Best Practice for Customer Satisfaction in Manufacturing Firms

In recent years, changes in the business environment have made it harder for firms to maintain long-term sales growth and profitability levels. Global competition has increased dramatically. A larger selection of products and services is available to the same set of buyers, with little growth in overall markets. Thus satisfied customers are important to companies because, on average, approximately 70 percent of all sales derive from repeat purchases. Firms can no longer maintain volume or profits by seeking out new customers (an offensive strategy); they must adopt a defensive strategy that focuses on keeping current customers as loyal purchasers of the firm’s goods and/or services.1

At the same time, articles in the popular press and the U.S. government itself may be sensitizing consumers to the issue of customer satisfaction. Purportedly “unbiased” publications such as Consumer Reports widely publicize comparisons of performance and overall customer satisfaction for many different products and services. Automobile advertising routinely quotes customer satisfaction figures to sway purchase decisions. The U.S. government may also sensitize consumers to this issue; almost one-third of the points for the Malcolm Baldrige National Quality Award, administered by the National Institute of Standards and Technology, are based on customer satisfaction.

Whether or not customers are truly becoming more demanding, these changes have made companies focus strategically on delivering increased customer satisfaction. A growing body of evidence suggests that customer satisfaction is linked to improved firm performance, confirming the appropriateness of this strategy. An analysis of the Strategic Planning Institute’s profit impact of marketing strategies (PIMS) database finds that companies that rated themselves as delivering high levels of service quality dramatically outperform, in terms of reported profitability and market share, those firms that admit to delivering lower levels of service quality.2 Researchers have found strong positive relationships between customer-rated levels of overall customer satisfaction and ROI, economic returns, and market value.3

We undertook a small-sample field investigation to identify what constitutes customer satisfaction (CS) best practice in firms reputed to focus on CS as a primary corporate strategy. We wanted to understand:

• Why best-practice firms decided to focus on CS.
• How firms implemented CS.
• What enables best-practice firms to focus on a CS strategy.
• What the current CS best practices are.
• What the emerging CS practices are.

Based on our study, we forecast which way CS best practices are likely to go. We found that what is now a “best practice” may not be in the future; managers cannot read this article, adopt the best practices we identify here, and expect to establish a firm with a reputation for delivering satisfaction to its customers. They must continually improve on current practices just to stay even with the competition.

Identifying Best-Practice Firms

Our first task was to identify firms reputed to focus on CS as a primary strategy. We did this by triangulating across two different secondary data sets — articles and books on companies that emphasize CS and annual reports on firms that report a CS strategy (see the appendix for the details of our research method). This resulted in a list of potential candidates that we pared to thirty-five final target companies by requiring that the firms be large, U.S.-based, but globally operating, with multiproduct lines; manufacturing and industrial product firms; and highly visible with strong name awareness.

Our objective was to gain a full and deep understanding of CS best practices within an identifiable segment and make conclusions about companies with those characteristics. In the future, our study could be replicated within a different segment and contrasted between the two groups; especially interesting would be a contrast between the firms in this group and service providers.

Our second task was to recruit companies that would allow personnel to spend considerable amounts of time with us. Within our list of thirty-five target companies, we concentrated on Arthur Andersen clients as initial contacts to increase the probability of successful access. We also selected firms to maximize diversity in product life cycles and industries. The resulting four firms came from the electronics, semiconductor, electrical equipment, and agricultural and construction equipment industries. Two firms might be considered high-tech and two low-tech. Product life cycles across the four firms range from one to two years to twenty to twenty-five years.

Because research has linked a CS focus to increased performance,4 we checked the recruited firms on the basis of ten indicators from Value Line. Table 1 identifies what percentage of the four firms have performance that, on average, is higher than industry performance during three time spans: for the five years prior to implementing a CS strategy, during the first two years of implementation, and for the next five years, when one might expect to see overall impacts of diffusing implementation across the firm. The indicators purposely span a broad range of criteria for an overall sense of firm performance.

We recorded relative performance on four indicators relating to margins and margin growth, indicating whether a firm has profitably satisfied customers. Average change in working capital relative to change in sales, return on net worth (RONW), and RONW growth measure the firm’s efficiency in asset utilization. Annual average price-to-earnings (P/E) ratios and their growth measure how the market views the firm’s strategies and performance. Sales growth and market share growth measure a firm’s ability to secure and keep customers.

The overall performance of the firms studied has improved in all categories, except for market valuation. These four firms were in strong market valuation positions in the initial five years, compared to their industry. As they started focusing on CS, their overall valuation eroded. After completing implementation, the market valuations had almost rebounded to previous levels, and the firms are now above average in their industries. While the firms have improved customer retention, profitability, and asset utilization, the market may not value the way in which they have done so.

Performance is above the industry average for all categories except market share. The four sample companies have increased share less than others in their industries. This is not inconsistent with research that negatively correlates customer satisfaction levels to market share.5 One way to increase CS is to deliver products designed to better meet the needs of more homogeneous targets, rather than trying to deliver a product designed to meet the needs of a larger group of people. The firms in our study seem to be adopting a niche product strategy, which is evident through smaller market shares than the industry average.

In the remainder of this article, we present the findings of our study of the four companies we identified.

Why Firms Implement a CS Strategy

Changing corporate strategies and realigning the entire firm is difficult and time consuming, regardless of how the strategy is changed. Creating strategic change requires significant management effort and generates anxiety at all levels. Therefore, we expected that companies would need a powerful reason to alter their strategy to focus on CS. The firms we investigated emphasized customer satisfaction as a primary strategy for one of two reasons:

• Two of the firms changed strategies to improve poor relative cost positions. They did not focus initially on CS, but were implementing a total quality management (TQM) strategy to reduce costs by eliminating defects and decreasing manufacturing waste. Early TQM programs concentrated on conformance quality and manufacturing a higher proportion of defect-free products, which required fewer service calls and field repairs, so CS improved concurrently. At some point, as TQM implementation progressed, the firms decided that if they shifted from focusing on conformance quality to also delivering customer satisfaction (quality that meets customer needs), then they would have an even stronger advantage over competitors. They were not just “doing things right” to lower their cost structure, but they were “doing the right things right,” resulting in a loyal group of satisfied customers.

Firms competing in undifferentiated (commodity) products may be more likely to “back into” a CS focus by implementing quality programs. For example, British Airways, now known for delivering high levels of customer satisfaction, developed its quality-based, cost-cutting strategy about fifteen years ago to bring its costs more in line with other airlines.6 Decreasing the number of lost bags was one of the first cost-reducing projects BA tackled. However, fewer bags lost means fewer inconvenienced customers. Although the original intent was to lower costs, CS concurrently improved. BA has kept improving quality over the years, but it also has moved simultaneously to improve CS explicitly. In another example, Ford Motor Company first improved quality to decrease cost, then moved to focusing on CS.

• The other two firms we studied changed strategy to improve CS because of poor or declining market positions. They initially improved product performance to regain customers, but found in the long run that improving performance was only a partial answer. They needed to have the right products, but those products also had to be defect-free. Thus they supported their primary CS strategy by later implementing a secondary TQM strategy to improve the overall conformance quality of the products, which again helps deliver high levels of CS.

Cadillac and Chrysler are good examples of companies that focus on improving product performance to improve declining market positions. After adding a secondary TQM strategy, Cadillac won the Baldrige Award in 1991, and division performance is much higher. Chrysler is still trying to compete primarily on product performance. It has invented new automotive categories and won initial purchasers with its excellent designs. However, it has frequently acceded market share in category after category to other manufacturers as they bring out higher conformance designs. Chrysler has not reinforced its product performance strategies by coincidently focusing on manufacturing quality. Thus the only way for Chrysler to maintain its market position is to keep inventing new automotive categories and constantly persuade potential customers to try innovative new products by initially outdesigning competitors. Chrysler’s strategy seems expensive and risky in the long run.

Regardless of whether the firms we studied started out concentrating on CS or TQM, they all ended up in approximately the same position — using CS and TQM together to get and keep customers. After several years of implementing both strategies, separating out the primary from the secondary is nearly impossible. Personnel at the firms we investigated spoke simultaneously about aspects of both strategies that led to increased CS. They used whatever tools from whichever strategic focus was most appropriate at that point in time.

How Firms Implement a CS Strategy

Even though firms may undertake a CS focus for different reasons, each firm we studied started the process in a similar manner (see Figure 1). Each began measuring and improving CS in downstream customer-interaction functions like service, repairs, and maintenance. Customers interact heavily with company employees in these areas, so improvements here have the potential to quickly and visibly improve overall CS levels.

CS programs typically started training employees who deal extensively with customers in problem solving, technical aspects of the job, and interpersonal skills. When CS improvements from training reached their limit, the firms then provided additional systems such as portable computers with on-line information to support further increases in CS.

Once the firms gained experience with improving CS in downstream, customer-interactive functions, they slowly moved implementation upstream into areas less visible to customers. Next they focused on order fulfillment and delivery CS, where part of the process is still visible to customers. Here CS was measured from external customer viewpoints (people who purchase products).

Then CS implementation started to interact with the firms’ quality implementation process, and the focus moved from satisfying not only the firms’ external customers but the internal customers as well. Processes performed and controlled by one functional group were the first processes CS impacted. (It was easier to change a process when agreement had to be obtained from only one set of functional managers.) Then the outcomes and workings of more complex, multifunctional processes were emphasized. One of the most complicated, difficult (and therefore last) processes for a CS focus was product development. We found that there were very few ways to routinely fold CS data about current products, services, and products into ongoing product and service development efforts.

Foundations for a CS Strategy

Not all firms can immediately implement a strategic focus on CS. Certain conditions and operating practices and procedures must already exist in the firm. Although our sample was small, these characteristics were consistent across all the firms.

One basic requirement was a highly visible senior management leadership that reinforced the importance of CS every day. The CEOs and presidents of our best-practice firms were obsessed with customers. Some recorded videos proselytizing about customers, which were played at all locations. Others routinely wrote articles for corporate newsletters. Some worked in the customer service area to resolve customer complaints; their personal attention indicated that satisfying customers was a top priority.

Managers were also willing to spend money on retaining customers and increasing satisfaction levels. Initially, senior managers funded training and tools to improve satisfaction in face-to-face service interactions. Later, in implementation and maintaining an ongoing focus, high-visibility spending to fix a particular problem indicated their commitment. As an example, General Electric replaced, at its expense, the motors in all units sold of a particular model of refrigerators when testing revealed that a significant number could fail before the end of their expected life cycle. It would have been much less expensive to replace just those motors that had already stopped working. However, many customers, left with spoiled food, would have been highly dissatisfied with the firm. In another example, Saturn flew a car seat and an installer to Alaska to replace the defective part for an owner who lived too far away from a dealership to bring the car in.

Contrast these attitudes with those of the hypothetical car company in the movie Class Action, in which the cost of correcting an electrical circuit before the next model year change was more than the expected actuarial cost of settling the lawsuits arising from deaths due to the malfunction. Unlike Saturn, the company in the movie made its decision based solely on short-term financial considerations. Until senior management attitudes change about the financial value of satisfied customers, this imaginary car company could never undertake a CS strategy.

How do senior managers decide to focus on CS? In the firms in our study, a true or perceived crisis (high costs or eroding market position) preceded the change in strategy. Unfortunately, these crises are more likely to be generated by outside stakeholders (major shareholders or the board of directors) than by managers. Junior personnel advocating a CS focus will most likely have to wait until top managers change their attitudes because of the influence of some outside force. For example, GM established Saturn as a separate entity, so Saturn top managers have been able to lead the customer-focused approach not generally found at the parent company.

Two other conditions were required before the firms we studied could espouse a CS strategic focus. First, the whole company, not just the CEO, embraced the importance of CS. Upper management successfully conveyed the concept and its benefits to the rest of the organization. Employees understood that the dangers from not focusing on satisfying customers could be far greater than the costs and changes required in day-to-day operations. The CEOs could not by themselves force the organization, but they actively promoted and championed the strategy.

The second condition was that employees accepted that all the firm’s processes impacted on CS, not just the processes that directly interacted with external customers. If employees embrace the concept of CS, but don’t see the link between their particular job and CS, they will adopt the attitude that CS is “someone else’s job,” with the result that no one really focuses on CS.

Middle managers’ commitment to the CS strategy was key to making changes in attitudes. Launching the strategy change to solve a real or perceived crisis, as these firms did, is one way to obtain that buy-in successfully. Then, in the short term, consistently promoting customer satisfaction as the organization’s main strategy over several years is necessary to consolidate mid- and lower-level buy-in. In the longer term, the firms studied found that they must implement supporting processes and procedures to maintain the focus, which we discuss in the section on emerging practices.

In addition to these necessary corporate attitudes, each of the best-practice firms we investigated had operating procedures that were critical for enabling the firm to focus on CS. First, although all divisions at each firm focused on CS as a primary strategy, each strategic business unit was allowed to develop its own approach to CS and customize the CS performance measures to its own needs. Senior management set overall strategy but did not dictate specifically how each division would achieve it; each division measured and delivered improved CS using appropriate means. One division could focus on improving CS by more carefully managing face-to-face service interactions, as Cadillac did, while another could concentrate on measuring and improving conformance quality of the product, as in the case of Saturn.

The best-practice firms also had similar organizational structures that facilitated focusing on CS. Overall, each firm was organized by the market served. Operating processes within each market were then organized by product line, with support processes established by customer for each product line. Each firm was centered around the Knowledge for satisfying the needs of similar customers most efficiently. This structure supported the firm in its mission of concentrating on profitably serving individual customers’ needs.

If we can generalize from the very small sample investigated, before a firm embarks on changing its focus to delivering customer satisfaction, it must make several attitudinal and operational changes. Throughout the firm, attitudes must change so everyone accepts the responsibility for satisfying customers and senior management visibly leads the process. The firm may also become more decentralized by delegating responsibility to the groups most closely in touch with customers; the organization may have to be modified to move employees structurally closer to customers. Finally, our analysis suggests that these policies have to remain in effect during a period of years to have an impact on operating results. Trying to implement CS as a primary strategy without making these changes, or without adhering to the strategy during a number of years, is less likely to lead to long-term success.

Best Practices in Delivering CS

Next we discuss the best practices that all the firms in our study employed and how best-practice firms used CS to change the way they are managed.

Customer Satisfaction Practices

All the firms we investigated used multiple instruments to collect several different kinds of CS data. They captured overall trends with periodic surveys and transaction-specific information at the end of face-to-face interactions (say, at the end of a service call, with both surveys and informal talks), and acquired qualitative impressions through informal (but not necessarily unstructured) discussions at customer sites. Divisions collected data in each of four general categories derived from the two dimensions of data types, developing specific CS measures based on customer input (see Figure 2). The divisions asked customers what aspects of service they should monitor and improve, then established ways to measure those aspects and additional items they wanted to monitor. This process personalized CS implementation at the division level.

The firms we studied gathered both quantitative and qualitative data. Quantitative data included scale responses to surveys, which customers filled out to provide statistically significant ratings of performance and satisfaction. Responses rated overall levels of satisfaction with the firms and their products and services and gave much more detailed indications of what specific aspects of the product, service, or interaction led to higher and lower levels of satisfaction. These detailed data helped the firms modify processes to improve CS.

Qualitative data are the impressions and intuitions developed from collecting open-ended survey responses, recording interviews, or talking informally. Qualitative data add to a rich understanding of customers, even though no one response is generalizable. Whereas firms can use yearly comparisons of quantitative results to monitor how much they have improved CS, qualitative information does not translate easily into usable results. The firms studied did not implement processes to enable them to routinely use qualitative information; they routinely gathered qualitative data anyway in the belief that it aided them in improving CS.

The second data dimension relates to collection timing; some data were gathered periodically over time, like annual surveys to customers. The second set were transaction-specific, collected at the end of an interaction between a customer and the company. These data allowed the firms to focus on particular aspects of satisfaction and analyze the details of CS delivery individually. The data gathered included measures of “perceived quality” and “customer satisfaction.” According to the recent literature, perceived quality can be inferred with or without use or experience, refers only to customers’ most current reactions, and generally does not include price.7 Satisfaction, on the other hand, can be evaluated only through experience, is cumulative in nature, and is a function of value received and thus explicitly includes cost. While all measures were done after the interaction with the customer, the firms studied did not differentiate whether they were measures of per ceived quality or satisfaction. Transactional measures generally gather customer reactions to just the latest experience and to specific performance-related aspects of experience, rather than cumulative reactions, and thus might be categorized more as measures of perceived quality than as satisfaction. At this point, the firms were not differentiating between the two types of measures; they just made sure they gathered them all.

The best-practice firms gathered multiple measures of CS in each of the quadrants in Figure 2 because they believed they could not depend on one measure or data collection method to provide overall understanding of the customer. Furthermore, the firms obtained input from a majority, over 50 percent, of their customers each year, thinking that only through gathering information from a large proportion could they confidently generalize the results.

The firms we studied did everything to ensure that the data they gathered were used. They charted the firm’s progress and actively displayed figures, graphs, and tables on company walls. There were similarities between the availability and form of CS and quality data. As firms embraced the quality movement, charts of defect rates and mean times between failure appeared on walls throughout the company. Over time, as firms embraced CS, charts of satisfaction also appeared on the walls. Managers wanted employees to know just where the firm stood in customers’ eyes and to see how much improvement was still required.

The most frequently measured CS variables were expressed as numbers. Companies used simple scales that assumed satisfaction ranges linearly between 0 and 10 or 0 and 100, where the highest value was “extremely satisfied” and 0 was “not at all satisfied.” The label associated with the scale midpoint, either 5 or 50, was usually something like “satisfied.” The current benchmark for overall satisfaction in our small sample was 8.0 to 8.5 of 10, sometimes expressed as an 80 percent to 85 percent satisfaction level. Fornell’s Swedish results are similar.8 The firms we investigated did not track “top box” CS scores, the percent of respondents rating the firm/service/product in the top one or two boxes on the survey. More elaborate measures of customer satisfaction that look at performance relative to expectations, or disconfirmation measures of satisfaction, were not used at these firms.9

Measurement issues concerning the CS figures that the firms reported lead to ambiguous interpretations. Implementing a CS focus means undertaking a defensive strategy to maintain or improve firm performance by better serving those who are already customers.10 The programs in place measured CS only for those who liked the product enough to purchase it initially. Measuring and reporting CS only for current customers ignores those who have tried the product, found it lacking, and have not repurchased it. No firm gathered and reported feedback from excustomers or people who would not consider purchasing from the company.

The measures that our sample companies used were also upwardly biased, not linear. Customers are the subset of the total population who are already somewhat satisfied with products and services, so there should be almost no responses under 5 or 50 percent. The response population does not form a normal distribution about the midpoint, which is what most analytical procedures for linear scales assume. However, if you cut the scale off at 5 and consider only the responses above 5, the response distribution of the “average” firm might be much closer to a normal distribution about the new midpoint, 7.5 or 75 percent. This truncated scale would more closely conform to the standard statistical assumptions for linear interval scales, although no one we interviewed truncated responses to resolve the statistical issues.

The result of the scale issues means that, although the firms we studied tracked and internally publicized overall CS levels, as well as detailed information about various aspects of satisfaction, they were unsure how to interpret the numbers they tracked. They did not know whether 8.2 was a great result, compared to an expected 5 average, or just a good one, based on a 7.5 average. They were also not sure just how high they should be trying to drive overall satisfaction.

Even though the scales were not as good as the companies would have liked, divisions at the firms each developed heuristics relating the level of performance required to maintain CS levels, according to their scales. They also developed rules of thumb associating increases in performance levels with higher CS levels. The relationships between performance and satisfaction were not statistically proven; employees just knew what levels were required to maintain and improve overall satisfaction. The division then decided whether it wanted to invest the resources required for moving to the next level of satisfaction. At several firms, Rust and his colleagues have developed and are implementing a new approach that more statistically links satisfaction to quality improvements, calculates a return on investment for improvements, and provides data for making better investment decisions.11

The important conclusions we have made from how CS was measured at the best-practice firms we studied are:

• Measures were personalized to meet the divisional needs.
• Firms collected many measures of CS, measured multiple dimensions of CS, and indiscriminatingly measured both satisfaction and perceived quality.
• CS data were accessible to all employees.
• There was significant room for improvement both in CS measurement and in the overall level of CS, even at the best companies.

How CS Changes the Way the Firm Is Managed

Companies focusing on delivering customer satisfaction as a primary corporate strategy changed three aspects of the way the firm was managed as a result of its pursuit of this strategy. Senior managers changed what they did, the company centralized process control, and it managed employees to increase the operational focus on CS.

By paying close, detailed attention, managers swayed the direction of employees’ efforts and reinforced the importance of satisfying customers every day. In the CS-focused firms we studied, senior managers spent more time with customers — sometimes one to two days a week. Senior managers also dealt with the details of CS issues rather than leaving them to others.

Centralizing total process performance and control was another aspect for improving CS. This management tactic is the opposite of that suggested by scientific management or Taylorism.12 The firms in our study discovered that when processes were centralized, those who performed and controlled the process also “owned” the outcome, or customer satisfaction (internal or external). Simple processes, such as issuing literature, were put under one person’s control. For example, one person answered the phone, gathered materials, assembled the mailing, printed the label, and shipped it. More complex processes, like order taking and fulfillment, were managed by cross-functional or cross-trained teams who performed all required tasks, for example, from answering the phone, taking the order, scheduling the order into the plant, arranging for shipping, to sending the invoice. The teams’ operations were facilitated, as we said previously, by the way the organization was structured.

Finally, the CS-focused firms we studied managed people differently. There was more personnel training, and CS measures were used in employee performance reviews. Lower-level employees were trained in both skills and leadership, with an emphasis on “soft” issues like interpersonal abilities, group dynamics, and individual and group problem solving. This gave all employees the ability to work better in groups and to independently resolve complex problems, two skills necessary for centralizing process control.

Ultimately, people focus on things that affect their earnings and rewards.13 The best-practice companies initially brought CS into the performance evaluation process at lower organization levels, for example, for service people interacting with customers in maintenance and repairs. Then management slowly moved the CS impact on evaluations up in the company over time, as a larger proportion of the overall organization embraced the strategy. At GTE and Montgomery Ward, for example, compensation for all management levels is now tied to customer satisfaction measurements.

In summary, management practices change due to the pursuit of a CS strategy, and those new practices in turn reinforce an increasing emphasis throughout the organization on delivering CS. The three management aspects each increase a firm’s ability to deliver satisfaction and synergistically interact and reinforce each other. The new leadership and soft skills taught to workers also allow them to manage entire processes more effectively. The importance of CS results, as their impact on employee performance evaluations demonstrates, is reinforced by management’s more frequent interactions with customers and increased personal attention to them. Each of the different ways CS is used to manage the firm acts to reinforce the firm’s strategic direction.

Emerging CS Practices

Several CS practices are emerging at some of the firms we studied but are not yet adopted by all. They fall into four overall areas: linking CS to firm performance, increasing the influence of CS across the value chain, improving interactions with customers, and managing people within the firm.

At the firms we examined, emerging practices were being implemented either to maintain a focus on CS or to increase long-term CS levels. In general, the practices associated with improving the firms’ interactions with customers and moving a CS focus into other firms in the value-adding chain were implemented to increase absolute CS levels. Practices to link CS results to firm performance and personnel management primarily work to maintain a long-term customer focus. All the best-practice firms were trying to implement new practices to help them achieve both goals. To maintain a position on the leading edge of delivering CS, firms cannot neglect either category of improvements.

Practices That Link CS to Firm Performance

None of the firms we studied related general CS results quantitatively to overall firm performance. Some divisions had heuristics relating product and service performance levels to CS, but these related product- and customer-level information only at the division level. Several firms started using CS data to improve both the long-term satisfaction of and profitability derived from individual customers, choosing which customers to serve based on profit potential.

The next level of emerging practice was to identify quantitative links between overall corporate goals, the CS variables and results, and firm performance across the divisions of the firms. The first step is to quantify the relationship between CS results and overall performance.14The firms studied were most interested in relating profits and market share to CS results. Once they identified these “back end” relationships, the firms wanted to link and quantify which CS measures helped achieve overall corporate goals and values. While firms were already gathering data and determining the statistical relationships between CS results and performance, they were just starting to think about how to try to link their goals and CS. This process of linking goals to performance through measuring CS is exploratory and preliminary at even the most forward-thinking companies.15

Practices That Increase CS Influence across the Value Chain

A firm that is vertically integrated from materials acquisition through product or service delivery to the customer controls overall customer satisfaction. However, vertical integration is not generally a viable strategy, nor was it pursued by any of the firms we studied. Each company realized that it could increase CS only slightly by improving its own internal processes. So much of the content and quality of its products, services, and interactions depended on purchased goods and services that it ultimately partnered with other firms in the value-adding chain to increase CS over the long run. As they assimilated their own CS-improving processes, the best-practice firms then implemented methods to monitor and improve CS delivery with their suppliers and those in the distribution portion of the chain.

Firms in our study not directly distributing their products to end users, or that produced intermediary products incorporated into other finished goods, started by partnering downstream with those closer to the end user, the distributors, or final goods manufacturers. Materials and component producers attempted to improve CS in multiple levels of customers, by improving CS levels for the customer firms to which they supplied products — either the manufacturing firms incorporating their products into finished goods or the distributing or retail companies that sold the product. They also cooperated with the manufacturing or distributing firms to strive jointly for end-user CS improvements.

Firms directly supplying customers, but purchasing large numbers of parts and components, worked first with their upstream suppliers. End-user CS depended partly on the overall quality of the product or service they purchased; thus firms supplying purchased components could directly affect the end product’s overall quality. Firms started by developing and communicating to their suppliers the CS measures they themselves used to judge the supplier’s performance. They also incorporated some end-user CS in supplier performance evaluations. End-product producers offered to help upstream firms put processes in place to monitor and improve performance, teaching the upstream firms what they learned. For firms with a great many suppliers, implementation started with the largest suppliers or those whose components were thought to have the most impact on end-user CS. Suppliers of less critical components were slowly brought into the CS-delivery partnership.

Implementing a CS focus in other firms in the value-adding chain was a slow process. Firms cannot be coerced into adopting the strategy. The CS-improving philosophy must be instilled into other firms in the chain just as it was instilled into the firms we studied. And it is unlikely that many of these other firms will be willing to implement a CS focus unless they believe that CS will lead to more, and more profitable, long-term business or there is irrefutable proof that CS leads to higher share, more sales volume, or higher profits. The best-practice firms were at the point in the implementation cycle where, to keep increasing CS levels in the long run by involving others in the value-adding chain, they needed to be able to demonstrate a link between CS levels and improved firm performance.

Practices That Improve Interactions with Customers

While new practices were emerging at each firm for improving how it interacted with customers, different firms focused on different methods. Although these practices fall into the two general categories of (1) improving communication between the firm and customers, and (2) managing the measurement of and expectations about suitable CS levels over time, these practices were the most individually idiosyncratic of the CS practices we found.

To improve overall communications, two firms were developing processes and organizations to allow the right people to talk directly and immediately; for example, those who could solve a customer’s problem talked directly to those with the problem. Customer problems were resolved faster and with less frustration, and the firms believed they were solved less expensively. As another example, technically trained development people, those who needed information on wants, needs, and satisfaction, collected it directly from customers. Again, the people who needed information talked directly to the people who could provide it. Even though professional market researchers may be more efficient, direct information gathering has the important advantage of eliminating interpretation of what people said or making judgments about which aspects were important. As an added benefit, this CS strategy vastly increased the number of people with customer contact, again emphasizing the overall importance of satisfying customers throughout the organization.

Another firm in the study concentrated on improving customer interactions by more carefully managing CS expectations. The firm fed performance levels (both trends and transactions) back to the customer organization. Together they compared CS performance against a written standard, which the customer helped develop, that was communicated throughout both firms. Interactional expectations were clearly set at both firms for various situations to help personnel understand what was expected of them.

The fourth firm proactively forecast the attributes and improvement levels it believed would lead to enhanced future CS levels for their customers. It questioned customers extensively about their CS expectations and future changes in their business and CS needs. The firm accounted for their explicitly stated CS needs and then extrapolated other needs from forecast business changes when developing CS measures. This tactic was used to maintain future leading-edge CS performance.

Emerging customer-interaction practices improve the frequency, directness, and quality of communications between firms and their customers or improve the CS measurement process. Although each firm’s approach differed slightly, all the firms were improving interactions with customers, an important area for emerging CS applications.

Practices for Managing People

Maintaining a long-term CS focus requires changing the firm’s personnel management practices. Some of the firms in our study altered evaluations, others changed who they hire, and still others adjusted their firm’s culture to enable them to maintain a long-term CS focus. At the outset, CS performance was not explicitly linked to the incentive systems. Over time, however, the firms incorporated CS measures into the performance evaluations of those higher in the firm and linked the overall incentive systems to CS performance. People are far more likely to continue to follow a strategy when they know that they will be evaluated, paid, and promoted based on the outcomes expected from that strategy.

Some firms incorporated CS evaluation criteria into the new-hire selection process to maintain a long-term focus on delivering CS. While most of the firms started out to improve the way their current employees interacted with customers by implementing training programs, this was expensive and time consuming. Some firms initiated prescreening of prospective employees based on their predisposition to delivering CS and their inherent capability to successfully interact with customers. The philosophy behind this tactic is a combination of “Why pay to train when you can hire?” and a belief that some people may be more amenable to focusing on delivering high levels of CS than others. Although this may be a better tactic when applicants are more abundant than jobs, Walt Disney & Co. has successfully followed this approach in its hiring processes, as almost any customer of its theme parks can attest.

Finally, some firms adopted the viewpoint that a happy employee is more likely to deliver high CS than an unhappy one. Can a worker who is treated rudely or unpleasantly by a coworker or supervisor really be expected to turn around and pleasantly resolve a customer complaint? Can a worker terrified of management retribution (reprimand or firing) if he or she identifies a product flaw or problem in the field feel secure enough to correct the fault and ensure it does not recur? It is unlikely that employees who are insecure in their jobs can successfully focus on delivering CS. In acknowledging this, three of the four best-practice companies assessed and improved employee satisfaction as a means to increase external CS levels in the long run. By developing a culture and internal personnel management processes that supported employees in their jobs, these firms attempted to increase overall employee satisfaction and help them concentrate on delivering high levels of customer satisfaction.

Ways to Improve CS Practices

There are some obvious ways to improve both what is done and how CS is implemented, and firms will have to adopt at least some of them. First, companies must formalize and quantify the relationship between CS and firm performance. By determining how CS improves performance or what specific CS components correlate with different improvements, corporations can focus on only the most effective endeavors, allowing them to become more efficient in implementation.

In addition to improving efficiency, an understanding of these relationships will allow companies to move to the next step of involving other firms upstream and downstream in the value-adding chain. The firm needs data that demonstrate to others in the chain that undertaking a CS strategy improves performance. The other companies will then be more willing to refocus their strategies, which in turn will enable the CS-focused firm to retain its reputation as a company with highly satisfied customers.

Another method to improve CS delivery is to measure the impact of the firm’s processes on CS levels. Firms generally have first implemented CS practices in functions with high levels of customer contact, then moved on to other processes. But the proportion of satisfaction derived from successful interactions between customers and the firm compared to how much is derived from the characteristics of the product or service purchased is unknown. The firm may overspend on solving problems and underspend on providing customer input to the product developers who want to improve products so current customers’ levels of satisfaction will increase. If product developers were linked tightly into the CS delivery processes, their efforts might solve customer problems at the design stage before introduction, rather than after product adoption, and also save money. None of the firms studied had any formal processes for feeding customer satisfaction results to product developers.

Finally, companies can improve CS implementation by undertaking the difficult task of changing the firm’s strategy and culture through a reorientation of all employees’ mind-sets and job functions. To keep a long-term focus on customers, firms must change incentive structures and performance criteria. Managers, especially those at mid-level, must change their behavior to ensure that the CS strategy moves up through the company. Change creates anxiety and distress among employees, making it difficult for them to successfully satisfy customers. Thus the final opportunity for improving CS practices is to reduce or eliminate the organizational and personal stress associated with changing an organization, to enable companies to undertake a customer-focused initiative more easily. Unfortunately, academics like Edgar Schein and Rosabeth Moss Kanter have been researching ways to do this for a long time, only to find that there is no simple solution to the problem.16 A number of firms have hired organizational consultants to help them overcome the stresses associated with change, with varying levels of success.

Conclusion

Delivering CS is at an early evolutionary stage in most U.S. firms. That’s good news because it means that there are probably opportunities for companies not yet concentrating on CS as a strategy to initiate successful programs. The bad news is that it implies that most firms are not focused on satisfying customers, even though research now correlates CS with improved performance.

We found that CS best-practice firms do operate differently from others. They each have established similar attitudes, procedures, and organizational structures before undertaking a CS strategy. Although there are similarities between the firms, we also found that very different implementation approaches can be successful. Firms can either focus on CS first or begin to implement TQM, adding on a CS focus later.

A firm’s CS implementation process must reflect the needs of individual customer segments, and the overall program must be flexible enough to allow each business unit to develop the measures and processes that are most important for managing its business. Headquarters cannot dictate how CS will be implemented; it can just require that it be implemented.

Even the “best” firms have opportunities for additional improvement in implementing processes that sustain customer satisfaction; it is never too late to implement a CS strategy.

Appendix

To select companies with a customer satisfaction focus for our study, we researched numerous business books and articles that covered issues of quality management, customer focus, and developing successful new products. Most of these articles and books anecdotally cite examples of excellence within specific firms to prove whatever point they are making. We listed the examples in almost one hundred articles and books to determine which firms are most frequently mentioned by others as having an emphasis on CS. Then we searched annual reports, using an on-line database to probe for self-reported focuses on CS as a corporate strategy. The initial list of potential research sites thus consisted of firms that both publicly stated that they focused on CS as a strategy and that were acknowledged by numerous external published sources as either having a strategy of focusing on CS or having been successful in delivering satisfaction to their customers.

We were interested in large, globally operating, multi-product-line firms. Complex firms must implement a strategy consistently across diverse divisions. Implementing strategies or processes within only one group is much easier than consistently implementing them across groups. Including single-product or geographically limited firms in the data set would not have allowed us to investigate how firms focus consistently on CS across multiple divisions. We limited the sample to well-known U.S.-based firms to eliminate culturally based managerial differences and because of travel budget limitations.

We chose manufacturing (product-based) firms to simplify our investigation. All firms in the sample sell both products and services; however, the emphasis is on products. Attendant services are provided as required to meet the needs of the marketplace. Customers generally are less involved in the manufacturing processes in product-based firms than in service-delivery firms. Thus we felt it would be easier to understand the process of satisfying product-purchasing customers, where product manufacture is separate from product use, than it would be to understand the process of satisfying service users, where service delivery (manufacture) is coincident with service use or experience.

The final research task was to uncover each firm’s CS practices. We gathered data from multiple informants per company using structured interviews. Specific probing questions covered issues of corporate focus, shared values, CS commitment, CS knowledge and information flow, processes to increase CS (product/service delivery, product development, and support service processes), and CS results. Two to three researchers spent approximately one week interviewing from twenty to forty people at each firm. The data consisted of several hundred pages of transcribed notes.