Auditing Customer Feedback Processes

Performance Improvement Solutions for Your Business Needs June 2007
In this issue

  • Auditing Customer Feedback Processes
  • The Ultimate Satisfaction Question
  • Balance Different Measures of Business Success
  • June-September Scheduled Courses
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    Auditing Customer Feedback Processes

    The customer feedback process is a critical part of the quality management system, and should therefore receive adequate attention during a third party audit. Feedback from the customer is one of the primary performance indicators that can be used to judge the overall effectiveness of the QMS. It is important, therefore, for the auditor to verify that

    • the organization’s customer communication channels promote an adequate awareness of the process by which customers can provide feedback
    • inputs to the customer feedback process include relevant, representative and reliable data,
    • this data is analyzed effectively, and
    • the output from this process provides useful information to the management review and other QMS processes, to enhance customer satisfaction and drive continual improvement.

    What should be addressed when auditing customer feedback processes?

    Customer feedback is a process. It needs to be audited as a process, not as a “clause of the standard”. An evaluation also needs to be performed on the way in which the process is managed (see ISO 9001:2000 clause 4.1.c), and its ability to provide meaningful information with which to judge the overall effectiveness of the QMS. The way in which the organization obtains this feedback (“the method”) is up to the organization to define.

    The auditor needs to be aware of the specific characteristics of the organization’s products that are likely to impact customer satisfaction. Throughout the audit the auditor should be alert for indications that may suggest customer satisfaction or dissatisfaction which could serve as input into the audit of the customer feedback process. Good sources of such information may include, for example:

    • Goods returned by the customer;
    • Warranty claims;
    • Revised invoices;
    • Direct observation of, or communication with the customer (for example in a service organization).

    These are some issues an auditor should address during an audit of the customer feedback process:

    What is the desired output of this process? What information is actually available on customer perceptions? How is this information used by management to drive improvements to the product, processes and the QMS?

    · Are all customer categories covered by this information? It is important to remember that the organization may have more than one category of customer. For example, a manufacturer may sell to wholesalers, who then sell to retailers, who in turn sell to the general public. In this case the organization may need to address all three types of customer and they may all have different perceptions. The organization could be satisfying one group and upsetting another.

    How is the data collected to feed the process? · There are many ways for an organization to monitor its customers’ perceptions, and the auditor should avoid preconceived ideas about how this should be done. Some examples of techniques the organization can use include:

    • face-to-face evaluations
    • telephone calls or visits made periodically or after delivery of products and services,
    • questionnaires or surveys carried out by the organization itself, or by independent market researchers
    • internal enquiries among the organization’s personnel who are in contact with customers,
    • customer complaints analysis

    Often complaints are the only “spontaneous feedback” received from customers, and these should be analyzed for any trends, key concerns, impacts etc. It must be stressed, however, that customer complaints can not be the only input for monitoring customer perceptions.

    How is the data analyzed?

    Simply collecting data on customer perceptions is not sufficient – the auditor must follow the process through, to check how the data is analyzed (see ISO 9001:2000 clause 8.4), and what conclusions are made with respect to the effectiveness of the QMS.

    Are there any trends? Is the situation stable, improving, or deteriorating? Are customer needs and expectations changing?

    How does the information generated by this process feedback into the QMS as a whole?

    The auditor should be able to recognize that the output from the customer feedback process forms an important input into other QMS process, such as data analysis, management review and continual improvement processes.

    An auditor who strives to add value will try to ensure that the organization recognizes the benefits a sound customer feedback process can bring, and will encourage (but can not require) the organization to think beyond simply “meeting the requirements of the standard”

    The Ultimate Satisfaction Question

    Have your customers quit responding to your lengthy satisfaction surveys? Are your response rates too low for adequate analysis and action?

    Fortunately, there is a simpler way of surveying your customers. A measurement tool, called Net Promoter Score (NPS), uses only one question:

    On a scale of 1 to 10, how likely is it that you would recommend our company to a friend or colleague?

    A study by Satmetrix Systems, in partnership with Fred Reichheld of Bain & Company, determined this single loyalty question can judge individual customer purchase and referral patterns across seemingly disparate industries. If customers reported they were likely to recommend a particular company to a friend or colleague, then these same customers were also likely to actually repurchase from the company, as well as, generate new business by referring the company by word-of mouth. If customers reported they were not likely to recommend a company, they were also less likely to engage in actual repurchase or referral behaviors.

    Ultimate Question
    One simple question – Would you recommend us to a friend or colleague? – allows companies to track promoters and detractors and produces a clear measure of an organization’s performance through its customers’ eyes.

    Promoters are customers who are so enthusiastic about a firm or brand that they not only increase their own purchases, but also refer their colleagues or friends. Promoters are customers with ratings of 9 or 10 and exhibited the highest rates of purchase and referral behaviors.

    Passive customers are those that were somewhat likely to recommend a company, i.e., ratings of 7 or 8, and exhibited moderate rates of purchase and referral behaviors.

    Detractors are customers who feel so badly treated that they cut back on purchases, switch to the competition, and warn others to stay away from the company. Detractors are customers with ratings of 1 thru 6 and exhibited the lowest rates of purchase and referral behaviors.

    Net Promoter Score
    In industry after industry, the “Net Promoter Score” – the percentage of Promoters minus the percentage of Detractors – provided the single most reliable indicator of a company’s ability to grow.

    Of course, there is more to profitably growing your company than just calculating a score. A successful Net Promoter program includes 5 elements:

    1. Metrics proven to link to growth;
    2. Leadership practices that instill customer focus, passion, and values;
    3. Organizational strategies to ensure adoption;
    4. Integration with core business processes, and
    5. Operational systems to support the initiative.

    Balance Different Measures of Business Success
    Business objectives and customer strategy.

    Too often, a company swings from emphasizing financial metrics over customer metrics, to the other extreme of customer focus over profitability. A business approach based on the voice of the customer must not be excessive in responding to customer needs outside of the context of strategy and of analytical discipline. A growth company using must balance both financial and customer measures of success. The balanced scorecard is a great tool for doing exactly that.

    The balanced scorecard describes specific measures and performance commitments that track progress not only to concrete, current-year business plans, but also to the strategic three-to-five-year goals of the company. The balanced scorecard suggests that an organization be viewed from four perspectives – financial, customer, internal and growth – and that the organization develop metrics, collect data and analyze that data relative to each of these perspectives.

    Following is the outline of a model for developing a balanced scorecard and the next level of detail for each of the four perspectives. The model was developed for a financial institution and should act as a practical example for building a balanced scorecard.
    First are the places from which to derive balanced scorecard metrics for each of the four perspectives:

    • Financial perspective – shareholders
    • Customer perspective – customers
    • Internal perspective – operations and management
    • Growth perspective – innovation and learning

    Next, use balanced scorecard development principles by linking measurements to the company’s strategy for meeting key business goals. Consider the following three questions in regard to each of the four perspectives:

    • If our strategy is successful, how will results differ from each perspective?
    • What are the critical success factors we must prioritize immediately?
    • What are the critical measurements we need to have in place to support our critical success factors and monitor progress with our strategy?

    Then, consider the suggested metrics for each of the perspectives

    Financial Perspective:

    • Operating expense: actual to budget, actual to forecast, fixed versus variable, customer facing versus non-customer facing
    • Capital deployment: current system upgrades, capacity expansion, new technology, investment required by business initiatives, return on capital invested

    Customer Perspective:

    • Customer-driven volumes: accounts, requests, complaints, transactions
    • Revenue achieved against revenue goals, by customer segment

    Internal Perspective:

    • Application development: software design and delivery completion time
    • Problem management: time to restore services on customer-impacting problems, problem resolution time for all high-severity incidents

    Growth Perspective:

    • Product and service innovation: lead time to develop prototypes, time to deploy for commercial use, research and development initiatives under way
    • Employee attitudes: satisfaction survey results, voluntary turnover percentages, loss of key technology personnel, key technology positions unfilled, statistics on recognition for good results

    Metrics must be developed based on the priorities of the strategic plan, which provide information that managers care about most and can actually take action on. The goal of the balanced scorecard is to empower managers to see their company more clearly – from many perspectives – and thus make more effective long-term decisions.

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