Sigma Green Belt Handbook by Roderick A. Munro and Govindarajan
Ramu, 2nd Edition
• Six Sigma Demystified, 2nd Edition by Paul Keller
• Six Sigma for Powerful Improvement: A Green Belt DMAIC Training System by Charles
T Carrol
• Lessons in Six Sigma -72 Must Know the truths for managers – Debashis Sarkar, 2004,
Sage/Response Books, 3rd Reprint
• 5S for Service Organisations and Offices – A Lean Look at Improvements – Debashis
Sarkar, 2009, Pearson India, 1st Indian Edition
• Lean for Service Organisations and Offices – A Holistic Approach for Achieving
Operational Excellence – Debashis Sarkar, 2009, Pearson India, 1st Indian Economy
Web References
• http://www.isixsigma.com/library/content/c010318a.asp
• “Six Sigma at Citibank”, http://www.qualitydigest.com/dec99/html/citibank.html
• “Minimising Risks: How to Apply FMEA in Services” -
http://www.isixsigma.com/library/content/c040922a.asp
• “Kano Analysis: A tool for building customer loyalty” - http://www.creatingloyalty.com
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Unit 7
Total Quality Management
Total Quality Managment
Table of Contents
1. Total Quality Management ............................................................................................................. 6

1.1 Evolution of TQM .................................................................................................................... 7
1.2 TQM Concepts......................................................................................................................... 7
1.3 Integrated Approach to TQM.................................................................................................. 8
1.4 TQM – Philosophy, Principles, and Critical Success Factors ................................................... 8
1.5 Difference between Traditional Management and Quality-focused Management ............. 10
2. TQM as a Competitive Advantage ................................................................................................ 11
2.1 TQM in Service Delivery ........................................................................................................ 12
2.1.1 Need for TQM in Service Delivery ................................................................................. 12
2.1.2 Differentiators in Service Delivery ................................................................................ 12
2.1.3 Service Expectations ..................................................................................................... 13
2.1.4 Factors Influencing Perceived Quality of Service .......................................................... 14
2.1.5 Barriers to Service Quality ............................................................................................ 15
2.2 TQM and Process Improvement ........................................................................................... 15
2.3 Cost of Quality....................................................................................................................... 16
2.3.1 Analysing Impact of TQM on Cost ................................................................................. 17
2.3.2 Benefits of Reduction in Cost of Quality ....................................................................... 17
2.4 TQM and Production Planning and Control .......................................................................... 17
2.5 TQM and JIT (Just in Time) .................................................................................................... 18
3. Benchmarking – An Overview ....................................................................................................... 19
3.1 Concepts of Benchmarking ................................................................................................... 19
3.1.1 Early examples of Benchmarking .................................................................................. 20
3.2 Importance and Limitations of Benchmarking...................................................................... 22
3.3 Application Areas for Benchmarking .................................................................................... 23
3.4 Benchmarking Cycle .............................................................................................................. 23
3.5 Approaches to Benchmarking ............................................................................................... 24
3.6 Types of Benchmarking ......................................................................................................... 26
3.7 Critical Success Factors for Benchmarking............................................................................ 27
3.8 Seven Step Benchmarking Model ......................................................................................... 27
4. Kaizen ............................................................................................................................................ 28
4.1 Kaizen – The Three Pillars ..................................................................................................... 30
4.2 Kaizen and Innovation........................................................................................................... 31
4.3 Quality Circle in Kaizen.......................................................................................................... 32
4.4 Kaizen – Rewards and Recognitions ..................................................................................... 32
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5. Summary ....................................................................................................................................... 36
6. References .................................................................................................................................... 38
7. Web references ............................................................................................................................. 38
3
Unit Description
In the last unit, we have discussed the concepts and application of ‘lean’. In this unit, we will be
discussing the broader canvas of TQM (Total Quality Management).
Fig 7.1: TQM (Total Quality Management)

TQM has gained prominence due to its wide applicability and the success of companies that
adopted TQM principles globally. While TQM was initially applied in the manufacturing sector
and assembly line production environments, slowly and steadily the scope of TQM has
expanded to cover more functions and sectors. Now, every industry has its own customised set
of TQM tools that are used to help the company in incurring less cost and improve the quality,
meeting the needs of the customers.
Lately, service sector companies including but limited to banks have adopted many TQM tools
such as the 5S and created their templates and applications based on the TQM principles. It’s
interesting to note that some banks have also reviewed their TQM implementation regularly,
leading to spectacular results for the banks. While specific tools such as 5S and benchmarking
may have helped banks and other companies to resolve specific issues, TQM based
philosophies such as Kaizen have had a tremendous influence on the design and
implementation of many other initiatives that are customer-centric and process oriented. This
has also helped the banks drastically improve the process efficiency, helping them handle more
customer traffic in lesser time and in a better manner. This is also evident in aspects such as
queue management, technology design and new service development of banks.
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Learning Objectives
• Define Total Quality Management and its integrated approaches.

• Explain TQM as a competitive initiative.
• Explain the impact of TQM on service delivery.
• Describe the need of TQM in process improvement and production planning and
control.
• Explain the concepts of benchmarking.
• Elucidate different approaches and types of benchmarking.
• Describe seven step benchmarking model.
• Describe Kaizen.
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1. Total Quality Management
“Total Quality Management is not a destination

but a journey towards improvement.”
V Daniel Hunt
Fig 7.2: Quote on Total Quality Management

Total Quality Management (TQM) is the management process that is used to make continuous
improvements to all functions of an organisation. TQM helps an organisation to grow at faster
pace. The good practices of various organisational theories have been incorporated in TQM.
TQM is a systematic and integrated approach with a focus on delivering quality service as
specified by the customer, incorporating quality awareness in all processes of the organisation,
and achieving continuous improvement.
TQM requires that the company maintain the quality standard in all aspects of its business.
This requires ensuring that things are done right the first time and the defects and wastes are
eliminated from operations.
Why is it called as Total Quality Management (TQM)?
The word “Total” indicates that everybody in the organisation needs to be involved in the
continuous improvement initiative. The word “Quality” denotes a focus and emphasis on
customer satisfaction. The word “Management” has a reference to processes and people
required for achieving the quality.
Definitions of TQM
According to ISO, TQM is a management approach for an organisation, centered on quality,

based on the participation of all its members and aiming at long-term success through
customer satisfaction, and benefits to all members of the organisation and to society as a
whole.
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TQM is also defined as a quality-centered, customer-focused, fact-based, team-driven, senior-

management-led process to achieve an organisation’s strategic imperative through continuous
process improvement.
1.1 Evolution of TQM

The concept of TQM has evolved during the period of the quality revolution. The aspect of
quality was initially limited to inspections, and later the focus shifted to Quality Control. As the
quality revolution progressed, the focus was on Quality Assurance (QA), which looked at defect
prevention and a proactive approach to quality. This paved the way for the birth of TQM
principles. The following figure displays the evolution of TQM.
Quality
Inspection Quality Control TQM
Assurance
Fig 7.3: Evolution of TQM
1.2 TQM Concepts

A few concepts relating to TQM are given below.
• TQM is a management system with a people-oriented focus.

• It is a complete system approach and an integral component of the high-level strategy.
• It looks at a continued enhancement in customer satisfaction at a continued lower cost.
• TQM is applicable in both the manufacturing and service sectors and also for all types
of organisations (small, medium, and large organisations).
• It is an effort across the organisation and it is to be reflected in what is said or
performed in an organisation.
• It operates horizontally within the organisation, that is, across departments and
functions.
• All employees from the highest to lowest levels need to be involved. It could be
extended to include the customer chain and the supply chain in an organisation.
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• TQM emphasizes that learning and adapting to continual change are vital for the
success of an organisation.
• TQM requires a substantial amount of changes in organizational design, culture and
work-related processes.
• TQM principles are also known as total quality improvement, total service quality, total
quality leadership, and so on.
1.3 Integrated Approach to TQM
Fig 7.4: Integrated Approach to TQM
The integrated approach to TQM combines the systems and people elements into the
organisational strategy that is integrated to the TQM philosophy of the organisation. The
success of the TQM initiatives is depending on the systems and the people components.
1.4 TQM – Philosophy, Principles, and Critical Success Factors
TQM Philosophy
The key aspects behind the TQM philosophy are given below.
1. Focus on Customers and Stakeholders
2. Commitment from Top Management
3. Supplier Relationship
4. Process-oriented Approach
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5. Zero Defects
6. Benchmarking
7. Learning and Continuous Improvement
8. Empowerment, Motivation and Teamwork
9. Measurement of Quality
10. Management Approach based on Facts
11. Leadership with a Vision
TQM Principles
The principles of TQM are given below.
1. Quality can be managed and must be done.
2. Everyone has a customer who is to be delighted.
3. Processes and not people are the problem.
4. Every employee has a responsibility for quality.
5. Problems have to be prevented, and not just fixed.
6. Quality has to be measured so that it could be controlled.
7. Quality improvements have to be on a continuous basis.
8. Quality goals have to be on the basis of customer needs.
Critical Success Factors for TQM
The following are some of the factors that are critical for the success of TQM.
1. Commitment and involvement of the top management
2. Involvement of the customer
3. Design of products with a focus on quality
4. Design of production processes to facilitate quality
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5. Control of production processes to ensure quality
6. Developing partnerships with suppliers
7. Service provided to the customer
8. Leadership
9. Recognition
10. Ethics and Integrity
11. Adequate training for employees
12. Communication
13. Building teams of employees with empowerment
14. Benchmarking and focusing on continuous improvement
1.5 Difference between Traditional Management and Quality-focused Management

The traditional management practices have undergone a radical transformation due to TQM.
The following table displays the comparison between quality-focused management with
reference to traditional management practices.
Sl. No. Parameter Traditional Management Quality-focused Management
1. Focus Focus on internal activities Focus on the customer

of the organisation
2. Responsibility for Workers Middle-level management (in
quality the operational roles)
3. Teamwork Less degree of teamwork High degree of teamwork,
and focus on aspects such as
team building, team
motivation and so on
4. Quality Inspection/checking Quality assurance (building
mechanism quality into the system)
5. Basis for Facts and figures did not Decisions based on facts and
decision-making play a major role in figures
decision-making
6. Improvement Improvement was ad-hoc; Incremental improvement
Concept of continuous that is stable and continuous
improvement was not in (Kaizen)
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practice
Table 7.1: Difference between Traditional Management and Quality-focused Management
2. TQM as a Competitive Advantage

TQM enables achievement of customer satisfaction as part of a competitive strategy. The
contribution of TQM in providing a competitive advantage is highlighted below.
• TQM is driven by customer needs and requirements.

• It contributes significantly to the success of the business.
• It maps the unique resources of the organisation with opportunities in the
environment.
• It provides the basis for further improvements.
• It provides motivation and direction to the whole organisation.
• The quality of a product is a critical determinant of the profitability of a business.
• Products and services of high quality generally have a large market share.
• Products of high quality consistently give improved ROI (Return on Investment).
• Improved level of quality causes a reduction in the direct cost related to poor quality.
• Quality improvements have a tendency to enhance productivity.
• Continuous improvement in quality and product design, along with a reduction in cost
will enhance competitive advantage.
• TQM enables performance-related data to go beyond just financials or productivity
information.
• A method such as Balanced Scorecard looks at multiple perspectives such as Customer,
Financials, Internal processes, and Innovation and Learning.
• TQM enables the establishment of systems for planning, strategizing, and
implementing processes and their improvements.
• In TQM, the indicators for performance span from customers to suppliers, and also
from frontline workers to the Top management.
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2.1 TQM in Service Delivery

Service quality is concerned with delivering superior or excellent service relative to the
expectations of customers.
The intangible nature of services causes difficulty in the measurement of quality. The setting of
standards for quality characteristics that are intangible poses a problem. They need to be set
based on judgment, and subsequently tested for levels of satisfaction.
An end-user of services considers a few features for deciding among alternative service
providers. Two of the important factors that influence perceived system quality are:
1. Employee performance and behavior
2. Speed of service transaction
2.1.1 Need for TQM in Service Delivery

The following are some of the key aspects relating to the need for TQM in a service delivery
scenario.
The quality of a service is determined based on the extent to which it meets the expectations.
The manner in which a service is provided could be as important as the service itself from the
consumer’s perspective.
The two levels of service quality are:

• Normal service quality: It relates to the level of quality of delivering regular service.
• Exception service quality: It relates to the level of quality of handling problems or
exceptions.
2.1.2 Differentiators in Service Delivery

Service quality is a function of several factors, namely:
1. Adequacy of service
2. Price of service
3. Timeliness of service
4. Manner in which service has been performed
Some of the aspects that differentiate service delivery from product delivery are:
1. Behaviour of the person who delivers the service
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2. Perceived image of the service provider

3. Difficulty in the measurement of output
4. Presence of customer while delivering the service
5. Performance of final inspection by the customer
6. Non-applicability of variance, tolerance/acceptance ranges
2.1.3 Service Expectations

The expectations of a customer serve as a reference point, which is used to judge
performance. This places greater emphasis on the need to understand customer expectations.
There are three levels of service expectations, namely:
1. Adequate level of service
2. Desired level of service
3. Inadequate level of service
An adequate level of service is the service which will be accepted by the customer. This is a
lower level expectation of the customer. The customer will be dissatisfied in case an adequate
level of service is not provided.
A desired level of service is at a higher expectation level and the customer hopes to avail this
level of service.
An inadequate level of service will lead to dissatisfied customer since the customer’s level of
satisfaction is marginally reduced.
Impact on Customer Satisfaction based on the Satisfaction Level of Customer

Service Level of Service
Desired level Satisfied
Adequate level Not dissatisfied
Inadequate level Dissatisfied
Table 7.2: Satisfaction Level of Customer
Illustration: Banking - Service Levels

Here is an illustration of a banking scenario to depict the levels of service and its impact on
customer satisfaction.
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A bank branch has displayed a notice that the preparation of Demand Drafts would take 15
minutes. A customer walks into the bank branch and wants a Demand Draft to be made.
The customer provides all the information required for the preparation of the Demand Draft
and waits. His expectation is that the Demand Draft would be made ready in a maximum time
of 15 minutes.
Let us now look at three different scenarios:
Inadequate level of service
Even after 15 minutes of waiting by the customer, the Demand Draft is not ready. The
customer is dissatisfied with the inadequate level of service.
Adequate level of service
The bank makes the Demand Draft ready in 15 minutes as expected, and hands over to the
customer. The customer has received an adequate level of service and he is not dissatisfied.
Desired level of service
After the customer hands over the application for the demand draft, the bank does very quick
processing, and the Demand Draft is made ready in less than 10 minutes. Now, the customer is
satisfied to a great extent.
2.1.4 Factors Influencing Perceived Quality of Service

The following are the factors that influence the quality of service as perceived by the customer.
1. Service Encounters
A service encounter occurs when an interaction happens between the customer and the
service provider. This could be said to be a “moment of truth” in the service delivery process.
2. Service Evidence
Customers attempt to identify evidence of service in the interactions that they have with the
service provider. For example, the attitude of the person responding to the query, the length
of waiting time of a customer in queue, and so on contributes to the evidence of service.
3. Reputation of Service Provider
The reputation or image of the service provider also influences the perceptions of the
customer. The association that a customer has with an organisation influences the perception.
Such associations could be concrete and measurable (for example, operational hours) or it
could be abstract and intangible (for example, trustworthiness).
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4. Price
The price charged for the service influences the perception of value by the customer. The
customer does an assessment of benefits vs. cost of service on completion of the service.
2.1.5 Barriers to Service Quality

The following are some of the barriers that impact service quality.
• Mindset of employees
• Coordination issues
• Communication issues
• Issues relating to systems and Processes in the organisation
• Training and behaviour of employees
2.2 TQM and Process Improvement

The initiative for the improvement of operational or management processes needs to be done
in a focused manner.
2.2.1 Steps for Process Improvement

The following steps are involved in a process improvement scenario.
1. Selection of the process
2. Understanding of the process
3. Performance of the process
4. Review of the process
5. Process change
6. Capturing the changes
Let us discuss each step involved in process improvement in detail.
1. Selection of the Process

The processes that need to be improved are identified. The processes that are chosen for
improvement are those that have a direct influence on the achievement of organisational goals
and objectives.
2. Understanding of the Process
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Understanding of the process involves defining the scope of the process, and an understanding
of the scope inclusions and exclusions. Understanding the key sub-processes is also necessary.
3. Performance of the Process

Performance of the process involves recording and outlining the historical performance of the
process and obtaining information on the current performance. It also involves the definition
of the level of performance required in the new improved process in the future.
4. Process Review
Process review involves a review of the information that has been gathered and analysed.
Recommendations are also suggested for the improved process.
5. Process Change
Process change involves development of detailed project plans indicating objectives,
milestones, performance measures and targets, roles and responsibilities, deliverables,
benefits, change management, training, and so on.
6. Capturing the Changes

Process improvements are integrated into the business system. This would enable process
improvements to be integrated into the business management system.
2.3 Cost of Quality

The ‘Cost of Quality’ measure helps to specify the impact of quality on a business. Cost of
quality is a combination of multiple costs, namely, the cost of failure in a product or service,
the cost of detecting defects, and the cost involved in the prevention of defects.
We can also say that the total quality cost includes the cost involved in conforming to quality,
and the cost of non-conformance. In other words, the cost of quality comprises of both the
cost involved in adhering to quality as well as the cost involved in not adhering to quality.
We can compute the cost of quality as follows:

Cost of Quality = Actual Cost of Product or Service – Reduced Cost
Where ‘Reduced Cost’ is the cost that would have been possible without failure or defects of
products or without poor quality of service.
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Illustration: Banking Scenario

Cost of Quality – An Example in a Banking Scenario.
Whenever a rework is carried out in any organisation, there is an increase in the cost of quality.
As an example, correcting a bank statement increases the cost of quality. Similarly, rework on a
service, such as processing a transaction again leads to an increase in the cost of quality.
2.3.1 Analysing Impact of TQM on Cost

Quality costs could absorb almost 20% to 30% of the revenue of an organisation. The objective
of TQM is to reduce the cost of quality by half and to reduce it by half again over a period of
time.
In the preliminary stages of setting up the development of a product or delivering a service,
the cost of preventing defects is high since various mechanisms need to be set up to prevent
defects. When a lot of inspection and verification of work becomes necessary, there is an
increase in the cost of detecting defects. When the process matures and the delivery of goods
or services happens without defects/tends towards zero defects, the cost of detecting defects
decreases.
With the deployment of TQM, the concepts of zero defects, doing the things right the first
time, and continuous improvement enable a reduction in the cost of inspection/verification of
work, thus resulting in a faster reduction in the cost of detecting defects.
2.3.2 Benefits of Reduction in Cost of Quality

The benefits through reduction in the cost of quality are not immediate. Achieving a reduction
of 50% in the cost of quality may take two to four years. In the initial two years, the cost of
prevention may increase. However, all the costs contributing to the Cost of Quality (including
prevention) could be brought down to half of the original values. There could be a further
reduction in costs by almost 50% and the process could be repeated again and again.
2.4 TQM and Production Planning and Control

An organisation needs to produce products conforming to customer requirements, and hence
the design and building of production processes have to be aligned to this objective. This
depicts the quality capability of the production process.
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The traditional way of thinking considered that the higher the product quality required higher
would be the cost of production. With the evolution of TQM, the concept of quality in
production planning and control underwent a transformation.
The manufacturers in Japan implemented the concept that the productivity machine is driven
by quality. The productivity during the manufacturing process could be adversely impacted if
parts are defective and a lot of rework or scrap is involved. The adoption of a TQM approach in
production planning and control system helps the operations managers to prevent defects,
thus improving product quality. This ultimately leads to cost reduction due to the elimination
of waste. For example, fewer products returned for rework, avoidance of scrap, lesser
warranty claims, and so on.
A TQM approach enhances the involvement of the whole organisation in continuous quality
improvement. Each worker has the responsibility for quality control and also for disrupting
production when a manufacturing problem occurs. TQM also looks at encouraging workers to
determine mechanisms for enhancing product and process quality. Hence, many organisations
consider the modern approaches to quality such as TQM to be programmed for productivity
improvement.
2.5 TQM and JIT (Just in Time)

In a JIT (Just-in-time) approach, the production of parts happens ‘just in time’ to meet the
manufacturing needs. This is different from the traditional approach wherein items were
produced in lots or batches, stored and utilised when required in the stages of production or in
the work centers. Thus, JIT systems facilitate inventory reduction, cost reduction, and quality
improvement. JIT involves the production to be run on a demand-pull basis. It also places
production control with the workers, and helps to streamline the process of production.
JIT and TQM are improvement efforts that are closely linked together. Both these approaches
enable placing production under the control of workers. The workers are encouraged to carry
out problem-solving on their own and to do improvisations when required. Both these
approaches try to completely use the talents of the workers on the shop floor.
JIT could evolve from a company-wide quality improvement (CWQI) program. It is one of the
goals of a CWQI program, and the successful achievement of JIT is dependent on CWQI.
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Illustration: Service Productivity and TQM

In a service scenario, poor quality of service would cause the service to be re-done and result
in a reduction of service productivity. Hence, productivity is positively impacted by improving
and maintaining good quality, and this can be achieved through TQM.
3. Benchmarking – An Overview
Here is a proverb to set the tone for the topic of benchmarking.
“If you know your enemy and know yourself, you

need not fear the results of a hundred battles”.
- Sun Tzu, a Chinese General in 500 B.C.
Fig 7.5: Proverb to Set the Tone of Benchmarking

(Source: https://www.teamwakon.com)
Definitions of Benchmarking
Robert Camp: “Benchmarking is the search for the industry best practices that lead to superior
performance.”
Benchmarking is a reference point that is used to measure a particular aspect. This is known as
a benchmark.
American Productivity and Quality Centre (APOC): “The process of improving performance by
identifying, understanding, and adapting the best practices and processes found inside and
outside the organisation.”
3.1 Concepts of Benchmarking

Here are a few points to enable a better understanding of benchmarking.
Benchmarking is a systematic method by which organisations could measure themselves
against the best practices in the industry. It is the aspect of “moving to where we want to be
from where we are.” It involves systematic searching of best practices, innovative ideas, and
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efficient operating procedures. It enables the borrowing of ideas and adapting them as
required in obtaining a competitive advantage. This is achieved through continuous
improvement resulting in an enhanced level of performance.
3.1.1 Early examples of Benchmarking

The practices followed for replenishing goods in supermarkets in the US influenced the JIT
(Just-in-time) production system of Toyota.
Organisations such as IBM, Motorola, and Xerox were the pioneers in the establishment of the
process of benchmarking.
Establishing a benchmark helps in setting new goals and looking at the adaptation of best
practices. This facilitates customer satisfaction since the benchmark could be set in terms of
quality, cost, service performance, and so on, which are drivers of satisfaction levels of
customers. Benchmarking practices generate exceptional results and also have an element of
innovation in them. These practices are also considered as superior practices by customers or
by experts from industry.
How to do Benchmarking?
In benchmarking, an organisation’s strategy, processes and products are compared with
organisations that are established global leaders and best-in-class. This is done with the
objective of understanding how such organisations attained excellence and then attempting to
equal or exceed their level of performance.
Benchmarking can be done by comparing the business performance with that of others who
are:
• Within the organisation
• From another organisation
• Belonging to the same domain/business sector
• From other business sectors
• Across global boundaries
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Performance Measures for Comparison – Examples

Some examples of performance measures that could be used for comparison during
benchmarking include:
• ROA (Return on Assets): Return on assets (ROA) is an indicator of how profitable a
company is relative to its total assets. ROA gives a manager, investor, or analyst an idea
as to how efficient a company's management is at using its assets to generate earnings.
• On-time delivery percentage: On-time delivery (OTD) is the main metric to measure the
efficiency of supply chain processes in your organisation. It is an indicator of how
capable your organisation is to meet customer demand in terms of the requested
delivery date (RDD).
• Percentage of defects: It is the percentage of output that fails to meet a quality target.
Defect rates can be used to evaluate and control programs, projects, production,
services and processes.
Illustration: Benchmarking in a Banking Scenario
Fig 7.6: ASB Bank

ASB Bank, a retail bank based in New Zealand, performed a benchmarking of cost income ratio
while reviewing its operational efficiency.
In the benchmarking activity, the cost income ratio was the primary metric. The objective was
not to identify best practices related to minimising the cost income ratio, but to determine
ideal ratios and cost structures existing in the successful banking institutions.
(Source: Kurt Hess, Graham Francis, “Cost income ratio benchmarking in banking: a case
study”, Benchmarking: International Journal, Vol. 11, Issue 3)
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3.2 Importance and Limitations of Benchmarking

The importance of benchmarking is highlighted below from two perspectives, the business
perspective and people perspective.
From the business perspective, benchmarking is important as it:
• Enables achieving a competitive position in the industry/business
• Enables organisations to compare themselves against best practices in the industry
• Enables the objective setting of goals on the basis of external information
• Enhances focus on superior levels of performance
• Helps an organisation to understand its strengths, weaknesses, and non-value added
activities
• Enables achievement of business objectives
• Is an effective tool when used appropriately and with alignment to business strategy
• Is vital for organisational sustenance and growth in terms of technologies
• Enables an organisation to redesign its products and services
From the people perspective, benchmarking is important as it:

• Is a good technique for positive change
• Facilitates in quickly adapting to the best practices rather than “reinventing the wheel”,
thus saving time and cost
• Is a foundation for the training of employees since they need to be trained to be able to
close performance gaps
• Is a motivational factor for creative thinking and innovation
• Enhances professional growth
Limitations of Benchmarking
The following are the limitations of benchmarking.
• If benchmarks are poorly defined, it could result in a waste of effort and meaningless
outcome.
• Incorrect comparisons could lead to wrong results.
• The best practice for one company or industry may not be suitable for implementation
in some other company’s or industry’s case.
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3.3 Application Areas for Benchmarking

Benchmarking could be applied in varied areas of operation in a business or industry. The
following are some of the examples.
• Customer service
• Procurement processes
• Management of inventory
• Invoicing and receivables
• Quality processes
• warehousing and distribution
Aspects needed for Effective Benchmarking

The following aspects need to be taken care for effective benchmarking.
Process improvement should be in alignment with strategy and competitive positioning
Benchmarking should be considered as a continuous process and not a one-time activity. Clear
goals should be defined to close the gap between the current performance and the
benchmark. The organisational process should be defined clearly before collecting data for
comparison. Employees who will utilise the information need to be involved. Employees need
to be empowered as required. A corporate quality culture and elements of TQM need to be in
place.
3.4 Benchmarking Cycle

The following diagram represents the benchmarking cycle that comprises a set of four major
activities.
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Fig 7.7: Benchmarking Cycle

As illustrated in figure 7.7, once the critical success factors have been identified, the best-in-
class performers need to be determined. Based on this, programmes are created to achieve
the best-in-class targets and the performance of these programmes is monitored. It is depicted
as a cycle to denote that benchmarking is a continuous process.
3.5 Approaches to Benchmarking

Following table shows description of different benchmarking approaches.
Benchmarking Approach Explanation

External Involves benchmarking with other organisations that are
Benchmarking recognised as being “best-in-class.”
It helps in learning from the leaders, but substantial time and
effort are required for comparison and adaptation.
Applicability:
External benchmarking is applicable when best practices do not
exist internally but are available in other organisations.
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Non-competitive This is a type of external benchmarking and is concerned with the

Benchmarking comparison of a related process with a company that is not a
direct competitor.
It could also be the comparison of a related or unrelated process
in a different industry.
Applicability:
Non-competitive benchmarking is applicable when an
organisation intends to look at best practices outside the
industry/segment and not purely from a competition perspective.
Internal Internal benchmarking is the comparison within the organisation.
Benchmarking For example, comparision with another branch or division or
department.
Internal benchmarking may be easier to implement since it may
be less difficult to transfer practices and processes within the
same organisation.
The limitation in this approach is that it is possible to miss out an
innovation and superlative performance in external organisations.
Applicability:
Internal benchmarking is applicable when good practices exist
within the same organisation and the management wants to
disseminate this quickly across the organisation.
International This involves comparison with an organisation/industry outside
Benchmarking national boundaries.
It has gained significance due to globalisation and the growth of
information and communication technologies.
The limitation is that it could consume more time and effort. It is
also possible that differences at the national level could cause
difficulty in replication of the results.
Applicability:
International benchmarking is applicable when organisations aim
at competing at the global level. It is also applicable when an
25
adequate number of organisations within the country are not

available for benchmarking.
Table 7.3: Approaches to Benchmarking
3.6 Types of Benchmarking

Following are the different types of benchmarking.
1. Product Benchmarking
Product benchmarking is concerned with the practice of dismantling a competitor’s product to
view and learn the aspects of how it has been designed and constructed. This concept is also
known as reverse engineering.
2. Performance Benchmarking
Performance benchmarking is concerned with the study of processes and products relating to
competitors in the same industry. The objective of performance benchmarking is to be better
than the best competitor. The aspects considered in performance type of benchmarking are
features, price, quality, and other characteristics related to performance.
Performance benchmarking is known by other names such as operational benchmarking and
competitive benchmarking. It is termed as competitive benchmarking since it involves
comparing organisational practices and performance with those in other companies who are
direct competitors and are the “best-in-class.”
Applicability:
Performance benchmarking is applicable when there is a need to assess the performance level
of an organisation in specific areas in comparison with others in the same industry. The
objective is to identify methods to close performance gaps.
3. Process Benchmarking
The focus of process benchmarking is on the improvement of critical processes. It involves the
identification of the best practices in organisations performing similar functions. It involves the
26
utilisation of process maps for comparison and analysis. Process benchmarking is also known
as functional benchmarking.
Process benchmarking requires investigation regarding the extent to which the core business
functions perform. Here, the focus is on benchmarking a specific function with the aim of
improving the operation of that function.
Applicability:
Process benchmarking is applicable when there is a need for process improvement to yield
benefits quickly.
4. Strategic Benchmarking
Strategic benchmarking involves evaluating and comparing the long-term strategies of
successful and high-performing organisations.
The aspects that could be benchmarked from a strategic point of view include strategic
objectives, strategic alliances, core competencies, development of new products and services
and so on.
Applicability:
Strategic benchmarking is looked at when the overall business performance needs to be
improved, and the existing business strategies need realignment.
3.7 Critical Success Factors for Benchmarking

The following factors are critical for the success of a benchmarking exercise.
• Commitment, support, and involvement of the top management
• Adequate training for the team involved in benchmarking
• Team composition to include management experts, consultants, and the end users who
would be involved in the process or impacted by its effective teamwork
• Adequate planning and monitoring
• Avoiding complacency
3.8 Seven Step Benchmarking Model

The following table represents the seven-step benchmarking model.
27
Sl.No Activity Methodology

1. Identification of what is to be Clarification of benchmarking objective
benchmarked Decision on who is to be involved
Process definition
Scope consideration
2. Determination of what is to Flow chart evaluation
be measured Establishment of process measures
Verification of measures in terms of set objectives
3. Identification of whom to Conducting general research
benchmark Selection of the benchmarking approach
4. Data collection Questionnaire
Benchmarking site visit
5. Data analysis and gap Quantitative data
identification Qualitative analysis
6. Goal-setting and creation of Setting performance goals
an action plan Creation of an action plan
7. Process monitoring Tracking the changes
Making benchmarking as a habit
Table 7.4: Seven-step Benchmarking Model
4. Kaizen
Kaizen means improvement, continuous improvement involving everyone in the organisation
from top management, to managers then to supervisors, and to workers. In Japan, the concept
of Kaizen is so deeply engrained in the minds of both managers and workers that they often do
not even realise they are thinking Kaizen as a customer-driven strategy for improvement. This
philosophy assumes according to Imai that “our way of life – be it our working life, our social
life or our home life – deserves to be constantly improved.”
Kaizen is a Japanese philosophy for process improvement that can be traced to the meaning of
the Japanese words ‘Kai’ and ‘Zen’, which translate roughly into ‘to break apart and
investigate’ and ‘to improve upon the existing situation’. The Kaizen Institute defines Kaizen as
28
the Japanese term for continuous improvement. It is using common sense and is both a
rigorous, scientific method using statistical quality control and an adaptive framework of
organisational values and beliefs that keeps workers and management focused on zero
defects. It is a philosophy of never being satisfied with what was accomplished last week or last
year.
Improvement begins with the admission that every organisation has problems, which provide
opportunities for change. It evolves around continuous improvement involving everyone in the
organisation and largely depends on cross-functional teams that can be empowered to
challenge the status quo.
The essence of Kaizen is that the people that perform a certain task are the most
knowledgeable about that task; consequently, by involving them and showing confidence in
their capabilities, ownership of the process is raised to its highest level. In addition, the team
effort encourages innovation and change and, by involving all layers of employees, the
imaginary organisational walls disappear to make room for productive improvements. From
such a perspective, Kaizen is not only an approach to manufacturing competitiveness but also
everybody's business, because its premise is based on the concept that every person has an
interest in improvement. The premise of a Kaizen workshop is to make people's jobs easier by
taking them apart, studying them, and making improvements. The message is extended to
everyone in the organisation, and thus everyone is a contributor.
Improvements through Kaizen have a process focus. Kaizen generates process-oriented

thinking, is people-oriented, and is directed at people's efforts. Rather than identifying
employees as the problem, Kaizen emphasises that the process is the target and employees
can provide improvements by understanding how their jobs fit into the process and changing
it.
The companies that undertake a Kaizen philosophy place an emphasis on the processes - on
the 'how' of achieving the required results. A process emphasis goes beyond designing
effective processes; it requires the teams to understand why a process works, whether it can
be modified or replicated somewhere else in the company and how it can be improved.
29
The following table illustrates some of the major differences between a conventional and a
process-emphasis approach.
Conventional Approach Process-emphasis Approach

Employees are the problem The process is the problem
Doing my job Helping to get things done
Understanding my job Knowing how my job fits in the process
Measuring individuals Measuring performance
Change the person Change the process
Correct errors Reduce variation
Who made the error? What allowed tile error to occur?
Table 7.5: Major Differences between a Conventional and a Process-emphasis Approach
(Source: http://www.leanconsultingworks.com/lean-manufacturing.htm)
4.1 Kaizen – The Three Pillars

The three pillars according to M. Imai, a guru in management philosophies and practices, are
summarised as follows:
1. Housekeeping
2. Waste elimination
3. Standardisation
The management and employees must work together to fulfil the requirements for each
category. To ensure success on activities on those three pillars, the following three factors
have also to be considered.
1. Visual management
2. The role of the supervisor
3. The importance of training and creating a learning organisation.
Let us go through each pillar of Kaizen.
Housekeeping:
This is a process of managing the workplace, known as ‘’Gemba’’ (workplace) in Japanese, for
improvement purposes. Imai introduced the word “Gemba”, which means “real place”, where
value is added to the products or services before passing them to the next process where they
30
are formed. For proper housekeeping, a valuable tool or methodology is used, the 5S
methodology. The term “Five S” is derived from the first letters of Japanese words referred to
five practices leading to a clean and manageable work area: seiri (organisation), seiton
(tidiness), seiso (purity), seiketsu (cleanliness), and shitsuke (discipline).
Waste elimination:
Muda in Japanese means waste. The resources at each process, people and machines, either
add value or do not add value. Therefore, any non-value adding activity is classified as muda in
Japan. Work is a series of value-adding activities, from raw materials, ending to a final product.
Muda is any non-value-added task.
Standardisation:
Standards are set by management, but they must be able to change when the environment
changes. Companies can achieve dramatic improvement as reviewing the standards
periodically, collecting and analysing data on defects, and encouraging teams to conduct
problem-solving activities. Once the standards are in place and are being followed then if there
are deviations, the workers know that there is a problem. Then employees will review the
standards and either correct the deviation or advise management on changing and improving
the standard. It is a never-ending process and is better explained and presented by the PDCA
(plan-do-check-act) cycle, known as Demming cycle.
4.2 Kaizen and Innovation

Kaizen practices improve the status quo by bringing added value to it. Kaizen does not replace
or preclude innovation. Rather, the two are complementary. After Kaizen has been exhausted,
ideally, innovation should take off, and Kaizen should follow as soon as innovation is initiated.
Kaizen will support the improvement of existing activities, but it will not provide the giant step
forward. It is important for the firm to maintain a balance between innovation and a Kaizen
strategy that focuses on improvement
It is top management's job to maintain this balance between Kaizen and innovation, and it
should never forget to look for innovative opportunities (24). If efforts are continued toward a
clearly defined goal, it is bound for Kaizen to yield positive results. However, Kaizen is limited in
31
that it does not replace or fundamentally change the status quo. As soon as Kaizen's marginal
value starts declining, one should turn to the challenge of innovation. Kaizen signifies small
improvements made in the status quo as a result of ongoing efforts. Innovation involves a
drastic improvement in the status quo because of a large investment in new technology and/or
equipment or a totally re-engineered product/process.
4.3 Quality Circle in Kaizen

Quality circle is typically said to have originated in Japan in the 1960s, but others argue that the
practice started with United States Army soon after 1945 and the Japanese then adopted the
concept and its application. Quality circles are not the only solution for quality improvement
but given the right top management commitment, organisation and resources they can
support continuous quality improvement at shop-floor level.
Quality circle is a group of staff who meet regularly to discuss the quality related work
problems so that they may examine and generate solutions to these. The circle is empowered
to promote and bring the quality improvements through to fruition. Thus, the adoption of
quality circles (quality improvement team) has a social focus. There must be a commitment
from senior management, unit management and supervision, other staff and of course the
circle members.
4.4 Kaizen – Rewards and Recognitions

Corporate culture has several essential components such as corporate values, leadership, and
the reward and recognition structure of the organisation. The reward system reflects the
corporate philosophy, democratic and innovative or autocratic and bureaucratic. Promotion
and rewards reinforce employee commitment to corporate values and to the corporate
culture. Reward and Recognition (R&R) have various functions and can be a valuable tool at
organisations on their road for TQM. For example:
1. They improve the reinforcement of quality-related behavior and achievements.
2. They show organisational values, and they show how the organisation appreciates
efforts.
3. They indicate achievement, and R&R activities provide feedback which is an element of
continuous improvement (Kaizen). Recognition is also a form of feedback about the
32
result of individual or team efforts. It shows the individuals or the teams that they are
on the right track toward continuous improvement. Recognition as feedback can come
from supervisors, other teams, internal customers in the organisation, or external
customers in the marketplace.
4. Kaizen philosophy and TQM processes demand empowered employees, team players
and cross-functional activities. R&R can motivate these individuals and groups to
continue their active participation in the organisation. It will also create a positive
environment for various teams to compete against each other and these give a 'win-
win' situation between the organisation and employees. Employees can also be
motivated to utilise various TQM tools, solve problems, and to interact with internal
and external customers.
5. The R&R system will increase the awareness among the workers that management is
prepared to reward them if they are serious in applying critical TQM values, such as
quality, customer satisfaction, and continuous improvement. Employees will have
higher motivation if they work in organisations that are consistent in their R&R process
and the workers will perceive management initiative as a fair effort by management.
This will extend the feeling of trust and create a strong sense of belonging in the
organisation. According to Deming's views, R&R can help transform the organisation
toward a philosophy of quality.
6. Some forms of recognition, such as awards and plaques, show publicly that the
individual or team has achieved some degree of success within TQM frame. They are a
visible indicator, both to the team and to outsiders, of a job well done. So, recognition
highlights employees and teams who make a definite contribution to the continuous
improvement or TQM effort. Such recognition stimulates additional effort in
employees.
Kaizen is a kind of umbrella concept that includes initiatives and activities such as TQM,
suggestion systems and prioritization of important quality related plans.
TQM is a journey, a movement centred on the improvement of managerial performance at all
levels.
It deals with:
• Quality assurance
33
• Employee involvement
• Cost reduction
• Safety
• Continuous improvement
• Productivity improvement
Moreover, TQM journey deals with management concerns such as organisational

development, cross-functional management, and quality deployment. In other words,
management has been using TQM as a concept and a tool for improving overall performance.
TQM integrates fundamental management techniques, existing improvement efforts, and
technical tools under a disciplined approach focused on continuous process improvement.
The activities are ultimately focused on increased customer-user satisfaction.
The importance of people in the total process is emphasised on TQM journey. Considerations
such as culture, incentives, teamwork, training, and work involvement are typical. The
optimum effectiveness of TQM results from an appropriate mix of the social and technical
systems. It is common practice to emphasise the technical aspects of improvements, such as
machine or computer-related, with less emphasis on people and their roles in the process.
Improving quality and productivity to achieve competitiveness emphasises the need for an
enterprise to capture the potential inherent in the workforce by enabling each employee to do
his or her job right the first time. This requires top management to demonstrate to all
employees that it is personally committed and continuously pursuing efforts to improve
quality.
The organisation must provide an environment in which all employees will voluntarily
cooperate to achieve the organisational objectives. This requires that management accept the
idea that employees can and want to contribute. Management thus flows down ideas and
goals and encourages the flow of ideas upward. The TQM philosophy provides a
comprehensive way to improve quality by examining the way work gets done from a
systematic, integrated, consistent, organisation-wide perspective. On TQM journey, the focus
is to:
34
• Emphasise continuous improvement of processes (kaizen), not compliance to

standards
• Involve all functional units, not just the Quality Control/Assurance function
• Motivate and involve employees to become the driving force behind improvement
• Satisfy the internal and external customers
• Understand the effects of variation on processes and their implications for process
improvement
Therefore, it is self-evident that employee involvement and a process-oriented approach to

manufacturing are cornerstones on a journey to TQM. The team-based structures and
activities fulfil both requirements by fostering greater individual participation and enhancing
the organisation's ability to pursue processes across functional boundaries.
35
5. Summary
• TQM is also defined as a quality-centered, customer-focused, fact-based, team-driven,

senior-management-led process to achieve an organisation’s strategic imperative
through continuous process improvement.
• The word “Total” indicates that everybody in the organisation needs to be involved in
the continuous improvement initiative. The word “Quality” denotes a focus and
emphasis on customer satisfaction. The word “Management” has a reference to
processes and people required for achieving the quality.
• The integrated approach to TQM combines the systems and people elements into the
organisational strategy that is integrated to the TQM philosophy of the organisation.
• TQM enables achievement of customer satisfaction as part of a competitive strategy.
• TQM is driven by customer needs and requirements and it contributes significantly to
the success of the business.
• There are three levels of service expectations, namely, Adequate level of service,
Desired level of service and Inadequate level of service.
• The following steps are involved in a process improvement scenario.
1. Selection of the process
2. Understanding of the process
3. Performance of the process
4. Review of the process
5. Process change
6. Capturing the changes
• The ‘Cost of Quality’ measure helps to specify the impact of quality on a business. Cost
of quality is a combination of multiple costs, namely, the cost of failure in a product or
service, the cost of detecting defects, and the cost involved in the prevention of
defects.
• The adoption of a TQM approach in production planning and control system helps the
operations managers to prevent defects, thus improving product quality.
36
• Benchmarking is a systematic method by which organisations could measure

themselves against the best practices in the industry. It is the aspect of “moving to
where we want to be from where we are.”
• In benchmarking, an organisation’s strategy, processes and products are compared
with organisations that are established global leaders and best-in-class.
• Benchmarking can be done by comparing the business performance with that of others
who are:
1. Within the organisation
2. From another organisation
3. Belonging to the same domain/business sector
4. From other business sectors
5. Across global boundaries
• Benchmarking could be applied in varied areas of operation in a business or industry
such as customer service, procurement processes, management of inventory, invoicing
and receivables, quality processes, warehousing and distribution.
• Different approaches of benchmarking are External benchmarking, Non-competitive
benchmarking, Internal benchmarking, and International benchmarking.
• Different types of benchmarking are Product benchmarking, Performance
benchmarking, Process benchmarking, and Strategic benchmarking.
• Kaizen is a Japanese philosophy for process improvement that can be traced to the
meaning of the Japanese words ‘Kai’ and ‘Zen’, which translate roughly into ‘to break
apart and investigate’ and ‘to improve upon the existing situation’.
• The Kaizen Institute defines Kaizen as the Japanese term for continuous improvement.
• The three pillars according to M. Imai, a guru in management philosophies and
practices, are Housekeeping, Waste elimination, and Standardisation.
• The TQM philosophy provides a comprehensive way to improve quality by examining
the way work gets done from a systematic, integrated, consistent, organisation-wide
perspective.
37
6. References
Edition, Tata McGraw Hill, 2008 Gitlow, Oppenheim, Levine,
2. Quality Management, 3rd Edition, Tata McGraw Hill, 2009 Kanishka Bedi,
3. Quality Management, 3rd Edition, Oxford University Press, 2006
4. Debashis Sarkar, Quality in Business, 2003, Sage / Response Books
7. Web references
1. http://www.financialexpress.com/printer/news/73056/
2. http://www.asq.org/learn-about-quality/benchmarking/overview/overview.html
3. http://www.benchmarkingplus.com.au/nuts&bolts.htm
4. http://www.benchmarkingplus.com.au/mistakes.htm
5. http://bpmmag.net/mag/7-steps-better-benchmarking-0507/
6. http://managementhelp.org/quality/bnchmrkg/bnchmrkg.htm
7. https://www.michailolidis.gr/pdf/KAIZEN08.pdf
8. http://www.leanconsultingworks.com/lean-manufacturing.htm
38
Unit 8
Quality Management Tools and Decision
Making
Quality Management Tools and Decision Making
Table of Contents
1. Six Sigma ......................................................................................................................................... 6

1.1 Evolution of Six Sigma ............................................................................................................. 6
1.1.1 Stages of Six-Sigma Evolution ......................................................................................... 7
1.2 Components of Six Sigma........................................................................................................ 8
1.3 Usage of Six Sigma .................................................................................................................. 8
1.3.1 Six Sigma and its Relevance to Quality ........................................................................... 9
1.4 Importance of Six Sigma ....................................................................................................... 11
1.5 Six Sigma and Distribution Curve .......................................................................................... 11
1.6 Key Aspects in a Six-Sigma Deployment ............................................................................... 12
1.7 Six Sigma Approach ............................................................................................................... 13
1.7.1 DMAIC Methodology..................................................................................................... 13
1.7.2 Choosing the Appropriate Six Sigma Methodology ...................................................... 15
1.8 Roles and Responsibilities required in Six Sigma Projects .................................................... 16
1.8.1 Key Aspects to be considered in a Six Sigma Project .................................................... 17
1.8.2 Selection of a Six Sigma Project .................................................................................... 18
1.9 Core Processes and Supporting Processes for Six Sigma Deployment ................................. 19
1.10 Six Sigma in Service Organisations ........................................................................................ 19
2. Capability of Processes ................................................................................................................. 20
2.1 Cp and its Measurement ....................................................................................................... 20
2.2 Cpk and its Measurement ..................................................................................................... 21
2.2.1 Effect of Cpk value ........................................................................................................ 22
3. Six Sigma Tools and Techniques.................................................................................................... 22
3.1 Brainstorming........................................................................................................................ 24
3.2 Histogram .............................................................................................................................. 25
3.3 Pareto Analysis ...................................................................................................................... 27
3.4 Scatter Diagram .................................................................................................................... 31
3.5 Flowchart .............................................................................................................................. 34
3.5.1 Flowchart Symbols ........................................................................................................ 35
3.5.2 Application Types .......................................................................................................... 40
3.6 Check Sheets/Check Lists ...................................................................................................... 44
3.7 Control Charts ....................................................................................................................... 45
3.8 Cause and Effect Diagram ..................................................................................................... 49
4. Summary ....................................................................................................................................... 52
5. References .................................................................................................................................... 55
2
6. Web references ............................................................................................................................. 55
3
Unit Description
In the last unit, we have discussed the concepts of TQM (Total Quality Management). In this
unit, we will discuss the concepts of Six Sigma.
Fig 8.1: Six Sigma

Considered as the last mile concept in the quality management efforts, the implementation of
Six Sigma can help the organisations to reach a near-perfect production system. This can also
be adopted in the services environment to increase the efficiency of operations. While the
airlines segment is mostly seen as a sector that has successfully implemented several quality
management concepts and tools, several other sectors such as the banking and financial
sector, logistics sector and hospitality sector.
Most quality management related decisions are made based on the usage of tools such as
scatter diagram, histogram, pareto analysis, check-sheets, control charts and cause and effect
analysis. Several minor quality improvements can make a huge difference at the end in terms
of cost and time savings. This resource optimisation over a longer period can be a great asset
to the organisation and help in the creation of a sustainable quality management system.
Benchmarking can help in the company to enhance its efforts in meeting internal standards
and industry standards which may be a pre-requisite to grow and sustain in competitive
market environments. These tools can help banks in optimising high transaction processes and
systems.
4
Learning Objectives
• Define Six Sigma.

• Explain the importance and usage of Six Sigma.
• Describe Six Sigma approach.
• Explain capability of processes.
• Explain different quality control tools and use of these tools in decision making.
• Explain the application of different quality control tools.
5
1. Six Sigma
“I think Six Sigma been more successful

because it's so measurable. With some of
the softer tools that businesses used, it
was harder to measure the impact.”
Mary Meixell
Fig 8.2: Quote on Six Sigma

Six Sigma is a statistical concept that is used for measuring a process in terms of defects. The
term Sigma (Greek letter σ) measures the standard deviation. From a business perspective, it is
used to denote defects in the process output. It enables us to understand the extent to which
a process deviates from perfection.
The essence of Six Sigma could be expressed as a mathematical representation in an equation:
Y= f(x)
Where,
Y is the Output and, X is the Input. The equation given above indicates that variables or
changes in the inputs or process will determine the outputs.
Six Sigma is a continuous improvement process that enables an organisation to focus better on
customer requirements, alignment to processes, analysis, and timely execution of tasks. Six
Sigma helps a business to increase quality and productivity for better profits. Six Sigma is a
methodology with a data-driven approach.
The philosophy of Six Sigma is to reduce variation in the output of a process. It could be
applied in the manufacturing of products or the delivery of services.
1.1 Evolution of Six Sigma
Let us discuss the origin and evolution of six sigma as a quality management concept in this
section. The origin of Six Sigma could be traced to its roots in the industrial revolution of the
6
eighteenth century. Subsequently, there were various people such as Carl Frederick Gauss and
Walter Shewhart who made notable contributions that led to the development of Six Sigma
much later.
The Japanese have also contributed to the evolution of Six Sigma. They considered that there is
no ideal or perfect scenario. According to them, there exists a concept of “better” or “worse”
which highlights the focus on continuous improvement in quality. This has a lot of similarity to
the objective of Six Sigma. Six Sigma also obtained inspiration from various methodologies for
quality enhancement such as TQM, Zero defects, Quality control and so on.
1.1.1 Stages of Six-Sigma Evolution

The following are the various stages that lead to the evolution of Six Sigma:
• In the 1980’s, Bob Galvin, the CEO of Motorola, established Six Sigma as an
improvement methodology.
• The CEO, Bob Galvin launched “The Six Sigma Quality Program” at Motorola at the
corporate level (Six Sigma was established as the level of capability required).
• Motorola was one of the initial recipients of the Malcolm Baldrige National Quality
award after implementation of Six Sigma.
• The word Black Belt to denote Six Sigma skills was coined in 1986.
• Six Sigma deployment methodology enhanced in the 1990’s, and defined the roles for
Six Sigma deployment such as ‘Champion’, ‘Master Black Belt’, ‘Black Belt’, and ‘Green
Belt’.
• Six Sigma skills were transferred from the quality department to whole Motorola
(instead of ownership by a few quality engineers).
• Six Sigma methodology transferred to various other organisations (such as, Asea Brown
Boweri, Texas Instruments, Allied Signal and so on).
• Six Sigma initiative launched at GE, and Jack Welch started promoting Six Sigma
globally.
7
Comparison of Six Sigma in the Initial Stages and the Scenario at Present
The following table gives a comparison between Six Sigma in the initial stages and the scenario
at present.
S. No. Six Sigma in the Initial Stages Six Sigma at Present

1 Focus was on the improvement of Focus is on the execution of
product quality. It was looked at only strategy and creation of value
as a method for defect reduction and
cycle time improvement
2 It was just a metric (used for It is a management system utilised
measurement) for the day-to-day running of the
business
3 Used only in manufacturing industries Used in almost every industry
4 Implemented only on the assembly Implemented across all levels and
line hierarchies of the organisation
5 Applied only for specific processes Applied for all processes across the
organisation
6 Introduced and used only in the Spread to many nations across the
United States globe
Table 8.1: Comparison between Six Sigma in the Initial Stages and the Scenario at Present
1.2 Components of Six Sigma

The three components of Six Sigma are:
• Organisational culture or the environment as established by the leadership team

• Infrastructure comprising systems supporting the utilisation of tools
• Improvement tools (Design of Experiments, Process mapping, Statistical Process
Control, Root cause analysis, and so on)
1.3 Usage of Six Sigma

Six Sigma finds usage in manufacturing as well as in service industries.
8
Organisations use Six Sigma:
• To establish an increased awareness of the need for continuous efforts for quality
improvement
• To reduce costs related to:
o Scrap
o Rework
o Inspection
o Customer dissatisfaction
o To prevent problems from happening again instead of waiting for problems to occur
and then detecting and correcting them.
Here are a few examples to illustrate the usage of Six Sigma.
Six Sigma could be used to represent the following:
• Optimisation of the time required to respond to customer queries

• Maximisation of the speed of supply of materials
• Accuracy of tasks executed
• Accuracy and efficiency of support processes
1.3.1 Six Sigma and its Relevance to Quality

Six Sigma initiatives focus on reducing the variation in processes that lead to defects. One of
the units used in a Six Sigma approach is ‘Defects per Unit (DPU)’. A standard metric called as
Defects per Million Opportunities (DPMO) is used for comparison of the performance of a
process in terms of its variability with different processes.
How to compute DPU and DPMO?
The terminologies related to the calculation of DPU and DPMO are:
• Unit: This refers to the item that is produced or is being serviced.

• Defect: This refers to an item that does not conform to the requirements of the
customer (that is, it does not fall within the specification limits of the customer)
• Opportunity: This is a chance for the occurrence of a defect.
9
The following figure illustrates the terminologies relating to the calculation of DPU and DPMO.
Fig 8.3: Terminologies Relating to the Calculation of DPU and DPMO
DPU = Total Number of Defects/Total Number of Units inspected or verified
The term DPU refers to the defects per unit.
DPMO= Number of Defects * 1,000,000/Number of Opportunities for Error per Unit
Defects per million opportunities (DPMO) specifies how many defects would occur if there
were one million opportunities.
In other words, DPMO represents the ratio between the total number of defects observed in a
sample and the opportunity for error in one million units. DPMO measures the probability of
occurrence of a defect in a sample size of one million units.
DPMO and Sigma Level
There is a standard conversion table using which the Sigma level could be identified for a given
value of DPMO. Higher the DPMO value, lower will be the Sigma level.
A Six Sigma level of 6 (Six Sigma) corresponds to 3.4 defects per million opportunities and is
equivalent to 99.99966% of successful outputs or operations. Similarly, three sigma indicates
that there are 66,807 defects in a million opportunities (that is, 93.319% perfection).
10
1.4 Importance of Six Sigma

Many organisations operate at three or four sigma levels. This indicates that poor quality
causes losses to the extent of 10 to 15 percent of a company’s revenue. The savings for the
organisation because of operating at Six Sigma level of quality could vary from 1.2% to 4.5%.
Hence, by operating at six sigma levels of quality, an organisation having revenues of INR 5
million could have a saving of up to INR 225,000 and a company having revenues of INR 5
billion could have a saving of up to INR 225 million.
(Source: Adapted from http://www.isixsigma.com)
Do We Really Need Six Sigma?
It may be difficult to take comfort with the fact that a three sigma level corresponds to
93.319% perfection. A perfection of around 93% seems to be good from a broader perspective,
but it may not be so in a real scenario. Here are a couple of examples.
If the safety of flights of an airline is at three sigma level, it means that 93.319% of the times
there is no safety issue (that is, the flight could crash or could have safety issues 66,807 times
in a million times of flying!). Is this acceptable?
In a bank, if the process relating to cheque deposits is operating at three sigma level, there
could be cheques getting credited to wrong accounts 66,807 times in a million transactions!
Imagine the impact considering the number of transactions across various banks and branches
across the world. Is three sigma acceptable?
1.5 Six Sigma and Distribution Curve

Sigma represents the extent of deviation present in a data set. It is represented as a bell curve
or a standard normal distribution. If a standard normal distribution is considered, 50% of the
total values are above the mean (average), and 50% of the values are below the mean.
The following figure represents a standard normal distribution and also depicts the successful
outputs or operations (that is, the extent of perfection).
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Fig 8.4: Standard Normal Distribution Including Successful Outcomes
The above figure indicates that about 68% of the total set of values lies within one Standard
Deviation of the mean (that is, μ ± σ). Similarly, almost 95% of the values are within two
Standard Deviations of the mean (that is, μ ± 2σ). When we consider six times the Standard
Deviation from the mean, about 99.9997% of the values lie in this range (that is, μ ± 6σ). This
clearly denotes that Six Sigma focuses on variation and not just the mean value.
Focus on Variation Reduction in Six Sigma
Customers do not judge a business, or a service based on the mean or average of the
performance in the recent past. Customers decide based on the variance that they experience
in every transaction or service received.
Customers look at business processes that are consistent and predictable. They expect services
of high levels of quality. Six Sigma measures quality based on variance and not based on the
mean or average. The initial focus of Six Sigma is on variation reduction, and then on process
capability improvement.
1.6 Key Aspects in a Six-Sigma Deployment

The key aspects involved in the deployment of Six Sigma are:
• Identification of the product that is produced or the service that is delivered
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• Identification of the customers for the product or service and determination of

customer requirements
• Identification of internal needs for producing the product or delivering the service such
that it provides satisfaction to the customer
• Establishment of a process such that it is clear and well-defined for executing the tasks
• Ensuring that the process is error-free and that wasted efforts are eliminated
• Making sure that continuous improvement is in practice through measurement,
analysis, and control of the improved process
Improving an Existing Product/Service
Let us look at some of the questions that an individual needs to consider while looking at a Six
Sigma approach for improving an existing product/service.
1. What am I doing?
2. Which customers/type of customers utilise the product that I produce/service that I
provide?
3. What do I require to do my tasks?
4. How am I executing my tasks? (that is, what process am I using?)
5. How can I execute my tasks in a better way?
6. What is the level of perfection and customer focus on the tasks that I execute?
1.7 Six Sigma Approach

Six Sigma could be applied in the refinement of an existing process or in the design of a new
product/service and accordingly different methodologies are used.
1.7.1 DMAIC Methodology

The DMAIC methodology is commonly used in Six Sigma projects. It focuses on the
improvement of an existing process. It represents Define, Measure, Analyse, Improve, and
Control.
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Fig 8.5: DMAIC Methodology
Let us go through DMAIC methodology phases in detail.
Define: This phase involves aspects relating to the definition of the problem, its importance,
and those involved in its solution. Various tools could be used in the Define stage (examples of
these include Project charter, CTQ (Critical to Quality) diagrams.
A clear definition of the problem is important for resolving it in a successful manner. Instead of
defining a problem in generic terms, it is required to specify the problem quantitatively so that
it is easily measurable.
Measure: This phase involves obtaining an understanding of the present scenario and
expressing this in quantitative terms. There are various characteristics that influence process
behaviour, and this phase involves identifying such characteristics and measuring them. It
makes use of tools relating to process mapping, data collection and data validation. This phase
is important since it is not possible to know if a problem has been fixed without having an idea
of the present performance of a process.
Analyse: In this phase, statistical tests are conducted to identify the root causes of the
problem. The usage of statistical tools enables obtaining clarity about the process variation and
how to control it. A lot of data analysis and number crunching happens in the ‘Analyse’ phase.
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Analyse phase helps to understand whether the problem is real or a random occurrence. It
may not be beneficial to spend more efforts if it is identified to be a random event.
Improve: This phase involves the elimination of the identified root causes. It is required to
identify various solutions that are possible to address the problem. After testing the identified
solutions regarding their interaction with other input variables, the most appropriate solution
is to be selected for implementation.
Control: This phase is required to ensure the sustenance of the developed solution over a long
period of time. Quality control data is collected and measurements are verified regularly. This
is done to ensure that the process performance is at a high level on a continuous basis. In
control phase, the Six Sigma project team hands over the responsibility to the users (if the
project is done by a separate team). This involves making the process operational. A review of
the project charter is done to ensure that the objectives laid out in the project charter have
been met.
It also involves highlighting quantified values of the benefits (such as, reduction in cost,
improvement in quality, and so on) and the success of the project to the stakeholders.
1.7.2 Choosing the Appropriate Six Sigma Methodology

When is DMAIC to be used?
The DMAIC methodology is used when a product or process exists but is having inadequate
performance or is not meeting the specifications of the customer.
DMAIC is intended to make appropriate modifications to the process so that it is within the
acceptable range.
When is a different methodology used?
The DMADV (Define, Measure, Analyse, Design, Verify) methodology is to be used when a
product or process does not exist and a new one is to be developed (that is, in the design of
new products or services).
It is also used in reengineering scenarios. It could also be applied in situations where DMAIC or
any other methodology has already been used to optimise an existing product or process. This
will not meet the required level of performance as specified by the customer. The key variables
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need to be ensured that they are within the acceptable limits in the new or re-engineered
process.
1.8 Roles and Responsibilities required in Six Sigma Projects

In the previous section, you have learnt about the Six Sigma approach and the DMAIC
methodology. Let us now learn more about the roles and responsibilities required for Six Sigma
project implementation. The key roles in a Six Sigma approach are:
• Sponsor/Champion
• Implementation Leader
• Master Black Belt
• Black Belt
• Green Belt
Let us go through these key roles in detail.
Sponsor/Champion: A Champion or Sponsor initiates and supports a team project. Their

responsibilities include:
• Ensuring that projects are in alignment to the overall business goals

• Providing direction
• Providing the required resources for the project
• Conducting reviews
It is also possible that a group of ‘Champions’ are overseen by a separate Sponsor.
Implementation Leader: An implementation leader has the responsibility of executing the plans
for implementation. He also has the responsibility of disseminating Six Sigma thinking, tools,
and habits throughout the organisation.
Master Black Belt (MBB): A Master Black Belt works closely with the process owners to ensure
the establishment of:
• Quality objectives and targets

• Determining plans
• Tracking progress
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• Training
MBBs provide guidance to Black Belts in the application of the correct methods even in
unusual scenarios. They play a critical role in the sustenance of cost savings, enhanced
customer experience and the momentum of change.
Black Belt: Black Belts lead Six Sigma projects and ensure their completion. They also provide
coaching and guidance to Green Belts in the execution of projects.
Green Belt: Green Belts are trained in Six Sigma skills and execute Six Sigma projects in addition
to their normal roles and responsibilities.
1.8.1 Key Aspects to be considered in a Six Sigma Project

We have so far seen the key roles in a Six Sigma project. Now, let us learn the key aspects to be
considered in a Six Sigma project.
Following are the key aspects that are to be considered in a Six Sigma project:
• Providing value to the customer (internal customer / external customer)

• A clear focus on execution
• Measuring and managing process performance
• Decision – making using a data-driven approach
• Looking at breakthrough improvements
• Leveraging cross-functional knowledge and capabilities
Why do Six Sigma projects focus on Quality, Time for Delivery, and/or Cost?
Six Sigma projects focus on three of the vital aspects for a business, namely Quality, Time for
delivery, and Cost. Let us see the need for focusing on these aspects.
Quality
The quality of a product or service has an influence on customer satisfaction. Moreover, a

focus on quality has an indirect benefit of saving money as a result of cost reduction (by
avoiding or minimising rejections/rework, handling customer returns or complaints, and
bearing the warranty costs).
Time for Delivery
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An improvement in the time required for the delivery of products/services improves the level
of customer satisfaction. It also enables the reduction of costs within the organisation. For
example, internal costs such as excess inventory, loss of business due to delays in
service/delivery and so on.
Cost
This is related to internal process improvement. The activities/processes that are internal to an
organisation may involve waste/rework, and this could be adding unnecessarily to the cost.
Though the process may not directly impact the customer, an improvement of internal
processes helps to reduce cost and yield better products and services. This, in turn, is
beneficial from a customer perspective.
1.8.2 Selection of a Six Sigma Project

The key aspects in the selection of a project for Six Sigma include the following:
• Has a strategic importance and linkage to business priorities

• The problem to be addressed is of major nature and critical to the organisation
• Has an impact on quality, delivery, and/or cost
• Would yield tangible results when completed
• Areas where the major impact is possible by making small improvements
• Should be able to measure the success of the project in clear, quantifiable terms
• Availability of management support and approval for the project
The following are some examples of criteria for selecting a Six Sigma project:
• Need for major improvement in process performance (for example, greater than 50%)
• Need for major financial improvement
• Need for improvement in capacity
• Need for a reduction in waste
• Need for a reduction in downtime
• Need to increase efficiency in the utilisation of resources (such as, persons, and raw
materials)
• Need to improve on-time delivery
• Need to reduce the number of defects/level of defects
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• Need to reduce delays

• Need to improve customer satisfaction
• Need to improve profitability
• Relates to items/processes that involve large budgets or financial involvement such as
receivables, and payables
• Possibility of completing the project within a reasonable timeframe (for example, in 4
to 6 months).
1.9 Core Processes and Supporting Processes for Six Sigma Deployment
An organisation needs to look at core processes and the support processes involved in
operations for Six Sigma deployment. The core processes (for example, services) include the
set of tasks that add value.
Supporting processes provide support to the core processes and facilitate the function of the
value-generating activities. It depends on the organisation how it would like to classify
processes as core processes and supporting processes. Here are some examples:
Customer acquisition and Customer service are examples of core processes. Budgeting and
capital acquisition are examples of supporting processes.
The following need to be looked at for Six Sigma deployment:
• What are the major and important activities done for providing value to customers?
• What is the best way for process definition (that is, for these processes)?
• What are the significant outputs for each process that can be used for evaluation?
1.10 Six Sigma in Service Organisations

A service organisation has a lot of transactional processes. The important process metrics
relate to accuracy or cycle time.
Accuracy relates to the number of defects in the information/activity and has a direct
relationship to the cost of rework and customer satisfaction. Cycle time in terms of business
processes relates to productivity and has a direct relationship with costs and customer
satisfaction.
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Illustration
Let us consider a banking scenario to illustrate with examples.
Accuracy is impacted by defects in information such as account numbers, account statements,

or any other finance-related figures. Lack of accuracy increases rework costs and also
negatively impacts customer satisfaction.
Cycle time for business processes is related to productivity. An example for cycle time could be
the time taken for approval of housing loan applications. Long cycle time increases costs and
has a negative impact on customer satisfaction.
2. Capability of Processes
Process capability is a measure to determine how capable a process is. It is used to predict the
level of quality that could be expected from a process.
Process capability is a measure for processes that are stable and exhibit statistical control. It is
computed based on the process variability and process specifications.
Process capability is represented using various indices. Two of the indices that are widely used
are given below.
• Process Capability (Cp)

• Process Performance (Cpk)
Both these indices make use of specification width and process width for their computation.
Specification width is the difference between the Upper Specification Limit (USL) and Lower
Specification Limit (LSL). Process width could be computed as six times the Standard Deviation
for the process.
2.1 Cp and its Measurement

Cp for a process is a measure of the width of distribution of outputs. It indicates the closeness
to which product/service characteristics could be repeated. Cp can be used in cases where the
mean for the process is centred on the target value.
Cp is calculated as the ratio of the specification width to the process width.
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Specification width = Upper Specification Limit (USL) – Lower Specification Limit (LSL)
Process width = 6 times the Standard Deviation
What does Cp value indicate?
Cp value for a process increases when there is a decrease in standard deviation (that is, the
process shows less variation).
In other words, higher the Cp value, lower is the potential for variability of a process with
respect to its specification limits. A process is considered to be potentially incapable (it does
not have the capability to meet the specification requirements of the product or service), when
Cp value is less than 1.0. A process is considered to be potentially capable (it is capable of
meeting the specification requirements of the product or service), when Cp value for the
process is greater than or equal to 1.0. Cp value of 1.33 is a standard.
Cp measures variation but does not specify to what extent the measured output is centred on
the target value. Cp does not consider the process mean (that is, centring of the process). Cp
does not hold much significance if the process mean is not located exactly at the midpoint
between the USL and LSL.
2.2 Cpk and its Measurement

Cpk is used to measure how close the output is centred on the target value. Cpk considers the
same aspects of Cp and additionally considers centring of the process.
Where,
• USL is the Upper Specification Limit

• LSL is the Lower Specification Limit
• μ is the mean value
• σ is the Standard Deviation
In other words, the value of Cpk is arrived at as the minimum of the following two calculations:
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• The difference between the Upper Specification Limit and the mean divided by 3 times
the Standard Deviation.
• The difference between the mean and the Lower Specification Limit divided by 3 times
the Standard Deviation.
2.2.1 Effect of Cpk value

What does Cpk value indicate?
The value of Cpk for a process has an inverse proportion to the Standard Deviation (variability).
Cpk value continues to decrease as the Standard Deviation increases.
When Cpk is higher, the process distribution is much narrower in comparison with the
specification limits, and hence the product or service is more uniform. Cpk for a process is an
indication of accuracy whereas Cp indicates precision. Higher the value of Cpk for a process,
better is the process.
• If Cpk is greater than 1, the process performs better than the specifications
• If Cpk equals 1, the process meets the specifications
• If Cpk is less than 1, the process does not perform within the specifications
Cpk Values and Process Centering
As mentioned earlier, Cpk indicates how well the process is centred around the mean.
If Cpk is equal to 1, the process centre is at the mid-point of the Upper and lower
specifications.
If Cpk is equal to 0, the process is centred at one of the specification limits.
If Cpk is less than 0, the process is centred outside the specification limits.
3. Six Sigma Tools and Techniques

Let us see some of the tools used in the various phases of DMAIC methodology of Six Sigma
approach.
Define Phase
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Define phase includes:
• Flowcharts
• Brainstorming
• Cause and effect Diagrams
• Graphs and charts (Histograms, Control Charts, and so on)
• Pareto Charts
• Process Capability
Measure Phase
Measure phase includes:
• Cause and Effect Diagrams

• Graphs and Charts (Histograms, Control Charts, and so on)
• Pareto Charts
Analyse Phase
Under the analyse phase, the following are considered:
• Brainstorming
• Cause and Effect Diagrams
• Benchmarking
• Check sheets
• Customer feedback techniques (E.g., surveys)
Improve Phase
Under the improve phase, the following are covered:
• Flowcharts
• Brainstorming
• Graphs and Charts (Histograms, Control Charts, and so on)
• Customer Feedback Techniques (such as, surveys)
Control Phase
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The following are given priority under control phase:
• Graphs and charts (Histograms, Control charts, and so on)

• Pareto analysis
(Source: Six Sigma fundamentals: a complete guide to the system, method, and tools, D.H.
Stamatis, pp. 149)
Let us see these tools in detail.
3.1 Brainstorming
Brainstorming is a technique where a lot of new ideas are generated by the people, by means
of combining and enhancing existing ideas.
Even wild ideas are encouraged, and no criticism is permitted. Every individual in the group
suggests an idea relating to the problem that is to be resolved. The ideas are suggested in a
round-robin fashion. Only one idea is presented by an individual at one point of time.
Fig 8.6: Brainstorming
A facilitator records all the suggested ideas on a blackboard to enable everyone to view the
ideas. The process gets repeated until there are no further ideas that could be generated.
Brainstorming enables identification of quality issues that are not visible and encourages
creativity.
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3.2 Histogram
Histogram is a pictorial representation of the frequency distribution for a given data in a bar
format. It is widely used to evaluate the data distribution.
The name “Histogram” was proposed by Karl Pearson and is available in his lectures published
in the year 1895. He refers it to be a common form of graphical presentation.
How to Construct a Histogram?
The following steps are used to construct a histogram:
• For each category of data, identify the mid-point

• Plot the data using vertical bars
• Categories are to be on the x-axis
• Frequency is to be on the y-axis
• For every class interval, draw a bar such that its height is equal to the frequency count
Example: In a particular bank branch, customers from varied age groups registered their
complaints during a month, and the data is as follows:
One customer in the age group of 11-20 years, six customers aged between 21-30 are found.
Also, twelve customers coming under 31-40 years, eight customers with age between 41-50
years complained. Six customers in the age group of 51-60 and three senior citizens who are
aged less than 70 also complained.
Frequency of each Class Interval:
Category Class Interval Mid-Point Frequency

1 11- 20 15.5 1
2 21-30 25.5 7
3 31-40 35.5 11
4 41-50 45.5 8
5 51-60 55.5 6
6 61-70 65.5 3
Table 8.2: Frequency of Class Interval
The following figure depicts the histogram of the above given data.
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Fig 8.7: Histogram
Analysing a histogram should ensure that the operation of the process is normal during the
period of data collection. This must be prior to arriving at any conclusions from the histogram.
Analysing a histogram is essential to avoid unusual events that occur during the period of
study. This may make it impossible to generalise the shape of the histogram across different
periods of time.
When to Use a Histogram?

The following figure depicts the use of a histogram for data analysis or process analysis.
Histogram
Data Analysis Process Analysis
Fig 8.8: Use of a Histogram for Data Analysis
A histogram is used for data analysis to:
• Display the data which poses difficulty in interpretation if a tabular format is used
• Represent continuous data
• Represent data in the form of frequencies, percentages, and actual numbers
• Analyse the numerical data
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• Enable the reader to obtain more information from a chart, in cases where there are
varying sizes of classes
• Indicate the relative frequency at which the different data values occur
• Depict the data variation regarding how it is centered
• View the shape of the data distribution
• Convey the distribution of data in a quick and easy manner to all
• Summarise the data after the data collection exercise over a time period
A histogram is used for process analysis to:
• Help in the calculation of process capability

• Identify the occurrence of process change across different periods of time
• Analyse whether a process could meet the requirements of the customer
• Analyse regarding the likely outcome from a supplier’s process
• Identify whether there is a difference in the outputs of two or more processes
• Facilitate prediction of how a process would perform in future
• Identify whether the process output is approximately a normal distribution
• Quickly represent the spread of a process and how it is centered
3.3 Pareto Analysis

A Pareto chart is a bar graph that visually depicts the causes or problems in the order of
frequency of occurrence or severity.
It gets its name from the Italian economist, Wilfredo Pareto, who identified that there is an
uneven distribution of wealth (that is, about 20% of the population has 80% of the wealth).
The bars are drawn such that the tallest bar is on the left and the shortest bar is on the right.
Hence, the bars are of decreasing height while progressing from left to right.
The key aspects of the Pareto chart are as follows:
• It is a technique which prioritises problems or causes based on the number of

occurrences or on the time/money involved.
• The 80-20 rules serve as the foundation for the Pareto chart.
• 80% of the problems or causes are due to 20% of the input elements/sources.
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• It is also based on the concept of “Vital few and trivial many” proposed by Juran.
How to Draw a Pareto Chart?
The following are the steps for drawing a Pareto chart:
• Identify the problem that is being faced.

• Select the categories based on which items will be grouped and monitored.
• Identify the most relevant measurement unit (cost, time, number of occurrences).
• Choose the time-frame that will be covered by the Pareto chart (one shift, one day, one
week, one month, and one activity cycle).
• Gather the data and record the category. The required data could be collected afresh,
or existing data could be used.
• Identify the frequency (number of occurrences) or cost relating to each category.
• Draw a chart depicting the categories on the horizontal line.
• Identify the most appropriate scale for the graph based on the collected
measurements. The largest subtotal of a category (most number of occurrences) will be
the maximum value for the scale.
• Depict the scale of the graph on the vertical line (on the left side of the chart).
• Draw the bars for each category. Place the tallest bar at the extreme left, and the
others in progressively decreasing order of height to the right of this bar.
• If a lot of categories exist with very small measurements, categorise them as others and
club together.
• Draw a vertical axis on the right side of the chart and mark the percentages. Ensure
that the scales on the vertical axes (on the left and right) are matching (for example,
50% on the right vertical axis should correspond to one-half of the measurement on
the left vertical axis).
• Compute cumulative totals for all the categories and depict them on the chart as
follows.
• Calculate the cumulative total for the first and second categories (that is, add their
respective subtotals) and place a dot on the graph above the second bar and in the
appropriate position representing that cumulative total (let us call this Cumulative total
– 1).
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• Add the subtotal for the third category to Cumulative total – 1 and place a dot on the
graph above the third bar to represent the newly computed cumulative total (let us call
this Cumulative total – 2).
• Repeat the above process for all the bars.
• Connect all the dots placed on the graph starting from the left (that is, the dot above
the first bar). The final dot should touch 100% on the vertical axis on the right side of
the chart. This line connecting all the dots is the cumulative percentage line and
indicates the contribution of categories.
Interpreting a Pareto Chart

A Pareto chart is interpreted in the following manner.
The tallest bar at the left extreme of the chart indicates the biggest contributor (that is, the
most significant cause/problem). The category that has the maximum impact (most significant
contributor) need to be analysed further. Based on the specific scenario, we could also analyse
the first few significant categories instead of limiting only to the first category (that is, those
categories that contribute to about 80% of the problem).
Let us consider an example depicting the aspect of document complaints which are grouped
into six categories. They are – Quality certificate error, Quality certificate missing, Invoice error,
Packing list error, Wrong quantity, and others.
A Pareto chart drawn for this indicates the cumulative values for each of the categories of
document-related complaints.
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Fig 8.9: Illustration: Pareto Chart

(Source: Nancy R. Tague’s The Quality Toolbox, Second Edition, ASQ Quality Press, 2004)
From the chart represented by the above figure, it is evident that quality certificate error is the
most significant contributing factor to the complaints. If this problem is resolved, it will
facilitate the reduction of more than 40% of the document-related complaints.
Depicting the Before-and-After Change Scenarios using Pareto Chart
The following figure depicts the Pareto chart before and after implementing a change. The new
bars in the Pareto chart are placed adjacent to the bars available in the original Pareto chart.
It’s observed that the new numbers show decreased delay in delivery, lesser wrong products
assigned, and lesser missing products etc., as in X axis after the change has been introduced.
This provides an idea about the impact of change.
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Fig 8.10: Illustration: Pareto Chart Before and After Implementing a Change
When to Use a Pareto Chart?
A Pareto chart could be used to:
• Differentiate causes of high criticality from the less significant ones

• Compare the before and after scenarios of change
• Measure the extent of impact of improvement initiatives by comparing the before and
after scenarios
• Show the relative importance of problems or causes in a pictorial format, which is easy
to depict and interpret
• Enable focusing of effort on problems or causes that have the most significant and also
those that have the largest potential for improvement.
3.4 Scatter Diagram

A Scatter diagram is a graphical method that is used to depict the relationship pattern between
two variables/process characteristics that are thought to have a relationship.
The Scatter diagram is also known as X-Y graph or as a Scatter plot. The following displays the
Scatter diagram:
Fig 8.11: Illustration: Scatter Diagram
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The Scatter diagram depicts numerical data pairs with one variable on each axis of the graph. If
a correlation exists among the variables, the points will align along a line or a curve. Better the
correlation among the variables, closer will be the points to the line.
How to Draw a Scatter Diagram?
The following steps are involved in drawing a Scatter diagram:
• Collect pairs of data relating to the variables for which the existence of a relationship is
to be identified.
• Draw a graph depicting the variables such that the independent variable is used on the
horizontal axis and the dependent variable is used on the vertical axis.
• Place a dot for every pair of data at the points where there is an intersection between
the value on the X-axis and the value on the Y-axis.
Interpreting a Scatter Diagram
A Scatter diagram is interpreted in the following manner:
• Identify the existence of any pattern of the dots.

• If the dots fall along a line or curve, it is quite clear that the variables are correlated.
• On the other hand, if the dots are randomly scattered across the graph, it indicates that
the correlation is either weak or does not exist.
The following illustration is an interpretation of a Scatter diagram.
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Fig 8.12: Interpretation of a Scatter Diagram
Points to note while interpreting Scatter Diagrams
It is important to consider the following information while interpreting a scatter diagram.
A different way of stratification of the data can make the patterns look different. It would help
if it is specified how the data has been stratified so that the implications could be understood
accordingly.
It is possible that the correlation observed to exist could be due to some other variable (cause)
and not the one being studied.
The scale used for the diagram could impact the interpretation. As an example, if the scale
used for the diagram is very small, the points would be compressed and cause the correlation
pattern to appear in a different way. Hence, the scale of the diagram should have been chosen
such that it covers most of the range of the X-axis and Y-axis.
When to Use a Scatter Diagram?
A Scatter diagram could be used to:
• Identify whether there is a dependency among the variables

• Establish a relationship that exists between the two process variables
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• Determine whether there is a strong or weak relationship between the variables
3.5 Flowchart
A flowchart is a pictorial representation of the sequence of work activities, inputs required for
each activity, and the outcome of each activity.
How to Draw a Flowchart?
To draw a flowchart, the following points are to be considered:
• Identify the basic steps involved in the process.

• Determine the logical sequence in which the steps would be executed.
• Identify the inputs for each step.
• Determine the outcome from each step.
• Draw the flowchart with the use of appropriate flowcharting symbols to depict the
actions and decisions involved.
• Challenge the flowchart to determine whether the sequence of actions and decisions
relating to the process have been correctly represented (that is, to ensure that the
entire process has been accurately depicted).
• If the process improvement is to be done, view the identified steps and identify any
duplication, and also the need for alternative steps.
You can consider the below mentioned illustration as an example.
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Fig 8.13: Illustration: Sample Flow Chart
3.5.1 Flowchart Symbols

Some of the symbols used while drawing a flowchart include:
• Symbols for Processes/Operations

• Symbols for Branching and Flow control
• Symbols for Input and Output
• Symbols for File and Storage of Information
Basic Flowchart Symbols
In order to create a good flowchart, you must first familiarise yourself with the most commonly
used flowchart symbols. Following are a few examples of flowchart symbols.
1. The Oval (Represents an End or a Beginning)
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Fig 8.14: Oval Symbol

The oval is used to represent the start and end of a process. Use the same symbol again to
show that your flowchart is complete.
2. The Rectangle (Represents a Step in the Flowcharting Process)
Fig 8.15: Rectangle Symbol

The rectangle is your go-to symbol. It represents any step in the process you’re depicting and is
the workhorse of the flowchart diagram.
3. The Arrow (Represents Directional Flow)
Fig 8.16: Arrow Symbol
The arrow is used to guide the viewer along their flowcharting path. While there are many
different types of arrow tips to choose from, it is recommended to stick with one for the entire
flowchart. It’s less confusing and generally more aesthetically pleasing.
4. The Diamond (Represents Call for a Decision)

The diamond symbolises that a decision needs to be made. If there are only two choices, you
can draw arrows directly from the diamond to the next step (example on the left as shown in
36
the below figure). If there are more than two choices, you can draw them neatly by copying
the example on the right, as shown in the below figure.
Fig 8.17: Diamond Symbol
5. Documents
Fig 8.18: Document Symbols
Single and multiple document icons show that there are additional points of reference involved
in your flowchart.
6. Data
37
Fig 8.19: Data Symbols
Data symbols clarify where the data in your flowchart is being stored.
7. Input and Output
38
Fig 8.20: Input and Output Symbols
Input and output symbols show where and how data is coming in and out.
8. Merging and Connecting
Agreed-upon merging and connector symbols make it easier to show how to connect
flowcharts that span multiple pages.
Fig 8.21: Merging and Connecting Symbols
9. Additional Useful Shapes
Fig 8.22: Additional Useful Shapes
39
3.5.2 Application Types
1. Process Flowchart: Illustrates the way a manufacturing, administrative or service process

works or plan out a project. A process flowchart is probably the most versatile of the four
commonly used flowchart types and can be applied to virtually anything. It can be used for
mapping out roles and responsibilities within an organisation to gain clarity, for drawing up a
proposal for a new process or project, or for showing the way you wake up in the morning
(shown below). The possibilities are endless.
Fig 8.23: Process Flowchart
2. Swimlane Flowchart: Describes how separate departments, processes or employees interact.

A swimlane flowchart comes in handy when you need to show multiple things side by side. The
below example illustrates the way an internal-facing department runs parallel with an external-
facing one and at what point they come in contact with each other.
40
Fig 8.24: Swimlane Flowchart
3. Work flowchart: Understands data and document flow within the organisation. A workflow
chart shows the way a business or process functions. The below example illustrates the steps
required for a potential customer to renew a policy through a company website. This type of
flowchart can be used to train new employees, to discover potential problem areas, and to
clarify business operations by showing a high-level overview.
41
Fig 8.25: Workflow Chart
4. Data Flowchart: Sees where data flows in and out of an information system or business. A
data flowchart shows the way data is processed. It comes in handy when you want to design or
analyse a system. Although most often used for software, it can be used to analyse any type of
information flow. The below example shows a typical sales funnel. In this case, the “data” is
consumer behavior.
42
Fig 8.26: Data Flowchart

(Source: https://www.gliffy.com/blog/how-to-flowchart-four-most-common-flowchart-types-
part-3-of-3)
When to Use a Flowchart?
A flowchart could be used to:
• Map a process
• Provide clarity and a better understanding regarding the functioning of a process
• Facilitate easy communication about the process with other people
• Clearly depict the way in which a specific task is performed
• Function as an aid for training
• Serve as a foundation for documentation
• Identify potential areas of problems
• Find out redundancies and potential areas for process improvement
• Identify areas where more data could be collected and investigated
• Define, analyse, and standardise a process
• Facilitate enhanced concentration at each step of the process, without being overawed
by the bigger picture
43
3.6 Check Sheets/Check Lists

A Check sheet is a structured format, which facilitates data collection and analysis. It is used to
record and consolidate the frequency of observations as and when they occur. The information
from the Check sheet is used while drawing Histograms and Pareto charts. The manner in
which a Check sheet is designed depends on the information required. It is a tool that can be
adapted for different purposes.
How to Develop a Check Sheet?
Following are the steps involved in developing a Check sheet:
• Identify the problem or condition or event that is to be observed.

• Arrive at the operational definitions.
• Decide the data collection mechanism (such as who will be involved in data collection,
time duration over which data will be collected).
• Design a form for the Check sheet such that it is simple to use.
• The Check sheet needs to be designed such that recording of data is possible by
marking X or check marks or other symbols (to facilitate subsequent analysis).
• While designing the Check sheet, define the information source and also information
content that would need to be captured.
• Provide labels at the appropriate spaces on the form.
• On a trial basis, test the Check sheet over a short time period to verify the simplicity of
the format and also to ensure that appropriate data gets collected.
• Engage in data collection in a consistent and accurate manner.
• Record data on the Check sheet whenever there is an occurrence of the problem or
event or condition that was planned to be observed.
Illustration:
Let us consider an example of a Check sheet to depict the interruptions due to telephonic calls
during a particular working week.
The following table shows the interruptions due to telephone calls at XYZ branch.
44
Table 8.3: Interruptions Due to Telephone Calls at XYZ Branch
When to Use a Check Sheet?
A Check sheet could be used to:
• Collect data and identify the patterns of occurrence or frequency of defects, problems,
events, causes of defects, and location of defects.
• Collect data and identify the causes of a problem in processes relating to production or
service delivery.
• Observe and collect data in a repetitive manner.
3.7 Control Charts

The control chart is a line graph with statistical control limits and is used for measuring a
process over a time-period. It is a widely used statistical tool for analysing the changes
occurring in a process over a period of time and also to monitor and improve the quality.
Control charts were initially used by Walter Stewart in 1924 in the manufacturing industry and
then applied by Deming as part of a Total Quality Management (TQM) approach.
A control chart provides the basis to determine that the process is under one of the following
categories.
• The process is in control (that is, consistency exists in process variation). When a
process is in control, it is affected only by normal ongoing causes (common causes).
• The process is out of control (that is, process is affected by special causes also and
hence the process variation is unpredictable).
45
A control chart has the following three components.
• Upper Control Limit (UCL)

• Central Line
• Lower Control Limit (LCL)
The following figure displays the components of the control chart.
Fig 8.27: Components of the Control Chart
Control Limits
The Upper Control Limit (UCL) indicates the upper limit; the Lower Control Limit (LCL) indicates
the lower limit. The Central Line represents the average of all measurements.
The width between the upper and lower control limits indicates the expected range in
variation due to common causes.
How to Set Control Limits?
The variation in the process is the basis for setting the control limits. The upper control limit,
lower control limit, and average value are based on historical data.
The upper control limit is set at three Standard Deviations above the central line, and the lower
control limit is set at three Standard Deviations below the central line.
46
Illustration: Variations in a Banking Process
Variations in a Banking process could be because of normal causes or due to special causes
(due to unique events). When a customer signs on a cheque, it is verified by the bank. The
signature has to be almost identical.
However, there could be very minor variations in the signature due to normal causes. The
signature could vary widely due to the occurrence of a unique event or a special cause (for
example, if someone pulls the table while the customer is signing the cheque).
How to Draw a Control Chart?

The following are the steps involved in the development of a Control chart:
• Identify the process for which a Control chart is to be drawn.

• Determine the type of chart that is appropriate.
• Choose the method of sampling and sampling plan.
• Decide the time period over which data is to be collected.
• Organise the collection of data.
• Compute the values for the control limits and the central line.
• Construct the control chart and plot the data.
• Analyse and interpret the results.
What to Look for in a Control Chart?
Check, if there are one or more data points falling outside the control limit, as this would
indicate that process variation is due to special causes.
There are other indications that may need a closer look such as:
• There are 6 points or more in a row showing a steady increase or decrease.

• There are 8 points or more in a row existing on one of the sides of the central line.
• There are 14 or more points that move up and down alternatively.
The special causes for which an alarm had been raised in the control chart could be eliminated.
We could then look at a reduction of the common causes. If both the special causes and
common causes were addressed, it would result in quality improvement.
47
Interpreting a Control Chart
The data obtained for the process and plotted as points on the graph is compared with the
control limits. If any data point is observed to be beyond the control limits (that is, above the
upper control limit or below the lower control limit), it indicates that special causes of variation
exist. In these cases, action has to be initiated to identify and remove the cause of variation.
Identify the points in the control chart that indicate out-of-control signals. Such points on the
chart are marked and investigation of the cause is done.
In these cases, the following aspects are documented:
• Method of investigation
• Lessons learnt
• Cause(s) for the process going out of control
• How the rectification was done?
The following figure depicts a control chart illustrating the Upper and Lower Control Limits,
each of which are placed three Standard Deviations above and below the average (Central
Line) respectively. It also depicts two points that are beyond the boundaries of the control
limits. These are the out-of-control signals indicating the existence of special causes that affect
the process.
Fig 8.28: Illustration: Control Chart
48
When to Use a Control Chart?
A Control chart could be used to:
• Detect and monitor the variation in a process over a period of time

• Identify the existence of special causes of variation
• Differentiate special causes from the common causes
• Facilitate process improvement
• Serve as a common mechanism to exhibit the behavior of a process
What is to be done when a Special Cause is detected?
The following steps are taken when a special cause is identified:
• Usage of a quick, short-term fix to temporarily restrict the problems or damage

• Identification of the cause after deploying the quick-fix solution
• Checking with people involved in the process regarding the observed differences
• Development of a long-term solution to achieve one of the following:
o Removal of the special cause if it negatively impacts the process output
o Integration of the special cause into the system if it positively impacts the process
output
3.8 Cause and Effect Diagram

A Cause and Effect diagram pictorially depicts the possible causes for a problem. Dr. Kaouru
Ishikawa, one of the Japanese pioneers of quality, proposed the diagram.
The Cause and Effect diagram is sometimes called as Fishbone diagram because of the way it
looks, and as Ishikawa diagram. The primary causes are displayed on lines that originate from
the core horizontal line. The sub-causes are depicted on the lines that originate from the line
containing the primary causes.
How to Draw a Cause and Effect Diagram?
A Cause and Effect diagram can be drawn using the following steps:
• Identify the problem/quality characteristic (effect or outcome).

• Draw the backbone starting from the left.
49
• At the right extreme of the backbone, draw a box indicating the problem (such that the
arrow head at the right end of the backbone points to the box).
• Do a brainstorming of the main categories of causes that contribute to the problem. If
it is difficult to identify categories for a particular scenario, try to look at the
applicability of standard categories such as Methods, Machines, Materials, People, and
Measurement.
• Draw the big bone pointing to the backbone and indicate the primary cause.
• Identify various primary causes by brainstorming all possible contributing factors to the
problem. Do this by critically analysing why this could have happened.
• For each cause, get into the next level by identifying the sub-causes.
• Draw a smaller bone to the side of the big bone (primary cause) and indicate the sub-
causes (secondary cause).
• When required, draw a still smaller bone and indicate the tertiary cause (this is
secondary to the sub-cause).
• Proceed in this manner, until all causes that contribute to the effect (quality
characteristic) have been included in the diagram.
Illustration
Let us consider a scenario where customers of an organisation are dissatisfied. It is observed

that customer dissatisfaction is due to delay in the delivery of products which they have
ordered.
During brainstorming, the team found it difficult to arrive at specific categories of causes
contributing to this problem. Hence, they adopted the standard categories such as Machinery,
People, Methods, and Materials. They also identified the causes and sub-causes relating to
each category.
The following figure is a Cause and Effect diagram listing out all the possible causes and sub-
causes that contribute to this problem. It depicts the root causes of the problem of delayed
deliveries. The main causes and sub-causes have been listed for each of the categories of
causes.
50
Fig 8.29: Illustration: Sample of Cause and Effect Diagram
When to Use a Cause and Effect Diagram?
A Cause and Effect diagram could be used in the following circumstances to:
• Explore the various categories of causes of a problem

• Identify and pictorially display all the possible causes of a problem
• Facilitate a structured approach to brainstorming by classifying ideas into appropriate
categories
• Identify the true causes of a problem
• Enable a team to perform “root cause analysis” by determining and displaying all the
possible causes for a problem or scenario
• Help in defect reduction and quality improvement through enhanced understanding of
the causes
51
4. Summary
• Six Sigma is a statistical concept that is used for measuring a process in terms of
defects. The term Sigma (Greek letter σ) measures the standard deviation.
• The essence of Six Sigma could be expressed as a mathematical representation in an
equation Y= f(x); Where, Y is the Output and, X is the Input.
• The origin of Six Sigma could be traced to its roots in the industrial revolution of the
eighteenth century. Subsequently, there were various people such as Carl Frederick
Gauss and Walter Shewhart who made notable contributions that led to the
development of Six Sigma much later.
• Six Sigma finds usage in manufacturing as well as in service industries.
• Six Sigma initiatives focus on reducing the variation in processes that lead to defects.
One of the units used in a Six Sigma approach is ‘Defects per Unit (DPU)’. A standard
metric called as Defects per Million Opportunities (DPMO) is used for comparison of
the performance of a process in terms of its variability with different processes.
• Sigma represents the extent of deviation present in a data set. It is represented as a
bell curve or a standard normal distribution
• The DMAIC methodology is commonly used in Six Sigma projects. It focuses on the
improvement of an existing process. It represents Define, Measure, Analyse, Improve,
and Control.
• The DMADV methodology (Define, Measure, Analyse, Design, Verify) is to be used
when a product or process does not exist and a new one is to be developed (that is, in
the design of new products or services).
• The key roles in a Six Sigma approach are:
o Sponsor/Champion
o Implementation Leader
o Master Black Belt
o Black Belt
o Green Belt
52
• Six Sigma projects focus on three of the vital aspects for a business, namely Quality,
Time for delivery, and Cost.
• Process capability is a measure for processes that are stable and exhibit statistical
control. It is computed based on the process variability and process specifications.
• Process capability is represented using various indices. Two of the indices used widely
are Process Capability (Cp) and Process Performance (Cpk).
• Some of the tools used in the various phases of DMAIC methodology of Six Sigma
approach
Define Phase
o Flowcharts
o Brainstorming
o Cause and effect Diagrams
o Graphs and charts (Histograms, Control Charts, and so on)
o Pareto Charts
o Process Capability
Measure Phase
o Cause and Effect Diagrams

o Graphs and Charts (Histograms, Control Charts, and so on)
o Pareto Charts
Analyse Phase
o Brainstorming
o Cause and Effect Diagrams
o Benchmarking
o Check sheets
o Customer feedback techniques (E.g., surveys)
Improve Phase
o Flowcharts
o Brainstorming
53
o Graphs and Charts (Histograms, Control Charts, and so on)

o Customer Feedback Techniques (such as, surveys)
Control Phase
• Graphs and charts (Histograms, Control charts, and so on)

• Pareto analysis
• Brainstorming is a technique where a lot of new ideas are generated by the people, by
means of combining and enhancing existing ideas.
• Histogram is a pictorial representation of the frequency distribution for a given data in
a bar format. It is widely used to evaluate the data distribution.
• A Pareto chart is a bar graph that visually depicts the causes or problems in the order of
frequency of occurrence or severity.
• A Scatter diagram is a graphical method that is used to depict the relationship pattern
between two variables/process characteristics that are thought to have a relationship.
• A flowchart is a pictorial representation of the sequence of work activities, inputs
required for each activity, and the outcome of each activity.
• A Check sheet is a structured format, which facilitates data collection and analysis. It is
used to record and consolidate the frequency of observations as and when they occur.
• The control chart is a line graph with statistical control limits and is used for measuring
a process over a time-period.
• A Cause and Effect diagram pictorially depicts the possible causes for a problem. Dr.
Kaouru Ishikawa, one of the Japanese pioneers of quality, proposed the diagram.
54
5. References
Edition, Tata McGraw Hill, 2008 Gitlow, Oppenheim, Levine,
2. Quality Management, 3rd Edition, Tata McGraw Hill, 2009 Kanishka Bedi,
3. Quality Management, 3rd Edition, Oxford University Press, 2006
4. Debashis Sarkar, Quality in Business, 2003, Sage / Response Books
6. Web references
1. http://www.financialexpress.com/printer/news/73056/
2. http://www.asq.org/learn-about-quality/benchmarking/overview/overview.html
3. http://www.benchmarkingplus.com.au/nuts&bolts.htm
4. http://www.benchmarkingplus.com.au/mistakes.htm
5. http://bpmmag.net/mag/7-steps-better-benchmarking-0507/
6. http://managementhelp.org/quality/bnchmrkg/bnchmrkg.htm
55

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Unit 1: Nature of Service

7.2 Importance of CRM in Banking Sector .................................................................................. 32

At the end of this unit, you will be able to:

• Define customer service.

1. Introduction to Customer Service

1.1 Customer Service in Banks

1.1.1 Telephone Banking/Call Centre

Fig. 1.1: Call Centre Representative/Telephone Banking Executive

1.1.2 Mobile Banking

Fig. 1.2: Mobile Banking

• The emphasis on digital transactions and

1.1.3 Internet Banking

Fig. 1.3: Internet Banking

1.1.4 Branch Transactions

Fig. 1.4: Banking Operations at the Branch

Fig. 1.5: Banking Operations through ATM and CDM

1.2 Evolution of Customer Service

quick mode of interaction and low cost. It is

• Speech analytics from call

2. Characteristics of Service Operations

• Timely delivery of service

Simultaneous Consumption: There is simultaneous production and consumption of the

When compared to the manufacturing sector, these characteristics present higher

3. Types of Customer Service

1. Self-service Knowledge Base

3.1 Self-service Knowledge Base

Fig. 1.6: Online Investigations

3.2 Social Media Support

Fig. 1.7: Social Media Interactions

3.3 Live Chat Support

Fig. 1.8: Live Chat

3.4 Email Support

Fig. 1.9: Email Support for Banking

3.5 IVR and Call Support

Fig. 1.10: IVR

4. Role of a Service Manager

• Ensuring staff members’ awareness of their duties and responsibilities towards

Let us further understand various roles of the service manager.

4.1 Hiring and Training

Fig. 1.11: Recruiting and Training the Staff

4.2 Maintaining Customer Relationships

Fig. 1.12: Maintaining Customer Relationship

4.3 Ensuring Adherence

Fig. 1.13: Compliance to Standards

4.4 Setting Goals

Fig. 1.14: Smart Goals

4.5 Assessing Feedback

• How the customers feel about your customer service

Fig. 1.15: Assessing Customer Feedback

• Assessing the completed task

However, methods of measuring productivity in service operations is subjective and differs

5.1 Turnaround Time (TAT)

5.2 Service Level Agreement (SLA) Adherence

• the complete service

Companies require SLAs to:

• Manage the expectations of the customers/clients.

5.3 Total Productivity (TP) Method

The total inputs of production factor (F) are:

6. Assessment of Manpower Requirements

Fig. 1.16: Replacing Staff

Fig. 1.17: Need for Manpower during Expansion

6.3 New Services and Functions

Fig. 1.18: Digital Banking