A model for managing complex stakeholder and customer relationships Professor Michael Kaye, Emeritus Professor of Operations and Quality Management, University of Portsmouth Business School UK Summary Dr Marilyn Dyason Justices Chief Executive, Bedfordshire Magistrates Courts UK From the authors research in the private and public sector, there is a growing body of evidence that excellent corporate governance structures do not translate into excellent performance (1)(2). In the light of these emerging findings, the authors work is focused on the implementation issues surrounding good corporate governance. The findings indicate that insufficient attention is given to the following: Recognising and managing complexity of stakeholder and customer accountabilities Adding value to the customer and the need to have processes in place that build in the voice of the customer Sustainability and what this means in practice in continuing to meet customer and stakeholder needs and expectations and to survive in an increasingly competitive environment This paper reports the application of their governance model to the criminal justice system in Bedfordshire. Public sector governance challenges 1. Stakeholder Management The effective management of stakeholder relationships is key to achieving organisational objectives, and knowing whether this is being done should be regarded as an essential component of governance. The implications of this for corporate governance frameworks and audit are that the necessary processes should be in place to allow this to become part of the company s system of internal control. Any organisation that wishes to progress corporate governance thinking and to make the link between governance policies, implementation and impact on performance must address this issue. ¹
The complexity of customer and stakeholder relationships within the public sector presents particular challenges in meeting multiple and, often, conflicting needs and expectations of service delivery. Whilst this need is implicit in Corporate Governance Frameworks, in practice, it is an area that poses particular implementation challenges for the governing bodies of public sector organisations. The authors research highlights the following challenges in relation to stakeholder relationships: Engaging with customers to understand more about future needs and expectations Determining priorities to be addressed and targeting resources so that the greatest impact is made on service delivery Managing expectations about what can reasonably be delivered Managing relationships between those engaged in service delivery and how the effectiveness of these interactions can be measured For example, a stakeholder model in the criminal justice system case study appears below in figure 1: Internal and external stakeholder model in the criminal justice system: External perspective Lord Chancellor Defendants Complainants Public Societal perspective Public Financial perspective Paying Authorities Witnesses Internal Perspective External/ Internal Perspective Supply chain Police Prosecution Probation Witness service Internal perspective Magistrates and staff Figure 1: Internal and external stakeholder model in the criminal justice system In order to deliver good corporate governance in the public sector model, the following questions must be addressed: What is the impact of our business on society? Do we inspire public confidence? Do we deliver value for money in the eyes of the paymasters and the public? Do we have rigorous systems and processes that are free of defects and reflect customer needs? 2
Do we understand the expectations of those in the supply chain and the interdependencies in delivering the core business? Public Sector Governance Challenges 2. Understanding needs and expectations of stakeholders as a pre-requisite of accountability within the governance model The key suppliers in the criminal justice system supply chain are the solicitors (defence advocates), police, crown prosecution service, probation service, witness service, magistrates court and crown court, as illustrated below in Figure 2 below. Criminal justice system value chain Customer need identified organisational boundary Solicitors Police Prosecution Probation Magistrates Court Court suppliers Customer need satisfied Figure 2. Criminal justice system value chain The principles of supply and demand equally apply. For example, there is a demand from the crown prosecution service that the police supply copy exhibits at the earliest opportunity and a demand from the magistrates courts that the crown prosecution service supplies advance disclosure at the earliest opportunity. This customer/supplier relationship becomes complex because each agency is a supplier of each other as well as a customer. In applying the supply chain principles, therefore, consideration had to be given to the inter-dependencies within the criminal justice system. In the authors work in the commercial sector, this approach had been particularly successful where it had been necessary to apply innovative supplier chain management principles in order to delight the end-customer. It required a change in mind-set to focus on the end-customer or end user that was found to be lacking in some commercial organisations. In this study, there was a need to delight a number of stakeholders concerned with the outcome of the service. This included the victim of the case and witnesses. Hitherto, the victim or witness had not received the consideration that was so vital to increasing public confidence in the criminal justice system. It was clear that, in order to make the radical improvements, necessary rigorous attention to quality, cost and delivery times was essential. The management 3
of the supply chain in this way would demand teamwork, co-operation and effective coordination throughout the organisations involved. Implications for governance (a) Partnerships with supplies and those who are integral to service delivery Through discussion and understanding about the interdependencies between the agencies, the following characteristics emerged which indicated that the desired change in mind-set could be achieved through a transitional strategy that required the leaders of each of the organisations to work together co-operatively in support of the overall aims of the service. These characteristics were as follows: Each organisation or agency played a key part in contributing to the whole process There was a common agreement about the overall goals of the process and what needed to be achieved This required a radical re-think of existing corporate governance frameworks as they applied to each agency and reframing them, recognising the roles and responsibilities of each agency in contributing to the wider aims of the criminal justice system (b) Sustainability the extent to which the key processes reflected the voice of the customer The authors applied the learning from a previous research study where they had worked with a number of highly competitive companies where success had depended upon managing the interdependencies between suppliers in order to speed up delivery and cycle times. Their approach had been particularly effective in the electronics industry where survival in the market place depended upon the speed of product development and production. It was evident that there were some disadvantages associated with an integrated supply chain; for example, it was found to be bureaucratic and to reduce flexibility for many firms, especially with changing markets, new technology and globalisation. On the other hand, there was an emerging concept, of the virtual organisation (also known as hollow corporations or network companies) that could be created or integrated on demand to provide the services or network required. This concept overcame the disadvantages associated with an integrated supply chain and brought with it some characteristics that enabled the companies to exploit competitive opportunities speedily and effectively. By their very nature, virtual organisations had flexible organisational boundaries that allow them to move in order to create a unique enterprise, providing a specific service or to design a specific product. Participants were true partners, or only collaborators, or even simply able suppliers and subcontractors. The advantages of this approach i.e. the move to a virtual organisation, included specialised management expertise, low capital investment, flexibility and speed. Moreover, they could easily be disbanded. The relationship could be short term so that it could be disbanded when its goal had been achieved. 4
The ability to influence outcomes across organisation boundaries was identified as a critical success factor and one which traditional organisational structures prohibited. The virtual organisation philosophy enabled long-term goals and common objectives to be agreed. One emerging strategic challenge facing the public sector is the ability to anticipate the future needs and expectations and to design key processes and services around these needs. In the authors experience, new services or products tend to be added to existing services, creating greater pressure on already stretched resources. The authors methodology is designed to stimulate innovative approaches to service design and delivery that makes optimum use of resources in meeting customer needs and expectations. The Concept of Customer Value and Sustainability In collaboration with a number of industries, nationally and internationally, the authors have developed an approach to defining customer value that expands on traditional approaches that companies found to be limiting and did not reflect the competitive environment in which they worked. For example, existing performance measurement systems employed by companies were, in the main, concerned with measuring cost and units of productivity. Such inward-looking, efficiency, measures did not reflect those attributes of value to the customer. Whilst these efficiency measures were important, they failed to provide the holistic and strategic view necessary for organisations to survive. Identify what makes the organisation successful mission and values Priorities actions to close gap: Measure and evaluate Establish performance drivers stakeholder expectations Conduct audit to establish health of key Processes: identify gaps Figure 3. Customer-value driven improvement cycle Figure 3 above illustrates four basic steps towards building-in the voice of the customer to the overall direction of the organisation, ensuring that value is added at every stage and that this is monitored and measured. 5
Governance in Action Model A customer-value based model of strategic management developed by the authors in collaboration with a wide range of organisations provides a structured approach to addressing the above issues. The model encompasses eight steps to customer value: 1. Defining the business in terms of management s vision, philosophy, values and goals for meeting specified customer needs. 2. Assessing external opportunities and threats to improving customer value. 3. Assessing internal value capabilities, resourcefulness, and weaknesses. 4. Defining a key problem and strategic issues from the environmental analyses. 5. Identifying strategic alternatives in terms of long-term objectives and strategies. 6. Choosing one of the strategic alternatives. 7. Developing annual objectives, allocating resources, and implementing shortterm plans. 8. Monitoring and improving customer value and value-providing systems. 6
External competitive environment Internal governance framework Mission Vision Values based on Customer and Stakeholder Value INTERNAL ANALYSIS Value Chain CRITICAL SUCCESS FACTORS Quality Dimensions EXTERNAL ANALYSIS Benchmarking Key value adding processes KEY ORGANISATIONAL PROBLEMS AND STRATEGIC ISSUES Customer Value Gap Analysis Stakeholder audit Evaluate each problem and prioritise for action STRATEGIC OPTIONS Incremental vs. Transformational Change Strategies Customer/Supplier Partnerships Co-operative and Competitive Strategies CLOSING THE GAP Breakthrough and Incremental Improvements Value analysis PERFORMANCE MANAGEMENT AND MONITORING Review implementation cycle Figure 4. Governance in action model Identifying Supply Chain Requirements A critical examination then took place of each stage in the progression of a case through the criminal justice system, paying particular attention to the interfaces between each organisation or agency i.e. at the organisational boundary. It was necessary to establish the expectations and perception of the service currently received at each of these customer supplier interfaces (as shown below in figure 5.) 7
Supplier/ Customer Solicitors Police Prosecution Probation Witness Magistrates Courts Court Solicitors X X X X X X Police X X X X X X Prosecutio n X X X X X X Probation X X X X X X Witness X X X X X X Magistrate s Courts X X X X X X Courts X X X X X X Figure 5. Interfaces between criminal justice system agencies and partners At this stage in the study, the ServQual (3) methodology was applied, the rationale of which is to measure the gaps in the customer supply interfaces Word of Mouth Communication Personal Needs Past Experience Expected GAP 5 GAP 7 Perceived Contact staff perceptions Delivery GAP 4 External Communications GAP 3 Quality Specs GAP 1 GAP 2 GAP 6 Internal communications Management Perceptions Figure 6: quality model SERVQUAL This particular methodology was chosen because in the authors experience, other survey techniques do not take into account the issues satisfactorily from the customers point of view. It had the following advantages: 8
it was considered that the ServQual methodology would contrast the supplier and the customers view of working collaboratively in partnership which was very relevant to the interactive action learning principles being adopted; it enabled the complex system of interfaces to be fully addressed; it could be used as a means of introducing innovation and design to the delivery of the customer requirements. This was achieved as the requirements were developed mutually through a growth in understanding between partners as to their roles and contribution to the overall process. Customer need identified suppliers organisational boundary Design of service Administrative Operations delivery Innovation in design: Customer need satisfied Figure 7. Innovation in the supply chain The application of the ServQual methodology enabled an emphasis to be placed on designing the process in such a way that it met the customer expectations at every stage. The application of the six sigma methodology at the next stage in the development of the study was used to focus effort on designing-in the customer requirements at the beginning of the supply chain, thereby reducing the opportunities for error, duplication and waste at later stages in the process. Such thinking encouraged a more customer-focused, innovative perspective of the customer s needs to be developed as quality was being designed in to the service at the beginning of the supply chain. It also enabled the group to set stretch goals to ensure that customer expectations were met. As the processes currently performed, this was not being achieved. Results of the ServQual methodology establishing the gaps The survey findings revealed a number of performance gaps in the progression of a case at each of the interfaces illustrated in the matrix at figure 5 above. The greatest performance gap identified was in relation to making progress on the day of court hearing. In this case there is an expectation from the customers perspective (i.e. the Magistrates Court) that Prosecutors will ensure that progress is made at each hearing. Quantitative tools and techniques were used to further examine this gap in order to establish the underlying causes (4). The principal 9
reasons for the failure to make progress was the attendance of witnesses and this was identified as the most important area to tackle, having a direct bearing on confidence in the criminal justice system. Strategies for executing Customer Value The authors provide the following practical example drawn from their experience with the criminal justice system in applying the above governance in action model. Strategic Option One: Transformational Change Strategy the creation of a virtual organisation comprising key delivery partners and agencies in the criminal justice system Strategic Option Two: Co-operative Strategies creation of a new organisation designed to meet the needs of the customers in this case witnesses. The new organisation is staffed by individuals who drawn from a number of partner agencies who deliver a one stop shop to witnesses. Strategic Option Three: Incremental and Break-Through Improvements The results of the ServQual study were being further analysed and prioritised for action using traditional quantitative tools and techniques to reduce gaps in all areas of service delivery some quick wins and some longer terms improvement plans. Conclusion The research findings show that, in order to achieve the desired link between corporate governance mechanisms and sustained performance as an outcome, the following criteria must be satisfied. Significant attention must be given to the processes by which key relationships are managed externally and internally- particularly those that form an integral part of service delivery Customer value must be embedded in all aspects of the organisation, starting with shaping the overall leadership and direction. Leaders must establish a process by which this is reviewed, having regard to monitoring and reviewing performance and thus establishing the crucial link between corporate governance and performance. References 1 (Kaye M M &Dyason M D (1999) Customer value-driven strategies. Total Quality Management. Vol 10, Nos. 4 and 5, pp. 594-601). 2 Bhagat and Black (1999) The Uncertain relationship between Board Composition and Firm Performance, Business Lawyer 10
3 (Berry L L, Parasuraman A, Zeithaml V A 1994) 4 Kaye M M & Dyason M D (2001) Applying Six Sigma in the Public Sector, Quality World, Vol 27, Iss. 1 pp. 33-35 11