Measuring performance in services

The McKinsey Quarterly -- Purchasing, 2/13/2006

* Service companies can't measure and reduce variance as easily as manufacturers can. Service tasks vary, depending on the person performing the service, differences in customer behavior, and the business environment.
* Services can be measured and their variance controlled by following three principles: benchmark internally, measure the drivers of cost, and make metrics accurate enough to identify all relevant costs.
* A cost tree is an invaluable tool for spotting activities and locations in which variance destroys margins.
* Implementing a measurement system is a tricky but important first step to reducing variance and improving the productivity of services.

This article includes the following exhibit:
* Exhibit: Using a cost tree to define internal benchmarks

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