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Why is DAV using SPC? What are the primary challenges in applying
statistical process control to a service industry compared with


If you were to explain the concept of a p-chart to a group of bank tellers

without a background in SPC, in about 30 minutes, how would you do it?


How large should each sample be for the experiment Schoss and Kluck
describe on page 7?


The first 12 weeks of the data in Exhibit 4 represent the diagnostic

period for the Policy Extension Group. What are the 3 sigma control
limits for the process? In which of the subsequent weeks is the process
out of control (if any)?


Develop specific implementation plans for solving the problems facing

Annette Kluck that are described on page 9 of the case.


How would you now begin improving the performance of the operation

1. Why is DAV using SPC? What are the primary challenges in applying
Statistical Process Control to a service industry compared to
manufacturing? Why SPC:

Though they have been the industrial leaders, DAV has been faced with
competition lately. To overcome competition, DAV has set out to improve
the quality of service it provides to its customers to set itself apart. It,
initially, planned on using SPC for measuring the quality of service
provided to the customer. SPC will help DAV find the accuracy of the
service provided based on which an improvement program can be
designed for the various processes used to provide service to the
customers. The Head of Operations also wanted a tool that measured
processes rather than the people. This will help protect employees from
the wrath of the superiors. DAV wanted to develop capabilities that
helped them serve value to their customers.
Also, DAV wanted these capabilities to be spread across the entire organization
which will help them to achieve their aim of quality improvement. The case also
notes that for the Insurance industry exceeding customer expectations through
quality of service provided will help companies to attract new customers apart from
maintaining the current ones. It has become an important differentiation tool to set a
firm apart from others. Above were the contributing factors for DAV to go ahead with

SPC to measure and improve the quality of processes involved in providing

customer service, which in turn will enable them to improve their market share and
stay ahead of competition. Challenges:
SPC is normally used in the manufacturing firms. It is used to measure and analyze
the variations in a continuous/consistent process. But in the case of DAV the
processes are not consistent when compared with those used in the manufacturing
firms. Some of the characteristics of the factors that are measured in the services
industries are listed below: Intangible hard to measure
The above characteristics make it even harder to apply SPC to a services firm.
These factors make it difficult to determine the importance of a particular data and
hence difficult to determine the factors that need to be accounted for while
measuring the quality of service provided. This was more prominent in the case of
applying SPC to measure lawyers. Individuals can be forced to misinterpret the data
since there is a lot of human element involved in the SPC process. Also, the
employees can be judged based on the outcome of the SPC process which is
another problem related to the Human element in the SPC process. It also takes a
lot of time for the employees to fill out charts, since the SPC process has not been
digitized yet. Another challenge lies in selling SPC tool across various divisions in the
Since it involves lot of effort from the employees, selling the benefits of SPC was
important for the division heads. Since SPC is new to services industry, customizing
tools to the environment of service industry proved to be a challenge as well.
Employees had to be trained to use the SPC tools, which demanded a lot of time
and money from the organizations perspective. These were some of the challenges
DAV faced (services firm) as opposed to a manufacturing firm. 2. How large should
each sample be for the experiment Schoss and Kluck describe on page 7? The
sample size should be 300.
DAV wanted to benchmark for the error limit of 1 percent. Also, it did not wanted the
number of error per sample to be more than 3 in an ideal scenario (1 percent of 300
= 3 defects). 3. The first 12 weeks of the data on exhibit 4 represent the diagnostic
period for the policy extension group. What are the 3-sigma control limits for the
process? In which of the subsequent weeks is the process out-of-control (if any)?
For the first 12 weeks:
p = Total error/Total sample size = 188/3600 = .0522
standard deviation = sq.rt.(0.0000165) = 0.0128



LCL = .0522 3(0.0128) = .0138



Range (.0138, .0907)

The process goes out of control in the 23rd and 24th weeks.
4. What is your recommendation for Kluck going forward in their deployment?
Some of the better performing teams had problems with the higher sample size. The
sample size was about 300 taking into consideration the benchmark of 1 percent
error and max. 3 errors per sample. The benchmark can be relaxed a bit at the early
phase of the program to reduce the workload placed on the employees. Once the
system is in place, the benchmark can be improved to provide better quality over
time. Instead of trying to improve the quality at one shot, this can be taken up as an
iterative process.
When is a mistake not a mistake? When its not important
The definition of various factors that are taken into account had to be made clear. If
any factor does not affect the quality of service (from the customer perspective) on a
perceivable level, do not take them into account.
It is very difficult to factor in lawyers into the SPC process. Hence, DAV should not
consider lawyers for the SPC process.
Once the management gets SPC ingrained in its system, it should work on an
automation tool which will relax the workload on the employees. The focus on SPC
takes the focus away from the customer service, which is the primary task for the
employees in DAV. Hence by developing an automation tool, the amount of effort
spent by the employees on SPC process will decrease.
Managers might view the failures as a failure of an employee rather than looking at it
as a failure of the system. This will result in the failure of SPC system at DAV since
the management wanted to measure the process not the employees through the
SPC process. Hence, the managers have to be trained to properly interpret the
results of the SPC process and take appropriate actions based on them.
Communicate the importance of SPC program to the employees
Certain excerpts in the case show that not all the employees are convinced that SPC
will work. They just consider them as an extra workload dumped by the management
on them. Hence, the management has to organize presentations and training
programs to communicate the importance of SPC by focusing on the objective of the
program. DAV needs all the employees to accept SPC for it to succeed.