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• Focusing measures to provide powerful competitive tools for Managers.

• Integrating Customer Satisfaction Measurements into the way the business is managed.

• Using Customer Satisfaction Measurements to improve process quality.

This paper covers some parts of the work done by the author at Telecom Corporation of New Zealand from 1989 to 1991in implementing a Customer Value based approach.

A paper presented to the Customer Satisfaction Measurement conference held at The Regent, Auckland on the 24 and 25 of February 1992.

(This paper is copyright, 1992 to Rodger Wayne Gallagher. It contains data from Telecom New Zealand published at the Customer Satisfaction Measurement conference held 24-25 June 1992 in Auckland, New Zealand.)

1 Purpose

This paper explains the development of Telecom Customer Satisfaction measurement system (Telsat), and how these measures drive Telecom's business development process. Deployment of a customer satisfaction measurement system is explained using a partnership approach between business managers and quality professionals.

2 Historical Background

Until March 1987, telecommunication services in New Zealand were provided by The New Zealand Post Office, along with postal and savings bank services. The New Zealand Post Office was a Government Department, as well as a monopoly run in accordance with political and social objectives. Customer service was not an objective. Prior to Telecom being established in 1987, there were no internal or external measurement systems.

Customer Satisfaction market research was introduced into the telephone industry in The United States in 1946 when the Bell Telephone System commenced mail surveys. In 1971, these were superseded by surveys using telephone interviewing (TELSAM). Other telephone companies progressively adopted this type of survey, using the research methodology and questionnaires developed by the Bell system. In Britain, Telcare surveys started in 1982 with assistance from Bell. Telecom Australia drew on this experience expanding its Telcats system from 1982 to 1987. In 1988 Telecom Corporation of New Zealand Ltd purchased the Australian Telcats systems and operated it in New Zealand until the end of 1989.

The decade of the 1980's saw big changes to the United States Telephone Companies. 1983 saw the break-up of the Bell Telephone systems into a toll \ long distance and customer premises equipment company (AT&T) and a number of independent Regional Bell Operating Companies providing monopoly local telephone service. Competition was permitted in the products and services provided by AT&T. The loss of market share during the 1980's by AT&T in its competitive market segments provided a stimulus for the vigorous development of customer satisfaction measurement systems.

3 Development of the Telecom Customer Satisfaction Measurement System (Telsat)

During 1958 Telecom operated the Telcats Customer Satisfaction Measurement System (CSM) it had purchased from Telecom Australia. At that time I was General Manager of the Hamilton Telecom Area. My area consistently received 100% satisfaction scores from the Telcats system. Other areas recorded scores of 95% satisfaction. At the same time newspapers and radio talk shows reported customer die-satisfaction with Telecom. Our Chief Executive, Dr Peter Troughton wanted to know why there was this discrepancy, clearly the Telcats system was not working.

In early 1989 we learned that the General Business Systems Division of AT&T was a world leader in CSM systems. This section of AT&T provides office telephone systems. I was promoted to head up a small team to work with two AT&T people to benchmark the AT&T CSM systems and find out why the Telcats system was not working correctly. On examining the Telcats system we found that the questionnaires were a mixture of United States, British, and Australian words and based on the needs of telephone users in these countries. The surveys only covered residential customers and the research methodologies; used was not consistent with modern statistical analysis methods. Telcats gave no direction as to where improvements should be focused; it only recorded the satisfaction score. Also it was entirely a market research system with no corresponding internal measures. Following the review of the Telcats system the Telecom Management Board empowered me to replace the Telcats system with a CSM system designed to accurately track the needs of New Zealand customers based on market research and a corresponding internal measurement system.

During the second half of 1989 we conducted extensive focus group in conjunction with OTR Spectrum Research, Colmar Brunton, and Heylen Research to determine the needs of our customers. Development of questionnaires was undertaken within Telecom in conjunction with the companies that were undertaking the qualitative research.

Our qualitative research provided a short list summary of what New Zealanders want in a service relationship. These ten customer needs have been printed on a business card size card, which has been given to all of our people.

MEETING OUR CUSTOMERS NEEDS AND WANTS

• Easy To Get Hold Of
• Responsive
• Knowledgeable
• Keep Promise
• Keep informed
• Do It Right First Time
• Follow Up
• No Surprises
• Prompt
• Friendly And Interested

At the same time we planned our quantitative research surveys, then developed statistical analysis and forecasting techniques to provide powerful information for business managers from the raw data.

4 Telecom Business Direction

Early in 1990, Telecom adopted a customer focused Vision and Strategic Excellence Positions. This is printed on the other side of the small card that I mentioned above.

Hand-in-hand with this Vision is a Quality Policy with a definition of quality based on customer expectations, "Exceeding customer expectations at a price that represents value to customers." In addition to this, Telecom Executives have seven specific accountabilities, which have been aligned with assessment criteria for the United States Malcolm Baldrige National Quality Award. An internal Telecom Chairman's Award for Telecom companies will operate in 1992 using this criteria. The seventh of these accountabilities specifically relates to "continuous improvement in customer satisfaction.

To change Telecom from a Government Department into a business, a number of turnaround strategies have been pursued:

• Introduce commercial business structures
• Contract to core business
• Modernise network
• Improve service quality
• Introduce new administrative systems
• Recruit experienced senior management with commercial business experience
• Remove under-performing managers
• New Operational and Management systems
  

There is ample evidence that providing high customer satisfaction results in increased profits and market share. Two public resources are J.D. Power automobile industry survey in the U.S. and the PIMS Institute database. Improving customer satisfaction is good for business. For this reason, improvement of customer satisfaction is one of Telecoms' major business strategies. We did not therefore have a customer satisfaction measurement system as such, but rather a system designed to continually improve customer satisfaction.

Market Perceived Quality and Market Share Drive Profit

The above chart comes from the work of researchers Bradley Gale and Robert Buzzel at the PIMS Institute. By analysing 3,000 business units in 450 companies, they estabished clear links between market perceived quality, market share, and profitability.
Reference : The PIMS Principles, Buzzel and Gale, The Free Press (1987).

This improvement system supports a number of key business strategies designed in themselves to reduce costs and provide better service. Probably the most fundamental of these is a company structure with Managing Directors accountable for specific objectives. The following chart shows the companies grouped into three lines of business.

Telecom Corporation Group Structure

Following on from this simple management structure there have been huge investments to modernise the underlying equipment that allows telephone calls to be made along with the various sophisticated forms of data communication transfer. As a result of this New Zealand has the most up to date telecommunication system in the world. Because of this competence and the many physical routes used by Telecom we are now able to provide services such as managed diversity data communication services for our customers. This type of service is extremely reliable. Another new capability resulting from the flexibility of our Telecommunication network is Integrated Services Digital Network (ISDN). When commercially available, all this will be provided to international standards. Not like in some countries where early implementations have now been superseded.

The improvements to the telecommunication network were complemented by modern support systems. A good example of this is the Directory Assistance system. Four operator centres access a single computer databases in Palmerston North providing rapid access to up-to-date records. This contrasts with the old paper based systems provided on a local basis. Often these were many days behind with very long waits before a call was answered.

Once these types of core business and infrastructure improvement have been made it is largely a case of managing people, and the systems, correctly to provide the optimum result. Much of the huge investment is largely hidden under the ground in the form of fibre optic telecommunication systems. How then do you know that these systems are working properly? The answer of course is by tracking the results of your customer satisfaction monitors.

By the beginning of 1990 most of our core Telsat monitors were operating. We augmented these core monitors during 1990 and 1991 so that now a Telsat monitor tracks most areas of our business. In late 1989 I visited a selection of the world's top service companies such as Federal Express to benchmark the type of service level targeted by these companies. In all cases they aim for standards approaching 100% positive responses in their customer satisfaction monitors. Xerox has recently surpassed this target and its goal is now 100% highly positive.(1) Their current highly positive score in the United States is 80%. From this benchmarking work, we have set high annual improvement Telsat targets for our managers to achieve.

Our ongoing monitors of Telecom's current services are supplemented when necessary by ad hoc surveys to assist development of new services or to make major improvement to current ones. We also include customer satisfaction type questions in our employee survey.

5 The Improvement Process

Often improvement work lacks a focus. Managers and employees work on projects such as redesigning forms or moving from single sided photocopying to double sided photocopying. We have designed our CSM system to overcome this problem. We have developed advanced statistical techniques, which allow us to analyse the base data and determine the improvement areas that are important to our customer. Research analysts carry out all this work in the Telecom Quality Centre. Selecting the right statistical analysis technique is a skilled task that only comes from experience and a thorough knowledge of advanced statistical techniques.

Each month we publish 1000 copies of reports containing this analysis along with the monthly scores. Each management meeting in Telecom considers these results. This includes the Holding Company Board. A good example of how these meetings work is the Local Telephone Board. The executives meet monthly spending one half day of their meeting considering the Telsat reports and other service improvement issues. Key processes are managed on a national basis with process owners reporting back to Boards like this one. Once this part of the meeting has been completed they move onto financial matters.

We have had many successes with managers using the Telsat system to improve service to customers. One of these success stories is in the Otago - Southland area. From the statistical analysis for the Service Provision survey, managers were supplied with this information in their monthly Telsat report :

• Focus improvement here
  Length of time to get what was wanted
  Communication within Telecom
  Keeping our word
  
  

• But don't overlook these ones
  Application stage
  Keeping customer informed
  Completing work by date required
  

The importance to customer weightings, derived by statistical analysis, were considered together with the current performance, to work out the areas to focus improvement on. Our team in Dunedin and Invercargill headed by Garth Christensen, the Area Customer Services Manager, achieved amazing success during 1991 in the "Service Provision" category. By August of that year, the "Service Provision" level in that area was at world class level.

Overall Result for Service Provision: Otago-Southland

1991

Some areas looked at were:

• Arranging Telecom staff to work more flexible hours, complemented by contract staff, to provide more flexible installation appointments.

• Ensuring that appointments were kept, through a system of internal service measurement. This tracked things like appointments missed.

• Keeping the customer better informed.

• Providing better training and equipment.

Following on from this success, Garth was promoted to the position of Director of Customer Services for the whole of the South Island. This type of promotion sends strong signals to all employees that senior management is committed to improving customer service. In his new role Garth is applying our improvement methodology to the whole of the South Island. The successes achieved in Otago -Southland have now been repeated for the whole of the South Island, so that that region now enjoys a world class level of service provision. We have now achieved this level of service across several of our services.

Overall Result for Service Provision : South Island

1991

To stimulate and reward management staff, a six monthly bonus system operates with one third of the bonus linked directly to achievement of customer satisfaction targets.

6 The Customer Satisfaction Cycle of Managing

We often find it useful to use the Plan-Do-Check-Act cycle to explain how the Telsat information is used for improvement. It highlights the way we use both customer satisfaction market research and internal measurements for improvement

PLAN - Study customer needs - Focus on the Few
DO - Measure quality daily internally
CHECK - Compare internal measurement to monthly customer perception
ACT - Refine programme based on internal/external perception

A case study from 1990 of echo on international calls explains how this works. Echo is caused by the poor quality of the telephone network in the country you are calling.

PLAN Our monitors told us in 1990 that reduction of echo on international calls was important to customers. They also told us that one of the affected routes was to the United States.
In the U.S., there are three main long distance companies: AT&T, MCI, and Sprint.

DO Using our internal measurement system for echo on calls we found that calls into the Sprint and MCI networks were affected by echo whereas the AT&T network had virtually no echo on calls.

ACT Working with the Sprint and MCI technicians we were able to reduce the echo on calls into their networks.

7 Hints and tips

Over the last few years we have learnt a lot from our implementation. From our earlier Telcats work we learned that overseas questionnaires just do not work in New Zealand. It is important to do focus group work in New Zealand, and write questionnaires using words that New Zealanders use every day.

In selling the concept of Customer Satisfaction Measurements within a company there will be objections raised by managers. What manager wants to admit that he or she is providing poor service?

Some excuses used to defend why scores were low when the Telsat Surveys first started were:

• Auckland is a big city

• New Zealanders don't want good service

• New Zealanders can't recognise good service

• Zealanders don't give high scores

• The results are only customer perceptions
  

The first four of these bullet points have been well and truly proven wrong. New Zealanders do want good service. When they get it, they do give high customer satisfaction scores. This also applies to Aucklanders. As far as the results being only customer perceptions this is of course true, but customers make their buying decision on these perceptions.

To ensure that work done for Telecom is in accordance with our quality assurance standards, the Telecom audit office, undertakes an annual audit of the work undertaken by the Telecom Quality Centre and our customer satisfaction market research vendor, OTR Spectrum Research. By working together we have raised the research standard to a very high level. More client companies need to audit the work of their market research suppliers. Unless the research is done correctly it is not worth doing. Most New Zealand market research is of unknown quality.

8 Success Factors

Our implementation has now been proven to be extremely effective. To ensure success any implementation should include some key factors. In our experience these are:-

1 Manage by FACT
The Customer Satisfaction Measurements are the FACTS. Eliminate the seat-of-the-pants and gut reaction type of management

2 Talk Managements' Language
When talking to senior management link customer satisfaction scores to the cost of poor quality including lost market share.

3 Focus on the FEW
It is not possible to fix everything at once. The maximum benefit will come from working on the few key factors that are important for customer satisfaction.

4 Set Customer Satisfaction as the Goal
The CSM scores keep track of how your game is going. Set stretch targets and track your performance relative to these targets.

5 Communicate Customer Expectations
Customer expectations must be translated into the internal measurement system and communicated to all of your people.

6 Display the Score
The CSM results must be widely published and displayed on notice boards. Management meetings need to discuss progress as the first agenda item.

7 Celebrate Improvement in Customer service
Remember to have parties when you pass your targets. Make heroes out of the people who have made the improvements.

By following these success factors any company can implement a successful CSM based improvement system. Our Chief Executive, Dr Peter Troughton says that each month sees our Telsat scores going up and our operating costs going down. He is convinced that there is a direct linkage. In terms of value to investors, this means that the overall value increases as the operating costs reduce. Between 1987 and 1991 the value of Telecom increased by $600 million. But the final judge of our success will be the customer. They will confirm when we achieve world class service across all of our products and services.

1. Different Companies use a variety of scales to track customer satisfaction. I have used the generic terms, positive, negative. "Highly Positive" denotes the top scale category used.