I had a client, a large financial services organization that prided itself on its continuous improvement process.  It was headed by a guy who had fallen in love with lean and the Kaizan.  Every process in the place came under his scrutiny and the joke around the office was whether you were part of the next Kaizan.  “Death by Kaizan” became the current malady.  Millions of dollars in savings were uncovered (but never seen), hundreds of processes were streamlined (but never implemented) and hundreds of employees made part of a team that promised only more work and less pay.  The process had become the end in itself, not the means to the end.  It is analogous to Hansen’s Law of the Instrument – give a kid a hammer and he soon finds everything needs pounding.

A similar case came up in a conversation with Joe Dager, guru of value stream marketing at www.business901.com.  We were talking about the sales funnel concept – he had been part of a conversation regarding the use of the sales funnel.  The point that he was making was that some companies focused more on getting prospects into the funnel than turning prospects into customers.  Keep that funnel full!  The process had become more important than the outcome of the process.

One final example – this one committed by me.  In my business I use a tool called the Product/Market Matrix that juxtaposes a company’s product lines with their markets or market segments.  The intersection of a product line and a market segment is a product/market.  These are the two elements that drive revenue growth.  Anyway, my business partner and I were deploying the matrix in an organization that was in bad need of understanding how they make money.  We were spending hours on filling out the P/M Matrix – a process that devolved into minutiae and had taken on a life of its own.  At some point in the process I became aware that the utility of the matrix had been supplanted in importance by the process of creating the matrix.  One way I could tell this was that the other team members were lost and pinching themselves just to stay awake.

This is a common malady in academia where professors enjoy professing rather than doing.  But, I fear that “processitis” is more widespread than just these three examples.  I suspect also that it is a killer of good ideas and useful tools.  I further suspect that, in many organizations, it accounts for the inability of the organization to successfully deploy six sigma or lean or other quality initiatives.

How do you combat “processitis”?  Here are a couple of potential remedies.  First, trust the process to somebody that is not an idiot (see first example).  These are the people who become keepers of the faith and elevate the process to a level of importance that becomes a mantle of authority.  Once invested with this authority, their continual respect and authority is deeply rooted in the process itself.  Second, constantly ask, “What is the desired outcome of the process?”  Are you actually making progress toward the outcome or are you becoming mired in the process itself?  Are you accomplishing the goals or outcomes of the process or do you find yourself in an infinite process do-loop?  When problems arise it is sometimes easier to continue with the process rather than solve the problem.  In other words, I believe that there is a type of inertia or momentum that attaches itself to the deployment of the process – once it is set in motion it continues and continues and continues….

Anyway, I invite others to share their thoughts regarding “processitis”, its properties, remedies and examples.  Anonymity is guaranteed.

Tuma concludes the article by saying, “In manufacturing, value no longer is created by manipulating materials, but by engaging employees to deliver exactly what customers want, when they want it.”

While I agree wholeheartedly with his analysis and his argument, I do not believe that it goes far enough.  His focus reflects what I believe is an impediment in many manufacturing operations throughout the U.S.  These manufacturers are product focused.  Their understanding of value is limited to solely to the product that they are producing.  A consequence of this internal focus is a belief that value at the point of production equates to value at the point of consumption.  In this belief, value is a function of the product and product features.  As a result, training is focused on finding skilled “machinists, operators and technicians.”

This leads me to ask, “If manufacturers were market focused, how would the skill sets needed differ from what they are now seeking?”  Tuma correctly points out that “value no longer is created by manipulating materials, but by engaging employees to deliver exactly what customers want, when they want it.”  What do customers want?  They want high quality products at a price that is fair and competitive.  They want value.  If a company is making cheese, customers want the highest quality cheese they can get at a fair and competitive price.  The same holds for tractors, underwear, lipstick, or any other product that is manufactured.  The company that can provide superior value is the company that will be best in market, regardless of what product/markets are targeted.

The issue is, “How do customers define value?”  My experience shows that there is a significant value gap between how manufacturers define value and how customers define value.  Manufacturers take a limited, myopic view of value – one focused on product.  Customers look at the entire value delivery system when they define value.  They include CTQs (critical – to – quality) factors that relate to the sales process, the entire order – to – delivery process, repair processes, product support processes, technical support processes, the invoicing process, and the warranty process.  Customer definitions of value will vary from industry to industry.  The point is, value is a market definition not a manufacturing definition.  Value, if divorced from the market, has no meaning – it becomes an abstraction to be addressed by skilled technicians who may or may not be providing customers with the kind of value they are seeking.

This becomes a pesky problem for many manufacturers who move product to the market through dealers, brokers or agents.  They are critical to the value delivery system but are typically not considered by the manufacturer as part of the value creation and delivery system.  They exist outside of the manufacturer’s world and, in many cases, are an entity that is to be tolerated because of the nonmanufacturing, product related functions that they perform.  The relationship is not one of a partner but rather as a despised in-law who has to be included at the Thanksgiving table, requiring a different management perspective.

I do not see this skill set existing in many manufacturers.  These skills are becoming fundamental to the competencies of winners.  They allow the manufacturer to work smarter and smarter will win in the highly complex dynamics of the global economy.  Value identification, measurement and management are skills that are missing in many manufacturing operations.  And absent the ability to understand how customers define value is like trying to build a product without a blueprint.  Value at the point of production does not translate into value at the point of consumption.  And, it is at the point of consumption where value is evaluated, judged, and chosen.

If you’ve been following this blog you will know that I have been talking about the need for U.S. businesses to work smarter in this increasingly complex and competitive global economy.  At the heart of this need is for U.S. businesses to understand how to identify value opportunities and to use this information to create and deliver superior value.  Value is what will win best in market status for U.S. firms regardless of what product/markets, national or international, they target.

A report by SRI that was released in 2004, “Globalization: Trends and Input Factors of Globalization of manufacturing Input Factors on Future manufacturing Capabilities” contrasts two models: a traditional model that has governed the thinking and practices of U.S. manufacturing and a new model predicated on the dynamism of global economic factors.  Here is the traditional model:

The traditional model is predicated on a more insular and local focus while the new model, shown below, is premised on the need to capture value and translate this value into winning strategies.

To date, many U.S. manufacturers, based on my experience as a consultant to manufacturing firms and associations, do not have the skill set to identify value opportunities and deploy this information to the key strategic and operational areas of their business that will generate differential value advantages that will allow them to dominate their targeted markets.

U.S. industry has been through a period of cost cutting as a preemptive move to insure their survival.  Hard to fault them for this.  However, there will be a time when the focus of these firms must be sighted on issues of growth – of growing market share and top line revenues.  Value has been shown to be the best leading indicator of market share growth.  Understanding how to measure and manage value will be essential to become best in market competitors.   Dominance will be won market by market.  Forget best in class or world class.  The only metric that will matter is best in market – the market share leader and this will come from a superior value proposition.

It is interesting that the U.S. leads in value technology.  We have the best measurement technology leading to unique and powerful management capabilities.  It’s time to capitalize on this resource, or in the words of Six Sigma Marketing, to leverage our value advantage.  Use this money and opportunity to expand training for business by incorporating value measurement and management into their programs.  The time is right!

I have written extensively about the inability of satisfaction to do much of anything, create loyalty, drive market share or increase top line revenues.  It just does not correlate with any measure of performance.  Nor am I the only one who is attempting to deflate the conventional wisdom.

Now comes a strong refutation of the conventional wisdom.  The Corporate Executive Board (CEB) has done a study focusing on the linkage between satisfaction, NPS (Net Promoter Score) and what they call the CES (Customer Effort Score).  The study involved 17,968 customers across a wide variety of industries within a global setting.  The results provide powerful insight into how companies should be measuring their strategic health.  The linkage between customer satisfaction and loyalty was a paltry .18 (R² = .18).  This means that only 18% in the change in loyalty was explained by changes in customer satisfaction.  Put another way, 82% in the change in loyalty was explained by something other than customer satisfaction.    There’s more:

• 20% of satisfied customers intend to leave
• 28% of dissatisfied customers intend to stay

The report also studied the effect of reducing customer effort as measured in the following manner:

“How much effort did you personally have to put forth to handle your request?”

• None
• Low
• Moderate
• High
• Very High

Their conclusion, “Effort matters a lot…Ninety six percent of customers who put forth high effort to resolve their issues are more disloyal while only 9 percent of customers with low effort are more disloyal.”

CES is a transactional measure perhaps most useful directing the activities of call centers.  Make it hard for a customer to solve a problem and don’t be surprised if they find another provider.

In focus group after focus group, customers tell me that one of the most important factors in their decision to stay with a company and its brands is whether it is easy to do business with that company.  If they have a problem can they get it fixed right the first time?

This is the essence of customer value, the DNA of Six Sigma Marketing (SSM).  SSM focuses on growing market share and uses a modified DMAIC process to provide superior value to those product/markets that a firm targets.  Customer retention is critical to market share growth.  It makes little sense to spend significant resources on acquiring customers when you can’t keep them.  SSM has a target of reducing defects – customer defects to three per million.  Granted this is a target that is not likely to be achieved but it casts the creation of value to the forefront of a company’s efforts.

There is more to this report, and I urge readers to download the report and read the rest of the findings.  It is illuminating.  Hopefully, it will start a conversation about what is important in your efforts to increase the loyalty of your customer base.

Market share is comprised of two major components, customer acquisition and customer retention so it is readily understandable why customer retention is critical to SSM.   Now along comes some very interesting work done by the Corporate Executive Board (CEB) on customer effort.  There are several interesting and valuable findings that have emerged from this work.

1. Contrary to the conventional wisdom regarding loyalty, “delighting a customer” doesn’t really work.  “After years of focus on the ‘above and beyond’ service mentality, research from the Customer Contact Council, a division of CEB, indicates that most customers seek only satisfactory solution to an issue, and that companies are artificially inflating expectations in their efforts to oversatisfy them.”
2. Customer satisfaction is a misleading indicator of loyalty, a point discussed many times in this blog.   In fact, customer satisfaction was the least powerful indicator of loyalty following the CES (customer effort score) and NPS (net promoter score).  This finding adds weight to the growing amount of evidence regarding the weakness of satisfaction and the reason why Six Sigma Marketing has adopted customer value as a strategic metric.  The implications of this finding alone should cause many quality initiatives to rethink what they are attempting to do.  Focus on value and not satisfaction at the strategic level and the CES at the transactional level.
3. The CES (customer effort score) is a simple transactional measure that requires asking a single question: “How much effort did you personally have to put forth to handle your request?”
   1. None
   2. Low
   3. Moderate
   4. High
   5. Very High

The research shows “that 96% of customers who put forth high effort to resolve their issues are more disloyal – an eye-opening number when companies consider that 59% of customers report moderate – to – high perceived additional effort in a service interaction.  The CEB’s research found that, in aggregate, customer service interactions are nearly four times more likely to lead to disloyalty than loyalty.”

There are a couple of key points about this work.  First, CES is a transactional measure suited for evaluating the customer – organizational interaction.  It captures what we hear in focus groups when customers talk about trying to solve problems – “Is the company hard to do business with?”  Making your customers bust their cookies trying to get a problem resolved is not only stupid but costly.

Second, by providing your customers with superior value you can head off a number of situations that would force you to solve customer problems.  The call center is taking on more and more importance in many organizations making you wonder whether people in the organization are simply passing problems down the line.  “For companies seeking to mitigate disloyalty, reducing customer effort – not delighting the customer – is the greatest lever the contact center can pull.”

Three, superior value is all about making it easier for your customers to do business with you.  Six Sigma Marketing emphasizes understanding how buyers define value and using this information, the voice of the market, to shape and manage their value propositions.  In those cases where problems arise, SSM examines them from a systematic point of view focusing on how to make sure that whatever is causing the problem is fixed and not reoccurring.  Just thinking about having to call the call center to get help is enough for many to seek better value elsewhere.

I strongly urge readers to download the research and make it a topic of conversation at one of your meetings.  It may change the way you think about loyalty and how to manage it.

• …difficulties accessing the right kind of talent are likely to contribute to the United States becoming less globally competitive in the next five years.
• Access to talented workers capable of supporting innovation is the key factor driving global competitiveness at manufacturing companies – well ahead of “classic” factors typically associated with competitive manufacturing, such as labor, materials, energy.
• “At its broadest level, the study confirms that the global competitive landscape for manufacturing is undergoing a transformational shift that will reshape the drivers of economic growth, high value job creation, national prosperity and national security”, according to Deborah L. Wince-Smith, CEO of the U.S. Council on Competitiveness.
• ….understanding the public policy and market forces that shape the manufacturing landscape are essential to winning in the global economy.
• …the study also shows the United States slipping in rank from fourth to fifth by 2015, the highest ranking country to show a decline – while China and India remain as leaders.

Got your attention yet?  What kind of talent does U.S. Manufacturing need to access and acquire?  It is a talent that can understand the dynamics of the global market place – especially those dynamics that shape and define value.  This has been a long and constant theme of blogs that I have written and is the essence of Best in Market: The New Imperative for U.S. Manufacturing, a book outlining a process for value identification, creation and delivery.

As a subject matter expert on value for the Maryland World Class Manufacturing Consortium, an organization dedicated to lean thinking, I was amazed at the indifference manufacturers showed to the ideas of competing on value.  The Director of the consortium, John Zyrkowski, was prescient in exposing the membership to the competitive power of value.  Unfortunately, cost cutting drowned out the message of superior value creation.

I am also surprised at some of the responses that I get to voice the threat of China and other global competitors to U.S. Manufacturing.  The overwhelming comments can be subsumed under the sentiment that China is still manufacturing crap and knock offs.  Are U.S. manufacturing companies operating with their heads in the sand?  Do they not see the threat that an inability to identify value opportunities, create and deliver value have on not only their companies, their industries but also our economy?

The irony of this failure to pay attention to value as a driving force that is reshaping the competitive landscape is that most of the talent that has developed models, tools and processes for measuring and managing value are here in the United States.  Just like Deming had to find an audience in Japan, so too will the architects of value management take their knowledge and talent offshore?

Six Sigma Marketing provides manufacturers with the knowledge and ultimately the talent to drive U.S. manufacturing to become superior value providers and best in market in those product/markets that they are targeting.  From cost cutting to growing market share is a significant leap and I do not see any mechanisms within six sigma, lean or other quality methodologies, to make this leap.  The leap can be made by adopting the disciplined and fact – based approach provided by Six Sigma Marketing that focuses on growing market share by providing superior value in those product/markets that the manufacturer targets.

U.S. manufacturers will have to work smarter to regain their global dominance.  As the nature of competition changes so too are the skill sets needed to dominate in specific markets.  The question is, “Will U.S. manufacturers be willing to make the changes in their skill sets to become smarter competitors?” We’ll see, 2015 is just around the corner

Problem: My organization started its Six Sigma deployment five years ago, and now we’re having difficulty finding projects, especially projects of value.

Five year old answer: It appears as if projects in this Six Sigma deployment are being sought out by the Six Sigma steering committee, even though the process owners have no true urgency for project initiation and completion. It would be better to have a deployment system where process owners solicit help that leads to the execution of Six Sigma projects, which help their business-aligned performance metrics.

Six Sigma Marketing answer: This is not surprising since many organizations have an inward looking focus.  These organizations tend to be production oriented focusing on defect reductions and cost cutting.  These initiatives reflect the first two generations of Six Sigma.

Six Sigma deployments follow Hansen’s Law of the Instrument, give a child a hammer and he soon finds everything needs pounding.  And pound they did.  It’s time that organizations release the power of Six Sigma on projects that can have an impact on their market performance and market share.  This requires a reorientation of the role of Six Sigma within organizations – one that is more outward looking and market focused.  Unfortunately, there is nothing inherent within Six Sigma that I can point to that can make this transformation- not the mindset, the tools, nor the know how.  That transformation will have to come through the adoption of Six Sigma Marketing (SSM) – a fact – based disciplined approach to growing market share in targeted product/markets by providing superior value.  The step from defect reduction to cost cutting is small in terms of the leap that will be required to move Six Sigma to a focus on market share.

Problem: Our Six Sigma project benefits are measured in hard savings, and we’re having a difficult time determining the cost benefits for design for Six Sigma projects and those that address voice of the customer needs.

Five year old answer: Six Sigma deployments that focus only on hard savings can lead to the wrong activities. This organization needs metrics and a deployment system that pulls for the creation of the right activity at the right time.

Six Sigma Marketing answer: Many Six Sigma deployments that focus solely on hard savings run the risk of cutting costs that actually drive the organization’s value delivery system.  Organizations, typically those that are production oriented, will tend to define value in terms of products and product features.  They will tend to ignore how the market defines value.  Value definitions that are divorced from the market are abstractions – they have no real meaning since it is the market that actually defines and rewards value through sales and market share.

Six Sigma spends a lot of time talking about value but lacking the measurement capabilities, they will necessarily lack the ability to manage it.  Six Sigma is dedicated to measurement and raises measurement to its highest level of importance.  Yet the most fundamental driving aspect of Six Sigma, and any quality program for that matter, is the buyer.  And fundamental issue for the buyer is how they define value.

It’s time Six Sigma made the transformation to a more market focused paradigm – one that brings its power and discipline to questions of growing revenues and market share.  The transformational force is found in Six Sigma Marketing.

In an article titled, “China’s Share of Advanced US Manufacturing Market Soars” The US Business and Industry Council points out that the “industrial challenge from Beijing is no longer confined to low-end goods.”

The report points out:

China widely dismissed as a head – to – head economic competitor to America in advanced manufactured goods, has been seizing significant and often rapidly rising share of the US market for dozens of these high value products from American-based producers for more than a decade.

The repot continues:

China’s industrial prowess is beginning to threaten those domestic sectors that Americans have long relied on to create premium – wage jobs and technological innovation, and to undergird national security, the group explains.  Expanding these industries is also key to any sustainable US economic recovery, the council notes.

Here are some numbers to back up these claims:

…in 2008 imports from Chinese – made products alone accounted for 33.2% of all of the computers Americans consumed, 22% of the broadcast and wireless communications equipment, 12.7% of the tires, 12.1% of the industrial valves, 9.9% of the motors and generators, 7.9% of the relays and industrial controls, and 6.1% of the environmental controls.

China is on the march, just like Japan during the 1960s and 1970s when they began to make significant inroads in the US auto industry.  Today, they own it with high quality brands like Toyota, Nissan, Honda, Mazda, Subaru, Lexus and Infiniti.

Consumers buy on value – high quality at a fair competitive price.  And understanding how the market perceives an organization’s value proposition is critical.  Every brand has a value proposition and it requires close management.  It is the value proposition of the brand that emits a strong compelling buying signal to the consumer.  It either says “buy me – I’m a good deal” or “don’t buy me – I’m not worth it – you can get a better deal elsewhere”.  This is an incredibly important asset for any enterprise.  Value propositions are formed in the marketplace, not the boardroom.  They result from buyer experience with a brand and with competitive brands.  In this sense they are relative.  An increase in value in your competitor’s brands means a diminution of value in your brand.  Accordingly, value propositions require constant monitoring, not neglect.

To stem the penetration of US markets by Chinese manufacturers will require US manufacturers to hone their value identification, creation and delivery skills.  What is impeding their value conversion is a strong product orientation that many embrace.   A focus on defect reduction and cost cutting engendered by the deployment of six sigma and lean has limited their view of the market place.  It is in the market place where definitions of value and quality reside, not on the manufacturing floor.  As I have said a number of times, when quality and value are divorced from the market place, they have no real meaning.  US manufacturers challenge is clear: learn how to measure and manage value or suffer the consequences of abdicating their position of market leadership and contenting themselves with being a follower.

Why this is so interesting is that for decades banks have been treating these free checking accounts as a commodity – undifferentiated as pieces of raw corn or pork bellies.  Now they want to put a price on the commodity that will greatly impact its value proposition.  In other words, for years the banking public has seen little value in checking services offered by banks.   Banks offered little compelling quality in checking and in the minds of the public that quality was worth what they paid for it – nothing.

Commercial banking has had a long and difficult time understanding and managing the value they offered their customers.  Remember the days when you would open an account at a bank and you would receive a toaster, a blanket, an umbrella?  That morphed into a more sophisticated approach where they offered computers and other electronics if you would sign on the dotted line.  Banks understood that the way they were marketing their products that there was nothing inherent in what they did as an institution that added value to their customers.  They had to import value from outside of the industry.

This drove them to treat checking services as a loss leader hoping to attract customers to the bank and then cross sell the customer other products that had fees associated with them.  Many banks adopted a sales philosophy and began to hire salespeople.  Banking schools added programs on selling and discussions such as “Is it easier to turn a banker into a salesperson or a salesperson into a banker” were seen in many banking journals.  Unfortunately, this didn’t work as many customers simply accepted the transaction nature of free checking and bought few other services.

Now the issue comes full circle where once free products with little worth in the eyes of the customer are going to carry a price.  Value is the relationship between the organization’s product or service quality and the price that buyers have to pay to obtain that quality.  See the problem?   Banks, more than likely, will resort to “bundling” where they package several products together and put a price on them.  Or they will more than likely require minimum deposit levels in other accounts to receive free checking or free ATM services.  Regardless of what they do, they will have an uphill battle providing customers with a compelling value – based reason to buy their products as opposed to the products of competitors.

This is the time to be a member owned institution like a credit union.  They have a real opportunity to sharpen their value propositions and attract many customers not convinced of the value they are going to receive from commercial banks.  To do so, they must understand both value and quality from the buyers’ perspective, not their own.  Traditionally they have done this better than commercial banks.  Now they have to step up their efforts.

Some commercial banks have improved on their customer focus but this is an industry ripe for Six Sigma Marketing – a disciplined fact-based approach for growing market share in targeted product/markets by providing superior value.  Market share is at stake as banks are faced with the seemingly contradictory situation of increasing their prices and growing their share, made even more difficult in an industry not known for its ability to create and deliver value.

There are a couple of factors at play in this satisfaction dynamic that so many businesses deem critical to their strategic health.  First, as individual businesses we “teach” customers what they can expect.  We do this in a number of ways.  The first is through advertising such as Ford’s claim during the past decades “At Ford quality is Job One.”  They were telling us that they were producing high quality automobiles when most of us were saying Ford means “Fix Or Repair Daily.”  Creating too high a level of expectations obviously is stupid since it is sure to create a satisfaction gap.

Second, repeated dissatisfaction leads to a condition called “learned helplessness” where we become conditioned to low expectations and an anticipation of being dissatisfied.   Over time we give up being able to get a positive response from the airlines, the cable company, the auto dealer, or any other entity with which we interact.  One of my greatest fears is having to call into the technical desk of a software or computer company to get something fixed.  This is typically exacerbated by being directed to a phone tree (press 1 if you want to get jacked around, press 2 if you want to speak with someone who does not speak English….).

My wife and I recently flew on Delta to attend a funeral in Detroit.  We had to check a bag since my wife was not sure of what the weather would be or what clothes would be suitable or what sartorial options she would need.  The result was a huge bag with three quarters of her closet in it.  This checked bag cost an additional $50 (roundtrip), a small price to pay for matrimonial harmony.  When we returned to our departing airport we had to wait 20 minutes to retrieve a bag that we had to pay for.  When it came on the belt it had a huge stain on it that had permeated the outside of the bag onto our clothes.  My wife who does not fly often and had not been subjected to the poor service and nonresponse of the airlines wanted me to get into a fist fight with the baggage person over the treatment of our bag.  My response – “Why bother?  They won’t do anything!”  This is learned helplessness fostered by years of flying dissatisfaction.

Your organization’s value proposition – the evaluation by the market of the level of quality that they can expect to receive from you and the price they have to pay for it becomes one of your most important assets.  I have been asked by several companies to help them craft a value proposition.  What they mean is to draft an ad that will tell buyers what they can expect from the quality of their offerings and the price that they will have to pay to get those offerings.  And, too often this crafted value proposition bears no reality to the one that the market has already formed based on your actions.  This creates a value gap – one that will surely damage your ability to both attract and retain customers.

It’s well worth while for management to get a firm and realistic understanding of what their value propositions are.  Note the plural form.  You will have a value proposition for each product/market that you serve.  Delta has a value proposition for its business travelers, its vacation travelers, and any other segments that it serves.  Each value proposition is based on different quality factors that are important to the product/market that is targeted.  Best in market organizations carefully manage their value propositions because they understand that they send a compelling buying signal to their targeted product/markets.  Traditional marketing is not equipped to do this.  Value is the DNA of Six Sigma Marketing and only SSM has the tools to measure and manage it.

Do you know what your value propositions are?  If not, you’d better check.

For a complimentary copy of my new book: Best in Market: The New Imperative for U.S. Manufacturing go to www.6sigmarketing.com and download a free pdf version from the contact page.