When a company starts to hear their customers saying “it’s very difficult to do

business with you” without providing exact details; when a company sees their
internal customer service scorecard showing good numbers, but the customer survey
result shows “poor service”; or when a company starts to see their long term
customers switching to their competitors; it is the time for the company to evaluate
their value chain to understand what they need to do win the trust and confidence
back from their customers.

However, it seems difficult to figure out what customers are really looking for, and
it’s difficult to decide which actions to take to improve the customer experience.
There are many functions in the company, what exactly are the areas causing
negative customer experiences? In order to understand what activities are leading to
customer satisfaction, we can begin with the generic value chain and then identify
relevant firm specific activities.  “A value chain is a chain of activities. Products pass
through all activities of the chain in order and at each activity the product gains
some value.” (Wikipedia) Using value chain analysis will quickly help a company map
out “touch points” with customers, capture pain points, and identify opportunities for
process optimization. I’d like to use a case of an equipment rental company to
explain how value chain analysis is used to identify issues in order to enhance
customer experience.

In this case, customers choose to rent instead of buy equipment for a lower cost but
at the same time expect good service. Customers can have the company deliver
equipment to them or pick them up with their own trucks. After finish using the
equipment, the customer can self return them to the company service locations or
the company will arrange collection from customers upon request. Customers pay an
initial fee when they receive equipment and then start to pay rent based on the days
of usage. Below is the value chain analysis I did for the company to understand how
each function interacts with customers and how they can impact customer services.
Please note below analysis only include primary activities. Supporting activities such
as procurement, technology, human resource and firm infrastructure are not in the
analysis, although they can also indirectly impact customer experience from different
prospective.
Primary functions of inbound logistics, operation, outbound logistics, marketing &
sales, and customer services are interacting with customers on a daily basis; hence
activities under those functions directly influence customers’ satisfaction and their
purchasing decision. By breaking down those functions into activities, we can easily
see the components in the value chain and how they create and build value for
customers. By asking questions for each activity, we can thus realize what customers
are expecting for each activity and whether there is enough to be done to guarantee
customer satisfaction.

I’m not going to explain each activity in detail. The result of this exercise is to help
company executives realize the challenges from their existing process structure and
to make the right decisions and actions to truly “serve” customers. Executives should
also face the fact that internal metrics are not always reflecting a customer’s true
experience. When the metrics are designed to meet internal criteria and when those
numbers are tied to employee performance bonuses, we can expect that employees
are incented to make a good number instead of to provide good service. For
example, on-time delivery performance is a key measurement for each employee in
the company. However, the company only measures the shipments with Prove-On-
Delivery (POD), and thus filters out at least 10% of data from measurement because
carriers do not provide POD for every single shipment. The company measures on-
time based on the final date stored in the system. When a shipment is going to be
late, the employee in Logistics calls the customer to get “approval” of changing the
date of delivery in the system, as if customer had another choice. At the same time,
the company defines the on-time delivery window which is not necessarily what the
customer is asking for. Using a six sigma term, there is a gap between internal
specifications and external customer measurement. Unfortunately, because of
political reasons and high pressure for “performance”, even functional high level
executives are not willing to change the wrong measurements to correctly reflect real
performance. No wonder that even with high performance numbers in the service
scorecard, we can not prevent customers from switching to competitors.

From such a value chain analysis exercise, many functional experts can identify
process improvement opportunities and take necessary projects to reengineer
processes. However, without further data analysis, the analysis won’t lead to a
priority list to allow the company to put the limited resources to the most critical
processes. Besides, the company will not make fundamental changes without
establishing performance metrics truly reflecting customers’ requirements. Value
chain analysis can help companies to understand where they can create value for
customers.  However, only when the company truly embraces “customer experience”
and makes fundamental changes will the value chain create real value for customers.