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Service Sector

In recent years, the service sector has grown in importance. 

Banks, accountancy and consultancy firms, transport companies have all increased. 

We shall consider six main aspects of performance in relation to service organisations

  1. Financial performance

  2. Competitive performance

  3. Service quality

  4. Flexibility

  5. Resource utilization

  6. innovation

1. Financial Performance

Traditional financial analysis distinguishes four types of ratio: profitability, liquidity, activity and gearing. 

Analysis of a company’s performance using accounting ratios involves comparisons with past trends and/or competitors’ ratios.  

Typical ratios which can be used by a service organisation include

  • Turnover per product group

  • Turnover per ‘principal’ or partner

  • Staff costs as a % of turnover

  • Space costs as a % of turnover

  • Training costs as a % of turnover

  • Net profit %

  • Current ratio

  • Quick asset ratio

  • Market share

  • Market share increase

Because it is difficult to trace many common costs to different units of output and because of the high level of stepped fixed costs, detailed financial ratio analysis is of limited use.

2. Competitive Performance

Competitive performance focuses on factors such as sales growth, market share, customer retention and ability to obtain new business.

3. Service Quality

Quality is an important non-financial performance indicator in the service sector. 

Inspection and monitoring of the inputs to the service process is very important; 

e.g. the quality of solicitors in a practice or the level of staff available in a consultancy organisation.

For example, in the airline industry, service quality could be measured as follows

qualitymeasuresmechanics
competence and courtesystaff courtesy and attitudefeedback forms /
inspections
cleanlinessfacilities and equipmentfeedback forms /
inspections
availabilityequipment availabilityinternal fault monitors
communicationinformation claritysurveys / inspections

4. Flexibility

Three important aspects are

areameasuresmechanics
speed deliverywaiting time in queuesinspection
ability to respond to
customers' specifications
diversity of skills
possessed
amount of time spent
on training
coping with demandovercrowding: customer
queuing time
inspection

5. Resource utilization

Resource utilization is usually measured in terms of productivity.  For e.g. in an audit firm, the main input is the time of staff. 

The output is the chargeable hours to client.  

Productivity can be measured by dividing the chargeable hours with the total available hours.

6. Innovation

Innovation can be measured in terms of how much it costs to develop a new service, how effective the process is and how quickly it can develop new services. 

Hence, we can calculate the proportion of new services to the total services provided or the time between identification of a new service and making it available.

Manufacturing Sector

In manufacturing environments, there are four performance measures

a) Cost
areameasuresmechanics
raw material inputactual vs targetcalculation of quality and cost
overtime costsovertime hours / total hoursjob sheets / payroll
customer focus% service calls; % claimsservice and claim forms
outputactual vs target outputinspection
b) Quality
areameasuresmechanics
quality of material% of defected materialinspection
maintenancebreakdown maintenance
total maintenance
maintenance records
product reliability% claimsclaims record
customer satisfactionnumber of complaints /
repeat orders
feedback forms
c) Time

Here, the focus is on throughput, bottlenecks, customer impact and availability.

areameasuresmechanics
throughputprocessing time ÷
total time
production records
availability% stock outsstock records
customer impactaverage delivery timedelivery records
equipment failuretime between failuresmaintenance records
d) Innovation
areameasuresmechanics
the ability to introduce
new products
number of new products
launched
production records
ability to accommodate
change
number of new processes
implemented and time
taken to implement
records of process time
taken
reputation for innovationdemonstrate competitive
advantage
surveys / feedback forms

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