Extra Edition / Business Management

Applying Continuous Process Improvement to Increase Customer Loyalty

September 18, 2006
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Management practices are seldom subjected to process improvement. This is most likely to be true in small to mid-size companies. The management practices established early in the life of a company often continue with little change as the company grows in size and complexity.

However, it is just as important to improve the process of management as it is to improve the processes used to deliver products and services.

Some of the benefits of applying process improvement to management practices include:

  • Increased sales, improved cash flow, and enhanced profits.

  • Reduced cost of re-selling to lost or at-risk accounts.

  • Better business decisions because more complete information is available about the market's evolving expectations.

  • Conditions that jeopardize efforts to increase sales and profitability are found and eliminated.

  • Strengthened competitive position.

  • Increased number of loyal customers.

  • Less time spent reacting to fires created by upset customers.

    This article describes in just seven steps an effective process improvement method that reveals where opportunities exist to improve management practices that control customer loyalty. This method is based on a comprehensive model of the factors that influence customer loyalty.

    According to the model, customer loyalty and disloyalty result from customers' experiences at six critical points of contact with a supplier. The management practices of a company's leaders determine customers' experiences at these six points of contact. The equation below describes how customer loyalty and disloyalty result from customer experiences at the six key points of contact and, ultimately, from management practices.

    The process for managing customer loyalty consists of 13 factors grouped into three sets.

    The first set consists of seven factors that control the job performance of individual employees. These include expectations (the standards that customers use to evaluate products, services, and their interactions with a supplier's personnel), feedback (data showing how well customers' expectations have been met), consequences (what happens to employees when customers' expectations are met - and when they are not met), abilities (skills required for job performance to meet customer expectations), resources (tools, procedures, and materials required to perform as customers expect), capacity (physical capabilities required to perform as customers expect), and preferences (willing to perform as expected under the physical and social conditions that exist at the job site, for the rewards that are available when performance meets or exceeds expectations, and for the available compensation and fringe benefits).

    The second set of factors controls the output of work processes. These factors are the number, sequence and difficulty of steps to perform a task, how well the job performance of internal suppliers meets the requirements of their internal customers, and how closely the specifications for the output of a work process meet the requirements of the internal and external users of that output.

    The third set of factors controls the job performance of every employee. These include a performance appraisal process that holds every employee accountable for meeting the expectations of their internal and/or external customers, compensation practices that recognize employees whose job performance consistently meets the requirements of their internal and external customers, and a mission statement that explicitly dedicates a company to satisfying its customers.

    Customer loyalty is either under-managed or unmanaged when a management team lacks information about:

  • Opportunities to strengthen customer loyalty to the company.

  • Management practices that inadvertently result in employees working in ways that upset customers or make it difficult for other employees to serve customers.

    Follow these seven steps to determine if any opportunities exist to strengthen your company's management practices that impact customer loyalty.

    1. Select a position in your company that has significant impact on customer loyalty.

    2. Answer these questions as they apply to the employees in the position you selected in

    Step 1. (Note: Space limitation prevents including all the diagnostic questions for each of the 13 factors that control customer loyalty.)

    - Do these employees know in specific detail those features your core products and/or services must have in order for prospects and customers to buy from you instead of a competitor?

    - Do these employees know the standards their work unit must achieve in order to consistently meet the requirements of prospects, external customers, and internal customers?

    - Do these employees know in specific detail how prospects and customers expect to be treated by these employees?

    - Do these employees have current information about how closely:

    Your core products and/or services meet customer expectations?

    Their work unit's performance meets the requirements of its internal customers?

    - When the job performance of these employees consistently meets the requirements of their external and internal customers, are these employees regularly given non-financial recognition such as appreciation, praise, and thanks?

    - When these employees consistently annoy or upset their external or internal customers, do their managers deal effectively with this poor performance?

    - Do the current procedures for selecting people for this position show whether candidates have all the skills and knowledge needed to meet the requirements of the external and internal customers of this position?

    - Do these employees always have the equipment, materials, supplies, work space, procedures, and tools in the quantity and quality needed to consistently meet the requirements of their external and internal customers?

    - Are the work procedures used by these employees regularly reviewed to determine if their outcomes would improve by eliminating unnecessary steps, combining steps, changing the sequence of steps, simplifying the steps, or eliminating boring repetition?

    - Does the performance appraisal/review process clearly and explicitly hold these employees accountable for how well their individual job performance meets the requirements of their external and/or internal customers?

    3. Answer the questions in Step 2 as they apply to the position that manages the position you selected in Step 1.

    4. For each ‘No' answer in Steps 2 and 3, identify how the current situation could hurt your company's efforts to attract first time buyers, convert first time buyers into customers, retain existing customers, and increase the value of purchases by existing customers.

    5. Review your answers to Step 4; if the negative consequences identified in Step 4 are unacceptable, revise your company's management practices as appropriate.

    6. Complete Steps 1 – 5 for all positions in your company that significantly impact customer loyalty.

    7. Continually fine-tune your company's management practices that control customer loyalty by repeating Steps 1 – 6 annually.

    Applying process improvement methodology to management practices will uncover weaknesses that threaten your company's success attracting first time buyers, creating loyal customers, and enhancing internal communication and teamwork - weaknesses that previously might have been unknown.

    By eliminating these weaknesses, you'll be better able to meet and exceed your market's expectations. The critical results will be accelerated growth in customer base and sales.

    Other benefits of applying process improvement to management practices include:

  • Strengthened competitive position.

  • Fewer fires created by upset customers.

  • Fewer resources spent acquiring new customers to replace those who have switched to another supplier.

    Bob Cicerone is director of customer loyalty services and Chris Tatham is chief operating officer of ETC Institute in Olathe, Kan. The firm's market research services provide information that helps organizations make better decisions. For the past 15 years, Cicerone has specialized in providing business leaders with tools that enable them to better measure and manage customer loyalty. Tatham has designed and implemented community-based research initiatives for over 100 government agencies in more than 30 states. Cicerone and Tatham can be reached at 913-829-1215 or by e-mail at rcicerone@etcinstitute.com or ctatham@etcinstitute.com. Or visit the firm's Website at www.etcinstitute.com.

    Publication date: 09/18/2006

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