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Voice of Satisfaction Analyst shares unique insights with city business community

According to your research, how does the relationship between national economic growth and customer satisfaction look like in todays China and is a CSI really relevant in a developing country?

First of all, I think it is somewhat interesting as to whether or not we should refer to China as a developing economy; as things are happening here in five years that normally take 30 years. My view is that it is very clearly a rapidly developing economy and that the satisfaction of the consumeris somewhat less important because most efforts are on supply and productivity.

China is at the stage, it seems to me, where consumption is increasing very rapidly. The country has a trade deficit with most trading partners   except with the United States of course  and it would make sense to have such a measure in China.

It s not only price that determines demand, but also the satisfaction of the consumer: as more choice and greater abundance of goods and services enter the market, the consumer exercises reasonable choice.

Please unpack the concept of the Customer Satisfaction Index (CSI) for Business Beijing readers.

The easiest way is to go back 200 years and think about how market economies were set up. The basic notion is very straightforward, and a sometimes forgotten fact: markets were set up in such a way that sellers would compete for the satisfaction of the buyer.

If successful, not only would the seller benefit from repeated business, but the economy would also benefit by an increase in demand and growth in employment.

The satisfaction of the customer, or customer utility  as it was also known, is the true standard for productive growth. About that there is no debate and certainly its a classical position in economics. Yet, having said that, it is easier said than done to measure such a thing. We measure all kinds of things about our economy and most have to do with supply factors such as productivity,, price and the like.

It wasnt until the 1980s that Sweden became the first country to have a national measure of customer satisfaction, with the United States following in 1994 with the American Customer Satisfaction Index (ACSI).

I believe that at the time we needed a measure of how the user  experienced the product and services that were produced; a consistent measure, as opposed to simple productivity. If you didn t know what was happening to product quality, as experienced by the user, it would have been very difficult to even interpret productivity, price indices, and ultimately, GDP.

That was the goal. But it was not quite as efficient then as it is now. Now we have 10 years of data. What has been shown is that there is a pretty strong relationship between changes in satisfaction and economic growth. And in the United States, this is explained by the fact that the expected satisfaction of the customer determines active selling to a large extent. But obviously, it is not enough to have expected satisfaction. You need to have the means to spend as well, i.e. money. In the United States over the last decade, money has been fairly easy to come by. If not through income then by credit, leading in some cases to a high degree of household debt.

So customer satisfaction is a pretty good predictor of consumer spending: in the U.S. consumer spending is about two-thirds of the economy, thereby explaining the significance to the economy as a whole.

You say quality per se  is not the reason for economic returns, but an improved consumption experience leads to repeat business and increased demand. With CFI experience in the telecom sector here, how does this relate to China?

I think the telecom industry is a great example. One of the basic rules of a free market economy, and a capitalistic economy, is of course that it may not matter so much what the objective state of the quality of a good or service is unless buyers recognise that quality and are prepared to pay for it.

If you take the telecom industry here, there is tremendous investment throughout in technology and the consumer has been to some extent forgotten. This has a lot to do with the financial difficulties the industry has had to face all over the world. Had they paid a bit more attention to the consumer as opposed to the technology, as opposed to believing that technology was the basis of competition, it seems to me they would probably have avoided some of these difficulties. And I do not think China is any different in this regard than most other countries.

Turning to employee asset management, please talk about the extraordinary Sears story where the company outsourced its administration and employee certification system. Do you think business in China could benefit from this experience?

Employment is always a function of what goes on with the consumer. The only job security you have in a free market system is the satisfaction of the customer. Thats where job security begins and that s where it ends. Clearly, there is a connection between the two.

What we have found in the Sears case and others like it, is that if you apply the same logic, in terms of measurement, to the employee side and the customer side you have at least the opportunity to connect the two.

The satisfied employee is more likely to provide a better service that customers will like. They go hand in hand. I think a big mistake that is being made in human relations is that the measurement of employee satisfaction is usually conducted in isolation of the customer.

This makes little sense and should probably be changed. If you know what it is that pleases the customer, the challenge is to figure out how to benefit both parties and devote relevant resources to it.

What we have done in the United States is to set up a system where employers compensate employees by for example health and childcare measures.

In terms of China, last year I met with Haier, the appliance manufacturer. Heres a company that was taken from the brink of disaster to what it is now, a multi-billion dollar company in terms of exports. And I asked them what did they do on the employee side and their answer was quite simple.

In the beginning, what they needed was more employee discipline: making sure the employees arrived on time, didnt leave before the work was done and properly used washing and toilet facilities. That sounds pretty rudimentary today, but this was 20 years ago. Now, of course, employee satisfaction is of even greater concern to employers in China.

It is the recognition that both the employee and the customer are economic assets and that they should be invested in, as assets traditionally are. Health benefits for employees would be an example of investment.

This is a very different way of thinking of the employee, rather than that of a totally replaceable part of the machinery in the production process. And as we move into a more and more advanced economy   and certainly China is not quite there yet  it becomes more costly and therefore more difficult to replace the employees involved.

What can you tell us about future movement of global capital and how the predictive power of consumption satisfaction will determine global economies?

There are a number of things that will happen with respe

ct to capital and global economics. What we have seen so far is that product markets work reasonably well, in that if a seller does not produce a satisfied customer, that customer is less likely to come back to buy again. The company is therefore punished economically because they have failed to get repeat business and must improve. If they don t, they will eventually go out of business.

Now what we dont have yet, but see signs of it coming, is for financial and product markets to work in tandem. If we had measurement systems set up, some of which already are in the United States, so that equity markets would know from a measurement system what customer satisfaction of a particular company looked like, companies would be rewarded or punished through the addition or subtraction of investment capital. In this way markets would become more efficient and firms much quicker to react to satisfaction and dissatisfaction on the part of the customer.

If you invest in customer satisfaction, in companies that have high customer satisfaction, you tend to beat the market over and over again.

For China, rapid economic growth may allow for joint market co-operation, as is beginning in the United States  except that it will not take China 30 years to do it.

In terms of China and the United States and the issue of the value of the currency and the trade imbalance, an economic analysis is reasonably straightforward. In the U.S. there is over-consumption, and very little household saving anymore. Where is this credit surplus coming from? Very clearly from abroad and from countries like China. These countries are plugging the hole in the US economy at the moment. The economic future of the United States is not all in the hands of the Americans.