Ournal of Ervices Arketing: Strategies For Service Quality

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ISSN 0887-6045
JOURNAL OF SERVICES MARKETING

Strategies for Service Quality Guest Editor: Martin Fojt
Volume 9 Number 3 1995
2 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 36 38 40 42 44 47 49 51 53 55 58 60 63 66 68 70 Editorial........................................................................................................... Enhancing quality in service industries ....................................................... Leading the knowledge of workers of the 1990s .......................................... Becoming a customer-driven organization .................................................. Calculating the return on quality.................................................................. From service to product ................................................................................. Can a company be both low cost- and service-oriented? ............................ Keeping the customer satisfied...................................................................... Passenger focus keeps railway on track ....................................................... Service on which you can bank ..................................................................... Inflight philosophy ......................................................................................... Capturing the customers voice..................................................................... No news is bad news ....................................................................................... Quality planning and the communication plan ........................................... Focussing on customers ................................................................................. Focus on customers, focus on growth and focus on profit .......................... ISO and total quality ...................................................................................... Total quality can work ................................................................................... Delivering community benefits ..................................................................... The kingdom of the customer ........................................................................ The TQM route to top of the class ................................................................ Improving customer satisfaction at London Underground ........................ Putting people into the process...................................................................... High-flying employee ownership................................................................... Making reengineering human ....................................................................... Putting your money where your mouth is .................................................... Royal Mail delivers total quality ................................................................... GTE Directories Corporation ....................................................................... AT&T Consumer Communications Services ............................................... Reengineering turns company toward the customer .................................. Barclays invests in technology to boost customer service and market share ............................................................................................ Many financial institutions still confuse customer care with quality .......................................................................................................... The quality cry of a modern Paul Revere ....................................................
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Editorial
That someone can make us feel good is a quality in itself. There has been much talk within British government circles, for example, about the feelgood factor, which is constantly reminding us that it is just around the corner! Whether or not we can believe in this is another matter but it certainly displays an awareness that making other people feel good can also have positive benefits for ourselves. How this can be achieved will differ depending on our particular line of business. Having a good-quality product does not in itself guarantee success as service quality must also be taken into account. This is where the feel-good factor comes into play. It is all very well, for example, going to a restaurant to have a top-class meal (in that the food was good), only to have it thrown at you. Quality, therefore, must not be seen as a separate entity, but more as a package deal. Service quality is important if you wish to retain your customer base as acquiring new customers can be both time-consuming and costly. It quite often takes very little apart from good manners to keep customer loyalty as in the case of the restaurant. Other factors can, however, start creeping into the framework such as efficiency, timeliness and good communication. Is there, for example, a time limit on how long you can reasonably be expected to wait for your meal before it arrives at the table, and if there is a delay is this communicated to you? In other words, we all have expectations as to what is acceptable and what is not. The clever part is for the organization to learn by what criteria the customer judges its service quality performance. This feel for the customers viewpoint can produce major strategic insights for the organization. It is quite often forgotten that by far the most difficult task is to see service quality from the customers angle. It is necessary to keep trying because it is from the customers angle that gaps in the marketplace, and future business opportunities, are often visible far more clearly. A study of staff perceptions of service quality in a UK clearing bank examined, for example, staffs understanding of quality customer service and their views on the internal and external service quality within the bank. It also found that staff definitions reinforced the view, propounded by Grnroos, that functional factors were more significant than technical factors in customer service; they saw no accepted internal definition of good customer service and believed that the banks commitment to cost reductions harmed quality in service delivery. This significantly revealed that staff views as to the key service elements did not accord with the findings from research into customer views. This demonstrates how out of touch with each other staff and management can be in a large and widespread organization. Different industries have different customer groups demanding different types of service quality, but there is inevitably some overlap. Common strategies must prevail, incorporating both the good and the bad. It is with this in mind that this issue of the Journal of Services Marketing takes a look at a range of industries that implement strategies for service quality, so you can adopt the very best and avoid the poor! Martin Fojt Guest Editor
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Enhancing quality in service industries

Service industries are arguably the most important section of an economy. On average, they account for 58 percent of worldwide gross national product (GNP). In the USA they account for 72 percent of GNP and 76 percent of employment. In most industrialized nations at least 65 percent of the workforce is employed by the service sector. Information technology is in widespread use throughout the sector, but generally only as a technique to improve the efficiency of tasks. The importance of information technology (IT) in delivering a high-quality customer service is poorly reported. At the recent IRMA Conference held in San Antonio, Texas, Chetan Sankar and Charles Snyder of Auburn University, and Tzu-Hiu Liu of Taiwans Central Weather Bureau presented their research into the subject. Poor quality increases costs Within manufacturing industry, where the concepts of quality were developed, poor quality increases costs owing to rework, market opportunity costs and lower employee morale. Service industries suffer the same hidden costs. It is always possible to return a manufactured product for repair, and recover some lost customer credibility in the process. It is not possible to send back a legal argument or a haircut! To this extent the necessity of providing a service that is right first time is imperative. IT is effective in improving many aspects of a business. It is useful to collate these into four separate headings, thus allowing companies to determine where improvements can provide maximum benefit: (1) Operations:
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IT can reduce the complexity of a process for both the customers and employees. Automated teller machines (ATMs) give people money. The complexity of the communication and verification system is irrelevant to the customer. AT&T Universal Card Operations registers the telephone number from which a call is received and automatically retrieves the data relating to the caller. IT is essential for the processing of large volumes of information. Total Systems Services (TSYS) is able to provide complete credit card services for 34 million customers. Federal Express uses machines that will weigh the parcel, call for pickup, invoice the customer and allow the customer to inquire where a parcel is within its delivery system. Large companies can have diverse voice, video, data and fax networks. Citicorp is installing a consolidated network that will handle all types of data, and expects to save $100 million each year. Measures of service quality, such as customer response time, can be collated daily.
(2) Market:
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IT allows data, once assimilated, to be cost-effectively used in many different ways; TSYS has improved customer service by providing
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JOURNAL OF SERVICES MARKETING VOL. 9 NO. 3 1995
24-hour, seven-day access to account information. It also provides a wide range of different statements, tailored to particular customer needs.
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Established customers cost less to serve than new ones, so it is worth building a loyalty to one company. IT makes it possible to track individual customer credit card transactions and give customers benefits such as cheaper car purchases or airline tickets. Increased customer involvement can reduce employee costs. ATMs automatically update the customer account or can be used to transfer funds, pay bills, etc. IT can enhance links with customers. The American Automobile Association (AAA) uses IT to transfer breakdown assistance callers to the correct office automatically, easing stress at a frustrating time. The AAA benefits by handling calls in half the time. IT maintains market leadership. TSYSs strategy has allowed it to retain its leadership in a lucrative market, where net profit margins can be as high as 17 percent.
(3) Employee efficiency. There is often employee resistance to the introduction of IT, as it is seen to replace jobs. Many employees are forced to use IT where others use it as an effective tool to advance their career:
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Data on employee performance, collated through use of IT, can be sensitively used to highlight particular training needs. Rapid feedback or standards of service can be a powerful motivator. Users of new technology often feel motivated as they feel they belong to an exclusive club. Users of up-to-date IT are proud of their achievements and more motivated. Customers have enhanced perceptions of employees providing a good service through the use of IT. This benefits both the employee and the overall company.
(4) Finance:
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Customers are normally willing to pay higher prices for services that they perceive as high quality. IT can deliver or maintain that quality. The cost of poor quality is rarely measured. It is difficult to quantify lost customer loyalty suffered from correcting problems of poor service. Where employees are only able to provide a mediocre service, through no fault of their own, employee turnover increases. Efficient information systems simplify the employees task, reducing frustration and stress.
There are downsides to IT introduction, but these can usually be avoided through careful and sensitive system introduction. An effective system enables companies to travel a virtuous circle; an image of efficiency creating customer satisfaction and generating additional business.
Leading the knowledge of workers of the 1990s

The industrial age is coming to a close. The information age has begun. Physical labor has given way to mental information work and this requires a totally new style of management. Larry D. Runge, who is chief information officer at Wheels Inc., and has worked extensively with executive information technology, says the worker of the future is the knowledge worker. But traditional hierarchical management is inappropriate for this type of person. One response is to restructure the organization by stripping the hierarchy pyramid of its layers, leaving a flatter, more responsive and open structure. Yet this is not enough. The managers themselves must change or be changed. The information age In the new information age the trading standards of gold, paper money and physical commodities have been replaced by a new currency information, i.e. knowledge of products, the business environment, technology, markets, customers and competitors. In the heyday of the industrial age, workers were generally unskilled and uneducated, performed simple tasks using mechanical technology and were a world apart from the managing class. They worked in an age when global demand far exceeded supply. In comparison, the knowledge workers of the 1990s are highly skilled and well educated, working with complex and intellectual tasks using electronics, biotechnology, communications and information systems. Supply now exceeds demand, markets are constantly changing and there is an overlap between workers and managers. Management techniques in this new age must be realigned with these educated and skilled workers. The pace of change in information technology is such that managers must allow the individuals actually performing the tasks to make most of the task-related decisions. Workers must be encouraged to think independently and allowed to criticize managerial directions. The role of the manager in the 1990s is therefore to provide vision and direction, providing the resources and letting the team get on with the job of achieving the set goals. They must also be aware that the nature of employee loyalty has changed dramatically: information workers are increasingly more mobile and able to move easily to new jobs with higher salaries and better conditions. Company loyalty is becoming professional loyalty. Already there is a shift, particularly in the information management field, toward a free-agent approach with the rise of external contractors, consultants, freelance troubleshooters and other hired guns. Future managerial problems Managerial problems in future will not be technological or equipment-based they will require an understanding of how workers interpret their own environment. Most people tend to have a preferred way of thinking and this can be tested. The split-brain theory suggests that the left hemisphere of the
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brain is analytical and processes information in a serial manner. The right side of the brain is holistic and processes information in a parallel fashion. While most people have characteristics from both sides, one half tends to dominate. In business, both types of thinking are required the aggressive, speculative and optimistic sellers and marketers must be balanced with the defensive, conservative and pessimistic financial analysts. A different type of leadership is needed for each of these. However, a new style of manager is needed for the information age the boundary spanner. These are the rare people capable of crossing the boundaries of the mind. The most famous and brilliant example of a boundary spanner of recent times is Leonardo da Vinci a renowned artist, architect and musician who was also a pioneering scientist and engineer, making many important discoveries in the fields of anatomy, optics and hydraulics. Leadership through example Todays managers need to be more than the combined administrator and commandant of the industrial age. Boundary-spanner leaders must be driven by the self-satisfaction of motivating people and helping them to accomplish their own goals. They will be coordinators and diplomats, willing to let others have a share of the limelight. Leadership will be through example and by convincing people rather than telling them. Authority will derive from personal knowledge, abilities and influence, not the trappings of the position. There are a number of managerial skills which need to be maintained and developed to match the workforce of the future. Modern managers will be:
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More of a leader than a manager. This means that people will be prepared to follow the leader, but only if the leader is in the front-line. Above all, leaders must be qualified to do so and be replaced from the team when they fail to lead effectively. Unconcerned with the perks of the position. Egos must be pushed aside in favor of the organizations wellbeing. Managers will aim to help their teams achieve their capabilities rather than hold power over subordinates. The modern manager will be a patron and a teacher, aiding rather than ruling, and an enemy of bureaucracy. Prepared to give increasing amounts of control and autonomy to team members. These are the people best qualified to make decisions regarding their own tasks.
Ultimately, the masters of the old industrial hierarchies cannot survive as managers of information workers. In the 1990s managers need to guide employees toward achieving corporate goals. They will provide the resources required for the job and give the necessary support. As leaders they will be unconcerned with their status and give more control to the individual.
Becoming a customerdriven organization

The customer is always right As much as we all hate clichs, the customer is always right still has resonance for all organizations which depend on customer-based business. Fortunately for these organizations, and their salesforces, the customer is actually becoming so educated that he/she is usually always right. Unfortunately, however, this education has made the customer reevaluate the customer-supplier role. New research for the Forum Corporation shows that the relationship between customer and seller is much more highly complex now than in the past. However, the research findings published by Forum outline how organizations and salesforces can both retain and increase customer loyalty. Consider the following statements: it is five times more expensive to acquire a new customer than to service an existing one; and customers are demanding and expecting more from suppliers. Suppliers can meet the new challenges implicit in these two statements by becoming customer-driven. Customer-driven companies consider the customer on every level within the organization, and every one of the organizations employees shares a deep commitment to customer satisfaction, retention and growth. Increased growth through improved service and quality, improved profits through customer retention and waste reduction, greater speed of decision making these are some of the benefits of being customer-driven. Buyer-supplier relationships Buyers interviewed during the study explained what they value most in their dealings with salespeople. They described them in two distinct dimensions: the nature of their relationship with the supplier, and the value they place on information that can help them simplify the increasing complexity of their jobs. All customers prefer to do business with sellers who recognize this diversity, understand the differences, and can adjust their selling strategies and styles accordingly. Some customers place a higher value than others on the dependent, in-depth nature of the relationship they have with suppliers. These customers go far beyond simple transactions and look to sellers to gain intimate knowledge of their company, their business, their competitors and themselves, so that the seller is able to provide them with sound advice on a suitable course of action. The second dimension along which customers describe what they need involves the value they place on information used to deal with the increasing complexity of their jobs. Most buyers want salespeople to go beyond typical buyer/seller interactions and provide a broad range of information that they can use to assess their choices and make decisions. To meet all their customers demands, sellers must know far more than their own products. They must be able to talk intelligently about competitors products and trends in their customers industry. They must know both their customers business and the business of their customers customers. So armed, they can sell more appropriately, service more effectively and help their customers achieve competitive advantage better.
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Given the changing nature of the relationship between seller and buyer, what can suppliers do to turn themselves into customer-driven companies? Forums research offers the following six suggestions: (1) audit customers to understand what they need and value; (2) assess the skills of the salespeople from the customers point of view; (3) align the total organization around a sales and service culture; (4) initiate appropriate process improvements; (5) put a system in place that ensures institutional memory; (6) evaluate incentive systems. It is no longer enough to talk only to one person within a customer organization. Key accounts managers need to work on as many customer contacts and relationships as are necessary to understand how each customer behaves and what each values. Utilizing well-designed and finely tuned audit approaches, the sales organization can customize its approach to maximize its sales effort and customer retention strategy. Understanding customer needs By understanding customer needs and how best to implement sales programs, organizations will also learn what training of sales and support people is required. Today, salespeople must be able to do a wide variety of tasks, including: building extraordinary relationships with customers; selling strategically; understanding the customers business inside and out; and providing innovative ideas and solutions. Everyone in an organization must be customer-competent. They must understand their connection to, and responsibility for, achieving customer satisfaction and improving customer retention and growth. In addition to training, this requires such things as empowering all employees to act and make decisions on the customers behalf, and motivating employees to be proactive and to put the customer first. The fourth suggestion implies that some process changes or improvements in the sellers organization can actually be detrimental to the customer-supplier relationship. It is critical that any process improvements have a positive impact on customers and are important to them. This requires that the organization be customer-driven, and also that the needs of the customers be linked into the process of the supplier organization. A system that assures institutional memory The fifth suggestion, put in place a system that assures institutional memory, requires an evaluation of current technologies and systems and the role they play in the sales process. For example, is there a retrievable record of the customers sales history? It also requires an assessment of current policies or practices, such as how often sales and service people are moved off and on accounts. As for the final suggestion, organizations need to review and revise current practices so that customer acquisition, retention and growth are rewarded and recognized. Customer-driven companies and salesforces have a competitive advantage over other suppliers who are not so committed to the customer, according to the Forum research. It is not hard to look after customers needs adequately all it takes is a little time and effort. The rewards and advantages can make all the difference, however, in the competitive stakes. There is new life for old clichs.
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Calculating the return on quality

Improving quality costs money Make no mistake: improving quality costs money. But, if quality improvement efforts are treated as costs rather than accountable expenditures, it is often difficult to see a measurable return generated. And, when times get tough, cost cutting reigns supreme and improving quality is sacrificed, then quality improvement expenditure is competing with other financial investments. It is clear that expenditures on quality have diminishing returns. Improving quality makes financial sense up to a point, but beyond this point any further spending on quality does not increase profitability. On the other hand, quality improvements can often result in quantifiable cost savings that outweigh the money spent on the quality efforts. However, such improvements are usually seen in manufacturing or standardized services, e.g. fast food, rather than in the highly customized services such as electronic information, as customization tends to inhibit economies of scale. The key management problem is how to make profitable decisions on quality expenditure. This involves justifying quality efforts on a financial basis, knowing where (and where not) to spend on quality improvement, knowing how much to spend and when to reduce or stop the expenditure. The return on quality Many studies have concluded unanimously that customer satisfaction and service quality have a quantifiable impact on customer retention, market share and profitability. The challenge is to provide an operational method for measuring the link between quality and financial return. In a report for the Marketing Science Institute, Ronald T. Rust, Anthony J. Zahorik and Timothy L. Keiningham explain a technique which calculates the return on investing in quality, the return on quality (ROQ). There are four principles behind this revolutionary approach: (1) Quality is an investment. (2) Quality efforts must be financially accountable. (3) It is possible to spend too much on quality. (4) Not all quality expenditures are equally valid. Under the ROQ approach, benefits can be seen as a series of linkages between customer satisfaction, customer retention, market share and profitability. The relationship between expenditure level and change in satisfaction is measured first by managerial judgment then through market testing. When the relationships are calibrated, the return on quality can be measured statistically. The authors have developed a user-friendly, PC-based support system designed to quantify the financial impact of quality, identify opportunities for quality improvement, estimate optimal levels of spending, provide
opportunities for reducing expenditure, and analyze the likely impact of alternative spending plans. The model used is a chain effect in which quality improvements lead to increased customer satisfaction, which leads to higher customer retention rates, producing larger market share and, ultimately, increased sales and profits. Steps in the ROQ system The following five steps are involved in the ROQ system: (1) Preliminary information gathering. This stage includes the collection of customer survey data, market information and internal information, and relies heavily on managerial judgment because of information gaps. (2) Identification of possible opportunities. This involves using the inputs from step (1) to estimate the financial implications of different actions, such as ROQ, net present value, optimal expenditure spend and market share trajectory over time. (3) Limited testing of improvements to determine effectiveness. A smallscale test is conducted of the proposed quality improvement effort on a random sample of locations and customers. The numbers from the test provide hard data estimates of the effectiveness of the quality improvement effort. (4) Financial projections based on hard data. Using the market test results in step (3), this provides more accurate estimates of ROQ, net present value, market shares, etc. It provides a final check of whether the proposed program can be financially justified. (5) Full roll out of quality improvement efforts. The system enables the calculation of the actual ROQ, net present value, market shares, etc., with a higher confidence that a positive financial return will result from the required expenditure. As the market demands continual improvement, it is necessary to go back to the start and begin the process again and again. Quality programs Expenditures on quality do not usually have cut-and-dried profit implications. They do not always reduce costs in the short term they often increase costs. Many quality programs deal with the less tangible aspects of service, and the results are not immediately quantifiable in terms of increased sales, unlike short-term sales promotion. A return-on-quality approach ensures that expenditures on quality are accountable. By adopting such an approach, the ROQ of a quality improvement effort can be compared with the return on investment of other financial investments. It provides a method to help managers decide when the greatest response will be achieved with the limited resources available. Two points can be made in terms of organizational culture when implementing an ROQ approach: (1) In companies with a sophisticated improvement culture, the ROQ should mesh with the existing quality improvement approach the system needs to be seen as a management tool to help the company do its job better.
(2) In companies where the challenge is to implement the quality improvement process in the first place, management needs to understand the overall picture of the process to justify the time and resource commitments required for the ROQ approach to succeed. When the cost-cutting knives are out, expenditures on quality must be financially accountable. Quality improvements should be treated as investments: they must pay off and spending should not be wasted on efforts which do not carry their own weight.
From service to product
Fundamentally different
Gone are the days when banks were dark and formal, and you were grateful to the local branch for taking such care of your modest savings and charging you for the privilege. To be competitive today, retail banking must not only operate in a fundamentally different way, but it must also learn from other industries about the business it is in, and then learn to do fundamentally different things. A major reality that most banks have now understood is that, in the main, private individuals look on visiting the bank with almost as much relish as visiting the dentist. A physical presence with a prestigious high-street presence need no longer be an asset, and a business park corporate banking sector is in many cases far more convenient for the majority of those busy customers, principally business account holders, who do need to visit from time to time (to renegotiate loans and discuss business plans, for example), and like to be able to park nearby a luxury often denied when visiting the town center sites. At the same time, banks balance-sheets can benefit hugely from the disposal of those sites to the (relatively) cheap out-of-town areas.
Needs of private individuals
But how to keep and grow the business from the private individuals? These need to be able to access their money quickly and easily, without undue hassle, while at the same time being able to access professional advice when and if they choose. And, significantly, they prefer to be advised by a machine that funds are not available than to have a clerk refuse to cash their checks. One solution comes from Massachusetts-based BayBanks. When this New England banker determined to make its name as market leader in the region, it aligned itself more to the world of retail stores and mail-order companies than the traditional banks. Top management devised a benchmarking shortlist, then visited and learned from the successes of companies including Freeport, Maine-based L.L. Bean renowned for its exemplary service to an international audience of whom only a tiny fraction will ever make contact any way other than by telephone or catalog, and Spiegel.
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A 24-hour customer service center
The first strategy was to establish a 24-hour customer service center. What was the staff brief? Not merely to answer queries and resolve problems, but also actively to promote opportunities to sell profitable bank products and services: this can often be more effective than a sales letter, and is much easier than lobbying visitors to a bank branch, where people are often in a hurry or where other customers are waiting in line. As a sales tactic, speaking to people telephoning in, often from the relaxed environment of their homes, is a winning move. Next, a significant improvement of the automated teller machine (ATM) (cash dispenser) network was set in place to enhance the customer convenience factor. These were not simply in high street and shopping mall positions, but inside stores from post offices to pizza parlours; over 2,000 establishments have installed ATMs, and more are signing up. The investment paid off, helping BayBanks establish a dominant position. The wider application of the ATM card is another attractive proposition to the customer, removing concerns for those who do not trust or cannot obtain credit cards (or object to the interest rates), while operating more efficiently for the bank; card transactions cannot be returned unpaid. While New England lags behind the West Coast, ATM cards (operating like the UKs debit cards Switch and Visa Delta) are being used to replace cash on a steeply accelerating curve. In 1990, the average number of monthly transactions (to pay for anything from college fees or cars to beachwear or breakfast cereals) was 15 million; in 1993, the figure had more than doubled to 36.3 million, with qualified commentators predicting 200 million by the year 2000. BayBanks experience is in line with this trend: in March 1994 the bank clocked up a new record one million retail transactions by users of its ATM card, 52 percent up on the same period in 1993. What is the next step for BayBanks ATMs? Providing cardholders with the means to buy and sell mutual funds, including of course the banks own Bayfunds, launched in March this year. It is a service already available to ATM cardholders with Citicorp and Fleet Financial, and many others have announced their interest. The problems are accessing rapid hourly or even more frequent price changes, and enabling different computers to talk intelligently to one another: minor problems in a technological universe.
A catalog of banking products
From that concept the next logical step is easy, and has already been promoted by BayBank. If mutual funds can be looked on as a product, remotely accessed to a distant customer base, what other products can be handled remotely and through what other non-electronic media? Enter the lessons from direct mail operator L.L. Bean. Late last year, the BayBank catalog was published, at 50 pages, featuring more than 160 different banking and financial products. If you need to negotiate an overdraft at 2.00a.m. or even want to open a new current account there is no problem: staff man the telephone lines 24 hours a day, while others handle mailed enquiries. What is the rationale? Simply that most families have for years been comfortable to make purchases and commit money by mail or telephone; the challenge was merely to package what was previously seen as a service into a series of products, and market them accordingly.
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The catalog as an advertising vehicle
One million catalogs were mailed out, to a stringently targeted group comprising both existing customers and new prospects. While the bulk of the response has been from the existing customer base, BayBank is delighted with the response and does feel that the catalog has lasting value as a vehicle to help to advertise the company and attract new business. It does appear that even the moment of truth that accompanies the initial opening of a new bank account with a different bank no longer depends on the strength of personal relationships people are more than comfortable to initiate this basic function by telephone or by mail: but few surprises there, perhaps credit card companies have operated in this fashion, almost exclusively, since their inception. What of the future? The demysticism of the financial world, often called for, is happening; and the key is technological solutions to age-old marketing issues, like how to serve your customers in the way they want to be served. It has been a long time coming.
Can a company be both low-cost- and serviceoriented?

Based on the recent experience of many companies, some industry observers have concluded it is difficult to be both low-cost- and service-oriented. But Joo Baptista and Jean Estin, members of Mercer Management Consultings European consulting division, point out that low-cost competition is forcing companies to add better service into their strategic thinking. Besides, Baptista and Estin say, improved quality, increased service levels, and faster responsiveness to market demands dont have to mean uncontrolled operations, constant firefighting and falling profitability. Ways to improve company performance In a White Paper that discusses ways for companies to improve their performance, Baptista, a vice-president in the consulting firms London office, and Estin, Mercers European director and head of its general management consulting group with headquarters in Paris, identify five reasons why increases in service often do not result in improved performance: (1) Companies fail to determine exactly which components of service are valued by each customer segment targeted. (2) They do not recognize that different customer segments value different components of service. (3) They underestimate the organizational and human resource efforts required to deliver the service capabilities, and the timing involved in establishing those capabilities. (4) They fail to develop methods capable of determining the true profitability of each individual customer.
(5) They fail to determine whether the service program they seek to adopt will ever make money, when taking into account competitor response. Five building-blocks The work of Baptista and Estin in helping clients to implement profitable, service-driven organizations has led to the development of an integrated framework for both anticipating service requirements and for establishing the capabilities to deliver service at a profit. It consists of the following five building-blocks: (1) Explicit prioritization and targeting of customers. Since increased service in most cases means higher investment and higher product costs, a business needs to determine which components of service will be valued by which customer segments. Customers must also be assigned priorities on the basis of likely sales and associated profitability, with service-sensitive customers generally divided into those requiring customized service and those requiring standardized service only. (2) Creation of differentiated commercial organizations. Baptista and Estin advocate a tiered salesforce, with a major account management salesforce to handle the most demanding customers and a second tier of junior sales staff and sales representatives to focus on less demanding customers. (3) Management of the product offer. Design and development steps have to be timed with the customers own internal cycles in mind. The cycles appropriate for serving major customers, in turn, determine the response cycles available to standard customers. In practice, this means that standard customers have lower priority for delivery lead times, visitation dates, and presentation of new products, but simultaneously they benefit from the overall improvement in manufacturing flexibility, order tracking capabilities, and better reliability from a general increase in service awareness. (4) Adoption of differentiated service processes. Costs for these can be kept reasonable by concentrating on the manipulation of useful information with sufficient accuracy rather than collating interesting-to-know data with accounting accuracy. For instance, procedures for keeping track of orders and computing their profitability can be built on the basis of paper-based processes combined with simple mini- and macro-computer applications. (5) Establishment of a differentiated pricing policy. By using cost simulations and customer demand models, pricing decisions can be delegated to the salesforce. Higher profitability for service-driven firms Baptista and Estin maintain that all five building-blocks must be in place in order to reap the benefits of a service-driven organization. While acknowledging that there is an investment cost, they point out that a successful differentiated service-driven firm can recover its investment and other costs several-fold through increased profitability. They have worked with firms, for example, which have sustained 3-5 percent higher profitability than their nonservice-driven competitors.
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Keeping the customer satisfied

Marketing receives a phone call from a customer regarding an invoice. The person replies: Thats not my job. Ill transfer you, not bothering to find out that the invoicing department is in an off-site meeting. The customer hangs up, and begins to contemplate switching to a competitor. Manufacturing substitutes one component of a product without informing the sales and service people, who appear less than informed when they face customers who begin to receive materials they did not expect. A salesperson promises too much on a delivery date, yet does not check to see if there is enough stock to supply the order. The salesperson also fails to communicate with the customer-service representative who, in turn, must handle an angry delivery department and irate customer. Out-of-date approach Such situations arise in firms which retain barriers between the sales and service departments and other support functions. This approach is out of date, and fails to recognize that anyone who interacts with a customer must be able to respond efficiently to the customers needs. Jennifer PotterBrotman, senior vice-president, corporate marketing, of The Forum Corporation, says that service has traditionally focussed on resolving problems or providing technical help once a sale has been made. Now, however, a wider view must be taken. Five important aspects of service quality are: (1) reliability the ability to provide what is promised, dependably and accurately; (2) assurance the knowledge and courtesy of employees, and their ability to convey trust and confidence; (3) tangibles the physical facilities and equipment, and the appearance of personnel; (4) empathy the caring and individual attention provided to customers; (5) responsiveness the willingness to help customers and provide prompt service. Forum research in 1988 showed that, while customers viewed reliability as the most critical aspect, companies believed that customers most valued responsiveness. Recent research demonstrates that companies are still out of step. One reason may be that responsiveness is easier to provide and control, since it is usually delivered by sales and service people the primary points of contact. In contrast, creating reliability throughout a company presents a wider, organizational challenge that takes time and money. Moreover, definitions of the various aspects of quality service have expanded since 1988, as the relationship between customers and their suppliers has broadened. Establishing honest expectations for example, about likely delivery dates has become an important aspect of reliability.
Buyers resent being brought in on a problem when it is too late for them to contribute to solving it. Responsiveness, meanwhile, has become proactive as well as reactive. Rather than fixing a problem quickly, firms must ensure that problems do not arise in the first place. For example, when a photocopier company is called to fix a customers machine, the repair person should check that the customers other copiers are working properly, and that staff do not need more training on how to use them. How to improve service Companies keen to improve service should:
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Break down functional barriers, and base service, rewards and recognition on customer-defined values. Customers consider service a collective, organizational responsibility, rather than a functional or departmental one. The company must be able to listen and respond to customer information gathered by those closest to the customer the service providers. And service providers must be empowered to act on behalf of customers in a timely manner. Generate organizational knowledge of each client. If and when the people involved in an account change, the new contact should be able to learn about the customer quickly, and assure a smooth transition. Increase organizational flexibility. This enables sales and service providers to deliver more effective individual service, that addresses each customers needs. Learn what customers truly value. The degree and intensity of service required varies by customer. Although it is often easier to take a onecap-fits-all approach, companies may sacrifice profits by failing to size up an account effectively. The automated answering devices which many banks use are an example of low-cost customized service. They give customers the option of gaining access to their own account information or, if they prefer, speaking to a live customer-service representative. Ensure that management practices foster a customer-driven culture. Basing a companys internal processes on customer requirements pays off in terms of competitive advantage and customer retention. Train everyone in the firm to deal with customers. Service providers should be able to handle tasks from greeting customers and conveying willingness to help, to asking the right questions and setting realistic expectations. There can be important benefits from anticipating problems before they arise. Moreover, since anyone who interacts with a customer becomes a service provider, everyone in the firm should be prepared effectively to handle any customer at any given time.
Knowledgeable service people
The Japanese have, for years, been training bright, knowledgeable service people to take part in continuous product and process improvement, using the information they receive from customers every day. A large US insurance company slashed its budget by almost $1 million, while maintaining customer satisfaction, by taking up the suggestion by service people that much of the material sent by overnight express mail could be posted, faxed or mailed electronically. Service is still often relegated to one department containing the lowest-paid people, rather than seen as the responsibility of all employees. Yet the role of service in retaining customers has never been more crucial, and will
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continue to grow throughout the 1990s. Customers still do not take top-flight service for granted. Companies can clearly mark themselves out from the competition through providing better service.
Passenger focus keeps railway on track

The idea of holding monthly coffee evenings to sound out the views of passengers face to face would probably turn the thoughts of most railway bosses to early retirement. But such meetings are held by the Hong Kong Mass Transit Railway Corporation, which aims to be the worlds most customer-oriented railway. It is also one of the few profitable railways in the world. Sara Tang, training and development manager, and Patrick Maule, personnel director, told the International Service and Quality Forum, in Paris, the reasons for the corporations success. Fundamental values The corporation recognized that truly excellent companies abide by a small number of fundamental values, which are fully understood and endorsed by employees at all levels. The company therefore defined three core values to shape corporate culture and behavior: (1) Customer service emphasizes the need to meet or exceed the needs of the corporations 2.3 million passengers a day. (2) Respect for the individual recognizes that an organization can achieve good results only when its employees are committed, happy, and feel proud of their work. The corporation believes that only when it treats its 6,000 employees with respect and empathy can it expect loyalty, commitment and a customer-focussed attitude in return. (3) The importance of meeting targets and achieving results efficiently and cost-effectively. Financial success is seen as a vital ingredient to maintaining long-term safety and service standards. The importance and meaning of these core values were communicated throughout the corporation using videos, songs, handbooks, competitions, company dinners and family events. Training was provided to ensure that every staff member had the attitude, knowledge and skills to support the corporations commitment to its external and internal customers. The training was supported by a set of internal and external customer service targets and standards. These were drawn up to assure that employees understood customers needs and management expectations of performance. Quality management and safety management systems were established, based on the international quality system standard, ISO 9000.
Attention is paid to customer service during employee recruitment. Tests to select customer-oriented train operators and station staff are being introduced. All new front-line staff have intensive basic training which covers customer service skills and technical subjects. This is enhanced by a wide range of internal training courses. Moreover, the corporation sponsors employees for relevant external continuing education. This ensures that staff have the knowledge and skills needed for their jobs, and supports the corporations philosophy of continuous improvement through learning. Performance management system Awards are used to recognize and encourage positive performance. There is also a staff suggestion scheme. A performance management system promotes a joint accountability between supervisor and subordinate for the successful accomplishment of work-related targets and the development of career plans. Development centers enable staff to identify their career aspirations and potential. The corporation promotes communication between management and staff by conducting internal surveys. A company-wide staff attitude survey is conducted every three years to measure the general climate and morale of the company. An internal customer service survey collects staff feedback on the service quality provided by various internal departments, and the areas needing improvement. A joint consultative committee involves management and staff, while a staff consultative council brings together different levels of staff. There is a work improvement team scheme, a three-monthly video newsletter, a monthly newspaper and a yearly performance review. The corporation has a staff turnover rate of only 6 percent, compared with the Hong Kong average of 24.5 percent. The absence rate 3.6 days per person, per year is also low. The latest staff attitude survey showed that 75 percent of all employees considered the corporation to be a good employer. Suggestion boxes at stations In order to determine customer needs and attitudes, the corporation has carried out 180 research projects, involving more than 700,000 respondents, over 13 years. Suggestion boxes are provided at stations, and there is a hotline service. Customer feedback has contributed to the following improvements: extra rolling stock; a better signaling and control system; upgraded train announcements; and more reliable tickets and escalators. A four-monthly customer service report gives an honest and open picture of the performance of trains, tickets and escalators. Advertising campaigns and promotions have emphasized the importance the corporation attaches to its customers. Moreover, the company communicates with political, commercial and social communities through press conferences, seminars and meetings. Despite strong competition, and without expanding its system, the corporation has steadily increased its market share over the past five years. Its three lines comprise a total route length of 43.2km, with 38 stations, yet during 1992 it carried 20 million more passengers than the London Underground. Of course, the corporation is helped by the fact that Hong Kong is one of the worlds most densely populated cities, and that only around 13 percent of its
inhabitants own private cars. Nevertheless, other mass transit system managers could clearly learn from the corporations experience. Anyone for coffee?
Service on which you can bank

If the staff at your bank not only make eye contact with you, but also continue it during the transaction, would you suspect them of an ulterior motive? In a sector like banking, products can quickly be copied elsewhere, but the behavior of staff is less easy to imitate and that is what service is about. Eye contact from staff may make as great an impression on the customer as the exact range of accounts the bank offers. The Royal Bank of Scotland embarked on improving the quality of its service to become more competitive to hang on to its customers, win more repeat business and take more business from its competitors, all at a lower cost. Such priorities are important at any time, but especially in a recession, when customers have less money to spend and so are more discerning about where they spend it. Robert Crawford, service-quality development manager, told the International Service and Quality Forum, held at the EuroDisney Resort, near Paris, how the banks service-management system operates. Specification range First, it involves finding out the needs of customers and developing service standards to meet them. This is the so-called specification range. As recently as ten years ago, banks were still suffering from 200 years of assuming that they were doing their customers a favor. During the 1980s, however, the Royal Bank of Scotland began to look carefully at who its customers were, and what they wanted. Research identified that customers cared most about efficiency, courtesy, problem solving, service over the telephone, cash dispensers and queuing. For most businesses, it is impractical, or even impossible, to provide different levels of service over the same counter. In face-to-face situations, all of a banks customers must be provided with the level of service demanded by the most fastidious. But that does not mean that every single outlet needs to provide the same service. Each unit can organize itself to offer a different service for different products like an airport which has restaurants for fast food, self-service and waitress service. Managing this effectively depends on having facts and figures. The second aspect of the banks service-management system involves measurement of performance against agreed standards, and monitoring shifts in customer perception.
Ask customers what they think
The main measurement technique is based on asking customers what they think of the banks service. The answers from a massive questionnaire program are analyzed and scored for each branch. Factors such as the availability of cash dispensers are measured separately. And a third set of measurements comes from a regular mystery shopper exercise. Under the heading of courtesy alone, there are 30 questions to be answered by mystery shoppers. Information from all three sources is collated in a customer-satisfaction index. A detailed reporting system has been created, to inform the branch network and produce management information. Information on aspects such as courtesy (including, yes, eye contact) sales skills, telephone skills, branch appearance, queuing, and much more, is collated. Results are presented on clear, bold charts, which feed back meaningful information to staff on their service performance. League tables of branches are produced, which stimulate internal competition. By seeing what is going well, and where things could be improved, the bank can concentrate resources where they are needed most. The third pillar of the service-management system is support. Communication plays a vital part in this. Everyone must know what is going on. Attractive and readable material is produced, aimed at target audiences, to ensure that service quality is constantly at the forefront and best practice is easily transferred.
Training courses
All the banks training courses are designed with customers in mind, and the bank is keen to build on this by training staff in service skills. Training modules on service topics have been developed for use in branches, and other modules will be produced as the need is identified. The bank also has continuous-improvement teams, known as service circles. Staff whose behavior leads to excellent customer service should be recognized. There is no substitute for a manager continually taking the opportunity to catch people doing it right, but there is also a case for more formal recognition schemes. What gets recognized gets done again and even better. Historically, banks have been good at erecting barriers through the procedures they operate. There is, then, great scope for streamlining or removing procedures, to leave more time to serve the customer. That, however, is the easy part. Far more difficult is the people dimension the interrelationship between staff and customer. Yet this aspect is of paramount importance to a banks continued existence. So the next time staff at your bank look you long in the eye, do not take it too personally. Their ulterior motive may beto protect their jobs!
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Inflight philosophy
In todays aerial combat, airplanes still swoop and jink, but the actual fighting is done on the ground in the marketing, service and customer relations departments of the major international airlines. The competitive and mostly deregulated airline industry is a cut-throat business in which only a handful of companies survive and prosper. One of these companies is Singapore Airlines (SIA). In an address to the 1993 International Service and Quality Forum, a spokesman for SIA explained how, in only 20 years, the company was able to become an international force in the industry. Management philosophy SIA began operations in 1972 and, although the Singapore government was its major shareholder, the company received no protection or financial assistance. In fact, the government-initiated policies such as opening up Singapores airport to as many foreign carriers as possible made it difficult for SIA to survive. These challenging conditions shaped the management philosophy that has guided the running of SIA ever since. In a nutshell, the philosophy is to stick to basics, concentrate on strengths and grow at a steady pace. The philosophy has since been refined into seven principles: (1) competitive approach; (2) core business focus; (3) customer-oriented organization; (4) corporate culture that encourages flexibility and enterprise; (5) creative product and service; (6) communications excellence; (7) consistency in all areas. Competitive approach The competitive approach adopted by SIA stems from its early years. It has had to win international traffic from established carriers with strong home markets; this competition helped open new markets and has driven all SIAs innovations and growth. SIA is a vocal advocate of unrestricted competition, and campaigns for multilateral liberalization of aviation and free trade in the air. The core business focus means that SIA does not invest in any venture which does not support its primary activity, air transportation. SIA has put its money into what it does well, in order to do it better. This includes investing heavily in new aircraft, such as the big capacity jumbos. This allows SIA to provide what the market wants more nonstop long-haul flights. This is also where yields are highest. Moreover, passengers like to know they are flying in the most modern, reliable and comfortable aircraft; in an industry where every company offers essentially the same product, this is an important competitive advantage. For SIA, customer-orientation is more than just a buzzword. The competitive approach has meant that listening to passengers and focussing on customer satisfaction are vital. They stay in constant touch with
customers through a service performance index, or SPI. This tracks passenger reactions to more than 30 aspects of service and performance, both in the air and on the ground. The raw data from the SPI enable SIA to respond to customer concerns quickly and efficiently. Corporate culture The airlines corporate culture is very well developed. The management style can be described as democratic rather than authoritarian. Reporting lines are well-defined, but the company has sought to keep the organization structure simple and to devolve responsibility and authority down through the organization, to empower even the lowest-level staff to make decisions. This decentralization can also be seen at group level, where SIA has created several subsidiary companies which operate independently of the airline. The corporate culture also regards training as a core investment, not a luxury to be sacrificed when times get tough. In 1992/93, the SIA groups training budget was S$80 million equivalent to S$3,500 per employee. On average, each of its employees spends 12 days a year undergoing training. In order to stand out from bigger, better-established competitors and win market share, SIA has had to be bold and innovative in terms of the product and service it offers its passengers. It was the first to introduce a choice of meals and free drinks in economy class, as well as free headsets. These have since become part of the standard airline product. Today it is becoming harder and harder to innovate on the same scale, but SIAs commitment to innovation and pioneering new services remains. For example, the company introduced the first global inflight telephone and fax services, and they have also introduced an easy meal service in which passengers can choose when to eat during the flight. The Singapore Girl The Singapore Girl, the mascot of SIA, is an example of the companys commitment to communication excellence. The Singapore Girl is one of the most enduring brand images. SIA has spent more than S$750 million on advertising to promote the Girl and the airline. This heavy advertising spend continues, despite the sharp downturn in the industry over the past three years. Consistency is a very important principle in the companys philosophy. SIA has stuck to a steady, long-term plan and has not deviated from it in the face of short-term cyclical problems. It continues to invest and expand at measured pace. SIAs long-term strategic planning calls for annual growth averaging 8-10 percent through to the year 2000. Consistency can also be seen in its approach to the basic SIA product. Inflight service and the finer touches are important, but the success of SIAs product depends just as much on getting the basics right. For example, the airline goes to great lengths to make its flight schedules consistent and convenient, and it places great emphasis on on-time performance and reliability. In terms of aerial warfare, SIA has gone from a vulnerable and defenseless observation balloon to a Mach 3 attack aircraft striking fear into its enemies in less than 20 years. Much of this success is down to the companys commitment to service excellence. Everything SIA does, from staff training to aircraft purchasing, from product innovation to commercial alliances, has the ultimate aim of providing its customers with the best possible service.
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Capturing the customers voice

On the face of it finding out what your customers think about you would seem a fairly straightforward process. All you need do is ask them and they will probably tell you. Simple. Not surprisingly there is a lot more to it than that, according to Brian S. Laude, vice-president, Market Focus and Innovation, Walker: Customer Satisfaction Measurement. In a presentation to the International Service and Quality Forum, held at EuroDisney, near Paris, in November 1993, Lunde stressed that knowing what the customer thinks makes a company more powerful, in that it is provided with the information it needs to make it perform better in the marketplace but only if that information is meaningful and useful. Performance quality measurement It is therefore critical that any company contemplating measuring customer satisfaction, or performance quality, goes about it in the right way. Lunde provides a definition on which to base any such initiative: Performance quality measurement is a management information system that continuously captures the voice of the customer through the assessment of performance from the customers point of view. It is not a one-off project the results of which are looked at by the marketing department and then filed away with all the other quality initiatives that never reaped the rewards they promised. There are six steps that should be followed, if a company embarking on a performance quality measurement (PQM) initiative is to avoid some of the more common pitfalls experienced by the unprepared: (1) Define the companys target markets and target customers. This should include all current and potential customers, as well as competitors customers and lost customers. (2) Determine the depth and breadth of customer requirements. This involves identifying all of the products and processes about which customers have expectations (breadth), as well as their ideals of performance (depth). (3) Perform a company/customer relationship assessment. A customer relationship is made up of the overall relationship, as well as its component parts, i.e. the individual transactions that take place. Both are valuable sources of information. (4) Analyze the data to determine absolute and relative performance levels, as well as underlying customer priorities. Absolute data are valuable but only up to a point, as any company will need to know how it is performing in relation to its competitors and how it is performing in relation to customer priorities, some of which may be previously unknown to the company.
(5) Use the information. The statistical data gathered must be converted into language that staff throughout the organization can understand and respond to, i.e. strategies, goals and action plans. Only statisticians find statistics really interesting. (6) Repeat the company/customer relationship assessment periodically. The company, its products and its customers change; so therefore should the PQM program. The program should acquire momentum from its users, not from its own bureaucratic growth, which is where PQM differs from the traditional market research survey. Success of program A performance quality measurement program is a success not if all the customer responses are favorable, but if everyone in the organization sees why it has been implemented and what the results are. This is more likely to happen if:
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The direct participation of customers is encouraged. Although the company should know its customers well enough to know what they expect, there is no guarantee of this. This is particularly true of customer service requirements. All the staff working in departments that directly affect customers know what is happening. When the marketing research or quality assurance departments keep a tight control over the process and results, the program is unlikely to be successful in the long term. The program highlights what can be done. A PQM program must help managers and employees to make decisions, set priorities, launch programs, cancel projects, etc. it must help them to act. Staff are motivated to use the information. If customer satisfaction is a company priority, then the company must reflect this in its reward systems. The PQM data are integrated with other quality information, such as conformance data, to form a more complete picture.
Performance quality measurement is clearly not an end in itself. At its best it is a valuable management tool that can assist in the development of:
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competitive strategy; strategic quality planning; and resource allocation.
Competitive strategy In developing a competitive strategy, managers must have access to information on what the customers expect of the company and what it provides, and also information on how its competitors are performing. Much of this information can be provided by a PQM program, although only managers can make judgments on how to overcome competitive disadvantages, how quickly improvements can be made, and what avenues the company will pursue in the future. PQM is a management tool, not a management strategy. Strategic quality planning PQM has a considerable role to play in the field of strategic quality planning. It allows the company to:
integrate customer-driven quality requirements into the business planning process; and set quality goals based on current performance and competitive position.
Resource allocation PQM can help to make resource allocation an information-driven function, rather than a process based on what was spent last year plus something for inflation. In the automobile industry, for example, investment in safety features has been driven by consumer concern and thus resources have been allocated based on what the driver wants, rather than what the designer thinks the driver wants. Collecting information By its very nature performance quality measurement is a reactive process, collecting information on the past and the present. Canny organizations are now looking to anticipate and manage the future, using information to improve performance quality before the product or service even reaches the customer. Enter performance quality management.
No news is bad news
One thing is certain your customers complain about you. If they are not complaining to you, you can be certain that they will be complaining to other people and those other people might be potential customers. Most dissatisfied customers tell nine other people, and a persistent 13 percent of dissatisfied customers tell 20 other people. A valuable form of feedback Complaints are an uncomfortable fact of life, because no companys product or services is perfect. But the company which treats customer complaints as a valuable form of feedback is likely to benefit, as research has indicated that dissatisfied consumers can be converted into loyal customers by the prompt and effective response to a complaint. Christina Sanes, responsible for AT&T Bell Laboratories quality strategic plan, believes that complaints are a valuable source of information, but only if they are collected and analyzed in a structured way. There is little to be gained in encouraging customers to complain if no meaningful action is taken to remedy the source of the complaint, and if no one within the organization is really keen on listening to why a product or service has failed. Sanes has some advice for any company contemplating setting up a complaints procedure: (1) Make a commitment. Collecting complaints is only the beginning. There must be a commitment from the management not only to the process,
but also to making any necessary changes in the organization or the products and services. The commitment of the staff is also crucial, as it is often the front-line staff who are the recipients of complaints and the rest of the staff who are expected to implement any changes that are required. Their commitment and cooperation are essential. (2) Create a formal process. Customers will be encouraged to complain if they see there is a formal structure in place for dealing with their complaints. The process should be:
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designed by a small, cross-functional, multi-level group that represents all those involved, including the customers; and easy to use.
In the beginning, it may be as well to limit the remit of the complaints process, so that the amount of data collected is manageable. Starting with product/service quality, cost and scheduling measures will give focus to the process without overwhelming the organization. (3) Deal with the complaint. Not all complaints are the fault of the company, in fact many complaints are due to the incorrect use of a product or service by the customer. But unless customers can communicate with the company they will remain dissatisfied, regardless of whether the product or service is at fault or not. Responsiveness is critical to the success of any customer complaints procedure. Having to wait for a complaint to be dealt with will do nothing to improve the customers view of the company. That is not to say that the solution is easily available; it may not be, but the customer has to be made to feel that his or her complaint is receiving attention. (4) Collect and analyze meaningful data. Each companys needs will be different, but common to all is the need to collect and analyze meaningful data. This may mean issuing questionnaires to customers on receipt of the product or service, setting up a toll-free telephone service or employing customer service representatives. Selecting the most appropriate method of encouraging complaints is one of the responsibilities of the design team. In most cases, the data collected will highlight problem areas. Christina Sanes suggests two ways of pinpointing where the problem lies:
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on a large-scale drawing of a product the number of complaints concerning a particular part can be plotted, highlighting exactly where the problems are arising; and on a detailed flowchart the breakdowns or delays in service can be flagged at exactly the point where they occur.
(5) Develop the process. Any organization committed to improving its relationship with customers will first seek to deal with dissatisfied customers, but will soon realize that prevention is better than cure. Such an organization will then use its complaints procedure and the data it provides to try to solve problems before they occur, analyzing its processes to see where improvements can be made. The customer complaints process can be a powerful vehicle for cultural change if used properly and its impact on staff can be felt at all levels of an organization:
Senior managers must be committed to the process and see it as a valuable customer service. The customer complaints department that is shunned by the rest of the company will not prove its worth. Christina Sanes advocates making someone responsible for the process who is trusted by both customers and employees, thus giving the process the necessary authority, both in the short and longer term. Middle managers, as the conduit of information from senior management to the employees, set the tone, pace and timing of the complaints process. Their day-to-day example of commitment to the process will do much to influence their staff. The staff are often the people who deal with the customers directly or are called on to implement any changes arising from the complaints process; therefore their enthusiasm and commitment are of paramount importance.
Research also indicates that, in service industries, employees perceptions of service quality are a reliable indicator of the customers perception of service quality. So employees, as well as dealing with customers and implementing change, are also a valuable source of information. A commitment to quality is signaled Complaints will never go away, but they can be harnessed to the advantage of both the customer and the company. A customer complaints process that evolves into a customer satisfaction process signals a commitment to quality that will reap its own rewards.
Quality planning and the communication plan

A goal of quality management is to engage and focus the entire workforce to achieve the objectives of an organization, according to Harvey Dershin of the Juran Institute. This may be called empowerment, alignment, teamwork, or organizational integration. The theory behind this is that the more an organization acts in unison and from a common sense of purpose, the more effective it can be in achieving its mission. One can see the concept demonstrated clearly in the performance of small organizations such as athletic teams or symphony orchestras. Difficulty in achieving unity of purpose In large complex organizations, such as hospitals or clinics, such unity of purpose is difficult to achieve. There are multiple constituencies, educational levels vary, values are diverse and leadership is often vaguely defined. A good implementation plan for total quality management (TQM) approaches this challenge on a number of fronts. Training is introduced to create a common language and understanding of quality, strategic quality planning is applied to help to focus the organization on unified goals, problem solving
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using cross-functional teams helps to build understanding of internal linkages (customer-supplier chains), management involvement through quality councils demonstrates the necessary leadership, and rewards and recognition cement-in good performance. Effective communication plan Another key element in this armamentarium is an effective communication plan. But what should this plan do? What messages should it contain? Health care is so challenged and is changing so rapidly that the field has been deluged with magic bullets, promising security in one form or another. Health-care professionals are a skeptical lot by nature, and have seen many such programs come and go, often with little positive outcome. One should expect organizational resistance from this group. As a result, there is a real danger in attempting to oversell TQM or prematurely raise expectations. One way to approach this is through the discipline of quality planning. The six steps of this process are as follows: (1) Establish goals. (2) Identify customers. (3) Determine customer needs. (4) Develop products. (5) Develop processes. (6) Develop controls and transfer to operations. The tendency, in many cases, is to jump into the middle of the process and start at step (4) by developing products, i.e. publications, memos, posters, videos, etc. The power of quality planning is that the discipline of the process encourages the planner to address goals, customers and needs first. A primary customer of the communications plan is, in fact, management. Managements primary goal is to implement TQM effectively. Managements need is to reinforce the most important enabling elements for TQM and to structure messages in such a way as to defuse potential resistance. Overcoming resistance to change The enabling elements of TQM are well known. Successful TQM efforts are highly correlated with effective training, management commitment, use of measurement and data, rewards and recognition, and strategic linkage. Resistance to change is a recognized organizational phenomenon and can be tempered by following some simple rules of the road. These include:
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provide participation; no surprises; provide enough time; start small and keep it fluid; create a favorable social climate; weave the change into an existing, acceptable part of the cultural pattern; provide a quid pro quo (something for something); respond positively;
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work with the recognized leadership of the culture; treat the people with dignity; keep it constructive.
Implementation should defuse resistance
The communications product therefore should include a series of messages which describe meaningful training experiences at all levels of the organization, significant management involvement, effective use of data by cross-functional teams, important recognition events, and weave TQM into the fabric of organizational strategy. At the same time, implementation should be characterized in ways which defuse resistance. Messages should be developed within a context that includes the rules of the road. In summary, the communications plan can do more than just inform the organization about the status of TQM. It can be an effective vehicle to reinforce enabling elements and defuse resistance.
Focussing on customers
Lack of focus on customer relations
Business cannot be conducted without customers much to the annoyance of many companies. The lack of focus given to customer relations in most major industries is sometimes mind-boggling. The impact of customer indifference on business is not noticeable as such where there are few satisfied customers to begin with, who notices another disgruntled one? Change to a, or increase the, focus on customer care and the difference is astounding more customers buying more goods and telling more friends about a wonderful company. The results of a round-table discussion led by Peter Marks of Design Insight at the Manufacturing Leadership Summit held in June 1994 at Cambridge, Massachusetts, can point the way toward becoming truly customer-driven. The emphasis over the past few decades in many companies has been on every type of management theory apart from customer care. TQM, reengineering, just-in-time and lean manufacturing, downsizing introducing these precepts is only half of the equation. Customer needs define the right thing to do, while management theories define the right way to do it. The round table quickly discovered six compelling reasons why a customer-driven focus is important. They then outlined five obstacles to eliminate in order to create greater customer understanding in design, manufacturing and customer support processes. First, the six reasons for increasing customer focus are as follows: (1) Customers are the reason for being in business and the source of all profits. Companies, however, do not fully understand or satisfy customer needs and wants.
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(2) External crises are often needed to stimulate change and innovation. The root cause of many, perhaps most, design and manufacturing problems is failure to anticipate customer needs and demands. Smart companies see customer need-finding as the most credible reason to improve continuously. (3) Without a common customer vision, teams work at cross-purposes rather than in cross-functional harmony. (4) Customer-based metrics and rewards are the key to high-performance organizations. (5) For emerging companies, customer orientation is the key to crossing the chasm from a technology-driven start-up to a volume manufacturer of mainstream products. (6) For mature companies, customer orientation is needed to make tough choices, as growth slows and old technology gives way to new approaches to meet customer needs. The first obstacle to be eliminated to create better customer focus is the entrenched functional culture that causes incomplete understanding of customer needs. Functional cultures departmentalizing parts of the decision-making process and therefore making each department jealously watchful of usurpation of power are very resistant to change and few such companies are willing to invest in the education needed to establish a truly customer culture. Failure to do this, however, will maintain the not my job or this is my job, stay away departmental thinking. These functional biases lead to distorted perceptions of customer needs in all areas. The key is to get all departments working together with one focus on one objective: customer care. The second obstacle is complex industry structures obscuring some customer needs. There are complex customer chains in many industries, and even simple industries have many external customers in addition to the end-user customer. One result of these complex structures is that every department in the company claims to represent the customer the loudest voices, or those favorably positioned in the customer chain, get the most influence. This leads to real customer needs being obscured. Companies need to be able to hear and make sense of all these disparate voices in the context of the end-user customers needs to make good decisions. Take the long-term view Short-term demands drive out long-term customer orientation. This is the third obstacle to overcome. In many companies, immediate priorities to meet customer demand often take precedence over the best long-term decisions. Examples of fulfilling short-term customer demand and taking a longer-term customer view are outlined below:
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Instead of rushing out a maybe-not-quite-cooked hamburger to satisfy the cycle-time quota of burgers per hour in a fast-food restaurant, the customer should be made to wait an extra three minutes. The customer should be considered in the long term: if consistently satisfied, he or she represents $10,000 of lifetime fast-food revenue. The metrics of customer satisfaction need to be changed to assure long-term satisfaction. Instead of shipping now and fixing later ramping up faulty production to meet unanticipated demand and maximize the window of
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opportunity, companies need to remember that each unit sold to a delighted customer yields two to ten times the cost in added revenue. Companies have to make the harder calculation of the next five years revenue versus next quarters revenue. Traditional market research can be misleading Traditional marketing research often leads companies astray. Companies filter inputs through their own expectations and experiences. This is an asset when such experience matches exactly customers own experience and needs, but otherwise it is a liability. Furthermore, most marketing research captures conscious expressions of needs rather than latent needs. This makes many companies aware of business they have won or lost but not the business on which they never had a chance to bid. Furthermore, most customer data drive reactive problem fixing and feature matching rather than need anticipation and customer delighting. The last obstacle is that the lack of management credibility sabotages customer orientation. Employees up and down the ladder are united in their suspicion of top management lipservice to customer orientation. Past history teaches these employees that customer orientation is another management fad, soon to be replaced by another trendy quick fix. Many of these problems stem from the fact that middle management upward is perceived often rightly as insulated from customer needs. Managers have to show employees and lead from the front that they do care about customer orientation if the company is going to be more focussed on customers. Customer care is probably the most important focus for a company. It is vital that managers plan how to overcome the obstacles noted above, and they need to do this while they still have some customers left.
Focus on customers, focus on growth and focus on profit

From tiny corner shops in small countries tucked away at the bottom of the world do mighty businesses grow. They grow, that is, if they have one focus: their customer. The New Zealand appliance manufacturer Fisher & Paykel is an example of a small business in an unstrategically placed country growing into a top industrialist. As Dean Joiner, general manager of Fisher & Paykels white goods-manufacturing business, says, the companys success has been based on an incredibly focussed customer orientation. The success of Fisher & Paykel has many lessons for other companies large and small. Manufacture under license The business began in 1934 when two 21-year-olds Messieurs Fisher and Paykel opened a shop in Auckland to sell imported refrigerators, washingmachines and radios. The two men soon realized that their own manufacturing base was going to be necessary to continue to meet the needs of their growing numbers of customers. The company began to manufacture under license leading appliance products. The company discovered that
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license manufacturing produced a higher priced copy of the original New Zealand had none of the economies of scale or industrial infrastructure of the licensers country. Customers of white goods More importantly, unlike cars, televisions and other such consumer items, customers of white goods have distinct ethnic or geographical differences. People do not cook, wash their clothes, or even store food in the same way. Fisher and Paykel realized early on that manufacturing another countrys product under license does not usually meet the special needs of native customers very well. They had to find a better way to meet the needs of their customers. Hence, from the beginning of the companys manufacturing history, fulfilling the customers requirements expressed or subconscious was the primary focus for Fisher & Paykel. Meeting the regional needs of customers in the 1960s led to two important product innovations well ahead of any other major manufacturer. Because it rains so much in New Zealand, customers were crying out for both clothesdriers to help the country dry out, and freezers to store all the home-grown produce resulting from excellent if wet agricultural conditions. This is the second lesson from the company. Sometimes a company has to have the courage to introduce totally new concepts driven by new technologies courage, because how can a company ask customers if such technologydriven solutions will meet their needs, if they have no concept of how these solutions will change their lives? From the early days of Fisher & Paykel, customer pull and technology or innovation push have been an integral part of the companys philosophy. The next step it took was also dictated by customer needs. A flexible and automated manufacturing process was introduced to overcome tiny economies of scale and to introduce new production and product options. This became significant when the company discovered that 60 percent of its customers were non-New Zealanders. Many diverse customer needs were identified and, with the flexible automated lines of machinery, the company could meet demand within quick delivery cycles. With competitive products that met individual customers needs, delivered when they wanted them, export business grew very rapidly. A history of product innovations and technology advancements followed, with a subsequent capture of a larger and larger share of the market. The Joiner Triangle The next target the company set itself was what customers were increasingly demanding quality. The company undertook an overview of the available information on quality and reliability research. It adapted the Joiner Triangle of necessary ingredients to achieve total customer satisfaction scientific development, teamwork and quality focus. The company subtitled the triangle points to meet its own needs. The scientific approach became people who know what to do, quality turned into people who focus on customers and teamwork became people who want to do it all together. The very foundations of the company had to be changed to meet the new triangle. The main things to change were the notion that only the senior managers had sufficient intelligence to decide what customers needed and to get the brains of everyone in the workforce working on continuous improvements. The company pledged to change management styles fundamentally and invited employees not to leave their brains at the gate, but to bring them inside and
put them to work improving the company. The company realized that, to achieve benchmarked quality and reliability levels while still meeting end customers needs for attractive design, functionality, value and delivery, everyone in the company had to be not just committed, but also actively involved. Strengthening of customer focus The adoption of an active organization brought together all the different customer focuses of the company. Customer focus was strengthened by the shared working environment and increased communication between the sales, marketing and customer services departments. Employees have realized not only just how interdependent they are in meeting the needs of outside customers, but also, very importantly, how they are one anothers customers in this process. In order to meet ever-changing customer needs, the company has been rapidly introducing new products. This rapid introduction is always a threat to reliability and quality but, because of the triangle approach, the company has been able to minimize breakdowns. The quality levels at Fisher & Paykel are among the highest in the industry. The combination of quality, product innovation and customer service has given the company unprecedented levels of growth. A final lesson to other companies is the example of the bent fish. Japanese customers were found to be dissatisfied with the traditional design of chest freezers. Their much-loved and much-eaten large fish were having to be bent to fit around the stepped design of the freezer. Japanese do not like to have to interfere with the natural state of their food. Fisher & Paykel introduced a flat-bottomed freezer, in which fish could be lovingly laid out flat, and doubled their business in the Japanese market. How many other bent fish problems are there in the consumer market? How many other companies are capable of dealing with them? Customer focus is the best way to create a thriving business from humble beginnings.
The bent fish example
ISO and total quality
A paper-driven exercise
An increasing number of companies are being required to implement ISO standards. The pressure is coming from customers, professional organizations and legislation. However, the achievement of ISO certification can become a paper-driven exercise in bureaucracy with little impact on company performance. At the same time, many organizations have initiated total quality management (TQM) implementation programs. Although often driven by competitive pressures, these have been mainly management-led and aimed at improvement and meeting customer needs.
By itself, ISO certification merely indicates the existence of a functioning quality assurance system which meets certain standards. To maximize the
benefits of certification Dr Jean-Claude Simon and Dr Frank Hoes of ODI believe that the efforts undertaken in achieving ISO standards should be part of the TQM process: companies will profit from the process if they focus on continuous improvement. Standards and guidelines ISO 9000 is a series of standards and guidelines, developed by the International Organization for Standardization, which requires companies to document their quality assurance operations and procedures. It is aimed at the organization, in its role as a supplier of goods and services, consistently meeting customer requirements. When working procedures and practices reach the required ISO standard, the company receives a certificate. This involves the development of three documents: (1) a quality handbook, which describes the company structure and its quality policy; (2) a procedures handbook, which describes procedures according to required processes; (3) a written document containing work instructions for specific tasks. As the aim of the ISO standards is to improve processes, everyone in the company must know the content of these documents before certification is awarded. The ISO system can only define what should be created and written down, i.e. what to do but not how it should be done. In the effort to obtain certification, most of the work is narrowly focussed on developing procedures to meet the standards required. Little attention is paid to building an improvement culture; the process changes are geared toward achieving ISO certification, not driven by a corporate goal of continuous improvement aimed at enhancing the companys long-term competitive position. In contrast, TQM is a corporate philosophy which recognizes that customer needs and business goals are inseparable. To be successful, it must be senior-management-driven and focus on: maximizing effectiveness and efficiency and promoting market leadership through improving processes and systems; error prevention; and aligning business objectives and customer needs. The five pillars of quality TQM is based on the five pillars of quality: (1) customer focus; (2) total involvement; (3) measurement; (4) systematic support; (5) continuous improvement. Based on these prerequisites (which are themselves founded on organizational values and mission), operations are viewed as a series of processes to be improved continuously in a team-based situation. Process improvement becomes an exercise in optimizing effectiveness and efficiency while improving process control and strengthening internal mechanisms for responding to changing customer demands.
Five steps to process improvement
There are five key management steps to process improvement: (1) Analyze work flows and organize teams. (2) Develop customer satisfaction targets to drive process performance. (3) Structure process improvement activities around process owners, process teams and work teams. (4) Focus on empowerment at all levels and train people to be able to implement team-based process improvements. (5) Focus the teams on customer-supplier issues. Process improvement means that everyone in the organization is working toward doing things right first time, every time. This requires process ownership, process documentation, defined customer and supplier requirements, indicators and measurement criteria, an improvement methodology and the necessary statistical methods. While process improvement is essential to continuous improvement and is a key component of the TQM effort, a structured quality documentation system based on ISO 9000 can provide the platform for process control. This requires a clear statement of quality policy with a customer focus, emphasizing the need for flexibility, and recognizing the importance of the internal customer-supplier chain; strong senior management leadership, commitment and support are vital.
Employee involvement is essential
The certification process defines how processes presently operate; this becomes an exercise in internal benchmarking and marks the first step in setting measurements. Management must oversee the way in which teams are organized to write down procedures and instructions: employee involvement and empowerment are necessary for the transition from ISO certification to continuous improvement. Internal audits should be viewed as tools for improvement. The ISO certification process can be used as an opportunity to link quality assurance and process improvement within a TQM framework. TQM implementation can improve the efficiency and effectiveness of processes, while compliance with ISO 9000 can minimize variability and control the processes that have been improved. This sets the scene for further improvements based on changing customer requirements. ISO certification is just one of the initial steps on the continuous improvement road to total quality. It can be used to clean up the functional processes, allowing organizations to build a quality assurance system and control procedures before initiating systematic improvement efforts aimed at horizontal processes instead of functions.
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Total quality can work
Many American business commentators have suggested that total quality management (TQM) has had its day and that it has now been overtaken by other new ideas. It is even argued that TQM, if poorly implemented, could damage a companys performance. Does TQM affect the bottom line? Is TQM just a passing fad of questionable value or is it really an indispensable tool to improving corporate performance? The answer requires evidence of a link or otherwise between TQM and bottom-line results. If such a link can be established, Steve Letza and Mohamed Zairi of the University of Bradford Management Centre believe that senior management in Europe, so far unconvinced of the importance of TQM, may then begin to consider seriously its use as a strategic tool. Several surveys have revealed a number of negative attitudes: most TQM programs have not had any significant effect on competitiveness and fail to deliver because of poor management or management problems. A recent survey conducted by the American Society of Quality Control highlighted the fact that senior executives do not see TQM as affecting bottom-line results. The study revealed that:
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quality at boardroom levels has little strategic importance; little support or direction is given by directors to those charged with implementing TQM; TQM is not used proactively to set strategic direction; directors find it difficult to establish a link between TQM implementation and its impact on financial performance, such as market share and profitability.
TQM, one of the most talked-about business tools of the last decade, has not yet taken root in Europe compared with the USA and Japan. With the above indifferent results and close scrutiny by the media, it will need a lot of work to establish it as a credible approach to European management. Japanese companies have practiced quality management longer than most, and the evidence suggests that TQM has been of benefit. A study in the early 1980s concluded that companies winning the Deming Prize (the Japanese equivalent of the US Baldrige Award) achieved on average a 14 percent increase in sales compared with 12 percent for those companies which did not apply for the award. The top 20 scorers A study conducted by the US General Accounting Office (GAO) showed that the top 20 scorers of the Baldrige award in 1988-89 saw improvements in various performance measures relating to employees, operations, customer satisfaction and business performance. A further study in 1991 analyzed the profit impact of marketing strategies (PIMS) database of more than 2,500 businesses. It concluded that companies
with higher quality and market share were able to earn margins up to five times greater than those with lower quality and market share. The European Centre for TQM at the University of Bradford Management Centre undertook further research to establish whether similar patterns were emerging for European companies pioneering the TQM philosophy. Eight performance indicators Eight performance indicators were chosen to reflect business performance both in the short term and the long term: (1) profit per employee; (2) average remuneration; (3) total assets per employee; (4) return on total assets; (5) turnover per employee; (6) profit margin; (7) fixed asset trend; (8) trend in number employed. These indicators included soft or people-related measures, such as employee trends and remuneration, and hard measures, such as those which are efficiency-driven. Better results for TQM companies A sample of 29 European companies was examined, each chosen on the basis of good knowledge of its TQM program. The average for each performance indicator was calculated over a five-year period and compared with the industry median. (Five years was assumed to be a reasonable period for TQM implementation to begin to provide positive results.) Taken together, the eight indicators chosen showed a consistently positive difference between the selected companies and industry average: (1) 79 percent of the companies had a higher profit per employee than the industry average; (2) 93 percent had a higher average remuneration; (3) 79 percent had a higher ratio of total assets per employee; (4) 79 percent had healthier profit margins; (5) 79 percent had higher turnover per employee; (6) 76 percent showed positive return on total assets; (7) 72 percent showed an above-average fixed asset trend; (8) although not conclusive, 17 of the 29 companies studied had increased rather than shed employees over the five years. The consistency of these results suggests a strong association between TQM and bottom-line results. Taken together with the US GAO study and other work in Japan, this European-based research provides hard evidence that total quality management does have a direct impact on financial performance, provided that its implementation is well planned and orchestrated. A strong commitment is equally necessary in achieving continual improvements which are focussed firmly on the customer.
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Delivering community benefits

Some companies are beginning to realize that there is a real world, with real people and real communities, outside their total quality management (TQM)-conditioned offices. Rather than just chattering to one another in trade-speak within the enclosed business environment, managers are beginning to venture out to the community at large and, in so doing, are enriching both the company and the community. The Royal Mail, part of the British Post Office, has a long record of community involvement. However, as Mike Pupius, Royal Mail quality director, explains, the Royal Mail has embarked on its most ambitious community program yet teaching TQM to students and the community at large. Royal Mails TQM program In 1988 Royal Mail decided to implement a new strand of its highly successful total quality process. Total quality is the best way, the Royal Mail believes, of working which will enable it to achieve its mission and goals in a manner consistent with its standards. Royal Mails TQM program is about recognizing the needs of both external and internal customers and it is about creating partnerships with suppliers, customers and the community. The Royal Mails strategic plan provides the basis for converting its mission and values into the strategic direction for the organization. There are six key strategic directions that the Royal Mail follows, and one of them is serving the community. The new strand to the TQM process, Customer First, was designed to target this key strategic direction. The Royal Mail, by its very nature, plays a fundamental role in the life of every community in Britain. Each and every citizen is a potential customer, and, as one of the largest organizations in the country, it is located in every city, town and village. Because of this involvement and because of the strategic direction toward the community, the Royal Mail decided to explore opportunities in community partnerships by concentrating in the field of education. After looking at the established research on education, the Royal Mail established several factors which are critical to the success of schools. These are:
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careful and accurate situational analysis; needs carefully analyzed; need for change clearly appreciated; carefully thought-out strategy; strategy communicated effectively; changes reinforced and institutionalized; change supported and resourced.
The Royal Mail decided that, with the complexity of changes affecting schools, there is a requirement for a radical change to management styles.
TQM offers that response and is compatible with other educational initiatives concerned with effectiveness and improvement. Now, in addition to the other activities it offers schools, such as education/business partnership links, teacher placements and school visits, the Royal Mail is also providing TQM workshops for teachers and administrators as well as emphasizing TQM in all relationships. The first project was at a comprehensive school in Yorkshire. Following a request from the school, the Royal Mail developed a program to implement some of the principles of TQ, such as identifying customers, continuous improvement, team building and facilitation skills, and development of a mission and values statement. The program involved two training days and a weekend workshop. Specific outcomes included:
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communication of the mission and value statement to governors, parents and students continuous improvement is now to be incorporated into the curriculum; flattening the organizational structure; setting up action teams to consider key issues; developing an approach to ISO 9000; national and international recognition. The head teacher has become an associate director of the World Center for Community Excellence.
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Creation of a national center
The Royal Mail has worked with several other schools but, because of future resource questions, it has decided not to extend the involvement with individual schools beyond the handful with which it is already in touch. Instead, the Royal Mail has decided to work in partnership with the Educational Management Development Unit of the University of Leicester in the UK to create a national center with the following aims:
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research into the application of TQM principles to education; establishing a network of schools currently involved in TQM and ISO 9000; developing a database of good practice and disseminating information; providing a consultancy and training service within education and the public sector; publication of research, good practice and training materials.
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The Royal Mail recognizes that, while the initial emphasis will be on education, the approach can be extended to apply to other community organizations. The Royal Mail anticipates, says Pupius, that other total quality organizations will join in this collaboration. Benefits for sponsors would include gaining a high national profile with a major educational initiative, association with publications and training events, a positive image with a large number of schools and teachers and an outlook for consultancy and research. Pupius says that the principles of total quality can be as usefully applied to schools and other educational establishments as they can to industry. Interestingly, however, there is little evidence of any major adoption of these principles by universities not only in the UK, but elsewhere in the world. The Royal Mails strategic direction toward the community has helped to put
the organization out in front in terms of providing the community with TQM programs. No doubt the Royal Mail will deliver the news to everybody else in due time.
The kingdom of the customer

What are you more interested in? An analysis of customer complaints or a quarterly financial statement? Are you one of those executives who talks about the importance of customer service, but who is more interested in finding ways of driving costs down? If so, you may find it hard to believe that increasing customer satisfaction is the primary goal of a number of companies, and is more important to them than profit or competitive position. Not surprisingly, Japanese companies are leading the way. In the 1980s the Japanese defined and delivered product excellence. Now, according to Dominique Turpin, professor of marketing and strategy at the Lausannebased International Institute for Management Development, these same companies are homing in on customer service, while maintaining the quality of their products. Service-conscious consumers It is widely accepted that, although todays consumers are price- and qualityconscious, they are also service-conscious, and that companies that provide a good even excellent service will prosper. From his research, Professor Turpin has identified how the best Japanese companies have developed strategies that provide customer service by improving the performance of the company as a whole. In this way customer service is an integral part of the company, not a quality initiative with a restricted shelf life:
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Define the corporate mission in terms of customer benefits. If excellent customer service is a real goal, and not just the latest marketing ploy, then it must be an integral part of the corporate mission statement and must become one of the engines that drive the corporate machine. The Japanese company, Kao, a leading manufacturer of household products and cosmetics, states that, A commitment to customers will continue to guide all our corporate decisions. It is this level of commitment to customer service that many Japanese companies are making, in the hope that it will translate into improved competitive performance. Gain the commitment of senior management. As with any corporate strategy, the commitment of senior management is critical, yet often lacking in Western companies, where managers still retain an overriding interest in financial reports and only a fleeting interest in customer service. Many Japanese managers have altered their perspective so that their primary interest is front-line performance. The chief executive
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officer at Fuji-Xerox, for example, spends half of his time on quality and customer issues.
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Select the right people. Customer service Japanese style starts right at the recruitment stage, with companies putting a great deal of effort into employing individuals with a positive customer approach. This entails paying particular attention to personality. The recruitment process is extensive but seems to bear fruit, in that the best companies have the best employees, who are competent, reliable and responsive to the customer. Western companies, by contrast, pay little attention to the employee as a potential customer service provider at the recruitment stage. Train and retrain. The induction process and on-the-job training are often a rather haphazard affair in Western companies, with many new members of staff often being expected to learn by doing without any formal introduction to the job or the company. In Japan, however, the picture is rather different. At Matsushita, for instance, every new employee undergoes an intensive, month-long training program that introduces him/her to the company, its history, philosophy and business etiquette. The Japanese believe that the investment in training and retraining reaps its own rewards as good training inculcates a positive service attitude, which motivates employees, leading to decreased staff turnover, improved service quality and therefore satisfied customers.
Measure and communicate quality standards. As with any quality initiative, company expectations of customer service need to be communicated to all employees and the necessary training undertaken. Only by good communications, both formal and informal, can quality standards be established and maintained, or even exceeded. As well as broadcasting standards, it is also important for the results to be measured, if any accurate assessment of a customer service program is to be achieved. In Tokyo, even a taxi company, Doshin Kotsu, communicates its quality standards to all new drivers and asks passengers to complete satisfaction surveys to measure the performance of its drivers. Use technology to enhance customer satisfaction. Although customer service is, by its very nature, people-oriented, technology can be a very useful labor-saving device. Kao employees are fortunate in having the ECHO system, the most advanced consumer consultation system in Japan. It provides users with 8,000 pages of information, including color pictures of all Kao products, the packaging and the instructions printed on it. In this way the 120-130 daily customer inquiries can be dealt with efficiently and comprehensively. Also, details of each call are logged into the system, which is used by all departments, including research and development, production, planning and sales and marketing. In this way, Kaos customers provide an input into the development of new products and services. Creatively exceed customer expectations. In many ways a loyal customer is a cheap customer, because retaining customers is cheaper than attracting new ones, and loyal customers are an excellent form of advertising. It therefore makes good economic sense to try to meet and even exceed customer expectations. Key to the success of this policy is
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knowing what the customer wants; hence the introduction of Kaos ECHO system. Professor Turpin stresses that meeting and exceeding customer expectations is the critical new area of competition and it is one in which size is not important. In a national survey on customer service, Yokohama Bank, ranked 20th in total assets, was placed ahead of the larger banks, because its tellers served customers quickly. Nor do Japanese companies have the exclusive rights to customer service. In fact, many Western companies have responded to customer demands for improved service and have seen that responding to them makes a difference. Now Western companies have to ensure that employees at all levels understand the importance of customer service and look for new ways to differentiate themselves in this latest of competitive arenas.
The TQM route to the top of the class

Schools have much to learn on quality When it comes to total quality management (TQM), schools appear to have a lot to learn. TQM originated in manufacturing and was later adopted by the service industries. However, a report in the journal of the American Society for Quality Control reveals that only 105 US public and private school districts are embracing TQM. Most have been at it for only a year or two, and are concentrating on administration and management. Joan B. Pinck, vice-president of the Juran Institute, told the Conference of Educational Records Bureau, New York City, USA, that schools could benefit greatly from TQM principles and practices. The example of health care an industry recently converted to TQM showed the way. The main service in health care and schools is delivered by qualified professionals. The quality of the doctor or teacher obviously affects the quality of the health care or education provided. However, the professionals are supported by workers such as laboratory technicians, audio-visual experts, social workers, guidance counselors, librarians, cleaners and administrators. If these support services are poorly delivered, the overall standard of service provided may suffer. If the wrong medication is delivered by the pharmacy, or the right medication is delivered late, clinical quality is likely to be compromised. If the schools audio-visual equipment frequently fails, is delivered to the wrong location, or arrives late, the quality of education provided will suffer.
Processes established to suit one set of circumstances may continue to be used long after their effectiveness has diminished. Moreover, anything that is not monitored tends to deteriorate over time. Support services are typical of the processes which tend to be carried out in a certain way simply because that is how they have always been done. Studying these deeply embedded systems almost always shows them to be time-consuming, wasteful and unnecessarily expensive. Improving or redesigning administrative systems can yield results more quickly than projects to improve curricula or teaching methods. The various customers of schools When a consumer buys a product which is perceived to be defective, he or she may be upset or even outraged but, when hospitals or schools provide unsatisfactory service, they may also have to deal with the family of the patient or pupil. Many hospitals and schools depend heavily on philanthropy, from donors or previous users. Moreover, hospitals and schools usually have obligations to regulators, trustees, board members and the community at large. Hospitals and schools therefore have many different customers, with varied needs. The hospital or school must know not simply guess what these needs are. Facts and measurements provide the dimensions of a problem, and are judgment-free. A good system of measurement will not only reveal the bad apple, but also show where improvement efforts should be concentrated. Weakness of the grading system Schools have been good at meeting the needs of one customer group colleges and universities. This is perhaps because of the effectiveness with which further and higher education have made their needs known to the institutions that feed them. However, students needs may be less well met. The grading system of 0 to 1 CO or E to A, for example, provides useful information for admissions tutors in colleges and universities, but grades and scores alone are an inadequate guide to student progress, and almost hopeless as a way of accomplishing improvement. Teachers should be encouraged to look at what they are doing, identify the purposes and goals of their courses, make clear to students what is expected of them, and show them how to improve. After all, good physicians tell their patients what to expect, and what is expected of them, in a course of treatment. Viewing students as customers does not mean that students dictate. It means that both the teacher (supplier) and student (customer) have a common understanding of their purposes. A TQM-managed school which has reformed its grading mechanism could ask for student input on instruction, using a model which matches the expectations shared with their teachers. Students should be able to communicate with teachers without either side feeling threatened. Even the medical community has begun to ask patients very specific questions about how their needs have been met. Benchmarking is an important aspect of TQM. Benchmarks are goals which someone has attained, and toward which others can strive. The school which adopts a TQM philosophy will continually look within itself for its most successful practices; but it will also look outside. The motto good enough will be replaced by never good enough. Performance to minimum standards, by teachers or students, will not be acceptable. Teachers and teaching departments too often work in isolation. For example, the writing of English is taught by the English department, but students write for other teachers. A team of teachers from several disciplines could be
charged with improving writing skills. The working group could develop shared goals, and measurements to be commonly applied. The same approach could be used for each part of the curriculum, and thus for the curriculum as a whole. In this way, the school would tap teachers collective knowledge. In addition, administrators and teaching staff too often behave as though they are on different sides of the barricade. A collaborative approach to achieving common goals can enhance educational quality as surely as collaboration between administrators and medical staff has enhanced clinical quality in TQM-managed hospitals. The leading role of senior managers TQM should be led at every stage by senior managers. They should determine what should be tackled first, and who are the best people for the project. Senior managers should:
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know where the organization is going, and why; share this with everyone in the organization; translate the vision into specific goals; have a plan for reaching the goals; measure progress at every step of the way; make this the habitual way of doing business; remember that improvement is a never-ending activity; not expect miracles.
All improvement takes place project by project. For schools which are considering TQM, this should perhaps be the first lesson.
Improving customer satisfaction at London Underground

London Underground Limited (LUL) is the worlds largest urban transportation system, with 254 miles of track, running 460 trains in the peak period, carrying 751 million passengers each year, averaging some 2.8 million passenger journeys daily. Its first line was the City and South London, opened in 1890 (now part of the Northern line). Three ways of listening The company listens to its customer in three main ways: (1) Customer satisfaction index. In 1992 the customer satisfaction index (CSI) was devised to achieve a consistent representative sample of Underground users. It has been so successful that it is now LULs main performance indicator, and the companys key business goal, agreed with Britains Department of Transport, is to achieve improvement in customer satisfaction as measured by CSI. Exit study interviews, undertaken at
stations and relating to the journey just made, are designed to take less than ten minutes and probe 22 measures of service, including frequency of service, cleanliness, staff, public address and ease of ticket purchase. Results can be made line-specific. (2) Mystery shopper. Mystery shopping surveys provide an independent audit of the actual level of service of trains, stations and staff. Trained mystery shoppers travel on the Underground checking predefined standards ensuring objectivity rather than CSIs focus on perceptions, and providing a basis for target setting at a local level. (3) Analysis of correspondence. Telephone calls and complaints or claims made under the Customer Charter are categorized to establish customers priorities. Research shows that customers want an uninterrupted seamfree journey. They accept that in any complex system things go wrong, but are dissatisfied when they get no response, no information, or excuses rather than reasons. LULs Customer Charter How, then, does LUL communicate with aggrieved customers? In 1992 LUL launched its Customer Charter, setting out the companys commitment to a safe, quick, reliable, value-for-money service. It publicized targets for numbers of trains in service, the working of lifts and escalators, cleanliness, etc. It promised that when a journey was delayed for 20 minutes (subsequently reduced to 15) or more, the cost of the single fare would be refunded and that all claims would be processed within seven days. The implications of these promises were vast. LUL is a public company open to criticism if it spends money inefficiently or unwisely: it needed a system for processing claims which was easy for the customer, prevented fraudulent claims and could meet the seven-day turnaround. The requirement to process claims gave the opportunity to expand the existing PR function and a customer services center was set up to deal with correspondence and, just as importantly, to provide management information. Four rights at the center If the center was to succeed some things were vital getting the right people with the right skills, the right technology, in the right environment. The environment was to be light and airy. People with the right attitude were recruited on the basis that they could acquire the appropriate skills. The most complex task carried out is the processing of claims, a clear area where technology could be valuably employed. The process used for claims handling is simple in concept. In essence the inputs to the system are three: (1) the details provided on a (readily available) form by the customer; (2) the details of all tickets issued by LUL in order to check that the ticket used by the customer was valid for the journey; (3) details of all qualifying delays. A validation run compares the information provided by the customer with the internally generated ticket and delay information to determine whether the claim is valid. If it is, a voucher is automatically generated, valid for 13 months and fully transferable. If the delay is outside the control of LUL, such as one caused by a person being taken ill on the train, or extreme weather conditions, a reject letter is generated explaining the delay and the reason for
the claims dismissal. Where claims are not automatically validated they are passed to supervisors for further action. In the financial year 1993/1994 LUL processed 142,000 claims at a value of 329,000. At inception the system was designed to process a quarter of a million claims per year, and that figure has already been topped with 282,000 claims in the calendar year of 1994. Complaint letters from customers are scanned in the same way as claims and indexed under category, keyword, name and address. LUL estimates that it loses up to 30 million a year in fare evasion. The Penalty Fare Act 1992 permits a penalty fare of 10, and the company benefits in that this provides an increased level of revenue by reducing ticketless travel, and provides a greater incentive to customers to purchase a ticket prior to travel. Communicating and educating the people A great deal of effort went into the communication of penalty fares. Advertising posed the question: Do you want people riding for free when you pay? This was followed by the basic threat of the 10 fare. Finally, the education process of directing people to the ticket machines was begun, and ticket machines were upgraded to accept 5, 10 and 20 notes. Without being able to establish clearly whether functional ticket buying facilities were available at the start of a journey, spot checks on trains are nonproductive; there is, therefore, a link with the Underground Ticketing System which automatically checks when passengers without tickets are challenged whether the ticket office was open or that the automatic machines were working fully when the passenger began his/her journey. Where no valid reason is found through this means, the system then checks names and addresses through real-time links with the center, and the on-board system also sustains a PDQ facility to accept payments. A drawback is that the onboard system cannot yet communicate with the center while underground when trains are in a tunnel. But this is considered a price worth paying as some 60 percent of track is on the surface, carrying regular passengers to and from the residential areas of Buckinghamshire, Hertfordshire, Essex and Surrey. LULs core business is running trains which carry passengers. So it was decided to outsource the data management while retaining customer interaction in-house. The appeals are managed by the customer services center, which uses discretion and evaluates the wider issues of providing ever-improving customer services.
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Putting people into the process

In the 1990s, process alone will not deliver customer satisfaction. Customers no longer base their purchasing decisions on just the basic characteristics of products, or even the quality of their transactions with the supplier. Certainly subliminally, and probably consciously, customers evaluate the environment within which the product or service is created and how the company behaves in the wider world. A BT perspective in delivering customer satisfaction Companies which fail to maintain high levels of basic service and transaction quality will soon find themselves deserted, warns British Telecommunications plc (BT) manager of consumer relations Jan Walsh. Unless companies constantly monitor customers expectations, and their own delivery against those expectations, they will not survive in an increasingly crowded marketplace. But satisfaction is much more than just monitoring and measuring: it is anticipating and responding to customers needs, by putting people into the heart of the process. The whole issue of customer service began in the 1970s an era of economic expansion, when enlightened organizations began to recognize the need for serious customer satisfaction measurement. We saw the establishment of customer relations departments which attempted to help customers who had more disposable income to find their way through a maze of competing products and services. Then in the 1980s there was an economic boom. The marketplace changed, product opportunism became product and service differentiation and in their drive to differentiate, organizations looked for economies of scale, and we saw companies merge and remerge as global corporations with global products serving global markets. During the 1980s we wondered if business was more about mergers and acquisitions than about serving customers. Human values In the drive for economies, the metamorphosis of most large UK organizations was complete; they had become commercial, revenuegenerating robots. And in doing so, almost without noticing, human values were subsumed into the commercial imperative. The robot had forgotten the behavior of the organization, as it concentrated on the organization of behavior. During the 1990s, recession hit. Companies were downsized, budgets cut, staff lost, and we wondered whether these organizational robots had lost sight of customers altogether as they stomped about in a frenzy of cost cutting. But outside things were changing. The economies were back in recovery but a recovery within the context of fundamental change that affects the lives and attitudes of all our customers. Changes in geographic boundaries, in political complexions, in peoples expectations of stage, system, organizations, work patterns, life goals and aspirations.
The question we must ask is whether the reengineering of processes can deliver customer satisfaction against this background of dramatically changing customer expectations. Will companies, reengineered in terms of academic thinking, management process and market planning, deliver customer satisfaction to real, live, thinking, breathing customers? Does the reengineering process take account of who our customers are and what their lives are like, in order to deliver real satisfaction and enduring loyalty? Regulation and competition are squeezing companies dry. They must generate revenue in order to survive these turbulent times. Restructuring their processes, reorienting their cultures and rebuilding for the future to anticipate and respond to these fundamental marketplace changes are essential. Processes must start with people But the processes must start with people. The systems must fit the people, not the other way around. Customers are not an amorphous mass; they are not machines, they are individuals with feelings and values. When we asked our customers as BT, they told us they subscribed to six key values: (1) independence; (2) privacy; (3) status; (4) integrity; (5) personal service; and (6) social concern. We learned that from these values come clear predictions about consumer requirements, expectations and behavior. Not surprising, then, that the more an organization respects its customers basic values, the more likely those customers are to remain loyal to the company. Customers form their opinions about a company from personal experience. They judge the attitudes and priorities of an organization by the treatment they receive how they feel about the way we behave toward them. Broadly interpreted, business behavior from the customers perspective means saying the right thing against a backdrop of openness, and doing the right thing against a wider stakeholder perspective, including employees, customers, shareholders, the legislature, the local community and beyond. Understanding human behavior If customers personal values and purchasing behaviors are inextricably intertwined, so a companys long-term success is dependent on its understanding of human behavior and feelings as much as if not more than the processes it operates, because, if this fundamental understanding is lacking, the business strategy will be seriously undermined. Companies must understand that customers deal in feelings as well as facts. And here is our dilemma as managers. How can we enable the organization to behave in accordance with customers human values, and still meet commercial objectives in a structured and efficient way? Put another way, how to change the way we manage the organization of behavior, into managing the behavior of the organization. The question is: how? The answer is logical. Ask customers; listen to them. Take notice of what they say, and do something about it. Use everything
from traditional company-driven market research to customer-driven consultation with consumer and stakeholder networks. Identify, analyze and manage the output to assist the company in its commercial direction. Customers voices must be heard Because, if there is one consistent current in these turbulent times, it is that customers voices must be heard amid the clamor. Companies must have a vision beyond the process, and that vision must be about the people behind the consumer trends and marketplace activity. By putting people into the process we can balance the equation between corporate success and customer satisfaction. We, as managers, need determination to question the processes on behalf of customers, rather than validate them for the sake of peace with the organization. We need energy and passion to make sure that customer satisfaction is at the center of our processes, and is not an anesthetized by-product. Customer satisfaction is the reason we are in business, so put customers at the heart of your processes and be sure those customers will take your business to their hearts and wallets!
High-flying employee ownership

Power of employees Operating an airline must appeal to sadomasochists. Every year since deregulation of the industry in the USA new operators join the bloated airline ranks, and every year most of them lose enormous sums of money and eventually fold. Even the biggest companies Eastern and Pan Am most notably are not immune to failure in the industry. A new carrier is considered a success if it lasts more than a few years, but one that makes a profit is a phenomenon. Kiwi International Airlines Inc. is just such a phenomenon. Its success is down to the power and ownership rights of its employees. The companys success in creating real employee satisfaction, loyalty and ownership is a model for all companies across all industries. Employee ownership may be all the rage in the American airline industry, but what makes Kiwis stock plan different is that employees buy into the company when they join it, rather than trade concessions for stock. In fact, new employees were the source of Kiwis start-up capital when the airline was founded in 1992. The employee ownership plan gives Kiwi the flexible cost structure, low overhead and friendly service it needs to compete on its 16 routes. Furthermore, employees provide an especially patient form of capital, which means Kiwi can reinvest money in the business instead of paying back investors. And its nearly 1,000 employees are willing to work harder and for less money because they own a piece of the action, resulting in a low-cost operation with high productivity.
Supportive and egalitarian structure
Employee ownership is not the only motivating factor for excellence. Most of the employees of Kiwi are the survivors of other failed airlines. They have watched service slide industry-wide and have seen how cavalierly some airlines treat workers as they cut costs. They wanted to right those wrongs at Kiwi by creating a supportive work environment and empowering employees to deliver superior service. Hence, Kiwi operates with an egalitarian management structure. Executives pull their weight and do not take home the exorbitant salaries common in the industry. And it works. After two years of operation, Kiwi has posted its first profit. That is a quick trip into the black for a new airline, and it stands in sharp contrast to the losses of some major airlines and the overexpansion that has grounded other start-ups. In drafting their strategy, Kiwis founders decided to focus on large metropolitan areas but, instead of grabbing market share from other carriers, they hoped to stimulate new demand with low fares. The lower fares would lure new flyers on board and encourage recreational travellers to make more trips. The low fares were complemented with a simple fare structure that removed the complex restrictions on cheap tickets. Kiwi also differentiated by offering amenities more suitable to business-class carriers, such as larger leg room and better-quality meals. To keep costs down and maintain flexibility, Kiwi opted for a point-to-point service rather than operating from a central hub. This way, Kiwi would be free to cancel or add flights depending on demand, without affecting connecting flights. In short, Kiwi planned to offer high service at a low price.
The entire workforce as salespeople
To execute its strategy in a cost-effective way, Kiwi needed the cooperation of its employees and got it. For example, during a price war three months into Kiwis existence, employees decided to take a 50 percent wage cut to fend off the competition. The employees make sacrifices like this because the company has a sense of fair play that is missing in bigger airlines. There are no excessive layers of management, and all employees are treated fairly and equally. The chief executive officer of the company still pilots at least one flight a week, and other top management help out at the departure areas on a regular basis. Outside the company, employees continue to proselytize the virtues of flying with Kiwi. Staff try to drum up business in their community by posting flyers, speaking to local groups and the like. Kiwis lean operations allow it to make money with low fares and a low load factor the minimum number of passengers on each flight in order to make a profit. Kiwis passenger cost per mile is one of the lowest in the industry. The company keeps costs down in a number of ways. It leases its fleet of 727-200s older planes that were cheap to come by in 1992 as a result of overcapacity. The company spends less on maintenance because all its jets are the same model, and it is able to negotiate big discounts with suppliers. But the low-cost mainstay at Kiwi is employee productivity. The challenge the company is now facing is how to grow without upsetting the family nature (and the goodwill of employees) and without copying the mistakes of predecessors who grew too fast and subsequently failed. Kiwis current tactic is to add flights in its existing markets, especially to woo business travelers on tight schedules, but the company will only move into markets where there is opportunity, and not just for expansions sake. Competition is growing and Kiwi has to grow to survive.
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Most industry experts believe that Kiwi has a good shot at long-term success. And most of these experts are convinced that the reason for this is the companys management philosophy and the tremendous attention it pays to its staff. Both the style of management and the employee-ownership scheme pioneered by Kiwi have a lot of good lessons for other airlines and other companies in general looking to foster a sense of loyalty combined with low-cost structures.
Making reengineering human

Reengineering to streamline operations
Despite generating profits bigger than many multinational corporations, the big banks in America and Europe tend to shun the latest management philosophies and prescriptions because they do not consider their operations as industrial . The continuing increase in competition, both in home markets and export markets, for financial institutions, combined with the need to shed overhead and expenses, means that banks have to learn from their industrial counterparts. Some, like the Co-operative Bank in the UK, have embraced reengineering to streamline operations. This quintessential industrial process can have many pitfalls for the uninitiated. Tom Falkowski, Julie Murphy and Richard Wellins of Development Dimensions International, writing in a paper for the Sixth International PEPI Conference Reengineering Forum, explain how to tie in both the technical side and the human side of reengineering in all industries. Many current management reorganization processes are incremental and lack a sense of urgency. Many financial institutions cannot wait for incremental improvement; they need dramatic breakthroughs to compete in todays business environment. To achieve such breakthroughs it is necessary to reexamine traditional thinking. Reengineering is built on the notion of busting existing models and thinking. Reengineering means wiping the slate totally clean and starting from scratch. It is accompanied by dramatic, order-ofmagnitude improvements gained through reinventing the way in which the work is accomplished. It is this promise of radical improvement which makes reengineering so different and so compelling.
Focus on core processes
Reengineering is about finding or inventing better ways to give customers what they want while simultaneously achieving huge gains in performance and productivity. The focus is on finding the best, most efficient way to deliver to customers what they want and this focus lands squarely on core processes. Core processes create a product or service of value to external customers. They are a key source of competitive advantage and improving them can dramatically affect the bottom line. Mutual Benefit Life is a good example of the power of focussing on core processes. The company was committed to improving customer service by
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reducing the time it takes to process insurance applications. Its traditional, lock-step process went through five departments, involved nearly 20 people and took as long as 25 days to process applications. To reengineer its process, Mutual Benefit Life abolished its existing paradigms and started from scratch. It developed expert systems and hired case managers who were empowered to process the entire application. The end result was that application-processing time was reduced to less than six days. Massive reengineering efforts Reaping the benefits of massive reengineering efforts is not easy. Successfully challenging and changing existing paradigms takes skillful leadership which focusses on two entwined aspects of reengineering the technical side and the human side. The technical side addresses the steps to reinvent the process. The human side addresses the creation of an organization in which the reinvented process can thrive. Because of the drastic nature of change in reengineering efforts, the human side is particularly important. A successful reengineering project requires the perfect marriage of the technical and human elements. The human side of reengineering has many common elements: a clear vision of the future, new workplace values and culture, high involvement leadership, full-speed-ahead teams, new workforce skills, customer-driven processes, and new selection and promotion criteria and systems. These common elements can be grouped into three components: culture change; analysis, assessment and selection; and training and development. The first involves deciding where the organization should go (vision), what it must do to get there (critical success factors), how it will get there (values), and what strategies it will employ to get there. Analysis, assessment and selection involve identifying skills and abilities needed to support the reengineered process, assessing candidates for the new positions and selecting the best people to fill the positions. Training and development build the skills people need to implement the reengineered process successfully. Correctly linking the three components to the technical sides of reengineering is vitally important. There are eight components on the technical side. During targeting, the first component, core processes are identified and selected for reengineering. Baselining results in a better understanding of the current process. The third component, innovation, creates new process models and the fourth, reality checks, gets feedback from customers on the new models. In design, the new process model is designed in detail. During planning, implementation plans are developed. The process is piloted in deployment with full-scale change in transformation, the final component. Integrating the human and technical sides When linking culture change to reengineering, every step between the human side and the technical side is inseparable. The vision and values drive the entire effort, high-involvement strategies flow through all of the steps, and the thrusts for change must be aligned to make the whole effort work. Although the links to analysis, assessment and selection do not show up until the later phases of reengineering, they are critical to successful reengineering efforts. The assessment and selection system design is critical for selecting the right personnel and putting together and executing development plans. Development planning occurs in the final three phases of the technical side of the reengineering effort. Training and development play an important role throughout the entire effort, with major emphasis in the early and late phases of reengineering. Frequently,
reengineering results in a shift from a function-driven, layered organization into a team-based, flat organization designed around teams of people who work throughout the process. All these changes require new skills for people at all levels of the organization. Without adequately addressing the human side of reengineering, the effort is likely to fail. Without new leadership skills, involvement, systems alignment and the right people with the right skills in the right jobs, even the best technically reengineered process is doomed to failure. The processes are only as good as the people who make them work and the environment in which they work.
Putting your money where your mouth is

A well-designed service guarantee can be highly profitable What is the difference between giving away your product for nothing and offering a full refund to any customer who is dissatisfied for any reason? At first glance not a lot, but US-based Hampton Inns found that offering a full refund to its economy hotel chain customers was a winner because, although it had to pay out US$1.1million in 1993 to dissatisfied customers, it also estimates that the guarantee brought in a further US$11million in additional revenue. This may be an extreme and highly risky example of a service guarantee, but Arthur V. Hill, a visiting professor at the International Institute for Management Development, is in favor of them, as long as they are carefully designed. A poorly thought-out guarantee can do more harm than good for the organization behind it, with the only people benefiting from it being the customers. A good service guarantee must benefit the organization sponsoring it as well. However, service guarantees have a number of pitfalls:
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Customers who cheat. A well-designed service guarantee, good information management and implementing some basic precautions in the claim-filing process can do much to eliminate opportunistic cheating. If cheating persists action can be taken to deal with the individuals concerned, stopping them from abusing the system. Given the opportunities for cheating within a service guarantee, it does not appear to be a major problem, as the vast majority of customers are more interested in good service than in cheating the service provider.
The organization fails to learn from dissatisfied customers using the service guarantee. A customer uses the service guarantee because the product or service has failed in some way. This can be difficult for companies to accept and often they prefer to brush the problem under the
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carpet, but a service failure provides the company with a learning opportunity and a means of using the information gathered to implement improvements.
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The groundwork has not been done. If a company cannot consistently meet the standards required by the service guarantee, it stands to lose a great deal of money and prestige from its launch. This does not mean that the standard set should be low. In fact a service guarantee should put pressure on the company to improve its processes to meet the high standard set by the guarantee, before the guarantee is launched, not after. Competitors offer a service guarantee first. It might make little difference to the customer which company is the first to offer a service guarantee, particularly if its competitors are quick to follow suit. However, the company which learns fastest wins in the marketplace and this is more likely to be the one which was first to offer a service guarantee, receive feedback from customers and, crucially, analyze the data in a meaningful way. The service guarantee bars too many customers. Wherever possible the service guarantee should be open to as many customers as possible. Limiting it to a select few weakens the power of the message and, in the case of a US company which limited its guarantee to customers using its service parts exclusively, ended in a lawsuit and subsequent bad publicity. The service guarantee tarnishes the companys image. Service guarantees can be damaging, as when they guarantee something fundamental to the product or service, such as hygiene in a hospital, thus placing doubt in customers minds; or culturally inappropriate, as in Japan where written guarantees engender suspicion. Serious damage can also be caused by a company withdrawing a service guarantee. Customers will only see that the company has no confidence in its own product or service, regardless of the reasons for withdrawal.
Tempt the customer to provide information
Despite the pitfalls, research has shown that service guarantees can be a powerful tool when well designed and executed because they are a means of capturing dissatisfied customers and working to assure that they remain loyal. Dissatisfied customers talk far more than satisfied customers and can do much to damage a companys reputation and customer base. Encouraging them to complain is therefore worthwhile and a service guarantee can do much to encourage the reluctant, but dissatisfied, customer to come forward. A well-designed service guarantee should offer benefits both to the customer and the sponsoring organization. It should:
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guarantee a high standard for customers, offer clear marketing advantages to the organization, and put pressure on operations to improve performance; promise a significant payout to motivate customers to complain and hurt the company enough to generate and encourage change; be appropriate, so that the customers feel that their complaint is taken seriously by the company and is dealt with by a sufficiently senior member of staff; be short and simple, so that all customers can understand it: dissatisfied customers do not want to be told that they are excluded by the small print;
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be easy for customers to file a claim, while at the same time designed so that the customer provides the company with relevant information.
Learn from mistakes quickly
Every company has dissatisfied customers, but it is those which tempt them to complain and then use the information gathered to implement change that benefit. The company which tries to pretend that it does not have dissatisfied customers is like the zoo keeper who thinks that the escaped tiger will not do any harm. Dissatisfied customers talk, if not to you then to someone else who is prepared to listen. Capture them and capture some valuable information.
Royal Mail delivers total quality

Self-assessment through business-excellence reviews Organizational self-assessment as a means of reaching an objective view of the overall level of business excellence has been given the stamp of approval by Royal Mail, the letters business of the UK Post Office. Eric Logan, divisional director (quality), explains the systems origins and workings. Seven years ago, Royal Mail was growing only because the market was increasing faster than Royal Mails share was declining. Customer complaints were high. Press coverage was often bad. Employee turnover was significant. There were many industrial disputes, and a national strike in August 1988. The Government threatened basic changes to reserved services. Today, Royal Mail conveys 64 million letters a day, to 24 million addresses, with the best record in Europe for next-day delivery. Productivity has risen by almost 30 percent since 1989. Profitability has consistently achieved or exceeded targets. Customer perception has improved significantly. Putting the customer first 24 million of them every day! A strategy for long-term change, Customer first the total quality process for Royal Mail, was drawn up in 1988. The strengths of the business and areas for improvement were defined, using small groups of employees and input from major customers. The mission and values were established, to provide a common aim. Other elements included teamworking, and highlighting the interdependence between customer and employee satisfaction. Quality-support managers were recruited and trained. They were a key catalyst for change. With their common vision of the future organization, they remain influential. Another key element is measurement. An employeeopinion survey is carried out annually. A customer-satisfaction index has steadily been given more focus. Measurement of the letter-delivery performance was changed, to reflect more accurately the customers experience of the service from the moment of posting to the moment of delivery. A measurement providing team members feedback on management behavior was introduced to help managers move from a hierarchical style to one which is more supportive.
All senior and middle managers led their teams through five-day workshops. These have provided an essential foundation of management understanding for implementing total quality. The message of continuous customer-focussed performance improvement has been taken to all 120,000-plus front-line employees. This has been achieved through awareness sessions, followed by specific coaching and support on quality-improvement tools and techniques as people have become involved in improvement activity. Customer-facing strategic business units In 1990 groups of senior managers visited US organizations which had achieved, or were strong candidates for, the Malcolm Baldrige Quality Award. The visits revealed that Royal Mail was too complex to manage in a customerfocussed way. The number of business units was therefore cut from almost 70 to 19. Business headquarters was reduced by some 90 percent, and special customer-facing strategic business units were introduced. Their sole role is to develop products and services which clearly satisfy customer requirements. The US visits also provided an understanding of the power of process improvement and self-assessment against a recognized total quality model. At this time, the European Foundation for Quality Management (EFQM) model was being launched as the basis for the European Quality Award. Royal Mail adopted the EFQM model as its businesswide framework for total quality. The EFQM model has been used as the basis for creating and implementing an internal self-assessment process, called business-excellence reviews. Prime activities The model puts everything the organization does into nine activities: (1) how the leaders behave in support of excellence; (2) how plans are produced and implemented; (3) how employees are recruited, trained, developed and involved; (4) how resources are managed and used; (5) how processes are described, measured and improved; (6) whether customers needs are being met; (7) whether employees are satisfied; (8) whether the needs of the community are being fulfilled; (9) whether targets are being met. The process has provided all business units with the ability to take stock of their own progress and to identify their strengths and areas for improvement. When a business unit indicates that it wishes to undertake a self-assessment, a workshop is held with the executive team. This familiarizes the unit members with the process, establishes roles and responsibilities and provides an initial indication of performance against the model. The business unit then collects data relevant to the model. This may be as simple as assembling and categorizing existing documents and information, or take the form of an extensive effort to produce a formal award-style submission document. To supplement this information, a confidential questionnaire may be sent to a sample of employees in the unit. The data are reviewed by the team of assessors, which produces its assessment plan shortly before visiting the unit.
The assessor teams visit performance is gauged against EFQM model
On the first day of the assessor teams visit, a meeting is held with the executive team to gain an overall understanding of the major policies, strategies, approaches and key results for the unit. On the second day, small groups of senior and middle management are met to explore the programs and processes in place to support the overall approaches. On the third day, the assessors run discussion groups with randomly invited groups of front-line staff. The assessors then spend a day individually assessing the units data picture against the EFQM model. On the final day, the assessor team comes together to agree on the strengths, areas for improvement and scores for the unit. A report is then completed, which the assessor team discusses with the units executive team. The final stage is converting the feedback report into action and improvement within the business unit. This stage is owned by the business unit, not the assessment team. Great care is taken to assure that the self-assessment process is used in an entirely positive way. There is no upward reporting of results, or league tables of relative performance. Business-excellence reviews were introduced within Royal Mail in 1993. So far, 17 have been completed. Around 90 percent of senior managers are trained in the process. Royal Mail has more trained assessors in business excellence, and more experience of business-unit assessment, than any other organization in Europe. Royal Mail is also the largest consumer in Europe of EFQM training materials. Two Royal Mail business units were entered in the 1994 UK Quality Award.
Simplified process for smaller units
Since 1994, the process has been simplified for use with many hundreds of smaller units to allow as many people as possible to get involved in selfassessment. Royal Mail has also developed a business-process approach to managing performance. It embraces all aspects of business activity, from managerial direction setting to front-line service delivery. It provides a structure for managing, and maximizing the effectiveness of effort devoted to, performance improvement. It also provides a practical way of giving all employees the ability to take part in radical and continuous improvement of their processes. In the past, actions taken in the name of implementing Customer first the total quality process for Royal Mail may often have seemed to be outside mainstream business activity. Today, there is no distinction between total quality and the strategies the business follows. Total quality is rapidly becoming the way Royal Mail does things, and needs no separate labels.
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GTE Directories Corporation

Customer delight is rewarding for award winner In the hotly contested advertising business, delight your customer is more than just a quality management mantra, it is often the difference between success and failure. With that fact of business life in clear view, operations at GTE Directories Corporation are driven by a comprehensive, continuous focus on customer satisfaction which combines market research with clearcut quality improvement processes and techniques. Implemented effectively, it is a recipe for success and, for GTE, the means of becoming one of Americas Malcolm Baldrige National Quality Award winners for 1994. It has not always been that way. The Dallas/Fort Worth, Texas-based company has been a leading Yellow Pages publisher for more than 50 years. In the 1980s it began to face competition from other publishers and other media which began to move into the advertising niche previously reserved for Yellow Pages publishers; more and more entrants tried to grab their slice of the cake, and at the same time more and more alternative cakes new media became available. Then came a hammer blow: with the economy slowing, businesses increasingly began to replace their former blind faith in advertising with a demand for proof that advertising worked, that it was value for money. Wake-up call It was a wake-up call for GTE Directories. The company responded by transforming itself from an organization which relied on experience, enthusiasm, and the gut instinct of an aggressive salesforce to a company focussed on anticipating and satisfying customer needs based on concrete, systematic customer input. The annual visit by an over-assertive salesperson, leaving the customer feeling (as one admitted) like the victim in a drive-by shooting, changed dramatically into regular visits by qualified staff, interested to learn about the business and business needs of a regular portfolio of clients, and ready and eager to ensure that any advertising is appropriate, and quite properly an investment for the company involved. Today, as one of the largest players in its business, with US$1.4 billion in annual revenue, the companys primary focus is on publishing and selling advertising for telephone directories. It produces more than 1,200 directory titles in 45 states and 17 countries, including more than 75 different directories in international markets. The companys 5,150 employees work at its headquarters in Dallas/Fort Worth and at dozens of other sites in North America, Canada, and overseas. GTE Directories has three distinct customer groups: the businesses which advertise in its directories; consumers using the directories and related services; and companies which contract for Yellow Pages publishing, printing, distribution and sales services, either directly or through joint venture partnerships. Knowing its customers and satisfying their needs drives business decisions at the company. The company first introduced formal quality improvement techniques into its management mainstream in 1986, with strong leadership by
the companys executive management. Convinced that commitment to quality starts at the top, the companys senior management attended parent GTEs quality improvement course and then taught a similar course to more than 400 senior and middle managers. Covering basic tools, techniques, and philosophies for quality improvement, the training stressed the use of quality improvement teams to address quality issues. Action plans developed by the first teams emerged to become the companys initial quality improvement plan. Since 1991, GTE Directories has used the Baldrige Award criteria to drive its internal examination and improvement process. The company employs a comprehensive, disciplined approach to anticipate, meet, and exceed customers needs. This customer satisfaction measurement program (CSMP) also provides quantitative data on customers perceptions of the companys performance in delivering products and services which meet their needs. GTE Directories vision is 100 percent customer satisfaction through quality: it used to be the internally focussed to be the No. 1 publisher, but that raised the question: who decides the rankings, and on what criteria? It had to be the customer. The CSMP, then, is a framework for understanding customer needs, benchmarking company performance, establishing priorities, and monitoring the companys progress toward meeting customer satisfaction goals. The customer decides GTE Directories also puts a premium on constantly measuring, reviewing, and refining its processes for collecting key operational data. However, to assure that its data are relevant, customer satisfaction priorities are used to set corporate goals and to determine which activities will be measured. To assure that the scope, management, and quality of key operational measurement data are always up to date, functional and cross-functional process management teams are formed throughout the company. The team approach, in fact, is pervasive and popular at GTE Directories, where employees use quality improvement teams to identify problems and change work processes. It is not unusual for individuals to have served on ten or more quality improvement teams, and virtually every employee serves on at least one per year. The company also has 13 permanent process management teams which continually monitor and refine core business and support service processes. The team approach to management is rounded out by 14 active self-managed work teams. Benchmarking central to GTEs approach To ensure that GTE Directories is comparing itself with the best-in-class businesses, heavy use is made of competitive comparisons and benchmarks. Six broad data categories relating to customers, products, operations, employees, business and support services, and supplier performance are benchmarked. Convinced that satisfaction and loyalty are the bedrock of effective and longlasting customer-supplier relationships, GTE Directeries uses its CSMP process and multiple customer and market research techniques to identify customer-service requirements, such as professionalism, timeliness, accessibility, and credibility of customer-service representatives. The company sets specific customer-service standards and performance measures, and weighs the relative importance of product and service delivery features to each of the companys three customer groups. Those service standards and
operating goals are used as the basis for individual and team performance goals, improvement, and rewards. Traditional quality categories Results are, ultimately, how any organizations quality management system is judged. GTE Directories keeps close tabs on results in traditional quality categories. It is proud to claim a published error ratio in 1993 of just over 350 per one million listings. In addition, it rates as the best in class for errors per 1,000 paid items according to industry benchmark studies. The number of advertisers handled by individual sales representatives has increased in each of the last three years. At the same time, the number of sales hours spent by each representative with advertisers has jumped an indicator that what GTE Directories research has shown as especially important to its customers has been put into practice. Quality results show up in other measures, too. The company points proudly to independent studies which show that its directories are preferred in 271 of its 274 primary markets; and in a very competitive market, GTE Directories has sustained increasing revenue growth. The company knows that error ratios, customer preference studies, and revenue reports are useful (but insufficient) indicators of results. What counts in the long run is customer satisfaction. GTE Directories knows that its best hope for continued market and financial success rests with its ability to achieve its vision of 100 percent perfection in this field.
AT&T Consumer Communications Services

The consumer is the ultimate authority on corporate performance Headquartered in Basking Ridge, New Jersey, USA, AT&T Consumer Communications Services (CCS) provides long-distance telephone communications services to over 80 million primarily residential customers. The largest of 20 AT&T units, CCS vies in an intensely competitive, technology-driven industry which has grown from a handful of firms since the 1984 divestiture of the Bell System to more than 500 long-distance companies today. With a domestic market share of about 60 percent, the unit employs 44,000 associates at more than 900 sites throughout the USA. If that sounds like an arena where quality actual and perceived would be hard to achieve and still harder to sustain, think again: AT&T CCS was one of just three winners of the Malcolm Baldrige National Quality Award in the USA last year, and has plans to get even better. There are many reasons why you could bet on success, not least of which is the AT&T internal award scheme The Chairmans Award described by its advocates as many degrees more demanding than Baldrige. Indeed, previous winners of the National Award from AT&T (Transmission Systems, 1992; and Universal Card Services, 1992) are thought by some to have viewed the Baldrige application process as steps on the route toward the organizations internal quality awards.
A perfect connection every time?
In so far as quality is measured by the customer and that is a long way along the route in its 75 million daily customer interactions, CCS measures its progress against the companys chief goal of achieving a perfect connection and contact for each customer, every time. While it cannot claim perfection, it is moving consistently in the right direction, with levels of customer satisfaction moving steadily upward more than 90 percent of customers rate the overall quality of the companys services as good or excellent. CCS had made knowing customer requirements its business. On the basis of customer surveys, extensive marketing research, and competitive benchmarking, it has defined five key determinants of customer satisfaction: call quality, customer service, billing, price, and company reputation, and company goals are directly aligned with these requirements, which are further refined for each customer segment and then distilled to set targets for process improvements and new services. Overall direction comes from the top. CCS president Joseph P. Nacchio, and senior executives (whose annual compensation is partially based on customer value added (CVA), a composite measure of customer satisfaction) lead a planning process which integrates business and quality goals. By participating in improvement teams, meeting regularly with associates, and communicating through a variety of electronic and written media, executives actively spread and reinforce company goals and values throughout the widely dispersed organization.
Process management teams
Responsibility for achieving performance measurement goals rests squarely with manager-led process management teams (PMTs), composed of associates from all levels of the company and, as appropriate, representatives of CCSs 2,000-plus suppliers. Until improvement projects are completed, PMTs own the targeted processes, making operational decisions and monitoring progress by evaluating comprehensive performance data captured by the companys continually refined information systems. To assure a shared focus across units from the beginning to the end of a process internal contracts are used to assign responsibilities and set clear improvement goals for each subprocess. Besides daily monitoring of processes, monthly reviews of internal customer satisfaction are among additional means of tracking progress toward achieving goals. Substantial reductions in the time it takes to develop new products and services are but one example of the organizational returns on CCSs approach to process improvement. Development time has been more than halved, from an average of about two years in 1990 to less than one year in 1993.
Educating the people for bottom-line improvements
CCS considers its highly educated management and occupational workforce, averaging four years of college training, to be the pivotal element in its continuous improvement efforts. Human resource planning is part and parcel of business and quality planning. As it does for its customers, CCS identifies a key set of associate requirements, as determined through an annual questionnaire, site-specific surveys, career plan and performance reviews with managers, and other mechanisms. These requirements are linked to other important determinants of performance, such as company competencies, anticipated technology developments, and customer expectations. The results are: well-defined goals for associate education and training; recruitment; process and work reorganization; and reward, recognition, compensation, and benefits programs.
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On average, occupational associates receive 5.5 days of training each year, somewhat better than the average for Fortune 500 companies. Members of PMTs, for example, are schooled in the use of AT&T-developed tools for planning, executing, and evaluating process improvement efforts. To support the companys penchant for fact-based decision making, many associates are also trained in root-cause evaluation, statistical process control, and other quality tools. Annual surveys indicate high levels of job satisfaction. For example, 90 percent of associates consider their jobs to be worthwhile. Responses to the detailed questionnaire are used to determine people value added (PVA), an aggregate measure of the degree to which associate perceptions of management, job satisfaction, empowerment, and other factors influencing motivation and performance meet or exceed stated goals. Scores are reflected in compensation levels for executives and managers. As is true throughout the telecommunications industry, CCS is in the midst of corporate restructuring and reducing the size of its workforce. To help affected associates to make the transition, the company, in cooperation with associate-union representatives, has initiated services (such as new skills and foreign language training, preparing rsums, and developing job leads) which are available to associates until they find new employment inside or outside the company. In addition, CCS has established a transition center to respond to associates questions on workforce management and prepare informational materials which address concerns voiced by associates. Real-time network monitoring intelligent use of technology With the aim of enhancing existing services, developing new ones, and distinguishing itself from competitors, CCS invests heavily in new technology. That investment has enabled it to expand the capabilities and increase the reliability of its Worldwide Intelligent Network. The company has developed a highly automated system (FASTAR) that restores calling capacity within ten minutes of a major facility failure, a situation that previously took several hours. Moreover, real-time network monitoring and other applications of advanced technology have strengthened CCSs ability to anticipate and prevent service disruptions and to endow its global network with self-healing capabilities. The consumer remains the ultimate authority on the quality of the companys services. To deepen its understanding of customers wants and perceptions, CCS recently revamped its customer-focussed measurement system another example of how the company continually refines its approaches to quality improvement. Now, levels and determinants of satisfaction are evaluated in even greater detail, yielding even clearer targets for improvement. And none of this detracts from the companys financial performance: the third cornerstone (along with CVA and PVA) is economic value added (EVA), defined as the return on capital exceeding an investment return. CCS proudly reports that CVA, PVA and EVA are all positive and growing.
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Reengineering turns company toward the customer

Bradford & Bingley invests 23 million in its future By the late 1980s, deregulation within the European financial sector had contributed to a hostile business environment while, at the same time in the UK, the 1986 Building Societies Act permitted societies to expand operations beyond their traditional areas. The lines between banks and building societies became blurred, international barriers came down, while property ever the foundation of many individuals financial security lost a slice of its value. If this was not enough, increasingly discerning customers were demanding ever better service from a growing number of fiercely competitive players. What to do? For Britains seventh largest building society the Bradford & Bingley with nearly 300 branches and 12 billion in assets it was time to analyze its complete business process, and to initiate a 23 million reengineering project that would leave the company with a new, customerfocussed way of doing business and, incidentally, help it become a world leader in the application of technology in retail financial services. The business redesign was based on a new customer-based administration system (CBAS), developed by the Society in full working partnership with CSC Europe, a company of California-based Computer Sciences Corporation. CBAS represents a reengineering of both business processes and the systems delivery process, and supports the entire core business. It embraced 33 business processes and 390 functions; required 1,600 customwritten computer programs; provided work, at its development peak, for 167 people, and absorbed 300 man-years of effort over a 28-month period ending mid-1992. At heart, CBAS is a powerful customer administration database. The system can be applied to any customer, whether a small depositor or mortgage holder, or an insurance company, or other major corporate accounts. With it, new products tailored to a customers precise needs can be launched in a fraction of the time previously required, and efficiency is maximized by onetime data capture at the point of origin. From process-led to customer-led So how was this radical change from process-led to customer-led achieved? A genuine partnership was formed between three key parties: Bradford & Bingley management, business and technical consultancy experts from CSC Europe, IT staff from all disciplines within the Society and, critically, senior representatives from all areas of its core business. These last were selected for their understanding of both the management vision and the day-to-day operations of the business. All parties shared a common goal to deliver a reengineered business solution which was to be:
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in line with the strategic direction of the business; implemented in stages to minimize the risk to the Society; process-driven and integrated across the organization; built to enable change.
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Such an approach created a number of management and cultural difficulties. The business had to free some of its best people from the running of the organization, and junior staff had to overcome the cultural problem of working with senior business executives as peers. Such difficulties can only be overcome if the project has commitment at the highest levels. At Bradford & Bingley, commitment was total; not only were key resources assigned to the project, but also a high level Steering Group met monthly (chaired and sponsored by the chief executive), and included two of the three executive directors the finance director, with responsibility for managing the budgets, and the commercial director, responsible for delivering the business results. In approaching the highly complex task of designing and implementing CBAS, the partnership adopted the principles and techniques embodied in CSC Catalyst, an exclusive integration framework for creating and implementing business systems and managing business change. This business engineering approach, based on formal data and process modeling, took the Society from the definition of the business objectives and system requirements through to the implementation of the system in complete detail. Change is continuous and dynamic, so the focus was sharply on what would and could be, rather than documenting in precise detail the existing environment: while the models were refined and enhanced in each phase, the level of detail was limited in the early stages to accommodate the inevitable changes which would occur before implementation was complete. Crucial to success was the building of a responsive, responsible team Building and integrating a responsive and responsible team was a prime management task and crucial to success. Recruiters searched for staff within all areas of the Society, within CSC Europe and beyond. Every person involved in the program undertook some form of training and was formally inducted into the project culture. Project managers, with some special assistance from the project office, took responsibility for planning the program as well as for monitoring and reporting on its progress. They employed a variety of widely accepted techniques including:
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work breakdown structures; cost progression by earned value analysis; dependency networking; issue management; change management.
A fully-automated planning environment was developed so that plans could be maintained at the lowest level or aggregated across the program for use by senior management. Regular progress meetings were scheduled at team, project and program levels, and these proved invaluable in helping to identify potential problems and in defining corrective action at an early stage. The working relationship was varied in that CSC Europe, through a managed project contract, was responsible for the concept of CBAS and the quality delivery of its software, while the Society took charge of the overall program. Control was maintained by the program management team which met twice a week.
With such a large and complex program there were inherent risks in the novel features of the application, the technology, the approach, and the partnership methodology. The management team focussed on medium-term risk management; thus:
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managers were made responsible for handling potential problems so they could be solved or bypassed; prototyping was employed at all levels of the program to test and prove concepts and to gather empirical information in order to estimate future performance; training and workshops were continuously provided to enhance the knowledge and skills of the staff; metrics were used to monitor the health of the program and to measure the trends that could push progress off course; tight project management techniques were applied to control scope and budget so that problems could be brought to the attention of management at the appropriate level.
Was it all worth it?
Was the exercise worthwhile? Two years on, the system has been well received by both users and customers. CBAS was rapidly accepted as the core of all the Societys future system needs and developments, and provides Bradford & Bingley with a wide range of business and information technology benefits including:
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30 percent reduction in man-hours required for key business processes; 25 percent return on investment; reduced operational costs; improved customer loyalty; rapid response to market demands; more accurately targeted marketing; improved risk management; consistent, fast management information; increased IT productivity.
It is a reengineered solution providing a genuine competitive edge through technology; and one which allows the Bradford & Bingley Building Society to react and respond with speed in a wider market which demands just those attributes of rapid, flexible response.
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Barclays invests in technology to boost customer service and market share

Workflow project boosts productivity and shrinks lead times InterMortgage, the centralized mortgage-processing arm of Barclays the UKs biggest retail bank, number three in Europe and a significant world player on the financial stage has spent over 4 million to increase productivity and make its operations more customer-friendly. Currently the bank has mortgage assets of 9.2 billion, and ranks ninth as a home loans provider; its investment in technology, it hopes, will reduce costs and make it more competitive in chasing new prospects, as well as more efficient in handling the accounts of its existing 180,000 customers. Working with the European operating division of Dallas, Texas-based Perot Systems Corporation, the new Workflow project means that productivity of the 200-strong underwriting team will be increased by 40 percent, with a significant impact on turnaround times. As well as doing business more efficiently cutting case costs for new business through remortgages, refinances, further advances and premier banking the same technology will allow the bank to continue to focus more intently on the customer, and provide an ever more professional and seamless level of service. Home-buyers should be able to tell the difference: the new system means that branch managers or mortgage advisers can still own the relationship with their customers all the way through the application process, while some 99 percent of all telephone enquiries will be dealt with by multiskilled customer executives, with no need to refer calls to any other member of staff. Prospective customers seeking specialist advice, for example, mortgage arrangements for the self-employed, can be rapidly directed to an appropriate expert without delay. This is made possible by a completely new approach to the processing of the complex financial documentation, rather than a straightforward automation of the traditional procedures. For legal reasons, paper documents must be retained for the time being (and there would be considerable resistance from customers to the concept of imaging and destroying title deeds) but, during the course of a mortgage application, staff at any workstation will be able to call up any file on screen, complete with images of all correspondence and notes of telephone conversations. Converted into electronic format Over 4 million pages have been converted into an electronic format, replacing the existing system for retrieving physical files: the old method typically took 24 hours to recover paper work from a central file warehouse even longer if the application documents were on someone elses desk. The new workflow system started with a wish list with eight critical objectives for its design and effectiveness which were to: (1) increase individual staff efficiency by 40 percent; (2) enable InterMortgage to achieve better service standards; (3) to reduce sundry operational losses by 50,000 per year;
(4) to automate mortgage packaging while being supported on open systems architecture; (5) to retain an ability to change and update the workflow system internally; (6) to provide a home loan-tracking facility for the branch network; (7) to incorporate central sanctioning of loans without increasing staff headcount; (8) to increase fraud prevention. The contract was awarded (from a short list of three applicants) to Perot Systems, who have worked together with Barclays in a joint team to customdesign and build a totally reengineered system to replace the manual processes currently applied to the underwriting process. Perots experience in Europe and the USA encouraged the bank to join them and obtain a commitment to excellence that specifies timetables, budgets and business benefits; both partners in the initiative will share in the rewards from improved efficiency. What will Barclays set for their 4 million investment The banks workflow project manager, Gordon Charlesworth, believes the two years development work and the 4 million investment will be money well spent, and the result will be perceived by its customers as nothing short of the most sophisticated and customer-sensitive system in financial services. And, the bank hopes and expects, such excellence comes relatively cheap: the entire new system should pay back on its original investment in two-and-a-half years. That payback is assessed on the basis of savings on current operational practice. New business can realistically cut the time still further. Currently the branch network has approximately 5.2 billion of mortgage assets (over and above the 9.2bn centrally held) which InterMortgage sees as known growth along with any estimated growth through Barclays increasing its position within the market and the bank is very far from complacent and prepared to accept known growth alone: expect aggressive marketing to exploit the new systems potential. Furthermore, there are opportunities to move up the rankings: even allowing for announced and expected mergers, Barclays could realistically hope to move up two or three places even accepting that the top UK players, the Halifax, Abbey National and Nationwide, are probably so far ahead to be out of reach. A further business benefit is anticipated by Barclays and Perot: improved efficiency and effectiveness not only bring enhanced competitiveness in the marketplace, they are also expected to bring improved job satisfaction among the 800 staff at InterMortgages new flagship offices in Leeds, Yorkshire. This factor is expected to provide a further push to the spiral of improvement.
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Many financial institutions still confuse customer care with quality

A quality pioneer speaks out In recent years the financial services industry has experienced tremendous growth, claims UK quality pioneer and author John Macdonald, and varying forms of deregulation and competition, together with more demanding customers, have brought about great change. Yet the modern world cannot exist without this industry; to meet their everyday needs, market-driven, consumer-oriented and relatively affluent societies require a host of sophisticated financial services. The industry covers a range of services used at some time by almost everyone. These include routine financial transactions, provision of long-term loans for capital investment and home ownership, consumer credit, insurance, investment and savings, provision of pensions and health care and equity transactions services once provided by discrete businesses such as banking, insurance, building societies, savings and loans, credit card companies and brokers: those distinctions are now becoming blurred. At the same time, the industry has invested heavily in technology. This, together with rationalization, has halted the rapid rise in employment and may lead to substantial reductions in the numbers employed. However, there is little sign that it has provided any sustained competitive advantage. Rationalization and the cold wind of recession have provided a steadying influence, but the industry will never be the same again. Each sector now competes on a much wider base and this new environment has brought success for some and spectacular failure for others as, for example, the Prudential Assurance fiasco with estate agents. Furthermore, the industry has not been immune from the quality revolution. Initially, competitive advantage was sought by new products, new pricing strategies or by automated technology. Each initiative was rapidly matched by competitors, and customers found difficulty in differentiating the offerings of individual companies. Eventually, financial institutions realized that the best way to differentiate themselves was through personal customer service. Static customer base Until the 1980s the giants of the industry, such as the banks and major insurance companies, had a relatively static customer base. They slumbered, concentrated on internal issues and ran the organization to suit themselves. They closed on Saturdays; jobs were secure and promotional prospects were handled by ranking deputy assistant general managers on assistant general managers and so on throughout the organization. Communication and customer response became ever slower. Suddenly the world changed. New, hungry, customer-aware wolves began to stalk the high street. Banks had to re-open on Saturdays, stop adding charges to accounts in credit, even pay interest! Competition caused the leviathans to stir. Service and customer care became a strategic issue. The whole tenor of promotion and advertising represented a sea-change. The traditional theme of security with stone faades and wood-panelled offices
changed overnight. Now listening and caring banks abounded. They realized customers were choosing financial institutions on the basis of personal service experience. But the change was almost too sudden. Cynical observers relished stories about banks which had neither listened nor cared. Then, as recession began to bite, exposed banks met other problems. The National Westminster in particular suffered because of its perceived treatment of small businesses, a niche it had previously courted. To be fair, some criticism was unfounded but the banks were hoist on a classic petard. The new-style promotion had established benchmarks and expectations which their organizations and cultures were not able to meet. Tellers and cashiers smiled and greeted customers by name; bank managers also smiled (even listened) and proffered soft armchairs and coffee; but none had really been empowered to change anything of real substance. Customer care programs The major institutions launched a series of customer care programs which included staff training, an attempt to reduce or remove error, a complete remodeling of many customer contact branches and a determined attack on queuing issues. Some, mostly in the USA, actually established service guarantees: Chemical Bank presented customers with a $5 note if they waited more than seven minutes; in Britain, one bank today rewards customers if its makes an error on their account. Organizations invested in market research and listened constructively to complaints. They encouraged front line staff to suggest how customer service could be improved. Banks, building societies and insurance companies invested heavily in customer care, and in their image. In the main there was a positive return; they substantially improved day-to-day service and attitudes to the customer. (Redressing the balance, it is only fair to point out that the National Westminster Bank Quality Service Programme probably went further and achieved more than their main competitors in the area of customer care.) Financial institutions have made substantial progress in improving customer service and customer care. There is also tremendous interest in TQM but there seems to be wide variance in what individual organizations believe that TQM really means. Several companies in the financial sector now provide evidence of a greater and deeper commitment to continuous improvement but, with some notable exceptions, most initiatives under the quality banner seem to confuse quality with customer care; quality does not seem to have permeated the organization as a way of life. Major contribution to success There are exceptions. In the USA, the State Farm Insurance Company has had a customer-driven philosophy since its establishment in 1972. In Germany the banks have always had a strong emphasis on transactional or process management and that has probably made a major contribution to their success. In the UK, Girobank has transformed its operations with an organization-wide process. Outside the banking arena, financial service companies which have enhanced their reputation with their commitment to TQM include Allied Dunbar, London & Edinburgh and Save & Prosper. One organization in the UK has been recognized with a series of awards for its contribution to the quality revolution. The Life Administration Group of the Home Service Division of the Prudential Assurance Company has demonstrated the power of TQM in improved business measurables and customer satisfaction. In 1991 and 1992 it won the UK National Training
Award for its quality training, the Northern Ireland Quality Award, the Institute of Administrative Management Award, and it was the first insurance company to be certified to BS 5750. All of these awards required evidence of substantial improvement in such areas as productivity, speed for response, accuracy and customer satisfaction. There remains, however, much to achieve in the industry as a whole, before quality becomes widely accepted as the way things are done around here.
The quality cry of a modern Paul Revere

How internal quality produced significant results In 1983, Paul Reveres market share in the USA for its primary product, non-cancelable individual disability income insurance, was 11.8 percent, good enough for second place in a wildly competitive market. By 1994, market share had reached 18.4 percent, with no competitor above 10 percent. The means for recovery for the Worcester, Massachusetts insurer? An internally-focussed quality program named Quality Has Value. While profitable in early 1983, corporate pride had suffered; Revere had, after all, been the industry leader for decades. The fall from grace was attributed in large part to having let its attention wander, from assuming the main product would take care of itself, writes Pat Townsend, partner in the Holden, Massachusetts-based quality consulting partnership of Townsend & Gebhardt. And so, in May 1983, under co-chairmen Chuck Soule (senior vice-president for operations, who succeeded to the presidency in 1990) and Bill Pearson (vice-president for human resources), a quality steering committee formed to address the problem; company president, Aubrey Reid, undertook to follow their recommendations. At the outset of a quality process, most organizations ask: Whom should we involve? Paul Revere asked: Whom can we afford to exclude? The answer was nobody. Our belief that external service rarely, if ever, exceeds internal service, and that every interaction with the ultimate customer the policy buyer is the end of a chain of provider-customer mini-processes involving internal employees, supported this decision. But there was extended debate over whether to start with value analysis or quality teams. Value analysis asked: Are we doing the right things?, while quality teams asked: Are we doing things right? We decided both were vital and immediate. The former would comprise a detailed analysis of the organizations structure to see if it was built to handle best the workload, problems and challenges facing it; best estimates predicted this project would take at least two years.
Meanwhile everyone was to be on a quality team from the president to yesterdays mailroom hire. Initially organized by normal work groups, crossfunctional shifts rapidly became visible. There were no absolute rules about team make-up the only absolute was that everyone had to take part. The committee met first in May 1983. On January 13, 1984 the process was launched in the USA and Canada. In the interim, the process had been defined including the quality team mechanics (training team leaders, establishing tracking systems and support staff), communication systems, training curricula, and recognition schemes. US organizing staff comprised a director (the author of this article), a part-time secretary and four quality analysts. In Canada, directing the process was a part-time job. The first bottom-line benefit occurred 90 minutes after the official launch How good could a process be that came together so quickly? The first recorded bottom-line benefit occurred 90 minutes after the official launch. It was admittedly a small saving, a few hundred dollars saved through eliminating a wasteful procedure, but it demonstrated the ready acceptance of the process. The initial monetary investment training program costs, printing materials, wages to the consultants who helped establish the value analysis workshops was repaid within six months. From then on, savings always exceeded costs. After three years of the quality has value process, income from the primary product had increased by 95 percent while payroll numbers had increased by only 4 percent. After four years, Paul Revere was a finalist in the Service category for the inaugural year of the Malcolm Baldrige National Quality Award. To explain the rapid and sustained success, the mechanics of the process and the interpersonal aspects of the organization should be addressed. The quality team system was simple to understand, transferred power to the appropriate levels, and had the clear involvement of every person in the organization. Teams were told to take 30 minutes per week of company time to discuss how to improve whatever they did. Meetings were not monitored: results were, but primarily on a: How can we help you to have even better results? basis. A common vocabulary was devised:
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A customer was defined as anyone to whom you provide service, product, or information. Quality was defined with two components: quality in fact and quality perception. The first was fulfilled by doing what you set out to do or promised to yourself if no one else. The second, quality in perception, was fulfilled only when someone else believed that the service, product or information offered was exactly what they wanted and that it met their expectations. Quality required both elements. A quality process was defined as a continual, proactive effort to determine customers expectations, and compare those with your specifications determining if there is a match. If not, then it was the responsibility of the provider to act.
Sometimes the customers expectations cannot immediately be met. In that case, the providers role is to initiate a discussion. By shifting the expectations (and often the specifications), common ground where specifications and
What if customer expectations cannot be met?
expectations meet can almost always be found. Once there, the providers task is simple: do it. The next step is less obvious: ask again what the expectations are. This offers a non-confrontational way to assess problem areas. If one asks: Tell me again what your expectations are, so we can compare them with my specifications and figure out what needs improvement, the chances of beneficial change are far higher than if you ask: Now whats wrong with you? Problems become impersonal, rather than a character flaw in either individual. Quality teams at Paul Revere were empowered defined as authority equal to responsibility. By giving teams real power, the process focussed on the problems and opportunities immediately at hand and access to power enabled speedy improvements. As the process got under way it was evident that, for most people, the primary customer was not the individual who actually purchased an insurance policy, but someone in the sales office. Realizing this, one office initiated a series of How are things going? calls to sales. It was thought this would increase phone charges, but that it was the right thing to do for their customer. The result? Happier customers and lower phone bills. Through early warning of potential problems, headquarters staff avoided the series of long, unhappy calls later on. Another example of the new interplay between sales offices and headquarters was the monthly sales office survey initiated in the fourth year. Its two primary questions: In the last month, what process at the home office served you badly? and: In the last month, what person or people served you well? By keeping problems impersonal and gratitude very personal, it was possible to concentrate resources where the most concern was focussed as well as insure that deserving individuals were recognized and thanked.
Increase in internal cooperation
This increase in internal cooperation benefited the buying public as evidenced by steadily increasing sales figures. Besides increased market share, 1993 was Paul Reveres fifth consecutive year of record profits. In addition, while the vast majority of US insurance companies reduced personnel at some point in the past decade, Revere has grown steadily. The first step in a quality process is to believe that the personnel department has been hiring adults and that brains are evenly distributed one per person. The next step is for the senior management team to believe in itself, in its knowledge of its own business and its ability to adapt the universal TQM principles to its particular situation. The prize is obvious. The first organization that figures it out in each industry gets to keep most of the money.
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Ournal of Ervices Arketing: Strategies For Service Quality

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JOURNAL OF SERVICES MARKETING

Enhancing quality in service industries

JOURNAL OF SERVICES MARKETING VOL. 9 NO. 3 1995

JOURNAL OF SERVICES MARKETING VOL. 9 NO. 3 1995

Leading the knowledge of workers of the 1990s

JOURNAL OF SERVICES MARKETING VOL. 9 NO. 3 1995

JOURNAL OF SERVICES MARKETING VOL. 9 NO. 3 1995

Becoming a customerdriven organization

Calculating the return on quality

From service to product

Needs of private individuals

JOURNAL OF SERVICES MARKETING VOL. 9 NO. 3 1995

A 24-hour customer service center

A catalog of banking products

The catalog as an advertising vehicle

Can a company be both low-cost- and serviceoriented?

JOURNAL OF SERVICES MARKETING VOL. 9 NO. 3 1995

Keeping the customer satisfied

Knowledgeable service people

JOURNAL OF SERVICES MARKETING VOL. 9 NO. 3 1995

Passenger focus keeps railway on track

Service on which you can bank

Ask customers what they think

JOURNAL OF SERVICES MARKETING VOL. 9 NO. 3 1995

JOURNAL OF SERVICES MARKETING VOL. 9 NO. 3 1995

Capturing the customers voice

competitive strategy; strategic quality planning; and resource allocation.

No news is bad news

Quality planning and the communication plan

JOURNAL OF SERVICES MARKETING VOL. 9 NO. 3 1995

Implementation should defuse resistance

Lack of focus on customer relations

JOURNAL OF SERVICES MARKETING VOL. 9 NO. 3 1995

Focus on customers, focus on growth and focus on profit

JOURNAL OF SERVICES MARKETING VOL. 9 NO. 3 1995

The bent fish example

ISO and total quality

Five steps to process improvement

Employee involvement is essential

JOURNAL OF SERVICES MARKETING VOL. 9 NO. 3 1995

Total quality can work

JOURNAL OF SERVICES MARKETING VOL. 9 NO. 3 1995

Delivering community benefits

Creation of a national center

The kingdom of the customer

JOURNAL OF SERVICES MARKETING VOL. 9 NO. 3 1995

The TQM route to the top of the class

Improving customer satisfaction at London Underground

JOURNAL OF SERVICES MARKETING VOL. 9 NO. 3 1995

Putting people into the process

High-flying employee ownership

Supportive and egalitarian structure

The entire workforce as salespeople

JOURNAL OF SERVICES MARKETING VOL. 9 NO. 3 1995

Making reengineering human

Focus on core processes

JOURNAL OF SERVICES MARKETING VOL. 9 NO. 3 1995

Putting your money where your mouth is

JOURNAL OF SERVICES MARKETING VOL. 9 NO. 3 1995

Tempt the customer to provide information