How to calculate customer value

Value to a customer = what he gets / what he gives.
We make a sale when this number is >1. Both the numerator and denominator are in the customer's domain; they determine what they get — benefit, and what they pay — price, effort to use, risk of change.

The problem with many quality methods is that they focus on what companies give — product and features, and not on what customers get — value and benefit.

That is why QFD is an essential tool. It is the best method I know that can link together the customer benefit and the product features, thus assuring that developers focus first and best where it matters most to the customer.

The trick is to understand what your customers want to get and what they will pay BEFORE you design. That way you don't have to keep fixing things later. Traditional House of Quality assumes you have complete and accurate customer needs. My 27 years of QFD experience tells me otherwise. You must go deeper than what customers tell you if you want a competitive advantage. This is what the modern Blitz QFD^® tools do.

The 2013 International QFD Symposium (ISQFD) will be held in Santa Fe this September. Come meet Dr. Akao (QFD founder) and learn these new Blitz tools.

What does Akao say? Mu!

A recent poll on the LinkedIn group Lean Six Sigma Worldwide asked:

"Which Lean Six Sigma waste reduction (Muda, Mura, Muri) is the most effective way to increase profitability?"

Quality professionals know the first three Mu as three Japanese words: Muda meaning waste, Muri meaning strain, and Mura meaning discrepancy.

I'd like to add a 4th Mu to the list – Muchakucha ムチャクチャ meaning horrendous, reckless, confused and messy, and mad. In other words, don't blindly follow what others do.

There has been much discussion in the lean and six sigma communities that, like TQM a few years ago, these quality initiatives have become too vanilla flavored and over hyped to the point of diminishing returns. This is the result of failing to custom tailor the tools and training to the cultural DNA of the organization.

Our QFD community faced this problem early on when House of Quality (the tool) became synonymous with QFD (the process). Companies in every industry copied the truncated 4-house auto parts model, became overwhelmed by its simultaneous complexity (takes too much time) and simplicity (doesn't address my problem), and quickly burned out. By the mid-1990s, Dr. Yoji Akao was sufficiently worried that QFD would be abandoned, and he asked the QFD Institute to find a way to make QFD more adaptable and faster.

The result was the Blitz QFD^® approach which now precedes and can sometimes replace the House of Quality and subsequent matrices. It is highly scalable and adaptable, and is the core of what we now teach in the QFD Green Belt^® and QFD Black Belt^® courses.

Now, specifically to the LinkedIn poll question: Profit is the difference between revenue and cost. The Lean and six sigma community focus on the cost side – remove waste, improve productivity. There is a limit, though, on cost reduction. Theoretically, once you reach zero cost, where can you go?

QFD, on the other hand, focuses on the revenue side. If we can provide more value to customers by helping them solve their problems, enable their opportunities, and improve their image, then more customers will pay more money for the product or service.  The limit is the size of the global market. Smart customers (the ones you want) won't mind paying 99 cents for one dollar of benefit.