If you’ve been in business for a while, you’ve probably already had to work with affinity diagrams more than once. It’s a very useful tool and despite being half a century old, it’s aged quite well and still has a prominent place in many companies’ workflows. A lot of work has been simplified and streamlined with the help of the affinity diagram, but how exactly did it come to be, and who’s responsible for it?

Affinity diagrams are known under a different name in some circles the KJ method referring to the original inventor of the tool, Jiro Kawakita. They were originally designed as a tool to help groups of people reach a consensus on a difficult topic, and even though the diagram is a very basic tool without any fancy bells and whistles, it still gets the job done perfectly in this regard.

Working with Subjective Data

The important point is that affinity diagrams have to be based on some workable data, subjective facts and not the opinions of people. There is a commonly used anecdote used to explain how the KJ method has evolved, describing a military exercise in the US Army some time ago. In it, commanders were tasked with predicting enemy movements. It turned out that alone, their analyses were very far from the actual mark, but when each of them was given the opportunity to review what others had come up with, the situation suddenly became much better, despite the fact that no real new information was introduced.

That’s the goal of affinity diagrams too to consolidate multiple different points of view in a way that makes sense across the board. It has gone through some iterations over time and the method has been simplified somewhat since its original inception, but in the end, its main point remains the same. It allows you to combine information from multiple sources sometimes conflicting ones and get a better overview of the current situation by taking all those factors into consideration with appropriate weights.

Does it Really Work?

An obvious question that can arise from all of this would be about the efficiency of the method, and its actual reliability. Can we really trust the affinity diagram to consolidate multiple different points of view so effectively? There have been multiple experiments over the years, as many people have tried to verify the legitimacy of the claims of those who support the use of affinity diagrams. And so far, we keep seeing the same story over and over again the method simply works.

There are a few caveats, however. Most importantly, there are going to be some significant differences in the outcome depending on how the method is carried out exactly. Following a standardized multi-step strategy is recommended, and even though affinity diagrams leave a lot of freedom for experimentation, it’s good to know that you’re following some rigid system that can produce expected results.

Consistency is key in implementing the KJ method effectively, and if you end up modifying your approach, you should do your best to document all changes and come up with a modified plan of action. Otherwise, even if you do come across a good improvement that works better in your specific case, it might end up lost the next time you apply the method.

Conclusion

Affinity diagrams have been around for quite a while, but few people realize where they come from and what kinds of developments they’ve seen over time. They’re a very important tool when working with larger teams of people, or even smaller ones where there is still a lot of misunderstanding between the different members. It’s easily one of the best ways to come up with a solution that works well enough for everyone, even when there are some significant disagreements between the different points of view.

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Calculate Your Customer Profitability Score

To calculate your customer profitability score, simply subtract the cost of supporting a customer from the revenues they generate for you. CPS is a highly useful decision-making tool, one that is pivotal when customer-company value exchanges are in flux. The company-customer relationship is often volatile, fluctuating in response to new information. Customers don’t always value the same things, with changing needs affecting profitability. Monitoring your value stream with Six Sigma provides insight into how you can manage changes to CPS. Moreover, it can also shed light on the value of new business versus the cost of lost business. Using Six Sigma techniques like root cause analysis, affinity diagrams, DMAIC, and hypothesis testing, you can do the following:

• Select customers to target that would benefit the company.
• Separate customers to retain from customers to drop.
• Decide which customers to cross-sell, plus what products to sell to them.
• Set prices for products and services.
• Set sales compensation rates and reward program entitlements.
• Recognize customer behaviors that generate or destroy value.

Multiple types of value determine customer profitability. If you are to make the most of CPS, we recommend getting to know each one.

Historical Value

Historical value derives from long-term company-customer relationships. It is most useful when ranking your customers regarding value, plus when selecting targeted marketing groups. Similarly, historical value also impacts on your assessment of pricing and budgeting.

Current Value

Current value comes from short periods of time, usually the current or previous month, as this coincides with reporting cycles. It tends to be highly volatile, as cyclical relationship factors don’t always register within such specific time frames. The benefit of current value is that it underscores the effects of changes in the customer relationship compared to previous values.

Present Value

Present value looks to the future, specifically at revenue and cost streams of current customer business. It projects future revenues and costs, helping to model the impact of price and service decisions before you implement them. Using it effectively requires patience, but the payoff is worth the effort.

Lifetime Value

Lifetime value also focuses on the future, while acknowledging projected revenue and cost streams from existing business and prospective customers. Implementing lifetime value requires insight into your customers’ repurchase behavior. Similarly, it also entails the likelihood of the customer increasing or reducing their future business with you. Lifetime value is the optimal customer value measurement and is appropriate for just about any decision-making situation. If you can use it effectively, you can maximize profit and increase customer exposure.

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