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Editorial........................................................................................................... 2Enhancing quality in service industries ....................................................... 3Leading the knowledge of workers of the 1990s.......................................... 5Becoming a customer-driven organization .................................................. 7Calculating the return on quality.................................................................. 9From service to product ................................................................................. 11Can a company be both low cost- and service-oriented?............................ 13Keeping the customer satisfied...................................................................... 15Passenger focus keeps railway on track ....................................................... 17Service on which you can bank ..................................................................... 19Inflight philosophy ......................................................................................... 21Capturing the customers voice..................................................................... 23No news is bad news ....................................................................................... 25Quality planning and the communication plan ........................................... 27Focussing on customers ................................................................................. 29Focus on customers, focus on growth and focus on profit .......................... 31ISO and total quality...................................................................................... 33Total quality can work ................................................................................... 36Delivering community benefits ..................................................................... 38The kingdom of the customer........................................................................ 40The TQM route to top of the class ................................................................ 42Improving customer satisfaction at London Underground........................ 44Putting people into the process...................................................................... 47High-flying employee ownership................................................................... 49Making reengineering human ....................................................................... 51Putting your money where your mouth is.................................................... 53Royal Mail delivers total quality................................................................... 55GTE Directories Corporation ....................................................................... 58AT&T Consumer Communications Services............................................... 60Reengineering turns company toward the customer .................................. 63Barclays invests in technology to boost customer service and market share............................................................................................ 66Many financial institutions still confuse customer care with quality .......................................................................................................... 68The quality cry of a modern Paul Revere .................................................... 70

JOURNAL OFSERVICESMARKETING

Volume 9 Number 3 1995

MCB University Press Limited60/62 Toller Lane, Bradford,West YorkshireEngland BD8 9BYTelephone: (44) 1274 777700Fax: (44) 1274 785200Regional OfficesFor Australia and New ZealandMCB University Press LimitedPO Box 1567, Toowong, Brisbane, Queensland4066, AustraliaTelephone: (61) 7 3870 7144, Fax: (61) 7 3387 7352For North AmericaMCB University Press LimitedPO Box 10812, Birmingham, AL 35201-0812, USATelephone: 1 800 633 4931 (USA and Canada tollfree)(1) 205 995 1567 (outside USA and Canada)Fax: (1) 205 995 1588, Telex: 78-2661For Middle and Far EastMCB University Press Limited48-2 Jalan Medan Setia Dua, Plaza Damansara,Bukit Damansara, 50490 Kuala Lumpur, MalaysiaTelephone: (603) 2523126, Fax: (603) 2524097For JapanMCB University Press LimitedKaneichi Building No. 2, 3-32-13 Hongo,Bunkyo-ku, Tokyo 113, JapanTelephone: (81) 03 3817 7363Fax: (81) 03 3817 7365MCB Southern African Publications PO Box 2239, Northcliff 2115Telephone: (011) 888 6188Fax: (011) 888 2281For the Indian subcontinentMCB University Press Limitedc/o Globe Publications Pvt. Ltd, B-13, 3rd Floor,A Block, Shopping Complex, Naraina Vihar,Ring Road, New Delhi 100028, IndiaTelephone: (91) 11 5460211Fax: (91) 11 5752535E-mail: [email protected] contact the following for furtherinformation:Sample copy requests and missing issueclaims* to the Customer Help Desk atBradford (44) 1274 785280 or your RegionalOffice.*Nondelivery of copies must be notified to ourCustomer Help Desk within four months ofdespatch if substitute copies are to be issued.All orders and subscription enquiries to theSubscription Services Department atBradford or your Regional Office.Reprint service enquiries to Rachel Dobson,BradfordCopyright permissions to Andrea Marsden,BradfordNo part of this journal may be reproduced, storedin a retrieval system, transmitted in any form orby any means electronic, mechanical,photocopying, recording or otherwise withouteither the prior written permission of thepublisher or a license permitting restrictedcopying issued in the UK by The CopyrightLicensing Agency and in the USA by TheCopyright Clearance Center. No responsibility isaccepted for the accuracy of informationcontained in the text, illustrations oradvertisements. The opinions expressed in thearticles are not necessarily those of the Editor orthe publisher.Printed by Galliard Press, Great Yarmouth,England

ISSN 0887-6045

Strategies for Service QualityGuest Editor: Martin Fojt

Contents 19/10/12 3:39 pm Page 1

2 JOURNAL OF SERVICES MARKETING VOL. 9 NO. 3 1995

That someone can make us feel good is a quality in itself. There has beenmuch talk within British government circles, for example, about the feel-good factor, which is constantly reminding us that it is just around thecorner! Whether or not we can believe in this is another matter but itcertainly displays an awareness that making other people feel good can alsohave positive benefits for ourselves. How this can be achieved will differdepending on our particular line of business. Having a good-quality productdoes not in itself guarantee success as service quality must also be taken intoaccount. This is where the feel-good factor comes into play. It is all verywell, for example, going to a restaurant to have a top-class meal (in that thefood was good), only to have it thrown at you. Quality, therefore, must not beseen as a separate entity, but more as a package deal.

Service quality is important if you wish to retain your customer base asacquiring new customers can be both time-consuming and costly. It quiteoften takes very little apart from good manners to keep customer loyalty asin the case of the restaurant. Other factors can, however, start creeping intothe framework such as efficiency, timeliness and good communication. Isthere, for example, a time limit on how long you can reasonably be expectedto wait for your meal before it arrives at the table, and if there is a delay isthis communicated to you? In other words, we all have expectations as towhat is acceptable and what is not. The clever part is for the organization tolearn by what criteria the customer judges its service quality performance.This feel for the customers viewpoint can produce major strategic insightsfor the organization. It is quite often forgotten that by far the most difficulttask is to see service quality from the customers angle. It is necessary tokeep trying because it is from the customers angle that gaps in themarketplace, and future business opportunities, are often visible far moreclearly. A study of staff perceptions of service quality in a UK clearing bankexamined, for example, staffs understanding of quality customer serviceand their views on the internal and external service quality within the bank.It also found that staff definitions reinforced the view, propounded byGrnroos, that functional factors were more significant than technicalfactors in customer service; they saw no accepted internal definition of goodcustomer service and believed that the banks commitment to cost reductionsharmed quality in service delivery. This significantly revealed that staff viewsas to the key service elements did not accord with the findings from researchinto customer views. This demonstrates how out of touch with each otherstaff and management can be in a large and widespread organization.Different industries have different customer groups demanding differenttypes of service quality, but there is inevitably some overlap. Commonstrategies must prevail, incorporating both the good and the bad. It is withthis in mind that this issue of the Journal of Services Marketing takes a lookat a range of industries that implement strategies for service quality, so youcan adopt the very best and avoid the poor!

Martin FojtGuest Editor

Editorial

Editorial 19/10/12 3:38 pm Page 2

JOURNAL OF SERVICES MARKETING VOL. 9 NO. 3 1995 3

Service industries are arguably the most important section of an economy.On average, they account for 58 percent of worldwide gross national product(GNP). In the USA they account for 72 percent of GNP and 76 percent ofemployment. In most industrialized nations at least 65 percent of theworkforce is employed by the service sector. Information technology is inwidespread use throughout the sector, but generally only as a technique toimprove the efficiency of tasks. The importance of information technology(IT) in delivering a high-quality customer service is poorly reported. At therecent IRMA Conference held in San Antonio, Texas, Chetan Sankar andCharles Snyder of Auburn University, and Tzu-Hiu Liu of Taiwans CentralWeather Bureau presented their research into the subject.

Within manufacturing industry, where the concepts of quality weredeveloped, poor quality increases costs owing to rework, market opportunitycosts and lower employee morale. Service industries suffer the same hiddencosts. It is always possible to return a manufactured product for repair, andrecover some lost customer credibility in the process. It is not possible tosend back a legal argument or a haircut! To this extent the necessity ofproviding a service that is right first time is imperative.

IT is effective in improving many aspects of a business. It is useful to collatethese into four separate headings, thus allowing companies to determinewhere improvements can provide maximum benefit:

(1) Operations:l IT can reduce the complexity of a process for both the customers and

employees. Automated teller machines (ATMs) give people money.The complexity of the communication and verification system isirrelevant to the customer. AT&T Universal Card Operations registersthe telephone number from which a call is received and automaticallyretrieves the data relating to the caller.

l IT is essential for the processing of large volumes of information.Total Systems Services (TSYS) is able to provide complete creditcard services for 34 million customers.

l Federal Express uses machines that will weigh the parcel, call forpickup, invoice the customer and allow the customer to inquire wherea parcel is within its delivery system.

l Large companies can have diverse voice, video, data and faxnetworks. Citicorp is installing a consolidated network that willhandle all types of data, and expects to save $100 million each year.

l Measures of service quality, such as customer response time, can becollated daily.

(2) Market:l IT allows data, once assimilated, to be cost-effectively used in many

different ways; TSYS has improved customer service by providing

Enhancing quality in serviceindustries

Poor quality increasescosts

Article pages 19/10/12 3:39 pm Page 3

24-hour, seven-day access to account information. It also provides awide range of different statements, tailored to particular customerneeds.

l Established customers cost less to serve than new ones, so it is worthbuilding a loyalty to one company. IT makes it possible to trackindividual customer credit card transactions and give customersbenefits such as cheaper car purchases or airline tickets.

l Increased customer involvement can reduce employee costs. ATMsautomatically update the customer account or can be used to transferfunds, pay bills, etc.

l IT can enhance links with customers. The American AutomobileAssociation (AAA) uses IT to transfer breakdown assistance callersto the correct office automatically, easing stress at a frustrating time.The AAA benefits by handling calls in half the time.

l IT maintains market leadership. TSYSs strategy has allowed it toretain its leadership in a lucrative market, where net profit marginscan be as high as 17 percent.

(3) Employee efficiency. There is often employee resistance to theintroduction of IT, as it is seen to replace jobs. Many employees areforced to use IT where others use it as an effective tool to advance theircareer:

l Data on employee performance, collated through use of IT, can besensitively used to highlight particular training needs. Rapid feedbackor standards of service can be a powerful motivator.

l Users of new technology often feel motivated as they feel theybelong to an exclusive club. Users of up-to-date IT are proud of theirachievements and more motivated.

l Customers have enhanced perceptions of employees providing a goodservice through the use of IT. This benefits both the employee and theoverall company.

(4) Finance:l Customers are normally willing to pay higher prices for services that

they perceive as high quality. IT can deliver or maintain that quality.

l The cost of poor quality is rarely measured. It is difficult to quantifylost customer loyalty suffered from correcting problems of poorservice. Where employees are only able to provide a mediocreservice, through no fault of their own, employee turnover increases.Efficient information systems simplify the employees task, reducingfrustration and stress.

There are downsides to IT introduction, but these can usually be avoidedthrough careful and sensitive system introduction. An effective systemenables companies to travel a virtuous circle; an image of efficiency creatingcustomer satisfaction and generating additional business.

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The industrial age is coming to a close. The information age has begun.Physical labor has given way to mental information work and this requiresa totally new style of management.

Larry D. Runge, who is chief information officer at Wheels Inc., and hasworked extensively with executive information technology, says the workerof the future is the knowledge worker. But traditional hierarchicalmanagement is inappropriate for this type of person. One response is torestructure the organization by stripping the hierarchy pyramid of its layers,leaving a flatter, more responsive and open structure. Yet this is not enough.The managers themselves must change or be changed.

In the new information age the trading standards of gold, paper money andphysical commodities have been replaced by a new currency information,i.e. knowledge of products, the business environment, technology, markets,customers and competitors.

In the heyday of the industrial age, workers were generally unskilled anduneducated, performed simple tasks using mechanical technology and werea world apart from the managing class. They worked in an age when globaldemand far exceeded supply. In comparison, the knowledge workers of the1990s are highly skilled and well educated, working with complex andintellectual tasks using electronics, biotechnology, communications andinformation systems. Supply now exceeds demand, markets are constantlychanging and there is an overlap between workers and managers.

Management techniques in this new age must be realigned with theseeducated and skilled workers. The pace of change in information technologyis such that managers must allow the individuals actually performing thetasks to make most of the task-related decisions. Workers must beencouraged to think independently and allowed to criticize managerialdirections.

The role of the manager in the 1990s is therefore to provide vision anddirection, providing the resources and letting the team get on with the job ofachieving the set goals. They must also be aware that the nature of employeeloyalty has changed dramatically: information workers are increasingly moremobile and able to move easily to new jobs with higher salaries and betterconditions. Company loyalty is becoming professional loyalty. Already there is a shift, particularly in the information management field, toward afree-agent approach with the rise of external contractors, consultants,freelance troubleshooters and other hired guns.

Managerial problems in future will not be technological or equipment-based they will require an understanding of how workers interpret their ownenvironment. Most people tend to have a preferred way of thinking and thiscan be tested. The split-brain theory suggests that the left hemisphere of the


Leading the knowledge ofworkers of the 1990s

The information age

Future managerialproblems


brain is analytical and processes information in a serial manner. The rightside of the brain is holistic and processes information in a parallel fashion.While most people have characteristics from both sides, one half tends todominate.

In business, both types of thinking are required the aggressive, speculativeand optimistic sellers and marketers must be balanced with the defensive,conservative and pessimistic financial analysts. A different type ofleadership is needed for each of these. However, a new style of manager isneeded for the information age the boundary spanner. These are the rarepeople capable of crossing the boundaries of the mind. The most famous andbrilliant example of a boundary spanner of recent times is Leonardo da Vinci a renowned artist, architect and musician who was also a pioneeringscientist and engineer, making many important discoveries in the fields ofanatomy, optics and hydraulics.

Todays managers need to be more than the combined administrator andcommandant of the industrial age. Boundary-spanner leaders must be drivenby the self-satisfaction of motivating people and helping them to accomplishtheir own goals. They will be coordinators and diplomats, willing to letothers have a share of the limelight. Leadership will be through example andby convincing people rather than telling them. Authority will derive frompersonal knowledge, abilities and influence, not the trappings of the position.

There are a number of managerial skills which need to be maintained anddeveloped to match the workforce of the future. Modern managers will be:

l More of a leader than a manager. This means that people will beprepared to follow the leader, but only if the leader is in the front-line.Above all, leaders must be qualified to do so and be replaced from theteam when they fail to lead effectively.

l Unconcerned with the perks of the position. Egos must be pushed asidein favor of the organizations wellbeing. Managers will aim to help theirteams achieve their capabilities rather than hold power oversubordinates. The modern manager will be a patron and a teacher, aidingrather than ruling, and an enemy of bureaucracy.

l Prepared to give increasing amounts of control and autonomy to teammembers. These are the people best qualified to make decisionsregarding their own tasks.

Ultimately, the masters of the old industrial hierarchies cannot survive asmanagers of information workers. In the 1990s managers need to guideemployees toward achieving corporate goals. They will provide theresources required for the job and give the necessary support. As leadersthey will be unconcerned with their status and give more control to theindividual.

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Leadership throughexample


As much as we all hate clichs, the customer is always right still hasresonance for all organizations which depend on customer-based business.Fortunately for these organizations, and their salesforces, the customer isactually becoming so educated that he/she is usually always right.Unfortunately, however, this education has made the customer reevaluate thecustomer-supplier role. New research for the Forum Corporation shows thatthe relationship between customer and seller is much more highly complexnow than in the past. However, the research findings published by Forumoutline how organizations and salesforces can both retain and increasecustomer loyalty.

Consider the following statements: it is five times more expensive to acquirea new customer than to service an existing one; and customers aredemanding and expecting more from suppliers. Suppliers can meet the newchallenges implicit in these two statements by becoming customer-driven.Customer-driven companies consider the customer on every level within theorganization, and every one of the organizations employees shares a deepcommitment to customer satisfaction, retention and growth. Increasedgrowth through improved service and quality, improved profits throughcustomer retention and waste reduction, greater speed of decision making these are some of the benefits of being customer-driven.

Buyers interviewed during the study explained what they value most in theirdealings with salespeople. They described them in two distinct dimensions:the nature of their relationship with the supplier, and the value they place oninformation that can help them simplify the increasing complexity of theirjobs. All customers prefer to do business with sellers who recognize thisdiversity, understand the differences, and can adjust their selling strategiesand styles accordingly.

Some customers place a higher value than others on the dependent, in-depthnature of the relationship they have with suppliers. These customers go farbeyond simple transactions and look to sellers to gain intimate knowledge oftheir company, their business, their competitors and themselves, so that theseller is able to provide them with sound advice on a suitable course ofaction. The second dimension along which customers describe what theyneed involves the value they place on information used to deal with theincreasing complexity of their jobs. Most buyers want salespeople to gobeyond typical buyer/seller interactions and provide a broad range ofinformation that they can use to assess their choices and make decisions.

To meet all their customers demands, sellers must know far more than theirown products. They must be able to talk intelligently about competitorsproducts and trends in their customers industry. They must know both theircustomers business and the business of their customers customers. Soarmed, they can sell more appropriately, service more effectively and helptheir customers achieve competitive advantage better.


Becoming a customer-driven organization

Buyer-supplierrelationships

The customer isalways right


Given the changing nature of the relationship between seller and buyer, whatcan suppliers do to turn themselves into customer-driven companies? Forumsresearch offers the following six suggestions:

(1) audit customers to understand what they need and value;(2) assess the skills of the salespeople from the customers point of view;(3) align the total organization around a sales and service culture;(4) initiate appropriate process improvements;(5) put a system in place that ensures institutional memory;(6) evaluate incentive systems.It is no longer enough to talk only to one person within a customerorganization. Key accounts managers need to work on as many customercontacts and relationships as are necessary to understand how each customerbehaves and what each values. Utilizing well-designed and finely tuned auditapproaches, the sales organization can customize its approach to maximize itssales effort and customer retention strategy.

By understanding customer needs and how best to implement sales programs,organizations will also learn what training of sales and support people isrequired. Today, salespeople must be able to do a wide variety of tasks,including: building extraordinary relationships with customers; sellingstrategically; understanding the customers business inside and out; andproviding innovative ideas and solutions.

Everyone in an organization must be customer-competent. They mustunderstand their connection to, and responsibility for, achieving customersatisfaction and improving customer retention and growth. In addition totraining, this requires such things as empowering all employees to act andmake decisions on the customers behalf, and motivating employees to beproactive and to put the customer first.

The fourth suggestion implies that some process changes or improvements inthe sellers organization can actually be detrimental to the customer-supplierrelationship. It is critical that any process improvements have a positive impacton customers and are important to them. This requires that the organization becustomer-driven, and also that the needs of the customers be linked into theprocess of the supplier organization.

The fifth suggestion, put in place a system that assures institutional memory,requires an evaluation of current technologies and systems and the role theyplay in the sales process. For example, is there a retrievable record of thecustomers sales history? It also requires an assessment of current policies orpractices, such as how often sales and service people are moved off and onaccounts. As for the final suggestion, organizations need to review and revisecurrent practices so that customer acquisition, retention and growth arerewarded and recognized.

Customer-driven companies and salesforces have a competitive advantage overother suppliers who are not so committed to the customer, according to theForum research. It is not hard to look after customers needs adequately all ittakes is a little time and effort. The rewards and advantages can make all thedifference, however, in the competitive stakes. There is new life for old clichs.

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Understanding customerneeds

A system that assuresinstitutional memory


Make no mistake: improving quality costs money. But, if qualityimprovement efforts are treated as costs rather than accountableexpenditures, it is often difficult to see a measurable return generated. And,when times get tough, cost cutting reigns supreme and improving quality issacrificed, then quality improvement expenditure is competing with otherfinancial investments.

It is clear that expenditures on quality have diminishing returns. Improvingquality makes financial sense up to a point, but beyond this point any furtherspending on quality does not increase profitability. On the other hand,quality improvements can often result in quantifiable cost savings thatoutweigh the money spent on the quality efforts. However, suchimprovements are usually seen in manufacturing or standardized services,e.g. fast food, rather than in the highly customized services such aselectronic information, as customization tends to inhibit economies of scale.

The key management problem is how to make profitable decisions onquality expenditure. This involves justifying quality efforts on a financialbasis, knowing where (and where not) to spend on quality improvement,knowing how much to spend and when to reduce or stop the expenditure.

Many studies have concluded unanimously that customer satisfaction andservice quality have a quantifiable impact on customer retention, marketshare and profitability. The challenge is to provide an operational method formeasuring the link between quality and financial return. In a report for theMarketing Science Institute, Ronald T. Rust, Anthony J. Zahorik andTimothy L. Keiningham explain a technique which calculates the return oninvesting in quality, the return on quality (ROQ).

There are four principles behind this revolutionary approach:

(1) Quality is an investment.(2) Quality efforts must be financially accountable.(3) It is possible to spend too much on quality.(4) Not all quality expenditures are equally valid.

Under the ROQ approach, benefits can be seen as a series of linkagesbetween customer satisfaction, customer retention, market share andprofitability. The relationship between expenditure level and change insatisfaction is measured first by managerial judgment then through markettesting. When the relationships are calibrated, the return on quality can bemeasured statistically.

The authors have developed a user-friendly, PC-based support systemdesigned to quantify the financial impact of quality, identify opportunitiesfor quality improvement, estimate optimal levels of spending, provide


Calculating the return onquality

The return on quality

Improving qualitycosts money


opportunities for reducing expenditure, and analyze the likely impact ofalternative spending plans.

The model used is a chain effect in which quality improvements lead toincreased customer satisfaction, which leads to higher customer retentionrates, producing larger market share and, ultimately, increased sales andprofits.

The following five steps are involved in the ROQ system:(1) Preliminary information gathering. This stage includes the collection of

customer survey data, market information and internal information, andrelies heavily on managerial judgment because of information gaps.

(2) Identification of possible opportunities. This involves using the inputsfrom step (1) to estimate the financial implications of different actions,such as ROQ, net present value, optimal expenditure spend and marketshare trajectory over time.

(3) Limited testing of improvements to determine effectiveness. A small-scale test is conducted of the proposed quality improvement effort on arandom sample of locations and customers. The numbers from the testprovide hard data estimates of the effectiveness of the qualityimprovement effort.

(4) Financial projections based on hard data. Using the market test resultsin step (3), this provides more accurate estimates of ROQ, net presentvalue, market shares, etc. It provides a final check of whether theproposed program can be financially justified.

(5) Full roll out of quality improvement efforts. The system enables thecalculation of the actual ROQ, net present value, market shares, etc.,with a higher confidence that a positive financial return will result fromthe required expenditure. As the market demands continualimprovement, it is necessary to go back to the start and begin theprocess again and again.

Expenditures on quality do not usually have cut-and-dried profitimplications. They do not always reduce costs in the short term they oftenincrease costs. Many quality programs deal with the less tangible aspects ofservice, and the results are not immediately quantifiable in terms ofincreased sales, unlike short-term sales promotion.

A return-on-quality approach ensures that expenditures on quality areaccountable. By adopting such an approach, the ROQ of a qualityimprovement effort can be compared with the return on investment of otherfinancial investments. It provides a method to help managers decide whenthe greatest response will be achieved with the limited resources available.

Two points can be made in terms of organizational culture whenimplementing an ROQ approach:(1) In companies with a sophisticated improvement culture, the ROQ

should mesh with the existing quality improvement approach thesystem needs to be seen as a management tool to help the company doits job better.


Quality programs

Steps in the ROQ system


(2) In companies where the challenge is to implement the qualityimprovement process in the first place, management needs to understandthe overall picture of the process to justify the time and resourcecommitments required for the ROQ approach to succeed.

When the cost-cutting knives are out, expenditures on quality must befinancially accountable. Quality improvements should be treated asinvestments: they must pay off and spending should not be wasted on effortswhich do not carry their own weight.

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Gone are the days when banks were dark and formal, and you were gratefulto the local branch for taking such care of your modest savings andcharging you for the privilege. To be competitive today, retail banking mustnot only operate in a fundamentally different way, but it must also learn fromother industries about the business it is in, and then learn to dofundamentally different things.

A major reality that most banks have now understood is that, in the main,private individuals look on visiting the bank with almost as much relish asvisiting the dentist. A physical presence with a prestigious high-streetpresence need no longer be an asset, and a business park corporate bankingsector is in many cases far more convenient for the majority of those busycustomers, principally business account holders, who do need to visit fromtime to time (to renegotiate loans and discuss business plans, for example),and like to be able to park nearby a luxury often denied when visiting thetown center sites. At the same time, banks balance-sheets can benefit hugelyfrom the disposal of those sites to the (relatively) cheap out-of-town areas.

But how to keep and grow the business from the private individuals?These need to be able to access their money quickly and easily, withoutundue hassle, while at the same time being able to access professional advicewhen and if they choose. And, significantly, they prefer to be advised by amachine that funds are not available than to have a clerk refuse to cashtheir checks.

One solution comes from Massachusetts-based BayBanks. When this NewEngland banker determined to make its name as market leader in the region,it aligned itself more to the world of retail stores and mail-order companiesthan the traditional banks. Top management devised a benchmarkingshortlist, then visited and learned from the successes of companies includingFreeport, Maine-based L.L. Bean renowned for its exemplary service to aninternational audience of whom only a tiny fraction will ever make contactany way other than by telephone or catalog, and Spiegel.


From service to product

Needs of privateindividuals

Fundamentally different


The first strategy was to establish a 24-hour customer service center. Whatwas the staff brief? Not merely to answer queries and resolve problems, butalso actively to promote opportunities to sell profitable bank products andservices: this can often be more effective than a sales letter, and is mucheasier than lobbying visitors to a bank branch, where people are often in ahurry or where other customers are waiting in line. As a sales tactic,speaking to people telephoning in, often from the relaxed environment oftheir homes, is a winning move.

Next, a significant improvement of the automated teller machine (ATM)(cash dispenser) network was set in place to enhance the customerconvenience factor. These were not simply in high street and shopping mallpositions, but inside stores from post offices to pizza parlours; over 2,000establishments have installed ATMs, and more are signing up. Theinvestment paid off, helping BayBanks establish a dominant position.

The wider application of the ATM card is another attractive proposition tothe customer, removing concerns for those who do not trust or cannotobtain credit cards (or object to the interest rates), while operating moreefficiently for the bank; card transactions cannot be returned unpaid. WhileNew England lags behind the West Coast, ATM cards (operating like theUKs debit cards Switch and Visa Delta) are being used to replace cash on asteeply accelerating curve. In 1990, the average number of monthlytransactions (to pay for anything from college fees or cars to beachwear orbreakfast cereals) was 15 million; in 1993, the figure had more than doubledto 36.3 million, with qualified commentators predicting 200 million by theyear 2000.

BayBanks experience is in line with this trend: in March 1994 the bankclocked up a new record one million retail transactions by users of itsATM card, 52 percent up on the same period in 1993.

What is the next step for BayBanks ATMs? Providing cardholders with themeans to buy and sell mutual funds, including of course the banks ownBayfunds, launched in March this year. It is a service already available toATM cardholders with Citicorp and Fleet Financial, and many others haveannounced their interest. The problems are accessing rapid hourly or evenmore frequent price changes, and enabling different computers to talkintelligently to one another: minor problems in a technological universe.

From that concept the next logical step is easy, and has already beenpromoted by BayBank. If mutual funds can be looked on as a product,remotely accessed to a distant customer base, what other products can behandled remotely and through what other non-electronic media? Enter thelessons from direct mail operator L.L. Bean. Late last year, the BayBankcatalog was published, at 50 pages, featuring more than 160 differentbanking and financial products. If you need to negotiate an overdraft at 2.00a.m. or even want to open a new current account there is noproblem: staff man the telephone lines 24 hours a day, while others handlemailed enquiries. What is the rationale? Simply that most families have foryears been comfortable to make purchases and commit money by mail ortelephone; the challenge was merely to package what was previously seen asa service into a series of products, and market them accordingly.


A catalog of bankingproducts

A 24-hour customerservice center


One million catalogs were mailed out, to a stringently targeted groupcomprising both existing customers and new prospects. While the bulk ofthe response has been from the existing customer base, BayBank is delightedwith the response and does feel that the catalog has lasting value as a vehicleto help to advertise the company and attract new business. It does appearthat even the moment of truth that accompanies the initial opening of anew bank account with a different bank no longer depends on the strength ofpersonal relationships people are more than comfortable to initiate thisbasic function by telephone or by mail: but few surprises there, perhaps credit card companies have operated in this fashion, almost exclusively,since their inception.

What of the future? The demysticism of the financial world, often called for,is happening; and the key is technological solutions to age-old marketingissues, like how to serve your customers in the way they want to be served.It has been a long time coming.

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Based on the recent experience of many companies, some industry observershave concluded it is difficult to be both low-cost- and service-oriented. ButJoo Baptista and Jean Estin, members of Mercer Management ConsultingsEuropean consulting division, point out that low-cost competition is forcingcompanies to add better service into their strategic thinking. Besides,Baptista and Estin say, improved quality, increased service levels, andfaster responsiveness to market demands dont have to mean uncontrolledoperations, constant firefighting and falling profitability.

In a White Paper that discusses ways for companies to improve theirperformance, Baptista, a vice-president in the consulting firms Londonoffice, and Estin, Mercers European director and head of its generalmanagement consulting group with headquarters in Paris, identify fivereasons why increases in service often do not result in improvedperformance:

(1) Companies fail to determine exactly which components of service arevalued by each customer segment targeted.

(2) They do not recognize that different customer segments value differentcomponents of service.

(3) They underestimate the organizational and human resource effortsrequired to deliver the service capabilities, and the timing involved inestablishing those capabilities.

(4) They fail to develop methods capable of determining the trueprofitability of each individual customer.


Can a company be bothlow-cost- and service-oriented?

Ways to improvecompany performance

The catalog as anadvertising vehicle


(5) They fail to determine whether the service program they seek to adoptwill ever make money, when taking into account competitor response.

The work of Baptista and Estin in helping clients to implement profitable,service-driven organizations has led to the development of an integratedframework for both anticipating service requirements and for establishingthe capabilities to deliver service at a profit. It consists of the following fivebuilding-blocks:

(1) Explicit prioritization and targeting of customers. Since increasedservice in most cases means higher investment and higher product costs,a business needs to determine which components of service will bevalued by which customer segments. Customers must also be assignedpriorities on the basis of likely sales and associated profitability, withservice-sensitive customers generally divided into those requiringcustomized service and those requiring standardized service only.

(2) Creation of differentiated commercial organizations. Baptista and Estinadvocate a tiered salesforce, with a major account managementsalesforce to handle the most demanding customers and a second tier ofjunior sales staff and sales representatives to focus on less demandingcustomers.

(3) Management of the product offer. Design and development steps have tobe timed with the customers own internal cycles in mind. The cyclesappropriate for serving major customers, in turn, determine the responsecycles available to standard customers. In practice, this means thatstandard customers have lower priority for delivery lead times, visitationdates, and presentation of new products, but simultaneously they benefitfrom the overall improvement in manufacturing flexibility, ordertracking capabilities, and better reliability from a general increase inservice awareness.

(4) Adoption of differentiated service processes. Costs for these can be keptreasonable by concentrating on the manipulation of useful informationwith sufficient accuracy rather than collating interesting-to-know datawith accounting accuracy. For instance, procedures for keeping track oforders and computing their profitability can be built on the basis ofpaper-based processes combined with simple mini- and macro-computerapplications.

(5) Establishment of a differentiated pricing policy. By using costsimulations and customer demand models, pricing decisions can bedelegated to the salesforce.

Baptista and Estin maintain that all five building-blocks must be in place inorder to reap the benefits of a service-driven organization. Whileacknowledging that there is an investment cost, they point out that asuccessful differentiated service-driven firm can recover its investment andother costs several-fold through increased profitability. They have workedwith firms, for example, which have sustained 3-5 percent higherprofitability than their nonservice-driven competitors.

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Higher profitability forservice-driven firms

Five building-blocks


Marketing receives a phone call from a customer regarding an invoice. Theperson replies: Thats not my job. Ill transfer you, not bothering to findout that the invoicing department is in an off-site meeting. The customerhangs up, and begins to contemplate switching to a competitor.

Manufacturing substitutes one component of a product without informingthe sales and service people, who appear less than informed when they facecustomers who begin to receive materials they did not expect.

A salesperson promises too much on a delivery date, yet does not check tosee if there is enough stock to supply the order. The salesperson also fails tocommunicate with the customer-service representative who, in turn, musthandle an angry delivery department and irate customer.

Such situations arise in firms which retain barriers between the sales andservice departments and other support functions. This approach is out ofdate, and fails to recognize that anyone who interacts with a customer mustbe able to respond efficiently to the customers needs. Jennifer Potter-Brotman, senior vice-president, corporate marketing, of The ForumCorporation, says that service has traditionally focussed on resolvingproblems or providing technical help once a sale has been made. Now,however, a wider view must be taken. Five important aspects of servicequality are:

(1) reliability the ability to provide what is promised, dependably andaccurately;

(2) assurance the knowledge and courtesy of employees, and their abilityto convey trust and confidence;

(3) tangibles the physical facilities and equipment, and the appearance ofpersonnel;

(4) empathy the caring and individual attention provided to customers;(5) responsiveness the willingness to help customers and provide prompt

service.

Forum research in 1988 showed that, while customers viewed reliability asthe most critical aspect, companies believed that customers most valuedresponsiveness. Recent research demonstrates that companies are still out ofstep. One reason may be that responsiveness is easier to provide and control,since it is usually delivered by sales and service people the primary pointsof contact. In contrast, creating reliability throughout a company presents awider, organizational challenge that takes time and money.

Moreover, definitions of the various aspects of quality service haveexpanded since 1988, as the relationship between customers and theirsuppliers has broadened. Establishing honest expectations for example,about likely delivery dates has become an important aspect of reliability.


Out-of-date approach

Keeping the customersatisfied


Buyers resent being brought in on a problem when it is too late for them tocontribute to solving it. Responsiveness, meanwhile, has become proactiveas well as reactive. Rather than fixing a problem quickly, firms must ensurethat problems do not arise in the first place. For example, when aphotocopier company is called to fix a customers machine, the repair personshould check that the customers other copiers are working properly, and thatstaff do not need more training on how to use them.

Companies keen to improve service should:

l Break down functional barriers, and base service, rewards andrecognition on customer-defined values. Customers consider service acollective, organizational responsibility, rather than a functional ordepartmental one. The company must be able to listen and respond tocustomer information gathered by those closest to the customer theservice providers. And service providers must be empowered to act onbehalf of customers in a timely manner.

l Generate organizational knowledge of each client. If and when thepeople involved in an account change, the new contact should be able tolearn about the customer quickly, and assure a smooth transition.

l Increase organizational flexibility. This enables sales and serviceproviders to deliver more effective individual service, that addresseseach customers needs.

l Learn what customers truly value. The degree and intensity of servicerequired varies by customer. Although it is often easier to take a one-cap-fits-all approach, companies may sacrifice profits by failing to sizeup an account effectively. The automated answering devices whichmany banks use are an example of low-cost customized service. Theygive customers the option of gaining access to their own accountinformation or, if they prefer, speaking to a live customer-servicerepresentative.

l Ensure that management practices foster a customer-driven culture.Basing a companys internal processes on customer requirements paysoff in terms of competitive advantage and customer retention.

l Train everyone in the firm to deal with customers. Service providersshould be able to handle tasks from greeting customers and conveyingwillingness to help, to asking the right questions and setting realisticexpectations. There can be important benefits from anticipatingproblems before they arise. Moreover, since anyone who interacts with acustomer becomes a service provider, everyone in the firm should beprepared effectively to handle any customer at any given time.

The Japanese have, for years, been training bright, knowledgeable servicepeople to take part in continuous product and process improvement, usingthe information they receive from customers every day. A large USinsurance company slashed its budget by almost $1 million, whilemaintaining customer satisfaction, by taking up the suggestion by servicepeople that much of the material sent by overnight express mail could beposted, faxed or mailed electronically.

Service is still often relegated to one department containing the lowest-paidpeople, rather than seen as the responsibility of all employees. Yet the role ofservice in retaining customers has never been more crucial, and will


How to improve service

Knowledgeable servicepeople


continue to grow throughout the 1990s. Customers still do not take top-flightservice for granted. Companies can clearly mark themselves out from thecompetition through providing better service.

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The idea of holding monthly coffee evenings to sound out the views ofpassengers face to face would probably turn the thoughts of most railwaybosses to early retirement.

But such meetings are held by the Hong Kong Mass Transit RailwayCorporation, which aims to be the worlds most customer-oriented railway.

It is also one of the few profitable railways in the world. Sara Tang, trainingand development manager, and Patrick Maule, personnel director, told theInternational Service and Quality Forum, in Paris, the reasons for thecorporations success.

The corporation recognized that truly excellent companies abide by a smallnumber of fundamental values, which are fully understood and endorsed byemployees at all levels. The company therefore defined three core values toshape corporate culture and behavior:

(1) Customer service emphasizes the need to meet or exceed the needs ofthe corporations 2.3 million passengers a day.

(2) Respect for the individual recognizes that an organization can achievegood results only when its employees are committed, happy, and feelproud of their work. The corporation believes that only when it treats its6,000 employees with respect and empathy can it expect loyalty,commitment and a customer-focussed attitude in return.

(3) The importance of meeting targets and achieving results efficiently andcost-effectively. Financial success is seen as a vital ingredient tomaintaining long-term safety and service standards.

The importance and meaning of these core values were communicatedthroughout the corporation using videos, songs, handbooks, competitions,company dinners and family events. Training was provided to ensure thatevery staff member had the attitude, knowledge and skills to support thecorporations commitment to its external and internal customers.

The training was supported by a set of internal and external customer servicetargets and standards. These were drawn up to assure that employeesunderstood customers needs and management expectations of performance.Quality management and safety management systems were established,based on the international quality system standard, ISO 9000.


Passenger focus keepsrailway on track

Fundamental values


Attention is paid to customer service during employee recruitment. Tests toselect customer-oriented train operators and station staff are being introduced.All new front-line staff have intensive basic training which covers customerservice skills and technical subjects. This is enhanced by a wide range ofinternal training courses. Moreover, the corporation sponsors employees forrelevant external continuing education. This ensures that staff have theknowledge and skills needed for their jobs, and supports the corporationsphilosophy of continuous improvement through learning.

Awards are used to recognize and encourage positive performance. There isalso a staff suggestion scheme. A performance management system promotesa joint accountability between supervisor and subordinate for the successfulaccomplishment of work-related targets and the development of career plans.Development centers enable staff to identify their career aspirations andpotential.

The corporation promotes communication between management and staff byconducting internal surveys. A company-wide staff attitude survey isconducted every three years to measure the general climate and morale of thecompany. An internal customer service survey collects staff feedback on theservice quality provided by various internal departments, and the areasneeding improvement. A joint consultative committee involves managementand staff, while a staff consultative council brings together different levels ofstaff.

There is a work improvement team scheme, a three-monthly video newsletter,a monthly newspaper and a yearly performance review.

The corporation has a staff turnover rate of only 6 percent, compared with theHong Kong average of 24.5 percent. The absence rate 3.6 days per person,per year is also low. The latest staff attitude survey showed that 75 percentof all employees considered the corporation to be a good employer.

In order to determine customer needs and attitudes, the corporation has carriedout 180 research projects, involving more than 700,000 respondents, over 13years. Suggestion boxes are provided at stations, and there is a hotline service.Customer feedback has contributed to the following improvements: extrarolling stock; a better signaling and control system; upgraded trainannouncements; and more reliable tickets and escalators. A four-monthlycustomer service report gives an honest and open picture of the performanceof trains, tickets and escalators.

Advertising campaigns and promotions have emphasized the importance thecorporation attaches to its customers. Moreover, the company communicateswith political, commercial and social communities through press conferences,seminars and meetings.

Despite strong competition, and without expanding its system, the corporationhas steadily increased its market share over the past five years. Its three linescomprise a total route length of 43.2km, with 38 stations, yet during 1992 itcarried 20 million more passengers than the London Underground.

Of course, the corporation is helped by the fact that Hong Kong is one of theworlds most densely populated cities, and that only around 13 percent of its


Performancemanagement system

Suggestion boxes atstations


inhabitants own private cars. Nevertheless, other mass transit systemmanagers could clearly learn from the corporations experience.

Anyone for coffee?

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If the staff at your bank not only make eye contact with you, but also continueit during the transaction, would you suspect them of an ulterior motive?

In a sector like banking, products can quickly be copied elsewhere, but thebehavior of staff is less easy to imitate and that is what service is about. Eyecontact from staff may make as great an impression on the customer as theexact range of accounts the bank offers.

The Royal Bank of Scotland embarked on improving the quality of its serviceto become more competitive to hang on to its customers, win more repeatbusiness and take more business from its competitors, all at a lower cost.Such priorities are important at any time, but especially in a recession, whencustomers have less money to spend and so are more discerning about wherethey spend it. Robert Crawford, service-quality development manager, toldthe International Service and Quality Forum, held at the EuroDisney Resort,near Paris, how the banks service-management system operates.

First, it involves finding out the needs of customers and developing servicestandards to meet them. This is the so-called specification range.

As recently as ten years ago, banks were still suffering from 200 years ofassuming that they were doing their customers a favor. During the 1980s,however, the Royal Bank of Scotland began to look carefully at who itscustomers were, and what they wanted. Research identified that customerscared most about efficiency, courtesy, problem solving, service over thetelephone, cash dispensers and queuing.

For most businesses, it is impractical, or even impossible, to provide differentlevels of service over the same counter. In face-to-face situations, all of abanks customers must be provided with the level of service demanded by themost fastidious. But that does not mean that every single outlet needs toprovide the same service. Each unit can organize itself to offer a differentservice for different products like an airport which has restaurants for fastfood, self-service and waitress service.

Managing this effectively depends on having facts and figures. The secondaspect of the banks service-management system involves measurement ofperformance against agreed standards, and monitoring shifts in customerperception.


Service on which you canbank

Specification range


The main measurement technique is based on asking customers what theythink of the banks service. The answers from a massive questionnaireprogram are analyzed and scored for each branch. Factors such as theavailability of cash dispensers are measured separately. And a third set ofmeasurements comes from a regular mystery shopper exercise. Under theheading of courtesy alone, there are 30 questions to be answered by mystery shoppers. Information from all three sources is collated in acustomer-satisfaction index.

A detailed reporting system has been created, to inform the branch networkand produce management information. Information on aspects such ascourtesy (including, yes, eye contact) sales skills, telephone skills, branchappearance, queuing, and much more, is collated. Results are presented onclear, bold charts, which feed back meaningful information to staff on theirservice performance. League tables of branches are produced, whichstimulate internal competition. By seeing what is going well, and wherethings could be improved, the bank can concentrate resources where they areneeded most.

The third pillar of the service-management system is support.Communication plays a vital part in this. Everyone must know what is goingon. Attractive and readable material is produced, aimed at target audiences,to ensure that service quality is constantly at the forefront and best practiceis easily transferred.

All the banks training courses are designed with customers in mind, and thebank is keen to build on this by training staff in service skills. Trainingmodules on service topics have been developed for use in branches, andother modules will be produced as the need is identified. The bank also hascontinuous-improvement teams, known as service circles.

Staff whose behavior leads to excellent customer service should berecognized. There is no substitute for a manager continually taking theopportunity to catch people doing it right, but there is also a case for moreformal recognition schemes. What gets recognized gets done again andeven better.

Historically, banks have been good at erecting barriers through theprocedures they operate. There is, then, great scope for streamlining orremoving procedures, to leave more time to serve the customer. That,however, is the easy part. Far more difficult is the people dimension theinterrelationship between staff and customer. Yet this aspect is of paramountimportance to a banks continued existence.

So the next time staff at your bank look you long in the eye, do not take ittoo personally. Their ulterior motive may beto protect their jobs!

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Training courses

Ask customers what theythink


In todays aerial combat, airplanes still swoop and jink, but the actualfighting is done on the ground in the marketing, service and customerrelations departments of the major international airlines. The competitiveand mostly deregulated airline industry is a cut-throat business in which onlya handful of companies survive and prosper. One of these companies isSingapore Airlines (SIA). In an address to the 1993 International Serviceand Quality Forum, a spokesman for SIA explained how, in only 20 years,the company was able to become an international force in the industry.

SIA began operations in 1972 and, although the Singapore government wasits major shareholder, the company received no protection or financialassistance. In fact, the government-initiated policies such as opening upSingapores airport to as many foreign carriers as possible made it difficultfor SIA to survive. These challenging conditions shaped the managementphilosophy that has guided the running of SIA ever since. In a nutshell, thephilosophy is to stick to basics, concentrate on strengths and grow at asteady pace. The philosophy has since been refined into seven principles:(1) competitive approach;(2) core business focus;(3) customer-oriented organization;(4) corporate culture that encourages flexibility and enterprise;(5) creative product and service;(6) communications excellence;(7) consistency in all areas.The competitive approach adopted by SIA stems from its early years. It hashad to win international traffic from established carriers with strong homemarkets; this competition helped open new markets and has driven all SIAsinnovations and growth. SIA is a vocal advocate of unrestricted competition,and campaigns for multilateral liberalization of aviation and free trade in theair.

The core business focus means that SIA does not invest in any venturewhich does not support its primary activity, air transportation. SIA has putits money into what it does well, in order to do it better. This includesinvesting heavily in new aircraft, such as the big capacity jumbos. Thisallows SIA to provide what the market wants more nonstop long-haulflights. This is also where yields are highest. Moreover, passengers like toknow they are flying in the most modern, reliable and comfortable aircraft;in an industry where every company offers essentially the same product, thisis an important competitive advantage.

For SIA, customer-orientation is more than just a buzzword. Thecompetitive approach has meant that listening to passengers and focussingon customer satisfaction are vital. They stay in constant touch with


Inflight philosophy

Management philosophy

Competitive approach


customers through a service performance index, or SPI. This trackspassenger reactions to more than 30 aspects of service and performance,both in the air and on the ground. The raw data from the SPI enable SIA torespond to customer concerns quickly and efficiently.

The airlines corporate culture is very well developed. The managementstyle can be described as democratic rather than authoritarian. Reportinglines are well-defined, but the company has sought to keep the organizationstructure simple and to devolve responsibility and authority down throughthe organization, to empower even the lowest-level staff to make decisions.This decentralization can also be seen at group level, where SIA has createdseveral subsidiary companies which operate independently of the airline.The corporate culture also regards training as a core investment, not a luxuryto be sacrificed when times get tough. In 1992/93, the SIA groups trainingbudget was S$80 million equivalent to S$3,500 per employee. On average,each of its employees spends 12 days a year undergoing training.

In order to stand out from bigger, better-established competitors and winmarket share, SIA has had to be bold and innovative in terms of the productand service it offers its passengers. It was the first to introduce a choice ofmeals and free drinks in economy class, as well as free headsets. These havesince become part of the standard airline product. Today it is becomingharder and harder to innovate on the same scale, but SIAs commitment toinnovation and pioneering new services remains. For example, the companyintroduced the first global inflight telephone and fax services, and they havealso introduced an easy meal service in which passengers can choosewhen to eat during the flight.

The Singapore Girl, the mascot of SIA, is an example of the companyscommitment to communication excellence. The Singapore Girl is one of themost enduring brand images. SIA has spent more than S$750 million onadvertising to promote the Girl and the airline. This heavy advertising spendcontinues, despite the sharp downturn in the industry over the past threeyears.

Consistency is a very important principle in the companys philosophy. SIAhas stuck to a steady, long-term plan and has not deviated from it in the faceof short-term cyclical problems. It continues to invest and expand atmeasured pace. SIAs long-term strategic planning calls for annual growthaveraging 8-10 percent through to the year 2000. Consistency can also beseen in its approach to the basic SIA product. Inflight service and the finertouches are important, but the success of SIAs product depends just as muchon getting the basics right. For example, the airline goes to great lengths tomake its flight schedules consistent and convenient, and it places greatemphasis on on-time performance and reliability.

In terms of aerial warfare, SIA has gone from a vulnerable and defenselessobservation balloon to a Mach 3 attack aircraft striking fear into its enemiesin less than 20 years. Much of this success is down to the companyscommitment to service excellence. Everything SIA does, from staff trainingto aircraft purchasing, from product innovation to commercial alliances, hasthe ultimate aim of providing its customers with the best possible service.

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The Singapore Girl

Corporate culture


On the face of it finding out what your customers think about you wouldseem a fairly straightforward process. All you need do is ask them and theywill probably tell you. Simple.

Not surprisingly there is a lot more to it than that, according to Brian S.Laude, vice-president, Market Focus and Innovation, Walker: CustomerSatisfaction Measurement. In a presentation to the International Service andQuality Forum, held at EuroDisney, near Paris, in November 1993, Lundestressed that knowing what the customer thinks makes a company morepowerful, in that it is provided with the information it needs to make itperform better in the marketplace but only if that information ismeaningful and useful.

It is therefore critical that any company contemplating measuring customersatisfaction, or performance quality, goes about it in the right way. Lundeprovides a definition on which to base any such initiative: Performancequality measurement is a management information system that continuouslycaptures the voice of the customer through the assessment of performancefrom the customers point of view.

It is not a one-off project the results of which are looked at by the marketingdepartment and then filed away with all the other quality initiatives thatnever reaped the rewards they promised.

There are six steps that should be followed, if a company embarking on aperformance quality measurement (PQM) initiative is to avoid some of themore common pitfalls experienced by the unprepared:

(1) Define the companys target markets and target customers. This shouldinclude all current and potential customers, as well as competitorscustomers and lost customers.

(2) Determine the depth and breadth of customer requirements. Thisinvolves identifying all of the products and processes about whichcustomers have expectations (breadth), as well as their ideals ofperformance (depth).

(3) Perform a company/customer relationship assessment. A customerrelationship is made up of the overall relationship, as well as itscomponent parts, i.e. the individual transactions that take place. Both arevaluable sources of information.

(4) Analyze the data to determine absolute and relative performance levels,as well as underlying customer priorities. Absolute data are valuable butonly up to a point, as any company will need to know how it isperforming in relation to its competitors and how it is performing inrelation to customer priorities, some of which may be previouslyunknown to the company.


Capturing the customersvoice

Performance qualitymeasurement


(5) Use the information. The statistical data gathered must be converted intolanguage that staff throughout the organization can understand andrespond to, i.e. strategies, goals and action plans. Only statisticians findstatistics really interesting.

(6) Repeat the company/customer relationship assessment periodically. Thecompany, its products and its customers change; so therefore should thePQM program. The program should acquire momentum from its users,not from its own bureaucratic growth, which is where PQM differs fromthe traditional market research survey.

A performance quality measurement program is a success not if all thecustomer responses are favorable, but if everyone in the organization seeswhy it has been implemented and what the results are. This is more likely tohappen if:

l The direct participation of customers is encouraged. Although thecompany should know its customers well enough to know what theyexpect, there is no guarantee of this. This is particularly true of customerservice requirements.

l All the staff working in departments that directly affect customers knowwhat is happening. When the marketing research or quality assurancedepartments keep a tight control over the process and results, theprogram is unlikely to be successful in the long term.

l The program highlights what can be done. A PQM program must helpmanagers and employees to make decisions, set priorities, launchprograms, cancel projects, etc. it must help them to act.

l Staff are motivated to use the information. If customer satisfaction is acompany priority, then the company must reflect this in its rewardsystems.

l The PQM data are integrated with other quality information, such asconformance data, to form a more complete picture.

Performance quality measurement is clearly not an end in itself. At its best itis a valuable management tool that can assist in the development of:

l competitive strategy;

l strategic quality planning; and

l resource allocation.

Competitive strategyIn developing a competitive strategy, managers must have access toinformation on what the customers expect of the company and what itprovides, and also information on how its competitors are performing.

Much of this information can be provided by a PQM program, although onlymanagers can make judgments on how to overcome competitivedisadvantages, how quickly improvements can be made, and what avenuesthe company will pursue in the future. PQM is a management tool, not amanagement strategy.

Strategic quality planningPQM has a considerable role to play in the field of strategic qualityplanning. It allows the company to:


Success of program


l integrate customer-driven quality requirements into the businessplanning process; and

l set quality goals based on current performance and competitive position.

Resource allocationPQM can help to make resource allocation an information-driven function,rather than a process based on what was spent last year plus something forinflation. In the automobile industry, for example, investment in safetyfeatures has been driven by consumer concern and thus resources have beenallocated based on what the driver wants, rather than what the designerthinks the driver wants.

By its very nature performance quality measurement is a reactive process,collecting information on the past and the present. Canny organizations arenow looking to anticipate and manage the future, using information toimprove performance quality before the product or service even reaches thecustomer. Enter performance quality management.

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One thing is certain your customers complain about you. If they are notcomplaining to you, you can be certain that they will be complaining toother people and those other people might be potential customers. Mostdissatisfied customers tell nine other people, and a persistent 13 percent ofdissatisfied customers tell 20 other people.

Complaints are an uncomfortable fact of life, because no companys productor services is perfect. But the company which treats customer complaints asa valuable form of feedback is likely to benefit, as research has indicatedthat dissatisfied consumers can be converted into loyal customers by theprompt and effective response to a complaint.

Christina Sanes, responsible for AT&T Bell Laboratories quality strategicplan, believes that complaints are a valuable source of information, but onlyif they are collected and analyzed in a structured way. There is little to begained in encouraging customers to complain if no meaningful action istaken to remedy the source of the complaint, and if no one within theorganization is really keen on listening to why a product or service hasfailed.

Sanes has some advice for any company contemplating setting up acomplaints procedure:

(1) Make a commitment. Collecting complaints is only the beginning. Theremust be a commitment from the management not only to the process,


No news is bad news

A valuable form offeedback

Collecting information


but also to making any necessary changes in the organization or theproducts and services. The commitment of the staff is also crucial, as itis often the front-line staff who are the recipients of complaints and therest of the staff who are expected to implement any changes that arerequired. Their commitment and cooperation are essential.

(2) Create a formal process. Customers will be encouraged to complain ifthey see there is a formal structure in place for dealing with theircomplaints. The process should be:

l designed by a small, cross-functional, multi-level group thatrepresents all those involved, including the customers; and

l easy to use.

In the beginning, it may be as well to limit the remit of the complaintsprocess, so that the amount of data collected is manageable. Startingwith product/service quality, cost and scheduling measures will givefocus to the process without overwhelming the organization.

(3) Deal with the complaint. Not all complaints are the fault of thecompany, in fact many complaints are due to the incorrect use of aproduct or service by the customer. But unless customers cancommunicate with the company they will remain dissatisfied, regardlessof whether the product or service is at fault or not.

Responsiveness is critical to the success of any customer complaintsprocedure. Having to wait for a complaint to be dealt with will donothing to improve the customers view of the company. That is not tosay that the solution is easily available; it may not be, but the customerhas to be made to feel that his or her complaint is receiving attention.

(4) Collect and analyze meaningful data. Each companys needs will bedifferent, but common to all is the need to collect and analyzemeaningful data. This may mean issuing questionnaires to customers onreceipt of the product or service, setting up a toll-free telephone serviceor employing customer service representatives. Selecting the mostappropriate method of encouraging complaints is one of theresponsibilities of the design team.

In most cases, the data collected will highlight problem areas. ChristinaSanes suggests two ways of pinpointing where the problem lies:

l on a large-scale drawing of a product the number of complaintsconcerning a particular part can be plotted, highlighting exactlywhere the problems are arising; and

l on a detailed flowchart the breakdowns or delays in service can beflagged at exactly the point where they occur.

(5) Develop the process. Any organization committed to improving itsrelationship with customers will first seek to deal with dissatisfiedcustomers, but will soon realize that prevention is better than cure.Such an organization will then use its complaints procedure and the datait provides to try to solve problems before they occur, analyzing itsprocesses to see where improvements can be made.

The customer complaints process can be a powerful vehicle for culturalchange if used properly and its impact on staff can be felt at all levels ofan organization:



l Senior managers must be committed to the process and see it as avaluable customer service. The customer complaints departmentthat is shunned by the rest of the company will not prove its worth.Christina Sanes advocates making someone responsible for theprocess who is trusted by both customers and employees, thusgiving the process the necessary authority, both in the short andlonger term.

l Middle managers, as the conduit of information from seniormanagement to the employees, set the tone, pace and timing of thecomplaints process. Their day-to-day example of commitment to theprocess will do much to influence their staff.

l The staff are often the people who deal with the customers directlyor are called on to implement any changes arising from thecomplaints process; therefore their enthusiasm and commitmentare of paramount importance.

Research also indicates that, in service industries, employeesperceptions of service quality are a reliable indicator of the customersperception of service quality. So employees, as well as dealing withcustomers and implementing change, are also a valuable source ofinformation.

Complaints will never go away, but they can be harnessed to the advantageof both the customer and the company. A customer complaints process thatevolves into a customer satisfaction process signals a commitment to qualitythat will reap its own rewards.

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A goal of quality management is to engage and focus the entire workforce toachieve the objectives of an organization, according to Harvey Dershin ofthe Juran Institute. This may be called empowerment, alignment, teamwork,or organizational integration. The theory behind this is that the more anorganization acts in unison and from a common sense of purpose, the moreeffective it can be in achieving its mission. One can see the conceptdemonstrated clearly in the performance of small organizations such asathletic teams or symphony orchestras.

In large complex organizations, such as hospitals or clinics, such unity ofpurpose is difficult to achieve. There are multiple constituencies, educationallevels vary, values are diverse and leadership is often vaguely defined. Agood implementation plan for total quality management (TQM) approachesthis challenge on a number of fronts. Training is introduced to create acommon language and understanding of quality, strategic quality planning isapplied to help to focus the organization on unified goals, problem solving


A commitment to qualityis signaled

Quality planning and thecommunication plan

Difficulty in achievingunity of purpose


using cross-functional teams helps to build understanding of internallinkages (customer-supplier chains), management involvement throughquality councils demonstrates the necessary leadership, and rewards andrecognition cement-in good performance.

Another key element in this armamentarium is an effective communicationplan. But what should this plan do? What messages should it contain? Healthcare is so challenged and is changing so rapidly that the field has beendeluged with magic bullets, promising security in one form or another.Health-care professionals are a skeptical lot by nature, and have seen manysuch programs come and go, often with little positive outcome. One shouldexpect organizational resistance from this group. As a result, there is a realdanger in attempting to oversell TQM or prematurely raise expectations.

One way to approach this is through the discipline of quality planning.The six steps of this process are as follows:

(1) Establish goals.(2) Identify customers.(3) Determine customer needs.(4) Develop products.(5) Develop processes.(6) Develop controls and transfer to operations.The tendency, in many cases, is to jump into the middle of the process andstart at step (4) by developing products, i.e. publications, memos, posters,videos, etc. The power of quality planning is that the discipline of theprocess encourages the planner to address goals, customers and needs first.

A primary customer of the communications plan is, in fact, management.Managements primary goal is to implement TQM effectively.Managements need is to reinforce the most important enabling elementsfor TQM and to structure messages in such a way as to defuse potentialresistance.

The enabling elements of TQM are well known. Successful TQM efforts arehighly correlated with effective training, management commitment, use ofmeasurement and data, rewards and recognition, and strategic linkage.Resistance to change is a recognized organizational phenomenon and can betempered by following some simple rules of the road. These include:

l provide participation;

l no surprises;

l provide enough time;

l start small and keep it fluid;

l create a favorable social climate;

l weave the change into an existing, acceptable part of the culturalpattern;

l provide a quid pro quo (something for something);l respond positively;


Overcoming resistance tochange

Effective communicationplan


l work with the recognized leadership of the culture;

l treat the people with dignity;

l keep it constructive.

The communications product therefore should include a series ofmessages which describe meaningful training experiences at all levels ofthe organization, significant management involvement, effective use ofdata by cross-functional teams, important recognition events, and weaveTQM into the fabric of organizational strategy. At the same time,implementation should be characterized in ways which defuse resistance.Messages should be developed within a context that includes the rules ofthe road.

In summary, the communications plan can do more than just inform theorganization about the status of TQM. It can be an effective vehicle toreinforce enabling elements and defuse resistance.

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Business cannot be conducted without customers much to the annoyanceof many companies. The lack of focus given to customer relations in mostmajor industries is sometimes mind-boggling. The impact of customerindifference on business is not noticeable as such where there are fewsatisfied customers to begin with, who notices another disgruntled one?Change to a, or increase the, focus on customer care and the difference isastounding more customers buying more goods and telling more friendsabout a wonderful company. The results of a round-table discussion led byPeter Marks of Design Insight at the Manufacturing Leadership Summit heldin June 1994 at Cambridge, Massachusetts, can point the way towardbecoming truly customer-driven.

The emphasis over the past few decades in many companies has been onevery type of management theory apart from customer care. TQM,reengineering, just-in-time and lean manufacturing, downsizing introducingthese precepts is only half of the equation. Customer needs define the rightthing to do, while management theories define the right way to do it. Theround table quickly discovered six compelling reasons why a customer-drivenfocus is important. They then outlined five obstacles to eliminate in order tocreate greater customer understanding in design, manufacturing and customersupport processes. First, the six reasons for increasing customer focus are asfollows:

(1) Customers are the reason for being in business and the source of allprofits. Companies, however, do not fully understand or satisfycustomer needs and wants.


Focussing on customers

Lack of focus oncustomer relations

Implementation shoulddefuse resistance


(2) External crises are often needed to stimulate change and innovation.The root cause of many, perhaps most, design and manufacturingproblems is failure to anticipate customer needs and demands. Smartcompanies see customer need-finding as the most credible reason toimprove continuously.

(3) Without a common customer vision, teams work at cross-purposesrather than in cross-functional harmony.

(4) Customer-based metrics and rewards are the key to high-performanceorganizations.

(5) For emerging companies, customer orientation is the key to crossingthe chasm from a technology-driven start-up to a volume manufacturerof mainstream products.

(6) For mature companies, customer orientation is needed to make toughchoices, as growth slows and old technology gives way to newapproaches to meet customer needs.

The first obstacle to be eliminated to create better customer focus is theentrenched functional culture that causes incomplete understanding ofcustomer needs. Functional cultures departmentalizing parts of thedecision-making process and therefore making each department jealouslywatchful of usurpation o

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