The difference between winners and losers often doesn't lie in innate abilities, or even individual effort, but in the choice of objectives and of measures which chart progress towards the goal. But can anything so complex as a company, even what the jargonists call an 'SME' (small or medium-sized enterprise) have a single goal?
In terms of overall aim, the answer is Yes. Taco Bell's afore-mentioned desire to be 'Number One in share of stomach' is exactly the right clarion call for a fast food business, better than ICI's wish to be the 'best chemical company' in the world. Such broad objectives are fine and grand as far as they go: but they need breaking down into clear, defined, measurable tasks before anybody can respond to the call. As we asked in an earlier chapter, what does 'best' mean? On which criteria? In whose eyes?
We believe strongly that, while business results are the sine qua non, the equivalent of the final score when the whistle blows, their achievement depends on two other counts: the satisfaction of customers and that of all employees. Actually, 'satisfaction' is an unsatisfying word in this context. The issue is the totality of thoughts and emotions about the organisation, as experienced by everybody who buys from it, works for it, supplies it. If you think of this totality as vague and beyond measure, you will fail: for the measures available provide the focus which produces the winning results.
The first deeply considered US attempt to provide a general answer, useful to all businesses rather than one, is now enshrined in the criteria for the Baldrige Prize, America's top quality award. The European Quality Award's list is very similar, and now widely used by companies internally, as a way of measuring divisional performance. It contains nine criteria - just as there are ten components to the definition of leadership on which this book is based.
That's the first of the EQA elements - leadership. It's one of five 'enablers' and carries 10% of the weight of the final assessment. The others are people management (9%), policy and strategy (8%), resources (9%) and processes (14%). The enablers make it possible for companies to achieve results, in which there are four elements: people satisfaction (9%), customer satisfaction (20%), impact on society (6%) and finally - the end-result of the entire process - 'business results.'
In most companies, of course, business results are be-all and end-all. Some companies boil it down to a single number: net income, the famous 'bottom line.' But the EQA model awards business results just 15% of the total weight - a quarter less than customer satisfaction. The logic behind this is clear enough. Since you can't achieve optimum business results from dissatisfied customers, putting results above satisfaction is putting the cart before the horse.
Measuring their satisfaction by product alone, moreover, won't get cart or horse very far. That's obviously true of a service business. But all businesses are service businesses now, whether or not their managers know it. Inside 'manufacturing' companies, more and more staff are in service functions. More important still, service has become a competitive weapon, possibly the crucial means of differentiating one supplier from another.
Very few firms, though, measure their service performance with the same interest and effort that their accountants bring to the financial results - even though the latter are heavily influenced by service outcomes. Service includes the finance function itself: how effective - and cost-effective - are the bean-counters? In total quality companies, the principle is that everybody has a customer, including the finance people: and that everybody can therefore be judged by their customers, external or internal, and must be. That's what lies behind the following catechism:
'Customer satisfaction is vital to our strategy: the business enjoys a strong quality image with our target customers: our marketing and operations people couldn't cooperate any better: all departments are as customer-driven as we would like'.
That's the right (but rare) answer to 'right questions' on service posed by experts John Bateson and Paul Tiffany. They postulate a perfect business which is oriented towards the front line - the place where customers make contact with a company which is dedicated to their satisfaction. To hear managers talk, that's the focus they all have: customer satisfaction is at once sovereign objective and ultimate measure, guiding value and operational mechanism, strategic kingpin and tactical trigger. Today, Bradley T. Gale observes, 'most companies employ some kind of customer satisfaction measurement system'. So why aren't customers more satisfied?
The answer is simple. If you're employing the wrong yardstick, your measurements will be useless. Some systems, Gale reports, 'are rudimentary surveys that actually discourage people from working on quality improvement'. Anybody who has answered a typical questionnaire knows why. What does it mean when you're 'very satisfied, satisfied, neutral, dissatisfied, or very dissatisfied' with this or that aspect of service or product quality? And do other respondents mean the same thing?
More serious still, what do the replies say about the relative strength or weakness of the competition, or the relative importance of the aspects considered? The answer is little or nothing. In contrast, the 'customer value analysis' advocated by Gale tells managers everything they should want to know. The information, however, doesn't come easily. The 'market-perceived quality profile' takes careful construction. It demands establishing 'the company's position relative to competitors in each key business segment, showing the key quality attributes, relative importance weights, and performance scores'.
Even with that big task completed, Gale's prescription has far to go. The full analysis requires six other tools. Some are transparently valuable, like an 'orders won/lost analysis, showing recent sales efforts won or lost against the competition, with an explanation of why each was won or lost'. Others, like a 'head-to-head area chart' or a 'key events time line', take more explanation. And even the seven tools aren't enough: you also need to chart progress on 'managing customer value', or 'the internal view of quality', and much else besides.
The prizes on offer, though, are glittering indeed. If your quality as perceived by the market (and as measured by Gale's meticulous methods) is rated 24% or more above the competition's, you can expect to earn 12% on sales: three times as much as benighted competitors whose quality is perceived as worse by 24% or more. Customer service tells the same tale. If you're rated equal to the competition, return on investment is 20%: worse, and it's 12%: 'better' service, though, is rewarded with a 28% return. You can't ask for a better guide to better business results.
Everywhere, the story is the same. Superior quality drives profitability; improving quality over the opposition boosts market share and builds market leadership; inferior quality cripples cash generation; superior quality boosts stock market valuations. Nor need the prizes come at higher cost. Nearly a third of 2,746 surveyed companies, which were perceived as offering better quality, actually had operating costs equal to or lower than those of inferior- quality competitors. If you hit both cost targets (low) and quality targets (high), market share will be larger - and profitability greater.
That's no surprise. But one of Gale's most valuable and high-powered points does look surprising. 'Good' isn't good enough. Quality experts rightly prefer 'would you buy from us again?' to the standard satisfaction queries - and 60% of the respondents will declare themselves 'very willing to repurchase' if they think your total quality is good. But if it's 'excellent', the repurchasers leap to 90%. Nobody can afford to ignore customer retention or loyalty, a hard measure with direct and quantifiable impact on profits - for losing customer loss is expensive and so is replacing them.
The pursuit of quality excellence is thus mandatory on every count, and Gale's procedures can't be dodged. First, ask people in the market - not just your own customers - to list the important factors in their purchasing decisions. Second, ask the customers to weight the factors they've cited - taking 100 points in all, and dividing them between the factors by relative importance (in the customers' eyes, of course). Third, ask the customers to score the competing firms on a 1 to 10 basis on each factor. Now you're in a position to find out where you really stand.
The crucial person in registering this properly measured customer satisfaction can only be the customer. But who delivers that satisfaction? Only the people working in the firm. Author Jeffrey Pfeffer believes that better people management is the single greatest source of competitive advantage. He notes that America's five top stock market winners in 1972-92 operated, not in wonder sectors, but in retailing, airlines, publishing, and food processing, which all featured 'massive competition and horrendous losses, widespread bankruptcy, virtually no barriers to entry...little unique or proprietary technology, and many substitute products or services'.
His clear conclusion is that the super-performers gained their superior results from focusing on their people - a source of advantage which is widely and sadly neglected by most managements, and for unacceptable reasons. A contract manufacturer named Solectron took a different attitude: it couldn't get its overall Customer Satisfaction Index above the low 90s (out of 100). Trying to reach the high 90s proved counter-productive, until 'the company looked to more fundamental changes in its structure and its ways of managing people'.
So customers are not the only vital parties who need satisfying. But neither do employees complete the list. What about suppliers? And, speaking of employees, what about the higher-paid ones - the managers who commission all the surveys? Do employees and management share the same values? Are human resources strategies compatible with service quality focus? Is your company aware of how staff morale can impact customer satisfaction? Dissatisfied employees won't satisfy anybody else - including their managers.
Quality companies, again, may well judge managers' performance, for pay purposes, on a basket of results that include employee satisfaction. But only a minority of managements have reasonably accurate measures of how employees feel about their work. Yet one measure, available to all managements, is as concrete and telling as customer retention: people retention, or labour turnover. We have even found high-tech consultancies, whose manpower is their only asset, paying no attention to this key, hard indicator of employee loyalty: even though employee disloyalty costs them money just as surely as losing customers - and may well cause that loss.
Employee attitude surveys need careful interpretation. For instance, when International Survey Research looked at firms in eight European countries, it discovered significant variations between both businesses and nations. While 70% of Swiss workers gave a 'favourable response', that fell to only 54% for the bottom marker: Britain. According to ISR, fewer than half of British workers 'believe they are well managed, are well communicated to, or have good career development opportunities'.
Compared to other Europeans, UK workers feel that 'they are badly organised, inefficient, poorly supervised, badly trained, produce low quality work, have less job security and have low levels of company identification.' Some of these complaints (for example, on training) match objective reports from other sources. But managers who feel that the subjective views exaggerate the UK reality are probably right. National characteristics influence results - British workers are simply harder to satisfy than the Swiss or the Dutch.
But that's irrelevant, for perceptions, justified or not, are facts. If that's how workers feel about their companies, the attitude will affect their performance and, as noted, the perceived levels of customer service, and thus profitability. By the same token, improving their perceptions on the vital dimensions - led by job satisfaction, working relationships and operating efficiency - will demand real and valuable advances. You can, moreover, kill all those three birds with one stone.
There's only one way to find out how employees feel about the company: ask them. That also happens to be the best way of improving their performance: ask them. People on that mythical front line know full well how customer service and satisfaction can be improved: and self-managed teams are the best and quickest way of exploiting that front-line knowledge. The same is vitally true on the factory floor. Going to everybody, from the customer contacts to the backroom boys (like the accountants) and asking for advice on improvements and their implementation has revolutionary implications.
Both that approach and, very likely, the proposals flowing from the working parties will affect, not only business results, but the way in which managers manage. So be it: for all managers are in the service business, too. And their front-line customers are the managed, who on all the evidence are served none too wel. When the progressive Redbridge Council asked staff about their work, MORI found some impressive scores on matters like 'interesting work' (77%) and 'serving the public' (71%), but some less encouraging results on 'becoming less bureaucratic' (62%) and 'having efficient working practices' (58%).
Those findings have obvious implications for the quality of managers - and so does a parallel survey undertaken by Investors in People. It found that under half of those polled could explain Redbridge's aims to outsiders: 'Many people feel confused by the lack of corporate identity and purpose'. Nearly 60% of staff never discussed training and development needs with their bosses (who, almost certainly, would give themselves a much higher score on this count). In general, management direction, support and encouragement were less than people wanted - and no doubt needed in order to achieve desired results.
Where direction, support and encouragement are lacking, so is focus - and the reason is often that managers themselves lack the same three needs. Consultant Peter Zentner of Strategic Retail Identity uses interview techniques, instead of polling, to construct profiles of the complete business system. Auditing one large organisation, Zentner got responses from managers like this: 'The head office is completely hierarchical. We should push responsibility down the line'. Or, even worse, 'We don't know how to manage risk. People are frightened to make mistakes'.
Not surprisingly, these failings feed into the front line. Customers observed that 'the staff are not unfriendly. But they're not actually friendly either. They won't waste time on a customer.' Or 'They are understaffed. Always so busy. Everybody gets irate. You have to wait for ages.' Or 'managers gathered in the aisles. Lengthy discussion about where to display new products. They wouldn't move for anyone.'
As for suppliers, Zentner found them making these comments. 'They could save themselves a fortune if they used us properly'. Or, worse again, 'Pedestrian response time. An organisation where everybody can say "No", but nobody can say "Yes"'. Note how that last comment fits with remarks made by employees: 'Senior management doesn't speak to the staff. We're invisible': or 'Our strength is we're customer-focused. Our weakness is our customer service'.
This surely isn't the picture top management wanted to see. Nor will it achieve either focus on the results, or the right results. But it's the reality. To see yourself as others see you is difficult, but essential - which explains why researching into those external views justifiably takes up more corporate time and money than ever before. But even obeying Gale's instructions doesn't complete the picture of the truly customer-oriented, results-focused company. That's because the customer-leading company will win over that which is merely led.
Leadership isn't required only inside the firm: it's vital outside, in the marketplace. The European Quality Award criteria miss a vital trick here. They call for evidence 'of the company's success in satisfying the needs and expectations of customers.' True market leadership calls for focus on creating customer expectations by innovation and imagination. Success in this ultimate success zone, though, will be captured by another EQA criterion: 'What the perception of external customers is of the company and of its products and services.'
That comes back to our starting point. Winning companies focus on the hard facts of customer retention and labour turnover, learn why people stop buying or quit, and act on policies that will retain and motivate the customers and colleagues they want to keep. They also focus very seriously on the results of properly constructed surveys which show how the company is perceived by the people who create its results - because improving those perceptions improves those results. Moreover, the high regard of customers and employees enables continued and continuous success.
In business as in sport, the score when that whistle blows is what matters - at that moment. But other games, other seasons, other financial years and other business cycles lie ahead. The great management doesn't just focus on the winning game in hand: its focus looks beyond to discover the next game, and to make sure, to the fullest extent of human powers, of winning again - and again.
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