Ted Marra argues that many companies focus too much on cost reduction and not enough on customer relationships during economic downturns. He recommends focusing on revenue growth by prioritizing customers and delivering value rather than constantly pursuing lower costs. While cost reduction approaches are tempting, they can weaken companies in the long run. True competitiveness comes from adding value for customers through people, technology, processes, and support rather than just lowering prices.

1. similar picture applies in service indus-
tries such as hotels, hit by a downturn
in business traffic and tourism. Business
service providers such as telecoms com-
panies follow suit. For them, the situa-
tion may be cyclical and temporary but
the tendency towards slash and burn
cost reduction inevitably leaves them
progressively weaker at the end of each
cycle, with costly rebuilding to do.
Other industries, most topically the
airline business, are clearly going
through fundamental restructuring
which will dramatically affect the shape
of their future operations. Whatever the
root cause, Mr Marra argues that,
whilst we have seen it all before, many
companies seem doomed to repeat the
mistakes of the past and thus prolong
the pain: “If you live by price, you will
die by price”. Yet so many organisa-
tions continue to focus relentlessly on a
“cost down” approach. They say that
their customers are only interested in
price! But why allow your organisation
to be driven to the lowest common
denominator of “price” by the actions
of competition? Why not learn how to
deliver value!
“I recommend nothing less than a
return to basics: taking care of your cus-
tomers and focusing on top-line rev-
enue growth. This is certainly not a
new idea, and few could argue with the
compelling logic. Yet it somehow
always seems to be sidelined in favour
of a host of “management fads”.
“Customer focus” is one of the fun-
damental concepts of the EFQM
Business Excellence Model.
Organisations which remain successful
over a sustained period are those which
have learned to focus on their cus-
tomers. This gives them a higher level
of stability in rapidly-changing operat-
CUSTOMERS
• 21 ➥
THE CASE FOR CUSTOMER RELATIONSHIP EXCELLENCE
s you review the results
against the resources invested
in Six Sigma, ISO
9000/2000, Business Excellence,
Balanced Scorecard,
Kaizen/Continuous Improvement,
Business Process Re-Engineering and
the like, many companies feel some-
thing is missing,” he observes.
“Even if you become the lowest cost,
highest quality producer or service
provider in your industry, would it really
create that much greater competitive dif-
ferentiation? Competitiveness is all
about delivering real and perceived
added value. Firstly you need to ensure
that your customers perceive real benefits
from your products and services over
those of the competitors. Then you
should focus on four other ways of
adding value: people, technology, process
and support. Ask yourself this funda-
mental question: which of these are you
leveraging for competitive advantage?”
The natural reaction to an economic
downturn is to focus on cost reduction.
This is evidenced by daily business
headlines. Leading mass manufacturers
are indeed engaged in massive head-
count cuts, closing and merging facili-
ties and cutting back on production. A
20 •➥
THE CASE FOR CUSTOMER
RELATIONSHIP EXCELLENCE
Ted Marra, chief executive of MQI, is a
quality professional with an impeccable
line management pedigree. For many
years a senior manager at General
Motors in Detroit, his approach to
business excellence is informed by a
tight focus on customer relationship
issues. He has made a career-long
study of the reasons why good
companies achieve outstanding
customer service and the rest languish
in a hinterland of mediocrity.
Controversially, for a quality consultant,
he argues that over-reliance on TQM
tools and techniques is partly to blame.
In this interview, Mr Marra presents the
case for “customer relationship
excellence” in favour of business
process re-engineering or other cost
reduction techniques.
A
WHATEVER THE ROOT CAUSE, MR
MARRA ARGUES THAT, WHILST WE
HAVE SEEN IT ALL BEFORE, MANY
COMPANIES SEEM DOOMED TO
REPEAT THE MISTAKES OF THE
PAST AND THUS PROLONG THE
PAIN: “IF YOU LIVE BY PRICE, YOU
WILL DIE BY PRICE”.
“
IllustrationbyLisaMcManus
“I RECOMMEND NOTHING LESS THAN A RETURN TO BASICS: TAKING
CARE OF YOUR CUSTOMERS AND FOCUSING ON TOP-LINE
REVENUE GROWTH. THIS IS CERTAINLY NOT A NEW IDEA, AND FEW
COULD ARGUE WITH THE COMPELLING LOGIC. YET IT SOMEHOW
ALWAYS SEEMS TO BE SIDELINED IN FAVOUR OF A HOST OF
“MANAGEMENT FADS”.

2. CUSTOMERS
• 23 ➥
THE CASE FOR CUSTOMER RELATIONSHIP EXCELLENCE
ing environments. They are more com-
petitive, experience greater profitable
growth and greater customer loyalty.
Most encouraging, usually their strate-
gies are not ‘rocket science’ either.
Anyone can do what they do, provided
you ask the right questions and have
the correct amount of resolve and com-
mitment.”
Ted Marra’s organisation, MQI, has
developed a number of models to iden-
tify how well a company understands
its customer relationships. His approach
is typified by an under-emphasis on
technological enablers and a deliberate
bias in favour of root cause analysis. He
poses the following ‘reality check’ as a
first step towards customer relationship
excellence:
Ted Marra argues that ‘Customer
Relationship Excellence’ is unquestion-
ably a key competitive differentiator,
especially in a world categorised by
increased commoditisation of products
and services. This challenging checklist
is recommended for organisations of
every size and degree of maturity Ted
Marra will be available to discuss all the
issues raised by this checklist and offer
his advice on how to introduce
improvement initiatives at the EFQM
Learning Edge Conference on 16-17
May this year in Paris.
22 •➥
References
1. Reicheld, Frederick F. (1996), Learning from
Customer Defections. In Harvard Business Review,
March-April 1996
2. Reicheld, Frederick F. (1996), The Loyalty Effect:
The Hidden Force Behind Growth, Profits and
Lasting Value, Harvard Business School Press,
Boston
3. Jones, Thomas O. and W. Earl Sasser, Jr.,
(1995) Why Satisfied Customer Defect, Harvard
Business Review, November-December 1995
4. Technical Assistance Research Programs
(TARP), Complaint Handling in America, 1978-
1979, Department of Commerce and other subse-
quent research
5. Internal Xerox Research
6. Client research by MQI
7. Marra, Theodore R. (1997), Seminar Profile:
Developing and Sustaining Customer Relationship
Excellence, members’ Report No. 11, The
Conference Board
8. Marra, Theodore R. (2001), Put Excellence in
Your CRM, UKExcellence, April-May 2001
9. Marra, Theodore R. (2001), Customer Focused
Six Sigma, EFQM Quality Journal, November
2001
10. Kay, John (1995), Why Firms Succeed, Oxford
University Press, New York 1995
11. Collins, Jim and Porras, Jerry (1994), Built to
Last: Successful Habits of Visionary Companies,
HarperBusiness, 1994
12. Crosby, Grissafe and Marra, The Impact of
Quality and Customer Satisfaction on Employee
Organizational Commitment, ESOMAR Journal of
Marketing and Research Today, 1994
■ A 1% increase in customer loyalty can result in an average of a 9%
increase in overall profitability. Based on your last published results,
how much does this mean for you?
■ Customers who rate your organisation a “5” on a 5-point satisfaction
scale are six times more likely to buy from you again than those who
rate you a “4”. How would this impact for you in terms of future busi-
ness?.
■ A 5% reduction in customer defections can result in a “doubling” of your
organisation’s profit, yet most Business to Consumer (B2C) organisa-
tions have an annual 20-25% customer turnover (defection) rate. What is
your defection rate?
■ Research shows that 67% of customers defect due to poor service. Yet
many organisations hire customer service personnel on the lowest
grade job and pay levels and invest very little in training. This may look
great from a “cost down” perspective, but the cost, in terms of lost cus-
tomer satisfaction and loyalty, customer service personnel turnover and
complaints, is different. How do your customers rate your quality of
service?
■ In B2B markets, 70% of customers reduce purchases or stop buying
completely because you are “not easy to do business with”. How highly
do your customers rate your organisation on this score? Have you even
measured this factor?
■ Research shows that if customer enquiries are satisfactorily answered
in 1 or 2 calls, more than 70%+ are completely satisfied. However, the
percentage falls to 10 per cent - a 60 percent drop - as soon as they
have to make three of more calls. Yet some organisations are content to
allow customers to make 4-5 calls to get the basic sales and product
information.
How well does your organisation respond to sales and product
enquiries?
■ Many organisations completely change their top 20 customers every
three years. What if even half these accounts were retained together
with all the new ones? How does your top 20 customer list compare
with three years ago?
■ 65% of new business comes from recommendations from friends and
business associates. If you could increase your market share by 1% to
5% as a result, how much would that be worth?
■ Acquiring a new customer is six times more expensive than keeping an
existing one. Advertising and marketing budgets are always savaged in
an economic slowdown. Suppose that you could proactively reduce your
current advertising budget by 50% by improving satisfaction levels so
that they willingly gave out positive references daily? What would that
be worth at your current levels of marketing spend?
■ The typical customer service or support function has more customer
contacts each day than any other part of the organisation - and more
opportunities to strengthen or destroy customer relationships.
Negative, unhelpful or inflexible responses lead to 15-20 bad references
about your organisation. What does this cost you in terms of future busi-
ness?
■ Customers who never complain, either because they have experienced
bad customer service or because the company has a bad reputation in
this area represent, on average, from 35 percent to 65 percent of all
those who experience problems. They usually have the least expensive
and simplest problems, yet they have the lowest level of loyalty - as low
as 5 percent in the case of a well-known European auto manufacturer.
Have you ever researched the extent of this ‘silent majority’ in your
organisation?
■ Research shows that most serious problems leading to customer disen-
gagement are sales-related, and almost impossible to recover from. Yet
they are often trivial faults such as not returning phone calls; failing to
meet promises; failing to match requirements. How often are these
problems occurring in your organisation each day?
■ Lengthy query resolution reduces customer loyalty by 25-40%, while
recurring problems usually lead to customer disengagement. Research
shows that most customers become dissatisfied if queries are unan-
swered within 5 to ten days. Yet too many organisations plan for cus-
tomer query response cycles of between 10 and 30 days. How much
money is your organisation losing every day by delayed response to
customer complaints, not just in terms of lost loyalty and lost business
while the problem goes unresolved? Furthermore, have you calculated
the wasted cost and resource in query resolution after the ‘10 days’ win-
dow of grace, when the customer may have already decided to defect?
■ Many organisations throw money away on improving sales transaction
technology because they perceive their competitors are doing the same.
Fewer take the time to ask their customers what they really value in
transaction terms. How much money is your organisation spending on
internal processes which may add nothing to the customer experience,
or even subtract value?
THE MQI CUSTOMER RELATIONSHIP
EXCELLENCE CHECKLIST