One of the aspects of Six Sigma that makes the process so great is the focus on the customer, and the gathering of the VOC (voice of the customer). Using the VOC information a company can begin designing ways to improve customer value, by designing products and processes that are centered around customer requirements. Doing this effectively maximizes profits while adding value to customers. In addition to these things, the company begins to build a solid foundation based on business principles that are aligned with customer expectations. The real advantage gained is the link between the customer and the company.
However, what happens when a company (or an entire industry for that matter) places the highest priority on maximizing profits, even at the expense of customer value? My opinion is that the current financial crisis is a direct result of mortgage companies doing this very practice.
Let’s look at the “pre-bubble explosion” state of affairs in mortgages in general. How easy was it to obtain an interest-only loan from lenders in the United States? Virtually anyone could. How does an interest-only loan add value to the customer?Short-term, the customer has a lower monthly payment… but is that real value added when the customer’s monthly payments balloon in a few years, and the mathematics between annual income and amount borrowed doesn’t even make sense? Since I don’t work in the financial sector, I’m not sure, but I have a feeling that there was some hedging going on based on projected property values….
Innovation without regard to real customer value is a disaster waiting to happen, especially when customers perceive that they are getting value.
I will say that the whole interest-only mortgage design is very innovative and for sure is designed to maximize profits… but ultimately, who is paying the price for all of that “short term” innovation?