Should One Profit From Failures?

“Do not improve reliability as it cuts into our repair activity profits.” Is this a way to run a reliability program?

I’ve seen this in action and that company is no longer in business. In another situation the field service department withheld vital information to improve products lest his department (and self-importance) dwindle.

Is this a bad business model, or is it just my thinking it not so smart?

Examples of Profiting from Failures

Here are three short examples of organizations profiting from failure.

Military Market

A company receives a contract to build a radar sensing device. The contract pays them the cost of development with a small percentage for profit. It’s all fixed in the contract and there is no room to increase profits though the design process.

Since this is a very specialized piece of equipment, the group that designed and built the box is the only one that can perform repairs on the box. They can charge what the want for the repairs. And they do so. 90% of the organizations profit is from repairs of their own boxes.

The design process did not permit any prototypes, no testing other than on units they would ship, and no extra components for any subsystem evaluations or testing. The development focus was to get the units working and not spend a penny more. The FMEA, required by contract, was outsourced to a group that could do it cheaper then doing it in house. The development team did not read nor use the FEMA (thus a was of money – except for the small profit from checking it off the list).

The product technically met the contract specification for reliability, yet was routinely in for repairs. Eventually the cost of the repairs encourage the military to find a different solution, and they did.

A Contract Manufacturer

This group could design, build and service a wide range of products. In one instance, the design required tight tolerances which their own manufacturing process could not achieve. The process capability pretty much ensured a relatively high yield loss and/or high field failure rate.

This wan’t really obvious given the rush to market to achieve the ‘on-time’ bonus. The team noticed a relatively high set of charges for production repairs and for similar field service repairs. Even though the CM has control to change the design to improve yield and reduce field failures, they were reluctant as the repair teams were busy and generating profit along the way.

The organization the commissioned the product, sold the item under their brand, and monitored the design, assembly and repair processes, lost money with every sale and eventually shut down the product line.

Customer Service

Years ago Dell Computer enjoyed higher customer brand loyalty after the customer had a computer failure. A Dell computer failure. The Dell customer support was amazing. They helped to solve problems and took steps to make sure the customer was completely satisfied with the repair and repair process.

In survey after survey Dell customers loved the brand, in particular is they had called customer support. Other computer makers worked to improve product reliability and save money on customer support and ranked well behind the rabid fans of Dell.

A happen customer is more likely to buy the brand that makes them happy. Dell enjoyed repeat sales and a high amount of word of mouth advertising. The reliability of their computers was actually worse then other brands, yet that didn’t matter.

At some point the Dell customer support cut costs and lost the advantage the support team provided. They lost market share until they improve product reliability to at least as good as others.

Summary

In two cases, the focus on making money from failure didn’t turn out well.

In my opinion it a foolish business model to count on profits generated by making a marginal product. It is a short term strategy that is not sustainable. Improving reliability, delighting customers, not only meeting, by exceeding reliability performance expiation should be the objective. Working to save money of development and shipping ‘good enough’ products while enjoying profits generated from overcharging repair processes, works for a while. Sure.

Customers have options and eventually someone will provide a reliable solution and take the market.

Customers continue to expect phones, cars, and most everything else to be more reliable today then a year ago. And, less expensive, easier to use, etc. Make your profit by making product customers want and do not require repairs to keep running. Make your profit making reliable products.