03 Setting Performance Standards

SERVICE MANAGEMENT
Lesson 3:
Setting Design Performance Standards
2 Design Performance Standards
Service Management 9/18/2018

Design Performance Standard
3
 The performance level that a design attribute is

required to achieve for the design to be acceptable

Design Performance Standards
4
 Design performance standards are yardsticks for

evaluating design alternatives
 Performance level desired by customers is the upper
bound for standards
 Performance of competitors is the minimum
acceptable lower bound
 Becoming competitive, the firm must offer service
level in the vicinity of that provided by key
competitors
Design Performance Standards
5
 Exact value of standard depends on:

 performance/satisfaction relationship
 The extent to which satisfaction degrades as the
performance moves away from the desired value
 cost or technology availability
 Places a constraint on the design performance
 Standards are design-independent performance
guidelines
 represent the design team’s initial estimates of how well
any design should perform in order to produce a
required level of satisfaction
Factors Affecting Design Performance
6
Standards for an Attribute
 Knowledge of customers’ desired performance level
 Benchmarks of key competitors’ performance of the
attribute
 Performance/satisfaction relationship
 Attribute importance

7
Measuring the Desired Performance
Level

Desired and Ideal Performance Level
8
 Desired performance standard

 The performance level for a design attribute desired
by the customers
 Desired standard indicates customers’ expectations for
the performance of the attribute based on their prior
experience with similar services and a realistic
assessment of their needs
 Customer satisfied  attribute perform at the desired level
 Delighted  process perform better
 Poorer  provides less satisfaction

9
 Desired performance standard

 The desired standard may not be the same as the
design standard if technology or cost constraints do not
permit the service to be designed to meet the desired
performance level
 Desired performance level may sometimes be obtained
by direct questioning
 In other case, the desired performance level may be
indirectly extracted through benchmarks

10
 Ideal standard (ideal performance level)

 The optimal, but possibly unattainable, performance
level for a design attribute
 Ideal level is the natural optimal performance level at
which a perfect service performs
 The ideal performance level may be different from the
design and desired standards, depend on the attribute
and on the application
 the service must be designed to meet or exceed the
desired performance level and improved over time in
the direction of the ideal performance level

11 Customer and Technical Benchmarks

Customer Benchmarks
12
 The customers’ assessment of the ability of the

competitors’ services to satisfy their needs
 Customer benchmarks measure perceptions of
competitors’ effectiveness in satisfying needs
 Customers are asked to rate their perception of the ability
of competitors services to satisfy the need  a 1-5 scale
 Either second- or third-level needs can be used
 Choice of competitor should be market leader or
distinguished firm
 Customers benchmarks are listed in room 4 of House of
Quality

Technical Benchmarks
13
 The design team’s technical assessment of the

performance of key competitors on important
design attributes
 Technical benchmarks measure design team’s
perceptions of competitors’ performance
 As far as possible, these benchmarks should be
objective, engineering evaluations of competitors’
performance
 Technical benchmarks are listed in room 5 of House
of Quality
Customer and Technical Benchmarks
14
 Customer and technical benchmarks are used together to

infer desired performance level
 Discrepancies between benchmarks indicate mismatch
between perceptions and measures
 The technical measures are accurate, but customers’ perceptions
are not
 The customers’ perceptions are correct, but the design team’s
measurements are not accurate
 An erroneous association between the needs and the attribute
 The mismatch indicate warning signal to the design team
that design attributes may not be accurately capturing
customer needs
Customer and Technical Benchmarks
15

16
The Performance/Satisfaction
Function

Performance/Satisfaction Function
17
 The function that express the relationship between

various levels of performance of a design attribute and
customer satisfaction
 Acceptable gap between the desired standard and the
design standard depend on the degradation in
customer satisfaction that the design team is willing to
tolerate
 Measures relationship between performance and
satisfaction
 Can have many functional forms
 Slope of function indicates customers’ tolerance for
deviations from desired performance
The performance/satisfaction function
18
for the order-taking interval attribute

Functional Forms for the
19
 Constant up to threshold
 Standard is a range
 Symmetric linear
 Non-symmetric linear
 Polynomial
 hyperbolic

20

21

22

23
Setting Design Performance
Standards

Setting Design Performance Standards:
24
Procedure
 Step 1: Specify the minimum acceptable satisfaction
threshold
 Step 2: Rank attributes in order of decreasing slope of
the performance/satisfaction function
 Step 3: Rank attributes in order of importance
 Step 4: Set design performance levels for each attribute
 Step 5: Predict the overall satisfaction from the attribute
performance levels set in Step 4
 Step 6: Determine whether the predicted satisfaction is
higher that the minimum acceptable threshold
 Step 7: If it is not, tighten the performance of some
attributes, or drop some less important ones

Specify the minimum acceptable
25
satisfaction threshold
 The minimum acceptable satisfaction threshold is the
base level of customer satisfaction that is needed
for the firm to maintain the required market share
or revenue
 Every design should perform at a level that meets
or exceeds this threshold
 This threshold is based on customers’ satisfaction
with competitors’ service, and on the strategic
service objectives of the firm

Rank attributes in order of decreasing slope of
the performance/satisfaction function
26
 The attributes with the steepest slopes are the ones

whose performance must be as close as possible to
the desired standard

Rank attributes in order of importance
27
 The service should be designed to perform closer to

the desired value for the more important attributes
than for the less important ones

Set design performance levels for each
28
attribute: guidelines
 The performance level should be set at or close to the desired level
for more important attributes with a steep slope of the
performance/satisfaction function.
 These are the attributes that have to be provided in the design and have
to perform as close as possible to the desired levels.
 Set these values as close as the current technology can feasibly provide.
 The performance level should be set at or close to the minimum
acceptable levels (benchmarks) for the less important attributes with
a shallow slope.
 These are attributes with the most flexibility
 The performance level of the remaining attributes should be set at
intermediate values
 The performance attributes whose performance/satisfaction function has
a steeper slope should be set closer to their desired standards

Predict the overall satisfaction from the
attribute performance levels set in Step 4
29
 From performance/satisfaction function for each

attribute, the loss in satisfaction arising from the
specified performance level in Step 4 can be
calculated
 There is no loss if the performance level is at the
desired standard; the further the design standard is
from the desired level, the greater the loss.
 The losses for each attribute are summed to
produce the overall satisfaction loss.

Determine whether the predicted satisfaction is
higher that the minimum acceptable threshold
30
 The predicted satisfaction is calculated from the

overall satisfaction loss computed in Step 5
 For example:
 Ifthe maximum achievable satisfaction rating is 7
points, and the overall loss is 0.3, the predicted
satisfaction is 7 – 0.3 = 6.7
 This value is compare to the threshold

If it is not, tighten the performance of some
attributes, or drop some less important ones
31
 If the satisfaction level does not meet the threshold, then the
performance standards for some attributes may have to be
brought closer to their desired levels
 If this is not feasible for any attribute because of perceived
cost or technology constraints, then the team may consider
excluding some of the less importance attributes in the
design, especially if the slopes of their
performance/satisfaction function are steep
 If this relaxes some technological constraints and reduces
cots, there may be some additional flexibility to tighten the
standards of the most important attributes
 Some trial and error may be necessary before an
acceptable solution is obtained

32
 There is no formulaic procedure that can be routinely

followed to set the design standards for the attributes
of the service
 Some judgment and experience, as well as an
understanding of the market, the competition, and the
constraints, are necessary
 The design team should work together to set the
standards, and should reach consensus through
discussion
 The standards are entered into room 8 of the House of
Quality
33

Setting the Performance Standard for
34
“The Service Edge Restaurant”
 Specify minimum acceptable threshold
 The design team sets a minimum acceptable threshold
satisfaction rating of 6.5 points or higher on a 7-point
scale
 Rank attributes in order of decreasing slope of
performance / satisfaction function
 Allattribute except for two ( meal delivery interval
and billing accuracy) can be set at the desired
standard

Performance/Satisfaction Function –
35
Service Edge Restaurant

Slopes of performance/satisfaction
36
function

37
 Rank attributes in order of importance
 Not expected to meet the desired standard
 Meal delivery interval is significantly more important than the
billing accuracy
 Using the slope and importance as guidelines, set
design performance levels for each attribute
 Billing accuracy
 The performance level at the same level as the average
competitor, even though does not meet that desired by the
customer
 Meal delivery interval
 The design should deliver a meal between 10 (desired value) and
11,5 minutes

38
 Predict overall satisfaction from specified attribute
performance levels
A meal delivery interval performance of 11,5 minutes
is 6,75. The lost in satisfaction is 0,25 units
 A billing accuracy of 90% is 6,9. The lost satisfaction is
0,1 unit
 Total satisfaction loss is 0,35 units

39
 Determine whether predicted satisfaction is higher
than the threshold
 The predicted satisfaction is 7 – 0,35 = 6,65.
 Satisfaction threshold is 6,5
 The prediction satisfaction is higher than the threshold.
 If not, tighten performance of some attributes , and

drop less important ones

40
Estimating the Performance/
Satisfaction Relationship

Estimating The P/S Relationship For
41
Single Attribute

Estimating The P/S Relationship For Single
Attribute
42
 Measure change of overall satisfaction with

performance levels of attribute
 Not “how satisfied are you with the performance of
attribute X?” but “how does the performance of
attribute X affect your satisfaction with the service?”
 Assume that all other attributes are at desired
levels
 To isolate the effects of a single attribute since the
overall satisfaction is a function of all attributes and not
only of the one under consideration
Attribute: example
43
 Attribute: time between menu delivery and order-

taking
 Desired standard: 6 minutes
 10 customers are asked to rate their overall
hypothetical satisfaction (on a scale from 1 to 7)
with the restaurant service for various values of this
interval from 1 to 9 minutes

Aggregate satisfaction ratings for
44
order-taking interval
Minutes Minimum Maximum Average Median
between menu Satisfaction Satisfaction Satisfaction Satisfaction
delivery and rating rating rating rating
order taking
1 1.4 3.1 2.3 2.2
2 1.3 6.6 3.1 2.6
3 4.4 5.4 4.8 4.8
4 5.7 6.2 6.0 5.9
5 5.9 6.4 6.2 6.2
6 7.0 7.0 7.0 7.0
7 1.6 5.5 3.3 3.2
8 1.0 4.3 1.9 1.4
9 1.0 2.9 1.7 1.5

P/S relationship for the Service Edge
order-taking interval
45
8
7
6
Overall satisfaction
5
4 Minimum
Maximum
3
Average
2
1
0
1 2 3 4 5 6 7 8 9
Order-taking interval (minutes)

Attribute
46
 The advantage of considering each attribute

separately
 The rating task is easy, though it may rapidly become
tedious if data is being collected on a number of
attribute
 Data points can be collected to trace the P/S
relationship for each attribute over its entire range of
performance
 No statistical knowledge is required to implement the
survey or interpret the results
Attribute
47
 Disadvantages of the single-attribute approach: the

simplicity of the single approach can lead to misleading
results
 It is not usually possible to accurately rate changes in
overall satisfaction as a result of changes in performance of
a single attribute
 The satisfaction scores assigned to each performance level of the
attribute are likely to be biased
 Even if the satisfaction ratings are accurate, the P/S function
for each attribute is calibrated under the assumption that all
remaining attributes operate at the desired standards

Increase in satisfaction depends on
48
billing accuracy levels

Attribute
49
 Not an accurate method for estimating the P/S

function
 Use for exploratory data analysis
 Exploratory insights about the functional form of the
P/S relationship
 To develop an approach in which all the design
attributes are varied at the same time  conjoint
analysis

Estimating the P/S relationship for all attributes –
50
conjoint method

Estimating the P/S relationship for all attributes –
conjoint method
51
 Customers are asked to rate their satisfaction with

service profiles made up of combinations of design
attributes at various prespecified discrete
performance levels
 The objective of conjoint analysis is to use the
ratings of several profiles to decompose the overall
satisfaction ratings into individual P/S relationships
for each attribute

Sample design for four restaurant
52
attributes
Time Between Percent of Bills
Seating and produced Effectiveness
Degree of Order-Taking without error in problem
Profile Number Friend-liness (minutes) (percent) resolution
1 Average 5 95 Excellent
2 Excellent 10 75 Good
3 Average 5 95 Good
4 Excellent 10 75 Excellent

Experimental Design
53
 Select the number of discrete performance values,

or levels, of each attribute to be considered in the
design
 To avoid errors arising from rater fatigue, the
number of profiles to be rated should be kept to a
small and manageable number
 Typically,
most designs use two, three, or at most four
performance levels of each attribute

54
Selecting the number of levels for
each attribute

Selecting the number of levels for each
55
attribute
 A level denotes a discrete performance value of an
attribute, selected from the range of anticipated
performance for the attribute
 Based on the design team’s judgment or on evaluations of
the performance of competitors
 Should include the desired performance level
 For a given attribute, the number appropriate levels

depends on:
 The shape of the P/S function
 The extent of the range of performance for the attribute

Linear P/S function for billing accuracy
56
attribute

Linear P/S relationship for the order-taking
interval
57

Quadratic P/S relationship for
58
attribute at three levels

The guidelines for selecting the appropriate
number of levels for an attribute
59
 A realistic performance range that includes the desired

performance level for the attribute is determined by
judgment or from industry benchmarks
 The shape of the P/S function is determined, from a
single-variable analysis or from experience
 Two levels are adequate for attributes with a linear
function whose desired standard is at either extreme of
the range; the extreme points are chosen as the two
levels in this case
 An additional level representing the middle of the
range may be useful if the range is very broad
The guidelines for selecting the appropriate
number of levels for an attribute
60
 Three levels are needed if the desired standard falls in

the center of the range; in this case, two levels are
selected at the extreme points, and the third at the
desired standard
 More than two levels are needed if the P/S function is
nonlinear
 At least three levels are needed to specify a quadratic
function
 In general, the number of data points needed is one
more than the degree of the polynomial representing
the function
61
Experimental Designs with Attributes
at Two Levels
1. The rules for combining two-level attributes into
designs
2. How the satisfaction ratings obtained from these
designs can be used to estimate the P/S function

62 Creating Designs

Values of two levels of restaurant
63
attributes
Low value High Value
Attribute (Code = -1) (Code = +1)
Menu delivery promptness 1 minutes(*) 5 minutes
Degree of friendliness Average Excellent(*)
Billing Accuracy 75% 95%(*)
Problem resolution effectiveness Average Excellent(*)

Creating designs
64
 Attribute scales are equalized through coding

 Any convenient coding convention can be used
 Low value is scored -1, high value is scored +1
 Engineering convention
 Convenient for the regression method analysis
 Full factorial design consider all combinations of

attributes

Full factorial design for four restaurant
65
attributes: L16(215)
Degree of Menu Delivery Billing Problem
Profile Number Friendliness Promptness Accuracy Resolution
1 -1 -1 -1 -1
2 -1 -1 -1 1
3 -1 -1 1 -1
4 -1 -1 1 1
5 -1 1 -1 -1
6 -1 1 -1 1
7 -1 1 1 -1
8 -1 1 1 1

Full factorial design for four restaurant
66
attributes
9 1 -1 -1 -1
10 1 -1 -1 1
11 1 -1 1 -1
12 1 -1 1 1
13 1 1 -1 -1
14 1 1 -1 1
15 1 1 1 -1
16 1 1 1 1

Linear P/S function requires two satisfaction
ratings
67

68 Fractional Factorial Designs

Fractional Factorial Designs
69
 Fractional designs consider fewer combinations and are

easier to rate
 Select an appropriate fraction
 Fractional design should maintain orthogonality, i.e.,
balance
 Orthogonality is an attractive property for a design
because it ensures that an attribute is evaluated an equal
number of times at each performance level
 Performance/satisfaction functions are estimated by
regression using coded values
 Parameter values are function slopes
Eight-profile fractional factorial design
70
for four restaurant attributes: L8(27)
1 -1 -1 -1 -1
2 1 -1 -1 1
3 -1 1 -1 1
4 1 1 -1 -1
5 -1 -1 1 1
6 1 -1 1 -1
7 -1 1 1 -1
8 1 1 1 1

71
Estimating the P/S function – direct
method

Average satisfaction ratings for two-
72
level design
Menu Average
Profile Degree of Delivery Billing Problem Satisfaction
Number Friendliness Promptness Accuracy Resolution rating
1 Average 5 minutes 75% Average 2.8
2 Excellent 5 minutes 75% Excellent 3.9

Calculating the slope of a straight line
73

Slope of P/S function for each
74
restaurant attribute
Average Average Difference
Satisfaction Satisfaction in Average Change in
rating at rating at Satisfaction attribute Attribute
low value high value rating (3) = performance slope
Attribute (1) (2) (2-1) (4) (3/4)
Friendliness 3.6 5.4 1.8 2 0.9
Promptness 5.2 3.7 -1.5 2 -0.75
Accuracy 4.0 5.0 1.0 2 0.50
Resolution 4.4 4.5 0.1 2 0.05

The complete P/S relationship for the
75
four attributes
satisfaction  4.46 
0.9 * friendliness 
0.75 * promptness
0.5 * accuracy 
0.05 * problemresolutioneffectiveness

76 Recalibrating the model

Recalibrating the model
77
 When all the attributes at heir desired levels, the

satisfaction rating is 6.67
 The rating is not a perfect 7
 The equation is estimated from empirical data, and the
difference results from random variability in customers’
rating
 The intercept is common for all attributes
 Its exact value does not matter as long as all attributes are
compared from the same base
 If it is felt that a score of 7 when all the attributes
perform at the design value is easier to understand and
interpret, then the equation can be adjusted

78 Developing P/S relationships

Developing P/S Relationships
79
 P/S relationships can be developed by substituting

appropriate coded values for the performance of
other values
 Other attributes are performing at their desired levels

Relationship between satisfaction and
80
the degree of friendliness
0.9 * friendliness

P/S relationships for two-level design
81
attributes

82 Interpreting the Slopes

Interpreting the Slopes
83
 Slope is positive
 Higher values provide more satisfaction than lower
values
 Slope is negative
 Lower values provide more satisfaction than higher
values

84
 Customers’ toleration for the deviation of the

performance of each attribute from its desired
value
 Steep slope
 Largest change in satisfaction
 The service should be designed to perform as close to the
desired performance as possible
 Shallow slope
 Even if there is a large gap between the desired and the
design standards, the satisfaction will not be affected by a
large amount

85
 Continuous attributes
 Satisfaction varies linearly between the two extreme
values
 Discrete attributes
 The continuous linear function is a useful guideline, but
judgment must be used to interpret the satisfaction
rating at the intermediate scale values

86
Analyzing Profiles with Attributes at
Three Levels

87
Creating designs with attributes at
three levels

Creating designs with attributes at
88
three levels
 In addition to the extreme values, a third data point is
chosen in the middle of the performance range for
attributes that need to be evaluated at three levels
 Three pieces information are needed to specify the P/S
function (one intercept and two slopes)
 For quadratic function, this second piece of information is a
quadratic term
 Quadratic functions are meaningful only for continuous
attributes
 For attributes that do not have an obvious continuous scale,
we separately estimate the change in satisfaction as we
move from the low to the medium level of the attribute, and
from the medium to the high level

Values of three levels of restaurant
89
attributes
Attribute Low value Medium Value High Value
Menu delivery promptness 5 minutes 10 minutes(*) 15 minutes
Degree of friendliness Average Good Excellent(*)
Billing Accuracy 75% 85% 95%(*)
Problem resolution effectiveness Average Good Excellent(*)

90 A three-level fractional design

A three-level fractional design: L9(34)
91
 The design has nine profiles of three levels each

 Can be used to estimate the slope of the P/S
relationship of at most four attributes
 Should verify that the design is orthogonal
 The low level a value of -1, the mid-level a value of

0, and the high level a value of +1
 Quadratic terms are represented by squares of
coded values of each attribute
 Piecewise linear functions and interactions can also
be estimated
Three-level fractional design for
92
restaurant attributes
Profile Number
Friendliness Promptness Accuracy Resolution
1 -1 -1 -1 -1
2 -1 0 0 0
3 -1 1 1 1
4 0 -1 0 1
5 0 0 1 -1
6 0 1 -1 0
7 1 -1 1 0
8 1 0 -1 1
9 1 1 0 -1

93 Higher-level and mixed designs

Higher-level and mixed designs
94
 Many two-, three-, four-, and higher-level designs

have been tabulated in the literature
 Mixed-level designs are available for analyzing
combination attributes that are measured at
different levels

95
Estimating the P/S relationship –
regression method

96
regression method
 Reason of using regression method
 Ifthe relationship between satisfaction and the
performance is piecewise linear, two slopes can be
calculated: one for the difference between the medium
and low performance levels, and the other for the
difference between the high and medium levels  this
rapidly becomes tedious and impractical as the number
of attributes and the number of levels increases

97
regression method
 The intercept and the slopes of all attributes are
calculated simultaneously
 Overall satisfaction is expressed as a function of
the performance of the attributes

The relationship between satisfaction
98
and promptness and billing accuracy
satisfaction  Intercept 
a1* promptness
a 2 * promptness  2
b1* accuracy 
2
b 2 * accuracy
99
Analyzing the results of the
regression model

Parameter values for linear and
100
quadratic terms
Parameter Estimate
a1 -0.12
a2 -1.57
b1 0.18
b2 0.13

The relationship between satisfaction
101
and promptness and billing accuracy
satisfaction  6.69 
0.12 * promptness
1.57 * promptness  2
0.18 * accuracy 
2
0.13* accuracy
102
Developing quadratic P/S
relationships

Developing quadratic P/S relationships
103
 Substitute the coded value of the desired

performance level for all attributes other than the
one whose function is being defined

P/S function for meal delivery interval
104
satisfaction  7 
0.12 * promptness
1.57 * promptness2

P/S function for billing accuracy
105
0.18 * accuracy 
0.13* accuracy2

106
Other specifications for the P/S
relationship

Other specifications for the P/S
107
relationship
 The greatest advantage of the regression method is
that it provides us the flexibility to easily model
different functional forms for the relationship between
satisfaction and performance
 Linear relationships can be modeled by omitting the
quadratic term from the regression equation
 Functions that have two linear functions over the
performance range can be presented by including two
terms in the regression equation for each attributes
 The regression model can also be used to estimate
interactions between the attributes
 Interactions are specified as products of the independent
variables
108 End of this chapter

03 Setting Performance Standards

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

03 Setting Performance Standards

Uploaded by

Copyright:

Available Formats

SERVICE MANAGEMENT

Service Management 9/18/2018

 The performance level that a design attribute is

Service Management 9/18/2018

 Design performance standards are yardsticks for

 Exact value of standard depends on:

Service Management 9/18/2018

Service Management 9/18/2018

 Desired performance standard

Service Management 9/18/2018

 Desired performance standard

Service Management 9/18/2018

 Ideal standard (ideal performance level)

Service Management 9/18/2018

Service Management 9/18/2018

 The customers’ assessment of the ability of the

Service Management 9/18/2018

 The design team’s technical assessment of the

 Customer and technical benchmarks are used together to

Service Management 9/18/2018

Service Management 9/18/2018

 The function that express the relationship between

Service Management 9/18/2018

Service Management 9/18/2018

Service Management 9/18/2018

Service Management 9/18/2018

Service Management 9/18/2018

Service Management 9/18/2018

Service Management 9/18/2018

Service Management 9/18/2018

 The attributes with the steepest slopes are the ones

Service Management 9/18/2018

 The service should be designed to perform closer to

Service Management 9/18/2018

Service Management 9/18/2018

 From performance/satisfaction function for each

Service Management 9/18/2018

 The predicted satisfaction is calculated from the

Service Management 9/18/2018

Service Management 9/18/2018

 There is no formulaic procedure that can be routinely

Service Management 9/18/2018

Service Management 9/18/2018

Service Management 9/18/2018

Service Management 9/18/2018

Service Management 9/18/2018

Service Management 9/18/2018

 The prediction satisfaction is higher than the threshold.

 If not, tighten performance of some attributes , and

Service Management 9/18/2018

Service Management 9/18/2018

Service Management 9/18/2018

 Measure change of overall satisfaction with

 Attribute: time between menu delivery and order-

Service Management 9/18/2018

Service Management 9/18/2018

Service Management 9/18/2018

 The advantage of considering each attribute

 Disadvantages of the single-attribute approach: the

Service Management 9/18/2018

Service Management 9/18/2018

 Not an accurate method for estimating the P/S

Service Management 9/18/2018