Monday, June 24, 2013

Quality - Flawlessly Delivering Customer Value

The definition of quality continues to evolve. Joseph Juran defined quality as fitness for use:
  • product features that meet customer needs
  • freedom from deficiencies.
Philip Crosby defined quality as "conformance to requirements".

The current definition of quality that I prescribe to is "total customer experience". Customers today are sophisticated and savvy. The growth of the internet and e-commerce allows consumers to physically examine and compare products in local brick-and-mortar stores, but seek the best price and review user ratings using on-line sites and tools. Perfect product quality today is a given. Competitive advantage is won by the business that best delivers a satisfying experience to the customer throughout the entire value chain and over the course of the product life cycle, including advertising, promotions, point-of-sale merchandising and support, the purchase experience, cost to use/own, and after-the-sale service.

In light of two recent studies commissioned by ASQ (Emergence - the 2011 Future of Quality; and, the 2013 Global State of Quality) ASQ CEO Paul Borawski asks two fundamental questions:
  1. What is the most important challenge the quality community faces in ensuring that the value of quality is fully realized for the benefit of society?
  2. What question does the quality community most need answered in order to advance the state of quality practice in the world?
Edwards W. Deming postulated the Deming Chain Reaction where quality improvements decrease costs and increase productivity allowing for lower prices and increased sales. However, a single-minded focus on costs alone can result in decisions that negatively impact quality and customer satisfaction. In today's global economy of slow economic growth there is immense pressure on organizations, businesses, Quality functions and Six Sigma departments to improve efficiencies and reduce operating costs. The important challenge to the quality community, then, is to advocate for the customer - internal and external; to not lose sight of organizational and operational effectiveness, and champion the cause to deliver distinct competitive advantage and superior customer-perceived value.

Not all costs are created equal. If cost reduction is to be the focus, the Quality professional should encourage and promote a focus on addressing structural and product design costs as opposed to the traditional focus on realized and systemic costs. In 2010, Booz Allen Hamilton Inc., published a cost driver framework that showed greater cost reduction impact by focusing efforts on product design, manufacturing strategy and supply chain structure rather than manufacturing efficiency.

*ISSR Cost Driver Framework graphic is used with permission.

Lean philosophy teaches us that value is defined by the customer. Lean philosophy abhors waste. Waste is whatever the customer is not willing to pay for. The desire by organizations to reduce costs should be based on the lean philosophy... to reduce non-value added activities and eliminate all forms of waste. Muda is the Japanese word for waste. Taiichi Ohno at Toyota had described a list of seven types of muda. Many lean-based organizations are focused on driving out muda. But there are two other forms of waste that relatively few organizations have yet to pursue: mura and muri. Mura is excessive variation (e.g. unevenness); Muri is complexity (i.e. overburdening). Jim Womack, CEO of Lean Enterprise Institute, states that mura and muri are the root causes of muda in many organizations.

Another quality guru, Genichi Taguchi, developed the Taguchi Loss Function that described variation as loss to society. Today's continuous improvement and sustainability efforts share the belief that conformance to requirements alone does not deliver superior customer experience. A "Run to Target" mindset promotes improved process aim and variation reduction.  Stable, capable processes enable flow resulting in operational excellence and optimized customer value. Delivering superior customer experience is today's most important challenge for the quality community.

So, what question does the quality community most need answered in order to advance the state of quality practice in the world? In my opinion, Quality must convince leadership that focusing organizational resources on cost avoidance activities - even in difficult economic times - has greater return on investment (ROI) than cost reduction activities alone.  In an article recently published in Industry Week magazine, Eric Arno Hiller, President, Hiller Associates, reminds us per a famous DARPA study from the 1960s that the majority of product cost (~ 80%) is “locked in” early in the product development cycle. Eric Hiller argues that 70% to 90% of product cost management resources should be focused focused on avoidance instead of after-the-fact cost reduction.
* ROI of cost avoidance graphic is used with permission from Hiller Associates

To advance the state of quality practice in the world, the quality community must continue to advocate for the customer and society. Quality leaders must be able to demonstrate the economic value of customer loyalty to the business enterprise. A 6-year study of stock performance completed by Watermark Consulting demonstrated that customer experience leaders outperformed the market between 2007-2011, generating a total return that was three times higher on average than the S&P 500 Index.

* CX Stock Market performance graphic used with permission from Watermark Consulting

To advance the state of quality practice in the world, the quality community must speak the language of management while relating increased customer experience to improved customer loyalty (willingness to repurchase, willingness to recommend) leading to repeat business and increased sales.

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