Cost-cutting vs. customer satisfaction
Traditional thinking dictates that creating value takes striking the right balance between a range of desired outcomes. Quality is compromised for low prices; speed is prioritized over service. But the consequences of making such compromises can be quite serious, as described in the Business Week article, “Satisfaction Not Guaranteed: How Cost-Cutting Can Backfire When it Ignites Consumer Rage.” The article points out how major firms, from Home Depot to Northwest Airlines, succeeded in driving down costs–but at the expense of customer satisfaction. Even Dell, a company that some have touted as an example of lean practices, is cited as among its examples of “customer service disasters.”
Contrast this with the case of Southwest Airlines–a company that my research shows to be a benchmark of lean principles. Southwest is widely known for its low cost model. Still, Southwest ranks #1 for airlines in this year’s University of Michigan American Customer Statisfaction Index–as it often does. Low costs, it seems, need not undermine customer satisfaction; for lean firms they support it.
For companies to succeed in today’s dynamic business environment they must recognize that what the customer thinks really does matter; that value is ultimately defined by the customer, not the corporation. This presents a particular challenge in today’s business world, since customers’ perception of value is constantly changing and successful companies must learn to keep pace. This is what makes the benchmarks of lean dynamics stand out–they consistently deliver what the customer perceives as value while holding down their cost to deliver it. You can learn more about this and how it can be measured in my book, Going Lean: How the Best Companies Apply Lean Manufacturing Principles to Shatter Uncertainty, Drive Innovation, and Maximize Profits (AMACOM, 2008)