Rebalancing Quality Priorities

Many companies are susceptible to costly quality issues, as the recent Toyota crisis demonstrated. To reenergize their quality focus, companies should manage quality as a customer experience, address quality issues with sophisticated risk management approaches.

Editor's Note: "Rebalancing Quality Priorities" is a three-part series describing a new approach to quality management from a customer and risk management perspective that involves the entire organization. This is part 1. Also see part 2,"Quality Equals Risk Management" and part 3, "Transforming Quality Culture."

This past winter's continuous news cycles surrounding accelerator pedals on Toyota vehicles were disturbing, and even tragic, on several levels. People had been affected by seemingly inexplicable car crashes, emotional tragedies that changed their lives. There was the loss of nearly $30 billion in market value and the potential long-term damages to the reputation of a leading global automaker -- fueled by the realization that, as Toyota chair Akio Toyoda said in an April 10 Guardian News & Media article, "Over the last few months, we really learnt that we were not close enough to the customers. "There also was the ripple effect on people in a wide variety of industries. They realized -- or should have realized -- that if such a full-blown crisis can happen to Toyota, with its deserved reputation for extraordinarily high quality, it could happen to just about any company.

Quality issues routinely gain high media profiles. Whether in the food, toy, or construction industries, dozens of recent examples demonstrate the potential high costs of poor quality, which have been estimated at 5% to 30% of gross sales for manufacturing and service firms. Yet many people have been tempted to dismiss the past crises, often with the notion that fault can be quarantined in some remote supplier in the developing world. We believe, however, that the Toyota crisis raises the ante. It is not yet clear where Toyota's quality problem arose (or, as some argue, if there even was one at all), but nobody is yet blaming a single supplier, a weak link in the value chain. Even Toyota acknowledges a systemic quality issue, and has already started organization-wide initiatives to address it.

We believe other companies will, wisely, want to follow Toyota's lead. They will seek to redefine their quality functions and rebalance their quality priorities. Furthermore, we believe that tomorrow's successful quality organizations will look different from yesterday's. This article will examine how. First, we'll discuss the benefits that any company can gain by addressing quality. Then we'll look at the new role of quality organizations in the enterprise, and the ways that successful companies are pursuing quality improvement by focusing on customers. We'll continue this examination online with a look at risk management and organizational culture.

The Benefits of Better Quality

Today, when most businesspeople think about quality, they do so by asking, Does our company have quality? Unfortunately, given the role played by today's globalized scandal-seeking media, that's the wrong question. The better (though more troubling) question is: Is our company susceptible to quality issues?

Quality issues can take many forms: in addition to products or services that malfunction, there can also be customer dissatisfaction issues arising out of poor design, user-unfriendliness, or insufficient customer service. Fifty years ago, products had simple designs and functions, and defects were easier to identify. In today's more complex world, there are multiple types of quality issues, and multiple locations and processes in which they can arise. Susceptibility is spread wide.

However, many companies today still sadly follow a tactical approach to quality. They react to unsatisfied customers or frequent defects. Some do so better than others -- in many cases the find-and-fix methodologies developed over decades have become both refined and successful. But they are nevertheless a reactive mode of operation. Thus, no matter how fast the reaction, the company faces some form of the escalating costs of poor quality, which may be manifested in underutilization, scrap/rework, warranty costs, and/or lost sales. Reactions in the form of large-scale recalls drive added administration, return logistics, product replacement costs, and significant damage to brand equity.

We recently quantified these costs for one of our clients. We examined what would happen if the company drastically reduced customer quality defects. The results: Warranty and recall costs were expected to drop by nearly half. But even more significantly, the relationship between quality and repurchase behavior indicated that the quality improvement would drive a sales increase of 12% over the next few years.

We derived two distinct lessons from this experience. First, it's worth investing in quality. Second, not all quality investments are the same. If you simply pour more money into find-and-fix, you reach a point of diminishing returns. But if you reconceptualize your quality function to proactively engage with customers with a strategic cross-enterprise focus and a rejuvenated quality culture, you can reap far-reaching benefits.

Put the Customer First

Ultimately, quality is not inherent in a product -- it is a customer's attitude about that product. A customer's "perceived quality" does not necessarily correlate with engineers' calculations of quality inputs and processes. But too often quality functions focus on those product characteristics rather than the customer. They instead need to manage quality as a customer experience.

Integrate the Voice of the Customer

The best-quality product is the one that most fully, continuously, and ethically meets a customer's needs. So when you think about quality improvement, the voice of the customer (VOC) should be paramount. Companies are using innovative avenues such as social media to solicit improvement ideas from customers. For example, Ford recently took the concept of "open innovation" to the next level by launching "Your Ideas" on its social media website (www.thefordstory.com), where it actively invites customer participation to help shape the company's future products and features. Starbucks similarly used crowdsourcing to collect and rate customer preferences with its "My Starbucks Idea" website. Through such innovative channels, companies can better capture and evaluate customer desires, using them to deliver new features that can drive improved customer satisfaction.

However, many companies fail to robustly collect and analyze customers' genuine expectations of quality -- and even those that do gain this information often fail to share it across the organization on a regular basis, much less use it to drive other internal processes. First, companies must engage customers both before and after the sale through more than one mechanism -- idea websites, surveys, interviews, clinics -- and continuously refine those mechanisms. A powerful discovery mechanism is the "anthropological workshop," which can generate powerful insights into VOC by revealing previously unknown broad-based customer frustrations. In a similarly deep approach, leading VOC programs such as the one at Oracle pair top executives with major customer accounts in a strategic collaboration that encourages information sharing. Second, once customers are engaged, analysis of their responses needs to go beyond aggregating survey results or applying standard analytic tools. Richer analyses will highlight unmet customer needs and identify actionable insights that drive the development of proactive solutions. Third, companies must share the information broadly across the enterprise, and use it to prioritize numerous demands and balance customer requests against the cost of delivery.

Manage Customer Perceptions

We believe that tomorrow's quality organizations will be increasingly involved in proactively managing customer opinions. For example, many companies monitor blogs and customer-comment sites to gain a better grasp of customer-satisfaction issues. But some companies are now taking a more proactive stance, hopping onto the blogs themselves. For example, Comcast closely monitors and responds to customer complaints with its "@Comcastcares" campaign, which is on Twitter as well as other online channels. Complain about Comcast and you will be sure to hear from them. Companies are also beginning to engage in third-party blogs and independent online communities -- not just by reading or responding but by proactively seeking input or building relationships. What better way to understand VOC than by actually interacting with actual customers? Effective quality organizations can also use these approaches to root out potential customer dissatisfactions before they become publicized.

Needless to say, this technique involves a very different set of tools and roles than traditional quality activities: public relations and psychology rather than engineering and manufacturing.

Deliver Unparalleled Service Experience

Successful quality organizations know that quality problems need not harm customer relationships if great customer service outweighs a one-time defect. A company must provide outstanding customer service and communicate with customers experiencing quality concerns because service gives a company the opportunity to recover from quality issues. Failure to properly address customer complaints, government inquiries, or even negative media exposure represents a severe risk to future repeat sales and brand image.

Thus, best-in-class organizations actively focus on key metrics such as "fixed first visit" or "fixed first time" for a customer's first interaction with a service center. Historical data has shown that the ability to resolve customer concerns the first time significantly improves customer satisfaction and long-term loyalty, sometimes having an even stronger influence on satisfaction than no repair at all. Successful companies facilitate a superior customer service experience by managing product or service requirements, proactively managing service center performance, equipping service centers with state-of-the art communication and diagnostic capabilities, facilitating exchange of lessons learned and improvement ideas across service centers, and coordinating across geographic areas. Best-in-class organizations translate excellent service experience to drive incremental sales.

For example, we developed a comprehensive program addressing seven specific levers to improve overall service capabilities for a premium vehicle manufacturer. Now, driving superior performance starts early in the product development cycle, ensuring design for serviceability. The company implemented an optimized warranty policy that is competitive, balancing customer satisfaction and cost. The service experience was standardized across dealers with customer-focused metrics and targets, enhanced technician capabilities, and appropriate technology to improve efficiency and effectiveness. The contact center support for customers and dealers captured issues early and drove them to resolution, ensuring high quality of service. Finally, a new program enables dealers to leverage the customer service interaction effectively to build customer relationships and drive future revenues through product and service.

Joachim Ebert is a partner with A.T. Kearney based in Dallas. He can be reached at [email protected]. Vijay Natarajan is a principal with A.T. Kearney. Andrew Newsom and David Qu are managers.

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