Whats Better? Satisfied Customers or Loyal Customers?

If you are running a business, what would you rather have, satisfied, happy customers or loyal customers? I suspect many might say that the idea of a satisfied customer seems like the right visual in their minds eye. Some one who is pleased with the experience they have just been through, leaving the store with a smile on their face and contentment with their purchase. Trouble with that is that your in business to make money. I know, I know, the standard mantra is that satisfied customers will come back again and again. That may be true, or maybe its not.

Loyalty and satisfaction differ in one significant respect: action. Satisfaction is defined as a feeling about a past interaction or set of interactions. Satisfaction is fleeting and does not translate to actions on the part of the customer. This is where loyalty differs. Loyalty is focused on the buying behavior of the customer. Research by the Corporate Executive Board (an industry benchmarking research company, www.executiveboard.com) discovered that loyal customers were more likely to behave differently in three ways:




Loyal Customers

1. Recommend the supplier to others more often

2. Increase purchases

3. Partner with the supplier on new opportunities



To contrast, Satisfied Customers


 
1. Purchase based on price

2. Purchases remain steady or decline

3. Will readily jump to competitor based on price, availability, or negative experience

4. No partnership on new development

So which of those sounds like the customers you want? I don't know about you but give me loyal customers any day.

So whats the difference? Is there a difference? Turns out there is a difference. A satisfied customer is merely a spectator in the operation of your business. What I mean by this is that their involvement is more superficial, more circumstantial, and more subject to change at a moments notice than the loyal customer.

Ever had a conversation with a die hard car brand enthusiast? There is no swaying them from their brand, and if you press hard enough strong emotions and maybe some fists will fly. That's loyalty. They know all of the gory little details that make their brand the best. They are in it up to their eyeballs. Satsified customers really do not know much about the brand they have purchased, and as such, do not have a strong attraction to it.

I'll relate a personal experience. My wife owns a General Motors car. The now defunct brand has been problematic from the beginning. I have owned various General Motors brand vehicles over the years. Some have been pretty good, but none have been great, none have wowed me in the areas that matter most to me. I have been a satisfied customer, but not a loyal customer. Now back to my wife's car. Like I said, problematic from the first, but thats not the end of the story. We have owned problematic cars before from other brands (not GM) and I would consider owning one again if I did my homework and found their quality and engineering to be good. I will never allow another GM product into my garage again though. To say that I am a dissatified customer of GM is a vast understatement on par with saying that World War 2 was a minor disagreement between friends. Never, I say, NEVER will I own another GM. Why such strong emotions on this brand? It was not the problems alone that caused it, it was the problems and the fact that they could not be solved in 6 (count them 6!) tows to the dealer, it was the problems and the tows and the lack of fixes, and the moronic engineering that makes it so I can not change a burnt out headlamp, and the poor structure that required suspension work normally reserved for cars older than decade.

In short, my several ownership experiences with this car have led me to conclude that as a company GM is not competent at what it does...build and sell cars. The entire experience has been awful, thoroughly and completely awful. Interestingly enough though, I may never have arrived at this conclusion were I not a die hard car brand enthusiast for another brand. About 8 years ago, I bought my first Japanese car, a Subaru. Now let me say that I didnt get the whole "Subaru Love" thing for the first couple of years, but after we bought my wife's car, I started to notice all of the things that I did NOT have to do to my car. In 8 years, nothing but regularly scheduled preventive maintenance. If the headlamp goes out (which it has) I can replace it myself in about 10 minutes for about $20. No ball joints needing replacement after 60,000 miles, no intermittent electrical outages. No problems at all. In my entire car buying adult life, I have never owned a car this well put together, this well thought out. In short, I am a very loyal Subaru customer.

So this little story brings us to the essential element of loyalty versus satsifaction. I'll give you one guess which brand my next car will be, and one guess which brands it will not be. Subaru will be rewarded with my money in short because I see that they are competent at what they do and I am loyal to them for it.

So, which kind of customers do you want?

Quality Methods Take Business by Storm; Whats Next?

Quality Circles, Total Quality Management, ISO 9001, QS9000, Baldrige, Six Sigma, Lean. All of these methods have at one time had lots of attention in the press and in the Quality profession. Looking back on these methods and their moment in the sun, I have one (maybe more than one) observation. All of these methods are valuable and have had major impact through disciplined application in a number of different companies but the one thing that strikes me is that all of these methods have been touted as a savior for all of our quality woes.
Quality Circles were the thing in the 70's and 80's as America struggled to catch up with quality advances made in Japan under the tutelage of Dr. Deming. ISO 9001 took off in Europe and Asia first but steadily gained momentum in the US in the 90's as more and more international companies started to make it a condition of business. The 80's and 90's saw the excitement about possible benefits of achieving the Malcolm Baldrige National Quality Award. Much was made of stock indexes based on the Baldrige winners beating the S&P 500 by significant margins. Many of us lived through the PR assault for Six Sigma created by Jack Welch at GE and others. Dramatic claims were made about savings achieved using six sigma, attracting lots of media attention. Lean has been slowly but surely gaining adherent over the years as Toyota continues to perfect the method and tools that has led to the elimination of millions of dollars in waste around the world
I think this is an interesting parallel to what we have seen here in the US in the last 30 years when we think about the stock market. Many of these companies have been doing things well for years and they just happen to do it using lean, or six sigma, or ISO 9001, or Baldrige, or Quality Circles. People start to hear good things about this companu or that and what they are doing with Baldrige and how their stock price is up compared to everyone else and suddenly, everyone starts to thign that the secret to success is the quality method du jour. Then of course everyone wants to learn about the method and pretty soon, just like preppies in the 80's, everybody is doing that sexy new quality method and looking for the big payoff. Some find it, others don't. Which is just additional proof that its really not the method as much as the culture of the organization attempting to employ it.

Back to that interesting parrallel I mentioned before. I have been a working adult through the last two recessions (2008-Present, and 2001-2002) While I was not a working adult during the recessions in 1979-81, or 1987, I do remember them well and I think there is an interesting difference between these era's that relates to our attitude about quality. The recessions of 1979-81, and 1987 were what I would call "normal" recessions. Normal in that they were caused by normal economic factors such as inflation, failure to compensate for changes in economic conditions, oil shortages, conflict, etc....The recessions of 2001-02 and the present one are different from the others in that they have been primarily caused by irrational speculation coupled with poor business discipline. Not since the Great Depression has speculation caused so much upset in the world. Seems the old saying is true, those that dont learn from history are doomed to repeat it.

OK, so what does all this have to do with Baldrige, Lean and Six Sigma? They are parrallels for our experience in the markets, sexy methods that were going to come in like white knights and save us boatloads of money. Baldrige winners were supposed to outperform the S&P 500 by significant percentages, ISO 9001 was going to keep American companies in business, and of course, Six Sigma saved the day at GE, Allied Signal and others in the 90's. None of this is false information, all of these things happened. So why is it that every company is not going for Baldrige, or applying Six Sigma or Lean? Why are none of these the silver bullet once claimed? Basically, it comes down to what really matters and what we should be focused on: Quality Fundamentals. Quality Fundamentals or those things that help a company delight customers, drive continuous improvement, and enable excellence. Whether you call it ISO 9001, Baldrige, Six Sigma, or Lean, those are the things that matter most.

Measure What Matters

I was recently reading an update on the 2009 Baldrige National Quality Award recipients and in the right margin an article title caught my eye. Get the article here. The article was about a North Carolina school district that received the award in 2008 but the subject of the article was really about developing meaningful measurements. The author discusses how this is a key concept in the baldrige criteria and I pondered that for a minute......Really, that's a key concept of business. Every business, regardless of their intentions towards national quality awards, or not, should measure what matters most to their business. In last weeks' post I discussed a business situation in which the measurement did not drive action. Go here for a refresher. This is a key component of measuring what matters, does it draw in resources? Perhaps a better question might be, should it draw in resources? Should a measurement cause a leader to make a decision to dedicate some resources to its improvement? If it matters, the answer would be: Yes. So obviously the decisions about what to measure are very important. The first question should be; Does this matter to our customers? If the answer is yes, then it matters to you too. It should be measured and improved if not meeting needs. The second question should be; if this measurement does not meet the need, are we committed to improving it? If the answer to the first question is yes, then this one should be an easy yes. Sometimes its not though, hence my story from last week.

So how do we determine what to measure? What matters most? The short answer is: Get to know your customer. What matters most to them about the product or service you provide? Go ask them. Conduct surveys, solicit feedback, analyze complaints, talk to ex-customers about why they are ex-customers, and potential customers about their needs and expectations.

Lets be honest. Sometimes its hard to achieve a balanced perspective on whats important. Every business is concerned about costs, and quality, and customer satisfaction, and employee satisfaction to some degree. But how do you balance these sometimes competing concerns to make sure that cost does not outweigh quality or customer satisfaction does not drain the company cofers. Enter the Balanced Scorecard.

The balanced scorecard approach suggests that we view the organization from four different perspectives, establish objectives, measures, targets, and initiatives for each perspective. The four perspectives are: Financial, Customer, Learning & Growth, and Internal Business Processes. These four areas surround the central theme of the business; the vision and strategy. As you can see from the model above, each area interacts with the areas adjacent to it, so improvement in learning and growth has a positive impact on internal business process performance and customer satsifaction. The better we are at our internal business processes, the better we are able to meet our customers needs and improve our financial situation.

Of course, the balanced scorecard is only one approach to measuring what matters. There really is not right or wrong way to do it, just do it. Determining what matters most to the success of the business, developing measures, monitoring performance, and committing resources to improve when necessary are really the keys to success no matter what format you chose.

Requirement One for Continuous Improvement Culture-Significant Emotional Event

The Significant Emotional Event (SEE or Epiphany) is what is required to start down the road to developing a continuous improvement culture. CI culture change is driven by the survival instinct.

So what is the SEE? It is the realization that creeps into the leadership of a company that if something doesn't change, things are gonna get alot worse around here. Maybe the SEE comes from competition taking away market share, or customers firing you, or significant drops in sales and revenue. If the SEE comes from those kinds of things, chances are, the ship is already lost or at least the battle to turn things around will be alot tougher.

The trick is to sensitize the organization to EARLY signs that help deliver the SEE, while there's still time to right the ship. So what are the early signs? First, before going into that one thing that must be said is that the organization must saturate the company with the Voice of the Customer (VOC). I've talked about one of my favorite books on this; The Customer Driven Company by Richard Whiteley. In The Customer Driven Company, Mr. Whiteley makes the point that quality is from the customers' viewpoint. This is a common idea to lean practitioners where value is defined by the customer, same idea. The bottom line is that the organization has to start by accepting what the customer says as the truth and understand that we are all in the business of satisfying customer needs, not producing goods. Once the customer version of the truth is endorsed, metrics dashboards need to be built and monitored that give those early warning signs of trouble. That's not enough, however. You have to act.

A recent example illustrates the point. The Voice of the Customer for Company A stated, among other things, that responsiveness on quality issues and effectiveness of the response were key factors for improving customer attitudes towards the company. Metrics were established for measuring time to key milestones for response on customer complaints. Performance against these metrics was poor. In many cases Company A did not meet any milestones for any complaints in a given month, dates slipped, excuses started flying.

What didn't happen next is what was important. When the monthly metrics reviews showed continued poor performance, and a continuous improvement project was suggested, no action was taken. Why? Who knows, pick your excuse. Too much firefighting, not sure if its really important or not, can't be fixed. We heard 'em all. The bottom line is, the excuses worked. Management was lulled into indecisiveness because they decided it was easier to dismiss the metric as unimportant than to act on trying to improve it.

If the Voice of the Customer was truly present in this situation, the metric would drive a decision to improve the process based on the poor measured performance and the understanding that it is an important characteristic of quality in the customer's eyes. The hard lessons of the Significant Emotional Event would send a message throughout the organization that says "Believe what the customer tells you, it's important to our survival."

To quote a recent political expediency, "Never let a good crisis go to waste, its an opportunity to do important things you would otherwise avoid". Quality Leaders should recognize the early signs of the crisis and push the message for all its worth.

Tug of War: Customer Satisfaction vs Cost Reduction

This is the classic struggle of Quality. High quality and high customer satisfaction demands that suspect product be thoroughly scrutinized and a high standard set for its release to a customer. Customers expect this and quality staff strive to achieve it. The other side of the tug of war is cost. Business leaders are looking for every advantage they can get in reducing their costs and scrap product is one fo the biggest targets out there. Does it have to be this way? Can Quality and Business be on the same side? In short, the answer is, yes they can. What's required is a change in attitude and approach about quality. The two models below help to illustrate the different attitudes about quality. In the Economic Conformance Model illustrated below the classic Quality vs Cost struggle is portrayed. The underlying philosophy is that high quality costs money and that there exists a point of diminishing returns. That point is called the Economic Conformance Level (ECL). The ECL is the point above which higher quality is more costly to achieve that its "worth". This viewpoint pits those with "Quality" in their job title against those without in a dance to determine where the ECL exists for the business and promotes a "good enough" rationalization mindset that permeates every product quality decision eventually.

For a different perspective, we turn to the work of Phillip Crosby. Mr. Crosby developed a four part quality philosophy through years of proven experience. The four components of Mr. Crosby's philosophy are:

1. The definition of quality is conformance to requirements


2. The system of quality is prevention

3. The performance standard is zero defects

4. The measurement of quality is the price of nonconformance

Mr. Crosby's approach is illustrated below in the "Quality if Free" perspective on quality costs.

A key component of Mr. Crosby's philosophy is the definition of quality. "Quality is defined as a conformity to certain specifications set forth by management and not some vague concept of "goodness." These specifications are not arbitrary either; they must be set according to customer needs and wants." This statement is very important for what it really means in practice. It means that everyone from top management on down is engaged in the work of quality, not just those folks with "Quality" in their job title. It means that management must grapple with interpreting what the customer wants and needs and set policy to achieve those wants and needs, accepting the consequences of not achieving those results and relieving the pressure on the organization to rationalize quality and cost. I participated in a discussion recently which is frightening but illustrates the point. In this discussion, trend data were being reviewed and a poor trend was displayed for a product that is limping along. A meeting particpant then announced that the product would continue to be made for the next couple of years in response to customer demand. Since this was beyond what we had all come to understand was the End Of Life of this product, the questions started to fly. Will we now engage suppliers in process improvement? Will we perform process improvement in-house? Will we upgrade the raw materials? In short, will we invest in helping make and keep the product "good". The answer to all of these questions was No. Now here's the frightening part; tacked onto that No was a statement that the problems with the product were because we had accepted the notion that variation should decrease over time and the continuous improvement was driven by customer demands. "We should just say no" to tighter control limits requested by the customer is the viewpoint expressed. Clearly, this is not a customer-centric approach to quality and shows that there is still work to be done to change hearts and minds.

So how do people with Quality in their job title fit into this system? The unpleasant answer is that, in my opinion, Quality folks should do everything in their power to work themselves out of a job by working with top mangement to change the view of quality from a job responsibility to an organizational value. When everyone values quality from the customer perspective, and acts accordinly, "Quality" folks in the traditional sense will no longer be needed because there will be no need to police for quality. Quality becomes a  consultive role to management in interpreting customer needs and wants and giving guidance on what that means in practice.

Lean-Its Not Just for Manufacturing Anymore

Lean is not just for manufacturing anymore! Really, lean has always been about removing waste from processes, any processes, it doesn't matter if they are manufacturing processes or office processes. So why the disconnect? Why do so many look at Lean as something that applied to the manufacturing floor but not to their office space? I think the difference is in how you think about Lean. For instance, if you consider 5S. It is very easy to see how and where 5S is applied on the shop floor. It involves the physical arrangement of the space and the tools within it. Easy to see and wrap your brain around. Move into the office and things get a little harder but you can still see removing clutter and establishing organization and homes for everything, but move into the digital office and you've got problems. To see an opportunity for 5S you have to change your thinking because the mess and lack of organization is not right out in front of you, it might be in your computer. The same 5S concepts apply to your e-document & data storage and retrieval as would if you printed it and put it on your desk.

What is the focus of the Lean office then? Productivity, Efficiency, and Customer Satisfaction. Lets consider Productivity and Efficiency. A 2008 report on global productivity by Proudfoot Consulting showed that unproductive time (defined as time spent doing things that were unproductive for the company) rose to a new high of 34.3% or roughly 1.7 days per week per employee of time wasted. The story by industry sector is not much better. See the chart below for the sector breakout.

The number one cause cited for low productivity was staffing shortages and labor issues. This is great news if your thinking about how to implement a Lean Office because this means that by streamlining your processes, removing wasteful delays, reviews and approvals, you can bridge the staffing gap and do more with the same staffing levels.

Be sure of one thing though. If you're thinking about how to become more efficient, your competition is too. The chart below shows the gap that exists by geography between potential and realized gains in productivity. This data shows Europe and North America losing ground to Asia-Pacific and BRIC regions in terms of realizing producivity gains. The really bad news in this is that the staffing shortage issues don't exist in those regions, meaning that even as they work to gain efficiency and productivity, they have no shortage of labor to bridge the gap.

Here's an example of a ripe opportunity for waste reduction. How many of us receive reports that we dont get much from? Or maybe we dont even read them at all. According to the 2008 Global Productivity Report, Managers said they needed on average 6.6 reports to do their job, but received 10 per month. Meaning that 34% of the reports created every month are not needed. How much staff time is spent preparing those reports? The chart below shows the data broken out by best and worst. In the west, we are swimming in reports! This is a waste of your time but also the people that have to put these together each month.

That covers Productivity and Efficiency but what about Customer Satisfaction? I mentioned earlier that to think about Lean in the digital age, we have to change our paradigm. In the lean digital office environment, we first must understand that everyone has a customer, internal or external, and that all customers have legitimate needs that we can fulfill. To improve customer satisfaction in the Lean Office, just as in the Lean Manufacturing setting, you must understand your value proposition. What is the thing that your customers' value from your organization. What do they need, really need, in their terms, not yours. If they were paying you, what would they want to pay for? I'll give an example to consider: Consider an Internal Training Development Team. They might say that the customer needs good quality training content, jazzy graphics, and slick animations to keep people interested. If we were to ask the customer, they would probably say that what they need are to have their people's skills enhanced so they can be more effective at their jobs. If you consider what the customer really values, you can imagine that the outcome might be very different.

Lean is not just for the shop floor anymore. Lean is universal, it applies to any process. Not every lean tool will apply in every situation but the overall lean principles of reducing non-value added activity, enhancing value added process steps, doing only those things that enhance value for the customer, making only what is needed by the customer, and continually striving to improve apply universally to all business situations.

Worker Satisfaction at an All Time Low

A recent news story caught my attention and I thought was worth commenting on here. Here's the story. The jist of the story is that worker satisfaction is at its lowest since data has been collected on the subject. The major idea of the article was that this low satisfaction has long term implications for innovation and excellence. Of course this is true, the issue is risk. When people do not feel safe, they don't take risks. Risk taking is what produces innovation, excitement, and a feeling of satisfaction with the job. Accomplishing something hard is very rewarding. Three things that workers said in the survey were;

1. Fewer workers consider their jobs to be interesting.

2. Incomes have not kept up with inflation.

3. The soaring cost of health insurance has eaten into workers' take-home pay.

The second and third things are certainly not trivial, but are a sign of the times with the width and depth of the recession that we are in. The first item is what interests me however because it makes sense to the way the workplace has changed over the past two years. The idea is survival. If you have a job, thank your lucky stars and do whatever you have to to keep it as long as you can. The problem with this is that we can't keep playing whack-a-mole with our workforce and expect them to stick their neck out and take a risk for the business. Risk taking is necessary for businesses to thrive and survive. The role of the leader is to create an environment where risk taking is allowed. Let me be clear on what this means. Risk is a two sided coin. Doing something hard is and should be very rewarding, but taking a risk and failing to achieve success is rewarding too, as long as risk of failure does not put the risk taker out on the street. A risk taken but failed is a learning experience. Thomas Edison failed hundreds of times in his quest for the incandescent light bulb. After his success, someone asked him about his many failures, to which he replied that they were not failures at all, that in fact, he learned many hundreds of ways NOT to make a light bulb. As you read this post, probably under a light of some kind, think about where we would be had Edision laid himself off after failing at inventing the light bulb in 5 or 10 attempts. Is there an Edison at your workplace, keeping his or her head down, playing the survival game?

A Slight Diversion-But Still in the Spirit of Excellence

Please forgive the diversion. Normally this blog is about business stuff, continuous improvement, quality management, six sigma, lean, etc... Today's post is about excellence of another kind. Yesterday my oldest son was awarded the rank of Eagle Scout, the highest rank in Boy Scouts. Here is the speech I made at his ceremony. The names have been changed to protect the innocent.


I remember taking him to the sign up meeting for Cub Scouts, trying to read his face for any signs of excitement, interest, distaste. I don’t really remember what I got, but we decided to plow ahead and go into Cub Scouts. I was in Cub Scouts, and so I wanted my son(s) to be in Cub Scouts because I had some fond memories and I thought that what scouts taught was worth learning, and that it was fun. I remember his first Pinewood Derby car project. I remember feeling like I lost five years off my life while trying to NOT help him too much. He didn't grasp the concept of applying pressure to the saw to help it cut faster. He believed that gravity would do the job for him. Eventually it did. Fast forward a few years and its time to pick a troop. He chose Troop 111, not because he knew anyone here, not because any of his fellow den mates decided to come here (they didn’t), but for what in our estimation, was the most right reason of all, because he liked this troop over any of the other troops he visited. We settled into the period where all of his den mates tried to pressure him to change his mind, he held firm and in the end, all of the other six boys in his den went to the same troop, then three promptly dropped out of scouting.


We came to Troop 111, and boy scouting was new for all of us, so we embarked on the adventure together and while we have had our ups and our downs, in the end, I wouldn’t trade the experience for any in the world. Scouting has given us the opportunity to do things together that we probably wouldn’t otherwise have done. The opportunities have been too numerous to mention here. Through it all, I have gotten to watch and help him get over the rough parts and celebrate the good parts and grow into the fine young man he is today.


We are proud of our son. I suppose that is obvious, but it goes deeper than the obvious things. While we are proud because he has achieved the highest rank in scouting, that’s not all. While we are proud because he planned and executed a project that required leadership beyond his years, that’s not all.

A parents wish for their child is that they will teach the right lessons, apply the right pressure, push just enough but not too much, and that the child will, in the end, become a responsible, productive, contributing citizen, with a job, a place of their own, and have built for themselves, a good and happy and fulfilling life. While some of these wishes are still in the future, we are proud of oldest son for the person he has become, and we know that, as he sets out on the next journey of life, he has the skills, values, and compass to be successful in life.


One of the things that I admire most in you is your sticktoitedness. You never quit, you hang in there when others throw in the towel. It does not escape me that we are here today to celebrate your achievement of the top rank in Boy Scouts, an achievement that only 4% of all boy scouts reach. The reason that is on my mind is because, as I mentioned at the beginning, I was never a Boy Scout, let alone an Eagle Scout. When I was your age, I could not have done what you have done. I didn’t have it in here. The credit for your achievements that we celebrate today are yours, but you didn't get here all on your own. I am grateful for whatever small part I may have played in helping you along the path to Eagle, but I am most proud of the person you have become. We love you. Congratulations.