Extreme Customer Loyalty

November 16, 2015 Leave a comment

Here are a few tips on creating an organization with extreme customer loyalty.

With the holiday shopping season kicking into gear, it seems like a good time to discuss the importance of customer satisfaction and loyalty.  Even if you are not in a retail businesses depending on the holiday season to make your annual numbers, it is important to make sure you understand your customers so they return year after year.  Okay, so if you work for a Government agency or some other organization that does not have traditional customers, you are not excused.  Keep reading.  Fact is, that Government organizations, even the military, have customers.  They may not be clearly defined, but they exist.  Government organizations also have to fight for budget and human resources.  Often your customer is the very organization that grants your budget and resources. Understanding your customers and their ever changing needs is vital to defining Value, the guiding light for Lean Agile delivery of products and services.  If you are an organization espousing Lean as part of your strategy for organizational excellence, you must understand your customers or you do not understand Value and hence cannot be Lean.

Customer Loyalty Cycle

To begin, let’s review a few key facts about customer satisfaction.

Customer satisfaction is:

  • A mix of perception and reality
  • A moving target
  • Highly correlated to employee satisfaction
  • Driven by process and product excellence
  • Quantifiable
  • Critical to the success of almost every organization

In my years of study and consulting with various organizations, I have come to believe that organizations with fiercely loyal customers subscribe to two key principles of extreme loyalty.

  1. Directly addressing customer satisfaction does not work. Successful organizations excel with the root cause drivers of customer satisfaction.
  2. Customer satisfaction, employee satisfaction, process excellence, and corporate performance are bound in a continuous cycle of performance.

Consider the organizations known for extreme customer loyalty: Apple, Toyota, BMW, Walmart, McDonald’s, Twitter, Amazon, etc.  Each of these organizations has a clear market strategy based on a detailed understanding of customer segments and they effectively manage the drivers of customer satisfaction rather than react to the symptoms. Business insider has an interesting albeit dated list of brands with fierce loyalty, http://www.businessinsider.com/brand-loyalty-customers-2011-9?op=1.

Consider Toyota’s focus on quality and Lean process with products that are very sensible for their target customers.  I have always found it interesting that lower quality auto manufacturers advertise the quality of their vehicles, while consistently being beat out by Toyota who sells more and owns the global customer perception of Quality. Consider alternately Apple and their brash strategy of forging new markets.  It seems to work for them time and again, because they know their customer base eagerly awaits the next iThing. At the same time Hewlett Packard and others try the same strategy, but fail time and again.  Different customer base means different strategy.  McDonald’s provides tremendous training and career opportunity for its employees.  All of these organizations excel in the root drivers of customer loyalty and almost all of these organizations understand that success is a cycle of learning, improving, and delivering.  Without learning cycles at all levels, these incredible brands would not enjoy such success.

Here are a few quick tips for understanding and managing your organization for extreme customer loyalty.

  1. Begin with the end in mind. Understand that you must work toward a model that aligns customer segments, lines of business, internal operations, products and services into a measurement and management program that drives customer loyalty.
  2. Analyze and Segment Customers
    1. Clearly identify customer segments

Segments

  1. Use key attributes and key performance metrics
    1. Understand that perception and reality are not always the same.
  1. Perception must be measured and managed
  2. Reality must be measured and managed
    1. Data must be collected in recognition of timing and method
  1. Timing: At time of service & 6 months after service
  2. Direct Methods: Web, paper, phone, in person
  • Indirect Methods: Process data, returns, price analysis, social media
  1. Create customer segments and further analyze each segment by developing Kano models and House of Quality

The Kano Model of Customer Satisfaction

KanoPlot

The House of Quality associates key customer requirements with product and service attributes.

HOQ

  1. Develop detailed measurement and management plans for each customer segment.  Make sure accountability for continued improvement of the relationship with each segment is clearly defined and make sure each Line of Business knows their role in overall customer management.

CSModel

  1. Develop a detailed plan of action for near term customer loyalty and satisfaction improvement along with implementation of the mechanisms that will ensure ongoing success with each customer segment.  I recommend the use of the Hoshin Planning Matrix as a way to establish a five year plan with clear goals and accountability.  See Mitigating the Effects of Baseline Budgeting for more information on the Hoshin Planning Matrix.  When conducting your customer loyalty and satisfaction improvement initiative, remember the following.
  • Customer satisfaction is A priority, not the priority
  • Satisfied employees drive satisfied customers
  • Teach employees about customer satisfaction
  • Define customer segments, models, & metrics
  • Employ overt and covert (ubiquitous) satisfaction management methods

The point here is that extreme customer loyalty comes from an understanding of what is of value to clearly defined customer segments and then focusing on the core competencies that drive the effective and efficient delivery of value to the customer.  Customer loyalty must be addressed from the inside out.  It is like personal health.  One can eat healthy, exercise, and sleep well to stay out of the hospital or you can ignore the fundamental drivers of health and medicate problems as they arise.  Eventually, the problems become too many to medicate, the medications begin to interact, and a death spiral begins.  There is a long history of organizations that ignore the drives of customer loyalty and instead waste time and money on customer satisfaction mitigation (symptom) strategies such as warranties, clubs, and price manipulation.  Some of these companies include: Blockbuster, Border’s Books, Circuit City, and the long list of home improvement chains run out of business by Home Depot.  This is not a list on which you want to be.

So while the holiday season is here and everyone is out being a customer, think about what makes you loyal to a brand, a company, or an organization then consider starting the new year with a plan to get better at managing the underlying root drivers of customer loyalty for your organization.

Filed under Strategy Tagged with , ,

A Simple Strategic Analysis Tool

October 5, 2011 Leave a comment

Table of Strategic Constraints – A simple tool that exposes significant constraints in enterprise processes and value chains

Large organizations often find that the internal and external functions of supply chains and value chains are at odds with each other. They battle over lead times, quality of documentation, requirements, specifications, delivery schedules, pricing, engineering plans, etc.  A common example is the eternal battle between sales and delivery in numerous industries such as telecommunications, medical devices, and construction.  I will pick on telecommunications since I know that industry well.  Sales personnel sell circuits and value added services in various configurations across the globe.  Inevitably, what was sold is reviewed by a sales engineer under tremendous pressure to get reviews done.  Working with limited information and disconnected from the reality of field engineering, he does his best to approve the sale.  Once the sale is done, it ends up in the hands of some provisioning center and assigned to field installation and configuration personnel that immediately reach out to the customer to find out what they actually want and often to tell them they can’t get everything they were promised when it was promised or maybe not at all.  The same scenario plays out over and over in Government, DoD, and numerous industries.  While we all know this exists, it is often difficult to document and communicate.  This week, I am posting about a tool any manager or leader can use to document organizational misalignment and conflicts that cause these inefficiencies.

The tool is what I call the table of strategic constraints.  It is essentially a system analysis and optimization tool that anyone can use to quickly document certain important attributes of each major function in a supply chain or value stream to easily identify where functions, departments, or entire organizations are out of alignment and possibly even working against each other.  In a process, the optimization of a step or sub process places constraints upon related steps.  Sub system optimization creates whole system sub optimization. Yet, in many value streams each phase struggles to optimize itself at the expense of others.  The result is a never ending series of myopic initiatives to reduce costs and improve performance.  To solve this, the entire process must be optimized on the whole at a strategic or enterprise level.  This will ultimately lead to sub optimal performance of the steps within.  This model analyzes the root causes or drivers of sub process optimization and myopia by qualitatively assessing the objectives and incentives of each phase of the process.  An example of a completed table is shown below.

The concept and the process are simple.  Call a meeting of managers from each of the organizations in your supply chain or value stream.  You can make this as broad or narrow as you wish.  Use some common sense.  Explain to everyone that the exercise is to help everyone in the chain, not to point fingers at any one organization.  If they are honest, they will all learn things that can help everyone to better serve the end customer and streamline their relationships.  Starting at the top, list the phases as shown.  You can also list the organizations if desired.  Now continue to work your way down one row at a time with the team.  Identify the Primary Objectives, then the cost, cycle time, and performance objectives.

The motives and incentives is where cold hard honesty is required.  Ask “what are the people in this phase really incentivized to do.”  You should see things like “avoid getting called into the boss”, “earn commissions”, “execute the budget”, “sell the inventory”.  This is an area where you can truly expose a lack of alignment with the needs of the customer.  You can also expose root causes of lingering problems.  There are no hard and fast rules for completing the table, just enter honest and meaningful information that can be compared across the columns.   Use consistent terminology across the columns of each row.  In other words, for cycle time, don’t enter “yes”, “100%”, “per metrics”.  These entries are almost impossible to compare.  Rather, enter useful and comparable information, such as “top priority”, “no concern”, “based on artificial metrics”.  In this example, one can deduce that the first phase makes cycle time a priority with the customer and the rest of the value chain either does not care or has established internal metrics they probably fudge to make themselves look good.

Completing the table will take several iterations.  Once it is complete, simply scan each row, across the columns and identify the areas in which the phases/organizations are out of alignment.  Document these problems and discuss them with the team and brief them to leadership.  The findings can also become valuable inputs for your strategic planning process.

Filed under Performance Management, Process Improvement, Strategy Tagged with , ,

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