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The three rings of perceived value.

The Three Rings of Perceived Value

Your Organization needs a clear, well-understood, and consistent understanding of what service/quality means and how to deliver it.

Most organizations, and ultimately the managers and employees in them, know they want to improve service/quality, but they are not all heading to the same place. With the world moving at break-neck speed, what was considered good, or even innovative yesterday can quickly become substandard today. On top of that are a myriad of confusing and conflicting ideas of what service/quality means within just your management group, let alone the rest of your organization. Whether you use the "Three Rings of Perceived Value" model it's critical that you and your people develop a unified, consistent definition of service/quality.

This simple concept helps managers, employees, and customers get a clear grasp of what service/quality means and what has to be done to produce and deliver it.

The concentric rings show that as additional support and service is added to a high-quality product or service, the customer's perception of value increases. In high service/quality organizations, all three rings are strong and growing. Perceived value is high.

The inner product ring is the basic, bare product on its own. This could be a widget, a financial service, government program, hotel room, or complex technical system. Internally, it can also be a report for the boss, information for the manager in plant no. 3, training and development, or technical support. The size of this ring depends on the level of quality the customer feels he is getting. The customer appeal of that product or service depends on the extent to which it meets minimum requirements. Today, the minimum standard that's considered acceptable in product manufacturing is much higher than it was 10 years ago. There's simply no market for products and services that don't work.

The Basic Product is Not Enough

Just meeting product or service requirements has never been enough. Customers expect additional support services to back up the products or services we use.

Take a look at your own organization. It offers a multitude of basic products or services to external customers. Even more products, services and departmental outputs are being delivered internally. Pick a few examples. What is the basic product being produced? What are the minimum quality requirements? What additional expectations do users of the basic product have concerning its support? What would it take to satisfy these customers?

As you look at your organization's basic products and supporting services, you'll probably have some difficulty deciding what the minimum requirements are and what expectations would most likely lead to satisfied customers. If you took that discussion to your management team, a conflicting array of opinions would further confuse things. One way of clarifying what belongs where would be to ask those employees on the serving lines who hear what customers are asking for and commenting on. Their opinions have constantly been shown to be much more valid than those of management. But the obvious people to ask are your customers. And there's the power and simplicity of the "Three Rings" model. Ask your customers what their minimum standards are and have them rate how you've been doing. Then do the same to find out what support services they expect and how you've been doing at satisfying those expectations. Get each employee team to do the same for the external or internal customers they serve and to communicate the results to everyone. Do that, and you've just taken a giant step toward developing a consistent definition of what service/quality means in your organization. You'll be starting to build a base. But it's just the beginning.

Is The Second Ring Enough?

Most definitions of service/quality stop at the Second Ring. They are essentially variations on the theme of "find out what your customers want and give it to them." Customer satisfaction and meeting customers needs are important goals. Certainly there's nothing wrong with that as far as it goes. But it doesn't go far enough anymore. Yes, we want satisfied customers. But that won't set us apart in today's world of skyrocketing expectations and dizzying array of options and alternatives.

The hard reality of the world we live in is that just to be considered a serious player in the market you must have strong First and Second Rings. But that won't get you noticed in the fight for your customers' hearts and dollars.

The Third Ring: The New Service/Quality Battleground

Tom Peters once again hits the nail on the head: "Unfortunately, we can no longer afford to merely satisfy the customer. To win today, you have to delight and astound your customers -- with products and services that far exceed their expectations." As North American organizations turn their attention to the Second Ring, taking similar "me-too" action won't put you ahead. At best, you'll just hold your own.

The Third Ring is where you can pull ahead. It's where those organizations that have been stealing market share and increasing their revenues at phenominal rates have been operating for years. And they've had the territory all to themselves. With solid First and Second Rings, an expanding Third Ring gives your customers a strong sense of perceived value. It's one of the reasons strong Third Ring companies can charge more. Their customers feel they get their money's worth.

The Third Ring moves beyond customer satisfaction to customer delight. It exceeds expectations. At Stew Leonard's incredibly successful dairy, it's the "wow" factor. As Stew constantly drills into people, "We want our customers saying "wow" at every corner." And those "wowed" customers keep coming back for more -- and tell their friends to do the same. That comes from enhanced service -- which is the Third Ring.

The Third ring is where the large investments you've made in basic products (First Ring) and supporting services (Second Ring) can multiply your pay-off. Third Ring enhancements are usually small investments with those intangible signs of personal care and commitment that say, "We're pleased to serve you. We want to do whatever we can to make your relationship with us as delightful as possible." In the first two rings you can objectively point to specifications, selection criteria, equipment, facilities, support systems, and the like to give clear, rational reasons why something didn't live up to requirements and expectations. The Third Ring is more intuitive and irrational. It's a series of tiny gestures and insignificant signals that make dealing with an organization a rare delight.

Don't Confuse the Second and Third Rings

We often define the rare times we experience the Third Ring as outstanding personal service. These moments shouldn't be confused with the services found in the Second Ring. Services (Second Ring) are usually systematized and not personal at all, although many misguided organizations try to make them that way. A good example is the form letter you get when you raise a problem with a large organization: "Dear Valued Customer: Our computer cares about you. But unfortunately, our policy is..."

The Third Ring: Little Things That Make a Big Difference

The Third Ring is made up of thousands of little things that either add up to a high "wow index" or that bit by bit drive customers nuts -- a death of a thousand cuts. Buck Rodgers, one of the key executives who helped IBM become so dominant through a service/quality focus, says "There's no way of quantifying how many customers are lost because of little human errors -- not returning a phone call, being late for an appointment, failing to say thank you, taking an account for granted. As far as I'm concerned, these things can be the difference between a very successful company and a failure."

Examining the Three Rings of Perceived Value

Your customers, employees, and management team all play parts in the Three Rings. Yet their roles are all different and sometimes conflicting. And while your employees control your Third Ring, management holds the keys to their performance.

Your Customers' Role

Your customers often experience the Three Rings exactly opposite to the way those inside your organization look at them. Customers start on the outside and move into your basic product from the Third Ring. If your Third Ring is weak or non-existent, they'll never notice. But if your Third Ring is large, their first impressions will be very positive. The odd failure in one of the inner rings will be forgiven if everyone is delighting your customers in the outer ring of enhanced service.

However, managers and employees often see the three rings from the inside out. Most of the focus is put on the basic reason the organization exists -- the products/services it provides.

Your Employees Role

Jan Carlzon, president of Scandinavian Airline Systems, popularized a simple, powerful concept in his miraculous turn-around of that company in the early eighties. His key concept, which he calls the Moment of Truth, is that any time a customer makes contact with the organization, whether by phone, fax, letter, or in person, some kind of impression is formed. In the course of a day in an organization of a few hundred employees or more, there are thousands of moments of truth. Each one is so minor it's almost insignificant. So what if the phone rings a few extra times? And does one little typo really make that much difference?

On its own, each moment of truth is pretty small stuff. The organization is certainly not going to sink or soar on the basis of that one tiny event. But each moment of truth is like a grain of sand placed on the scales of justice. Either that minute, almost weightless grain of sand goes on the side of mediocrity ("So what else is new? You just can't get decent service these days") or it is placed on the side of outstanding performance ("Incredible! What unbelievable service. They are a delight to work with!). Over time, the scale will start to tip in one direction or the other. Thus are apathetic, antagonistic, or enthusiastic customers created. And from such tiny beginnings are reputations made.

Who makes your organization's First and Second Ring decisions? Who decides what products/services and their supporting services your organization will offer? In virtually every organization, large or small, the answer is management. Those are big-buck, major investment decisions. The bigger they are, the higher up they're made.

What about the moments of truth? Who decides whether to bend a rule to help a customer? Who decides whether to answer that phone on the second ring? Who spots the error in the invoice and pulls it out for correction? The employees. Employees live in, control, and get their job satisfaction from the Third Ring. Many dollars invested in the inner rings are wasted because of poor Third Ring performance. How many millions of dollars could your organization save by forming a partnership with your front-line people.

Management's Role

Many of management's concerns surrounding the Three Rings are based on the customers' needs and the employees' role. It's around these two groups that most of management's time and energy should be focused. Some of the most effective consultants your organization could ever hire are already working for you.

The quick answer to how you develop effective Third Ring behavior is build an environment that encourages, nurtures, and rewards "volunteerism." Many Technomanagers have tried to mechanize or capitalize their way into the Third Ring. It can't be done. Computers and other systems can support the delivery of Third Ring service, but they can't do it. Only people can. Although employees directly control those critical moments of truth, final control and responsibility for the quality of their delivery rests with management. Management holds the keys. For it's management that ultimately sets the focus and atmosphere of the organization. And it's this atmosphere and direction that determines who gets hired, how they're trained, what values they see demonstrated every day, what behavior is rewarded, who's promoted and why, what gets measured, what support systems and controls are available, and what messages customers and employees are given.

Expectations Gravitate Inward

The Three Rings are dynamic. They ripple inwardly quite rapidly. In other words, what was once an unexpected delight eventually becomes Second Ring expectation. What was once an expectation to satisfy additional needs becomes a minimum requirement. And minimum requirements keep rising. But each time an expectation moves from the extraordinary to the norm, it enriches the perceived quality of your basic product or supporting Second Ring service.

Service/quality improvement is a journey, not a destination. It never ends. You are always in the process of becoming. Or as the Japanese and our best high-quality producers teach us, it's a process of continual improvement. And that improvement starts with the culture and leadership skills provided by management, because it's the environment created and signaled by management that ultimately determines the intensity of the service/quality improvement efforts. Management gets exactly the service/quality it deserves.

PHOTO : Jim Clemmer The Achieve Group
COPYRIGHT 1990 Canadian Institute of Management
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990 Gale, Cengage Learning. All rights reserved.

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Title Annotation:what service/quality means and how to deliver it
Author:Clemmer, Jim
Publication:Canadian Manager
Date:Jun 22, 1990
Previous Article:The challenge for Canadian managers today and tomorrow.
Next Article:Organizational integration: let's get closer to employees!

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