Non-Financial Performance Measures
Customer Satisfaction
The evaluation of the value of a company is traditionally based on financial performance measures. However, this type of information indicates what the company has achieved in the past, but the real value of the company must include future perspectives. What we need is non-financial performance measures, which can tell us about what is going to happen with the financial results in the future, so the evaluation of the value of the company can be based on actual financial success and forward-looking non-financial performance measures. Also inside the company, managers require a measurement system, which provides forward-looking information, and by it early warning, and which makes it possible to carry out the necessary adjustments to the processes before they turn into unwanted business results. This is what modern measurement of total quality is all about (2002).
The successful experiences of the Swedish and American customer satisfaction indices have inspired recent moves toward creating a European Customer Satisfaction Index (ECSI), founded by the European Organization for Quality (EOQ), the European Foundation for Quality Management (EFQM), and the European Academic Network for Customer Oriented Quality Analysis, and supported by the European Commission (DG III).
European Customer Satisfaction Index (ECSI)
The basic ECSI model is a structural equation model with unobservable latent variables. The model links customer satisfaction to its determinants, and, in turn, to its consequence, namely customer loyalty. The determinants of customer satisfaction are perceived company image, customer expectations, perceived quality, and perceived value (value for money). Perceived loyalty is conceptually divided into two elements: hardware, which is consists of the quality of the product or service attributes and human ware, which represents the associated customer interactive elements in service such as personal behaviour and atmosphere of the service environment. Each of these seven latent variables is operationalized by a set of measurement variables, observed by questions to customers, and the entire system is estimated using Partial Least Squares (PLS) method.
Application: Specific Measurements
When introducing the specific measurements into the model, two alternative strategies may be applied. One possibility is to substitute the generic questions by the specific questions and then run the model again. Another possibility is to estimate the model and the indices using the generic questions alone and then analyze the relationship between the estimated indices and the specific questions. The advantage of the first procedure is that you get an estimate of the full model. However, you get indices that are not necessarily identical to the indices obtained for the generic model. The advantage of the second procedure is that you only get one set of indices.
Implementation:
All respondents must be asked to answer both the generic and the specific questions. Using the generic questions, the ECSI model will then be estimated and the seven indices must be computed once and for all. Subsequently a statistical analysis of the relationship between a computed index and its specific indicators must be performed using a combination of principal component analysis and multiple regression analysis. In order to investigate the area in more detail, the generic questions must be supplemented by the following type of questions:
1. Is it an honest company?
2. Is it a company doing a good job for society?
3. Is it a professional company?
4. Is it a customer-oriented company?
5. Is it an environmentally oriented company?
6. Is it an economically sound company?
7. Is it a company with a positive press?
8. Is it a good place to work?
These questions will be used as regressors with the estimated image index as dependent variable.
Advantages of ECSI
As national customer satisfaction indices reliably and constantly measure customer satisfaction and quality perceptions for many companies within a variety of industries, the ECSI has the potential to be an excellent platform for comparisons between companies, industries, sectors, and countries. Benefits and practical implications of the ECSI would be evident at different level. For individual companies, ECSI will be a useful tool in three different ways:
1. Tracking performance over time
2. Benchmarking
3. Diagnosing the effects of various quality initiatives
The ECSI will be able to answer the key questions in today’s business environment:
1. What are the customers’ perceptions of quality of products and services? How satisfied are they? How loyal are they?
2. Is customer satisfaction and perceived quality improving or declining for the company?
3. How is the company performing relative to competitors in the industry? And relative to companies in other industries, sectors and countries?
4. What is the economic value of the customer base?
5. What are the drivers of customer satisfaction and customer loyalty? What is the impact of the different drivers?
6. What is the effect of different quality initiatives on customer satisfaction, customer loyalty, and the value of the customer base?
7. What is the optimal allocation of resources across alternative quality initiatives?
8. What will the consequence be to improve perceived quality and customer satisfaction?
Basic ECSI model
Credit:ivythesis.typepad.com
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