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

2. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 2 Don & Martha Rogers (2005) Customers are the only reason you build factories, hire employees…,engage in any business activity. Without customers you don’t have a business.

3. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 3 Centrality of customers to your mission statement  How the customer is to be satisfied is ideally part of the statement

4. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 4 Importance of Customer Satisfaction and Loyalty  “Satisfaction is an attitude; loyalty is a behavior” – loyal customers are the goal  Companies with 98% customer retention are twice as profitable as those at 94%  It costs five times more to find a new customer than to keep an existing one happy.  Dissatisfied customers tell at least twice as many friends as do satisfied customers

5. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 5 Key Idea Text book’s principal definition of quality – when products and services meet or exceed customer expectations

6. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 6 Observations on providing customer satisfaction  Loyal customers go out of their way to stay with the company.  Consumer benefits from the product include ease of ordering, ontime and accurate delivery  Midwest Express Airlines – offers luxury service at competitive coach prices – outperforms its competitors and leads in % of seats filled.

7. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 7 Formula for success  Competitor who offers same quality package at lower cost wins customers.  But lower prices depend on lower costs.  Therefore, understanding exactly what the customer wants is path to success – eliminating process cost for what is not important to the customer.

8. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 8 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

9. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 9 American Customer Satisfaction Index (2)  Companies can use results to identify areas where customer expectations are not being satisfied.  Check out the web site.  Amazon.com and eBay achieved recent highest scores.

10. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 10 Complexity of the idea of customer satisfaction  Dissatisfaction is in difference between expected quality and delivered OR perceived quality.  Customer may be using product incorrectly – need to understand what goes into customer perception of product quality  Look at both design and process through customer’s eyes

11. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 11 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

12. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 12 Key Idea Examples which follow in Leading Practices are examples of Customer Delight – far out for business school. Goes beyond anything the customer would normally anticipate – produces loyalty.

13. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 13 Leading Practices (1 of 2)  Define key customer groups  Listen and learn from the customer  Understand linkages between voice of the customer and design, production, delivery  Build relationships through commitment  Effective complaint management  Compare satisfaction to competition

14. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 14 Leading Practices (2 of 2)  Tailor approaches to unique needs of each market segment’  Whirlpool – customers prefer competitor’s product – take it apart and find out why  Lexus -- <200 dealers in U.S. – mobile service station  Eastman Chemical – 24 hour toll-free number – talk with ANYONE in the company

15. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 15 Identifying Customers  Organization level  Retail stores are external customers of manufacturer – needs include timely delivery, accurate invoicing – Manufacturers are customers of the supplying companies  Process level  internal customers -- manufacturing is a customer of purchasing  Performer level -- assembly worker at next station is internal customer

16. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 16 AT&T Customer-Supplier Model Requirements and feedback Requirements and feedback Your Suppliers Your Processes Your Customers InputsOutputs

17. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 17 Customer segmentation  Juran suggests 2 groups – the vital few and the useful many  Telecomm segments – residential, business, 3 rd party providers  Many companies spend $ to acquire customers who will never be profitable in long-term – lower purchase groups

18. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 18 Key Idea Segmentation allows a company to prioritize customer groups, for instance by considering for each group the benefits of satisfying their requirements and the consequences of failing to satisfy their requirements.

19. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 19 Key Dimensions of Manufacturing Quality– see table 4.1 example of applying to both manufacturing & service  Performance – primary operating characteristics  Features – “bells and whistles”  Reliability – probability of operating for specific time and conditions of use  Conformance – degree to which characteristics match standards  Durability- amount of use before deterioration or replacement  Serviceability – speed, courtesy, and competence of repair  Aesthetics – look, feel, sound, taste, smell

20. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 20 Key Dimensions of Service Quality  Reliability – ability to provide what was promised  Assurance – knowledge and courtesy of employees and ability to convey trust  Tangibles – physical facilities and appearance of personnel  Empathy – degree of caring and individual attention  Responsiveness – willingness to help customers and provide prompt service

21. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 21 Noriaki Kano-- Model of Customer Needs  Dissatisfiers: expected requirements that cause dissatisfaction if not present  Satisfiers: expressed requirements  Exciters/delighters: unexpected features

22. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 22 Key Idea As customers become familiar with them, exciters/delighters become satisfiers over time. Eventually, satisfiers become dissatisfiers. What does this mean?

23. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 23 Complexities with customer feedback Feedback is not absolute. Henry Ford – if I asked people what they wanted they would have said “a faster horse.” Requirements as expressed in the customers’ own words = The Voice of the Customer – but often it is in code – need to find out what they really meant.

24. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 24 Affinity diagrams  Focus group identifies all important features about a product/service.  Then team experiments with grouping these in a few categories, representing key areas to focus on.  See figure 4.4 for mortgage customers.  Tonight’s discussion question.

25. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 25 Using Customer Information  Link customer needs and expectations to design, production, and service delivery processes  Empower employees to listen and take appropriate action to meet customer needs

26. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 26 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.

27. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 27 Moments of Truth = positive or negative images formed  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

28. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 28 Customer Relationship Management (CRM) depends on:  Accessibility and commitments  Selecting and developing customer contact employees  Relevant customer contact requirements  Effective complaint management  Strategic partnerships and alliances

29. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 29 Locking in customers  CRM designed to make customers feel they cannot do without product/service.  Lexus – at-home pickup, free loaners, concierge service  Southwest – changed their schedule to get med students to class on time – pilots helping ground crew – most profitable airline in U.S.

30. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 30 Key idea  The key to satisfying external customers is to satisfy internal customers first.  Southwest again – employees treat employees like passengers  Pilots are internal customers for the mechanics  Reservation agents are internal customers for marketing dept.

31. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 31 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

32. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 32 Key Idea Eastman Chemical discovered that most complaint investigations stopped after learning who caused the problem and did not address the causes. After developing a process to drill down to the actual sources, they halved the level of customer complaints in 3 years.

33. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 33 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

34. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 34 Key Idea The best way to find out what the customer wants is to ask – hence the importance of the survey.

35. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 35 Designing satisfaction surveys  Identify purpose – who is our customer? – often both internal and external – employee satisfaction surveys often tell us about what will affect external customers as well.  Determine who should conduct the survey – also identify target group to sample  Select the appropriate survey instrument (face-to-face, phone, focus groups,written)  Design questions and response scales

36. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 36 Designing satisfaction surveys (2)  Avoid ambiguous questions – example: How would you rate our service? Replace with something like How would you rate our response time?  Open end – example If this were your business what would you do differently?  Always pretest and change as needed.

37. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 37 Key Idea The types of questions to ask in a survey must be properly worded to achieve actionable results so that information can be translated into cost/revenue implications to support the setting of improvement priorities.

38. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 38 Analyzing Feedback: Performance - Importance Analysis Performance Importance Low High Low High Who cares?Overkill Vulnerable Strengths

39. MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 39 Why many customer satisfaction efforts fail  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