ACCA P3 Business Analysis - 2010 - Study text - Emile Woolf Publishing
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Chapter 12: Information technology solutions
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of Abbey. Smile.co.uk is the online bank of The Co-operative Financial Services
and is kept distinct from the traditional Co-operative Bank. The new brand
name allows an entity to break free from the perceptions associated with the old
brand name. The old brand might be perceived by customers as too traditional
and if there is going to be a successful, dynamic presence on the web, a new
brand is needed without associations of tradition and conservatism.
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Customer relationship management
Definition and scope of customer relationship management
CRM software solutions
6 Customer relationship management
6.1 Definition and scope of customer relationship management
A feature of the internet is that it can be very difficult to retain customers and build
up customer loyalty over time. This is because customers can visit the websites of
other suppliers whenever they are dissatisfied with the products or services of a
company they have bought from in the past.
Retaining existing customers, as well as attracting new customers, is an important
challenge for companies using the internet for e-business.
The purpose of customer relationship management (CRM) is to help companies to
understand better the behaviour of their customers, and modify their marketing
operations to service customers in the best way possible. Its objectives are to:
find out more about the purchasing habits and preferences of customers
profile the characteristics and needs of individuals customers and groups of
customers more effectively
change the way the company operates, in order to improve its service to
customers and the marketing of its products.
Customer relationship management is associated with computer software. This is
because companies that take CRM seriously will use CRM software.
The Business Link website states that customer relationship management ‘is not just
the application of technology, but is a strategy to learn more about customers needs
and behaviours in order to develop strong relationships with them. As such it is
more of a business philosophy than a technical solution to assist in dealing with
customers effectively and efficiently. Nevertheless successful CRM relies on the use
of technology.’
6.2 CRM software solutions
A CRM software system is available as an off-the-shelf application package. This is
the cheapest software solution for companies, although off-the-shelf packages are
not always ideally suited to the specific requirements of the individual company.
Some companies have developed or purchased bespoke (tailored) CRM systems.
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The main functions of a CRM system are to:
Collect information for identifying individual customers and categorising their
behaviour. (Different categories of customer might be treated as different market
segments, and a different marketing approach might be used for each segment
of customers.)
Store the customer information and keep it up-to-date.
Access the information, often instantly, whenever it is needed.
Analyse customer behaviour.
Use the analysis of customer behaviour to develop a more effective marketing
strategy.
Provide customers with a better ‘experience’ when they contact the company.
Customers often feel that they receive better service when they deal with a
person who knows about their previous dealings with the company. Customer
service staff are able to provide this type of experience because they have access
to the customer’s CRM record.
Monitor key customer management performance indicators, such as the number
of customer complaints.
Example
Here is how a typical CRM would work for handling telephone queries from a
customer.
1 A customer phones up. The telephone system recognises the incoming
number and the customer’s record on the CRM is displayed on the screen of
the call operator.
2 The customer’s record will typically contain the following information:
- Customer name
- Address and telephone number
- Contact name
- Contact job title
- Contact purchasing authority
- Personal notes about the contact, such as interests, likes, dislikes
- Products previously purchased
- A log summarising recent conversations and other dealings with the
customer
- An alarm/reminder so that customers are contacted or goods
despatched when promised.
3 After the conversation ends, the log is brought up to date with details of the
conversation.
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The CRM allows the company to offer customers a much better service. It does not
matter who deals with the telephone call: full information about the customer is
available for use by anyone. In particular, having details of previous conversations
will save customers from having to explain, yet again, what might have happened
in the past.
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Paper P3
Business analysis
CHAPTER
13
Business strategy
and quality initiatives
Contents
1 Quality and quality management
2 Total Quality Management (TQM)
3 Quality management systems and certification
4 Quality in the development of information
systems
5 Six Sigma
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Quality and quality management
Quality
The connection between quality and business strategy
Quality control
Quality assurance
Benchmarking and quality management
1 Quality and quality management
1.1 Quality
Quality has several different meanings.
Quality is often associated with the design or features of a product or service.
The quality of similar products might be compared by the raw materials content
or the workmanship that has gone into the making of the product. Quality might
also be associated with the reliability of a product or superior design.
Product quality is also assessed in relation to price. Better quality helps to
enhance the value of a product to customers. Companies try to offer a unique
value proposition to customers that will make them want to buy their product
and not the products of competitors. Product quality is one of the factors that
help to provide value to customers through product differentiation.
Quality is also concerned with quality of processes and operations. High-quality
processes deliver products to customers more efficiently and at lower cost.
Quality management is concerned largely with quality in systems and processes,
rather than quality in the product itself.
Quality in operations could mean producing and delivering goods or services to
customers that are free from errors and faults, and that meet their design
specifications exactly. In this respect, high quality means avoiding waste and
inefficiency.
In more general terms, the quality of operations, processes, systems and
products might be defined in terms of providing goods or services that meet the
requirements of customers.
The following definitions of quality are all based on the concept of meeting
customer needs efficiently and without errors or waste.
’Quality is fitness for use’ (Juran, 1988).
‘Quality means getting everyone to do what they have agreed to do; and to do it
right the first time is the skeletal structure of an organisation….’ (Crosby, 1992).
Japanese companies found the old definition of quality ‘the degree of
conformance to a standard’ too narrow and introduced a new definition of
quality as ‘user satisfaction’.
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Quality is ‘the totality of characteristics of an entity that bear on its ability to
satisfy [customers’] stated or implied needs’ (ISO9000 Handbook).
Quality denotes an excellence in goods and services, especially to the degree
they conform to requirements and satisfy customers’ (American Society for
Quality (ASQ)).
It is useful to be aware of two aspects of quality, conformance quality and perceived
quality. Quality management involves managing both types of quality.
Conformance quality means compliance with technical specifications, and
ensuring that operations and processes are efficient, eliminating waste,
inefficiencies and errors, and so reducing costs.
Perceived quality relates to the expectations of customers about the product,
and whether the product succeeds in meeting those expectations.
Reasons for quality failure
When customers are disappointed with the quality of a product or service, the
reason for the ‘quality failure’ could be any of the following:
A gap between the product concept and the detailed product specification. There
might be a concept for a product, but the detailed design might fail to deliver the
concept. The idea might be good, but the detail might fail to match the idea.
A gap between the product design and customer expectations. The product
design might succeed in delivering the concept, but the design might
nevertheless fail to meet customer needs and expectations.
A gap between the actual product and its design specification. For some reason
the actual product that is made fails to meet its design specifications. This might
result in a high level of defective and rejected items.
A gap between what the entity promises that the product will do and what it
actually does. For example the advertised features of the product or service
might not actually exist. Poor quality might therefore arise from false promises.
1.2 The connection between quality and business strategy
Satisfying the needs and expectations of customers is the main factor in all these
definitions. Therefore it is essential for a company to identify such needs early in the
product/service development cycle. The ability to define accurately customer needs
in relation to design, performance, price, safety, delivery, and other business
activities and processes give a company a competitive advantage through quality.
The importance of quality in gaining a sustainable competitive advantage, and the
importance of quality for business strategy, varies with conditions in the industry
and market. It is probably more important in some industries and markets than in
others.
Attention to quality and quality management has been a key factor in the great
success of Japanese manufacturing companies in the markets for cars, motor
cycles and many electrical and electronic domestic appliances.
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However, there is always the possibility that competitors will copy quality
initiatives, and unless quality is improved continually, a competitive advantage
through better quality might be difficult to sustain.
1.3 Quality control
Quality control is a method of managing the quality of products, services, systems
and processes. The purpose of quality control is to ensure that actual quality
conforms to a target or standard level of quality, by:
measuring actual quality and comparing this with the target or standard
reporting quality performance to the managers responsible
requiring managers to take corrective measures when actual quality fails to meet
the target or standard.
Quality can be measured in a variety of ways, including the number of items
rejected in a manufacturing process on inspection/testing, or the number of
customer complaints.
Quality control is concerned with maintaining quality at a target or standard level,
rather than improving quality standards. It usually involves:
procedures for checking and inspecting bought-in materials and components,
and output from production processes, and
some form of statistical quality control.
Measuring quality
Typically, measures of quality performance should relate to the key performance
objectives of quality, speed, dependability, flexibility and cost. Several quality
performance measures that might be used are listed below.
Performance objective Performance measure
Quality
Percentage rate of defective items
The average number of fault or defects per unit
produced
The number of customer complaints
Customer satisfaction ratings
The number or cost of warranty claims
The average time between failures or
breakdowns in a process
Speed
Lead time for processing orders
Throughput cycle time (production cycle time)
Actual throughput time compared with budgeted
throughput time
Dependability
Percentage of customer orders met from
inventory
Percentage of items delivered late
Flexibility
Range of products
New product development time
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Cost
Actual cost versus expected cost
Cost per operating hour/per machine hour
Labour productivity
Added value
Statistical process control (SPC)
Statistical process control (SPC) is a system of monitoring the quality of an entire
process. This may be the process of manufacturing a product and delivering it to the
customer. It may be the process of delivering a service to a customer.
Quality standards might be measured and tested at various stages in the process,
through inspection of a sample of items.
Quality standards can also be monitored over time, through statistical quality
control charts. The quality in a system might be judged ‘out of control’ when the
quality of the process is consistently below standard or falls outside acceptable
variation limits (control limits).
1.4 Quality assurance
Quality control is concerned with measuring quality and comparing actual quality
with the target or standard quality level. Quality assurance is concerned with:
defining quality objectives, and
ensuring that systems and processes are in place to ensure that these objectives
are achieved.
Quality assurance includes quality control processes, but is much broader in scope
than quality control. It is a planned and systematic approach to ensuring that all the
necessary procedures are implemented and the actions are taken to be confident
that the product or service fulfils customers' expectations. A quality assurance
system should therefore provide reasonable assurance that a product or service is
problem-free and performs the task or purpose that it was designed for.
Quality assurance involves the overall surveillance of everything to do with quality
throughout an organisation. It is a method of guaranteeing a standard of quality.
Standard procedures and processes are established, together with quality standards.
Quality assurance then involves procedures for confirming and checking that all the
standard procedures and processes have been performed correctly, and that
appropriate tests have also been carried out.
The following definitions of quality assurance might be useful:
Quality assurance is ‘all those planned or systematic actions necessary to
provide adequate confidence that a product or service is of the type and quality
needed and expected by the customer.’ (However, quality assurance applies to
all internal systems and processes, such as project development and process
redesign.)
Quality assurance means ‘providing confidence that requirements will be met’.
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1.5 Benchmarking and quality management
Benchmarking has been explained in an earlier chapter, in the context of
competitive analysis. It is also relevant to quality management, since quality
provides competitive advantage.
Benchmarking is a method of comparing the operational performance of a company
with other companies, often competitors, that are considered the ‘best in class’.
Benchmarking is said to have originated with the Xerox Corporation in the US in
1982. The company was a manufacturer of photocopiers. It was in serious
difficulties, operating with a costly and inefficient bureaucratic management
structure and losing market share to competitors. A multi-functional project team
was set up to look into the nature of the company’s problems. This team:
identified quality standards that were important in areas such as order fulfilment,
distribution, production costs, retail selling prices and product features, and
ranked the company’s performance in each of these areas against those of its main
competitors.
The exercise revealed that Xerox was seriously under-performing in comparison
with its competitors. The company then tried to apply what it had learned from the
benchmarking process and identify areas for improvement. As a result of this
initiative, costs were reduced dramatically, customer satisfaction improved and
Xerox again became a major competitor in its market.
There are different types of benchmarking.
Internal benchmarking. Internal benchmarking involves a comparison of
performance in key area in one part of an organisation with the performance in
one or more other parts of the same organisation. This might be useful, for
example, when:
− an organisation consists of several different regional or area operations,
and some regions appear to perform better than others
− one company takes over another, and the practices in each company are
compared to decide which are better.
Competitive benchmarking. Competitive benchmarking involves a comparison
of performance in key areas with the performance of the most successful
competitors. A problem with competitive benchmarking is that it can be difficult
to obtain much information about competitor performance and standards.
Competitors’ products can be analysed for design features, but superior
processes can be the cause of superior performance, and these are difficult to
study in detail.
Process benchmarking (activity benchmarking). This involves identifying and
making comparisons of similar processes, activities, products or services in other
organisations in a different industry. The aim of this type of benchmarking is to
identify best practice anywhere, and look at organisations that have acquired a