February 2007
Monthly Archive
February 27, 2007
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.
February 23, 2007
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.
February 20, 2007
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?
