Business Process Excellence: Understanding the Evolution

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Reg Goeke

Six Sigma & Process Excellence IQ and Market Value Solutions (MVS) are pleased to report that more than 800 of you responded to our first global survey into the current state and future trends in Business Process Excellence. Thank you for helping us to better understand the state of the science! Those who participated in the study will receive an executive summary of results in the next couple weeks. And, of course, five of you will receive complimentary tickets to the 11th Annual IQPC Process Excellence Summit and Awards in April.

One purpose of the survey was to better understand the evolution of Six Sigma and other Process Excellence initiatives from Generation 1 (emphasis on defect reductions) to Generation 2 (emphasis on cost reductions) to Generation 3 (an emphasis on revenue generation). This survey indicates that only a small percentage of companies (< 10 percent) still regard defect reduction as the primary driver of process improvement initiatives, but that an even smaller percentage (about 5 percent) have evolved to Generation 3—using process improvements to drive revenue and market share. And the survey also suggests that the biggest impediment to evolving from Generation 2 to Generation 3 lies in "listening to the wrong voices."

Whose "Voice" are You Listening to?

We asked survey respondents, "What is the primary source of information used to identify and prioritize your process improvement projects?" And we suggested three general categories of response:

  1. VOB: VOB refers to the Voice of the Business—an internal business stakeholder such as IT, accounting and other personnel from internal departments and areas as well as dealers, brokers and agents.
  2. VOC: VOC refers to the Voice of the External Customer, or end user, who buys your products or services.
  3. VOM: VOM refers to the Voice of the Market which includes not only your current customers but also the customers who buy your competitor’s products or services.

The majority of respondents reported that their company relies upon the Voice of the Business as their primary source of information for setting improvement priorities. Slightly more than a third rely upon only their own customers for feedback, while only 10 percent actually used feedback from the customers of competitors in addition to feedback from their own customers to set improvement priorities. Small wonder, then, that so few companies have been able to leverage their process improvement initiatives into market share gains and revenue growth! (Click on image to enlarge.)

Voice of the Business

Market share is a function of two key elements: capturing customers from competitors, and keeping the customers you have. Both elements have one common theme: creating and delivering superior competitive value. And who is the final arbiter of value? Customers, of course. So it should be clear that any company using the Voice of the Business to set improvement priorities is focused on something other than growing market share. Either that, or the management team thinks that they already understand value better than their customers do—a dangerous proposition!

Voice of the Customer

The Voice of the Customer is certainly an important source of information when monitoring the impact of your process improvement initiatives, but it is not the best source of information when deciding upon improvement priorities. Remember that you are operating in a competitive environment, so you not only need to know how your targeted market segments perceive the value that you deliver, but you also need to know how they perceive the value provided by competitive offerings.

Identifying priorities for process improvements that will lead to market share gains requires the identification of value performance gaps. Value, of course, represents the trade-off between Quality and Price—and comes down to how you answer the question, "Was the quality I got worth the price I had to pay for it?" But you can’t answer that question in a vacuum! Suppose you received a rating of 8 (out of 10) on Quality, and also an 8 (out of 10) on price. Does that make you a superior value provider? A poor value provider? Or just average? The answer? It depends. It depends upon how your targeted customer group rated your competitors as well. And that combination of competitive value performance ratings will tell you whether you A) have a positive value performance gap that you can leverage for increased market share, or B) a negative value performance gap that you must fix in order to attain market share gains. (Click on images to enlarge.)

But finding out about your competitive value performance gaps requires a shift to hearing and quantifying the Voice of the Market.

Voice of the Market

The Voice of the Market is the only source of information that will let you prioritize process improvements leading to market share gains and revenue growth. Once you’ve identified the type of value performance gap you face (positive or negative), you must also identify the CTQ (Critical-to-Quality) gaps that are contributing to the overall value gap. Again, this is something you simply cannot do if the only source of information you have is the Voice of the Customer. (For a more thorough explanation of using value performance gaps to identify process improvement priorities, see my earlier columns on Six Sigma Marketing and Cause and Effect Matrices). (Click on image to enlarge.)

Top Line Survey Finding: Generation 3 Requires Listening to the Right Voices

Professionals in marketing have known since the mid-1980s that gains in market share can only be achieved when the organization is able to shift from a myopic, internal perspective on the business (VOB) to an external, market perspective. And business executives of all stripes have recognized since the late 1990s that they need to look beyond the dynamics of their own customer base (VOC) to the dynamics of their competitive environment (VOM) in order to attain and leverage competitive advantages. Process improvement professionals have the benefit of those insights, coupled with the metrics of market value that have recently become available to the profession, in order to transition into Business Process Excellence, Generation 3—to drive market share gains and revenue growth through the creation and delivery of superior customer value.

We look forward to sharing other findings from this global survey on trends in Business Process Excellence in future columns, and at conferences and workshops in the months ahead.