Using Nonfinancial Measures to Evaluate and Improve Quality

Learning Objective 2 Develop nonfinancial measures and methods to improve quality

• customer satisfaction measures such as number of customer complaints, internal-business-process measures such as percentage of defective and reworked products, and learning-and-growth measures such as employee empowerment and training
• control charts, Pareto diagrams, and cause-and-effect diagrams

Companies such as Unilever, FedEx, and U-Haul use nonfinancial measures to manage quality. The first step is to look at quality through the eyes of customers. Managers then turn their attention inward toward their organizations to develop processes that help improve quality and corporate cultures that help sustain it.

The Customer Perspective: Nonfinancial Measures of Customer Satisfaction

Formrob’s managers track the following measures of customer satisfaction:

• Market research information on customer preferences for and customer satisfaction with specific product features (as measures of design quality)
• Market share
• Percentage of highly satisfied customers
• Number of defective units shipped to customers as a percentage of total units shipped
• Number of customer complaints (Companies estimate that for every customer who actually complains, there are 10 to 20 others who have had bad experiences with the product or service but did not complain.)
• Percentage of products that fail soon after they have been delivered to customers
• Average delivery delays (difference between the scheduled delivery date and the date requested by the customer)
• On-time delivery rate (percentage of shipments delivered on or before the scheduled delivery date)

Formrob’s managers monitor these numbers over time. Higher customer satisfaction should lead to lower external failure costs, lower costs of quality, and higher future revenues due to greater customer retention, loyalty, and positive word-of-mouth advertising. Lower customer satisfaction is indicative of higher future external failure costs and costs of quality. We next discuss internal business processes to identify and analyze quality problems that help to improve quality and increase customer satisfaction.