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.

Siri — Far out and far off!

A hilarious thing happened when I was in Orlando, Florida earlier this month, giving the QFD Green  Belt^® Course.

One evening after a day of teaching, some of us decided to go to dinner in Downtown Disney, a popular shopping, dining, and entertainment area located just over 5 miles (8-9 km) from where we were.

Sitting in the rental car in the hotel parking lot, I turned to Siri on my Apple iPhone and asked for the driving directions. I had driven to Downtown Disney two days before, so it should not be a new location to Siri.

What happened next was totally unexpected and perplexing, to say the least. Siri, with her usual serious tone, mapped out a 36-hour drive to Downtown Disney in Anaheim, California, over 2,500 miles (4023 km) away from Orlando, Florida . All passengers in the car burst out laughing.

We gave Siri several more chances to correct herself, specifying “Orlando, Florida,” but each time Siri came back with the same response, generating the driving map across the entire continental America. (the photo above)

DFSS / DFLS and QFD: Why we need both

A recent QFD newsletter discussed the similarities and differences of DFSS/DFLS and QFD and why it is not an "either-or" question but that we need both to deliver business success.

This is because the focus of DFSS (design for six sigma) and DFLS (design for lean sigma) is our internal products and processes, whereas the focus of QFD (quality function deployment) is our customers. The differences between the sigma approaches and QFD are especially notable in these areas:

• Focus
• Customer understanding
• VOC (voice of customer) analysis
• CRM (customer requirements management) and priority
• Solutions identification and delivery
• Design, Development, and Commercialization
• Math

In short, QFD provides a holistic approach that links business, customer, and technology in one end-to-end trackable flow with the goal of customer value — DFCV (design for customer value). QFD uses quantitative and non-quantitative tools to analyze the unknown unknowns, information that leads to sustainable competitiveness.

DFSS provides a powerful set of statistical and analytic tools that can improve the efficiencies and effectiveness during the build of new products. QFD provides the umbrella of customer value as the driver and DFSS kicks in downstream to assure that solutions are optimally developed. We need both together in order to deliver customer satisfaction and business success.

Here is the detailed comparison of the sigma and QFD approaches and the reasons why we must use both: "DFSS/DFLS and QFD"

I get my kicks from Champlain

Samuel de Champlain is my nomination for Mr. Gemba.

I enjoyed immensely reading David Hackett Fischer's biography of the father on New France called Champlain's Dream (Simon & Schuster, 2008).  Like many of us in modern organizations, Champlain started out with a dream, had little if not negative "management" backing, did his exploration the right way, and changed his corner of the world forever.

Champlain's Dream

Let me put this in a QFD context.

Business Goals: converts Native Americans to Catholicism (as measured by # souls), create wealth for France (as measured in livers – French currency at the time), compete with English and Dutch (as measured by # ports, colonies).

Key Stakeholders: 3 successions of King Henri IV, Queen Regent Marie de Medici, and Louis XIII and their administrations. Financial backers including Compagnie de Caen and Hundred Associates.

Key Customers: various tribes of Native Americans on the St. Lawrence River, French traders, Colonists, Catholic Church clergy.

Customer Process Models: Champlain joined many tabagie (smoking festivals and meetings) with Native Americans to learn about their lives, their joys, and their struggles.

Gemba: After the "interview" research of the tabagie, Champlain then explored the St. Lawrence gemba. They joined hunts for food, parties of war, lived in their villages, ate their food, stayed on through the winter seasons (in the early 1600s, most Europeans were fair-weather visitors to North America). He did youth "student" exchanges to learn their languages and customs, etc. This is real gemba.

Customer Needs:

    About the Native Americans, Champlain learned:

• Help feed our families (many St. Lawrence tribes were hunters and gatherers, did not store food, and suffered terribly with disease and starvation during some winters).
• Protect us from our enemies (both Indian and European).
• Help us live in peace.

    About Colonists:

• I want to serve my King.
• I want to become a land owner (almost impossible for non-nobility in France).
• I want a place to retire with my family.
• I want a great adventure.
• I want to get out of debtors prison.

    About Clergy:

• Establish the Church in North America.
• Create a rule of law and faith (not just revenge).
• Free to do missionary work.

    About French traders:

• I want to trade with everyone.
• I want to fish anywhere.
• I want to make a lot of money.

Functional Requirements: respect for Native American cultures, no retribution, assure adequate food and nutrition, establish rule of law based on just solutions for all parties, build trust by keeping promises, religious tolerance, make colonies self-sustaining, encourage intermarriage.

The result was a mastery of exploration, cartography, co-habitation of peoples for mutual benefit, and a tremendous leadership style that got it "right" most of the time. This came from Champlain's non-judgmental willingness to learn, appreciate diversity, and explore beyond his comfort zone. In that era, it was the French who recognized the humanity of Native Americans, while the Spanish were enslaving them and the British were pushing them off their land.

Champlain's life is an example of how to do gemba right.

Now’s the time!

It’s that time of the year again, when we begin the call for papers for this year’s QFD Symposium.

This year’s will be an International Symposium, taking place September 6–7 in Santa Fe, New Mexico.  It’s a great time to meet your peers of QFD as well as greet some of the gurus of quality excellence.

As usual, there will be classes, discussions and demonstrations, and we’re looking for contributors who would like to show others how they’ve successfully applied QFD to their own professional (or personal) projects.

If you have a project or paper, completed or in-progress, you’d like to share, please send an abstract now.

Healthcare optimization and its effects on patients

This came from someone who read our recent post on healthcare improvement:

I would like to talk about a recent experience I had at a doctor’s office. Given my medical history, the experience might not be relatable to everyone but I think it highlights an important problem in the area of medical process improvement, where offices are adopting new Standard Operating Procedures to streamline patient visits, as a local improvement without seeing the big picture or global improvement.

To start, it’s important to note that I have a long history with eye doctors and have spent my whole life in the same medical system and hospital, and I have a medical record that could rival Proust’s In Search of Lost Time as a blunt weapon.  Like any experienced patient, I know the procedure for checkups and I know how my eyes should test.

On this visit, I made it quickly from the waiting room to the exam room (an area this hospital has made incredible strides in over the past twenty years) and soon my exam was underway.  The technician measured my eyesight with a multi-line letter chart and then took my eye pressure using a Tono-pen.  Both of my readings were off.

The multi-line letter chart helps prevent cheating through memorization but it makes it much harder to focus on any one line.  Tono-pens are used because they save time over traditional Goldmann tonometers (the little blue cones they press into your eyeball) but they are both less accurate and less precise. We’ll get back to the time savings in a minute.

My vision was measured at 20/30, acceptable for many people and good for others. But with my glasses, 20/15 is the norm and 20/20 is what I have on an off-day when I’m tired.  It’s not a big delta though and it can vary with things as simple as room dryness or the cleanliness of my glasses, so I was a bit annoyed with the result but not yet concerned. Then came the Tono-pen.
 
Tono-pens are a small handheld device for measuring intraocular pressure and they’re a godsend for measuring small children and patients who can’t sit still.  Unfortunately, I’m not one of them and given my eyes’ history, I have a very precise range of what my eye pressures should be. This particular visit, the pressure in both eyes was abnormally high by more than five; the right eye’s being nearly double its normal value and a possible signal that something might be wrong.  The technician’s response was to move me back into a waiting room while my eyes dilated, and advance to her next patient.

All of this was done in a matter of minutes and her efficiency was through the roof!  By basic metrics, she did her job swiftly and followed exact protocol for processing patients.  After all, it’s not her fault my eyes had subpar measurements; the doctor would just have to treat it.

When my doctor arrived, she began a more thorough investigation of my eyes. Her conclusion was that everything looked great.  All of the parts in every sector had maintained their shape and size from the last visit, and there wasn’t a hint of inflammation.  Still slightly worried about the high pressures, I asked if she could re-measure them and she obliged, this time using the gold standard Goldmann tonometer (photo below). This time, everything was normal.

The point of this writing is not to call attention to a single technician, because she did exactly as she was trained.  It is rather to show what generic service can miss and how it could be better.

Upon seeing and hearing that my eye pressures were out of line, the technician should’ve conducted a second test, possibly using the more accurate and precise equipment, and compared it to my historical figures. The problem with this is that it would’ve cost her time, and being in a low level position, she doesn’t have the clout to shrug off time requirements and quotas.

Now why is it a problem if everyone in a medical office tries to work as quickly as possible? 

Mistakes and malpractice aside, it misses the big picture.  The primary bottleneck in a doctor’s office is the doctor herself.  They are in least supply, have the busiest schedules and are almost always the reason you’re processed in a timely or slow manner; the rest of the system adjusts around them.

In this case, spending an extra three to five minutes during the technician’s stage would not have delayed my consultation or departure at all, since I still had to wait another 5+ minutes for my eyes to dilate and another 5+ after that for the doctor to become available.  The same goes for the next patient she had to visit.  If the doctor can only see 5 patients per hour and technicians prepare 10 patients per hour, the clinic will still only fully process 5 patients per hour.  The system can move no faster than the slowest link.

So not only did the time saving measures before the doctor’s stage provide no temporal benefits but in the end, the less precise device actually cost the clinic time it was meant to save.  You see, the doctor spent additional time conducting a re-measurement of my eye pressure that actually could’ve taken place twenty minutes prior when there was a buffer zone.  Reducing time during the technician’s stage meant overloading the doctor’s stage and the end result was an increase in the total time for processing.  As you can imagine, this sort of thing gets compounded with every patient.

In the late Eli Goldratt’s Theory of Constraints, it was recommended improvements to throughput must come by way of removing all unnecessary loads from the bottleneck. At a clinic, this means that anything that can be done by a technician should be done with the precision and accuracy that a doctor requires so that they do not have to repeat testing. By increasing the attention to detail of technicians, it may be possible to reduce the overall load on the doctor, thus speeding up the entire system.  This could add up to significant savings, especially in these times of concern for reducing healthcare costs for both hospitals and patients.

What ever happened to customer service?

It seems these days that customer service has gone to the dogs. It used to be we gave our best customers our best service, especially in this service economy! Here are some of my recent experiences.

Case #1
At a national chain restaurant, the guest check holder (the leatherette bill holder the waitperson brings to your table) was redesigned. Instead of the conventional, little clear plastic pocket that was the perfect size to hold a credit card, their new design has a simple slit that is cut directly on the holder lining.

Because there is no pocket seam to hold the card securely in place anymore, once you insert the credit card into the slit, gravity works to slip right down to the bottom of the 10" deep holder, unbeknown to the customer.

When my waitress brought my credit card slip to sign, the card was nowhere to be seen. After a frantic search of the floor around the table, the card was found stuck inside the lining of the folder where it had slipped down to the bottom. It had a friend, too – another card lost by a previous guest over one week prior! The waitperson's response – "Oh that happens all the time." Well, if it happened more than once, why didn't they fix the problem?

Case #2
The new US healthcare laws require that children over 26 have their own health insurance. After transferring our son to his own insurance plan, he enrolled in automatic-pay from the bank account. The first monthly payment was deducted properly, but not the second. After several long phone calls, it turns out the second payment was deducted from someone else's bank in error. How could that be, since it's all done by computer, right?

In fixing the problem, the insurance company not only removed the incorrect payment for the current month, but they also removed the correct payment for the previous month, meaning my son was now in arrears and at risk of losing his new insurance, even though we had followed all correct steps to transfer and set up automatic payment.

Furthermore, their customer service representative just reported his account now shows "paid" for the next five months, even though he has not paid past the current month.

Case #3

"Global roaming" on a mobile phone is essential when traveling overseas. I recently had to activate the plan that gives me a discount on data when traveling abroad, which is important for a smart phone. Well, this took several calls with conflicting information from the various agents at my mobile service provider. One person said it was not necessary, another said it could be done now and I would be all set. A third person actually took me through the steps to change my iPhone settings so it would work. Had this third person not explained the setup to me, the phone would not have worked.

I'm sure you must have some stories yourself. Why not share them with us?

If you run a service or support operation, learn how to understand what your customers really want. It will earn you customer loyalty and save you money from multiple mis-handlings by your staff.

To learn new QFD tools for this, I recommend attending the QFD Green Belt^® course. I will be teaching the Orlando course on Feb. 28 - March 1, 2013. You will learn how to apply QFD correctly and most efficiently from the first time.

The course includes Excel templates which is an economical alternative to buying commercial software that is most likely based on outdated methods. The course has no prerequisites.

Glenn

“Did you find everything okay?”

It’s a question consumers hear on a daily basis, whether they’re at a grocery store, electronics store, sporting goods store or basically any kind of retail outlet.  Sometimes our answer is ‘yes’ and other times ‘no,’ but what never seems to change is the outcome from this little encounter.  Anyone reading this blog probably already understands why – because it’s not a service question, it’s a marketing statement.

Much like “Welcome!” from greeters at many mega stores, this simple line is meant to project a customer-first attitude amongst a store’s employees (and at no additional cost!,) however, unlike a throwaway greeting, this question represents a much greater missed opportunity.

It is not that the asker (often a cashier) is disingenuous when asking this question, but rather the question itself is problematic and their training does not enable them to deal with the voices of customers they receive.  It is an avenue for feedback, but it almost always leads to a dead end.

The most immediate problem with this question is that it’s vague and open to multiple interpretations by different customers.  One of the main principles of asking good questions is making sure the respondent actually knows what’s being asked.

The first possibility that springs to my mind is, “Was the process of finding specific product groups and making selections easily accomplished?” This can be broken down in at least three ways as follows:

• “Was our inventory organization logical to you?” 
• “Was our inventory accessible to you?”  and 
• “Did we provide enough information to help you decide?”  

There are likely more ways to break down the process of shopping, but it’s worth noting that an online store like Amazon, which has begun to enter the grocery business in some cities, can easily meet these needs without much extra effort through their existing online interface.  This makes it all the more important for today’s brick and mortar grocery stories to satisfy in these areas.

Another way to interpret the question is, “Do we carry the specific items you’re looking for?”  – either by item type or item brand. This is an issue of supply management and no amount of friendly customer service is going to help the customer get what they want on that current trip.

There might, however, be an easy and visible method for customer requisitions, which would not only please a customer but also guarantee a return visit when their item arrives.  This is often possible at electronics stores (although the process is far from visible or easy) but is rarely possible in grocery stores.  When a customer’s favorite brand of mustard or bread goes missing and they ask an employee why they no longer carry that item, they’re often met with an “I don’t know” which is neither helpful nor informative. The excruciating weakness of that response is that it could be!

Even when store representatives ask meaningful questions and their customers provide informative answers, they’re rarely trained with the necessary tools or provided a response channel to turn that voice of customer into helpful information.

Every time the question is asked, a store is in position to receive useful feedback, both positive and negative, yet that information goes nowhere; it gets stuck with a clerk who doesn’t know who to give it to or a manager who doesn’t want to receive it. “Did you find everything okay?” is a façade of customer-first thinking, and fortunately there’re ways to improve it.

An easy start is to ask better questions, and to make sure your representatives know how to respond when the customer's answer is “no.”  A working response channel from customer to representative to management is important, however this is dependent on a customer’s time, mood and memory and may lead to skewed results.

For instance, feedback on message boards tends to occur more when something has gone wrong, rather than when something has gone right.  Questionnaires sent out by grocery stores tend to be focused on their own product or process rather than the customer’s experience (or their desired shopping outcome), and by the time customers receive them, they may not remember all of the relevant details from their shopping encounter.  Furthermore, even if a customer did have difficulty searching through a store’s shelves and a cashier was able to help them, what good would it do if the customer had already waited in line and was about to pay (as they often are when the question is asked)?

For these reasons, going to the gemba is the most effective way to find customers’ needs in order to improve their shopping experience.  True customer-first thinking means discovering if they “found everything okay” (and everything it entails) before they check out of your store.

Ken Mazur

Related Read...

• Trusting Front Line Employees To Be Customer Advocates 

• Translating Voice of Customer into True Customer Needs 

• Electronic Medical Records in the Gemba 

• Service QFD and State-Transition Diagram

When your EOB becomes an SOB!

When is information from a service provider (or any vendor) too little or too much? I'd like to share a recent experience with my health insurance company.

When It Is Too Little. 
My university offered me health insurance on an "opt-out" basis, meaning I was included unless I chose not. The insurance would only covered me and not my family, so I did not want it. I missed the opt-out deadline, and unbeknown to me, I was added to the university policy, which used the same health insurance company as my family policy.

This insurance company, seeing two policies under my name, automatically dropped my family policy. They did not call me, they did not write me; they just sent me a refund check in the mail.

When I received the check, I called them to find out why – it was a refund of my family policy which has been in place over decades with no lapse in premium payment, and yet they decided to cancel it without ever asking me. Stunned and outraged, I had to buy a separate "bridge" policy for my family from a different insurance company.

Eventually I was able to reinstate my cancelled family health insurance policy and get off the university plan, but it took a month of calls to both the insurance company and university and dealing with their bureaucratic processes before finally getting things straighten out.


When It Is Too Much. 

Yesterday, my insurance company just sent me a revised EOB (explanation of benefits), about a hospital treatment from a few months ago, for which they had already reimbursed since then. I have the original hospital bill as well as the first EOB showing a balance of $0.00.

However, the revised EOB I just received indicated that nothing had been paid to the hospital and that I was responsible for the full amount (it was expensive!).

I called the insurance company and they explained these details: After the original bill was reimbursed, the hospital lowered their price (hospital billing error) and re-sent a smaller bill to the insurance company. This triggered the insurance company to "take back" the original payment and send me a revised EOB explaining nothing had been paid.

Then, the insurance company paid the hospital the lower amount, and issued a "revised, revised EOB" showing that my balance was now $0.00 again. This revised, revised EOB will be mailed to me next week, they tell me. How confusing!

In other words, in this case the insurance company, for some internal reason, decided to write to me the intermediate information that I did not need to know. Because of this intermediate and incomplete information, I became very worried and spent a lot of time, trying to find out what happened. It would have been better had they told me nothing and just handled the transaction between the hospital and the insurance company. SOB!