“Measuring customer satisfaction in the context of a project-based organization”

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Up-to-date information about customer satisfaction is important for successful management of complex projects. The importance of customer satisfaction is emphasized in the case of projectbased organizations, where a customer often plays an integral role in the project delivery process. Turner and Keegan (2001, p. 256) elegantly define project-based organization as an organization in which:

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  1. “Measuring customer satisfaction in the context of a project-based organization” Tuomas J. Ahola, Helsinki University of Technology tuomas.ahola@hut.fi Jaakko Kujala, Helsinki University of Technology jaakko.kujala@hut.fi
  2. ABSTRACT There is a lack of research that focuses on the suitability of the concept of customer satisfaction and the current methods used for measuring it in organizations operating in business-to-business (B2B) markets, such as project-based organizations (PBO), which typically provide customized product and service offerings to a rather limited customer base. In this theoretical paper, we discuss how certain characteristics of PBOs should be taken into consideration when measuring customer satisfaction. In addition, we discuss the suitability of different customer satisfaction measurement (CSM) methods for PBOs. We argue that PBOs can expect to benefit from survey- based CSM methods. However, survey-based methods do not often suffice alone and standard instruments should not be directly transferred from a B2C context to a B2B context. In addition, we argue that the match between the selected CSM methods and the salient features of the PBO in question should always be considered. KEYWORDS: customer satisfaction, methods, project-based organization, project management Introduction Up-to-date information about customer satisfaction is important for successful management of complex projects. The importance of customer satisfaction is emphasized in the case of project- based organizations, where a customer often plays an integral role in the project delivery process. Turner and Keegan (2001, p. 256) elegantly define project-based organization as an organization in which: (1/37)
  3. “the majority of products made or services supplied are against bespoke designs for customers” According to Kerzner (1995) the client organization can have a great deal of influence on project success. Information about sources customer satisfaction or dissatisfaction can be used to ensure that both project product and the delivery process meet customer expectations. The concept of customer satisfaction, how it should be measured, and its implications for an organization have been studied extensively in the context of traditional product-oriented industries such as consumer goods and in the context of mass-produced services such as hotel services or air travel services. Numerous studies and publications have almost unanimously concluded that measuring customer satisfaction can lead to several benefits for the organization applying it: • CSM results can be used to discover important strengths and weaknesses in product/service offerings and more effectively focus improvement efforts towards these issues (Lin & Jones, 1997; Emerson & Grimm, 1999; Sharma et al. 1999; Yang, 2003a; Lam et al., 2004). • Depending on the industry context, CSM results may be used to estimate the degree of customer loyalty which is vital for long-term revenues (Gronholdt et. al, 2000; Lam et al., 2004). • CSM enables the supplying organization to compare the performance of its different business units in different time periods and locations (Jones & Sasser, 1995). (2/37)
  4. • CSM is useful for assessing the effectiveness of efforts to redesign elements of the service delivery system (Chase & Bowen, 1991; Juran & Gryna, 1988). • Customer satisfaction can be used as a basis for customer segmentation (Athanassopoulos, 2000). • According to McColl-Kennedy and Schneider (2000), measuring customer satisfaction is not a neutral act, but an intervention. The opinions of the customer whose satisfaction is measured can be affected by the measurement process • CSM can be used by the supplier as a symbolic activity for demonstrating customer- oriented behaviour (Kujala & Ahola, 2004). Striving for high customer satisfaction can be considered important, since increased customer satisfaction has been linked to customer behaviour that positively affects business results (e.g. Kotler, 1994; Rust & Oliver, 1994; Vavra, 1997; Lam et al., 2004). We did not find any academic papers focusing on CSM in a project-based B2B context and only a rather limited number of papers that focused on CSM in a general B2B context. We presume that in practice, many project-based organizations among other organizations operating in B2B markets are measuring customer satisfaction with methods developed for B2C market contexts without clearly understanding that several of the underlying assumptions inherent in these methods are not valid in a B2B context (Rossomme, 2003; Kujala & Ahola, 2004). According to Piercy (1996), this may lead to considering CSM as a superficial and unnecessary activity which is likely to limit the utilization of the CSM results. (3/37)
  5. The research focus in this paper is to point out the key differences between traditional, product or service offering B2C organizations and project-based B2B organizations that are relevant for implementing CSM practices. In accordance with Kujala & Ahola (2004) we define customer satisfaction measurement system to include entire process consisting of: • Gathering information concerning customer satisfaction • Assessing the validity and reliability of this information • Using this information in decision-making processes This wider definition emphasizes the use of information. Loomis (1999) has demonstrated that there are significant challenges related to the use of customer satisfaction information in organizational decision making processes. This paper is structured as follows. We first discuss the factors that differentiate organizations operating in B2C markets from project-based organizations operating in B2B markets and that are relevant for measuring customer satisfaction. Secondly, we review three different methods for measuring customer satisfaction. Thirdly, we present hypotheses that allow assessing the suitability of these different methods for project-based organizations. Finally, in the concluding section, we discuss the implications of our paper for project-based organizations and propose avenues for further research. (4/37)
  6. Differences between B2C and project-based B2B organizations that affect measuring customer satisfaction In a B2C context the customer can often be clearly defined. The customer is in most cases an individual person that purchases a specific product or a service for a specific price. For a project- based B2B organization this is typically not the case. It is other organizations that buy projects from the supplying organization, but individual persons within these organizations that make the actual buying decisions. This makes defining the customer difficult. Should it be the entire purchasing organization, or one or several individuals within this organization? Clearly, this question has great implications towards measuring the satisfaction of the customer. One should also consider how the concept of satisfaction is defined. Oliver (1997) defines satisfaction as “pleasurable fulfillment”. He further links this fulfillment to an act of consumption by the consumer. Oliver’s, like most existing definitions of satisfaction, view satisfaction as a function of what is expected and what is experienced by the customer. But as stated earlier, the customer is not clearly defined in a B2B context. It is important to differentiate whether CSM is focusing on the satisfaction of the customer organization as a whole or the satisfaction of certain individuals within that organization. These are clearly two different issues, since in the context of a project delivery, there are several individuals involved from both the buyer and seller sides. Another issue is the experience of consumption linked to most definitions of satisfaction. In a B2B project delivery, not all individuals from the purchasing organization that are involved in the project participate directly to the consumption, or use of the delivered project. (5/37)
  7. It is rather straightforward to reason that in a project-based B2B context, to ensure the continuation of a business relationship, the supplier needs to keep several individuals from the customer’s side satisfied. However, it is also typically the case that certain individuals from the purchasing organization have more influencing power in project purchase decisions1, and thus their satisfaction matters more that the satisfaction of those individuals who do not possess such power (Silk & Kawani, 1982). Therefore, it can be argued that the aggregate satisfaction of the buying organization is a rather complex function of satisfactions of individual, from an importance viewpoint, non-equal persons within that organization. To contrast this to a B2C context, there it is often enough if the satisfaction of one individual can be ensured to keep the business relationship alive. Several researchers argue that in a B2B context, measuring the satisfaction of one key informant suffices (e.g., Pennings, 1979; Phillips, 1981; Conant et al., 1990). It can be argued that in a project-delivery context, a relying on the satisfaction of single key informant does not produce accurate results since, different individuals within the customer organization have differing power to affect decision-making (Silk & Kawani, 1982) and differing satisfaction elements (Rossomme, 2003), i.e. elements that affect the level of satisfaction, and one can argue that a single key informant is unlikely to represent the aggregate satisfaction of the entire organization, and even if such person did exist, it would often be very difficult for the supplying organization to identify this person. This would require some kind of method or “influence screen” 1 This importance and power of different individuals to affect project purchase decisions can also be considered from another viewpoint. For example, several authors refer to gatekeepers, persons who have a great amount of power to control the information that crosses organizational boundaries. Clearly these individuals, even if they do not make the project purchase decisions, have significant power to affect them. (6/37)
  8. (Rossomme, 2003) specifically designed at identifying the key informant, whose satisfaction should then be measured. Clearly, in traditional B2C CSM, no such processes are required. The importance of a customer account typically differs significantly between B2C and project- based B2B organizations. Project-based organizations often have a very limited amount of customers and are very dependent of each of these customer accounts, when in B2C context the customer base is often large and the dependence on one account is low. This has implications for measuring the satisfaction of these accounts, and it can be argued, that it can be worthwhile to invest more resources in measuring the satisfaction of one customer account, when the customer base is small, since if the results of the measurement activity are not correct, the financial implications for losing a customer are significantly higher. This issue has direct implications towards whether or not customer satisfaction should be measured by different methods in B2B and B2C contexts. This question is answered in the later sections of this paper. Another key difference between a B2C product or service provider and a B2B project-based organization is the nature of the organization’s offering. In a B2C context, the offering is typically either a product or service and thus the CSM typically focuses on measuring the customers satisfaction towards some elements (or attributes) of this offering. Which attributes should be measured and how each attribute’s relative importance should be calculated is under continuous scientific debate. In the context of B2B project deliveries, the offering often contains a complex product (or hardware) component, and a service component including all the interpersonal interactions related to conducting business between two organizations. The complex technical nature of project product, which is intended for generating revenues for customer over long period of time, makes it difficult for the customer to give an informed opinion how satisfied (7/37)
  9. he is to specific product features. When comparing B2B project-deliveries to B2C product or service offerings, it is in the former case even less clear, which attributes should be measured and which of these two attribute-laden components (hardware and service) is more important towards the aggregate satisfaction of the customer. According to Granovetter (1985), embeddedness, or social bonding has great implications for economic activity. Individual persons do not make purchase decisions solely by technical reasoning, but interpersonal social ties significantly affect these decisions. Interpersonal social ties and trust play a greater role in interorganizational economic exchange than they do in B2C commerce, since B2B exchanges tend to involve significant amounts of money, risk, and persons. According to (Crosby et al., 1990), interpersonal relationships may be strengthened by investments to social resources such as respect, concern and advice, and according to Bolton et al. (2003) social bonds may even be stronger than structural bonds in an interorganizational business relationship. Social bonding between individuals is linked to past experiences between them, and one component of these experiences is the satisfaction towards the behaviour of the other person. Following this line of reasoning, one can argue that in B2B commerce, customer satisfaction is affected significantly by factors that are not directly linked to the product or service component of the offering, but to how persons from two different organizations get along. These social bonds play a very crucial role in project-based business, since the definition of the project is often influenced via negotiations (Cova et al., 2002). If the chemistry is not there, for example, because of weak social bond resulting from breach of trust in a previous project, the seller will probably find himself in a disadvantageous position. (8/37)
  10. One of the specific features of project business is frequent interaction and joint construction of project product with supplier and customer during the project delivery process (Gordon et al., 1993). Customer satisfaction is not influenced only by product and service quality, but how they perceive the quality of project delivery process. This feature further increases the importance of maintaining high level customer satisfaction, because satisfied customer is more willing to co- operate and accept compromises leading to flexible delivery process (Kujala & Ahola, 2004). Measuring customer satisfaction In this section, we first discuss three different methods for measuring customer satisfaction, the customer satisfaction survey, two incident-based techniques (critical incident technique and sequential incident technique), and measuring customer satisfaction by interviews. Additionally, we briefly discuss the use of indirect measures of customer satisfaction, such are repurchase intentions, customer retention and profit. The purpose of this section is to point out the key differences between these methods. Our review of these methods is primarily based on literature covering the topics of CSM, and service quality measurement. Service quality is distinct from customer satisfaction but the two concepts overlap considerably and their boundary can be argued to be somewhat blurred (Robinson, 1999). (9/37)
  11. Customer satisfaction survey Most academic studies and papers clearly consider CSM as an activity that is based on standardized questionnaires that are delivered to a sample of the customer base. These quantitative multi-attribute questionnaires are then analyzed via statistical techniques. To ensure the reliability and generalizability of these results, the sample size needs to be considerable, normally in excess of 50 customers per surveyed segment. Surveys are used to assess the satisfaction of customers towards physical products and intangible services and in addition to the traditional B2C context, they are also utilized in a B2B context (Bearden et al, 1993; Kujala & Ahola, 2004). Most academic papers have aimed at contributing to extant knowledge by defining the various attributes of the product or service offering to measure (e.g. Parasuraman et al., 1985; Bolton & Drew, 1991; Bitner et al., 1990), how they should be measured e.g. should you measure the customer’s perception of the offering (Cronin & Taylor, 1992 & 1994) or the difference between customers expectations and experiences (Parasuraman et al., 1985 & 1988 & 1991), and to how the relative importance of these attributes should be calculated (e.g. Green & Tull, 1975). Customer satisfaction surveys usually fulfil three organizational needs: • They enable the organization to compare the performance of its different business units in different time periods and locations (Jones & Sasser, 1995). • They can produce rich information for generating continuous quality improvement activities, when they are examined carefully and used within a consistent framework (Lin & Jones, 1997). (10/37)
  12. • They are useful for assessing the effectiveness of efforts to redesign elements of the service delivery system (Chase & Bowen, 1991; Juran & Gryna, 1988). There are, however, some inherent problems regarding to survey-based CS measurement. Firstly, the amount of attributes in a survey is always limited, i.e. a survey cannot contain all possible attributes affecting customer satisfaction, because this would make the questionnaire very long, severely limiting the amount of customers willing to complete it. Secondly, customers have to aggregate their product or service consumption experiences in a potentially problematic way. For example, when rating “the friendliness of staff”, a customer has to aggregate her answer is she has encountered friendly and less friendly staff. Thirdly, the operationalization of the satisfaction attributes is problematic, since customers always interpret the questions contained in the survey in more or less different ways. This decreases the reliability of the results. Two major streams of research have emerged around how customer satisfaction should be measured. The “gap analysis” approach examines differences between customer expectations and the performance of the organization’s offerings (see e.g. Parasuraman et al., 1985 & 1988 & 1991). Another stream of research is the performance-based approach (or linear regression approach) (see e.g. Cronin & Taylor, 1992 & 1994), where only the customers’ perceptions about the performance of the company’s products and services are assessed. Overall satisfaction is then assessed on the performance scores of various attributes. Both of these methods have their strengths and weaknesses, which are discussed in detail in Danaher (1997). Some common problems related to customer satisfaction surveys is their tendency to show a high level of satisfaction, a lack of standard satisfaction scales and the proliferation and excessive use of surveys (Altany, 1993; Mehta, 1990). Additional problems mentioned are haphazard sampling (11/37)
  13. procedures, the quality of survey data and instruments, non-response problems and problems relating to reporting and interpretation of the results of the survey (Lin & Jones, 1997). Standardized survey-based CS measurement can be argued to be based on a positivistic view of reality. Customer satisfaction as a whole can be understood and measured when the product or service offering is divided into several measurable attributes. These attributes then mathematically relate to overall satisfaction. Standardized and customized surveys When implementing survey-based satisfaction measurement, the supplier can either utilize a standardized and tested scale, such as SERVQUAL (Parasuraman et al., 1988 & 1991), modify a standardized scale to better suit its business context, or develop the entire scale in-house. Standardized scales have usually been rigorously tested for the validity and reliability of results. However, because they are often developed to be used by different organizations operating in different contexts, some measures involve clear compromises and do not optimally fit the operating context of an individual organization. Customized surveys developed in-house by the supplier have the advantage that the measures are developed with managerial knowledge and expertise of the specific business context (Jeffries & Sells, 2000). However, their validity and reliability is hard to verify. In addition, the results obtained with the use of customized surveys cannot be compared with results obtained with standardized scales. This can make benchmarking of CS difficult or impossible between organizations and if the supplier uses different customized surveys for each of its sub-business units, comparison of CS may not even be possible between them. (12/37)
  14. Critical incident technique (CIT) and sequential incident technique (SIT) As a method for assessing customer satisfaction CIT (and SIT) allows the detailed description of problematic customer incidents as the customers perceive them (Flanagan, 1954). CIT also allows the categorization of the critical incidents into homogenous groups, and thus makes limited generalization of the results possible. The underlying assumption behind critical incident technique (CIT) is that customer satisfaction is strongly affected by very positive or negative experiences in the product/service delivery and consumption processes. These two techniques have been used primarily in the B2C service context (Bitner et al, 1990), but have also been successfully applied in B2B contexts (Lockshin & McDougall, 1998; Franco et al., 2004). By systematically documenting critical incidents, the supplier organization can gather valuable information regarding to the events that have very significantly affected the satisfaction of its customers. Sequential incident technique (SIT) is very similar, but it also records usual events that do not affect customer satisfaction in the same degree than critical incidents do. Both techniques use qualitative interviews to collect customer incidents. Collected data is then sorted into groups containing similar incidents. The main strengths of CIT and SIT are as follows: • They have the ability to record incidents, which significantly affect customer satisfaction in a manner that is very natural to the customers (Flanagan, 1954; Nyquist & Booms, 1987). (13/37)
  15. • They are not limited to a set of pre-determined attributes that can or cannot capture the key events significantly affecting the satisfaction of individual customers. • They are able to produce very detailed descriptions of the events behind satisfaction or dissatisfaction, descriptions that are often useful for product or service development functions (Bitner et al., 1990; Nyquist & Booms, 1987). The key weakness of CIT and SIT is that when recording the customer incidents, they cannot determine the relative importance of these incidents (Stauss & Weinlich, 1997). Some incidents have more influence and the satisfaction of some customers is more easily influenced, and this is not taken into account in these techniques. To tackle this problem, Edvardsson and Roos (2001) proposed a technique for analyzing the criticality of critical incidents from a customer viewpoint, but there is no evidence supporting the widespread use of this technique. From an epistemological viewpoint, CIT and SIT is based on an interpretative or constructivist view of reality. To understand when and how customer satisfaction has been affected, the supplier utilizing CIT or SIT does not concentrate on isolated elements but tries to gain a holistic picture of the events and their interrelations that together form customer satisfaction or dissatisfaction. Measuring customer satisfaction by interviews The interview method for measuring customer satisfaction provides a qualitative approach, which avoids many of the problems associated with the survey method. Interviews can be arranged in (14/37)
  16. several different contexts such as individual customer visits, focus groups and customer seminars (Yang, 2003b). However, there have been no studies focusing on how widespread and systematic the use of interviews for assessing customer satisfaction is in a project-business context. The utilization of interviews to measure customer satisfaction can result in several benefits: • They encourage the customer to discuss various elements and incidents affecting customer satisfaction in great detail. This information can then be used by the supplier to improve its operations. • Because in a B2B project-delivery context, the supplier is typically in contact with several customer personnel, interviews allow the supplier to gain a holistic view of how different individuals perceive the supplier and which persons within the customer organization are most important for aggregate satisfaction of the customer organization. • They can promote interpersonal bonding between customer and supplier personnel. • The interviewing situation involves two-way interaction and gives the supplying organization the possibility to explain why it has behaved in certain ways. For example, a person within the customer organization can be dissatisfied with the supplier organization, but if the supplier is capable of giving a solid explanation of what has happened and why as well as provide a solution that will correct the situation, a considerable positive impact towards the satisfaction of the customer is possible. A major drawback of using interviews for measuring CS is the method’s very limited ability to produce generalizable results, since interview data that is not based on strictly structured, formal interviews is so context dependent that it often cannot be generalized. Another key weakness of (15/37)
  17. the interview method is the fact that it is very resource consuming. Both the supplier and the customer need to allocate a significant amount of their employees’ time to the process. From an epistemological viewpoint, the customer satisfaction interview is based on an interpretative or constructivist view of reality. The supplier aims to understand how satisfied different individuals at the customer organization are, what are the reasons behind satisfaction or dissatisfaction and how these different individuals, with differing possibilities to affect the customer organization’s decision making, and their satisfaction contribute towards the satisfaction of the customer organization as a whole. In this case, the measurement of CS includes the identification of key individuals and their relative importance and the measurement / assessment of each key individual’s satisfaction or dissatisfaction and the underlying reasons. The interviewing skills of the person conducting the CS interviews are essential in ensuring the validity and reliability of the results. Summarizing our argumentation, Table 1 presents the key dimensions, which differentiate the three discussed methods for measuring customer satisfaction. TABLE 1 – Common methods for measuring customer satisfaction and their key characteristics Methods for measuring customer satisfaction Characteristics Standardized or Critical incident technique Interview (telephone or (16/37)
  18. of methods customized customer (CIT) & Sequential incident personal) satisfaction survey technique (SIT) Formality High / moderate Moderate Low Underlying Satisfaction is attribute- Satisfaction is incident-based Satisfaction is based on how Assumption(s) based individual persons’ expectations towards the supplying organization are met Customer base Large Medium / small Medium / small Sample size Statistically significant Limited sample of customer Limited sample of customer proportion of customer base base base Sample Homogenous segments Typically a group of Heterogeneous customer homogeneity can be identified homogeneous customer base with differing needs personnel (e.g. end-product users) Analysis of Quantitative Mostly qualitative – content Qualitative data analysis, grouping incidents into heterogeneous categories Typical Mass-produced Services, both mass- Customized consumer industry consumer goods and produced and customized services, B2B services, B2B context where services project-delivery (17/37)
  19. applied Results Product / service Service development Managing individual commonly development function, function, individual service customer relationships, used for Benchmarking employee feedback, service managing ongoing projects, recovery service recovery View of reality Positivistic Interpretative, constructivist Interpretative, constructivist Validity of Selection and The ability to correctly Selection and skills of the results depends operationalization of discuss and record incidents interviewers on attributes Reliability of Stability of measures The ability to generalize Selection of interviewers and results depends and response bias incidents into homogeneous informants on categories Limitations -Limited number of -Results can often not be -Very time consuming for attributes generalized supplier and customer -Forced aggregation of -Difficult to analyze data -Hard or impossible to experiences with statistical methods generalize results -Differing interpretations of survey questions Indirect measures of customer satisfaction (18/37)
  20. In addition to measuring customer satisfaction directly by the methods discussed earlier, it can also be measured indirectly based on different factors such as customer retention, product prices relative to competitors’ products, process efficiency or ultimately even profit level. Customer satisfaction has been proven to have a positive correlation with customers’ repurchase intent (Cronin & Taylor, 1992; Oliver & Swan, 1989). Rust (1994) provides a detailed model of the influence of customer satisfaction on financial performance. However, studies focusing on the relationship between customer satisfaction and profits have produced somewhat conflicting results. Some researchers (Nelson et al., 1992; van der Wiele et al., 2002) have shown a positive correlation between customer satisfaction and profits, while other researchers such as Tornow & Wiley (1991) discovered a negative correlation between customer satisfaction and financial performance. Indirect measures of customer satisfaction provide simple ways of assessing the state of customer satisfaction. They do not consume very much of the suppliers resources, but it must be noted that they are always based assumptions about that customer satisfaction correlates positively with these measures of organizational effectiveness and efficiency. There is very limited amount of studies that focuses on impact of customer satisfaction in project-business. I can be also argued that in project-business each customer relationship is specific and thus solely focusing on indirect measures involves a very high risk of making wrong conclusions. For example, high customer retention may be the result of supplier being able to sell to the customer in a situation in which they have no viable alternatives, even if the customer is dissatisfied with the supplier. We also note that the above mentioned studies focusing on indirect measurement of CS do not directly focus on project-based business, and their generalizability to a project-based B2B context is questionable. (19/37)
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