March 9, 2005    Volume 12, No. 6

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Quality Index Experiences A 'Dramatic Drop'
An Interview With Past ASQ President Jack West

Quality has improved over the past decade, but customers' expectations have increased by a greater amount. The American Society for Quality (ASQ) is now 10 years into measuring customer satisfaction with hundreds of goods and services. The survey, which costs about $5 million a year to produce, has tracked a "decade of decline," says the professional society based in Milwaukee.

The American Customer Satisfaction Index "provides evidence of a dramatic drop in service quality along with an apparent stabilization in product quality," says ASQ. Overall customer perceptions of quality have declined by 0.8 percent over the past decade. Product quality has been stable, though it declined from 86.9 percent in 1994 to 86.3 percent in 2004. The problem is in the service category, which dropped from 80.3 percent in 1994 to 78.3 percent in 2004, a 2 percent drop.

"Corporations that provide services versus products have traditionally been slower to adopt quality improvement programs," says ASQ. "It's now 'catch up' time as more nonmanufacturing, service-based corporations begin to incorporate quality systems into their operations and adopt quality programs such as Six Sigma to meet customer needs."

Service companies that have adopted Six Sigma quality programs -- like Starwood Hotels, which registered a 7.1 percent gain -- are doing well.

Airlines, restaurants and cellular phone services are the lowest rated industries. Local and long-distance phone companies did the worst over the decade, dropping 9 percent. Airlines were next, dropping 5.8 percent, with Southwest declining 5.7 percent. "It appears customers have not reduced their expectations as rapidly as the airlines have reduced their service," says ASQ. McDonald's rating dropped 5.7 percent.

Perceived quality in the personal computer sector declined by 5.5 percent over the past decade, with Compaq, HP and IBM experiencing the largest declines. Dell's perceived quality improved by 4.4 percent.

In the automobile category, perceived quality fell 2.1 percent, with U.S. companies continuing to struggle against Asian and European competitors. "U.S. automakers are driven to compete on price, while the Euro and Asian competition compete on quality," says ASQ. "Competing on price alone is not a viable, long-term business success strategy." Hyundai's perceive quality score increased by 7.6 percent.

For information on the survey, go to http://www.asq.org.

Manufacturing & Technology News editor Richard McCormack spoke with former ASQ president Jack West about the 10-year analysis of perceived quality and the latest trends in the quality field. West can be reached at sixsigmaadventures@msn.com. Here is what he had to say:

Question: If the quality of goods has improved dramatically over the decade, then what do companies have to do in order to satisfy customers with even higher expectations?
West:
When you poll people about the quality of a product such as a PC, an automobile or a television set, they generally perceive the quality to be very high. But then you throw in the service component and ask: What was your experience with the dealer? What was your experience when you called the help line for the computer you purchased? When you ask those questions, quality plummets. When you put the two together, which constitutes the whole experience of buying a car or computer, then the net is not good. That's what we're seeing: the net has suffered because of the service component.
In service areas where they have ineffectively tried to put automation in place, quality has deteriorated. People don't like to beep through 17 phone trees.

Q: One of the important business strategies today is for companies to stress services as the growth component for their operations. For manufacturers, service is where they hope to see future growth. What do low marks in service mean for them?
West:
In B-to-B, they're working on selling more in the way of consulting services, but that's not what is happening on the B-to-C side. A big trend is to contract out the service part such as telephone response and customer support systems. Since the quality isn't there yet some companies like Dell are bringing it back, whereas others are saying, "To heck with you, customers, suffer."
It will be interesting to see if the B-to-C companies continue to outsource the services even though customers aren't happy because if you look at where companies make their money they make their money on repeat customers.

Q: What are the big trends you've noticed following customer quality expectations over the past 10 years?
West:
What you see are splits in the marketplace, where customers go high end or low end. An easy example to think about is coffee. Starbucks is packed and its coffee is three times more expensive than the McDonald's price. The same is happening with Lexus, which has a waiting list, while General Motors can't sell a car to save its life. People are willing to buy high end.
The high end is doing okay with the heavy service component and the hand-holding. The low end seems to be okay because they are squeezing the price very hard and people don't expect much when they pay low prices. The guys in the middle are getting hurt.

Q: But there are a lot of guys in the middle. The middle is big.
West:
That's where most of the business is.

Q: What do the guys in the middle do?
West:
They have a couple of options. One is you can't tell people to expect a Lexus and sell them a Volkswagen. That's what is driving a lot of the low satisfaction. They tell people that this is a wonderful experience, everything is going to be perfect and then they find out that it's not. I don't know how you tell people not to expect perfect when they buy your product, but that is where you start seeing the difficulty. Personal computers are a classic example. They are so much better than they were a few years ago, but the advertisement says plug and play and you get it home and you plug and it doesn't play.

Q: Is there a successful strategy for companies to use in this quality dilemma? Should they go high or should they go low?
West:
There is equal success at both ends. An example is in retail. Two retail companies that are very high in customer satisfaction are Nordstrom and Costco. They are at the complete opposite ends of the spectrum. Both delineate the expectations clearly and then meet them effectively.

Q: Then you have all those middle-ground retailers.
West:
That's why Sears got killed. They couldn't decide if they were upscale or downscale and they tried to do both and just got killed. When you're in a declining market share situation, you don't have any extra resources to start pumping into improved services and quality, and consequently you're in a situation of trying to pull yourself up by your bootstraps.

Q: What are the latest trends in the quality arena?
West:
The major thrust has been the incorporation of the synergy between two quality improvement toolsets: one is the Toyota Manufacturing System, which most people call Lean, with the fusion of Six Sigma. You see many of the traditional manufacturers using them to work on the product side of the house and now they are using them on what the Lean folks call above the floor -- the white collar, service side of the house. It's making a big difference.

Q: Is it a noticeable, measurable difference?
West:
Yes, it is a noticeable, measurable difference, and you see it in the organizations that have been working it for a while.

Q: Any come to mind?
West:
On the service side, Sheraton Hotels has been using Six Sigma for quite a while and their quality scores have been going up; Bank of America -- same kind of thing there; Target and Home Depot in the retail arena. You also see it in General Electric's service side and they've been doing it pretty aggressively for 10 years and they have a lot of experience. They are doing very well at it. Ford Motor Co. has been at it for a couple of years, but it doesn't show up in the measures. You're seeing it in terms of their internal efficiency measures, but the customer isn't seeing it yet.

Q: Is there a way to measure the implementation rate of these two techniques -- Lean and Six Sigma -- throughout the U.S. business enterprise? Is it still a small percentage of companies adopting these programs?
West:
There is a lot of anecdotal evidence that says that virtually every industry is experimenting with them, but there is no place you go to register that says I've started doing Six Sigma like there is for the ISO standard. So the bottom line is I can't help you there.

Q: The quality movement has gone through TQM, TOS, Lean, Six Sigma, Baldrige and ISO 9000. Is there something new coming along?
West:
Not that I know of; I wish I knew. The only thing I'm seeing is the fusion of Lean and Six Sigma and the broadening of the application to health care, education and the service areas. I haven't seen anything in the manufacturing area that I can say, "Here is the next thing that is emerging." Six Sigma has been around for 20 years and lean for 15 -- since The Machine that Changed the World was published in 1990. They continue to evolve and grow, but I don't see the next revolution.

Q: Does anybody care about the Baldrige National Quality Award nowadays?
West:
The companies that use Baldrige -- and there are still a lot of them that do -- tend to use it as an internal mechanism because they see the cost of applying [for the award] as being fairly significant, and it is. It takes several man-months of effort to put together an application. You don't see very many applications from the Fortune 500 any more.

Q: Why?
West:
I think it's because it costs a lot of money. It takes a lot of effort. Then you have to ask yourself where is the return on the investment from winning?

Q: You have to do a lot of show-and-tells.
West:
Yes, a lot, because I worked for Westinghouse when they were a winner and we did a lot of them.

Q: How is the American Society for Quality doing?
West:
Okay. The quality discipline has been hurt somewhat as the manufacturing area has gone down. So there are more quality professionals in manufacturing than there were in service. But now we're starting to pick up membership from the service arena. If you look at the entire set of the professional societies we're doing very well, but compared to where we were six or seven years ago, we're not as healthy.



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