When Cadillac was audited by examiners for the Malcolm Baldrige National Quality Award in 1990, the examiners picked an employee at random from 7,000 employees at our Hamtramck, Michigan, plant. The man was putting in windshields. The examiners approached the worker and asked him who his customer was. He asked, “Do you mean my internal customer or my external customer?” I could have kissed him on the lips!
He proceeded to discuss how he talks to his internal customers. He talks to the worker next to him in the assembly line at every break to discuss how things were going. And he talks to the guy on the assembly line who supplies him.
He talked to the external customer, too. He told the examiners how we had arranged for each person on the assembly line to come off the line for a half hour a month to call customers who had ordered a Cadillac. In his calls, he described how their cars looked and how he had just put in their windshields. In this way, the customers got excited and the employee felt connected to the customer.
‘There were frequent stories of customers inviting employees to go fishing.’
Have you ever thought about the idea that all aspects of the business should be able to connect to the customer, sales and profits, whether the “customer” for your work is internal or external?
Years ago, as I was learning from Bradley T. Gale and Ray Kordupleski, leading thinkers of managing customer value, this concept was known as the “Big Equation of Business.” The view was that all aspects of the business can and should be connected to customers and making profits.
Customers and competitors
When he was at National Cash Register, legendary business leader Jerry Stead once said, “If you are at a meeting and you’re not discussing customers or the competition, raise your hand and ask, ‘Why not?!'” This forms the backbone when you put the Big Equation of Business into practice. The idea is that all companies are after profits. Profits come from revenue minus cost. Revenue is, in turn, driven by market share and acquisition of market share (buying companies or assets). Market share is driven by customers’ perception of value. Value, according to Gale and Kordupleski, is determined by customer satisfaction and customer perception of the cost of doing business with you (not just price but also all price attributes).
These, in turn, are driven by internal predictive metrics. The metrics are driven by employee satisfaction. Employee satisfaction is predictable from other metrics, which are driven by management decisions. Managers make decisions based upon the data they are given, usually customer, market or shareholder pain of some sort. These relationships are shown in the graphic below.
Initially, management at Cadillac had been reluctant to execute this idea. They were worried about the employees in Detroit speaking with the types of customers who bought Cadillacs. It was thought that the employees were not educated enough to speak with our customers. They would not be able to communicate well with the customers. What did the employees have in common with the customers? In fact, everyone—employees and (external) customers enjoyed these conversations very much. Everyone felt motivated. The customers could not wait to see the car they had ordered. The employees often wrote notes and letters to put into the glove box. There were frequent stories of customers inviting employees to go fishing or to a ball game during these conversations. They employees and customers shared a lot of interests—but primarily interests in new Cadillacs.
Cadillac has traditionally had the highest customer loyalty in the industry, in part, because of programs such as this. Not only were our customers loyal to Cadillac, but also our employees were loyal to the customers. At the time, Cadillac had earned the highest customer loyalty ratings in the industry. When a Cadillac owner traded in a used Cadillac, more than 40 percent of the time, the customer bought another Cadillac. We have all heard how much better it is to keep an old customer than to win a new one. Cadillac believed this as well. The investment in these loyalty programs not only increased employee motivation but also earned increased revenue and profits from current customers.
Cadillac customers felt that the company cared about them. After all, an employee from the plant had called, right? The excitement of these customers over the telephone was palpable. With this one simple program, Cadillac had impacted several aspects of the Big Equation of Business: management’s need to build customer loyalty, the employees’ need to feel connected to the buyer, the customers’ excitement about the new car, increased revenue and increased profits.
The Baldrige examiners were impressed that Cadillac had stressed making the connection at each step in the Big Equation of Business, from the employees to customers and eventually to profits. Everyone, including the customer, benefited from the connections being made. As of a couple of years ago, this program was still in effect.