Several people have responded to my most recent blog indicating that they were involved with cost cutting measures in their companies but were not sure that they weren’t cutting costs that actually add value. “How can we be sure we are not cutting the wrong things?” The answer is to listen to what the market is telling you about what constitutes value. Here’s an example from the insurance industry focusing on offering retirement services to benefit managers in large companies.
The organization created a value model to identify the CTQs that drive the quality component of the model. The value model is developed by surveying benefit managers at large companies regarding what they value in a company offering retirement services. This survey was conducted by a major insurance provider focusing not only on their customers but also the customers of their competitors. It is a market-based model and represents the Voice of The Market (VOM) and is the information platform for Six Sigma Marketing.
In this model there are three drivers of value: the CQI (customer quality index), Image, and Price. The numbers adjacent to each driver indicate how important each driver is in explaining value. In this case, the most important driver is quality (.615) followed by Image (.200) and then Price (.185). This tells us that if we want to improve value we will get significantly greater bang for our buck by focusing on the quality component of value. In the recent situation, it also tells us that if we cut costs that are involved in our performance on the CTQs, we jeopardize our ability to deliver value to the market.
The model identified and prioritized four CTQs in the following order of importance: “Anticipates Needs”, followed by “Customer Relationship/Advisor”, “Value Adding Solutions” and then “e-biz”.
The overall importance of this information for cost cutting initiatives is that you want to avoid cost cutting that will do damage to your performance on any of these CTQs.
Aiding your decision is understanding what the market means by “Anticipates Needs”. This CTQ, like the others, is a factor comprised of individual attributes or questions that were on the questionnaire. “Anticipate Needs” is comprised of the following attributes:
· Minimizing paperwork
· Providing easy-to-understand reports
· Providing easy-to-follow claims procedures
· Providing easy-to-follow administrative procedures
· Keeping the benefits manager informed of plan changes
The attributes can be linked to specific people, product and process issues. For example, cutting costs by forcing more paperwork on benefits managers, or cutting costs that would make the reporting process less clear will harm your organization’s performance on this CTQ. Mapping the claims procedure and administrative procedure will not only surface additional areas where cost cutting might do harm to the organization’s performance on this important CTQ but will also tell you where the waste is.
Let’s look at the “Customer Relationship/Advisor” CTQ, the second most important CTQ. It is comprised of the following attributes:
· Stability of reps
· Providing total access to an advisor
· Using agents that know about you and your needs
· Offering frequent personal contact with an advisor
· Having well-informed advisors
Cutting costs that impact on reps and agents (a very common target of cost cutting) will more than likely impact negatively on the organization’s performance on this CTQ. Are there other ways to make the availability of reps and their training more efficient and effective? How can we maintain their frequency of contact in a more efficient manner? These are different questions than asking “Where can we cut costs in these areas?”
Following this approach ensures that the cost cutting is directed by the VOM and not accountants, engineers or financial people and reduces the risk that you are cutting those areas that are the most important in driving value for your targeted markets. In addition, and not to be overlooked, having this information provides you with an opportunity to enhance your performance on these CTQs, moving you closer to value leadership and market share dominance.
Let me leave you with this famous Haiku:
Muda is cast out-
Customers beckon with needs
For more information on the value model contact me: