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Part 1: What is the best lean way to understand VALUE (in terms of what our customers want)?

3/26/2013
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Dear Gemba Coach

What is the best lean way to understand VALUE (in terms of what our customers want)?

VALUE is the topic I find most exciting in lean.

Find the right VALUE-for-money balance and the company prospers quickly. Get it wrong and all your other efforts simply won’t matter.

To my mind, this is the ultimate purpose of all genchi genbustu – constantly challenging our understanding of what customers VALUE, and exploring how each person in the organization interprets that and works accordingly. The extreme division of labor in companies today often creates a complete disconnection between one person’s task and the customer’s final satisfaction (imagine that you’re looking at a welding operation in a tier three supplier). And the most important challenge of a lean organization is to address this. So tackling VALUE is a big question!

Let the Seller Beware

Let’s start by recognizing that customer satisfaction is a complex issue. First of all, not every one dreams the same dreams, or wants the same thing. Secondly, the human mind works at two distinct (and connected) levels.

One level is the now, which is how you feel about the product or service right now (that irritating occasional squeaky noise that drives you crazy). The second is hindsight: at any moment we’re evaluating prior choices in terms of how satisfied we are we our life’s journey (ok, it sometimes squeaks, but what a good deal on mileage per gallon!).

Furthermore, these assessments change over time as you change over time. Asking customers about what they like and dislike is essential, of course, but can’t be taken at face VALUE. People will generally share the first thing that comes to their mind about their now experience with the product (thus falling prey the natural bias to overemphasize the first idea that comes to mind). Unfortunately this reveals very little about the true reasons for their choices.

Absolutely Happy

People have a hard time evaluating absolute VALUE, and so instead they instinctively compare satisfaction. Think about it – are you paid fairly in absolutes? Or are you happy that you’re paid better than your peers for the job you do (or miserable that you’re paid less)? That’s why I think of VALUE in terms of preferences. Not everyone has the same preferences. Wealthy people generally prefer style and status to cost efficiency. Less fortunate people on a budget choose practicality and low cost of ownership over glamour. Your challenge is to segment markets according to stable preferences.

Mind you this is a tricky exercise. For instance, I often travel with a colleague who hates paying much for airfares. He’s always willing to suffer the indignities of low-cost airlines for a cheaper ticket. I prefer easier interactions, particularly early in the morning and late at night, and I’m willing to pay for it. We do more or less the same work, work in the same peer group, have very similar social life styles; and yet we have two entirely different stable preferences, which has a huge impact on airlines.

Getting it right or wrong on fundamental customer preferences has the largest impact on the future of your company—by far. I’ve been observing the auto industry for more than 20 years, and have seen how Toyota has clearly focused on people’s preferences for durability, fuel efficiency and resale VALUE. French automakers, by contrast, have gambled on style. U.S. automakers on power. Clearly, we know now who made the right gamble. Every additional car Toyota sold in its long trek to number one was taken from one of its competitors. They chose wisely, and they had the operational capability to deliver on these preferences.

But shouldn’t we compete on all dimensions? Ideally, yes. Toyota is now saying it must also work on design and performance, and indeed a product should compete on all preferences. But we all know that at the operational level reality exists. And in fact reality resists. Choices must be made. Who wins when you are faced with a trade-off between a more stylish line or a known robust standard for a headlight? Or any other clear choice in understanding and serving your customer’s specific preferences? Which way do you go? If you want to make things that customers simply won’t buy, the best way to get there is to be unclear about the customer preferences you’re pursuing and the way you will translate this operationally into clear offerings.

[Next week’s column on VALUE will explore how to meet this challenge.]

2 Comments | Post a Comment
Jair Reitsma March 27, 2013
Michael, as an agency whose mission to protect and restore fish and wildlife for the benefit of all citizens, while still providing recreational and commercial experiences to some of those citizens, how do we apply this question to our situation?  Clearly, there is a need to listen to our actual customers (those that actually pay for a specific privilege associated with fishing or hunting, or an outdoor activity), but there are also taxpayers who contribute to an ever decreasing share of our budget, who expect to see fish and wildlife in perpetuity.  How do we define that they all are receiving value?  Some people who fit in the latter category might not even know we exist.

(Employee with the Washington Department of Fish and Wildlife) 
Michael Ballé March 29, 2013
Wow - thanks for your comment. I have own up upfront that I have no experience in any similar problems, so I wouldn't know what to say. It sounds like you have multiple stakeholders in a loosely defined problem, so my hunch would be start with ouctome definition. Have you come across scenario planning? Adam Kahane has recently published a couple of excellent books about using a lab situation with representatives of stakeholders to define possible outcomes (essentially what Toyota's senior management did to decide go/No Go for their Lexus program). The issue, I suspect is to transform a vision of outcomes (problem framing) into a few specific deliverables (problem solving). To relate to the column, a model of each of your stakeholders (whether on paper or in a lab situation) preferences, and how to frame a possible outcome. Good luck! Let me know how it turns out!
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