Maximizing productivity can impact customer satisfaction in good ways and bad ways, so companies should approach productivity the way they do anything else — with an eye toward its upsides and downsides.
The title of an article in the Spring 2014 issue of MIT Sloan Management Review asks a provocative question: “Should Your Business Be Less Productive?”
On the face of it, the answer should seem to be “no” — less productive is never good, right?
But authors Ming-Hui Huang and Roland T. Rust make an intriguing argument. They write, “As advanced economies move more into the service sector, that means many managers devote a lot of attention to designing automated processes that reduce the need for people — typically their most expensive resource.”
Huang and Rust’s argument, in a nutshell, is this: In service businesses, there is often a trade-off in customer satisfaction when companies go down the employee-reduction route. As a result, more productivity, when it comes at the cost of customer satisfaction, is not necessarily the best option. Bottom line: Instead of simply maximizing productivity at any and all costs, service companies should approach productivity as a strategic decision variable.
One example: Comcast Corp. The communications company increased its labor productivity by 11.4% from 2006 to 2007 and by another 10.9% from 2007 to 2008. Increased productivity on its own is good, but nothing ever happens on its own. The authors write: “Unfortunately, there were signs that customer satisfaction may have suffered. Comcast may have saved money by increasing its labor productivity, but its customer satisfaction score for subscription television services, as reported by the American Customer Satisfaction Index, fell between 2006 and 2008 and, by 2008, it was substantially below the industry average for that category.”
“The truth is that things are different in service, and unlike on the assembly line, increased productivity may not always lead to increased profitability,” they write.
So how can service companies figure out what level of productivity is optimal?
Huang and Rust offer four suggestions. The following text is taken verbatim from their article:
1. Compare your company with your competitors.
If your prices and margins are lower, and your employees have higher wages, then a higher productivity strategy is in order. Try to automate more than your competitors. If the opposite is true, focus on providing the best service in your industry, even at the expense of productivity. Where you can get higher satisfaction, use labor where other companies use automation.
2. Draw a graph, where one axis is customer satisfaction and the other axis is productivity.
Map your company and your competitors on this graph. Consider whether increasing customer satisfaction and sacrificing productivity (or vice versa) might effectively differentiate your company from your competitors, moving your market position away from that of your competition. This could mean adopting more of a high-productivity strategy or more of a high-customer-satisfaction strategy.
3. Think very carefully before outsourcing services, for example, through offshore call centers.
Seek evidence that the probable decline in customer satisfaction will be offset by increased productivity in labor dollars. If possible, run a test implementation to measure the effect on both customer satisfaction and productivity. Do return on investment analysis on the combined impact of the productivity improvement and customer satisfaction decline, to make sure the outsourcing is justified.
4. For all major automation decisions involving customer contact, carefully project the impact on customer satisfaction as well as the increase in productivity.
Again, a test implementation, or observing previous implementations by other companies (perhaps in other industries), can provide satisfaction impact data as well as productivity improvement and cost savings. This can enable a fully informed analysis of the resulting productivity-satisfaction trade-off.
This article draws from “Should Your Business Be Less Productive?” by Ming-Hui Huang (National Taiwan University’s College of Management) and Roland T. Rust (Robert H. Smith School of Business at the University of Maryland), which appeared in the Spring 2014 issue of MIT Sloan Management Review.