[SysOp note: the electronic version of this article inluded no graphics or figures. Tom Glenn, the TQM BBS (301-585-1164).] ----------------------------------------------------Business Index & ASAP------ AUTHOR(s): Ferrell, Susan F. Ferrell, William G., Jr. TITLE(s): Using quality function deployment in business planning at a small appraisal firm. illustration table chart Summary: Quality Function Deployment (QFD) is a quality improvement tool typically associated with manufactured products in large manufacturing firms. This article illustrates how QFD is ideally suited for business planning in small appraisal firms because it formally translates customer requirements into specific actions a business can take to satisfy those needs. A case study is presented that is based on successful application of QFD in an established appraisal business. (Reprinted by permission of the publisher.) Appraisal Journal p382(9) July 1994 v62 n3 DESCRIPTORS: Real estate industry_Quality control Valuation_Planning Real estate appraisers_Management Corporate planning_Technique The meteoric improvement in the quality of Japanese products that became obvious in this country during the 1970s resulted from decades of integrating quality improvement methodologies throughout every facet and level of manufacturing and management. One of the tools that had been in use for a number of years was Quality Function Deployment (QFD)(1). This article focuses on the application of QFD in a small appraisal business. QFD is a technique that translates customer requirements expressed in the customers' language into action-oriented items an appraiser can perform. While listening to customers has always been a good business practice, QFD formalizes the somewhat arbitrary practice of just listening to and then trying to meet some of the customers' needs by creating a ranking of the most important customer requirements. An appraiser can use this ranked list to select future actions that will satisfy the maximum number of the customers' high-priority issues. When applied in a small appraisal firm, QFD provides an additional advantage: The methodology is qualitative in nature and can be applied routinely as clientele shifts. This article describes the use of a modified QFD procedure in a small appraisal firm's effort to improve the quality of service provided to the customers. The methods presented here, as well as more sophisticated extensions, are as applicable to large companies as they are to a one-person shop. The article also presents a general description of QFD followed by a case study in implementing a modified version of QFD at a small appraisal firm. BACKGROUND OF QFD QFD reportedly was developed at Mitsubishi's Kobe shipyard in the early 1960s. Mitsubishi recognized that improving the quality of its products was essential to business success, and this emphasis led Mitsubishi to the conclusion that customer requirements simply had to be integrated into the design of a product. The technique developed to achieve this objective was QFD, a methodology sufficiently rigorous to ensure consistency in repeated application but flexible enough to allow different kinds of customers (e.g., those with different sophistication levels) to provide input and express their opinions and preferences. The key contribution of the methodology is that customers state their ideas, opinions, and preferences in their language, which QFD then translates into useful business actions. The basics of QFD lie in the use of a series of matrices to translate customer requirements into actions over which the business has control. While a complete QFD study requires a series of four or more matrices, the small business application presented in the case study requires only a modified version of the first matrix, which is often called the "house of quality." The approach reported in this article is based on initially viewing the appraisal business as a simple process: Customers request a service and the appraiser supplies this service. Clearly, this process could also be viewed as a complex system with enormous detail; however, it is not recommended that the initial QFD study be conducted from this viewpoint because it is easy to get caught up in the details and miss the very important, macroscopic points. The basic approach of working from a simple view of the system toward a complex view is supported by others who have implemented this methodology. Further, use of this approach is supported by a basic tenet of quality improvement: Improvement is achieved through a continuous and iterative process in which future cycles enhance successes and correct failures. For small firms, more sophisticated facets of the methodology are easily accommodated in later cycles of QFD should the need arise. THE BASICS OF QFD Figure 1 illustrates a generic house of quality (the term reflects the general shape of the matrix) that has been simplified by removing some of the features found in "textbook" explanations of QFD. Each segment of the matrix is important in assessing customer requirements, the actions over which a business has control, and the relationship between these items. To convey the essence of the procedure, a brief description of each area of Figure 1 is presented. (The first five segments are discussed in the order used in the case study.) * Customer requirements. This area is where customer requirements are identified and documented in the customer's own language. A customer might want an appraisal to "look professional" and "be cost effective" even though the appraiser may not immediately know how to accomplish both of these goals simultaneously. Regardless, the requirements are recorded in these rows just as a customer conveys them. * Relative importance of each customer requirement. All customer requirements are not of equal importance to the customer. The relative importance of the requirements is reflected by assigning a relative weight to each of them. Typically, the weight follows a 10-point scale, with 10 assigned to the most important factors. Note that this is not an ordered list, hence numbers can be repeated. For example, if there are five customer requirements, two might be rated as 10s, another as an 8, and two as 4s. It is not necessary to identify the most important requirement as a 10, the next as a 9, and so on. * Business parameters. The business parameters that might be used to satisfy the customer requirements are listed across the ceiling of the house of quality. The parameters are written in the language of the business. Traditional QFD is modified here because of the additional requirement that the business parameters must also represent actions over which the appraiser has control. For example, each appraisal can be hardbound (to meet a need for a professional appearance), and an appraiser can carry a mobile telephone at all times (to meet a customer requirement for quick responses). * Relationship matrix. Relationships between the customer requirements and the business parameters are developed in the body of the matrix. The relationships are usually specified as "strongly related," "moderately related," "weakly related," or "not related," and the matrix is developed using a symbol for each. In the case study, strengths of the relationships are represented by a filled-in circle, an open circle, a triangle, or a blank space, respectively. * Computed ranking of business parameters. The results of fundamental computations integrating the information previously identified are presented in this area of the house of quality. The business parameters are ranked such that those with the highest score will have the greatest impact on the most important customer requirements and will address the greatest number of customer requirements. The calculations are simple: 1) convert the strength-of-relationship symbols to numbers (e.g., strong = 9, moderate = 3, weak = 1, not related = 0); 2) working with one column at a time, multiply the numerical equivalent of the strength of relationship by the degree of importance for each row and sum these products down the column; 3) once the column sums are computed, calculate the percentage that each column represents of the total row sum. The case study illustrates this procedure using actual numbers. * Competitors' positions. In a competitive market, realistic assessment of both the competition and your own capability is important. The case study does not include this section because the objective of this first QFD application is to make adjustments with regard to the customer requirements rather than make changes based on relative position with regard to the competition. If a business is in a market with keen competition, or if the business has already begun modification based on customer feedback, early inclusion of this component will be more important than it is for the case study. * Correlation between business parameters. Another segment of traditional QFD that is not used in the case study is represented by the "roof" of the house of quality. The purpose of this step is to define relationships between the technical requirements, especially those that may require a trade-off in the final analysis. For example, there would be a strong relationship between "hiring office support staff" and "keeping overhead to a minimum." Indeed, these two would conflict at some level and would require a trade-off if each were found to be important. For consistency, the symbols used in the relationship matrix are often used in this area as well. The reader should be aware that this section is not intended to be a "how-to" guide for conducting QFD studies; rather the purpose is to introduce the basic concepts of this powerful methodology.(2) QFD AND APPRAISERS In retrospect, it is clear that Mitsubishi "discovered" a useful concept that actually makes good, common sense for growing and maintaining a business: Align routine business practices so the customer is delighted with the product. Three tenets that support this conclusion are particularly relevant to appraisal businesses: 1. Product quality, be it perceived or real, is important to each customer and factors highly in future decisions. This means an appraiser should deliver products that satisfy and delight the customer while meeting professional standards and applicable laws. 2. Customers identify two aspects of a product or service: a) the ability of that product or service to meet the minimum requirements for which it is to be purchased (needs), and b) those features of the product or service that delight the customer by going above and beyond the minimum requirements (wants). For the remainder of this article, the word "requirements" will refer to both needs and wants. The appraiser who supplies service satisfying more of the wants (in addition to all of the needs) will gain market share. 3. Routinely identifying customer requirements and quickly integrating them into the product is critical to business growth. Small appraisal firms must realize, as Mitsubishi did, that marketing alone is not enough. Satisfying all the clients' needs and addressing an ever-increasing number of wants is the key to a healthy business. Minimum standards exist for the work itself as mandated (directly and indirectly) by the Appraisal Institute and state law. But routine actions that do not jeopardize standards compliance may nevertheless affect a customer's perception of appraiser quality. For example, scheduling jobs, setting appraisal fees, polishing the appearance of final reports, and maintaining punctual and prompt personal contacts are a few daily activities appraisers can use (consciously or unconsciously) to satisfy customer requirements. QFD can assist not only in identifying which of these activities affect the customer requirements but also by providing a means to adjust the way these activities are done, thereby satisfying more customer wants. THE CASE STUDY The small business that used the modified QFD procedure is an appraisal shop specializing in commercial properties. It is a relatively new company with gross sales less than $100 thousand per year. The business has grown steadily since its inception and appears mature enough to act on changes recommended by the study. Further, the firm has attracted a number of repeat customers, and relationships are fully developed; thus customer feedback is believable. Preconceived notions As were many businesses, this firm was established by an experienced appraiser with an entrepreneurial spirit. The founder had over a decade of experience in dealing with clients, and during that time had formulated opinions on many of the business activities that would meet the customers' needs and wants. These opinions, as well as the unconscious ranking that had also taken place, dominated the planning effort prior to initiating the business. These preconceived notions led to a great deal of effort in planning to: * Arrange a fee structure that satisfies the customer * Control costs * Provide a scheduling mechanism to bid "quick turnaround" jobs * Provide evidence of longevity in the present locale * Ensure the work is performed by an MAI * Hire or appear to have office staff * Develop an impressive, professional appraisal format The reader is encouraged to revisit this list after looking at the results of the QFD study. It is interesting to compare these ideas--preconceived notions that cost time, energy, and money during startup--and the new foci as defined by the QFD study. Customer information A survey was the instrument chosen to solicit customer input because the firm believed anonymous feedback might provide more honest answers than would personal interviews. The survey solicited customers in all areas of the client base: lenders, state and local government agencies, and private-sector businesses. Nine customers were selected to participate in the study. Because leading questions can bias survey results, special care was taken to permit free-form input, yet enough structure was provided to ensure that useful feedback was obtained. A summary of the two-part survey is presented in Figure 2. Part I of Figure 2 seeks free-form input while part II focuses on quantifying, from each customer's viewpoint, the importance of various factors. It is important to note that this is a qualitative methodology that does not require a large sample size to be valid. While statistical experiments depend on sample size and randomness for validity, successful qualitative analysis is predicated on interpretation and insight. The key lies in the survey of the entire spectrum of a firm's customers and not in the actual number of surveys performed. The QFD study The information obtained from the surveys was analyzed and translated into the appropriate sections of the house of quality. While special efforts were made to ensure realistic and unbiased assessments, preconceived notions and long-held ideas can be easily superimposed on the customers' actual responses. Often, it is helpful if a third party reviews both the raw data and the translation to identify any gross problems. For example, someone who has obtained an MAI designation must be careful when analyzing responses from a customer who views state certification as the only necessary qualification. In other words, the reviewer must assess each customer's viewpoint without making judgments about responses being right or wrong. Indeed, inspection of the data in this case study will no doubt reveal bias of the authors, regardless of the care taken to avoid it. Customer requirements and degrees of importance Responses to the free-form section of the survey (part I) were combined with the evaluations of anticipated customer requirements (part II) to create the left column of the chart in Figure 3. The numerical scores indicating the degrees of importance were derived looking both at the weights customers assigned to the factors in part II and at the strength and nature of comments in the free-form section. For example, a paragraph of narrative explaining why a certain item was or was not important carried more weight than if a customer simply rated the requirement an "8." Business parameters As mentioned previously, satisfying customer requirements involves making changes to those factors that are controllable. For the case study company, the following business parameters were identified as those that could have an impact on satisfying the customer requirements: * Hire a secretary to answer the telephone and assist in clerical tasks. * Use voice mail for quick retrieval of accurate messages and as a cost-cutting device. * Add an MAI, a state-certified appraiser, or a noncertified appraiser to the staff. * Prepare a company brochure. * Hire a paralegal to research sale data and collect information found in the courthouse. * Work longer hours and at different times. * Update software (such as database, spreadsheet, and design software) to assist in relating appraisal methodology in reports. * Generalize by adding areas of expertise and expanding into other types of properties (thus making yourself a one-stop shop). * Specialize by limiting the types of appraisals (e.g., industrial and office warehouse appraisals). * Obtain a high-quality printer rather than an average-quality printer. * Have an impressive report format that exceeds expectations rather than an average format that meets minimal professional standards. * Maintain an MAI designation. * Have a conveniently located office with a professional appearance. * Ensure all appraisers maintain a professional appearance. * Add data services, such as commercial listing service or market studies of primary work areas. Relationship matrix Figure 3 also reveals the assigned relationships between the customer requirements and the business parameters. While these relationships strongly reflect the perception of the analyst, soliciting the assistance of others during the analysis can reduce bias in the results. In general, the strongest relationships will be apparent to most reviewers, even those who know little about the technical details of the business. This was the situation in the case study company analysis, as one of the authors has no appraisal experience. Prioritization The calculations described in the earlier section on general QFD analyses are summarized in the lower rows of Figure 3. The row titled "Importance weights" shows the raw scores. As described previously, these scores are obtained by converting the relationships to numerical scores, multiplying these scores by the degree of importance, and summing these products columnwise. For example, the "Use voice mail" importance weight is computed by performing the calculations using rows 5, 8, 9, and 10 (all others have relationship factors equal to zero). Hence, (9 x 9) + (9 x 8) + (3 x 5) + (9 x 8) = 240. The "Relative weights" row shows the percentage of the total score that each column represents. (The computer program used to generate the diagram rounds off the relative weights, and hence, the row sum may not be exactly 100%.) Finally, the "Target values" are determined by numerically ordering the columns by relative weight. Hence, the most important business parameter for the case study company is to specialize. Interpretation of study The results of the survey indicate that the company's "average" appraisal client wants an appraiser with integrity and experience who can quickly deliver an accurate appraisal for a reasonable fee. Customers strongly prefer telephone calls to be returned within four hours and never later than 24 hours. There was no preference as to whether a human or computer answered the telephone. The size of the appraiser's staff, business longevity in a particular location, and easy-to-follow report formats did not rank as significant considerations to the client. Another area of apparent customer indifference was the fee structure; no preference was expressed for a fixed fee, range, or hourly rate. Interpretation of these "indifferences" should be done with care to ensure that the results are consistent with common sense and current practices. Frequently, customers respond to the most desirable characteristics that are not currently available without considering the need to maintain key elements of the status quo. For example, suppose you are currently an MAI, and the results of your analysis indicate that state certification is important but having an MAI is not. It is quite possible that the customer is implicitly and unconsciously assuming that you will maintain the MAI designation while adding state certification, not trade one for the other. Information from the customer must be intelligently interpreted, not blindly accepted as the blueprint of change. The final area of questioning in the survey centered on qualifications of the people performing the work. Customers preferred the actual work be done by an MAI or state-certified appraiser, but some of the customers did not favor an MAI appraiser over a state-certified appraiser. The analysis reveals the set of business parameters most likely to effect a positive change in customer satisfaction. The top ten business parameters for the case study (with their relative weights shown in parenthesis) are: 1. Specialize in the type of appraisals performed. (11) 2. Add an MAI to the staff. (9) 3. Add data services that would make appraisal reports easier to prepare as well as more accurate. (9) 4. Get varied experience in appraising different types of properties. (9) 5. Update software to newest advances and products. (9) 6. Maintain an MAI designation. (8) 7. Add a state-certified appraiser. (7) 8. Use a paralegal for researching data and collecting information found in the courthouse. (7) 9. Work longer hours at different times. (7) 10. Complete continuing education courses. (6) While the relative weights do not differentiate very well among the business parameters with the 10 highest scores, Figure 3 shows that the next 10 are virtually unimportant (relative weights range from 0% to 5%). Within the top 10, the first six constitute more than half of the total points, and one could argue that these should determine the initial areas of focus; however, several of the items are related, so many of the elements can be addressed simultaneously. The business plan was developed using a combination of the appraiser's desires and the results of the QFD study. For example, resources were immediately committed to updating computer hardware, software, and data services. The appraiser determined that keeping an MAI designation was important, so continuing education was included in the plan. The remaining items on the list are related to growth, and some are conflicting. These apparent conflicts should be addressed creatively and not immediately discarded as impossibilities. Such resolutions often result in superior answers to the overall problem. For example, specializing (1) and generalizing (4) appear to conflict, lacking a reasonable solution. The business plan, however, addresses these issues by using a "law office" model. Specifically, both of these items can be successfully addressed if an appraisal shop employs a collection of specialists rather than several generalists. With regard to the ideas that the firm's founder had used to establish early business activities, it is interesting to note that several of the business parameters considered important at that time are shown to make little difference to the customers. For example, the mode of telephone interaction, the report format (including printer type used), and the appraiser's professional appearance were all carefully considered prior to business initiation but did not reflect the customers' true requirements. CONCLUSION The modified QFD approach outlined here preserves the basic structure and outputs of classic QFD yet removes many components that may impede its application in a small service business. Translating customer requirements into business parameters is a powerful technique for aligning a business strategy to compete successfully in any market, including the appraisal business. W. Edward Deming, one of this century's gurus of quality, might consider the resulting path an example of the "chain reaction" he saw happening in manufacturing when quality becomes the corporate focus.(3) The chain reaction begins when the QFD-recommended changes are implemented. The resulting appraisals will be of higher quality because they more closely meet customer requirements. Customers are happier with the appraisal firm, which increases market share and, in turn, creates new jobs. The caveat is that complacency kills quality. Continuous improvement--be it repeating a simple QFD study or occasionally performing a self-assessment--is the heart and soul of maintaining high-quality work. Strive for the highest quality you can. Listen to your instincts, but be sure to ask your customers if what you hear is accurate. _______________________________________________________________________ 1. J. R. Hauser and D. Clausing, "The House of Quality," Harvard Business Review (May/June 1988), 63-73. 2. Readers interested in obtaining more information can consult any number of excellent sources, including L. P. Sullivan, "Quality Function Deployment," Quality Progress (June 1986), 39-50, and Yoji Akao, ed., Quality Function Deployment: Integrating Customer Requirements into Product Design (Dearborn, Michigan: ASI Press, 1992.) These references provide descriptions and examples to help someone initiate a simple study even if he or she is unfamiliar with QFD or not particularly "technically inclined." 3. R. D. Moen, T. W. Nolan, and L. P. Provost, Improving Quality Through Planned Experimentation (New York: McGraw-Hill, 1991). FIGURE 2 The Survey Part I List up to three characteristics you consider highly important when you choose firms to deliver appraisal services. Part II The following list identities some characteristics of firms that deliver appraisal services. Please rate the importance of each item to you as a customer. Use a scale of 1-10, with 10 being highly important and 1 representing unimportant; leave blank any items that are not applicable or about which you have no opinion. You may use numbers more than once. * Deliver appraisals that meet your deadlines * Appraisal delivered by "agreed-to deadline" * Easy-to-follow appraisal format * Fair Price: Fixed fee for appraisal Fee range Hourly rate with maximum and maximum total fee * Availability of appraiser: Appraiser returns calls within four hours Appraiser returns calls within 24 hours * Telephone interface: Human answers the telephone Voice mail answers the telephone * Has a staff of more than one appraiser * Longevity in location (i.e., business established in present market for more than five years) * Qualification of personnel performing the tasks associated with an appraisal: Designated and state-certified appraiser performs all tasks Nondesignated, state-certified appraiser performs all tasks Nondesignated, uncertified appraiser assists designated, state-certified appraiser Susan F. Ferrell, MAI, is president of Susan F. Ferrell Appraisals, Inc., and is an independent appraiser. She received a BA from Wake Forest University. William G. Ferrell, Jr., PhD, is an assistant professor of industrial engineering at Clemson University. He received a PhD in operations research from North Carolina State University and regularly publishes research results on quality engineering and production control.