Chapter 7

Monitoring and Controlling

Relationships
Introduction

• Monitoring and control form an integral part of

planning and implementation
• Monitoring systems provide the information
that informs the planning process, while
control mechanisms ensure implementation of
the plan.
 Approaches to monitoring and control

1) Hard vs Soft Monitoring and Control

1 a) Hard monitoring and control

- Relies on quantitative measures of activity or

achievement, and reward or punishment systems that are directly
linked to those measures.
- appropriate in circumstances where an employee’s output or
performance levels are easily defined and measured and critical
to the success of the organization.
- example: Budgetary control
-It is based on the principle that employees must be closely
monitored and constantly offered incentives in order to
optimize their performance.
 Approaches to monitoring and control
1b) Soft monitoring and control
- Less clearly defined.
-It is based on principle that properly selected and trained employees do
not need constant attention from senior management and indeed will
perform better if not directly monitored and control.
- appropriate when employees achievements are difficult to define or
where variations in activity or
output are not critical.
- example: in the area customer service.
- Emphasis on mechanism which motivate the employee to achieve
as highly possible and support
-mechanism such as training programs which enable them to do their jobs
to their best of their ability.
 Approaches to monitoring and control
2) Performance vs Diagnostic monitoring
2a)Performance monitoring
- Indicators of corporate performance.
- Performance indicators such as profitability and customer
satisfaction measure the effects of a company’s actions,
providing feedback on its success or failure.
- Provide reassurance that the company is a success or a warning that a change of
strategy is required to senior management, shareholders and stakeholders.

2b) Diagnostic monitoring

- useful to those that responsible to manage success or react to failure.
-example: service quality measurement and cost benefit analysis.
- These measures look into depth at actions of the company and their effects on
the customer and allow the managers to learn from failures
and identify the causes of success.
-provide information for remedy problems and effects continuous
improvement.

- comprehensive monitoring system should include both the performance and

diagnostic monitoring systems.
 Approaches to monitoring and control
3) The balance scorecard approach
- financial measures only indicate the effects of business success rather
than it causes.
- organisational should have both financial and operational
performance measures.
- the balance scorecard approach advocated by Kaplan and Norton
(1992) established 4 ranges of performance indicators of corporate
performance measures:
1. financial (sales, profit, $ flow),
2. customer (loyalty & satisfaction, new & existing business),
3. internal business (focus on operational effectiveness such as
production cost, cycle times, reliability and defects) and
4. innovation and learning (organization’s capacity for continuous
improvement, i.e measuring improvements to customer value and
production process).
 RM Oriented scorecard measures
• Use of balanced scorecard prevents the organization
from becoming fixated on a single aspect of its
business, ie. npd and production efficiency.
• For RM focused organization, the scorecard should
reflect the relational perspectives. Ex: 1. Financial-
profitability & turnover.
2. Customer-retention, satisfaction, communication.
3. Internal business-keeping promises, efficiency, staff
satisfaction.
4. Innovation & learning- customer input,
innovativeness.
 Different levels of monitoring
• Balance scorecard portrays the broad picture of organisational
performance and conveys little diagnostic information.
• This broad picture is appropriate at corporate level
• More specific diagnosis and rectification of problems are delegated to
managers responsible for managing specific relationships.
• Managers therefore must have access to information about for example,
a) profitability of each customer b) market segment c) types of
customers.
• This detail information will allow the managers to identify
and rectify problems.
• This information that relevant to corporate
performance will then be filtered up to the next level.
Measures of relationship success
• Relationship-level monitoring centers on 3 main areas (elements) and they are:-

1) Relationship facilitators
- factors that contribute to the development of the strong, long term relationship

2) Relationship features
- factors that describe the nature of the relationship itself

3) Relationship returns
- The monetary rewards accruing to the supplier from the
relationship
 Share of
Areas of customer
Relationship level
monitoring Length of
relationship Commitment

Relationship Relationship Relationship

facilitator features returns
(LOYALTY)

Customer
Quality Present lifetime value
Satisfaction
income

Cost
Trust
 RELATIONSHIP FACILITATOR
Satisfaction
1) Customer satisfaction
• The measurement of customer satisfaction level is commonly used to monitor
relationship quality (Gummesson, 1999)
• Satisfaction however, is relatively short lived and subjective state, and customer
often find it is difficult to make reliable judgments about their satisfaction levels,
particularly in retrospect
• Therefore the organization should take a structure approach to measure satisfactions

2) Employee satisfaction
• Virtuous circle model claims that the relationship between
satisfaction and loyalty works in the same way for
internal or external customer (Reichheld et al. (2000)
• Staff satisfaction lead to staff loyalty and retention,
lowering training cost and increasing experience,
skills, motivation and productivity
• The relationship success of staff and customers also
depend whether the employee derive satisfaction
from such relationship.
 RELATIONSHIP FACILITATOR
Service quality

• Satisfaction arises from a positive judgment of service quality received and cost
incurred
• The rationale for quality measurement therefore is that it focuses on the cause of
satisfactions rather than result and therefore has greater diagnostic power.

2 mains models exist

a) SERVQUAL
• It is a questionnaire designed by Parasuraman, Zeithaml and Bery (1988)
• It is based on 2 principles
a) customer’s judgement of service quality are
made by comparing perceptions with
expectations
b) The judgements are made on 5 quality
dimensions of reliability, assurance,
tangibles, empathy and responsiveness
• Likert scale is used to gain customer rating
• Quality scores are then derived by subtracting
expected quality ratings from perceived quality
ratings.
b) SERVPERF
• Cronin and Taylor (1992) disputes the 2 key principles underpinning
SERVQUAL

Which to use?
• SERVPERF may provide a more reliable performance measure of service
quality compare from SERVQUAL since expectations are
poorly defined in customers’ minds and not a reliable
benchmark to measure quality
• The 5 dimensions of quality also differ form industry
to industry
 Relationship features: measuring loyalty
• Loyalty is customer’s willingness to continue patronizing a firm over the long term,
purchasing and using its goods and services on a repeated and preferably exclusive basis
and voluntarily recommending the firm’s products to friends and associates.

• Loyalty has 2 important advantages

a) it measures behavior (conative attitudes)
b) it can derived from internal data

Measuring behaviour
• satisfaction and perceived quality has not been found to be reliable or accurate predictor of
customer behaviour
• They can only provide useful general information on relationship performance and the
diagnosis of problems

Internal records
• Loyalty monitoring can be built into sales data means
that the customers need not be troubled by request to
complete satisfaction or quality surveys
Measures of loyalty
• Loyalty can be measured :-

a) Length of relationship
- According to the theory of the relationship, the relationship become more profitable
as the relationship lengthens.

b) share of customer
- this measures assess the extent to which the customer
uses competitor's products along side the supplier

c) Commitment
- Suppliers can look for evidence of commitment in the
volume of ongoing business a customer places with
the organization and its willingness to invest in the
relationship.
 Relationship returns: measuring financial performance
• financial measures serve as an indicator of the contribution made by a specific
relationship to corporate financial objectives.
• measures of relationship performance different from traditional financial
performance indicators in terms of their :
(1) Long term focus
• RM centres on long term gain
• building relationship often requires a significant investment in the early stages,
which is then recouped as the relationship matures.
→ care should be taken to assess income and costs of a relationship over
its entire life cycle, rather than at a particular point in time.
(2) Indirect benefits
• increases in income arise from cross selling and referral business.
• costs may be reduced by saving on promotional spending and
the ability to plan and develop products and processes with greater certainty.
→ hard to quantify but should seek to include as many as possible in its
financial measures, in order to recognise the financial benefits of RM as
fully as possible.
 Measuring financial performance
• Profitability
• Income
• Cross purchasing
• Referrals
• Customer lifetime value
• Servicing cost
 THE IMPORTANCE OF COMPLAINTS
• A customer who complains is offering the service provider the
opportunities to continue the relationship.
• Many customers, however, will simply defect after an unsatisfactory
service encounter. Generally, customers dislike complaining as it costs
them time, effort and emotional stress.
• In the study of Stewart (1988), the most frequently stated cause of
customer exit was the sense of frustration, anger, disappointment or
other negative emotion caused by the bank’s failure to respond
positively to the complaint.
Principles of service recovery
(1) make it easy to complain
• Procedures and channels should be as clear and as flexible as possible.
• Complaints-handling staff should be trained in the interpersonal skills necessary
to set customers at ease.
(2) establish the grounds for complaint
• Customers will be more willing to complain if they are confident that they will be
successful.
• The publication of a simple, comprehensive guarantee, a customer charter or a
similar definition of acceptable service levels will provide such confidence.

(3) offer immediate redress where possible

• The more quickly the complaint is resolved, the lower the negative impact on the
customer’s attitudes. It is therefore advisable to delegate authority and
responsibility for resolving complaints to customer-facing staff, so that problems
can be resolved as they arise.
(4) communicate
• All that is needed in order to diffuse customer dissatisfaction is an apology,
together with an explanation of why the failure occurred, and the steps that have
been/will be taken to ensure that it does not recur.
 Complaint analysis and Handling

Remedy
common
failings
Identify Strategic
common complaints
failings analysis for
continuous
improvement
Record all
complaints

Apologise
and redress
Service
recovery for
individual
Listen to relationship
complaints maintenance

Encourage
feedback Figure 7.3
 Complaint analysis and Handling

Remedy
common
failings
Identify Strategic
common complaints
failings analysis for
continuous
improvement
Record all
complaints
To ensure
services
provided
matching with
Apologise customer
and redress expectation
Service
recovery for
individual
Listen to relationship facilitate
complaints maintenance customer
retention

Encourage
feedback Figure 7.3
Conclusion

• The key value of RM strategies lies in the human elements of service

quality.

• Studies of successful relationships stress the importance of personal

relationships between individuals.

• As such, soft monitoring and control techniques are more appropriate to a

RM strategy.