Communicating value in business terms

It takes money to buy things, and saving money can be a virtue, a requirement or both. Therefore, while everyone theoretically believes in the importance of speed, gain and quality, most often the customer’s choice is based on price. Price is still the main driver for translation buyers.

In fact, the current system favors lower costs and loyalty rather than excellence, with quality being the unique selling proposition for the whole translation industry, thus making offers indistinguishable and hence definitely irrelevant, at least from a sales perspective.

For this reason, many are still campaigning to educate the customer. In plain words, as industry guru Don DePalma wrote in an article for the Multilingual July/August 2003 Supplement in the article “Establishing Key Performance Indicators for Localization,” “localization practitioners and suppliers [should] communicate their value in business terms.”

Value is indeed the competitive advantage a vendor could provide customers with, and the first step in making value perceivable consists in measuring performances against goals, thus substantiating one’s own existence and business on solid arguments and data that business owners can understand.

The saying “what gets measured gets done” has been attributed to Lord Kelvin, Edwards Deming, Peter Drucker, Tom Peters and others. Unfortunately, we often get hung up on metrics and measuring things to the point that we sometimes lose track of measuring what really matters. Reportedly, Albert Einstein had a sign on his office wall that stated “Not everything that counts can be counted, and not everything that can be counted counts.”

The first step is then to determine your business priorities, because on-time delivery, lead time and cost should be the most important. In other words, any organization should focus on three areas: on-time delivery, lead time from receipt of order to shipment, and the lower total cost of production. To do this, meaningful goals must be set and contributing factors must be identified. Critical success factors can be used to measure performances against prespecified benchmarks and to derive indicators to align daily activities to strategic goals. Since measurements can be very subjective, established metrics are necessary to quantify performances.

This is where performance indicators come in, expressing what is done (result indicators), how it is done (key result indicators), what to do (performance indicators), and what to do to dramatically increase performances (key performance indicators).

Maybe an automotive metaphor can help better illustrate the relationship between results and performance. The speed a car is traveling is a result indicator, while how economically the car is being driven is a performance indicator. Some performance indicators can be used to measure a business’s success as a grade of the achievement of its goals. In this respect, such indicators express the value of the business’s activities and are then called key performance indicators.

Key performance indicators should be used to manage a business by helping assess progress against stated strategies. They must then be relevant to that particular business and its strategy, and supposedly have a significant impact. Therefore, they should be revisited frequently to drive appropriate actions.

In today’s knowledge economy, company value is no longer driven primarily by physical assets, but is increasingly attributable to nonfinancial business drivers. Success and future value creation depend on the effective measurement and management of these critical nonfinancial or intangible resources that comprise the intellectual capital of the business.

Key performance indicators should help monitor the production processes (such as sales orders, shipments and backlog, turnaround times, suppliers’ delivery performances and quality standards) as well as customer satisfaction and managerial weaknesses. Hence, they are essentially nonfinancial.

However, one or two financial indicators can be useful too. For example, the capacity utilization ratio is an indicator reflecting the way in which an organization uses its resources to obtain revenue and profit, thus how efficiently and effectively it is managed. It calculates the total revenues earned per euro or dollar of assets. The higher the ratio, the better.

In contrast, customer satisfaction could be a misleading indicator. It cannot be calculated out of a formula, and a higher value is not necessarily the better. It is a measure of how products and services supplied by an organization meet or surpass customer expectation, and it makes sense only when compared to specified predetermined goals. Customer loyalty would probably tell more about an organization’s capacity to satisfy and retain customers, especially when combined with client growth rate.

Every measurement should be linked to the organization’s strategy and goals, and should be known and shared by the staff, who should be empowered for participating and contributing. Measurements should enable management to take action for continuous improvement. Empowerment means, for example, that staff should be given the ability to stop a production line without consultation when a quality defect is detected.

Key performance indicators should measure profitability; marketing and sales; operational processes; and organization efficiency. Data for key performance indicators must be collected from producers, and teams must be adequately trained and supported to develop their measures. Managers should first identify the critical success factors for the organization, limit the number of performance measures and provide for a repository to record these measures. Also, they must be allowed the necessary time to learn how to collect data, which data to collect and how to understand this data. Finally, in a perspective of continuous improvement, these indicators must constantly be refined to maintain relevance.

Let’s talk for a moment about customer satisfaction, for example. A satisfaction index of 95% is not necessarily more desirable than 85%. In the latter, there is room for cost-effective improvements. The former can be misleading focused on achieving the 5% missing, causing excessive strain and dispersion of efforts without a reasonable expectation for effective improvements. Indeed, it may more easily lead to misunderstandings and losses.

Customers could be satisfied and yet not buy that much. In this case, key performance indicators must maintain the expected quality levels, possibly by querying customers about what to measure to better serve them, what is important to them and what they want to see.

In any case, the customer satisfaction index is a key performance indicator and could be a call to action. For example, if it dropped 25% in respect to last year, a few steps can be taken to try to understand why and remedy that. One could start by asking the obvious question “why has customer satisfaction dropped?” A good answer might be equally obvious: “customers do not appreciate our service.” The following question could then be “why do customers not appreciate our service?” and after a bit of research this could be answered with “they don’t know the date of delivery.” Here is a first link to other key performance indicators (delivery performance/reliability) that appear to have been overlooked.

Further questions could help, starting with “why don’t customers know the date of delivery?” It may become apparent through a series of such questions that the answer is something like “we do not have standard procedures for responding to customer inquiries,” and this will definitely call for immediate action.

Delivering in full, on time, all the time is crucial in almost any industry, and it is as important for language service providers as it is for airlines. The timely arrival and departure of planes impact nearly all the balanced scorecard perspectives of an airline. In 2013, Emirates was awarded the highly coveted World’s Best Airline award, primarily for punctuality and timeliness.

 

Lessons from ISSELservice

ISSELservice felt the need to collect and measure indicators since its foundation in early 2006 to communicate its achievements and development to its parent company, ISSELNORD. This urge became a must when ISSELservice decided to proceed with quality certification (UNI EN 9001:2008 and UNI EN 15038:2006).

So far, ISSELservice has measured its major processes: sales, marketing, management, administration, production, training, corrective and preventive actions as well as customer satisfaction, with indicators  collected from in-house developed databases and a customized translation management system (TMS). All relevant data is evaluated once a year, after comparing them with goals set and agreed upon at the beginning of each year with the company’s general management.

All relevant financial data, performance indicators — such as sales revenue, cost of sales, other indirect costs, fixed direct costs and any other type of costs — are collected in a dedicated database and can be retrieved at any time.

As far as production performance is concerned, ISSELservice decided to measure production (quality service) based on the value of nonconforming documents, the number of nonconforming words and the number of claims. Actions taken were also evaluated to achieve a higher number of preventive actions in comparison to corrective actions.

Finally, ISSELservice also measured customer satisfaction, based on the number of founded/unfounded claims. Other indicators are not relevant to this particular case, since the company is mainly working on framework agreements, in some cases as an exclusive supplier.

ISSELservice is now evaluating what has been measured so far, why these indicators are measured and whether the measurements taken correspond to its needs and goals. To this end, last year ISSELservice started investigating whether the indicators measured met customer expectations. On the basis of this analysis, ISSELservice created customer-tailored templates to measure customer satisfaction.

For this purpose, customer meetings were held to define what service aspects and requirements were to be considered important (depending on the kind of service delivered, such as text comprehension, terminology, syntax, delivery time and project management). At the same time, evaluation parameters were set on a scale from 1 to 6.

To appraise vendor performances, ISSELservice developed a special TMS report based on the data collected after each production step (translation evaluation after review and final quality evaluation carried out by the project manager in charge) on each translation job carried out by vendors.

All evaluation parameters are collected in the TMS and a vendor performance tracking report is created automatically based on a specific algorithm with parameters for on-time delivery, quantity carried out in a specific timeframe and quality.

ISSELservice is working on development of new advertising material based on its findings. In general, LSPs could sell their services by displaying the value of their business activities through key performance indicators. Just like for diamonds and pearls, an LSP could showcase its Economic Value Added, meaning the profit it earned minus the cost of financing its capital.

Quality can be a part of an LSP’s offering if communicated in business terms that the customers can perceive, understand and assess. In this case, through something like the quality index. A quality index is a multi-item measure of key dimensions of operational, product and service quality consisting of a group of key performance indicators assessing the vendor’s capacity to meet the customer’s expectations at an acceptable cost.

In the showcase, an LSP could then display its quality index, made up of six indicators:

The DIFOT (delivery in full, on time) rate conveying a measure of delivery reliability

The order fulfillment cycle time, measuring the time from an order to the receipt of the product or service by the customers

The FPY (first pass yield) rate, expressing the percentage of units coming out of a process with no rework

The rework level, giving the percentage of units requiring rework

The rate of customer complaints solved, measuring the organization’s capability to deal with customer negative feedback about the goods or services provided

The HCVA (human capital value added) conveying a measure of the extent to which staff add value to the business, calculated by subtracting all expenses except for labor expenses from revenue and dividing the adjusted profit figure by the total headcount.

For all these reasons, complaints are not problems to be avoided, but instead provide important feedback, and as such should be welcomed. Complaints allow the organization to know what is wrong with its product or service and how to improve it. Complaints highlight any weak links within the organization, and express what is important to customers or provide ideas for new products and services. Most customers do not complain and instead just take their business elsewhere. Therefore, adequate complaint handling, up to the solution of the problem and its communication to the public, could be a critical success factor.

The showcase to customers should be in the form of marketing information, though, not just cold, hard bullet-point facts. To this end, LSPs could use capability statements instead of the typical marketing flyer.

 

Capability statement

A capability statement is a brief description of the competences, skills, experiences and performances of an organization, showing why it is the best choice for a task or a project.

A capability statement should contain:

A company profile, declaring the company’s vision, mission and value statements, and its competitive advantage (how the company distinguishes itself and why it is better positioned in the market against competitors).

A listing of the company’s areas of expertise, services and subject field(s).

A listing of the company’s technologies, certifications, accreditations, licenses, clearances and awards.

A list of clients, according to subject field; this implies that different customers in different industry sectors should receive different capability statements.

A performance statement; in this respect, a few key performance indicators would help, grouped by topic and subject field relevance.

A qualification statement of senior staff and/or board of directors that should include experience, skills and basic education information.

A qualification statement of how the company performs its services.

A statement and assurance about what the client can expect from the company.

A list of strategic partners.

A testimonial or two.

Contact details, possibly for a single point to inquire according to subject field.

The layout of these details could look something like Figure 1.

In the previously mentioned article, DePalma argued that “LSPs should measure performance against goals and that practitioners both inside companies and at the firms that supply their localization service and technology needs often justify their existence and paychecks to each other, each building on the same arguments and data. Few appeal in terms that budget owners can understand, thus compounding the irony of people responsible for communication being unable to communicate.”

LSPs can differentiate themselves by signaling their offering to customers using indicators that customers can understand. For companies fully outsourcing translation projects, a vendor’s key performance indicators can make the difference in establishing a long-term supply relationship. Key performance indicators can tell customers how their translation budget is being spent, helping them run a parallel comparison with their own organization’s key performance indicators, understand localization as valuable and important and consider it worth an investment.