Six Sigma for Plan B

Six Sigma for Plan “B”


Rocky Mountain Quality Conference

Denver, April 2006

Ed PowersEVP Operations

Private Escapes, LLC.Fort Collins, Colorado 80525

Rocky Mountain Quality Conference ‘06 Ed Powers 970/212-1602 [email protected] 2 of 48


Objective

Understand how to integrate problem resolution into your quality strategy through a framework for effective service recovery.



What is a Service?

• …?



What is Service Recovery?

• A customer experiences a failure in the delivery of service, complains about it, and a response occurs.



Service Recovery Audit

• Does the leadership at your company accept that service failures are a reality?

• Does your leadership recognize the importance dealing with service failures effectively?

• Does your organization know when a customer experiences a service failure?

• Does your organization know what to do when certain types of service failures occur?

Source: Hoffman, Gonzalez, and Ingram, The Sales Recovery Audit: A Tool for Enhancing Buyer-Seller Relationships



Service Recovery Audit

• Are front-line employees, supervisors, and senior managers formally trained on how to recover from service failures?

• Is your organization measuring and analyzing service failures?

• Does your organization measure customer satisfaction after a service recovery?

• Are results and learning from service recovery practices shared with employees for training and evaluation purposes?

Source: Hoffman, Gonzalez, and Ingram, The Sales Recovery Audit: A Tool for Enhancing Buyer-Seller Relationships



• Average customer retention is 80-85%1

• Of the 4% of unhappy customers who complain2:– <40% will do business again if the complaint is NOT

resolved– 54-70% will do business again if the complaint is resolved– 95% will do business again if complaint is resolved quickly

• Customers who have had problems satisfactorily resolved tell 5 people2

1. Source: Wayland and Cole, “Turn Customer Service into Customer Profitability,” Management Review (July 1994)2. Source: Technical Assistance Research Program

Why is Service Recovery Important?



• Plan A: Strategy for Ongoing Continuous Improvement

• Plan B: Strategy for Formal Service Recovery

Successful Service Recovery

Integrated Service Recovery and Quality Strategies



Bottom Line Effects

• Profits derived from sales– Reducing defections by 5% can boost profits 25% to 85%

• Profits from reduced operation costs– It is 3 to 5 times cheaper to keep a customer than to recruit a

new one

• Profits from referrals

Source: Adapted from Frederick F. Reichheld and W. Earl Sasser, Jr., “Zero Defections: Quality Comes to Services,” Harvard Business Review, September-October 1990, pp. 106-107.



A Look at Plan A

• How services are different• Where Six Sigma works and where it fails• Why Plan B is necessary



Service Process Improvement Opportunities

• Cost of Poor Quality in service businesses run as high as 50% of budget

• Process performance is typically 1.3 to 3 sigma (yields of 50 to 90%)

• Less than 10% of total cycle time is value-added

Source: Pande, Neuman, and Cavanagh., The Six Sigma Way, McGraw-Hill, New York, 2000



Differences Between Goods and Services

• Intangibility– Services lack physical substance

• Inseparability– The service provider, the customer, and other customers are

involved in delivery

• Heterogeneity– Limitations in controlling service quality before it reaches the

customer

• Perishability– Services cannot be inventoried

Source: Hoffman and Bateson., Essentials of Services Marketing, Second Edition, Harcourt College Publishers, 2002



Six Sigma: DMAIC/LeanDefine Measure Analyze Improve Control

•Project Selection Tools•PIP Management Process•Value Stream Map•Financial Analysis•Project Charter•Multi-Generational Plan•Stakeholder Analysis•Communication Plan•SIPOC Map•High-Level Process Map•NVA Analysis•VOC/Kano•QFD•RACI/Quad Charts

•Operational Definitions•Data Collection Plan•Pareto Chart•Histogram•Box Plot•Statistical Sampling•Measurement System Analysis•Control Charts•Process Cycle Efficiency•Process Sizing•Process Capability Analysis

•Pareto Charts•C&E Matrix•Fishbone Diagrams•Brainstorming•Detailed “As Is”•Basic Statistical tools•Constraint Identification•Time Trap Analysis•NVA Analysis•Hypothesis Testing•Confidence Intervals•FMEA•Simple/Multiple Regression•ANOVA•Queuing Theory•Analytical Branch Sizing

•Brainstorming•Benchmarking•TPM•5S•Line Balancing•Process Flow Improvement•Replenishment Pull•Sales and Operations Planning•Setup Reduction•Generic Pull•Kaizen•Poka-Yoke•FMEA•Hypothesis Testing•Solution Selection Matrix•“To Be” Analysis•Piloting and Simulation

•Control Charts•SOPs•Training Plan•Communication Plan•Implementation Plan•Visual Process Control•Poka-Yoke•Process Control Plans•Project Commissioning•Project Replication•PDCA

Source: George, M., Lean Six Sigma for Service, McGraw-Hill, New York, 2003



What Makes “Six Sigma Services” More Challenging

• Invisible work processes• Evolving workflows and procedures• Lack of facts and data• Lack of a “head start”

Source: Pande, Neuman, and Cavanagh., The Six Sigma Way, McGraw-Hill, New York, 2000



SIPOC

Inputs OutputsProcessSuppliers Customers



The Seven Quality Tools

Control Chart

Scattergram

Check Sheet

A

BC

Pareto Diagram

Histogram

Cause & Effect Diagram

Flow Chart

Source: Kaoru Ishikawa



FMEA

Item/ Step

Failure Mode

Failure Effects

Severity Causes Occur-rence

Current Controls

Detection RPN Action



Where Six Sigma Falls Short

Assuming process improvement can fix anything and everything when it comes to services!

• Customer interaction factors• Human service delivery factors• Third-party factors• Acts of God



Failure IdentificationRecovery Strategy

SelectionRecovery

Implementation

Tracking, Monitoring& Evaluating Effectiveness

•Group 1 - failures relating to the core business

•Group 2 - failures relating to implicit/explicit customer requests

•Group 3 - failures relating to unprompted/ unsolicited employee actions

•Group 4 - failures relating to dealings with problematic customers

•Distributive Justice - recovery outcomes

•Procedural Justice - recovery process

•Interactional Justice - human element exhibited throughout recovery implementation

• Apologetic - front-line

- managerial • Compensatory - gratis - discounts - coupons - upgrades - ancillaries• Reimbursement - cash refunds - credit• Restoration - corrections - replacement - substitutions • Unresponsive - no response

• Tracking Failures - systematic identification of failures

• Monitoring Recovery Efforts - systematic review of employee recovery efforts

• Evaluate Recovery Effectiveness - organizational benefits - customer benefits - employee benefits

Feedback loop

A Framework for Service Recovery and Analysis

Source: Hoffman, Gonzalez, and Ingram, Integrating Failure Analysis and Recovery Efforts into the Relationship Selling Model: A Call for Action




SelectionRecovery

Implementation














Feedback loop





Failure Identification

Group 1 Failures—Core service failures• slow service• unavailable service• other core service failures




Group 2 Failures—Responses to implicit/explicit requests

• special needs• customer preferences• customer error• others




Group 3 Failures—Unprompted/unsolicited employee actions

• level of attention• unusual action• cultural norms• adverse conditions




Group 4 Failures—Problematic customers• abusive• uncooperative• blatant disregard for rules and decorum



Example: Restaurant Industry

Failure Rate

Group 1: Core Service(food, slow service, facility problems, out-of-stock)

Group 2: Responses to Requests(food not cooked to order, seating preferences)

Group 3: Employee Interactions(attitudes, lost orders, mischarged amounts)

Source: Mary Jo Bitner, Bernard H. Booms, and Mary Stanfield Tetreault, “The Service Encounter: Diagnosing Favorable and Unfavorable Incidents,” Journal of Marketing (January 1990, pp. 71-84).




SelectionRecovery

Implementation














Feedback loop





• Apology• Urgent Reinstatement• Empathy• Symbolic Atonement• Follow-up

Source: Bell, C. R. and Zemke, R. (1987), “Service breakdown: the road to recovery”, Management Review, October, 32-35.

Effective Service Recovery



Recovery Strategy Selection

• Apologetic– Front-line– Managerial

• Compensatory– Gratis– Discounts– Coupons– Upgrades– Ancillaries

• Reimbursement– Cash refunds– Credit

• Restoration– Corrections– Replacement– Substitutions

• Unresponsive– No response




SelectionRecovery

Implementation














Feedback loop





Recovery Implementation

• Distributive Justice– Recovery outcomes

• Procedural Justice– Recovery process

• Interactional Justice– Human element exhibited throughout recovery

implementation




SelectionRecovery

Implementation














Feedback loop





Tracking, Monitoring & Evaluating Effectiveness

• Tracking Failures– Systematic identification of failures

• Monitoring Recovery Efforts– Systematic review of employee recovery efforts

• Evaluate Recovery Effectiveness– Organizational benefits– Customer benefits– Employee benefits




SelectionRecovery

Implementation














Feedback loop

Getting Started with the Plan B Framework


Six Sigma Toolkit

Strategy and Policy

Decisions



About Private Escapes

• Founded 2003, in Fort Collins, Colorado• Private Destination Club:

– High-end clientele– Runs like a private country club– Properties in resort and city destinations– Low occupancy, high availability– Concierge services

• Business Model• http://www.private-escapes.com



Private Escapes Quality Strategy

• Plan A:– In-Residence Satisfaction Survey– Annual Member Satisfaction Survey– Board of Advisors and Board of Managers– MBNQA-based management system

• Plan B:– Service Recovery



• Definition: Local Host/Concierge or headquarters management must take immediate action to satisfy an upset Member or Guest

Service Recovery at Private Escapes



Example Service Recovery Incidents

• Restricted access at resort facilities• Unexpected arrival by Member• Unable to get specific date and destination reserved• Variable discounts at resorts• Destination did not meet expectations• Property maintenance issues• Host/Concierge service did not meet expectations



Foundations for Effective Service Recovery

• The right people– Background– Attentiveness to details– Personality

• The right direction– Policies– Training

• The right environment– Accountability and rewards– Management support– Learning



MemberPrivate Escapes

Awareness

Investigation

Decision Making

Application

Orientation

Trip Planning

Travel

Arrival

Enjoyment

Departure

Travel

Billing Review

Cancellation

3.0 Member Acquisition

4.0 Member Services

3.1 Marketing Stimulus

3.2 Sales

4.1 New Member Orientation

4.2 Escape Planning

4.5 In-Residence Feedback Call

4.4 Check-in

4.6 Check-out

4.8 Billing

4.11 Redemption

4.3 Escape Preparation

4.7 Cleaning

4.9 Service Recovery

Property Visit

4.10 Maintenance

Private Escapes’ Member “Touch Points”


Six Sigma for Plan “B” 4.9 Service Recovery

Process Notes:1. If you get voice mail, call 866-PACK-NOW instead.2. May be done by EVP Operations.

Employee/Host

EVP Operations

Express Anger over a Problem

Apologize and Empathize

Discuss Possible Alternatives and

Agree on Action Plan

Member Start

Discuss Situation, Possible Alternatives and Finalize Action

Plan

Contact EVP Operations

Immediately (1)A

Contact Member/Guest and

Describe Solution (2)


Six Sigma for Plan “B” 4.9 Service Recovery

Process Notes:3. May also be done by EVP Operations. Contact EVP Operations within 24 hours to report

situation and resolution if he is not already involved.

Employee/Host

EVP Operations

Member

EndImplement SolutionA

Acceptable?

N

Y

Contact EVP Operations

Immediately

Contact Member/Guest and Negotiate Solution

Follow Up with Member/Guest (3)



Private Escapes’ Service Recovery Strategies

• Apologetic– Front-line– Managerial

• Compensatory– Waive nightly fees– Upgrade to Platinum

Club home– Complimentary food or

activity

• No Reimbursement• Restoration

– Correction to problem– Substitutions

• NEVER Unresponsive



Tracking Service Recovery



2005 Service Recovery Causes

Airlines EscapePlanner

Reservations Other Property Local Host Real Est.Choice



2005 Business Results

• Annual Member Satisfaction Survey – 96% Loyalty Index (Satisfaction, Advocacy, Retention)– 68% “Customer Advocates” (5 out of 5 ratings on all 3 areas)

• Escapes (Trip) Satisfaction– 4.76 out of 5.00– 75% “Top Box” quality

• 1.4% Redemption Rate



Summary

• Six Sigma in services only takes you so far—you need to have an effective Plan B!

• Effective service recovery means:– Awareness and acceptance of service failures– A supportive management environment– A strategy to deal with specific situations and customers– Appropriate mechanisms to implement recovery– Learning and improvement

• Integration with Six Sigma is the ideal approach





Author Biographical Information: Ed Powers• EVP Operations and Co-Founder of Private Escapes, LLC• 19 years of experience in sales, marketing, quality

management, operations management, and consulting• Formerly with Hewlett-Packard, Sorcia, Center Partners• BSEE 1987 Illinois Institute of Technology• Six Sigma Black Belt, Baldrige Examiner, HP Quality Maturity

System Reviewer, ASQ Certified Quality Manager• Spoken at Rocky Mountain Quality Conference, American

Society for Quality, Colorado State University, and University of Chicago

• Published in AMA Marketing News, Call Center Solutions magazines

Six Sigma for Plan B

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