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Off Your Nose To Spite Your Face
by Peter Block
by Cathy Kramer
Business News Briefs
for a Change
Cutting Off Your Nose To Spite Your Face
Balancing Processes and Customer Needs to Maximize Profits
You're rushing to the airport to catch your flight home.
The car rental company requires that you fill up from a station within seven
miles of the airport - or else they'll charge $3.99 a gallon to fill it
for you. Lost, late at night and in unfamiliar territory, you curse such
an insensitive policy and vow never to rent from the agency again.
True story? Yes, unfortunately. It's the product of finance-focused
management out of balance, and customer-insensitive policies like this one
should make your blood boil. Inconsiderate treatment of customer needs brings
repeat business to a halt.
Don't Forget the Customer
Ultimately, financed-focused management can result in big revenue losses,
according to David Saunders of ARBOR Inc., Baltimore, Md. and Brent Kedzierski
of Blue Cross Blue Shield, Owings Mills, Md. Saunders and Kedzierski argue
that, while financial return is essential, so is increased revenue. They
provide a method for managing both aspects of a business by aligning customer
goals with the financial goals of the company. The end result? Increased
Staying competitive in the business world means continually integrating
customer needs into business processes. According to Saunders and Kedzierski,
this integration can be done by aligning customer satisfaction measures
and internal process measures. They have developed a model for defining
these measures, and diagrammed them to discover their hidden relationships.
"Finance-focused management was very common across
America, especially in the late 1980s and early 90s, as management, intent
on improving the bottom line, focused mainly on costs," Saunders recalls.
He and Kedzierski propose a more balanced approach, agreeing that of course
it's good to keep costs down, but not at the expense of growing revenues.
In pursuit of balance, Customer-Focused Management, in which customer information
drives the organization, lets executives look at customer data to grow revenues,
and financial data to examine costs and review the bottom line.
Kedzierski believes, "fundamental to revenue growth
is the alignment of customer data with process data," and that is where
the new model comes in. It demonstrates how to align customer information,
the voice of the customer (VOC), with company policy and procedure, the
voice of the process (VOP), in concrete, company-wide steps, to make the
most of data collected in the company's everyday operation.
Listen to the Customer
Alignment involves planning a VOC system, gathering VOC data, understanding
that data and deploying it. In planning, questions to ask include: How much
information does the company have and from where? How has it been attained
and how is it relevant? Kedzierski illustrates, "The marketing department
may have a rich source of data from the sales force; the service department
can have valuable data from the complaint department; and executives have
insights from site visits and personal interviews."
Once data is identified, collected and organized in a common
format, it is placed into a table. On a single subject, points of view from
the sales force, service department, executives, market researchers, media
and others can be viewed in perspective to each other.
Listen to the Process
The next step is to define the voice of the process (VOP), or how the company
establishes policies and procedures. The VOP uses the same four primary
steps as the VOC: plan a VOP system; gather VOP data, understand and deploy
that data. First, the company needs to establish what information is relevant
regarding a specific process. For example, what are the resources required
to support the process? What are the results? Where does variation occur
and do opportunities exist to improve the process?
VOP data includes measures of variation such as overtime
costs, trends and error rates. Charts, diagrams and other means of statistical
analysis provide managers with guidance on when to take action and when
to let a process run its course. Managers need to know the difference between
common and special causes of variation, and the information gathering step
of the VOP enables them to differentiate.
What Do You Hear?
Now that the business has a store of VOC and VOP information, the next step
is to compare the data in an alignment table. This table allows managers
to identify the degree of alignment between a process measure and a customer
desire and provides a forum for decision-making dialogue between executives
and process managers. The steps for constructing an alignment table include:
recording the customer "wants" (derived from VOC process) on the
vertical column, and the company's internal policies on the horizontal row.
To find out whether these two sets of data are in alignment, ask: Are the
two dependent on each other? If not, disregard them - they don't work in
the alignment table analysis. If they are dependent, what is the level of
dependence, high, medium or low? Also ask, how do we measure the internal
process? Is this in alignment with the customer wants? If not, VOP and VOC
Misalignment can cost the company in a number of areas,
including sub-optimization, in which one department's maximization of a
goal adversely affects another department's goals. Or, as productivity increases,
customer service may decrease. Consider the car rental agency which lowered
service costs by requiring a receipt from a gas station within seven miles
of the airport - a great inconvenience that resulted in the customer going
elsewhere for future business.
Misalignment should be a flag to the executive that revenue loss may occur
and additional steps will be needed to improve alignment between the VOC
and VOP. When the discord between voices is eliminated, the resulting harmony
is music to the ears of the
customer - and the bottom line.