Michael Johnson: No More Outsourcing
Internal Specialists Needed if Maximum Profits Are Desired
By Michael D. Johnson
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The formula is simple: Customer loyalty (read profits) equals customer satisfaction plus product and/or service quality. Companies must recognize, however, they cannot have customer loyalty without customer satisfaction, and they cannot have customer satisfaction without product and/or service quality. All three factors represent an intertwined chain of cause-and-effect relationships, which ultimately affect the bottom line. Concentrating on one factor alone or viewing customers like the fifth wheel on the wagon is counterproductive. To stay ahead of the competition long-term, top management has to go a step further and create internal specialists to measure and manage quality, satisfaction and loyalty.
This internalization enables organizations to invest in and take ownership of the process and data. They are able to make quick, responsive decisions that further optimize customer satisfaction and loyalty while adapting to fast-changing market demands.
In the past, companies have not fully embraced the concept of building customer satisfaction and loyalty. Many commissioned outside research firms and consultants to design surveys, conduct studies, analyze data and generate solutions, dutifully ratcheting up their efforts during bad economic times and sloughing off during good ones. Other companies asked hard questions about the hard dollar return on their investment in quality and customer satisfaction.
With the current emphasis on reducing head count, implementing cost controls and increasing efficiencies through mergers and acquisitions, many CEOs still look askance at proposals that would increase staffing and internalize activities that always have been farmed out to freelance contractors. The New Economy is little better. Internet-based retailers have given short shrift to issues impacting quality and customer satisfaction.
What these companies have failed to recognize is that it is nearly impossible to achieve and sustain customer satisfaction and loyalty without making customer orientation a "core competency," a way of doing business that is deeply ingrained within a corporate culture. Outsourcing this responsibility rarely produces lasting change.
Likewise, to determine the true payoffs on their investments in quality and satisfaction, firms cannot rely on somebody else to do the work. They must establish their own internal management and measurement systems for collecting and analyzing data, which ultimately influences their own decision-making. It is imperative that firms own the processes, not merely rent them from outsiders.
Implementing a system for the measurement and management of quality, customer satisfaction and loyalty and, subsequently, profitability, can be accomplished in five stages:
- Stage 1: Senior executives must deploy a strategy in which the customer measurement system is built upon a strategic marketing plan. This will help identify the customer segments on which the company will focus its satisfaction and loyalty efforts. Policy deployment and the "balanced scorecard" are useful in this process.
- Stage 2: Qualitative research is used to develop a "lens of the customer," or satisfaction model. Information is gathered by talking to focus groups and asking individual customers to describe the specific things they like or do not like about their interaction with the company. Their responses can help pinpoint issues that are deemed potentially important to customers in general.
- Stage 3: Using this lens, a company can develop a broader, systematic satisfaction and loyalty survey. This can be administered to a wider, more representative segment of customers to determine what they view as important factors affecting satisfaction and loyalty.
- Stage 4: This involves setting up a systematic process for analyzing the survey results to determine two key items: (1) how the company is performing on the attributes that describe the product or serve and the benefits they provide and (2) what degree of importance or impact those attributes have on customer satisfaction, loyalty and profit.
- Stage 5: Senior executives again play a predominant role. It is their responsibility to use the interpreted data in their decision-making process as they formulate future strategies and allocate resources.
You cannot remove decision-makers from the process. Measurement systems don’t make decisions, managers do. And they must, because as competition intensifies, and it always does, multiple, strong competitors will arise in their market niche. These competitors will threaten to lure away their customers and, if successful, will force them to expend large sums to replace those customers who have defected.
Some companies, particularly in the service sector, have succeeded in maintaining a customer focus while still emphasizing efficiency. In the long run, though, it is the companies that differentiate themselves in the eyes of their customers, satisfy those customers and never given them a reason to do business with anyone else that will emerge as the most profitable.
Improving Customer Satisfaction, Loyalty and Profit: An Integrated Measurement and Management System by Michael D. Johnson and Anders Gustafsson is part of the University of Michigan Business School Management Series.
Questions? Contact researchsupport@umich.edu or call
734-764-5278.
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