In the latest phase of the quality campaign, managers are discovering that the point is not only to satisfy but also to delight the customer. Just ask IBM or Federal Express.
Fortune ⎢ April 22, 1991
FOR AL WHITE and his 200 employees at Ford Motor's new customer assistance center in downtown Detroit, quality has nothing to do with the factory floor. It means a state-of-the-art telecommunications system in the fortresslike environment of Renaissance Center, at the heart of a city that has been eviscerated by the U.S. auto industry's decline. But while Detroit has lost a third of its auto jobs in the last ten years, and desolation reigns a few blocks away, White's eager young college grads appear poised and confident as they field customers' calls — some 5,000 a day, with questions that range from "How do I set the clock?" to "How many times do I have to get my car fixed?" Their enthusiasm makes this airy command post overlooking the Detroit River feel less like a bunker than like some sort of electronic beachhead. An important one, for its establishment signals a new stage in the quality wars.
After being viewed as a manufacturing problem for most of the past decade, quality has become a service issue — not just for service-sector businesses like travel, communications, health care, and finance but for the service side of manufacturing companies as well. The idea is total quality — quality in the offering itself and in all the services that come with it. Though not new, the concept is suddenly the rallying cry for more and more organizations.
Along with wine snobbery and marriage, poor service has been a staple of New Yorker cartoons for decades — the presumptuous waiter, the loan officer who says "Beg," the plumber who's loath to make house calls. Now it has become an issue for managers, and for the same reason shoddy goods did: competition. Deregulated service industries such as air travel and telecommunications find themselves increasingly confronted with rivals from abroad. Meanwhile, thanks to the Japanese, manufacturing quality has come to be a given: "You can't come to the dance without it," says David Nadler, president of Delta Consulting Group in New York. If product quality is essentially the same across the industry, service becomes the distinguishing factor. All this has fed the trend toward total quality management — TQM, in the jargon.
With TQM, the postwar quality movement has moved into its third stage. When the growing popularity of Japanese automobiles, TVs, and radios forced U.S. manufacturers to take another look at themselves in the late Seventies, most companies were still in what quality experts call the inspection phase, relying on sampling techniques to get rid of defective items. Too often, they didn't. In 1980 — the year an NBC White Paper introduced audiences to W. Edwards Deming, the American statistician who had shown the Japanese how to use process controls to catch defects at the source — manufacturers who took the issue seriously started moving into the second, or quality control, phase. Now, with TQM, quality is no longer ghettoized in a quality control department; it's championed by top management and diffused throughout the company.
The notion of total quality has been around at least since consultant Armand Feigenbaum advocated using quality control methods in marketing and distribution some 40 years ago. But Feigenbaum's emphasis on statistical controls and quality specialists never got very far outside manufacturing. Total quality management treats quality as a strategic objective, something to be built into the corporate culture. "We had quality programs," says Stephen Schwartz, 56, a longtime IBM exec who last spring was named senior vice president for market-driven quality, reporting directly to Chairman John Akers. "But the real difference comes when you decide it's no longer a program, it's a business strategy. If I had the last ten years to live over . . ."
Because service quality can be gauged only by customer satisfaction, TQM has redefined what quality is. "Quality has moved from a set of numbers on a chart to what feels right to the customer," says operations-management professor Joseph Blackburn of Vanderbilt University. For Federal Express, which last fall became the first big service company to win a Malcolm Baldrige National Quality Award, that means not just delivering packages on time but also providing a tracking system that allows customers to find out where their goods are at every point along the way. For IBM, another of last fall's Baldrige winners, it means an electronic customer support system that automatically diagnoses trouble and alerts service people, who have been known to show up before users know they've got a problem. For Ford, it means junking a system of regional customer service lines so inefficient that on some days half the callers couldn't get through, and replacing it with a single 800 number to provide quick satisfaction on customer complaints while giving the company an ear to the ground.
"We see ourselves as the voice of the customer," explains Ford owner-operations manager White, 44, a tall man with a ready smile. Complaints that come in to the customer service representatives — executive trainees who become zone managers after 18 months — are electronically forwarded to dealers, who are supposed to contact disgruntled owners and start setting things right within 24 hours. The same information goes to marketing research and then to engineering, which has made changes in everything from brakes to seat belts as a result. Sometimes senior executives come in from Dearborn to man the phones and get an earful. White has a button on his own phone that allows him to listen in — a capability he proudly demonstrates. Unfortunately, this call isn't one of those simple little how-do-I-set-the- clock queries.
"I'd like to find out how you're going to handle this thing," a man is saying sternly. "It cost me $85 to get it towed off the freeway. It's costing me money to take care of something that never should have happened! This is my third Lincoln and I love the car, but I don't appreciate something like that happening."
Dismay registers dismay. Ford figures it costs five times as much to attract a new customer as it does to retain an old one; because of the enormous profit margins on luxury cars, Lincoln loyalists are particularly prized. When the service rep gives the caller a reference number for his complaint, White jots it down and vows to follow through himself.
That's the problem with listening to the customer: Sometimes you hear things you wish you hadn't. But if quality means giving customers what they want, listening is a prerequisite. So are other things, like sincerity and follow-through.
THE EFFORT REALLY DEPENDS on two attributes: a willingness to see the world from the customer's point of view and an eagerness to move swiftly. Speed is critical; as Carrie Fisher noted in her novel Postcards from the Edge, we live in an era in which instant gratification isn't fast enough. And though it sounds counterintuitive, many argue that speed and quality go hand in hand. "The things that take the most time are the things that go wrong," says Don Povejsil, 64, a retired Westinghouse executive who now works as a strategy consultant. "By eliminating the things that go wrong, you can vastly shrink the time it takes to order, produce, and deliver."
Getting the customer's point of view sounds easy in an age of focus groups and market research. But to see things truly from the customer's perspective is to stand at the end of a long sequence of events, all of which have to mesh smoothly. Hotel clerks may be charming and attentive, but if the computer system is down, their courtesy isn't going to help much. Within any company, TQM theory holds, is a whole chain of ''internal customers'' like the hotel clerk, culminating with the person at the cash register, credit card in hand. The trick is to get everyone working together while keeping this ultimate customer in focus.
THAT'S WHAT SARAH NOLAN had to do when she was named president of Amex Life Assurance, an American Express subsidiary based in San Rafael, California. American Express Chairman James Robinson is a self-professed maniac on quality, but when Nolan arrived from corporate headquarters in New York she found a paperwork assembly line that delivered service at the glacial pace that's typical of the industry. A simple change of address took two days; sending out a new policy took ten days; training new employees took three months. Nolan dispatched five managers representing different specialties to an empty office park and told them to imagine they were setting up a new business. Their task was to redesign the operation, and they had only three rules: Put the customer first; don't copy anything we do here; and be ready to process applications yourselves in six months.
"I can't say I was thrilled when I was told I'd be keying in applications," says Karen Gideon, vice president of strategic marketing. But if they were going to put customers first, they would have to think differently about the low-level clerical workers who were on the front lines. When they returned, ten layers of personnel had been collapsed into three, each of which would deal with the public. People got so focused on the customer, they gave him an empty chair at meetings. Fewer employees were needed, so more than a third were transferred to other groups. Expenses were cut in half, and profitability went up sixfold. "It's a staggering thing how far people will go if they own the results," Nolan declares.
As Nolan's experience suggests, seeing through customers' eyes can lead to major structural changes. "Most companies do not understand the fundamental nature of the change that's required," says Douglas Allen, a management professor at the University of Denver. Executives expecting a painless 90-day makeover don't want to hear that it will take years to correct all the things they have been doing wrong. Yet a serious quality effort requires a big investment in training, consultants, and — most difficult of all — top management attention. Managers usually need to rethink the way their business is run. There's no point exhorting workers to do a better job if the job isn't structured to make that possible.
Allen cites four broad areas in both service and manufacturing companies where change has to occur. The first is teamwork: Instead of throwing work over the wall at one another, different functions — research, design, marketing, manufacturing — need to work together on a project from the start. Second, training: Employees have to be taught how to function smoothly as a unit. Third, empowerment: People at all levels need to be given responsibility for quality, not just told that it's expected. They're quick to spot the difference. And finally, rewards: Compensation has to be pegged to customer satisfaction as well as to financial results.
This kind of thinking is what enabled IBM's Rochester, Minnesota, facility to win a Baldrige Award last year. While Rochester won in the manufacturing category — it makes the AS/400, a popular midrange computer — most of its innovations occurred on the service side, in research, design, and customer support, and all of them had to do with keeping the customer in focus.
IBM estimates that if it can improve satisfaction 1% for its AS/400 customers worldwide, it will gain more than $200 million over five years. Its efforts in Rochester began in 1986, when quality chief Stephen Schwartz — then general manager of the application business systems group, Rochester's parent organization — decided to develop a new-generation computer in 2½ years instead of the five it had taken to develop the previous model. To shorten development time, Schwartz put not just marketing and sales people on the team but customers as well — a remarkable move for a company so security-conscious that its own officers were often kept in the dark about new projects.
The customers told the team to keep the new machine simple — not just easy to use but also easy to install and maintain. Rochester responded with the electronic customer support system, which offers constant remote testing and on-line hardware and software assistance — in some cases not only for IBM software but for the customer's other software as well. Marketing representatives call customers three months after shipment to find out if they're satisfied; if not, the branch office is notified and marketing calls back 30 days later. For stubborn problems, engineers fly out to diagnose the situation. The goal, says the group's general manager, Robert LaBant, is a closed loop on customer satisfaction: "Whatever the issue is, we close it."
With IBM's adoption of "market-driven quality" — that is, quality efforts aimed at pleasing the customer — many of the innovations that began at Rochester are being adopted around the company. They'll be needed. When the new strategy was announced 15 months ago at a worldwide senior management meeting, IBM President Jack Kuehler set a goal of no more than 3.4 defects per million units by 1994 — not just product defects but defective transactions as well, internal and external. At the same time, John Akers announced he wants IBM not merely to satisfy its customers but also to delight them. There is one difficulty, Schwartz admits: "We're still trying to figure out how you measure delight."
That's no joke: The measurement problem may be one reason it took so long for the quality issue to reach the service side. Statistical quality-control methods devised over 50 years ago by Walter A. Shewhart and other pioneers were tailored to manufacturing processes, where failures can be readily quantified. But how to measure customer satisfaction?
There are ways. Federal Express dealt with the problem three years ago by developing a list of "service quality indicators" — potential screw-ups weighted according to the seriousness they rate in customer satisfaction surveys. A delivery late by a few hours gets only a 1, while a missed pickup or damaged shipment gets a 10. Giving a mathematical dimension to service quality gives Fed Ex workers a goal to shoot for. It also helps them focus on the things shippers find most distressing.
"Customers understand weather and aircraft problems," says Pat Galvin, vice president for corporate systems development. "They don't understand why we can't tell them where their package is." So Fed Ex has refined its sophisticated information systems to provide a "comfort trace" to reassure its customers and let them reassure theirs. It has also put a lot of effort into providing proof of delivery, so recipients can find out if an item went astray or is languishing in their mailroom — as one hospital reportedly discovered when doctors started looking for a heart valve as the patient was being prepped for surgery.
NOT EVERYONE BELIEVES the measurement problem is what kept companies from trying to give better service. "I think that's a cop-out," says Douglas Allen, who argues that lack of competition probably had more to do with it. Indeed, most of the American companies that have adopted a total quality strategy — like Ford, IBM, and Xerox — are ones that critics say had grown arrogant, complacent, and out of touch, and suffered as a result.
Other companies have turned to total quality on the theory that by eliminating wasted time and effort, it reduces costs and increases productivity. One is Hospital Corp. of America, a Nashville-based chain. Founded in 1968, HCA grew rapidly during the Seventies, when medical costs knew no limits. But four years ago, when the government slashed Medicare reimbursements and private insurers followed suit, it began a radical restructuring, eventually going private in a leveraged buyout. With most of its cash flow devoted to debt payments and Medicare being cut even further, cost control became a high priority.
The result was a series of measures aimed at delivering quality care for less. A Florida hospital cut expenses for antibiotics by arranging the choices presented to doctors by cost instead of alphabetically. The contracts department is working with Baxter Healthcare, the chain's major supplier of medical products, to reduce invoice discrepancies, which create bookkeeping chores that cost millions each year. Quality programs at Centennial hospital in Nashville have cut the average age of accounts receivable from 78 days to 49 days. "It's powerful, powerful stuff," cries chief administrator William Arnold, a gung-ho enthusiast.
Customers, and potential customers, notice the difference. Arnold is talking with corporations interested in buying health care from HCA rather than from an HMO or an insurance company. With hospital costs rising 10% per year and health care already accounting for some 13% of the gross national product, he's not the only one with a sense of urgency. Yet HCA has years of work still to do. As quality staffer Tom Gillem says, "Part of the problem with quality in this country is getting people away from the mind-set that everything is instant."
FADDISM IS AS AMERICAN as the tail fin and the Hula Hoop, but it doesn't do much for quality. The throwaway society that developed in this country after World War II made the Japanese challenge possible in the Seventies. Ironically, that society's most gifted pitchman — Andy Warhol, the onetime commercial illustrator who raised disposable culture to an art form — may himself have become a quality victim when he died in a New York hospital following a routine gall bladder operation. But quality doesn't work when it's the panacea-of-the-month: Witness the quality circle, which enjoyed its 15 minutes of fame a decade ago before becoming the Nehru jacket of management techniques.
Most of the original quality circles failed because they were regarded by top management as an easy fix-it, by middle management as a threat, and by human resources as a nice opportunity for workers to share their feelings. With no commitment from the top and no way of having a real impact, they produced a momentary glow and nothing more. But though they don't advertise the fact, many companies still use updated versions of the circles and find that as part of a larger quality strategy, they work. At an HCA hospital in Atlanta, a quality team — the new incarnation of the quality circle — found a way to reduce the repeat rate for caesarean deliveries. At Federal Express, a team suggested by two part-time sorters at the Memphis hub cut training time from six months to five weeks by devising an easy way to memorize the company's 700 three-letter city codes.
One caution, however: Total quality doesn't fail just as a panacea-of-the-month; it's no panacea, period. "It's something most companies would benefit from, but it's not the only thing they ought to be doing," says James McTaggart of Marakon Associates, a Connecticut consulting firm. It won't make up for strategic blunders in other areas, as quality-conscious American Express discovered with Shearson Lehman Hutton, or Xerox and Federal Express found out from their own questionable acquisitions. And it can even be carried too far, McTaggart argues: "All customers are not equally profitable, so maximizing customer satisfaction across the board could in some cases cost you a lot of money."
WHICH LEADS TO THE QUESTION: How total is total? This may be the most troublesome issue of all. Some CEOs, like John Akers of IBM and Fred Smith of Federal Express, are obsessive on the subject. "It really has to be the end-all and be-all," Smith declares. "When there's a problem with a Federal Express shipment, it's got to be viewed — short of somebody being injured or losing their life — as the worst thing that could happen." Others reason that satisfaction must have its limits.
Despite continuing pressure from the Japanese, Detroit seems to fall into the second camp. At Ford, the first of the Big Three to adopt a quality strategy and in the opinion of many the most committed, executives know the one thing that drives car owners bonkers is repeat repairs: cars that have to be brought back again and again and again. So Ford's engineers talked to dealers and discovered two key facts — most mechanics never speak directly to the car owners, and time allotments are so tight that before the mechanics find the problem they often have to move to the next job. Ford is trying to revamp the process, maybe by having customers dictate their complaints into a tape recorder, or by forming work teams with one repairman taking responsibility for each job. But while the company has backed off from its "repair standards" (as the time allotments are called), debate continues at Ford World Headquarters over whether mechanics should be told to do whatever it takes to be confident they've fixed the car.
Meanwhile, some owners will just have to fume. In reasoning that the cost of making sure repairs are done right will be prohibitive, Ford executives assume that the cost of alienating customers will be lower. Not so, argues Christopher Hart, a former Harvard business school professor who heads a consulting firm called TQM Group: "Ultimately people get taken care of, but they get thoroughly upset and it costs the auto company a hell of a lot more than if they just said, 'Here.'" Hart advocates an unconditional service guarantee, reasoning that such pledges not only build customer loyalty and market share but also force companies to improve their offerings. Yet when he proposed to Detroit execs that they reimburse customers by giving $150 to anyone whose car needs a warranty repair — on top of doing the repair — they blanched at the thought. One vice president experienced a brief burst of enthusiasm, then declared that if word got out, he'd be hunted down and put to death.
"To try to separate cost and quality is a concern of the Seventies," says Dr. Paul Batalden, a Deming enthusiast who heads HCA's quality effort. "You can never pursue quality to the exclusion of cost, or cost to the exclusion of quality. What we're after is improved value." That's the challenge the quality movement faces now: to discover what mix of price and quality the customer expects, and deliver it. Plumbers may still be able to lord it over the common folk, but corporate giants must learn to make house calls. ■