Six Sigma Enthusiasts: Input Needed

Please take a few minutes right now to participate in iSixSigma’s latest survey about Six Sigma and VOC. This survey will explore the Voice of the Customer as it relates to a Six Sigma initiative. To participate, click on the link below:

http://www.isixsigma.com/vocsurvey

All responses will remain absolutely anonymous and confidential. Your information will be reported only in an aggregate fashion so that no one will be able to link your response back to you.

This survey will close soon. Please participate today. Here’s that link

again:

http://www.isixsigma.com/vocsurvey 

Actionable survey instruments

Several days ago, an anonymous reader posted a pretty basic, but important question on the iSixSigma forum and was seeking assistance.  Basically, the reader was seeking to create an actionable survey instrument, was wondering about the utilty of an “importance-satisfaction” approach, and was looking for additional information on scaling and analyses.  Several readers provided helpful advice, with one especially helpful response from George Chynoweth. That said, most of those who responded seemed to overlook 4 critical questions underlying the original question:

1.  Are the metrics of customer satisfaction the right ones to be using for actionable results?

2.  What are the benefits/drawbacks to the importance/performance paradigm?

3.  What’s the best source of questions for a survey?

4.  What types of analyses will produce the most actionable results? (relates back to issue #1)

The answers to these questions are so critical to the original question that I include my responses here.

1.  The metrics of customer satisfaction have repeatedly been shown to lack a substantive connection to business results (see Reichheld.  See also Reidenbach.)  People make purchase decisions - whether buying pizza, cars, insurance, or tractors - based upon their perceptions of the value received.  And perceived value is a function of perceived quality relative to perceived price.  This interaction of quality and price (plus image) is simply not addressesed with the metrics of satisfaction.  For that, you need the metrics of value.

2.  There are several problems with the importance/performance paradigm.  One of those was addressed in the original iSixSigm thread,, namely, the issue of respondent fatigue and attrition.  Another has to do with the distinction between qualifiers and determiners.  Qualifiers are “table stakes: typically very important, but typically not a source of differentiation.  Airline safety would be a good example: very important, but probably not worth investing for differentiation.

3.  I applaud the suggestion by QualityColorado to couple surveys with focus groups, but would differ on the timing.  Focus groups (and/or customer interviews) should be the source of your survey questions.  For more information on designing good questionnaires based on value, I’d recommend the ASQ publication, Strategic Six Sigma for Champions: Keys to Sustainable Competitive Advantage, especially chapters 4 - 6.

4.  Finally, the anonymous questionner was correct in assuming that one of the primary analytical tools will be regression-based.  But, for a market-focused definition of CTQs, you’ll need to precede your regression analyses with factor analyses.  Then you’ll need to identify specific competitive value performance gaps - whether positive or negative - because these gaps will serve as the starting point in identifying and prioritizing Six Sigma projects.  Chapters 1 - 3 of Strategic Six Sigma for Champions will explain just how that works

If you’d like more information regarding the issues you’ve raised, or have additional questions, you can contact me offline.  Providing your organization with the type of information that can drive both competitive strategy and significant process improvements will make your services invaluable.  

Value Propositions versus Sales Propositions

Just came across a question from a “Marketing Profs” reader regarding the communication of her organization’s value proposition.  Once again, the questionner revealed a fundamental misunderstanding of the difference between the organization’s existing value proposition and its promotional, or “sales” proposition.

 Every organization already has a value proposition - one that exists in the minds and perceptions of its current and potential customers. In fact, most organizations have multiple value propositions - one for each of their products or services within each of the markets they serve.  The first challenge these organizations face is to quantitatively identify those value propositions (i.e., measure them), and then to manage them in order to maximize the value delivered.

Stephanie’s question makes it clear that her CEO is really looking for a sales proposition - a statement that will effectively communicate what the organization provides.  That’s all well and good if the organization understands the nature of its existing value proposition, which means that it can quantify the relative importance of Quality, Image, and Price, and that it can further quantify the relative importance of the key components of Quality - those critical-to-quality factors, or CTQs, in Six Sigma parlance.  This requires the type of measurement that will produce a model of Market Value.

The second thing Stephanie’s CEO will require is a quantitative assessment of how the market perceives the value that his company delivers versus the value provided by competitors - because one of the fundamental aspects of value is its relativity.  This assessment will enable the CEO to identify value performance gaps - areas where his organization is outperforming competitive, and areas where his organization is underperforming.

Here’s where the real answer to Stephanie’s question comes in: she can now develop a sales proposition to summarize those positive gaps (organizational strengths) identified by the value measurement system.  Moreover, her organization can now also develop strategies and actions to “fix” those negative gaps (value-based weaknesses).  So, she gets a double whammy for her measurement efforts: an effective sales proposition, and the basis for the development of future organizational strengths.

Oh, and Stephanie made one other significant point: she thinks that the sales proposition should be unique for each customer, but is puzzled about how that translates into effective mass market advertising.  That goes back to the first point I made, namely: the organization will have a unique value proposition for each product/service it provides to each market it serves.  So, develop a product/market matrix for the organization, evaluate the importance of each business opportunity, and go after the ones that will provide the greatest return on investment!  It’s really pretty simple - but extremely powerful!

Value in Healthcare

Karl Rove wrote an op ed piece for the Wall Street Journal today in which he talked about families grappling with health care concerns.  No matter what you may think about his politics, he makes one important point for the future of the health care industry: in a capitalistic economy, people make their health care choices based on value.

Rove asserts that “patients rarely know what a procedure will cost of how good a clinic or hospital is, except by reputation and word of mouth.”  But, where patients have a choice, they will always make their decisions based upon their best information regarding quality and cost - even when that information is merely word of mouth.  The problem facing health care professionals today is that they don’t know how current and prospective patients view the quality and cost of their services.  Moreover, I suspect that most health care professionals don’t even know how their targeted markets define quality and value.  Do young professionals define quality in the same terms as retirees?  How do you know?  How can you maximize quality and value for your targeted clientele if you don’t even know (objectively, quantifiably) what’s most important to them?

A key challenge facing health care professionals for the future will be to (a) understand how their targeted markets define quality and value, (b) how those targeted markets perceive the value delivered by each of the alternatives available to them, and (c) to develop strategies and process improvement programs to differentiate themselves on the basis of value.

 If you are aware of any health care organizations that have begun to meet this challenge, please drop me a note at Reg@MarketValueSolutions.com.  We are eager to identify best practices in this area.

There is Only One Customer-The One That Pays the Bill

I get so sick and tired of hearing clients refer to coworkers as “customers”. It usually arises when talking about process improvements. Typically the client says he or she needs to understand how their “customers” define value so that they can change their processes to provide greater value. The “customer” is the coworker that is on the receiving end of the process - not the end user who buys the product or service. This coworker is not the “customer” nor is he or she the “internal customer”.

Splitting hairs? Not really. The idea that there are “internal customers” leads to a seductive attitude that drives much process improvement. The so-called “internal customer” is easy to talk to, understand, lives in a highly controlled environment, is less costly to access and, in short, represents an easy target. It is a concept that has evolved making it easier for lean and six sigma gurus to extoll the need for the voice of the customer (VOC) in driving process improvements. Instead of surveying, or conducting focus groups with real customers, it is now possible to redesign processes and value streams in response to the needs of “internal customers”. The CTQs associated with internal custmers are likely to be significantly different from the CTQs of real customers. Do the resultant improvements actually help the organization’s competitive value proposition or do they simply make another employee’s work easier, reduce the number of employees, or cut costs? Over time people are deluded into thinking that they are using the VOC to drive process improvements when they are actually ignoring it. The organization eventually institutionalizes the wrong notions regarding customers and becomes even more internally focused than ever.

If there is no line of sight between the internal process and the end user, be careful. It is entirely possible that process changes do not improve the organization’s competitive value proposition and may, in fact, do harm to it.

Listening to the Voice of the Customer: A Clear Conversation or a Tower of Babel?

Virtually all Six Sigma gurus opine regarding the importance of the voice of the customer (VOC). Many organizations, however, simply pay lip service to customer needs. Most of the information that drives their Six Sigma deployments is internally generated either from “reliable sources” or more likely “myths” and customer “lore”. Here are a couple of points that you might want to consider if you are serious about using the VOC to drive your Six Sigma initiatives.

• First, there is typically more than one VOC. Most organizations serve more than one group of customers. Breaking these customers down into more homogeneous groups (markets or market segments) has a major benefit. The clarity of their wants and needs is crisper, more understandable, and more actionable. By focusing on markets or segments you eliminate one of the sources of measurement variance – between group variance - and deal only with within group variance – the two sources that make up total variance. This makes your measurement of customer CTQS (critical-to-quality factirs) more focused because the standard error of the mean (a measure of variability) is likely to be smaller. You have eliminated a portion of the noise that can confound interpretation. Second, the VOC is dependent not only on segments but also the products or services that these segments use. Men buying sports cars will have different needs than women buying minivans. The criteria they use to evaluate the different autos will vary significantly. Failure to capture the VOC at this level of granularity can lead to wrong conclusions and greatly warp your analyses.
• Second, if you are seeking to use Six Sigma as a tool to improve your market performance (increase top line revenues or market share) you will need to listen not to the VOC but to the VOM (voice of the market). Market share is won or lost based on the competitive dynamics of the marketplace, not solely the whims of your own customers. Customers are won either as new entrants to the market or as acquired customers who have chosen your product or service because of your superior value proposition. Consider what happened to Cadillac and AT&T during the 1980s. Both organizations were enjoying strong customer satisfaction scores among their own customers but were losing market share to their competition. What was happening was that these organizations were focusing on the VOC and not the VOM. Had they been focusing on the latter they would have understood that their competition was providing superior value and that they were losing customers to these competitors. Focusing only on the VOC can produce misleading guidance.
• Third, some product/markets (markets/segments that use specific products or services) are worth more to your organization than others. It is not uncommon to find organizations investing in product/markets that are actually unprofitable. Your Six Sigma initiatives are one such investment. Prioritizing product/markets based on such criteria as:
o Margins
o Competitive intensity
o Market share
o Market growth rates
o Synergies with other product/service offerings
insures that your organization is not wasting its resources investing in “dry holes”. Picking those product/markets that are most important to your future economic growth insures that your Six Sigma initiatives are congruent with your overall growth strategies. These are the VOMs that you will want to listen to.

A couple of questions: Does your organization have an effective market segmentation schema and do you prioritize your product/markets based on economic opportunity?

Pricing Problems Are Often Hidden Value Problems

At a recent meeting of manufacturers, a question arose regarding the importance of price. One participant bemoaned the need for reducing price to stay competitive. He argued that competition was compelling him to reduce price and this, of course, was hurting his margins. When asked why price cutting was the only option he replied, my product is a commodity. It is undifferentiated from the products of my competitors. There was a lot of head nodding, indicating the apparent universality of the issue.

What to do? The quick answer to those not in this situation is simply don’t get into this situation. Once you fall into the commodity trap it is extremely difficult to get out. You have taught your customers that there is no difference between you and your competitors. The only thing that can differentiate you is price. This starts a downward spiraling falling further and further into the commodity abyss. I asked the gentleman who brought up the subject how frequently he talked with his customers. Do you clearly understand what it is that they value? Did he understand what the specific critical-to-quality factors were? Could he prioritize them in terms of importance to the customer? He offered a couple of answers, each of which was contested by the other participants. While there was unanimity about the nature of the problem, there was no unanimity regarding the nature of the CTQs and their importance. In other words, there was considerable doubt as to whether this manufacturer, or any others present for that matter, really understood their customers!

Value is defined as the quality of the product or service relative to the price of the product or service. Too often, companies that think they have a price problem really have a value problem. Think about it. When customers want a price cut they are actually telling you that they do not think that the quality you are providing is worth the price you are charging. Is this a pricing problem or is it, in actuality, a value problem?

The commercial banking industry is a classic example of an industry that has actually managed itself into a commodity position. With little differentiation among offerings, be they checking accounts, credit cards, savings accounts, mortgages, etc. the only variable left to manipulate is price or rates. They have taught the banking public that there is no difference among banks – a bank is a bank is a bank - similar to pieces of corn or other commodities.

Understanding how customers define quality and value is critical to non-price competition. These CTQs will not be limited solely to product or service characteristics. They will include such factors as ease of order placement, order confirmation, on-time delivery, repair capabilities, technical support, correct billing etc. Too often these factors are overlooked because some organizations, especially manufacturers are very product oriented and not customer focused. The point is, these are customer defined CTQs and not the guesses of internal personnel. Some people will tell you that some information is better than none. Some information, especially if it is erroneous, can be worse than none.

Two questions: What are your customers key CTQs and what is their order of importance?

For more about this subject see: www.marketvaluesolutions.com.

VOC frequency depends on whether it is strategic or tactical

One of the more frequently asked questions that I encounter has to do with the periodicity of measuring the voice of the customer (VOC). To get a handle on this, the first thing you need to do is to distinguish between the strategic use of VOC and its tactical use. When the intent is to use VOC strategically (e.g., for the identification of Six Sigma projects that will maximize performance on CTQs), then the appropriate interval will depend upon just how dynamic your industry is. If you are operating within a very dynamic industry (e.g., software, wireless telecom) you may want to do VOC as frequently as every three to four months. If yours is a rather mature industry (e.g., the manufacture of agricultural equipment), then you need to conduct VOC surveys only annually, or even less frequently. Keep in mind, however, that the strategic use of VOC requires measuring more than the perceptions of just your own customers. You really need to measure perceptions of your customers and those of your competitors. The point is to identify competitive gaps in your performance relative to key competitors, and then identify Six Sigma projects that will either leverage positive gaps or close negative gaps. This is the only way to use Six Sigma strategically — for the purpose of increasing market share and revenue. If you don’t begin with strategic measures of VOC, your Six Sigma projects will likely be limited to cost cutting exercises. For a good article on the strategic use of VOC, see the Sept issue of Quality Progress Magazine: Market-Focused, Value-Driven: It’s All About Gaps.
As for the tactical use of VOC, here’s where you want to measure your own customer reactions to improvements that you’ve made - whether those are product, people, or process improvements. Those improvements will serve no strategic purpose unless they are actually seen, felt, or observed during the customer experience. That means that you should be measuring the perceptions of your own customers on an ongoing transactional basis. Identify those transactions that are being impacted by your value stream improvements, and measure a sample of those on a daily or weekly basis. This can be done very inexpensively when conducted by your own call center personnel, using a web-based, menu-driven “CATI” system. Essentially, you’ll be using call center time that’s likely already available to make outbound calls conducting a very short survey that then automatically updates your database, providing real-time reporting for your entire management team.
To summarize: When conducting VOC for the strategic purpose of identifying Six Sigma projects that will increase revenue and market share, do this on a very limited basis, but use the data to identify competitive performance gaps. When using VOC data for the tactical purpose of monitoring customer reactions to your improvements measure frequently and track progress. For more information, you might want to read Strategic Six Sigma for Champions, available from ASQ or from Amazon.com.
Just two questions: Are you measuring the voice of the customer and how do you do it?

For more on thjis subject go to www.marketvaluesolutions.com.

The Dissatisfaction with Satisfaction

The conventional wisdom says that a satisfied customer is a profitable customer. Reality, as is often the case, denies the conventional wisdom. Here is some unconventional wisdom about satisfaction.

• Satisfaction is a lagging indicator. It is a reactive response to an experience.
• It is synonymous with happy. A satisfied customer is a happy customer. This is an emotion.
• Satisfaction typically focuses only on the organization’s customers and ignores the competitive dynamic that drives changes in market share and top line revenues.
• Satisfaction ignores the interaction of price and quality. It is this interaction that makers value the powerful concept that it is.

All of the above reasons explain why satisfaction has little, if any, linkage to changes in market share. This is why:

• during the 1980s AT&T was losing market share while experiencing some the highest satisfaction scores in their history.
• during the same period, Cadillac was losing market share among its most satisfied customers.
• one of our clients was churning 50% of its satisfied customer base.

Moreover, Fredrick Reichheld, writing in the Harvard Business Review (2003) about the lack of linkage between satisfaction and performance states:

Indeed, in some cases, there is an inverse relationship; at Kmart, for example, a significant increase in the company’s ACSI rating was accompanied by a sharp decrease in sales as it slide into bankruptcy…Our research indicates that satisfaction lacks a consistently demonstrable connection to actual customer behavior and growth. This finding is borne out by the short shrift that investors give to such reports as the American Consumer Satisfaction Index. The ACSI, published quarterly in the Wall Street Journal, reflects the customer satisfaction ratings of some 200 U.S. companies. In general, it is difficult to discern a strong correlation between high customer satisfaction scores and outstanding sales growth. (p. 4)

This lack of linkage makes it even more perplexing why many Six Sigma writers and practitioners hang their hats on customer satisfaction as an objective especially when the stated target is increased value. If value is the objective, then value should be measured, not satisfaction!

Two questions: How many are still using customer satisfaction as a strategic metric and how successful have you been in linking it to market performance (top line revenues, market share or profitability?

For more on this subject go to www.marketvaluesolutions.com.

Putting Value into Your Value Proposition

The concept of value is not new. In fact, in 1776 Adam Smith makes use of it in explaining how a market-based economy operates. What is new is our ability to measure value and with that measurement capability comes the added power of being able to manage it. Value is the interaction between the quality of a product or service and the price that the customer has to pay to get that product or service.

Customers buy on the basis of value whether what they are buying is an automobile, cheese, tractors, bank accounts, or any other product or service. One of the strongest buying signals customers use is the value proposition that a brand or organization communicates. Every brand or organization has a competitive value proposition whether it knows it or not. And, often times it’s not the value proposition that the organization desires. The US auto industry has been trying to change its value proposition since the 1970s when American car buyers began to find superior value in Japanese and German cars and continue to do so today. Toyota is threatening to become the number one seller of automobiles in the US. The banking industry has been hemorrhaging customers to other financial services options as customers realized that they could get better value elsewhere. KMART lost the value battle to its arch rival Wal-Mart.

Value is a relentless shaper of competition and industries. Unfortunately, too many organizations turn a blind eye to their value propositions failing to understand that if they are not actively managing their own value proposition, their competition is. That’s because value is relative. Your organization’s value proposition is relative to that of your competitors. And, if they are actively and effectively managing their value proposition, they are also managing yours.

Lean and Six Sigma are two methodologies for shaping an organization’s competitive value proposition. Unfortunately, many organizations have turned these powerful tools inward focusing on cost reduction instead of value creation. But fortunately, this practice appears to be changing. Don Linsenmann, a VP and Corporate Champion of Six Sigma at DuPont delineates four generations of Six Sigma:
• Generation 1: a focus on defect reduction
• Generation 2: a focus on projects that affect the bottom line
• Generation 3: a focus on value
• Generation 4: a focus on the customer experience and enterprise value
I would agree with Mr. Linsenmann. Six Sigma as a customer focused value enhancing tool is still in its infancy. Black belts have told me that to elevate Six Sigma to the next generational level requires an ability to:

1. Clearly identify the CTQs (critical to quality factors) for a specific market segment using a product or service
2. Prioritize the importance of the CTQs to this segment
3. Link these CTQs to specific processes within a value stream
4. Clearly identify and prioritize Six Sigma projects designed to enhance the organization’s competitive value proposition.
Two questions: What is your competitive value proposition (if you know it) and, at what generation of Six Sigma is your organization?