Customer Intimacy and Operational Excellence

Most customers want their products and services delivered with the following four characteristics:

1. Reliability: Customers want dependability, accuracy, and consistency.
2. Responsiveness: Prompt delivery and continuous communication.
3. Assurance: The customer wants to be assured that the project team will deliver its project on time, with quality, within budget, and within scope.
4. Empathy: Customers want the project team to listen to and understand them. The customer really wants to be treated like a team member.

The goal is to select or develop and then deploy initiatives and accompanying metrics that fulfill these four requirements.

An 8% drop in quarterly profits accompanied by a 10% rise in service costs does not tell a customer service team what its service technicians should do differently on their service calls. However, knowing that several new technician hires dropped the average skill level such that the average time spent per service call rose 15%—and that, as a result, the number of late calls rose 10%—would explain why service costs had gone up and customer satisfaction and profits had gone down. The key, then, is to select metrics wisely.

The U.S. government uses an interesting variety of customer-centric measures as part of their e-services initiative:

1. Customer satisfaction index
2. Click count
3. Attrition rate
4. Complaints
5. Customer frustration (abandoned transactions divided by total completed transactions)
6. Visibility into the government process
7. Efficient use of taxpayer dollars
8. Effective sharing of information
9. Trust
10. Consistent quality of services
11. Compliance with Section 508 (handicapped access)
12. Compliance with security and privacy policies
13. Partner satisfaction
14. Political image
15. Community awareness
16. Negative/positive publicity

The balanced scorecard “customer perspective” might be better served by replacing it with the more familiar, IT-specific “user” perspective. This more aptly broadens the customer perspective to include the internal as well as external customers that are using the IT application or its output. From an end-user’s perspective, the value of a software system is based largely on the extent to which it helps the user do the job more efficiently and productively. Indicators such as tool utilization rate, availability of training, and technical support and satisfaction with the tool are useful indicators of satisfaction. Table 10.1 summarizes a variety of indicators and metrics for a typical IT system.

Customer Satisfaction Survey

The easiest and most typical way to find out what your customers think about your organization, products/services, and/or systems is to ask them. The instrument that performs this task is the customer satisfaction survey.

Those doing business on the Internet will find it rather easy to deploy a customer survey. It can be brief, such as the one in Figure 10.1.

There are quite a few survey hosting services available on a pay-per-use basis. KeySurvey (keysurvey.com) and Zoomerang (zoomerang.com) are just two. If a web-based or e-mail-based survey is not practical then you can opt for either doing your survey via traditional mail or phone. Since traditional mail surveys suffer from a comparatively low return rate—1%–3%—it is recommended that you utilize the telephone approach.

The steps to successful customer survey include

1. Assemble the survey team: The makeup of the survey team depends on the type of survey and the target customer base. If you are going to be calling external customers, then the best people for the job are to be found in the marketing, sales, or customer services departments. If this is an IT-derived

   Table 10.1 Customer-Driven Indicators and Metrics for a Computer System

   PERFORMANCE INDICATOR	KEY ASPECTS	PERFORMANCE MEASURE
   Facilitate document transfer and handling	Staff are proficient with the use of IT-based handling procedures	1. Percentage of users proficient with IT-based procedures
   		2. Percentage of documents transferred using IT tools
   Enhance coordination between staff	Improved coordination	1. No. of conflicts resulting from lack of coordination reduced by a percentage
   	More efficient utilization of contractors and subcontractors	2. Time spent on rework arising from lack of coordination reduced by a percentage
   Reduce response time to answer queries	IT application/tool facilitates quicker response to project queries	1. Response time to answer design queries reduced by a percentage
   Empower staff to make decisions	Better and faster decision-making	1. Time taken to provide information needed to arrive at decision reduced by a percentage
   Enable immediate reporting and receive feedback	Information is made available to the project team as soon as it is ready	1. Time taken to report changes to management
   		2. Time spent on reporting to total time at work, reduced by a percentage
   Identify errors or inconsistencies	Reduced number of QA nonconformances through IT	1. The ratio of the no. of QA nonconformances for the IT-based system to the no. of QA nonconformances for the traditional system

   

   Figure 10.1 Brief customer satisfaction survey.
   

   survey, and the customer base is composed of internal customers, then project leaders would be the best candidates for the job.

2. Develop the survey: Appendix XV contains some relevant information on developing questionnaires/surveys as well as on interviewing.
3. Collect customer contact data: Name, company, address, and phone number are the minimum pieces of information you will need for this process. You might also want to capture sales to this client, the number of years he or she has been a client, and other relevant data.
4. Select a random sample of customers for the survey: You cannot, and should not, survey all of your customers unless your customer base is very small. Random sampling is the most popular approach to reducing the numbers of surveys you will be sending out. Alternatively, you can use a systematic sampling approach. Using this method, you select every Nth customer to include in your survey population.

5. Mail a postcard alerting customers about the survey. The postcard or letter should take the following form:

   Dear Mr. Smith,

   According to our records, you purchased our training services. We are interested in knowing how helpful our services were and will be calling next week to ask for your comments. Your responses will help us find out what we are doing well and where we need to improve.

   Our questions will take only a few minutes, so please give us a hand. Thank you in advance for your help.

   Cordially,

   Someone in authority

   Their Title

6. Conduct interviewer training for staff.
7. Call customers and complete a customer satisfaction survey instrument for each person.
8. Send the completed surveys and call sheets to the designated survey analysis team: This might be someone in the marketing department or, in the case of an internal IT survey, the manager designated for this task.
9. Summarize survey results and prepare a report: If you are using web-based or other automated surveying tools, you will be provided with analytical information. If you are doing this manually, then it is advisable to use Excel or another spreadsheet package for analysis.

Using Force Field Analysis to Listen to Customers

Nelson (2004) talks about a common problem when dealing with customers—haggling about the product’s feature list. She recommends using force field analysis to more quickly and effectively brainstorm and prioritize ideas with a group of customers.

The power of this technique, usable in small as well as in large groups, is in uncovering the driving as well as restraining forces for your products and/or services. Driving forces can be: features, services, a website, and so on—anything that helps customers drive toward success. Restraining forces can be quality issues, complex implementation, convoluted processes, support, unclear procedures—anything that prevents your customers from being successful.

The procedure is simple to follow:

1. State the problem, goal, or situation where you want feedback.
2. Divide your customer feedback group into smaller groups of 8–10. Sit them around a table and elect a scribe. A facilitator should also be appointed for each table.
3. Each discussion should take no longer than 30 min.
4. The table facilitator goes around the table asking each person to contribute one force. The table scribe records each new force.
5. Go around the table one or two more times until everyone is in agreement that their top three forces have been listed.
6. Review the list with the group.
7. Each person gets three votes for their top three forces.
8. The scribe will tally the votes for each force.
9. A meeting moderator should go around the room soliciting the top three driving forces from each table.
10. A meeting scribe should document the forces in a spreadsheet projected at the front of the room.
11. Each person in the room gets three votes for their top three forces.
12. The meeting scribe should enter the number of votes for each driving force.
13. When done, sort the list by votes to rank them.

The process is then repeated for the restraining forces. A sample list follows:

Force field analysis enables you to really listen to your customers, which should lead to increased customer satisfaction and, perhaps, an improvement in the quality and competitiveness of your products and/or services.

Customer Economy

MacRae (2002) discards the idea of the new economy in favor of what he refers to as the customer economy. In this model, the customer is firmly in control. The key indicator in this economy is “easy to do business with” (ETDBW). In this economy, the customary metrics of profit and loss and return on assets are much less important than customer loyalty. The new customer-friendly manager focuses on the following metrics:

1. Retention
2. Satisfaction
3. Growth
4. Increases in customer spending
5. Rate of defection and/or predicted rate of defection

MacRae recommends going to the source to maintain customer loyalty. One way to do this is to create a customer advisory council. This is most effective when the leaders of the organization participate as well.

The customer advisory council can be used to help in answering the following questions:

1. What are the customer’s needs?
2. How has the customer’s behavior toward the enterprise changed since the customer was acquired?
3. How does the customer use these products, and what products could the customer own?
4. Which channels does the customer use most and for what types of transactions?
5. What channels should each customer be using?
6. What kind of web-based experience does the customer have?
7. How much does it cost to service each customer’s transaction?

There are also two customer-focused metrics that can be used for the IT scorecard. The quality of experience (QoE) provided by IT services impacts employee productivity, channel revenue as well as customer satisfaction. The metric assesses the user’s experience with IT in terms of responsiveness and availability. Responsiveness is a measure of how long the user is waiting for information to be displayed. This is usually referred to as response time or download time. QoE expands on this definition to address everyone’s experiences with IT—customers, employees, partners, and so on.

The quality of customer experience (QCE) is a set of metrics that allow the organization to assess, monitor, and manage the customer experience. The customer experience, according to this definition, is far more expansive than just accessing the company website. It also might include

• Phone interactions.
• E-mails.
• Visits to your offices.
• Direct-mail marketing.
• Advertising.
• Employee behavior.
• How the product actually performs.
• How the service is performed.
• How the company is perceived by the community. Alternatively, how the department is perceived by the rest of the company.

The heart of QCE is customer outcomes and resulting moments of truth. A customer measures the success of his or her experience in terms of reaching his or her desired outcome. Moments of truth are those points in the customer’s experience where the quality of your company’s execution substantially affects his or her loyalty to your company and its products or services. In other words, moments of truth signify key points in the customer’s experience where he or she is judging the quality of the experience. Therefore, the heart of the QCE assessment is measuring the customer’s success in executing the steps necessary within your system(s) to achieve his or her desired outcomes.

For QCE to work properly, these moments of truth (or key success metrics) have to be determined. They can be different for different people, so the best way to tackle this exercise is to develop a case study or scenario and run through it, pinpointing the moments of truth for each stakeholder involved in the scenario. Consider the scenario of a company that needs a replacement motor—fast. The maintenance engineer needs to get production back up by 6 a.m. the next morning. His “moments of truth” are: (a) the motor is right for the job, (b) he has all the parts and tools he needs, and (c) he finishes before the shift supervisor shows up to bug him. The maintenance engineer must order his motor through his company’s purchasing agent. The purchasing agent has his own “moments of truth”: (a) find and order a motor in 15 min, delivery confirmed; (b) best choice for motor was in the first page of search results; (c) enough information was offered to enable a decision; (d) order department quickly confirmed delivery without making the purchasing agent wait or repeat himself; and (e) invoicing is correct.

Some of the metrics derived from this mapping are shown in Table 10.2.

Innovation for Enhanced Customer Support

We started this chapter by discussing the VOC. Strategyn (https://strategyn.com/), an innovation consulting firm, tightly couples innovation with targeting customer needs and enhancing customer value. However, they insist that the traditional VOC method is unsuitable for sustainable innovation. Their outcome-driven innovation (ODI) framework, while somewhat similar to VOC, is based on eight guiding principles:

1. When it comes to innovation, the job, not the product, must be the unit of analysis.
2. A job map provides the structure needed to ensure that all customer needs are captured.
3. When the job is the unit of analysis, needs take the form of customer-defined metrics.
4. ODI’s “job to be done” principles apply equally well to design innovation.
5. An “opportunity algorithm” makes it possible to prioritize unmet needs.
6. Opportunities (unmet needs) dictate which growth strategy to pursue.
7. Scattershot brainstorming does not work; sequenced idea generation does.
8. Concepts can be evaluated with precision against customer-defined metrics.

The key, then, is to take a holistic view of innovation and building an end-to-end innovation process.

Enhancing revenue through improving customer experience is the aim of most modern organizations. This is usually done through enhancing innovation. Citibank understands innovation and how to measure it. The company long had an innovation index. This index measured revenues derived from new products, but Citibank deemed this index insufficient to meet their needs. They created an innovation initiative, staffed by a special task force. This group was challenged to come up with more meaningful metrics that could be used to track progress and be easily integrated into Citibank’s balanced scorecard. The task force eventually developed a set of metrics, which included new revenue from innovation, successful transfer of products from one country or region to another, the number and type of ideas in the pipeline, and time from idea to profit.

There are two types of innovation:

1. Sustaining: Advances that give the most profitable customers something better, in ways that they define as “better.”
2. Disruptive: Advances that impair or “disrupt” the traditional fashion in which a company has gone to market and made money, because the innovation offers something our best customers do not want.

Most software companies continually enhance their line of software products to provide their customers with the features that they have stated they truly desired. This is sustaining innovation. These companies might also strive to come up with products that are radically different from what their customers want in order to expand their base of customers, compete with the competition, or even jump into a completely new line of business. This is disruptive innovation.

Most people equate innovation with a new invention, but it can also refer to a process improvement, continuous improvement, or even new ways to use existing things. Innovation can, and should, occur within every functional area of the enterprise. Good managers are constantly reviewing the internal and external landscape for clues and suggestions about what might come next.

1. Research results from research and development (R&D): One of the challenges is being alert to market opportunities that might be very different from the inventor’s original vision.
2. Competitors’ innovations: Microsoft leveraged Apple’s breakthrough graphical user interface and ultimately became far more dominant and commercially successful than Apple.
3. Breakthroughs outside industry.
4. Customer requests: A “customer-focused” organization’s products and services will reflect a coherent understanding of customer needs.
5. Employee suggestions.
6. Newsgroups and trade journals.
7. Trade shows and networking.

Some experts argue that a company’s product architecture mirrors and is based on their organizational structure. This is because companies approach their first project or customer opportunity a certain way, and if it works they look to repeat the process and this repetition evolves into a company’s “culture.” So when we say a company is “bureaucratic,” what we are really saying is that it is incapable of organizing itself differently to address different customer challenges, because it has been so successful at the original model.

There are a variety of workplace structures that promote innovation:

1. Cross-functional teams: Selecting a representative from the various functional areas and assigning him or her to solve a particular problem can be an effective way to meld quickly a variety of relevant perspectives and also efficiently pass the implementation stress test, avoiding for example the possibility that a particular functional group will later try to block a new initiative. Some variations include
   1. “Lightweight project manager” system: Each functional area chooses a person to represent it on the project team. The project manager serves primarily as a coordinator. This function is “lightweight” in that the project manager does not have the power to reassign people or reallocate resources.
   2. b. “Tiger team”: Individuals from various areas are assigned and are completely dedicated to the project team, often physically moving into shared office space together. This does not necessarily require permanent reassignment, but is obviously better suited for longer-term projects with a high level of urgency within the organization.

2. Cross-company teams or industry coalitions: Some companies have developed innovative partnership models to share the costs and risks of these high-profile investments, such as
   1. Customer advisory boards
   2. Executive retreats
   3. Joint ventures
   4. Industry associations

There are several managerial techniques that can be utilized to spur innovation, as shown in Table 10.3.

Managing for Innovation

At a very high level, every R&D process will consist of

1. Generation of ideas: From the broadest visioning exercises to specific functionality requirements, the first step is to list the potential options.
2. Evaluation of ideas: Having documented everything from the most practical to the far-fetched, the team can then coolly and rationally analyze and priori-tize the components, using agreed-on metrics.
3. Product/service design: These “ideas” are then converted into “requirements,” often with very specific technical parameters.

There are two core elements of this longer-term competency-enhancing work. The first is the generation of ideas. Most companies utilize a standard process to make sure that everyone has time and motivation to contribute. The second element is to promote an environment conductive to innovation. This includes

1. Cultural values and institutional commitment
2. Allocation of resources
3. Linkage with the company’s business strategy

Creating an “innovation-friendly” environment is time-consuming and will require the manager to forego focusing on the “here and how.” When there is constant pressure to “hit the numbers” or “make something happen,” it is difficult to be farsighted and build in time for you and your team to “create an environment.”

Managing innovation is a bit different from creating an environment that promotes innovation. This refers to the service- or product-specific initiative, whether it is a new car or a streamlined manufacturing process. The big question is how do we makethis process come together on time and under budget? There are two main phases to the successful management of innovation:

The first phase seeks to stress test the proposal with a variety of operational and financial benchmarks, such as

1. Is the innovation “real?” Is this “next great thing” dramatic enough to justify the costs, financial and otherwise? Does it clearly and demonstrably distance you from your competitors? And can it be easily duplicated once it becomes public knowledge?
2. Can the innovation actually be done? Does the organization have the resources? This is where you figure out whether the rubber meets the road. You need to ask whether you have the capabilities and functional expertise to realize this vision. Many organizations come up with a multitude of ideas. On further examination, they often find that they simply do not have the resources to do the vast majority of them. This might lead them to become innovative in a different way as they search for partners. In other words, some organizations try to couple their brains with someone else’s brawn!

3. Is the innovation worth it? Does the innovation fit into the organization’s mission and strategic plan? Return on investment (ROI) is the most frequently used quantitative measure to help us plan and assess new initiatives. Probably more useful, however, is return on management (ROM), which poses a fundamental question: what should the CEO and his or her management team focus on? Research extending over a period of 10 years led to the concept of ROM. This ratio is calculated by first isolating the management value-added of a company, and then dividing it by the company’s total management costs:

   Return-on-management = F(management value-added, management coosts)

   Management value-added is what remains after every contributor to a firm’s inputs gets paid. If management value-added is greater than management costs, you can say that managerial efforts are productive because the managerial outputs exceed managerial inputs.

   Another way of looking at the ROM ratio (ROM™ productivity index) is to view it as a measure of productivity. It answers the question of how many surplus dollars you get for every dollar paid for management.

4. The second phase, design, is the process by which these ideas and concepts get distilled into an actual product design, for example, a website map or a prototype. Many mistakes are made by delegating this process to lower-level functional experts, when in fact some of these decisions go a long way toward determining the product’s ultimate acceptance in the marketplace!

Most of the outward signs of excellence and creativity that we associate with the most innovative companies are the result of a culture and its related values, which encourage and support managers who use their specific initiatives to reinforce and strengthen the company’s processes. When these processes become “repeatable,” they become the rule instead of the exception, which of course makes it easier for the next manager to “be innovative.”

Capital One is a company that uses a model based on continuous innovation. They utilize a patented information-based strategy (IBS) that enables the company to expand its mature credit card business by tailoring more than 16,000 different product combinations to customers’ needs. They are able to embrace high degrees of risk because they base their innovations on customer needs. The company tests new ideas against existing customers or possibly a separate grouping of prospects.

In Conclusion

A wealth of metrics can be derived from the preceding discussions. Other innovation metrics to consider include

1. Return on innovation investment: Number of customers who view the brand as innovative, divided by the total number of potential customers
2. Brand innovation quotient: Number of repeat purchasers divided by total number of purchasers
3. Pipeline process flow: Measures number of products at every stage of development (i.e., concept development, business analysis, prototype, test, launch)
4. Innovation loyalty: Number of repeat purchases made before switching to a competitor