Management: Quality on its own is not enough: Roger Trapp on the role of 'customer value management' in making a company a success

Roger Trapp
Monday 09 May 1994 23:02

MANAGEMENT thinkers love metaphors - especially those drawn from sport and war. And Bradley T Gale is no exception.

Talking of the need for companies to anticipate the market's needs, he borrows from Wayne Gretzky, the fabled ice hockey player.

'I go to where the puck is going to be,' the superstar is reported to have said when asked for the secret of his success.

In seeking to explain how one key element can make all the difference in a strategy, Dr Gale asks what might have happened in the Gulf war had Saddam Hussein had the use of laser-guided missiles and the Allies had to settle for Scuds.

Both points are fairly straightforward: vision and having the right tools or products are keys to business success. In fact, they are so basic that - if Dr Gale is to be believed - all but a handful of companies are overlooking them.

Given that quality and re-engineering programmes are increasingly proving to be failures, it is hard to doubt that something fundamental is being missed.

Dr Gale is not about to criticise the quality movement. He was, after all, involved in the development of the Baldrige Award, the competition set up with the aim of making US industry more competitive with Japanese, which has spawned a European equivalent.

But he does suggest that some radical reorganisations might not have worked because companies were 're-engineering to obsolete targets'.

What it comes down to is knowing not just your own but also your rivals' customers. 'People don't realise the way to get market share is to talk to competitors' customers - to find out why they are using the competitor rather than themselves,' Dr Gale says.

'It seems very simple, but how many companies are really knowledgeable,' he adds, citing a client of his, the US health products company Johnson & Johnson, as a rare example.

Detailed surveys of doctors helped it to increase its share of the market for an important surgical product from 10 per cent to 50 per cent in five years.

Of course, such a policy would not succeed if the company was not offering a quality product or service.

But Dr Gale suggests that conforming to all kinds of complex standards does not mean anything if it does not affect would-be customers' buying habits. In other words, if the public does not know how good a product is, it is in effect not worth anything.

This is where Dr Gale breaks with most of his colleagues in the quality movement. Where they are mainly statisticians or engineers, he is an economist with a keen interest in competitive strategy. As a result, he believes that companies have to market their strengths rather than rely on the adage that 'quality will out'.

The concepts that this belief leads to - 'market-perceived quality' and 'customer value management' - are described in his recently published book, Managing Customer Value: Creating Quality and Service that Customers Can See (The Free Press, New York, dollars 27.95). But their origins go back to his days with the US industrial group General Electric, which he credits with inventing the notion of competitive strategy.

Using this experience he ran the Strategic Planning Institute and in the mid-1970s set up its consulting subsidiary, PIMS (Profit Impact of Market Strategy) Associates, which moved into Europe a few years later.

The central idea, as Dr Gale tells it, was to try to understand why some businesses are more successful than others.

One of the key indicators was obviously market share, since it provided economies of scale and the like. 'But the question became, 'How do you get that and what drives that change?' '

This took him back to the thinking he had inherited from GE. This was that a company could compete in many different fields - as did GE - but it had always to look at quality from the customer's point of view. Once this was done, price, or value for money, assumed as much importance as absolute quality.

In the book this notion is explained with the assistance of a range of diagrams and tables. But the basic proposition is that no company - even one renowned for the quality of its products - can afford to rest on its laurels. Absolute quality is not the be-all and end-all, and people's perceptions shift.

Just look at what the Japanese car manufacturers have done to Mercedes-Benz, Dr Gale says. Having used their growing reputation for reliability to increase market share at first the bottom end and then the intermediate sector of the car market, Toyota and Honda, in particular, finally attacked the luxury end.

The effect was 'competitor displacement', with Mercedes being pushed towards the 'wither and die' zone, he adds.

The way to avoid this fate is to concentrate on relative quality and value as perceived by customers. The knowledge that such measurements create can drive the individual business segments forward.

The book provides seven 'integrative tools' to help companies outperform competitors in satisfying their customers.

One - the 'key events time line' - enables a company to develop a better understanding of its actions and those of its competitors. These actions change the market's perception of the performance of each quality attribute, whether it be price, technology or whatever. Dr Gale believes it is vital to recognise that changes in the customer value provided by a company do affect its market share.

But the strength of the set of tools is that they create what Dr Gale calls a 'strategic navigation system' that tracks competitive information and market-perceived quality - which leads to the true customer value management, as practised by only a handful of companies.

'The goal is to understand your customers' current and probable needs more precisely and quickly than your competitors do and to meet those needs better than your competitors. You have to be very determined and focused. But if you achieve it, you get much better results,' Dr Gale says.

Indeed, he claims the process can produce a threefold increase in profits.

(Photograph omitted)

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