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High Impact Quality: Approach - Definition of Quality
With this high-level model outlined, there is still the residual question: What is quality? Quality, in simple terms, is often defined as what customers will pay for. But, there is a subtlety to this definition which requires a more complex answer. Customer, sometimes, perhaps often, do not know the quality of what they are buying until much later in the ownership process. Recall the earlier discussion of Mr. Madoff and his investment company. For decades his customers, apparently, believed that they had purchased a trusted advisor and a steady stream of increasing wealth--only to discover their assets were worthless overnight. The reality is that customers will pay as much for the perception of quality as they will for the irreducible, underlying quality. Customers will pay as much for the ambience surrounding a purchase and the exclusivity of access to a good as they will for the item itself.
The subtle distinction is that customers, mostly, do not know what they will pay for until they are presented with the complete range of potential choices and competitive alternatives. So, while the customer can be thought of as the ultimate arbiter of value and therefore, quality, the customer does not have, again—in most cases, an accurate a priori, or advance, view of the level of quality that is appropriate for a given level of payment. In many cases, the price is often the strongest clue that the customer gets regarding the value they are receiving. Customers make the assumption, often wrongly, that the market (not the marketers) has established the price competitively, and that paying the higher price is a mechanism for screening out lower quality items. Educating the customer and client, typically the province of advertising, marketing, and sales, is essential to determine the level of quality and value that will appeal to a given segment of the market.
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“Quality in a product or service is not what the supplier puts in. It is what the customer gets out and is willing to pay for. A product is not quality because it is hard to make and costs a lot of money, as manufacturers typically believe. This is incompetence. Customers pay only for what is of use to them and gives them value. Nothing else constitutes quality.”
--Peter Drucker |
Again, there is perceived quality and there is the actual or irreducible quality of a product or service. Not to wander too far into abstract philosophical discussions of quality, but it must be noted that there are operational definitions of quality that are useful for business purposes, such as the one noted above, and there are more absolutist definitions that hold irrespective of the customer’s perception. We will look a little deeper into some of these finer distinctions in future sections, particularly during the discussion of value and process improvement.
For the moment, a simple example might help illustrate the various layers to the problem of defining quality.
Imagine a rare wine auctioned at a college dorm. Because the Gallo sells and the ’82 Barolo Monfortino gathers dust, does not mean the quality of the Gallo jug wine is superior to the Monfortino. Quality must be defined in the context of the customers your company is targeting. An educated palate drives a very different level of willingness to pay for quality. Until the consumer is able to distinguish, with some accuracy, between the different levels of quality there is a tendency to reach for the bottom and select lowest price over the highest value.
A typical Walmart customer will not pay the price a professional mechanic will for Snap-On tools. Nor do they need to. The home mechanic will use the tool once or twice a year, the professional will use it a dozen times a day. Quality for the home mechanic equals the tool with the lowest possible cost that will stand up to very mild use. Quality for the professional mechanic is an entirely different combination of durability, fit, finish, ease of use, reputation, and support.
In the absolute definition of quality--price aside--is the professional wrench higher quality? Absolutely. Is this a completely irrelevant definition of quality for the Walmart supplier? Of course. Could the professional wrench be made of even higher quality materials with extraordinary durability, longevity, and finish? Yes, but they could only be sold to NASA. The definition of quality, for business purposes, can only be defined in the context of the customers your business is targeting. Within this target audience, the objective is to continually increase the value delivered to the customer by steadily eliminating anything that does not create value for the customer.
Take one example--support for products that fail under warranty. Support, by definition, does not create value for the customer, the product is designed with a low probability of breakage during the warranty period. Suport, then, is a by-product of correcting mistakes that should not have been made in the first place. These mistakes subtract value from the customers. Obviously eliminating support must be done in stages. The mistakes must be eliminated before the support function is diminished to zero. No customer would purchase products from a company that will not repair or replace these defects. It is critically important to define the target customer for your company and then design every element of the company, from front to back, to match the image, expectations, and value required to deliver a high quality result to those customers.
The credit card industry provides a classic example of the need to match target customers and product designs. There is always a balance between the desire to have as large a population of customers as possible, while also having a population with the resources to repay their balances. As the population that can repay successfully is smaller than the population that would like to have a card, there is always an effort, at the margin, to sort out the high risk from the low risk customers. The more high risk customers that are introduced into the customer base, the greater the level of controls that must be introduced to avoid excessive write-offs. The greater the controls, the more often the good customers will get stopped from using their cards by excessive risk mitigation procedures or unreasonably low limits on their cards. The business system for the card company must be designed to attract high spenders with a high capacity to repay their debts while sorting out the high spenders with a low capacity to repay—all the while maintaining a level of service that the desired customers will view as an appropriate level of utility, quality, and service. What makes all of this even more difficult is that the lowest risk customers are often the lowest spending customers. It is easy to create a low risk card company, that is spectacularly unprofitable. It is also easy to create a high risk card company that is also spectacularly unprofitable. Finding a business model that works correctly. just short of the abyss, is the trick. We will see a need for this fine balance throughout our discussion of strategic quality management and business system design.
High Impact Quality is always epitomized by this balancing act and optimized by achieving the proper mix of identity, value, price, and support. In the sections remaining to be posted we will explore the central components of a high impact business system and outline extremely simple as well as extremely robust techniques for bringing these various elements into balance and ensuring that loyal clients are provided with extraordinary value through the efforts of highly effective employees.
In a forthcoming section on Customers, we will analyze the requirement to focus on the customer and the need to orient the entire organization around the customer’s definition of quality. There will be a section about Enhanced Value which describes the client’s perception of value and the process improvement techniques that can be used from novices to experts to increase the delivery of client value while minimizing the associated support costs. A future section on Leadership will discuss the critical role that leaders play in establishing the culture and climate required to fully implement a High Impact Quality work environment. As a proposed wrap-up to the entire effort we will talk about the planning required to implement broad scale improvements to your quality infrastructure. This section will define a strategic program that reformulates the cultural superstructure required to successfully sustain an organizational transformation that focuses on the client and orients every dimension of the organization around the delivery of extraordinary value.
Clearly there is a great deal of work ahead, but we welcome your active participation and critical commentary as we proceed.
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