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PART TWO

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From TQM to Customer Value Management:

Total Quality Management (TQM) initiatives progressively go through 3 stages.

Stage Focus on:

1 : Conformance quality;

2 : Customer satisfaction;

3 : Market-perceived quality and value,

relative to competitors.

In Stage 1, ISO-9000 Quality Systems ‘certify’ that products conform to the requirements of the customer. Quality Function Deployment (QFD) is an effective methodology to translate customer requirements to part, product & process characteristics and specifications. In Stage 2, many enterprises develop their own ‘quality trees’, delineating the various quality attributes, along with their weightages ‘deemed’ to reflect the ‘voice of the customer’.

Traditionally, TQM/VM teams take an ‘in-house’ view of rating characteristics, ‘considered’ important to the customer. Knowing directly from the customers can be a great ‘learning’ experience for them, as evidenced from the example of a Flow Meter shown in Fig. 3. Unaware of the ‘mismatches’, the VE team could well be working ‘feverishly’ towards a costly meter with great accuracy and reading difficulty, while the customer needed a cheaper version, less accurate but easily readable!

In the Indian scene, Modi Xerox has been an ardent TQM practitioner since mid ‘80s, for achieving their ‘Leadership Through Quality’. The company designated, in ‘89, a Customer Satisfaction Manager and installed a ‘Single Window Access System’ to reduce customer dissatisfaction. Their Customer Satisfaction Surveys, done annually, get their customers’ perceptions on 70 odd different criteria. It is the first company - in the Xerox World and in India - to institute a ‘Customer Satisfaction Achievement Award’, financially rewarding all their employees on the achievement of their annual Customer Satisfaction rating target.

 

Fig. 3 Is VE Team ‘listening’ to the customer?

Eg: VE Project: Steel Case Flow Meters

________________________________________________________________

___________________________________________________________________ Perceived Importance* Largest

Characteristics In-house Vs. Customer Mismatches

(a) (b) (a-b)

__________________________________________________________________

1. Accuracy 9.0 5.0 + 4.0

2. Delivery (Meeting) 8.0 9.0

3. Life Cycle 6.5 4.7

4. Ease of Reading 3.0 9.5 - 6.5

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

5. Price 5.5 9.5 - 4.0

________________________________________________________________

 

Least .............. (important) ................ Most

*Rating Scale |________________|________________|

1 5 10

Gains from Customer Value Analysis:

Modi Xerox and many other TQM practising organisations, seeking to fulfill international Quality Award / Certification criteria, go on to Stage 3, viz.

from Customer-focus to market-orientation. They can gain more from using Customer Value Analysis techniques such as:

    • Market-perceived quality profile;
    • Relative price profile;
    • Customer Value Mapping;
    • Orders won/lost analysis; and
    • Head-to-head Customer Value Charting.

It is expected that Customer Value Analysis will multiply geometrically the opportunities to use the traditional VA-VE/VM, along with QFD, DFMA and such others, in the ‘winning’ organisations of the 21st Century.

Staying close to the total served market should ‘induce’ organisations to do their own ‘Customer Value Mapping’. This can be a powerful tool to assess where their product stands against competition on the ‘Relative Quality - Relative Price’ Matrix. Efforts made to operate below and to the right of the ‘Fair Value Line’ (the line on which quality is ‘balanced’ against price), should help to ‘beat’ competition and result in increased market share.

Fig. 4 shows a Customer Value Map of the luxury cars’ market in 1993. No wonder, Toyota’s ‘Lexus’ became a ‘run-away’ winner, with the market rating the car as providing superior value-for-money!

TQM should lead the organisations towards on-going ‘Customer Value Management’, when the following get regularly done:

  • Track their competitiveness; modify their business design to meet market’s priority-needs, as obtained from customers - their own and competitors’,
  • Comprehensively align their organisational resources/investments/acquisitions/

policies and procedures, to continuously meet the evolving needs of the served market.

 

Value Migration Analysis: The Emerging Value Initiative Priority:

Market Value is increasingly perceived as an important ‘barometer’ of a company’s progress; it is a measure of the power of business design to create and capture value; it is defined as the ‘Market Capitalisation at any given time’ (shares outstanding times stock price plus long-term debt).

A business design is the totality of how a company selects its customers, defines and differentiates its offerings, defines the tasks it will perform itself and those it will outsource, arranges its resources, goes to market, creates utility for customers and captures profit. Business designs also have a well-defined cycle of value growth, stability and obsolescence; they represent the third of three important cycles, viz. the product life cycle, the customer priorities life cycle and the business design life cycle. Value Migration is inevitable from outmoded business designs to new ones, that are better able to satisfy customers’ most important priorities.

Recent studies reveal that neither Market Value nor Revenue offers

long-term profitability and value protection. Share of market Value does it; the ratio of Market Value ¸ Revenue (MV¸ R) is the indicator of profitability and value. The ratio indicates the positioning of the organisation’s business design along the 3 Stages of its cycle, viz. Value Growth, Value Stability and Value Outflow. On assessing the status for the recent period and mapping the trend of Value Migration over time, on-going efforts can quickly be made to capture, sustain or protect value, as needed.

A high (MV ¸ R) ratio of 2 or more is typically indicative of Value Growth stage (‘spirit of conquest’ zone), a ratio between 0.8 and 2.0 of Value Stability stage (‘comfort’ zone) and a ratio of less than 0.8 of Value Outflow stage (‘vulnerablity’ zone).

The imperative Top Management priority is for our organisations to do on-going Value Migration Analysis, anticipate Value Migration, protect existing value and capture new value, by modifying business design and offering new utilities to customers, as needed. It should enable them confront the obsolescence of their business designs ‘hands-on’, so as to halt value erosion in quick time, and create value gain progressively.

 

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