1. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 1 Chapter 4 Focusing on Customers

2. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 2 Key Idea To create satisfied customers, the organization needs to identify customers’ needs, design the production and service systems to meet those needs, and measure the results as the basis for improvement.

3. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 3 Importance of Customer Satisfaction and Loyalty  “Satisfaction is an attitude; loyalty is a behavior” (ask/observe both!)  Loyal customers spend more, are willing to pay higher prices, refer new clients, and are less costly to do business with.  It costs five times more to find a new customer than to keep an existing one happy.  A firm cannot create loyal customers without first creating satisfied customers.

4. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 4 Key Idea Customer wants and needs drive competitive advantage, and statistics show that growth in market share is strongly correlated with customer satisfaction.

5. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 5 American Customer Satisfaction Index  Measures customer satisfaction at a national level  Introduced in 1994 by University of Michigan and American Society for Quality  Index continually declined from 1994 through 1997 with small improvements into 2004, when it declined again, suggesting that quality improvements have not kept pace with consumer expectations  www.theacsi.org www.theacsi.org

6. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 6 ACSI Model of Customer Satisfaction Perceived quality Customer complaints Perceived value Customer satisfaction Customer expectations Customer loyalty

7. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 7 Customer-Driven Quality Cycle measurement and feedback Customer needs and expectations (expected quality) Identification of customer needs Translation into product/service specifications (design quality) Output (actual quality) Customer perceptions (perceived quality) PERCEIVED QUALITY is a comparison of ACTUAL QUALITY to EXPECTED QUALITY

8. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 8 Key Idea Many organizations still focus more on processes and products from an internal perspective, rather than taking the perspective of the external customer.

9. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 9 Customer-Supplier (or Input- Output Model) - SIPOC Requirements and feedback Requirements and feedback Your Suppliers Your Processes Your Customers InputsOutputs

10. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 10 Customer Segmentation  Demographics  Geography  Volumes  Profit potential

11. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 11 Customer Listening Posts  Comment cards and formal surveys  Focus groups  Direct customer contact  Field intelligence  Complaint analysis  Internet monitoring

12. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 12 Key Idea An organization builds customer loyalty by developing trust, communicating with customers, and effectively managing the interactions and relationships with customers through approaches and its people. Companies must carefully select customer contact employees, train them well, and empower them to meet and exceed customer expectations.

13. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 13 Measuring Customer Satisfaction  Discover customer perceptions of business effectiveness  Compare company’s performance relative to competitors  Identify areas for improvement  Track trends to determine if changes result in improvements

14. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 14 Customer Survey - Example WorstBest Are We On Time?54321 Are We Courteous?54321 Does The Product Work? 54321 Is It Cost Effective?54321 Overall Rating? General Comments: 54321

15. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 15 Example Customer Survey Results - Quantas Airways Survey of Frequent Flier Needs – Order of Priority: 1.No lost baggage12.Assistance with connections 2.No damaged baggage13.Being kept informed of delays 3.Clean toilets14.Transport to cities 4.Comfortable seats15.Accurate arrival info 5.Prompt baggage delivery16.Well-organized boarding 6.Ample leg room17.Quick/friendly airport check-in 7.Good quality meals18.Self-service baggage trolleys 8.Prompt reservation service19.On-time arrival 9.Friendly/efficient cabin crew20.Provision of pillows/rugs 10.Clean and tidy cabin21.Assistance with customs 11.Comfortable cabin temp22.On-time departures Source: Juran Institute

16. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 16 Survey Design  Identify purpose  Determine who should conduct the survey  Select the appropriate survey instrument  Design questions and response scales  Word questions carefully, and tie to key business processes and actionable results  Empower employees to listen and take appropriate action to meet customer needs

17. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 17 Kano Model of Customer Needs  Dissatisfiers: expected requirements that cause dissatisfaction if not present  Satisfiers: expressed requirements  Exciters/delighters: unexpected features

18. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 18 Analyzing Feedback: Performance - Importance Analysis Performance Importance Low High Low High Who cares?Overkill Vulnerable Strengths

19. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 19 Tools for Classifying Customer Requirements Affinity diagram Tree diagram

20. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 20 Difficulties with Customer Satisfaction Measurement  Poor measurement schemes  Failure to identify appropriate quality dimensions  Failure to weight dimensions appropriately  Lack of comparison with leading competitors  Failure to measure potential and former customers  Confusing loyalty with satisfaction

21. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 21 Moments of Truth  Every instance in which a customer comes in contact with an employee of the company.  Example (airline)  Making a reservation  Purchasing tickets  Checking baggage  Boarding a flight  Ordering a beverage  Requests a magazine  Deplanes  Picks up baggage

22. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 22 Importance of Complaint Management  The average company never hears from 96 percent of its unhappy customers  Of the customers who make a complaint, more than half will do future business if the complaint is resolved  The average customer who has had a problem will tell 9 or 10 others.  Dissatisfied customers increasingly post their feelings on the Web

23. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 23 Key Idea To improve products and processes effectively, companies must do more than simply fix the immediate problem. They need a systematic process for collecting and analyzing complaint data and then using that information for improvements.

24. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 24 Service Recovery (Just in case)  A real-time response to a service failure.  Involves training front-line workers to respond to such situations as overbooking, lost luggage, or a bad meal.  Turns the negative impact of defects into positives!

25. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 25 Service Recovery (Just in case) “Empowerment can only take place when every associate can personally assure customer satisfaction every time!” Gary K. Johnson, WMI

26. Service Recovery - How it Works Process Identification Incidents Remedies Cost of Incident Measurement of Frequency Customer Identification Mission Statement Cost of Poor Quality

27. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 27 Customer and Market Focus in the Baldrige Criteria The Customer and Market Focus category examines how an organization determines requirements, expectations, and preferences of customers and markets; and how it builds relationships with customers and determines the key factors that lead to customer acquisition, satisfaction, loyalty, and retention, and to business expansion. 3.1 Customer and Market Knowledge 3.2 Customer Relationships and Satisfaction a. Customer Relationship Building b. Customer Satisfaction Determination