Module 3

Performance Metrics
and Strategic Planning
for Improvement

1
Agenda
Day 1 Day 2
8:00 A.M. Welcome and Module 3.
Introductions •Performance Metrics
•Strategic Planning for
Improvement

Module 1. Module 4.
Quality Product and Service Design
Management and Development
Overview

Lunch Time

Module 4.
Module 2. Product and Service
Key Human Factors Improvement

Next Steps
4: 30 P.M. Adjourn Adjourn

2
 Quality Management Course
Roadmap
1. Quality Management Overview

Quality in Daily STRATEGIC FOCUSED Strategic

Work ORGANIZATION “Breakthrough”
Improvement

3. Performance Metrics and You are HERE

Strategic Planning for
Improvement
2. Key Human Factors
Voice of
the Customer Voice of Business
BSC

4. Product/Service
Design & Development and
Improvement

Plan Control Correct

Improve

3
 Learning Objectives
• Participants will understand the linkage and integration of strategic planning
for improvement and performance metrics within Baldrige.
• Participants will understand key elements of an integrated causal path
measurement system using the Balanced Scorecard (BSC) to illustrate.
• Participants will understand the two types of improvements.
• Participants will use the Kaplan/Norton BSC Hall of Fame questionnaire, to
critique their organizations and determine improvement areas.
• Participants will understand the Voice of the Customer (VOC) and its linkage
within Baldrige and ISO 9000.
• Participants will understand how quality professionals help to affect top line
results using a perceived value to profit model.
• Participants will understand VOC best practices and tools; critique their
organizations listening posts; critique a VOC measurement plan after learning
a survey/questionnaire feedback process.
• Participants will complete their Learning Log and Action Plan based on ideas
for shaping the future of quality in their own work and in the work they
influence and skills they or their people need to succeed in the future.

4
Performance Metrics & Strategic
Planning for Improvement
The module is divided into sections:
1. Overview of metrics, framework for balanced
performance metrics, strategic planning for
improvement process
2. What is the Strategic Voice of the Customer (VOC)?
3. Evolution of Strategic VOC
4. How strategic VOC fits into management models and
standards (Baldrige, Six Sigma, ISO, Lean)
5. Strategic VOC Plan and Tools
6. Strategic VOC best practices
7. Summary Review

5
Baldrige Criteria: Framework for an Integrated
Management System

7 is the Outcome

1-6 are Process Drivers

6
 Metrics, Performance and Linkage
• Strategic objectives are the starting point for all performance
measurement.
• Leaders use metrics to set expectations,
drive actions, measures drive behaviors.
• Metrics are the major means of communication.
both internally and externally; means to align everyone’s
efforts, what gets measured gets managed (or manipulated?!)
• Performance measures are key elements to make decisions,
set direction, and select improvements.
• Metrics are an input, an output, and part of each business
process.
• Measures are only helpful when the organization has the
capacity to respond to them.

7
Select the Right Key Performance
Indicators
• Measures of performance used by management for centuries:
– Grew out of accounting and measures of productivity
– Review current operational capabilities
– Assess both departmental and corporate performance, as well as
trend performance achieved against plan

• Excellence models demand evidence that an organization is achieving

business success, in terms of:
– Financials, Customer, Market, Internal Business, Regulatory/Legal,
Environmental, Human Factors, Suppliers, Innovation and Learning.
Question-how does your organization measure innovation?
– Measurements, targets, trends, comparisons and indicators used to
verify that results are caused by the effort put into the enablers.
– Information used in such things as, strategic planning and
deployment, product plans/changes, process management and
improvement.

8
Framework for Balanced
Performance Metrics with Causal
Chains
Questions:
How can we build realistic, practical metrics which help drive change and
gauge progress?
How can we articulate company objectives through enterprise-wide
metrics in an integrated measurement system?

Answer:
A coherent framework of balanced and integrated metrics are needed and
established to:
-Help drive strategy and cover all vital topics in a Business Excellence
Model.
-Define and deploy measures that best judge overall performance; use
both “leading” and “lagging” indicators
-Provide indicators to determine and communicate progress to future
goals.

9
 Balanced Scorecard
While there are popular approaches that each provide a valuable view point,
the most widely used is the Balanced Scorecard (BSC) (Kaplan and Norton)
To make informed decisions, business leaders need to understand how their
organizations are performing and where change will have the greatest
impact. Applying aligned and strategic analytics to processes can provide that
insight
• BSC deals with four perspectives: Financials, Customer, Internal /
Business Processes, and Learning and Growth

• Provides a proven framework to translate strategy into operational

objectives, measures, targets and initiatives throughout an organization.
Deals with issues like:
• Can we continue to improve and create value?
• How do customers see us?
• At what must we excel?
• What internal business processes need to improve to achieve our
strategy?

10
 Create Waves of Change
Ways to Link Strategy and Process
Strategic planning for improvement focuses on improving
the vital few processes that support strategy

-“what” needs to be done aligned with “how” things

are done

- A Balanced Scorecard (BSC) is used to capture and

deploy organizational goals, report progress, select
needed improvements

Create Waves of Change-

Link Strategy and Process:
translates strategy into action.

11
 Balanced Scorecard
• Is derived from mission, vision, values, and strategy.

• BSC retains the traditional financial measures.

• Views organizational performance from multiple

perspectives. The traditional four perspectives are:
– Financial
– Customer
– Internal / Business Processes
– Learning and Growth

• Sets and reviews: Objectives, measures, targets, and

initiatives

12
 Balanced Scorecard
Links Measures to Organizational Strategic Priorities
in a Balanced Approach

• Organizational performance from four perspectives:

Financial Customer
Balanced
Scorecard
Internal/Business Learning and
Processes Growth
• Set of hypotheses about cause and effect measurement system;
should make relationships between cause (performance
drivers/leading indicators) and effect (outcome/lagging indicators)
explicit so they can be managed

13
 Balanced Scorecard
Balanced Scorecard: Four Perspectives:
1. Financial Perspective
• Measures of economic consequences of actions already
taken indicate if organization’s strategy and business
operations are contributing to the bottom line
• Typical measures: Return on investment (ROI); economic
value-added; profitability; revenue growth and mix; net
present value (NPV); internal rate of return (IRR); return on
assets (ROA), return on net tangible assets (RONTA)

2. Customer Perspective
• Measures specific drivers and outcomes to the customer
• Typical measures: Customer satisfaction; customer retention;
customer loyalty; customer profitability; customer retention;
market share; new customers

14
 Balanced Scorecard
Balanced Scorecard: Four Perspectives:
3. Internal / Business Process Perspective
• Key measures of processes that have the greatest impact
on customers and financial outcome
• Typical Measures: Quality; response time; cost;
productivity; new/revised product introductions

4. Learning and Growth Perspective

• Key Measures of the infrastructure that the organization
must create to have long term growth and improvement
• Typical Measures: Employee satisfaction; employee
retention; employee productivity; (comes from people,
systems, organization procedures)

15
Balanced Scorecard-Strategy Map
Link Measures to Strategic Priorities in a Balanced Approach
Mix of Outcomes and Performance Drivers and Casual Relationships

Financial Mission/Profit

Customer Customer
Retention

Customer Satisfaction

Customer Value Proposition

Internal/ New Product/Service Consistent and defect-free

Business Introduction products/services
Process
Employee
Learning
Competence
and Growth
Employee Employee
Satisfaction Turnover

16
 Balanced Scorecard
Sets and reviews: Objectives, measures, targets, and initiatives

PERSPECTIVE OBJECTIVE MEASURE TARGET INITIATIVE

Percent Increase number of
Internal

Streamline
appointments Military Families with
Access to 82%
meeting web access to
Care TRICARE access appointments
standards

Dimension Concise statement What we are Defines the Discrete action

against of a result we want going to magnitude of programs with
which we to achieve. Note monitor to improvement start/stop dates and
examine the verb-object achieve required and accountabilities that
and structure objectives when will contribute to or
translate and drive ‘success’ will achieve a target
the strategy performance be achieved

17
Improvement Types
Vision

Mission

Values

Strategic Plan

Business
Operating Plan

“Kaizen” or Incremental
Improvements “Breakthrough”
Within Quality in Strategic
Daily Work Improvements

Evaluate and Improve

18
 Exercise: Wall Street Journal
Article Activity
Read the article and be prepared to discucss:
• Environment at the time (what was going on; driving forces)

• Long-term direction (goals):

• Strategy (How):

• Short-term (objectives):

• Enabling actions (tactics)

• Motivating actions:(tactics)

19
 Possible Answer: Wall Street
Journal Article Activity
• Environment at the time (what was going on)
– External engine failures-customer dissatisfaction, internal defects, cost
of poor quality (COPQ)
• Long-term (5 year) direction (goals):
– COPQ is a cost avoidance of 10-15% of a $70 billion/year revenue,
improve external image and customer satisfaction/competitiveness
• Short-term goals (objectives):
– Annual goals to reduce defects and COPQ
• Enabling actions:
– Implement a Six Sigma program, hire full time MBB, BB, identify
Champions from leadership to select and realize project success,
$100k investment in training and a computer system to track projects
• Motivating actions:
-40% bonus tied to Six Sigma successes; “we have the people who can do
it”

Driving force for investment in quality: Financial and Market Success

20
 Strategic Planning Process
Internal Assessment External Assessment

SWOT Develop Strategy

Mission/Vision/Values Strategy

Strategic Objectives

Long-Term Objectives (3-5 years) Deploy Strategy

Short-Term Objectives (1year)

Tactical and Operational Action Plans

Track and Measure Progress Implement Strategy

Project Improvements Completed

Get Results
Improve Business
Improve Strategic
Annual Evaluation and Improvement of Planning Process
Planning Process

21
 Example
Saint Luke’s Hospital – Strategic Plan 2004-2008
Mission: Why we exist
Saint Luke’s Hospital is a not–for–profit tertiary referral center committed
to the highest levels of excellence in providing health services to all
patients in a caring environment. We are dedicated to medical research
and education. As a member of Saint Luke’s Health System, we are
committed to enhancing the physical, mental, and spiritual health of the
communities we serve.

Core Values: What we want to be

Quality/Excellence; Resource Management; Customer Focus;
Teamwork

Vision: What’s important to us

The best place to get care, the best place to give care!

22
Balanced Scorecard Examples
Saint Luke’s Hospital – Strategic Plan 2004-2008

Strategic Focus Areas (BSC areas)

• Financial

• Customer

• Growth and Development

• Clinical/Administrative Quality

• People

23
Balanced Scorecard Examples
Saint Luke’s Hospital – Strategic Plan 2004-2008

Significant Issues (GAPS from SWOT)

• Providing an adequate, adaptive and diverse workforce that can

capably and enthusiastically meet customer need while supporting
work/life balance
• Simultaneously serving, strategically planning with, and competing
with physicians
• Developing a strategy for new and/or niche competitors in the
Kansas City healthcare market
• Assuring patient privacy, safety and reduction of medical errors
• Managing the cost of providing quality care within current
government and private sector allocations, and in spite of
increasing direct-to-consumer advertising

24
Balanced Scorecard Examples
Saint Luke’s Hospital – Strategic Plan 2004-2008

Significant Issues (Gaps from SWOT)

• Efficiently managing indigent care

• Gaining access to capital for renovation, market expansion and
innovation
• Assuring customer satisfaction
• Complying with complex, unfunded regulatory requirements
• Addressing physician compensation, reimbursement, and
malpractice issues and the resulting impact on physician
recruitment and retention
• XYZ entry into Kansas City market
• Managing capacity issue in light of workforce availability
• Declining ____________ referrals from secondary/referral market

25
26
 Balanced Scorecard Relationships
Organizational Scorecard Process Scorecard

Provides Inputs

Linked to Processes

Enables Drill Down

into Processes

Organizational Process Scorecard

Scorecard •Enables drill down into process areas affecting
performance
•Focused on key performance
indicators of BSC •Defines in-process measures of key control points

•Enables determination of •Feed to organization scorecard

organizational health •Foundation for process improvement activities
•Identifies improvement areas •Establishes a “line of sight” for staff work to strategic
areas of focus (BSC)

27
Organizational Scorecard Example

28
Balanced Scorecard Hall of Fame

BSC as defined by the Kaplan/Norton methodology

29
Principles of the Strategy-Focused Organization*

1. Mobilize change through executive leadership

2. Translate the strategy into operational terms
3. Align the organization around its strategy
4. Motivate to make strategy everyone's job
5. Govern to make strategy a continual process

*From 2007 Balance Scorecard Hall of Fame Application. Balanced Scorecard Collaborative, a
Palladium company.

30
 Exercise: BSC Hall of Fame Partial
Questionnaire
Complete the “Balanced Scorecard Hall of Fame for Executing Strategy™
Application (modified)” Best Practice Survey

Based on your assessment of your organization, answer the following

questions:
A. How well is your organization using the BSC (or its concepts)? How is
it similar and different from the BPA BSC/MBO
B. Determine which of the following strategic planning for improvement
activities, requires the greatest improvement and why:
1. Development
2. Deployment
3. Implementation
4. You and/or your groups involvement and use of the process and
its information
C. How would you know if it got better?
Optional: Category 2 in the Baldrige Criteria

31
VOC- Alpha and Omega of Metrics

• Although all BSC perspectives are important, we will

focus on the VOC
• Our ship would surely sink, without a constant focus on
our customer.

32
Performance Metrics & Strategic
Planning for Improvement
The module is divided into sections:
1. Overview of metrics, framework for balanced
performance metrics, strategic planning for
improvement process
2. What is the Strategic Voice of the Customer
(VOC)?
3. Evolution of Strategic VOC
4. How strategic VOC fits into management models and
standards (Baldrige, Six Sigma, ISO, Lean)
5. Strategic VOC Plan and Tools
6. Strategic VOC best practices
7. Summary Review

33
What Is the Strategic VOC?
Definition:
• “Voice of the customer” (VOC)- multi-faceted process used to capture
the ever-changing requirements/feedback from customers; The VOC
is your process for capturing customer-related information

• Purpose- use that data to create best-in-class services and products

and eliminate unwanted features or services

• The VOC is both proactive and reactive and involves tools such as,
interviews, surveys, focus groups, observation, mystery shoppers,
complaints, and others

• The “strategic” voice of the customer acknowledges that the business

is focused on the customers with the greatest strategic importance to
the business mission and goals

34
What Are Benefits of VOC?

Benefits
• Delighted, loyal retained customers
• Enhanced market and wallet share and productivity
• Motivated employees
• Streamlined operations that focus on customer needs
• Highly motivated and productive employees

Studies by the Gallup Organization,

Competitive Edge and others all show
strong correlations in above

35
 What Are Benefits of VOC?
High correlation of employee satisfaction, customer
satisfaction, customer loyalty, revenues and profits
Spearman Rank Correlation of 123 business units in banks, engineering,
transportation, insurance, high tech, restaurants, software, telecom

Cust Sat

Revenue

Employee sat & Customer sat & Customer retention

customer sat = .92 revenues = .93 & profits = .89

Research by Competitive Edge, 1998

36
Baldrige, ISO, Six Sigma, Lean, all…
start and end with the VOC
• Baldrige: VOC drives all categories
– Leadership maintains and uses information from customer “listening
posts”
– Requirements passed through to employees and vendors

• Six Sigma: VOC ensures that projects are aligned to

customer key needs, will have high ROI and make the
organization successful; improve processes that drive value

• Lean: VOC used to streamline unnecessary processes and

procedures and focus on ones that enhance value

• ISO: VOC used to anchor requirements and measure

whether or not they have been met

37
Baldrige Criteria: Framework for an Integrated
Management System

Customer and
Market Results

7 is the Outcome

1-6 are Process Drivers

Integrates all the key drivers of organizational Process Results
performance management within one holistic
• Approach •Importance
• Deployment •Trends
framework, allows organizations to be managed as a Learning
• •Comparisons
system Vs a collection of individual parts • Integration •Sustained

38
 ISO, Baldrige, Six Sigma, Lean all…start
and end with the VOC

C R
S C
a
u e
Management t u
q
s u Responsibility I
s
s
t i
r
f t
Resource a
o e
Measure,
management analyze & improve c o
m
m e
t
i
m
e n
t
Product
realization Product o e
r s
n
r
Reference: ISO 9000:2000

39
ISO 9001:2000 and the Customer

Quality Management System

Customer Product Realization Product/

Wants and and support processes Service to
Needs Customer
Network of integrated
value delivery processes

Lean
6 Sigma
Lean Six Sigma

40
Show Me the Money!
Income and an Integrated VOC Process
Choosing Value and Satisfaction

 
Income
                                              

Quality Drivers
 
Profit

                                             

Satisfaction
                                                
Expenses

Value Streams
Process Management

More on Value later 41

Show Me the Money!
Income/Expenses & Process Management

Income
 
                                              

Quality Drivers
 
Profit

                                             

Satisfaction
 
                                              
Expenses

Value Streams
Process Management

Delivering Value

42
Advanced Quality Management
and the Customer
• In Advanced Quality Management, Quality
Professionals :

– Have a broader role- Shifts focus from internal

operations to include external customer

– Manage performances, not just paper

– Help to meet/exceed customer needs and provide

superior value

– Use the "voice of the customer" (VOC) to define

focus, processes and improvement initiatives

43
 2007 Interview Insights from Dr.Feigenbaum
CTQs?
• Some companies have an outdated idea of quality and how to
improve it. Managers think of quality as minimizing defects,
especially in production. This aspect has long been an entry-
level requirement in competition but is no longer enough from a
customer perspective. Customers evaluate quality based on the
value of the entire offer

• There is often a large gap between a company’s quality

criteria and those of its customers—especially for car and
computer manufacturers. Company statistics may indicate that
quality has improved: products have fewer defects and more
functions. Meanwhile, however, sales are declining because
customer satisfaction has dropped—whether it’s because the
service is unsatisfactory, the user’s guide isn’t acceptable, or a
spare part can’t be found anymore. Customers increasingly take
factors such as annoyance and time wasted into account. Many
companies aren’t attuned to this

44
Performance Metrics & Strategic
Planning for Improvement
The module is divided into sections:
1. Overview of metrics,framework for balanced
performance metrics, strategic planning for
improvement process
2. What is the Strategic Voice of the Customer
(VOC)?
3. Evolution of Strategic VOC
4. How strategic VOC fits into management models and
standards (Baldrige, Six Sigma, ISO, Lean)
5. Strategic VOC Plan and Tools
6. Strategic VOC best practices
7. Summary Review

45
 Evolution of
Strategic Voice of the Customer
Contributions have been made by many leading specialists.
Importance
of attribute Six Sigma, Lean,
Zeithaml Customer
Value Lean Six Sigma
Baldrige/ Brad Gale CTQs: 1980-90s
ISO

Loyalty/
Satisfaction 3 levels of Retention=
Surveys satisfaction Profits
Popularized Noriaki Kano Frederick
Reichheld

1980 1985 1990 1995 2000 2005 2007

46
Exercise: Plot where you are in
strategic VOC evolution…

X
Have aligned strategic
system, good tools,
visibility, accountability &
application
X
Have systematic multiple listening
posts & good integration of data
X
Have good surveys with benchmark data
X
Have superficial surveys
X
Don’t measure
anything systematically; reactive

47
Best practice example: Pareto Chart

Balanced Scorecard Vital few: Reasons #1,2 & #3 100%

X=80% 80%

Revenues Balanced view - using vital few 60%

40%

Profits #1
#2 #3
#4 #5 #6
20%

0%

Complaints
Wallet
Attrition rate
Share
Customer satisfaction index

1. Financial data 2. Customer/stakeholder

3.Employee & Supplier 4. Internal Operations:
Pareto Chart
100%
Quality Data
*Norton
Vital few: Reasons #1,2 & #3

X=80%
Defective
80%

60%
Invoice
40% Goods Accuracy
#1
Supplier sat
#2 #3
#4 #5 #6
20%

0%

Employee attrition On-Time

Delivery
Employee satisfaction
48
Performance Metrics & Strategic
Planning for Improvement
The module is divided into sections:
1. Overview of metrics,framework for balanced
performance metrics, strategic planning for
improvement process
2. What is the Strategic Voice of the Customer (VOC)?
3. Evolution of Strategic VOC
4. How strategic VOC fits into management models and
standards (Baldrige, Six Sigma, ISO, Lean)
5. Strategic VOC Plan and Tools
6. Strategic VOC best practices
7. Summary Review

49
 VOC Plans and Tools
Action to Traction Best Practice
Integrated Systems Approach
Management must:
-Develop analytical capability to understand
customers, using multiple listening posts
-Integrate customer intelligence into operational
systems
-Enable rapid responses to opportunities and threats
-Conduct regular reviews
-Communicate, coach and celebrate; close loops
Customer and market intelligence turns data into
measurable features and initiatives that serve to
acquire, develop, and retain customers

50
VOC Plans and Tools
Action to Traction Best Practice

Commitment
Plan & goals
Multiple listening posts
Diligent deployment
Action- short & long term
Celebration
Links come from a system…not a single
survey

51
Customer Listening Post Examples
Note: Better organizations survey more than just their
current customers
• Needs assessment: deep dive interviews
• Perceptual surveys
• Customer satisfaction surveys
• Value analysis surveys
• Transaction surveys
• Customer surveys by mail, telephone, web
• Win/loss surveys
• Mystery shopping
• Advisory and user groups
• Focus groups or interviews
• Suggestion boxes
• Post card transactional surveys
• Customer Information Files
• Call Centers Complaints, Warranty claims, returns…
(See VOC Handout in Reference Section- Survey design best practices)

52
 VOC Plans and Tools
Action to Traction Best Practice
Best-in-class integrates multiple listening posts
Mail,
Win-loss
Telephone, Web
surveys
Interviews surveys Call center
queries
Strategic & Product
Comparative Needs Assessment Hard data:
studies (sales, returns)

Client project
Complaints CAPAs reports

List per customer segment…and prioritize customers

53
VOC Plans and Tools
Action to Traction Best Practice
Systems Approach– *Medrad, Inc.

*2003 Baldrige Award Winner **Field Force Automation -software

54
 Exercise, Your Turn:
Customer Information and Usage
Complete and be prepared to discuss:
1. List all of your organization’s 2. Is the information collected and
“listening posts” sources of analyzed in any systematic
customer information way? If yes, how?

3. How does your organization use 4. What information do you or your

the information to improve group use? What other
product/people performance? customer information would be
How do you or your group useful?
participate?

55
 VOC Plan, Steps 3. Select, Test, Deploy & Analyze
1.Tool selection & design
&Tools •Written, phone, web surveys
4. Strategic
•Focus groups
Quality Plan
Target Digging & Action
•Interviews
2.Segment 3.Analyze •Sales input
1.VOC Plan •Lost customer surveys
Market/ Needs •Complaint tracking •Celebrate
Customer •Moments of Truth
•Inventories •Integrate
Find out •Perceptual studies marketing
•Mission & vision Products •Buying needs •Transaction studies messages
•Trends Revenue •Usage needs •Attrition rates
Profit •Product
•Retention needs •Intercept studies
•Objectives for CSS
AUM design/dev/
•Competition •Process measures
changes
•Analysis of business etc. •Other??
• Project plan Key quality
2. Test tools initiatives
3. Tool deployment plan
4. Deploy
•Standards
5. Ad hoc research
•Requirements
6. Analyze & Integrate •Benchmarks
synthesize results •Lean, 6Sigma

56
 Four Critical Elements of VOC Plan
1. Target customers & products 2. Tools & deployment
Surveys, Focus groups

Needs Assess Complaints

Attrition measures
3. Responsibility matrix G an tt chart
4. Gantt C h art
Step Who Input JAN FEB M AR APR M AY JU N JUL AUG SEP OCT NOV DEC

primary from C u s t S a t P la n

1. Develop plan D.Owens XXX C u s t S a t S u rv e y

L o s t c u st s u rv e y
2. Do Survey & S. Kessler XXX
Complaint Analysis XXX R e tre a t &
d e c is io n s

3. Measure attrition, S. Kessler XXX

P ro g re s s
etc. re v ie w s

4. Review D. Owens
milestones
57
VOC Plan, Steps &Tools: Surveys

• Survey/Questionnaire Feedback Process

Objectives
Who

Improve What Plan

Act

Prioritize How

Check Analyze Do
Ask

58
VOC Plan, Steps &Tools: Surveys

Survey/Questionnaire Feedback Process

Seven Phases for Questionnaire Construction

1. Determine survey objectives and usage

2. Determine which customers
3. Determine what questions to ask
4. Select response format
5. Write questionnaire introduction
6. Finalize questionnaire content and how to distribute
7. Determine methods of distribution and communication
of results
59
Optional Exercises as assigned

• See next 2 pages

60
VOC Measurement Plan (or lack of)
Exercise-Your Turn
Read your assigned case(s) and be prepared to discuss:
1. What objectives are implied in the following case studies?
2. What are the good points with the following tool selection approaches?
3. What are the problems with the following tool selection approaches?

Case Study 1:
A major multinational company discovered that they were losing market share to a competing chemical
company. The V. P. of Marketing heard that the competing company had done some focus groups and
tailored the new products to the customers. Several customers had talked about how delighted they
were at being part of these focus groups. The Vice President of marketing had been asked by the CEO
to do some focus groups to get caught up with the competition. They had just lost 3% of market share
to the competition in the last year and the Board was on the CEO's back to reverse that trend. The vice
president of marketing calls you and asks you to do three focus groups on product X. You tell him that
three focus groups (30-40 people) is not enough data to generalize to the rest of the customer base. He
says he doesn't care. He heard the focus groups worked for the other company and he wants to get the
job done in a month before the Strategic Quality Planning meeting.

Case Study 2:
You were asked by the VP. of operations to start a written customer satisfaction survey. Your company
is a $20 million/year distribution company and has about 80 key health food stores for whom you
handle their entire line of products. The VP. of operations wants the written survey to be mailed four
times a year to make sure that you are on top of each of the key customers. He has already penciled out
about twenty questions (about two pages) so the survey won't irritate the health food storeowners by its
length. You are supposed to implement this survey and turn the results back to him in two months. He
wants a sense of how satisfied customers are.
Competitive Edge copyright, 2007
61
 VOC Measurement Plan
(or lack thereof) Exercise
Case Study 3:
A regional restaurant with 22 restaurants proudly declares it is doing customer satisfaction measurement. They
advertise this point as part of their marketing strategy. When you investigate how it is done, you notice that
each restaurant has a comment card rack in an unobtrusive place in the restaurant. You also see an 800 number
on the rack where the comment cards are held. You ask how the responses are handled and they proudly
declare that each comment card receives a signed form letter from the President. With about 400 customers
per day in each restaurant and 22 restaurants, they receive about 15 cards a month. They want to take the data
from these comment cards and use it to monitor their restaurant managers.

Case Study 4:
A tool company has two lines of tools: one that appeal to "do-it-yourself" homeowners that are reasonably
priced and another line that appeals to professional contractors. The executives realize that they are losing
market share to a mid-level consumer that does extensive repairs and remodeling on his/her own home. Those
professional amateurs have typically gone for a competitive Japanese product that advertises sturdy but slightly
more expensive tools. To solve this problem, the tool company first organizes a scoping exercise. They talk to
two key hardware stores and others to find out what the customers are saying as they purchase various levels of
tools. Then the tool company decides to do a very targeted living survey with 50 heavy home tool users. Tool
company employees spend time with the customers in their garage, and watch how they use the tools. They
accompany these tool users on shopping sprees and ask questions as they go. With those observations, they
devise a questionnaire that is distributed to a larger sample of their potential heavy user customers. Next
comes the design of the new types of tools. A group of engineers, marketers, designers, and production people
are told to pour over the living survey data before they proceed. After four months, the new product is born.
Customers are then used to provide feedback on prototype tools. Changes are made. The tools are tested over
a wider base of beta sites. A few bugs are discovered. The tools are then showcased at the Annual Hardware
show and win the "Retailers Choice" awards. Competitive Edge copyright, 2007

62
 Complaint Resolution:
TARP Research on Complaints
• 96% of unhappy customers never complain
• 68% of customers defect because of indifference
• 46% of dissatisfied complainers repurchase
• 70% of satisfied complainers will buy again
• 8-10 others are told about the dissatisfaction
Remember: good word-of-mouth is the best advertising
Complainers
Complaint
resolved
reported higher
70%

brand loyalty than

Complaint non-complainers
46%
unresolved

Didn't
37%
complain

0% 20% 40% 60% 80% 100%

Intent to repurchase
TARP, Harvard Business Review, 1996, Nov/Dec
63
Relationship Enhancement
Complaint Management
Complaint Management System

• Prompt identification and resolution

of customer problem = Recovery

Recovery and
• Elimination of key problems, prevent
Prevention = recurrences = Prevention
Retention

64
 Complaint Management Process
Recovery
Prevention

65
 Action to Traction Best Practice
Link to Financial Measures

• Why many measurement systems can’t predict financial outcome

– Questions are irrelevant and/or superficial
– Link is top box rather than top score
– Sampling process is poor
– No measure of competition or price
– Response rates for key clients <80%
– Multiple listening posts aren’t used

• Correlate customer satisfaction/importance to financials

Correlate likelihood to renew insurance with the importance of an 800 number; cost benefit of potential renewals to revenue; J.D. Powers
Scatter plots-as satisfaction goes up, so does the likelihood to repurchase

 Link Value to revenue and to identify improvement opportunities

66
 Action to Traction: What’s New
About Customer Value
Choosing Value: Effective Competition for Customers
• Businesses need:
– A systematic and disciplined approach to create
and retain a differential advantage, that is deployed
throughout functional and operational areas

– A process that removes the random crafting of

competitive strategies

– To learn how to use this process

to make Lean, Six Sigma, Lean
Six Sigma and other improvement
initiatives more powerful

67
Exercise: The End of Satisfaction?

• Read the article, The “End” of Satisfaction, and be

prepared to answer the following question:

Why is customer satisfaction a poor predictor to such

things as, margins, profits, or market share?

68
Possible Answer:
The End of Satisfaction?

69
 Levels of Competitive Planning
Strategic competitive market planning
has different purposes at different
levels of the organization:
• Corporate level, planning for growth; Tools-
Customer Value Analysis
• Business Unit or Division level, identify strategic
opportunities for future investment, identified in
terms of the key product lines and markets served,
 
                                                                                  
Tools-Product/Market Matrix=achieves strategic
focus
• Product/Market level, identify value-based,
marketing plans for a sustainable competitive
advantage. Can require changes to
products/services, operations, pricing, etc.

Reference: Strategic Six Sigma for Champions, R.Eric Reidenbach & Reginald Goeke, ASQ, Quality Press, 2006

70
 Product/Market Planning
• Key question, “How does the organization compete
effectively?”  Requires planning team to address four
questions:

1.What is the Organization’s

Current Value Proposition?

2. What is the Organization’s

Intended Value Proposition?

3. How does the Organization

Achieve the Intended Value
Proposition?

4. Has the Organization

Achieved its Objectives?

ibid

71
Customer’s Point of View

• Business performance improvement begins and ends

with business performance measurement from the
view of the customer

• An important customer viewpoint is based on value

72
Customer Value Measurement: Improve
Your Unique Value Proposition

“Got to know” answers to the following questions:

• Whose product or service is a customer most likely to
buy?  Will it be yours or will it be that of a key
competitor? 

• Buying decisions are based on Perceived Value: the

trade-off between the quality of the most desirable
benefits and the price paid for those benefits 

• First step: define your value proposition based on

what drives your customer's perceptions of
value. There are a variety of tools, here’s a few…….

73
 Customer Value Model
•Customer value model is
product/market specific
•Based on customer ratings of
supplier performance across a
broad spectrum of performance
criteria 
•Performance criteria are acquired
from customers through research,
and are grouped into quality drivers
on the basis of a statistical
analysis 
•“Weights” attributed to the quality
and value drivers are also
empirically derived, and reflect the
relative importance of each driver
•Has a predictive component and
a managerial component 
•CQI= Customer Quality Index;
Quality ratings are the summated
products of the weighted value
drivers
ibid
74
Example: Print Equipment/Box Makers
Most important quality driver. Comprised of 7
individual performance criteria
questionnaire items (CTQ-Critical to
Quality):
1. Prompt delivery of emergency repair parts
2. Routine maintenance parts readily available
3. Ability to talk to the right person with
complex technical questions
4. Prompt response to technical service
problems
5. Prompt response to requests for product
information
6. Warranty period length
7. History of reputable service
MANAGERIAL part of the model.
Tells which Quality (CQI) components are having the greatest impact
on customer perceptions of value, and what their relative impact is.
ibid

75
Example: Print Equipment/Box Makers
PREDICTIVE part of the value model.
Tells which value driver, Quality (CQI) Image, or Price, best predicts
value, and what the relative predictive power is. This part of the
customer value model describes the trade-offs among Quality, Image,
and Price, and also tells the extent to which value predicts loyalty
Ultimate set of
“worth it”
questions;
Usually 3.

R2 = .824
Tells the % of value that is predicted
or explained by the value
components within the model. More
than 82% of value is explained by
the model components
ibid

76
 Quality Drivers: Head to Head Comparisons:
Delivering Value
•CQIs can be disaggregated into its constituent quality drivers for a head-to-
head performance comparison of you Vs competitors
•Comparisons are based on statistical significance, and interpreted in terms of
advantages, disadvantages, or parity positions
  All comparisons are from XYZ enjoys a competitive advantage
the perspective of XYZ. over all competitors on the Product
Support
XYZ driver,Competitor
as well as on
1 the Competitor 2 Competitor 3
Product Quality driver.
Mean Mean Mean Mean

- Product Support 7.63 7.15 7.40 6.89

- Maintenance Process 7.10 7.05 6.83 6.27

- Installation Process 7.52 7.64 7.41 6.67

- Product Quality XYZ had an advantage over

7.69 7.36 7.35 7.00
Competitor 3, but is at parity with
- Sales Process Competitors
7.72 1 and 2 7.67 7.56 6.72

- Product Mix XYZ 7.92

has a competitive8.01
disadvantage to 7.57 7.29
both competitors 1, and 2 on this relatively
- Printing Features unimportant quality
7.26 7.32driver. 6.21 6.48

- Feeder Features 7.03 7.38 7.66 6.41

 

XYZ Advantage Parity XYZ

Disadvantage
ibid
 
77
 Performance Criteria: Head-to-Head
Comparisons
Each Quality driver is comprised of multiple performance criteria, leading to greater
actionability.
Each Quality driver is comprised
Competitor Competitor Competitor
of multiple performance criteria, XYZ 1 2 3
leading to greater actionability Mean Mean Mean Mean

7.65 7.56 7.47 8.88

Product Support Process
Manufacturer's prompt delivery of emergency spare 8.25 7.25 7.08 7.00
parts
Routine maintenance parts readily available 8.33 7.72 7.66 7.78

Ability to talk to the right person to help you with 8.11 7.44 6.99 8.71
complex technical problems
The manufacturers prompt response to your technical 8.22 7.44 7.26 7.38
service problems
Responding promptly to your requests for product 8.57 8.15 7.20 7.74
information
Length of warranty period 7.61 8.48 7.54 5.98

History of reputable service from the manufacturer 7.76 7.63 7.15 6.80

XYZ Advantage Parity XYZ

Disadvantage
ibid

78
Lean Six Sigma Meets Value
The metrics of customer value bring an external perspective to
Lean Six Sigma initiatives that make them far more strategic,
capable of increasing revenues (top line results) while also
reducing waste.

Ensures value at the point of production, translates into value at the

point of consumption.

Lean Six Sigma Project Charter often address problems to be fixed,

rather than addressing strengths to be leveraged.  Organizations
use a systematic, cascading, sequential set of metrics that use the
Voice of the Customer to identify key value streams for targeted
process improvements using the tools of Lean Six Sigma.  Six
Sigma project charters can be value-based and market-driven for
sustainable competitive advantage

Value Choice--------Strategy-----------Process;Value Delivery

79
It’s up to you!
• How will you shape
the future of quality
in your own work and in the
work you influence?

• What skills will you and or

your people need to
succeed in the future?

80
 Learning Log
Change/Improvement Ideas:
Areas you would like to change to be more effective

1.1 Idea: ____________________________________________

Desired Outcome: ________________________________________

1.2. Idea: ____________________________________________

Desired Outcome: ________________________________________

1.3. Idea: ____________________________________________

Desired Outcome: ________________________________________

1.4. Idea: ____________________________________________

Desired Outcome: ________________________________________

81
 Action Plan
Idea #____________________________________________
Desired Outcome: ________________________________________
Action Step Who is Possible Possible Comments
Responsible Start Complete (Issues, Barriers,
Date Date Resources)

Review with: __________________________________

82