Business Performance Measurement Challenges in the Service Industry
The leadership of a service organization faces the challenge of measuring business performance. In a manufacturing business, the leadership tracks the number of turns, customer satisfaction, inventory levels, and/or asset utilization. Service businesses, however, do not have inventory levels, the number of turns, or significant assets to measure utilization. The most critical asset—human resources—is difficult to measure. Some companies attempt to remedy this challenge by measuring productivity in terms of revenue per employee, but doing so can have its drawbacks.
As an example, the leadership in one company hired a productivity consultant, and one of us was hired as a quality or performance consultant. During a casual discussion, we were told that whenever the productivity consultant met with employees or analyzed employee productivity, employees slowed down. Measuring human productivity has a negative connotation associated with it and is sometimes perceived to be detrimental to employee dignity. In addition, human productivity is difficult to measure for further improvement. If one measures revenue per employee as a measure of productivity, the only way to improve the productivity without any process improvement is to reduce head count or improve sales. Such action implies that scorecards must identify process-based measurements rather than events or outcome-based measurements.