Six Sigma for Plan B

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This presentation at the 2006 Rocky Mountain Quality Conference discussed how services are different that products and how effective service recovery practices can augment Lean Six Sigma practices in …

This presentation at the 2006 Rocky Mountain Quality Conference discussed how services are different that products and how effective service recovery practices can augment Lean Six Sigma practices in service environments.

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  • Vs. 10-20% for manufacturing.
  • Lean handy for streamlining and reducing costs.
  • Standard Six Sigma tools used.
  • 1:45%, 2:18%, 3:37%

Transcript

  • 1. Six Sigma for Plan “B” Six Sigma for Plan “B” Rocky Mountain Quality Conference Denver, April 2006 Ed Powers EVP Operations Private Escapes, LLC. Fort Collins, Colorado 80525
  • 2. Rocky Ed Powers 970/212-1602 ed.powers@private-esc2 of 48 Six Sigma for Plan “B” Objective Understand how to integrate problem resolution into your quality strategy through a framework for effective service recovery.
  • 3. Rocky Ed Powers 970/212-1602 ed.powers@private-esc3 of 48 Six Sigma for Plan “B” What is a Service? • …?
  • 4. Rocky Ed Powers 970/212-1602 ed.powers@private-esc4 of 48 Six Sigma for Plan “B” What is Service Recovery? • A customer experiences a failure in the delivery of service, complains about it, and a response occurs.
  • 5. Rocky Ed Powers 970/212-1602 ed.powers@private-esc5 of 48 Six Sigma for Plan “B” 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
  • 6. Rocky Ed Powers 970/212-1602 ed.powers@private-esc6 of 48 Six Sigma for Plan “B” 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
  • 7. Rocky Ed Powers 970/212-1602 ed.powers@private-esc7 of 48 Six Sigma for Plan “B” • 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?
  • 8. Rocky Ed Powers 970/212-1602 ed.powers@private-esc8 of 48 Six Sigma for Plan “B” • Plan A: Strategy for Ongoing Continuous Improvement • Plan B: Strategy for Formal Service Recovery Successful Service Recovery Integrated Service Recovery and Quality Strategies
  • 9. Rocky Ed Powers 970/212-1602 ed.powers@private-esc9 of 48 Six Sigma for Plan “B” 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.
  • 10. Rocky Ed Powers 970/212-1602 ed.powers@private-esc10 of 48 Six Sigma for Plan “B” A Look at Plan A • How services are different • Where Six Sigma works and where it fails • Why Plan B is necessary
  • 11. Rocky Ed Powers 970/212-1602 ed.powers@private-esc11 of 48 Six Sigma for Plan “B” 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
  • 12. Rocky Ed Powers 970/212-1602 ed.powers@private-esc12 of 48 Six Sigma for Plan “B” 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
  • 13. Rocky Ed Powers 970/212-1602 ed.powers@private-esc13 of 48 Six Sigma for Plan “B” Six Sigma: DMAIC/Lean Define 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
  • 14. Rocky Ed Powers 970/212-1602 ed.powers@private-esc14 of 48 Six Sigma for Plan “B” 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
  • 15. Rocky Ed Powers 970/212-1602 ed.powers@private-esc15 of 48 Six Sigma for Plan “B” SIPOC Inputs OutputsProcessSuppliers Customers
  • 16. Rocky Ed Powers 970/212-1602 ed.powers@private-esc16 of 48 Six Sigma for Plan “B” The Seven Quality Tools Control Chart Scattergram Check Sheet A B C Pareto Diagram Histogram Cause & Effect Diagram Flow Chart Source: Kaoru Ishikawa
  • 17. Rocky Ed Powers 970/212-1602 ed.powers@private-esc17 of 48 Six Sigma for Plan “B” FMEA Item/ Step Failure Mode Failure Effects Severity Causes Occur- rence Current Controls Detection RPN Action
  • 18. Rocky Ed Powers 970/212-1602 ed.powers@private-esc18 of 48 Six Sigma for Plan “B” 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
  • 19. Rocky Ed Powers 970/212-1602 ed.powers@private-esc19 of 48 Six Sigma for Plan “B” Failure Identification Recovery Strategy Selection Recovery 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
  • 20. Rocky Ed Powers 970/212-1602 ed.powers@private-esc20 of 48 Six Sigma for Plan “B” Failure Identification Recovery Strategy Selection Recovery 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
  • 21. Rocky Ed Powers 970/212-1602 ed.powers@private-esc21 of 48 Six Sigma for Plan “B” Failure Identification Group 1 Failures—Core service failures • slow service • unavailable service • other core service failures
  • 22. Rocky Ed Powers 970/212-1602 ed.powers@private-esc22 of 48 Six Sigma for Plan “B” Failure Identification Group 2 Failures—Responses to implicit/explicit requests • special needs • customer preferences • customer error • others
  • 23. Rocky Ed Powers 970/212-1602 ed.powers@private-esc23 of 48 Six Sigma for Plan “B” Failure Identification Group 3 Failures—Unprompted/unsolicited employee actions • level of attention • unusual action • cultural norms • adverse conditions
  • 24. Rocky Ed Powers 970/212-1602 ed.powers@private-esc24 of 48 Six Sigma for Plan “B” Failure Identification Group 4 Failures—Problematic customers • abusive • uncooperative • blatant disregard for rules and decorum
  • 25. Rocky Ed Powers 970/212-1602 ed.powers@private-esc25 of 48 Six Sigma for Plan “B” 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).
  • 26. Rocky Ed Powers 970/212-1602 ed.powers@private-esc26 of 48 Six Sigma for Plan “B” Failure Identification Recovery Strategy Selection Recovery 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
  • 27. Rocky Ed Powers 970/212-1602 ed.powers@private-esc27 of 48 Six Sigma for Plan “B” • 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
  • 28. Rocky Ed Powers 970/212-1602 ed.powers@private-esc28 of 48 Six Sigma for Plan “B” Recovery Strategy Selection • Apologetic – Front-line – Managerial • Compensatory – Gratis – Discounts – Coupons – Upgrades – Ancillaries • Reimbursement – Cash refunds – Credit • Restoration – Corrections – Replacement – Substitutions • Unresponsive – No response
  • 29. Rocky Ed Powers 970/212-1602 ed.powers@private-esc29 of 48 Six Sigma for Plan “B” Failure Identification Recovery Strategy Selection Recovery 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
  • 30. Rocky Ed Powers 970/212-1602 ed.powers@private-esc30 of 48 Six Sigma for Plan “B” Recovery Implementation • Distributive Justice – Recovery outcomes • Procedural Justice – Recovery process • Interactional Justice – Human element exhibited throughout recovery implementation
  • 31. Rocky Ed Powers 970/212-1602 ed.powers@private-esc31 of 48 Six Sigma for Plan “B” Failure Identification Recovery Strategy Selection Recovery 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
  • 32. Rocky Ed Powers 970/212-1602 ed.powers@private-esc32 of 48 Six Sigma for Plan “B” 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
  • 33. Rocky Ed Powers 970/212-1602 ed.powers@private-esc33 of 48 Six Sigma for Plan “B” Failure Identification Recovery Strategy Selection Recovery 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 Getting Started with the Plan B Framework Source: Hoffman, Gonzalez, and Ingram, Integrating Failure Analysis and Recovery Efforts into the Relationship Selling Model: A Call for Action Six Sigma Toolkit Strategy and Policy Decisions
  • 34. Rocky Ed Powers 970/212-1602 ed.powers@private-esc34 of 48 Six Sigma for Plan “B” 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
  • 35. Rocky Ed Powers 970/212-1602 ed.powers@private-esc35 of 48 Six Sigma for Plan “B” 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
  • 36. Rocky Ed Powers 970/212-1602 ed.powers@private-esc36 of 48 Six Sigma for Plan “B” • Definition: Local Host/Concierge or headquarters management must take immediate action to satisfy an upset Member or Guest Service Recovery at Private Escapes
  • 37. Rocky Ed Powers 970/212-1602 ed.powers@private-esc37 of 48 Six Sigma for Plan “B” 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
  • 38. Rocky Ed Powers 970/212-1602 ed.powers@private-esc38 of 48 Six Sigma for Plan “B” 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
  • 39. Rocky Ed Powers 970/212-1602 ed.powers@private-esc39 of 48 Six Sigma for Plan “B” 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”
  • 40. Rocky Ed Powers 970/212-1602 ed.powers@private-esc40 of 48 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)
  • 41. Rocky Ed Powers 970/212-1602 ed.powers@private-esc41 of 48 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)
  • 42. Rocky Ed Powers 970/212-1602 ed.powers@private-esc42 of 48 Six Sigma for Plan “B” 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
  • 43. Rocky Ed Powers 970/212-1602 ed.powers@private-esc43 of 48 Six Sigma for Plan “B” Tracking Service Recovery
  • 44. Rocky Ed Powers 970/212-1602 ed.powers@private-esc44 of 48 Six Sigma for Plan “B” 2005 Service Recovery Causes Airlines Escape Planner Reservations Other Property Local Host Real Est. Choice
  • 45. Rocky Ed Powers 970/212-1602 ed.powers@private-esc45 of 48 Six Sigma for Plan “B” 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
  • 46. Rocky Ed Powers 970/212-1602 ed.powers@private-esc46 of 48 Six Sigma for Plan “B” 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
  • 47. Rocky Ed Powers 970/212-1602 ed.powers@private-esc47 of 48 Six Sigma for Plan “B”
  • 48. Rocky Ed Powers 970/212-1602 ed.powers@private-esc48 of 48 Six Sigma for Plan “B” 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