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QUALITY AND PERFORMANCE EXCELLENCE

Management, Organization, and Strategy

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QUALITY AND PERFORMANCE EXCELLENCE Management, Organization, and Strategy

E IGHTH EDIT ION

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James R. Evans University of Cincinnati

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BRIEF CONTENTS

Preface xi

PART 1 Foundations of Quality and Performance Excellence 1 CHAPTER 1 Introduction to Quality and Performance Excellence 3

CHAPTER 2 Frameworks for Quality and Performance Excellence 47

CHAPTER 3 Tools and Techniques for Quality Design and Control 105 CHAPTER 4 Tools and Techniques for Quality Improvement 148

PART 2 Performance Excellence, Strategy, and OrganizationTheory 195 CHAPTER 5 Competitive Advantage and Strategic Management for Performance

Excellence 197 CHAPTER 6 Quality in Customer-Supplier Relationships 249

CHAPTER 7 Designing Organizations for Performance Excellence 289

PART 3 Performance Excellence and Organizational Behavior 325 CHAPTER 8 Quality Teamwork 327

CHAPTER 9 Engagement, Empowerment, and Motivation 359

PART 4 Leadership and Organizational Change 391 CHAPTER 10 Leadership for Performance Excellence 393

CHAPTER 11 Performance Excellence and Organizational Change 426

Index 465

Bibliography (Available on the product website)

vi Brief Contents

CONTENTS

Preface xi

PART 1 Foundations of Quality and Performance Excellence 1 CHAPTER 1 Introduction to Quality and Performance Excellence 3

Quality and Performance Excellence 5 / The Importance of Quality in Organizations 7 / A Brief History 9 / Quality in Organizations 15 / Principles and Practices of Total Quality and Performance Excellence 24 / TQ and Agency Theory 38 / TQ and Organizational Models 39 / Discussion Questions and Experiential Exercises 41 / Cases 42 / Bishop’s Seafood 44 / Patterson Auto Sales and Service 45 / Endnotes 45

CHAPTER 2 Frameworks for Quality and Performance Excellence 47 Foundations of Performance Excellence 49 / The Baldrige Award 61 / International Quality and Performance Excellence Award Programs 78 / Six Sigma 90 / Comparing Baldrige, ISO 9000, and Six Sigma 95 / Discussion Questions and Experiential Exercises 96 / Cases 100 / Endnotes 102

CHAPTER 3 Tools and Techniques for Quality Design and Control 105 Designing Quality Goods and Services 108 / Designing Quality Processes 120 / Process Control 125 / Statistical Thinking and Process Control Tools 128 / Process Design and Control in Action 134 / Lexus 135 / The Kroger Company 136 / Chugach School District 138 /

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Discussion Questions and Experiential Exercises 141 / Cases 142 / Endnotes 146

CHAPTER 4 Tools and Techniques for Quality Improvement 148 Process Improvement 150 / Improvement Processes 154 / Tools for Continuous Improvement 160 / Breakthrough Improvement 172 / Creativity and Innovation 178 / Process Improvement in Action 182 / Discussion Questions and Experiential Exercises 186 / Cases 188 / Endnotes 193

PART 2 Performance Excellence, Strategy, and OrganizationTheory 195 CHAPTER 5 Competitive Advantage and Strategic Management for Performance

Excellence 197 Quality, Competitive Advantage, and the Bottom Line 199 / Sources of Competitive Advantage 203 / Quality and Differentiation Strategies 206 / Information and Knowledge for Competitive Advantage 216 / Strategic Planning for Performance Excellence 219 / Strategic Planning for Performance Excellence in Action 236 / TQ and Strategic Management Theory 242 / Discussion Questions and Experiential Exercises 243 / Cases 245 / Endnotes 247

CHAPTER 6 Quality in Customer-Supplier Relationships 249 Customer-Supplier Relationships and Performance Excellence 251 / Principles for Customer-Supplier Relationships 255 / Practices for Dealing with Customers 258 / Managing Customer Relationships 266 / Practices for Dealing with Suppliers 270 / Quality Customer-Supplier Relationships in Action 274 / Customer-Supplier Relationships in Organization Theory 276 / Discussion Questions and Experiential Exercises 281 / Cases 282 / Endnotes 286

CHAPTER 7 Designing Organizations for Performance Excellence 289 Organizational Structure 291 / The Functional Structure 292 / Redesigning Organizations for Performance Excellence 294 / Organizational Design for Quality in Action 311 / Comparison to Organizational Design Theory 314 / Discussion Questions and Experiential Exercises 318 / Cases 319 / Endnotes 322

PART 3 Performance Excellence and Organizational Behavior 325 CHAPTER 8 Quality Teamwork 327

The Importance of Teams 329 / Types of Teams 330 / Cross-Functional Teamwork 337 / Effective Teamwork 339 / Teamwork in Action 348 /

viii Contents

Comparison to Organizational Behavior Theories 351 / Discussion Questions and Experiential Exercises 353 / Cases 354 / Endnotes 357

CHAPTER 9 Engagement, Empowerment, and Motivation 359 Workforce Engagement 361 / Empowerment 366 / Employee Engagement in Action 374 / Motivation 377 / Employee Engagement and Theories of Motivation 381 / Discussion Questions and Experiential Exercises 385 / Cases 386 / Endnotes 388

PART 4 Leadership and Organizational Change 391 CHAPTER 10 Leadership for Performance Excellence 393

Perspectives on Leadership 395 / The Roles of a Quality Leader 398 / Leadership for Performance Excellence in Action 402 / Leadership Systems 408 / Performance Excellence and Leadership Theory 409 / Leadership, Governance, and Societal Responsibilities 415 / Discussion Questions and Experiential Exercises 419 / Cases 420 / Endnotes 423

CHAPTER 11 Performance Excellence and Organizational Change 426 The Importance of Change 428 / Cultural Change 430 / Sustaining Quality and Performance Excellence 439 / Organizational Change in Action 451 / Organizational Change and Organization Theory 453 / Discussion Questions and Experiential Exercises 457 / Cases 458 / Endnotes 462

Index 465

Bibliography (Available on the product website)

Contents ix

PREFACE

The American Society for Quality (ASQ) monitors news items reported in the press. What types of stories do we find? Food safety and toy recalls, health care, the automo- tive industry, and various product glitches dominate. Indeed, quality—or lack of quality—is a vital issue in everyone’s life. That’s why this book is relevant and important for today’s students and future business leaders, as well as those already in the work- force. Understanding the principles of quality and performance excellence is absolutely essential for new graduates to succeed in today’s highly competitive business world.

It is difficult for students to learn about these principles on their own, because there are so many different approaches to the topic. Although these approaches are similar, each has its own jargon and acronyms, which makes trying to pene- trate the subject for the first time a difficult experience. Furthermore, most books about quality are not written with the needs and experiences of students in mind.

This book has three objectives:

• to familiarize students with the basic principles and methods associated with total quality and performance excellence;

• to show students how these principles and methods have been put into effect in a variety of organizations; and

• to illustrate the relationship between basic principles and the popular theories and models studied in management courses.

The book presents the basic principles and tools associated with quality and per- formance excellence and provides many illustrations and end-of-chapter cases that can be used as the basis for class discussion. Many cases focus on large and small companies in manufacturing and service industries in North and South America, Europe, and Asia–Pacific.

This book is organized so that it can be used as a supplement to textbooks for courses in management, organization theory, organizational behavior, strategic

management and/or operations. The book also can be used as a free-standing introduction to quality and performance excellence in an elective course. Students who have had the basic courses in management and organizational theory and behavior will be familiar with most of the various management theories used to place quality and performance excellence principles in perspective.

CHANGES IN THE EIGHTH EDITION

This edition has made numerous changes to maintain currency of content and the student-friendly style of past editions. Discussions of the Baldrige criteria have been updated to conform with the 2015–16 criteria, and many other minor updates have been integrated throughout. New or additional boxed examples have been added, discussion questions and new experiential exercises have been added, and several new cases have been included.

ORGANIZATION OF THE BOOK

Considerable flexibility is built into the book to meet the individual needs of instructors. After the first two chapters, all others can be sequenced in almost any order. Unlike most books on quality, this one is organized according to traditional management topics. This organization helps students to see the parallels between quality principles and management theories in areas such as organizational design and leadership. In many traditional management books, quality is often presented as new or different, which it clearly is not.

Many quality principles are based on management theories that are familiar to teachers and students. The organization of this book enables students to appreciate the ways in which quality and performance excellence really are different from those theories.

The book has four parts. Part 1, Foundations of Quality and Performance Excellence, presents the core principles of total quality and performance excellence, and begins to explain how they relate to familiar management concepts. It also positions quality thinking within general business management frameworks and strat- egy, and it introduces tools used in process management. Each chapter begins with a “Performance Excellence Profile,” highlighting a Malcolm Baldrige Award-winning organization whose practices have particular relevance to the material in that chapter.

Chapter 1 introduces the concepts of total quality and performance excellence and their applicability to manufacturing, services, health care, education, and not- for-profits; the evolution of quality principles; and the modern principles of total quality and its relationship with agency theory.

Chapter 2 describes three major frameworks for pursuing performance excellence in organizations: the Baldrige Framework for Performance Excellence, ISO 9000:2000, and Six Sigma, focusing on the value of these approaches in build- ing performance excellence and evaluating their similarities and differences. The philosophies of Deming, Juran, and Crosby serve to motivate and provide a foun- dation for these frameworks.

Chapter 3 introduces process management and summarizes the most important tools and techniques for designing quality goods and services and for controlling

xii Preface

quality in manufacturing and service operations. These include topics such as qual- ity function deployment, failure mode and effects analysis, poka-yoke, statistical thinking, and statistical process control. It also discusses the role of creativity and innovation in quality, statistical thinking, and the effective use of such tools as sta- tistical process control.

Chapter 4 focuses on tools for quality and process improvement, including kaizen, the Deming Cycle, Six Sigma DMAIC, lean thinking, the Seven QC Tools, benchmarking and reengineering, and creativity and innovation concepts. The chapter presents several examples of process management in action.

Part 2, Performance Excellence, Strategy, and Organization Theory, introduces the importance of quality and performance excellence from a strategic perspective, the idea of customer-supplier relationships, and the role of organizational design.

Chapter 5 addresses the role of quality and performance excellence in organi- zational strategy for achieving competitive advantage, the value of differentiating organizations from their competitors, and approaches for doing so. It also dis- cusses quality-based strategic-planning processes and strategic work-design activi- ties. An important aspect of strategic management is the use of a “balanced scorecard” of metrics and information for data-driven decisions. This topic is also addressed.

Chapter 6 discusses the importance of customers and suppliers in a high- performing organization. It presents principles of customer-supplier relationships, practices for dealing with customers and suppliers, and examples of customer- supplier relationships in action and how they relate to organization theory.

Chapter 7 focuses on designing organizations to support a focus on perfor- mance excellence. It explains how high-performing organizations must differ from traditional functional organizations, approaches to organizational design, examples of organizations that have successfully redesigned themselves with a quality focus, and comparisons with organizational design theory.

Part 3, Performance Excellence and Organizational Behavior, discusses the themes of teamwork and empowerment, and relates quality to the topics of groups and motivation.

Chapter 8 focuses on teamwork. It highlights the importance of teams in a high- performance environment and describes the various types of teams commonly found in such organizations, including Six Sigma project teams. It also discusses what teams must do to work effectively from an organizational viewpoint, presents some examples of teamwork in action, and compares quality-based team concepts to orga- nizational behavior theories.

Chapter 9 develops the important concepts of employee engagement, empow- erment, and motivation. This chapter describes the scope and benefits of employee engagement, why empowerment is important in organizations, principles for suc- cessfully introducing and sustaining engagement and empowerment, and examples of organizations that have done so successfully. Motivation is discussed in the con- text of organizational practices that support quality efforts. These concepts also are discussed in the context of popular organizational theories of motivation.

Part 4, Leadership and Organizational Change, deals with practices for mak- ing performance excellence a part of today’s modern organizations, focusing on leadership and the journey to performance excellence.

Preface xiii

Chapter 10 is devoted to leadership, the roles of a quality leader, examples of leadership in action, and relationships with traditional theories of leadership.

Chapter 11 concludes the book with a discussion of organizational change and learning, organizational culture, and approaches for sustaining performance excel- lence initiatives for the long run. It also illustrates some examples of organizational change in action and how quality-focused change relates to organization theory.

The bibliography, available on the book’s website, provides a number of refer- ences for students who wish to deepen their understanding of various aspects of these topics.

INSTRUCTOR RESOURCES

Instructors’ resources can be found online at www.cengage.com/decisionsciences /evans. Here you will find instructional tools, including the instructor’s notes, PowerPoint slides, and the Test Bank.

Additionally, this book comes with a Cognero digital test bank. Cengage Learning Testing Powered by Cognero® is a flexible, online system that allows you to: import, edit, and manipulate content from the text’s test bank or elsewhere, including your own favorite test questions; create multiple test versions in an instant; and deliver tests from your LMS, your classroom, or wherever you want.

Access this book’s Cognero test bank through your SSO account at www. cengage.com/sso.

ACKNOWLEDGMENTS

I wish to acknowledge my friend and colleague, Dr. James W. Dean, Jr., who was my coauthor of this book in its early editions and who was instrumental in defin- ing its design and character, and integrating the concepts of quality with tradi- tional theories of management and organizations.

For previous editions, we are especially grateful to the many reviewers who provided comments and suggestions for improvement. They are:

Phyllis Alderdice, Jefferson Community College Mohsen Attaran, California State University—Bakersfield Victor Berardi, Kent State University George Bertish, University of Central Florida Dr. Joseph D. Bono, Barry University Gary Bragar, Bloomfield College Frank Carothers, Somerset Community College Robert Carver, Stonehill College Elia Chepaitis, Fairfield University Tim Davis, Cleveland State University Kevin Van Dewark, Humphreys College Dean Elmuti, Eastern Illinois University Elizabeth Evans, Concordia College Lou Firenze, Northwood University Mark Goudreau, Johnson & Wales University

xiv Preface

Marjorie Hance, College of St. Catherine Jodi Harrison, Northwood University John Hironaka, California State University Sacramento Jane Humble, Arizona State University Santiago Ibarreche, University of Texas—El Paso Yunus Kathawala, Eastern Illinois University Kathleen Kerstetter, Davenport University Dan Kipley, Azusa Pacific University Dr. Kees Rietsema, Devry Malcolm Keif, Cal Poly State University Patrick Lee, Fairfield University Roger McHaney, Kansas State University Jalane Meloun, Barry University Ellen Mink, Kentuckt Community and Technical College System Connie Morrow, Somerset Community College David Murphy, Madisonville Community College Judi Neal, University of New Haven Ken Paetsch, Cleveland State University Dr. Michael Provitera, Barry University Stanley Ross, Bridgewater State College Mark Schuver, Purdue University Kris Sperstad, Chippewa Valley Technical College Matthew P. Stephens, Purdue University Scott Stevens, Eastern Illinois University Walter Tucker, Eastern Michigan University Oya Tukel, Cleveland State University Ryan Underdown, Lamar University Thomas Velasco, Southern Illinois University Larry Williamson, Pittsburgh State University Nesa Wu, Eastern Michigan University

Finally, I greatly appreciate the help of our editors at Cengage Learning, Aaron Arnsparger, and Conor Allen, as well as our former editors at Cengage Learning, West Publishing Company, and South-Western Publishing, Charles McCormick Jr., Richard Fenton, Esther Craig, and Alice Denny.

I believe, like many business and academic leaders, that quality is an absolute essential not only for competitive success in business but also for meaningful work and integrity in many aspects of life. If this book helps students to contribute to the quality of their organizations’ products and services and to understand the im- portance of quality in all their endeavors, then our efforts will have been worthwhile.

If you have any suggestions for improvement or perhaps a good story or case to contribute to the next edition, I would love to hear from you and acknowledge your contribution in the next edition. Please feel free to contact me via e-mail at [email protected].

James R. Evans

Preface xv

P A R T

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1FOUNDATIONS OF QUALITY ANDPERFORMANCE EXCELLENCE CHAPTER 1 Introduction to Quality and Performance Excellence 3

CHAPTER 2 Frameworks for Quality and Performance Excellence 47

CHAPTER 3 Tools and Techniques for Quality Design and Control 105

CHAPTER 4 Tools and Techniques for Quality Improvement 148

CHAPTER

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1INTRODUCTION TO QUALITY ANDPERFORMANCE EXCELLENCE Performance Excellence Profile: Poudre Valley Health System1

Poudre Valley Health System (PVHS) is a locally owned and private not-for-profit health care organization serving residents of northern Colorado, Nebraska, and Wyoming. In two acute care hospitals and a network of other facilities, PVHS offers a full spectrum of health care services, including emergency/urgent, intensive, medical/surgical, maternal/child, oncology, and orthopedic care. Founded in 1925 as the Poudre Valley Hospital (PVH) in Fort Collins, Colorado, the hospital expanded and diversified its services and has become PVHS—a regional medical hub with a service area covering 50,000 square miles. The focus areas of PVHS services include (1) Colorado’s third largest cardiac center; (2) the only Level IIIa neonatal intensive care unit between Denver and Billings, Montana; (3) Level II and III trauma centers; and (4) a bariatric surgery Center of Excellence. The system’s mission is to remain independent, while providing innovative, comprehensive care of the highest quality, and exceeding customer expectations. Its vision is to provide world-class health care.

To meet its mission and attain its vision, senior leaders have built a culture that encourages high performance and satisfaction by engaging the workforce of 4,200 staff, 550 credentialed physicians, and 800 volunteers. Communication begins with new-employee orientation and continues with an open-door policy, a variety of paths for development, and many sharing opportunities. From design of new services to bedside care, PVHS uses interdisciplinary teams to meet patient needs. For example, a trauma resuscitation team of physicians, nurses, respiratory therapists, and radiology technologists is on call 24/7, and an interdisciplinary care team led by a trauma surgeon makes daily rounds to see trauma patients. These teams demonstrate “the best collaboration of nurses and doctors, relative to any trauma program in the United States,” according to a recent survey team by the American College of Surgeons (ACS). In 2008, the system’s overall staff voluntary turnover rate decreased to 8 percent, well below that of competitors, and reached the Healthcare Human Resources Administration’s top 10 percent performance level. The system’s overall employee satisfaction ranks

in the 97th percentile nationally, and Modern Healthcare magazine named PVHS as one of “America’s 100 Best Places to Work in Healthcare” in 2008.

Partnering relationships help PVHS focus on the future and turn competitors into allies. After first establishing relationships with physicians, PVHS expanded its partner base to include entities such as home health agencies, a long-term care provider, community health organizations, and a health plan administrator—a partnership that saves local employers $5 million each year. A partnership with a community hospital in Scottsbluff, Nebraska, led to the building of a new hospital. During the planning of this facility, PVHS listened closely to its customers, which led to improved emergency room layout, private patient rooms with spectacular mountain views and windows that open, healing gardens, and installation of family amenities such as showers and kitchens.

PVHS created a performance improvement system called the Global Path to Success (GPS)—a framework by which senior managers and staff integrate key processes. Using an innovative electronic Balanced Scorecard system, users can gauge progress on key measures relative to strategic objectives. If key performance measures are blue or green, PVHS is on track to accomplish the corresponding objectives. If key measures are yellow or red, an action plan— monitored by the appropriate senior manager—is developed to remedy the situation.

PVHS drives innovation by designing and testing innovative systems and technologies to meet health care needs. For example, PVHS was among the first health systems in the nation to use a robotic-assisted surgery system in four medical specialty areas and among the first 24 health systems in the world to integrate medical imaging systems across service lines. The Meditech Information System is a secure, user-friendly electronic network that ensures the flow of accurate, real-time information across the organization. To promote optimal patient experiences, PVHS uses the GetWell Network—an in-room, interactive patient education program that allows patients to obtain information about their care team, access the Internet and e-mail, communicate complaints and compliments, and order on-demand movies.

PVHS has received external verification of progress toward achieving its vision and goal. In 2007 and 2008, PVH was recognized as the nation’s number one hospital for sustained nursing excellence by the American Nurses Association and the National Database of Nursing Quality Indicators (NDNQI). In RN hours per patient day, PVH has exceeded the NDNQI best quartile since 2005 and outperformed the American Nurses credentialing center’s “magnet” hospitals’ 90th percentile in 2008. For five consecutive years, PVH has been one of seven U.S. hospitals to be named a Thomson 100 Top Hospital (for superior outcomes, patient safety, and operational and financial performance). PVH and Medical Center of the Rockies (MCR) patient satisfaction scores surpass the national top 10 percent, according to the Centers for Medicare and Medicaid Services. In 2008, PVHS received the Peak Performance Award—Colorado’s highest award for performance excellence—making it the only organization to receive this honor twice.

4 Part 1: Foundations of Quality and Performance Excellence

In addition, the system’s financial and market results validate its management approaches: In 2006, the average PVHS charge was $2,000 lower than that of its main competitor and $7,000 lower than the Denver metropolitan rate; and at 62.3 percent, market share in the system’s primary service area is 42 percent higher than that of the closest competitor.

What does it take to create an excellent organization such as PVHS? The preceding profile provides some clues: a culture focused on quality, high performance, and meeting the needs of customers and stakeholders; a planning system that supports organizational goals, provides direction for improvement, and leads to innovation and “best practices”; and a commitment to supporting, developing, and engaging the workforce. In a nutshell, these represent the central themes of this book and apply to all organizations, whether they be health care, manufacturing, service, education, or government agencies.

In this chapter, we will introduce you to the basic principles of quality and per- formance excellence. Specifically, we will:

• explain the concepts of quality and performance excellence; • provide reasons why attention to these concepts should be a part of every

organization’s culture and management systems; • provide a brief history of the “quality revolution”; • describe quality in manufacturing, service, health care, education, and

government organizations; • explain the fundamental principles and practices of quality and performance

excellence; and • discuss relationships of quality with organizational models in management

theory.

QUALITY AND PERFORMANCE EXCELLENCE

People define quality in many ways. In fact, the American Society for Quality (ASQ) Quality Improvement Glossary defines quality as “a subjective term for which each person has his or her own definition.”2 Some think of quality as supe- riority or excellence of a product or service, others view it as a lack of manufactur- ing or service defects, still others think of quality as related to product features or price. A research study by the ASQ identified the most common definitions of qual- ity used by respondents’ organizations. The top 10 were:

1. Efficiently providing products and services that meet or exceed customer expectations

2. Adding customer value 3. Continuously measuring the improvement of processes and services for

customers 4. Acting as promised and reporting failures 5. Doing the right thing at the right time in the right way with the right people 6. Ensuring customers come back and products do not

Chapter 1: Introduction to Quality and Performance Excellence 5

7. Providing the best value to customers by improving everyday activities and processes

8. Beyond delivering what the customer wants, anticipating what the customer will want when he or she knows the possibilities

9. Delivering customer value across the organization through best-in-class products, services, and support

10. Meeting and exceeding the expectations of clients, employees, and relevant constituencies in the community.3

Today, most managers agree that the main reason to pursue quality is to satisfy customers. The American National Standards Institute (ANSI) and the American Society for Quality (ASQ) define quality as “the totality of features and characteris- tics of a product or service that bears on its ability to satisfy given needs.” The view of quality as the satisfaction of customer needs is often called fitness for use. In highly competitive markets, merely satisfying customer needs will not achieve suc- cess. To beat the competition, organizations often must exceed customer expecta- tions. Thus, one of the most popular definitions of quality is meeting or exceeding customer expectations. Deer Valley Resort is one example of an organization dedi- cated to exceeding customer expectations (see box “Quality on the Slopes”).

Customer-driven quality is fundamental to high-performing organizations. The president and CEO of Fujitsu Network Transmission Systems, a U.S. subsidiary of Fujitsu, Ltd., stated, “Our customers are intelligent; they expect us to continuously evolve to meet their ever-changing needs. They can’t afford to have a thousand mediocre suppliers in today’s competitive environment. They want a few excep- tional ones.”

QUALITY ON THE SLOPES4

Deer Valley Resort in Park City, Utah, is viewed by many as the Ritz-Carlton of ski resorts, providing exceptional services and a superior ski vacation experience. The resort offers curbside ski valet service to take equipment from vehicles, parking lot attendants to ensure efficient parking, and a shuttle to transport guests from the lot to Snow Park Lodge. Guests walk to the slopes on heated pavers that prevent the pavement from freezing and assist in snow removal. The central gathering area by the base lifts is wide and level, allowing plenty of room to put on equipment and easy access to the lifts. At the end of the day, guests can store their skis without charge at each lodge. The resort limits the number of skiers on the mountain to reduce lines and congestion, and offers complimentary mountain tours for

both expert and intermediate skiers. Everyone is committed to ensuring that each guest has a wonderful experience, from “mountain hosts” stationed at the top of the lifts to answer questions and provide directions, to the friendly workers at the cafeterias and restaurants, whose food is consistently rated number one by ski enthusiast magazines. “Our goal is to make each guest feel like a winner,” stated the vice president and general manager. “We go the extra mile on the mountain, in our ski school, and throughout our food-service operation because we want our guests to know they come first.” It is no wonder why the resort is consistently rated one of the best in reader surveys of skiing enthusiast magazines (and the author’s favorite place to ski!).

6 Part 1: Foundations of Quality and Performance Excellence

Quality, however, should not be focused solely on the goods or services that an organization produces or provides. It should also be embedded in the management practices of the organization; in other words, quality should be an underlying value in how an organization is managed. If good management practices are designed and executed, then good results should follow. This leads to the concept of performance excellence–a term that refers to an integrated approach to organizational perfor- mance management that results in delivery of ever-improving value to customers and stakeholders, contributing to organizational success; improvement of overall organiza- tional effectiveness and capabilities; and learning for the organization and for people in the workforce. Performance excellence is a characteristic of today’s most outstand- ing organizations and is a requisite for providing high-quality goods and services. All organizations—large and small, manufacturing and service, profit and not- for-profit—can benefit from incorporating these principles into their organizations.

THE IMPORTANCE OF QUALITY IN ORGANIZATIONS

Quality was THE buzzword among businesses—particularly manufacturing—dur- ing the 1980s and into the 1990s. Today, we generally do not hear much about quality except when things go wrong. Media releases abound with stories of medical errors that result in death, software glitches that cause products to fail, quality problems in the food supply chain, and many others. General Motors’ faulty ignition switches, which made front-page news a few years ago, resulted in at least a dozen deaths and a massive recall. Although many organizations don’t talk about quality very much, these examples show that quality remains a critical issue, not only in manufacturing, but in health- care, services, and indeed, in every organization.5

H. James Harrington, one of the leading quality management consultants in the world and a columnist for Quality Digest magazine, observed that many companies today are more interested in cost reduction and efficiency than improving quality, and calls for a return to the “basics.” He advocates that firms need to create better goods and services by finding and eliminating sources of defects, and spend more effort measuring customer satisfaction as a way of assessing progress and driving further improvement. More importantly, he believes that quality must be driven down to the personal level, so that every worker can make a serious commitment to work hard and do their best every day, and take pride in their accomplishments. The attitude of “It’s good enough” is simply not good enough in today’s world.6

Consumers today are intelligent enough to recognize quality—or the lack thereof—in the products and organizations they deal with (see box “Quality Is Everyone’s Concern”). The organization that fails to heed its customers is in for a rude awakening, or, at worst, a quick demise. This is why an understanding of quality is still vital to every employee in every organization. Joseph Juran, one of the most respected leaders of quality in the twentieth century, suggested that the past century would be defined by historians as the century of productivity. He also stated that the twenty-first century should be designated the century of quality. “We’ve made dependence on the quality of our technology a part of life.”7 The economic welfare and survival of businesses and nations depends on the quality of

Chapter 1: Introduction to Quality and Performance Excellence 7

the goods and services they produce, which depend fundamentally on the quality of the workforce and management practices that define their organization.

Stories of successful organizations generally end up in publications dedicated to quality professionals, which basically “preach to the choir.” Here are just a few highlights of the results achieved by companies that have embraced quality and performance excellence as basic business principles but that have never made the pages of mass media.8

1. Elevations Credit Union (ECU) has been named “Best Financial Institution” by readers of the Boulder Daily Camera for 15 of the past 16 years, and repeat- edly as “Best Bank,” “Best Mortgage Company,” or “Best Customer Service” by readers of the Colorado Daily, Boulder Weekly, Longmont Times-Call, and Loveland Reporter-Herald.

2. Business satisfaction with the city of Coral Springs, Florida, rose from 76 percent to 97 percent over a four-year period. Money magazine named Coral Springs as one of the Best Places to Live. The city was named as one of the 100 best communities for young people by America’s Promise Alliance for multiple years.

3. Supplier on-time delivery at Lockheed Martin Missiles and Fire Control has been essentially 100 percent since 2006, and overall supplier quality has been nearly 100 percent since 2007. Time reductions as a result of process and performance improvement programs have occurred in all lines of its businesses, yielding an estimated savings of $225 million annually.

4. The overall Net Promoter (NP) scores (a loyalty metric defined by the level of repeat sales and referrals) for MEDRAD, a manufacturer of medical imaging devices, were consistently 60 percent or higher compared to the 50 percent or higher marks for other organizations nationwide. MEDRAD’s global customer satisfaction ratings using the NP system steadily increased from 50 percent to 63 percent, surpassing the best-in-class benchmark of 50 percent.

5. AtlantiCare, a nonprofit health system in southeastern New Jersey, saw its system revenues grow from $280 million to $651 million over an eight-year period, reflecting an 11 percent compound annual growth rate, compared to a state average of 5.6 percent. During this time period, AtlantiCare’s medical center volume increased from about 34,000 to over 56,000 discharges—also more than twice the state average.

QUALITY IS EVERYONE’S CONCERN

Consumers have paid attention to quality in their purchasing decisions for some time. In a letter to the editor of Business Week (July 9 & 16, 2007, p. 16), a reader wrote: “Americans have switched from Detroit Big Three vehicles to Honda and Toyota vehicles not for visual design features but for durability, reliability, good fuel con- sumption, and low full cost of operation.

Detroit needs to offer five-passenger, 35- mile-per-gallon vehicles with 100,000 mile bumper-to-bumper warranties over 10 years of ownership to cause satisfied Honda and Toyota buyers to switch.” Today, consumers don’t just write letters; they post blogs, reviews, and opinions on websites and social media for all to see.

8 Part 1: Foundations of Quality and Performance Excellence

6. The Pewaukee School District (PSD) is the smallest K-12 educational system in Waukesha County, Wisconsin. Despite having one of the most rigorous public school graduation requirements (28 credits) in the state, PSD achieved a 97.4 per- cent graduation rate in 2012–2013 and had a higher graduation rate from 2008 through 2012 than other county, state, and nearby high-performing districts. PSD’s economically disadvantaged students surpassed the performance of similar students in the county, state, and nearby high-performing schools on the Wisconsin Knowl- edge and Concept Examinations (WKCE) reading proficiency tests by achieving 45.5 percent proficiency compared to scores below 33 percent.

Many more examples like these can be cited, and considerable empirical evi- dence exists that firms implementing effective quality and performance excellence approaches improve their business results on measures of income, sales growth, cost control, and growth in employment and total assets (see box “Research Vali- dates TQ Practices”). Nevertheless, scores of companies have either failed to take the first step in a performance excellence journey, or have let initial successes fade away because of lack of commitment and sustainability.

A BRIEF HISTORY

To understand the importance of quality in business today, we need to review some history. The birth of modern quality assurance methods actually began in the twelfth century B.C. in China during the Zhou Dynasty. Specific governmental departments were created and given responsibility for:

• production, inventory, and product distribution of raw material (what we now call supply chain management)

RESEARCH VALIDATES TQ PRACTICES9

Kevin Hendricks and Vinod Singhal published one of the most celebrated studies based on objective data and rigorous statistical analysis in 1997, showing that when implemented effectively, total quality management approaches improve financial performance. Using a sample of about 600 publicly traded companies that received quality awards and recognition, the researchers tracked the percent change in operating income and a variety of mea- sures that might affect operating income: percent change in sales, total assets, number of employ- ees, return on sales, and return on assets. These results were compared to a set of control firms that were similar in size to the award recipients and in the same industry. The analysis revealed significant

differences between the sample and the control group. Specifically, the growth in operating income averaged 91 percent versus 43 percent for the control group. Award recipients also experienced a 69 percent jump in sales (compared to 32 percent for the control group), a 79 percent increase in total assets (compared to 37 percent), a 23 percent increase in the number of employees (compared to 7 percent), an 8 percent improvement in return on sales (compared to 0 percent), and a 9 percent improvement in return on assets (compared to 6 percent). Small companies actually outperformed large companies, and over a five-year period, the portfolio of award recipients beat the S&P 500 index by 34 percent.

Chapter 1: Introduction to Quality and Performance Excellence 9

• production and manufacturing • formulation and execution of quality standards • supervision and inspection

These departments were well organized and helped establish China’s central control over production processes. The system even included an independent qual- ity organization responsible for end-to-end oversight that reported directly to the highest level of government. The central government issued policies and procedures to control production across China—including production of utensils, carts, cotton, and silk—and prohibited the sale of nonconforming, inferior, and substandard products. In ancient China, inspection at various stages by the workers themselves was important in establishing responsibility for quality. When a product was found to be nonconforming, the responsible worker was identified and the causes for the failure evaluated.

In the Middle Ages, skilled craftspeople served both as manufacturers and inspectors, building quality into their products through their considerable pride in their workmanship. Customers expected quality, and craftspeople understood it. A few hundred years later, the Industrial Revolution changed everything. Thomas Jefferson brought Honore Le Blanc’s concept of interchangeable parts to America. Eli Whitney mistakenly believed that this idea would be easy to carry out. The gov- ernment awarded him a contract in 1798 to supply 10,000 muskets in two years. He designed special machine tools and trained unskilled workmen to make parts accord- ing to a standard design, measure them, and compare them to a model. Unfortu- nately, Whitney grossly underestimated the effect of variation in the production process and its impact on quality. It took more than 10 years to complete the proj- ect, perhaps the first example of cost-overrun in government contracts! This same obstacle—variation—continues to plague managers to this day.

Frederick W. Taylor’s concept of “scientific management” greatly influenced the nature of quality in manufacturing organizations. By focusing on production efficiency and decomposing jobs into small work tasks, the modern assembly line destroyed the holistic nature of manufacturing. To ensure that products were man- ufactured correctly, independent “quality control” departments assumed the tasks of inspection. Thus, the separation of good from bad product became the chief means of ensuring quality.

HENRY FORD’S CONTRIBUTION TO QUALITY

One of the leaders of the second Industrial Revolution, Henry Ford, Sr., developed many of the fundamentals of what we now call “total quality practices” in the early 1900s. This piece of history was not discovered until Ford executives visited Japan in 1982 to study Japanese management practices. As the story goes, one Japanese executive referred repeatedly to “the book,” which the Ford people learned was

a Japanese translation of My Life and Work, written by Henry Ford and Samuel Crowther in 1926 (New York: Garden City Publishing Co.). “The book” had become Japan’s industrial bible and helped Ford Motor Company realize how it had strayed from its principles over the years. The Ford executives had to go to a used bookstore to find a copy when they returned to the United States.

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Statistical approaches to quality control had their origins at Western Electric when the inspection department was transferred to Bell Telephone Laboratories in the 1920s. The pioneers of quality control—Walter Shewhart, Harold Dodge, George Edwards, and others—developed new theories and methods of inspection to improve and maintain quality. These pioneers coined the term quality assurance—which refers to any planned and systematic activity directed toward providing consumers with pro- ducts (goods and services) of appropriate quality, along with the confidence that pro- ducts meet consumers’ requirements—and developed many useful techniques for measuring, controlling, and improving quality. Thus, quality became a technical discipline.

A related term (often used interchangeably with quality assurance) is quality control. Quality control is the evaluation of a process to determine if corrective action is needed to ensure that a requisite level of quality is achieved, often through some type of inspection or measurement activity. This term is said to have been invented at H. J. Heinz, when they were the only major foodmaker to support the 1906 Pure Food and Drug Act.10 Control charts, sampling techniques, and eco- nomic analysis tools laid the foundation for modern quality assurance activity and influenced the thinking of two of their colleagues, W. Edwards Deming and Joseph M. Juran, both of whom also worked at Western Electric in the first half of the twentieth century.

Deming and Juran introduced statistical quality control to Japanese workers after World War II as part of General MacArthur’s rebuilding program. Although this was not much different than what was being done in America, there was one vital difference. They convinced top Japanese managers that quality improvement would open new world markets and was necessary for the survival of their nation. The managers believed in, and fully supported, the concept of quality improve- ment. The Japanese were in an ideal position to embrace this philosophy. Their country was devastated from the war, and they had few natural resources with which to compete, except their people. During the next 20 years, while the Japanese were improving quality at an unprecedented rate, quality levels in the West remained stagnant. Western manufacturers had little need to focus on quality. America had a virtual monopoly in manufacturing, and the postwar economy was hungry for nearly any kind of consumer good. Top managers focused their efforts on marketing, production quantity, and financial performance.

During the late 1970s and early 1980s, many businesses in the United States lost significant market share to other global competitors, Japan in particular. By 1987, Business Week posed a stern warning to American management: “Quality. Remember it? American manufacturing has slumped a long way from the glory days of the 1950s and 1960s when ‘Made in U.S.A.’ proudly stood for the best that industry could turn out…. While the Japanese were developing remarkably higher standards for a whole host of products, from consumer electronics to cars and machine tools, many U.S. managers were smugly dozing at the switch. Now, aside from aerospace and agriculture, there are few markets left where the U.S. carries its own weight in interna- tional trade. For American industry, the message is simple. Get better or get beat.”11

The “quality revolution” in America can be traced to 1980, when NBC aired a documentary titled “If Japan Can … Why Can’t We?” This program introduced the 80-year-old Deming, who was virtually unknown in the United States, to corporate

Chapter 1: Introduction to Quality and Performance Excellence 11

executives across America. FordMotor Company was among the first to invite Deming to help transform its operations. Within a few years, Ford’s earnings were the highest for any company in automotive history, despite a 7 percent drop in U.S. car and truck industry sales, higher capital spending, and increased marketing costs. In 1992, the media celebrated the fact that the Ford Taurus outsold the Honda Accord to become the leader in domestic sales. Former Ford CEO Donald Petersen stated: “The work of Dr. Deming has definitely helped change Ford’s corporate leadership…. Dr. Deming has influenced my thinking in a variety of ways. What stands out is that he helped me crystallize my ideas concerning the value of teamwork, process improvement, and the pervasive power of the concept of continuous improvement.” Ironically, by the turn of the new century, Ford’s quality had dropped to last place among American car compa- nies, demonstrating that sustaining quality efforts is indeed a difficult challenge.

America woke up to the importance of quality during the 1980s as most major companies embarked on extensive quality improvement campaigns. In 1984, the U.S. government designated October as National Quality Month. In 1987—some 34 years after Japan established the Deming Prize—Congress established the Malcolm Baldrige National Quality Award (simply known as the Baldrige Award) to raise awareness of quality and recognize national role models, spawning a remarkable interest in quality among American businesses. By the end of the decade, Florida Power and Light had become the first non-Japanese company to win Japan’s coveted Deming Prize for quality. After the publicity that quality received from the manufacturing sector, the quality movement shifted to services. Companies such as FedEx and The Ritz-Carlton Hotel Company demonstrated clearly that quality principles can be applied effectively in the service sector.

During the 1990s, health care, government, and education began to pay increased attention to quality. As more public and government attention focused on the nation’s health care system, its providers turned toward quality as a means of achieving better performance and lower costs.12 One hospital, for example, low- ered its rate of postsurgical infections to less than one-fifth of the acceptable national norms through the use of quality tools. In 1993, Vice President Al Gore spearheaded the National Performance Review, an initiative driven by the need to improve quality, which made 384 recommendations and indicated 1,214 specific actions that the federal government should take to improve operations and reduce costs. In 1991, a consortium of professional associations, business associations, and individual businesses and universities incorporated a nonprofit group called the National Education Quality Initiative to improve educational processes through quality principles. Many local school systems, colleges, and universities made con- siderable progress.

Although quality initiatives focused initially on reducing defects and errors in products and services through the use of measurement, statistics, and other problem-solving tools, organizations began to recognize that lasting improve- ment could not be accomplished without significant attention to the quality of the management practices used on a daily basis. Managers began to realize that the approaches they use to listen to customers and develop long-term relation- ships, map out strategy, measure performance and analyze data, reward and train employees, design and deliver products and services, and act as leaders in their organizations are the true enablers of quality, customer satisfaction, and

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business results. In other words, they recognized that the “quality of manage- ment” is as important as the “management of quality.” Many began to use the term Big Q to contrast the difference between managing for quality in all organi- zational processes and focusing solely on manufacturing quality (Little Q). As organizations began to integrate quality principles into their management sys- tems, the notion of total quality management, or TQM, became popular. Quality took on a new meaning of organization-wide performance excellence rather than a narrow engineering- or production-based technical discipline and permeated every aspect of running an organization.

Today, the term TQM has virtually disappeared from business vernacular; however, the underlying principles of quality management are recognized as the foundation of high-performance management systems and an important factor for competitive success. Perhaps it is unfortunate that a three-letter acronym was cho- sen to represent such a powerful management concept. It is equally unfortunate that people generalize the demise of faddish terminology to the concepts them- selves. Many organizations have integrated quality principles so tightly with daily work activities that they no longer view quality as something special. In contrast, many other organizations have barely begun.

Reasons for failure of quality initiatives are rooted in organizational approaches and systems, many of which this book addresses. As a former editor of Quality Digest put it: “No, TQM isn’t dead. TQM failures just prove that bad management is still alive and kicking.” The most successful organizations have found that the fundamental principles of total quality (TQ) are essential to effective management practice, and continue to represent a sound approach for achieving business success.

As TQM changed the way that organizations thought about customers, human resources, and manufacturing and service processes, many top executives began to recognize that all fundamental business activities—such as the role of leadership in guiding an organization, how an organization creates strategic plans for the future, how data and information are used to make business decisions, and so on—needed to be based on quality principles, work together as a system, and be continuously improved as environmental conditions and business directions change. From this perspective, the product-focused notion of quality evolved into a new concept, called performance excellence, which we defined earlier in this chapter.

In the quest to remain competitive, and after learning from the failures of TQM, a new approach to quality improvement emerged in the late 1990s, called Six Sigma. Six Sigma is a customer-focused and results-oriented approach to busi- ness improvement that integrates many traditional quality improvement tools and techniques that have been tested and validated over the years, with a bottom-line and strategic orientation that appeals to senior managers, thus gaining their sup- port. Many organizations have adopted Six Sigma as a way of revitalizing their quality efforts. Recently, Six Sigma tools have been integrated with lean tools from the Toyota production system to address not only quality problems, but other key business problems involving cost reduction and efficiency.

The real challenge today is to ensure that managers do not lose sight of the basic principles on which quality management and performance excellence are based. The global marketplace and domestic and international competition has

Chapter 1: Introduction to Quality and Performance Excellence 13

made organizations around the world realize that their survival depends on high quality.13 Many countries, such as Korea, India, and China, are mounting national efforts to increase quality awareness, including conferences, seminars, radio shows, school essay contests, and pamphlet distribution. Spain and Brazil are encouraging the publication of quality books in their native language to make them more accessible. These trends will only increase the level of global competition. Many other factors are changing how organizations view quality (see the box “What Will Influence the Future of Quality?”). As Tom Engibous, president and chief executive officer of Texas Instruments, commented on the present and future importance of quality in 1997: “Quality will have to be every- where, integrated into all aspects of a winning organization.” This is what perfor- mance excellence is all about.

WHAT WILL INFLUENCE THE FUTURE OF QUALITY?

In 2011, the American Society for Quality identified eight key forces that will influence the future of quality:14

1. Global responsibility: An organization must be fully aware of the global impact of its local decisions and realize that as demand grows for the planet’s finite resources, waste is increasingly unacceptable. Global responsibility also involves human rights, labor practices, fair operating practices, consumer interests, and contributions to society. In an increasingly connected and informed world, responsible efforts are being rewarded by consumers, making it more important than ever to maintain a reputation as an organization driven by global concern.

2. Consumer awareness: With today’s technology such as the Internet, Twitter, and Facebook, consumers have access to a wealth of information on which to make purchasing decisions. As a result, organiza- tions must be quick when responding to their customers’ concerns and match their products to customers’ wants and needs, or risk having their customers defect to a competitor. Many service providers maintain databases that capture customer prefer- ences, allowing them to customize the cus- tomer experience. Manufacturing

technologies will need to provide similar levels of customization, allowing for eco- nomic order quantities of one, along with zero wait times.

3. Globalization: Globalization no longer means just an opportunity for organizations to enter new markets. Today, firms have to contend with a growing number of compe- titors and sources of lower-cost labor and assume the risks associated with global supply chains.

4. Increasing rate of change: Technology has shifted the rate of change into an entirely new gear, which brings with it opportunities and threats. The threat lies in the possibility that humanity won’t be able to adapt to the disruptions that accompany technological advances. But, if it can, the opportunities are nearly limitless. Product life cycles are getting shorter, and industries come into existence, thrive, and die within our lifetimes. As a result, being first to market means more now than ever before, as does the ability to anticipate and respond quickly to consumer demand.

5. Workforce of the future: Competition for talent will increase, and along with technological advances, will change how and where work is done. As a result, organizations will need to become more flexible with how and where

14 Part 1: Foundations of Quality and Performance Excellence

QUALITY IN ORGANIZATIONS

Managers of manufacturing and service functions deal with different types of qual- ity issues; the following sections provide a brief overview of these issues. Although the details of quality management differ between manufacturing and service indus- tries, the customer-driven definition eliminates these artificial distinctions and provides a unifying perspective.

QUALITY IN MANUFACTURING

Well-developed quality systems have existed in manufacturing for some time. How- ever, these systems focused primarily on technical issues such as equipment reliabil- ity, inspection, defect measurement, and process control. The transition to a customer-driven organization has caused fundamental changes in manufacturing practices, changes that are particularly evident in areas such as product design, human resource management, and supplier relations. Product design activities, for example, now closely integrate marketing, engineering, and manufacturing opera- tions. Human resource practices concentrate on empowering workers to collect and analyze data, make critical operations decisions, and take responsibility for continu- ous improvements, thereby moving the responsibility for quality from the quality control department onto the factory floor. Suppliers have become partners in

their workforces operate. Organizations will need to make a greater investment in training and education, and place a greater emphasis on professional certifications, which will evolve based on organizations’ demands for demonstrated competency from its employees.

6. Aging population: As people live longer, organizations face higher costs for health care and social welfare programs. Retirement become “a short-lived artifact of the latter half of the twentieth century.” Demographers predict that by 2015, the majority of the population will be over the age of 65. The result is a growing market for organizations to consider as the aging lifestyle becomes more prevalent.

7. Twenty-first century quality: Quality isn’t the same as it was 50 years ago, or even five years ago. Quality is moving beyond the organization’s walls to encompass a custo- mer’s entire experience with the organization rather than just the quality of the product or

service. With more opportunities for quality professionals to apply their skills, we may soon see quality applied to social problems, proving that “quality is exerting itself in new ways—in hopeful ways.”

8. Innovation: According to the study, innovation is “the pursuit of something different and exciting.” Innovation lies at the heart of orga- nizational survival. As the study states, “If innovation means the ability of a company to anticipate customer needs—expressed or unexpressed, known or unknown—and bring products or services to the marketplace that excite customers, then clearly innovation is the fuel of growth in today’s changing world, and more so tomorrow.”

These forces will impact how organizations configure themselves, how managers plan and lead, and how all workers will perform to achieve quality. As ASQ noted, “Quality should shape society. Ultimately, quality methodology will be used to build a better world.”

Chapter 1: Introduction to Quality and Performance Excellence 15

product design and manufacturing efforts. Many of these efforts were stimulated by the automobile industry, which forced their network of suppliers to improve quality.

Manufactured products have several quality dimensions, including the following:15

1. Performance: a product’s primary operating characteristics. 2. Features: the “bells and whistles” of a product. 3. Reliability: the probability of a product’s surviving over a specified period of

time under stated conditions of use. 4. Conformance: the degree to which physical and performance characteristics

of a product match preestablished standards. 5. Durability: the amount of use one gets from a product before it physically

deteriorates or until replacement is preferable. 6. Serviceability: the ability to repair a product quickly and easily. 7. Aesthetics: how a product looks, feels, sounds, tastes, or smells. 8. Perceived quality: subjective assessment resulting from image, advertising, or

brand names.

Most of these dimensions revolve around the design of the product. In designing the initial Lexus automobile for instance, Toyota bought several competitors’ cars— including Mercedes, Jaguar, and BMW—and put them through grueling test track runs before taking them apart.16 The chief engineer decided that he could match Mer- cedes on performance and reliability, as well as on luxury and status features. He devel- oped 11 performance goals. The final design had a drag coefficient smaller than any other luxury car (resulting in higher aerodynamic performance), a lighter weight, a more fuel-efficient engine, and a lower noise level. Sturdier materials were used for seat edges to maintain their appearance longer. The engine was designed with more torque than German models to give the car the quick start that Americans prefer. Ford’s direc- tor of North American interior design called the instrument cluster “a work of art.”

Quality control in manufacturing is usually based on conformance, specifically conformance to specifications. Specifications are targets and tolerances determined by designers of products and services. Targets are the ideal values for which pro- duction strives; tolerances are acceptable deviations from these ideal values. For example, a computer chip manufacturer might specify that the distance between pins on a computer chip should be 0.095 ± 0.005 inches. The value 0.095 is the target, and ±0.005 is the tolerance. Thus, any pin distance between 0.090 and 0.100 would be acceptable. A lack of defects has constituted quality in manufactur- ing for many years. Many studies comparing domestic and foreign products focus on statistical measures of defects. However, the lack of defects alone will not satisfy or exceed customer expectations. Many top managers have stated that good quality of conformance is simply the “entry into the game.” A better way to achieve dis- tinction and delight customers is through improved product design. Thus, manufac- turers are turning their attention toward improved design for achieving their quality and business goals.

QUALITY IN SERVICES

Service can be defined as “any primary or complementary activity that does not directly produce a physical product—that is, the non-goods part of the transaction

16 Part 1: Foundations of Quality and Performance Excellence

between buyer (customer) and seller (provider).”17 A service might be as simple as handling a complaint or as complex as approving a home mortgage. Service orga- nizations include hotels; health, legal, engineering, and other professional services; educational institutions; financial services; retailers; transportation; and public utilities.

Today services account for nearly 80 percent of the U.S. workforce. The importance of quality in services cannot be underestimated, as statistics from a variety of studies reveal:18

• The average company never hears from more than 90 percent of its unhappy customers. For every complaint it receives, the company has at least 25 customers with problems, about one-fourth of which are serious.

• Of the customers who make a complaint, more than half will do business again with that organization if their complaint is resolved. If the customer feels that the complaint was resolved quickly, this figure jumps to about 95 percent.

• The average customer who has had a problem will tell nine or ten others about it. Customers who have had complaints resolved satisfactorily will tell only about five others.

• It costs six times more to get a new customer than to keep a current customer.

So why do many companies treat customers as commodities? In Japan, the notion of customer is equated with “honored guest.” Service clearly should be at the fore- front of a firm’s priorities.

The service sector began to recognize the importance of quality several years after manufacturing had done so. This can be attributed to the fact that service industries had not confronted the same aggressive foreign competition that faced manufacturing. Another factor is the high turnover rate in service industry jobs, which typically pay less than manufacturing jobs. Constantly changing personnel makes establishing a culture for continuous improvement more difficult.

The production of services differs from manufacturing in many ways, and these differences have important implications for managing quality. The most critical dif- ferences are:

1. Customer needs and performance standards are often difficult to identify and measure, primarily because the customers define what they are, and each cus- tomer is different.

2. The production of services typically requires a higher degree of customization than does manufacturing. Doctors, lawyers, insurance salespeople, and food- service employees must tailor their services to individual customers. In manufacturing, the goal is uniformity.

3. The output of many service systems is intangible, whereas manufacturing pro- duces tangible, visible products. Manufacturing quality can be assessed against firm design specifications, but service quality can only be assessed against cus- tomers’ subjective, nebulous expectations, and past experiences. Manufactured goods can be recalled or replaced by the manufacturer, but poor service can only be followed up by apologies and reparations.

Chapter 1: Introduction to Quality and Performance Excellence 17

4. Services are produced and consumed simultaneously, whereas manufactured goods are produced prior to consumption. In addition, many services must be performed at the convenience of the customer. Therefore, services cannot be stored, inventoried, or inspected prior to delivery as manufactured goods are. Much more attention therefore must be paid to training and building quality into the service as a means of quality assurance.

5. Customers often are involved in the service process and are present while it is being performed, whereas manufacturing is performed away from the cus- tomer. For example, customers of a quick-service restaurant place their own orders, carry their food to the table, and are expected to clear the table when they have finished eating.

6. Services are generally labor intensive, whereas manufacturing is more capital intensive. The quality of human interaction is a vital factor for services that involve human contact. For example, the quality of hospital care depends heavily on interactions among the patients, nurses, doctors, and other medical staff. Hence, the behavior and morale of service employees is critical in deliv- ering a quality service experience.

7. Many service organizations must handle very large numbers of customer transactions. For example, on a given business day, FedEx and UPS handle millions of shipments across the globe every day, and banks process similar volumes of transactions. Such large volumes increase the opportunity for error.

These differences made it difficult for many service organizations to fully under- stand and apply TQ principles when it was the rage in manufacturing, although many have caught up admirably.

Many service organizations have well-developed quality assurance systems. However, they often tend to be based on manufacturing analogies and tend to be more product-oriented than service-oriented. Many of the key dimensions of prod- uct quality apply to services. For instance, “on time arrival” for an airline is a mea- sure of service performance; frequent flyer awards and “business class” sections

KNOCK THREE TIMES19

Marriott has become infamous for its obsessively detailed standard operating procedures (SOPs), which result in hotels that travelers either love for their consistent good quality or hate for their bland uniformity. “This is a company that has more controls, more systems, and more procedural manuals than anyone—except the government,” says one industry veteran. “And they actually comply with them.” Housekeepers work with a 114-point checklist. One SOP: Server knocks three times. After knocking, the associate

should immediately identify him- or herself in a clear voice, saying, “Room Service!” The guest’s name is never mentioned outside the door.

Although people love to make fun of such procedures, they are a serious part of Marriott’s business, and SOPs are designed to protect the brand. Recently, Marriott has removed some of the rigid guidelines for owners of hotels it man- ages, empowering them to make some of their own decisions on details.

18 Part 1: Foundations of Quality and Performance Excellence

represent features. A typical hotel’s quality assurance system focuses on technical specifications such as properly made-up rooms (see box “Knock Three Times”). However, service organizations have special requirements that manufacturing systems cannot fulfill. The most important factors of service quality include the following:20

• Time: How much time must a customer wait? • Timeliness: Will a service be performed when promised? • Completeness: Are all items in the order included? • Courtesy: Do frontline employees greet each customer cheerfully? • Consistency: Are services delivered in the same fashion for every customer, and

every time for the same customer? • Accessibility and convenience: Is the service easy to obtain? • Accuracy: Is the service performed right the first time? • Responsiveness: Can service personnel react quickly and resolve unexpected

problems?

Service organizations must look beyond product orientation and pay signifi- cant attention to customer transactions and employee behavior. Several points that service organizations should consider are as follows:21

• The quality characteristics that a firm should control may not be the obvious ones. Customer perceptions are critical, although it may be difficult to define what the customer wants. For example, speed of service is an important qual- ity characteristic; yet, perceptions of speed may differ significantly among different service organizations and customers. Marketing and consumer research can play a significant role.

• Behavior is a quality characteristic. The quality of human interaction is vital in every transaction that involves human contact. For example, banks have found that the friendliness of tellers is a principal factor in retaining depositors.

• Image is a major factor in shaping customer expectations of a service and in setting standards by which customers evaluate that service. A breakdown in image can be as harmful as a breakdown in delivery of the service itself. Top management is responsible for shaping and guiding the image that the firm projects.

• Establishing and measuring service levels may be difficult. Service standards, particularly those relating to human behavior, are often set judgmentally and are hard to measure. In manufacturing, it is easy to quantify output, scrap, and rework. Customer attitudes and employee competence are not as easily measured.

• Quality control activity may be required at times or in places where supervi- sion and control personnel are not present. Often work must be performed at the convenience of the customer. This calls for more training of employees and self-management.

These issues suggest that the approach to managing quality in services differs from that used in manufacturing. However, manufacturing can be seen as a set of

Chapter 1: Introduction to Quality and Performance Excellence 19

interrelated services, not only between the company and the ultimate consumer but also within the organization. Manufacturing is a customer of product design; assembly is a customer of manufacturing; sales is a customer of packaging and dis- tribution. If quality is meeting and exceeding customer expectations, then manufacturing takes on a new meaning, far beyond product orientation. TQ pro- vides the umbrella under which everyone in the organization can strive to create customer satisfaction.

QUALITY IN HEALTH CARE, EDUCATION, GOVERNMENT, AND NOT-FOR-PROFITS

One service industry that faces continuing pressure to improve quality—and one with the strongest interest in quality today—is health care. Quality has been a focus in health care for some time. In 1910, Ernest Codman, M.D., proposed the “end result system of hospital standardization.” Under this system, a hospital would track every patient it treated long enough to determine whether the treat- ment was effective. If the treatment was not effective, the hospital would then attempt to determine why, so that similar cases could be treated successfully in the future. The ACS developed Minimum Standards for Hospitals in 1917 and began

THE FIVE KEY DIMENSIONS OF SERVICE QUALITY

Research has identified five principal dimensions that contribute to customer perceptions of quality:

1. Reliability: The ability to provide what was promised, dependably and accurately. Examples include customer service repre- sentatives responding in the promised time, following customer instructions, providing error-free invoices and statements, and mak- ing repairs correctly the first time.

2. Assurance: The knowledge and courtesy of employees, and their ability to convey trust and confidence. Examples include the ability to answer questions, having the capabilities to do the necessary work, monitoring credit card transactions to avoid possible fraud, and being polite and pleasant during customer transactions.

3. Tangibles: The physical facilities and equip- ment, and the appearance of personnel.

Tangibles include attractive facilities, appro- priately dressed employees, and well- designed forms that are easy to read and interpret.

4. Empathy: The degree of caring and individual attention provided to customers. Some examples might be the willingness to sched- ule deliveries at the customer’s convenience, explaining technical jargon in a layperson’s language, and recognizing regular customers and calling them by name.

5. Responsiveness: The willingness to help customers and provide prompt service. Examples include acting quickly to resolve problems, promptly crediting returned mer- chandise, and rapidly replacing defective products.

These dimensions have been incorporated into a survey methodology known as SERVQUAL.22

20 Part 1: Foundations of Quality and Performance Excellence

inspections the following year. The Joint Commission on Accreditation of Health- care Organizations (JCAHO)—the principal accreditation agency for health care— was created in 1951 through a collaboration of ACS and several other agencies to provide voluntary accreditation. Its mission is “to continuously improve the safety and quality of care provided to the public through the provision of health care accreditation and related services that support performance improvement in health care organizations.” By 1970, accreditation standards were recast to represent opti- mal achievable levels of quality, rather than minimum essential levels of quality. JCAHO issued new standards in 1992 requiring all hospital CEOs to educate them- selves on CQI (continuous quality improvement—the term used in the health care profession to denote quality initiatives) methods.23 The new standards emphasize performance improvement concepts and incorporate quality improvement principles more fully in areas such as surgical case review, blood usage evaluation, and drug usage evaluation.

Other organizations, such as the Institute for Healthcare Improvement (IHI), have emerged to support quality improvement in health care. IHI’s goals are improved health status, better clinical outcomes, reduced costs that do not com- promise quality, greater access to care, an easier-to-use health care system, and improved satisfaction to patients and communities. IHI focuses on fostering collab- oration, rather than competition, among health care organizations, and promotes the use of quality control tools that have proven to be beneficial in manufacturing. One early pilot project driven by IHI at 37 intensive care units resulted in huge drops in pneumonia and other complications, shorter patient stays, and cost reduc- tions of up to 30 percent.

In 1990, SSM Health (SSM) Care became one of the first health care organi- zations in the United States to implement CQI throughout its entire system. Five years later, after visiting manufacturing recipients of the Malcolm Baldrige Award and learning about their practices, SSM instituted a new leadership plan, improved strategic and financial planning processes, a new conference to share best practices among its hospitals, and an improved CQI model that permits rapid identification and correction of potential problems. In 2002, SSM became the first health care recipient of the Baldrige Award. Although many health care organizations notice measurable improvements from their quality initiatives, they primarily occur in the areas of cost reduction and increased efficiency. A difficult challenge that most face is getting physicians involved in the quality process. Many are requiring their participation on teams and steering committees, creating a liaison role between management and physicians, using physicians as cham- pions, and targeting training.24 Today, health care is the fastest growing adopter of quality management principles.

Education represents one of the most interesting and challenging areas for quality improvement (see the box “Quality is Elementary”). Attacks on the quality of education in the United States, from kindergarten through the twelfth grade (K–12) and at colleges and universities, provided a rallying cry for education reform.25 Montgomery County Public Schools (MCPS) is one of the more innovative school districts that applies the principles of TQ and per- formance excellence in managing its organization. MCPS is the largest school district in the state of Maryland and the 16th-largest school district in the

Chapter 1: Introduction to Quality and Performance Excellence 21

nation. Located in suburban Washington, D.C., MCPS serves an extremely diverse community, with its more than 144,000 students coming from 164 countries and speaking 184 languages. MCPS comprehensive reform efforts are guided by the district’s strategic plan, Our Call to Action: Pursuit of Excel- lence (OCA). The plan incorporates five strategic goals, clearly defines the key performance measures and action plans, and provides alignment throughout the district. Senior leaders engage in extensive outreach with partners, custo- mers, and the community to solicit shared concerns and expectations that are codified in the OCA. The OCA then is deployed throughout the organization. The OCA is aligned with the Maryland State Board of Education’s Bridge to Excellence Master Plan and federal requirements. Cascading downward, each office, department, and school has developed related improvement plans with performance measures for evaluating the proper courses of action, all of which are aligned with OCA. The systematic alignment of the district’s strate- gic plan has a direct impact on MCPS’s ability to fulfill its core competencies of developing and implementing a rigorous instructional program that is responsive to the needs of the individual student.

MCPS “reverse engineered” the education process by starting with the goal of college and career readiness, and then identifying the knowledge and skills needed for students to reach that target. The result is The Seven Keys to Col- lege Readiness, a pathway of seven measurable academic goals, from kinder- garten through high school, that are deployed throughout the school system. The Seven Keys constitute a college-readiness trajectory in which each key builds on the previous one. MCPS students achieve at high levels on state assessments and are narrowing racial and socioeconomic achievement gaps.

QUALITY IS ELEMENTARY26

In one New York elementary school back in the 1980s, teachers noticed that students didn’t read very much, except what was assigned. They also noticed sloppy work with many errors, and concluded that the students simply didn’t embrace the quality philosophy of “do it right the first time.” So the teachers developed a plan that included clear expectations, signed contracts for reading and book reports, and recorded and charted their progress. Excellent work was displayed throughout the school, and someone chose a koala bear as a mascot to recognize “koality” (ahem, quality) work. This process became known as “Koality Kid” and motivated the students to do their best work

and be more courteous and respectful. Some quality professionals visited the school and saw the relationships to how quality was practiced in industry. They helped develop the program, which became standardized and promoted through professional associations. Eventually, over 800 schools initiated similar programs, which integrated other quality improvement tools such as flowcharts, Pareto diagrams, and cause-and-effect diagrams that we will intro- duce later in this book. Although the students were never formally taught about quality improvement, they clearly understood how to use the tools effectively, which simply says “this ain’t rocket science!”

22 Part 1: Foundations of Quality and Performance Excellence

For instance, in middle school reading, MCPS has narrowed the achievement gap between its African American and white students by 13 percentage points in the five years from 2006 to 2010. Graduation rates and parent satisfaction are far above national comparative averages.27

Federal, state, and local government agencies have gained momentum in developing their own performance excellence programs and processes. For example, the Presidential Award for Management Excellence—the President’s Quality Award (PQA)—is the highest award given to executive branch agen- cies for management excellence. The award was established in 1988 to recog- nize excellence in quality and productivity. In Massachusetts, a Quality Improvement Council was formed to oversee and facilitate a broad quality program. State quality award programs provide a basis for many state and local agencies to learn about quality and pursue performance excellence in the same manner as private business. In the state of Ohio, for instance, the Ohio Department of Transportation (ODOT) has implemented extensive quality improvement efforts that have earned multiple districts the state’s highest award recognition for performance excellence from the Ohio Partnership for Excellence.

Not-for-profits, unlike their business counterparts, are not driven by the bot- tom line (although tight budgets can certainly be a driving factor in pursuing quality and performance excellence) and their managers often lack the business acumen and technical expertise needed to make an organizational transforma- tion. Little literature exists on how to apply quality principles to not-for-profits, and employees use a “language” different from business, making it challenging for them to translate business concepts into meaningful applications. Among the key challenges that not-for-profits face are overcoming the fear of change, chang- ing the mindset that not-for-profits are different and cannot effectively apply quality principles, identifying a vision and customers, understanding work processes, dealing with limited resources, and understanding relationships with government and large corporations.28

Nevertheless, numerous not-for-profit organizations are adopting quality principles because of their impact on the public and society—their major customers and stakeholders. The United Way of America, for example, began recognizing United Way organizations for quality achievements in 1994. The American Red Cross, for example, launched a multiyear, multimillion-dollar quality effort to enhance organizational effectiveness and improve its process of collecting, testing, and distributing blood. Their focus is to drive any variability, deviation, or error down to zero using initiatives such as the following:

• New technologies to reduce the potential for human error • Restructuring and increasing the level of quality assurance staff • Creating a more streamlined and comprehensive training system • Reengineering the core manufacturing processes to make them more efficient

and simplified so as to reduce and prevent errors • Investing in facilities to enable more efficient and effective adoption of new

technology29

Chapter 1: Introduction to Quality and Performance Excellence 23

PRINCIPLES AND PRACTICES OF TOTAL QUALITY AND PERFORMANCE EXCELLENCE

The philosophies of Deming, Juran, and Crosby addressed management deficiencies of their times and laid the foundation for the principles of modern quality manage- ment that have transcended time. A definition of total quality was endorsed in 1992 by the chairs and CEOs of nine major U.S. corporations in cooperation with deans of business and engineering departments of major universities, and recog- nized consultants:

Total Quality (TQ) is a people-focused management system that aims at continual increase in customer satisfaction at continually lower real cost. TQ is a total system approach (not a separate area or program) and an integral part of high-level strategy; it works horizontally across functions and departments, involves all employees, top to bottom, and extends backward and forward to include the supply chain and the customer chain. TQ stresses learning and adaptation to continual change as keys to organizational success.30

The term Total Quality is primarily a carryover from the heyday of the quality revolution. Some people continue to use the term today; some don’t, preferring instead to use the more general term “performance excellence.” Throughout this book, we will use both terms somewhat interchangeably. However, don’t let jargon get in the way of the basic principles that provide the foundation for organizational success!

In a classic research article, James W. Dean, Jr. and David E. Bowen character- ize TQ by its principles, practices, and techniques.31 Principles are the foundation of the philosophy, practices are activities by which the principles are implemented, and techniques are tools and approaches that help managers and employees make the practices effective. All must work together.

The TQ philosophy was based initially on three core principles: customer focus, teamwork, and continuous improvement. Despite their obvious simplicity, these principles represented a significant departure from traditional management practices. Historically, firms did little to understand external customer require- ments, much less those of internal customers. Products were designed from a “market out” perspective (build it and they will come) rather than from a “market in” perspective that seeks to meet customer expectations and requirements. Managers and specialists controlled and directed production systems; workers were told what to do and how to do it, and rarely were asked for their input. Soliciting ideas from the workforce and teamwork was virtually nonexistent. A certain amount of waste and error was tolerable and was controlled by postproduction inspection. Improvements in quality generally resulted from technological break- throughs instead of a relentless mindset of continuous improvement. With TQ, organizations began to actively identify customer needs and expectations, build quality into the organization by tapping the knowledge and experience of the workforce, and continually improve its processes and systems.

As the discipline evolved, the principles that define modern quality manage- ment have also naturally evolved as we have learned more about what it takes to build and sustain quality in an organization. Table 1.1 is a list of the quality management principles that underlie the international quality standards known as

24 Part 1: Foundations of Quality and Performance Excellence

ISO 9000:2000, which we describe in more detail in Chapter 2. These are “comprehensive and fundamental rules or beliefs for leading and operating an organization” that better reflect the basic principles and practices of TQ. In addi- tion to customer focus, involvement of people (teamwork), and continual improve- ment, important principles of quality management are leadership, process approach, a system approach to management, a factual approach to decision mak- ing, and mutually beneficial supplier relationships.

In the following sections, we will briefly explain these principles and list key asso- ciated practices. Chapter 3 will present a variety of tools and techniques that support these principles and practices. In the remaining chapters, we will elaborate on these concepts and also focus on the changes in organization design, work processes, and culture that must be made to support these principles, practices, and techniques.

TABLE 1.1 QUALITY MANAGEMENT PRINCIPLES

Principle 1: Customer Focus Organizations depend on their customers and therefore should understand current and future customer needs, should meet customer requirements, and strive to exceed customer expectations.

Principle 2: Leadership Leaders establish unity of purpose and direction of the organization. They should create and maintain the internal environment in which people can become fully involved in achieving the organization’s objectives.

Principle 3: Involvement of People People at all levels are the essence of an organization and their full involvement enables their abilities to be used for the organization’s benefit.

Principle 4: Process Approach A desired result is achieved more efficiently when activities and related resources are managed as a process.

Principle 5: System Approach to Management Identifying, understanding, and managing interrelated processes as a system contributes to the organization’s effectiveness and efficiency in achieving its objectives.

Principle 6: Continual Improvement Continual improvement of the organization’s overall performance should be a permanent objective of the organization.

Principle 7: Factual Approach to Decision Making Effective decisions are based on the analysis of data and information.

Principle 8: Mutually Beneficial Supplier Relationships An organization and its suppliers are interdependent and a mutually beneficial relation- ship enhances the ability of both to create value.

Source: The terms and definitions taken from the quality management principles of ISO 9000 are reproduced with the permission of the International Organization for Standardization, ISO. They can be obtained from any ISO member and from the Web site of the ISO Central Secretariat at the following address: http://www.iso.org. Reprinted by per- mission of ISO.

Chapter 1: Introduction to Quality and Performance Excellence 25

CUSTOMER FOCUS

The customer is the judge of quality. Jack Taylor, founder of Enterprise Rent- A-Car, the largest and most prosperous rental car company in the United States per- haps summarized the importance of a customer focus best: If you take care of your customers and employees, the bottom line will take care of itself. From a TQ per- spective, all strategic decisions a company makes are “customer-driven.” Organiza- tions need to build relationships with customers so they will continue to use their goods and services and actively advocate for and recommend them; in other words, build customer engagement. Focusing on the customer also requires an understand- ing of customer needs, both current and future; effective strategies for listening to and learning from customers; and measuring their satisfaction, dissatisfaction, and level of engagement. A company close to its customer knows what the customer wants, how the customer uses its products, and anticipates needs that the customer may not even be able to express. It also continually develops new techniques to obtain customer feedback. Customer needs—particularly differences among key cus- tomer groups—must be linked closely to an organization’s strategic planning, prod- uct design, process improvement, and workforce training activities. Banks, which traditionally have been rather customer-unfriendly—charging customers to speak to real people, for checking accounts, and for ATM access—have made some dramatic changes (see box ”Banks Discovered That Customers Are People”).

TQ views everyone inside the enterprise as a customer of an internal or external supplier and a supplier of an external or internal customer. Internal customers—the recipients of any work output, such as the next department in a manufacturing pro- cess or the order-picker who receives instructions from an order entry clerk—are as important in assuring quality as are external customers who purchase the product. Failure to meet the needs of internal customers will likely affect external customers. Employees must view themselves as customers of some employees and suppliers to others. Employees who view themselves as both customers of and suppliers to other employees understand how their work links to the final product. After all, the responsibility of any supplier is to understand and meet customer requirements in the most efficient and effective manner possible.

Customer focus extends beyond the consumer and internal relationships, how- ever. Society represents an important customer of every organization. A world- class company, by definition, is an exemplary corporate citizen. Business ethics, public health and safety measures, concern for the environment, and sharing quality-related information in the company’s business and geographic communities are required. In addition, company support—within reasonable limits of its resources—of national, industry, trade, and community activities and the sharing of nonproprietary quality-related information demonstrate far-reaching benefits.

Some customer-focused practices for performance excellence include researching and understanding customer needs and expectations; ensuring that goods and ser- vices are linked to customer needs and expectations; communicating customer needs and expectations throughout the organization; measuring customer satisfaction and using the results to improve; systematically managing customer relationships; and ensuring a balanced approach between satisfying customers and other stakeholders (such as owners, employees, suppliers, local communities, and society as a whole).

26 Part 1: Foundations of Quality and Performance Excellence

LEADERSHIP

Leadership for quality is the responsibility of top management. Senior leadership must set directions; create a customer orientation, clear quality values, and high expectations that address the needs of all stakeholders; and build them into the way the company operates. Senior leaders need to commit to the development of the entire workforce and should encourage participation, learning, innovation, and creativity throughout the organization. Reinforcement of the values and expecta- tions requires the substantial personal commitment and involvement of senior man- agement. Through their personal roles in planning, reviewing company quality performance, and recognizing employees for quality achievement, the senior leaders serve as role models, reinforcing the values and encouraging leadership throughout the organization.

If commitment to quality is not a priority, any initiative is doomed to failure. Lip service to quality improvement is the kiss of death. The CEO of Motorola, one of the first Baldrige recipients, listed quality as the first agenda item at every top management meeting. He frequently left after quality was discussed, sending the message that once quality was taken care of, financial and other matters would take care of themselves. When The Ritz-Carlton Hotel Company opens a new facility, the CEO works alongside the housekeeping and kitchen staffs making beds and washing dishes. Imagine the message these actions send to the workers! Many companies have a corporate quality council made up of top executives and managers, which sets quality policy and reviews performance goals within the com- pany. Quality should be a major factor in strategic planning and competitive anal- ysis processes.

Many of the management principles and practices required in a TQ environ- ment may be contrary to long-standing practice. Top managers, ideally starting with the CEO, must be the organization’s performance excellence leaders. The CEO should be the focal point providing broad perspectives and vision, encourage- ment, and recognition. The leader must be determined to establish improvement

BANKS DISCOVERED THAT CUSTOMERS ARE PEOPLE32

Washington Mutual, known as “WaMu,” was a pioneer in leading the charge (no pun intended) and changing traditional banking practices to become more customer-focused. In doing so, it became the one of the largest financial institutions in the United States and the second-largest home loan lender. Being located in the same city as the Starbucks chain (Seattle), WaMu drew upon Starbucks’ customer-friendly practices to make its operations more attuned to contemporary customers; for example, by hiring khaki-clad employees with retail

experience and playing hip music in its “stores”— its term for its branches. Everyone worked on commission, from the branch manager on down; a beginning teller could earn up to $50,000 in his or her first year (and that was over ten years ago). WaMu was named one of Fortune’s best places to work. Other banks followed their lead; for instance, one sent hundreds of employees out into the streets of Chicago to invite potential customers to visit the bank. WaMu’s success resulted in it subsequently being acquired by Chase.

Chapter 1: Introduction to Quality and Performance Excellence 27

initiatives and committed to sustain TQ activities through daily actions in order to overcome employees’ inevitable resistance to change.

Unfortunately, many organizations do not have the commitment and leader- ship of their top managers. This does not mean that these organizations cannot develop a quality focus. Improved quality can be fostered through the strong lead- ership of middle managers and the workforce. In many cases, this is where quality begins. Leadership provides people with opportunities for personal growth and development. People are able to take pride and joy in learning and accomplish- ment, and the ability of the enterprise to succeed is enhanced. People are active contributors, valued for their creativity and intelligence. Every person is a process manager presiding over the transformation of inputs to outputs of greater value to the enterprise and to the ultimate customer. In the long run, however, an organiza- tion cannot sustain quality initiatives without strong leadership at the top.

Key practices for leaders include considering the needs of all stakeholders in decisions; establishing a clear vision of the organization’s future; setting challenging goals and targets; creating and sustaining shared values, fairness, and ethics at all levels of the organization; establishing trust and eliminating fear; providing work- ers with adequate resources, training and freedom to make customer-focused decisions; and inspiring, encouraging, and recognizing worker’s contributions.

INVOLVEMENT OF PEOPLE

A company’s success depends increasingly on the knowledge, skills, and motivation of its workforce. Employee motivation and success depend increasingly on having opportunities to learn and to practice new skills. These can be fostered by employee engagement, and teamwork. The traditional view of motivation is often summarized by McGregor’s Theory X model of motivation: Workers dislike work and require close supervision and control. TQ organizations support the premise of Theory Y: Workers are self-motivated, seek responsibility, and exhibit a high degree of imagination and creativity at work. TQ managers provide leadership rather than overt intervention in the processes of their subordinates, who are viewed as process managers rather than functional specialists.

Much evidence supports the role of good human resource practices in organi- zational performance. For example, one study of call centers found that quit rates were lower and sales growth was higher in firms that emphasized high skills, employee participation in decision making and in teams, and human resource incentives such as better pay and job security.33

Employee engagement simply means that workers have a strong emotional bond to their organization, are actively involved in and committed to their work, feel that their jobs are important, know that their opinions and ideas have value, and often go beyond their immediate job responsibilities for the good of the organi- zation. Engagement is often manifest by empowerment, which means that people have the authority to make decisions based on what they feel is right, have control over their work, take risks and learn from mistakes, and promote change. For example, employees can make decisions that satisfy customers without a lot of bureaucratic hassles, and barriers between levels are removed. Empowerment requires, as the management philosophy of Wainwright Industries states, a sincere

28 Part 1: Foundations of Quality and Performance Excellence

belief and trust in people. A survey by Annandale, Virginia-based Mastery-Works Inc. concluded that employees leave their organizations because of trust, observing that, “Lack of trust was an issue with almost every person who had left an organization.”34

Many studies have shown that high levels of workforce engagement have a sig- nificant, positive impact on organizational performance. Research has indicated that engagement is characterized by performing meaningful work; having organiza- tional direction, performance accountability, and an efficient work environment; and having a safe, trusting, and cooperative environment. In many nonprofit orga- nizations, employees and volunteers are drawn to, and derive meaning from, their work because the work is aligned with their personal values. Thus, key practices that support this principle include those that:

• Understand the key factors that drive workforce engagement, satisfaction, and motivation.

• Design and manage work and jobs to promote effective communication, coop- eration, skill sharing, empowerment, innovation, and the ability to benefit from diverse ideas and thinking of employees and to develop an organizational culture conducive to high performance and motivation.

• Create an environment that ensures and improves workplace health, safety, and security and supports the workforce via policies, services, and benefits.

• Develop a performance management system based on compensation, recogni- tion, reward, and incentives that supports high-performance work and work- force engagement.

• Assess workforce engagement and satisfaction and use results for improvement of workplace practices.

• Assess workforce capability and capacity needs and use the results to capitalize on core competencies, address strategic challenges, recruit and retain skilled and competent people, and accomplish the work of the organization.

• Make appropriate investments in development and learning, both for the workforce and the organization’s leaders.

• Manage career progression for the entire workforce and succession planning for management and leadership positions.

The design of work and jobs in today’s organizational environment often involves teams. A TQ philosophy encourages and facilitates teamwork and team development across the entire enterprise. Competitive behavior—one person against another or one group against another—is contrary to the principles of TQ. Effective reward systems recognize individual as well as team contributions and reinforce cooperation. The areas for teamwork and collaboration are broad, partic- ularly in education, training, and meaningful involvement of employees in the improvement of processes that they affect and that affect their work. Teamwork can be viewed in three ways:

1. Vertical—teamwork between top management and lower-level employees. 2. Horizontal—teamwork within work groups and across functional lines (often

called cross-functional teams). 3. Interorganizational—partnerships with suppliers and customers.

Chapter 1: Introduction to Quality and Performance Excellence 29

Vertical Teamwork Everyone must participate in quality improvement efforts. The person in any organization who best understands his or her job and how it can be improved is the one performing it. Vertical teamwork is the sharing of responsibility among organizational levels through empowerment. This often repre- sents a profound shift in the philosophy of senior management, because the traditional philosophy is that the workforce should be “managed” to conform to existing business systems. Many organizations empower their people to act on ideas for improvement without prior approval.

Companies can encourage participation by recognizing team and individual accomplishments; sharing success stories throughout the organization; encouraging risk taking by removing the fear of failure; encouraging the formation of employee- involvement teams, implementing suggestion systems that act rapidly, provide feedback, and reward implemented suggestions; and by providing financial and technical support to employees to develop their ideas.

Employees need training in skills related to performing their work and to understanding and solving quality-related problems. Frontline workers need the skills to listen to customers; manufacturing workers need specific skills in develop- ing technologies; and all employees need to understand how to use measurements to drive continuous improvement. Training brings all employees to a common understanding of goals and objectives and the means to attain them. Training usually begins with awareness of quality management principles and is followed by specific skills in quality improvement. Training should be reinforced through on-the-job applications of learning, involvement, and empowerment.

Horizontal Teamwork Problem solving and process improvement are best per- formed by cross-functional work teams. For example, a product development team might consist of designers, manufacturing personnel, suppliers, salespeople, and cus- tomers. Texas Instruments Defense Systems & Electronics Group (since acquired by Raytheon) employed corporation teams to work on corporate-level goals, employee effectiveness teams to prevent potential problems in specific work areas, and department action teams to solve departmental problems. Graniterock Company, with fewer than 400 employees, has about 100 functioning teams, ranging from 10 corporate quality teams to project teams, purchasing teams, task forces, and function teams composed of people who do the same job at different locations.

Interorganizational Partnerships Partnerships must be created both internally and externally. Companies should seek to build partnerships that serve mutual and larger community interests. Partnerships might include those that promote labor- management cooperation such as agreements with unions that entail employee development, cross-training, or new work organizations. Rather than dictating speci- fications for purchased parts, a company might develop specifications jointly with suppliers to take advantage of the suppliers’ manufacturing capabilities. Internal partnerships might also involve creating network relationships among company units to improve flexibility, responsiveness, and knowledge sharing. External partner- ships might be with suppliers, customers, or educational organizations. Partnerships permit the blending of a company’s core competencies with complementary strengths and capabilities of partners.

30 Part 1: Foundations of Quality and Performance Excellence

Suppliers, in particular, are important partners who need vital information, product designs, performance feedback and assistance, and so on. The aim of the partnership is innovation, reduction in variation of critical characteristics of sup- plied materials, lower costs, and better quality. The aim may be enhanced by reducing the number of suppliers and establishing long-term relationships.

Practices for involving people in quality include helping them understand the importance of their contribution and role in the organization; identifying con- straints to their performance; creating a sense of ownership and responsibility to identify and solve quality problems; evaluating performance against personal goals and objectives; providing opportunities to enhance worker’s competence, knowl- edge, and experience; providing mechanisms to share knowledge and experience; and providing an open forum for discussing problems and issues.

PROCESS APPROACH

The traditional way of viewing an organization is by surveying the vertical dimension—by keeping an eye on an organization chart. However, work gets done (or fails to get done) horizontally or cross-functionally, not hierarchically. One can no longer view an enterprise as a collection of separate, highly special- ized individual performers and units loosely linked by a functional hierarchy.

A process is a sequence of activities that is intended to achieve some result. According to AT&T, a process is how work creates value for customers.35 We typically think of processes in the context of production: the collection of activities and operations involved in transforming inputs (physical facilities, materials, capital, equipment, people, and energy) into outputs (products and services). Common types of production processes include machining, mixing, assembly, filling orders, or approving loans. However, nearly every major activity within an organization involves a process that crosses traditional organizational boundaries. For example, an order fulfillment process might involve a salesperson placing the order; a marketing repre- sentative entering it on the company’s computer system; a credit check by finance; picking, packaging, and shipping by distribution and logistics personnel; invoicing by finance; and installation by field service engineers. This is illustrated in Figure 1.1.

TQ views the enterprise as a system of interdependent processes, linked lat- erally over time through a network of collaborating (internal and external) suppli- ers and customers. Each process is connected to the enterprise’s mission and purpose through a hierarchy of micro- and macro-processes. Every process con- tains sub-processes and is also contained within a higher process. This structure of processes is repeated throughout the hierarchy. A process perspective links all nec- essary activities together and increases one’s understanding of the entire system, rather than focusing on only a small part. Many of the greatest opportunities for improving organizational performance lie in the organizational interfaces—those spaces between the boxes on an organization chart.

Good practices that support a process focus include systematically defining processes that create desired outcomes; establishing clear responsibility and accountability for managing key processes; analyzing and measuring of the capabi- lity of processes; identifying the interfaces of key activities within and between the functions of the organization; focusing on the factors such as resources, methods,

Chapter 1: Introduction to Quality and Performance Excellence 31

and materials that will improve processes; and evaluating risks, consequences and impacts of activities on customers, suppliers, and other stakeholders.

SYSTEMS APPROACH TO MANAGEMENT

Achieving quality and market leadership requires a strong future orientation and a will- ingness to make long-term commitments to all stakeholders—customers, employees, suppliers, stockholders, the public, and the community. This requires a systems approach. Successful management of overall performance requires organization- specific synthesis, alignment, and integration. Synthesis means looking at an organiza- tion as a whole and building on key business attributes, including core competencies, strategic objectives, action plans, and work systems. Alignmentmeans ensuring consis- tency of plans, processes, measures, and actions across the organization. Integration builds on alignment, so that the individual components of the organizational system operate in a fully interconnected manner and deliver anticipated results. A systems per- spective includes senior leaders’ focus on strategic directions and on customers. It means that senior leaders monitor, respond to, and manage performance based on your results. A systems perspective also includes using measures, indicators, core com- petencies, and organizational knowledge to build key strategies. It means linking these strategies with work systems and key processes and aligning resources to improve your overall performance and a focus on customers. Thus, a systems perspective means managing your whole organization, as well as its components, to achieve success.

Practices for ensuring a systems approach to managing an organization include designing the organization to achieve its objectives in the most effective and efficient way; understanding the interdependencies between processes; developing approaches that harmonize and integrate processes; providing a clear understanding of the roles

CEO

Vice President Vice President• • •

Fu nc

tio na

l Fo

cu s

P ro

ce ss

Fo cu

s Department

Manager Department

Manager

Process A

Process B

Process C

Process D

Process E

32 Part 1: Foundations of Quality and Performance Excellence

and responsibilities necessary for achieving objectives and reducing cross-functional barriers; understanding organizational capabilities; defining how specific activities and processes should operate; and continually improving the system through mea- surement and evaluation.

CONTINUAL IMPROVEMENT

The president of a former Texas Instruments division had a sign in his office that said, “If you don’t change the process, why would you expect the results to change?” Thus, management’s job is to provide the leadership for continuous improvement and learning. Continuous improvement should be a part of the management of all systems and processes. “Continuous improvement” refers to both incremental and “breakthrough” improvement. Improvement and learning need to be embedded in the way an organization operates. This means they should be a regular part of daily work, seek to eliminate problems at their source, and be driven by opportunities to do better as well as by problems that need to be corrected.

Improvements may be of several types:

• enhancing value to the customer through new and improved products and services;

• improving productivity and operational performance through better work processes and reductions in errors, defects, and waste;

• improving flexibility, responsiveness, and cycle time performance; and • improving organizational management processes through learning.

Improving Products and Services Careful research is required to determine the needs of customers, and those needs must be reflected in the design of products and services. A Japanese professor, Noriaki Kano, suggests that three classes of customer needs exist:

• Dissatisfiers—those needs that are expected in a product or service, such as a radio, heater, and required safety features in an automobile. Such items gener- ally are not stated by customers but are assumed as given. If they are not present, the customer is dissatisfied.

• Satisfiers—needs that customers say they want, such as air-conditioning or a compact disc player in a car. Fulfilling these needs creates satisfaction.

• Delighters/exciters—new or innovative features that customers do not expect. When first introduced, antilock brakes and air bags were examples of exciters. Newer concepts still under development, such as collision avoidance systems, offer other examples. The presence of such unexpected features, if valued, leads to high perceptions of quality.

The importance of this classification is realizing that although satisfiers are rel- atively easy to determine through routine marketing research, special effort is required to elicit customer perceptions about dissatisfiers and delighters/exciters. Over time, delighters/exciters become satisfiers as customers become used to them (as is the case today with antilock brakes and air bags), and eventually, satisfiers become dissatisfiers (customers are dissatisfied if they are not provided). Therefore,

Chapter 1: Introduction to Quality and Performance Excellence 33

companies must innovate continually and study customer perceptions to ensure that their needs are being met.

Improving Work Processes Quality excellence derives from well-designed and well-executed work processes and administrative systems that stress prevention. Improvements in the work processes may lead to major reductions in scrap and defects and, hence, to lower costs.

Improving Flexibility, Responsiveness, and Cycle Time Success in globally competitive markets requires a capacity for rapid change and flexibility. Electronic commerce, for instance, requires more rapid, flexible, and customized responses than traditional market outlets. Flexibility refers to the ability to adapt quickly and effectively to changing requirements. This might mean rapid changeover from one product to another, rapid response to changing demands, or the ability to pro- duce a wide range of customized services. Flexibility might demand special strate- gies such as modular designs, sharing components, sharing manufacturing lines, and specialized training for employees. It also involves outsourcing decisions, agreements with key suppliers, and innovative partnering arrangements.

One important business metric that complements flexibility is cycle time. Cycle time refers to the time it takes to accomplish one cycle of a process—for instance, the time a customer orders a product to the time that it is delivered, or the time to intro- duce a new product. Reductions in cycle time serve two purposes. First, they speed up work processes so that customer response is improved. Second, reductions in cycle time can only be accomplished by streamlining and simplifying processes to eliminate non–value-added steps such as rework. This forces improvements in quality by reduc- ing the potential for mistakes and errors. By reducing non–value-added steps, costs are reduced as well. Thus, cycle time reductions often drive simultaneous improvements in organization, quality, cost, and productivity. Significant reductions in cycle time cannot be achieved simply by focusing on individual subprocesses; cross-functional processes must be examined all across the organization. This forces the company to understand work at the organizational level and to engage in cooperative behaviors. Agility is a term that is commonly used to characterize flexibility and short cycle times.

Learning The concept of learning refers to understanding why changes are suc- cessful through feedback between practices and results, and leads to new goals and approaches. A learning cycle has four stages:

1. planning, 2. execution of plans, 3. assessment of progress, and 4. revision of plans based upon assessment findings.

Effective practices that support continual improvement include deploying a sys- tematic approach to continual improvement across the organization; providing the workforce with training in the methods and tools of continual improvement; mak- ing continual improvement of products, processes, and systems an objective for every individual; establishing goals to guide, and measures to track, continual improvement; and recognizing and acknowledging improvements.

34 Part 1: Foundations of Quality and Performance Excellence

FACTUAL APPROACH TO DECISION MAKING

Measurements provide critical data and information about key processes, outputs, and results. When supported by sound analytical approaches that project trends and infer cause-and-effect relationships, measurements provide an objective founda- tion for learning, leading to better customer, operational, and financial perfor- mance. Organizations need good performance measures to drive strategies and organizational change, manage resources and processes, and continuously improve.

Data and information support analysis at all organizational levels. The types of information and how it is disseminated and aligned with organizational levels are equally vital to success. At the work level, data provide real-time information to identify reasons for variation, determine root causes, and take corrective action as needed. This might require lean communication channels consisting of bulletins, computerized quality reports, and digital readouts of part dimensions to provide immediate information on what is happening and how things are progressing. At the process level, operational performance data such as yields, cycle times, and pro- ductivity measures help managers determine whether they are doing the right job, whether they are using resources effectively, and whether they are improving. Infor- mation at this level generally is aggregated; for example, daily or weekly scrap reports, customer complaint data obtained from customer service representatives, or monthly sales and cost figures faxed in from field offices. At the organization level, quality and operational performance data from all areas of the firm, along with relevant financial, market, human resource, and supplier data, form the basis for strategic planning and decision making. Such information is highly aggregated and obtained from many different sources throughout the organization.

A comprehensive set of measures and indicators tied to customer and company performance requirements provides a clear basis for aligning all activities of the company with its goals. A company should select performance measures and indi- cators that best represent the factors that lead to improved customer, operational, and financial performance. These typically include:

• product and process outcomes, • customer-focused outcomes, • workforce-focused outcomes, • leadership and governance outcomes, and • financial and market outcomes.

One of the many issues facing organizations today is how to manage, use, eval- uate, and share their ever-increasing organizational knowledge. Leading organiza- tions benefit from the knowledge assets of their workforce, customers, suppliers, collaborators, and partners, who together drive organizational learning and improve performance. The focus of an organization’s knowledge management is on the knowledge that people need to do their work; improve processes, products, and services; keep current with changing business needs and directions; and develop innovative solutions that add value for the customer and the organization.

Some effective practices for managing data, information, and organizational knowledge include ensuring that data and information are sufficiently accurate and reliable; making data accessible to those who need it; analyzing data and information using valid methods; and making decisions and taking action based on factual analy- sis, balanced with experience and intuition.

Chapter 1: Introduction to Quality and Performance Excellence 35

MUTUALLY BENEFICIAL SUPPLIER RELATIONSHIPS

Today, supply chains are among the most important business processes in many orga- nizations. The fundamental objective of a supply chain is to provide the right product in the right quantity at the right place at the right time. Suppliers include not only companies that provide materials and components, but also distributors, transporta- tion companies, and information, health care, and education providers. Key suppliers might provide unique design, technology, integration, or marketing capabilities that are not available within the business and, therefore, can be critical to achieving such strategic objectives as lower costs, faster time-to-market, and improved quality.

The importance of high-quality supply chains became evident after the 2011 earthquake and tsunami in northern Japan. Toyota and Honda, as well as other companies in Asia, experienced severe supply chain disruptions in their production facilities. Toyota’s global output fell by 47.8 percent in April versus the previous year, and Honda’s production fell by 52.9 percent.36 However, because of the strength of their supply chains, both companies rebounded rapidly.

Supply chains help to create competitive advantage in delivery, flexibility, and cost reduction. A report from AMR Research, Inc. suggests that companies that excel in supply chain operations also perform better in other financial measures of success. As one executive at AMR Research stated, “value chain performance translates into productivity and market-share leadership…. supply chain leadership means more than just low costs and efficiency—it requires a superior ability to shape and respond to shifts in demand with innovative products and services.”37

Increasingly, suppliers are viewed as partners with customers, because there usually is a co-dependent relationship (see the box on Toyota).

Effective practices for developing mutually beneficial supplier relationships include recognizing the strategic importance of suppliers in accomplishing business objectives, particularly minimizing the total cost of ownership; identifying and selecting key suppliers; developing win–win relationships that balance short-term gains with long-term considerations; establishing trust through openness and hon- esty, thus leading to mutual advantages; pooling expertise and resources with part- ners; having clear and open communication that information and future plans; establishing joint development and improvement activities; and inspiring, encourag- ing, and recognizing improvements and achievements of suppliers.

The principles of TQ are embodied in the business philosophy of many leading companies (see box “Bringing TQ to Life at KARLEE” for an example of

THE POWER OF SUPPLIER RELATIONSHIPS38

A powerful example of supplier partnerships is the response that occurred when a fire destroyed the main source of a crucial $5 brake valve for Toyota. Without it, Toyota had to shut down its 20 plants in Japan. Within hours of the disaster, other sup- pliers began taking blueprints, improvising tooling systems, and setting up makeshift production lines. Within days, the 36 suppliers, aided by more

than 150 other subcontractors, had almost 50 production lines making small batches of the valve. Even a sewing-machine company that had never made car parts spent 500 person-hours refitting a milling machine to make just 40 valves a day. Toyota promised the suppliers a bonus of about $100 million “as a token of our appreciation.”

36 Part 1: Foundations of Quality and Performance Excellence

a company that exemplifies these principles). Interestingly, some research has sug- gested that the six TQ principles don’t exert the same influence on organizational performance.40 One study of 1,200 Australian and New Zealand manufacturers found that although TQ principles and practices clearly drive performance, it pointed to leadership, customer focus, and workforce management practices as the

BRINGING TQ TO LIFE AT KARLEE39

KARLEE is a contract manufacturer of precision sheet metal and machined components for tele- communications, semiconductor, and medical equipment industries, located in Garland, Texas. Some of the ways it exemplifies the principles of TQ are described below.

Customer Focus. KARLEE made a strategic decision to carefully select customers that support its values—particularly a systematic approach to business and performance management, desire for long-term partnerships, and global leadership. Management and Team Leaders work with each customer to establish current requirements and future needs, and each customer is assigned a three-person Customer Service team that is on call 24 hours a day for day-to-day production issues.

Leadership. Senior Executive Leaders (SELs) and the KARLEE Leadership Committee (KLC) set the strategic direction of the company, and com- municate and reinforce values and expectations through performance reviews, participation in improvement or strategic projects, regular inter- actions with customers and team members, and recognition of team member achievements.

Involvement of People. Production and delivery processes are designed around cell manufacturing. Teams are responsible for knowing their customer’s requirements and producing according to those requirements. Teams are empowered to change targets recommended during strategic planning if they believe it will help them achieve higher perfor- mance, as well as to schedule work, manage inventory, and design the layout of their work areas.

Process Approach. Processes such as proto- type development, scheduling, production setup, fabrication, assembly, and delivery require pro- cess owners to be responsible for maintaining the process to customer requirements. A Quality

Assurance team member works with manufactur- ing teams to create process documentation.

System Approach to Management. KARLEE’S strategic planning approach includes a strategic assessment of the entire company, and aligns corporate objectives and goals with its key business drivers. KARLEE uses information and data to set goals, align organizational directions and manage resource at the operating, process, and organizational levels.

Continual Improvement. Teams use a struc- tured approach to evaluate and improve their processes, documenting them and presenting a status report of improvements to senior leaders and the KARLEE Steering Committee. Teams benchmark competitors, “best practice” compa- nies, and customers to learn from others.

Factual Approach to Decision Making. Teams analyze defect data, customer-reported problems, and control charts generated during production to identify problems and opportunities for improve- ment. Every business goal and project has defined methods for measurement, and senior leaders meet weekly to review company performance and ensure alignment with directions and plans.

Mutually Beneficial Supplier Relationships. KARLEE selects and develops suppliers that share their commitment to customer satisfaction to ensure they have the materials and services needed to support their customers. Supplier per- formance issues and expectations are discussed with individual suppliers and presented at the annual Supplier Symposium.

All this has contributed to an annual average increase in sales growth of 35 percent from 1995 to 2000, and high levels of customer and employee satisfaction, and quality and operational performance.

Chapter 1: Introduction to Quality and Performance Excellence 37

strongest significant predictors of performance, which managers should seek to leverage as much as possible.

Our purpose in this book is to provide a solid link between concepts of TQ and the traditional management areas of organization theory, organizational behavior, and strategy. When any company begins to think of how to improve, it will be led to the various approaches that are united under the TQ concept. Today, performance excellence is a matter of survival.

TQ AND AGENCY THEORY41

One model in organizational theory that has received considerable attention is agency theory. Agency theory is based on the concept of an agency relationship, in which one party (the principal) engages another party (the agent) to perform work. Agency theory makes the assumption that individuals in agency relationships are utility maximizers and will always take actions to enhance their self-interests. As a consequence, when authority is delegated to agents on behalf of the principal, agents may use this power to promote their own well-being, at the expense of the principal. Monitoring is a central issue in agency theory, because it is a primary mechanism used by both parties to maintain and govern the relationship.

Agency theory provides a stark contrast to TQ. TQ views the management sys- tem as one based on social and human values, whereas agency theory is based on an economic perspective that removes people from the equation. Whereas agency theory propounds the belief that people are self-interested and opportunistic and that their rights are conditional and proportional to the value they add to the orga- nization, TQ suggests that people are also motivated by interests other than self, and that people have an innate right to be respected. Agency theory assumes an inherent conflict of goals between agents and principals, and that agent goals are aligned with principal goals through formal contracts. In TQ, everyone in the orga- nization shares common goals and a continuous improvement philosophy, and goals are aligned through adoption of TQ practices and culture. Sharing informa- tion to achieve these goals is fundamental to TQ, whereas agency theory suggests that information may be concealed to advance self-interests. TQ takes a long-term perspective based on continuous improvement, whereas agency theory focuses on short-term achievement of the contract between the principal and agent. In TQ, risk taking is necessary in order to innovate, whereas agency theory assumes that risks are to be minimized and shared between the two parties.

Finally, TQ leaders provide a quality vision and play a strategic role in the organization; leaders in agency theory develop control mechanisms and engage in monitoring. TQ proponents argue that it is a superior strategy because a quality culture can be sustained and is less costly in the long term. Agency theory advo- cates suggest that high performance may be achieved by appropriately structuring agents’ contracts and aligning their interests. As we shall see in Chapter 3, some elements of agency theory are evident in strategy implementation approaches within a TQ environment. Both theories have shaped the activities of scholars and practitioners, and research has yet to arrive at a definitive conclusion. However, it is difficult to argue with the results that firms choosing a clear TQ path have achieved.

38 Part 1: Foundations of Quality and Performance Excellence

TQ AND ORGANIZATIONAL MODELS42

Although TQ is a new way of thinking about the management of organizations, it is not a totally new paradigm. When compared with well-known organizational models, it can be seen as capturing many aspects of these established models and amplifying them by providing a useful methodology. Three major organizational models that management theorists have studied are the mechanistic, organismic, and cultural models of organizations. Contrasts between TQ and these models are summarized in Table 1.2. The mechanistic model, described by classical manage- ment theorists, views an organization as a tool or a machine designed solely to cre- ate profits for its owners. Work is reduced to elementary tasks with a focus on efficiency, conformity, and compliance. Although both the mechanistic model and TQ assume that the organization exists to achieve a specific performance goal, TQ has a broader definition of quality. It takes more of an open-systems perspective, which views managers as leaders and visionaries rather than as individuals who plan, organize, direct, and control. It broadens employees’ roles; uses a horizontal, rather than vertical, work organization; and focuses on continuous improvement rather than stability. Narrow-minded managers and those who criticize TQ often view it in a mechanistic sense and do not see the broader implications.

The organismic model views organizational systems as living organisms that depend on their environments for resources and adjust the behavior of their parts to maintain the properties of the whole within acceptable limits. This model assumes that systems goals, such as the need to survive, displace performance goals, such as profit. TQ is similar in that survival in competitive environments is often the primary motivation for adopting it. Customer satisfaction as a definition of quality is compatible with this notion. In the organismic model, organizations are not autonomous entities. This is consistent with the notion of partnership development espoused by TQ: Vision replaces fear as a motivator and driver of management actions; employees work for shared beliefs and values; horizontal communication becomes as important as vertical communication and direction in stressing coordination and organizational rationality; and the organization must adapt to a broad array of external forces. It is evident that TQ shares many simi- larities with this organizational model. This helps explain why many practitioners have viewed TQ as something new, whereas many academics recognize its roots in systems theory that was popular decades ago.

The cultural model views an organization as a collection of cooperative agree- ments entered into by individuals with free will. The organization’s culture and social environment are enacted or socially constructed by organization members. From the perspective of this model, the goal of an organization is to serve the diverse needs of all whom it affects—its stakeholders—a view often expressed by TQ philosophers. Because of the multiplicity of stakeholders, quality has many meanings, although some degree of consensus regarding the organization’s values and purposes is needed. Although TQ generally assumes that organizations must adapt to the expectations of customers, more recent views of building partnerships and sharing of best practices (even with competitors) are consistent with the cul- tural model. In the cultural model, managers take on a more distinctive leadership role, relinquishing control and sharing power in order to meet the needs of the

Chapter 1: Introduction to Quality and Performance Excellence 39

many individuals in the organization; employees have greater voice in establishing organizational goals; all structural decisions are value-based and have clear impli- cations with regard to individual autonomy (political rationality); and learning needs are driven not by adaptation to environmental forces but in response to indi- vidual needs. Many of these attributes are characteristic of recent trends in the evo- lution of TQ themes in high-performing organizations.

In summary, TQ appears to have evolved from reactionary influences against the mechanistic model of management and embraced many of the characteristics

TABLE 1.2 SUMMARY OF TQ AND ORGANIZATIONAL MODELS (ADAPTED FROM SPENCER, 1994)

Dimension TQ Paradigm Mechanistic Model Organismic Model Cultural Model

Goal Long-term survival Organizational efficiency and performance

Organizational survival

Meet individual needs; human development

Definition of quality

Satisfying or delighting the customer

Conformance to standards

Customer satisfaction

Constituent satisfaction

Role/nature of environment

Blurred organization and environmental boundaries

Objective; outside boundary

Objective; inside boundary

Enacted/boundaries defined through relationships

Role of management

Focus on improvement and creating a system that can produce quality outcomes

Coordinate and provide visible control

Coordinate and provide invisible control by creating vision and system

Coordinate and mediate negotiations regarding vision, system, rewards

Role of employees

Employees are empowered; training and education provide needed skills

Passive; follow orders

Reactive/self- control within system parameters

Active/self-control; participate in creation of vision, system

Structural rationality

Horizontal processes beginning with suppliers and ending with customers and supported by teams

Chain of command (vertical)

Technical rationality

Process flow (horizontal and vertical)

Organizational rationality

Mutual adjustment in any direction

Political rationality

Philosophy toward change

Change, continuous improvement, and learning are encouraged

Stability is valued; learning arises from specialization

Change and learning assist adaptation

Change and learning are valued in themselves

Source: Republished with permission of the Academy of Management, P.O. Box 3020, Briarcliff Manor, New York 10510-8020. Models of Organization and Total Quality Management: A Comparison and Critical Evaluation (Table), Barbara A. Spencer, Academy of Management Review, 1994, Vol. 19, No. 3. Reproduced by permission of the publisher via Copyright Clearance Center, Inc.

40 Part 1: Foundations of Quality and Performance Excellence

of the organismic model. Recent trends, however, suggest that ideas from the cul- tural model are influencing the maturity of TQ in modern organizations. This will become more evident as we discuss the Malcolm Baldrige Criteria for Performance Excellence in the next chapter.

Discussion Questions and Experiential Exercises

1. Describe how the specific practices of PVHS in the opening Performance Excellence Pro- file support the principles of TQ.

2. Explain why quality became the most impor- tant issue facing American business in the 1980s. In addition to economic competition from Japan, what other factors may have contributed to the importance that quality has assumed?

3. Examine the annual reports of one company over a period of years. Summarize how quality is discussed or implied in the com- pany’s statements and philosophy. Are any changes in the perspectives of quality evident over time?

4. Conduct some research on quality practices that is focused on a particular country or global region. Summarize your findings in a two- to three-page report.

5. Cite several examples in your own experi- ence in which your expectations of the quality of goods or services you purchased were met, exceeded, or not met. How did you regard the company after your experience?

6. How might the definition of quality apply to your college or university? Provide examples of who some customers are and how their expectations can be met or exceeded.

7. High quality is not necessarily related to price. Discuss this, drawing from your own knowledge and experience, and provide examples where this may and may not be true.

8. Discuss how the frequency with which you anticipate using a product might impact the quality and price that you are willing to pay and how it relates to the value-based defini- tion. Provide some examples to justify your reasoning.

9. What implications do you think the forces that will influence the future of quality (see the box “What Will Influence the Future of Quality” in the chapter) will have on management practice?

10. How has social media changed how both consumers and organizations deal with qual- ity? How can organizations exploit social media in their quality approaches and decisions?

11. Think of a product with which you are familiar. Describe the eight “multiple qual- ity dimensions” listed in this chapter (e.g., performance, features, and so on) for this product that are listed in this chapter.

12. What might the eight “multiple quality dimen- sions” mean for a college or university? For a classroom?

13. Explain the differences between manufactur- ing and service organizations and their implications for quality.

14. A car rental agency surveys its customers on the following characteristics: • Cleanliness of the rental facility • Courtesy of staff • Efficiency of vehicle pickup/return • Cleanliness of vehicle • Professionalism of staff in explaining the

contract and options How would you classify each of these according to the five key service quality dimensions? What dimensions are missing?

15. Describe the key principles of TQ. 16. How might you apply the concepts of TQ to

your personal life? Consider your relations with others and your daily activities such as being a student, belonging to a fraternity or professional organization, and so on.

17. Why is a customer focus a critical element of a high-performing organization?

Chapter 1: Introduction to Quality and Performance Excellence 41

18. Make a list of your personal “customers.” What steps might you take to understand their needs and build customer engagement?

19. Cite an example in which you did not pur- chase a product or service because it lacked “dissatisfiers” as defined in the chapter. Cite another example in which you received some “exciters/delighters” that you did not expect.

20. In what ways might the lack of top manage- ment leadership in a quality effort hinder or destroy it?

21. Explain the various areas within an organi- zation in which continuous improvement and learning may take place.

22. Why is measurement important in an orga- nization pursuing TQ and performance excellence?

23. Examine some process with which you are familiar. Make a list of ways that the pro- cess can be measured and improved. What difficulties might you face in implementing these ideas?

24. Describe the three ways of viewing teamwork.

25. Describe some possible ways in which verti- cal, horizontal, and interorganizational teamwork can be applied at a college or university.

26. What is employee engagement? How does it differ from empowerment? How might an employee really know that he or she is truly empowered? How might an organi- zation know that employees are truly engaged?

27. Have you ever felt restricted in your work because of a lack of empowerment? Can you cite any experiences in which you noticed a lack of empowerment in a person who was serving you? Why is this such a difficult concept to implement in organizations?

28. How does TQ differ from agency theory? 29. Explain the mechanistic, organismic, and

cultural models of organizations, and how TQ is similar to or different from them.

30. Today, both manufacturing and service depend greatly on information technology and the Internet. What would be some ways of evaluating the quality of a website?

CASES

The Reservation Nightmare43

H. James Harrington, a noted quality consultant, related the following story inQuality Digest magazine:

I called to make a flight reservation just an hour ago. The telephone rang five times before a recorded voice answered. “Thank you for calling ABC Travel Services,” it said. “To ensure the highest level of cus- tomer service, this call may be recorded for future analysis.” Next, I was asked to select from one of the following three choices: “If the trip is related to company business, press 1. Personal business, press 2. Group travel, press 3.” I pressed 1.

I was then asked to select from the following four choices: “If this is a trip within the United States, press 1. International, press 2. Scheduled training, press 3. Related to a conference, press 4.” Because I was going to Canada, I pressed 2.

A few seconds passed and a very sweet voice came on, saying, “All international operators are busy, but please hold because you are a very important cus- tomer.” The voice was then replaced by music. About two minutes later, another recorded message said, “Our operators are still busy, but please hold and the first available operator will take care of you.” More music. Finally the sweet voice returned, stating, “To speed up your service, enter your 19- digit customer service number.” I found it and entered the number in time. The same sweet voice came back to me, saying, “To confirm your customer service number, enter the last four digits of your social secu- rity number.” I pushed the four numbers on the keypad.

The voice said: “Thank you. An operator will be with you shortly. If your call is an emergency, you can call 1-800-CAL-HELP, or push all of the buttons

42 Part 1: Foundations of Quality and Performance Excellence

on the telephone at the same time. Otherwise, please hold, as you are a very important customer.”

At last, a real person answered the telephone and asked, “Can I help you?” I replied, “Yes, oh yes.” He answered, “Please give me your 19-digit customer ser- vice number, followed by the last four digits of your social security number so I can verify who you are.” (I thought I gave these numbers in the first place to speed up service. Why did I have to rattle them off again?)

I was now convinced that he would call me Mr. 5523-3675-0714-1313-040. But, to my surprise, he said: “Yes, Mr. Harrington. Where do you want to go and when?” I explained that I wanted to go to Montreal the following Monday morning. He replied: “I only handle domestic reservations. Our interna- tional desk has a new telephone number: 1-800- 1WE-GOTU. I’ll transfer you.” A few clicks later a message came on, saying: “All of our international operators are busy. Please hold and your call will be answered in the order it was received. Do not hang up or redial, as it will only delay our response to your call. Please continue to hold, as your business is important to us.”

Discussion Questions 1. Summarize the service failures associated with

this experience. 2. What might the travel agency have done to

guarantee a better service experience for Mr. Harrington? How do your suggestions relate to the TQ principles?

Nashville Custom Guitars44

Nashville Custom Guitars (NCG) is a small-scale manufacturing operation producing fewer than 800 instruments a year. The company does not have a for- mal quality department, nor has it consciously tried to apply the principles of TQM. Nevertheless, a tour of its facilities and operations suggest that many of the principles of TQM are evident.

Although modern computer numerical controlled (CNC) equipment is used to manufacture minor parts of the guitar, the secret of NCG’s success lies in the small staff of 14 craftspeople, known as luthiers, who apply care and attention to detail while hand-crafting the major components of each instru- ment. The shop floor is divided into six workstations

at which the guitars are progressively assembled as they move from station to station. Experienced luthiers, who are empowered to make their own qual- ity decisions, staff each station. The guitar does not move to the next station until the luthier and another more senior luthier are satisfied with the quality of the work. The manufacturing department inspects what it produces. The company recruits only those who desire to work in a team environment and have a passion for guitar making.

There are seven major steps in the process of mak- ing a guitar:

1. Selecting and drying the wood: The guitar-making process starts with the selection of the highest grades of tonewoods. The wood is treated in an evaporative dehumidifying kiln that slowly and carefully removes bound cellular moisture from the wood. The target moisture level is 3 percent, but when exposed to the temperature/humidity conditions of the shop floor, the moisture content stabilizes at 6 percent. The shop floor is kept at a constant 47 percent humidity, which is optimum for maintaining the equilibrium of moisture conditions.

2. Rough-cutting the wood: Once dried, the wood is worked down to rough usable forms using traditional woodworking tools. However, NCG uses a CNC machine for creating the necks.

3. Bending the sides: To create the desired shapes, the guitar sides are first dipped into water for 10 minutes to condition the wood and then placed under gradual hand pressure on a hot bending template. At that point, the tension in the wood has been relaxed, and the wood even- tually takes the shape of the template. This pro- cess is best performed by human hands because sides that are shaped by machines have a ten- dency to spring back when they are being forced into molds.

4. Cutting the top and back: The top and back of the guitars are then cut to shape, and braces are applied to each surface. The thicknesses of the top and braces have the most influence on the final sound of the guitar. As the luthier shaves off ribbons of wood from the top and braces, he or she will tap the top to hear the tone that results from each series of shavings until the tone is perfect. Since the true sound of the instruments will not be fully realized until they

Chapter 1: Introduction to Quality and Performance Excellence 43

are assembled, the luthiers write down what they did while building the top. After final assembly, if a guitar produces a sound so special it knocks the player’s socks off, the luthier who built the top will immediately be notified and asked to check his notes to see how this was accomplished so the sound can be duplicated in the future.

5. Cutting the neck: About 60 percent of the NCG guitar necks are cut on the CNC machine. It is the only major part that is not hand-made. It is crit- ical that the dimensions of the neck be consistent, and the CNC machine does that better than human hands. The 40 percent of necks that are hand-made are done that way because of a customer’s specifications.

Ebony fret boards, which are inlaid with mother-of-pearl, are then glued to the necks.

6. Applying the finish: The guitar body is finished with 12 protective layers of a specially formulated lacquer composed primarily of nitrocellulose and plasticizers to preserve the wood surfaces. But the lacquer is thin enough that the sound is not dampened.

7. Completing final assembly and setup: The neck is fitted to the body using a dovetail joint and then glued in place. Then the bridge is glued to the body. In the next step, called the setup, the saddle and nut, which suspend the strings over the instrument and are made from bovine bones, are installed. Finally, the strings are placed on the guitar, and it is played for the first time. A technician then adjusts the neck or string height to optimize the feel and playability of the instrument.

NCG has a web page where guitar owners can have questions about their guitars answered. At NCG, workers are encouraged to further enhance their skills either by taking external courses or by a practice that allows them to build two instruments a year for personal use. These opportunities allow the craftspeople to explore new techniques in guitar building and become familiar with the entire guitar building process. NCG workers are even encouraged to go out on their own to open a luthier business someday.

Based on this tour of NCG, can you identify how the operations and quality practices reflect the principles of TQ?

BISHOP’S SEAFOOD Jerome, his wife Sandy, and their two daughters were vacationing and visited a popular restaurant, Bishop’s Seafood Shack, that has several locations in the east- ern United States. The hostess was friendly, and their table location was removed from the general crowd— good for their young children. Jerome observed that their waiter was incredibly attentive to their needs without seeming like he was hovering. Their water and soft drink glasses were never empty, and they never had to ask for more bread; yet, at the same time, the family felt “alone” enough to engage in the most intimate of family conversations. The waiter also paid a lot of attention to Jerome’s young children. He demonstrated grace and patience, and some humor, while waiting on the decision of a 5-year-old girl.

The meal service itself was well-timed. All of the dishes came out almost simultaneously. In addition, Jerome had a friend who was running late in joining them for dinner. He had called to let them know what he wanted, and Jerome placed his order. When the food arrived, however, his friend wasn’t there yet. The waiter, without prompting, took his food back to the kitchen to keep it warm until he arrived. Throughout the course of the evening, their waiter consistently, but not constantly, checked in to see if their needs were met. Later that evening, one of his children complained of stomach pains and vomited. The next morning, Sandy called Bishop’s Restaurant —not to complain, as her daughter was fine in the morning—but, rather, to let them know to check their food. During that call, she complimented our waiter. A few days later, she received a call from the restaurant’s corporate office. The representative called to thank her and to let her know that they were send- ing a food inspector to that particular restaurant. Thereafter, she received a call nearly every day updat- ing her on the progress of the inspection. Finally, she was told that the restaurant had received a clean bill of health. A few weeks later, Jerome and Sandy received a $200 gift certificate in the mail, even though their daughter’s symptoms were probably related to simply overeating!

Discussion Questions 1. Why do you think the restaurant went to such

lengths in response to Sandy’s call? 2. How does this experience illustrate the five cus-

tomer service dimensions: tangibles, reliability, responsiveness, assurance, and empathy?

44 Part 1: Foundations of Quality and Performance Excellence

Endnotes

1. Baldrige National Quality Program 2008 Award Recipient Profile, National Institute of Standards and Technology, U.S. Department of Commerce.

2. Don Siebels, The Quality Improvement Glossary, Milwaukee, WI: ASQ Quality Press, 2004.

3. ASQ, “Discoveries,” ASQ Global State of Quality Study 2013, http://asq.org/global-state-of-quality/ reports.aspx.

4. Courtesy of Deer Valley Resort. Interesting sum- maries of Deer Valley’s customer-focused approaches can be found in ski magazines.

5. Salt Lake Tribune, “Utah Hospitals Log Nearly 90 Major Mistakes,” June 30, 2009; cited in ASQ Quality News Today, www.asq.org/qualitynews.

6. H. James Harrington, “Are We Going Astray? Quality Digest, Feb. 2008; “The Decline of U.S. Dominance-Part 2” Quality Digest, Mary 2008, available at www.qualitydigest.com.

7. Thomas A. Stewart, “A Conversation with Joseph Juran,” Fortune, January 11, 1999, 168–169.

8. Results of selected Baldrige Award recipients. Others may be found by reading the recipient profiles on the Baldrige website, www.nist.gov/baldrige.

9. Kevin B. Hendricks and Vinod R. Singhal, “Does Implementing an Effective TQM Program Actually Improve Operating Performance? Empirical

Evidence from Firms That Have Won Quality Awards,” Management Science, Vol. 43, No. 9, September 1997.

10. Jennifer Reingold, “Squeezing Heinz,” Fortune, October 28, 2013, pp. 184–191.

11. “The Push for Quality,” Business Week, June 8, 1987, p. 131.

12. “Reinventing Health Care,” Fortune, July 12, 1993, advertisement section.

13. Lori L. Silverman with Annabeth L. Propst, “Quality Today: Recognizing the Critical SHIFT,” Quality Progress, February 1999, pp. 53–60.

14. 2011 Future of Quality Study, Milwaukee, WI: American Society for Quality, http://asq.org/about- asq/how-we-do/futures-study.html, accessed 1/10/11.

15. David A. Garvin, “What Does ‘Product Quality’ Really Mean?” Sloan Management Review, Vol. 26, No. 1, 1984, pp. 25–43.

16. “A New Era for Auto Quality,” Business Week, October 2, 1990, pp. 84–96.

17. D. A. Collier, “The Customer Service and Quality Challenge,” The Service Industries Journal, Vol. 7, No. 1, January 1987, p. 79.

18. Karl Albrecht and Ronald E. Zemke, Service America, Homewood, IL.: Dow Jones-Irwin, 1985.

PATTERSON AUTO SALES AND SERVICE Patterson Auto Sales and Service (PASS) is a full service dealership for a major domestic automobile brand that provides three main services: new car sales, used car sales, and repair and maintenance service. Because of the competitive nature of the market, the firm’s owner, Bill Patterson, wants to take a more systematic approach to improving service and providing a high level of customer satisfaction. Through surveys, focus groups, and analysis of complaint data and informa- tion, he identified some important requirements for these services. Customers expect a favorable impression when they arrive at the dealership—a wide range of vehicles and options to evaluate, available salespeople, be greeted promptly, and feel comfortable and not pres- sured. They also expect salespersons to be courteous, knowledgeable about the cars, respect their time, and honor verbal promises. For repair and maintenance ser- vice, customers want to have the work explained appropriately, be fully informed of any additional

necessary work, and have all work reviewed upon com- pletion. They want good time estimates and communi- cations with the service department.

Suppliers play an important role in the business and the entire value chain. The dealership needs quality parts, product availability when needed, timely delivery, and fair prices. PASS also receives corporate support for its employee benefits and certain training programs, information technology planning and intranet/Internet development, market- ing and advertising, and strategic planning direc- tion. PASS is facing increasing competition for skilled employee talent, changing customer demo- graphics that are leading to growing demand, and more competition as a result of new foreign dealer- ships that are locating in its market area. Bill recog- nizes the need to “become the dealership of choice” in its market.

Drawing upon the principles of TQ and the unique nature of services, describe some of the issues that Bill must consider in achieving his vision. Develop a list of action plans that he might consider.

Chapter 1: Introduction to Quality and Performance Excellence 45

19. Eryn Brown, “Heartbreak Hotel?” Fortune, November 26, 2001, pp. 161–165.

20. A. Parasuraman, V. A. Zeithaml, and L. L. Berry, “SERVQUAL: A Multiple-Item Scale for Measur- ing Consumer Perceptions of Service Quality,” Journal of Retailing, Vol. 64, No. 1, Spring 1988, pp. 12–40.

21. Carol A. King, “Service Quality Assurance Is Dif- ferent,” Quality Progress, Vol. 18, No. 6, June 1985, pp. 14–18.

22. A. Parasuraman, Valarie Zeithaml, and Leonard L. Berry, Servqual, A Multiple-Item Scale for Mea- suring Customer Perceptions of Service Quality. Cambridge, MA: Marketing Science Institute, 1986.

23. “New JCAHO Standards Emphasize Continuous Quality Improvement,” Hospitals, August 5, 1991, 41–44.

24. Nada R. Sanders, “Health Care Organizations Can Learn from the Experiences of Others,” Quality Progress, February 1997, 47–49.

25. See, for example, Christina Del Valle, “Readin’, Writin’, and Reform,” Business Week/Quality Special Issue, October 25, 1991, 140–142; Myron Tribus, “Quality Management in Education,” Journal for Quality and Participation (January– February 1993), 12–21. See also Christopher W. L. and Paula E. Morrison, “Students Aren’t Learning Quality Principles in Business Schools,” Quality Progress 25, No. 1, January 1992, 25–27; John A. Byrne, “Is Research in the Ivory Tower ‘Fuzzy, Irrelevant, and Pretentious’?” Business Week, October 29, 1990, 62–66.

26. Kennedy Smith, “Koalaty Kid: A student-focused initiative to improve the quality of education,” Quality Digest, August 2002. http://www.quality- digest.com/aug02/articles/07_article.shtml.

27. Baldrige Award Recipient Profiles, National Insti- tute of Standards and Technology, U.S. Depart- ment of Commerce.

28. Madhav N. Sinha “Helping Those Who Help Others,” Quality Progress, July 1997; and Renee Oosterhoff Cox, “Quality in Nonprofits: No Longer Uncharted Territory,” Quality Progress, October 1999, 57–61.

29. Kennedy Smith, “American Red Cross Undergoes Quality Transfusion,” Quality Digest, March 2003, 6–7.

30. Procter & Gamble, “Report to the Total Quality Leadership Steering Committee and Working Councils,” Cincinnati, Ohio, 1992.

31. James W. Dean, Jr. and David E. Bowen, “Management Theory and Total Quality: Improv- ing Research and Practice Through Theory Devel- opment,” Academy of Management Review, 19, 3, 392–418, 1994.

32. Based on Scott M. Paton, “A Change for the Better,” First Word Editorial, Quality Digest, December 2003, p. 4.

33. “It’s My Manager, Stupid,” Across the Board, January 2000, p. 9.

34. Kicab Casteñeda-Mendez, “Performance Measure- ment in Health Care,” Quality Digest, May 1999, 33–36.

35. AT&T Corporate Quality Office, “AT&T’s Total Quality Approach,” 1992, 6.

36. “Toyota and Honda to recover quickly from supply chain disruption.” http://www .wheelsunplugged.com/ViewNews.aspx? newsid=10012. Accessed 2/6/12.

37. “Supply Chain Excellence,” Special Advertising Section, Business Week, April 25, 2005.

38. Valerie Reitman, “Toyota’s Fast Rebound After Fire at Supplier Shows Why It’s Tough,” Wall Street Journal, May 8, 1997, 1.

39. Adapted from KARLEE 2000 Malcolm Baldrige Application Summary, National Institute of Stan- dards and Technology, U.S. Department of Commerce.

40. Danny Samson and Mile Terziovski, “The rela- tionship between total quality management prac- tices and operational performance,” Journal of Operations Management 17, 1999, pp. 393–409.

41. See S. S. Masterson, J. D. Olian, and E. R. Schnell, “Belief versus practice in manage- ment theory: Total quality management and Agency theory,” in D. Fedor and S. Ghosh (eds.), Advances in the Management of Organizational Quality (Vol. 2), Greenwich, CT: JAI Press, 1997, pp. 169–209.

42. Based on Barbara A. Spencer, “Models of Organiza- tion and Total Quality Management: A Comparison and Critical Evaluation,” Academy of Management Review, Vol. 19, No. 3, 1994, pp. 446–471.

43. H. James Harrington, “Looking for a Little Service,” Quality Digest, May 2000.

44. “Good Vibrations” by Luke T. Foo, Quality Progress, Feb. 2008, 25–30. Reprinted with per- mission from Quality Progress © 2010 American Society for Quality. No further distribution allowed without permission.

46 Part 1: Foundations of Quality and Performance Excellence

CHAPTER

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2FRAMEWORKS FOR QUALITY ANDPERFORMANCE EXCELLENCE Performance Excellence Profile: K&N Management1

K&N Management is the licensed Austin,Texas-area developer for Rudy’s “Country Store” & Bar-B-Q and the creator of Mighty Fine Burgers, Fries and Shakes, two fast-casual restaurant concepts. Both feature walk-up counter service and a limited menu. The company’s culture is based on quality and excellence; strong relationships with its customers, referred to as “guests”; and a vision “to become world famous by delighting one guest at a time.” The company has more than 450 employees, referred to as “team members,” in its workforce. K&N’s revenue is approximately $50 million.

K&N Management builds and maintains a focus on “guest delight,” relying on innovation and technology to create product offerings that meet or exceed guest requirements. Guests can access store information and events via websites and social media, as well as through innovative approaches such as EyeClick, an interactive system at each Mighty Fine location. Feedback is collected with an iPad that administers short surveys around the main meal periods and uploads the information to a third- party host for aggregation. Takeout guests are directed to an online survey.

All leaders carry a personal digital assistant (PDA) that alerts them of guest comments and complaints and daily performance results. An example of action driven by guest input via this system is the Rudy’s breakfast taco program created in 2001. Other examples include “group meal” service pick-up pavilions, which were introduced in 2007, and “Jacuzzi” hand-wash machines now featured in all stores, which are favorites with guests.

Ongoing listening and learning approaches are used to maintain a list of key guest requirements (KGRs) that are aligned with key business drivers. The company’s performance against its KGRs is systematically measured and communicated throughout the workforce. Performance gaps and opportunities are funneled into appropriate planning approaches, ranging from problem solving to strategic planning.

K&N Management strives to retain its workforce by offering a comprehensive set of above-market benefits to team members who average at least 30 hours per week. For all categories of workers, turnover rates are lower than industry averages. For example, K&N Management’s turnover rate for production workers is less than 50 percent, in contrast to the industry average of 85 percent. K&N Management’s absentee rate is slightly more than 1 percent, compared to 5 percent for the best competitor and 3.5 percent for benchmarked organizations. K&N Management’s workforce performance management system establishes hiring, training and development, and performance improvement processes. These, along with defined work processes, foster team member engagement, provide an environment for high-quality service, and enable team members to consistently meet guest requirements.

K&N holds all team members accountable for performance excellence, integrity, and ethical behavior through a defined governance process and a detailed system of checks and balances. Managers are held accountable for their actions through monthly performance feedback, annual performance scorecard reviews, and 360-degree assessments, while the owners receive annual performance feedback, coaching, and development through an outside executive coach. Fellow senior leaders serve as “account ability partners” to support and ensure that their peers effectively carry out their identified development actions. As a result, K&N has achieved zero legal and ethical breaches for the last 15 years and 100 percent fiscal compliance on audits with zero fiscal violations.

All these approaches lead to outstanding performance results. In sales, K&N Management’s restaurants significantly outperform local competitors and national chains. For both K&N restaurant concepts, guests rate their satisfaction with food quality, hospitality, cleanliness, speed of service, and value at least 4.7 on a 5-point scale, outperforming the best competitor. Overall guest satisfaction ratings are over 4.7 for both, also beating the best competitor. Over 95 percent of K&N Management team members report they are proud to work for the company. In 2010, the Austin American-Statesman named the firm “the best place to work in Austin.”

It may seem unusual to see a restaurant using performance excellence practices like those described above in its business. Yet the results speak for themselves and led K&N Management to receive a Malcolm Baldrige Award – the nation’s highest recognition for performance excellence. Although awards justifiably recognize only a select few, the award or certification criteria provide frameworks for managing from which every organization can benefit. The two frameworks that have had the most impact on quality management practices worldwide are the U.S. Malcolm Baldrige National Quality Award and the international ISO 9000 certification process. Recently, the concept of Six Sigma has evolved into a unique framework for managing and improving quality. All of these frameworks evolved from the philosophies of three key individuals: W. Edwards Deming, Joseph M. Juran, and Philip B. Crosby. This chapter introduces you to their philosophies and describes the frameworks for managing and improving quality in organizations.

48 Part 1: Foundations of Quality and Performance Excellence

The objectives of this chapter are to:

1. describe the philosophies of Deming, Juran, and Crosby, which provide a basis for modern approaches to achieving quality and performance excellence;

2. provide an overview of the Malcolm Baldrige Award and other related award programs, ISO 9000, and Six Sigma as frameworks for quality and perfor- mance excellence; and

3. understand the differences in scope, purpose, and philosophy of these frame- works, so as to make informed choices when deciding to pursue an approach to organizational excellence.

FOUNDATIONS OF PERFORMANCE EXCELLENCE

W. Edwards Deming, Joseph M. Juran, and Philip B. Crosby are regarded as true “management gurus” in the quality revolution. Their insights on measuring, managing, and improving quality have greatly influenced the practices that organi- zations use today. In this section, we review their thinking as the foundation for modern concepts of performance excellence.

THE DEMING PHILOSOPHY2

Deming was trained as a statistician and worked for Western Electric during its pioneering era of statistical quality control development in the 1920s and 1930s. During World War II, he taught quality control courses as part of the national defense effort. Although Deming taught many engineers in the United States, he was not able to reach upper management. After the war, Deming was invited to Japan to teach statistical quality control concepts. Top managers there were eager to learn, and he addressed 21 top executives who collectively represented 80 percent of the country’s capital. They embraced Deming’s message and trans- formed their industries. By the mid-1970s, the quality of Japanese products exceeded that of Western manufacturers, and Japanese companies had made sig- nificant penetration into Western markets. Deming received Japan’s highest honor, the Royal Order of the Sacred Treasure. The former chairman of NEC Electronics once said, “There is not a day I don’t think about what Dr. Deming meant to us.”

Deming was virtually unknown in the United States until 1980, when NBC aired a documentary entitled “If Japan Can … Why Can’t We?” This program made Deming a household name among corporate executives, and companies such as Ford invited him to assist them in revolutionizing their quality approaches. Deming worked with passion until his death in December 1993 at the age of 93, knowing he had little time left to make a difference in his home country. When asked how he would like to be remembered, Deming replied, “I probably won’t even be remembered.” Then after a long pause, he added, “Well, maybe … as someone who spent his life trying to keep America from com- mitting suicide.”3

Unlike other management gurus and consultants, Deming never defined or described quality precisely. In his last book, he stated, “A product or a service

Chapter 2: Frameworks for Quality and Performance Excellence 49

possesses quality if it helps somebody and enjoys a good and sustainable market.”4

Deming stressed that higher quality leads to higher productivity, which in turn leads to long-term competitive strength. The Deming “chain reaction,” shown in Figure 2.1, summarizes this view.

The Deming philosophy of quality and management is complex; indeed, several books have been written in an effort to explain and interpret it. Deming summa- rized his philosophy in what he called “A System of Profound Knowledge,” which consists of four parts: (1) appreciation for a system, (2) understanding process variation, (3) theory of knowledge, and (4) psychology.

Systems A system is a set of functions or activities within an organization that work together to achieve organizational goals. A system must have an aim, a pur- pose to which it continually strives. Deming believed that the aim of any system is

Improve quality

Costs decrease because of less rework, fewer mistakes, fewer

delays and snags, and better use of time and materials

Productivity improves

Stay in business

Provide jobs and more jobs

Capture the market with better quality and lower price

FIGURE 2.1 | THE DEMING CHAIN REACTION

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THE CHAIN REACTION WORKS!5

Although the Deming Chain Reaction is more than a half century old, researchers have only recently begun to study it using empirical data. One research study by Victor Wayhan, Basheer Khumawala, and Erica Balderson drew from a sample of U.S. firms that were certified by major corporations as having implemented effective

TQM practices by virtue of receiving supplier awards. The study partially validated the Deming Chain Reaction; specifically, the researchers showed that the primary role of effective TQM practices is in improving process or organi- zational capabilities that eventually impact financial performance.

50 Part 1: Foundations of Quality and Performance Excellence

for everybody—stockholders, employees, customers, community, the environment— to gain over the long term. Stockholders can realize financial benefits, employees can have opportunities for training and education, customers can receive products and services that meet their needs and create satisfaction, the community can benefit from business leadership, and the environment can benefit from socially responsible management.

For example, a fast-food restaurant can be viewed as a system. It consists of the order-taker/cashier subsystem, grill and food preparation subsystem, drive- through subsystem, and so on. The components of any system must work together for the system to be effective. If the order-taker places the wrong order or the grill breaks down, customers will not get what they want. To run any sys- tem, managers must understand the interrelationships among all subsystems and the people that work in them (would a restaurant operate successfully without a store manager?).

Deming emphasized that management’s job is to optimize the system. By mak- ing decisions that are best for only a small part of the system (often encouraged by competition), we suboptimize. Suboptimization will prevent a system from achiev- ing its goal. For example, a common practice is to purchase materials or services at the lowest bid. Inexpensive materials may be of such inferior quality that they will cause excessive costs in adjustment and repair during manufacture and assem- bly. Although the purchasing department’s track record might look good, the over- all system will suffer.

This concept applies to managing people also. Pitting individuals or depart- ments against each other for resources is self-destructive. The individuals or departments will perform to maximize their expected gain, not that of the firm as a whole. Systems require cooperation.

Variation Just as no two snowflakes are exactly alike, no two outputs from any production process are exactly alike. A production process contains many sources of variation. Different lots of material will vary in strength, thickness, or moisture con- tent, for example. Cutting tools will have inherent variation in strength and composi- tion. During manufacturing, tools will experience wear, machine vibrations will cause changes in settings, and electrical fluctuations will cause variations in power. Opera- tors may not position parts on fixtures consistently. The complex interaction of all these variations in materials, tools, machines, operators, and the environment cannot be understood. Variation due to any individual source appears random; however, their combined effect is stable and can usually be predicted statistically. Factors that are present as a natural part of a process are called common causes of variation.

Common causes generally account for about 80 to 90 percent of the observed variation in a production process. The remaining 10 to 20 percent result from spe- cial causes of variation, often called assignable causes. Special causes arise from external sources that are not inherent in the process. A bad batch of material pur- chased from a supplier, a poorly trained operator, excessive tool wear, or miscali- bration of measuring instruments are examples of special causes. Special causes result in unnatural variations that disrupt the random pattern of common causes. Hence, they are generally easy to detect using statistical methods, and it is usually economical to remove them.

Chapter 2: Frameworks for Quality and Performance Excellence 51

A system governed only by common causes is stable, and its performance can be predicted. Special causes disrupt the predictable pattern. (Think of your commute to work or school—what happens when a snowstorm or accident occurs?) Unfortunately, managers either overreact to common cause variation or ignore special causes when they do occur. If they try to “fix” a common cause, they will actually increase the variation in the system. If they ignore special causes, they miss the opportunity to improve.

In Deming’s view, variation is the chief culprit of poor quality. In mechanical assemblies, for example, variations from specifications for part dimensions lead to inconsistent performance and premature wear and failure. Likewise, inconsistencies in service frustrate customers and damage a firm’s image.

Variation also increases the cost of doing business. An example was published in the Japanese newspaper Asahi comparing the cost and quality of Sony televi- sions at plants in Japan and San Diego.6 The color density of all the units produced at the San Diego plant was within specifications, although the density of some of those shipped from the Japanese plant was not (see Figure 2.2). However, the aver- age loss per unit at the San Diego plant was $0.89 greater than that of the Japanese plant. This was because units out of specification at the San Diego plant were adjusted within the plant, adding cost to the process. Furthermore, a unit adjusted to just within specifications was more likely to generate customer complaints than a unit that was closer to the original target value, therefore incurring higher field service costs. Figure 2.2 shows that fewer U.S.-produced sets met the target value for color density. The distribution of quality in the Japanese plant was more uni- form around the target value, and even though some units were out of specifica- tion, the total cost was less.

By minimizing variation, everyone benefits. The producer benefits by having less need for inspection, less scrap and rework, and higher productivity. The con- sumer is assured that all products have similar quality characteristics; this is espe- cially important when the consumer is another firm using large quantities of the product in its own manufacturing or service operations. The only way to reduce common cause variation is to change the technology of the process—the machines, people, materials, methods, or measurement system. Only management

Specification limits

Target

U.S. plant Japanese plant ( 2 = 2.78)σ( 2 = 8.33)σ

FIGURE 2.2 | VARIATION IN U.S.-MADE VERSUS JAPANESE-MADE TELEVISION COMPONENTS

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52 Part 1: Foundations of Quality and Performance Excellence

can make these decisions; pressuring workers to perform at higher quality levels will only result in frustration. However, special cause variation can be identified by workers through the use of control charts. This requires training and manage- ment support.

Theory of Knowledge The third part of Profound Knowledge is called the “the- ory of knowledge,” which is a branch of philosophy concerned with the nature and scope of knowledge, its presuppositions and bases, and the general reliability of claims to knowledge. Deming was influenced greatly by Clarence Irving Lewis.7

Lewis stated, “There is no knowledge without interpretation. If interpretation, which represents an activity of the mind, is always subject to the check of further experience, how is knowledge possible at all? … An argument from past to future at best is probable only, and even this probability must rest upon principles which are themselves more than probable.”

What this basically means is that management decisions should be driven by facts, data, and justifiable theories, not solely by opinions. Experience cannot be tested or validated, but good theories supported by data can establish a cause- and-effect relationship that can be used for prediction. Theory explains why things happen. For example, many companies have jumped on the latest fads advocated by popular business consultants, only to find that they result in failure. This often happens because they simply did not understand the context and assumptions required to make them work successfully.

Psychology People design products and processes, serve customers, and achieve results. Psychology helps us to understand people, interactions between people and circumstances, interactions between leaders and employees, and the drivers of behavior. No leader can manage well without understanding these factors and incorporating them in key decisions. More important, people inherit the right to enjoy work. Psychology helps us to nurture and preserve people’s positive innate attributes.

Little in Deming’s system of Profound Knowledge is original. The concept of common and special causes of variation was developed by Walter Shewhart in the 1920s; behavioral theories to which Deming subscribed were developed in the 1960s; systems theory was refined by management scientists from the 1950s through the 1970s; and scientists in all fields have long understood the relation- ships among prediction, observation, and theory. Deming’s contribution was in tying together some basic concepts. He recognized the synergy among these diverse subjects and developed them into a theory of management.

Peter Scholtes, a noted consultant, makes some salient observations about the failure to understand the components of Profound Knowledge:8

1. When people don’t understand systems: • they see events as individual incidents rather than the net result of many

interactions and interdependent forces; • they see the symptoms but not the deep causes of problems; • they don’t understand how an intervention in one part of [an organization]

can cause havoc in another place or at another time;

Chapter 2: Frameworks for Quality and Performance Excellence 53

• they blame individuals for problems even when those individuals have little or no ability to control the events around them; and

• they don’t understand the ancient African saying, “It takes a whole village to raise a child.”

2. When people don’t understand variation: • they don’t see trends that are occurring; • they see trends where there are none; • they don’t know when expectations are realistic; • they don’t understand past performance so they can’t predict future

performance; • they don’t know the difference between prediction, forecasting, and

guesswork; and • they give others credit or blame when those people are simply either lucky

or unlucky. This usually occurs because people tend to attribute everything to human effort, heroics, frailty, error, or deliberate sabotage, no matter what the systemic cause; and they are less likely to distinguish between fact and opinion.

3. When people don’t understand psychology: • they don’t understand motivation or why people do what they do; • they resort to carrots and sticks and other forms of induced motivation

that have no positive effect and impair the relationship between the motivator and the one being motivated;

• they don’t understand the process of change and the resistance to it; • they revert to coercive and paternalistic approaches when dealing with

people; and • they create cynicism, demoralization, demotivation, guilt, resentment,

burnout, craziness, and turnover.

4. When people don’t understand the theory of knowledge: • they don’t know how to plan and accomplish learning and improvement; • they don’t understand the difference between improvement and change;

and • problems will remain unsolved, despite their best efforts.

Deming espoused a transformation in management with his “14 Points for Management,” listed in Table 2.1. It is important to realize that the 14 Points date back several decades to when many organizations were ruled by autocratic man- agers who were driven by short-term profits and who had little regard for engaging the workforce or interest in quality improvement. Although management practices today are vastly different from when Deming first began to preach his philosophy, the 14 Points still convey important insights for managers. Failure to heed them might only lead to repeating the mistakes of the past.

1. Management Commitment—Making a commitment to drive improvement within an organization is still difficult for managers. Even when managers have conducted a thorough assessment of their organization and know what they need to change, many do not effectively follow up on opportunities.10

Reasons range from denial (“We can’t be that bad!”) to excuses (“We have a

54 Part 1: Foundations of Quality and Performance Excellence

lot of irons on the fire right now.”). Effective leadership begins with commit- ment. We will revisit this issue in Part 4 of this book.

2. Learn the New Philosophy—Deming recognized that historical methods of management built on early twentieth-century principles of Frederick Taylor, such as quota-driven production, work measurement, and adversarial work relationships, simply don’t work. Although leadership begins with commit- ment, it also requires new ways of thinking. Today, many companies have adopted the principles of TQ that we introduced in Chapter 1. However, people change jobs and organizations generally have a short memory—both need to continually renew themselves to learn new approaches and relearn many older ones. Today’s “new philosophies” include the Baldrige frame- work and Six Sigma, which are addressed later in this chapter.

3. Understand Inspection—In the mid-twentieth century, inspection had been the principal means for quality control; companies employed dozens or even hundreds of people who inspected for quality on a full-time basis and added little value to the product. Deming suggested that inspection should be used judiciously as an information-gathering tool for improvement. Today, this new role of inspection has been integrated into the quality management practices of most companies. However, few managers truly understand how variation affects their processes and inspection practices. Through better

TABLE 2.1 DEMING’S 14 POINTS FOR MANAGEMENT9

1. Create and publish to all employees a statement of the aims and purposes of the company or other organization. The management must demonstrate constantly their commitment to this statement.

2. Learn the new philosophy, top management and everybody.

3. Understand the purpose of inspection, for improvement of processes and reduction of cost.

4. End the practice of awarding business on the basis of price tag alone.

5. Improve constantly and forever the system of production and service.

6. Institute training.

7. Teach and institute leadership.

8. Drive out fear. Create trust. Create a climate for innovation.

9. Optimize toward the aims and purposes of the company the efforts of teams, groups, staff areas.

10. Eliminate exhortations for the workforce.

11. (a) Eliminate numerical quotas for production. Instead, learn and institute methods for improvement.

(a) Eliminate MBO (Management by Objective). Instead, learn the capabilities of processes and how to improve them.

12. Remove barriers that rob people of pride of workmanship.

13. Encourage education and self-improvement for everyone.

14. Take action to accomplish the transformation.

Chapter 2: Frameworks for Quality and Performance Excellence 55

understanding, managers can eliminate unnecessary inspection, thus reducing non–value-added costs, or perform critical inspection tasks that avoid more expensive downstream repairs. This topic is discussed in Chapter 3.

4. End Price Tag Decisions—Purchasing decisions traditionally have been driven by cost through competitive bidding, not by quality. Costs due to inferior materials and components increase costs in later stages of produc- tion and can far exceed the “savings” realized through competitive bidding. Deming promoted the recognition of purchasing departments as “internal suppliers” to production, and urged businesses to establish long-term rela- tionships with a few suppliers, leading to loyalty and enhanced opportunities for improvement. Today’s emphasis on supply chain management (SCM) reflects the achievement of Point 4. SCM focuses heavily on a system’s view of the supply chain with the objective of minimizing total supply chain costs and developing stronger partnerships with suppliers. These ideas will be addressed in Chapter 4.

5. Improve Constantly—Traditionally, continuous improvement was not a common business practice; today, it is recognized as a necessary means for survival in a highly competitive and global business environment. Improve- ments are necessary in both design and operations. Improved design of goods and services comes from understanding customer needs and continual market surveys and other sources of feedback, and from understanding the manufacturing and service delivery process. Improvements in operations are achieved by reducing the causes and impacts of variation, and engaging all employees to innovate and seek ways of doing their jobs more efficiently and effectively. The tools for improvement are constantly evolving, and organiza- tions need to ensure that their employees understand and apply them effec- tively, which requires training, the focus of the next Point. Improvement will be studied further in Chapters 6 and 7.

6. Institute Training—People are an organization’s most valuable resource; they want to do a good job, but they often do not know how. Not only does training result in improvements in product and service quality and organizational performance, but it adds to worker morale, and demon- strates to workers that the company is dedicated to helping them and investing in their future. Training must transcend such basic job skills as running a machine or following the script when talking to customers. Training should include tools for identifying, diagnosing, analyzing, and solving quality and performance problems. Today, many companies have excellent training programs for technology related to direct production but still fail to enrich the ancillary skills of their workforce. Here is where some of the most lucrative opportunities exist to make an impact on key business results. Training is addressed in Chapter 9.

7. Institute Leadership—The job of management is leadership and guidance, not supervision and work direction. Supervisors should be coaches, not policemen, and supervision should provide the link between management and the workforce. Leadership can help to eliminate fear and encourage teamwork. Leadership was, is, and will continue to be a challenging issue in every organization, particularly as new generations of managers replace

56 Part 1: Foundations of Quality and Performance Excellence

those who have learned to lead. Thus, this Point of Deming’s will always be relevant to organizations.

8. Drive Out Fear—Fear in work manifests in many ways: fear of reprisal, fear of failure, fear of the unknown, fear of change. Fear encourages short-term, selfish thinking, not long-term improvement for the benefit of all. Fear is a cultural issue for all organizations. Creating a culture without fear is a slow process but can be destroyed in an instant with a transition of leadership and a change in corporate policies. Therefore, today’s managers need to continue to be sensitive to the impact that fear can have on their organizations. Posi- tive motivation will be studied in Chapter 9.

9. Optimize Team Efforts—Barriers between individuals and departments lead to poor quality, because “customers” do not receive what they need from their “suppliers.” This is often the result of internal competition for raises or performance ratings. Teamwork helps to break down barriers between inter- nal customers and suppliers. The focus should be on meeting customer needs and improving processes. Teamwork is an important means of achieving a company’s goals, and we discuss this further in Chapter 8.

10. Eliminate Exhortations—Motivation can be better achieved through trust and leadership than slogans. Slogans calling for improved quality usually assume that poor quality results from a lack of motivation. Workers cannot improve solely through motivational methods when the system in which they work con- strains their performance. On the contrary, they will become frustrated and their performance will decrease further. Improvement stems from better orga- nizational design and use of data-driven processes (see Chapters 5 through 7).

11. Eliminate Quotas and MBO (Management by Objective)—Numerical quotas encourage short- rather than long-term behavior, particularly if rewards or performance appraisals are tied to meeting quotas. Deming acknowledged that goals are useful, but numerical goals set for others without incorporating a method to reach the goal generate frustration and resentment. Furthermore, variation in the system year-to-year or quarter-to-quarter—a 5 percent increase or a 6 percent decrease, for example—makes comparisons meaning- less. Management must understand processes and the reasons for variation or poor performance and provide the means to improve, rather than focus on short-term goals. Chapter 4 addresses these issues.

12. Remove Barriers to Pride in Workmanship—Some organizations view work- ers as a “commodity.” Factory workers are given monotonous tasks; pro- vided with inferior machines, tools, or materials; told to run defective items to meet sales pressures; and report to supervisors who know nothing about the job. This attitude has given way to increased levels of empowerment, providing workers with a sense of ownership of their work processes and higher self-esteem. This will be explored further in Chapter 9.

13. Institute Education—“Training” in Point 6 refers to job skills; education refers to self-development. Firms have a responsibility to develop the value and self-worth of the individual. Investing in people is a powerful motivation method. Today, many companies understand that elevating the general knowledge base of their workforce—outside of specific job skills—returns many benefits. However, others still view this task as a cost that can be easily cut when financial tradeoffs must be made.

Chapter 2: Frameworks for Quality and Performance Excellence 57

14. Take Action—Any cultural change begins with top management and includes everyone. Changing an organizational culture generally meets with skepticism and resistance that many firms find difficult to deal with, particularly when many of the traditional management practices Deming felt must be eliminated are deeply ingrained in the organization’s culture. We address this further in Chapter 11.

Deming’s principles continue to live in many organizations today (see box “Louisville Slugger Hits a Home Run with Deming”).

THE JURAN PHILOSOPHY

Joseph M. Juran joined Western Electric in the 1920s during its pioneering days in the development of statistical methods for quality. He spent much of his time as a corporate industrial engineer. In 1951, Juran wrote, edited, and published one of the most comprehensive books on quality, the Quality Control Handbook, which has been revised many times. Juran taught quality principles to the Japanese in the 1950s just after Deming and was a principal force in their quality reorganization.

Juran takes a more pragmatic approach to change than Deming, advocating approaches that are designed to fit into a company’s current strategic business planning with minimal risk of rejection. Juran views the pursuit of quality on two levels: (1) the mission of the firm as a whole is to achieve high product quality

LOUISVILLE SLUGGER HITS A HOME RUN WITH DEMING11

Hillerich & Bradsby Co. (H&B) has been making the Louisville Slugger brand of baseball bat for more than 115 years. In the mid-1980s, the company faced significant challenges from market changes and competition. CEO Jack Hillerich attended a four-day Deming seminar, which provided the basis for the company’s current quality efforts. Returning from the seminar, Hillerich decided to see what changes that Deming advocated were possible in an old company with an old union and a history of labor-management problems. Hillerich persuaded union officials to attend another Deming seminar with five senior managers.

Following the seminar, a core group of union and management people developed a strategy to change the company. They talked about building trust and changing the system “to make it some- thing you want to work in.” Employees were interested, but skeptical. To demonstrate their

commitment, managers examined Deming’s 14 Points, and picked several they believed they could make progress on through actions that would demonstrate a serious intention to change. One of the first changes was the elimination of work quotas that were tied to hourly salaries and a schedule of warnings and penalties for failures to meet quotas. Instead, a team-based approach was initiated. Although a few workers took advantage of the change, overall productivity actually improved as rework decreased because workers were taking pride in their work to produce things the right way first. H&B also eliminated performance appraisals and commission-based pay in sales. The company also has focused its efforts on training and education, resulting in an openness for change and capacity for teamwork. Today, the Deming philosophy is still the core of H&B’s guiding principles.

58 Part 1: Foundations of Quality and Performance Excellence

and (2) the mission of each individual department in the firm is to achieve high production quality. Senior management must play an active and enthusiastic lead- ership role in the quality management process.

Juran contends that employees at different levels of an organization speak in different “languages.” (Deming believed statistics should be the common language.) Top management speaks in the language of dollars, workers speak in the language of things, and middle management must be able to speak both languages and trans- late between dollars and things. Thus, to get top management’s attention, quality issues must be cast in the language they understand—dollars. Juran advocates the accounting and analysis of quality costs to focus attention on quality problems.

At the operational level, Juran focuses on increasing conformance to specifica- tions through elimination of defects, supported extensively by statistical tools for analysis. Juran defines quality as “fitness for use.” This is broken down into four categories: quality of design, quality of conformance, availability, and field service. Quality of design focuses on market research, the product concept, and design spe- cifications. Quality of conformance includes technology, manpower, and manage- ment. Availability focuses on reliability, maintainability, and logistical support. Field service quality comprises promptness, competence, and integrity.

Juran’s prescriptions focus on three major aspects of quality called the Quality Trilogy (a registered trademark of the Juran Institute): quality planning: the process for preparing to meet quality goals; quality control: the process for meeting quality goals during operations; and quality improvement: the process for breaking through to unprecedented levels of performance.

Quality planning begins with identifying customers, both external and internal, determining their needs, and developing product features that respond to customer needs. Quality control involves determining what to control, establishing units of measurement so that data may be objectively evaluated, establishing standards of performance, measuring actual performance, interpreting the difference between actual performance and the standard, and taking action on the difference. Quality improvement is best achieved by identifying specific projects for improvement, get- ting the right people involved, diagnosing causes of poor performance, developing remedies for the causes, proving that the remedies will be effective, and providing control to hold improvements.

Dr. Juran continued to actively promote quality and write books until he passed away in 2008 at the age of 103. A tribute to his life and work can be found in the April 2008 issue of Quality Progress magazine, published by the American Society for Quality.

THE CROSBY PHILOSOPHY

Philip B. Crosby, who passed away in 2001, was corporate vice president for quality at International Telephone and Telegraph (ITT) for 14 years after work- ing his way up from line inspector. After leaving ITT, he established Philip Crosby Associates in 1979 to develop and offer training programs. He also was the author of several popular books. His first book, Quality Is Free, sold about one million copies, and is credited with bringing quality to the attention of top American executives.

Chapter 2: Frameworks for Quality and Performance Excellence 59

The essence of Crosby’s quality philosophy is embodied in what he calls the Absolutes of Quality Management and the Basic Elements of Improvement. Crosby’s Absolutes of Quality Management are as follows:

• Quality means conformance to requirements not elegance. Crosby dispels the myth that quality is simply a feeling of “excellence.“ Requirements must be clearly stated so that they cannot be misunderstood. Requirements are com- munication devices and are ironclad. Once a task is done, one can take mea- surements to determine conformance to requirements. The nonconformance detected is the absence of quality. Quality problems become nonconformance problems—that is, variation in output. Setting requirements is the responsibil- ity of management.

• There is no such thing as a quality problem. Problems must be identified by the individuals or departments that cause them. There are accounting pro- blems, manufacturing problems, design problems, front-desk problems, and so on. Quality originates in functional departments, not in the quality depart- ment, and the burden of responsibility for such problems lies with the func- tional departments. The quality department should measure conformance, report results, and lead the drive to develop a positive attitude toward quality improvement. This is similar to Deming’s Point 3.

• There is no such thing as the economics of quality: it is always cheaper to do the job right the first time. Crosby supports the premise that “economics of quality” has no meaning. Quality is free. What costs money are all the actions that involve not doing jobs right the first time. The Deming Chain Reaction provides a similar message.

• The only performance measurement is the cost of quality. The cost of quality is the expense of nonconformance. Crosby notes that most companies spend 15 to 20 percent of their sales dollars on quality costs. A company with a well-run quality management program can achieve a cost of quality that is less than 2.5 percent of sales, primarily in the prevention and appraisal categories. Crosby’s program calls for measuring and publicizing the cost of poor quality. Quality cost data are useful in calling problems to management’s attention, selecting opportunities for corrective action, and tracking quality improvement over time. Such data provide visible proof of improvement and recognition of achievement. Juran also supports this theme.

• The only performance standard is Zero Defects. According to Crosby:

Zero Defects is a performance standard. It is the standard of the craftsperson regard- less of his or her assignment.… The theme of ZD is do it right the first time. That means concentrating on preventing defects rather than just finding and fixing them.

People are conditioned to believe that error is inevitable; thus they not only accept error, they anticipate it. It does not bother us to make a few errors in our work … To err is human. We all have our own standards in business or academic life—our own points at which errors begin to bother us. It is good to get an A in school, but it may be okay to pass with a C.

We do not maintain these standards, however, when it comes to our personal life. If we did, we should expect to be shortchanged every now and then when we cash our paycheck; we should expect hospital nurses to drop a constant percentage of newborn babies … We as individuals do not tolerate these things.

60 Part 1: Foundations of Quality and Performance Excellence

We have a dual standard: one for ourselves and one for our work. Most human error is caused by lack of attention rather than lack of knowledge. Lack of attention is created when we assume that error is inevitable. If we consider this condition carefully and pledge ourselves to make a constant conscious effort to do our jobs right the first time, we will take a giant step toward eliminating the waste of rework, scrap, and repair that increases cost and reduces individual opportunity.12

Juran and Deming, by contrast, would argue that it is pointless, if not hypo- critical, to exhort a line worker to produce perfection, because the overwhelming majority of imperfections are due to poorly designed manufacturing systems beyond the worker’s control.

Crosby’s Basic Elements of Improvement included determination—commit- ment by the organizational leadership—education, and implementation. Unlike Juran and Deming, Crosby’s program was primarily behavioral. He placed more emphasis on management and organizational processes for changing cor- porate culture and attitudes than on the use of statistical techniques. Like Juran and unlike Deming, his approach fits well within existing organizational structures.

THE BALDRIGE AWARD

The Malcolm Baldrige National Quality Award, now known as simply the Baldrige Award, has been one of the most powerful catalysts of TQ in the United States and, indeed, throughout the world. More important, the award’s Criteria for Performance Excellence establish a framework for understanding and integrating principles of performance excellence in any organization. In this section, we present an overview of the award, its criteria, and the award process.

HISTORY AND PURPOSE

Recognizing that U.S. productivity was declining, President Ronald Reagan signed legislation mandating a national study/conference on productivity in October 1982. The American Productivity and Quality Center (formerly the American Productivity Center) sponsored seven computer networking conferences in 1983 to prepare for an upcoming White House Conference on Productivity. The final report on these conferences recommended that “a National Quality Award, similar to the Deming Prize in Japan, be awarded annually to those firms that successfully challenge and meet the award requirements. These requirements and the accompa- nying examination process should be very similar to the Deming Prize system to be effective.” The Baldrige Award was signed into law (Public Law 100-107) on August 20, 1987. The award is named after President Reagan’s Secretary of Commerce who was killed in an accident shortly before the Senate acted on the legislation. Malcolm Baldrige was highly regarded by world leaders, having played a major role in carrying out the administration’s trade policy, resolving technology transfer differences with China and India, and holding the first Cabinet-level talks

Chapter 2: Frameworks for Quality and Performance Excellence 61

with the Soviet Union in seven years, which paved the way for increased access for U.S. firms in the Soviet market.

The purposes of the award are to:

• help stimulate American companies to improve quality and productivity for the pride of recognition while obtaining a competitive edge through increased profits;

• recognize the achievements of those companies that improve the quality of their goods and services and provide an example to others;

• establish guidelines and criteria that can be used by business, industrial, gov- ernmental, and other enterprises in evaluating their own quality improvement efforts; and

• provide specific guidance for other American enterprises that wish to learn how to manage for high quality by making available detailed information on how winning enterprises were able to change their cultures and achieve eminence.

The Baldrige Award recognizes U.S. companies that excel in quality manage- ment practice and performance. The Baldrige Award does not exist simply to rec- ognize product excellence, nor does it exist for the purpose of “winning.” Its principal focus is on promoting high-performance management practices that lead to customer satisfaction and business results. Up to three companies can receive an award in each of the categories of manufacturing, small business, service, nonprofit health care, and nonprofit education. Health care and education award categories were established in 1999 and the nonprofit categories in 2007. Table 2.2 shows the recipients through 2014.

The award evolved into the Baldrige Performance Excellence Program, a comprehensive program that encourages and supports organizations seeking to develop and sustain performance excellence. From its inception in 1987 until 2012, the Baldrige program was administered through the National Institute of Standards and Technology, a division of the U.S. Department of Commerce. In 2012, the House Appropriations Committee of the U.S. Congress targeted doz- ens of federal programs for elimination to reduce the federal budget by at least $ 1.5 billion. Unfortunately, even though the portion of its budget that came from federal funding was miniscule (only $9.6 million), the Baldrige program was among them, and Congress approved the committee’s recommendation. The Bal- drige program reacted quickly and began a transition to a sustainable, nongovernment-supported business model. (While it is unclear how this will be realized by the time this edition is published, you can search for “Baldrige transi- tion” on the Internet to seek current information about it.) In April 2012, the Baldrige Foundation committed funds to sustain the program through the fiscal year 2015.

The Baldrige program has had a substantial impact on organizations through- out the world, and we are confident that it will continue to lead in building perfor- mance excellence and providing organizational leaders with a roadmap to achieving high quality and outstanding results throughout their organizations. The program’s website at http://www.nist.gov/baldrige provides a wide variety of infor- mation about the award, the performance criteria, and award recipients.

62 Part 1: Foundations of Quality and Performance Excellence

TABLE 2.2 MALCOLM BALDRIGE AWARD RECIPIENTS THROUGH 2014

Manufacturing

Motorola, Inc. (1988)

Westinghouse Commercial Nuclear Fuel Division (1988)

Xerox Corp. Business Products and Systems (1989)

Milliken & Co. (1989)

Cadillac Motor Car Division (1990)

IBM Rochester (1990)

Solectron Corp. (1991)

Zytec Corp. (now part of Artesyn Technologies) (1991)

AT&T Network Systems (now Lucent Technologies, Inc. Optical Networking Group) (1992)

Texas Instruments Defense Systems & Electronics Group (now part of Raytheon Systems Co.) (1992)

Eastman Chemical Co. (1993)

Armstrong World Industries Building Products Operations (1995)

Corning Telecommunications Products Division (1995)

ADAC Laboratories (1996)

3M Dental Products Division (1997)

Solectron Corp. (1997)

Boeing Airlift and Tanker Programs (1998)

Solar Turbines, Inc. (1998)

STMicroelectronics, Inc.–Region Americas (1999)

Dana Corporation–Spicer Driveshaft Division (now Torque Traction Technologies, Inc.) (2000)

KARLEE Company (2000)

Clarke American Checks, Inc. (2001)

Motorola, Inc. Commercial, Government and Industrial Solutions Sector (2002)

Medrad, Inc. (2003)

The Bama Companies, Inc. (2004)

Sunny Fresh Foods, Inc. (2005)

Cargill Corn Milling North America (2008)

Honeywell Federal Manufacturing & Technologies, LLC (2009)

MEDRAD (2010)

Nestlé Purina PetCare Co. (2010)

Lockheed Martin Missiles and Fire Control (2012)

Small Business

Globe Metallurgical, Inc. (1988)

Wallace Co., Inc. (1990)

Marlow Industries (1991)

Granite Rock Co. (1992)

Chapter 2: Frameworks for Quality and Performance Excellence 63

TABLE 2.2 MALCOLM BALDRIGE AWARD RECIPIENTS THROUGH 2014 (CONTINUED)

Ames Rubber Corp. (1993)

Wainwright Industries, Inc. (1994)

Custom Research, Inc. (1996)

Trident Precision Manufacturing, Inc. (1996)

Texas Nameplate Company, Inc. (1998)

Sunny Fresh Foods (1999)

Los Alamos National Bank (2000)

Stoner, Inc. (2003)

Texas Nameplate Company, Inc. (2004)

Park Place Lexus (2005)

MESA Products, Inc. (2006)

PRO-TEC Coating Company (2007)

MESA Products, Inc. (2012)

Service

Federal Express (FedEx) (1990)

AT&T Universal Card Services (now part of Citigroup) (1992)

The Ritz-Carlton Hotel Co. (now part of Marriott International) (1992)

AT&T Consumer Communication Services (now the Consumer Markets Division of AT&T) (1994)

Verizon Information Services (formerly GTE Directories, Inc.) (1994)

Dana Commercial Credit Corp. (1996)

Merrill Lynch Credit Corp. (1997)

Xerox Business Services (1997)

BI (1999)

The Ritz-Carlton Hotel Company, L.L.C. (1999)

Operations Management International, Inc. (2000)

Pal’s Sudden Service (2001)

Branch-Smith Printing Division (2002)

Boeing Aerospace Support (2003)

Caterpillar Financial Services (2003)

DynMcDermott Petroleum Operations (2005)

Premier Inc. (2006)

MidwayUSA (2009)

Freese and Nichols Inc. (2010)

K&N Management (2010)

Studer Group (2010)

PricewaterhouseCoopers Public Sector Practice (2014)

Education

Chugach School District (2001) Continued

64 Part 1: Foundations of Quality and Performance Excellence

TABLE 2.2 MALCOLM BALDRIGE AWARD RECIPIENTS THROUGH 2014 (CONTINUED)

Pearl River School District (2001)

University of Wisconsin–Stout (2001)

Community Consolidated School District #15, Palatine, IL (2003)

Robert W. Monfort College of Business (2004)

Richland College (2005)

Jenks Public Schools (2005)

Iredell-Statesville Schools (2008)

Montgomery County Public Schools (2010)

Pewaukee School District (2013)

Health Care

SSM Health Care (2002)

Baptist Hospital, Inc., Pensacola, FL (2003)

Saint Luke’s Hospital of Kansas City (2003)

Robert Wood Johnson University Hospital Hamilton (2004)

Bronson Methodist Hospital (2005)

North Mississippi Medical Center (2006)

Mercy Health System (2007)

Sharp HealthCare (2007)

Poudre Valley Health System (2008)

AtlantiCare (2009)

Heartland Health (2009)

Advocate Good Samaritan Hospital (2010)

Henry Ford Health System (2011)

Schneck Medical Center (2011)

Southcentral Foundation (2011)

North Mississippi Health Services (2012)

Sutter Davis Hospital (2013)

Hill Country Memorial (2014)

St. David’s HealthCare (2014)

Nonprofit

City of Coral Springs (2007)

U.S. Army Armament Research, Development and Engineering Center (2007)

VA Cooperative Studies Program Clinical Research Pharmacy Coordinating Center (2009)

Concordia Publishing House (2011)

City of Irving (2012)

Elevations Credit Union (2014)

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THE BALDRIGE EXCELLENCE FRAMEWORK

The Baldrige Excellence Framework consists of the Criteria for Performance Excellence, the Core Values and Concepts, and scoring guidelines for assessment. Its purpose is to help an organization answer three questions: Is your organization doing as well as it could? How do you know? What and how should your organization improve or change? The Criteria for Performance Excellence, on which the Baldrige examination is based, are designed to encourage companies to enhance their competitiveness through an aligned approach to organizational performance management. The Baldrige criteria help an organization understand and assess how well it is accomplishing what is important to the organization: how mature and how well deployed its processes are, how good the results are, whether the organization is learning and improving, and how well management approaches address the organization’s needs. The criteria do not prescribe how an organization should be structured or its operations. The criteria encourage an organization to use creative, adaptive, and flexible approaches, which will foster incremental and breakthrough improvement through innovation. The crite- ria encourage a choice of tools (e.g., Lean, Six Sigma, International Organization for Standardization [ISO] 9000, a balanced scorecard, Plan-Do-Check-Act [PDCA]) that are most suitable and effective for an organization in making improvements.

The criteria consist of a hierarchical set of categories, items, and areas to address. The seven categories are:

1. Leadership: As the first of the seven categories, it signifies the critical impor- tance of leadership to business success. Item 1.1, Senior Leadership, examines the key aspects of senior leaders’ responsibilities. It examines how senior lead- ers set and communicate the organization’s vision and values, promote legal and ethical behavior, build a successful organization, communicate with the workforce and customers, and create a focus on action to achieve the organi- zation’s mission. Item 1.2, Governance and Societal Responsibilities, examines how an organization ensures responsible governance, evaluates the perfor- mance of senior leaders and the governance board, ensures legal and regula- tory compliance and ethical behavior, and incorporates societal well-being and community support in its activities and operations.

2. Strategy: This category examines how an organization develops strategic objectives and action plans. Item 2.1, Strategy Development, examines how an organization conducts strategic planning, stimulates innovation, collects and analyzes data for strategic planning, and incorporates work systems and core competencies in strat- egy. It also requires a statement of key strategic objectives and how they balance among varying and potentially competing organizational needs. Item 2.2, Strategy Implementation, examines how an organization converts strategic objectives into action plans to accomplish the objectives, allocates resources, develops workforce plans, and measures performance to track achievement and effectiveness. The aim is to ensure that strategies are successfully deployed for goal achievement.

3. Customers: This category examines how an organization engages its customers for long-term marketplace success and builds a customer-focused culture. Item 3.1, Voice of the Customer, examines an organization’s processes for listening to customers and determining their satisfaction, dissatisfaction, and engage- ment. The aim is to capture meaningful information in order to exceed your customers’ expectations. Item 3.2, Customer Engagement, examines an

66 Part 1: Foundations of Quality and Performance Excellence

organization’s processes for identifying and innovating product offerings that serve customers and markets; enabling customers to seek information and sup- port; and determining customer groups and market segments. The item also examines how the organization builds relationships with customers and man- age complaints in order to retain customers and increase their engagement. The aim of these efforts is to improve marketing, build a more customer- focused culture, enhance customer loyalty, and identify opportunities for innovation.

4. Measurement, Analysis, and Knowledge Management: This category is positioned as the foundation for all other categories in the systems framework that underlies the Baldrige philosophy and provides a key feedback structure linking business results. Item 4.1, Measurement, Analysis, and Improvement of Organizational Performance, examines an organization’s selection and use of data and informa- tion for performance measurement, analysis, and review in support of organiza- tional planning and performance improvement. The item also examines the use of comparative and customer data, sharing of best practices within the organization, projecting future performance, and using information for continuous improvement and innovation. Item 4.2, Knowledge Management, Information, and Information Technology, examines how the organization manages organizational knowledge and ensures the quality, security, and availability of needed data, information, software, and hardware for its workforce, suppliers and partners, collaborators, and customers, normally and in the event of an emergency. The aim is to improve organizational efficiency and effectiveness and to stimulate innovation.

5. Workforce: This category examines how an organization builds an effective and supportive workforce environment. Item 5.1, Workforce Environment, examines an organization’s workforce capability and capacity needs, and how it hires and retains new workforce members, organizes and manages the workforce, prepares for change, ensures health, security, and accessibility, and provides appropriate services and benefits. The aim is to build an effective environment for accomplishing work and for supporting the workforce. Item 5.2, Workforce Engagement, examines how an organization fosters and assesses workforce engagement, manages performance, develops workforce members and leaders, evaluates the effectiveness of its learning and develop- ment system, and manages career progression. These systems are intended to foster high performance, to address core competencies, and to help accomplish action plans and ensure organizational sustainability.

6. Operations: This category examines how an organization designs, manages, and improves its key products and work processes to deliver customer value and achieve organizational success and sustainability. Item 6.1, Work Systems, examines an organization’s overall approach to product and process design, management, and improvement, and how it manages for innovation. Item 6.2, Operational Effectiveness, examines cost control, supply chain management, and safety and emergency preparedness.

7. Results: The Results category provides a results focus that encompasses objective evaluation and customers’ evaluation of an organization’s product offerings, as well as evaluation of key processes and process improvement activities; customer- focused results; workforce results; governance, leadership system, and societal responsibility results; and overall financial and market performance. Through this

Chapter 2: Frameworks for Quality and Performance Excellence 67

focus, the Criteria’s purposes—superior value of offerings as viewed by customers and the marketplace; superior organizational performance as reflected in opera- tional, workforce, legal, ethical, societal, and financial indicators; and organiza- tional and personal learning—are maintained. Category 7 thus provides “real- time” information (measures of progress) for evaluation and improvement of processes and products, in alignment with overall organizational strategy.

We encourage you to read the entire document for clarifying notes and explana- tions. Also, slightly different versions of the criteria are written for education and health care, primarily to conform to unique language and practices in these sectors. The crite- ria are updated every other year; we suggest that you obtain the current version, which can be purchased at a nominal cost from the Baldrige website www.nist.gov/baldrige.

The seven categories form an integrated management system, as illustrated and described in Figure 2.3. This structure emphasizes the systems nature of Baldrige.

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The leadership triad (Leader- ship, Strategy, and Customers) emphasizes the importance of a leadership focus on strategy and customers.

Strategy

Leadership

Customers Operations

Integration

Measurement, Analysis, and Knowledge Management

Workforce

RESULTS

The system foundation (Measurement, Analysis, and Knowledge Management) is critical to effective management and to a fact-based, knowledge- driven, agile system for improving performance and competitiveness.

All actions lead to Results—a composite of product and process, customer- focused, workforce- focused, leadership and governance, and financial and market results.The basis of the Criteria is a set of Core Values and Concepts

that are embedded in high-performing organizations

The Organizational Profile sets the context for your organization. It serves as the background for all you do.

Organizational Profile

The results triad (Workforce, Operations, and Results) includes your workforce-focused processes, your key operational processes, and the performance results they yield.

Core Values and Concept s

FIGURE 2.3 | A SYSTEMS PERSPECTIVE OF THE BALDRIGE PERFORMANCE EXCELLENCE FRAMEWORK

68 Part 1: Foundations of Quality and Performance Excellence

Integrationplays akey role, emphasizing that no single piece of the systemcanoperate inde- pendently. Every activity performed in an organization falls somewhere in this framework.

Each category consists of several items (numbered 1.1, 1.2, 2.1, etc.) or major requirements on which businesses should focus. Each item, in turn, consists of a small number of areas to address (e.g., 6.1a, 6.1b) that seek specific information on approaches used to ensure and improve competitive performance, the deployment of these approaches, or results obtained from such deployment. For example, the Lead- ership Category consists of the two items with a total of five areas to address:

1.1 Senior Leadership a. Vision, Values, and Mission b. Communication and Organizational Performance

1.2 Governance and Societal Responsibilities a. Organizational Governance b. Legal and Ethical Behavior c. Societal Responsibilities

The Vision, Values, and Mission area to address (1.1a) asks organizations to answer the following questions:

1. Vision and Values: How do senior leaders set your organizational vision and values? How do senior leaders deploy your organization’s vision and values through your leadership system, to the workforce, to key suppliers and part- ners, and to customers and other stakeholders, as appropriate? How do senior leaders’ personal actions reflect a commitment to the organization’s values?

2. Promoting Legal and Ethical Behavior: How do senior leaders’ actions dem- onstrate their commitment to legal and ethical behavior? How do they pro- mote an organizational environment that requires it?

3. Creating a Successful Organization: How do senior leaders build an organiza- tion that is successful now and in the future? How do they: • create an environment for the achievement of your mission, improvement

of organizational performance, performance leadership, organizational learning, and learning for people in the workforce;

• create a workforce culture that delivers a consistently positive customer experience and fosters customer engagement

• create an environment for innovation and intelligent risk taking, achievement of your strategic objectives, and organizational agility; and

• participate in succession planning and the development of future organizational leaders

Applicants for the award as well as organizations that simply wish to assess their management practices and identify improvement opportunities use these questions as catalysts to better understand their strengths and weaknesses.

Areas to address that request information on approach or deployment begin with the word how; that is, they define a set of actionable management practices. Thus, the criteria define both an integrated infrastructure and a set of fundamental practices for a high-performance management system. These practices represent the collective wisdom of the nation’s leading business experts and reflect what a truly world-class high-performance organization must do to succeed. The criteria have been described as representing the “leading edge of validated management practice.”

Chapter 2: Frameworks for Quality and Performance Excellence 69

One thing the criteria do not do is prescribe specific quality tools, techniques, technologies, systems, or starting points. Companies are encouraged to develop and demonstrate creative, adaptive, and flexible approaches to meeting basic requirements (see box “Baldrige Leadership Practices at K&N Management”). Many innovative approaches have been developed by Baldrige Award recipients and are now commonly used by many other companies.

As noted in Figure 10.1, the Baldrige criteria are based on a set of key princi- ples, called the Core Values and Concepts:

• Systems Perspective • Visionary Leadership • Customer-Focused Excellence • Valuing People • Organizational Learning and Agility • Focus on Success • Managing for Innovation • Management by Fact • Societal Responsibility • Ethics and Transparency • Delivering Value and Results

They are described in detail in the Baldrige Business Excellence Framework document. These values are embedded throughout the criteria and, in essence, provide a description of a culture of performance excellence. For example, if you review the criteria for Item 1.1, Senior Leadership, you can easily find direct or implied references to almost all of these values. The Core Values and Concepts represent the underlying philosophy of the criteria, similar to the principles of quality management we discussed in Chapter 1.

BALDRIGE LEADERSHIP PRACTICES AT K&N MANAGEMENT13

To illustrate how an organization might address Criteria questions, consider some of the information for the Leadership category provided (in their own words) by K&N Management in their Award Appli- cation Summary (available at the Baldrige website) for the Vision and Values questions listed in the text.

K&N Management is passionate about guest delight and excellence, which is evident throughout our operation. The senior leadership team (SLT) consists of two owners and seven directors who are responsible for setting and deploying the vision and values of the organization. The mission, vision, and KBDs [key business drivers] were originally set by a group of senior leaders and managers as a result of a benchmarking visit to Pal’s Sudden Service in 2002. Our vision reflects the passion for guest delight while our mission statement defines

the role of each team member in achieving that vision. If team members guarantee that each guest is delighted, we will be recognized world-wide as being excellent in hospitality, processes, and per- formance. The core values were set by senior lea- ders with input from team members about what they felt was most fundamentally important about our culture. Our passion for guest delight is inte- grated into our values, which are thoroughly deployed throughout the organization.

Senior leaders refer to the mission, vision, values, and KBDs throughout key leadership pro- cess deployment, measurement, data analysis, evaluation, and performance improvement. The mission, vision, values, and KBDs are reviewed annually by the SLT during the strategic planning workshop to decide if any changes should be made.

70 Part 1: Foundations of Quality and Performance Excellence

THE BALDRIGE AWARD EVALUATION PROCESS

The Baldrige evaluation process is rigorous. In the first stage, each application is thoroughly reviewed by up to seven or more examiners chosen from among leading quality professionals in business, academia, health care, and government (all of whom are volunteers). Examiners evaluate the applicant’s response to each exami- nation item, listing major “strengths” and “opportunities for improvement” rela- tive to the criteria. Strengths demonstrate an effective and positive response to the criteria. Opportunities for improvement do not prescribe specific practices or exam- iners’ opinions on what the company should be doing but, rather, deficiencies in responding to the criteria. To help examiners understand the context of the organi- zation, applicants are required to provide an Organizational Profile, which is basi- cally a snapshot of the organization that describes the organizational environment; key relationships with customers, suppliers, and other partners; types of employees and technologies used; the competitive environment; key strategic challenges it faces; and its system for performance improvement. The Organizational Profile helps the organization focus on key performance requirements and results, and helps examiners to understand the organization and what it considers important.

Based on the comments, a percentage score from 0 to 100 in increments of 5 percent is given to each item. Detailed scoring guidelines can be found in the criteria document. Each item in categories 1–6 focuses on some type of process (“How do you …?”) Each item is evaluated on four factors: approach, deployment, learning, and integration. Approach refers to the methods used to accomplish the process, the appropriateness of the methods to the item requirements and the organization’s operating environment, the effectiveness of the use of the methods, and the degree to which the approach is repeatable and based on reliable data and information (i.e., systematic). Deployment refers to the extent to which the approach is applied in addressing item requirements relevant and important to the organization, the

Our commitment to excellence is evident in our people selection and development processes, concept design, and operational management. The mission, vision, values, and KBDs are first deployed through the Foundations session, then reinforced through training, shift meeting commu- nication, and performance appraisals. The first flashcards in every set of training modules com- municate the key elements of our culture to TMs [team members]. During Foundations, TMs receive a culture card that contains the mission, vision, values, KBDs, and the Building Blocks of FISH [a team member morale and motivation philosophy].

Our mission, vision, and values are deployed to key suppliers and guests in a variety of ways. The

mission and vision are printed on all business cards. Our guests can easily view our mission, vision, values, and KBDs posted on the walls of our restaurants, the Mighty Fine website, and demon- strated through the attitudes of our team members. Our values are communicated to our key suppliers through a key vendor scorecard conducted annu- ally by the executive director. The criteria of the scorecard essentially holds suppliers accountable to our product and delivery standards. We require our suppliers to provide us with product that meets our quality specifications at the scheduled delivery time in order for us to maintain our KBDs. Suppliers who do not meet the standards of the vendor scorecard are replaced.

Chapter 2: Frameworks for Quality and Performance Excellence 71

approach is applied consistently, and the approach is used (executed) by all appro- priate work units. Learning refers to refining the approach through cycles of evalu- ation and improvement, encouraging breakthrough change to the approach through innovation, and sharing refinements and innovations with other relevant work units and processes in the organization. Integration refers to the extent to which the approach is aligned with organizational needs identified in the Organiza- tional Profile and other process items; measures, information, and improvement systems are complementary across processes and work units; and plans, processes, results, analyses, learning, and actions are harmonized across processes.

Category 7 addresses results. Results refers to an organization’s outputs and outcomes. The factors used to evaluate results include current performance levels; the rate and breadth of performance improvements; performance relative to appro- priate comparisons and benchmarks; and the extent to which results measures address important customer, product, market, process, and action plan perfor- mance requirements; include valid indicators of future performance; and are har- monized across process and work units to support organization-wide goals.

The examiner team conducts a consensus process in which they discuss varia- tions in individual scores and comments, and arrive at a consensus for each item. A national Panel of Judges then selects the applicants that they believe have the potential to be a recipient for site visits. At this point, an examiner team visits the company for up to a week to verify information contained in the written applica- tion and resolve issues that are unclear. The judges use the site visit reports to rec- ommend award recipients. Judges do not participate in discussions or vote on applications in which they have a competing or conflicting interest or in which they have a private or special interest, such as an employment or a client relation- ship, a financial interest, or a personal or family relationship. All information is kept strictly confidential, and examiners are bound by conflict-of-interest rules and a code of conduct.

All applicants receive a feedback report that critically evaluates the company’s strengths and areas for improvement relative to the award criteria. The feedback report, frequently 30 or more pages in length, contains the evaluation team’s response to the written application. It includes a distribution of numerical scores of all appli- cants and a scoring summary of the individual applicant. This feedback is one of the most valuable aspects of applying for the award. We should note that the typical score for recipients is in the 650–750 range. This indicates that although their prac- tices and results are indeed outstanding, they still have opportunities for improve- ment. As a former Xerox CEO once said, quality is a race without a finish line.

Organizations that receive the Baldrige Award are highly regarded role models for others. Characteristics that distinguish them from other organizations—even those that reach the site visit stage but are not selected for the Award—are:14

• Achievement in Results—These organizations achieved significant results across all areas: product (e.g., health care outcomes) and process, customers, workforce, leadership and governance, and financials and marketplace. Results were trended over time, and comparisons were made to benchmarks (top per- formance levels). Furthermore, results measured were critical to managing the organization and to making fact-based decisions and improvements.

72 Part 1: Foundations of Quality and Performance Excellence

• Entrepreneurism and Innovation—These organizations use innovative approaches to serve their customers’ current needs and guide them with entic- ing products and services that address their not-yet-articulated needs. They provide products, services, and opportunities that lead their marketplace. They take intelligent risks to sustain themselves through challenging times and environments and achieve market leadership positions. They do not rely on past achievements or reputation. They are the organizations that ask “Why not?” rather than “Why?”

• Agility—These organizations are strategic in their decision making and in their ability to adjust strategy. When conditions change or are anticipated to change, they are ready to adapt, look for new markets, and adjust to sustain themselves and their stakeholders. Strategic plans do not sit on their shelves gathering dust, and these plans are developed with processes that cause and monitor execution. These organizations track the execution of their plans with metrics, and the ability to make change is part of the execution process.

• Governance and Leadership Metrics—These organizations have leadership and governance systems in place that provide them with sound guidance. They measure the performance of their leadership and governance teams—which is not common practice. They are good citizens of their communities and mea- sure their social responsibility results. They understand the needs of their com- munities and provide resources of all types.

• Work Systems and Work Processes—This is probably the most challenging concept to master. These organizations understand their work. They know their core competencies. They make intelligent decisions on their staff-performed work processes, capitalize on their core competencies to decide on those processes, and execute those processes well (with data to prove it). They know when to rely on suppliers and partners. They use these critical decisions to succeed in the marketplace, even when competitors do not.

CRITERIA EVOLUTION

As the important management practices of any organization should be, the specific award criteria are evaluated and improved each year. Over the years, the criteria have been streamlined and simplified to make them more relevant and useful to organizations of all types and size, improve the linkage between process and results, and make the criteria more generic and user-friendly. Most significantly, the word quality was judiciously dropped in the mid-1990s. For example, prior to 1994, the Strategic Planning category (now simply titled Strategy) was titled “Stra- tegic Quality Planning.” The change to “Strategic Planning” signified that quality should be a part of business planning, not a separate issue. Throughout the docu- ment, the term performance has been substituted for quality as a conscious attempt to recognize that the principles of TQ are the foundation for a company’s entire management system, not just the quality system. As Dr. Curt Reimann, former director and architect of the Baldrige Award Program, noted, “The things you do to win a Baldrige Award are exactly the things you’d do to win in the marketplace. Our strategy is to have the Baldrige Award criteria be a useful daily tool that simu- lates real competition.”

Chapter 2: Frameworks for Quality and Performance Excellence 73

To this end, the most significant changes in the criteria reflect the maturity of business practices and TQ approaches. The criteria evolved from a primary empha- sis on product and service quality assurance to a broad focus on performance excellence in a global marketplace. In addition, criteria updates are designed to address emerging and relevant issues facing business. In 2003, for example, the cri- teria strengthened its emphasis on organizational governance and ethics in the wake of the Enron, WorldCom, and Arthur Andersen scandals that occurred the year before. In 2005, Baldrige Foundation introduced the concept of sustainability— which refers to an organization’s ability to address current business needs and to have the agility and strategic management to prepare successfully for the future, and to prepare for real-time or short-term emergencies—into the criteria. More recently, concepts of workforce and customer engagement have also been integrated within the criteria, supply chain management has become more prominent, change manage- ment has been emphasized, and the roles of social media and big data have been introduced.

IMPACTS OF THE BALDRIGE PROGRAM

The Baldrige Award criteria form a model for business excellence in any organization—manufacturing or service, large or small (see box “Baldrige Pays Off for Texas Instruments”). An economic evaluation study of the Baldrige pro- gram by the U.S. Department of Commerce released in December 2011 estimated the net social value of the Baldrige Performance Excellence Program.15 The study concluded that the benefit-to-cost ratio for the group of surveyed applicants was 820 to 1, supporting the belief that the program creates great value for the U.S. economy. More importantly, the program changed the way in which many organizations around the world manage their operations, and helped significantly to bring the principles of TQ into the daily culture of these organizations. The true benefactors are the customers and other stakeholders, who received better products and services. Jim Collins (author of Good to Great: Why Some Compa- nies Make the Leap … and Others Don’t) endorsed Baldrige with the following statement: “I see the Baldrige process as a powerful set of mechanisms for disci- plined people engaged in disciplined thought and taking disciplined action to create great organizations that produce exceptional results.”

A large number of organizations are using the award criteria to evaluate their own quality programs, set up and implement quality initiatives, communicate better with suppliers and partners, and for education and training, even if they have no intention to apply for the award. For example, although the legal profes- sion in general has not adopted quality management practices, the Trial Division of Nationwide Insurance, which operates 56 law offices in 20 states, uses the Baldrige model as a key component of its business plan. Senior leaders introduced it to the company’s managing trial attorneys and encouraged individual offices to apply for local or state Baldrige-based awards.

Many small businesses (defined by the Baldrige program as those with 500 or fewer employees) believe that the Baldrige criteria are too difficult to apply to their organizations because they cannot afford to implement the same types of practices as large companies. However, an organization’s practices need not be formal or

74 Part 1: Foundations of Quality and Performance Excellence

complex. For example, the ability to obtain customer and market knowledge through independent third-party surveys, extensive interviews, and focus groups, which are common practices among large companies, may be limited by the resources of a small business. What is important, however, is whether the company is using effective approaches to gather information and use it to improve customer focus and satisfaction. Similarly, large corporations frequently have sophisticated computer/information systems for data management, whereas small businesses may perform data and information management with a combination of manual methods and personal computers. Also, systems for employee involvement and pro- cess management may rely heavily on informal verbal communication and less on formal written documentation. Thus, the size or nature of a business does not affect the appropriateness of the criteria but, rather, the context in which the crite- ria are applied.

The incorporation of education and health care as categories in the award pro- gram in 1999 and of nonprofit organizations in 2007 were a reflection of the growing interest of performance excellence outside of manufacturing and tradi- tional service organizations. Many school districts are now using the criteria. One large Chicago-area hospital applied for the Baldrige-based Lincoln Award for Excellence and prepared for its accreditation visit by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) at the same time, recognizing the synergy and overlap of Baldrige principles and JCAHO standards.

Most states have developed award programs similar to the Baldrige Award. State award programs generally are designed to promote an awareness of produc- tivity and quality, foster an information exchange, encourage firms to adopt quality and productivity improvement strategies, recognize firms that have instituted suc- cessful strategies, provide role models for other businesses in the state, encourage new industry to locate in the state, and establish a quality-of-life culture that will benefit all residents of the state.17

Each state is unique, however, and thus the specific objectives will vary. For instance, Ohio’s program is focused on developing organizations early in their per- formance excellence journey as well as recognizing outstanding organizations. Information about state award programs can be found at the Baldrige website cited earlier in this section.

LEVERAGING BALDRIGE AT ATLANTICARE16

New Jersey-based healthcare provider Atlanti- Care was one of five Baldrige award recipients for 2009. Although the organization didn’t implement the Baldrige criteria until the new millennium, its culture was rooted in quality well before that. In the 1990s, it built its operations around the con- cept that patients are the center of everything, and it also employed a total quality management philosophy that gave it the necessary tools to

create sustainable improvements in customer service and adopted the plan-do-check-act cycle. Then, in 2000, it began implementing the Baldrige criteria to push its performance levels to new heights.

In 2006, AtlantiCare crafted its first national application but failed to receive a site visit. The next year, however, resulted in a site visit, pro- viding a measure of encouragement and an

Chapter 2: Frameworks for Quality and Performance Excellence 75

expectation of disappointment. “You don’t know how much work you have to do, but we knew we were not Baldrige worthy when we had our first site visit,” said AtlantiCare President and CEO David Tilton. “We knew we could be a lot better.” Another site visit in 2008 further drove home the fact the organization was making progress, a feeling borne out by its triumph a year later.

At orientation, new employees get a crash course in AtlantiCare’s improvement methods, as well as a performance excellence framework it calls the 5Bs—a program with the aim of making the organization the best in five areas: quality, customer service, people and workplace, growth and financial performance. As employees ascend the organization’s ranks, the emphasis on improvement follows. At the managerial level, AtlantiCare requires attendance at an educational program outlining how to use the Baldrige frame- work to enhance performance and foster innova- tion. That gives managers the tools they need to operate within a leadership environment referred to by the organization as the tight-loose-tight process (TLT). The strategy refers to the level of autonomy and authority given to those below the top management level. By loosening the reins, AtlantiCare empowers its employees in individual business units to customize the means by which they meet high-level goals, thus creating a more agile organization.

Along with setting targets, the business units establish annual action plans and identify key measurements to help them identify when they’ve met their targets. Each action plan set by the business units relates to the nine strategic chal- lenges AtlantiCare identified as keys to organiza- tional success:

Healthcare delivery • Engaging physicians in new models of

collaboration and partnership. • Creating sustainable growth outside of the

primary service area. • Identifying and prioritizing healthcare service

opportunities for investment and recruitment.

Health engagement • Developing new business and care models to

support and grow primary care. • Identifying and improving critical success

factors for community health and wellness.

Health information • Increasing quality of care through clinical

communication and transparency. • Using technology to improve patient safety

and clinical quality.

Operational • Recruiting, training and retaining a highly

skilled workforce. • Succeeding in an environment of decreasing

reimbursement and access to capital, and a growing uninsured population.

In another effort to overcome those challenges, AtlantiCare rolls several voice of the customer activities into its planning processes. By collecting web-user data, analyzing call center trends and conducting focus groups, the organization evalu- ates and improves customer access. The most visible example of the benefits of this focus is the Access Center, which AtlantiCare established in 2006 after focus group research revealed a cus- tomer base frustrated with its access to and nav- igation of an often-convoluted healthcare system. The toll-free physician and event scheduling line tracks customers’ requests and needs. These efforts resulted in increased customer satisfaction, higher market share, and increased revenues. The organization is in the top 10 percent for CMS patient-care measurements related to congestive heart failure, acute myocardial infarction and pneumonia. The Home Health Division was awarded HomeCare Elite status by OCS Inc., which delivers performance improvement bench- marking measures to home health and hospice providers. The title—based on quality outcomes, quality improvement and financial performance— puts AtlantiCare in the top 100 of 8,222 organiza- tions in the United States. Results for effective- ness of treatment in behavioral health consistently surpass the Mental Health Corp. of America’s

76 Part 1: Foundations of Quality and Performance Excellence

THE BALDRIGE CRITERIA AND THE DEMING PHILOSOPHY

It is no secret that W. Edwards Deming was not an advocate of the Baldrige Award.18 (Joseph Juran, however, was highly influential in its development.) The competitive nature of the award is fundamentally at odds with Deming’s teachings. However, many of Deming’s principles are reflected directly or in spirit within the criteria. In fact, one firm, Zytec, implemented its TQ system around Deming’s 14 Points and received a Baldrige Award. Specific portions of the Baldrige criteria that support each of Deming’s 14 Points are summarized here.

1. Statement of Purpose. Strategy development requires a mission and vision. Commitment to aims and purposes by senior leaders is specifically addressed in the Leadership category and in enhancing customer satisfaction and relationships.

2. Learn the New Philosophy. Communication of values, expectations, customer focus, and learning is a key area of the Organizational Leadership item.

3. Understand Inspection. The Process Management category addresses the development of appropriate measurement plans. The Criteria also seek evidence of how a company aims to minimize the costs associated with inspection.

4. End Price Tag Decisions. This is implicitly addressed throughout the Process Management category and in the Criteria’s emphasis on overall performance and linkages among processes and results.

5. Improve Constantly. Continuous improvement and learning is a core value of Baldrige. The criteria specifically ask how the company evaluates and improves its processes.

6. Institute Training. The Human Resource Focus category recognizes the importance of training and employee development in meeting performance objectives.

7. Teach and Institute Leadership. Category 1 is devoted exclusively to leader- ship, and it is recognized as the principal driver of the management system in Figure 2.1.

8. Drive Out Fear and Innovate. The Human Resource Focus, Customer and Market Focus, and Strategic Planning categories focus on work design, empowerment, and implementation issues that support this point.

benchmark and include a 2009 result that is 16 percent above the benchmark.

The numbers back up AtlantiCare’s whole- hearted embrace of the Baldrige criteria, but its belief in the program goes beyond measureables and the award that followed. Despite competing in the highly competitive healthcare industry, Atlan- tiCare established a series of Baldrige Sharing Days for any organization that wants to travel the

same road to improvement. “We believe a com- mitment to quality and continuous improvement is imperative in the healthcare field. Part of our responsibility as a recipient of the Baldrige award is to share our performance excellence strategies and practices with other organizations. We hum- bly look forward to serving as mentors and role models for those who wish to join us on our quality journey.”

Chapter 2: Frameworks for Quality and Performance Excellence 77

9. Optimize the Efforts of Teams and Staff. The Criteria have a significant focus on teamwork and customer knowledge in product/process design and process management, as well as in the Human Resource Focus category.

10. Eliminate Exhortations. While not directly addressed, the focus on work and job design as the driver of high performance makes this a moot point.

11. Eliminate Quotas and MBO; Institute Improvement; and Understand Processes. The Leadership and Strategy Deployment items, as well as the Measurement, Analysis and Knowledge Management and Process Manage- ment categories, deal with fact-based management and understanding processes.

12. Remove Barriers. The Leadership and Human Resource Focus categories, as well as the Customer Satisfaction and Relationships item, support this goal.

13. Encourage Education. This is addressed directly in the Human Resource Focus category.

14. Take Action. This role of leadership is addressed directly in the Leadership category.

The consistencies among Deming’s 14 Points and the Baldrige criteria attest to the universal nature of quality management principles.

INTERNATIONAL QUALITY AND PERFORMANCE EXCELLENCE AWARD PROGRAMS

Numerous countries and regions of the world have established awards and award criteria. Many other award programs are similar in nature to the Baldrige criteria (see box, Global Performance Excellence Programs).

GLOBAL PERFORMANCE EXCELLENCE PROGRAMS

Country Organization

Australia SAI-Global

Brazil National Quality Award Foundation

Canada National Quality Institute of Canada

Europe European Foundation for Quality Management (EFQM)

India Confederation of Indian Industry

Ireland Excellence Ireland Quality Association

Japan Japan Productivity Center for Socio-Economic Development

Mexico Premio Nacional de Calidad, México

New Zealand New Zealand Business Excellence Foundation

United Kingdom British Quality Foundation

Source: Robin Mann and Nigel Grigg, “A Study of National Strategies for Business Excellence,” Chapter 3, in Quality Management and Organisation Excellence: Oxymorons, Empty Boxes, or Important Contributions to Management Thought and Practice. Eds. K. Foley, D. A. Hensler, and J. Jonker. Sydney, Australia: Standards Australia International (SAI) Global, 2007.

78 Part 1: Foundations of Quality and Performance Excellence

THE DEMING PRIZE

The Deming Application Prize was instituted in 1951 by the Union of Japanese Scientists and Engineers (JUSE) in recognition and appreciation of W. Edwards Deming’s achievements in statistical quality control and his friendship with the Japanese people. The Deming Prize has several categories, including prizes for indi- viduals, factories, and small companies, and the Deming application prize, which is an annual award presented to a company or a division of a company that has achieved distinctive performance improvements through the application of Compa- nywide Quality Control (CWQC). As defined by JUSE, CWQC is a system of activities to assure that quality products and services required by customers are economically designed, produced, and supplied while respecting the principle of customer-orientation and the overall public well-being. These quality assurance activities involve market research, research and development, design, purchasing, production, inspection and sales, as well as all other related activities inside and outside the company. Through everyone in the company understanding both statis- tical concepts and methods, through their application to all the aspects of quality assurance, and through repeating the cycle of rational planning, implementation, evaluation, and action, CWQC aims to accomplish business objectives.19

Hundreds of companies apply for the award each year. After an initial applica- tion accepted as eligible for the process, the company must submit a detailed description of its quality practices. Based on review of the written descriptions, only a few companies believed to be successful in CWQC are selected for a site visit. The site visit consists of a company presentation, in-depth questioning by examiners, and an executive session with top managers. Examiners visit plants and are free to ask any worker any question.

For example, at Florida Power and Light (see box “Electric Quality”), exam- iners asked questions of specific individuals such as “What are your main account- abilities?” “What are the important priority issues for the corporation?” “What indicators do you have for your performance? For your target?” “How are you doing today compared to your target?” They request examples of inadequate per- formance. Documentation must be made available immediately. The preparation is extensive and sometimes frustrating.

ELECTRIC QUALITY20

Florida Power and Light (FPL) is one of the largest electric utilities in the United States. During the 1970s the company was forced to increase utility rates repeatedly because of increasing costs, slower sales growth, and stricter federal and state regulations. The company had become bureau- cratic and inflexible. In 1981, Marshall McDonald, then chairman of the board, realized that the company had been concerned with keeping defects under control rather than improving

quality. Because of his concern for quality, McDonald introduced quality improvement teams at FPL. Management knew this was a step in the right direction, but such teams alone would not bring about the change needed for the company to survive. McDonald tried to convince other executives that a total quality improvement pro- cess was needed, but all the experts that FPL talked to were in manufacturing, while FPL was primarily a service company. In 1983, while in

Chapter 2: Frameworks for Quality and Performance Excellence 79

The Deming Prize is awarded to all companies that meet the prescribed stan- dard. However, the small number of awards given each year is an indication of the difficulty of achieving the standard. The objectives are to ensure that a com- pany has so thoroughly deployed a quality process that it will continue to improve long after a prize is awarded. The application process has no “losers.” For compa- nies that do not qualify, the examination process is automatically extended up to two times over three years.

EUROPEAN EXCELLENCE AWARD

In October 1991, the European Foundation for Quality Management (EFQM) in partnership with the European Commission and the European Organization for Quality announced the creation of the European Quality Award (now called the European Excellence Award). The award was designed to increase awareness throughout the European Community, and businesses in particular, of the growing importance of quality to their competitiveness in the increasingly global market and to their standards of life. The award is based on the following premise: Excellent results with respect to Performance, Customers, People, and Society are achieved through Leadership driving Policy and Strategy, that is, delivered through People, Partnerships and Resources, and Processes. EFQM has three recognition levels. The EFQM Excellence Award is the highest form of recognition, similar to Baldrige. Two additional recognition levels have been added: (1) Recognized for Excellence, designed for organizations that are well along the journey to excellence, and (2) Committed to Excellence, for organizations that are at the beginning of the journey.

The award process is similar to the Deming Prize and Baldrige Award. The assessment is based on customer satisfaction, business results, processes, leadership, people satisfaction, resources, people management, policy and strategy, and impact on society. Like Baldrige, results—including customer satisfaction, people (employee) satisfaction, and impact on society—constitute a high percentage of the total score. These are driven by “enablers”—the means by which an organization approaches its business responsibilities.

Japan, McDonald met a president of Kansai Electric Power Company, a Deming Prize recipi- ent, who told him about their total quality efforts. Company officials began to visit Kansai regularly, and with their help, FPL began its quality improvement program (QIP) in 1983.

Its quality efforts included empowering each department to develop improvement plans, stan- dardizing work routines, removing waste from them, promoting the concept of internal customers, and enabling better practice to be replicated from one location to another. FPL revamped a central- ized suggestion system it had been using for many years. Only about 600 suggestions had been

submitted annually and it usually took six months for evaluation. A new decentralized system was proposed with simplified procedures to improve the response time. Employees participated in the implementation of their own suggestions. In 1988, 9,000 suggestions were submitted; in 1989 this number increased to 25,000. As a result of these efforts, the average length of service interruptions dropped from about 75 minutes in 1983 to about 47 minutes in 1989; the number of complaints per 1,000 customers fell to one third of the 1983 level; safety has improved; and the price of electricity has stabilized. In 1989, FPL became the first non- Japanese company to win the Deming Prize.

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The categories are roughly equivalent to those in Baldrige. However, the results criteria of people satisfaction, customer satisfaction, impact on society, and busi- ness results are somewhat different.21 The impact on society results category focuses on the perceptions of the company by the community at large and the com- pany’s approach to the quality of life, the environment, and the preservation of global resources. The European criteria places greater emphasis on this category than is placed on the public responsibility item in the Baldrige criteria.

CANADIAN AWARDS FOR BUSINESS EXCELLENCE

Canada’s National Quality Institute (NQI) recognizes Canada’s foremost achievers of excellence through the prestigious Canada Awards for Excellence. NQI is a non- profit organization designed to stimulate and support quality-driven innovation within all Canadian enterprises and institutions, including business, government, education, and health care. The Canadian Awards for Business Excellence quality criteria are similar in structure to the Baldrige Award criteria, with some key differ- ences. The major categories and items within each category are:

1. Leadership: strategic direction, leadership involvement, and outcomes. 2. Customer Focus: voice of the customer, management of customer relation-

ships, measurement, and outcomes. 3. Planning for Improvement: development and content of improvement plan,

assessment, and outcomes. 4. People Focus: human resource planning, participatory environment, continu-

ous learning environment, employee satisfaction, and outcomes. 5. Process Optimization: process definition, process control, process improve-

ment, and outcomes. 6. Supplier Focus: partnering and outcomes.

These categories seek similar information as the Baldrige Award criteria. For example, the People Focus category examines the development of human resource planning and implementation and operation of a strategy for achieving excellence through people. It also examines the organization’s efforts to foster and support an environment that encourages and enables people to reach their full potential.

AUSTRALIAN BUSINESS AWARDS

The Australian Quality Awards (now called the Australian Business Awards) were developed independently from the Baldrige Awards in 1988. The awards are administered by the Australian Quality Awards Foundation, a subsidiary of the Australian Quality Council. The Australian Business Excellence Prize is the preemi- nent award available for businesses in Australia. Only two organizations have achieved this level of excellence since the Awards’ inception in 1988. In addition to the Australian Business Excellence Prize, four levels of awards are given:

1. The Foundation in Business Excellence Level—provides encouragement recog- nition for progress toward business excellence.

2. The Bronze Award Level—Bronze Award recipients demonstrate Approach and Deployment that are well defined, planned, subject to review, and show evidence of improvement over time.

Chapter 2: Frameworks for Quality and Performance Excellence 81

3. The Silver Award Level—organizations at this level demonstrate not only per- formance against the framework at Bronze level but also a philosophy of management that reflects the principles that underpin it and other frameworks around the globe.

4. The Gold Award Level—organizations at this level meet Silver recognition, are able to demonstrate superior performance in at least five of the categories in the framework, and must have scored at least 50 percent on each item.

The assessment criteria address leadership, strategy and planning, information and knowledge, people, customer focus, processes, products and services, and busi- ness results. In this model, leadership and customer focus are the drivers of the management system and enablers of performance. Strategy, policy and planning, information and analysis, and people are the key internal components of the man- agement system. Quality of process, product, and service is focused on how work is done to achieve the required results and obtain improvement. Business results are the outcome of the management system—a results category.

As with Baldrige, the framework emphasizes the holistic and interconnected nature of the management process. The criteria are benchmarked with the Baldrige criteria and the European Business Excellence Model. One of the distinctive aspects of Australia’s program is solid union support.

QUALITY AWARDS IN CHINA23

In 2001, the China Association for Quality (CAQ) introduced the National Quality Award, which it recently renamed the Performance Excellence Award. To facilitate the emerging economy of China, the Chinese government has issued new quality standards that became effective on January 1, 2005 and are designed to encourage China’s thriving business sector to strive for better quality. The award criteria are based on components of the Malcolm Baldrige National Quality Award and are

ARE PERFORMANCE EXCELLENCE FRAMEWORKS ENOUGH?22

Research by Jens Dahlgaarda and his colleagues indicates that organizations implementing per- formance excellence frameworks will obtain sig- nificant financial and nonfinancial benefits such as customer satisfaction. However, not all find- ings in the literature are positive. Other research findings have found that the use of performance excellence frameworks cannot guarantee suc- cess. This is often a result of management bar- riers such as lack of top management commitment, limited resources, fear of change, work overload, lack of comprehensive quality improvement education, and lack of employee involvement. It has been suggested that effective implementation of performance excellence

frameworks requires the integration of manage- ment tools and techniques such as Six Sigma, supply chain management, enterprise resource planning, as well as cultivating a positive organi- zational culture. One research study of Boeing showed that this is indeed the case. Boeing’s success appears to have resulted from their integration of tools and techniques and culture focus along with Baldrige. The researchers con- clude that all three elements need to be carefully understood. Ignoring the culture dimension, for example, will lead to a lack of spirit at shop floor levels as well as at the middle management level and will most likely lead to failure in implementing a performance excellence framework.

82 Part 1: Foundations of Quality and Performance Excellence

geared toward China’s unique business environment—especially in improving busi- ness credibility, brand-building strategy, and sustainable development. The Chinese government used representatives of the Shanghai Academy of Quality Management to help write the country’s new quality standard, and invited Baldrige Award win- ners to Shanghai to report on their processes. At the same time, they held many seminars to study Baldrige criteria, learning to adapt those concepts to Chinese quality policy. Seventeen businesses were awarded the Chinese National Quality Award during the first three years. Among them, Baosteel and Shanghai Dazhong Taxi won the World Class Organization Award and the Asia-Pacific Quality Award, in 2002 and 2004, respectively.

In 2004, Shenzhen became the first city to launch a local quality award, called the Mayor’s Cup Quality Award. It is operated by the Shenzhen Bureau of Quality and Technical Supervision. The vice mayor leads an evaluation committee of local experts, which uses many of the Baldrige criteria, including international best prac- tices, social factors and governmental strategic initiatives issued by Shenzhen gov- ernment leaders.

At the end of 2006, more than 55 organizations had applied for the award, and six firms had won, including Huawei in 2004, one of the first winners. The 3 million RMB ($387,000 U.S.) prize is the highest among quality awards in China and has encouraged many organizations to participate and share best prac- tices. Other cities and provinces, including Shanghai and Ningbo, have now set up local governmental quality awards to promote quality management systems and share experiences in various industries.

QUALITY AND NATIONAL CULTURE

It is interesting to observe that although many countries adopt much of the Bal- drige criteria, many of them have made changes to the criteria or scoring system, as we saw with the European Quality Award framework. As another example, China issued a new quality standard in 2005—The Chinese National Quality Award Criteria—using components of the Baldrige criteria, but which is geared toward China’s unique business environment, and focused on improving business credibility, brand-building strategy, and sustainable development. Contrasts in international culture can help to understand and explain these differences.

A research study found support for the notion that the Baldrige award is bet- ter suited to some national cultures than with others.24 Receptiveness to change differs greatly among cultures, suggesting the need for countries to adapt their quality award programs to local conditions to ensure their effective implementa- tion. Perhaps surprisingly, Baldrige is a better fit to the national culture of Japan than it is to the United States Some of the reasons for this are that the Baldrige framework was initially influenced heavily by Japanese quality management practices, and that changes to the criteria over the years are focused on changing U.S. management culture, not reflecting its current practice. These results pro- vide even more validation of Deming’s observation related to the Theory of Knowledge, that best practices cannot be copied blindly, but must be understood and adapted intelligently. This is an important lesson for managing in today’s global environment.

Chapter 2: Frameworks for Quality and Performance Excellence 83

QUALITY MANAGEMENT SYSTEMS

Quality can be managed in different ways. Many organizations use a centralized qual- ity department; others have quality leaders who work in different business units or parts of the organization (common to larger organizations); some have centralized committees of leaders from multiple functions; still others rely on the senior leadership team to guide the quality process (more predominant in smaller organizations).26

No matter how quality is managed, organizations need a structured and sys- tematic approach to implement the principles, practices, and techniques of TQ.27

According to the ASQ online glossary, a quality management system (QMS) can be considered a mechanism for managing and continuously improving core pro- cesses to “achieve maximum customer satisfaction at the lowest overall cost to the organization.” It applies and synthesizes standards, methods, and tools to achieve quality-related goals. Thus, a QMS represents a specific implementation of quality concepts, standards, methods, and tools, and is unique to an organization. Creating an effective QMS requires top management commitment, resources availability, communication, integrated training across the organization, integrated audits, tech- nical guidelines, customers, employees, and the support of certification entities.28 A QMS provides a basis for documenting processes used to control and improve operations, and achieve the following objectives:

• Higher product conformity and less variation. • Fewer defects, waste, rework, and human error. • Improved productivity, efficiency, and effectiveness. • Drive innovation.

One of the first things to do is to establish a quality policy—a formal document that demonstrates a commitment to achieving high quality and meeting customer

CULTURE AND QUALITY EFFECTIVENESS25

A research study by Thomas Kull and John Wacker discovered that the ability to achieve quality per- formance through quality management is highly affected by a country’s cultural values. Culturally valuing behaviors, like actions that remove uncer- tainty, can assist quality management programs to improve quality; while valuing other behaviors, like assertiveness in relationships, contradict quality management and hurt quality performance. For- mally defined, assertiveness is the degree to which individuals are assertive, confrontational, and aggressive in their relationships with others; uncertainty avoidance is the extent to which a col- lective relies on social norms, rules, and proce- dures to alleviate unpredictability of future events.

The study found that high assertiveness was associated with lower quality management effec- tiveness. China has the highest assertiveness among the sampled countries, likely a remnant of its past command economy, and this finding explains China’s lower quality management prac- tice effectiveness. On the other hand, South Korea and Taiwan have higher uncertainty avoidance than many other cultures and explains why such coun- tries have higher quality management effectiveness than others. The results of this study can assist managers in devising plans to assure high quality from Asian facilities, and in predicting where future problems may occur in other countries around the world.

84 Part 1: Foundations of Quality and Performance Excellence

expectations. Next, management must establish an organizational structure for its QMS that includes responsibilities, methods of communication, maintenance of essential records and documentation, and procedures for reviewing performance. Management must also identify and provide appropriate resources to achieve the objectives set forth in their quality policy. These resources might include people with special skills, training, workspaces, manufacturing equipment, inspection technology, computer software, and the supporting work environment. Individuals must be given the responsibility to initiate actions to prevent the occurrence of defects and errors, to identify and solve quality-related problems, and to verify the implementation of solutions.

The core of a QMS is focused on creating the goods and services that custom- ers want. Therefore, a QMS should include processes for identifying customer requirements, product planning and design processes, purchasing procedures, meth- ods and technology for controlling the production of goods and services through- out the supply chain, inspection and/or testing, disposition of nonconforming product, and maintenance and validation of measuring and test equipment.

A quality manual serves as a permanent reference for implementing and maintaining the system. A quality manual need not be complex; a small company might need only a dozen pages, while a large organization might need manuals for all key functions. Sufficient records should be maintained to demonstrate con- formance to requirements and verify that the quality system is operating effec- tively. Typical records that might be maintained are inspection reports, test data, audit reports, and calibration data. They should be readily retrievable for analysis to identify trends and monitor the effectiveness of corrective actions. Other docu- ments, such as drawings, specifications, inspection procedures and instructions, work instructions, and operation sheets, are vital to achieving quality and should likewise be controlled.

Finally, the system needs to be maintained and kept up-to-date. This mainte- nance can be facilitated through internal audits, which focus on identifying whether documented procedures are being followed and are effective, and reporting the issues to management for corrective action. Internal audits generally include a review of process records, training records, complaints, corrective actions, and pre- vious audit reports. A typical internal audit begins by asking those who perform a process regularly to explain how it works.29 Their statements are compared to written procedures, and compliance and deviations are noted. Next, the trail of paperwork or other data are examined to determine whether the process is consis- tent with the intent of the written procedure and the worker’s explanation. Internal auditors also need to analyze whether the process is meeting its intent and objec- tives, thus focusing on continuous improvement.

Although there are many ways to structure a QMS, organizations usually start with the ISO 9000 family of standards, which are a set of standards and guidelines for QMSs that represents an international consensus on good quality management practices.30 They provide a comprehensive framework for designing and managing a QMS and help organizations establish a process orientation and the discipline to document and control key processes.

Chapter 2: Frameworks for Quality and Performance Excellence 85

ISO 9000:2000

As quality became a major focus of businesses throughout the world, various orga- nizations developed standards and guidelines. Terms such as quality management, quality control, quality system, and quality assurance acquired different, and some- times conflicting, meanings from country to country, within a country, and even within an industry.31 As the European Community moved toward the European free trade agreement, which went into effect at the end of 1992, quality manage- ment became a key strategic objective.

To standardize quality requirements for European countries within the com- mon market and those wishing to do business with those countries, a specialized agency for standardization, the International Organization for Standardization, founded in 1946 and composed of representatives from the national standards bodies of 91 nations, adopted a series of written quality standards in 1987, which were revised in 1994, and again (significantly) in 2000. Other minor revi- sions have subsequently been published. Another revision is scheduled for 2015, but the release is too late to be described in this edition of the book. Current information can be obtained from the ISO website: http://www.iso.org. These are called the ISO 9000 family of standards.

ISO 9000 defines quality system standards, based on the premise that certain generic characteristics of management practices can be standardized, and that a well-designed, well-implemented, and carefully managed quality system provides confidence that the outputs will meet customer expectations and requirements. The standards were created to meet five objectives:

1. Achieve, maintain, and seek to continuously improve product quality (includ- ing services) in relationship to requirements.

2. Improve the quality of operations to continually meet customers’ and stake- holders’ stated and implied needs.

3. Provide confidence to internal management and other employees that quality requirements are being fulfilled and that improvement is taking place.

4. Provide confidence to customers and other stakeholders that quality require- ments are being achieved in the delivered product.

5. Provide confidence that quality system requirements are fulfilled.

The ISO 9000 standards have been adopted in the United States by the American National Standards Institute (ANSI) with the endorsement and cooperation of the American Society for Quality (ASQ). The standards are recognized by about 100 countries, including Japan. In some foreign markets, companies will not buy from noncertified suppliers. Thus, meeting these standards is becoming a requirement for international competitiveness. The standards are intended to apply to all types of businesses, including electronics and chemicals, and to services such as health care, banking, and transportation.

STRUCTURE OF THE ISO 9000 STANDARDS

The ISO 9000:2000 standards focus on developing, documenting, and implementing procedures to ensure consistency of operations and performance in production and

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service delivery processes, with the aim of continual improvement, and supported by fundamental principles of TQ. The standards consist of three documents:

• ISO 9000:2005—Fundamentals and vocabulary • ISO 9001:2008—Requirements • ISO 9004:2009—Guidance for performance improvement

ISO 9000:2005 provides background information and establishes definitions of key terms used in the standards. ISO 9001:2008 provides a structure for a basic QMS and is intended to demonstrate compliance with recognized quality principles to customers and for third-party certification. The requirements are organized into four major sections: Management Responsibility; Resource Management; Product Realization; and Measurement, Analysis, and Improvement.32 The requirements are stated as a set of numbered “clauses” that state precisely what the organization should do. For example, clause 6.4, Work Environment, is “The organization shall determine and manage the work environment needed to achieve conformity to product requirement.”33 Work environment relates to physical, environmental, and other factors such as noise, temperature, humidity, lighting, or weather. This clause requires the organization to identify aspects of the work environment that may impact the quality of the good or service produced, and have an approach for managing people-related factors such as work methods and ergonomics as well as the physical work environment. In addition, the standard requires 20 different types of documentation to be maintained. This provides the ability to audit confor- mance to the standards and can also provide due diligence and protect against lia- bility. The standards can be rather difficult to understand, but numerous resources are available to help managers interpret and use the standards.34 Finally, ISO 9004:2009 provides guidelines to assist organizations in improving and sustaining their QMSs.

The standards are intended to apply to all types of businesses, including electronics and chemicals, and to services such as health care, banking, and trans- portation. For example, a software developer, Computer Associates of Islandia, New York, employs over 14,000 people in more than 40 countries. They used ISO 9001 to build a strong framework throughout all its sites (many of which were obtained through acquisitions of other software companies) to help standard- ize product development and support. In 1998, the Centers for Medicare and Medicaid Services began requiring ISO 9001 certification for all its new business contracts with claims processors.

IMPLEMENTATION AND REGISTRATION

Implementing ISO 9000 is not an easy task.35 The ISO 9000 standards originally were intended to be advisory in nature and to be used for two-party contractual situations (between a customer and supplier) and for internal auditing. However, they quickly evolved into criteria for companies who wished to “certify” their qual- ity management or achieve “registration” through a third-party auditor, usually a laboratory or some other accreditation agency (called a registrar). This process began in the United Kingdom. Rather than a supplier being audited for compliance

Chapter 2: Frameworks for Quality and Performance Excellence 87

to the standards by each customer, the registrar certifies the company, and this cer- tification is accepted by all of the supplier’s customers.

The registration process includes document review by the registrar of the qual- ity system documents or quality manual; preassessment, which identifies potential noncompliance in the quality system or in the documentation; assessment by a team of two or three auditors of the quality system and its documentation; and sur- veillance, or periodic reaudits to verify conformity with the practices and systems registered. During the assessment, auditors might ask such questions as (using man- agement responsibility as an example): Does a documented policy on quality exist? Have management objectives for quality been defined? Have the policy and objec- tives been transmitted and explained to all levels of the organization? Have job descriptions for people who manage or perform work affecting quality been docu- mented? Are descriptions of functions that affect quality available? Has manage- ment designated a person or group with the authority to prevent nonconformities in products, identify and record quality problems, and recommend solutions? What means are used to verify the solutions?36

Recertification is required every three years. Individual sites—not entire companies—must achieve registration individually. All costs are borne by the appli- cant, so the process can be quite expensive. A registration audit may cost anywhere from $10,000 to over $40,000, whereas the internal cost for documentation and training may exceed $100,000. Hundreds of thousands of organizations around the world have received registration.

BENEFITS OF ISO 9000:2000

ISO 9000 has three principal benefits:37

1. It provides discipline. The ISO 9001 requirement for audits forces an organi- zation to review its quality system on a routine basis. If it fails to maintain the quality system, audits should recognize this and call for corrective action.

2. It contains the basics of a good quality system. ISO 9001 includes basic requirements for any sound quality system, such as understanding customer requirements, ensuring the ability to meet them, ensuring people resources capable of doing the work that affects quality, ensuring physical resources and support services needed to meet product requirements, and ensuring that problems are identified and corrected.

3. It offers a marketing program. ISO certified organizations can use their status to differentiate themselves in the eyes of customers.

Many diverse organizations have realized significant benefits from ISO 9000 (see box “Using ISO 9000 at Sears”). At DuPont, for example, ISO 9000 has been credited with increasing on-time delivery from 70 to 90 percent, decreasing cycle time from 15 days to 1.5 days, increasing first-pass yields from 72 to 92 percent, and reducing the number of test procedures by one-third. Sun Microsystems’ Milpitas plant was certified in 1992, and managers believe that it has helped deliver improved quality and service to customers.38 The first home builder to achieve registration, Michigan-based Delcor Homes, reduced its rate for correctable defects from 27.4 to 1.7 in two years and improved its building experience

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approval rating from the mid-60s to the mid-90s on a 100-point scale.39 Thus, using ISO 9000 as a basis for a quality system can improve productivity, decrease costs, and increase customer satisfaction.

In addition to such anecdotal evidence, formal research has demonstrated the impact of ISO 9000. One study tracked financial performance from 1987 to 1997 of all publicly traded ISO 9000 certified manufacturing firms in the United States and tested whether ISO 9000 certification leads to productivity improvements, market benefits, and improved financial performance.40 The research ruled out the hypothesis that ISO 9000 has no causal effect on performance but is simply adopted by firms that are better managed. The evidence supports the view that careful design and implementation of consistent and documented QMSs can con- tribute significantly to superior financial performance.

USING ISO 9000 AT SEARS41

Sears, Roebuck and Co., a wholly owned subsid- iary of Sears Holdings Corp., is one of the largest retailers in North America. After an eight-year effort, the company registered its product repair centers’ and in-home service’s quality manage- ment systems (QMS) to ISO 9001. Once the repair centers were registered, Sears turned to the in- home service side of its business. About 10,000 Sears’ technicians repair one of every five appli- ances in America. By the end of 2005, Sears had 383 locations under the scope of its ISO 9001 registration, including all six in-home regions. Recognizing that ISO 9001 provides a framework for large organizations to implement a consistent, cohesive program across geographic lines and throughout a multifaceted business, Sears sought registration to enhance its organizational process compliance. The company wanted a consistent process for improving customer satisfaction and enhancing service capabilities. ISO 9001 imple- mentation played a large role in assisting with process standardization across the company. ISO 9001 is often associated with the manufacturing industry, and one major hurdle Sears had to overcome was communicating the value of a QMS within a retail and service environment.

Using, ISO 9001 as a basis for continual improvements, Sears has made dramatic

improvements in calibrating the tools used for repairs and service calls. Although the company had calibrated some of its tools prior to imple- menting ISO 9001, the standard requires 100- percent tool calibration for safety purposes. Another significant benefit of ISO 9001 involves the company’s handling of refrigerant. Sears works with Freon and other hazardous materials, which could pose a serious environmental violation if not handled properly. As part of its ISO 9001 efforts, Sears improved its existing hazardous materials program by implementing a comprehensive pro- gram on refrigerant handling. The standard also helped Sears’ efficiency in completing repairs. For instance, in the Chattanooga, Tennessee, carry-in facility, the average daily completion rate for repairing lawn mowers or other items doubled from four or five to eight or nine per repairpersons as a result of ISO 9001 implementation. Sears’ district office in Houston has improved its techni- cian recall rate because of the QMS. The recall rate is the percentage of times service technicians must return to customers’ homes for a second time within 30 days. Before the SST, the recall rate in Houston was about 12 percent. In 2004, Houston service technicians made more than a quarter of a million service calls, with a 9.3 percent recall rate. In 2005, the rate dropped to 7.9 percent.

Chapter 2: Frameworks for Quality and Performance Excellence 89

SIX SIGMA

Six Sigma can be best described as a business improvement approach that seeks to find and eliminate causes of defects and errors in manufacturing and service pro- cesses by focusing on outputs that are critical to customers and a clear financial return for the organization. Six Sigma has garnered a significant amount of credi- bility over the last decade because of its acceptance at such major firms as Allied Signal (now part of Honeywell) and General Electric (GE); however, it is not as new a concept as it seems. This concept is facilitated through use of basic and advanced quality improvement and control tools by teams whose members are trained to provide fact-based decision-making information.

The origin of the term Six Sigma came from a statistical measure that equates to 3.4 or fewer errors or defects per million opportunities. Six Sigma relates to the broader philosophy and improvement approach. An ultimate “stretch” goal of all organizations that adopt a Six Sigma philosophy is to have all critical processes, regardless of functional area, at a Six Sigma level of capability.

EVOLUTION OF SIX SIGMA

Motorola pioneered the concept of Six Sigma as an approach to measuring product and service quality. The late Bill Smith, a reliability engineer at Motorola, is cred- ited with originating the concept during the mid-1980s and selling it to Motorola’s CEO, Robert Galvin. Smith noted that system failure rates were substantially higher than predicted by final product test, and suggested several causes, including higher system complexity that resulted in more opportunities for failure, and a fun- damental flaw in traditional quality thinking. He concluded that a much higher level of internal quality was required and convinced Galvin of its importance. As a result, Motorola set the following goals in 1987:

Improve product and services quality ten times by 1989 and at least one hundred fold by 1991. Achieve Six-Sigma capability by 1992. With a deep sense of urgency, spread dedication to quality to every facet of the corporation, and achieve a culture of contin- ual improvement to assure total customer satisfaction. There is only one ultimate goal: zero defects—in everything we do.42

The core philosophy of Six Sigma is based on some key concepts:43

1. Think in terms of key business processes and customer requirements with a clear focus on overall strategic objectives.

2. Focus on corporate sponsors responsible for championing projects, support team activities, help to overcome resistance to change, and obtain resources.

3. Emphasize such quantifiable measures as defects per million opportunities (dpmo) that can be applied to all parts of an organization: manufacturing, engineering, administrative, software, and so on.

4. Ensure that appropriate metrics are identified early in the process and that they focus on business results, thereby providing incentives and accountability.

5. Provide extensive training followed by project team deployment to improve profitability, reduce non–value-added activities, and achieve cycle time reduction.

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6. Create highly qualified process improvement experts (“green belts,” “black belts,” and master black belts”) who can apply improvement tools and lead teams.

7. Set stretch objectives for improvement.

The recognized benchmark for Six Sigma implementation is GE. The efforts by GE in particular, driven by former CEO Jack Welch, brought significant media attention to the concept and made Six Sigma a popular approach to quality improvement. In the mid-1990s, quality emerged as a concern of many employees at GE. Jack Welch invited Larry Bossidy, then CEO of Allied Signal, who had phe- nomenal success with Six Sigma, to talk about it at a Corporate Executive Council meeting. The meeting caught the attention of GE managers and, as Welch stated, “I went nuts about Six Sigma and launched it,” calling it the most ambitious task the company had ever taken on.44 To ensure success, GE changed its incentive com- pensation plan so that 60 percent of the bonus was based on financials and 40 per- cent on Six Sigma, and provided stock option grants to employees in Six Sigma training. In their first year, they trained 30,000 employees at a cost of $200 million and got back about $150 million in savings. From 1996 to 1997, GE increased the number of Six Sigma projects from 3,000 to 6,000 and achieved $320 million in productivity gains and profits. By 1998, the company had generated $750 million in Six Sigma savings over and above their investment, and would receive $1.5 bil- lion in savings the next year.

GE had many early success stories. GE Capital, for example, fielded about 300,000 calls each year from mortgage customers who had to use voicemail or call back 24 percent of the time because employees were busy or unavailable. A Six Sigma team analyzed one branch that had a near-perfect percentage of answered calls and applied their learning of their best practices to the other 41 branches, resulting in a 99.9 percent chance of customers’ getting a representative on the first try. A team at GE Plastics improved the quality of a product used in CD-ROMs and audio CDs from a 3.8 sigma level to a 5.7 level and captured a significant amount of new business from Sony.45 GE credits Six Sigma with a 10-fold increase in the life of CT scanner X-ray tubes, a 400 percent improvement in return on investment in its industrial diamond business, a 62 percent reduction in turnaround time at railcar repair shops, and $400 million in savings in its plastics business.46

One of the key learnings GE discovered was that Six Sigma is not only for engineers. Welch observed the following:47

• Plant managers can use Six Sigma to reduce waste, improve product consis- tency, solve equipment problems, or create capacity.

• Human resource managers need it to reduce the cycle time for hiring employees. • Regional sales managers can use it to improve forecast reliability, pricing

strategies, or pricing variation. • For that matter, plumbers, car mechanics, and gardeners can use it to better

understand their customers’ needs and tailor their service offerings to meet customers’ wants.

After many years of implementation, Six Sigma has become a vital part of GE’s company culture. In fact, as GE continues to acquire new companies, integrating Six Sigma into different business cultures is a significant challenge. Six Sigma is a priority in acquisitions and addressed early in the acquisition process.

Chapter 2: Frameworks for Quality and Performance Excellence 91

Many other organizations such as Texas Instruments, Allied Signal (which merged with Honeywell), Boeing, 3M, Home Depot, Caterpillar, IBM, Xerox, Citibank, Raytheon, and the U.S. Air Force Air Combat Command have developed quality improvement approaches designed around the Six Sigma concept and also report significant results. Between 1995 and the first quarter of 1997, Allied Signal reported cost savings exceeding $800 million from its Six Sigma initiative. Citibank groups reduced internal callbacks by 80 percent, credit processing time by 50 per- cent, and cycle times of processing statements from 28 days to 15 days.48

SIX SIGMA AS A QUALITY FRAMEWORK

Six Sigma provides a blueprint for implementation of a TQ system (see box “Six Sigma Integration at Samsung”). In many ways, Six Sigma is the realization of many fundamental concepts of “total quality management, (TQM)” notably, the integration of human and process elements of improvement.49 Human issues include manage- ment leadership, a sense of urgency, focus on results and customers, team processes, and culture change; process issues include the use of process management techniques, analysis of variation and statistical methods, a disciplined problem-solving approach, and management by fact. However, it is more than simply a repackaging of older quality approaches and traditional concepts of “total quality” (see box: Six Sigma: Reincarnation of TQM?”) Some of the contrasting features include:

• TQ is based largely on worker empowerment and teams; Six Sigma is owned by business leader champions.

• TQ activities generally occur within a function, process, or individual work- place; Six Sigma projects are truly cross-functional.

• TQ training is generally limited to simple improvement tools and concepts; Six Sigma focuses on a more rigorous and advanced set of statistical methods and a structured problem-solving methodology, DMAIC—define, measure, analyze, improve, and control—which will be discussed in detail in Chapter 6.

• TQ is focused on improvement with little financial accountability; Six Sigma requires a verifiable return on investment and focus on the bottom line. In addi- tion, Six Sigma has elevated the importance of statistics and statistical thinking in quality improvement. Six Sigma’s focus on measurable bottom-line results, a dis- ciplined statistical approach to problem solving, rapid project completion, and organizational infrastructure make it a powerful methodology for improvement.

SIX SIGMA: REINCARNATION OF TQM?50

A research team studied the Six Sigma quality management procedures and literature to investi- gate whether Six Sigma is simply a repackaging of traditional TQM methods or whether it provides a new approach to improving quality and organiza- tional excellence. The research team identified

three new practices that are critical for imple- menting Six Sigma: providing a Six Sigma role structure within the organization’s human resource management system, instituting the structured improvement procedure as a formal paradigm of conducting improvement projects,

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SIX SIGMA IN SERVICE ORGANIZATIONS

Because Six Sigma was developed in the manufacturing sector, and most publicity has revolved around companies such as Motorola and GE, many people in the ser- vice sector think that Six Sigma does not apply to their organizations. Nothing can be further from the truth.51 All Six Sigma projects have three key characteristics:

1. a problem to be solved; 2. a process in which the problem exists; and 3. one or more measures that quantify the gap to be closed and can be used to

monitor progress.

These characteristics are present in all business processes; thus, Six Sigma can easily be applied to a wide variety of transactional, administrative, and service areas. In fact, it is generally agreed that 50 percent or more of the total savings opportunity in an organization lies outside of manufacturing. Within the service sector, Six Sigma is often called transactional Six Sigma. However, although Six Sigma applies equally well in service areas, it is true that services have some unique characteristics relative to manufacturing processes. First, the culture is usu- ally less scientific and service employees typically do not think in terms of pro- cesses, measurements, and data. The processes are often invisible, complex, and not well defined or well documented. Also, the work typically requires consider- able human intervention, such as customer interaction, underwriting or approval decisions, or manual report generation. These differences make opportunities diffi- cult to identify, and projects difficult to define. Finally, similar service activities are often done in different ways. If you have three people doing the same job, perhaps in three different locations, it is unlikely that they will do the job in the same way.

Applying Six Sigma to services requires examination of four key measures of the performance:

1. Accuracy, as measured by correct financial figures, completeness of informa- tion, or freedom from data errors

and emphasizing the use of quantitative objective metrics in quality improvement. Using a formal research model and a sample of 226 U.S. manufacturing plants, they concluded that the three Six Sigma practices are distinct from tradi- tional quality management practices, but that they complement the traditional quality management practices in improving performance. The results suggest some important areas that managers need to consider when they implement the Six Sigma practices. Top management support directly affects the implementation of Six Sigma role structure and Six Sigma focus on metrics, which suggests that for successful adoption of Six

Sigma, it is critical that top management accepts the concept of Six Sigma and is willing to allocate resources to adapt the organizational structure, policies, and processes for Six Sigma. Middle managers may complement traditional workforce management practices with the Six Sigma role structure to augment their organization’s ability in developing employees for continuous improve- ment. Finally, it is important to emphasize using the Six Sigma structured improvement procedure and performance metrics to motivate and guide improvement activities in product design and process management with the supply of timely and accurate quality information.

Chapter 2: Frameworks for Quality and Performance Excellence 93

2. Cycle time, which is a measure of how long it takes to do something, such as pay an invoice

3. Cost, that is, the internal cost of process activities (in many cases, cost is largely determined by the accuracy and/or cycle time of the process; the longer it takes, and the more mistakes that have to be fixed, the higher the cost)

4. Customer satisfaction, which is typically the primary measure of success

Fortunately, important similarities can be shown between manufacturing and nonmanufacturing processes. First, both types of processes have “hidden factories,” those places where the defective “product” is sent to be reworked or scrapped (revised, corrected, or discarded in nonmanufacturing terms). Find the hidden fac- tory and you also find opportunities to improve the process. Performing manual account reconciliation in accounting, revising budgets repeatedly until management will accept them, and making repeat sales calls to customers because all the infor- mation requested by the customer was not available are all examples of the hidden factory.

In one application at CNH Capital, Six Sigma tools were applied to decrease asset management cycle time in posting repossessions to a bid list and remarketing website.52 Cycle time was reduced 75 percent, from 40 days to 10 days, resulting in significant ongoing dollar savings. A facility management company had a high level of “days sales outstanding.” Initially, it tried to fix this issue by reducing the term of days in its billing cycle, which, however, upset customers. Using Six Sigma, it found that a large percentage of accounts with high days sales outstand- ing received invoices having numerous errors. After understanding the source of the errors and making process changes, the invoice process improved and days sales outstanding were reduced. At DuPont, a Six Sigma project was applied to improve cycle time for an employee’s application for long-term disability benefits.53 Some examples of financial applications of Six Sigma include the following:54

• Reduce the average and variation of days outstanding of accounts receivable. • Close the books faster. • Improve the accuracy and speed of the audit process. • Reduce variation in cash flow. • Improve the accuracy of journal entries (most businesses have a 3–4 percent

error rate). • Improve accuracy and cycle time of standard financial reports.

Other applications of Six Sigma in service organizations include a large insur- ance company that reduced its defect rate by more than 70 percent, increasing cus- tomer satisfaction dramatically, and saving over $250,000 in the first five months of the project; a financial services company that reconfigured its website to better reflect the questions being asked at its call center, reducing costs and improving the quality of customer service as customers were more easily able to access account information on the Web; and a facility management company that discov- ered that a large percentage of accounts with high days sales outstanding received error-ridden invoices from the company—by preventing these errors, days sales outstanding were reduced.55

94 Part 1: Foundations of Quality and Performance Excellence

COMPARING BALDRIGE, ISO 9000, AND SIX SIGMA

We examined three major frameworks for QMSs: the Baldrige Criteria for Perfor- mance Excellence, ISO 9000, and Six Sigma. Although each of these frameworks are process-focused, data-based, and management-led, each offers a different emphasis in helping organizations improve performance and increase customer sat- isfaction. For example, Baldrige focuses on performance excellence for the entire organization in an overall management framework, identifying and tracking im- portant organizational results; ISO focuses on product and service conformity for guaranteeing equity in the marketplace and concentrates on fixing quality sys- tem problems and product and service nonconformities; and Six Sigma concen- trates on measuring product quality and driving process improvement and cost savings throughout the organization.

Although the 2000 revision of ISO 9000 incorporated many of the Baldrige criteria’s original principles, it still is not a comprehensive business performance framework. Nevertheless, it is an excellent way to begin a quality journey. ISO 9000 provides a set of good basic practices for initiating a quality system, and is an excellent starting point for companies with no formal quality assurance pro- gram. In fact, it provides more detailed guidance on process and product control than Baldrige, and provides systematic approaches to many of the Baldrige criteria requirements in the Process Management category. Thus, for companies in the early stages of developing a quality program, the standards enforce the discipline of control that is necessary before they can seriously pursue continuous improve- ment. The requirements of periodic audits reinforce the stated quality system until it becomes ingrained in the company.

Implementing Six Sigma fulfills in part many of the elements of ISO 9000:2000, including the Quality Management System, Resource Management, Product Real- ization, and Measurement, Analysis, and Improvement sections of the stand- ards.56 For instance, Six Sigma helps to demonstrate management commitment through periodic review of Six Sigma plans and projects, providing champions to sponsor projects, providing training resources, and communicating progress and achievements.

Six Sigma can support a Baldrige-based strategy. For example, Six Sigma enhances the ability of leadership to focus on the critical factors that make a busi- ness successful and select appropriate strategies and action plans. Therefore, Six Sigma can strengthen management practices in Leadership and Strategy. Under- standing customer requirements and linking them to processes and delivery sys- tems is a principal focus of Baldrige. By focusing on critical to quality (CTQ) customer requirements—one of the important concepts in Six Sigma, organiza- tions gain better knowledge about customer requirements, a key component of the Customer category.

Six Sigma methodology is driven by a management-by-fact methodology. This basis can improve an organization’s ability to meet the requirements in the Measurement, Analysis, and Knowledge Management category. The role of peo- ple in championing projects and providing the technical and application-specific knowledge is vital. Six Sigma can improve work systems, training, and the work environment—all critical components of the Workforce category. With Six

Chapter 2: Frameworks for Quality and Performance Excellence 95

Sigma, process management is not a by-product, but it is one of the primary organizational goals. The DMAIC methodology provides a structured approach to Category 6, Operations. Finally, Six Sigma’s focus on results leads organiza- tions to track and monitor appropriate metrics in Category 7 of Baldrige.

Discussion Questions and Experiential Exercises

1. Design a questionnaire or survey instrument to determine the degree to which an organi- zation is “Demingized.” Explain how you developed the questions.

2. Explain the 14 Points in the context of the four categories of Profound Knowledge.

3. Why doesn’t the Deming Chain Reaction ter- minate with “Increased Profits”? Would this contradict the basis of Deming’s philosophy?

4. Provide an example of a system with which you are familiar and define its purpose. Examine the interactions within the system

BUILDING ON QUALITY FRAMEWORKS57

With about 100 employees, Veridian Homes builds single-family and condominium homes each year in Madison, Wisconsin, and the surrounding area. Using best quality practices to increase customer focus and satisfaction, it has improved productiv- ity while reducing impact on the environment by using such frameworks as the National Housing Quality Award (NHQA), the Baldrige Award criteria, builder certification, and Six Sigma. The NHQA program is based on the Baldrige award, and provides applicants expert evaluation and feed- back on their organizations’ quality management practices. Unlike the Baldrige award, however, the NHQA process includes a third-party survey of the applicants’ customers on their satisfaction with their homes and the home-building process. Self- assessments are conducted annually using Bal- drige Express, an employee survey based on the Baldrige criteria. Employees rate the company on each criterion and provide detailed comments on strengths and weaknesses, which are summarized for management. Veridian uses this analysis to drive its annual strategic planning process (SPP).

In 2004, Veridian Homes earned NAHBRC builder certification status for quality and safety management systems. The certification, based on ISO 9000, is third-party audited and includes Veridian’s construction, sales, and customer

relations departments. Since earning certification, the land development, purchasing, estimating, and design departments have been incorporated into the certification. Veridian’s quality initiatives have resulted in several performance improve- ments, including:

• Model homes sold cycle times reduced from 32 to 15 days

• Drafting time on models reduced by more than an hour

• Estimating time on model homes reduced by 32 percent

• Material variance (difference between ordered and required, perhaps due to damage on site) down by 20 percent for lumber, 24 percent for siding and 38 percent for trim

• Paperwork processing reduced by 208 hours per year, with a total estimated savings across Veridian of $200,000 through perfor- mance increases by implementing a produc- tion scheduler software system called Builder MT

• Person hours down by 200 per year through escrow and warranty process improvements

• Defects cut in half by using ten defect reduction teams in cooperation with trade partners

96 Part 1: Foundations of Quality and Performance Excellence

and whether the system is managed for optimization.

5. Describe a process with which you are famil- iar. List some factors that contribute to common cause variation. Cite some exam- ples of special causes of variation in this process.

6. How does the theory of knowledge apply to education? What might this mean for improving the quality of education?

7. Explain the implications of not understand- ing the components of Profound Knowledge as suggested by Peter Scholtes.

8. Extract three or four key themes in Deming’s 14 Points. How might the 14 Points be grouped in a logical fashion?

9. What implications might the 14 Points have for college education? What specific proposals might you suggest as a means of implementing the 14 Points at your school?

10. Discuss the interrelationships among Deming’s 14 Points. How do they support each other? Why must they be viewed as a whole rather than separately?

11. A team of quality professionals has sug- gested a revised version of Deming’s 14 Points “for the 21st century,” as given in Table 2.3. Contrast these with Deming’s version in Table 2.1. What do you think of the revision? Can organizations today use them effectively to improve quality?

12. Summarize Juran’s philosophy. How is it similar to and different from Deming’s?

13. What is Juran’s Quality Trilogy? Is it any different from management approaches in other functional areas of business, such as finance?

14. What implications might Juran’s Quality Tril- ogy have for colleges and universities? Would most faculty and administrators agree that the emphasis has been on quality control rather than planning and improvement?

15. How could you apply Juran’s Quality Trilogy to improve your personal approach to study and learning?

16. Summarize the Crosby philosophy. How does it differ from Deming and Juran?

TABLE 2.3 REVISED VERSION OF DEMING’S 14 POINTS FOR THE TWENTY-FIRST CENTURY

1. Increase value through products and services that delight customers.

2. Connect customer requirements to key process variables.

3. Prevent, where possible; inspect, where necessary; implement process management.

4. Pick the vital few suppliers based on total cost and fit with the organization.

5. Improve processes now; find those that will need it later; sustain gains over time.

6. Build training into jobs so employees can improve their performance.

7. Know employees, listen to them, and give them what they need to excel.

8. Set clear expectations for reasonable standards, and hold all accountable.

9. Build cooperation from the top down by reducing barriers between departments.

10. Connect targets and metrics to customer needs; train employees to understand them.

11. Avoid arbitrary goals; prefer ones in which metrics encourage “right the first time.”

12. Measure employees against their personal best; use metrics they can track.

13. Help leaders model the right behaviors, and support the firm’s goals for training.

14. Align employees with jobs, suppliers with the firm, and the firm with the future.

Source: Michael J. Mazu, Jim Rose, and Robert J. Scanlon, “Whole New World,” Quality Progress, December 2014, 53–57.

Chapter 2: Frameworks for Quality and Performance Excellence 97

17. Which quality philosophy—Deming, Juran, or Crosby—do you personally feel more comfortable with? Why?

18. Summarize the framework of the Baldrige Award. What are its key philosophical underpinnings?

19. Describe the key issues addressed in each of the seven categories of the Criteria for Performance Excellence.

20. Study the questions asked in the Baldrige Cri- teria. Select what you believe are the “top 10” most difficult questions for an organization to answer and justify your reasoning.

21. What might be some “best practices” evident in the Performance Excellence Profile of K&N Management? How do these practices align with the first six categories of the Baldrige Award Criteria for Performance Excellence?

22. Refer to the example of howK&NManagement addressed some of the questions in the Senior Leadership category of the Baldrige Criteria in this chapter. Explain what practices address each of the specific questions: a. How do senior leaders set your organi-

zation’s vision and values? b. How do senior leaders deploy your

organization’s vision and values through your leadership system, to the work- force, to key suppliers and partners, and to customers and other stakeholders, as appropriate?

c. How do senior leaders’ actions reflect a commitment to the organization’s values?

23. As we noted in the chapter, process items in the Baldrige Criteria are assessed on four dimensions: approach, deployment, learning, and integration. The following are opportu- nities for improvement that an examiner team identified in the Leadership Category for a Baldrige applicant. Discuss which of the four dimensions are implied in these comments (some may address more than one dimension). a. The applicant presents limited evidence

of systematic evaluation and refinement

of several key leadership approaches that may support operational excellence and enhance sustainability. These include approaches for innovation, performance leadership, creation of a workforce culture that delivers a consis- tently positive customer experience, and enhancement of leadership skills. Other examples are the Leadership Develop- ment Series, legal and ethical approaches, methods used to create a focus on action, and Legendary Service standards.

b. A systematic process is not evident to create and balance value for the appli- cant’s customers and stakeholders (regulators, shareholders, and the com- munity). For example, the applicant does not describe the activities, people, and steps involved in the Leadership System and in aligning associates to customers through the Performance Management and Development Process.

c. Several key leadership approaches do not appear to be fully deployed. For example, it is unclear how the Mission/ Vision/Values (MVV) are deployed to key suppliers and partners; how devel- opment opportunities are deployed to all workforce members; and whether the MVV, service standard training, and legal and ethical requirements are deployed to support center employees (nearly 20 percent of the workforce).

d. It is not evident that the applicant deploys its approaches to ethical behav- ior to interactions with customers, part- ners, suppliers, and other stakeholders. For example, the applicant describes only one approach focused on non- workforce stakeholders, and no enabling/monitoring processes appear to include them. This gap may be signifi- cant in light of the applicant’s numerous supplier and partner relationships.

24. Look back at Deming’s 14 Points and Sys- tem of Profound Knowledge earlier in this

98 Part 1: Foundations of Quality and Performance Excellence

chapter, and discuss how Deming’s philoso- phy is reflected in the Baldrige Core Values and Concepts.

25. Prepare a list of specific actions that a high- scoring company in the Baldrige Award process might take in each of the seven categories. How difficult do you think it is for a company to score well in all the categories?

26. Create a matrix diagram in which each row is a category of the Baldrige Award criteria and four columns correspond to a level of organizational maturity with respect to quality: • traditional management practices; • growing awareness of the importance of

quality; • development of a solid quality manage-

ment system; and • outstanding, world-class management

practice. In each cell of the matrix, list two to five characteristics that you would expect to see for a company in each of the four situations above for that criteria category. How might this matrix be used as a self-assessment tool to provide directions for improvement?

27. Interview a quality professional at a local company about their quality management system. Consider questions such as: Do they have a quality manual? Is their QMS inte- grated with other enterprise business systems?

28. Examine the following requirements from ISO 9000. Which directly help control or improve quality, and which do not? For those that do not, why do you think that they are part of the standard? a. “The organization shall determine

requirements specified by the customer.” b. “Records from management reviews

shall be maintained.” c. “… documentation shall include …

documents needed … to ensure the effective planning, operation and control of its processes …”

d. “… shall determine the monitoring and measurement to be undertaken … to provide evidence of conformity of prod- uct to determined requirements.”

e. “The quality management system … shall include a quality manual.”

f. “… establish and implement the inspec- tion or other activities necessary for ensuring that purchased product meets specified requirements.”

29. Search the Web for detailed information about ISO 9000 requirements. Although the language of the standard appears to be primarily for manufacturing, try to rewrite some of the requirements in language that would provide a framework for a typical public school system to use the standard.

30. Interview some managers at a local company that is pursuing or has pursued ISO 9000 registration. Report on the reasons for achieving registration, the perceived benefits, and the problems the company encountered during the process.

31. Describe the evolution of Six Sigma. What impact has it had on General Electric? What differences must be addressed in applying Six Sigma in service organizations?

32. What are the similarities and differences among Six Sigma, ISO 9000, and the Baldrige approaches?

33. What philosophical changes might be required to implement a Six Sigma process in a hospital, government agency, or not- for-profit organization? Are they likely to be easy or difficult?

34. How might the principles of Six Sigma be used to improve a quality process in a school or university? What elements of the Six Sigma philosophy might be difficult to obtain support for in the educational environment? Why?

35. Find a company that has implemented a Six Sigma process. What changes have they made in the organization in order to develop their Six Sigma approach?

Chapter 2: Frameworks for Quality and Performance Excellence 99

CASES

The Technical Support Clerk

Melissa Claire works as a technical support representa- tive at a call center for a major computer manufacturer. Her duties include answering the telephone, answering technical questions, troubleshooting customer problems, and providing other general information and guidance to customers. Her supervisor told her to be courteous and not to rush callers. However, the supervisor also told her that she must process at least five calls per hour because of the volume of calls that typically comes in and the limited staff available. Melissa comes home each day frustrated because she cannot always find the informa- tion that she needs in the database, and she becomes stressed whenever she is told to “speed it up.”

Discussion Questions 1. What is Melissa’s job as opposed to her job

description? What might Deming say about this situation?

2. Drawing upon Deming’s principles, outline a plan to improve this situation.

Nashville Custom Guitars Revisited

Read the Nashville Custom Guitars Case in Chapter 1. Explain how Deming’s 14 Points are reflected in its management practices and procedures.

Power Products, Inc.58

A division of Power Products, Inc., purchased all parts, hardware and some subassemblies from outside suppliers. The final product, however, was assembled at several rural facilities in the United States. When assembly problems arose with fit-up, size, finish, or cleanliness of parts, assigning responsibility was often difficult because parts were multisourced and mixed when inventoried. Even with a robust incoming inspection program, nonconforming parts crept into the supply chain. Subsequently, compromises were made to accommodate the continual need for finished units. Despite difficulties, production continued because of ongoing pressure to ship orders.

Corrective action usually involved problem solving at the supplier’s production site. The effort entailed inspecting parts and providing assistance that would improve the supplier’s processes and capabilities. There was, however, no guarantee a supplier would

remain the vendor of choice over an extended period despite the hours of collaborative effort. The same parts would routinely appear on the corrective action report because purchasing had selected a new supplier, forcing assembly functions to adjust and resolve what appeared to be a recurring issue. Problem solving became a repeat exercise at off-site locations with new sets of players.

Purchasing was tasked with reducing costs. The department manager received a semiannual bonus based on documented savings. Purchasing agents were reviewed and promoted based on their ability to reduce supplier costs. There was little concern for the reliability of purchased items. In fact, the quality department and manufacturing engineering were ridic- uled by purchasing as overzealous nitpickers who should focus on the poor performance of assembly workers.

The operations director often overrode decisions that favored efforts toward process and supplier con- sistency. His goals were production at the lowest cost and keeping operations running regardless of condi- tions. He viewed attempts at problem solving as expensive, nonessential activities, and he cited contin- ual assembly problems as failures by the quality department and manufacturing engineering. He believed the issue was not assuring inputs, but getting the process to work in spite of irregularities. After all, the current method for managing suppliers was saving money.

Discussion Questions 1. Which of Deming’s 14 Points are violated at

Power Products? 2. How can Deming’s Profound Knowledge philos-

ophy explain the issues that Power Products has experienced and provide a framework for improving the situation?

TecSmart Electronics

TecSmart Electronics designs, manufactures, and repairs electronic power supplies for a variety of orig- inal equipment manufacturers in the computer, medi- cal, and office products fields. The company’s focus is summed up in three simple words: quality, service, and value. The top management team started its qual- ity journey in the mid-1980s, basing it on Deming’s 14

100 Part 1: Foundations of Quality and Performance Excellence

Points. They established a Deming Steering Committee to guide the process and champion each of the 14 Points, and trained most of the employees by sending them to Deming seminars. Although the Deming phi- losophy provided the foundation to carry the com- pany into the twenty-first century, the current CEO decided to pursue a Baldrige focus and began a pro- cess of self-assessment against the criteria to identify opportunities for improvement.

As a first preparatory step, the executive team spent a day off-site to think about its management practices and create an initial list of its strengths, which are summarized here.

• Senior leaders set company objectives and guide cross-functional teams to review and develop individual plans for presentation to employees. Each department manager develops a supporting objective for each company objective, and nearly every employee works on a team to support these objectives.

• Senior leaders participate in quarterly communi- cation meetings with all employees to discuss company issues and answer questions. All employees receive full financial information from their managers each month.

• Senior leaders teach courses in TecSmart Univer- sity on change management, customer service, quality, and leadership; meet with customers, suppliers, and benchmarking partners; and are actively engaged in professional and community organizations.

• The company collects operational data in every department and evaluates its information requirements in monthly senior staff meetings and cross-functional task team meetings.

• TecSmart sets Six Sigma goals for most of its processes and converted process measurements to parts per million on all product lines.

• All employees are trained in a five-step problem- solving process based on defining problems, collecting data, analyzing the cause of the prob- lem, developing a solution, and implementing change.

• Inputs to the strategic planning process include customer feedback, market research, and bench- marking information from customers, suppliers, competitors, and industry leaders. Team analyses are evaluated at an off-site planning meeting by all managers, resulting in long-range strategic planning documents, which are discussed with the

rest of the workforce as well as major suppliers for feasibility. Once agreed upon, department teams develop detailed action plans with mea- surable goals. The CEO reviews progress every month.

• TecSmart uses more than a dozen different pro- cesses to gather customer information, and vali- dates the information by consolidation and cross- referencing.

• All employees receive customer relationship training. Customer service employees help define service standards, which are tracked on a routine basis.

• All complaints are handled by the vice presi- dent of sales and resolved within two days. The vice president is responsible for ensuring that any process that generated a complaint is improved.

• Customer satisfaction data is acquired from sales representatives, executive phone calls and visits, and satisfaction surveys. These data are reviewed and compared by the executive team during the strategic planning process.

• TecSmart uses self-managed work groups in which employees make most day-to-day decisions while managers focus on coaching and process improvement. Hourly workers can make process changes with the agreement of only one other person, and salespeople are authorized to travel whenever they feel it necessary for customer service.

• The average employee receives 72 hours of inter- nal quality/service-related training, and quality training is mandatory for all salespeople, engi- neers, office staff, and managers.

• Employees are surveyed each year to gauge how effectively the company implemented Deming’s 14 Points, rating each on a scale of 1 to 10.

• Cross-functional teams guide product develop- ment, which includes four interim reviews by executive management. Meetings are held with customers to identify needs and requirements and to review progress at the end of each phase of the development process.

• New product introduction teams work with design engineers and customers to ensure that design requirements are met during manufactur- ing and testing. All processes are formally docu- mented, using statistical process control to monitor variation and provide a basis for

Chapter 2: Frameworks for Quality and Performance Excellence 101

Endnotes

1. Baldrige National Quality Program Award- Recipient Profile, National Institute of Standards and Technology, U.S. Department of Commerce.

3. John Hillkirk, “World-Famous Quality Expert Dead at 93,” USA Today, December 21, 1993.

4. W. Edwards Deming, The New Economics for Industry, Government, Education, Cambridge, MA: MIT Center for Advanced Engineering Study, 1993.

5. Victor B. Wayhan, Basheer M. Khumawala, and Erica L. Balderson, “An Empirical Test of

Deming’s Chain Reaction, Total Quality Manage- ment 21: 7–8, July-August 2010, 761–777.

6. April 17, 1979; cited in L. P. Sullivan, “Reducing Variability: A New Approach to Quality,” Quality Progress, Vol. 17, No. 7, July 1984, pp. 15–21.

7. Clarence Irving Lewis, Mind and the World, Mineola, NY: Dover, 1929.

8. Peter R. Scholtes, “Communities as Systems,” Quality Progress, July 1997, pp. 49–53. Reprinted with permission from the Estate of Peter R. Scholtes. See also Peter R. Scholtes, The Leaders Handbook, which draws upon Deming’s principles to provide a comprehensive approach to enhance leadership and quality improvement.

9. Reprinted from Out of the Crisis by W. Edwards Deming. Published by MIT, Center for Advanced

corrective action. Statistical methods are used to optimize processes.

• Quality is assessed through internal audits, employee opinion surveys, and customer feedback.

• Suppliers are involved in early stages of a product development program. Quality requirements for suppliers have been identified, and certified sup- pliers’ materials are exempt from incoming inspection.

Discussion Questions 1. Discuss how the practices that TecSmart identi-

fied support Deming’s 14 Points. 2. How do these practices support the Baldrige cri-

teria? Specifically, identify which of the questions in the criteria each of these practices address.

3. What are some of the obvious opportunities for improvement relative to the Baldrige criteria? What actions would you recommend that Tec- Smart do to improve its pursuit of performance excellence using the Baldrige criteria?

Can Six Sigma Work in Health Care?

Colin David is the CEO of a Southwest Louisiana Regional Medical Center (SLRMC), a small nonprofit hospital with 150 beds and 825 employees, offering a wide range of outpatient and inpatient services. Colin had just returned from a health care conference during which one of the keynote speakers—from the financial

services industry—discussed the philosophy and bene- fits of Six Sigma and urged health care organizations to consider moving toward a Six Sigma framework. Colin was quite excited. However, he knew that changing the culture in a hospital was indeed difficult. He felt that if he could accomplish that, SLRMC could truly become a nationally recognized leader in the industry. In discussing the concept, the executive man- agement team was also excited at the possibilities. They identified four key areas where they thought that Six Sigma could lead to significant benefits: patient services, quality assessment, financial manage- ment, and human resources. As time was running short for the meeting, the team concluded with one major action item: the directors in charge of each of these four areas were to develop a set of strategic Six Sigma projects that would form the basis for the ini- tiative. However, after the meeting broke up, Colin realized that in their initial euphoria over the potential of Six Sigma, they had not thought of how to intro- duce it to the hospital staff and physicians, or how to manage the initiative. Colin decided that it would be best to call in a consultant to help. Because you were highly recommended, you have a meeting scheduled with Colin in one week.

Discussion Question 1. What would be your agenda for this meeting?

What questions would you need answered before proposing a Six Sigma implementation plan? How would you design an infrastructure to sup- port Six Sigma at SLRMC?

102 Part 1: Foundations of Quality and Performance Excellence

10. Matthew W. Ford and James R. Evans, “Managing Organizational Self-Assessment: Follow-Up and Its Influence Factors,” working paper, Department of Management & Marketing, Northern Kentucky University, 2003.

11. Adapted from March Laree Jacques, “Big League Quality,” Quality Progress, August 2001, pp. 27–34.

12. Philip B. Crosby, Quality Is Free, New York: McGraw-Hill, 1979, pp. 200–201.

13. 2010 K&N Management Award Application Summary.

14. Harry Hertz, “Distinguishing ‘Role Model’ from ‘Really Good.’” Insights on the Road to Perfor- mance Excellence, November/December 2011, http://www.nist.gov/baldrige/insights.cfm.

15. Albert N. Link and John T. Scott, Economic Eval- uation of the Baldrige Performance Excellence Program, Planning Report 11-2, National Institute of Standards and Technology, U.S. Department of Commerce, December 16, 2011.

16. “Jersey Score” by Brett Krzykowski, Quality Progress, Sept. 2010, pp. 29–33. Reprinted with permission from Quality Progress © 2010 Ameri- can Society for Quality. No further distribution allowed without permission.

17. Paul M. Bobrowski and John H. Bantham, “State Quality Initiatives: Mini-Baldrige to Baldrige Plus,” National Productivity Review, Vol. 13, No. 3, Summer 1994, pp. 423–438.

18. Letter from W. Edwards Deming, Harvard Busi- ness Review, January–February 1992, p. 169.

19. JUSE, The Deming Prize Guide for Oversea Com- panies, TOKYO, 1992, p. 5.

20. Brad Stratton, “A Beacon for the World,” Quality Progress, May 1990, pp. 60–65; Al Henderson and Target Staff, “For Florida Power and Light After the Deming Prize: The Music Builds … and Builds … and Builds,” Target, Summer 1990, pp. 10–21.

21. B. Nakkai and J. Neves, “The Deming, Baldrige, and European Quality Awards,” Quality Progress, April 1994, pp. 24–29.

22. Jens J. Dahlgaarda, Chi-Kuang Chen, Jiun-Yi Jang, Leonardo A. Banegas, and Su Mi Dahlgaard-Park, “Business Excellence Models: Limitations, Reflec- tions and Further Development,” Total Quality Management, 24, No. 5, 2013, 519–538.

23. “China Issues New Quality Standard,” Quality Digest, December 2004, http://www.qualitydigest.

com/dec04/news.shtml#3, accessed 4/08/06. See also Jack Pompeo “Living Inside China’s Quality Revolution” Quality Progress, August 2007, 30–35

24. Barbara B. Flynn and Brooke Saladin, “Relevance of Baldrige Constructs in an International Context: A Study of National Culture,” Journal of Opera- tions Management 24, No. 5, September 2006, pp. 583–603.

25. Thomas J. Kull and John G. Wacker, “Quality management effectiveness in Asia: The influence of culture,” Journal of Operations Management 28 (2010) 223–239.

26. ASQ Global State of Quality Research Discoveries 2013. www.globalstateofquality.com.

27. Nicole Radziwill, Diane Olson, Andrew Vollmar, Ted Lippert, Ted Mattis, Kevin Van Dewark, and John W. Sinn, “Starting from Scratch, Roadmap and toolkit: recipe for a new quality system.” http://asq.org/quality-progress/2008/09/basic- quality/starting-from-scratch.html]

28. Noted by Paulo Sampio, University of Minho, Portugal, in The ASQ Global State of Quality Research Discoveries, 2013.

29. Tom Taormina, “Conducting Successful Internal Audits,” Quality Digest, June 1998, 44–47.

30. International Organization for Standardization, “ISO 9000 essentials,” http://www.iso.org/iso/ iso_catalogue/management_and_leadership_ standards/quality_management/iso_9000_ essentials.htm.

31. Michael J. Timbers, “ISO 9000 and Europe’s Attempts to Mandate Quality,” Journal of European Business, March/April 1992, pp. 14–25.

32. http://www.bsi.org.uk/iso-tc176-sc2/. “Transition Planning Guidance for ISO/DIS 9001:2000,” ISO/ TC 176/SC 2/N 474, December 1999.

33. ANSI/ISO/ASQ Q9001-2008. 34. For example, C. A. Cianfrani, J. J. Tsiakals, and

J. E. West, ISO 9001:2008 Explained, 3rd ed., ASQ Quality Press: Milwaukee, WI, 2009.

35. Implementation guidelines are suggested by the case study by Steven E. Webster, “ISO 9000 Cer- tification, A Success Story at Nu Visions Manufacturing,” IIE Solutions, April 1997, pp. 18–21.

36. AT&T Corporate Quality Office, Using ISO 9000 to Improve Business Processes, July 1994.

37. Jack Dearing, “ISO 9001: Could It Be Better?” Quality Progress, February 2007, 23–27.

Chapter 2: Frameworks for Quality and Performance Excellence 103

38. “ISO 9000 Update,” Fortune, September 30, 1996, p. 134[J].

39. “Home Builder Constructs Quality with ISO 9000,” Quality Digest, February 2000, p. 13.

40. Charles J. Corbett, María J. Montes-Sancho, David A. Kirsch, “The Financial Impact of ISO 9000 Certification in the United States: An Empirical Analysis,” Management Science, Vol. 51, No. 7, July 2005, pp. 1046–1059.

41. Pam Parry, “Sears Delivers a Better QMS,” Quality Digest, January 10, 2007.

42. “Origin of Six Sigma: Designing for Performance Excellence,” Quality Digest, May 2000, 30; and Mikel Harry and Richard Schroeder, Six Sigma, New York: Currency, 2000, 9–11.

43. A composite of ideas suggested by Stanley A. Marash, “Six Sigma: Business Results Through Innovation,” ASQ’s 54th Annual Quality Congress Proceedings, 2000, 627–630; and Dick Smith and Jerry Blakeslee, Strategic Six Sigma: Best Practices from the Executive Suite, New York: Wiley, 2002.

44. Jack Welch, Jack: Straight from the Gut, New York: Warner Books, 2001, 329–330.

45. Welch, Jack, 333–334. 46. “GE Reports Record Earnings with Six Sigma,”

Quality Digest, December 1999, 14. 47. Welch, Jack, 329–330. 48. Rochelle Rucker, “Six Sigma at Citibank,” Quality

Digest, December 1999, 28–32. 49. Ronald D. Snee, “Guest Editorial: Impact of Six

Sigma on Quality Engineering,” Quality Engineer- ing, 12, No. 3, 2000, ix–xivxiv.

50. Xingxing Zu, Lawrence D. Fredendall, and Thomas J. Douglas, “The evolving theory of qual- ity management: the role of Six Sigma,” Journal of Operations Management, 26, 2008, pp. 630–650. See also Roger G. Schroeder, Kevin Linderman,

Charles Liedtke, and Adrian S. Choo, “Six Sigma: Definition and underlying theory,” Journal of Operations Management, 26, 2008, pp. 536–554 for a comprehensive evaluation of the differences between Six Sigma and traditional quality man- agement approaches.

51. This discussion of the adaptability of Six Sigma to services is adapted from Soren Bisgaard, Roger W. Hoerl, and Ronald D. Snee, “Improving Business Processes With Six Sigma,” Proceedings of ASQ’s 56th Annual Quality Congress, 2002 (CD-ROM), and Kennedy Smith, “Six Sigma for the Service Sector,” Quality Digest, May 2003, 23–28.

52. Elizabeth Keim, LouAnn Fox, and Julie S. Mazza, “Service Quality Six Sigma Case Studies,” Proceedings of the 54th Annual Quality Congress of the American Society for Quality, 2000 (CD- ROM).

53. Lisa Palser, “Cycle Time Improvement for a Human Resources Process,” ASQ’s 54th Annual Quality Congress Proceedings, 2000 (CD-ROM).

54. Roger Hoerl, “An Inside Look at Six Sigma at GE,” Six Sigma Forum Magazine 1, No. 3, May 2002, 35–44.

55. Kennedy Smith, “Six Sigma for the Service Sector,” Quality Digest, May 2003, 23–27.

56. Ronald D. Snee and Roger W. Hoerl, Leading Six Sigma, Upper Saddle River, NJ: Prentice Hall, 2002.

57. “Building Quality at Veridian Homes” by Denis Leonard, Quality Progress, Oct. 2006, pp. 49–54. Reprinted with permission from Quality Progress © 2010 American Society for Quality. No further distribution allowed without permission.

58. Adapted from John R. Schultz, “The System Is the Solution,” Quality Progress, November 2014, 39–43.

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3TOOLS AND TECHNIQUES FORQUALITY DESIGN AND CONTROL Performance Excellence Profile: Texas Nameplate Company, Inc.1

The smallest business ever to receive a Baldrige Award, Texas Nameplate Company, Inc. (TNC), is also the first small business to receive the Baldrige Award twice, first in 1998 and again in 2004. Located in Dallas, Texas, TNC is a privately held, family business that produces custom nameplates in small and frequent orders primarily for small businesses nationwide and abroad. These identification tags and labels display important equipment usage and safety information for products ranging from high-pressure valves and oil field equipment to computers.

Relationships with customers are key to TNC’s success. The company uses a variety of formal and informal approaches to build and maintain relationships, including a guarantee to deliver material on time and free of defects—or to supply them free of charge. A variety of communication and customer access mechanisms helps these relationships grow and thrive. They include face-to- face contact with employees at all levels, a database of customer interactions, and a voicemail system that ties into the company’s e-mail system to track customer requests and concerns. Complaints are aggregated in a database and resolved by a Corrective Action Team.

TNC’s senior leaders, a group that includes nearly half the staff, are engaged in all aspects of TNC’s strategy development and deployment approaches. All employees participate in monthly meetings and all managers and supervisors in weekly or biweekly meetings to review organizational performance, share ideas, and identify opportunities for improvement. Semiannually, senior leaders conduct Management Reviews. TNC has been recertified under ISO (International Organization for Standardization) 9001:2000 for its Quality Management System.

Effective use of innovative, systematic processes and new technology is helping TNC achieve its goal to be “better, not bigger.” The company developed an intranet, called The New Hotrod™, which tracks workflow and displays real-time production information throughout the plant. Two

105

other intranet programs—Real-Time Dashboard™ and Pipeline Dashboard™—collect and organize the production data. The New Hotrod™ provides Web pages that display information and enable employees to monitor production and search an extensive database of production and customer information.

More than 80 percent of TNC’s workforce has been cross-trained to perform multiple tasks across departments. Employees regularly check real-time information on workflow tracked through the intranet and displayed on a centrally controlled Smart TV. They respond to changes in workflow by promptly rotating to areas that need assistance. The New Hotrod™ also provides a forum for employee discussions and suggestions. Employees are encouraged to develop and maintain personal Web pages, an activity that expands their computer skills and earns them recognition. Technology and training have led to dramatic improvements in production. Between 1998 and 2004, the incidence of product nonconformity with specifications, as a percentage of sales, dropped from 1.4 percent to about 0.5 percent, significantly lower than the Industry Week median (2 percent). In that same period, TNC reduced its quote response time from six hours to less than two hours, and it trimmed the length of its production cycle from 14 days to under 8 days.

TNC improved its fiscal processes as well. Better management of aged receivables has reduced the percentage of unpaid accounts (90 days or older) from 7 percent in 2002 to less than 4 percent in 2004. And, to better guide its product pricing policy, the company developed its Simon™ Pricing System, which enables the sales staff to adjust pricing based on both an individual customer’s needs and the pricing policies of TNC’s competitors. Everyone in the company is valued, trusted, and counted on for the success of the organization. Continuous, open, two-way communication between senior leaders and employees at all levels has created an environment in which employees are highly motivated and empowered.

Organizations like TNC cannot succeed in producing high-quality goods and ser- vices without effectively designing, controlling, and improving all of its organiza- tional processes. Joseph Juran characterized quality management using the “Quality Trilogy”: planning, control, and improvement. Planning involves the design of the goods and services that customers want, as well as the processes that create and deliver them. Control is focused on maintaining target levels of perfor- mance. Improvement is simply making goods, services, and processes better. He observed that most managers devote too much attention to control and too little to planning and improvement—which may be the most important activities for meeting and exceeding customer expectations and gaining competitive advantage.

Process management involves design, control, and improvement—the key activ- ities necessary to achieve a high level of performance in key value creation and sup- port processes, identifying opportunities for improving quality and operational performance, and, ultimately, customer satisfaction. Good process management helps to prevent defects and errors and eliminate waste and redundancy and

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thereby leads to better quality and improved company performance through shorter cycle times, improved flexibility, and faster customer response. AT&T, for example, bases its process management philosophy on the following principles:

• Process quality improvement focuses on the end-to-end process. • The mind-set of quality is one of prevention and continuous improvement. • Everyone manages a process at some level and is simultaneously a customer

and a supplier. • Customer needs drive process quality improvement. • Corrective action focuses on removing the root cause of the problem rather

than on treating its symptoms. • Process simplification reduces opportunities for errors and rework. • Process quality improvement results from a disciplined and structured applica-

tion of the quality management principles.2

Formal research studies provide evidence of the impact of process management on quality and the bottom line (see box “Process Management Drives Performance”).

Tools and techniques provide the means for objectively evaluating process performance activities and effectively designing, controlling, and improving them. Quality practitioners have adapted a variety of tools and techniques from other disciplines, such as statistics, operations research, and creative problem solving, to help design, improve, and control processes. These tools provide a means by which problems and issues can be viewed objectively, data can be used as a basis for fact-driven decisions, and managers can deal with variation in a logical fashion. This chapter, along with the next chapter, provides an over- view of the essential tools and techniques used to support process management activities. (The bibliography at the end of this book provides supplementary reading on these and others.) In this chapter, we focus on process design and control; Chapter 4 is devoted to process improvement.

PROCESS MANAGEMENT DRIVES PERFORMANCE3

Through a study of quality practices in 418 manufacturing plants from multiple industries, researchers demonstrated that both design and process management efforts have an equal positive impact on internal quality outcomes such as scrap, rework, defects, and performance, and external quality outcomes such as complaints, warranty, litigation, and market share. One interesting result was that although design efforts influence customer-based quality perceptions through visible product changes, they influence these external quality outcomes

primarily through their contribution to efficient production of high performance quality products; that is, internal quality. However, firms need not always strive for visible breakthrough improvements in product features. These efforts need to be balanced with on-going efficiency and production cost improvement. These findings indicate that, to attain superior quality outcomes, firms need to balance their design and process management efforts and persevere with long-term implementation of these efforts.

Chapter 3: Tools and Techniques for Quality Design and Control 107

The objectives of this chapter are to:

• describe approaches to designing products and services to achieve better customer satisfaction;

• illustrate the application of some tools used for process design and control; and

• describe principles of statistical thinking as a basis for effective management.

DESIGNING QUALITY GOODS AND SERVICES

Despite remarkable advances in manufacturing and service technology, businesses and consumers are still plagued by product failures or service upsets. Consumers don’t receive the quality they expect. Thousands of people die from medical errors each year. Software applications that control most modern products are prone to failure.4 Most of these problems result fundamentally from poor design or inade- quate design processes.

Companies today face incredible pressures to continually improve the quality of their products while simultaneously reducing costs to meet ever-increasing legal and environmental requirements and to shorten product life cycles to meet chang- ing consumer needs and remain competitive. The ability to achieve these goals depends on a large extent on product design (by which we also imply redesign). Better designs not only reduce costs but also improve quality. For example, simpler designs have fewer components, which mean fewer points of failure and less chance of assembly error.5 Although we tend to equate product design with manufactured goods, it is important to realize that design processes apply to services as well. For example, in the late 1980s, Citibank designed a new mortgage approval procedure that reduced turnaround times from 45 days to less than 15; FedEx has consis- tently developed new variations of its package delivery services.6

Customers’ needs and expectations drive the planning process for goods and services. Marketing plays a key role in identifying customer expectations. Once they are identified, managers must translate them into specific product and service specifications that manufacturing and service delivery processes must meet. In some cases, the product or service that customers receive is quite different from what they expect. It is management’s responsibility to minimize such gaps. Organi- zations can use several tools and approaches to help them focus on their external and internal customers.

Most companies have some type of structured product design and development process. Design for Six Sigma (DFSS) comprises a set of tools and methodologies used in the product development process for ensuring that goods and services will meet customer needs and achieve performance objectives and that the processes used to make and deliver them achieve extremely high levels of quality. DFSS con- sists of four principal activities:7

1. Concept development, in which product functionality is determined based upon customer requirements, technological capabilities, and economic realities.

2. Design development, which focuses on product and process performance issues necessary to fulfill the product and service requirements in manufacturing or delivery.

108 Part 1: Foundations of Quality and Performance Excellence

3. Design optimization, which seeks to minimize the impact of variation in pro- duction and use, creating a “robust” design.

4. Design verification, which ensures that the capability of the production system meets the appropriate level of performance.

These activities are often incorporated into a process known as DMADV, which stands for Define, Measure, Analyze, Design, and Verify. Define focuses on identi- fying and understanding the market need or opportunity. Measure gathers the voice of the customer, identifies the vital characteristics that are most important to customers, and outlines the functional requirements of the product that will meet customer needs. Analyze is focused on concept development from engineering and aesthetic perspectives. This often includes the creation of drawings, virtual models, or simulations to develop and understand the functional characteristic of the prod- uct. Design focuses on developing detailed specifications, purchasing requirements, and so on, so that the concept can be produced. Finally, Verify involves prototype development, testing, and implementation planning for production. Some organiza- tions customize this approach. Caterpillar, for example, uses a process they call DMEDI (Define, Measure, Explore, Design, Implement):

1. Define Opportunities: Understand the purpose of the process to be developed by goal statements, generation plans, and resource identification.

2. Measure Customer Needs: Understand the outputs required of the new process by examining customer needs and competitive analysis.

3. Explore Design Concepts: Use creative techniques to develop alternative con- cepts and evaluate those ideas by validating customer requirements.

4. Develop Detailed Design: Turn the concept into reality by the use of process and product designs, pilot programs, and testing.

5. Implement Detailed Design: Fully deploy the new process and assess its value against the desired outcome.

Three important approaches used for product design are concept development, innovation, and quality function deployment.

CONCEPT DEVELOPMENT AND INNOVATION

Concept development is the process of applying scientific, engineering, and business knowledge to produce a basic functional design that meets both customer needs and manufacturing or service delivery requirements. Developing new concepts requires creativity and innovation.

Creativity is seeing things in new or novel ways. Innovation involves the adop- tion of an idea, process, technology, product, or business model that is either new or new to its proposed application. The outcome of creative thinking and innova- tion is a discontinuous or breakthrough change and results in new and unique goods and services that delight customers and create competitive advantage. The Small Business Administration classifies innovations into four categories:

1. An entirely new category of product; for example, the iPod. 2. First of its type on the market in a product category already in existence; for

example, the DVD player.

Chapter 3: Tools and Techniques for Quality Design and Control 109

3. A significant improvement in existing technology, such as the Blu-ray player; and 4. A modest improvement to an existing product, such as the latest iPad.

Innovation has been the hallmark of Apple and the late Steve Jobs, whose inspiration was driven by simplicity, ease of use, using computers to do creative work, and making life easier.8 A BusinessWeek poll observed that a large major- ity of senior executives indicated that innovation was one of their top three prior- ities, and that the speed of implementation and ability to coordinate processes required to bring an idea to market were the biggest obstacles to successful innovation.9

Innovation is built upon strong research and development (R&D) processes. Many larger firms have dedicated R&D functions. Government agencies also promote innovation. For example, the National Institute of Standards and Tech- nology (NIST), an agency of the U.S. Department of Commerce, promotes U.S. innovation and industrial competitiveness by advancing measurement science, standards, and technology in ways that enhance economic security and improve our quality of life. NIST laboratories conduct research that advances the nation’s technology infrastructure and is needed by U.S. industry to continually improve products and services; the Hollings Manufacturing Extension Partner- ship, a nationwide network of local centers offers technical and business assis- tance to smaller manufacturers; and the Technology Innovation Program provides cost-shared awards to industry, universities, and consortia for research on potentially revolutionary technologies that address critical national and societal needs.

The first question one must ask during concept development is: What is the product (good or service) intended to do? How customer expectations are trans- lated into physical or operational specifications and production processes for a product or service can mean the difference between a successful product and an outright failure. Other design considerations include a product’s weight, size, appearance, safety, life, serviceability, and maintainability. When decisions about these factors are dominated by engineering considerations rather than by customer requirements, poor designs that fail in the market are often the result. After poten- tial ideas have been identified, they are evaluated using cost/benefit analysis, risk analysis, and other techniques. Finally, the best concept is selected, often using some type of scoring matrix to weight the selection criteria.

INNOVATING THE UBIQUITOUS PIZZA10

In late 2009, Domino’s, the world’s largest pizza delivery chain, announced it was changing every part of its core pizza–new crust, new cheese, and new sauce. “We’ve always been known as the 30-minute delivery guys,” the president of the U.S. business said. “There’s no reason we can’t have the best pizza in the marketplace, too.” For the

new recipe, Domino’s tested dozens of cheeses, 15 sauces and 50 crust-seasoning blends over two years. With the economic crisis and changing demographics and consumer tastes, the change was needed from a competitive standpoint. “We weren’t winning against everyone on taste,” stated Domino’s chief marketing executive.

110 Part 1: Foundations of Quality and Performance Excellence

QUALITY FUNCTION DEPLOYMENT

Quality function deployment (QFD) is a methodology used to ensure that custom- ers’ requirements are met throughout the product design process and in the design and operation of production systems. QFD is both a philosophy and a set of plan- ning and communication tools that focuses on customer requirements in coordinat- ing the design, manufacturing, and marketing of goods. A major benefit of QFD is improved communications and teamwork among all constituencies in the produc- tion process—marketing and design, design and manufacturing, and purchasing and suppliers. QFD allows companies to simulate the effects of new design ideas and concepts. This allows them to bring new products into the market sooner and to gain competitive advantage.

QFD originated in 1972 at Mitsubishi’s Kobe shipyard site. Toyota began to develop the concept shortly thereafter, and it has been used since 1977. The initial results were impressive: Between January 1977 and October 1979, for example, Toyota realized a 20 percent reduction in startup costs on the launch of a new van. By 1982, startup costs had fallen 38 percent from the 1977 baseline, and by 1984, they were reduced by 61 percent. In addition, development time fell by one- third and quality improved.

In the United States, the 1992 Cadillac was planned and designed entirely with QFD. The concept has been publicized and developed in the United States by the American Supplier Institute, Inc., a nonprofit organization, and by GOAL/QPC, a consulting firm in Massachusetts. Today, QFD is successfully used by manufac- turers of electronics, appliances, clothing, and construction equipment, and by firms such as General Motors, Ford, Mazda, Motorola, Xerox, Kodak, IBM, Procter & Gamble, Hewlett-Packard, and AT&T.

The focus of QFD is translating customer requirements into the appropriate technical requirements for each stage of product development and production. The customers’ requirements—expressed in their own terms—are appropriately called the voice of the customer. These are the collection of customer needs, including all satisfiers, delighters/exciters, and dissatisfiers—the “whats” that customers want from a product. For example, a consumer might ask that a dishwashing liquid be “long lasting” and “clean effectively” or that an MP3 player have “good sound quality.” Sometimes these requirements are referred to as customer attributes. Under QFD, all operations of a company are driven by the voice of the customer, rather than by top management edicts or design engineers’ opinions.

Technical features are the translation of the voice of the customer into technical language. They are the “hows” that determine the means by which customer attributes are met. For example, a dishwashing detergent loosens grease and soil from dishes. The soil becomes trapped in the suds so that dishes can be removed from the water without picking up grease. Eventually, the suds become saturated with soil and break down. Thus, a technical feature of a dishwashing liquid would be the weight of greasy soil that the suds generated by a fixed amount of dishwashing liquid can absorb before breaking down. Another might be the size of the soap bubble (which, incidentally, has been found to be a key attribute of customers’ perception of cleaning effectiveness!).

A set of matrices is used to relate the voice of the customer to technical fea- tures and production planning and control requirements. The basic planning

Chapter 3: Tools and Techniques for Quality Design and Control 111

document is called the customer requirement planning matrix. Because of its struc- ture (Figure 3.1), it is often referred to as the House of Quality. The House of Quality relates customer attributes to technical features to ensure that any engineer- ing decision has a basis in meeting a customer need.

Building the House of Quality requires six basic steps:

1. Identify customer attributes. 2. Identify technical features. 3. Relate the customer attributes to the technical features. 4. Evaluate competing products. 5. Evaluate technical features and develop targets. 6. Determine which technical features to deploy in the production process.

The first step is identifying customer attributes. In applying QFD, it is impor- tant to use the customer’s own words so as not to have customer needs misinter- preted by designers and engineers. Recall that not all customers are end users. For a manufacturer, customers might include government regulators, wholesalers, and retailers. Thus, many classes of customer needs may exist.

The second step is listing the technical features that are necessary to meet cus- tomer requirements. These technical features are design attributes expressed in the language of the designer and engineer. They form the basis for subsequent design,

Voice of customer

Interrelationships

Relationships between customer attributes and technical features

Importance of customer attributes

Competitive evaluation

Priorities of technical features

Technical features

FIGURE 3.1 | THE HOUSE OF QUALITY

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manufacturing, and service process activities. They must be measurable, because the output will be controlled and compared to objective targets.

The roof of the House of Quality shows the interrelationships between any pair of technical features. Various symbols are used to denote these relationships. A typical scheme is to use the symbol � to denote a very strong relationship, � for a strong relationship, and △ to denote a weak relationship. These notations help determine the effects of changing one product characteristic and enable plan- ners to assess the tradeoffs between characteristics. This process enables designers to focus on features collectively rather than individually.

Next, a relationship matrix between the customer attributes and the technical features is developed. Customer attributes are listed down the left column, and technical features are written across the top. In the matrix itself, a symbol is used to indicate the degree of relationship in a manner similar to that used in the roof of the house. The purpose of the relationship matrix is to show whether the final technical features adequately address the customer attributes. This assessment may be based on expert experience, customer responses, or controlled experiments.

Technical features can affect several customer attributes. The lack of a strong relationship between a customer attribute and any of the technical features suggests that the attributes are not being addressed and that the final product will have dif- ficulty meeting customer needs. Similarly, if a technical feature does not affect any customer attribute, it may be redundant or the designers may have missed an important customer attribute.

The next step is adding market evaluation and key selling points. This step includes rating the importance of each customer attribute and evaluating existing products on each of the attributes. Customer importance ratings represent the areas of greatest interest and highest expectations to the customer.

Competitive evaluation helps highlight the absolute strengths and weaknesses of competing products. This step enables designers to seek opportunities for improvement. It also links QFD to a company’s strategic vision and allows priori- ties to be set in the design process. For example, focusing on an attribute that receives a low evaluation on all competitors’ products can help to gain a competi- tive advantage. Such attributes become key selling points and help establish promo- tion strategies.

Next comes the evaluation of the technical features of competitive products and the development of targets. This is usually accomplished through in-house test- ing and translated into measurable terms. These evaluations are compared with the competitive evaluation of customer attributes to find inconsistencies. If a competing product best satisfies a customer attribute, but the evaluation of the related techni- cal feature indicates otherwise, then either the measures used are faulty or the product has an image difference (either positive toward the competitor or negative toward the product) that affects customer perceptions. Targets for each technical feature are set on the basis of customer importance ratings and existing product strengths and weaknesses.

The final step in building the House of Quality is selecting technical features to be deployed in the remainder of the process. This means identifying the characteris- tics that have a strong relationship to customer needs, have poor competitive

Chapter 3: Tools and Techniques for Quality Design and Control 113

performance, or are strong selling points. These characteristics need to be deployed— or translated into the language of each function—in the design and production process so that proper actions and controls are taken to maintain the voice of the customer. Characteristics that are not identified as critical do not need such rigorous attention.

A simple example of a House of Quality is shown in Figure 3.2 for the hypo- thetical case of a quick-service franchise that wishes to improve its hamburger. The voice of the customer consists of four attributes. The hamburger should:

• be tasty, • be healthy, • be visually appealing, and • provide good value.

The technical features that can be designed into the product are price, size, cal- ories, sodium content, and fat content. The symbols in the matrix show the rela- tionships between each customer attribute and technical feature. For example, taste bears a strong relationship to sodium content, a moderate relationship to fat content, and a weak relationship to caloric content. In the roof of the house, price

P ric

S iz

C al

or ie

S od

iu m

Fa t

C us

to m

er Im

po rt

an ce

Us A B

Very strong relationship

Strong relationship

Weak relationship

Taste

Nutrition

Visual appeal

Good value

Our priority

Competitor A

Competitor B

Deployment

Competitive Evaluation

Legend: 1 = low, 5 = high

FIGURE 3.2 | HOUSE OF QUALITY EXAMPLE

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114 Part 1: Foundations of Quality and Performance Excellence

and size are seen to be strongly related (as size increases, the price must increase). The competitive evaluation shows that competitors are currently weak on nutrition and value; these can become key selling points in a marketing plan if the franchise can capitalize on them.

Finally, at the bottom of the house are targets for the technical features based on an analysis of customer importance ratings and competitive ratings. The features assigned asterisks will be deployed in subsequent design and production activities.

The House of Quality provides marketing with an important tool to under- stand customer needs and gives top management strategic direction. However, it is only the first stage in the QFD process. The voice of the customer must be carried throughout the production process. Three other houses of quality are used to deploy the voice of the customer to component parts characteristics, process plan- ning, and production planning. These are:

1. technical features deployment matrix, which translates technical features of the final product into design requirements for critical components;

2. process plan and quality control charts, which translate component features into critical process and product parameters and control points for each; and

3. operating instructions, which identify operations to be performed by plant personnel to ensure that important process and product parameters are achieved.

Most of the QFD activities represented by the first two houses of quality are performed by people in the product development and engineering functions. At the next stage, the planning activities begin to involve supervisors and production-line operators. This represents the transition from planning to execution. If a product component parameter is critical and is created or affected during the process, it becomes a control point. This tells the company what to monitor and inspect and forms the basis for a quality control plan for achieving those critical characteristics that are crucial to achieving customer satisfaction. The last house relates the con- trol points to specific requirements for quality assurance activity. This includes specifying control methods, sample sizes, and so on, to achieve the necessary level of quality.

The success of QFD depends on effective communication and cooperation among all major functions that contribute to getting a product to market. The designer’s objective is to create a product that meets the desired functional require- ments. The manufacturing engineer’s objective is to produce the designed product efficiently. The salesperson’s goal is to sell the product, and that of finance person- nel is to make a profit. Purchasing must ensure that purchased parts meet quality requirements. Packaging and distribution personnel must ensure that the product reaches the customer in good operating condition. Because all these functions have a stake in the product, they must all work together. Building cross-functional teams to accomplish product development is often called concurrent engineering.

DESIGN FAILURE MODE AND EFFECTS ANALYSIS

The purpose of design, failure, mode, and effects analysis (DFMEA) is to identify all the ways in which a failure can occur, to estimate the effect and seriousness of

Chapter 3: Tools and Techniques for Quality Design and Control 115

the failure, and to recommend corrective design actions. A DFMEA usually consists of specifying the following information for each design element or function:

• Failure modes—ways in which each element or function can fail. This infor- mation generally takes some research and imagination. One way to start is with known failures that have occurred in the past. Documents such as quality and reliability reports, test results, and warranty reports provide useful information.

• Effect of the failure on the customer—such as dissatisfaction, potential injury or other safety issue, downtime, repair requirements, and so on. Maintenance records, customer complaints, and warranty reports provide good sources of information. Consideration should be given to failures on the function of the end product, manufacturability in the next process, what the customer sees or experiences, and product safety.

• Severity, likelihood of occurrence, and detection rating. Severity might be measured on a scale of 1 to 10, where a “1” indicates that the failure is so minor that the customer probably would not notice it, and a “10” might mean that the customer might be endangered. Figure 3.3 shows a typical scoring rubric. The frequency of occurrence based on service history or field perfor- mance provides an indication of the significance of the failure. Based on sever- ity and likelihood, a risk priority can be assigned to identify critical failure modes that must be addressed.

• Potential causes of failure. Often failure is the result of poor design. Design deficiencies can cause errors either in the field or in manufacturing and assem- bly. Identification of causes might require experimentation and rigorous analysis.

• Corrective actions or controls. These controls might include design changes, mistake proofing, better user instructions, management responsibilities, and target completion dates.

FIGURE 3.3 | SCORING RUBRIC FOR DFMEA RATINGS Rating Severity Occurrence Detection

10 Hazardous or potentially life- threatening

Very high or almost certain probability of occurrence

Cannot detect or hidden defect

7– 9 Serious impact on customer safety or satisfaction

High probability of occurrence

Low chance of detection

5–6 Major impact on customer satisfaction

Moderate probability of occurrence

Moderate chance of detection

2–4 Minor defect or customer inconvenience

Low probability of occurrence

High chance of detection

1 Little to no effect Unlikely to occur Will almost always be able to detect

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Using DFMEA will not only improve product functionality and safety but also reduce external failure costs—particularly warranty costs, as well as decrease manufacturing and service delivery problems. It also can provide a defense against frivolous lawsuits. DFMEA should be conducted early in the design process to save costs and reduce cycle times, and provide a knowledge base to improve subsequent design efforts. This approach also can be used for processes to identify hazardous conditions that may endanger a worker or operational problems that can disrupt a production process and result in scrap, downtime, or other non–value-added costs.

DESIGN FOR MANUFACTURABILITY

Product design can significantly affect the cost of manufacturing (direct and indi- rect labor, materials, and overhead), redesign, warranty, and field repair, the effi- ciency by which the product can be manufactured, and the quality of the output. A Samsung manager noted that 70 to 80 percent of quality, cost, and delivery time is determined in the initial design stages. This is one reason for the company’s obsession with reducing complexity early in the design cycle. As a result, Samsung has lower manufacturing costs, higher profit margins, quicker times to market, and more often than not, more innovative products than its competition.11

Simplifying designs can often improve both cost and quality. Mercedes-Benz, for example, saw its global leadership decline behind BMW and Lexus because of high costs and degrading quality. Although a technology leader, Mercedes’ vehicles were packed with numerous electronic systems that need to be integrated and function seam- lessly together, a very difficult task. Engineers typically designed new electronics for each model, adding to complexity and cost. One of the initiatives the company has under- taken to improve is to design less complex cars similar to what BMW did, for instance, using electronics architectures with common components that can be shared across many models.12 By cutting the number of parts, material costs generally go down, inven- tory levels fall, the number of suppliers shrinks, and production time can be shortened.

Design for manufacturability (DFM) is the process of designing a product for efficient production at the highest level of quality. DFM is typically integrated into stan- dard design processes, but because of the need for highly-creative solutions, it might be addressed in specialized “think-tank” departments in a company. Samsung, for exam- ple, supports a Value Innovation Program (VIP) Center, which has been described as “an invitation-only, round-the-clock, assembly line for ideas and profits where Samsung’s top researchers, engineers, and designers come to solve their grittiest problems.”13 Typical projects might involve reducing material costs on a new printer by 30 percent, or reducing the number of steps needed to manufacture a new camcorder by 25 percent. DFM is intended to prevent product designs that simplify assembly operations but require more complex and expensive components, designs that simplify component manufacture while complicating the assembly process, and designs that are simple and inexpensive to produce but difficult or expensive to service or support.

DESIGN AND ENVIRONMENTAL RESPONSIBILITY

Pressures from environmental groups clamoring for “socially responsive” designs, states and municipalities that are running out of space for landfills, and consumers

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who want the most for their money all cause designers and managers to look care- fully at the concept of design for environment, or DFE.14 DFE is the explicit con- sideration of environmental concerns during the design of products and processes, and includes such practices as designing for recyclability and disassembly. DFE offers the potential to create more desirable products at lower costs by reducing disposal and regulatory costs, increasing the end-of-life value of products, reducing material use, and minimizing liabilities.

Many products are discarded simply because the cost of maintenance or repair is too high when compared with the cost of a new item. Now design for disassem- bly promises to bring back easy, affordable product repair. At the same time, com- panies are challenged to consider fresh approaches to design that build both cost- effectiveness and quality into the product. For instance, even though it is more effi- cient to assemble an item using rivets instead of screws, this approach is contrary to a design-for-disassembly philosophy. An alternative might be an entirely new design that eliminates the need for fasteners in the first place.

DESIGN FOR SERVICES

Services are quite different from manufactured goods. First, the outputs of service processes are not as well defined. Services are intangible and represent an interac- tion between the customer and service provider; they cannot be inventoried, moved, or inspected as can manufactured goods. Second, most service processes involve a greater interaction with the customer, often making it more difficult to identify needs and expectations. By contrast, customers often cannot define their needs for service until after they have some point of reference or comparison. Fast- food restaurants, for example, have carefully designed their processes to improve quality of service and speed.15 New hands-free intercom systems, better micro- phones that reduce ambient kitchen noise, and screens that display a customer’s order are all focused on these requirements. Timers at Wendy’s count every seg- ment of the order completion process to help managers identify problem areas. Kitchen workers wear headsets to hear orders as they are placed. McDonald’s elim- inated many items from its menu to simplify kitchen operations and developed new menu boards showing more pictures to keep ordering simple. It also reduced the number of possible keypad options on registers and installed newly automated drink dispensers and french-fry bins.

Service processes often involve both internal and external activities, a factor that complicates quality design. In a bank, for example, poor service can result from the way that tellers treat customers and also from poor quality of computers and communications equipment beyond the control of the tellers. Internal activities are primarily concerned with efficiency (quality of conformance), whereas external activities—with direct customer interaction—require attention to effectiveness (quality of design). All too often, workers involved in internal operations do not understand how their performance affects the customers they do not see. The suc- cess of the process depends on everyone—workers involved in internal as well as external activities—understanding that they add value to the customer.

Services have three basic components: physical facilities, processes, and proce- dures; employees’ behavior; and employees’ professional judgment.16 Designing a

118 Part 1: Foundations of Quality and Performance Excellence

service essentially involves determining an effective balance of these components. The goal is to provide a service whose elements are internally consistent and directed at meeting the needs of a specific target market segment. Too much or too little emphasis on one component will lead to problems and poor customer per- ceptions. For example, too much emphasis on procedures might result in timely and efficient service, but might also suggest insensitivity and apathy toward the customer. Too much emphasis on behavior might provide a friendly and person- able environment at the expense of slow, inconsistent, or chaotic service. Too much emphasis on professional judgment might lead to good solutions to customer problems but also to slow, inconsistent, or insensitive service.

A useful approach to designing effective services is first to recognize that ser- vices differ in the degree of customer contact and interaction, the degree of labor intensity, and the degree of customization. For example, a railroad is low in all three dimensions. On the other hand, an interior design service would be high in all three dimensions. A fast-food restaurant would be high in customer contact and labor intensity, but low in customization. Services low in all three dimensions of this classification are more similar to manufacturing organizations. The empha- sis on quality should be focused on the physical facilities and procedures; behavior and professional judgment are relatively unimportant.

As contact and interaction between the customer and the service system increases, two factors must be taken into account. In services low in labor intensity, the custom- er’s impression of physical facilities, processes, and procedures is important. Service organizations must exercise special care in choosing and maintaining reliable and easy-to-use equipment. With higher levels of contact and interaction, appropriate staff behavior becomes increasingly important. As labor intensity increases, variations between individuals become more important; however, the elements of personal

BRINGING FACTORY DESIGN TO CUSTOMER SERVICE17

Dell’s focus on cost efficiency has long been a core strategy. The direct sales model of selling computers to consumers via phone and the Internet eliminates the costs of shipping to stores and tracking inventory. However, some of Dell’s cost-cutting efforts had alienated its customers. For instance, Dell staffed some customer service call centers with fewer than 500 workers. A center that small is almost guaranteed to be frequently overwhelmed. Typically, call center reps are trained to solve only one type of problem—say, a hardware glitch on a specific desktop computer model. That explains why it’s so common for the agent who answers a call to have to transfer it to a person with the right expertise. Almost 45 percent of calls to Dell require at least one transfer. As a

solution, one Dell executive proposed treating the call center like a factory. For example, workers in the company’s call centers would have a colored flag to raise when they run into trouble helping a customer. When the flag goes up, a supervisor will come running to help out. Just as each Dell factory worker is trained to assemble different types of computer models, the phone reps would be trained in fixing more types of machines to increase the likelihood that the first person who answers a call will be able to help. The size of call centers are also optimized, just like its factories, from 1,000–3,000 reps, to boost the chances that any caller’s prob- lem can be solved by someone within the building. In addition, Dell large monitors let workers see the number of callers who are on hold.

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behavior and professional judgment will remain relatively unimportant as long as the degrees of customization and contact and interaction remain low. As customization increases, professional judgment becomes a bigger factor in the customer’s perception of service quality. In services that are high in all three dimensions, facilities, behavior, and professional judgment must be equally balanced. The box “Bringing Factory Design to Customer Service” provides an interesting perspective on applying tradi- tional manufacturing process concepts to services.

DESIGNING QUALITY PROCESSES

The design of the processes that produce and deliver goods and services—to both external and internal customers—can have a significant impact on cost (and hence profitability), flexibility (the ability to produce the right types and amounts of products as customer demand or preferences change), and quality. See the box “Design Quality for City Government” for an example of an innovative process design that centers on efficiency and rapid customer service.

The design of a process begins with the process owner. A process owner might be an individual, a team, a department, or some cross-functional group. A basic approach to process design is suggested by Motorola:

1. Identify the product or service: What work do I do? 2. Identify the customer: Who is the work for? 3. Identify the supplier: What do I need and from whom do I get it? 4. Identify the process: What steps or tasks are performed? What are the inputs

and outputs for each step? 5. Mistake-proof the process: How can I eliminate or simplify tasks and prevent

defects and errors? 6. Develop measurements and controls, and improvement goals: How do I eval-

uate the process? How can I improve further?

DESIGN QUALITY FOR CITY GOVERNMENT18

The City of Coral Springs, Florida, clearly under- stands its customer requirements and incorporates them into the design of its processes. The city’s building permit work process is designed to be responsive, professional, consistent, and accessi- ble; and its fleet maintenance work process is designed to be reliable, convenient, and responsive. Processes are designed to meet all key require- ments through multiple phases of testing and revi- sion before a process or significant process change is fully implemented and through involvement of customers in the design. Teams develop

innovations when existing processes fail to meet changing requirements or research on best prac- tices shows that existing approaches are inade- quate to meet new requirements. New technology is incorporated into processes through Information Services staff who serve on all development teams. They research best practices, and scout and critique new technology through professional associations, user groups, and networks of local governments. Coral Springs has incorporated web-enabled appli- cations into the building permit process, the employment process, and water bill payment.

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Steps 1 through 3 address such questions as “What is the purpose of the process?” “How does the process create customer satisfaction?” and “What are the essential inputs and outputs of the process?” Step 4 focuses on the actual process design by defining the specific tasks performed in transforming the inputs to outputs. Step 5 focuses on making the process efficient and capable of delivering high quality. Step 6 ensures that the process will be monitored and controlled to the level of required performance. This monitoring involves gathering in-process measurements and/or customer feedback on a regular basis and using this information to control and improve the process.

A good process design focuses on the prevention of poor quality by ensuring that goods and services meet both external and internal customer requirements, and that the process is capable of achieving the requisite level of performance. Standardized processes establish consistency of output. For example, in produc- ing a new, very small CD player, Sony had to develop entirely new manufactur- ing processes, because no process in existence was able to make this product as small and as accurate as the design required. FedEx developed a wireless data collection system that employs laser scanners to manage millions of packages daily through its six main hubs, improving not only customer service, but saving labor costs as well.19 However, standardized processes may not be able to meet the needs of different customer segments. Today, many companies such as Dell use a strategy of mass customization—providing personalized, custom-designed products to meet individual customer preferences at prices comparable to mass- produced items. Mass customization requires significant changes to traditional processes that focus on either customized, crafted products, or mass-produced, standardized products.20 These include flexible manufacturing technologies, just-in-time systems, information technology, and an emphasis on cycle time reduction.

A process design should include a step-by-step process map, or flowchart (see the next chapter for details about developing and using flowcharts), along with standard operating procedures and work instructions. Many companies use ISO 9000 as a basis for defining and documenting key processes. Branch-Smith Printing, for example, created more than 40 process maps as part of the process of converting to ISO 9000. Corning Telecommunications Products Division (TPD) identified and docu- mented more than 800 processes in all areas of its business, of which 50 were desig- nated as “core business processes” that merit special emphasis in continuous improvement efforts. Each core process is owned and managed by a key business leader.

DESIGNING PROCESSES FOR AGILITY

Agility is an important factor in being competitive. Agility is a term that is com- monly used to characterize flexibility and short cycle times. Agility is crucial to such customer-focused strategies as mass customization, which requires rapid response and flexibility to changing consumer demand (see box “Leveraging Fash- ion Fads”). Flexibility refers to the ability to adapt quickly and effectively to chang- ing requirements. It might mean rapid changeover from one product to another, rapid response to changing demands, or the ability to produce a wide range of

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customized services. Flexibility might demand special strategies such as modular designs, sharing components, sharing manufacturing lines, and specialized training for employees. It also involves outsourcing decisions, agreements with key suppli- ers, and innovative partnering arrangements.

Enablers of agility include close relationships with customers to understand their emerging needs and requirements, empowering employees as decision makers, effec- tive manufacturing and information technology, close supplier and partner relation- ships, and breakthrough improvement. One important metric of agility is cycle time–the time it takes to accomplish one cycle of a process (e.g., the time from when a customer orders a product to the time that it is delivered, or the time to introduce a new product). Significant reductions in cycle time cannot be achieved simply by focusing on individual subprocesses; cross-functional processes must be examined all across the organization. Through these activities, the company comes to understand work at the organizational level and to engage in cooperative behaviors.

POKA-YOKE (MISTAKE-PROOFING)

Poka-yoke is an approach for mistake-proofing processes using automatic devices or methods to avoid simple human error. The poka-yoke concept was developed and refined by the late Shigeo Shingo, a Japanese manufacturing engineer who developed the Toyota production system. The idea is to avoid repetitive tasks or actions that depend on vigilance or memory in order to free workers’ time and minds to pursue more creative and value-adding activities.

Poka-yoke is focused on two aspects: prediction, or recognizing that a defect is about to occur and providing a warning; and detection, or recognizing that a defect has occurred and stopping the process. Many applications of poka-yoke are deceptively simple, yet creative. Usually, they are inexpensive to implement. Some examples:

• Many machines have limit switches connected to warning lights that tell the operator when parts are positioned improperly on the machine.

• A device on a drill counts the number of holes drilled in a workpiece; a buzzer sounds if the workpiece is removed before the correct number of holes has been drilled.

LEVERAGING FASHION FADS21

One example of agility is the Stockholm-based fashion retailer, Hennes & Mauritz (H&M). While traditional clothing retailers design their products at least six months in advance of the selling sea- son, H&M can rush items into stores in as little as three weeks. By monitoring consumer trends and identifying hot-selling items, its designers imme- diately start to sketch new styles, which are then

developed by pattern makers, often using employees as live models. Designs are sent elec- tronically to factories in Europe and Asia that can handle the jobs quickly, and in less than two months, most H&M stores will have the new styles in stock. One of the company’s enablers is empowered employees who can dream up and produce new fashions without formal approval.

122 Part 1: Foundations of Quality and Performance Excellence

• Passwords or e-mail addresses are often required to be entered twice for verification.

• Orders for critical aircraft parts use prefit foam forms that only allow the cor- rect part to be placed in them, ensuring that the correct parts are shipped.

• Associates at Amazon sort products into bins that weigh them and compare the weight to the order; if there is an inconsistency, the associate is prompted to verify the items.

Poka-yoke techniques are also applied to the design of consumer products to prevent inadvertent user errors or safety hazards. For example, most cars will pro- vide an audible signal if the door is opened with the key in the ignition, preventing one from leaving or locking it inside. Power lawnmowers have a safety bar on the handle that must be engaged in order to start the engine. Computer software such as Microsoft Word will automatically check for any unsaved files before closing down.

Richard B. Chase and Douglas M. Stewart suggest that the same concepts can be applied to services.22 The major differences are that service mistake-proofing must account for the customers’ activities as well as those of the producer, and mistake-proof methods must be set up for interactions conducted directly or by phone, mail, or other technologies, such as ATM. Chase and Stewart classify ser- vice poka-yokes by the type of error they are designed to prevent: server errors and customer errors. Server errors result from the task, treatment, or tangibles of the service. Customer errors occur during preparation, the service encounter, or during resolution.

Task errors include doing work incorrectly, in the wrong order, or too slowly, as well as doing work not requested. Some examples of poka-yoke devices for task errors are computer prompts, color-coded cash register keys, measuring tools such as McDonald’s french-fry scoop, and signaling devices. Hospitals use trays for sur- gical instruments that have indentations for each instrument, preventing the sur- geon from leaving one of them in the patient.

Treatment errors arise in the contact between the server and the customer, such as lack of courteous behavior, and failure to acknowledge, listen, or react appropri- ately to the customer. A bank encourages eye contact by requiring tellers to record the customer’s eye color on a checklist as they start the transaction. To promote friendliness at a fast-food restaurant, trainers provide the four specific cues for when to smile: when greeting the customer, when taking the order, when telling about the dessert special, and when giving the customer change. They encourage employees to observe whether the customer smiled back, a natural reinforcer for smiling.

Tangible errors are those in physical elements of the service, such as unclean facilities, dirty uniforms, inappropriate temperature, and document errors. Hotels wrap paper strips around towels to help the housekeeping staff identify clean linen and that which should be replaced. Spell-checkers in word processing software help eliminate misspellings (provided they are used!).

Customer errors in preparation arise when customers do not bring necessary materials to the encounter, do not understand their role in the service transaction,

Chapter 3: Tools and Techniques for Quality Design and Control 123

or do not engage the correct service. Digital Equipment provides a flowchart to specify how to place a service call. By guiding the customers through three yes- or-no questions, the flowchart prompts them to have the necessary information before calling.

Customer errors during an encounter can be because of inattention, misunder- standing, or simply a memory lapse, and include failure to remember steps in the process or to follow instructions. Poka-yoke examples include height bars at amusement rides that indicate rider size requirements, beepers that signal customers to remove cards from ATM machines, and airplane lavatory doors that must be locked to turn on the lights. Some cashiers at restaurants fold back the top edge of credit card receipts, holding together the restaurant’s copies while revealing the customer’s copy.

Customer errors at the resolution stage of a service encounter include failure to signal service inadequacies, learn from experience, adjust expectations, and execute appropriate postencounter actions. Hotels might enclose a small gift certificate to encourage guests to provide feedback. Strategically placed tray-return stands and trash receptacles remind customers to return trays in fast-food facilities.

Mistake-proofing a service process requires identifying when and where fail- ures generally occur (see box “Mistake-Proofing the U.S. Election Process”). Once a failure is identified, the source must be found. The final step is to prevent the mistake from occurring through source inspection, self-inspection, or sequential checks.

MISTAKE-PROOFING THE U.S. ELECTION PROCESS23

There was considerable controversy surrounding the 2000 U.S. presidential election. A difference of roughly 500 votes out of 5.8 million cast in Florida is smaller than the predictable number of errors for miscounted votes, miscast votes, incorrectly rejected ballots, and other vote-casting and vote- counting errors caused by systems and processes (people, equipment, methods, materials, and environment). Several issues affect the quality of the results.

• The prescored punch cards commonly used for ballots require that voters punch the cards in a way that meets machine specifications. The stylus used to punch out the chad (the little piece that gets punched out of the ballot card) could be inadequate in terms of shape or sharpness. The die that prescores the cards during manufacturing wears down over time. Cards may be too thick or thin. Cards

exposed to too much humidity may not be counted properly in machines.

• Process errors can occur in several places. The voter may not have actually cast a vote, or the voter may not have been able to vote for the candidate of choice because of con- fusing ballot design. The ballot may not have been counted correctly. Manual recounts may not record the voter’s intent correctly.

• Lack of uniform standards among voting jurisdictions make it difficult to predict process error rates accurately.

Reducing such errors will require a systematic approach to problem solving built on quality prin- ciples and mistake-proofing ideas. Although such thinking has been successful in many organiza- tions, it has not become a part of the public policy dialog nor has it been institutionalized as part of any national debate.

124 Part 1: Foundations of Quality and Performance Excellence

PROCESS CONTROL

Control is the activity of ensuring conformance to the requirements and taking cor- rective action when necessary to correct problems and maintain stable perfor- mance. Lack of control can not only cause customer dissatisfaction, but can result in serious consequences, not only for the business, but for customers as well (see box “Poor Control Can Leave a Bitter Taste”). Not recognizing when contamina- tion occurs in a bottling process, for instance, signifies a lack of control.

Any control system has three components: (1) a standard or goal, (2) a means of measuring accomplishment, and (3) comparison of actual results with the stan- dard, along with feedback to form the basis for corrective action. Goals and stan- dards are defined during planning and design processes. They establish what is supposed to be accomplished. These goals and standards are reflected by measur- able quality characteristics, such as dimensions of machined parts, numbers of defectives, customer complaints, or waiting times. For example, golf balls must meet five standards to be considered as conforming to the Rules of Golf: minimum size, maximum weight, spherical symmetry, maximum initial velocity, and overall distance. Methods for measuring these quality characteristics may be automated or performed manually by the workforce. Golf balls are measured for size by trying to drop them through a metal ring—a conforming ball sticks to the ring while a non- conforming ball falls through; digital scales measure weight to one-thousandth of a gram; and initial velocity is measured in a special machine by finding the time it takes a ball struck at 98 mph to break a ballistic screen at the end of a tube exactly 6.28 feet away.26

POOR CONTROL CAN LEAVE A BITTER TASTE

An international study by Landor & Associates, an independent design and image firm, showed con- clusively that Coca-Cola is the number one brand in the minds of soft-drink consumers around the world, and affirmed that the company is totally committed to quality. Coca-Cola has stated, “Our commitment to quality is something for which we will never lose our taste.”24 However, in early June, 1999, quite a few people in Europe did when almost 100 Belgian children fell ill after drinking Coca-Cola. This incident caused the Belgian Health Ministry to require Coca-Cola to recall mil- lions of cans of product in Belgium and to cease product distribution. Later, France and the Neth- erlands also halted distribution of Coke products as the contamination scare spread. It was quickly determined that contaminated carbon dioxide had been used during the carbonation process at the

Antwerp bottling facility. According to the official statement from Coca-Cola, “Independent labora- tory testing showed that the cause of the off-taste in the bottled products was carbon dioxide. That carbon dioxide was replaced and all bottles with off-taste have been removed from the market. The issue affects the taste of the soft drinks only…. The second issue involves an external odor on some canned products. In the case of the Belgian distribution system, a substance used in wood treatment has caused an offensive odor on the outside bottom of the can. Independent analysis determined that the product is safe. The Com- pany, in conjunction with its bottling partner in Belgium, is taking all necessary steps to eliminate this offensive odor.”25 After two weeks, the com- pany was allowed to begin producing and distrib- uting products in the three countries.

Chapter 3: Tools and Techniques for Quality Design and Control 125

Short-term corrective action generally should be taken by process owners who are responsible for doing the work. In many organizations, such as The Ritz- Carlton Hotel Company, this extends to everyone. The company has a policy by which the first person who detects a problem is empowered to break away from routine duties, investigate and correct the problem immediately, document the inci- dent, and then return to their routine. Long-term corrective action is the responsi- bility of management. For an interesting application of quality control in the government, see box “QC in the CIA.”

The responsibility for control can be determined by checking the three components of control systems. Process owners must have the means of know- ing what is expected (the standard or goal) through clear instructions and spe- cifications; they must have the means of determining their actual performance, typically through inspection and measurement; and they must have a means of making corrections if they discover a variance between what is expected of them and their actual performance. If any of these criteria is not met, then the process is the responsibility of management, not the process owner. Both Juran and Deming made this important distinction. If process owners are held accountable for or expected to act on problems beyond their control, they become frustrated and end up playing games with management. Juran and Deming stated that the majority of quality problems are management- controllable.

Process control requires a good measurement system to track quality and operational performance. Measurement provides the ability to capture important quality and performance indicators to reveal patterns about process perfor- mance. Each measurement should aim for a standard or target that is driven by customer requirements. Meeting these two conditions ensures that sufficient data can be collected to reveal useful information for evaluation and control, as well as learning that leads to improvement and maturity. For example, the key measures used by SSM Health Care to monitor their processes are shown in Table 3.1. Daily, weekly, monthly, and quarterly performance assessments pro- vide the opportunity to review and manage these measures and identify ways of preventing potential errors before they affect the patient.

QC IN THE CIA27

We can find quality control in the strangest places. The Los Angeles Times reported that the Central Intelligence Agency (CIA) is using quality control procedures and processes to monitor internal investigations, and created a “quality control offi- cer” to monitor how evidence and testimony are handled during the investigations. And it doesn’t stop with control; the article noted that the CIA

Inspector General also wants to focus on reducing the time it takes to complete an investigation—a clear example of quality improvement. This new quality focus came from listening to complaints from its “customers”—the targets of internal investigations, which lasted for years, and who were not given adequate consideration in investi- gative reports.

126 Part 1: Foundations of Quality and Performance Excellence

TABLE 3.1 PROCESSES, REQUIREMENTS, AND MEASURES USED BY SSM HEALTH CARE

Process Key Requirements Key Measures

Admit

Admitting/ Registration

Timeliness • Time to admit patients to the setting of care • Timeliness in admitting/registration rate on patient

satisfaction survey questionsAssess Patient assessment Timeliness • % of histories and physicals charted within 24 hrs or

prior to surgery • Pain assessed at appropriate intervals, per hospital

policy

Clinical laboratory and radiology services

Accuracy & Timeliness

• Quality control results/Repeat rates • Turnaround time

• Response rate on medical staff satisfaction survey Care Delivery/ Treatment

Provision of clinical care

Nurse responsiveness Pain management Successful clinical outcomes

• Response rate on patient satisfaction and medical staff survey questions

• Wait time for pain medications

• % CHF patients received med instructions/ weighing

• % Ischemic heart patients discharged on proven therapies

• Unplanned readmits/Returns to ER or Operating Room

• Mortality

Pharmacy/ Medication use

Accuracy • Use of dangerous abbreviations in medication orders • Med error rate or adverse drug events resulting from

med errors

Surgical services/ Anesthesia

Professional skill, competence/ communication

• Clear documentation of informed surgical and anesthesia consent

• Perioperative mortality

• Surgical site infection ratesDischarge Case management Appropriate

utilization • Average length of stay (ALOS) • Payment denials

• Unplanned readmits

Discharge from setting of care

Assistance and clear directions

• Discharge instructions documented and provided to patient

• Response rate on patient satisfaction survey

Source: Courtesy of SSM Health Care.

Chapter 3: Tools and Techniques for Quality Design and Control 127

Many companies use various automated and visual control systems. For example, DaimlerChrysler manufactures the PT Cruiser at the company’s Toluca Assembly Plant in Mexico. To ensure quality, the Toluca plant verifies parts, processes, fit, and finish every step of the way, from stamping and body to paint and final assembly. The control practices include visual management through quality alert systems, which are designed to call immediate attention to abnormal conditions. The system provides visual and audible signals for each station for tooling, production, maintenance, and material flow.28 Others use statistical process control, which is based on analyzing data patterns statis- tically; this will be described further in the next section. Granite Rock, for instance, was the first in the construction materials industry to apply statistical process control in the management of production of aggregates, concrete, and asphalt products.

STATISTICAL THINKING AND PROCESS CONTROL TOOLS

Statistical thinking is at the heart of the Deming philosophy and is the basis for good management. Statistical thinking is a philosophy of learning and action based on the principles that:

1. all work occurs in a system of interconnected processes; 2. variation exists in all processes; and 3. understanding and reducing variation are keys to success.29

Statistical thinking is more than simply applying statistical methods. Statistical thinking focuses on understanding and reducing variation, not merely quantify- ing it. Nevertheless, statistical methods are important to be a good statistical thinker.

By viewing work as a process, we can apply management-by-fact and various quality tools to establish consistent, predictable processes, study them, and improve them. By viewing processes as interconnected components of a system, we avoid suboptimization—one of the key principles of Deming’s Profound Knowledge. When managers make decisions in isolation, they often fail to see chains of events that might occur throughout the company because of their deci- sions. A typical example is designing a product without consideration of the capability of processes to manufacture it or the support systems required to ser- vice it in the field.

Recognizing and understanding variation is the essence of statistical thinking. We discussed principles of variation within the context of Deming’s Profound Knowledge in Chapter 2, particularly the differences between common and special causes of variation. Some of the operational problems created by excessive varia- tion include the following:30

• Variation increases unpredictability: If we don’t understand the variation in a system, we cannot predict its future performance.

• Variation reduces capacity utilization: If a process has little variability, then managers can increase the load on the process because they do not have to incorporate slack into their production plans.

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• Variation contributes to a “bullwhip” effect: This well-known phenomenon occurs in supply chains; when small changes in demand occur, the variation in production and inventory levels becomes increasingly amplified upstream at distribution centers, factories, and suppliers, resulting in unnecessary costs and difficulties in managing material flow.

• Variation makes it difficult to find root causes: Process variation makes it dif- ficult to determine whether problems are due to external factors such as raw materials or reside within the processes themselves.

• Variation makes it difficult to detect potential problems early: Unusual varia- tion is a signal that problems exist; if a process has little inherent variation, then it is easier to detect when a problem actually does occur.

Although variation exists everywhere, many business decisions do not often account for it. How often do managers make decisions based on a single data point or two, seeing trends when they don’t exist, or manipulating financial figures they cannot truly control (see box “The VP’s Dilemma”)? The lack of broad and sustained use of statistical thinking in many organizations is due to two reasons.31 First, statisticians his- torically have functioned as problem solvers in manufacturing, research, and develop- ment, and thereby focused on individual clients rather than on organizations. Second, statisticians have focused primarily on technical aspects of statistics rather than empha- sizing the focus on process variation that will lead to bottom-line results. Statistical thinking is fundamental to good process management. Understanding processes pro- vides the context for determining the effects of variation and the proper type of manage- rial action to be taken. This variation is quantified through statistical analysis of process data and requires understanding the sources, magnitude, and nature of the variation.

THE VP’S DILEMMA32

Brian Joiner, a noted quality management con- sultant, relates the following case:

Ed was a regional VP for a service company that had facilities around the world. He was determined that the facilities in his region would get the highest customer satisfaction ratings in the company. If he noticed that a facility had a major drop in satisfaction ratings in one month or had “below average” ratings for three months in a row, he would call the manager and ask what had happened—and make it clear that next month’s rating had better improve. And most of the time, it did! As the average satisfaction score dropped from 65 to 60 between February and March, Ed’s memo to his managers read:

Bad news! We dropped five points! We should all focus on improving these scores right away! I realize

that our usage rates have increased faster than anticipated, so you’ve really got to hustle to give our customers great service. I know you can do it!

Joiner observed, Do I look at data this way? This month versus last month? This month versus the same month last year? Do I sometimes look at the latest data point? The last two data points? I couldn’t understand why people would only want to look at two data points. Finally, it became clear to me. With any two data points, it’s easy to compute a trend: “Things are down 2 percent this month from last month. This month is 30 percent above the same month last year.” Unfortunately, we learn nothing of importance by comparing two results when they both come from a stable process … and most data of importance to management are from stable processes.

Chapter 3: Tools and Techniques for Quality Design and Control 129

Senior management needs to champion the use of statistical thinking by defining the strategy and goals of the approach, clearly and consistently communicating the benefits and results, providing the necessary resources, coaching others, and recogniz- ing and rewarding the desired behavior. To help managers work in this fashion, many organizations are using Six Sigma initiatives to create core groups of highly trained pro- fessionals who are skilled in statistical thinking and can help others to use it effectively. This requires an environment conducive to learning new behaviors and concepts.

STATISTICAL PROCESS CONTROL

Statistical process control (SPC) is a methodology for monitoring a process to iden- tify special causes of variation and signaling the need to take corrective action when it is appropriate. As such, it provides a rational basis for applying statistical thinking to controlling processes. When special causes are present, the process is deemed to be out of control. If the variation in the process is due to common causes alone, the process is said to be in statistical control. Basically, statistical con- trol means that both the process average and variance are constant over time.

SPC is a proven technique for improving quality and productivity. Many custo- mers require their suppliers to provide evidence of statistical process control. Thus, SPC provides a means by which a firm may demonstrate its quality capability, an activity necessary for survival in today’s highly competitive markets. In addition, research has suggested that it can motivate the workforce (see box “SPC Can Be Motivating”). Because SPC requires processes to show measurable variation, it is ineffective for quality levels approaching Six Sigma. However, SPC is quite effective for companies in the early stages of quality efforts.

SPC CAN BE MOTIVATING33

Managers of TQM organizations are often con- fronted with the dilemma of how to motivate frontline organization members toward continu- ous improvement and highest quality of output without fundamentally changing the motivational structure of their work. Research consistent with sociotechnical systems theory has shown how crucial it is to specify and align both technical and social effects of any intervention so as to maximize the probability of successful imple- mentation and continued sustainability. One research study has shown that the effective implementation and practice of SPC can provide process operators with greater intrinsic rewards and allow them to achieve higher levels of moti- vation and job satisfaction by making the work that process operators perform more motivating.

Realizing that the deployment of SPC can lead to unintentional improvements in intrinsic rewards can also explain why attempts at deploying and sustaining SPC might fail. Deploying SPC in production environments staffed by process operators who do not desire enriched jobs would, very likely, backfire and lead to disgrun- tled employees. Likewise, when process opera- tors perceive that their jobs have become enriched due to greater skills, more immediate feedback, greater control, etc., they may expect to be recognized and compensated accordingly. Failure to do so might lead to perceptions of exploitation and feelings of inequity vis-à-vis other employees whose jobs have not changed and who are governed by the same compensa- tion scheme.

130 Part 1: Foundations of Quality and Performance Excellence

Walter Shewhart was the first to distinguish between common causes and spe- cial causes in process variation. He developed the control chart to identify the effects of special causes. A control chart displays the state of control of a process (Figure 3.4). Time is measured on the horizontal axis, and the value of a variable on the vertical axis. A central horizontal line usually corresponds to the average value of the quality characteristic being measured. Two other horizontal lines rep- resent the upper (UCL) and lower (LCL) control limits, chosen so that there is a high probability that sample values will fall within these limits if the process is under control—that is, affected only by common causes of variation. If points fall outside of the control limits or if unusual patterns such as shifts up or down, trends up or down, cycles, and so forth exist, special causes may be present.

Although control charts were first developed and used in a manufacturing con- text, they are easily applied to service organizations. Table 3.2 lists just a few of the many potential applications of control charts for services. The key is in defining the appropriate quality measures to monitor. Most service processes can be improved through the appropriate application of control charts. Consider the following example. The Joint Commission on Accreditation of Healthcare Organizations (JCAHO) monitors and evaluates health care providers according to strict stan- dards and guidelines. Improvement in the quality of care is a principal concern. Hospitals are required to identify and monitor important quality indicators that affect patient care and establish “thresholds for evaluation” (TFEs), which are levels at which special investigation of problems should occur. TFEs provide a means of focusing attention on nonrandom errors (that is, special causes of varia- tion). A logical way to set TFEs is through control charts. For instance, a hospital collects monthly data on the number of infections after surgeries. These data are

1 2 3 4 5 6 7 8 9 10 11 12 13

97%

93%

89%

Upper Control Limit

Average

Day

Lower Control Limit

Percent shipped within 24 hours

FIGURE 3.4 | EXAMPLE OF A CONTROL CHART

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Chapter 3: Tools and Techniques for Quality Design and Control 131

shown in Table 3.3. Hospital administrators are concerned about whether the high percentages of infections (such as 1.76 percent in month 12) are caused by factors other than randomness. A control chart constructed from these data is shown in Figure 3.5. (Note that if the control limits are removed, it becomes a simple run chart.) The average percentage of infections is 55/7995 ¼ 0.688 percent.

Using formulas described in more advanced books, the upper control limit is computed to be 2.35 percent. None of the data points fall above the upper control limit, indicating that the variation each month is due purely to chance and that the process is stable. To reduce the infection rate, management would have to attack the common causes in the process. The upper control limit would be a logical TFE to use, because any value beyond this limit is unlikely to occur by chance. Manage- ment can continue to use this chart to monitor future data.

PROCESS CONTROL IN SERVICES

Many people think that process control applies only to manufacturing. This assumption could not be further from the truth. The approach used by The Ritz- Carlton Hotel Company to control quality is proactive because of their intensive personalized service environment.34 Systems for collecting and using quality- related measures are widely deployed and used extensively throughout the organization. Each hotel tracks service quality indicators on a daily basis. The

TABLE 3.2 APPLICATIONS OF CONTROL CHARTS IN SERVICE ORGANIZATIONS

Organization Quality Measure

Hospital Lab test accuracy Insurance claim accuracy On-time delivery of meals and medication

Bank Check-processing accuracy

Insurance company Claims-processing response time Billing accuracy

Post Office Sorting accuracy Time of delivery Percentage of express mail delivered on time

Ambulance Response time

Police Department Incidence of crime in precinct Number of traffic citations

Hotel Proportion of rooms satisfactorily cleaned Checkout time Number of complaints received

Transportation Proportion of freight cars correctly routed Dollar amount of damage per claim

Auto service Percentage of time work completed as promised Number of parts out of stock

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132 Part 1: Foundations of Quality and Performance Excellence

TABLE 3.3 MONTHLY DATA ON INFECTIONS AFTER SURGERY

Month Surgeries Infections Percent

1 208 1 0.48

2 225 3 1.33

3 201 3 1.49

4 236 1 0.42

5 220 3 1.36

6 244 1 0.41

7 247 1 0.40

8 245 1 0.41

9 250 1 0.40

10 227 0 0.00

11 234 2 0.85

12 227 4 1.76

13 213 2 0.94

14 212 1 0.47

15 193 2 1.04

16 182 0 0.00

17 140 1 0.71

18 230 1 0.43

19 187 1 0.53

20 252 2 0.79

21 201 1 0.50

22 226 0 0.00

23 222 2 0.90

24 212 2 0.94

25 219 1 0.46

26 223 2 0.90

27 191 1 0.52

28 222 0 0.00

29 231 3 1.30

30 239 1 0.42

31 217 2 0.92

32 241 1 0.41

33 220 3 1.36

34 278 1 0.36

35 255 3 1.18

36 225 1 0.44

7,995 55

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Chapter 3: Tools and Techniques for Quality Design and Control 133

Ritz-Carlton recognizes that many customer requirements are sensory and, thus, difficult to measure. However, by selecting, training, and certifying employees in their knowledge of The Ritz-Carlton Gold Standards of service, they are able to assess their work through appropriate sensory measurements—taste, sight, smell, sound, and touch—and take appropriate actions.

The company uses three types of control processes to deliver quality:

1. Self-control of the individual employee based on their spontaneous and learned behavior.

2. Basic control mechanism, which is carried out by every member of the workforce.

3. Critical success factor control for critical processes. Process teams use customer and organizational requirement measurements to determine quality, speed, and cost performance. These measurements are compared against benchmarks and customer satisfaction data to determine corrective action and resource allocation.

In addition, Ritz-Carlton conducts both self-audits and outside audits. Self- audits are carried out internally at all levels, from one individual or function to an entire hotel. Process walk-throughs occur daily in hotels, while senior leaders assess field operations during formal reviews at various intervals. Outside audits are per- formed by independent travel and hospitality rating organizations. All audits must be documented, and any findings must be submitted to the senior leader of the unit being audited. They are responsible for action and for assessing the implemen- tation and effectiveness of recommended corrective actions.

PROCESS DESIGN AND CONTROL IN ACTION

Many organizations have made substantial improvements by applying process management principles. In this section, we present some examples drawn from dif- ferent industries—manufacturing, service, and education.

2.8

2.6

2.4

2.2

2.0

1.8

1.6

1.4

1.2

1.0

0.8

0.6

0.4

0.2

0 0 5 10 15 20 25 30 35

LCL

UCL

Sample Number

Pe rc

en t I

nf ec

tio ns

FIGURE 3.5 | CONTROL CHART FOR SURGERY INFECTIONS

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134 Part 1: Foundations of Quality and Performance Excellence

LEXUS35

Lexus automobiles have consistently led the industry in quality. In 2000, Cambridge, Ontario, was chosen as the site of the first Lexus plant outside Japan, designated to build the RX 330 SUV. The assistant general manager for manufacturing observed, “We understood from the beginning that to be accepted we had to be not just as good as but better than Kyushu [the location of the Lexus plant in Japan].”

Teamwork at Cambridge starts with teaching workers about every stage of the production process and about the duties of other team members. Not only does this reinforce the idea that each job is important, but it increases motivation: Each team member does his or her job better if he or she under- stands how other jobs are done and how one job affects another. Engineers and managers created an environment like a clean room, brightly lit like a pharmaceutical laboratory, with a place for everything and everything in its place. Traditional automobile factories are dark and noisy places, filled with flying sparks and the pounding of metal stamping machines. The Cambridge plant, by contrast, is painted in light colors (coordinated by an interior designer) and boasts a spotless floor—the result of constant sweeping up with small brooms and dustpans. These come from “5s” stations, a key element of lean production (which we will discuss in Chapter 4). Cleanliness plays such a large role because at a typical automobile plant most defects are caused by the process of manufacturing itself, by bumps and scrapes from workers. That’s why there are no rings or watches on the line at Cambridge, no jeans with riv- ets to scratch bodies, and why fragments of metal are swept up before they can infiltrate the paint system. The Lexus philosophy is based on the fundamental insight that quality must be built into each part of the production process, not applied as an afterthought through inspections or fixes. Each worker is also a quality control inspector of his or her own work and that of his or her fellow team members, entrusted with the task of eliminating defects before they move down the line.

In the service of this ideal, computer monitors high above the plant’s floor display the status of production at each point. Pulling a cord allows team mem- bers to stop the line entirely if necessary. When this happens, the news is indi- cated by towers of lights and by characteristic brief musical tones unique to each station, like personal cell phone rings. At the Cambridge plant, Lexus has taken this quality control to a new level, with the introduction of “quality gates”: Checkpoints where items found to be of particular concern to customers (such as flawless vertical paint surfaces and the fit of headlights into the body of the vehicle) are noted and evaluated. At the welding area’s quality gate, for example, welds are tested with hammer and chisel and alignments measured with jigs. Team members certify each vehicle’s weld integrity by applying their initials in bright colors. These personal testimonials to care and quality will ride with the vehicles for their lifetimes, albeit under coats of paint or hidden away from the customer’s eye. Then, at the end of the welding process, the bodies receive an even closer inspection, distinguished by that special human touch that makes Lexus so rare among car companies. Under an angled roof

Chapter 3: Tools and Techniques for Quality Design and Control 135

made up of light tubes, team members sweep their hands carefully across every inch of the vehicles’ exteriors. With small, black abrasive squares in their gloved hands, they smooth out any remaining spots or irregularities.

Once welded, vehicle bodies move to the paint shop, more spotless than any other part of the plant. It has the air of a Silicon Valley clean room. Team members wear special antistatic suits. Two sets of doors make an airlock to the paint area. Down-drafts and grated walkways with water beneath catch particles of lint and dust. No cardboard is allowed anywhere in the area. Each vehicle body is vacuumed to remove metal shavings. And the basecoats them- selves—the key paint layers that give vehicles their colors—are made of a water-soluble paint, not environmentally hazardous solvents. Spraying is car- ried out by robotic arms grasping cartridges of measured paint. The cartridges hold just enough paint for one vehicle and are refilled. This allows for mixing colors on the line—no longer must a batch of blue or red vehicles be run together. Finally, a machine called a Perceptron, which measures the changing reflection of light on the vehicle’s surface, a rippling effect called “orange peel,” tests for gloss and smoothness.

After painting comes assembly. Here the focus is on the fit and finish of doors, windows, and other key items, such as interior accent pieces. Doors are removed early in the assembly process and make their own course through the plant before rejoining the body—always the same body, of course. This affords access to the inside of the vehicle and protects the door leather and wood from damage. To install the headliner—the large single piece in the ceiling—a team member is swung inside the vehicle in a clever little seat on an arm, called a Raku. Then there are the interior detail items, such as wood paneling. Each vehicle comes with sets of wooden parts that are cut from the same log, and then stained and finished together. If a wood component is damaged in assem- bly, all the other pieces from its set are replaced as well.

At the end of the line, on a typical day, one vehicle sits in a steady rainstorm, undergoing weatherproof testing. Two others are installed in bays for what are known as “shipping quality audits,” where random vehicles are chosen for an extra-close, no-holds-barred, semi-surgical inspection. The finished RX 330s then run through a test track with bumps and curves. A driver speeds, then brakes, then takes his or her hands off the wheel to be sure the new vehicles don’t pull to one side or the other. Eventually, the vehicles will board the railcars ready to carry them off to a distant city and a new owner.

THE KROGER COMPANY36

The Kroger Company, headquartered in Cincinnati, Ohio, is one of the nation’s largest grocery retailers in the United States. One of Kroger’s goals is to distrib- ute only the best products to its customers. Fresh produce is perishable, and ensuring consistent quality is one of the more challenging issues the company faces. To tackle this problem, Kroger initiated a Lean Six Sigma project that began by collecting voice of the customer data using focus groups. For

136 Part 1: Foundations of Quality and Performance Excellence

example, participants would be given samples of produce and asked to rate and comment on which product they liked the most or least and why. Kroger looks very closely at gross margin of items such as grapes, because there is such a large disparity in cost based on variety purchased. By using controlled taste tests and analyzing the results, they actually found out that consumers do not always prefer the higher cost alternative.

Controlling the quality of produce depends heavily on inspection and mea- surement technology. Kroger maintains a staff of quality assurance inspectors who determine whether to accept or reject batches of product. Depending on the season, a certain percentage of products are flagged for inspection upon arrival at the Distribution Center. They use a specification book, which is essentially a quality manual that describes the qualification standards of all products carried by the Kroger Company. For example, grapes are rated using the following quality scale:

Rating Definition

9 Bloom on berry surface intact; pedicels green and fresh looking. Sweet and crisp/turgid texture.

7 Slight shriveling of pedicels and smearing of bloom. Still mostly turgid flesh.

5 Bloom lost and pedicels shriveled and starting to turn brown; berries slightly flaccid.

3 Pedicels shrunken and brown; may be slight decay visible on individual berries; berries flaccid and watery.

1 Water-soaked tissue and objectionable decay.

Pictures are also used to assist inspectors in their ratings. Developing the quality manual was in itself a major project, which required

determining the standards for every product. A typical entry of a produce item will have the name of the vendor, name of the item, color, size, count, pressure level, sugar level and tolerance. After all, the measurements are entered into the database, the batches are given a “Kroger Quality Score.” The Kroger Quality Score is a proprietary internal measurement that Kroger uses to populate a score- card for each vendor depending on the typical standard of product they supply. This scorecard is an integral part of the negotiating process with the vendor when contracts are set in place.

Inspectors use several different devices to help conduct the quality control process. These include:

• A sample size wheel that determines the sample size needed for inspection. This is based on statistical sampling theory and makes it easy for inspectors to choose the proper sample size without performing any calculations. Inspectors first identify the number of cases of the product in the batch, determine what category the product falls into, and then line up the wheel to identify the recommended number of cases to inspect.

Chapter 3: Tools and Techniques for Quality Design and Control 137

• A digital scale that measures the weight of the sample. • A penetrometer to measure the hardness of fruits and vegetables. This provides

information about how ripe the product is, and also helps determine if any internal bruising exists that may not be visible. This tool, however, requires constant recalibration and extensive training to use correctly. Measurement system analysis techniques are used to evaluate the variation in the measure- ment process.

• A refractometer to measure the brix, or sugar level. For example, to test a carrot, the inspector would cut off a small piece and crush it to break down the cells, and then squeeze a few drops into the device, which would display the brix level. A rating of 4 for instance would be poor, 6 is average, 12, is good, and 18 is excellent. A U.S. Department of Agriculture color chart, which visually shows how a product should look at various stages of ripeness.

When products arrive at distribution centers, inspectors check whether the cor- rect quantities were received and if any of the product is damaged. If the inspection sample is accepted, then the batch is sent to shipping to the retail stores. If the inspection sample does not pass inspection, then a full quality check on the entire batch is conducted. Each quality inspector has a mobile handheld device that simpli- fies the process of capturing data. The data are sent and stored in an online data- base. It also can take photos so that an inspector can document a product. This can help in situations where the product is damaged during transport and has to be recalled.

William Pitzer, a Six Sigma Black Belt who managed this project at Kroger, stated:

The quality program we’ve implemented in the Kroger distribution centers definitely took a high level of commitment upfront to make it work. Selling everyone on the program was not always easy since you don’t see benefits immediately and it depends on accumulating enough data for each vendor. However, since we’ve insti- tuted the process we have seen bottom line cost savings and higher quality produce for our customers.

CHUGACH SCHOOL DISTRICT

The Chugach School District (CSD) is located in Southcentral Alaska and includes most of the Prince William Sound coastline and islands. With less than 20 full-time faculty, CSD serves students scattered throughout 22,000 square miles of isolated and remote areas. Some village and school sites are 100 percent Aleut (Native Alaskan), while other sites include heterogeneous groups. The CSD is fairly representative of “Bush Alaska” in regard to the obstacles standing in the way of educational excellence, including high unem- ployment and poverty, and various social problems in the communities served. Students receive educational services in one of three small villages, accessible by small aircraft, or from itinerant teachers who regularly visit wilderness homes in the Valdez and Fairbanks regions through the Extension School Program.

138 Part 1: Foundations of Quality and Performance Excellence

A comprehensive restructuring effort was initiated in 1994. Using input from schools, communities, and businesses, CSD realigned its curriculum to cre- ate ten performance-based standards: mathematics, science, technology, reading, writing, social sciences, service learning, career development, cultural awareness and expression, and personal/social/health development. Individual Learning Plans (ILP), Student Assessment Binders (SAB), Student Learning Profiles (SLP), and Student Lifeskills Portfolios support and document consistent progress toward proficiency in all standards. CSD developed performance standards con- tinuums for all content areas.

The success of CSD’s educational programs and services lies in the design and delivery of their educational processes and continuous improvement efforts as seen in Figure 3.6. The processes maintain a focus on students with student input garnered from beginning to end. The design process integrates customer requirements from all stakeholders to secure a powerful shared vision, which can be supported by all. Action plans drove the design of this process. The process is simple, efficient, effective and includes evaluation and refinement segments to continually improve each step of the process, as well as the process itself.

A key process is the Chugach Instructional Model (CIM), which has been continuously improved and now encompasses clear and effective teaching meth- ods. The CIM is summarized in Figure 3.7. This instructional methodology aims to create real-life learning situations in all content areas. Chugach has developed a process for creating thematic units, which allow teachers to design contextual units relevant to students. The Chugach staff participates in this process every April to plan for the following year. Thematic units directly support the purpose of the CIM, which is to help teachers make a connection with students’ perfor- mance levels and the theme being developed. Thematic units teach relationships among disciplines. By its nature and definition, it is expansive, respecting no walls with names like math, science, social studies, and art. Thematic units, put

DESIGN PHASE

DELIVERY PHASE

CONTINUOUS IMPROVEMENT

Re-energize Shared Vision

Develop Instructional

Model

Write District Standards

Write Aligned Assessments

Create Aligned Reporting Tool

& Process

Carnegie Unit Waiver

Full Implementation/

Pull Weeds

Re-energize Shared Vision

Screen Student & Place in Levels

Use Standards Assessment &

Reporting

FIGURE 3.6 | CSD EDUCATIONAL DESIGN AND DELIVERY PROCESSES

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Chapter 3: Tools and Techniques for Quality Design and Control 139

simply, take and nurture the natural propensity of humans to make connections between disciplines.

The SLP has been developed to help teachers anticipate the whole child and facilitate learning, not just the intellectual system. It helps students to understand themselves as learners with unique patterns. CSD anticipated this revolutionary approach as a need by CSD after years of trial and error and stakeholder input. Each student’s intellectual, emotional, and volitional development patterns are identified and used to better focus instruction for each student. Cognitive, emo- tional, and values information gained through testing is at the teachers’ and stu- dents’ fingertips to focus on instruction and learning.

A unique feature of CSD is the lack of grade levels. One student may work in Level V math for a year, while another student the same age masters the same level in four months and moves on to level VI. Developmental levels are the levels at which students are working, based on what is known about how children and youth develop, learn, and demonstrate their learning at various ages. The students’ performance levels coincide with the developmental levels of the Chugach develop- mental report card. The levels permit students to work at their own rate con- tinually. An ILP is a custom-designed document written and used by students, teachers, and parents to meet the educational needs of the individual student. Goals are identified and tied to standards focusing on student-driven performance, implementation, and accountability. The ILP anticipates individual differences and allows every child in the system to design their education by setting goals. Students create and achieve ILP goals throughout the year.

Drill and Practice Traditional teaching: Five-step lesson plan teaching basic math skills. Direct Instruction, Thematic Units, ILPs

Practical Application Relevant context: Using basic math skills for checkbook writing. Thematic Units, Performance Tasks, ILPs

Interactive Simulation: Using basic math skills as a classroom accountant. Thematic Units, Performance Tasks, ILPs

REAL-LIFE CONNECTION Real-life situations: Using basic math skills as a classroom accountant. Thematic Units, Performance Tasks, ILPs

Chugach Instructional Model

FIGURE 3.7 | CHUGACH INSTRUCTIONAL MODEL Source: Chugach School District.

140 Part 1: Foundations of Quality and Performance Excellence

These processes have had remarkable results. National percentile scores on the California Achievement Test in reading increased from 28.44 to 71.1 between 1995 and 1999; in language from 26.46 to 71.9; in math from 53.6 to 78.1; and in spell- ing from 22 to 65. Chugach was the only school district in the United States to be awarded the New American High School Award, a national award earned by top performing high schools, and, in addition, was one of the first education sector recipients of the Baldrige Award in 2001.

Discussion Questions and Experiential Exercises

1. Texas Nameplate Company, highlighted in the Performance Excellence Profile, is a small company with fewer than 50 employ- ees and a high level of ethnic diversity. What challenges would such a firm face in imple- menting process design and control tools? How might it overcome these challenges?

2. What is process management? What are the three types of activities that it comprises?

3. Explain the rationale behind AT&T’s pro- cess management principles. How are each of these important in designing, controlling, and improving a process?

4. Identify some of the key processes associated with the following business activities for a typical company: sales and marketing, sup- ply chain management, managing informa- tion technology, and managing human resources. What factors might influence the design of these processes?

5. Explain the four principal activities of DFSS.

6. Explain the benefits of the quality function deployment approach. How does it help organizations to design better products and services?

7. Using whatever “market research” techni- ques you feel are appropriate, define a set of customer attributes for (a) purchasing books at your college bookstore, (b) a hotel room used for business, and (c) a college registration process. How might QFD be used to design these services? Define a set of “hows” and try to construct the relationship matrix for the House of Quality for each of these examples.

8. (This exercise would best be performed in a group.) Suppose that you were developing a small pizza restaurant with a dining area and local delivery. Develop a list of customer requirements and technical requirements and try to complete a House of Quality. What ser- vice standards might such an operation have?

9. What is Design Failure Mode and Effects Analysis (DFMEA)? Provide a simple exam- ple illustrating the concept.

10. Prepare a DFMEA for a casual dining restau- rant. Consider failure modes that might occur both in food preparation and in ser- vice. Clearly explain and justify your choices for the severity, likelihood, and detection ratings.

11. Explain the importance of design for manu- facturability. What principles are evident in Lego blocks that kids (and adults!) use to “manufacture” things.

12. Investigate design-for-environment practices in some of your local industries. Describe company policies and the methods and techniques that they use to address environ- mental concerns in product design.

13. How does the design of a service process dif- fer from designing a manufactured good? Explain the factors that one must consider for a good service design.

14. Describe Motorola’s approach to process design. How does this approach help to ensure high quality and performance?

15. What is mass customization? Why does mass customization present process design challenges?

16. Why is agility important in process design?

Chapter 3: Tools and Techniques for Quality Design and Control 141

17. Identify several sources of errors in your per- sonal life. Develop some mistake-proofing ideas for eliminating them.

18. How might poka-yoke be applied to the U.S. election system based on the infor- mation described in the example in this chapter? You might wish to do some additional research on the subject or find out how your local election process is performed.

19. Search the Internet for John Grout’s Mistake- Proofing website. Read several of the inter- esting articles available there and write a report on the information you discover.

20. At a university library, many activities take place. Some of these are • processing request forms from patrons

for copying of journal articles; • reshelving books that readers have

left on desks (books are picked up, placed on carts, sorted, and reshelved); and

• locating missing books. For these activities, identify potential prob- lems that might arise and what the library might do to “mistake-proof” its activities to provide better service.

21. Explain how a control system works. Pro- vide some examples in your everyday life.

22. Provide some examples of standardized processes with which you are familiar. How are they controlled?

23. What is statistical thinking? How might the traditional teaching of statistics be improved by incorporating this notion? Draw your response from your own experiences in learning statistics.

24. Describe the operational problems that are created by excessive variation.

25. Explain the concept of statistical process control. How does it support the Deming philosophy discussed in Chapter 2?

26. List some potential applications of control charts in service organizations that differ from those in Table 3.2.

27. For the Lexus example discussed in this chapter, explain how the processes designed into the Cambridge plant support the achievement of high product quality. What specific aspects of the process relate to design, control, and improvement? What lessons or best practices might be learned and applied to other companies (outside of the automotive industry)?

28. For the Kroger Company example discussed in this chapter, how do the results of the cus- tomer taste tests of grapes relate to the defini- tion of quality that we discussed in Chapter 1?

CASES

Customer Service Processes at Orbitz37:

Scott Paton, an editor-at-large for Quality Digest, related the following customer service experience with Orbitz, a leading online travel website.

Despite having purchased hundreds of airline tickets through the site, I never had an occasion to call customer service until recently. While reviewing my last American Express statement, I noticed two charges for the same amount and the same itiner- ary. I knew that this was a mistake because I had only purchased one ticket. I logged onto the Orbitz site and looked at my past trips. I saw that there

was only one booked itinerary for that person for that week. Orbitz had made a mistake. I knew I would have to call the company to get the error corrected.

I began the process by going to the Orbitz home page. I was impressed. At the top of the page in large, easy-to-read type was a tab that said “Customer Service.” Probably a link to a “Frequently Asked Questions” database, I thought. To my surprise, when I clicked on the tab, there were three options: an FAQ database, an e-mail link, and a toll-free number to call for help. The customer service depart- ment is open 7 days a week, 24 hours a day. This is

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impressive, especially when traveling. Okay. This was looking good, but how would my call be answered?

I dialed the number and was immediately con- nected to the Orbitz voicemail system, which asked for my home phone number. Apparently, this let them know where I was calling from. After entering my phone number, I was led through a surprisingly quick and easy voicemail navigation system that divides calls by type of inquiry. I generally hate these kinds of voicemail systems, but Orbitz’s system was painless. I was through it in a matter of seconds.

When I selected “Help,” my call was answered within a minute. A pleasant woman asked how she could help me. I explained that upon reviewing my American Express statement it appeared as though I had been double-charged. Her first reaction was to apologize. “I’m sorry you had a problem,” she said. “Let’s see what we can do to resolve it for you.”

She asked me for some information and then asked me to hold while she checked on the problem. When she came back on the line after about two minutes, she apologized for leaving me on hold. The Orbitz system had indeed double-charged me. She explained that Orbitz would refund my money and that it might take 30 to 60 days to show up on my American Express card statement, depending on when my state- ment was issued. She again apologized and asked if there was anything else she could do and if I was sat- isfied with the problem resolution.

About one week later, I received a letter from Orbitz apologizing for the problem with an explana- tion for what had occurred. The letter also included a $50 discount coupon toward my next Orbitz purchase.

Discussion Questions 1. What aspects of Orbitz’s service processes led to

Mr. Paton’s favorable service experience? 2. Generalize the lessons learned from this example

to other organizations. What challenges might organizations encounter in designing quality cus- tomer service processes?

The State University Experience

Wow! That State University video was really cool. It has lots of majors; it’s close to home so I can keep my job; and Mom and Dad loved it when they visited. I wish I could know what it’s really like to be a

student at State. Hmmm, I think I’ll ask Mom and Dad to take a campus tour with me….

I’m sure that we took our tour on the hottest day of the summer. The campus is huge—it took us about two hours to complete the tour and we didn’t even see every- thing! I wasn’t sure that the tour guide knew what he was doing. We went into a gigantic lecture hall and the lights weren’t even on. Our tour guide couldn’t find them so we had to hold the doors open so the sunlight could come in. About three-fourths of the way through the tour, our guide said, “State University isn’t really a bad place to go to school; you just have to learn the system.” I wonder what he meant by that?…

This application is really confusing. How do I let the admissions office know that I am interested in physics, mechanical engineering, and industrial design? Even my parents can’t figure it out. I guess I’ll call the admissions office for some help….

I’m so excited! Mom just handed me a letter from State! Maybe they’ve already accepted me. What? What’s this? They say I need to send my transcript. I did that when I mailed in my application two weeks ago. What’s going on? I hope it won’t affect my application. I’d better check with Admissions….

You can’t find my file? I thought you were miss- ing only my transcript. I asked my counselor if she had sent it in yet. She told me that she sent it last week. Oh, you’ll call me back when you locate my file? OK.

Finally, I’ve been accepted! Wait a minute. I didn’t apply to University College; that’s a two-year program. I wanted physics, M.E., or industrial design. Well, since my only choice is U. College and I really want to go to State, I guess I’ll send in the confirmation form. It really looks a lot like the application. In fact, I know I gave them a lot of the same information. I wonder why they need it again? Seems like a waste of time….

Orientation was a lot of fun. I’m glad they straightened out my acceptance at U. College. I think I will enjoy State after all. I met lots of other students. I saw my advisor and I signed up for clas- ses. All I have left to do is pay my tuition bill. Whoops. None of my financial aid is on this bill. I know I filled out all of the forms because I got an award letter from State. There is no way my parents and I can pay for this without financial aid. It says at the bottom, I’ll lose all of my classes if I don’t pay the bill on time….

I’m not confirmed on the computer? I sent in my form and the fee a long time ago. What am I going

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to do? I don’t want to lose all of my classes. I have to go to the admissions office or my college office and get a letter that says I am a confirmed student. OK. If I do that tomorrow, will I still have all of my classes?… I can’t sleep; I’m so nervous about my first day….

Discussion Questions 1. What breakdowns in service processes has this

student experienced? 2. What types of process management activities

should State University administrators undertake?

Scott’s Fitness Center

Figure 3.8 shows a partially completed House of Quality for a proposed fitness center.

1. Examine the relationships in the roof of the House of Quality. Explain why they do or do not make sense. How would this assessment help in the design activity?

2. Complete the matrix in the body of the House of Quality. That is, examine each pair of customer and technical requirements and determine whether there is a very strong relationship, strong

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FIGURE 3.8 | HOUSE OF QUALITY FOR SCOTT’S FITNESS CENTER

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relationship, weak relationship, or no relationship, and fill in the appropriate symbols in the matrix.

3. Suppose that the most important customer requirements identified through surveys and focus groups are “Has programs I want,” “Family activities available,” “Equipment available when desired,” “Easy to sign up for programs,” and “Value for your money.” “Staff available when needed” was ranked low, while the remaining were ranked moderate in importance.

Based on this information, identify the most impor- tant technical requirements that should be addressed in subsequent design activities.

King Community College Food Service Program

King Community College (KCC) offers a two-year food service degree program. Students learn how to set up and manage food service operations in hotels, hospitals, schools, businesses, etc. One of the most important courses is Food Service Sanitation and Safety (FSSS). Students taking the course are required to study a government-mandated food service process control approach called HACCP—Hazard Analysis and Criti- cal Control Points. They are required to conduct some research to learn about HACCP. They are also required to apply the approach to KCC’s cafeteria.

Christina Clark is taking the FSSS course and has an internship in the cafeteria. She has been charged with developing a process control plan based on HACCP principles for meeting food safety requirements. For example, the requirements for hot dogs include:

• Receiving: Refrigerated hot dogs should be between 40°F and 34°F when received.

• Storage: Storage temperature should be between 40°F and 34°F.

• Cooking: Hot dogs should be heated to a tem- perature of 145°F within 30 minutes of placing on the grill.

• Cooked Storage: Leftover hot dogs must be cov- ered and placed in refrigeration immediately and reach a temperature of 40°F or lower within four hours.

• Reheating: Hot dogs must be reheated to an internal temperature of 165°F within 20 minutes, one time only.

Discussion Questions 1. Conduct some research on HACCP and summa-

rize your findings. If you were Christina, how

would you design a process control plan to ensure that these requirements were met?

2. Design specific forms or “standard operating procedures” that you think would be helpful in implementing your plan, specifically for the example of hot dogs.

3. How might the process control plan have to be modified to deal with handling ground, uncooked meat, such as hamburger or pork sausage, keep- ing in mind that the risk of bacterial contamina- tion is much higher for such products?

The HMO Pharmacy Crisis38

John Dover just completed an intensive course, “Statis- tical Thinking for Continuous Improvement,” that was offered to all employees of a large health maintenance organization (HMO). There was no time to celebrate, however, because he was already under a lot of pres- sure. Dover worked as a pharmacy assistant in the HMO’s pharmacy, and his manager, Juan de Pacotilla, was about to be fired. Pacotilla’s dismissal appeared imminent because of numerous complaints—and even a few lawsuits—over inaccurate prescriptions.

Pacotilla now was asking Dover for his assistance in trying to resolve the problem. “John, I really need your help,” said Pacotilla. “If I can’t show some major improvement or at least a solid plan by next month, I’m history.” “I’ll be glad to help,” replied Dover, “but what can I do? I’m just a pharmacy assistant.” “Your job title isn’t important. I think you’re just the person who can get this done,” said Pacotilla. “I real- ize that I’ve been too far removed from day-to-day operations in the pharmacy, but you work there every day. You’re in a much better position to find out how to fix the problem. Just tell me what to do, and I’ll do it.” “But what about the statistical consul- tant you hired to analyze the data on inaccurate prescriptions?” asked Dover.

“To be honest, I’m really disappointed with that guy. He has spent two weeks trying to come up with a new modeling approach to predict weekly inaccu- rate prescriptions. I tried to explain to him that I don’t want to predict the mistakes, I want to elimi- nate them. I don’t think I got through, however, because he said we need a month of additional data to verify the model before he can apply a new method he just read about in a journal to identify ‘change points in the time series,’ whatever that means. But get this, he will only identify the change points and send me a list. He says it’s my job to

Chapter 3: Tools and Techniques for Quality Design and Control 145

Endnotes

1. 2005 Malcolm Baldrige National Quality Award Recipient Profile, U.S Department of Commerce.

2. AT&T Quality Steering Committee, Process Quality Management & Improvement Guidelines, AT&T Publication Center, AT&T Bell Laborato- ries (1987).

3. Sanjay L. Ahire and Paul Dreyfus, “The impact of design management and process management on quality: an empirical investigation,” Journal of Operations Management 18, 2000, pp. 549–575.

4. Peter Svensson, “It’s not just computers: Gadgets crash,” The Cincinnati Enquirer, April 3, 2003, A3.

5. Steven H. Wildstrom, “Price Wars Power Up Quality,” BusinessWeek, September 18, 1995, 26.

6. Philip A. Himmelfarb, “Fast New-Product Devel- opment at Service Sector Companies,” Quality Digest, April 1996, 41–44.

7. C. M. Creveling, J. L. Slutsky, and D. Antis, Jr., Design for Six Sigma in Technology and Product Development (Upper Saddle River, NJ: Prentice Hall, 2003).

8. Romain Moisecot, “Steve Jobs: a biography.” http://www.allaboutSteveJobs.com.

9. James R. Stevenson and Ali E. Kashef, “Newer, Better, Faster: How Six Sigma boosts innovation and reinvention,” Quality Progress, September 2008.

10. Bruce Horovitz, “Domino’s Pizza delivers change in its core pizza recipe,” USA Today, December 16,

2009, and Courtney Dentch, Domino’s Changing Recipe to Help Lift U.S. Sales, http://www .bloomberg.com

11. Peter Lewis, “A Perpetual Crisis Machine,” Fortune, September 19, 2005, 58–76.

12. Gail Edmondson, “Mercedes’ New Boss Rolls Up His Sleeves,” BusinessWeek, October 17, 2005, 56.

13. Lewis, op. cit. 14. Early discussions of this topic can be found in

Bruce Nussbaum and John Templeton, “Built to Last—Until It’s Time to Take It Apart,” Business- Week, September 17, 1990, 102–106. A more recent reference is Michael Lenox, Andrew King, and John Ehrenfeld, “An Assessment of Design- for-Environment Practices in Leading U.S. Elec- tronics Firms,” Interfaces 30, No. 3 (May/June 2000), 83–94.

15. Sarah Anne Wright, “Putting Fast-Food to the Test,” The Cincinnati Enquirer, July 9, 2000, F1, 2; and David Grainger, “Can McDonald’s Cook Again?” Fortune, April 14, 2003, pp. 120–129.

16. John Haywood-Farmer, “A Conceptual Model of Service Quality,” International Journal of Opera- tions and Production Management Vol. 8, No. 6 (1988), pp. 19–29.

17. Dell: Facing Up to Past Mistakes, Business Week, June 19, 2006, pp. 35–36.

18. City of Coral Springs 2007 Baldrige Application Summary.

figure out what they mean and how to respond. I don’t know much about statistics.”

“The only thing I remember from my course in college is that it was the worst course I ever took. I’m becoming convinced that statistics really doesn’t have much to offer in solving real problems. Since you’ve just gone through the statistical thinking course, maybe you can see something I can’t. I realize it’s a long shot, but I was hoping you could use this as the project you need to officially complete the course.”

“I used to feel the same way about statistics, too,” replied Dover. “But the statistical thinking course was interesting because it didn’t focus on crunching num- bers. I have some ideas about how we can approach making improvements in prescription accuracy. I think it would be a great project. But we might not be able to solve this problem ourselves. As you know, there is a lot of finger pointing going on.

Pharmacists blame the doctors’ sloppy handwriting and incomplete instructions for the problem. Doctors blame the pharmacy assistants, who do most of the computer entry of the prescriptions, claiming that they are incompetent. Pharmacy assistants blame the pharmacists for assuming too much about their knowledge of medical terminology, brand names, known drug interactions, and so on.”

“It sounds like there’s no hope,” said Pacotilla. “I wouldn’t say that at all,” replied Dover. “It’s just that there might be no quick fix we can do by our- selves in the pharmacy. Let me explain what I’m thinking about doing and how I would propose attacking the problem using what I just learned in the statistical thinking course.”

How do you think John should approach this prob- lem, using what he has just learned? Assume that he really did pick up a solid understanding of the concepts and tools of statistical thinking in the course.

146 Part 1: Foundations of Quality and Performance Excellence

19. Kelly Scott, “How Federal Express Delivers Customer Service,” APICS—The Performance Advantage, November 1999, pp. 44–46.

20. Rebecca Duray and Glenn W. Milligan, “Improv- ing Customers Satisfaction Through Mass Customization,” Quality Progress, August 1999, pp. 60–66.

21. “It’s the Latest Thing—Really,” Business Week, March 27, 2006, pp.70–71.

22. Excerpts reprinted from Richard B. Chase and Douglas M. Stewart, “Make Your Service Fail- Safe,” Sloan Management Review, Vol. 35, No. 3, Spring 1994. Copyright © 1994 by the Sloan Man- agement Review Association. All rights reserved.

23. Howard R. Schussler, “Can Quality Concepts and Tools Fix the U.S. Election Process?” Quality Progress, April 2001, pp. 46–50.

24. “Coca-Cola: A Taste for Quality,” The Coca-Cola Company, Atlanta, Georgia.

25. http://www.thecoca-colacompany.com/news/News- Detail.asp?NewsDate=6/15/99. Note: this link is no longer active.

26. “Testing for Conformity: An Inside Job,” Golf Journal, May 1998, pp. 20–25.

27. “Quality Control Comes to the CIA,” Los Angeles Times, February 4, 2008. Cited by the American Society for Quality, http://www.asq.org/quality- news/qnt/execute/displaySetup?newsID=3011

28. “DaimlerChrysler’s Quality Practices Pay Off for PT Cruiser,” News and Analysis, http:// www.Metrologyworld.com (accessed March 23, 2000).

29. Adapted from Galen Britz, Don Emerling, Lynne Hare, Roger Hoerl, and Janice Shade, “How to

Teach Others to Apply Statistical Thinking,” Quality Progress, June 1997, pp. 67–79.

30. Steven A. Melnyk and R. T. Christensen, “Vari- ance is Evil,” APICS The Performance Advantage, June 2002, 19.

31. Ronald D. Snee, “Getting Better Business Results: Using Statistical Thinking and Methods to Shape the Bottom Line,” Quality Progress, June 1998, pp. 102–106.

32. Adapted from Brian L. Joiner, Fourth Generation Management, New York: McGraw-Hill, 1994, p. 129.

33. Manus Rungtusanatham “Beyond improved qual- ity: the motivational effects of statistical process control,” Journal of Operations Management 19, 2001, pp. 653–673

34. Adapted from The Ritz-Carlton Hotel Company, Application Summaries for the Malcolm Baldrige National Quality Award, 1992 and 1999.

35. Phil Patton, “Northern Exposure,” Lexus Maga- zine, Quarter 1, 2004, 39–42. Reprinted by permission.

36. Our appreciation goes to former student Nick Siegert and to William J. Pitzer of the Kroger Company for providing the information for this case.

37. Scott M. Paton, “Stellar Customer Service,” Quality Digest, June 2006, p. 64.

38. “How to Teach Others to Apply Statistical Think- ing” by Galen Britz, Don Emerling, Lynne Hare, Roger Hoerl, and Janice Shade, Quality Progress, June 1997, pp. 67–79.

Chapter 3: Tools and Techniques for Quality Design and Control 147

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4 TOOLS AND TECHNIQUES FORQUALITY IMPROVEMENT Performance Excellence Profile: Iredell-Statesville Schools1

Iredell-Statesville Schools (I-SS) is a K–12 public school system located in southwestern North Carolina within a diverse community and economy. To meet the needs of its 20,900 students, I-SS offers a variety of educational programs delivered in heterogeneously grouped classrooms, two at-risk behavior schools, virtual curriculum, and early college settings. The system also offers before- and after-school programs, short-term alternative site placement programs, and dual-enrollment courses in partnership with a local community college. I-SS, which segments its 3,416 employees as certified, classified, and administrative staff, considers them to be “knowledge assets in achieving organizational learning and improvement.”

With a new vision to “improve student learning by igniting a passion for learning,” I-SS senior leaders are moving the district from a “focus on teaching” to a “focus on learning.” The superintendent of schools and the Senior Leadership Team use the I-SS Performance Excellence Model as the management approach to share and accomplish the district’s vision. Their strategic plan is linked to the North Carolina State Board of Education Strategic Priorities: high student performance; healthy, safe, orderly, and caring schools; quality teachers, administrators, and staff; strong family-community-business support; and effective-efficient operations. These five priority goal areas are aligned with division-, department-, and school-improvement plans to provide clear direction for the system.

To fulfill its mission of realizing high student performance and long-term student success, I-SS uses its Model to Raise Achievement and Close Gaps (RACG). In the classroom, five key learning questions form the basis for action by focusing discussion and analysis on what students should know and be able to do: (1) “What do students need to know?” (2) “How will they learn it?” (3) “How will we know they have learned it?” (4) “What will we do if they have not learned it?” and (5) “What will we do if they already know it?” When student performance does not meet targets, the gap is addressed through the

148

systematic use of a Plan, Do, Study, Act (PDSA) cycle to identify and implement improvements. Best practices are shared throughout the district, departments, and schools. To support RACG, both administrative and site- based teams receive extensive analysis of student achievement data in midyear and end-of-year organizational reviews. The system’s results illustrate the impact of its focused efforts to improve student achievement. For example:

• I-SS has achieved 94 percent of its Adequate Yearly Progress goals and outperforms peer districts and the state in this measure, which is required by the No Child Left Behind (NCLB) Act.

• Cohort graduation rates (the percentage of ninth-grade students who grad- uate from high school four years later) increased steadily from 64 percent in 2002–2003 to 80.7 percent in 2007–2008.

• In five years, the system’s composite SAT scores have improved by over 60 points to 1056, with its current performance level ranking seventh in the state.

• I-SS closed the end-of-grade reading proficiency gap between African American children and all students from 23 percent to 12.3 percent.

As one approach to building healthy, safe, orderly, and caring schools, an I-SS committee in 2003–2004 identified alternative schools, alternative learning processes, and student attendance as high priorities for improvement that could impact dropout rates. As a result of a district PDSA on alternative learning programs, the structure of alternative learning processes changed significantly. Several innovative programs were added, including an out-of-school suspension-reporting center, an in-school credit recovery program, an attendance recovery program, virtual courses, virtual credit recovery courses, summer credit recovery programs, and Day Treatment and Community Classrooms provided by a strategic partnership. A Differentiated Diploma Program was targeted at preventing juniors and seniors from dropping out of school.

Effective training and mentoring approaches ensure that the system has quality teachers, administrators, and staff to increase student achievement and close gaps. Professional Learning Communities provide classroom teachers with face-to-face and virtual opportunities to improve student learning and share best practices across grade levels and departments. Instructional facilitators support these communities by providing ongoing professional development through coaching, modeling, and mentoring. Throughout I-SS, teaching assistants are trained alongside teachers and staff. Beyond the classroom, a Leadership Academy trains administrators in the Performance Excellence Model.

I-SS depends on strong family, community, and business support from active partners—including suppliers, community organizations, parents, and volunteers—to achieve its goals. They participate on school and district improvement teams, advisory committees, and specific task forces, working side by side with staff on school initiatives. I-SS volunteers contributed nearly 147,000 hours serving in roles such as mentors, tutors, lunch buddies, and

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clerical/classroom support for staff. I-SS partners with a community college and another school district to offer students dual-enrollment opportunities in an early college setting. I-SS is working with the Statesville City Council and the Blumenthal Center for Performing Arts to establish a performance and fine arts magnet school and with the Boys and Girls Club to provide after-school enrichment activities for at-risk students. A strategy to involve key partners in obtaining grants to impact strategic goals has resulted in more than $8 million in grants being awarded in just three years.

In the previous chapter we introduced process management and focused on tools and techniques used for designing and controlling products and processes. Improve- ment is the third element of process management. The profile on I-SS shows the power of using systematic approaches to improvement. Continuous improvement is essential to total quality (TQ). The TQ ideal is not to make a big splash by improv- ing a system, only to mindlessly operate in the same “new and improved” manner for years to come. TQ-oriented organizations relentlessly improve their processes, products, and services, as well as their people (through training) day-by-day and month-by-month, over years and even decades. A good illustration is Dell. Although it has had some of the highest quality ratings in the PC industry, CEO Michael Dell became obsessed with finding ways to reduce machine failure rates. He concluded that failures were related to the number of times a hard drive was handled during assembly, and insisted that the number of “touches” be reduced from an existing level of more than 30 per drive. Production lines were revamped and the number was reduced to fewer than 15. Soon after, the reject rate of hard drives fell by 40 percent and the overall failure rated dropped by 20 percent.2

Because of its importance in every organization, we devote a full chapter here to describe the most important tools and techniques that organizations use. Specifi- cally, we will:

• explain the philosophy and approaches to continuous improvement; • describe systematic improvement processes used by many organizations; • illustrate the application of a variety of tools for process improvement, includ-

ing those used in Six Sigma and Lean Six Sigma; and • discuss breakthrough improvement and the importance of creativity and

innovation.

PROCESS IMPROVEMENT

The distinction between control and improvement is illustrated in Figure 4.1. Any process performance measure naturally fluctuates around some average level. Abnormal conditions cause an unusual deviation from this pattern. Removing the causes of such abnormal conditions and maintaining level performance is the essence of control. Improvement means changing the performance to a new level. To be able to improve a process, it must be (1) repeatable and (2) measurable. Repeatability means that the process must recur over time. The cycle may be long, as with product development processes or patent applications; or it may be short,

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as with a manufacturing operation or an order entry process. In other words, you need the ability to learn from both successes and failures. Many organizations use a variety of approaches to identify potential improvements, analyze data, and implement solutions. We describe some of the most popular approaches next.

THE KAIZEN PHILOSOPHY

The concept of continuous improvement dates back many years. One of the earliest examples in the United States was at National Cash Register Company (NCR). After a shipment of defective cash registers was returned in 1894, the company’s founder discovered unpleasant and unsafe working conditions. He made many changes, including better lighting, new safety devices, ventilation, lounges, and lock- ers. The company offered extensive evening classes to improve employees’ education and skills, and instituted a program for soliciting suggestions from factory workers. Workers received cash prizes and other recognitions for their best ideas; by the 1940s, the company was receiving an average of 3,000 suggestions each year. Over the years, many other companies such as Lincoln Electric and Procter & Gamble developed innovative and effective improvement approaches. However, many of these focused almost exclusively on productivity and cost. A focus on quality improvement, by contrast, is relatively recent, stimulated by the success of the Japanese. Toshiba in 1946, Matsushita Electric in 1950, and Toyota in 1951 initi- ated some of the earliest formal continuous improvement programs. Toyota, in particular, pioneered just-in-time (JIT), which showed that companies could make products efficiently with virtually zero defects. JIT established a philosophy of continuous improvement, which the Japanese call kaizen (pronounced kĪ-zen).

Kaizen strategy has been called “the single most important concept in Japanese management—the key to Japanese competitive success.” It is the cumulative effect of hundreds or thousands of small improvements that creates dramatic change in perfor- mance. In the kaizen approach as practiced in Japan, financial investment is minimal; everyone participates in the process; and improvements result from the know-how and experience of workers. At Nissan Motor Co., Ltd., for instance, any suggestion that saves at least 0.6 seconds in a production process is seriously considered by man- agement. This is not to say that large improvement breakthroughs do not occur; they

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FIGURE 4.1 | CONTROL VERSUS IMPROVEMENT

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certainly do, especially in the early phases of TQ. To use football as a metaphor, the successful practice of TQ is not reflected in the glamour of the occasional “long bomb”; it consists of grinding out improvements “one yard at a time.”

The kaizen philosophy has been widely adopted and is used by many firms in the United States and around the world. For example, at ENBI Corporation, a New York manufacturer of precision metal shafts and roller assemblies for the printer, copier, and fax machine markets, kaizen projects have resulted in a 48 percent increase in productivity, a 30 percent reduction in cycle time, and a 73 percent reduction in inventory.3 Kaizen has been successfully applied in the Mercedes-Benz truck factory in Brazil, resulting in reductions of 30 percent in manufacturing space, 45 percent in inventory, 70 percent in lead time, and 70 percent in setup time over a three-year period. Sixteen employees have full-time responsibility for kaizen activi- ties.4 See also the box “A Kaizen Application at Toyota.”

Continuous improvement efforts can be directed at a number of different types of improvement. For example, changes could result in work being done more eas- ily, more accurately, faster, at lower cost, more safely, and in a way that provides greater customer satisfaction5 Thinking about continuous improvement in this way makes it clear how many opportunities for improvement exist in almost any sys- tem. How many operations are there that couldn’t be improved on even one of these dimensions? Persistence is important in pursuing continuous improvement. Not only will small changes in operations take some time to add up to any serious improvement but also they are often disruptive when first implemented.

According to the late Japanese manufacturing expert Shigeo Shingo:6

Since improvement … demands new procedures, a certain amount of difficulty will be encountered…. Initially, new methods will be difficult. Old procedures, however, are easy just because they are familiar…. As long as it is unfamiliar, even an improved pro- cedure will be more difficult and will take more time than the old procedure…. Thus, no improvement shows its true worth right away … 99 percent of all improvement plans would vanish without a trace if they were to be abandoned after only a brief trial.

A KAIZEN APPLICATION AT TOYOTA

At Toyota’s Georgetown, Kentucky, plant, a workstation used for installing visors and seat belts used to consist of eight racks of parts. The racks crowded the workstation, giving the worker ready access to all possible parts. The operator would eyeball the car coming up the line, step to the racks of visors and seat belts, and grab the right parts and run to the car. He or she would step into the slowly advancing car, bolt belts and visors in place, step back onto the factory floor, and do it again— all in 55 seconds, the unvarying time each slowly moving car spends at each workstation. The problemwas, there were 12 possible combinations

of sun visors and nine variations of seat belts. So just deciding which parts to snatch had become a job in itself. In every shift, 500 cars passed the racks, each car needing four specific parts: 2,000 opportunities to make an error. Even with 99 per- cent perfection, five cars per shift got the wrong sun visors or seat belts. So a team of assembly employees came up with a solution. Don’t make the worker pick the parts; let the worker focus on installation. Deliver a kit of presorted visors and seat belts—one kit per car, each containing exactly the right parts. The team applied the simplest technology available, a Rubbermaid caddy.

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Like the cultural change that motivates it, continuous improvement is difficult to sustain. Perhaps the “if it’s not broke, don’t fix it” mentality is too deeply embed- ded our culture. In any case, many organizations that wish to embrace continuous improvement have not been able to do so successfully.

The most important ingredient for continuous improvement is one we have already discussed: an appropriate organizational culture (see box “No Lawyer Jokes Here”). If everyone in the organization understands and believes in the importance of continuous improvement, the rest is a question of technique. If not, no techniques will do the job.

Given the large number of possible areas in an organization that could be improved, setting priorities is crucial, and there are several ways to do this. Many organizations rely on customer input and feedback to help set their priorities.7 For example, if late deliveries are the most common customer complaint, continuous improvement efforts should be directed at reducing delivery times. Often customers cannot see inside the organization to identify the root causes of problems, so some additional sorting out is generally necessary.

The time-honored tradition of the suggestion system has taken on a new life under TQ to serve this purpose. At Portman Equipment Company, an employee who sees an improvement opportunity fills out a Proposal for Change form, which initiates the formation of a team to attack the issue.9 At Wainwright Industries, employees fill out a short form describing their idea (which may be as simple as repairing a frayed

NO LAWYER JOKES HERE8

Implementing a continuous improvement process in most law firm cultures can be difficult. This is partly because lawyers’ compensation is directly linked to the number of hours they bill; many don’t see themselves as being able to devote time to a quality initiative, even though, in the long run, such a program would likely streamline their processes and give them more time. In a culture with many individual habits and idiosyncrasies, standardizing processes and procedures can be difficult, if not impossible.

Nevertheless, some firms have made remarkable progress. The 130-lawyer firm of Mays & Valentine in Richmond, Virginia, set up quality improvement teams. A short survey was mailed to clients to find out where the firm stood with its external customers. At the same time, an internal survey was administered to the entire firm to determine whether the firm’s culture was

receptive to the TQ philosophy. The firm’s executive committee carefully selected the mis- sion and objectives for each team. Based on the survey results, they chose areas for improve- ment as attorney responsiveness and accessi- bility to clients, the firm’s copying operations, and the use of alternative billing methods. Some of the changes that resulted included new stan- dards for responsiveness to clients, which were made firm policy; a new branch office telephone system; outsourcing copy center operations to Xerox; and new measurements for administrative systems such as computer performance, turn- over rate, central fax operations, speed of billing, complaints, and collection rates. Not only has service improved, but employees are more sat- isfied because they are asked for their input and encouraged to suggest ways to improve effectiveness.

Chapter 4: Tools and Techniques for Quality Improvement 153

extension cord before an accident occurs), and obtain a supervisor’s approval. The employee’s name is entered in a weekly drawing (a safety idea counts as three entries, and all members of a team idea receive an entry); the winner receives a gift certificate for whatever they want. The process is run entirely by employees without manage- ment involvement; they even set the program’s annual budget.

KAIZEN EVENTS

Many organizations apply kaizen thinking within a compressed time frame to solve an urgent problem. A kaizen event (often called a kaizen blitz) is an intense and rapid improvement process in which a team or a department throws all its resources into an improvement project over a short time period, as opposed to traditional kaizen applications, which are performed on a part-time basis. Kaizen event teams generally comprise employees from all areas involved in the process who understand it and can implement changes on the spot. Improvement is immedi- ate, exciting, and satisfying for all those involved in the process. One company, for example, ran two shifts per day, using 13 employees, and after 40 percent rework, yielded 1,300 pieces per day. The production line was unbalanced and work piled up between stations, which added to quality problems as the work-in-process was often damaged. After a three-day kaizen event, the team reduced the production to one shift of six employees and a balanced line, reducing rework to 10 percent and increasing yield to 3,500 pieces per day, saving more than $179,000.11

IMPROVEMENT PROCESSES

Managers need systematic approaches to drive continuous improvement programs. Some organizations follow some standard and popular approaches, while others develop unique approaches to meet their own needs and cultures. These approaches are routinely taught in employee training programs and form the basis for disciplined problem-solving efforts. For example, Eastman Chemical uses seven steps for accelerated continuous improvement.

KAIZEN EVENTS TO IMPROVE CITY GOVERNMENT10

Like most cities, Roswell, Georgia struggles to provide services such as community develop- ment, public works, law enforcement, transporta- tion, and recreation with limited tax revenues. Using a Kaizen event, the city streamlined the process for permits that allow businesses to develop their property; the focus was to improve cycle time and reduce cost and waste. In planning for the event, the city found that permit approval often exceeds 120 days. The process includes many stakeholders, including zoning, engineering, public works, and fire departments, resulting in

multiple handoffs and sign-offs. The majority of applications were incomplete or inaccurate. Cus- tomers found the process difficulty to navigate. A goal was set to reduce permit cycle time to an average of 75 days, increase the percentage of permits processed within that time from 31 to 66 percent, reduce non-value-added work, and reduce the average cost by 10 to 15 percent. A team of 15 from all stakeholder departments as well as customers was formed. Within three days, the team analyzed the process, evaluated poten- tial solutions, and created an implementation plan.

154 Part 1: Foundations of Quality and Performance Excellence

1. Focus and pinpoint. “Focus” is about getting everyone on the same page with regard to goals; “pinpoint” is about specifying in measurable terms what is expected.

2. Communicate. Communication is done company-wide by publicizing key result areas, the vision, and the mission statement so that employees can answer the questions: What is being improved? Why is it important to the customer, to the company, and to me? What has the management team committed to do to help? And what, specifically, is the company asking me to do?

3. Translate and link. Teams translate the company-wide objectives into their own language and environment.

4. Create a management action plan. Management creates a plan with specific actions to reach a goal, including metrics to measure success. Each team mem- ber is asked to know what tasks need to be done, why they are important, and what the team’s role is in getting them done.

5. Improve processes. Teams use a six-step problem-solving process. 6. Measure progress and provide feedback. Eastman is adamant about the

importance of unambiguous, visual feedback to employees and appropriate measures of performance. Eastman’s rules include: • Feedback should be visual, frequent, simple, and specific. • The baseline performance should be shown for comparison. • The past, current period, and future goals should be posted. • The best-ever score should be posted. • A chart should be immediately understandable. • A good scorecard allows comments and annotations.

7. Reinforce behaviors and celebrate results. Eastman reinforces that learning leads to positive results by encouraging teams at celebrations to answer the questions: What did you do? Why did it work? Why is it important for the customer, the company, and the team? How did the team accomplish its achievement?

Much of Eastman’s approach deals with organizational and cultural issues. How- ever, the real work is done in Step 5. Eastman points out that its formula cannot be blindly followed by others but must be adapted to the specific corporate culture. Nevertheless, the human principles are universal.

A structured improvement approach, which describes a logical, data-driven process for solving problems, generally includes four key steps:

1. redefining and analyzing the perceived problem, 2. generating ideas, 3. evaluating ideas and selecting a workable solution, and 4. implementing the solution.

In redefining and analyzing a problem, information is collected and organized, the data and underlying assumptions are analyzed, and the problem is reexamined from new perspectives. At this stage, the goal of the problem solver is to collect facts and achieve a useful problem definition. The purpose of generating ideas is to develop novel solu- tions. After ideas have been generated, they are evaluated and the best one is identified and selected. Finally, the solution must be put to work, for example, by making changes to processes or procedures. We discuss some of the more popular approaches.

Chapter 4: Tools and Techniques for Quality Improvement 155

THE DEMING CYCLE

One of the earliest approaches focused on quality improvement that can be learned and applied by everyone in an organization is the Deming Cycle. The Deming Cycle is a simple adaptation of the scientific method for process improvement. In 1939, Walter Shewhart first introduced this as a three-step process of specification, production, and inspection for mass production that “constitute a dynamic scien- tific process of acquiring knowledge.”12 These steps correspond to the scientific method of hypothesizing, carrying out an experiment, and testing the hypothesis. Shewhart depicted this process graphically as a circle to convey the importance of continual improvement. Deming modified his idea and presented it during his semi- nars in Japan in 1950. The “Deming wheel” consisted of:

• Design the product with appropriate tests. • Make the product and test in the production line and in the laboratory. • Sell the product. • Test the product in service and through market research to find out what users

think about it and why nonusers have not bought it.

Japanese executives adapted this into the PDCA cycle—Plan (design the prod- uct), Do (ensure that production makes the product as designed), Check (check sales/complaints and confirm whether the customer is satisfied), Act (use feedback to incorporate improvements in the next phase of planning). This became known as the Deming Cycle; Deming reintroduced this during his management seminars in the 1980s and changed “Check” to “Study,” calling it the PDSA cycle. Over the years, PDSA evolved into a more general process for both short-term continuous improve- ment and long-term organizational learning, well beyond its original focus on prod- uct design, based on contributions and writings by several quality practitioners.

The Deming Cycle is based on the premise that improvement comes from the application of knowledge.13 Knowledge of engineering, management, or operations may make a process easier, more accurate, faster, less costly, safer, or better suited to customer needs. Three fundamental questions to consider are

1. What are we trying to accomplish? 2. What changes can we make that will result in improvement? 3. How will we know that a change is an improvement?

StudyAct

Plan Do

StudyAct

Plan

FIGURE 4.2 | THE DEMING CYCLE

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156 Part 1: Foundations of Quality and Performance Excellence

The Deming Cycle is composed of four stages: Plan, Do, Study, Act (Figure 4.2). Sometimes it is called the PDSA cycle. The Plan stage consists of studying the current situation, gathering data, and planning for improvement. In the Do stage, the plan is implemented on a trial basis in a laboratory, pilot production process, or with a small group of customers. The Study stage is designed to determine whether the trial plan is working correctly and to see whether any further problems or opportunities can be found. The last stage, Act, is the implementation of the final plan to ensure that the improvements will be standardized and practiced con- tinuously. This leads back to the Plan stage for further diagnosis and improvement (see box “Crying Out for the Deming Cycle”).

As Figure 4.2 suggests, this cycle is never ending. That is, it is focused on con- tinuous improvement, so the improved standards serve as a springboard for further improvements. This distinguishes it from more traditional problem-solving approaches and is one of the essential elements of the Deming philosophy.

SIX SIGMA DMAIC METHODOLOGY

Six Sigma uses a systematic improvement approach known as DMAIC—Define, Measure, Analyze, Improve, and Control.

1. Define After a Six Sigma project is selected, the first step is to clearly define the problem. This activity is significantly different from project selection. Project selec- tion generally responds to symptoms of a problem and usually results in a rather

CRYING OUT FOR THE DEMING CYCLE14

Kevin Dooley and his wife applied the Deming Cycle and various quality tools to help stop their infant daughter from crying whenever her diaper was changed, which, as any new parent or older sibling knows, can break your heart or drive you crazy.

Their first cycle involved creating an experi- ment to determine the percentage of time crying while on the diaper changing table (Plan); col- lecting data on 15 diaper changes and plotting them on a run chart (Do); observing that the data appeared to be random (Study); and focusing on the steps involved in the changing process (Act). The second cycle involved developing a flow- chart to document the steps in changing a diaper (Plan); constructing the chart (Do); studying the process (which did not appear complex or incorrect—Study); and deciding to seek other causes (Act).

Cycles 3, 4, and 5 involved developing a cause-and-effect diagram, collecting data to test the hypothesis that the type of outfit worn caused her to cry more (studied with a Pareto diagram), and looking for correlations between the time crying and the time since last changing. In cycle 6, the Dooleys collected data to determine whether she cried less when being changed by her mother. Histograms confirmed a difference between the parents! Cycle 7 was to observe what Kevin’s wife did differently (Plan); make a list of key differences (Do); study the differences— his wife had captured the baby’s attention better—and develop some attention-getting strategies (Act).

The last cycle implemented these, and data indeed confirmed an improvement! We’re sure the Dooleys can’t wait to apply the Deming Cycle when it’s time to teach their daughter to drive….

Chapter 4: Tools and Techniques for Quality Improvement 157

vague problem statement. One must describe the problem in operational terms that facilitate further analysis. For example, a firm might have a history of poor reliabil- ity of electric motors it manufactures, resulting in a Six Sigma project to improve motor reliability. A preliminary investigation of warranty and field service repair data might suggest that the source of most problems was brush wear, and more spe- cifically, suggest a problem with brush hardness variability. Thus, the problem might be defined as “reduce the variability of brush hardness.” This process of drilling down to a more specific problem statement is sometimes called project scoping.

A good problem statement also should identify customers and the CTQs–criti- cal to quality characteristics–that have the most impact on product or service per- formance, describe the current level of performance or the nature of errors or customer complaints, identify the relevant performance metrics, benchmark best performance standards, calculate the cost/revenue implications of the project, and quantify the expected level of performance from a successful Six Sigma effort. The Define phase should also address such project management issues as what will need to be done, by whom, and when.

2. Measure This phase of the DMAIC process focuses on how to measure the internal processes that impact CTQs. It requires an understanding of the causal relationships between process performance and customer value. However, once they are understood, procedures for gathering facts—collecting good data, observa- tion, and careful listening—must be defined and implemented. Data from existing production processes and practices often provide important information, as does feedback from supervisors, workers, customers, and field service employees.

3. Analyze A major flaw in many problem-solving approaches is a lack of emphasis on rigorous analysis. Too often, we want to jump to a solution without fully understanding the nature of the problem and identifying the source of the problem. The Analyze phase of DMAIC focuses on why defects, errors, or exces- sive variation occur.

After potential variables are identified, experiments are conducted to verify them. These experiments generally consist of formulating some hypothesis to investi- gate, collecting data, analyzing the data, and reaching a reasonable and statistically supportable conclusion. Statistical thinking and analysis plays a critical role in this phase. It is one of the reasons why statistics is an important part of Six Sigma train- ing (and one that engineering and many business curricula often ignore). Other experiments might employ computer simulation techniques.

4. Improve Once the root cause of a problem is understood, the analyst or team needs to generate ideas for removing or resolving the problem and improve the performance measures and CTQs. This idea-gathering phase is a highly creative activity, because many solutions are not obvious. One of the difficulties in this task is the natural instinct to prejudge ideas before thoroughly evaluating them. Most people have a natural fear of proposing a “silly” idea or looking foolish. However, such ideas may actually form the basis for a creative and useful solution. Effective problem solvers must learn to defer judgment and develop the ability to generate a large number of ideas at this stage of the process, whether practical or not. After a set of ideas have been proposed, it is necessary to evaluate them and

158 Part 1: Foundations of Quality and Performance Excellence

select the most promising. This process includes confirming that the proposed solu- tion will positively impact the key process variables and the CTQs, and identifying the maximum acceptable ranges of these variables.

Problem solutions often entail technical or organizational changes. Often some sort of decision or scoring model is used to assess possible solutions against important crite- ria such as cost, time, quality improvement potential, resources required, effects on supervisors and workers, and barriers to implementation such as resistance to change or organizational culture. To implement a solution effectively, responsibility must be assigned to a person or a group who will follow through on what must be done, where it will be done, when it will be done, and how it will be done.

5. Control The Control phase focuses on how to maintain the improvements, which includes putting tools in place to ensure that the key variables remain within the maximum acceptable ranges under the modified process. These improvements might include establishing the new standards and procedures, training the workforce, and instituting controls to make sure that improvements do not die over time. Con- trols might be as simple as using checklists or periodic status reviews to ensure that proper procedures are followed, or employing statistical process control charts to monitor the performance of key measures. These topics are discussed in Chapter 7.

The box “Using DMAIC at American Express” shows an example of the DMAIC process.

USING DMAIC AT AMERICAN EXPRESS15

American Express used Six Sigma to improve the number of customers who received renewal cards. (In this example, data have been masked to protect confidentiality.) A brief description of how DMAIC was applied follows.

Define and Measure: On average in one year, American Express received 1,000 returned renewal cards each month. Of these renewals, 65 percent were due to the fact that the card members changed their addresses and did not tell the company. The U.S. Post Office calls these forwardable addresses. American Express does not currently notify a card member when they receive a returned plastic card.

Analyze: Analysis of the data noted significant differences in the causes of returned plastics between product types. Optima, the revolving card product, had the highest incidence of defects, but was not significantly different from other card types in the percentage of defects. Renewals had by far

the highest defect rate among the three areas of replacement, renewal, and new accounts. After additional testing, returns with forwardable addresses were overwhelmingly the largest percentage and quantity of returns.

Improve: An experimental pilot study was run on all renewal files issued, comparing records against the National Change of Address data- base. As a result, they were able to reduce the dpmo (defects per million opportunities) rate by 44.5 percent, from 13,500 to 6,036 defects per million opportunities. This action enabled over 1,200 card members who would not have auto- matically received their credit cards to receive them, increasing revenue and customer satisfaction.

Control: American Express began tracking the proportion of returns over time as a means of monitoring the new process to ensure that it remains in control.

Chapter 4: Tools and Techniques for Quality Improvement 159

CUSTOM IMPROVEMENT METHODOLOGIES

Numerous variations of the Deming Cycle and DMAIC exist. For example, an approach used by some hospitals and the U.S. Coast Guard is known by the acro- nym FADE: focus, analyze, develop, and execute. In the Focus stage, a team selects the problem to be addressed and defines it, characterizing the current state of the process, why change is needed, what the desired result should be, and the benefits of achieving that result. In the Analyze stage, the team works to describe the pro- cess in detail, determine what data and information are needed, and develop a list of root causes for the problem. The Develop stage focuses on creating a solution and implementation plan along with documentation to explain and justify recom- mendations to management who must allocate the resources. Finally, in the Execute stage, the solution is implemented and a monitoring plan is established.

Process-improvement methodologies are often aligned with the unique orga- nizational culture of many organizations. For example, Park Place Lexus, the first automobile dealer to receive the Baldrige Award, uses a process known as DRIVE—Define the problem, Recognize the cause, Identify the solution, Verify the actions, and Evaluate the results. Clearly, this acronym has meaning for the organization and is easy for employees to remember.

TOOLS FOR CONTINUOUS IMPROVEMENT

No matter which improvement approach is followed, many tools have been created or adapted from other disciplines (such as operations research and industrial engi- neering) to facilitate the process. In this section, we describe the most common ones used in quality improvement applications.

THE SEVEN QC TOOLS

Seven simple statistically-based tools are used extensively to gather and analyze data. Like the seven management and planning tools, these tools—flowcharts, check sheets, histograms, Pareto diagrams, cause-and-effect diagrams, scatter dia- grams, and control charts—are visual in nature and simple enough for anyone to understand. They are called the “seven QC (quality control) tools,” which is a bit of a misnomer as they deal primarily with improvement.

Flowcharts A flowchart (or process map) is a picture of a process that shows the sequence of steps performed. Figure 4.3 is an example. Flowcharts are best devel- oped by the people involved in the process—employees, supervisors, managers, and customers. A facilitator often is used to provide objectivity, to ask the right questions, and to resolve conflicts. The facilitator can guide the discussion through questions such as “What happens next?,” “Who makes the decision at this point?,” and “What operation is performed here?” Often the group does not agree on the answers to these questions, due to misconceptions about the process or a lack of awareness of the “big picture.”

Flowcharts help the people involved in the process to understand it better. For example, employees realize how they fit into a process—that is, who their suppliers

160 Part 1: Foundations of Quality and Performance Excellence

and customers are. By helping to develop a flowchart, workers begin to feel a sense of ownership in the process and become more willing to work on improving it. Using flowcharts to train employees on standard procedures leads to more consis- tent performance.

Once a flowchart is constructed, it can be used to identify quality problems as well as areas for improvement. Questions such as “How does this operation affect the customer?,” “Can we improve or eliminate this operation?,” or “Should we control a critical quality characteristic at this point?” help to identify such opportu- nities. Flowcharts help people to visualize simple but important changes that could be made in a process (see box “One Stop, 473 Steps”).

Check Sheets These tools aid in data collection. When designing a process to collect data, one must first ask basic questions such as:

• What question are we trying to answer? • What type of data will we need to answer the question? • Where can we find the data? • Who can provide the data? • How can we collect the data with minimum effort and minimum chance of

error?

Hire candidate

Training with operator checklist

Safety, quality, and procedures testing

Four-week evaluation

Solo with lead operator support

90-day evaluation

Press-certified

Reevaluate employee

Test passed? No

Yes

fail

pass

FIGURE 4.3 | EXAMPLE OF A FLOWCHART FOR TRAINING NEW PRINTING PRESS OPERATORS

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Check sheets are data collection forms that facilitate the interpretation of data. Quality-related data are of two general types—attribute and variable. Attribute data are obtained by counting or from some type of visual inspection: the number of invoices that contain errors, the number of parts that conform to specifications, and the number of surface defects on an automobile panel, for example. Variable data are collected by numerical measurement on a continuous scale. Dimensional characteristics such as distance, weight, volume, and time are common examples. Figure 4.4 is an example of a check sheet for discrete data (i.e, obtained by count- ing), and Figure 4.5 shows a check sheet for continuous measurements.

Histograms Variation in a process always exists and generally displays a pattern that can be captured in a histogram. A histogram is a graphical representation of the variation in a set of data. It shows the frequency or number of observations of a particular value or within a specified group.

Histograms provide clues about the characteristics of the population from which a sample is taken. Using a histogram, the shape of the distribution can be seen clearly, and inferences can be made about the population. Patterns can be seen that would be difficult to see in an ordinary table of numbers. The check sheet in Figure 4.5 was designed to provide the visual appeal of a histogram as the

Type

Lost baggage

Baggage delay

Missed connection

Poor cabin service

Ticketing error

Week 1 Week 2 Week 3 Week 4

FIGURE 4.4 | EXAMPLE OF A CHECK SHEET FOR DISCRETE DATA: AIRLINE COMPLAINTS

ONE STOP, 473 STEPS

When former Cincinnati City Manager Valerie Lemmie started her job, she asked building inspectors whether the city had a “one-stop shop” for building permits. They said, “Sure. You stop here once, you stop there once, and you stop there once.” What she found out was that a permit stops 473 times on its way from the initial application to the printer! After spending a week at City Hall and taking notes on every step of the process, a consultant hired to analyze the

Department of Buildings and Inspections ended up with about 30 feet of flowcharts that depicted the building permit process. Although Ms. Lemmie conceded that improvement wouldn’t be easy, an assistant noted that a lot of people wanted to know how they could do their jobs better. “They know everything that’s wrong with it probably more than anyone else. And more than anyone else, they need to be part of the solution.”16

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162 Part 1: Foundations of Quality and Performance Excellence

data are tallied. It is easy to see how the output of the process varies and what proportion of output falls outside of any specification limits.

Pareto Diagrams Pareto analysis is a technique for prioritizing types or sources of problems. Pareto analysis separates the “vital few” from the “trivial many” and provides help in selecting directions for improvement. It is often used to ana- lyze the attribute data collected in check sheets. In a Pareto distribution, the char- acteristics are ordered from largest frequency to smallest. For example, if the data in Figure 4.4 is placed in order of decreasing frequency, the result is:

1. Baggage delay 2. Poor cabin service 3. Missed connection 4. Lost baggage 5. Ticketing error

A Pareto diagram is a histogram of these data, as shown in Figure 4.6. A cumulative frequency curve is usually drawn on the histogram, as shown.

Such pictures clearly show the relative magnitude of defects and can be used to identify the most promising opportunities for improvement. They also can show the results of improvement projects over time.

Cause-and-Effect Diagrams The most useful tool for identifying the causes of problems is a cause-and-effect diagram, also known as a fishbone or Ishikawa

20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Frequency

Time to process loan request (days)

X X X X X XXXX X X X XXXX X X X XXXX X X XXXX X X XXX X XXX X XXX X XXX X XX X XX XX X X

FIGURE 4.5 | EXAMPLE OF A CHECK SHEET FOR CONTINUOUS DATA

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diagram, named after the Japanese quality expert who popularized the concept. A cause-and-effect diagram is simply a graphical representation of an outline that presents a chain of causes and effects.

An example is shown in Figure 4.7. At the end of the horizontal line is the problem to be addressed. Each branch pointing into the main stem represents a possible cause. Branches pointing to the causes are contributors to these causes. The diagram is used to identify the most likely causes of a problem so that further data collection and analysis can be carried out.

Cause-and-effect diagrams are usually constructed in a brainstorming setting so that everyone can contribute their ideas. Usually, small groups drawn from

Baggage delay Poor cabin service M

issed connection Lost baggage Ticketing error

Frequency

Cumulative Percent

Percent

100

FIGURE 4.6 | EXAMPLE OF A PARETO DIAGRAM ©

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operations or management work with an experienced facilitator. The facilitator guides the discussion to focus attention on the problem and its causes, on facts, not opinions. This method requires significant interaction among group members. The facilitator must listen carefully to the participants and capture the important ideas.

Scatter Diagrams Scatter diagrams illustrate relationships between hypothesized causes and effects, such as the percentage of an ingredient in an alloy and the hardness of the alloy, or the number of employee errors and overtime worked (Figure 4.8). Typically, these are obtained from cause-and-effect diagrams.

A general trend of the points going up and to the right indicates that an increase in one variable corresponds to an increase in the other. If the trend is down and to the right, an increase in one variable corresponds to a decrease in the

Client Time Rush request

Overload

Poor handwritingUnclear

directions

Word processing errors

No spell check

Training

Inattention

Did not understand directions

Typist

FIGURE 4.7 | EXAMPLE OF A CAUSE-AND-EFFECT DIAGRAM

Number of errors

Volume of work

FIGURE 4.8 | EXAMPLE OF A SCATTER DIAGRAM

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other. If no trend can be seen, then it would appear that the variables are not related. Of course, any correspondence does not necessarily imply that a change in one variable causes a change in the other. Both may be the result of something else. However, if there is reason to believe causation, the scatter diagram may provide clues on how to improve the process.

Control Charts These tools are the backbone of statistical process control (SPC), and were first proposed by Walter Shewhart in 1924. Control charts were intro- duced in the previous chapter. They are useful for identifying improvement oppor- tunities and verifying that improvements really do have the desired effect.

The seven QC tools provide excellent communication vehicles both vertically and horizontally across organizational boundaries (see box “Shooting for Quality”).

ROOT CAUSE ANALYSIS

Root cause analysis is an approach using statistical, quantitative, or qualitative tools to identify and understand the root cause, or the true source of a problem. You might recall that the purpose of DFMEA (Design Failure Mode and Effects Analysis), which we discussed in previous chapter, is to identify causes of product failures. Similar techniques are often used for root cause analysis. One simple approach for identifying the root cause is the “5 Why” technique.18 This approach forces one to redefine a problem statement as a chain of causes and effects to iden- tify the source of the symptoms by asking why, ideally five times. In a classic exam- ple at Toyota, a machine failed because a fuse blew. Replacing the fuse would have been the obvious solution; however, this action would have only addressed the

SHOOTING FOR QUALITY17

Timothy Clark observed that in basketball games, his son Andrew’s free-throw percentage averaged between 45 and 50 percent. Andrew’s process was simple: Go to the free-throw line, bounce the ball four times, aim, and shoot. To confirm these observations, Andrew shot five sets of 10 free throws with an average of 42 percent, showing little variation among the five sets. Timothy developed a cause-and-effect diagram (Figure 4.9) to identify the principal causes. After analyzing the diagram and observ- ing his son’s process, he believed that the main causes were not standing in the same place on the free-throw line every time and having an inconsistent focal point.

They developed a new process in which Andrew stood at the center of the line and

focused on the middle of the front part of the rim. The new process resulted in a 36 percent improvement in practice (Figure 4.10). Toward the end of the 1994 season, he improved his average to 69 percent in the last three games.

During the 1995 season, Andrew averaged 60 percent. A control chart (Figure 4.11) showed that the process was quite stable. In the sum- mer of 1995, Andrew attended a basketball camp where he was advised to change his shooting technique. This process reduced his shooting percentage during the 1996 season to 50 percent. However, his father helped him to reinstall his old process, and his percentage returned to its former level, also improving his confidence.

166 Part 1: Foundations of Quality and Performance Excellence

1 3 5 7 9 11 13 15 17 19 21 23 25

Before = 42% After = 57%

Practice session

N um

be r

of s

ho ts

m ad

FIGURE 4.10 | FREE-THROWING SHOTS MADE BEFORE AND AFTER IMPLEMENTING THE IMPROVEMENT (3/17/94–11/23/94)

Source: “Continuous Improvement on the Free-Throw Line” by Timothy Clark and Andrew Clark, Quality Progress, Oct. 1997, pp. 78–80.

Materials

Basketball

Regulation backboard and rim

People

Coach

Miss

Player Hit

Nothing but net

Touched rim

Measurement

Short

Right

Left

Long Low free-throw shooting percentage

Practice

Games

Environment Equipment Method

Outdoor Ritual

Indoor

Video camera

Shooting position

Focus point

Technique

FIGURE 4.9 | FREE-THROWING CAUSE-AND-EFFECT DIAGRAM Source: “Continuous Improvement on the Free-Throw Line” by Timothy Clark and Andrew Clark, Quality Progress, Oct. 1997, pp. 78–80.

Chapter 4: Tools and Techniques for Quality Improvement 167

symptom of the real problem. Why did the fuse blow? Because the bearing did not have adequate lubrication. Why? Because the lubrication pump was not working properly. Why? Because the pump axle was worn. Why? Because sludge seeped into the pump axle, which was the root cause. Toyota attached a strainer to the lubricating pump to eliminate the sludge, thus correcting the problem of the machine failure.

LEAN THINKING

Waste is the enemy of effective processes. Reducing waste of any kind encompasses both TQ and JIT practices and is a central theme in Japanese manufacturing man- agement. Poor processes waste time, money, material, effort, and customer good- will. Improving processes to reduce waste involves the concept of lean thinking. Lean is often used to refer to approaches initially developed by the Toyota Motor Corporation that focus on the elimination of waste in all forms, including defects requiring rework, unnecessary processing steps, unnecessary movement of materials or people, waiting time, excess inventory, and overproduction. A simple way of defining it is “getting more done with less.”19 It involves identifying and eliminat- ing non–value-added activities throughout the entire value chain to achieve faster customer response, reduced inventories, higher quality, and better human resources. As one article about Toyota observed, to see the Toyota production sys- tem in action is to “behold a thing of beauty.”

0 2 4 6 8 10 12 14 16 18 20

Upper control limit

Lower control limit

Practice session

N um

be r

of s

ho ts

m ad

FIGURE 4.11 | DETERMINING WHETHER THE FREE-THROW PROCESS IS STABLE (3/17/94–1/18/96)

Source: “Continuous Improvement on the Free-Throw Line” by Timothy Clark and Andrew Clark, Quality Progress, Oct. 1997, pp. 78–80.

168 Part 1: Foundations of Quality and Performance Excellence

Lean is facilitated by a focus on measurement and continuous improvement, cross-trained workers, flexible and increasingly automated equipment, efficient machine layout, rapid setup and changeover, just-in-time (JIT) delivery and scheduling, realistic work standards, worker empowerment to perform inspections and take corrective action, supplier partnerships, and preventive maintenance. Some of the benefits claimed by proponents of lean production include the following:

• At least 60 percent reduction in cycle times • 40 percent improvement in space utilization • 25 percent greater throughput • 50 percent reduction in work-in-process and finished goods inventories • 50 percent improvement in quality • 20 percent improvements in working capital and worker productivity

However, as one industry expert observed, it takes “an incredible amount of detailed planning, discipline, hard work, and painstaking attention to detail.” Surveys have noted that mid-sized and large companies are likely to be familiar with lean principles and have systems in place; however, few small manufacturing shops have much familiarity with the principles. Thus, considerable opportunity exists for this important economic sector.

Some of the general principles of lean include:20

1. Reducing handoffs. Every time a process is handed from one person or group to another, errors can occur (think of passing the baton in a relay race). Time is often wasted as one group waits for the other to finish or needs to consult with the first group before continuing.

2. Eliminating steps. The best way to save time on a step is not to do it at all. If the step does not add value to the product or service or make the product more attractive to customers, stop doing it. In manufacturing organizations, moving, storing, and inspecting products rarely add value and should be eliminated wherever possible.

3. Performing steps in parallel rather than in sequence. Unless one operation cannot be done until another is finished, why not do them both at once? Many organizations operate like two people doing the dishes, where one washes all the dishes that will fit in the drainer, then calls the other to dry them. When the drying is done, the dryer calls the washer back in and leaves again. Stupid? Yes, but that’s the way they’ve always done it.

4. Involving key people early. The point of this is to avoid having to do things over as a result of key people not having given their input until the process is under way. For years, manufacturing companies have had their engineers design entire products before consulting the manufacturing engineers who built them. The manufacturing engineers would then suggest a number of changes that the designers would reluctantly incorpo- rate into their designs. Many firms have changed this process to allow early involvement of manufacturing.21 This is one of the most common forms of process reengineering and is consistent with the TQ principle, “Do it right the first time!”

Chapter 4: Tools and Techniques for Quality Improvement 169

Lean thinking also uses a variety of tools:

• The 5S’s. The 5S’s are derived from Japanese terms: seiri (sort), seiton (set in order), seiso (shine), seiketsu (standardize), and shitsuke (sustain). They define a system for workplace organization and standardization. Sort refers to ensuring that each item in a workplace is in its proper place or identified as unnecessary and removed. Set in order means to arrange materials and equipment so that they are easy to find and use. Shine refers to a clean work area. Not only is this important for safety but, as a work area is cleaned, maintenance problems such as oil leaks can be identified before they cause problems. Standardize means to formalize procedures and prac- tices to create consistency and ensure that all steps are performed correctly. Finally, sustain means to keep the process going through training, commu- nication, and organizational structures.

• Visual controls. Visual controls are indicators for tools, parts, and production activities that are placed in plain sight of all workers so that everyone can understand the status of the system at a glance. Thus, if a machine goes down, or a part is defective or delayed, immediate action can be taken.

• Efficient layout and standardized work. The layout of equipment and processes is designed according to the best operational sequence, by physically linking and arranging machines and process steps most effi- ciently, often in a cellular arrangement. Standardizing the individual tasks by clearly specifying the proper method reduces wasted human movement and energy.

• Pull production. In this system (also described as kanban or JIT), upstream suppliers do not produce until the downstream customer signals a need for parts.

• Single minute exchange of dies (SMED). SMED refers to rapid changeover of tooling and fixtures in machine shops so that multiple products in smaller batches can be run on the same equipment. Reducing setup time adds value to the operation and facilitates smoother production flow.

• Total productive maintenance. Total productive maintenance is designed to ensure that equipment is operational and available when needed.

• Source inspection. Inspection and control by process operators guarantees that product passed on to the next production stage conforms to specifications.

Lean thinking can easily be applied to nonmanufacturing environments. Pure service firms such as banks, hospitals, and restaurants have benefited from lean principles. For example, banks require quick response and efficiency to operate on low margins, making many of their processes, such as check sorting and mortgage approval, natural candidates for lean enterprise solutions.22 Han- dling of paper checks and credit card slips, for instance, involves a physical process not unlike an assembly line. The faster a bank moves checks through its system, the sooner it can collect its funds and the better its returns on invested capital.

Six Sigma is a useful and complementary approach to lean production. For example, a cycle time reduction project might involve aspects of both. Lean

170 Part 1: Foundations of Quality and Performance Excellence

tools might be applied to streamline an order entry process. This application leads to the discovery that significant rework occurs because of incorrect addresses, customer numbers, or shipping charges and results in high variation of processing time. Six Sigma tools might then be used to drill down to the root cause of the problems and identify a solution. Because of these similarities, many industry training programs and consultants have begun to focus on “Lean Six Sigma,” drawing upon the best practices of both approaches. Both are driven by customer requirements, focus on real dollar savings, have the ability to make significant financial impacts on the organization, and can be used in nonmanufacturing environments.

However, some differences clearly exist between lean thinking and Six Sigma. First, they attack different types of problems. Lean approaches address visible problems in processes, for example, inventory, material flow, and safety. Six Sigma is more concerned with less visible problems, for example, variation in performance. Another difference is that lean approaches are more intuitive and easier to apply by anybody in the workplace, whereas many Six Sigma tools require advanced training and expertise of Black Belt or Master Black Belt spe- cialists, or consultant equivalents. For example, the concept of the 5S’s is easier to grasp than statistical methods. Thus, organizations might be well advised to start with basic lean principles and evolve toward more sophisticated Six Sigma approaches.

LEAN SIX SIGMA

As organizations developed Six Sigma capabilities to address conformance prob- lems, they began to realize that many important business problems fell into the cat- egory of efficiency problems and assigned these problems to Six Sigma belts and

MAKING PHARMACIES LEAN23

Lean tools have found increasing application in health care. One example is pharmacy services. Metro Health Hospital in Grand Rapids, Michi- gan, has used lean principles to reduce the time it takes to deliver medication to patients. They started by flowcharting the existing process and discovered that it took 166 minutes and required 14 different steps. Pharmacy technicians were spending three-quarters of their time trying to locate the medications and were often unavail- able to perform clinical duties. After analyzing the process, they identified several non–value-added

steps, and redesigned the process to improve flow and eliminate many of the non-value-added steps. In addition, they made changes to the physical layout by designing a “check” worksta- tion and a “to-go” workstation to minimize any mix-ups, as well as a “safe zone” where pharmacists could check orders without being disturbed. As a result they reduce the time to deliver medications to patients by one-third, and eliminated 5 steps in the process. A side benefit was quality improvement; errors decreased by 40 percent.

Chapter 4: Tools and Techniques for Quality Improvement 171

project teams. As a result, Six Sigma teams began to use tools of lean production to eliminate waste and non-value-added activities within processes. As the tools of Six Sigma and lean merged, the concept of Lean Six Sigma (LSS) emerged, drawing upon the best practices of both approaches. LSS can be defined as an integrated improvement approach to improve goods and services and operations efficiency by reducing defects, variation, and waste.

Both Six Sigma and lean are driven by customer requirements, focus on real dollar savings, have the ability to make significant financial impacts on the organi- zation, and can easily be used in nonmanufacturing environments (see the box “Best Buy Embraces Lean”). Both exploit data and logical problem solving analy- sis. For example, a cycle time reduction project might involve aspects of both. Lean tools might be applied to streamline an order entry process. This application leads to the discovery that significant rework occurs because of incorrect addresses, customer numbers, or shipping charges, and results in high variation of processing time. Six Sigma tools might then be used to drill down to the root cause of the pro- blems and identify a solution. An executive search firm, Avery Point Group, noted that more companies are looking for candidates who demonstrate a mix of lean and Six Sigma skills, even for companies that may not have a full-blown Six Sigma or lean deployment underway.24

BREAKTHROUGH IMPROVEMENT

Breakthrough improvement refers to discontinuous change, as opposed to the grad- ual, continuous improvement philosophy of kaizen. Breakthrough improvements result from innovative and creative thinking; often these are motivated by stretch goals, or breakthrough objectives. Stretch goals force an organization to think in a radically different way, and to encourage major improvements as well as incremen- tal ones. When a goal of 10 percent improvement is set, managers or engineers can usually meet it with some minor improvements. However, when the goal is 1,000 percent improvement, employees must be creative and think “out of the box.” The

BEST BUY EMBRACES LEAN25

Best Buy began to implement Lean Six Sigma in 2005 to focus on both creating efficiencies and enhancing the customer experience. They have trained over 500 Green Belts and have over 60 Black and Master Black Belts as part of an Enterprise Continuous Improvement Capability Team. One project involved the home installation process. The project was designed to improve the customer’s experience during appliance installa- tions. In one case, they determined that some dryer installations were unsuccessful because the

customer did not own certain necessary compo- nents. The LSS team collaborated with product buyers and vendors to create bundled kits of necessary installation parts that are delivered to the point of installation. This not only improved customer satisfaction but also streamlined the process and eliminated wasted trips and resche- duling. Another project involved optimizing the assortment of products and inventory levels within stores of different revenue levels to best service unique segments of customers.

172 Part 1: Foundations of Quality and Performance Excellence

seemingly impossible is often achieved, yielding dramatic improvements and boost- ing morale.

Two approaches for breakthrough improvement that help companies achieve breakthrough improvement are benchmarking and reengineering.

BENCHMARKING

Benchmarking is the search for best practices that will lead to superior perfor- mance. Benchmarking helps a company learn its strengths and weaknesses—and those of other leading organizations—and incorporate the best practices into its own operations. The term best practices refers to approaches that produce excep- tional results, are usually innovative in terms of the use of technology or human resources, and are recognized by customers or industry experts. Through bench- marking, a company discovers its strengths and weaknesses and those of other industrial leaders, and learns how to incorporate the best practices into its own operations. Benchmarking can provide motivation by helping employees to see what others can accomplish. For example, to meet a stretch target of reducing the time to build new 747 and 767 airplanes at Boeing from 18 months (in 1992) to 8 months, teams studied the world’s best producers of everything from computers to ships. By 1996, the time had been reduced to 10 months.26

Modern benchmarking was initiated by Xerox, an eventual winner of the Malcolm Baldrige National Quality Award. Xerox initially studied its direct com- petitors and discovered that:

• its unit manufacturing cost equaled the Japanese selling price in the United States;

• the number of production suppliers was nine times that of the best companies; • assembly-line rejects were ten times higher; • product lead times were twice as long; and • defects per hundred machines were seven times higher.

These results helped Xerox to understand the amount of change that would be required and to set realistic targets to guide its planning efforts.

Two major types of benchmarking are competitive and generic. Competitive benchmarking usually focuses on the products and manufacturing of a company’s competitors, as Xerox initially did. Generic benchmarking evaluates processes or business functions against the best companies, regardless of their industry. Xerox recognized the potential for improving all business processes and realized that better practices in service companies and other types of manufacturing firms could be adapted to its operations. For example, the warehousing and distribu- tion practices of L.L. Bean were adopted by Xerox. Thus, benchmarking should not be aimed solely at direct competitors (see box “Smart Bombs and Pink Cadillacs”).

In order to be effective, benchmarking must be applied to all facets of a busi- ness. For example, Motorola encourages everyone in the organization to ask “Who is the best person in my own field and how might I use some of their tech- niques and characteristics to improve my own performance in order to be the best (executive, machine operator, chef, purchasing agent, and so on) in my ‘class’?”

Chapter 4: Tools and Techniques for Quality Improvement 173

The benchmarking process can be described as follows:

1. Determine which functions to benchmark. These should have a significant impact on business performance and key dimensions of competitiveness. If fast response is an important dimension of competitive advantage, then processes that might be benchmarked would include order processing, purchasing, pro- duction planning, and product distribution. There also should be an indication that the potential for improvement exists.

2. Identify key performance indicators to measure. These should have a direct link to customer needs and expectations. Typical performance indicators are quality, performance, and delivery.

3. Identify the best-in-class companies. For specific business functions, bench- marking might be limited to the same industry: A bank in one state might benchmark the check-processing operations of a bank in another state. For generic business functions, it is best to look outside one’s own industry: a uni- versity financial aid office might benchmark a bank’s loan operation, for example. Selecting companies requires knowledge of which firms are superior performers in the key areas. Such information can be obtained from published reports and articles, industry experts, trade magazines, professional associa- tions, former employees, or customers and suppliers.

4. Measure the performance of the best-in-class companies and compare the results to your own performance. Such information might be found in pub- lished sources or might require site visits and in-depth interviews.

5. Define and take actions to meet or exceed the best performance. This usually requires changing organizational systems. Simply trying to emulate the best is like shooting at a moving target—their processes will continually improve. Therefore, attempts should be made to exceed the performance of the best.

Best practices can be found in any company, in any industry, anywhere in the world, and reengineering is the radical redesign of business processes to achieve sig- nificant improvements in performance. As an example of benchmarking, when Graniterock could not find any company that was measuring on-time delivery of concrete, it talked with Domino’s Pizza, a worldwide leader in on-time delivery of a rapidly perishable product (a characteristic shared with freshly mixed concrete) to acquire new ideas for measuring and improving its processes. By observing how a NASCAR pit crew worked, General Mills was able to cut the time it took work- ers to change a production line from one Betty Crocker product to another from 4.5 hours to 12 minutes. It also looked at how Stealth bomber pilots and mainte- nance crews cooperated and improved its own teamwork, cutting production costs by 25 percent at one plant.27

SMART BOMBS AND PINK CADILLACS

Although Xerox is credited with developing mod- ern approaches to benchmarking, the concept of benchmarking is not new.28 In the early 1800s,

Francis Lowell, a New England industrialist, trav- eled to England to study manufacturing techni- ques of the best British mill factories. Henry Ford

174 Part 1: Foundations of Quality and Performance Excellence

REENGINEERING

Reengineering (also known as process redesign) is the radical redesign of business processes to achieve significant improvements in performance. Reengineering focused on “breakthrough” improvement to dramatically improve the quality and speed of work and to reduce its cost by fundamentally changing the processes by which work gets done (see box “Reengineering for Cycle Time Reduction at Procter & Gamble”).

Reengineering involves asking basic questions about business processes: “Why do we do it?” and “Why is it done this way?” Such questioning often uncovers obsolete, erroneous, or inappropriate assumptions. Reengineering is often used when the improvements needed are so great that incremental changes to operations will not get the job done. Ten percent improvements can be created by tinkering, but 50 percent improvements call for process redesign. The goal is to achieve quan- tum leaps in performance. To illustrate the concept of reengineering, Intel Corpora- tion previously used a 91-step process costing thousands of dollars to purchase ballpoint pens—the same process used to purchase forklift trucks! The improved process was reduced to eight steps. In rethinking its purpose as a customer-driven, retail service company rather than a manufacturing company, Taco Bell eliminated the kitchen from its restaurants. Meat and beans are cooked outside the restaurant at central commissaries and reheated. Other food items such as diced tomatoes, onions, and olives are prepared off-site. This innovation saved about 11 million hours of work and $7 million per year over the entire chain.29

REENGINEERING FOR CYCLE TIME REDUCTION AT PROCTER & GAMBLE

One example of a reengineering effort to reduce cycle time was carried out by Procter & Gamble’s over-the-counter (OTC) clinical division, which conducts clinical studies that involve testing drugs, health care products, or treatments in humans.30 Such testing follows rigorous design,

conduct, analysis, and summary of the data col- lected. P&G had at least four different ways to perform a clinical study and needed to find the best way to meet its research and development needs. They chose to focus on cycle time reduction. Their approach built on fundamental

created the assembly line after taking a tour of a Chicago slaughterhouse and watching carcasses, hung on hooks mounted on a monorail, move from one work station to another. Toyota’s just- in-time production system was influenced by replenishment practices of U.S. supermarkets. Convex Computer Corporation sent its facilities manager to Disney World to see what they could learn about facilities management. And Texas

Instrument’s former Defense Systems and Electronics Group, makers of “smart bombs” and other advanced weapon systems, studied the kitting (order preparation) practices of six compa- nies, including Mary Kay Cosmetics (a pink Cadillac being a reward to their top salespeople), and designed a process that captured the best practices of each of them, cutting kitting cycle time in half.

Chapter 4: Tools and Techniques for Quality Improvement 175

The irony of reengineering is that, once the new process is in place, people often feel that the new way of operating is so much better, they should have thought of it long ago. Another common reaction is “Why did we ever do it like that in the first place?” The answer is often, “That’s the way we’ve always done it.” GE Chairman Jack Welch has compared his company to a 100-year-old attic, which has collected a lot of useless junk over the years.

Don’t discount common sense in reengineering processes. Often the old ways of doing things were a function of administrative, rather than customer-centered, thinking. In one plant, a product was boxed and wrapped to be sent from one side of the plant to the other, only to be unwrapped and unboxed. Why? Because the two parts of the plant were separate profit centers, and the first had to “sell” the product to the second!

ORGANIZATIONAL ISSUES IN PROCESS IMPROVEMENT31

Process improvement is a difficult activity to perform in many organizations; yet, it represents one of the most common types of organizational change. Success rates, however, are far from satisfactory. The organizational literature addresses the factors that facilitate or inhibit successful implementation. For example, one research study identified two factors critical to the long-term success of reengineering initiatives:

1. Breadth: the extent to which the process maps onto the dimensions of the business, from a single activity in one function to spanning the entire business unit; and

2. Depth: how many of the “depth levers”—structure, skills, IT systems, roles, measurements/incentives, and shared values—are manipulated.

Others have investigated resistance to change, top management support, diversity of human resources involved, methodological rigor, and the pay-offs associated with these efforts. Interestingly, some data suggest that success is more likely when sponsorship is strong; when mid-level managers, rather than top executives, spon- sor the projects; and when fact-based measurements drive the efforts (failed projects were often described qualitatively). In Chapter 11, we shall discuss organi- zational change further.

TQ principles: focusing on the customer, fact- based decisions, continual improvement, empowerment, the right leadership structure, and an understanding of work processes. An exam- ple is shown in Figure 4.12. The team found that final reports took months to prepare. Only by mapping the existing process did they fully

understand the causes of long production times and the amount of rework and recycling during review and signoff. By restructuring the activities from sequential to parallel work and identifying critical measurements to monitor the process, they were able to reduce the time to less than four weeks.

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Complete statistics

Draft statistical and medical summaries

Integrate summaries, make consistent with

basic protocol info in draft report

Integrate summaries in draft

report

Core teams meet to integrate comments,

final sign-off

Sequential review, negotiate changes

one-on-one

Perform quality control corrections

Circulate for final sign-off

Changes required?

Investigator signs final

report

Treatments complete

Complete statistics

Draft statistical and medical summaries

Perform quality control corrections

Board review of draft product

Treatments complete

Initial draft report prepared

from basic protocol info

during treatment phase

Investigator signs final

report

Yes

How a final report is actually prepared

How a final report should be prepared

FIGURE 4.12 | FINAL REPORT “IS” AND “SHOULD” PROCESS DESIGN Source: “More, Better, Faster from Total Quality Effort” by David A. McCamey, Robert W. Boggs, and Linda M. Bayuk, Quality Progress, Aug. 1999, pp. 43–50.

Chapter 4: Tools and Techniques for Quality Improvement 177

CREATIVITY AND INNOVATION

We introduced creativity and innovation in the context of product development in the previous chapter. Research studies have suggested that the achievement of busi- ness excellence requires a change-oriented environment where creativity of employ- ees is nurtured, developed, and sustained.32 Creativity and innovation are fundamental to improving both products and processes and need to be understood, developed, and supported within any organization. From the perspective of total quality, creativity and innovation are needed to better respond to customer needs, particularly the “exciters/delighters” that customers cannot articulate, and to develop the products and services that will position an organization strategically ahead of its competitors. They also are needed to support continuous improvement efforts, for example, to identify and refine unique and creative solutions to prob- lems. Finally, an environment that fosters creativity and innovation can motivate employees more than any extrinsic reward—“joy in work” as Deming used to say (see box “Creativity in the Heartland”).

In the Toyota production system, which has become the benchmark for world- class efficiency, a key concept is soikufu—creative thinking or inventive ideas, which means capitalizing on worker suggestions. (In Japanese, the word creativity has a literal translation as dangerous opportunity.) The chairman of Toyota once observed: “One of the features of Japanese workers is that they use their brains as well as their hands. Our workers provide 1.5 million suggestions a year, and 95 percent of them are put to practical use. There is an almost tangible concern for improvement in the air at Toyota.”33

Creativity is often motivated by an individual’s or group’s need to invent solutions from limited resources. The Japanese have shown remarkable creativity in developing solutions to manufacturing quality problems. This is no wonder, given the limited natural resources in Japan and the Japanese culture focused on eliminating waste and conserving every precious resource available. The largest source of creativity in any organization are the frontline employees. They gather a wealth of data and information about their work every day. To tap into their knowledge, companies must make creativity a key part of their culture and think of improvement as everybody’s job. This requires companies to empower their employees to allow them to put their ideas to work. We will address this further in Chapter 9.

Innovation and creativity are important aspects of the Baldrige Framework. Mechanisms used to encourage innovation and creativity within the criteria include:

1. The nonprescriptive nature of the criteria, which encourages innovative approaches and breakthrough thinking toward meeting the purpose of the specific items in the criteria. This channels activities toward purpose, not toward following procedures.

2. Customer-driven quality, which places major emphasis on the positive side of quality, and stresses enhancement, new services, and customer relationship management. Enhancing the positive side of quality relies heavily on creativity, usually more so than steps to reduce errors and defects, which tend to rely more on well-defined techniques.

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3. Continuous improvement and cycles of learning, which are stressed as integral parts of the activities of all work units. This encourages analysis and problem solving everywhere within the company.

4. Strong emphasis on cycle time reduction in all company operations, which encourages companies to analyze work processes, work organizations, and the value-added contributions of all process steps. This fosters change, innovation, and creative thinking in how work is organized and conducted.

5. Focus on future requirements of customers, which encourages companies to seek innovative and creative ways to serve needs.

CREATIVITY IN THE HEARTLAND

In 1994, three companies received the Baldrige Award: AT&T Consumer Communications Ser- vices (CCS), GTE Directories Corporation, and Wainwright Industries. AT&T CCS (the long- distance provider) and GTE Directories (which publishes and sells advertising for telephone directories and was since acquired by Verizon) are large, innovative firms with sophisticated tech- nologies and human resource development activities that support empowered teams and foster an atmosphere of creativity throughout their organizations. Both companies also offer a wide variety of training and education courses, includ- ing courses devoted specifically to creativity and innovation. It is not surprising that they have achieved remarkable results in product and service quality, customer satisfaction, and in various operational and financial measures.

Wainwright Industries, headquartered in rural St. Peters, Missouri, is considerably different from CCS and GTE. Wainwright is a small, family- owned business that manufactures stamped and machined parts for the automotive and other industries. Since initiating continuous improve- ment processes in 1991, Wainwright has seen continual, and sometimes dramatic, improve- ments in customer satisfaction, defect and scrap rates, work-related accidents, manufacturing cycle times, and quality costs. At the same time, market share, productivity gains, and profit margins have all increased.

Innovation is a way of life at Wainwright. Each associate averages more than one implemented improvement per week! That’s over 50 each year, in an industry that averages at most one sugges- tion per employee per year in the United States. Wainwright does not have the comparable resources available to large corporations like AT&T or GTE. The company spends a relatively high proportion of its budget on training, some of which is outsourced; yet, no formal creativity training is offered. What the company does have is a culture that exudes a spirit of creativity and innovation. The plant has a folksy, Midwestern atmosphere.

Everyone—up to the chairman of the board— wears a company uniform with his or her first name stitched on it. The human resources func- tion is called “The People Zone.” The training director is known simply as “The Training Guy.” And a stuffed duck is the company’s mascot and symbol of quality leadership.

Wainwright is an excellent example of how creativity, integrated within a traditional American company, can lead to exceptional improvements in quality and business performance. More important, when visitors tour the plant, they see clearly the spirit and enthusiasm exuded by Wainwright associates. The associates are having fun! Improving quality—and work itself— should be fun, and people have fun when they are creative.

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Many examples of creativity and innovation are seen in firms that have received the Baldrige Award. Among the many examples are:

• The benchmarking process, pioneered by Xerox. • The “run the business-change the business” paradigm of classifying organiza-

tional measurements, first introduced by Clarke-American Checks, and later adopted by many other Baldrige users, including health care organizations.

• Wainwright Industries’ practice of reenacting and videotaping workplace acci- dents for study and prevention.

Research has shown that people can be taught and learn to be more creative. Organizations need to understand how creative thinking tools can help to improve organizational performance and quality.

CREATIVITY AND ORGANIZATIONAL SYSTEMS

Warren Bennis, a recognized expert on leadership, noted: “There are two ways of being creative. One can sing and dance. Or one can create an environment in which singers and dancers flourish.” While the tools discussed in this chapter all help to promote creative thinking, they cannot be applied effectively in a noncrea- tive environment. Because management designs the organizational systems, man- agement is responsible for developing a climate conducive to creativity and innovation. The organizational literature contains many different recommendations for fostering creativity. Some of these are34:

• Remove or reduce obstacles to creativity within an organization. These obsta- cles include the various environmental blocks such as autocratic bosses, dis- tractions (constant meetings or phone calls), and lack of management support. In addition, creative people should be relieved of routine duties and adminis- trative chores.

• Match jobs to individuals’ creative abilities. Some people work best alone; others work better in groups. Some work well in 9-to-5 time frames; others require flex time. Managers need to be tolerant of individual idiosyncrasies, nonconformity of dress codes, frequent coffee breaks, and so on.

• Tolerate failures and establish direction. Creative people need an atmosphere that allows radical ideas without being harshly judged. Seemingly silly ideas often turn into the best products. However, appropriate direction must be given, and realistic goals and objectives must be set to maintain a sense of urgency. (See box “Learning from Failure” for some examples).

• Improve motivation to increase productivity and solve problems creatively. Creative accomplishments should be recognized publicly, to peers, superiors, and upper management. Such recognition increases both self-esteem and motivation.

• Enhance the self-esteem and build the confidence of organization members. Creative individuals are at their best when their minds are challenged—not their security or ego. Job security, adequate wages, and job satisfaction enhance an individual’s self-confidence and security.

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• Improve communication so that ideas can be better shared. This is certainly true within an organization. Creative individuals also have the need to com- municate with peers outside the organization; such activities should be encour- aged. Creative people need a sounding board for their ideas and continuous feedback from their efforts.

• Place highly creative people in special jobs and provide training to take advantage of their creativity. Establish career paths and financial rewards so as not to disadvantage creative people who are not part of the line organization.

If you examine carefully the underlying principles of Deming’s 14 Points, you see many similarities with attitudes and organizational structures that support creativity. This is particularly true in the elimination of fear, the removal of bar- riers that inhibit joy in work, elimination of numbers driven and short-term goal- driven management, a focus on continuous improvement, leadership, and contin- ual training and education. Fear, in particular, is a creativity killer. The head of a corporate legal office commented that “when someone tries to use fear to moti- vate me, I get all tied up. I get less creative and less willing to take chances, and you’ve got to take risks to do good work.” A midlevel manager observed, “Where there is a lot of fear of screwing up, people don’t change behaviors or work systems. Creativity is inhibited. People work one day at a time, rather than looking to the future.”36 Generally, the cultures of most organizations do not support the conditions that lead to creative behavior. Cultural change, education, and training are necessary to develop a creative climate.

Leadership, in particular, can have a significant influence on creativity.37

Researchers have noted that personality, cognitive style orientation, and level of intrinsic motivation are core characteristics for employee creativity. Cognitive style is the natural orientation or preferred means of problem solving. An individual

LEARNING FROM FAILURE35

New product development is a tricky business; many, if not most, new ideas, never see the light of day, and some are utter failures if they hit the market. For instance, Virgin Atlantic Airways rolled out new sleeper seats in business class, but customers complained about sliding and dis- comfort. Similarly, Coca-Cola has experimented with many new products over the years. You probably never heard of Choglit or OK Soda, but these were products that never succeeded. Was the company embarrassed? Hardly. The chairman told investors that failure is a consequence of taking risk, and that bigger risks and possible

failures must be accepted if the company is to move forward.

Experts say that failure should be encour- aged, and that failures can provide new and useful insights about customers and customer behavior. They suggest that companies need to “get good at failure” by creating an environment in which risk-taking is accepted and employees share the lessons learned from mistakes. Virgin Atlantic, for example, kept innovating and taking risks, and spent $127 million to launch a new seat design, which was a solid success.

Chapter 4: Tools and Techniques for Quality Improvement 181

with an innovative cognitive style will seek and integrate diverse information, rede- fine posed problems, and generate novel ideas. Those with adaptive cognitive styles will tend to use data within a well-established domain, accept problems as defined, and generate ideas consistent with accepted convention. When people enjoy creativity-related tasks, their level of creative output is high. Researchers have dis- covered that creativity does not appear to be enhanced for employees working with supervisors having similar cognitive styles. In particular, those with innovative cognitive styles receive little benefit from working with supervisors who also exhibit creative tendencies, probably because they already possess the skills, confi- dence, and values to be creative. However, it appears that when employees work with supervisors who possess a similar intrinsic motivation, creative performance is enhanced.

Researchers also have found that when employees with a low intrinsic moti- vation for creativity are assigned to high intrinsic motivation supervisors, they pro- duced lower creative output, perhaps because such supervisors may unintentionally intimidate or suppress creativity of these employees.

These findings have practical implications for selecting, assigning, and training employees. Managers must consider individuals’ motivation to be crea- tive. Identifying and assigning employees with the appropriate motivational ori- entation for jobs involving creative tasks is likely to enhance innovation.

Placing a supervisor with a true appreciation for creative work among employees with the motivation to create is also useful. The ability and willing- ness of supervisors to create positive experiences conducive to creativity may provide a powerful and effective means by which organizational creativity can be enhanced. We will discuss issues of leadership and motivation further in later chapters.

PROCESS IMPROVEMENT IN ACTION

In this section, we provide some examples of organizations that have used the tools and techniques described in this chapter to improve their processes.

GENERAL ELECTRIC38

Jack Welch, former CEO of General Electric for over 20 years, has been recog- nized as one of the greatest corporate leaders of the twentieth century. In his first letter to GE shareholders in 1981, he noted that “This commitment to the utmost in quality and personal excellence is our surest path to continued business suc- cess. Quality is our best assurance of customer allegiance. It is our strongest defense against foreign competition and the only path to sustained growth and earnings.” Mr. Welch’s approach to business improvement has gone through three cycles of learning:

182 Part 1: Foundations of Quality and Performance Excellence

businesses permitted a better use of working capital. However, only so much gain can result from trimming the organization or eliminating bureaucracy. This led to the next phase of learning.

2. During the late 1980s to mid-1990s, he focused the company on simplifying and eliminating non–value-added activities through creative efforts of teams using Work-Outs and the Change Action Process (later renamed the Change Acceleration Process). Work-Out is a tool for involving all people from all ranks, levels, and functions of the organization for problem solving and improvement. Work-Out demolished the artificial barriers and walls within the organization and fostered the idea of “boundaryless learning.”

3. Throughout his learning journey, Welch had challenged his people to keep looking for creative ways to apply new learning from any source to improve the business. In 1995, Welch discovered Six Sigma and studied its implemen- tation at both Motorola and Allied Signal. This phase of discovery focused on the elimination of variation from already lean business operations to drive gains in productivity and financial performance with a better focus on the customer.

Welch’s process for continuous learning led to the discovery that business must simplify first, then automate best practice that has been designed for robust perfor- mance in the face of variation in business conditions. As Welch noted, “It is this passion for learning and sharing that forms the basis for the unrelenting optimism with which we view the future, and for the conviction that our greatest days lie ahead.”

Although Mr. Welch has been retired for many years, GE has continued to use and embrace Six Sigma, lean, and many other quality improvement tools in its work processes. Every GE employee is trained in Six Sigma and most have at least a Green Belt certification. These are embedded in the company’s values and daily work; for instance, one of the published values of GE Capital Rail Services is Quality, and is explained as follows:

Delivers customer value in all products, services and processes. Gives quality at least as much consideration as schedules and budgets when day-to-day choices need to be made. Demonstrates passion to meet Lean Six Sigma goals and drive bottom line results through defect reduction and waste elimination.39

FROEDTERT HOSPITAL40

Medication administration and laboratory processing/results reporting are exam- ples of complex systems in health care that are known to be error prone. At Froedtert Hospital in Milwaukee, Wisconsin, errors with IV medication drips and laboratory processing and results reporting were well documented. Additionally, errors in ordering, transporting, analyzing, and reporting clinical laboratory tests were known to be a significant source of error at the hospital. A consortium was created by four Milwaukee-based organizations committed to the development of an approach to use Six Sigma to reduce errors and improve patient safety.

The design employed the classic Six Sigma DMAIC process. A multi- disciplinary group of physicians, nurses, pharmacists, and administrators identified

Chapter 4: Tools and Techniques for Quality Improvement 183

medication delivery by continuous IV infusions as a process subject to substantial error. Continuous IV infusions are used in many clinical settings, and errors can severely impact patient well-being. Team members developed a process map (flow- chart) to delineate each step in the procedure for continuous IV medication infu- sion: (1) physician order, (2) order review, (3) pharmacist order entry, (4) dose preparation, (5) dose dispensing, (6) infusion rate calculation, (7) IV pump setup, (8) pump programming, and (9) pump monitoring. Each of the steps was analyzed to identify possible points of failure and effects of failures based on frequency of occurrence, detectability, and severity. The analysis confirmed that IV rate calcula- tions and IV pump setup were the two most error-prone steps in the IV infusion process, and initial efforts to determine the causes and reduce errors focused on these two steps. Specific interventions included implementation of standardized physician order sheets, a policy requiring preparation of all IV medications in a standard concentration, and use of color-coded labels when nonstandard concen- trations were in use. Thirty days after implementation, measurable improvement was evident. Level 1 discrepancies fell from 47.4 percent to 14 percent. Level 2 dis- crepancies fell from 21.1 percent to 11.8 percent, and level 3 discrepancies fell from 15.8 percent to 2.9 percent.

Using Six Sigma methods and statistical tools, the team also examined the hospital’s clinical laboratory process. Key elements in the acquisition, laboratory analysis, and reporting of patient specimens were identified. The steps included (1) physician order, (2) order entry, (3) matching the order to the patient, (4) collecting the specimen, (5) labeling the specimen, (6) transporting the specimen, (7) analyzing the specimen, (8) reporting the results, and (9) entering the results into the patient’s chart. Each of these steps is subject to error. Applying Six Sigma analysis, the most critical steps leading to errors were: order entry by the unit clerical staff, transportation of the specimens to the lab, and analysis of specimens in the lab. A laboratory error reduction task force was established that included members from administration, lab, nursing, clerical staff, information systems, and quality management. The task force used various Six Sigma tools to analyze the clinical laboratory problem in depth and prioritize the steps in the laboratory analysis in terms of their vulnerability to error.

BOEING41

The Boeing C-17 On-Board Inert Gas Generating System (OBIGGS) II improve- ment project team completely redesigned a system that prevents fuel tanks from exploding if struck by enemy gunfire. This project resulted in one of the strongest systems on the C-17. The group was one of three teams to earn a silver medal in the 2007 International Team Excellence Competition sponsored by American Soci- ety for Quality’s Team and Workplace Excellence Forum.

Although the previous system, OBIGGS I, successfully protected the fuel tanks, it required frequent maintenance. The low system reliability caused high repair costs, many labor hours, and airplanes that were not mission capable. The team realized that improving the OBIGGS reliability would have more impact on the air- plane’s reliability than almost any other system.

The team included more than 200 Boeing employees, 150 suppliers, and 50 Air Force members. The team used data, quality tools, and quality concepts, including

184 Part 1: Foundations of Quality and Performance Excellence

a Pareto analysis and brainstorming, to first select the project and then to determine the root causes of the problem. Stakeholders were closely involved in the entire process, especially in identifying the root causes and project selection, because the project was customer funded. Stakeholders included engineering groups, support systems groups, and Air Force customers and suppliers.

One of the most important tools the team used was maintenance data from the Air Force that provided the best source for identifying component failures, because the records were generated by pilots and maintenance crews at the time of failure. From these records, Boeing also created a tool to capture the time required to maintain each of the aircraft systems. From there, the team established a list of pos- sible root causes of the need for frequent maintenance. Team members discussed which components had inherent design weaknesses, where maintenance malprac- tices were occurring, why some components would fail again shortly after being repaired, and why some troubleshooting procedures were lacking. The team also used suppliers’ repair databases to obtain detailed information about the specific cause of each failure. Lastly, the team used Failure Modes Effects Analysis (FMEA) during the search for the final root cause.

Team members found that not only were the system’s components failing far too often but that it also took too long to initialize the system and placed unneces- sary stress on other systems. The system’s drain on maintenance—both in time and money—was significant. The team discovered it was generally successful in fixing the original root causes of the component failures. However, team members also found that when the parts lasted longer, new failure modes appeared and prevented the breakthrough reliability improvement expected. The team found that even after implementing multiple component design changes, the system was not achieving the reliability improvement expected. Additionally, they realized that because the system was so complex, the reliability goal it was shooting for would always be perceived as being too low and the Air Force would always be unhappy with its performance. Furthermore, after conducting a FMEA of the entire OBIGGS I using detailed analysis results, the team concluded there were far too many failure modes, leading to the conclusion that OBIGGS I was just too complex to fix! As a result, they decided to completely redesign the system.

The team used a variety of quality tools to develop a possible solution for the redesign, including brainstorming and benchmarking suppliers. Team members analyzed four possible solutions and defined the architecture and required perfor- mance for each. A quality function deployment (QFD) analysis defined the relation- ship between each design criterion and the system requirements. A trade study to select the final solution was conducted following the standard Boeing systems engi- neering practice for optimizing a balanced tradeoff of requirements among various engineering design alternatives.

After several planes with OBIGGS II were delivered, a new reliability evalua- tion verified that reliability targets were met. Both the tangible and intangible results greatly exceeded everyone’s expectations for the system. The redesign:

• Increased system reliability by 7,400 percent. • Reduced initialization time by a factor of 11. • Reduced weight by 517 pounds, allowing for increased cargo capacity.

Chapter 4: Tools and Techniques for Quality Improvement 185

• Achieved 20 percent system savings and 3:1 life-cycle cost savings. • Improved customer satisfaction and strengthened stakeholder relationships. • Caused Boeing to become the industry leader in inerting system design. • Incorporated an open architecture design that reduced the cost of future

improvements. • Achieved an aggressive financial improvement by reducing logistic and

production costs and earning excellent ratings from customers.

Discussion Questions and Experiential Exercises

1. What are the key features of Iredell-Statesville Schools that support continuous improvement?

2. Why must processes be repeatable and mea- surable in order to improve them?

3. How could you improve your process for studying for an exam? Getting to class on time? Cleaning your room or apartment?

4. The kaizen philosophy seeks to encourage suggestions, not to find excuses for failing to improve. Typical excuses are “If it’s not broken, don’t fix it,” “I’m too busy to work on it,” and “It’s not in the budget.” Think of at least five other excuses people give for why they don’t try to improve.

5. How does kaizen differ from a kaizen event? 6. What is the Deming Cycle? Explain the

activities that make up each step. 7. Identify a problem in your life. Outline a plan

for using the Deming Cycle to improve it. 8. Explain the Six Sigma DMAIC methodol-

ogy. How is it similar to or different from the Deming Cycle?

9. Discuss how DMAIC might be used in your personal life. For example, how could you use it if you wanted to lose weight or improve a skill such as playing a musical instrument?

10. A consultant told the story of two Six Sigma teams that made separate presentations on how they would improve processes in their own areas. At the end of the second presen- tation, the consultant asked a basic question that stopped both Black Belt team leaders in their tracks: “Haven’t you both just proposed making improvements based on eliminating parts of processes in the other group’s areas?

It seems that the implementation costs in one area will cancel out the savings in the other area!” What had the Black Belts failed to recognize? What would you recommend to prevent this situation from happening in other organizations?

11. Try to develop a memorable acronym for an improvement methodology for a hospital, school, or other specific industry similar to the DRIVE process used by Park Place Lexus as explained in this chapter.

12. Explain the purpose and uses of each of the “seven QC tools.”

13. Select a process that you do routinely (for example, washing your car, preparing for an exam, cooking a meal) and draw a flow- chart of it. Describe how the flowchart helps you to understand and improve the process.

14. A flowchart for a fast-food drive-through window is shown in Figure 4.13. Discuss the important quality characteristics inherent in this process and suggest possible improvements.

15. Design a check sheet to help a high school student who is getting poor grades on a math quiz determine the source of his or her difficulty.

16. Develop cause-and-effect diagrams for (a) a poor exam grade, (b) no job offers, (c) too many speeding tickets, and (d) being late for work or school.

17. Discuss what would be the most appropriate tool to use to attack each of these problems: a. A copy machine suffers frequent paper

jams and users are often confused as to how to fix the problem.

186 Part 1: Foundations of Quality and Performance Excellence

b. The publication team for an engineering department wants to improve the accu- racy of its user documentation but is unsure of why documents aren’t error- free.

c. A rental car agency is getting numerous complaints about the length of time that customers have to wait to obtain a car. They need to get a better handle on the factors that relate to the wait time.

d. A kitchen in a restaurant always seems to be getting orders mixed up and plated incorrectly.

e. A local zoo wants to understand where its guests come from in order to better target marketing efforts.

f. A contracting agency wants to investi- gate why they had so many changes in their contracts. They believe that the number of changes may be related to the dollar value of the original contract or

the days between the request for pro- posal and the contract award.

g. A travel agency is interested in gaining a better understanding of how call volume varies by time of year in order to adjust staffing schedules.

18. What is lean thinking? Describe some of the popular tools used in lean applications.

19. Explain how Six Sigma can complement lean thinking.

20. Give some examples of breakthrough improvement. How can the notion motivate workers? What must management do to ensure success?

21. Discuss how a college or university might apply benchmarking to improving its opera- tions. You might solicit views from academic administrators and from business people. (You might find some differences of opinion!)

22. What is reengineering? How can bench- marking support reengineering efforts?

Customers pull up to sign and decide what they

want to order

Bell rings inside

Employee says, “May I help you?”

Customer gives order

Customer gives money

Employee repeats order and gives total

Employees process order

Customer waits and drives through

Customer and food reach window

Customer pulls away

Employee repeats total

Employee gives food and change

FIGURE 4.13 | FLOWCHART OF A FAST-FOOD DRIVE-THROUGH PROCESS

g ag

e Le

ar n in g

Chapter 4: Tools and Techniques for Quality Improvement 187

23. Explain how creativity is embodied in the various tools and approaches described in this chapter.

24. In his book Weird Ideas That Work (New York: Free Press, 2002), Robert I. Sutton sug- gests 11½ practices for promoting, managing, and sustaining innovation. These include: • hiring “slow learners” (of the organiza-

tional code); • hiring people who make you uncom-

fortable, even those you dislike; • encouraging people to ignore and defy

superiors and peers; • finding some happy people and getting

them to fight; • thinking of some ridiculous or impracti-

cal things to do, then planning to do them; and

• forgetting the past, especially your com- pany’s successes.

Why do you think these practices work? (If you have few ideas, you should probably read the book!)

25. Propose some reasons to support the find- ings that successful process improvement changes are more likely when sponsorship is strong; when mid-level managers, rather than top executives, sponsor the projects; and when fact-based measurements drive the efforts.

26. Think of a casual dining restaurant that you frequent. The process of fulfilling customer’s needs and creating a satisfying dining expe- rience begins when the customer walks through the door and ends when the cus- tomer leaves. Using process mapping, lean, and other process management techniques described in this chapter, design the overall process and subprocesses that would create a good customer experience.

CASES

The State University Experience Revisited

Refer back to the State University Experience case in Chapter 3. As a consultant to this institution, outline a plan to improve the design of the student experience. Draw upon ideas presented in this chapter, such as Motorola’s approach to process design and the Six Sigma DMAIC methodology. Present your findings in a neatly organized report.

Burger Business Machines42

Burger Business Machines sells and services a variety of copiers, computers, and other office equipment. The company receives many calls daily for service, sales, accounting, and other departments. All calls are handled centrally by customer service representa- tives and routed to other individuals as appropriate.

A number of customers had complained about long waits when calling for service. A market research study found that customers became irritated if the call was not answered within five rings. Patricia Burger, the company president, authorized the customer service department manager, Tim, to study this problem and find a method to shorten the call-waiting time. Tim

met with the service representatives who answered the calls to attempt to determine the reasons for long wait- ing times. The following conversation ensued:

TIM: This is a serious problem. How a customer phone inquiry is answered is the first impression the customer receives from us. As you know, this com- pany was founded on efficient and friendly service to all our customers. It’s obvious why customers have to wait: You’re on the phone with another customer. Can you think of any reasons that might keep you on the phone for an unnecessarily long time?

ROBIN: I’ve noticed quite often that the person to whom I need to route the call is not present. It takes time to transfer the call and to see whether it is answered. If the person is not there, I end up apologiz- ing and transferring the call to another extension.

TIM: You’re right, Robin. Sales personnel often are out of the office on sales calls, away on trips to preview new products, or away from their desks for a variety of reasons. What else might cause this problem?

RAVI: I get irritated at customers who spend a great deal of time complaining about a problem that I can- not do anything about except refer to someone else.

188 Part 1: Foundations of Quality and Performance Excellence

Of course, I listen and sympathize with them, but this eats up a lot of time.

LAMARR: Some customers call so often, they thinkwe’re long-lost friends and strike up a personal conversation.

TIM: That’s not always a bad thing, you realize.

LAMARR: Sure, but it delays my answering other calls.

NANCY: It’s not always the customer’s fault. During lunch, we’re not all available to answer the phone.

RAVI: Right after we open at 9 A.M., we get a rush of calls. I think that many of the delays are caused by these peak periods.

ROBIN: I’ve noticed the same thing between 4 and 5 P.M.

TIM: I’ve had a few comments from department man- agers who received calls that didn’t fall in their areas of responsibility and had to be transferred again.

MARK: But that doesn’t cause delays at our end.

NANCY: That’s right, Mark, but I just realized that sometimes I simply don’t understand what the custo- mer’s problem really is. I spend a lot of time trying to get him or her to explain it better. Often, I have to route it to someone because other calls are waiting.

RAVI: Perhaps we need to have more knowledge of our products.

TIM: Well, I think we’ve covered most of the major reasons why many customers have to wait. It seems to me that we have four major reasons: the phones are short-staffed, the receiving party is not present, the customer dominates the conversation, and you may not understand the customer’s problem. Next we need to collect some information about these possible causes. I will set up a data collection sheet that you can use to track some of these things. Mark, would you help me on this?

Over the next two weeks, the staff collected data on the frequency of reasons why some callers had to wait. The results are summarized as follows:

Reason Total number

Operators short-staffed 172

Receiving party not present 73

Customer dominates conversation 19

Lack of operator understanding 61

Other reasons 10

Discussion Questions 1. From the conversation between Tim and his

staff, draw a cause-and-effect diagram. 2. Perform a Pareto analysis of the data collected. 3. What actions might the company take to

improve the situation?

Hotstone Tires43

Hotstone makes tires for the automotive market. Employees noticed that there is a great deal of conges- tion at the shipping dock as pallets of material that had been picked in the warehouse were waiting to be moved by forklifts to outbound tractor-trailers. Ware- house stock-picking employees had to wait their turn, move the product onto the trucks, and return to a dis- tant location in the warehouse to pick up another order to process.

You have been assigned as a Lean Six Sigma project manager to improve this process. Write a project charter and discuss what information you would need to collect in order to perform the improvement project. How might the DMAIC pro- cess be used to systematically tackle this project? Also, discuss what tools you would most likely use in the project.

Tati, Inc.44

Tati, Inc. started as a small, family-owned company. For a long time, owners managed most of the opera- tions, including billing, and customers were happy. Over time, the company grew steadily and acquired plants in the United States and many other coun- tries. Most of its operations were departmentalized, and the accounting systems varied among the many companies Tati acquired. While Tati successfully dealt with most of the problems caused by rapid growth, it remained unable to get a grip on billing errors. The customer service and billing depart- ments were often flooded with complaints about erroneous bills.

The billing process at Tati evolved over time, resulting in a lack of consistency among billing per- sonnel. Customer order taking and billing procedures were confusing, inadequate, and obsolete. Not all billing clerks had the same level of knowledge and training. A lack of documentation added to the con- fusion and aggravated the situation. Billing personnel

Chapter 4: Tools and Techniques for Quality Improvement 189

followed the policies and procedures they thought were reasonable and did things the way they felt was right.

To get a handle on its billing problem, the president appointed a Six Sigma team composed of employees with various interdisciplinary backgrounds and expertise. The team discussed the problem, researched Six Sigma

and lean tools and techniques, learned from other com- panies, and consulted with experts in the field.

The first thing the team did was study the billing process and prepare a flowchart (see Figure 4.14). The team then reviewed how billing errors were resolved. Most scenarios followed a similar path: A customer calls to inquire about a bill and listens

Mail Telephone Salesperson

Orders received

Order preparation

Order verification

Order complete?

New customer

Order sent to accounting and shipping

Accounting prepares invoice

Shipping checks stock

Set up customer account

Items in stock

Shipment made

Back order placed

Yes

FIGURE 4.14 | FLOWCHART OF TATI, INC. BILLING PROCESS Source: From “A Less Costly Billing Process” by Lakshmi U. Tatikonda, Quality Progress, January 2008, pp. 31–39.

190 Part 1: Foundations of Quality and Performance Excellence

to a prerecorded message with menu options. The customer listens to several options that don’t describe his or her particular problem and gets frustrated when the system only deals with select inquiries. After several minutes, the customer finally gets to speak to a customer service representative, but only after being put on hold or bounced from one repre- sentative to another, forcing the customer to repeat the problem several times. Finally, the customer is assured that the problem will be corrected, only to have the next month bring the same bill, the same error, the same complaint, the same aggravation and, in the end, the company’s loss of an annoyed customer.

A further study revealed many different types of billing errors:

• Bills with wrong prices and charges • Bills sent to the wrong customer • Bills sent to the wrong address • Double billing and late billing • Billing for unordered goods • Billing for returned goods • Billing before the goods were shipped

A Pareto analysis showed that 70 percent of the errors were due to an incorrect amount on the bill or billing for unordered goods. Using cause-and-effect diagrams, the Six Sigma team brainstormed potential causes and explored them in depth (see Figure 4.15).

To gain a better understanding of the sources of communication errors, the team members decided to walk through the billing activities. Customer orders arrived via mail, fax, and phone. At each step, they were batched and queued for processing. The main steps included order taking (folders made for each cus- tomer); order preparation (current and new customers sorted, information added); and order pricing, ship- ping, and billing. Table 4.1 provides a detailed description of the activities.

Using the information provided, outline specific steps that you would recommend to improve the pro- cess. Include a list of performance metrics that you would recommend that the company monitor to track the efficiency and effectiveness of the process. Summarize your results in a formal report to the com- pany’s management.

Wrong information from order processing

Infrequent price update

Obsolete database

Inadequate communication between sales, order processing,

and billing departments

Wrong file mounting

Order entry unclear

Wrong data entry

Unclear instructions

Lack of bill authorization

Lack of order taking verification

No written procedures Lack of controls

Lack of data verification

Lack of feedback

Erroneous billings

Carelessness

Misunderstanding of instructions

Lack of training

Lack of supervision

Failure to follow corporate billing

procedures

Outdated procedures

Procedures Controls

Billing clerksData input

FIGURE 4.15 | CAUSE-AND-EFFECT DIAGRAM FOR BILLING ERRORS Source: From “A Less Costly Billing Process” by Lakshmi U. Tatikonda, Quality Progress, January 2008, pp. 31–39.

Chapter 4: Tools and Techniques for Quality Improvement 191

TABLE 4.1 DATA AND ACTIVITIES INCLUDED IN THE BILLING PROCESS

Customer • Orders via mail, fax,

phone, and e-mail. • Average daily orders:

200/day.

Central mailroom

• Receive outside mail. • Sort according to

departments. • Put in boxes. • Deliver to departments. • Stamp postage and send

outgoing mail.

Older taking

• Receive orders from cus- tomers and central mailroom.

• Open customer mail orders.

• Record customer phone orders on paper.

• Sort all orders by cus- tomer name and stamp date.

• Prepare folders with cus- tomer order information.

• More batch of customer orders to order prepara- tion once a day.

Credit check

• Check customer credit once a week.

• Add credit status to folders.

• Sort customers according to acceptable and not ac- ceptable credit.

• Batch and move the sorted folders to billing.

Order preparation • Receive folders with cus-

tomer order information. • Sort folders according to

newandcurrent customers. • Send new customer folders

to data processing. • Receive new customer

folders from data processing.

• Move customer order folders to order verification.

• Receive folders from or- der verification.

• Make two copies of cus- tomer order folders.

• Send one copy of the or- der to shipping and one copy to billing.

Data processing

• Receive new customer folders from order taking.

• Batch the folders, assign a customer number and create customer record.

• Add new customer num- ber and other informa- tion to customer folders.

• Batch customer folders to order preparation once a day.

Order verification

• Receive customer order folders from order preparation.

• Check stock availability. • Make price estimates. • Add price estimates to

customer order folder.

• Move the folders to order preparation once a day.

Billing

• Receive copy of customer order folders from order preparation.

• Send new customer folders to credit check.

• Receive customer folders from credit check with credit status.

• Sort the customer folders according to acceptable and not acceptable credit.

• Send the customer folders with not acceptable status back to order takers.

• Send the acceptable cus- tomer folders to sales tax department.

• Receive customer folders from sales tax.

• Calculate the total amount (purchases, taxes) to bill.

• Enter all the necessarydata into computer and print invoices twice a month.

• Address envelopes, fold, insert invoices, and close. Move the envelopes to cen- tral mailroom twice a day.

Shipping

• Receive customer order folders from order preparation.

• Pick and pack the items in the order.

• Print and paste address labels on the boxes.

• Ship the packages twice a day.

Source: From “A Less Costly Billing Process” by Lakshmi U. Tatikonda, Quality Progress, Jan. 2008, pp. 31–39.

192 Part 1: Foundations of Quality and Performance Excellence

Endnotes

1. 2008 Malcolm Baldrige National Quality Award Recipient Profile, U.S. Department of Commerce.

2. Andrew E. Serwer, “Michael Dell Turns the PC World Inside Out,” Fortune, September 8, 1997, pp. 76–86.

3. Lea A. P. Tonkin, “Kaizen BlitzSM 5: Bottleneck- Bashing Comes to Rochester, NY,” Target, Vol. 12, No. 4, September/October 1996, pp. 41–43.

4. Mark Oakeson, “Makes Dollars & Sense for Mercedes-Benz in Brazil,” IIE Solutions, April 1997, pp. 32–35

5. Based on Chapter 14 in Alan Robinson (ed.), Continuous Improvement in Operations: A Sys- tematic Approach to Waste Reduction, Cambridge, MA: Productivity Press, 1991.

6. S. Shingo, The Sayings of Shigeo Shingo: Key Strategies for Plant Improvement, Cambridge, MA: Productivity Press, 1987, p. 152.

7. See Chapter 6 for a discussion of various ways to get ideas from customers.

8. Adapted from Nancy Blodgett, “Law Firm Pioneers Explore New Territory,” Quality Progress, August 1996, pp. 90–94.

9. Interview by former co-author James W. Dean, Jr. with Richard Buck, vice president for Quality, Portman Equipment.

10. Peter J. Sherman, “Kaizen in Local Government,” iSixSigma Magazine, September–October 2010, pp. 55–59.

11. Eleanor Chilson, “Kaizen Blitzes at Magnivision: $809,270 Cost Savings,” Quality Management Forum, 29, No. 1, Winter 2003.

12. For an interesting history of the evolution of the Deming Cycle, see Ronald D. Moen and Clifford L. Norman, “Circling Back: Clearing up myths about the Deming cycle and seeing how it keeps evolving,” Quality Progress, November 2011, pp. 22–28.

13. Gerald Langley, Kevin Nolan, and Thomas Nolan, “The Foundation of Improvement,” Sixth Annual International Deming User’s Group Conference, Cincinnati, Ohio, August, 1992.

14. Adapted from Kevin Dooley, “Use PDSA for Cry- ing Out Loud,” Quality Progress, October 1997, pp. 60–63.

15. Chris Bott, Elizabeth Keim, Sai Kim, and Lisa Palser, “Service Quality Six Sigma Case Studies,” ASQ’s 54th Annual Congress Proceedings, 2000, pp. 225–231.

16. Gregory Korte, “473 Steps,” The Cincinnati Enquirer, October 30, 2002, A1, A10.

17. Timothy Clark and Andrew Clark, “Continuous Improvement on the Free-Throw Line,” Quality Progress, October 1997, pp. 78–80.

18. Howard H. Bailie, “Organize Your Thinking with a Why-Why Diagram,” Quality Progress 18, No. 12 (December 1985), 22–24.

19. Gary Conner, “Benefiting from Six Sigma,” Manufacturing Engineering, Vol. 130, No. 2, February 2003.

20. These principles are based on Richard C. Whiteley, The Customer-Driven Company: Moving from Talk to Action, Reading, MA: Addison-Wesley, 1991.

21. See J. W. Dean, Jr., and G. I. Susman, “Organizing for Manufacturable Design,” Harvard Business Review, January–February 1989.

22. Anthony R. Goland, John Hall, and Devereaux A. Clifford, “First National Toyota,” The McKinsey Quarterly, No. 4, 1998, pp. 58–66.

23. Patricia Houghton, “Improving Pharmacy Ser- vice,” Quality Digest, October 18, 2007.

24. “Study Shows Six Sigma, Lean Are Merging,” Industry Week, March 7, 2008.

25. Kate Burrows, “Outside of the Box,” iSixSigma Magazine, January/February 2011, pp. 22–30.

26. Shawn Tully, “Why to Go for Stretch Targets,” Fortune, November 14, 1994, pp. 45–58.

27. Pallavi Gogoi, “Thinking Outside the Cereal Box,” BusinessWeek, July 28, 2003, pp. 74–75.

28. Christopher E. Bogan and Michael J. English, “Benchmarking for Best Practices: Winning Through Innovative Adaptation,” Quality Digest, August 1994, pp. 52–62.

29. Michael Hammer and James Champy, Reengi- neering the Corporation, New York: HarperBusi- ness, 1993, pp. 177–178.

30. David A. McCamey, Robert W. Bogs, and Linda M. Bayuk, “More, Better, Faster From Total Quality Effort,”Quality Progress, August 1999, pp. 43–50.

31. Martin Smith, “Business Process Design: Correlates of Success and Failure,” Quality Management Journal, 10, 2, 2003, pp. 38–49.

32. See, for example, Jacob Eskildsen, Jens Dahlgaard, and Anders Norgaard, “The Impact of Creativity and Learning on Business Excellence,” Total Quality Management, Vol. 10, Issue 4/5, July 1999, pp. S523–S530.

Chapter 4: Tools and Techniques for Quality Improvement 193

33. Masaaki Imai, Kaizen: The Key to Japan’s Com- petitive Success, New York: McGraw-Hill, 1986, p. 15.

34. Mark R. Edwards and J. Ruth Sproull, “Creativity: Productivity Gold Mine?” Journal of Creative Behavior, Vol. 18, No. 3, 1984, pp. 175–184; and Michael K. Badawy, “How to Prevent Creativity Mismanagement,” Research Management, Vol. 29, No. 4, 1986, p. 28.

35. Jena McGregor, “How Failure Breeds Success, BusinessWeek, July 10, 2006, pp. 42–48.

36. Kathleen D. Ryan and Daniel K. Oestreich, Driving Fear Out of the Workplace, San Francisco: Jossey- Bass, Inc., 1991, pp. 63, 64.

37. Pamela Tierney, Steven Farmer, and George Graen, “An Examination of Leadership and Employee Creativity: The Relevance of Traits and Relation- ships,” Personnel Psychology, Vol. 52, No. 3, Autumn 1999, pp. 591–620.

38. “Cycles of Learning: Observations of Jack Welch” by Gregory H. Watson, Six Sigma Forum Maga- zine, Nov. 2001, pp. 13–17. Reprinted with per- mission from Quality Progress ©2010 American Society for Quality. No further distribution allowed without permission.

39. GE Capital Rail Services, Values & Commitment, http://www.ge.com/railservices/about/values.html, accessed 6/12/12.

40. “Application of Six Sigma to Reduce Medical Errors” by Cathy Buck, ASQ World Conference on Quality and Improvement, May 2001. Reprinted with permission from Quality Progress ©2010 American Society for Quality. No further distribu- tion allowed without permission.

41. ”Quality Tools, Teamwork Lead to a Boeing Sys- tem Redesign” by Nicole Adrian, Quality Progress, Nov. 2007, pp. 43–48. Reprinted with permission from Quality Progress ©2010 American Society for Quality. No further distribution allowed without permission.

42. This case was developed from a classic example published in “The Quest for Higher Quality: The Deming Prize and Quality Control” by RICOH of America, Inc.

43. Inspired by a project described in Elaine Schmidt, “Where the Rubber Meets the Road,” iSixSigma Magazine, May/June 2010, pp. 23–29.

44. “A Less Costly Billing Process” by Lakshmi U. Tatikonda, Quality Progress, Jan. 2008, pp. 31–39.

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P A R T

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2PERFORMANCE EXCELLENCE,STRATEGY, AND ORGANIZATION THEORY

CHAPTER 5 Competitive Advantage and Strategic Management for Performance Excellence 197

CHAPTER 6 Quality in Customer-Supplier Relationships 249

CHAPTER 7 Designing Organizations for Performance Excellence 289

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5COMPETITIVE ADVANTAGE ANDSTRATEGIC MANAGEMENT FOR PERFORMANCE EXCELLENCE

Performance Excellence Profile: Freese and Nichols1

Freese and Nichols is a Texas-based multidiscipline consulting firm that offers services in engineering, architecture, environmental science, planning, construction services, and program management. Founded in 1894, Freese and Nichols has been involved with major public projects across the state; in fact, flying at 10,000 feet from El Paso to Texarkana, one is never out of sight of one of the firm’s projects. Freese and Nichols clients operate in public arenas and regulated environments where actions affect policy, plans, and everyday well- being. Among the markets served by Freese and Nichols are municipalities, water districts/river authorities, military/government organizations, higher education institutions, transportation entities, and energy organizations.

Freese and Nichols has a strong ability to build long-term client relationships, retaining 42 percent of its key accounts for more than 30 years and 71 percent for more than 10 years. Client interactions, preferences, needs, and other key information are tracked through an integrated sales system with processes and tools used throughout the firm. This process strengthens peer-to-peer relationships between the firm’s employees and clients. Executive visits by senior leaders are used as a deeper way to understand big-picture client needs. Consistent with the long-term client relationships, the firm adheres to a Hedgehog Concept (the single thing that the organization aims to do well): Be the very best at client service, resulting in long-term mutually beneficial relationships.

Professional development is a key workforce engagement factor for the firm. Freese and Nichols University offers a comprehensive curriculum focused on strengthening or maintaining the firm’s core competencies and developing leadership. Senior executives, group managers, and retired leaders often participate as instructors, facilitating transfer of their knowledge and experience to others.

Freese and Nichols has a comprehensive, year-long strategic planning process to identify key focus area indicators, critical actions, and balanced

197

scorecard measures. Participants in the planning process represent all areas of the organization, including a management-level Futures Committee charged with examining trends and changes likely to affect the firm in 5 to 15 years. Freese and Nichols also uses a “catch-ball” process to cascade plans to divisions, groups, and individuals to ensure that resources are committed and agreed- upon strategies are implemented.

Because of its strategic focus, Freese and Nichols builds a sustainable organization through growth in retained earnings and use of restricted funds that support key business needs as well as growth strategies during a time of economic crisis. Between 2005 and 2010, retained earnings grew from about $9 million to around $16 million with cash reserves and restricted funds invested in new offices, support strategic initiatives and technology upgrades, finance acquisitions, fund shareholder divestiture payments, and cover larger deductibles on professional liability insurance as a way to decrease premiums.

Traditionally, quality has focused on defect and error reduction and product con- trol as a means to reduce costs. However, more progressive organizations have realized that high quality is itself an important source of competitive advantage. Competitive advantage denotes a firm’s ability to achieve market superiority over its competitors. In the long run, a sustainable competitive advantage provides above- average performance, as exemplified by Freese and Nichols in the profile above. A firm has many options in defining its long-term goals and objectives, the customers it wants to serve, the products and services it produces and delivers, and the design of the pro- duction and service system to meet these objectives. Creating a sustainable competitive advantage depends on developing and executing a good strategy. Strategy is the pattern of decisions that determines and reveals a company’s goals, policies, and plans to meet the needs of its stakeholders. Strategic planning is the process by which the members of an organization envision its future and develop the necessary procedures and opera- tions to carry out that vision. A good example that illustrates the scope of strategic planning is Cargill Corn Milling.2 The company asks key questions in four areas:

1. Where to play—Which customers? Which segments? Which geographies? Which products? Where on the value chain?

2. How to play—How much focus on each decision of where to play versus the other? What degree of strategic alliance at each step of the value chain? What value proposition to each customer segment?

3. What resources are needed to play—What capabilities do we need? What pro- cesses do we need? What is the ideal organizational structure? What skills do we need?

4. When to play—When is the right time to make our move?

This chapter focuses on how total quality (TQ) contributes to competitive advantage and discusses the role of quality and performance excellence in an orga- nization’s business strategy. This chapter will:

• examine the relationship between quality and profitability; • discuss cost leadership, differentiation, and people as principal sources of

competitive advantage, and their relationship to quality;

198 Part 2: Performance Excellence, Strategy, and Organization Theory

• describe the importance of quality in meeting customer expectations in product design, service, flexibility and variety, innovation, and rapid response;

• discuss the role of information in strategic planning and quality-focused deci- sions; and

• describe the role of quality in strategy formulation and implementation.

QUALITY, COMPETITIVE ADVANTAGE, AND THE BOTTOM LINE

A strong competitive advantage has six characteristics,3 each of which relates closely to, and is supported by, a focus on quality and performance excellence.

1. A strong competitive advantage is driven by customer wants and needs. A company provides value to its customers that competitors do not. Customer wants and needs form the basis for all quality initiatives. Six Sigma projects, for example, revolve around improving CTQs—“critical to quality” character- istics that are vital to customers.

2. A strong competitive advantage makes a significant contribution to the success of the business. There is considerable evidence that performance excellence approaches positively affects the bottom line. Baldrige recipients have typically outperformed their industries as a whole, and Six Sigma projects must be justified financially.

3. A strong competitive advantage matches the organization’s unique resources with the opportunities in the environment. No two companies have the same resources; a good strategy uses them effectively. The principles of TQ pay particular attention to an organization’s human resources and process designs in executing a business strategy.

4. A strong competitive advantage is durable and lasting and difficult for competitors to copy. A superior research and development department, for example, can consistently develop new products or processes to remain ahead of competitors. A performance excellence culture takes years to develop but, once in place, is difficult to diffuse because it has become so ingrained in the attitudes and thinking processes of all employees—workers and managers alike.

5. A strong competitive advantage provides a basis for further improvement. A performance excellence culture is constantly focusing on improvement and learning, and exploits the myriad of tools and techniques available to imple- ment improvements. Six Sigma projects are vital for continually improving designs and processes.

6. A strong competitive advantage provides direction and motivation to the entire organization. Quality-focused initiatives marshal the collective talents of every- one. The GE experience in deploying Six Sigma throughout the company, for example, aligns everyone on working toward common goals. When supported by incentives and rewards, such initiatives can motivate everyone.

We may conclude that a focus on quality and performance excellence can be an important means of developing, gaining, and sustaining competitive advantage (see box “Embracing TQ Is Not Rocket Science”); nevertheless, many organiza- tions fail to recognize this.

Chapter 5: Competitive Advantage and Strategic Management for Performance Excellence 199

The relationships between quality and the bottom line are summarized in Figure 5.1. The value of a product in the marketplace is influenced by the quality of its design. Improvements in performance, features, and reliability will differenti- ate the product from its competitors, improve a firm’s quality reputation, and improve the perceived value of the product. This allows the company to command higher prices and achieve an increased market share. This, in turn, leads to increased revenues that offset the added costs of improved design.

Improved conformance in production leads to lower manufacturing and service costs through savings in rework, scrap, and warranty expenses. This viewpoint was popularized by Philip Crosby in his book Quality Is Free.5 As Crosby states:

Quality is not only free, it is an honest-to-everything profit maker. Every penny you don’t spend on doing things wrong, over, or instead of, becomes half a penny right on the bottom line. In these days of “who knows what is going to happen to our business tomorrow,” there aren’t many ways left to make a profit improvement. If you concen- trate on making quality certain, you can probably increase your profit by an amount equal to 5 percent to 10 percent of your sales. That is a lot of money for free.

The net effect of improved quality of design and conformance is increased profits.

Today, most consumers make their purchasing decisions on value. Value can be defined as quality relative to price. When organizations provide less perceived value than their competitors, they lose market share. High conformance quality alone does not provide sufficient value to attract customers. Thirty years ago, it

EMBRACING TQ IS NOT ROCKET SCIENCE

The role of quality in achieving competitive advantage was demonstrated by several research studies back in the 1980s. PIMS Associates, Inc., a subsidiary of the Strategic Planning Institute, maintains a database of 1,200 companies and studies the impact of product quality on corporate performance.4 PIMS researchers determined that:

• Product quality is the most important deter- minant of business profitability.

• Businesses offering premium quality products and services usually have large market shares and were early entrants into their markets.

• Quality is positively and significantly related to a higher return on investment for almost all kinds of products and market situations. PIMS studies have shown that firms with products of superior quality can more than triple return on sales over products perceived as having inferior quality.

• A strategy of quality improvement usually leads to increased market share, but at a cost, in terms of reduced short-run profitability.

• High-quality producers can usually charge premium prices.

General Systems Company, a prominent qual- ity management consulting firm, also found that firms with total quality systems in place consis- tently exceed industry norms for return on invest- ment. This is attributed to three factors:

1. An effective quality system reduces the direct costs associated with poor quality.

2. Improvements in quality tend to lead to increases in productivity.

3. The combination of improved quality and increased productivity leads to an increase in market share.

200 Part 2: Performance Excellence, Strategy, and Organization Theory

would have; today it is simply the “entry into the game.” For example, while the quality of domestic automobiles as measured by defect rates has steadily improved, increasing consumer demands on dimensions of quality beyond low levels of manufacturing defects has raised the bar for all automobile manufacturers. Domestic defect rates have fallen more than 80 percent since 1980, and current J. D. Power & Associates surveys of initial quality show significant improvements in today’s automobiles. Many of today’s complaints revolved around things that a car- maker builds flawlessly but aren’t quite what a consumer wants. Technical failures have given way to failures to satisfy the customer. As a result, U.S. companies have been aggressively pursuing new and innovative model designs, even recruiting Euro- pean designers.6 No longer can firms focus their quality efforts solely on defect elim- ination. Thus, firms must focus their efforts at both improving the quality of design and service as well as reducing defects and their associated costs to create customer value. Both Deming and Juran stressed the need for never-ending cycles of market research, improved product development and design, production, and sales.

Surprisingly, a recent study found that only 24 percent of organizations view quality as a strategic asset and competitive differentiator; the rest view quality as simply a continuous improvement activity, a compliance activity, or as a tool to fix problems and mitigate risks. Service industries view quality as a differentiator more than manufacturing. Organizations that use quality as a competitive differen- tiator have a significantly higher percentage of senior quality leaders that report directly to the CEO, which attests to its importance in the organization.7

Baldrige Award finalists and recipients have demonstrated that quality leads to competitive advantage and improved business performance. A General Accounting Office (GAO) study of Baldrige finalists in the first two years of the award pro- gram explored four measurable areas of a company’s operations that could demon- strate the impact of TQ practices on corporate performance:8

1. employee relations, 2. operating procedures, 3. customer satisfaction, and 4. financial performance.

Improved quality of design

Improved quality of conformance

Lower manufacturing and service costs

Higher perceived value

Higher profitability

Higher Prices

Increased revenues

Increased market share

FIGURE 5.1 | QUALITY AND PROFITABILITY

g ag

e Le

ar n in g

Chapter 5: Competitive Advantage and Strategic Management for Performance Excellence 201

In employee relations, significant improvements were realized in employee satisfac- tion, attendance, turnover, safety and health, and suggestions received. In operating procedures, favorable results were realized in reliability, timeliness of delivery, order-processing times, errors and defects, product lead time, inventory turnover, cost of quality, and overall cost savings. Overall customer satisfaction also improved, as customer complaints fell and customer retention rose. In the financial performance area, market share, sales per employee, return on assets, and return on sales all showed positive improvement for most companies.

The GAO developed a general framework for describing Total Quality Man- agement and its effect on competitiveness (see Figure 5.2.). The solid line shows how TQ processes lead to improved competitiveness, beginning with leadership dedicated to improving products and services, as well as quality systems. Improve- ments in these areas lead to customer satisfaction and benefits to the organization, both of which improve competitiveness. The dotted lines show the information feedback necessary for continuous improvement. The arrows in the boxes show the expected direction of the performance indicators.

Although the GAO study is dated, the conclusions remain valid today. A more recent survey of almost 1,000 executives conducted by Zenger Miller Achieve noted similar benefits from quality initiatives, including increased employee partici- pation, improved product and service quality, improved customer satisfaction, improved productivity, and improved employee skills.9

Index of overall satisfaction

Customer retention

Complaints

Reliability

On-time delivery

Errors or defects

Customer satisfaction

Market share

Profits

Costs

Cycle time

Employee turnover

Employee satisfaction

Safety and health

Productivity

Product and service quality

Leadership for

continuous improvement

Quality systems and

employee involvement

Organization benefits

Competitiveness

FIGURE 5.2 | GENERAL ACCOUNTING OFFICE FRAMEWORK

g ag

e Le

ar n in g

202 Part 2: Performance Excellence, Strategy, and Organization Theory

SOURCES OF COMPETITIVE ADVANTAGE

The classic literature on competitive strategy suggests that a firm can possess two basic types of competitive advantage: low cost and differentiation.10 For example, Marriott’s Fairfield Inn was designed to appeal to business travelers who wanted clean, comfortable rooms at inexpensive prices. Within this market, they are focused on cost leadership. By contrast, The Ritz-Carlton hotels focus on differenti- ation (exceptional personal attention, twice-a-day housekeeping service, and special amenities such as bathrobes and rooms with bay windows) and can command pre- mium prices. Figure 5.1 supports this premise by showing how cost reduction and improved design affect profitability. Modern thinking has added a third source of competitive advantage—an organization’s people.11

COST LEADERSHIP

Many firms gain competitive advantage by establishing themselves as the low-cost leader in an industry. These firms produce high volumes of mature products and achieve their competitive advantage through low prices. Such firms often enter markets that were established by other firms. They emphasize achieving economies of scale and finding cost advantages from all sources.

A cost leader can achieve above-average performance if it can command prices at or near the industry average. However, it cannot do so with an inferior product (see box “You Can’t Fool All the People All the Time”). The product must be per- ceived as comparable with competitors or the firm will be forced to discount prices well below competitors’ prices to gain sales. This can cancel any benefits that result from cost advantage.

Low cost can result from high productivity and high capacity utilization. More important, improvements in quality lead to improvements in productivity, which in turn lead to lower costs. Lower costs result from innovations in product design and process technology that reduce the costs of production and from efficiencies gained through meticulous attention to operations. This approach has been exploited by many Japanese firms. Japanese companies adopted many product innovations and process technologies that were developed in the United States. They refined the designs and manufacturing processes to produce high-quality products at low costs, resulting in higher market shares. Thus, a strategy of continuous improve- ment is essential to achieve a low-cost competitive advantage.

To achieve cost leadership for high-volume products, companies use a variety of approaches:12

• Early manufacturing involvement in the design of the product both for make- versus-buy decisions and for assurance that the production processes can achieve required tolerances.

• Product design to take advantage of automated equipment by minimizing the number of parts, eliminating fasteners, making parts symmetric whenever pos- sible, avoiding rigid and stiff parts, and using one-sided assembly designs.

• Limited product models and customization in distribution centers rather than in the factory.

Chapter 5: Competitive Advantage and Strategic Management for Performance Excellence 203

• A manufacturing system designed for a fixed sequence of operations. Every effort is made to ensure zero defects at the time of shipment. Work-in-process inventory is reduced as much as possible, and multiskilled, focused teams of employees are used.

Six Sigma can be an important way for organizations to build and sustain low- cost leadership, because it helps to identify sources of problems and opportunities for process and design improvements that have clear financial justifications and impact on the bottom line. Moreover, Six Sigma creates the organizational infra- structure for continually focusing on cost reduction in all manufacturing and service operations.

DIFFERENTIATION

To achieve differentiation, a firm must be unique in its industry along some dimen- sions that are widely valued by customers. It selects one or more attributes that customers perceive as important and positions itself uniquely to meet those needs. For instance, Dell’s direct business model was the first of its kind in the computer industry and differentiated the company from its competitors.

Often, a firm with a differentiation strategy can command premium prices and achieve higher profits. Juran cites an example of a power tool manufacturer that improved reliability well beyond that of competitors.14 Field data showing that the differences in reliability resulted in significantly lower operating costs were publi- cized, and the company was able to secure a premium price.

However, a firm that uses differentiation as its source of competitive advantage must make its products or systems difficult to copy. Often this involves culture, habits, and sunk costs. For example, why doesn’t every company copy Dell’s supe- rior direct business model? Dell’s approaches are hardly a secret; and Michael Dell even wrote a book about it. Competitors have copied its website with stunning pre- cision, but they face far greater difficulty copying the supporting activities— purchasing, scheduling, and logistics—that Dell has built around its direct business

YOU CAN’T FOOL ALL OF THE PEOPLE ALL OF THE TIME

The problems with focusing on costs at the expense of quality are illustrated by the case of the Schlitz Brewing Company.13 In the early 1970s, Schlitz, the second-largest brewer in the United States, began a cost-cutting campaign. It included reducing the quality of ingredients in their beers by switching to corn syrup and hop pellets and shortening the brewing cycle by 50 percent.

In the short term, it achieved higher returns on sales and assets than Anheuser-Busch

(and the acclaim of Wall Street analysts). Forbes magazine stated, “Does it pay to build quality into a product if most customers don’t notice? Schlitz seems to have a more suc- cessful answer.” But customers do recognize inferior products. Soon after, market share and profits fell rapidly. By 1980 Schlitz’s sales had declined 40 percent, the stock price fell from $69 to $5, and the company was eventually sold.

204 Part 2: Performance Excellence, Strategy, and Organization Theory

model over several decades. Competitors are burdened by long-standing relation- ships with suppliers and distributors and by a different culture.15

PEOPLE

The importance of people in building and sustaining a TQ organization is illus- trated by the following anecdote about Toyota. Toyota’s Georgetown, Kentucky, plant has been a three-time winner of the J. D. Power Gold Plant Quality Award. When asked about the “secret” behind the superior Toyota paint finishes, one manager replied, “We’ve got nothing, technology-wise, that anyone else can’t have. There’s no secret Toyota Quality Machine out there. The quality machine is the workforce—the team members on the paint line, the suppliers, the engineers— everybody who has a hand in production here takes the attitude that we’re making world-class vehicles.”16 The human resource is the only one that competitors can- not copy, and the only one that can synergize—that is, produce output whose value is greater than the sum of its parts. Apple hires only people who are passion- ate about what they do; and Genentech screens out people who ask too many ques- tions about titles and options, because they only want people who are driven to serve customers.17

The competitive advantage resulting from an organization’s people can drive low cost and differentiation. For example, over several decades, Southwest Airlines has been the most profitable U.S. carrier. It has fewer employees per aircraft and flies more passengers per employee. Much of its cost advantage comes from its very productive, motivated, and unionized workforce.18

Is its competitive advantage low cost, or is it the people? Southwest Airlines has one of the most distinct competitive advantages in the airline industry. Herb Kelleher, former CEO, once stated, “It’s the intangibles that are the hardest things for competitors to imitate. You can get on an airplane. You can get ticket-counter space, you can get baggage conveyors. But it is our esprit de corps—the culture, the spirit—that is truly our most valuable competitive asset.” Similar comments can be made about The Ritz-Carlton Hotel Company, a two-time Baldrige recipient. One of the author’s personal observations about Baldrige recipients is the fact that employees genuinely like to work for their organizations and are highly satisfied with their jobs. Many Baldrige recipients have been cited on Fortune magazine’s list of “best companies to work for.”

Providing a work environment that fosters cooperation, initiative, and innova- tion; educating and training the workforce; and enhancing the factors that affect well-being, satisfaction, and motivation are very difficult for competitors to copy. This is a significantly different philosophy from the work environment that came into being during the Industrial Revolution. Prior to the Industrial Revolution, skilled craftspeople had a major stake in the quality of their products because their families’ livelihoods depended on the sale of those products. The departure from the craftsmanship concept was promulgated by Frederick W. Taylor. Taylor con- cluded that a factory should be managed on a scientific basis. So he focused on work methods design, the establishment of standards for daily work, selection and training of workers, and piecework incentives. Taylor separated planning from exe- cution, concluding that foremen and workers of those days lacked the education

Chapter 5: Competitive Advantage and Strategic Management for Performance Excellence 205

necessary to plan their work. The foreman’s role was to ensure that the workforce met productivity standards. Other pioneers of scientific management, such as Frank and Lillian Gilbreth and Henry Gantt, further refined the Taylor system through motion study, methods improvement, ergonomics, scheduling, and wage incentive systems.

The Taylor system dramatically improved productivity and was principally responsible for the industrial growth of the twentieth century. However, it also changed many manufacturing jobs into a series of mundane and mindless tasks. Without a systems perspective and a focus on the customer, the responsibility for quality shifted from workers to inspectors and, as a result, quality eroded. The Taylor philosophy also contributed to the development of labor unions and estab- lished an adversarial relationship between labor and management that has yet to be completely overcome. Perhaps the most significant failure of the Taylor system was that it failed to make use of an organization’s most important asset—the knowledge and creativity of the workforce. As executives at The Ritz-Carlton Hotel Company have stated, human beings don’t serve a function, they have a pur- pose, and the role of the HR function is to unleash the power of the workforce to achieve the goals of the organization.19

QUALITY AND DIFFERENTIATION STRATEGIES

Competitive advantage is gained from meeting or exceeding customer expectations— the fundamental definition of quality. A business may concentrate on any of several quality-related dimensions in order to differentiate itself from its competition. These key dimensions are:

• superior product and service design, • outstanding service, • high agility, • continuous innovation, and • rapid response.

Traditional management strategists advocated focusing on a single dimension. However, as consumers become more demanding, firms can no longer compete

along only one dimension. Pursuing a strategy of performance excellence helps improve all of these dimensions. In fact, a careful review of the Baldrige Award cri- teria will show that these dimensions are prominent throughout the criteria. The following sections discuss these approaches to differentiation and the role of qual- ity in each.

COMPETING ON SUPERIOR PRODUCT DESIGN

Among the most important strategic decisions a firm makes are the selection and development of new products (we focus on manufactured goods in this section). These decisions determine the growth, profitability, and future direction of the firm. Significant competitive advantage can be achieved by having products of superior design. In addition, products that are appealing, reliable, easy to operate,

206 Part 2: Performance Excellence, Strategy, and Organization Theory

and economical to service give the consumer a perception of quality. One need only look at the evolution of computers and cell phones, for example, and the continual change that is occurring in these industries to appreciate the value of good design.

The product design function that traditionally was concerned solely with tech- nical aspects of the product must now be concerned with manufacturing and mar- keting issues. Product designers must match the right products with the continually changing variety of customer needs. This requires great flexibility. At the same time, costs must be minimized, which demands attention to the manufacturing pro- cess during the design stage.

The quality of a product’s design is influenced by several dimensions, which we first introduced in Chapter 1—performance, features, reliability, durability, and aesthetics. Choosing what dimensions to focus on is an important strategic decision.

THE ROLE OF QUALITY IN PRODUCT DESIGN

A firm must focus on the key product dimensions that reflect specific customer needs. If these expectations are not identified correctly or are misinterpreted, the final product will not be perceived to be of high quality by customers. Innovative marketing efforts are needed to ensure that the needs are properly identified (see box “Quirky, Funky, Independent, Maverick”).

The Baldrige Award criteria emphasize the importance of systematic processes to design and improve products and the processes that create them. For example, the award application requires evidence of how customer requirements are identi- fied and used for purposes of product planning. For many firms, product design is regarded as a key value creation process. From this perspective, these firms need good processes to translate customer needs into product requirements; select key

QUIRKY, FUNKY, INDEPENDENT, MAVERICK20

That’s how the designers of the Honda Element describe it, meeting the challenge to design a totally new product that could coexist with both the current Civic model and appeal to both young Gen Y males and the new Gen X family that did not want to buy into mainstream vehi- cles or sell out to convention. Executives gave the design team carte blanche to understand how these potential customers were using their cars. The design team engaged in “immersion research,” going to fraternity houses and hang- ing out with surfers and mountain bikers to

understand their lifestyles. Honda designers incorporated several themes into the car—“hobby space,” “campground friendly,” and “road-trip friendly.” The car was designed to fit two mountain bikes or a 10-foot surfboard. It can sleep two people comfortably. The car has spillproof material on seats and a wipeable flat floor. The automotive website edmunds.com stated: “Even after a nine-year production run, the Honda Element sport-utility remains one of the most distinctive and useful shapes on the road.”21

Chapter 5: Competitive Advantage and Strategic Management for Performance Excellence 207

process performance characteristics based on customer requirements; address qual- ity requirements early in the design process; and coordinate and integrate designs with production and delivery systems.

A focus on quality in product design requires significant investment in engi- neering to ensure that designs meet customer expectations. Quality engineering is concerned with the plans, procedures, and methods for the design and evalua- tion of quality in goods and services. Useful techniques of quality engineering include:

• concurrent engineering, in which engineering and production personnel jointly develop product designs that are both functional and easy to manufacture, thus reducing opportunities for poor quality;

• value analysis, in which the function of every component of a product is ana- lyzed to determine how it might be accomplished in the most economical fashion;

• design reviews, in which managers assess how well the design relates to customer requirements and how it might be improved prior to releasing it to production; and

• experimental design, in which formal statistical experiments are applied to determine the best combinations of product and process parameters for high quality and low cost. All of these efforts involve a high level of teamwork.

COMPETING ON SERVICE

With the vast majority of the U.S. economy being service-based, the quality of ser- vice is a major factor in consumer perception and business success. Until rather recently, manufacturing companies viewed service as secondary in importance to manufacturing itself. However, next to the quality of the product itself, service is perhaps the greatest key to achieving competitive success (see box “Customer Service: Not a New Frontier at Alaska Airlines”). This may be because, as the average level of product quality increases, consumers turn to service as the primary means of differentiating among competing firms. For example, one of the biggest sources of dissatisfaction for computer manufacturers is the lack of adequate service after the sale.

The importance of service was recognized in the early 1980s because of the book In Search of Excellence by Tom Peters and Bob Waterman.22 One of their key themes was that excellent companies share an obsession with service. How important is it? A 1985 Gallup poll on the quality of American products and ser- vices found that the vast majority of consumers believe that quality is determined by employee behavior, attitudes, and competence. They also believe—to an even greater degree—that poor service quality is due to the same set of factors. These attitudes hold true even today.

Good service translates into dollars. Banking studies have found that 10 per- cent of customers leave each year,23 and 21 percent of those leave because of poor service. Each customer contributes $121 per year in profit, and the cost to acquire a new customer is $150. If a bank has a base of 200,000 customers, this means

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that 4,200 will leave because of poor service. The arithmetic shows that the com- bined lost profit and replacement effort costs are more than $1 million per year. Similar studies in other industries have found a high correlation between customer retention and profitability.

We discussed many aspects of services and how they differ from manufacturing in Chapter 1. However, managing intangible quality characteristics is more diffi- cult, as they usually depend on employee behavior and system performance. Thus, two key components of service system quality are employees and information tech- nology. Customers evaluate a service primarily by the quality of the human con- tact. A Wall Street Journal survey found that Americans’ biggest complaints about service employees are of delivery people or salespeople who fail to show up when you have stayed home at a scheduled time waiting for them; salespeople who are poorly informed; and salesclerks who talk on the phone when waiting on you, who say “It’s not my department,” who talk down to you, or who cannot describe how a product works.

Researchers repeatedly have demonstrated that when service employee job satisfaction is high, customer satisfaction is high, and that when job satisfaction is low, customer satisfaction is low.25 Many service companies act on the motto, “If we take care of our employees, they will take care of our customers.” At FedEx, for instance, the company credo is stated simply as People, Service, Profits. All potential decisions in the company are evaluated on their effects on the employees (people), on their customers (service), and the company’s financial performance (profits), in that order. In many companies, unfortunately, the frontline employees—salesclerks, receptionists, delivery personnel, and so on, who have the most contact with customers—receive the lowest pay, minimal training, little decision-making authority, and little responsibility (empowerment).

CUSTOMER SERVICE: NOT A NEW FRONTIER AT ALASKA AIRLINES

Major airports across the country are often very congested. Customers typically wait in long lines for ticketing and baggage check (not to mention TSA screening!), and we suspect that you have had some rather unpleasant experiences. Airlines have experimented with a variety of new approaches to alleviate these problems. Self- service kiosks, for example, allow passengers to check in and facilitate the baggage drop process. Alaska Airlines took a radical approach to rede- signing its check-in process by benchmarking theme parks, hospitals, and retailers for best practices. The developed prototypes of new

designs inside a Seattle warehouse, looking at different ways of configuring counters and con- veyor belts. Even simply changes, such as moving the button that shuttles bags on the conveyor belt improved efficiency. Kioks were clustered in groups, and "lobby coordinators" provided infor- mation and advice to passengers. By placing baggage conveyor belts on each side of a check- in podium, agents can assist one passenger while another can place their luggage on the free belt. The project has significantly reduced customer wait times, increased agent productivity, and reduced cost.24

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Information technology is essential in modern service organizations because of the high volumes of information they must process and because customers demand service at ever-increasing speeds. Intelligent use of information technology not only leads to improved quality and productivity but also to competitive advantage. This is particularly true when technology is used to better serve the customer and to make it easier for customers to do business with the company. Every service indus- try is exploiting information technology to improve customer service. Restaurants, for example, use hand-held order-entry computer terminals to speed up the order- ing process. An order is instantaneously transmitted to the kitchen or bar, where it is displayed and the guest check is printed. In addition to saving time, such systems improve accuracy by standardizing the order-taking, billing, and inventory proce- dures and reducing the need for handwriting. Credit authorizations, which once took several minutes by telephone, are now accomplished in seconds through com- puterized authorization systems.

Another important aspect of service is complaint resolution (an important cri- terion in the Baldrige Award). Research has shown that about 80 to 95 percent of unhappy customers (depending on the amount of loss) will purchase from a com- pany again if their complaints are resolved quickly. This drops to around 20 to 45 percent if complaints are not resolved. Furthermore, of the majority of unhappy customers that do not complain at all, only about 10 to 40 percent will become repeat customers.

THE ROLE OF QUALITY IN SERVICE

In Chapter 1, we discussed the key dimensions of service quality. Understanding these dimensions and proactively designing them into services and service delivery processes is an important aspect of a TQ organization.

Companies that have consistently provided superior service—such as IBM, FedEx, Nordstrom, and many others—have certain elements in common:26

1. They establish service goals that support business and product-line objectives. 2. They identify and define customer expectations for service quality and

responsiveness. 3. They translate customer expectations into clear, deliverable, service features. 4. They set up efficient, responsive, and integrated service delivery systems and

organizations. 5. They monitor and control service quality and performance. 6. They provide quick but cost-effective response to customers’ needs.

These ideas are embodied in the Baldrige Award criteria in the Customer category. The criteria look at how an organization builds relationships to acquire and satisfy customers and to develop repeat business and positive referrals. Included in the cri- teria requirements are how organizations determine key customer contact require- ments, what access mechanisms are available for customers to seek information, conduct business, and make complaints, and how customer contact requirements are deployed along the entire response chain. The criteria also address an organiza- tion’s complaint management process, and how it ensures prompt and effective problem resolution.

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COMPETING ON AGILITY

Agility was introduced in Chapter 3. One important aspect of agility is the abil- ity to produce a wide range of products and options. Companies that can change product lines more rapidly in the face of changing consumer demands and exploit new technologies can gain a competitive advantage in certain mar- kets. E-business, for example, requires and enables more rapid, flexible, and customized responses. To better understand these issues, we review some key concepts. Basically, there are three types of products: custom products, option- oriented products, and standard products.27 Custom products, generally made in small quantities, are designed to meet customers’ specifications precisely. Two examples are a wedding gown or a machine tool designed to perform a specific, complex task. The production cost is relatively high, and the assurance of quality requires careful attention at every step in the manufacturing process. Because custom products can only be produced on demand, the customer must wait for the product to be made.

Option-oriented products are unique configurations of subassemblies that are designed to fit together. The customer participates in choosing the options to be assembled. A good example is a personal computer system in which the customer defines the types of disk drives, modem, memory configurations, and so forth. The subassemblies are made in relatively large quantities; therefore, costs are reduced, and quality is easier to achieve because of repetition. Because the manufacturer cannot anticipate all of the configurations a customer may desire, the customer sometimes must wait while the product is assembled to the desired configuration.

Standard products are made in larger quantities. Examples include radios, TVs, appliances, and most consumer goods found in department stores. The customer has no options to choose from, and quality is easiest to achieve because the prod- uct is made the same way every time. Because the manufacturer makes standard products in anticipation of customer demands, the customer will not have to wait for the product unless it is out of stock.

Standard products offer many advantages in terms of manufacturing efficiency, quality, and dependability. Mass production on fixed assembly lines yields high levels of productivity. Thus, standard products are the basis for cost leadership. With fewer different parts to purchase, make, and assemble, quality is generally improved because there is less chance for error. Schedules are more predictable, so dependability is improved. Standard products also simplify purchasing and cus- tomer service. Orders of components are more consistent, and shipments can be scheduled more frequently, resulting in lower inventories.

Marketing personnel are concerned with sales and how to respond correctly and successfully in the market. They prefer products to be customized to the indi- vidual needs of customers. Custom and option-oriented products can be produced to meet customer expectations, whereas standard products offer little flexibility in meeting changing customer needs. Customer expectations can be incorporated only in the design stages. However, this leads to manufacturing efficiencies. This inherent conflict between manufacturing and marketing must be addressed from a strategic perspective.

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In the quick-service restaurant industry, similar strategic choices are made. McDonald’s, for example, produces a standard product and achieves an advantage in terms of service delivery. Burger King and Wendy’s, by contrast, produce option- oriented products. Although their selection may be greater, these companies sacri- fice speed of service. Neither the standard nor the option-oriented approach is nec- essarily better; each firm must decide what tradeoffs must be made with each approach and select the approach that best provides competitive advantage.

Many products begin as custom products and, over time, become standard products. For instance, Henry Ford was one of the first to standardize production of the automobile. Later, however, consumers demanded more variety of options, and the American automobile evolved into the classic option-oriented product. Customers can now choose from dozens of colors, seat types, engines, transmis- sions, tires, and other options. Many German and Japanese automobile manufac- turers have chosen a strategy that limits the number of options. Few options exist, and some are installed by the dealer rather than the manufacturer. This strategy provides a distinct cost advantage and enables the factory to achieve higher levels of productivity. Flexibility is achieved by offering several model variations of the same car and frequent design changes. The Japanese can produce as many as seven models on a single production line. (Most U.S. manufacturers’ production lines are dedicated to a single model.)

Many firms use flexibility and variety as a competitive weapon. Many firms are focusing their strategies on flexibility and variety—more and better product fea- tures, factories that can change product lines quickly, expanded customer service, and continually improving new products. For instance, Toshiba’s computer factory assembles 9 different word processors on the same production line and 20 varieties of laptop computers on another.28 The flexible lines guard against running short of a hot model or overproducing one whose sales have slowed. Nissan describes its strategy as “five anys”: to make anything in any volume anywhere at any time by anybody. Nissan’s high-tech Intelligent Body Assembly System can weld and inspect body parts for any kind of car, all in 46 seconds. As U.S. automakers think about dropping entire car lines, Nissan is gearing up to fill market niches with more models.

From the perspective of gaining competitive advantage, the value of flexibility and variety was illustrated by the “Honda-Yamaha war” in 1981. Honda, whose supremacy in motorcycles was being challenged by Yamaha, responded by intro- ducing 113 new or revamped models in 18 months. Yamaha could only manage 37 model changes and finally announced that it was content to be number two.

THE ROLE OF QUALITY IN AGILITY

To be agile, an organization needs both effective processes and the ability to mod- ify those processes as business conditions change. For example, it requires the abil- ity to continually monitor and sense changing customer needs and expectations, change designs as necessary, and rapidly roll out new processes and products. Drawing on the principles of TQ, a customer-focused organization and a process orientation are necessary prerequisites for agility.

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Equally important is the ability of different functions and groups of employees to work together as teams in designing and operating the type of production sys- tems that require continuous change and improvement. In fact, the Baldrige criteria seek evidence on how to prepare the workforce for changing capability and capac- ity needs during periods of growth or in response to changes in organizational structures in the Workforce category. Good supplier relations, a key issue in TQ, are also critical as designs and volumes change.

COMPETING ON INNOVATION

Many firms focus on research and development as a core component of their strat- egy. Such firms are on the leading edge of product technology, and their ability to innovate and introduce new products is a critical success factor. Innovation has become the most important factor in satisfying demanding consumers in today’s technological world. One need only look at the iPad and iPhone to realize the importance of innovation in the marketplace.

Product performance, not price, is the major selling feature. When competition enters the market and profit margins fall, these companies often drop out of the mar- ket while continuing to introduce innovative new products. These companies focus on outstanding product research, design, and development; high product quality; and the ability to modify production facilities to produce new products frequently.

As global competition increases, the ability to innovate has become almost essential for remaining competitive. Many years ago, National Cash Register (NCR), for example, clung to outdated mechanical technologies for a long time, while competitors developed innovative new electronic systems. The lack of inno- vation nearly destroyed the company. Today, leading companies do not wait for customers to change; they use innovation to create new customer needs and desires. At 3M, for example, every division is expected to derive 25 percent of its sales each year from products that did not exist five years earlier. This forces managers to think seriously about innovation. Being innovative also requires being close to cus- tomers. As 3M’s CEO, Jim McNerny, stated:

We’re fighting hard to get our customers into our hallways and our customers into our labs. With some customers, we’ve loaned them a full-time employee for a couple of years to help them use Six Sigma tools to improve their operations. This is not about getting a fast sale, but we do get something valuable: a much better understanding of our customer’s needs.29

Such a spirit not only will result in new products but also will help managers to create better processes that improve quality.

THE ROLE OF QUALITY IN INNOVATION

Managing for Innovation is one of the Core Values and Concepts in the Baldrige criteria. The criteria state that Innovation should lead an organization to new dimensions of performance. Innovation is no longer strictly the purview of research and development departments; innovation is important for all aspects of a business and all processes. Organizations should be led and managed so that innovation becomes part of the culture and is integrated into daily work.

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The award criteria encourage innovation through several means:

• The criteria are nonprescriptive. They encourage creativity and breakthrough thinking because they channel activities toward the organization’s purpose and are not focused on following specific procedures.

• Customer-driven quality emphasizes the “positive side of quality”—enhance- ment, new services, and customer relationship management. Success with the positive side of quality depends heavily on creativity, more so than on steps to reduce errors and defects that rely on well-defined techniques.

• Human resource focus stresses employee involvement, development, and rec- ognition, and encourages creative approaches to improving employee effective- ness, empowerment, and contributions.

• Continuous improvement and learning are integral parts of the activities of all workgroups. This requires analysis and problem solving everywhere within the company. Emphasis on continuous improvement encourages change, innova- tion, and creative thinking in how work is organized and conducted.

• The focus on future requirements of customers encourages companies to seek innovative and creative ways to serve their patrons.

COMPETING ON TIME

In today’s fast-paced society, people hate to wait. Time has come to be recognized as one of the most important sources of competitive advantage. Cycle time refers to the time it takes to accomplish one cycle of a process (e.g., the time from when a customer orders a product to the time that it is delivered, or the time to introduce a new product). Reductions in cycle time serve two purposes. First, they speed up work processes so that customer response is improved. Second, reductions in cycle time can only be accomplished by streamlining and simplifying processes to eliminate non–value-added steps such as rework. This approach forces improve- ments in quality by reducing the potential for mistakes and errors. By reducing non-value-added steps, costs are reduced as well. Thus, cycle time reductions often drive simultaneous improvements in organization, quality, cost, and productivity.

The total time required by a company to deliver a finished product that satisfies customers’ needs is referred to as the product lead time. This includes time spent on design, engineering, purchasing, manufacturing, testing, packaging, and shipping. Short product lead times offer many advantages. First, they allow companies to introduce new products and penetrate new markets more rapidly (see box “Sending Old Designs Down the Drain”). Being the first to market a new product allows a firm to charge a higher price, at least until competitive products are offered. For example, when first introduced, Motorola’s pocket-sized cellular telephone was 50 percent smaller than any competing Japanese product and sold for twice the price; and the Mazda Miata sold for up to $5,000 above sticker price. Second, every month saved in development time can save a large company millions of dollars in expenses. Third, short lead times reduce the need to forecast long-term sales, allow more accurate production plans to be developed, and reduce inventory. Short lead times increase the flexibility of a company to respond to changing customer needs.

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THE ROLE OF QUALITY IN TIME COMPETITIVENESS

The Baldrige criteria emphasize the importance of reducing cycle times in all busi- ness processes, particularly the design-to-introduction or innovation cycle time. Success in competitive markets increasingly demands shorter cycles for new or improved product and service introduction. Also, faster and more flexible response to customers is a more critical requirement of business management (see box “Domino’s Pizza Changed the Rules”).

Significant reductions in cycle time cannot be achieved simply by focusing on individual subprocesses; cross-functional processes must be examined all across the organization. Through these activities, the company comes to understand work at

SENDING OLD DESIGNS DOWN THE DRAIN30

Moen Inc. makes faucets for bathrooms and kitchens. In the mid-1990s, as plumbing fixtures became fashion necessities of new homes and remodeling projects, the company needed to provide a much larger set of styles in silver, platinum, and copper, instead of its current product line designed in the 1960s and 1970s. Moen revitalized its product design approach using the Web, collaborating with suppliers in the design process. Previously, engineers would spend six to eight weeks coming up with a new design, burning it onto CDs, and mailing them to suppliers in 14 countries that make the hundreds of parts that go into a faucet. The suppliers would return the CDs with changes and

suggestions that needed to be reconciled with each other. Redesign activities and tool design and production might extend this process to up to 24 weeks.

With the Web-based approach, a new faucet goes from drawing board to store shelf in 16 months, down from an average of two years. The time savings allows Moen’s engineers to work on three times as many projects, and introduce from 5 to 15 new faucet lines each year. This helped boost sales by 17 percent from 1998 to 2001, higher than the industry average of 9 percent over the same period, and moved Moen from number 12 in market share to a tie for number three with rival Delta Faucet Co.

DOMINO’S PIZZA CHANGED THE RULES31

Domino’s Pizza was one of the true innovators in its industry. Tom Monaghan, the company’s founder, knew that customers wanted pizza delivered quickly (and this is especially true for college students, right?). However, he also knew that there was no industry standard for delivery times. Pizzas might be arrive anywhere from 20 minutes to 2 hours because no other company thought of controlling the delivery process. From a competitive perspective,

customers chose a pizza based on taste and price, not delivery. Monaghan saw a competitive advantage by focusing on delivery, and the rest, as they say, is history. By promising consistent delivery within a 30-minute time window, Domino’s exceeded customers’ expectations. Today, this “delighter/exciter” has become a satisfier, and consistently fast delivery is often the first criterion in the pizza-ordering decision process.

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the organizational level and to engage in cooperative behaviors. Major improve- ments in response time often require work organizations, processes, and paths to be simplified and shortened. To accomplish this, more attention needs to be paid to time performance. This can be done by making response time a key indicator for work unit improvement processes. Simplified processes reduce opportunities for errors, leading to improved quality. Improvements in response time often result from increased understanding of internal customer-supplier relationships and team- work. Cutting response time requires a significant commitment from all employees and leadership from top management. Such efforts must involve the entire organi- zation and often require organizational redesign.

INFORMATION AND KNOWLEDGE FOR COMPETITIVE ADVANTAGE

Managing information and knowledge can require a significant commitment of resources as the sources of information grow dramatically each year. Information from internal operations, from the Internet, and from business-to-business (B2B) and business-to-consumer (B2C) communications challenges organizational abilities to pro- vide the information that people need to do their work, keep current, and improve.

Understanding the impact of business decisions on results and benchmarking results against competitors and industry leaders has taken on increased importance in recent years. A supply of consistent, accurate, and timely information across all functional areas of business provides real-time information for evaluation and improvement of processes, products, and services to meet business objectives and rapidly changing customer needs—in short, to create and sustain a competitive advantage (see box “The Data Will Set You Free”). Measurements should derive from business needs and strategy, and they should provide critical data and infor- mation about key processes, outputs, results, outcomes, and competitor and

“THE DATA WILL SET YOU FREE”32

In the early 1990s, Boeing’s assembly lines were morasses of inefficiency. A manual numbering system dating back to World War II bomber days was used to keep track of an airplane’s four mil- lion parts and 170 miles of wiring; changing a part on a 737’s landing gear meant renumbering 464 pages of drawings. Factory floors were cov- ered with huge tubs of spare parts worth millions of dollars. In an attempt to grab market share from rival Airbus, the company discounted planes deeply and was buried by an onslaught of orders. The attempt to double production rates, coupled with implementation of a new production control system, resulted in Boeing being forced to shut down its 737 and 747 lines for 27 days in October

1997, leading to a $178 million loss and a shakeup of top management. Much of the blame was focused on Boeing’s financial practices and lack of real-time data. With a new CFO and finance team, the company created a “control panel” of vital measures such as material costs, inventory turns, overtime, and defects using a color-coded spreadsheet. For the first time, Boeing was able to generate a series of bar charts showing which of its programs were cre- ating value and which were destroying it. The results were eye-opening; not only did they help improve operations, but they also helped formu- late a growth plan. As one manager noted, “The data will set you free.”

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industry performance. This requires a systematic and effective system for measuring performance and managing knowledge assets.

Organizations need performance measures for three reasons:

• to lead the entire organization in a particular direction; that is, to drive strate- gies and organizational change;

• to manage the resources needed to travel in this direction by evaluating the effectiveness of action plans; and

• to operate the processes that make the organization work and continuously improve.33

The Baldrige Excellence Framework notes: “For all organizations, turning data into knowledge and knowledge into useful strategic insights is the real challenge of big data. While the volume of data an organization must assimilate and use in decision-making may vary widely, all organizations are faced with using data from different sources and of varying quality. This presents challenges in data validation, frequently exacerbated when the data being validated include numerics, text, and video or other formats. Organizations must deal increasingly with more sophisticated data analytics and issues of data integrity.” A survey conducted by William Schie- mann & Associates found that measurement-managed companies are more likely to be in the top third of their industry financially, complete organizational changes more successfully, reach clear agreement on strategy among senior managers, enjoy favor- able levels of cooperation and teamwork among management, undertake greater self- monitoring of performance by employees, and have a greater willingness by employees to take risks.34 However, a study by the American Productivity and Quality Center and ASQ found that less than two-thirds of organizations in manufacturing, services, and health care use quality measures for trending and/or predictive analytics.

Many managers and quality professionals view measurement activities only in terms of outputs from the production system. This is a mistake because a broad base of measurements, tied together by strong information systems, can help to align a company’s operations with its strategic directions.

Most businesses have traditionally relied on organizational performance data based almost solely on financial or factory productivity considerations, such as return on investment, earnings per share, direct labor efficiency, and machine utiliza- tion.35 Unfortunately, many of these indicators are inaccurate and stress quantity over quality.36 They reward the wrong behavior; lack predictive power; do not cap- ture key business changes until it is too late; reflect functions, not cross-functional processes; and give inadequate consideration to difficult-to-quantify resources such as intellectual capital.37 Today, many organizations create a “balanced scorecard” of measures that provide a comprehensive view of business performance.

The term balanced scorecard was coined by Robert Kaplan and David Norton of the Harvard Business School in response to the limitations of traditional accounting measures. Its purpose is “to translate strategy into measures that uniquely communicate your vision to the organization.” Their version of the bal- anced scorecard consists of four perspectives:

• Financial Perspective: Measures the ultimate results that the business provides to its shareholders. This includes profitability, revenue growth, return on investment, economic value added (EVA), and shareholder value.

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• Internal Perspective: Focuses attention on the performance of the key internal processes that drive the business. This includes such measures as quality levels, productivity, cycle time, and cost.

• Customer Perspective: Focuses on customer needs and satisfaction as well as market share. This includes service levels, satisfaction ratings, and repeat business.

• Innovation and Learning Perspective: Directs attention to the basis of a future success—the organization’s people and infrastructure. Key measures might include intellectual assets, employee satisfaction, market innovation, and skills development.

A good balanced scorecard contains both leading and lagging measures and indi- cators. Lagging measures (outcomes) tell what has happened; leading measures (per- formance drivers) predict what will happen. For example, customer survey results about recent transactions might be a leading indicator for customer retention (a lag- ging indicator); employee satisfaction might be a leading indicator for turnover, and so on. These measures and indicators should also establish cause-and-effect relation- ships across perspectives. Clarke American structures its performance measurements along two unique dimensions: how they are used—to either change the business or run the business—and whether they are predictive (leading) or diagnostic (lagging). “Change the business” measures are those most critical to the achievement of strate- gic objectives and evaluate organizational performance, such as total order cycle time and implemented ideas. “Run the business” measures are those used for daily opera- tions and include measures of accuracy, responsiveness, and timeliness for deliveries.

Kaplan and Norton’s balanced scorecard is only one version of performance measurement systems that have emerged as companies recognize the need for a broad set of performance measures that provide a comprehensive view of business performance. Raytheon’s version defines Customer, Shareholder, Process, and Peo- ple perspectives. The Baldrige criteria Results category groups performance mea- sures into six sets:

• Product and process outcomes • Customer-focused outcomes • Workforce-focused outcomes • Leadership and governance outcomes • Financial and market outcomes

These performance indicators span the entire business operation, from suppliers to customers, and from frontline workers to top levels of management.

Wainwright Industries, for example, aligns the company’s business objectives with customers’ critical success factors: price, minimal line defects, delivery, and part- nership. This alignment process prompted the development of five key strategic indi- cator categories: safety, internal customer satisfaction, external customer satisfaction, defect rate, and business performance. Within each category, Wainwright developed specific indicators and goals. For instance, for external customer satisfaction, they measure a satisfaction index and monthly complaints; for business performance, they track sales, capital expenditure, and market share for drawn housings.

Comparative information includes comparisons relative to direct competitors as well as best-practices benchmarking, either inside or outside of one’s industry.

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Such information allows organizations to know where they stand relative to com- petitors and other leading companies, provides the impetus for breakthrough improvement, and helps them understand their own processes before they compare performance levels. For example, Corning Telecommunications Products Division (TPD) uses a Competitive Analysis Process to gather publicly available data to ana- lyze competitors’ intentions and capabilities, including manufacturing capacity, cost, and cost of incremental capacity, and determines product capability and qual- ity through direct evaluation of competitors’ products.

Companies need to ask the key question: How do overall improvements in product and service quality and operational performance relate to changes in com- pany financial performance and customer satisfaction? Leading companies employ a variety of statistical tools and structured approaches for analyzing data and turn- ing it into useful information. Fuji-Xerox, a Japanese subsidiary of Xerox, uses a variety of statistical techniques such as regression and analysis of variance to develop mathematical models relating such factors as copy quality, machine mal- functions, and maintenance time to customer satisfaction results. Such approaches can provide an indication of important cause-and-effect relationships (for another perspective, see box “Understanding the Drivers of Business Success”).

STRATEGIC PLANNING FOR PERFORMANCE EXCELLENCE

At one time in the executive suite at Best Buy’s Minneapolis headquarters stood a mock “retail hospital”—including a row of beds in which effigies of retailers like Kmart and Woolworth were laid with their corporate logos propped up on pillows and their awful financial results displayed on bedside charts. A sign nearby read:39

This Is Where Companies Go When Their Strategies Get Sick

UNDERSTANDING THE DRIVERS OF BUSINESS SUCCESS38

IBM’s AS/400 Division in Rochester, Minnesota, a 1990 recipient of the Baldrige Award, initiated a study to determine whether any relationships existed among a variety of measurements, such as market share, overall customer satisfaction, employee morale, job satisfaction, warranty costs, inventory costs, product scrap, and productivity. Using 10 years of data, the researchers identified a strong correlation among market share, cus- tomer satisfaction, productivity, warranty cost, and employee satisfaction. By developing a sta- tistical model relating these variables, IBM learned that to improve employee satisfaction, a manager must focus on improving job satisfaction, satis- faction with management, and satisfaction with

having the right skills for the job. This will posi- tively impact productivity, market share, and cus- tomer satisfaction. Improving employee satisfaction will also directly impact productivity and customer satisfaction and will decrease war- ranty costs. Decreasing warranty costs will directly impact customer satisfaction and market share.

Improving customer satisfaction also will directly impact market share. These relationships provide empirical evidence to support the con- ventional wisdom of TQ that we noted in many chapters of this book: that improving the human element in organizations positively impacts cus- tomers as well as business success.

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One of the critical aspects of any organization that requires the attention of senior leadership is strategic planning. Through strategic planning, leaders mold an organi- zation’s future and manage change by focusing on an ideal vision of what the organization should and could be three, five, or more years in the future. The objec- tive of strategic planning is to build a posture that is so strong in selective ways that the organization can achieve its goals despite unforeseeable external forces.

The role of quality in strategic planning can be viewed in two ways: first, how quality and performance excellence are reflected in an organization’s strategy, and, second, how TQ concepts and practices can improve the strategic planning process.

QUALITY AND PERFORMANCE EXCELLENCE AS A STRATEGIC FOCUS

Effective strategies develop around a few key concepts and thrusts that provide focus. The essence of strategy is to build a posture that is so strong in selective ways that the organization can achieve its goals despite unforeseeable external forces that may arise. The traditional focus of business strategies has been finance and marketing, which par- allel two of the principal sources of competitive advantage—cost and differentiation— discussed earlier in this chapter. Performance excellence leads to improvements in both areas and, therefore, can be viewed as a strategy in itself, particularly when one consid- ers the importance of meeting customer wants and needs. Many firms have recognized that a strategy driven by quality can lead to significant market advantages. Today, it is relatively common to see quality principles integrated into most strategic business plans; that is, for many organizations, quality has become a basic operating philoso- phy that provides the foundation for effective management.

The integration of quality into strategic business planning is the result of a nat- ural evolution. For most new companies—or those that have enjoyed a reasonable measure of success—quality often takes a back seat to increasing sales, expanding capacity, or boosting production, and strategic planning usually focuses exclusively on financial and marketing strategies. As a company begins to face increasing com- petition, cost-cutting objectives take precedence. Some departments or individuals may champion quality initiatives, but quality is not integrated in the company’s strategic business plan. However, in the face of market crises and rising consumer expectations, quality begins to take on increasing importance and becomes an inte- gral part of the overall strategic plan and is viewed as a central operating strategy.

QUALITY IN THE PROCESS OF STRATEGIC PLANNING

Strategic planning helps leadership mold an organization’s future and manage change by focusing on an ideal vision of what the organization should and could be 10 to 20 years in the future and developing objectives and action plans both in the short and longer term to achieve that vision.

Many organizations do a poor job of strategic planning simply because they do not view it as a business process. This is where quality principles can have a signif- icant impact and help establish a better performance excellence system. The role of strategic planning, in addition to creating viable directions and specific objectives, is to align work processes with the company strategic directions, thereby ensuring that improvement and learning reinforce company priorities. Using a systematic

220 Part 2: Performance Excellence, Strategy, and Organization Theory

process helps to optimize the use of resources, ensure the availability of trained employees, and ensure bridging between short-term and longer-term requirements that may entail capital expenditures or supplier development, for example.

In viewing strategic planning as a process, an organization needs to:

• plan for the long term, and understand the key influences, risks, challenges, and other requirements that might affect the organization’s future opportu- nities and directions. This is to help ensure that short-term action plans are aligned with the organization’s longer-term strategic directions.

• project the future competitive environment to help detect and reduce competi- tive threats, shorten reaction time, and identify opportunities.

• develop action plans and deploy resources—particularly HR—to achieve alignment and consistency, and provide a basis for setting and communicating priorities for ongoing improvement activities.

• ensure that deployment will be effective—that a measurement system enables tracking of action plan achievement in all areas.

Strategic planning consists of two principal activities: development and implemen- tation. Strategy development consists of defining the mission of the organization—the concept of the business and the vision of where it is headed; setting objectives— translating the mission into specific performance objectives; and defining a strategy— determining specific actions to achieve the performance objectives. Implementation focuses on executing the strategy effectively and efficiently, as well as on evaluating performance and making corrective adjustments when necessary.

STRATEGY DEVELOPMENT

The organization’s leaders first must explore and agree upon the mission, vision, and guiding principles of the organization; these form the foundation for the strategic plan. The mission of a firm defines its reason for existence. For example, the mission of Freese and Nichols is Innovative approaches… practical results… outstanding ser- vice. A firm’s mission guides the development of strategies by different groups within the firm. It establishes the context within which daily operating decisions are made, and it sets limits on available strategic options. In addition, it helps to make tradeoffs among the various performance measures and between short- and long-term goals.

The vision describes where the organization is headed and what it intends to be. (See Chapter 9 for a discussion of vision from a leadership perspective.) Freese and Nichols’ vision statement is to Be the firm of choice for clients and employees. It is brief and memorable, inspiring and challenging, appeals to all stakeholders, and describes an ideal state.

The values, or guiding principles, direct the journey to a vision by defining atti- tudes and policies for all employees that are reinforced through conscious and sub- conscious behavior at all levels of the organization. For Freese and Nichols, the guiding principles are:

• We are ethical • We deliver quality • We are responsive • We add value

Chapter 5: Competitive Advantage and Strategic Management for Performance Excellence 221

• We improve continuously • We are innovative • We develop professionally • We respect others • We give back to our communities

Not all companies clearly separate their mission, vision, and values. The mission, vision, and values serve as the foundation for strategic planning.

Top management and others who lead, especially the CEO, must articulate them. They also have to be transmitted, practiced, and reinforced through symbolic and real action before they become “real” to the employees and the people, groups, and organizations in the external environment that do business with the firm. It does not matter what you call them; what is important is that a company can artic- ulate them and, more importantly, commit to them.

Although an organization’s mission, vision, and values rarely change (although they might be tweaked to reflect changing business directions), the environment in which the organization exists usually does. Thus, strategy development requires an assessment of the organizational environment, addressing such factors as customer and market requirements, expectations, and opportunities; technological and other innovations that might affect products or operations; changes in the global or national economy; partner and supply chain needs; and so on. Of critical impor- tance to any organization is an assessment of its strategic challenges, those pres- sures that exert a decisive influence on an organization’s likelihood of future success (see box “Strategic Challenges in Health Care”). Strategic challenges fre- quently are driven by factors that influence an organization’s future competitive position relative to other providers of similar products or services. These might include operational costs (e.g., materials, labor, or geographic location); expanding or decreasing markets; mergers or acquisitions both by the organization and by its competitors; economic conditions, including fluctuating demand and local and global economic downturns; the cyclical nature of the industry; the introduction of new or substitute products or services; rapid technological changes; or new compet- itors entering the market. In addition, an organization may face challenges related to the recruitment, hiring, and retention of a qualified workforce. Understanding these issues is often facilitated using SWOT (strengths, weaknesses, opportunities, threats) analyses and forms the basis for formulating key strategic objectives.

Data and information may come from a variety of internal and external sources and in a variety of forms. Today, data are available in increasingly greater volumes and at greater speeds. The ability to capitalize on data and information, including large datasets (“big data”), using tools of modern business analytics is vital to good strategic planning. Choosing which strategic opportunities to pursue involves considering relative risk, financial and otherwise, and then making intelli- gent choices, which are often referred to as “intelligent risks.”

A particularly significant challenge that some organizations face is being unpre- pared for a disruptive technology that threatens its competitive position or its mar- ketplace. In the past, such technologies have included personal computers replacing typewriters, cell phones challenging land lines and pay phones, fax machines cap- turing business from overnight delivery services, and e-mail challenging all other

222 Part 2: Performance Excellence, Strategy, and Organization Theory

means of correspondence. Today, organizations need to be scanning the environ- ment inside and outside their immediate industry to detect such challenges at the earliest possible point in time.

One of the many issues facing organizations today is how to manage, use, evalu- ate, and share their ever-increasing organizational knowledge. Leading organizations already benefit from the knowledge assets of their workforce, customers, suppliers, collaborators, and partners, who together drive organizational learning and improve performance. To leverage this knowledge, organizations need a performance improvement approach that can systematically drive organizational change. Overall approaches to performance improvement might include implementing a Lean Enter- prise System, applying Six Sigma, using the ISO 9000:2000 or Baldrige frameworks.

Strategy development leads to clear definitions of strategies, objectives, and action plans. Strategies are broad statements that set the direction for the organiza- tion to take in realizing its mission and vision. A strategy might be directed toward becoming a preferred supplier, a low-cost producer, a market innovator, or a high- end or customized service provider. Strategic objectives are what an organization must change or improve to remain or become competitive. They are typically focused externally and relate to customer, market, product, service, or technologi- cal opportunities and challenges. Strategic objectives set an organization’s long- term direction and guide resource allocation decisions. For example, a strategic objective for a supplier in a highly competitive industry might be to develop and maintain a price leadership position. Specific action plans derive from strategy and

STRATEGIC CHALLENGES IN HEALTH CARE40

Like most health care organizations today, North Mississippi Medical Center (NMMC) faces strate- gic challenges such as shortages of health care providers and unique challenges in their commu- nity such as a high poverty level, poor health sta- tus, and lack of health care insurance. Their most significant strategic challenges are organized by their five critical success factors:

PEOPLE – Maintain and enhance our employees’ satisfaction, skills and engage- ment. Recruit and retain skilled staff. Develop staff and physician leaders.

SERVICE – Increase our patients’ and physicians’ satisfaction. Enhance our patient- customer loyalty.

QUALITY – Provide high level, evidence- based, quality care and maintain patient safety.

FINANCIAL – Generate the financial resources necessary to support the

organization in an environment of reimburse- ment pressures and increasing charity care.

GROWTH – Continue to expand in areas consistent with our Mission.

Identifying and balancing these critical success factors and challenges is core to how NMMC organizes, aligns, and links their meetings, analy- ses, challenges, goals, performance indicators, and action plans. During their planning process, they identify two types of goals for each critical success factor:

• RUN-THE-BUSINESS goals, which improve or maintain established functions, address long-standing challenges, and utilize key process indicators; and

• GROW-THE-BUSINESS goals, which stretch the organization with a new service, a monu- mental improvement in an existing service, or address a new challenge.

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clearly describe the things that need to be done, HR plans and support, perfor- mance measures and indicators, and resource deployment. This process is summa- rized in Figure 5.3.

Quality and Strategy Development The principles of TQ can help improve an organization’s strategic planning process and therefore lead to better strategies. Effective strategic planning depends upon a clear understanding of customer and market needs and expectations, as well as the competitive environment and internal capabilities. The Ritz-Carlton, for instance, evaluates all action plans on how effec- tively they address customer requirements. A key goal is to become the first hospital- ity company with 100 percent customer retention; all plans must address this goal.

The focus on teamwork creates an expectation that everyone in the organization play a role in the formulation of the strategy. Top management, employees, and even customers or suppliers actively participate in the planning process in many organiza- tions. At Solar Turbines, Inc., for example, the strategy development process involves people from all parts of its worldwide organization, customers, and suppliers. Sales, marketing, service, engineering, and manufacturing people in functional and cross- functional teams perform information gathering, analysis, and conclusions. This information is carried forward to the leadership system committees and the Opera- tions Council where it is integrated and synthesized into strategies and critical success factor goals. It is not unusual for customers and suppliers to be involved in strategic planning efforts because of their importance in the supply chain. Customers and sup- pliers may offer vital advice to an organization as it plans for the future.

The focus on measurement and objective reasoning introduces a reality check in determining the effectiveness of strategy and performance in meeting goals and objec- tives. The notion of continuous improvement leads organizations to understand how

Environmental Assessment

VisionMission

Customer and Market Requirements

Competitive Environment

Financial and Societal Risks

Forecasts

Analyses

Guiding Principles

Human Resource Capabilities and Needs

Technological Capabilities

Supplier Capabilities

Models

Business Intelligence

Strategy Development

Action Plans

Deployment

FIGURE 5.3 | A TYPICAL STRATEGIC PLANNING PROCESS

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to improve their strategic planning process (see box “Searching for Strategy”). The aspects of this process that could be improved are the forecasting of future demand, assessment of internal capabilities, and integration of internal and external perspec- tives into the planning process. One way of doing this is by studying effective pro- cesses used by others and adapting new ideas into their own organizations.

STRATEGY IMPLEMENTATION

Top management requires a method to ensure that their plans and strategies are successfully executed (the term deployed is frequently used) within the organi- zation. This involves developing specific action plans to achieve strategic objectives, ensuring that adequate financial and other resources are available to accomplish the action plans, developing contingencies should circumstances require a shift in plans and rapid execution of new plans, aligning work unit, supplier, or partner activities as necessary, and identifying performance measures for tracking progress.

Essentially, strategy implementation links the planners (who focus on “doing the right thing”) with the doers (whose focus is on “doing things right”). Action plans typically include details of resource commitments and time horizons for their accom- plishment. Implementation also might require specialized training for some employ- ees or recruitment of personnel. An example of a strategic objective for a supplier in a highly competitive industry might be to develop and maintain a price leadership position. Action plans could entail designing efficient processes and creating an accounting system that tracks activity-level costs, aligned for the organization as a whole. Deployment requirements might include work unit and team training in

SEARCHING FOR STRATEGY41

Xerox, Ford, Microsoft, Motorola, Hewlett- Packard, and other companies have used an approach called the Search Conference method to facilitate their strategic planning processes. A Search Conference is a participative event that enables a large group to collectively create a plan that its members will implement. Typically, 20 to 40 people from an organization work progressively for two or three days on planning tasks in large group plenary sessions.

They develop long-term strategic visions, achievable goals, and concrete action plans. All of the work is conducted in self-managed teams that are responsible for the entire planning process. Even after the conference, those who created the plan are responsible for its implementation. This democratic approach gives those employees most affected by the change more control over direction setting and policy deployment.

Senior management cannot manipulate a Search Conference agenda to steer participants in some predetermined direction. Furthermore, everything that is discussed is public information. The intended result is to produce a committed group of knowledgeable people who have a deep understanding of the challenges confronting their organization, agreement about the ideals the strategy is supposed to serve, action plans that are aligned with those ideals, a social mechanism for participation, and a process for engaging the whole system in the strategy implementation. As one Xerox vice president reflected, “We used the output from the Search Conference teams in our annual planning process to develop our business strategy for the next three years. Our culture has engineered a big shift; we’ve moved the [unit’s] members from being highly dependent on top- down planning to acting like entrepreneurs.”

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setting priorities based on costs and benefits. Organizational-level analysis and review likely would emphasize productivity growth, cost control, and quality.

The Japanese deploy strategy through a process known as hoshin planning, or policy deployment. Hoshin means policy or policy deployment. Policy deployment is a systems approach to managing change in critical business processes. It empha- sizes organization-wide planning and setting of priorities, providing resources to meet objectives, and measuring performance as a basis for improving performance. Policy deployment is essentially a TQ-based approach to executing a strategy. King describes it eloquently:42

Imagine an organization that knows what customers will want five to ten years from now and exactly what they will do to meet and exceed all expectations. Imagine a planning system that has integrated [Plan, Do, Study, Act] language and activity based on clear, long-term thinking, a realistic measurement system with a focus on process and results, identification of what’s important, alignment of groups, decisions by peo- ple who have the necessary information, planning integrated with daily activity, good vertical communication, cross-functional communication, and everyone planning for himself or herself, and the buy-in that results. That is hoshin planning.

With policy deployment, top management is responsible for developing and communicating a vision, then building organization-wide commitment to its achievement.43 This vision is deployed through the development and execution of annual policy statements (plans). All levels of employees actively participate in gen- erating a strategy and action plans to attain the vision.

At each level, progressively more detailed and concrete means to accomplish the annual plans are determined. The plans are hierarchical, cascading downward from top management’s plans. There should be a clear link to common goals and activities throughout the organizational hierarchy. Policy deployment provides fre- quent evaluation and modification based on feedback from regularly scheduled audits of the process. Plans and actions are developed based on analysis of the root causes of a problem, rather than only on the symptoms.

Hoshin planning has a high degree of detail, including the anticipation of pos- sible problems during implementation. The emphasis is on the improvement of the process, as opposed to a results-only orientation.

Figure 5.4 shows the general hoshin planning process. Policy deployment starts with the senior managers of the company. The senior managers establish the vision and core objectives of the company. An example of an objective might be “to improve delivery,” which supports the long-term vision of “to be the industry leader in customer satisfaction. “Middle management negotiates with senior man- agement regarding the goals that will achieve the objectives. Goals specify numeri- cally the degree of change that is expected. These should be challenging, but people should feel that they are attainable.

Strategies specify the means to achieve the goals. They include more specific actions to be taken. Middle managers are responsible for managing the resources to accomplish the goals. Middle management then negotiates with the implementation teams regarding the performance measures that are used to indicate progress toward accomplishing the strategies.

Measures are specific checkpoints to ensure the effectiveness of individual ele- ments of the strategy. The implementation teams are empowered to manage the

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actions and schedule their activities. Senior management then uses a review process to understand both the progress of the implementation teams and the success of their planning system. The Seven Management and Planning Tools described shortly are used extensively in the process.

LINKING HUMAN RESOURCE PLANS AND BUSINESS STRATEGY

Whenever an organization seeks to do something different, people are invariably impacted. Thus, it is important to consider organizational change and plan for nec- essary human resource changes that may be needed. These changes might include new training initiatives, work reorganization, or compensation and incentive approaches. For example, to address a national nursing shortage, Baptist Hospital’s strategy for nurse recruitment and retention required numerous HR changes, such as revamping the clinical ladder program, pay adjustments to recruit graduate nurses, increasing the number of scholarships to nursing students, and involving

Hoshin plan

Review • Action • Schedule

• Vision • Objectives

• Strategy • Resources

Implementation teams

Senior management

Middle management

Measures Goals

FIGURE 5.4 | HOSHIN PLANNING PROCESS Source: Hoshin Kanri: Policy Deployment for Successful TQM by TAYLOR & FRANCIS GROUP LLC - BOOKS, 2004.

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experienced nurses to speak to high school students to raise interest in the field. Motorola’s Commercial, Government, and Industrial Solutions Sector ties the fol- lowing human resource plans into its strategic planning process: breakthrough changes in work design, team member development, education, and training; com- pensation, recognition, and benefits; and human resources needs such as identifica- tion and recruitment. When GE decided to adopt a Six Sigma framework for the organization, it was necessary to train 12,000 black-belt leaders to implement the plan. Incentives for project champions in upper management were restructured to account for 40 percent of their bonuses.

Strategic HR plans often include one or more of the following:

• Redesign of the work organization to increase empowerment and decision- making or team-based participation

• Initiatives for promoting greater labor/management cooperation, such as union partnerships

• Initiatives to foster knowledge sharing and organizational learning • Partnerships with educational institutions to help ensure the future supply of

well-prepared employees

Whatever the choices, it is vital that they support the organization’s overall strategy. For example, suppose that a firm identifies its critical success factors as customer satisfaction, employee satisfaction, market growth, and world-class per- formance. Each critical success factor will have one or more strategic objectives defined through the firm’s strategic planning process. Because successful accom- plishment of these strategic objectives will depend on execution by the firm’s work- force, it is important that key human resource plans, such as enhancing skills, knowledge, and motivation, be identified to support these strategic objectives. Some examples are shown in Table 5.1.

TABLE 5.1 ALIGNMENT OF HUMAN RESOURCE PLANS WITH CRITICAL SUCCESS FACTORS AND STRATEGIC OBJECTIVES

Critical Success Factor and Strategic Objectives Human Resource Plans

Customer Satisfaction

• Strengthen customer relationships by improving responsiveness

Implement new training program for frontline staff

Employee Satisfaction

• Encourage employee development and career planning to capitalize on workforce diversity

Develop, implement, and deliver online training courses Require leadership rotation in team projects

Market Growth

• Pursue new and expanded market opportunities

Actively participate on marketing teams to determine HR requirements Develop a hiring plan for new product development and marketing initiatives

World-Class Performance

• Improve process quality • Reduce costs to world-class benchmark levels

Support Six Sigma training initiatives Develop lean expertise throughout the workforce

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THE SEVEN MANAGEMENT AND PLANNING TOOLS

The “seven management and planning tools” had their roots in post–World War II operations research developments in the United States, but were refined in Japan. They were popularized in the United States by the consulting firm GOAL/QPC and have been used by a number of firms since 1984 to improve their quality planning efforts. These tools can be used to address problems typi- cally faced by managers who are called upon to structure unstructured ideas, organize and control large, complex projects, and to more effectively develop strategy. We will illustrate them in the context of strategic planning for a hypo- thetical high-technology consumer electronics company, MicroTech. Micro- Tech’s mission is

to design and manufacture miniature electronics products utilizing radio frequency technologies, digital signal-processing technologies, and state-of-the-art surface mount manufacturing techniques.

AFFINITY DIAGRAMS

The affinity diagram is a tool for organizing a large number of ideas, opinions, and facts relating to a broad problem or subject area. In developing a vision statement, for example, senior management might conduct a brainstorming session to develop a list of ideas to incorporate into the vision. This list might include:

low product maintenance low production costs

satisfied employees innovative product features courteous order entry high return on investment low price constant technology innovation

quick delivery high quality growth in shareholder value motivated employees teamwork unique products

responsive technical support small, lightweight designs personal employee growth

Once a large number of ideas have been generated, they can be grouped according to their “affinity,” or relationship, to each other. An affinity diagram for the preceding list is shown in Figure 5.5.

INTERRELATIONSHIP DIGRAPH An interrelationship digraph identifies and explores causal relationships among related concepts or ideas. It shows that every idea can be logically linked with more than one other idea at a time, and allows for “lateral thinking” rather than “linear thinking.” This technique is often used after the affinity diagram has clarified issues and problems. Figure 5.6 shows an example of how the key strategic factors for MicroTech relate to one another. The elements having the most net outward-pointing arrows (number out minus number in) represent the

Chapter 5: Competitive Advantage and Strategic Management for Performance Excellence 229

primary drivers of the company’s vision: in this case, work environment and cus- tomer service. As a result, MicroTech might develop the following vision statement:

We will provide exceptional value to our customers in terms of cost-effective products and services of the highest quality, leading to superior value to our shareholders. We will provide a supportive work environment that promotes personal growth and the pursuit of excellence and allows each employee to achieve his or her full potential. We are committed to advancing the state of the art in electronics miniaturization and related technologies and to developing market opportunities that are built upon our unique technical expertise.

Motivated employees Teamwork

Personal employee growth Satisfied employees

Work Environment

Responsive technical support Quick delivery

Courteous order entry

Customer Service

Low price Low product maintenance

High quality

Customer Value

Constant innovation

Technology

Unique products Small, lightweight designs

Innovative features

Product Innovation

High return on investment Low production costs

Growth in shareholder value

ROI

FIGURE 5.5 | AFFINITY DIAGRAM FOR MICROTECH

Customer Service

Customer Value

Work Environment

Technology

Product Innovation

ROI

FIGURE 5.6 | INTERRELATIONSHIP DIGRAPH OF MICROTECH’S STRATEGIC FACTORS

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TREE DIAGRAMS

A tree diagram maps out the paths and tasks necessary to complete a specific proj- ect or reach a specified goal. Thus, the planner uses this technique to seek answers to such questions as “What sequence of tasks will address the issue?” or “What factors contribute to the existence of the key problem?”

A tree diagram brings the issues and problems revealed by the affinity diagram and the interrelationship digraph down to the operational planning stage. A clear statement specifies the problem or process. From this general statement, a team can be established to recommend steps to solve the problem or implement the plan. The “product” produced by this group would be a tree diagram with activities and per- haps recommendations for timing the activities. Figure 5.7 shows an example of how a tree diagram can be used to map out key goals and strategies for MicroTech.

MATRIX DIAGRAMS

Matrix diagrams are “spreadsheets” that graphically display relationships between ideas, activities, or other dimensions in such a way as to provide logical connecting points between each item. A matrix diagram is one of the most versatile tools in quality planning and was used in quality function deployment in Chapter 3. One example is shown in Figure 5.8. Here, we have listed the three principal goals artic- ulated in MicroTech’s vision statement along the rows and the key strategies down the columns. Typically, symbols such as �, �, and 4 are used to denote strong, medium, and weak relationships, respectively. Matrix diagrams provide a picture of how well two sets of objects or issues are related and can identify missing pieces in the thought process. For instance, a row without many relationships might indi- cate that the actions proposed will not meet the company’s goals. In Figure 5.8, we see that focused attention to these three strategies should meet MicroTech’s goals. Other matrices might relate short-term plans to medium-term objectives or individ- ual actions to short-term plans. These visual depictions can help managers set priorities on plans and actions.

MATRIX DATA ANALYSIS

Matrix data analysis takes data and arranges them to display quantitative relation- ships among variables to make them more easily understood and analyzed. In its original form used in Japan, matrix data analysis is a rigorous, statistically based “factor analysis” technique. Many feel that this method, although worthwhile for many applications, is too quantitative to be used on a daily basis and have devel- oped alternative tools that are easier to understand and implement. Some of these alternatives are similar to decision analysis matrixes that you may have studied in a quantitative methods course.

A small example of matrix data analysis is shown in Figure 5.9. In this exam- ple, MicroTech market researchers determined that the four most important con- sumer requirements are price, reliability, delivery, and technical support. Through market research, an importance weighting was developed for each. They also deter- mined numerical ratings for the company and its best competitor. Such an analysis

Chapter 5: Competitive Advantage and Strategic Management for Performance Excellence 231

provides information as to which actions the company should deploy to better meet key customer requirements. For example, in Figure 5.9, reliability is the high- est in importance, and MicroTech has a narrow lead over its best competitor; thus, they should continue to strive for improving product reliability. Also, technical

Install new computer system

Improve order entry process

Goals StrategiesKey Strategic Factors

Reduce delivery time

Customer Service

Improve technical support

Develop to culture

Improve teamwork

Enhance personal growth

Provide new educational benefits

Work Environment

Train customer service reps.

Empower customer service reps.

Provide release time to develop creative ideas

FIGURE 5.7 | TREE DIAGRAM OF MICROTECH GOALS AND STRATEGIES

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support is of relatively high importance, but MicroTech is perceived to be inferior to its best competitor in this category. Thus, improving the quality of support services should be a major objective.

PROCESS DECISION PROGRAM CHARTS

A process decision program chart (PDPC) is a method for mapping out every conceivable event and contingency that can occur when moving from a problem statement to possible solutions. A PDPC takes each branch of a tree diagram, antici- pates possible problems, and provides countermeasures that will (1) prevent the devi- ation from occurring, or (2) be in place if the deviation does occur. Figure 5.10 shows one example for implementing a strategy to educate and train all employees to use a new computer system.

Develop New Products

Improve Manufacturing Technology

Improve Work EnvironmentGoals

Cost Effectiveness

High Quality

Shareholder Value

Actions

� Strong relationship

� Medium relationship

� Weak relationship

FIGURE 5.8 | MATRIX DIAGRAM FOR MICROTECH’S GOALS AND STRATEGIES

Requirement Importance Weight

Best Competitor Evaluation

MicroTech Evaluation Difference*

Price .2 6 8 þ2 Reliability .4 7 8 þ1 Delivery .1 8 5 �3 Technical support .3 7 5 �2 *MicroTech Evaluation-Best Competitor Evaluation

FIGURE 5.9 | MATRIX DATA ANALYSIS OF CUSTOMER REQUIREMENTS FOR MICROTECH ©

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ARROW DIAGRAMS

For years, construction planners have used arrow diagrams to sequence and sched- ule project tasks. Arrow diagramming has also been taught extensively in quantita- tive methods, operations management, and other business and engineering courses in the United States for a number of years. Unfortunately, its use has generally been confined to technical experts. Adding arrow diagramming to the “quality toolbox” has made it more widely available to general managers and other non- technical personnel. Figure 5.11 shows an example. Time estimates can easily be added to each activity in order to schedule and control the project.

• • •

Train users

Hire external trainer

Temporary help

Overtime Possible Countermeasures:

What-Ifs?:

Steps:

Actions:

Install New Computer System

Conduct training classes

Schedule training

sessions

Develop training manuals

Not enough time

Short- staffed

Install hardware

Configure system

Analyze needs

FIGURE 5.10 | A PROCESS DECISION PROGRAM CHART

Install New Computer System Request for bids Purchase

equipment

Install system

Schedule training

Training preparation

Needs analysis

Configure system

3 5

1 6 7 8 Train users

FIGURE 5.11 | AN ARROW DIAGRAM FOR PROJECT PLANNING

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CORE COMPETENCIES AND STRATEGIC WORK SYSTEM DESIGN

Work systems, which refers to how the work of an organization is accomplished, coordinate the internal work processes and the external resources necessary to develop, produce, and deliver products and services to customers and to succeed in marketplace. Work systems involve the workforce, key suppliers and partners, contractors, collaborators, and other components of the supply chain needed to produce and deliver products, services, and business and support processes. For example, Henry Ford’s early factories did everything from steel-making to final assembly; today’s automobile companies are characterized by complex networks of suppliers that are much more decentralized. Decisions about work systems are strategic. These decisions involve protecting and capitalizing on core competencies and deciding what should be procured or produced outside the organization in order to be efficient and sustainable in the marketplace.

Core competencies refers to an organization’s areas of greatest expertise that provide a sustainable competitive advantage in the marketplace or service environ- ment. Core competencies may involve technology expertise, unique service offerings, a marketplace niche, or a particular business acumen (e.g., business acquisitions). Some examples of core competencies might be quality and productivity practices (e.g., Toyota), superior customer relationship management (e.g., Nordstrom’s), inno- vation in design and new product development (e.g., Apple), supply chain manage- ment (e.g., Dell), or marketing/branding expertise (e.g., Procter & Gamble). An organization needs to understand its core competencies and how they support the organization’s mission, enable it to compete against its competitors, and help drive strategic objectives and action plans.

Some contemporary theories suggest that business activities that do not make up an organization’s core competency should be outsourced. Outsourcing is the practice of transferring the operations of a business function to an outside supplier. Many organizations have done this; for example, manufacturing or assembly, information technology operations, HR management, and customer service tele- phone support operations. Much outsourcing is done through offshoring, in which the outsourced function is relegated to foreign shores. The opposite of outsourcing is vertical integration, by which certain business functions are acquired and consol- idated within a firm. For example, a firm may purchase a key supplier to strengthen its value chain.

Because outsourcing can have significant impacts on an organization’s work system effectiveness, it must be dealt with strategically. Outsourcing key activities that are highly interdependent with technologies that impact the overall perfor- mance of a product can lead to failure to adequately meet customer needs and make it more difficult to deal with systems integration issues for complex products such as automobiles.44

The decision to outsource or vertically integrate should be examined relative to all factors that can affect organizational performance. In many cases, the decision is based solely on costs without considering the impact on other business priorities such as quality and customer satisfaction or risks associated with protecting intel- lectual property. For instance, the toy industry recently faced serious issues with toxic chemicals found in toys manufactured in China; Dell had moved a customer call center to India to lower costs, but later closed that center and moved it back

Chapter 5: Competitive Advantage and Strategic Management for Performance Excellence 235

to the United States because of dissatisfaction with the level of technical support that customers were receiving. In addition to cost, the impact of outsourcing on product and service quality should be examined. For example, one might ask: Does the outsourcing effort meet an individual function’s goals, including main- taining internal service quality? Does extensive use of outsourcing across numerous functions affect the general level of internal service within an organization? Can outsourcing suppliers meet service, productivity, and quality goals?45

STRATEGIC PLANNING FOR PERFORMANCE EXCELLENCE IN ACTION

In this section, we provide some examples that illustrate the themes we have dis- cussed about strategic planning and its link to TQ.

PLAN FOR EXCELLENCE AT BRONSON METHODIST HOSPITAL46

The culture of Bronson Methodist Hospital (BMH), a Baldrige recipient, is built upon a focus and passion for excellence. The hospital’s purpose and reason for exis- tence is stated in its mission to “Provide excellent healthcare services.” This statement reflects what BMH does and why it exists. The values promoted by BMH are simple:

We believe in, and our actions will reflect:

• Care and respect for all people • Teamwork • Stewardship of resources • Commitment to our community • The pursuit of excellence

These corporate values are enhanced by a Philosophy of Nursing Excellence and Commitment to Patient Care Excellence:

Philosophy of Nursing Excellence

• Respect • Compassion • Expertise • Impact • Pride

Commitment to Patient Care Excellence

• Healing with our knowledge • Caring with our hearts • Working together for Bronson patients and families

The mission, values, commitment to patient care excellence, and philosophy of nursing excellence provide the foundation that supports the organizational strategy, which is illustrated in the vision: Bronson will be a national leader in health care qual- ity, and the three corporate strategies: Clinical Excellence (CE), Customer and Service Excellence (CASE), and Corporate Effectiveness (CORE). These elements, comprising the Plan for Excellence (PFE), form the culture and guide decision making.

236 Part 2: Performance Excellence, Strategy, and Organization Theory

Annually, the Executive Team (ET) and Board of Directors (BOD) engage in the strategic planning process, referred to as the Strategic Management Model (SMM). Leaders and physicians participate in several steps of the SMM process and provide input into planning through membership on organizational teams (strategic oversight teams (SOTs), Clinical Practice Council, service line teams, etc.). The planning cycle kicks off in the spring with the Business Development Division preparing the strategic input document using a variety of input sources. A day-long quarterly strategic planning (QSP) retreat, which includes the ET and key directors, is held to review the strategic input document along with a summary of the previous years’ performance. At this time, improvements to the leadership sys- tem and SMM are identified for the upcoming annual cycle of planning. Key health care services and delivery processes are determined. At the QSP retreat, the elements of the PFE, including the mission, vision, and values, as well the organization’s long- term goals, are reviewed and revised, if warranted. Using a SWOT analysis, the ET develops key strategic and budget assumptions that are tested at a series of planning meetings with leaders and physicians. The ET assigns responsibility to the appropri- ate (SOT). Three SOTs are aligned to support each of the corporate strategies. Each SOT is chaired by an ET member; other team members include physicians as well as leaders from key operational and support departments.

The SOTs develop preliminary short-term objectives. At the summer QSP retreat, the SOTs present these objectives for approval and begin tactic develop- ment. During the summer, the strategic assumptions are revisited with the BOD at the annual strategic planning retreat. This review enables the BOD to validate the strategic challenges based on current information and provides the necessary foun- dation for the organization to prepare for strategic plan and budget approval later in the year. During the summer, HR and Finance use the SOT tactics and leader input to formulate the HR staffing, education, and budget plans. The SOTs finalize tactics and the scorecard measures in the fall. The strategies, LT goals, short-term objectives, organizational scorecard, budget, HR staffing, and education plans are approved by the ET at the fall QSP retreat and by the BOD at a monthly meeting in late fall. Deployment of the strategic plan begins in the winter.

In between each QSP retreat, the ET meets to review organizational perfor- mance and progress in achieving the strategic objectives. Regular updates at the weekly ET and monthly or biweekly SOT meetings, support the continuous plan- ning process and ensure that the most current information is integrated into the SMM. A systematic review of organizational performance, review of the Quarterly System Indicator Report (QSIR), along with regular environmental scanning, miti- gates the potential for blind spots caused by factors that may have changed since the initial development of strategic objectives and tactics. The Business Develop- ment Division maintains a compilation of competitive events in the marketplace. This information assists in identifying possible market trends that could impact BMH. The ET establishes planning horizons based on the analysis of market dynamics. Market analysis and intelligence resources indicate that one year is cur- rently appropriate for short-term plans to remain responsive to market forces and synchronized with the budget cycle. The long-term planning horizon, three to five years, is determined by evaluating constraints, such as the time to introduce new services, the optimum life cycle of existing services, as well as market intelligence

Chapter 5: Competitive Advantage and Strategic Management for Performance Excellence 237

related to competitive strategies and plans. This approach enables BMH to be responsive to changing factors in the marketplace while maintaining stability of the long-term strategic focus. The SMM results in the development of short-term stra- tegic objectives and long-term goals that support achievement of the vision. During the SMM, consideration is given to the necessary action plans that must be com- pleted to make progress in each corporate strategy. Through the integration of operational, clinical, financial, and HR perspectives, the enhanced SMM facilitates the allocation of adequate resources to complete the action plans in support of the short-term strategic objectives and long-term goals.

STRATEGIC PLANNING AT BRANCH-SMITH PRINTING DIVISION47

Branch-Smith, Inc., is a fourth-generation, family business founded by Aaron Smith in 1910. The Branch-Smith Printing Division in Fort Worth, Texas, has only 70 full-time employees and specializes in creating multipage, bound materials with ser- vices ranging from design to mailing for specialty customers. The company produces publications, magazines, catalogs, directories, and books, as well as some general commercial printing, typically in quantities generally less than 20,000. It offers a complete array of turnkey services to customers, including design, image scanning, electronic and conventional prepress work, printing, binding, and mailing/delivery.

Within the Printing Division, the context of the business is set through its Vision Statement: “Market Leading Business Results through an Expert Team providing Turnkey Solutions to Customer Partners.” This vision expresses the desire to pro- duce strong and sustainable results through balanced performance improvement. It creates success for long-term customers and rewards for its employees who bring solutions to bear on its opportunities. The mission is stated as: “The mission of the Branch-Smith Printing Division is to provide expert solutions for publishers.” This purpose guides Branch-Smith Printing in meeting customers’ needs on its own terms. Publishers work with Branch-Smith because the company focuses on serving publish- ers’ niche requirements for printing as well as offering the vertically integrated value- added services that result in lower costs, reduced cycle times, and on-time delivery. An important component of the solution is easy accessibility for the customer, and timely and appropriate information. It is also expressed in its Quality Policy, which states: “Branch-Smith Printing will seek to continuously improve results for all stake- holders through the application of its Innovating Excellence Process.”

The printing industry is very competitive with numerous companies seeking market share. Branch-Smith Printing stands out among competitors based on its approach for identifying and serving a specific niche, focusing on development of long-term relationships, partnering with suppliers, and involvement in standard defining industry associations. To ensure a competitive position, it focuses on serv- ing a select market niche that most other printers have difficulty serving well. Many competitors focus on attracting jobs with greater quantity outputs because of the limitations of their equipment. They charge much higher prices for the shorter runs, thus giving Branch-Smith an advantage in this market. Its equipment and tech- nologies are directed to cost-effectively serve this niche through sheet-fed press ver- sus the popular Web printing. This technology allows for faster changeovers from one type of print to another, and process automation offers cost savings.

238 Part 2: Performance Excellence, Strategy, and Organization Theory

Although Branch-Smith is a small family business, it engages in a formal planning process annually with monthly updates during management reviews. The process is built around a continuous learning cycle that begins with lessons learned from previous years to determine and implement improvements. The strategic planning process (SPP) is a key tool the company uses to visualize the ideal future and create strategies and plans to achieve it, and to incorporate improvement opportunities into prioritized action plans. Strategic planning occurs formally each year with updates and tracking conducted monthly during management reviews. Ongoing updates throughout the year allow the company to correct direction or to proactively respond to risks and opportunities.

Figure 5.12 represents the full strategic planning, deployment, and review pro- cess. A month prior to strategic planning, assignments are made to Print Leader- ship Team (PLT) members to research information needed for strategic decision making. The assignment list includes 28 specific areas for understanding organiza- tional and supplier/partner capabilities, market conditions, stakeholder input and requirements, competitive information, industry issues, and risks. Branch-Smith gathers information through a customer survey, lost revenues, and complaints to identify customer needs and their importance, trends and directions of the printing industry, and market requirements from industry association networking.

Involvement in professional associations provides industry knowledge and benchmarks concerning customer needs and competitor actions, including emerging tools and competitors. Trade magazines and discussions with key suppliers provide additional input about customer needs, competitor directions, and supplier capabil- ities. Trends and directions in technology and other environmental changes are also identified through involvement with trade associations and external benchmarking groups, and through general understanding of the business climate gained through newspapers, journals, and periodicals.

One important source of information for strategic planning regarding HR needs and capability is an annual employee survey. HR and operational capabilities are identified through review of aggregate measures of performance and productiv- ity, which are enhanced with feedback from scheduled ISO audits that identify pro- cesses in need of improvement. Primary inputs on process efficiency and capability

Evaluate and improve prior year strategic plan process

Focus the organization

Evaluated

Deployment lessons learned

Prior year performance

to plan

Plans to continue

Market conditions

Risks

Competition

Business analysis

Company capabilities

Partner capabilities

Plan update: short and long term

Cascaded deployment

Budget incorporation

Ongoing review

Stakeholder requirements

FIGURE 5.12 | STRATEGIC PLANNING PROCESS AT BRANCH-SMITH Source: “Print Perfect” by Kristen Johnson, Quality Progress, July 2003. Reprinted with permission from Quality Progress © 2010 American Society for Quality. No further distribution allowed without permission.

Chapter 5: Competitive Advantage and Strategic Management for Performance Excellence 239

come from in-process productivity measures, revenue lost due to complaints, and other measures, which include spoilage cost, frequency, and reason. These mea- sures are recorded daily through electronic, shop-floor data collection.

Strategic partnerships with key suppliers help to gather information about availability of materials and supplier growth plans to help determine their capa- bility to meet Branch-Smith’s changing needs. Finally, part of the annual opera- tional review involves understanding suppliers’ current financial position and trends in profitability and utilization, which is compared to external economic conditions to identify areas of potential risk and opportunity over the short and longer term.

The formal planning activity is conducted during the fall of each year by the PLT through a series of meetings on- and off-site. Step 1 of Figure 5.12 ensures that lessons learned and improvement cycles are built into the SPP. The PLT ana- lyzes the effectiveness of the overall planning and deployment process to deter- mine and implement improvements. The effectiveness of the leadership system is also evaluated and areas for improvement for the coming year are determined. These improvements are documented as potential actions for the strategic plan. In Step 2, the company reviews its vision, mission, and values to ensure they still reflect the current environment. Next, management reviews and revises objectives, which are intended to communicate to employees and all stakeholders what the company expects to accomplish in the next three to five years.

In Step 3, the company conducts an operational review to analyze the results of the organization’s key performance measures for the prior year. It then reviews and incorporates information into the plan from annual Baldrige-based self- evaluation or from external review feedback. This analysis provides an under- standing of key strengths and weaknesses for the SWOT analysis in Step 5. Step 4 involves a business analysis to evaluate the external environment to forecast changing trends and gain market requirements. PLT members bring forward defined inputs, including literature and studies for scanning the environment and identifying new opportunities for products, services, competitive advantage, mar- keting, and technology approaches. From the review of this information, the PLT develops a list of potential opportunities and threats for each environmental ele- ment. In Step 5, a SWOT analysis is conducted based upon the issues identified in Steps 1, 3, and 4. SWOT elements are used to identify and prioritize key areas to address.

Based upon the SWOT review, the PLT develops short- and longer-term strategies and actions to move the company toward its vision and objectives. It adds in action plans that are still in process from the prior year to allow them to also be prioritized, sets appropriate measures and goals for objectives and strategies, and sorts and prioritizes the action plans. Action plans are assigned to PLT members to develop (or update) steps, timelines, resources, costs, and measures of success. These plans are then entered into the Quality Improvement Database (QID) for review and tracking. A final balancing meeting is held to review the plan as a whole and make needed adjustments to timing of plans and financial and human resource requirements to balance the plan to resource con- straints. In Step 6, the company creates documents and methods to support deployment of the plan.

240 Part 2: Performance Excellence, Strategy, and Organization Theory

Results of strategic planning are first communicated to employees through a deployment meeting. Leaders, with their departmental teams or other appropriate members, then discuss the plans during follow-up sessions. Teams and individuals update goals and mission statements for their departments that support the division plans, thus aligning actions, measures, and goals throughout the organization. Other stakeholders receive a variety of communications to detail plans and strate- gies for informational and planning purposes. For example, a supplier appreciation luncheon is held to provide a more direct opportunity to present plans to key sup- plier partners and receive feedback on plans and needs. In Step 7, financial resource requirements to accomplish the action plans are rationalized into short- and longer-term budget projections. Then, in Step 8, ongoing tracking of action plans is conducted through monthly management review of overall progress to plans and key measures. Throughout the year as needed, the strategic plan is updated with new or modified action plans to reflect the changes to the environment.

STRATEGIC WORK SYSTEM DESIGN FOR THE CITY OF CORAL SPRINGS, FLORIDA48

The City of Coral Springs, Florida (The City) (see the opening Performance Excel- lence Profile in Chapter 11) bases its work system design on four principles that support City values and encourage innovation. They are customer focus, empow- erment, continuous improvement, and team-based operations. These design fea- tures are covered in new-employee orientation because employees at all levels are involved in design. Customer focus encourages innovation, while government sys- tems traditionally focus on documenting regulatory compliance; empowerment encourages minimal layers of bureaucracy; continuous improvement promotes innovation; and diversity in teams stimulates creativity. The City bases decisions to operate a process with internal resources on two criteria: whether the process is a key work process and whether an external resource can do it cheaper while sustaining quality standards. Key work processes are central to public trust and therefore are operated with internal resources. The City needs to directly manage these areas to monitor the quality of outputs on a daily basis and to have the agil- ity needed to adapt to changing customer requirements and civic emergencies. Occasionally, processes that are not fundamental to local government are subject to an RFP (request for proposal) process to determine if City staff can perform the function better and at a lower cost than the private sector. Fleet maintenance, operation of the Tennis Center, and Water Billing are examples of functions assessed through an RFP process. External resources are used for the operation of the Center for the Arts because Professional Facilities Management can take advantage of economies of scale (they run several facilities in Florida) to get bet- ter prices on shows; Waste Management provides trash removal and recycling services for many South Florida municipalities; Charter School USA uses one management staff for several facilities and specializes in customer-driven education.

Chapter 5: Competitive Advantage and Strategic Management for Performance Excellence 241

TQ AND STRATEGIC MANAGEMENT THEORY49

The TQ perspective, as reflected in the Baldrige criteria, suggests several require- ments for effective strategic planning:

• A definable approach for developing company strategy. The approach should consider factors related to the market environment, the competitive environ- ment, risk, HR capabilities, company capabilities, and supplier/partner capabilities.

• A clear company strategy with action plans derived from it, and human resource plans related to the action plans. Differences between short- and longer-range plans should be recognized and understood.

• An approach for implementing action plans. The approach should consider how the critical requirements for implementing action plans—including HR plans, key processes, performance measures, and resources—will be aligned and deployed.

• An approach for monitoring company performance relative to the strategic plan.

• Projections of strategy-related changes in key indicators of company perfor- mance. These projections should include relevant comparisons to competitors or other benchmarks, and the assumptions used in the projections.

Strategic planning and deployment have been issues of management research for many years, and the conceptual literature in strategic management generally supports these requirements. For example, strategy as a deliberate, definable under- taking has constituted an essential element of classical strategic management frame- works developed by strategy scholars. These classic frameworks portray the strategist as scanning the external environment for opportunities and threats, asses- sing the firm’s internal resources and capabilities for strengths and weaknesses, and determining a strategic plan that exploits external-internal matches in the context of the firm’s objectives. However, the general usefulness of strategy making to enhance performance has not been rigorously affirmed. Henry Mintzberg, for instance, suggests that an organization’s realized strategy is a product of its planned, intended strategies and unplanned, emergent strategies, which are not a result of formal, top-down planning mechanisms. Many successful strategies can emerge without prior planning, often in response to unseen circumstances.

Three of the six factors that TQ perspectives suggest should comprise strategy development—market environment, competitive environment, and company capa- bilities—pervade most classic work in strategy formulation. However, the other three factors—financial and societal risk, HR capabilities, and supplier/partner capabilities—gain only indirect support from the strategy literature. The criteria’s specification of HR capabilities and supplier/partner capabilities appears somewhat redundant, as these factors are asset classes that can be appropriately filed under the “internal capabilities” factor.

The strategy literature sometimes refers to strategic plans as strategic content. The Baldrige criteria provide little detail as to what a strategy or an action plan should contain, or the form it should take. Such a nonprescriptive stance fits the literature robustly, because strategy scholars have proposed many purposes and

242 Part 2: Performance Excellence, Strategy, and Organization Theory

forms of strategy. A common notion among organization and strategy theorists has been that strategy must be broken down into plans for action for effective imple- mentation. The specification for differentiating between short- and longer-term plans garners little direct literature support, although the notion can be indirectly linked to the general concept of dividing strategic goals into doable pieces.

Structure for implementing strategy, in the form of human resource plans, key processes, performance measures, and resources, must be aligned and deployed. Alignment, which is defined by the Baldrige criteria as “consistency of plans, pro- cesses, information, resource decisions, actions, results, analysis, and learning to support key organization-wide goals,” requires a common understanding of pur- poses and goals and use of complementary measures and information for planning, tracking, analysis, and improvement at three levels: the organizational level, the key process level, and the work unit level. Aligning strategies to competitive challenges, resources to action plans, and action plans to measurements constitutes some of the most important activities that an organization must address. A well-aligned organi- zation has its processes focused on achieving a shared vision and strategy.

Aligning the organization is a challenging task that is accomplished through a sound strategy and effective deployment. The most damaging alignment problem to which many TQ failures have been attributed is the lack of alignment between expectations that arise from TQ change processes and reward systems. In one sur- vey, an overwhelming percentage (65.8 percent) of managers surveyed ranked the number one barrier to TQ as “Management’s compensation is not linked to achiev- ing quality goals.”50 The role of managerial systems, particularly those connected to middle management, in strategy implementation has been examined by several strategy researchers.

Although the TQ perspective requires only specification of how performance will be tracked, it addresses only indirectly the issue of control. Nevertheless, con- trol has been a fundamental concept in management, dating back to Anthony’s classic framework, and the literature is replete with studies on managerial control systems. The most compelling support of employing performance measures in stra- tegic management, perhaps, relates to the managerial control notion that measure- ments provide objective information for managers to judge how well the organization is performing in comparison to strategic targets, and to signal the need for corrective action.

Stating the assumptions behind strategic projections has some grounding in systems theory and some strategy development literature. Inclusion of competitive comparisons and other benchmarks in performance projections can be indirectly related to the requirement for industry and competitive scanning as part of strategy.

Discussion Questions and Experiential Exercises

1. Some organizations set what is called a BHAG (big, hairy, audacious goal), which is a stretch goal that is generally difficult to achieve. What might be some advantages

and disadvantages of doing this in terms of facilitating or hindering strategic planning?

2. Explain how a TQ perspective can support the six characteristics of competitive

Chapter 5: Competitive Advantage and Strategic Management for Performance Excellence 243

advantage introduced at the beginning of the chapter.

3. Discuss the three basic types of competitive advantage. Can a company achieve all of them?

4. List 10 firms or businesses that you have read about or have personal experience with. Describe their sources of competitive advantage and how you believe that quality supports (or does not support) their strategy.

5. Prepare a report (using sources such as busi- ness periodicals, personal interviews, and so on) profiling a company that competes on each of the major dimensions of differentia- tion discussed in the chapter. What aspects of its TQ approach support its strategic focus?

6. Think of a product or service you have pur- chased recently. What aspects of the product or service design made it attractive?

7. What is the importance of TQ to achieving competitive advantage?

8. Explain how quality affects profitability. 9. Discuss the key quality dimensions of differ-

entiation strategies. 10. Explain the differences among custom,

option-oriented, and standard products. 11. How might the dimensions of product design

(performance, features, reliability, durability, and aesthetics) discussed in this chapter be applied to services?

12. Describe one good and one bad service experience that you encountered. How did this change your perceptions of the company?

13. How is agility a source of competitive advantage? What relationships does agility have with quality?

14. What is the role of quality in innovation? 15. How might the principles of competitive

advantage that we discussed be applied to the management of your college or univer- sity? How about a fraternity or student

professional organization? What types of results measurements would be appropriate?

16. What is a strategy? What elements does a formal strategy contain?

17. What factors have led companies to pursue a strategy based on quality?

18. Research some of the background of recent Baldrige recipients. How do they integrate quality into their business strategies? Discuss different approaches that these firms use.

19. Discuss the process of strategy formulation. How can TQ improve this process?

20. A Conference Board study found that CEOs identified the top global challenges they face as (1) improving human capital within their organizations, (2) improving operational excellence, and (3) enhancing innovation. Suggest some strategies that a typical com- pany might undertake to meet these challenges.

21. Interview managers at some local companies to determine whether their businesses have well-defined missions, visions, and guiding principles. If they do, how are these trans- lated into strategy? If not, what steps should they take?

22. What is hoshin planning, or policy deploy- ment? Explain how this approach is used in organizations.

23. What are core competencies, and why is it important to consider them in strategic work systems design?

24. Does your university or college have a mis- sion and strategy? How might policy deployment be used in a university setting?

25. Try to identify and contrast the core compe- tencies of two different organizations within the same industry, such as Dell and Apple, Toyota and General Motors, or Sears and Walmart, for example. Does your research suggest that these competencies are reflected in their supply chain or strategic directions?

244 Part 2: Performance Excellence, Strategy, and Organization Theory

CASES

The Morgan Company

Senior managers at The Morgan Company had devel- oped a new and inspiring mission statement—one that set a new direction for the company with ambitious strategic goals. Management continually emphasized the new strategy and asked employees what they needed to do to achieve the new goals. Although some employees didn’t want to embrace the new stra- tegic direction, most were excited to participate in and support the new strategy. The employees began to make suggestions for improving the organization and identifying the necessary changes. Many of their ideas pointed to a significant change in the culture of the organization. And that was when the wheels fell off. Employees were told to step back; management didn’t want to make any radical changes. They were told that they could only change one or two items and then only to a very small degree. No money could be spent, and the actions of senior management implied that employees’ ideas really didn’t matter. People became disillusioned and disgruntled. At least two people left every month for other positions during the last 18 months of the 24-month “transformation” process. The best people left since they had no voice and no ability to change a broken organization.

Discussion Questions 1. How did management fail in its strategic

planning? 2. What principles and ideas discussed in this

chapter might have helped this organization succeed in meeting the new strategy?

Consolidated Metal Works

Consolidated Metal Works (CMW) was founded in the mid-1940s by Donald Chalmer in a 3,000- square-foot building with nine people as a small fam- ily business to produce custom-machined parts. In the 1960s, as business grew, the company expanded its facilities and its capability to develop its own tooling patterns, eventually moving into a 40,000-square-foot building.

However, as technology advanced, small family businesses like CMW met stiff competition. To survive, the company knew it had to listen more to its custo- mers. From surveys and focus groups, the firm

discovered that customers were not happy with the quality of the products they had been receiving. In 1985, CMW made a commitment to quality by hiring a quality assurance manager, Paul Levitt. Driven by the Deming philosophy, the company developed a variety of quality approaches and eventually became ISO 9000 certified in 1998. CMW made some substantial improvements in the quality of its products, particularly reducing scrap and reject rates. Paul worked closely with the factory workers directly responsible for the products, asking them what they needed to get the job done and ensuring management commitment to pro- vide the necessary resources. For example, CMW invested in computer-based statistical process control technology, which enabled workers to monitor their processes and adjust them as needed. The success of this project led the company to empower employees to control many other aspects of the system.

Business remained steady, but after hearing pre- sentations from some Baldrige recipients, the founder of the company realized that a lot more could be done. In 2005, he hired a senior executive for performance excellence, who saw an opportunity to change the company’s culture and introduce many Baldrige principles he had learned in his previous job at a manufacturing firm that had applied the Bal- drige criteria for many years. One of the first things he did was to review the current mission statement, which had remained relatively untouched since 1985:

Our mission at CMW is to improve the return on investment. We can accomplish this by changing attitudes and incorporating a quality/team envi- ronment. This will improve the quality of our products, enhance our productivity (which in turn will allow us to quote competitive prices), and elevate our service and response level to our cus- tomers. There are several factors which make positive change imperative.

The standards for competitive levels of quality and service are becoming more demand- ing. The emergence of the “World Market” has brought on new challenges. We are in a low- growth, mature market. In order for CMW to improve return on investment, we must develop a strategy to improve quality and responsiveness in all areas of the company. We need to have all

Chapter 5: Competitive Advantage and Strategic Management for Performance Excellence 245

employees recognize the importance of product quality and service and move toward more favorable pricing. We need to change thinking throughout the organization to get employees involved, to encourage teamwork, to develop a more flexible workforce and adaptable organiza- tion. We need to instill pride in the workplace and the product.

We believe that we can best achieve the desired future state by study of and adherence to the teachings of W. Edwards Deming.

He did not feel that this mission statement pro- vided a clear and vivid direction, especially in the twenty-first century. Consequently, he set up a plan- ning retreat for senior management to develop a new strategic vision.

Discussion Questions 1. Comment on the current mission statement. Does

it provide the strategic direction necessary for success for this company?

2. How can the mission statement be improved? Suggest a better statement of mission, vision, and guiding principles.

Tri-State National Bank

In assessing its strategic position, Tri-State National Bank noted the following:

As a result of the economic turmoil of the last few years, TNB started to discuss strategy almost weekly. The bank maintains its focus on provid- ing services efficiently, and while it has always maintained effective cost controls, this is more important now than ever before. Deposit growth at TNB has been strong as it has acquired custo- mers from bank closures in the area. TNB made a key strategic decision to take advantage of federal loans as part of TARP, resulting in a lower cost of capital for five years. Many competitors failed to take advantage of this program and now risk under-capitalization. The figure below lists TNB’s key challenges and advantages.

Strategic Challenges

1. Addressing the many changes in banking regulations and more regulations coming in the future

2. Meeting earnings targets while serving increasing numbers of customers using low-margin services

3. Addressing the loss of public confidence in the financial industry in general and the impact this has had on customer confidence and expectations, particularly important in local community-focused banks such as TNB*

4. Integrating the mortgage acquisition processes, which need to be streamlined, and workforce, which needs to be right-sized, into TNB’s structure and culture

Strategic Advantages

1. Taking advantage of the relatively low cost of TARP funds unlike some local competitors that are now facing capital constraints

2. Hometown bank with a reputation for stability and integrity, resulting in increasing market share due to acquiring customers fleeing other banks*

3. Numerous opportunities for mergers and acquisitions for banks with capital

4. A loyal and stable workforce with low turnover despite dealing with difficult customers and cost reductions that require associates to perform multiple jobs*

5. Process discipline and a TOE focus enable TNB to process transactions better than competitors and at a lower cost*

*Affects organizational sustainability

What steps might the bank take to leverage its strategic challenges and address its strategic advantages? How should they incorporate these issues into differentiation strategies and action plans? Support your conclusions with good logical reasoning!

246 Part 2: Performance Excellence, Strategy, and Organization Theory

Endnotes

1. 2010 Malcolm Baldrige Award Recipient Profile, National Institute of Standards and Technology, U.S. Department of Commerce.

2. Cargill Corn Milling 2009 Baldrige Application Summary. http://www.nist.gov/baldrige.

3. S. C. Wheelwright, “Competing through Manufacturing,” in Ray Wild (ed.), International Handbook of Production and Operations Man- agement, London: Cassell Educational, Ltd., 1989, pp. 15–32.

4. The PIMS Letter on Business Strategy, The Strategic Planning Institute, No. 4, Cambridge, MA, 1986.

5. Philip Crosby, Quality Is Free, New York: McGraw-Hill, 1979.

6. Kathleen Kerwin, “When Flawless Isn’t Enough,” BusinessWeek, December 8, 2003, pp. 80–82. The quote on Lexus appeared in a column by Carol Traeger, “Lexus IS 300 loses luster,” The Cincinnati Enquirer, July 31, 2004, pp. G1, G2.

7. Spotlight Report. Quality as a Competitive Differ- entiator. The ASQ Global State of Quality. globalstateofquality.org.

8. U.S. General Accounting Office, “Management Practices: U.S. Companies Improve Performance through Quality Effort,” GA/NSIAD-91-190, May 1991.

9. “Progress on the Quality Road,” Incentive, April 1995, p. 7.

10. Michael E. Porter, Competitive Advantage: Creat- ing and Sustaining Superior Performance, New York: Free Press, 1985.

11. See, for example, J. Pfeffer and J. F. Veiga, “Putting People First for Organizational Success,” Academy of Management Executive, Vol. 13, No. 2, 1999, p. 37; J. Pfeffer, Competitive Advantage through People, Boston, MA: Harvard Business School Press, 1994; C. A. O’Reilly III and J. Pfeffer, Hidden Value: How Great Companies Achieve Extraordinary Results with Ordinary People, Boston, MA: Harvard Business School Press, 2000.

12. H. Lee Hales, “Time Has Come for Long- Range Planning of Facilities Strategies in Electronic Industries,” Industrial Engineering, April 1985.

13. Bradley T. Gale, “Quality Comes First When Hatching Power Brands,” Planning Review, July/ August 1992, pp. 4–9, 48.

14. J. M. Juran, Juran on Quality by Design, New York: The Free Press, 1992, p. 181.

15. Larry Selden and Geoffrey Colvin, “Will Your E-Business Leave You Quick or Dead?” Fortune, May 28, 2001, pp. 112–124.

16. Robin Yale Bergstrom, “People, Process, Paint,” Production, April 1995, pp. 48–51.

17. Betsy Morris, “The New Rules,” Fortune, July 24, 2006, 70–87.

18. Jeffrey Pfeffer, Competitive Advantage through People, Boston, MA: Harvard Business School Press, 1994.

19. Town Hall discussion at the Quest for Excellence Conference, Washington, D.C., March 2000.

20. “Fast Talk: Hard Drive,” Profile of Tim Benner, Honda Motor Company, Co-designer, Honda Element, Fast Company, May 2003, p. 62.

21. http://www.edmunds.com/honda/element/, accessed 6/12/12.

22. Tom Peters and Bob Waterman, In Search of Excellence, New York: Harper & Row, 1982.

23. F. F. Reichheld and W. E. Sasser, Jr. “Zero Defec- tions: Quality Comes to Services,” Harvard Business Review, September–October, 1990.

24. Dave Demerjian, “Hustle & Flow,” Fast Com- pany, March 2008, 60–62.

25. Ron Zemke, “Auditing Customer Service: Look Inside as Well as Out,” Employee Relations Today, Vol. 16, Autumn 1989, pp. 197–203.

26. Jeffrey Margolies, “When Good Service Isn’t Good Enough,” The Price Waterhouse Review, Vol. 32, No. 3, New York: Price Waterhouse, 1988, pp. 22–31.

27. Charles A. Horne, “Product Strategy and Com- petitive Advantage,” P&IM Review with APICS News, Vol. 7, No. 12, December 1987, pp. 38–41.

28. Thomas A. Stewart, “Brace for Japan’s Hot New Strategy,” Fortune, September 21, 1992, pp. 62–73.

29. Fortune special insert: CEOs on Innovation (undated).

30. Faith Keenan, Opening the Spigot, BusinessWeek e.biz, June 4, 2001, pp. EB17–20.

31. Joan Uhlenberg, “Redefining Customer Expecta- tions,” Quality, September 1992, pp. 34–35.

32. Jerry Useem, “Boeing Versus Boeing,” Fortune, October 2, 2000, 148–160.

Chapter 5: Competitive Advantage and Strategic Management for Performance Excellence 247

33. Kicab Casteñeda-Méndez, “Performance Measure- ment in Health Care,” Quality Digest, May 1999, pp. 33–36.

34. Laura Struebing, “Measuring for Excellence,” Quality Progress, December 1996, 25–28.

35. Robert S. Kaplan and David P. Norton, “The Balanced Scorecard—Measures That Drive Perfor- mance,” Harvard Business Review, January/ February 1992, pp. 71–79.

36. Ernest C. Huge, “Measuring and Rewarding Per- formance,” in Ernst & Young Quality Consulting Group, Total Quality: An Executive’s Guide for the 1990s, Homewood, IL.: Irwin, 1990.

37. New Corporate Performance Measures, A Research Report, Report Number 1118-95-RR, New York: The Conference Board, 1995.

38. Steven H. Hoisington and Tse-Hsi Huang, “Cus- tomer Satisfaction and Market Share: An Empirical Case Study of IBM’s AS/400 Division,” in Earl Naumann and Steven H. Hoisington, Customer Centered Six Sigma, Milwaukee, WI: ASQ Quality Press, 2001.

39. Matthew Boyle, “Best Buy’s Giant Gamble,” Fortune, April 3, 2006, 69–75.

40. 2007 North Mississippi Medical Center Malcolm Baldrige Application Summary.

41. Ronald E. Purser and Steven Cabana, “Involve Employees at Every Level of Strategic Planning,” Quality Progress, May 1997, pp. 66–71.

42. Bob King, Hoshin Planning: The Developmental Approach, Methuen, MA: GOAL/QPC, 1989, pp. 2–3.

43. The Ernst & Young Quality Improvement Consulting Group, Total Quality: An Executive’s Guide for the 1990s, Homewood, IL.: Dow Jones-Irwin, 1990.

44. Francesco Zirpoli and Markus C. Becker, “What Happens When You Outsource Too Much?” MIT Sloan Management Review, Winter 2011, pp. 59–64.

45. Jerry H. Seibert and William A. Schiemann, “Revers- ing Course? Survey sheds light on pitfalls of outsour- cing,” Quality Progress, July 2011, pp. 36–43.

46. Bronson Methodist Hospital, 2005 Malcolm Baldrige National Quality Award Application Summary.

47. Branch-Smith Printing, Application Summary, 2002. Reprinted by permission of David Branch, President.

48. Adapted from City of Coral Springs, Florida, Application for the 2007 Malcolm Baldrige National Quality Award.

49. Based on Ford and Evans, op. cit. 50. Nabil Tamimi and Rose Sebastianelli, “The

Barriers to Total Quality Management,” Quality Progress, June 1998, pp. 57–60.

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CHAPTER

± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ±

6QUALITY IN CUSTOMER-SUPPLIER RELATIONSHIPS Performance Excellence Profile: Mercy Health System1

In 1989, Mercy Hospital was a single stand-alone community hospital primarily serving Janesville, Wisconsin. Today, Mercy Health System (MHS) is a fully integrated health care system with three hospitals and a network of 64 facilities consisting of 39 multi-specialty outpatient centers located in six counties throughout southern Wisconsin and northern Illinois. Mercy has a unique W2 Physician Partnership Model with 285 primary and specialty physicians. To further its mission of providing “exceptional health care services, resulting in healing in the broadest sense,” MHS has created a culture of high quality care, customer focus, partner cooperation, innovation, and cost consciousness. The entire organization is aligned around these cultural elements and its values, which are: Healing in its broadest sense, Patients come first, Treat each other like family, and Strive for excellence. Every MHS partner is committed to exceeding patient expectations by making quality care a top priority. Best- practice benchmarks are used to measure clinical care and ensure continuous improvement and patient safety. At MHS, an engaged, empowered workforce and advanced medical and information technology are key to high quality patient care.

MHS focuses on patient and customer satisfaction, timely resolution of problems, and expanding and improving services. Continuous benchmarking, tracking of quality indicators, and surveying patients and customers help MHS ensure excellence in patient care. MHS’s “Take the L.E.A.D” program—Listen to the customer; Empathize with the customer; Accept the customer’s perspective; Apologize, Acknowledge concern, and take Action to recover; and Direct the customer to the person able to recover the situation—is used to turn negative experiences into positive ones. The Mercy Health Mall is a one-stop superstore offering a number of services, including acupuncture, massage therapy, a vision center, a pharmacy, durable medical equipment and supplies, an urgent care clinic, a cardiac rehabilitation and fitness center, outpatient diabetic treatment, an entire array of health products, and more. A system-wide, secure electronic

249

network gives authorized partners at all sites access to patient health information, including visit history, diagnostic and medication orders, test results, and images.

A basic belief at MHS is that engaged, empowered, and valued partners, including 285 W2 physician partners, are vital to providing exceptional health care services. At the time they are hired, partners are asked to commit to achieving the MHS mission, participate in performance improvement efforts, and create a personal and professional growth and development plan. MHS’s leaders live by a “servant leadership” philosophy: When leaders provide excellent service to partners, partners provide excellent service to patients. MHS encourages and entices partners to identify innovative ideas for growing revenue and decreasing expenses and waste, as well as increasing productivity and effectiveness.

Evidence of success in achieving its mission includes:

• MHS is the leader in market share for inpatient services and outpatient surgery in its Wisconsin service area. In 2006, about 84 percent of hospital customers and about 90 percent of multi-specialty outpatient center customers would recommend MHS to others, a key indicator of customer loyalty and a reflection of overall satisfaction.

• Effectiveness in resolving patient and customer concerns has risen from about 90 percent in 2002 to 94 percent in 2007.

• Staff turnover at MHS has declined from 13.5 percent in 2002 to 7.5 percent in 2007.

MHS illustrates the importance of successful relationships between an organization (a “supplier”) and its customers. As we noted in Chapter 1, customer focus is one of the basic principles of Total Quality (TQ). Don Peppers and Martha Rogers sum up the importance of customers eloquently:

“Without customers, you don’t have a business.”2

In Japanese, the word okyakusama means both “customer” and “honorable guest.” World-class organizations are obsessed with meeting and exceeding cus- tomer expectations. Many companies such as Disney and Toyota Motor Co.’s Lexus division were built on the notion of not only satisfying, but also delighting, the customer.

In recent years, there has been a lot of emphasis in business on supply chain management. Businesses have recognized that supply chain management is crucial for effective operations and meeting customer needs. A supply chain includes the materials and other inputs purchased from suppliers, their use in the production of goods and services, and distribution and service to customers. Quality should start with the customer and extend back through the supply chain to the sources of pro- curement. Many businesses traditionally have kept suppliers at arm’s length, but the quality of output can be no better than the quality of the input. In 1982, IBM

250 Part 2: Performance Excellence, Strategy, and Organization Theory

purchased some parts from a Japanese manufacturer. According to the specifica- tions, IBM would accept 300 defective parts per million of the product. The response from Japan raised a lot of questions and gave IBM the opportunity to change its perspective on quality and relationships with suppliers. The Japanese commented, “We have a hard time understanding North American business prac- tices. But the 3 defective parts per 10,000 have been included and are wrapped separately. Hope this pleases.”3

Developing strong and positive relationships with customers and suppliers within the supply chain is a basic principle of TQ. Deming recognized this a long time ago; in 1950, he drew the following picture on a blackboard for a handful of Japanese executives:

Deming emphasized the importance of using customer research to understand performance and improve inputs, processes, and outputs; this concept established the foundation for continuous improvement as a fundamental tenet of quality management.

This chapter will:

• demonstrate the importance of customer-supplier relationships (CSRs) to achieving performance excellence;

• identify the principles and practices of quality CSRs; • give examples of effective partnerships between customers and suppliers; and • compare a quality-focused approach to customers and suppliers to conven-

tional organizational theories.

CUSTOMER-SUPPLIER RELATIONSHIPS AND PERFORMANCE EXCELLENCE

From the TQ perspective, every company is part of a long chain (actually many long chains) of customers and suppliers.4 Each company is a customer to its suppli- ers and a supplier to its customers, so it does not make sense to think of a com- pany as only one or the other (Figure 6.1). One implication of this concept is that your customer’s customers are, in a sense, your customers as well. Sometimes a

design and redesign consumer research

suppliers inputs outputs customers

processes

Chapter 6: Quality in Customer-Supplier Relationships 251

company must focus on both its immediate customers and those next in the chain. Procter & Gamble (P&G), for example, works hard to satisfy the needs of both the people who use their products and the retail establishments that sell them. Compa- nies should try to establish the same kinds of productive relationships with its suppliers that it has with its customers.

Many companies work closely with suppliers that share common values. This close relationship improves supplier capabilities by teaching them quality-related tools and approaches. Although many companies have formal supplier certification programs in which they rate their suppliers, some companies ask suppliers to rate them as customers. Motorola established a 15-member council of suppliers to rate Motorola’s practices and offer suggestions for improving, for example, the accu- racy of production schedules or design layouts that Motorola provides.5 Some typ- ical questions that companies might ask of their suppliers are:6

• What expectations do you have that are not being met? • What type of technical assistance would you like from us? • What type of feedback would you like from us? • What benefits are you looking for in a partnership?

Better two-way communication can improve both products and relationships. By developing partnerships, customers and suppliers can build relationships that will help them satisfy their shared customers further along the customer-supplier chain. This is why we have written one chapter on CSRs, rather than separate chapters on customers and suppliers. The idea of creating mutually beneficial rela- tionships with both customers and suppliers is a major departure from the tradi- tional approach to CSRs. As one book on quality put it, “The historical picture of customer-supplier relationships has been one of self-interested adversaries negotiat- ing against each other to maximize their slice of the pie at the expense of the other.”7 The authors go on to say that the focus of CSRs under TQ is on expand- ing the pie rather than on arguing over its division.

THE IMPORTANCE OF CUSTOMERS

The importance of customers has evolved over the years, from a view of the cus- tomer as a buyer to increase profitability, to a view of the customer as an active partner and the focus of all quality activities. Customer satisfaction translates directly into increased profits. However, while satisfaction is important, modern firms need to look further. Achieving strong profitability and market share requires

Customer/ Supplier

(Coal mine)

Customer/ Supplier

(Steel mill)

Customer/ Supplier

(Auto plant)

Customer/ Supplier

(Car rental agency)

FIGURE 6.1 | THE CUSTOMER-SUPPLIER CHAIN

g ag

e Le

ar n in g

252 Part 2: Performance Excellence, Strategy, and Organization Theory

loyal customers—those who stay with a company and make positive referrals. Satisfaction and loyalty are very different concepts. To quote Patrick Mehne, the former chief quality officer at The Ritz-Carlton Hotel Company: “Satisfaction is an attitude; loyalty is a behavior.” Customers who are merely satisfied may often purchase from competitors because of convenience, promotions, or other factors. Loyal customers place a priority on doing business with a particular organization, and will often go out of their way or pay a premium to stay with the company. Loyal customers spend more, are willing to pay higher prices, refer new clients, and are less costly to do business with. For instance, although Home Depot customers spend only about $38 each visit, they shop 30 times annually and spend more than $25,000 throughout a lifetime.8 Carl Sewell, owner of Sewell Cadillac in Dallas, calculated that the average lifetime value of a loyal customer for his dealer- ship was $332,000.9 Statistics also show that the typical company gets 65 percent of its business from existing customers, and it costs at least five times more to find a new customer than to keep an existing one happy.10

Poor-quality products and services, by contrast, lead to customer dissatisfac- tion in the form of complaints, returns, and unfavorable word-of-mouth publicity (see box “’United Breaks Guitars’ Goes Viral”). Dissatisfied customers purchase from competitors. One study found that customers are five times more likely to switch because of perceived service problems than for price concerns or product quality issues.11 Studies have also shown that dissatisfied customers tell at least twice as many friends about bad experiences than they tell about good ones.

For many companies, “The Customer Comes First” is a guiding principle (see box “Flying the Customer-Friendly Skies”). It is impossible to overstate the impor- tance of customers to TQ. Customers are at the very center of every TQ activity, and devotion to satisfying them is the first principle of TQ. Customers are recog- nized as the guarantee of the organization’s continued existence. Therefore, a focus on customers, rather than internal issues, is the foundation of the TQ approach to management. Today, organizations are beginning to focus on

“UNITED BREAKS GUITARS” GOES VIRAL

Canadian musician Dave Carroll and other mem- bers of his band, Sons of Maxwell, were changing planes at Chicago’s O’Hare airport on March 31, 2008 when another passenger looked out the window and exclaimed, “My God, they’re throwing guitars out there!” Guess whose? When the band arrived in Omaha, Carroll discovered that his $3,500 Taylor guitar had been damaged. For nearly a year, he spent countless hours arguing with United Airlines agents in Chicago and India for compensation; the airline refused to deal with him because he had not filed a claim within 24 hours of the flight. So he decided to write some

songs about the saga. “United Breaks Guitars” was posted on YouTube on July 6, 2009, had over 150,000 hits in the first two days, and has had millions of views since. In addition, his experience was chronicled in hundreds of news articles across the world and on the Internet. Not long after, a spokesperson for United stated, “This has struck a chord with us, and we’ve contacted him directly to make it right.” By that time, Carroll said he was no longer looking for compensation but would rather see the money go to a charity of their choice. United subsequently made a $3,000 donation to the Thelonious Monk Institute of Jazz.

Chapter 6: Quality in Customer-Supplier Relationships 253

customer engagement, which refers to customers’ investment in or commitment to a brand and product offerings.12

Customer engagement goes beyond loyalty and is an important outcome of a customer-focused culture and the organization’s listening, learning, and perfor- mance excellence strategy. Characteristics of customer engagement include customer retention and loyalty, customers’ willingness to make an effort to do business with the organization, and customers’ willingness to actively advocate for and recom- mend the brand and product offerings. Customer engagement is influenced by an organization’s integrity and the relationships it builds with its customers. As one small-business owner stated, “We build customer loyalty by telling our customers the truth, whether it is good or bad news.”13

THE IMPORTANCE OF SUPPLIERS

The quality of goods and services received from suppliers, the upstream portion of the supply chain, has a significant effect on the quality of goods and services that downstream customers receive. Suppliers are those companies that provide the

FLYING THE CUSTOMER-FRIENDLY SKIES14

Southwest Airlines began service on June 18, 1971, with flights to Houston, Dallas, and San Antonio, and has grown to become the fifth- largest U.S. airline in terms of domestic customers carried. The airline operates more than 2,150 flights daily with more than 23,000 employees. Known for its legendary service, the Southwest culture ensures that it serves the needs of its Customers (with a capital C) in a friendly, caring, and enthusiastic manner. Kevin and Jackie Frei- berg, authors of NUTS! Southwest Airlines’ Crazy Recipe for Business and Personal Success, note that legendary service is a key component of Southwest’s culture.

Southwest wants its customers to experience service that makes a lasting impression, service that is kind and loving, service that is fun and makes them laugh.… Thus, Southwest will go a long way to defend and support an employee who may violate a company policy to bend toward the customer. The company instills in every employee the idea that happy, satisfied customers who return again and again create job security.

Every one of the approximately 1,000 custo- mers who write to the airline each year get a

personal response (not a form letter) within four weeks, and frequent fliers even get birthday cards. The airline even moved a flight up a quarter-hour when five medical students who commuted weekly to an out-of-state medical school com- plained that the flight got them to class 15 minutes late. Customer focus applies to internal customers also; each operating division identifies an internal customer—mechanics who service planes target the pilots who fly them and marketers treat reser- vation agents as customers. It is not unusual to find pilots helping ground crews unload baggage. As Executive VP Colleen Barrett stated: “We are not an airline with great customer service. We are a great customer service organization that hap- pens to be in the airline business.” Southwest has been one of the most profitable airlines in the United States.

For many years, the airline has been recog- nized for best baggage handling, fewest cus- tomer complaints, and best on-time performance, and has been recognized with numerous honors, including one of America’s Most Admired Corporations by Fortune magazine.

254 Part 2: Performance Excellence, Strategy, and Organization Theory

organization with goods and services that help them to satisfy the needs of their own customers. A manufacturing company assembling parts made by suppliers illus- trates this point: The final product cannot be any better than the parts that comprise it. For example, the U.S. Federal Aviation Administration (FAA), after a widespread and comprehensive review of Boeing’s commercial jet unit, concluded that the com- pany failed to maintain adequate control over its supplier base. In one instance, sev- eral suppliers provided aluminum parts that were defective and prone to cracking after the parts were installed. Aircraft already in service have had to undergo exten- sive testing and inspection to eliminate the possibility of catastrophic failure.15

If a supplier’s performance is of consistently high quality, its customer can decrease or eliminate costly incoming inspections that add no value to the product. For these reasons, many organizations have increasingly demanded tangible prog- ress in quality from all their suppliers. Companies that do not accept this require- ment are dropped from supplier lists. The importance of suppliers is at least as great when they provide training, software, or other goods or services that do not physically become part of the final product; they will influence its quality neverthe- less by shaping the quality of the processes used to produce it.

However, as Terry A. Carlson, corporate vice president of purchasing for Maytag, stated, “Superior quality, consistent service, and competitive pricing are just the price of entry to get into the game.” What sets world-class suppliers apart from the rest are a formal company-wide effort to continually improve their products and services, the ability and willingness to align products, processes, and business strategies with customers for mutual success, and a proven ability to be an industry leader in developing new technologies and products.16

In business today, operations are often highly decentralized and dispersed around the world. Consequently, managing a complex network of suppliers becomes a critical interorganizational issue. Suppliers play a vital role throughout the product development process, from design through distribution. Suppliers can provide technology or production processes not internally available, early design advice, and increased capacity, which can result in lower costs, faster time- to-market, and improved quality for their customers. In turn, they are assured of stable and long-term business. At Daimler-Chrysler, for example, suppliers are involved early in the design process.17 As a result, Daimler-Chrysler often finds out about new materials, parts, and technologies before other automakers.

PRINCIPLES FOR CUSTOMER-SUPPLIER RELATIONSHIPS

Three governing principles describe CSRs under TQ:

• recognition of the strategic importance of customers and suppliers, • development of win-win relationships between customers and suppliers, and • establishing relationships based on trust.

First, every organization must recognize that its customers and suppliers are absolutely crucial to its success (see the box “Finding the Special Touch”). Although this may sound obvious, many organizations seem to be driven by the need to observe standard operating procedures and maintain rigid boundaries between jobs, rather than trying to meet customer expectations.

Chapter 6: Quality in Customer-Supplier Relationships 255

Many employees don’t think that it’s their “job” to serve customers beyond their job descriptions. For example, a hotel desk clerk’s formal job description might be to greet and register guests and process bills. Does this mean that he or she should not respond to special requests like bringing extra pillows to a room (housekeeping’s “job”), or make a restaurant reservation (the “job” of the con- cierge)? As the first and last contact a guest makes with the hotel, front-desk per- sonnel probably have the largest impact on guest satisfaction. It is frightening to imagine how much damage a poor attitude from a desk clerk might have on his or her organization. Of course, the responsibility for this attitude may ultimately rest with the hotel organization that apparently has created a system in which people are more interested in maintaining boundaries than in serving customers.19

Customers must be at the center of the organizational universe (see box “The Boomerang Principle”). Satisfying their needs leads to repeat business and positive referrals, as opposed to one-shot business and negative referrals. Suppliers also must be considered crucial to organizational success, because they make it possible to create customer satisfaction. Neither the quality nor the cost of the organiza- tion’s product can be brought to competitive levels and continuously improved without the contributions of suppliers.

The second principle of CSRs is the need to develop mutually beneficial (often called “win-win”) relationships between customers and suppliers. This was

FINDING THAT SPECIAL TOUCH18

Many companies in industries not known for great customer service, such as auto dealerships, banks, and hospitals, are learning lessons from luxury hotels that have long prided themselves on exceptional service, such as two-time Baldrige recipient The Ritz-Carlton or Four Season’s Hotels. A Lexus dealer added valet parking, fresh flowers in the showroom, and a marble floor in the bathroom; customers picking up their cars after they have been serviced find bottled water and Hershey kisses in the cupholders—amenities that are often found at these luxury hotels. After receiving the Baldrige Award, The Ritz-Carlton began offering training courses in its legendary service strategies; today, such companies as Macy’s and Starbucks are signing up.

The Ritz-Carlton motto is “We Are Ladies and Gentlemen Serving Ladies and Gentlemen,” and all employees are treated as guests would be treated. The company’s focus is to develop a “skilled and empowered workforce operating with pride and joy” by ensuring that all employees

knows what they are supposed to do, how well they are doing, and have the authority to do whatever is necessary for the customer. For example, employees are empowered to “move heaven and earth to satisfy a customer,” to enlist the aid of other employees to resolve a problem swiftly, to spend up to $2,000 to satisfy a guest or resolve a complaint. The role of a restaurant hostess is not simply to seat patrons, but to create a memorable experience for the customer. If a customer asks where the gift shop is, the hostess will take the customer there rather than simply point out the way. Each work shift begins with a 15 minute “huddle” in which managers discuss company values, service processes, and recognize employees’ exceptional performance. However, while nearly everyone is impressed with the special touches afforded by The Ritz-Carlton and its competitors, not all industries are able to make them work as seamlessly and effectively; it takes a special culture and discipline to achieve them.

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discussed previously as working together to increase the size of the pie, rather than competing over how to divide it.

The goal of building partnerships with customers and suppliers can be seen as an extension of the teamwork principle that applies to all TQ activities and as rec- ognition that the needs of both partners must be satisfied if productive long-term relationships are to be created. W. Edwards Deming advocated these principles for decades, as is evident in his 14 Points (Chapter 2). Joseph Juran developed a useful framework to distinguish between adversarial and teamwork relationships with suppliers.20 Traditionally, customers have used many different suppliers for the same purchased item, and they typically have been awarded short-term (annual) contracts. This practice fosters a competitive situation in which suppliers strive to outbid each other and may sacrifice quality for cost. A teamwork relationship results in the need for fewer suppliers, with many items being single-sourced. With few suppliers, companies do not have to rely on annual bidding, and can award longer-term contracts. This enhances the motivation to work together for mutual benefits. For instance, quality planning, problem-solving activities, and efforts to adjust to market changes are performed jointly, rather than independently. This helps both the customer and supplier focus on “fitness for use” to meet customer needs rather than simply trying to conform to specifications. It also fosters a spirit of continuous improvement, in which larger customers often help smaller suppliers develop their quality management systems and process capabilities. Similar ideas were also advocated by Deming in his 14 Points.

THE BOOMERANG PRINCIPLE21

Feargal Quinn is the executive chairman of Superquinn, a 5,600-person, 19-store chain of supermarkets in Ireland. In every deed, Quinn’s focus is on persuading the customer to return. Quinn calls it the “boomerang principle.” His tire- less and inventive exploration of this principle has earned him a reputation as Ireland’s “pope of customer service.” Superquinn inspires such intense devotion that many customers say that they drive out of their way—and past several of its biggest competitors—to shop there. At Superquinn, you don’t have to pay for broccoli stalks and carrot tops you never use; the store provides scissors to cut off what you don’t want. The checkout technology provides a running tab on a screen that faces the customer, and then organizes the final receipt by product category, rather than the order in which products were scanned. Every store features a professionally

staffed playhouse where mothers can leave young children while they shop. The program costs the company a bundle, but it has earned even more in loyal customers and reputation.

Kindergarten teachers around the country (Ireland doesn’t have preschool) recognize “Superquinn kids” as the most socialized and school-ready of each new class. Each month, Superquinn managers are required to spend time in customers’ shoes, shopping, asking questions, lodging complaints, waiting in line. Superquinn’s fresh produce, butchers, and fishmongers are mixed in with futuristic flat screen displays, digital shelf labels, and kiosks that link customers to their bank, their SuperClub account, as well as to wine recom- mendations and interactive recipe planners. Quinn notes that, “What seems reasonable or ever valuable from the perspective of the company is often glar- ingly wrong from the point of view of the customer.”

Chapter 6: Quality in Customer-Supplier Relationships 257

The third principle of effective CSRs is that they must be based on trust rather than suspicion. This point was described by Juran as the “pattern of collaboration.” The costs of mistrust are staggering: witness the tremendous num- ber, detail, and rigidity of rules that characterize the U.S. Department of Defense’s contracts with its suppliers. The suppliers often incur substantial costs in terms of both money and time because of multiple levels of review and inspection. Although a certain level of rigidity is to be expected in the acquisition of weapons, it is harder to understand when applied to more ordinary items.

Aside from the obvious teamwork implications for relationships based on trust versus suspicion, monitoring supplier or customer behavior does not add any value to the product. If a trusting relationship between customers and suppliers can be developed so that neither must check up on the behavior of the other, the costs of monitoring, such as inspection and auditing, can be avoided. Many Japanese firms do not inspect items purchased from other companies in Japan; they do, however, often inspect those purchased from America. Trust is not a blind leap into the unknown; it is developed over time “through a pattern of success by all parties to fully and faithfully deliver that which was promised.”22 In other words, trust depends upon trustworthy behavior by both parties in a CSR.

PRACTICES FOR DEALING WITH CUSTOMERS

How can these principles be translated into specific practices? The most basic prac- tices for dealing with customers are: (1) collect information constantly on customer expectations; (2) disseminate this information widely within the organization; (3) use the information to design, produce, and deliver the organization’s products and services; and (4) measure customers’ perceptions of satisfaction and their levels of loyalty and engagement.

COLLECT CUSTOMER INFORMATION

Acquiring customer information is critical to understanding customer needs and identifying opportunities for improvement. The Japanese auto industry is known for trying to understand customer needs so thoroughly that it can incorporate design features that customers would never have asked for but love once they expe- rience them. Teams of automobile designers visit people at home and observe how they live in order to anticipate their automotive needs. Hideo Sugiura, executive vice president of Honda, comments on his company’s efforts to anticipate customer needs: “We should not try to sell things just because the market is there, but rather we should seek to create a new market by accurately understanding the potential needs of customers and society.’’23 Lexus, Toyota’s luxury car line, has succeeded dramatically in this manner and is consistently at the top of owner satisfaction surveys.

In Chapter 1, we cited the Kano model of customer requirements:

• Dissatisfiers • Satisfiers • Exciters/delighters

258 Part 2: Performance Excellence, Strategy, and Organization Theory

In trying to understand customer needs, it is important to go beyond what customers say they need and anticipate what will really excite them. It is a well-known principle of innovation that customers will seldom express enthusiasm for a product that is different from anything they have experienced. Thus, the original market survey for computers suggested that only a few would be sold, and it took years for 3M to become convinced that Post-it notes would actually be valuable to people in offices. As Kozo Ohsone of Sony stated, “When you introduce products that have never been invented before, what good is market research?”24

Some of the most popular ways to collect information about customers are surveys, service evaluation cards, focus groups, and listening to what customers say during business transactions, especially when they complain. Some companies, such as Marriott Hotels, have developed elaborate methods for keeping abreast of cus- tomer needs. This is not a low-profile activity at Marriott: Chairman Bill Marriott, Jr., himself has read approximately 800 letters from customers and 15,000 guest questionnaires every month!25 The rewards of taking customer information seriously are also apparent at Marriott, where occupancy rates are consistently 10 percent above the industry average.

Getting employees and executives involved in collecting customer information improves worker skills and learning, makes work more meaningful, and enhances motivation (see the discussion of job characteristics theory in Chapter 8). For example, employees at GM’s former Saturn division conducted customer surveys themselves—this made them more accountable for quality while building relation- ships with customers.26 In a similar vein, sending employees into customer facili- ties, another popular practice, provides not only feedback from customers, but also valuable information to employees about the importance of what they do. A manager in a foundry that follows this practice commented: “We take shop floor people out to the customer’s plant. We want them to see the final product in place. It gets our employees out in the world to meet the customers. They get to know the customers better, and by doing that, the employees get to have a better, more caring attitude. Because they know more about what’s going on.”

Having top managers of a company act as customers of their own organizations— renting a room in their own hotel or buying a suit from a retail outlet—is another way to better understand customer needs. This not only gives them a sense of the quality of service but also makes them more sensitive to how the organizational policies they have created actually affect customers.27 Credit Suisse executives, for example, practice “experience immersion,” by which they watch customers, per- form typical customer tasks, such as exchanging foreign currency or navigate the firm’s own website, and even spend a day in a wheelchair to understand the challenges that disabled customers face. One executive noted that “in some cases, we actually make it hard for customers to do business with us,” resulting in initia- tives to redesign some of their facilities and services.28

A more recent approach to collecting customer information is to monitor the Internet and social media.29 The Internet offers companies a fertile arena for find- ing out what consumers think of their products. Internet users frequently seek advice from other users on strengths and weaknesses of products, share experiences on service quality, or pose specific problems they need to resolve. By monitoring the conversations on discussion groups or blogs, managers can obtain valuable

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insights on customer perceptions and product or service quality problems. In open forums, customer comments can often be translated into creative product improve- ments. In addition, the Internet can be a good source of information about com- petitors’ products.

The cost of monitoring Internet conversations is minimal compared to the costs of other types of survey approaches, and customers are not biased by any questions that may be asked. However, the conversations may be considerably less structured and unfocused, and thus may contain less usable information. Also, unlike a focus group or telephone interview, inaccurate perceptions or factual errors cannot be corrected. Social media such as Facebook and Twitter can also provide a wealth of information. K&N Management, for example, monitors social media activity using an analytical marketing tool to measure guest engagement.

Beyond getting a thorough understanding of customer needs, companies also need to assess how well their products and services are meeting customer needs. A simple approach is to ask them directly, using a process called the “voice of the customer” (see box “The Good, the Bad, and the Ugly”). Some companies have developed unconventional and innovative ways of understanding customers. British Airways (BA) has installed video kiosks at Heathrow Airport outside London and at Kennedy Airport in New York. When upset, customers can enter the booth and cre- ate a video message for BA’s management. The videos have proven so informative that, although they were initially viewed only by executives, frontline employees demanded and were given access to them. One important aspect of this method is

THE GOOD, THE BAD, AND THE UGLY

One regional chain of restaurants realized that customers know what they want, but have a diffi- cult time expressing their needs in ways that are meaningful to managers. This means that the company must be able to effectively translate customers’ language into actionable business terms. Here are some real examples of voice- of-the-customer research that took place in cities in which the chain was considering expanding:

• “So there I was, like herded cattle, standing on the hard concrete floor, cold wind blasting my ankles every time the door opened, wait- ing and waiting for our name to be called.”

• “And then I saw a dirty rag being slopped around a dirty table.”

• “This is a great place because you can just come in and plop in a booth, just like at Mom’s house.”

• “The manager said, ‘That’s not a gnat—that’s black pepper,’ so I said, ‘I know the difference between black pepper and a gnat—black pepper doesn’t have little wings on it!’”

• “I swear! The salad looked like the server ran down to the river bank and picked weeds and grass—I’m never going back!”

• “When they’re that age, going to the bath- room is a full-contact sport—they’re reaching and grabbing at everything, and you’re trying to keep them from touching anything because the bathroom is so dirty. And, by the way, isn’t the kitchen just a few steps away?”

• “The server just stood there staring at me, chomping his gum like a cow chewing its cud.”

In the first example, what the customer really was saying is, “Make me comfortable!” What do you think the customers were really saying in the other examples?

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that it gives people a sense of the emotion associated with customer response to the quality of service (“You lost my *&%$# baggage!”), which cannot easily be con- veyed by checking a number from one through five on a customer satisfaction survey, especially when done weeks later. Texas Instruments created a simulated classroom to understand how mathematics teachers use calculators, and a manager at Levi Strauss used to talk with teens who were lined up to buy rock concert tickets.

A more formal approach to getting into customers’ minds is called imprint anal- ysis.30 “Imprint” refers to the collection of associations and emotions unconsciously linked to a word, concept, or experience. The stronger the emotion, the stronger the imprint. Events and experiences imprinted with strong emotions at an early age usu- ally last just below the level of consciousness for a person’s entire life. By looking deeply into people’s past experiences, imprint analysis can help companies under- stand what drives today’s behavior. Also, imprints of current experiences reveal emerging needs; thus, imprint analysis can actually forecast customer behavior. One ice cream company, faced with responding to a shift to healthier eating, needed to understand whether it should develop a nonfat product or reduce the sugar content. An imprint analysis uncovered a surprising new customer segment whose eating habits defied common sense. During the week, these customers would consume low-fat foods and deprive themselves of desserts. But on weekends, they wanted a super-rich ice cream, acting as a reward for eating healthy during the week! Another paradox the analysis uncovered was that although customers said they wanted many different flavors, they tended to buy those that were fundamentally vanilla. The anal- ysis revealed two senses of taste: one in the body and one in the mind. By creating vanilla variations with exciting names (and premium priced extra-creamy ice cream), the company created loyalty among existing customers while also attracting new customers.

The principles of TQ can help organizations to collect customer information by engaging the participation of everyone who encounters customers in their jobs; focusing on the processes used to collect information, such as segmenting customer groups and prioritizing customer requirements; and continually improving those processes.

Customers generally have different requirements and expectations. For example, Macy’s department stores defines four lifestyles of its core customers: “Katherine”— traditional, classic dresser who doesn’t take a lot of risks and likes quality; “Julie”—neo-traditional and slightly more edgy but still classic; “Erin”—a contem- porary customer who loves newness and shops by brand; and “Alex”—the fashion customer who wants only the latest and greatest (there’s a male version too!).31

Another way of segmenting customers with an eye toward business results is by prof- itability. The Royal Bank of Canada (RBC), for instance, identified a key customer segment, “snowbirds,” Canadians who spend the winter in Florida or Arizona. These individuals want to borrow in the United States for condos or houses and want to be served by employees who know Canada as well as the United States and even speak French when necessary. So RBC opened a branch in Florida, which achieved exceptional results.32

A company usually cannot satisfy all customers with the same products or ser- vices. This issue is particularly important for companies that do business globally (just think of the differences in regulations for automobiles in various countries or

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the differences in electrical power systems in the United States versus Europe). There- fore, companies that segment customers into natural groups and customize the products or services are better able to respond to customers’ needs.

DISSEMINATE CUSTOMER INFORMATION

After people in the organization have gathered information about customer needs, the next step is to broadcast this information within the organization. After all, if the people in the firm are going to work as a team to meet customer expecta- tions, they must all be “singing from the same hymnbook,” as the saying goes. Information does little good if it stays with the person or department that brought it into the organization. Wainwright Industries has a unique approach. A room in the headquarters building, named Mission Control (so dubbed by one of the man- agers who is a Star Trek fan), serves as the company’s key information center. Not only are customer report cards displayed on a wall (along with other key quality and business information), but green and red flags are used to designate customers for whom everything is going well or for whom a problem has arisen. Red flags signal the convening of a customer team to address the problem.

AT&T, whose divisions have won several Baldrige Awards, is one organization trying to maintain a constant customer focus. Jerre Stead, president of Global Busi- ness Communications Systems, tells people in his unit: “I say if you’re in a meeting, any meeting, for 15 minutes and we’re not talking about customers or competitors, raise your hand and ask why. If it goes on for half an hour, leave! Leave the meeting!’’33

Customer information must be translated into the features of the organization’s products and services. This is the bottom line of quality CSRs from the supplier’s point of view: giving the customers what they want. Translating customer needs into product features can be done in a structured manner using quality function deployment (QFD), a technique discussed in Chapter 3. QFD allows people to see how aspects of their products and services relate to customer satisfaction, and to make informed decisions about how their products should be improved. The over- all process of using information from customers to provide quality products is summarized in Figure 6.2.

USE CUSTOMER INFORMATION

Customer information is worthless unless it is used. Customer feedback should be integrated into continuous improvement activities. For example, by listening to cus- tomers, Bank One opened nearly 60 percent of its 1,377 branches in Ohio and Texas on Saturdays, and 20 percent on Sundays. A 24-hour customer hotline is also available.

Binney & Smith, the company that produces Crayola crayons and markers, makes it a point to improve its products by taking advantage of customer feed- back. Many of the letters the company receives from parents laud the role that crayons play in the artistic development of their children. However, some letters complained that the markers created permanent stains in children’s clothes. After two years of research, Binney & Smith responded by developing a new line of

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washable markers. Marker sales doubled, demonstrating the company’s ability to learn and provide what customers are looking for.34 Binney & Smith also sponsored a contest in which customers could name one of 16 new crayon colors the company created for its Big Box. “Part of our reason for introducing new colors came from consumer suggestions. More than 50 percent said they wanted us to expand and add new colors,” according to Brad Dexler, a company spokesman. Perhaps the most important use of customer information is in developing business strategies and in designing goods and services (see box “Customer Focus is Not a Gamble!”).

In the Baldrige criteria, for example, one of the key questions is how a com- pany collects and analyzes customer and market needs, expectations, and opportu- nities, and relates them to the development of strategies. Analyzing customer information can uncover a myriad of opportunities for new and improved goods and services. One way to ensure that measurement is appropriate is to collect infor- mation on both the importance and the performance of key quality characteristics. For example, a hotel might ask how important check-in speed, check-out speed, and staff attitude are, as well as how the customer rates the hotel on these attri- butes. Evaluation of such data can be accomplished by plotting mean performance and importance scores for individual attributes on a two-dimensional grid (for example, a scatter diagram as explained in Chapter 4). A firm ideally wants high performance on important characteristics and not to waste resources on character- istics of low importance (that is, to tolerate low performance scores). Results with high performance and low importance indicate that the firm is wasting resources on unimportant customer attributes (overkill), but those with low performance and high importance means that the firm is not performing acceptably on

Customer needs and expectations (expected quality)

Customer perceptions (perceived quality)

Translation into product/service specifications (design quality)

Output (actual quality)

Identification of customer needs

Fe ed

ba ck

FIGURE 6.2 | THE CUSTOMER-DRIVEN QUALITY CYCLE

g ag

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ar n in g

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important customer attributes, leaving it vulnerable to competition. Often, compet- itor data are also plotted, providing a comparison against the competition.

MEASURE CUSTOMER SATISFACTION, LOYALTY, AND ENGAGEMENT

An effective customer satisfaction measurement system yields reliable information about customer ratings of specific product and service features and about the rela- tionship between these ratings and the customer’s likely future market behavior. Customer satisfaction measures may include product attributes such as product quality, performance, usability, and maintainability; service attributes such as atti- tude, service time, on-time delivery, exception handling, accountability, and techni- cal support; image attributes such as reliability and price; and overall satisfaction measures. Comparisons with key competitors can be especially insightful. Busi- nesses often rely on third parties to conduct blind surveys to determine who key competitors are and how their products and services compare. Competitive com- parisons often clarify how improvements in quality can translate into better cus- tomer satisfaction or whether key quality characteristics are being overlooked.

One way to evaluate customer satisfaction and use it effectively is to collect information on both the importance and the performance of key quality character- istics. For example, a hotel might ask how important check-in speed, check-out speed, staff attitude, and so on, are, as well as how the customer rates the hotel on these attributes. Evaluation of such data can be accomplished using a two- dimensional grid similar (see the Campus Food Court case at the end of this chapter), on which mean performance and importance scores for individual attri- butes are plotted.36 A firm ideally wants to achieve high performance on key customer characteristics (i.e., those with high importance), and not to waste resources on characteristics of low importance (so low performance is acceptable). Results corresponding to high performance and low importance or vice versa

CUSTOMER FOCUS IS NOT A GAMBLE!35

Dr. Gary Loveman, a Harvard Business School professor who was instrumental in introducing the “Service-Profit Chain” to the business literature, has been chief operating officer and CEO of Harrah’s Entertainment, owner of casinos in Las Vegas and other locations. The service-profit chain argues that a direct correlation exists between profitability and a focus on customer loyalty and rewards to front-line employees who have the most contact with customers. Recog- nizing that gambling is fundamentally entertain- ment, Loveman focused Harrah’s strategy on the casino floor, rather than on peripheral entertain- ment activities that are characteristic of other

casino enterprises. He also directed more atten- tion to the large numbers of loyal customers who could not be classified as “high rollers.” For example, he helped devise a three-tiered loyalty card system that encouraged people to spend more to get perks like discounted rooms, no-line check-in, and separate buffet seating. The cards also collect reams of useful customer data. Harrah’s also launched a program that gave these customers free or deeply discounted flights on chartered planes, shuttle service to the casino, and even blue margaritas. Of course, customers are expected to return the favor!

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indicate that the firm either is wasting resources to achieve high performance on unimportant customer attributes (overkill), or is not performing acceptably on important customer attributes, leaving the firm vulnerable to competition. The results of such an analysis can help target areas for improvement and cost savings, as well as provide useful input for strategic planning. Often, competitor data are also plotted, providing a comparison against the competition.

Commonly used factors to measure customer loyalty and engagement are:38

• Overall satisfaction • Likelihood of a first-time purchaser to repurchase • Likelihood to recommend • Likelihood to continue purchasing the same products or services • Likelihood to purchase different products or services • Likelihood to increase frequency of purchasing • Likelihood to switch to a different provider

Today, many firms use a metric called the net promoter score (NPS), which was developed by (and is a registered trademark of) Fred Reichheld, Bain & Company, and Satmetrix. NPS is claimed to correlate strongly with market and revenue growth. The metric is based on one simple question, “What is the likelihood that you would recommend us?” evaluated on a scale from 0 to 10. Scores of 9 or 10 are usually associated with loyal customers who will typically be repeat customers (“promoters”); scores of 7 or 8 are associated with customers who are satisfied but may switch to competitors (“passives”); and scores of 6 or below represent

MORE THAN A BOX OF ROCKS37

Graniterock Company is a California manufacturer of high-quality construction materials for road and highway construction and maintenance, and for residential and commercial building construction. Its major product lines include rock, sand, and gravel aggregates, ready-mix concrete, blacktop, and other products. Surveying its principal cus- tomer groups is one of the key approaches Graniterock uses to improve customer satisfaction. The surveys ask respondents to rate factors in buying concrete, not only from Graniterock, but from competitors as well. Through information obtained from the surveys, Graniterock determined that the most important factors to customers in order of importance are on-time delivery, product quality, scheduling (ability to deliver products on short notice), problem resolution, price, credit terms, and salespeople’s skills. Annually, the com- pany surveys customers and noncustomers to

obtain a “report card” on their service. Graniterock repeats the survey every three or four years as priorities change, particularly if the economy changes. The surveys also ask open-ended ques- tions about what customers like and dislike.

The results of their importance survey and competitive performance survey are summarized and plotted on an importance/performance graph to assess the strengths and vulnerabilities of the company and its competitors. The scales are chosen so that each axis represents the industry average. Graniterock looks at the distance between its ratings and those of the competitors. If the ratings are close, customers cannot differ- entiate Graniterock from its competitors on that particular measure. By posting these graphs on bulletin boards at each plant, the company ensures that all employees, particularly sales- people, are fully informed of the survey results.

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unhappy customers who may spread negative comments (“detractors”). NPS is the difference in the percentage of promoters and detractors. Promoters are less price- sensitive and are more profitable, while detractors are more-price sensitive, defect at higher rates, and consequently are less profitable.

MANAGING CUSTOMER RELATIONSHIPS

A company builds customer loyalty by developing trust and effectively managing the interactions and relationships with customers through customer-contact employees. Truly excellent companies foster close and total relationships with cus- tomers. These companies also provide easy access to their employees. Customers of Ames Rubber Corporation have immediate access to top division management, manufacturing personnel, quality engineers, sales and service representatives, and technical support staff.

In services, customer satisfaction or dissatisfaction takes place during moments of truth—every instance in which a customer comes in contact with an employee of the company. Moments of truth may be direct contacts with customer representa- tives or service personnel, or when customers read letters, invoices, or other com- pany correspondence. In leading fundamental change at P&G, CEO A. G. Lafley felt that P&G was letting technology rather than consumer needs dictate new pro- ducts, and that the company was not working closely enough with retailers, where consumers first see the product on the shelf—the “first moment of truth,” as he called it—and that the company wasn’t concerned enough with the consumer’s experience at home—the “second moment of truth.” Lafley summed up his strategy for P&G simply: “The consumer is boss.”39

One study concluded that 70 percent of customers leave a supplier because of poor-quality service, not problems with products per se, and many companies are struggling to bring their service up to the level of their products.40 One of the main areas on which companies have focused is telephone service, especially how long it takes to get someone on the phone, and to get one’s question answered or order taken. Many companies have worked to make sure that phone calls are answered on the third ring, but to AMP, Inc., the world’s largest manufacturer of electronic interconnection systems, three rings is an eternity. Customer calls to AMP are answered within six seconds—that is, on the first ring. Why such an ambitious goal? AMP found that 8 percent of their customers were hanging up before their calls were answered under the three-ring standard. They don’t lose many calls now.41 TQ principles help to view customer service as a process, and focus on improving service delivery and reducing points of fail- ure that can result in dissatisfaction. Well-designed processes for building cus- tomer relationships can help to identify early signal of customer dissatisfaction or defection.

SET AND USE SERVICE STANDARDS

Service standards are measurable performance levels or expectations that define the quality of customer contact. Service standards might include technical standards

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such as response time (answering the telephone within two rings) or behavioral standards (using a customer’s name whenever possible). Companies need to com- municate and continually reinforce their service standards. Finally, a company should implement a process for tracking adherence to the standards and providing feedback to the employees to improve their performance. Information technology sup- plies the data for effectively tracking conformance to customer service standards.

Customer-contact employees are particularly important in achieving service standards. They are the people whose main responsibilities bring them into regular contact with customers—in person, by telephone, or through other means. In the banking industry, for example, customers rarely see everything behind the scenes; their only interaction with banks is with the tellers. All banks can provide fast ser- vice and accurate transactions, but it’s the behavior of the people that differentiate one bank from another. Tellers that provide great service, smile, address customers by their names, and say “thank you” can be a competitive advantage.42 Companies must carefully select these employees who are then extensively trained and empow- ered to meet and exceed customer expectations. Job applicants often go through rigorous screening processes and extensive training. LeBoeuf, Lamb, Greene, & MacRae, LLP, one of the world’s leading law firms, created an in- house curriculum with such workshops as “Care and Feeding of the Customer,” which reinforces the idea that no matter where people are in the firm, they are cus- tomer service employees first, and what they do not only reflects on the firm but also on themselves as individuals. The course presents real work situations, and the discussion relates to “How do you think you are perceived when certain situa- tions happen?” and “Do you realize you might be perceived as … ?” with a focus on improvement activities.43

MANAGE COMPLAINTS

Despite all efforts to satisfy customers, every business experiences unhappy customers. Complaints can adversely affect business if not dealt with effectively. Many customers do not complain because they feel it wouldn’t do any good or they are uncomfortable with the process. World-class organizations make it

DELIVERING THE GOODS44

360Buy.com is a fast-growing e-commerce com- pany in China. The company sets some unique service standards, for example, guaranteeing that if an order is placed by 11 A.M. the customer will receive it by 6 P.M. that day, and orders placed by 11 P.M. will be received by 9 A.M. on the next day. However, ensuring that such standards are met requires meticulous attention to the supplier side

of operations. As the CEO Richard Liu noted, “The key to winning in this business is not the so-called business model but the implementation of details.” The company benchmarked Amazon and focuses on logistics as the core of its operations. Their effectiveness has led Walmart and other U.S. companies to invest $500 million in venture capital in the firm.

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easy for customers to complain. Besides providing easy access to the company using toll-free telephone numbers (which should be adequately staffed and sup- ported), many firms actively solicit complaints. Nissan, for instance, telephones each person who buys a new car or brings one in for significant warranty work. Its objective is to resolve all dissatisfaction within 24 hours.46 Effective resolution of complaints increases customer loyalty and retention (see box “Don’t Brush Off Customer Complaints”). At The Ritz-Carlton Hotel Com- pany, for example, employees can spend up to $2,000 to resolve complaints with no questions asked.

EXPLOIT TECHNOLOGY

Technology can greatly enhance an organization’s ability to leverage customer- related information and provide improved customer service. For instance, Continental Airlines’ online system alerts the company when planes arrive late and assesses passengers’ needs, delaying departures of other flights or sending carts to make connections easier; the BT Group revamped its self- service Web portal used by customers to manage telecom accounts and linked it to the system used by the company’s customer support staff to improve consistency.47

Technology is a key enabler of customer relationship management (CRM) soft- ware, which is designed to help organizations increase customer loyalty, target their most profitable customers, and streamline customer communication processes. CRM systems provide a variety of useful operational data to managers, including the average time spent responding to customer questions, comments, and concerns, average order tracking (flow) time, total revenue generated by each customer

DON’T BRUSH OFF CUSTOMER COMPLAINTS45

Matt Stewart was an entrepreneur who co-founded College Works Painting in Irvine, CA. The company paints thousands of homes each year using college student labor and had very high levels of customer satisfaction. One day, however, a dissatisfied customer posted a website with some unflattering comments about the company. Even one dissatisfied customer was too many. Matt and his partner personally called a group of them to investigate the reasons for their dissatisfaction. Customers were surprised, and Matt quickly

realized that the real problem was a breakdown in communication; that the costs to fix the problems were minimal. The company employed a consultant to analyze every step of the customer interaction process. They identified problems that might occur at each step, developed better standards, and ways to exceed customers’ expectations. Even the disgruntled customer who put up the website has changed it, and said that he might hire the company again in the future because of they way problems were resolved.

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(and sometimes his or her family or business) from all goods and services bought by the customer—the total picture of economic value of the customer to the firm, cost per marketing campaign, and price discrepancies. CRM helps firms gain and maintain competitive advantage by:

• Segmenting markets based on demographic and behavioral characteristics. • Tracking sales trends and advertising effectiveness by customer and market

segment. • Identifying and eliminated non-value-adding products that would waste

resources as well as those products that better meet customers’ needs and provide increased value.

• Identifying which customers should be the focus of targeted marketing initia- tives with predicted high customer response rates.

• Forecasting customer retention (and defection) rates and providing feedback as to why customers leave a company.

• Studying which goods and services are purchased together, leading to good ways to bundle them.

• Studying and predicting which Web characteristics are most attractive to customers and how the website might be improved.

• Streamlining processes around customers rather than traditional functions, resulting in improved flow of information and cycle times.

It is important to realize that although CRM can provide many benefits, it is not a solution to customer relationship problems. CRM can help an organization use data wisely to customize its product to better serve its markets, but it first requires an understanding of customer needs. In addition, one can easily capture a lot of useless information simply because it is easy to do. This makes analysis diffi- cult, and can frustrate users.

DON’T IGNORE INTERNAL CUSTOMERS

Individual departments and key cross-functional processes within a company have internal customers who contribute to the company’s mission and depend on the department’s or function’s products or services to ultimately serve consumers and external customers. For instance, manufacturing is a customer of purchasing, a nursing unit is a customer of the hospital laundry, and reservations is a customer of the information systems department for an airline or hotel. In addition, each employee receives inputs from others and produces some output to internal customers. A customer may be the assembly-line worker at the next station, an executive’s secretary, the order-taker who passes along orders to the food preparer at McDonald’s, or an X-ray technician who must meet a physician’s request. The linkages among internal customers build up the “chain of customers and suppliers” throughout the company that connect every individual and function to the external customers and consumers.

The principle of mutually beneficial relationships also applies to internal CSRs (see box “Partnering with Internal Customers”).

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PRACTICES FOR DEALING WITH SUPPLIERS49

In business today, operations are often highly decentralized and dispersed around the world. Consequently, managing a complex network of suppliers becomes a crit- ical interorganizational issue. Suppliers play a vital role throughout the product development process, from design through distribution. Suppliers can provide tech- nology or production processes not internally available, early design advice, and increased capacity, which can result in lower costs, faster time-to-market, and improved quality for their customers. In turn, they are assured of stable and long- term business.

Successful suppliers have a culture where employees and managers share in customers’ goals, commitments, and risks to promote such long-term relationships (recall one of Deming’s 14 Points about supplier relationships—not purchasing solely on the basis of price). Strong customer/supplier relationships are based on three guiding principles:

1. recognizing the strategic importance of suppliers in accomplishing business objectives, particularly minimizing the total cost of ownership,

2. developing win-win relationships through partnerships rather than as adver- saries, and

3. establishing trust through openness and honesty, thus leading to mutual advantages.

PARTNERING WITH INTERNAL CUSTOMERS48

GTE Supply negotiates contracts and purchases products and distributes a vast array of goods needed for telephone operations, from office supplies to telecom- munications equipment. Its major customers are internal network, business, and telephone operations customer groups at each GTE local telephone company. The company created a systematic, highly effective process of obtaining and using information from internal customers, making partners of previous adversarial groups, reducing costs, and improving customer satisfaction.

This was based on systematically surveying internal customers and using the results as a basis for quality improvement. Respondents are asked to rate GTE Supply on how well it:

• provides complete information, • understands customers’ needs, • does the job right the first time,

• provides timely responses to questions and requests,

• makes it easy to do business with, • follows up on services, • provides clear communication, and • executes various other attributes.

Other questions seek information about overall satisfaction, quality, and value. Other open- ended questions ask about improvement opportu- nities. Detailed reports and analyses are provided to managers who use the information to set objectives, develop action plans, and implement them.

The survey and quality improvement process have transformed the organization from one of the worst-regarded to one of the best-regarded organizations in the company. GTE Supply learned that extensive, focused communication with internal customers can produce spectacular increases in satisfaction levels and decrease costs and cycle times.

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Although the principles of CSRs are the same in dealing with suppliers as they are with customers, the practices are somewhat different. In many companies, sup- pliers are treated as if they were actually a part of the organization. For example, functions such as cafeteria service, mailroom operations, and information proces- sing are being performed by suppliers at their customers’ facilities. As more and more of this type of outsourcing is done, the lines between the customer and the supplier become increasingly blurred.

To ensure that suppliers can provide high quality and reduce costs associated with incoming inspection or testing, many companies provide many types of assis- tance to their suppliers in developing quality assurance programs or solving quality problems. Joint conferences, training, incentives, recognition, and long-term agree- ments help to improve suppliers’ abilities to meet key quality requirements. The Delco Moraine Division, a manufacturer of automotive brake controls, uses an awareness program that includes a videotape presentation emphasizing quality shown at supplier plants. After viewing the tape, supplier employees were better able to relate their work to Delco.

BASE PURCHASING DECISIONS ON QUALITY AND COST

The first and most obvious practice is that purchasing decisions should be based on the quality of the product and not just its cost.50 This, however, goes against the grain in most organizations. Generally speaking, the technical people will deter- mine the specifications for a product to be purchased, and then the purchasing department will solicit bids or check prices with several suppliers and negotiate the contract with the one that fills the order. Purchasing personnel traditionally have been rewarded primarily for negotiating low prices, and thus, this has been their focus. Supplier firms have often responded to this situation in the obvious way: by doing whatever they need to do (including sacrificing quality) to maintain low prices.

Beyond the compromises this creates for the quality of the final product, there are two other problems with this approach. First, low purchase cost often does not equal low overall cost. If a cheap (in both senses of the word) part causes a large amount of scrap or leads to high warranty costs, it may end up with a higher over- all cost, often referred to as life-cycle cost. Second, pressing suppliers for ever-lower prices will minimize their profits. Although this benefits the customer in the short run, in the long run, it keeps suppliers operating so close to the bone that they forgo capital investments, maintenance, and other expenses necessary to improve or even maintain their quality.51

REDUCE THE NUMBER OF SUPPLIERS

Firms pursuing TQ also reduce the number of suppliers they work with to the point of having only one supplier for some components. Xerox reduced its suppli- ers by about 90 percent—from more than 4,000 to about 450 in 1990.52 In the automotive industry, General Motors cut domestic suppliers by 45 percent, from 10,000 down to 5,500, by 1991. Ford Motor Co. likewise reduced its number of suppliers from 1,800 down to 1,000.53 This also goes against the grain of

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conventional purchasing practices, as it increases the dependence of the organiza- tion on the supplier, thus weakening its bargaining position and exposing it to the possibility of an interruption in supply in the case of a labor stoppage or similar problem with the supplier.

Several advantages offset these disadvantages. For one thing, administrative costs are greatly reduced.54 (Imagine the time to be saved by eliminating the paper- work associated with 90 percent of suppliers!) Also, cutting the number of suppli- ers reduces the variability in the incoming products, making it much easier to control the quality of outgoing products. This is because there are fewer “special causes” of variation, to use Deming’s term.

The type of intensive CSRs that characterize TQ simply cannot be maintained with a large number of suppliers. The significance of partners (like friends or vice presidents) is lost if you have too many of them. For these reasons, many organiza- tions continue to reduce the number of suppliers with which they do business.

ESTABLISH LONG-TERM CONTRACTS

Related to the idea of fewer suppliers is the practice of establishing long-term con- tracts with suppliers. Establishing long-term contracts allows suppliers to make greater commitments to improving the quality of products and provides greater opportunity for joint improvement efforts and the development of teamwork across organizational boundaries.

MEASURE AND CERTIFY SUPPLIER PERFORMANCE

Measuring supplier performance is important to ensure that quality expectations are achieved, risks are minimized, and feedback can be provided. Measures can also provide the basis for rewards and recognition for superior performance. Mea- sures can include product quality, service, supplier’s internal processes, and their application of organizational quality frameworks such as ISO 9000. For example, Texas Instruments measures suppliers’ quality performance by parts per million defective, percentage of on-time deliveries, and cost of ownership.55 An electronic requisitioning system allows a paperless procurement process. More than 800 sup- pliers are linked to Texas Instruments through an information exchange system. Integrated data systems track the incoming quality and timeliness of deliveries as materials are received. Analytical reports and online data are used to identify mate- rial defect trends. Performance reports are sent each month to key suppliers. Joint customer-supplier teams are formed to communicate and improve performance. A supplier management task force of top managers directs current and strategic approaches to improving supplier management practices.

Supplier certification is used by many companies as the focal point of their supplier management system. Formal programs typically are established to rate and certify suppliers who provide quality materials in a cost-effective and timely manner. At the Gillette Company, the supplier certification program begins with Gillette identifying those suppliers with a proven ability to meet its specifications.56

Once a supplier is selected to participate, Gillette expects them to establish a pre- production planning system to assess the capability of their process to meet

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Gillette’s specifications. Feedback is offered in the form of recommended changes that will improve quality, reduce cost, or facilitate ease of manufacture.

Some companies, such as Motorola, have suppliers rate them as customers. Motorola uses a 15-member council of suppliers that rates Motorola’s practices and offers suggestions for improving, for example, the accuracy of production sche- dules or design layouts that Motorola provides.57 Corning TPD classifies its suppli- ers in a hierarchy: Level 1 suppliers have a direct impact on customer satisfaction; Level 2 suppliers are important, but do not have direct linkage to customer satis- faction; Level 3 suppliers provide commodity-like products. Level 1 suppliers are supported by cross-functional teams and integrated into development activities. Armstrong conducts site visits and has a five-level scale to help suppliers under- stand where they stand in meeting the company’s expectations. ST Microelectronics (ST) developed an annual Supplier Quality & Service Plan, which sets goals for suppliers and specifies how ST will review performance, share data, and carry out other responsibilities in the relationship. Long-term partnerships with quality- minded suppliers enabled Texas Nameplate Company to nearly eliminate inspec- tions of incoming materials. These “ship-direct-to-stock” suppliers are required to be defect-free for at least two years and meet all requirements specified on purchase orders.

DEVELOP COOPERATIVE RELATIONSHIPS AND STRATEGIC ALLIANCES

Increasingly, suppliers are viewed as partners with customers, because there usually is a codependent relationship. Thus, the cornerstone of TQ-style CSRs is coopera- tion. Cooperative relationships might include sharing cost and quality information, building long-term relationships with a selected group of suppliers, and developing cross functional teams involving suppliers. In a sense, practices such as long-term contracts and fewer suppliers create an environment in which cooperation can flourish. Similar to the operation of teamwork within an organization (see Chapter 7), quality CSRs help both parties to achieve their goals.

One common form that cooperation takes is the early involvement of suppliers in the design of new products.58 Early involvement allows suppliers to make cost- cutting and quality-improving suggestions about the design, while changes are rela- tively easy and inexpensive to make. When the product design is not revealed to suppliers until late in the process, often out of concern that it will be leaked to competitors, such opportunities are lost.

Security concerns can be dealt with through nondisclosure agreements.59

Another indication of cooperation is the effort of customers to help suppliers improve quality, which can take many forms. Many TQ-oriented corporations present quality-improvement seminars for their suppliers.60 Juran recommends joint quality planning between customers and suppliers, featuring the exchange of quality-related information.61 Although customers traditionally have hammered suppliers to lower their prices, in a cooperative relationship, the focus is on helping suppliers to lower their costs, which will ultimately benefit both parties.62

Today, suppliers are being asked to take on greater responsibilities to help their customers. As companies focus more on their core competencies—the things they do best—they are looking outside their organizations for assistance with

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noncritical support processes. Customer-supplier partnerships represent an impor- tant strategic alliance in achieving excellence and business success. For example, partnerships with suppliers have helped Dell drive down parts inventories from 25 hours to 3 hours. Benefits of such partnerships include access to technology or distribution channels not available internally, shared risks in new investments and product development, improved products through early design recommendations based on supplier capabilities, and reduced operations costs through better commu- nications. For example, FedEx and Jostens formed a strategic partnership that enabled both to benefit from new sales of scholastic jewelry and yearbooks.63

They took advantage of each other’s strengths: Josten provided a high-quality product with superior service, and FedEx provided reliable high-volume, short- interval delivery for these time-critical products.

QUALITY CUSTOMER-SUPPLIER RELATIONSHIPS IN ACTION

Many of the aspects of quality CSRs we have been discussing are illustrated in the following examples.

MESA64

MESA’s philosophy is to be the preferred supplier to its customers and the pre- ferred customer of its suppliers. The ISO Quality System includes mechanisms that ensure selected suppliers are qualified and supplier performance is continually eval- uated in meeting strategic objectives. It also provides guidelines on acceptable methods for approving new suppliers. The Nonconformance Report (NCR) process provides feedback to suppliers at a transactional level throughout the work system. For each NCR, suppliers are required to provide root cause analysis and corrective action in a timely manner. Where supplier performance does not meet expectations, MESA communicates with the supplier to identify the root cause and corrective actions to improve performance. In those instances where a supplier’s performance does not improve to a level that allows MESA to meet its customers’ requirements, the relationship is discontinued and an alternative source is sought.

MESA has a select group of “key suppliers” and subcontractors with whom it has preferred relationships. Key suppliers are selected based on their importance to MESA’s work systems and/or product offerings, either as a result of volume or lack of a suitable alternative product. MESA engages closely with Key Suppliers in fore- casting product demand and sharing information about markets and customers. Key Suppliers receive a letter from the CEO at the beginning of each year, outlining the Key Focus Areas from the Strategic Plan. MESA tracks on-time shipping rates for Key Suppliers, using the same performance measure for its work system. Ship- ping results, along with NCR data are communicated monthly. Communication with Key Suppliers is frequent and typically involves a site visit to their location (or vice versa) at least annually, as well as interaction during trade shows and con- ferences throughout the year. MESA works closely with Key Suppliers in identify- ing opportunities for improvement and innovation within the work system, which has included consignment stock agreements, product design changes, and changes in packaging to improve manufacturing efficiencies.

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UNIQUE ONLINE FURNITURE

Unique Online Furniture, Inc. sells a variety of home furnishings, including bath- room vanities, vessel sinks, faucets, mirrors, light fixtures, and curtain rods, to indi- vidual retail clients in the United States and Canada via several e-commerce websites(UniqueVanities.com, UniqueMirrorsOnline.com, UniqueLightFixture.com, UniqueEcoFurniture.com, and UniqueIronCurtainRods.com).65

The company faces competition from a number of competitors, including CSN Stores, eBay, and Amazon. While these competitors offer brand names and low pricing, they lack close, personal customer relationships and communication. Unique Online Furniture exploits these competitive weaknesses in their business model, which is based on the key customer requirements they identified:

1. Affordability: Customers want unique items at affordable prices. 2. Variety: Customers in our market are looking for variety in home furnishing

products that they cannot necessarily find in their local brick and mortar stores.

3. Online purchase security: When purchasing large ticket items online, our customers want to feel safe and secure during the transaction.

4. Guarantees or low risk: Customers want the risks of buying sight unseen minimized.

5. Free or low-cost shipping: Customers want large items delivered to their front door at no additional cost.

Unique Online Furniture offers over 2,000 unique products across their websites. Their websites offer a secure online buying experience, and the company is registered with the Better Business Bureau. They also have a satisfaction guarantee return pol- icy, by which clients can return their item for any reason and are only responsible for the cost to ship it back. If there are any problems with an order, they go above and beyond what the average retailer would do. They handle difficult situations in a timely fashion, specific to the client’s needs, and with sincerity and integrity. But it’s the personal attention to individual customers that sets them apart. They provide a very high level of client service throughout the buying process. They have a formal client experience process that client service team members follow, and have multiple communication mechanisms—phone, email, and live chat—to meet client’s communication needs. This includes a video email from the President thanking them for their order and setting expectations, a personal phone call within 24 hours after an order has been received, to confirm all details, a ship- ping video email to provide detailed instructions on how to properly receive their large item, a video on eco-friendly solutions on how to dispose of the large amount of packing materials, a gift certificate that can be used on future orders, and a special Thank You gift that we personally wrap and mail to every client.

Perhaps more surprisingly, they also treat their suppliers just like their customers, and recognize the people (many of whom are not recognized within their own organi- zations) that help them in providing a great client experience. For example, they have sent Christmas gifts to the people they work directly with at each manufacturer. Another innovation is a “You Totally Rock” certificate and a small gift that is sent to one person from their manufacturers that went above and beyond expectations in

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helping them out. Through these customer-focused approaches, Unique Online Fur- niture, Inc. has created a large clientele base and a reputation built upon customer service and quality that sets them apart from competitors. And would you be sur- prised to learn that it’s only a four-person organization?

EMC CORPORATION

A third example is EMC Corporation, a manufacturer of data storage systems.66 In the winter of 1999, a bank in Wisconsin suddenly lost access to its data-storage facil- ity. In quick succession, the screens in the bank’s computer center started flashing “Data unavailable”—a message that might as well have read “Closed for business.” Within minutes, customer service engineers at EMC headquarters had retrieved, remotely, the logs of EMC’s storage systems at the bank and had begun to examine them, but the cause of the problem was not readily evident. Four hours later, the engineers who designed the machine joined the effort. They recreated the bank’s setup in a $1 billion facility that EMC created for such simulations, including a dou- ble of the EMC machine that was faulty. Only then did they find the problem, and they created a patch that they immediately sent to Wisconsin. But this was just the beginning; the VP of global technical support jumped on a plane to Wisconsin, and walked into the bank’s boardroom to help restore faith in the company by answering the questions: “What happened?”; “Why did it happen?”; and “How do we make sure it doesn’t happen again?” By the end of the meeting, the VP had sold the bank on a new EMC system that builds a mirror copy of data, which is always available.

CUSTOMER-SUPPLIER RELATIONSHIPS IN ORGANIZATION THEORY

Much of the organization literature has argued that firms should consider customers as partners for success.67 As far back as 1973, Gersuny and Rosengren argued that diverse customer roles require new bonds of interdependence and an increasingly complex social network that crosses traditional organizational boundaries.68 They identified four distinct roles for customers:

1. resource, 2. worker (or coworker), 3. buyer, and 4. beneficiary (or user).

A fifth role has emerged from work in the human service area: Customers can be a key outcome, or product, of value-creating transformation activities, such as edu- cation and health delivery. In the first two roles, customers act as inputs to the transformation process, while in the last three, they act as outputs. Each of these roles is instrumental in creating competitive quality within a firm.

In reviewing the organizational literature for these roles, Lengnick-Hall suggests that the following organizational practices are positively related to the competitive quality of production processes and outcomes:

• practices that deliberately select and carefully manage customer resources, fos- ter an effective alliance between the firm and its customer resources, and improve the quality of its customer resources;

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• practices that provide clear opportunities for co-production, enhance customer abilities as co-producers, and increase customer motivation toward co-production;

• activities that foster trust, develop interdependence, share information, and initiate friendly, mutually beneficial customer-organization bonds;

• activities that foster unambiguous communication with users, focus on meeting cus- tomer needs, offer realistic previews, achieve dimensions of quality that customers truly care about, and ensure that actual use is consistent with intended use; and

• activities that create opportunities for direct communication and interaction between users and production/core service personnel.

Thus, firms should design systems that involve and empower customers through- out the input-transformation-output system, rather than merely rely on customers to define their preferences and evaluate the products and services provided to them. This conclusion is certainly the foundation of modern TQ approaches and is reflected in the Baldrige criteria. One example of this in practice was ADAC Laboratories, a man- ufacturer of high-technology health care equipment and a 1996 Baldrige recipient, which was acquired by Royal Phillips Electronics in 2000. Not only did ADAC survey customers and potential customers and measure satisfaction, they invited customers to participate in strategic planning meetings, had lunch with customers attending new equipment training sessions, and hosted formal user group meetings to help prioritize product enhancements, share tips on new uses, and provide other information.

TQ also can be related to a number of traditional organizational theories. The following sections discuss TQ’s relationship with the resource dependence perspec- tive and the theory of integrative bargaining.

THE RESOURCE DEPENDENCE PERSPECTIVE

The organizational theory most directly comparable to the TQ view of customer- supplier relations is the Resource Dependence Perspective (RDP) developed by Jef- frey Pfeffer and Gerald Salancik.69 This perspective—which deals with how organi- zations manage to get the resources they need from their environment—resembles TQ in some ways, yet differs in others.

The most important similarity between the two perspectives is their mutual emphasis on the idea that the sources of an organization’s success lie outside its boundaries. Although the idea that customers ultimately grant the organization its continued existence has become familiar as a fundamental principle of TQ, Pfeffer and Salancik point out that much organization theory focuses on the internal opera- tions of organizations, giving less emphasis to the organization’s environment:

Most current writers give only token consideration to the environmental context of organizations. The environment is there, somewhere outside the organization, and the idea is mentioned that environments constrain or affect organizations.… After this, the task of management is considered. Somehow, the things to be managed are usually within the organization, assumed to be under its control, and often have to do with the direction of low-level hired personnel. When authors get down to the task of describing the running of the organization, the relevance of the environment fades.70

According to the RDP, the effectiveness of an organization should be under- stood in terms of how well it meets the demands of external groups and

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organizations that are concerned with its actions and products. This is similar to the TQ conception of quality as meeting or exceeding customer expectations. There is an interesting difference, however, between the RDP concept of effective- ness and the TQ concept of quality.

TQ has traditionally focused almost exclusively on the organization’s customers— that is, those who purchase the organization’s products and provide the where- withal for the organization’s continued survival. The RDP, however, recognizes that organizations must satisfy the demands of not only customers, but also other entities in the environment, including various government agencies, interest groups, shareholders, and—to some extent—society as a whole.

A government regulatory agency can make life miserable for an organization it does not believe is following government regulations—for example, a coal mine with inadequate safety procedures or a restaurant with unsanitary practices. In the extreme case, the government can even shut them down. Interest groups can influ- ence customers to boycott a product for reasons unrelated to the quality of the product itself. Certain brands of California wine were boycotted for years because of the alleged mistreatment of the migrant farm workers who picked their grapes.

Shareholders of public corporations in recent years have become a constituency to be reckoned with. They are making increasing demands on how corporations operate, including not only economic but also social and environmental aspects of performance such as minority hiring and use of recyclable materials.

From this perspective, it is clear that although customers are important, groups and organizations other than customers can play a major role in determining an organization’s success. TQ advocates can take two avenues in dealing with this issue. The first would be to enlarge the concept of customers to include all those who have a stake in the organization. Following this logic, an organization would not be seen as practicing TQ unless it met the expectations of all of its constituen- cies, not just its customers in the traditional sense. However, different groups are apt to have very different expectations for the behavior of an organization, thus making it quite difficult to satisfy all parties.

The other avenue would be for TQ advocates to recognize that although pro- viding quality to customers is the overriding focus of an organization’s activities, satisfying customers alone will not necessarily guarantee continued success, due to the potential influence of other constituencies. Interestingly, this perspective has been incorporated into the Baldrige criteria through its core value of Public Responsibility and Citizenship:

An organization’s leaders should stress its responsibilities to the public and the need to practice good citizenship. These responsibilities refer to basic expectations of our organi- zation related to business ethics and protection of public health, safety, and the environment.… Planning should anticipate adverse impacts from production, distribu- tion, transportation, use, and disposal of your products. Effective planning should pre- vent problems, provide for a forthright response if problems occur, and make available information and support needed to maintain public awareness, safety, and confidence.… Organizations should not only meet all local, state, and federal laws and regulatory requirements, but they should treat these and related requirements as opportunities for improvement “beyond mere compliance.” (2002 Baldrige National Quality Program Criteria for Performance Excellence, p. 3)

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Another similarity between TQ and the RDP is in their recognition of interde- pendence between organizations as a fact of organizational life that must be man- aged effectively.

In the current dense environment … interdependencies are the problem. The dominant problems of the organization have become managing its exchanges and its relationships with the diverse interests affected by its actions.… The increasing density of relation- ships among diverse interests has led to less willingness to rely on unconstrained mar- ket forces. Negotiation, political strategies, the management of the organization’s institutional relationships—these have all become more important.71

Thus, the RDP shares with TQ the idea that managing interdependencies with other organizations is a key to success. The two perspectives diverge again, however, when it comes to how such interdependencies should be managed. Quality CSRs are seen from the TQ perspective as consisting of mutually benefi- cial partnerships. Such an option, however, is not anticipated in the RDP. From this perspective, interdependence should be managed by some combination of gaining as much control as possible over the other organization, minimizing the other party’s control over one’s own organization, making it difficult for the other organization to monitor and influence one’s behavior, and so on.

When compared to the protection of self-interest inherent in the recommenda- tions of the RDP, the TQ win-win doctrine sounds somewhat naive. Yet most organizations practicing TQ and building partnerships with their customers and suppliers have traditionally managed CSRs in the manner suggested by the RDP and have been dissatisfied with the results. The partnership efforts are mostly in their early stages, and there is no guarantee that they will ultimately succeed. As of now, however, they are the preferred method of many firms for managing interdependence.

INTEGRATIVE BARGAINING

The idea of building cooperative relationships that benefit both parties to a negoti- ation is not something that was created by writers or practitioners of TQ. The idea of mutually beneficial relationships and win-win bargaining comes from a long tradition of research and writing on conflict management and negotiation.72

The idea behind this research tradition is that both parties will benefit more in the long run if they work together to help each other, rather than each one striving to win each round of negotiation. This tradition has been appropriated by writers on TQ, perhaps because it is consistent with the idea of customer orientation and teamwork. This is another area where TQ doctrine derives in a straightforward manner from existing organizational theory.

The key ideas of integrative bargaining (or principled negotiation) are:

1. separate the people from the problem; 2. focus on interests, not positions; 3. invent options for mutual gain; and 4. insist on using objective criteria.

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These principles have significant implications for CSRs in TQ. The first point deals with eliminating emotions from issues, forcing participants to work together to attack the problem and not each other. For example, focus on interests, not posi- tions, means that it is important to search for ways to meet each party’s needs, not necessarily the way they have been met in the past. Rather than focusing on the posi- tion (I want air-conditioning in the car), one searches for the underlying interest (I spend a lot of time in the car, so it is important to be comfortable), and then finds a way to meet that interest. The second point results from the fact that a nego- tiating position often obscures what the bargainers really want. Compromising on positions, as is often done in union agreements, may not take care of the true needs that led people to adopt the positions in the first place. For the third point, it is diffi- cult to make decisions in the presence of an adversary. Creatively identifying options without the pressure of adversarial negotiation can reconcile differing interests and “expand the pie.” Finally, fair solutions result from deciding on the criteria on which to evaluate the result, not the personalities of the negotiators.

AGENCY THEORY

We discussed TQ and agency theory in Chapter 1. Agency theory can also provide insight into managing CSRs.73 In a supply chain relationship, the customer acts like a principal that delegates the authority of production and services to the supplier (the agent). In addition, the responsibility of providing quality products and ser- vices is also delegated to suppliers; thus, customers must ensure that suppliers’ pro- ducts and services conform to contractual quality requirements. In the process of managing supplier quality, customers in agency relations are often faced with potential problems. Customers expect suppliers to provide good quality and to con- tinuously improve; however, suppliers may be reluctant to make significant invest- ments in quality, especially if they perceive that customers are reaping all the benefits. The difference in interests between customers and suppliers will result in their concerning themselves only with their own self-interests. Furthermore, custo- mers and suppliers may have different attitudes toward risks associated with qual- ity failures, especially those that occur after sales to end consumers, a situation that will result in risk-sharing issues between buyers and suppliers.

According to agency theory, supplier quality practices can be categorized as outcome-based approaches or behavior-based approaches. Outcome-based approaches are more concerned with reducing the detrimental effects of supply- risk events than with reducing the likelihood of a detrimental event. Activities such as explicit contractual requirements and incoming inspection are typically used. Such approaches are relatively easy to implement; however, customers can- not determine how the quality is achieved. Then, the level of quality is subject to the existing capability of the supplier and the strictness of contractual provisions and inspection. There is inherent risk based on the supplier’s internal processes.

Behavior-based approaches are intended to address supplier processes rather than outcomes. Open communication and improved information sharing, certifica- tion, monitoring the progress and actions of suppliers, and close relationships with suppliers all motivate suppliers to make a greater effort to improve their internal pro- cesses, which in turn leads to better quality performance. This can reduce the risks that threaten quality. Such approaches, however, demand long-term investment and

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cooperation by all parties, which may be difficult to implement. Choosing the proper approach is the challenge that managers face. Understanding these agency relation- ships and options can help them improve their decisions.

Discussion Questions and Experiential Exercises

1. How does Mercy Health System meet the expectations of its customers? How does it exceed expectations?

2. What can be learned about customer- supplier relationships from the story about IBM and its Japanese supplier?

3. What is the difference between customer satisfaction and customer loyalty? Why is it important to distinguish between these two concepts?

4. Draw a diagram of a customer-supplier chain that includes at least four organiza- tions. What attributes of quality are required at each link in the chain? How does quality at the beginning of the chain influence qual- ity at the end?

5. Why are suppliers important to a company’s quality efforts?

6. Identify three practices through which com- panies can better understand their customers’ needs.

7. Prepare a list of moments of truth that you encounter during a typical quarter or semester at your college or university.

8. Analyze the remaining voice of the customer statements in the example box “The Good, the Bad, and the Ugly,” and try to determine what the customers are saying in actionable terms that are meaningful to the managers of the restaurant.

9. Think of a type of customer that you know reasonably well. Try to identify some unmet needs of this type of customer and to think of some new features of the products and/or services they purchase that would excite them. Why do you think these features are not being offered?

10. Identify a CSR in which you are involved. How does it compare to the principles and practices of TQ relationships? In what specific ways could adopting some of the principles and

practices discussed in this chapter improve this relationship?

11. Consider the following customer experi- ences.74 What would your reaction be to each of them? a. Looking to buy a cell phone, I met a

saleswoman who introduced herself, asked my name, went through the fea- tures related to my needs, and didn’t try to sell me the most expensive phone.

b. I was shopping in a home-improvement store and encountered a salesman who remarked, “Oh, shopping for your husband?”

c. At one restaurant, we were stranded in a booth without silverware or a waiter. We finally made contact with a waitress who said, “Your waiter is late, and I can’t take your order because this isn’t my station.”

d. I was shopping for a TV antenna, and asked the salesman the difference between the models. He replied, “They’re all pretty much the same. Some cost more because they look better.”

12. How do the terms used for customers in dif- ferent industries and occupations (e.g., patients, clients, passengers, students) influ- ence how people in these industries think about their customers?

13. Think about a prescription that a doctor may write. Describe the different types of customers involved in the process of filling the prescription.

14. How would TQ and the resource depen- dence perspective differ in describing the quality and effectiveness of a state university?

15. Can you think of a situation in which customers are not important to the success of an organization?

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16. How should an organization go about decid- ing who its customers are? Identify the customers of a university, a government agency, and a movie producer.

17. One of the author’s former students discov- ered a way to receive great service: Ask for a satisfaction survey before the end of the transaction. In one experience, the student observed an instant change in how she was treated. What does such an experience tell you about the company?

18. Find an example of a highly publicized ser- vice or product failure in the news (such as unreasonable waiting on a plane on a run- way or the poor reception on the first release of the iPhone 4). Research and write a short paper on how the company addressed the problem to recover customer confidence and loyalty.

19. Below are listed some key principles of TQ. Describe what steps a company could take upstream in the supply chain to practice these principles. a. customer-driven quality b. built-in quality at the source

c. management by fact d. a focus on prevention rather than

detection e. process focus f. striving for zero defects g. continuous improvement h. making quality everyone’s responsibility

20. Customer satisfaction is generally discussed from the consumer viewpoint. However, it is equally important from a business-to- business transaction perspective. Discuss what suppliers to other businesses can do to improve satisfaction.

21. A number of pizza chains or restaurants are probably located around your college campus. Using a focus group of students, conduct an interview to determine what factors are important in selecting a traditional or pizza restaurant. Once you have identified these factors, design a satisfaction survey to com- pare perceptions among the most popular restaurants in your area. Ask a sample of students who visited at least to two of them to complete the survey. Analyze the results and draw conclusions in a written report.

CASES

Bishop’s Seafood

Jerome, his wife Sandy, and their two daughters were vacationing and visited a popular restaurant, Bishop’s Seafood Shack, that has several locations in the East- ern U.S. The hostess was friendly and their table loca- tion was removed from the general crowd – good for their young children. Jerome observed that their waiter was incredibly attentive to their needs without seeming like he was hovering. Their water and soft drink glasses were never empty, and they never had to ask for more bread; yet, at the same time, the family felt “alone” enough to engage in the most intimate of family conversations. The waiter also paid a lot of attention to Jerome’s young children. He demon- strated grace and patience, and some humor, while waiting on the decision of a 5-year old girl.

The meal service itself was well-timed. All of the dishes came out almost simultaneously. In addition, Jerome had a friend who was running late in joining

them for dinner. He had called to let them know what he wanted and Jerome placed his order. When the food arrived, however, his friend wasn’t there yet. The waiter, without prompting, took his food back to the kitchen to keep it warm until he arrived. Throughout the course of the evening, their waiter consistently, but not constantly, checked in to see if their needs were met. Later that evening, one of his children complained of stomach pains and vomited. The next morning, Sandy called Bishop’s Restaurant – not to complain as her daughter was fine in the morning – but, rather, to let them know to check their food. During that call, she complimented our waiter. A few days later, she received a call from the restaurant’s corporate office. The representative called to thank her and to let her know that they were send- ing a food inspector to that particular restaurant. Thereafter, she received a call nearly every day updat- ing her on the progress of the inspection. Finally, she was told that the restaurant had received a clean bill

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of health. A few weeks later, Jerome and Sandy received a $200 gift certificate in the mail, even though their daughter’s symptoms were probably related to simply overeating!

Discussion Questions 1. Why do you think the restaurant went to such

lengths in response to Sandy’s call? 2. How does this experience illustrate the five cus-

tomer service dimensions we introduced in Chpater 1: tangibles, reliability, responsiveness, assurance, and empathy?

The Case of the Missing Reservation

Mark, Donna, and their children, along with another family, traditionally attend Easter brunch at a large downtown hotel. This year, as in the past, Donna called and made a reservation about three weeks prior to Easter.

Because half the party consisted of small children, they arrived 20 minutes prior to the 11:30 reservation to assure being seated early. When they arrived, how- ever, the hostess said that they did not have a reserva- tion. The hostess explained that guests sometimes fail to show and that she would probably have a table available for them before long. Mark and Donna were quite upset and insisted that they had made a reservation and expected to be seated promptly. The hostess told them, “I believe that you made a reserva- tion, but I can’t seat you until all the people on the reservation list are seated. You are welcome to go to the lounge for complimentary coffee and punch while you wait.” When Mark asked to see the manager, the hostess replied, “I am the manager,” and turned to other duties. The party was eventually seated at 11:45, but was not at all happy with the experience.

The next day, Mark wrote a letter to the hotel manager explaining the entire incident. Mark was in the MBA program at the local university and was tak- ing a course on total quality management. In the class, they had just studied issues of customer focus and some of the approaches used at The Ritz-Carlton Hotel, a two-time Baldrige recipient. Mark concluded his letter with the statement, “I doubt that we would have experienced this situation at a hotel that truly believes in quality.” About a week later, he received the following letter:

We enjoy hearing from our valued guests, but wish you had experienced the level of service and accom- modations that we strive to achieve here at our

hotel. Our restaurant manager received your letter and asked me to respond as Total Quality Lead.

Looking back at our records we did not show a reservation on the books for your family. I have addressed your comments with the appro- priate department head so that others will not have to experience the same inconveniences that you did.

Thank you once again for sharing your thoughts with us. We believe in a philosophy of “continuous improvement,” and it is through feedback such as yours that we can continue to improve the service to our guests.

Discussion Questions 1. Were the hostess’s actions consistent with a

customer-focused quality philosophy? What might she have done differently?

2. How would you have reacted to the letter that Mark received? Could the Total Quality Lead have responded differently? What does the fact that the hotel manager did not personally respond to the customer tell you?

Pauli’s Restaurant and Microbrewery

You have been appointed general manager of Pauli’s Restaurant and Microbrewery, a popular downtown pub in a major city, after working there for several years as a waiter and recently a shift manager. Pauli’s has locations in six regional cities and operates a cor- porate website. One of the features of the website is a customer feedback section; comments are sent directly to the corporate VP and to the appropriate general manager. After your first weekend on the job, you receive the following comment:

We had a lousy service experience last Saturday at your restaurant. We eat there several times a year before going to the theater. We make a reservation for 6:15, and we are usually done eating—includ- ing dessert—by 7:30 or 7:40 at the latest so we can get to the theater in time. Service was ridiculously slow on Saturday. We finally ordered dessert around 7:20–7:25. But it took at least 10 min for the waitress to come back and tell us they didn’t have the coconut key lime pie that was listed on special; we ordered something else, and waited and waited. Eventually we had to find the waitress and tell her to forget it because we didn’t have time. My wife couldn’t even flag her down to get her coffee refilled, despite trying for a half-hour. To

Chapter 6: Quality in Customer-Supplier Relationships 283

top it off, we didn’t even receive an apology; the only thing the waitress did quickly was to process the check. She was clearly over-committed to too many tables to provide us with adequate service. It was very disappointing for what we considered one of our favorite places, and bringing friends with us who had never been there before.

Draft a response to this customer. Analyze the responses of your classmates. What makes a good “ser- vice recovery” response? Develop some general guidelines.

Landmark Dining

Landmark Dining, Inc. (Landmark), is a family-owned and -operated steak and seafood restaurant small busi- ness in south Texas. The first restaurant, Harrisburg Station, and its associated catering business, Harris- burg Station Catering, are located in one of the oldest standing landmarks in Houston—a train station built in 1857 in the small settlement then known as Harris- burg. The second restaurant, Texas Lightkeeper, is located in a restored lighthouse built in 1853 in Gal- veston. Landmark restaurants offer an exceptional dining experience at a good value to the Houston and Galveston metropolitan areas.

The executive team at Landmark Dining has met recently to discuss better ways of listening and learning to its customers. One manager suggested some enhance- ments to the “voice of the customer” process that she had read about in a quality management book. Her sug- gestion is summarized in a matrix shown below:

Voice

Before the Dining Experience

During the Dining Experience

After the Dining Experience

Voice of Experience

Voice of the Customer

Voice of the Server

Voice of the Process

The Voice of Experience refers to knowledge acquired from industry and market sources, and the Voice of the Process refers to data collected from the

service delivery process (wait times, for example). To implement this idea, Landmark needs to identify types and sources of data and information that they should collect in each grid of this matrix. Suggest some ideas that would provide the information needed to truly understand the customer experience and provide opportunities for ensuring a high-quality experience as well as potential improvements.

During the same meeting, another manager noted that Landmark needs to establish a set of standards for customer contact that convey quality and excep- tional service. They identified six categories of staff and employees:

1. All staff that encounter a customer anywhere in the facility.

2. Hosts and hostesses 3. Bar service staff 4. Food service staff 5. Chefs 6. Shift managers

Suggest some standards that might be instituted to ensure an outstanding customer experience. As an example, one customer contact requirement might be for staff members to ask customers about any issues that were not resolved in the previous dining service step and verify their continuing satisfaction; for instance, servers might ask customers about their reservations, reception, and bar service.

The Campus Food Court75

The manager of the Campus Food Court at a large university conducted a comprehensive student survey to understand how important 20 different customer- focused attributes are, as well as how students per- ceived the company is doing on these attributes. The attributes used in the survey were:

(1) Has a visually attractive dining area. (2) Has staff members who are clean, neat, and

appropriately dressed. (3) Has a decor in keeping with its image and price

range. (4) Has a menu that is easily readable. (5) Has dining areas that are thoroughly clean. (6) Has comfortable seats in the dining area. (7) Quickly corrects any problems with service that

is brought to its attention. (8) Is dependable and consistent. (9) During busy times, has employees shift to help

each other maintain speed and quality of service.

284 Part 2: Performance Excellence, Strategy, and Organization Theory

(10) Provides prompt and quick service. (11) Makes extra effort to handle special requests. (12) Has employees who can answer your questions

completely. (13) Has personnel who are willing and able to give

you information about menu items, their ingre- dients, and method of preparation.

(14) Has personnel who seem well trained, compe- tent, and experienced.

(15) Seems to give employees support so they can do their job well.

(16) Has employees who are sensitive to your indi- vidual needs and wants, rather than always relying on policies and procedures.

(17) Makes you feel special. (18) Anticipates your individual needs or wants. (19) Has employees who are sympathetic and reas-

suring if something is wrong. (20) Seems to have customers’ best interest at heart.

The mean importance and performance ratings, on a scale from 1 (Very poor) to 7 (Very good), for a large sample of students were:

6.5

4.5

5.5

3 3.5 4 4.5 5 5.5 6

Performance

Im po

rt an

Attribute Importance Performance

(1) 5.4 5.8

(2) 6.0 6.2

(3) 5.2 6.0

(4) 5.7 5.3

(5) 6.4 6.8

(6) 5.7 4.9

(7) 5.9 4.6

(8) 5.8 4.8

(9) 6.0 4.0

(10) 6.3 4.6

Attribute Importance Performance

(11) 5.1 3.7

(12) 5.4 6.2

(13) 5.0 5.8

(14) 5.7 4.6

(15) 5.4 4.6

(16) 5.2 4.1

(17) 4.3 4.0

(18) 5.0 4.0

(19) 5.2 4.1

(20) 5.7 4.3

Analyze these data using the Importance-Performance grid below and provide recommendations to the manager.

Chapter 6: Quality in Customer-Supplier Relationships 285

Endnotes

1. 2007 Malcolm Baldrige National Quality Program Award Winner Profile, National Institute of Stan- dards and Technology, U.S. Department of Commerce.

2. Don Peppers and Martha Rogers, “Customers Don’t Grow on Trees,” Fast Company, July 2005, 19–20.

3. Reported in “Total Quality Management and Competitiveness” by G. Pouskouleli, Engineering Digest, December 1991, pp. 14–17. The Japanese response is based on a story in the Toronto Sun by S. Ford, April 25, 1983, p. 6.

4. This idea has been promoted by Richard J. Schonberger in his book Building a Chain of Customers, New York: Free Press, 1990.

5. Myron Magnet, “The New Golden Rule of Business,” Fortune, February 21, 1994, 60–64.

6. Patricia C. La Londe, “Surveys As Supplier Relationship Tool” ASQ’s 54th Annual Quality Congress proceedings, Indianapolis, IN, 2000, pp. 684–686.

7. Arthur R. Tenner and Irving J. DeToro, Total Quality Management: Three Steps to Continuous Improvement, Reading, MA: Addison-Wesley, 1992, p. 197.

8. Patricia Sellers, “Companies That Serve You Best,” Fortune, May 31, 1993, pp. 74–88.

9. Carl Sewell and Paul B. Brown, Customers for Life, New York: Doubleday-Currency, 1990.

10. Jane Norman, “Royal Treatment Keeps Customers Loyal,” The Cincinnati Enquirer, May 31, 1998, E3, E5.

11. The Forum Corporation, “Customer Focus Research, Executive Briefing,” Boston 1988.

12. Customer engagement was introduced in the 2009– 10 Baldrige Criteria for Performance Excellence as a recognition of its increasing importance to orga- nizations that compete in a global marketplace and in competitive local markets.

13. The Forum Corporation, “Customer Focus Research, “Executive Briefing,” Boston, 1988.

14. Sources: Southwest Airlines home page, http:// iflyswa.com; Richard S. Teitelbaum, “Where Service Flies Right,” Fortune, August 24, 1992, pp. 117–118; and Kevin Freiberg and Jackie Freiberg, NUTS! Southwest Airlines’ Crazy Recipe for Business and Personal Success, Austin, TX: Bard Press, 1996.

15. Robert J. Trent, “Applying TQM to SCM,” Supply Chain Management Review, May/June 2001, pp. 70–78.

16. Tim Minahan, “What Makes a Supplier World- Class?” Purchasing, Vol. 125, No. 2, August 13, 1998, pp. 50–61.

17. Justin Martin, “Are You as Good as You Think You Are?” Fortune, September 30, 1996, pp. 142–152.

18. Based on Jennifer Saranow, “Selling the Special Touch,” Wall Street Journal, July 18, 2006, B1, B8; 1992 and 1999 The Ritz-Carlton Hotel’s Malcolm Baldrige National Quality Award application summaries; Cheri Henderson, “Putting on the Ritz,” The TQM Magazine 2, No. 5 (November–December 1992), 292–296; and remarks by various Ritz-Carlton managers at the 2000 Quest for Excellence Conference, Washington D.C.

19. David Waldman provided this insight. 20. Reprinted with the permission of the Free Press, a

21. Adapted from the article on Feargal Quinn by Polly Labarre in “Who’s Fast in 2002,” Fast Company, November 2001, pp. 88–94.

22. John Carlisle, quoted in Tenner and DeToro, Total Quality Management.

23. Richard C. Whiteley, The Customer-Driven Company, Moving from Talk to Action, Reading, MA: Addison-Wesley, 1991, p. 7.

24. Quoted in “When Customer Research Is a Lousy Idea” by Willard I. Zangwill, Wall Street Journal, March 8, 1993.

25. Marriott’s approach to gathering information from customers is discussed in detail in Whiteley, The Customer-Driven Company.

26. Mark Graham Brown, “And the Survey Says . . . Customer Behavior Can’t Always Be Predicted,” The Journal for Quality and Participation, Vol. 23, No. 2, March/April 2000, pp. 30–32.

27. See Benson P. Shapiro, V. Kasturi Rangan, and John J. Sviokla, “Staple Yourself to an Order,” Harvard Business Review, July-August 1992, pp. 113–122.

28. Ian Wylie, “Talk to Our Customers? Are You Crazy?” Fast Company, July/August 2006, 71, 74.

286 Part 2: Performance Excellence, Strategy, and Organization Theory

29. Byron J. Finch, “A New Way to Listen to the Customer,” Quality Progress, Vol. 30, No. 5, May 1997, pp. 73–76.

30. Cristina Afors and Marilyn Zuckerman Michaels, “A Quick, Accurate Way to Determine Customer Needs,” Quality Progress, July 2001, pp. 82–87.

31. “Here’s Mr. Macy,” Fortune, November 28, 2005, 139–142.

32. Larry Selden and Geoffrey Colvin, “5 Rules for Finding the Next Dell,” Fortune, July 12, 2004, 103–107.

33. Quoted in “Could AT&T Rule the World?” by David Kirkpatrick, Fortune, May 17, 1993.

34. Whiteley, The Customer-Driven Company. 35. Julie Schlosser, “Teacher’s Bet,” Fortune, March 8,

2004, pp. 158–164. 36. Importance-performance analysis was first

introduced by J. A. Martilla and J. C. James, “Importance-Performance Analysis,” Journal of Marketing 41, 1977, 77–79.

37. Malcolm Baldrige National Quality Award Profiles of Winners, 1988–1993; Graniterock 1992 Malcolm Baldrige Application Summary; Edward O. Welles, “How’re We Doing?” Inc., May 1991; Martha Heine, “Using Customer Report Cards Ups Service,” undated reprint from Concrete Trader; and “Customer Report Cards at Graniterock,” available at http://www.baldrigeplus.com.

38. Bob E. Hayes, “The True Test of Loyalty,” Quality Progress, June 2008, 20–26.

39. Robert Berner, “P&G, New and Improved,” BusinessWeek, July 7, 2003, pp. 52–63.

40. Whiteley, The Customer-Driven Company. 41. “Complex Quality: AMP Rings up Service Suc-

cess,” by Dick Schaaf, The Quality Imperative, September 1992, pp. 16–26.

42. “Bank Tellers Have Huge Impact on Customer Satisfaction,” http://www.prweb.com/releases/ 2011/2/prweb8205782.htm.

43. Ron Zemke, “The Best Customer to Have Is the One You’ve Already Got,” The Journal for Quality and Participation, March/April 2000, pp. 33–35.

44. Bill Powell, “China’s New E-Commerce Star,” Fortune, October 17, 2011, pp. 66–68; “How Jingdong Mall (360buy.com) became China’s Top B2C Retailer and Plans to Stay There,” http:// techrice.com/2011/08/04/how-jingdong-mall- 360buy-com-became-chinas-top-b2c-retailer-and- plans-to-stay-there/.

45. “Painting Company Refuses to Brush Off Cus- tomer Complaints,” Orange County Register (CA),

January 24, 2008, http://www.asq.org/quality- news/qnt/execute/displaySetup?newsID=2931.

46. “Focusing on the Customer,” Fortune, June 5, 1989, p. 226.

47. “Pacesetters–Customer Service” BusinessWeek, November 21, 2005, 85.

48. James H. Drew and Tye R. Fussell, “Becoming Partners with Internal Customers,” Quality Progress, Vol. 29, No. 10, October 1996, pp. 51–54.

49. These practices are based on The Deming Route to Quality and Productivity by William W. Scherkenbach, Rockville, MD: Mercury Press, 1988; and on Juran on Leadership for Quality by Joseph M. Juran, New York: Free Press, 1989.

50. This idea has long been championed by Deming. See the discussion of his 14 Points in Chapter 2.

51. For a discussion of these two points, see David N. Burt, “Managing Suppliers Up to Speed,” Harvard Business Review, July-August 1989, pp. 127–135.

52. Tenner and DeToro, Total Quality Management. 53. John R. Emshwiller, “Suppliers Struggle to

Improve Quality as Big Firms Slash Their Vendor Rolls,” Wall Street Journal, August 16, 1991, B2.

54. Patrick J. McMahon, “Supplier Involvement,” Chapter 9 in The Improvement Process by H. James Harrington, New York: McGraw-Hill, 1987.

55. Texas Instruments Defense Systems & Electronics Group, Malcolm Baldrige Application Summary (1992).

56. Mike Lovitt, “Responsive Suppliers Are Smart Suppliers,” Quality Progress, June 1989, pp. 50–53.

57. McMahon, op. cit. 58. This point is discussed by Randall S. Schuler and

Drew L. Harris in Managing Quality: The Primer for Middle Managers, Reading, MA: Addison- Wesley, 1992.

59. McMahon, op. cit. 60. McMahon, op. cit. 61. Juran, Juran on Leadership for Quality. 62. Schuler and Harris, Managing Quality. 63. AT&T Corporate Quality Office, Supplier Quality

Management: Foundations, 1994, p. 52. 64. 2012 Malcolm Baldrige National Quality Award

Application, Baldrige Performance Excellence Pro- gram, www.nist.gov/baldrige.

65. We are grateful to Julia Ritzenthaler, owner of Unique Online Furniture, Inc., for providing this information.

Chapter 6: Quality in Customer-Supplier Relationships 287

66. Mike Ruettgers, “When a Customer Believes in You . . . They’ll Stick with You Almost No Matter What,” Fast Company, June 2001, pp. 138–145.

67. Cynthia A. Lengnick-Hall, “Customer Contribu- tions to Quality: A Different View of the Customer-Oriented Firm,” Academy of Management Review, Vol. 21, No. 3, 1996, pp. 791–824.

68. C. Gersuny and W. R. Rosengren, The Service Society, Cambridge, MA: Schenkman Press, 1973.

69. Jeffrey Pfeffer and Gerald R. Salancik, The Exter- nal Control of Organizations: A Resource Depen- dence Perspective, New York: Harper & Row, 1978, pp. 257–258.

70. Ibid., pp. 257–258. 71. Ibid., p. 94. 72. See, for example, David W. Johnson and Frank

P. Johnson, Joining Together: Group Theory and Group Skills, Englewood Cliffs, NJ: Prentice Hall, 1975; Max H. Bazerman and Roy J. Lewicki (eds.), Negotiating in Organizations, Beverly Hills, CA:

Sage Publications, 1983; M. Afzalur Rahim, “A Strategy for Managing Conflict in Complex Organizations,” Human Relations, Vol. 38, No. 1, 1985, pp. 81–89. From a popular standpoint, the book Getting to Yes by Roger Fisher and William Ury, New York: Penguin Books USA, 1981, addresses the principles described in this section in more detail.

73. This section is adapted from Xingxing Zu and Hale Kaynak, (2012), “An agency theory perspective on supply chain quality management”, International Journal of Operations & Production Management, Vol. 32 Issue 4, pp. 423–446.

74. “Getting to Very Satisfied,” Fast Company, February 2004, p. 32.

75. Adapted from Henry Aigbedo and Ravi Parameswaran, “Importance-performance analysis for improving quality of campus food service,” International Journal of Quality and Reliability Management 21, 8, 2004, pp. 876–896.

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CHAPTER

± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ±

7DESIGNING ORGANIZATIONS FORPERFORMANCE EXCELLENCE Performance Excellence Profile: Boeing Aerospace Support1

Boeing Aerospace Support (AS) is part of the Boeing Company, the largest aerospace company in the world. Boeing AS provides products and services, including aircraft maintenance, modification, and repair, and training for aircrews and maintenance staff, to reduce life-cycle costs and increase the effectiveness of aircraft. Ninety-seven percent of Boeing AS’s business comes from military customers. Boeing AS has a workforce of over 13,000 employees based at its headquarters in St. Louis, Missouri, and nine major sites—eight in the United States and one in Australia—as well as more than 129 secondary and smaller sites. In this highly competitive industry, new orders for Boeing AS’s products and services have grown each year since 1999 and are significantly higher than its competitors’ cumulative growth.

Key factors to the success of Boeing AS are its commitment to customer satisfaction, performance-to-plan, and on-time delivery of quality products and services. Since 1998, the “exceptional” and “very good” responses from government customers regarding Boeing AS’s performance have gone up 23 percent. In 2003, the exceptional responses nearly doubled those of 2002. In a survey of customers conducted by an independent third party, positive responses improved from 60 percent in 2001 to more than 75 percent in 2002.

Carefully planned and well-managed processes combined with a culture that encourages knowledge sharing and working together have been essential to Boeing AS’s ability to deliver high-quality products and services. Boeing AS has developed a seven-step approach for defining, managing, stabilizing, and improving processes. This process-based management, or PBM, methodology also is used to set goals and performance metrics and requires interaction and agreement among process owners, users, suppliers, and customers.

Teams of employees who “own” and are responsible for the company’s complex operations and processes are the core of the company’s high- performance work environment. A highly structured process known as the “AS People System” helps to ensure that employees who make up these teams

289

understand priorities and expectations; have the knowledge, training, and tools they need to do the job and to assess performance against goals and objectives; and are rewarded and recognized for their accomplishments. Programs such as the Atlas Award, which recognizes outstanding team achievement, cash awards, and stock options are used to acknowledge employees who develop innovative solutions to problems. Cash awards to individuals and teams for extraordinary performance have tripled over the past three years.

Developing a sound, long-term strategy and then turning that strategic intent into meaningful action is another of Boeing AS’s strengths and competitive advantages. Boeing AS uses an Enterprise Planning Process (EPP) composed of four process elements—Key Data Factors, Strategies, Plans, and Execution—and 10 defined steps, including Lessons Learned and Process Improvements, to plan and execute key strategies. Senior leaders and business, strategic planning, and functional councils each have a role in developing and executing the EPP to ensure that all business functions and sites are integrated and aligned with the overall strategic plan.

To improve performance, a five-step system helps Boeing AS select, analyze, and align data and information. The system begins by gathering requirements and expectations from stakeholders and results in a set of action plans and performance goals and metrics. A “Goal Flowdown” process communicates goals and directions not only throughout the organization but also to customers and suppliers. Measurement, analysis, and knowledge management systems provide performance status and other information needed to make decisions. Finally, performance analyses and reviews are conducted regularly, resulting in recommendations or actions needed to improve performance at all levels.

In this large, widespread organization, communication is vital. Employees are encouraged to “shamelessly share” information across businesses, sites, and functions. A continuous flow of information also comes from a wide range of sources, including meetings, roundtable discussions, online newsletters, and functional and business councils.

Boeing AS has selected many facets of its organization, such as its carefully designed processes and team-based focus, to support high performance. Many organizations that pursue performance excellence strategies have found it neces- sary to reconfigure the structures of their organizations. This chapter discusses the changes in organization design necessary to achieve total quality (TQ). The chapter will:

• discuss issues related to choosing organizational structures; • describe the functional structure, the most common structure used in a

business; • show how many aspects of the functional structure stand in the way of quality

and what changes are necessary to create organization structures that support quality and high performance;

290 Part 2: Performance Excellence, Strategy, and Organization Theory

• provide several examples of how firms are making substantial changes in their organizations in order to implement a better focus on TQ and performance excellence; and

• compare organizational design from a TQ point of view to more conventional perspectives.

ORGANIZATIONAL STRUCTURE

The effectiveness of an organization depends in part on its organizational structure— the clarification of authority, responsibility, reporting lines, and performance stan- dards among individuals at each level of the organization. Traditional organizations tend to develop structures that help them to maintain stability. They tend to be highly structured, both in terms of rules and regulations, as well as the height of the “corporate ladder,” sometimes with seven or more layers of managers between the CEO and the first-line worker. In contrast, organizations in the rapidly changing environments characteristic of modern organizations have to build flexibility into their organization structures. Hence, they tend to have fewer written rules and regu- lations and flatter organizational structures.

Several factors having to do with the context of the organization affect how work is organized. They include the following:2

1. Company operational and organizational guidelines. Standard practices that have developed over the firm’s history often dictate how a company organizes and operates.

2. Management style. The management team operates in a manner unique to a given company. For example, management style might be formal or informal, or democratic or autocratic. If the organization operates in a highly structured, formal atmosphere, organizing a quality effort around informal meetings would probably meet with little success.

3. Customer influences. Customers, particularly governmental agencies, may require formal specifications or administrative controls. Thus, the organization needs to understand and respond to these requirements.

4. Company size. Large companies have the ability to maintain formal systems and records, whereas smaller companies may not.

5. Diversity and complexity of product line. An organization suitable for the manufacture of a small number of highly sophisticated products may differ dramatically from an organization that produces a high volume of standard goods.

6. Stability of the product line. Stable product lines generate economies of scale that influence supervision, corrective action, and other quality-related issues. Frequent changes in products necessitate more control and commensurate changes to the quality system.

7. Financial stability. Quality managers need to recognize that their efforts must fit within the overall budget of the firm.

8. Availability of personnel. The lack of certain skills may require other person- nel, such as supervisors, to assume duties they ordinarily would not be assigned.

Chapter 7: Designing Organizations for Performance Excellence 291

The most common type of organizational structure is the functional structure, which we discuss next.

THE FUNCTIONAL STRUCTURE

In the functional structure shown in Figure 7.1, the organization is divided into functions such as operations and maintenance, each of which is headed by a man- ager. The title of such managers is often “director” in small organizations and “vice president” in larger ones. In such organizations, communication occurs verti- cally up or down the chain of command, rather than horizontally across functions.

Functional structures provide organizations with a clear chain of command and allow people to specialize in the aspect of the work for which they are best suited. They also make it easy to evaluate people based on a narrow but clear set of responsibilities. For these reasons, functional structures are common in both manufacturing and service organizations at plant and business unit levels.

PROBLEMS WITH THE FUNCTIONAL STRUCTURE

Despite its popularity, the functional structure is designed primarily for the admin- istrative convenience of the organization, rather than for providing high-quality service to customers. From a TQ point of view, the functional structure has several inadequacies.

The Functional Structure Separates Employees from Customers Few employ- ees in the functional organization have direct contact with customers or even a clear idea of how their work combines with the work of others to satisfy custom- ers. The functional structure tends to insulate employees from learning about customer expectations and their degree of satisfaction with the service or product

President

Marketing Director

Production Director

Finance Director

Engineering Director

Manager Plant #1

Manager Plant #2

Operations Manager

Quality Control Manager

Purchasing Manager

Accounting Manager

FIGURE 7.1 | FUNCTIONAL STRUCTURE FOR A MANUFACTURING COMPANY

g ag

e Le

ar n in g

292 Part 2: Performance Excellence, Strategy, and Organization Theory

the firm is providing. Being insulated from customers encourages in workers a narrow conception of their responsibilities. This is often expressed in statements such as “It’s not my job” or “I just work here.” Even when such employees want to help customers, they often have such a limited understanding of how their orga- nizational system works that they are unable to do so. This often results in demo- tivated workers and poor quality work.

Most of us have experienced this phenomenon when we call a large organiza- tion for help and get switched to several different people before (if we’re lucky) finding someone willing and able to help us. If our needs as customers relate to the product or service as a whole, but the knowledge and responsibilities of anyone with whom we deal relate only to their function, we are doomed to disappoint- ment.3 More seriously, the functional structure promotes the idea that one’s boss is the customer whom the employee must satisfy. Of course, this manager is trying to satisfy the next-level manager, and so on. If the chain ended at the customer, the structure might work, but this is generally not the case. Managers in functional organizations are usually rewarded for satisfying functional goals, such as meeting design deadlines and limiting manufacturing costs, rather than for providing value to customers.

The focus on vertical reporting relationships to the exclusion of horizontal coordination has led many observers to refer to departments in functional organi- zations as “chimneys” or “silos.” As Myron Tribus describes it, “The enterprise is viewed as a collection of separate, highly specialized individual performers and units…. Lateral connections are made by intermediaries close to the top of the provinces.”4

Paul Allaire, former Xerox chairman and CEO, presided over a massive restructuring of the corporation. He described the company’s problems with the functional organization and its new approach as follows:

We were an extremely functional organization. If you were in manufacturing, you strived to make manufacturing as good as possible—and only secondarily to make the businesses that manufacturing affected work well. The same was true for sales, R&D, or any other function… . We [now] want people who can hold two things in their heads at the same time, who can think in terms of their individual organizations but also in terms of the company as a whole. Our architecture won’t work if people take a narrow view of their jobs and don’t work together.5

The Functional Structure Inhibits Process Improvement No organizational unit has control over a whole process, although most processes involve a large num- ber of functions. This is because the breakup of the organization into functions is usually unrelated to the processes used to deliver a product to the customer. This structure is likely to create complex, wasteful processes, as people do things in one area that must be redone or undone in another. For example, some organizations maintain a group of engineers whose sole responsibility is to redesign products so that they can be manufactured effectively. The engineers who design the products in the first place worry only about product performance, not manufacturability. Worse yet, if one function tries to improve its part, it may well make things worse (more wasted time and effort, more cost) for another part of the process. In this environ- ment, continuous process improvement doesn’t stand a chance.

Chapter 7: Designing Organizations for Performance Excellence 293

Richard Palermo, a former vice president for quality and transition at Xerox, explains the problems with functional structures in terms of “Palermo’s law,” which states: “If a problem has been bothering your company and your customers for years and won’t yield, that problem is the result of a cross-functional dispute, where nobody has total control of the whole process.” The corollary to Palermo’s law? “People who work in different functions hate each other.”6

Functional Organizations Often Have a Separate Function for Quality, Called Quality Control or Quality Assurance This may send a message to the rest of the organization that there is a group dedicated to quality, so it’s not their responsi- bility. Furthermore, it breaks the feedback loop that informs employees that their work needs to be improved. The QC department is generally responsible for collect- ing and maintaining quality statistics, which may not seem as valid to the depart- ments actually doing the work.7 This arrangement obviously stands in the way of continuous process improvement. Organizations pursuing TQ often retain their qual- ity assurance departments, but these units act more as coaches or facilitators to employees, rather than as the group with primary responsibility for quality.

In summary, the functional organization compromises TQ in several ways: It distances people from customers and insulates them from customer expectations. It promotes complex and wasteful processes and inhibits process improvement. It separates the quality function from the rest of the organization, providing people with an excuse for not worrying about quality. The next section discusses some remedies for the quality problems caused by the functional structure.

REDESIGNING ORGANIZATIONS FOR PERFORMANCE EXCELLENCE

An effective organizational structure provides a means to involve employees in problem solving and continuous improvement efforts and to capture and share learning that results from these efforts. For example, creating a position or depart- ment that is responsible to track the progress of quality teams, capture the results of problem-solving efforts, and share this knowledge throughout the organization should accelerate improvement.8

Poor organization design can be devastating to a company. One of Deming’s 14 Points is to “break down barriers between departments” because “people in various departments must work as a team.”9 This slogan captures in a nutshell what the TQ philosophy entails for organizational design. People cannot contribute to customer satisfaction and continuous improvement if they are confined to functional prisons where they cannot see customers or hear their voices. Some of the more effective ways to break down these barriers are to focus on processes, make quality everybody’s job, put external customers first, recognize internal cus- tomers, create a team-based organization, reduce hierarchy, and use leadership teams.

FOCUS ON PROCESSES

Process focus is one of the basic principles of TQ; we introduced the concept in Chapter 1 and described many tools and techniques for designing processes in

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Chapter 3. Individuals or groups, known as process owners, are accountable for process performance and have the authority to manage and improve their process. Process owners may range from high-level executives who manage cross-functional processes to workers who run machinery on the shop floor. Assigning process owners ensures that someone is responsible to manage the process and optimize its effectiveness.

Processes that drive the creation of products and services are critical to cus- tomer satisfaction, and have a large impact on the strategic goals of an organiza- tion are generally considered value-creation, or core processes of a business. Value-creation processes are those most important to “running the business” and maintaining or achieving a sustainable competitive advantage. Value-creation processes typically include design, production/delivery, and other critical business processes. Design processes involve all activities that are performed to incorporate customer requirements, new technology, and past learning into the functional specifications of a manufactured good or service, and thus define its fitness for use. Production/delivery processes create or deliver the actual product; examples are manufacturing, assembly, dispensing medications, teaching a class, and so on. These processes must be designed to ensure that the product will conform to speci- fications (the manufacturing definition of quality) and also be produced economi- cally and efficiently. Because product design greatly influences the efficiency of manufacture as well as the flexibility of service strategies, it must be coordinated with production/delivery processes. The ultimate value of the product and, hence, the perceived quality to the consumer, depend on both these types of processes.

In many organizations, value-creation processes take the form of projects— temporary work structures that start up, produce products or services, and then shut down.10 Some organizations focus exclusively on projects because of the nature of their work. They tend to deliver unique, one-of-a-kind products or ser- vices tailored to the specific needs of an individual customer. Examples include per- forming clinical trials for pharmaceutical companies, market research studies, consulting, and systems installation. Thus, projects are the chief means of value cre- ation. Projects generally cut across organizational boundaries and require the coor- dination of many different departments and functions (see the box “Rethinking Marketing Research”).

Support processes are those that are most important to an organization’s value- creation processes, employees, and daily operations, but generally do not add value directly to the product or service. Support processes might include processes for finance and accounting, facilities management, legal services, human resource ser- vices, public relations, and other administrative services. At a school system, for example, support processes might include transportation, custodial, central stores, information technology, and maintenance, A process such as order entry that might be thought of as a value-creation process for one company (e.g., a direct mail distributor) might be considered as a support process for another (e.g., a cus- tom manufacturer).

Table 7.1 shows the value-creation processes and their requirements defined by Pal’s Sudden Service, a regional chain of fast-food restaurants in the southeastern United States. Their support processes include accounting/finance, human resources, maintenance, management information systems, ordering, and stocking.

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Value-creation and support processes will differ greatly among organizations, depending on the nature of products and services, customer and market require- ments, global focus, and other factors. For example, a hospital might define its key value-creation processes as pre-admission screening, admission and registration, assessment and diagnosis, treatment, and discharge and follow-up; support services

TABLE 7.1 VALUE-CREATION PROCESSES FOR PAL’S SUDDEN SERVICE

Process Principal Requirements

Order Taking Accurate, fast, friendly

Cooking Proper temperature

Product Assembly Proper sequence, sanitary, correct ingredients and amounts, speed, proper temperature, neat

Cash Collection Accurate, fast, friendly

Slicing Cut/size, freshness/color

Chili preparation Proper temperature, quantity, freshness

Ham/chicken preparation Proper temperature, quantity, freshness

Supply chain management Price/cost, order accuracy

Property acquisition Sales potential, adherence to budget

Construction On time, within budget

Marketing & advertising Clear message, brand recognition

Source: Courtesy of Pal’s Sudden Service.

RETHINKING MARKETING RESEARCH

Custom Research Incorporated (CRI) conducts unique market research studies for many different organizations. A Cycle Time Task Force identified nine common processes for all marketing research studies: identification of client requirements/ expectations, questionnaire design, questionnaire programming, sampling, data collection, data tabulation, report and analysis, internal communi- cation, and client communication. A Process Task Force was formed to map and improve each pro- cess. For example, CRI developed a “one-entry system” that eliminates the need to enter data into its computer system more than once and allows questionnaires to be tested for validity and reli- ability, eliminating several programming steps and

helping to reduce cycle time. An account team is in charge of every research project. Project- related problems anywhere in the process are recognized and reported by the team. Team members use their problem-solving skills to determine whether the variation is due to common or special causes, analyze the reasons for the occurrence, and implement changes that will pre- vent it from recurring. When each project is com- pleted, the account team completes a Project Quality Recap documenting problems and solu- tions and rating the performance of internal departments. Teams refer to the Recaps on file when they have similar projects or subsequent projects from the same client.11

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might include workforce management, medical records and information technol- ogy, financial planning, supply chain management, environmental services, and physical plant operations. A process such as order entry that might be considered a core process for one company (e.g., a direct mail distributor) might be considered as a support process for another (e.g., a custom manufacturer). In general, core processes are driven by external customer needs, while support processes are driven by internal customer needs.

A process focus can help define the organization design (see box “Chili, Spa- ghetti, and Cheese: It’s the Process That Counts”). For example, processes often create a natural hierarchy. At the top level, an organization must identify the major value-creation and support processes that require attention by senior managers. Each major process consists of many subprocesses that are managed by functional managers or cross-functional teams. Finally, each subprocess consists of many spe- cific work steps performed by individuals at the performer level.

As discussed in Chapter 1, a process focus, as opposed to the functional struc- ture, involves some form of cross-functional cooperation (see Figure 1.1). A process perspective helps managers to recognize that problems arise from processes, not people. By aligning the structure of an organization with the actual work processes that the organization performs, customers may be served more effectively. We will address further details of designing and managing processes in the next chapter.

MAKE QUALITY EVERYONE’S JOB

As we noted, functional organizations often have separate quality control or qual- ity assurance departments. It is not unusual for TQ-focused organizations to elimi- nate the quality department and make everyone in the organization a “quality

CHILI, SPAGHETTI, AND CHEESE: IT’S THE PROCESS THAT COUNTS

You probably would not expect that a regional chain of small chili restaurants takes a formal view of process management, but Gold Star Chili, Inc., based in Cincinnati, Ohio, does just that. The company operates over 100 regional locations (most of which are franchised; the remaining are company restaurants or are co-owned). The Gold Star menu is based on a unique, “Cincinnati-style” chili recipe—the basic “3 way” is a plate of spaghetti, topped with chili that is flavored with a proprietary blend of spices from around the world, followed by finely shredded cheese. (Visit the company’s website: http://www.goldstarchili.com.)

Figure 7.2 shows a process-based organization of the company. Three major core processes link

the operation of the company to its customers and other stakeholders: (1) franchising, (2) restaurant, and (3) manufacturing/distribution. Sustaining these core processes are various support processes, such as research and development, human resources, accounting, purchasing, operations, training, marketing, and customer satisfaction. Even restaurant operations are viewed from a pro- cess focus. Key processes such as Cash Register, Steam Table, Drive-Thru, Tables, Bussers, and Management are designed to ensure that customer needs are served in a timely manner. Prior to opening each restaurant, training sessions ensure that these processes are performed correctly and according to company standards.

Chapter 7: Designing Organizations for Performance Excellence 297

manager.” Texas Nameplate Company (TNC), which we highlighted in the Perfor- mance Excellence Profile in Chapter 3, is one example where this has been done quite successfully.12 TNC, with only 66 employees, has honed the raw attributes inherent to its small size—from streamlined communications and rapid decision- making to shared goals and accessible leaders—into competitive advantages. The result is a closely-knit organization that is finely tuned to the requirements of its customers. TNC aims to create a continuous learning environment that enables teams of workers to take charge of processes and deliver products and services with high quality. Long-term partnerships with customers and suppliers are the rule. Sustained relationships with quality-minded suppliers have enabled TNC to nearly eliminate inspections of incoming materials.

Company President and CEO Dale Crownover and his seven top managers make up the Business Excellence Leadership Team, which aligns the focus and direction of all employees with the company’s vision to “become the recognized supplier of commercial nameplates in the United States.” Primary responsibility for accomplishing company goals rests with work teams—so much that the company

Indirect Customers

Direct Customers

Product Suppliers

Advertising Agency

Legal

Service Suppliers

Co-packers

Consultants Brokers

Selection Approval

Support Processes

Site Development

R/D Operations

H/R Training

Accounting Marketing

Purchasing CSR

Receptionist POS Systems

Receiving Shipping Manufacturing

Warehousing

Indirect Customers

Shareholders Regulatory Agencies

FRANCHISEES

Co. Stores

FAC

Restaurant Customers

Potential Customers

Mail Order

Retail/Wholesaler

Retail

Manufacturing/Distribution Core Process

Franchising Core Process

Franchise Applicants

Potential Customers

Restaurant Core Process

FIGURE 7.2 | GOLD STAR CHILI, INC., ORGANIZATION

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disbanded its Quality Control Department in 1998. Because teaming has become so engrained into its culture, TNC no longer needs formal procedures for rotating employee participation. Processes and jobs are designed to allow flexibility so that employees can respond quickly to customer requirements and changing business needs. Production workers are responsible for tailoring processes to optimize con- tributions to company goals and to meet team-set standards.

PUT EXTERNAL CUSTOMERS FIRST

Many organizations “flip” the organization chart to put customers at the top, as opposed to the traditional functional structure that we illustrated in Figure 7.1. A generic example is shown in Figure 7.3. The City of Coral Springs (The City), Florida, practices this organizational structure.13 At the top of the organizational chart are Citizens/Customers of Coral Springs (its residents and businesses), followed by 27 Citizen Advisory Committees and Boards, the City Commission, the City Manager, and, finally, operating departments such as Public Works, Police, and Parks and Recreation. This organizational structure supports the City’s mission, which is “to be the nation’s premier community in which to live, work, and raise a family.” Commu- nity visioning retreats are held to reach consensus on the direction for the City. The City’s organizational culture is expressed in the four core values underlying this vision:

• Customer Focus—Demonstrate a passion for customer service. • Leadership—Establish an inspiring vision that creates a government that works

better and costs less.

Customers

Customer Team

Systems and Support Services

Executive Steering

Committee

CEO

. . .

FIGURE 7.3 | TEAM-BASED ORGANIZATIONAL CHART

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• Empowered Employees—Empower the people closest to the customer to con- tinuously improve the organization’s quality and services.

• Continuous Improvement—Commit “every day, in every way, to getting better and better.”

RECOGNIZE INTERNAL CUSTOMERS

We discussed the concept of internal customers in Chapter 6. An internal customer is another person or group within the organization who depends on the work of others in the organization to get their own work done. For example, machine operators in a manufacturing plant are customers of maintenance; if maintenance does not do its job well, the machines will not produce quality products (or per- haps not any products at all). In a university, professors and students are customers of the audiovisual staff, who provide and maintain overhead projectors and VCRs.

In a restaurant, the servers are internal customers of the kitchen staff, because the servers’ ability to serve appetizing food in a timely manner to customers depends on the kitchen. In Figure 7.4, product design is the internal customer of both research and development and marketing, manufacturing is the customer of product design and purchasing, and sales is the customer of manufacturing. Although not shown in the diagram, all of these departments are customers of staff groups such as human resources and finance.

One way that organizations can promote quality and teamwork is to recognize the existence of internal customers. However, Richard Schonberger, a noted consul- tant and writer on manufacturing and quality, has taken the internal customer idea one step further by arguing that organizations should be designed as “chains of customers.” That is, customer-supplier links should be forged, one at a time, from the organization’s suppliers all the way to its external (real) customers.14 By linking customers and suppliers together at the individual level, the nature of cross-functional processes becomes clearer. Eventually, everyone can better understand their role in sat- isfying not only their internal customers, but also the external customers.

An effective way to understand internal customer-supplier relationships and improve processes is through process mapping, which we discussed in Chapter 4. Process maps are generally standard flowcharts that describe a process as a sequence of steps. A rather new approach to process mapping developed by Fernando Flores is gaining popularity.15 Termed “coordination mapping,” this approach is based on the premise that each process activity includes two players, a

Research and Development

Product Design Manufacturing Sales

Marketing Purchasing

FIGURE 7.4 | INTERNAL CUSTOMERS IN A MANUFACTURING COMPANY

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customer and a provider. Each coordinating conversation between these agents moves through four phases: (1) preparation and the making of a request or offer; (2) negotiation and agreement (or failure to reach agreement); (3) performance and a report that the work is complete; and (4) assessment of the work and a declaration of satisfaction or dissatisfaction.

This cyclic process is represented graphically by a loop. The mapping process involves identifying each conversation, its customer and provider, the customer’s conditions of satisfaction, and how each of the moves is taken, as well as interde- pendencies among conversations. Working through and analyzing the interactions one by one often reveals hidden or implicit assumptions and discoveries of break- downs in the process. Figure 7.5 shows an example of a university residence hall check-in process developed using this approach by a Cincinnati-based consulting firm, Workflow Dynamics, Inc.16 What on the surface is a seemingly simple pro- cess can indeed be quite complex, resulting in numerous process failures (the “cloudbursts” in the figure). Such maps can provide the basis for reengineering or other types of process improvement efforts.

Promoting the idea of internal customers does not change the organization’s struc- ture as much as it changes the way that people think about the structure. Rather than focusing on satisfying their immediate supervisor (vertical), people begin to think about satisfying the next person in the process (horizontal), who is one step closer to the ulti- mate customer. In a pizza delivery business, the people who deliver the pizzas are inter- nal customers of the people who make them, who in turn are customers of the order- takers. Satisfying internal customers first is the best way to satisfy the external customer. An unusual customer-supplier relationship was uncovered at Oregon State University (see box “Where’s the Paperwork? Quality Improvement at Oregon State”).

Some managers resist the idea of internal customers, arguing that the only custom- ers people should worry about are the ones who pay the bills. But for those employees who never come near a “real” customer, a focus on internal customers helps them to help those who do. Of course, this only works if the needs expressed by internal cus- tomers are in fact closely related to their ability to satisfy actual customers. A certain amount of trust that this is the case is necessary for the system to work.

A good example of creating links between internal customers and their suppli- ers is provided by an event at AMP Incorporated, a global electronic connector company. Sales engineers visited two of AMP’s manufacturing plants and cooked a barbecue lunch for production workers. After lunch, the sales engineers introd- uced themselves, talked about their customers, and displayed some of the end pro- ducts, such as power tools, into which the connectors made at the plant are placed. One production associate’s reaction was, “I sometimes felt that we made millions of these parts and they simply dumped them in the ocean after we shipped them out. Now I know where most of them go.”17

CREATE A TEAM-BASED ORGANIZATION

As more and more companies accept the process view of organizations, they are structuring the quality organization around functional or cross-functional teams, each of which has the responsibility to carry out and improve one of the organiza- tion’s core processes.18 Teams encourage free-flowing participation and interaction

Chapter 7: Designing Organizations for Performance Excellence 301

among its members. FedEx has more than 4,000 Quality Action teams. Boeing Airlift and Tanker Division (A&T) has more than 100 integrated product teams (IPTs) that are typically made up of engineering, work-team, customer, and supplier representa- tives. AT&T established nine expert breakthrough teams—called Achieving Process Excellence Teams—that identify process improvements for developing and deploying products faster in the market. Graniterock, with fewer than 400 employees, has about 100 functioning teams, ranging from 10 corporate quality teams to project teams, purchasing teams, task forces, and function teams composed of people who

Residence Coordinator

Residence Advisor

Public Inquiry Asst.

Registration

Send in Weekly Hall report (list

no shows at the beginning of qtr)

Send in complete Residence Arrival card

and Check-in form

Notify of completion/

status

Perform maintenance

Note damages on maintenance

form

Report on status of maintenance items

Hold floor meeting; Review rules; Q&A

(quarterly)

Receive Student ID

Issue hall sticker for Student ID

Complete roommate contract

RC RA

Residence Coordinator

Maintenance

Inventory and pre-check room

and phones

Inventory and check room condition

Review rules and answer question

Pull keys and prepare check-in

package

Manage residential housing check in

Parents

Central Office

Maintenance

RA/PIA

PIA/RA

Student/ PIA/RA

Student

PIA

RAs don’t always do this; Room is not always ready

Doesn’t always happen

Doesn’t always happen Has been a month without

log book check

Doesn’t always happen Has been a month without

log book check

Doesn’t always happen

Doesn’t happen

Manual entry of 1850+ Check-in fo rms and Residence Arrival

Cards

NCR form use is inconsistent 2 copies – Calhoun 3 copies – Siddall

3 – Daniels

Note damages on maintenance

form

Check log; perform

maintenance

Notify of completion/

status

Student is not in

mindset to check out

room RAs have too many

check ins at one time

NCR form may be delayed

FIGURE 7.5 | COORDINATION MAP FOR RESIDENCE HALL CHECK-IN PROCESS Pro je ct : U .C . re si d en

ce h al l as

is w o rk flo

w m ap

. P re p ar ed

b y:

W o rk flo

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do the same job at different locations. Special efforts keep the teams relevant and make sure that no teams exist just for the sake of having them.

TNC builds its leadership system upon a team framework that includes a Business Excellence Leadership Team, a Daily Operations & Innovation Team, teams within each production and support service department for daily work activities, cor- rective action teams, and various other teams such as the Recognition Committee. Similarly, Stoner Incorporated (a very small chemical specialty manufacturing and sales company with fewer than 50 employees) has a six-member senior leadership team empowered by the owner to manage and lead the company. The leadership team created and refined the Stoner Excellence System to define and communicate to all team members how the business is run. The system is based on Leadership, Strat- egy, and Process, which are combined with an Assess/Improve/Implement continuous improvement approach. Stakeholder value is at the center of the system to character- ize the main focus on the customer. Stoner’s leadership approach is built on (1) lead- ership at all levels, (2) worker leaders, and (3) strong fundamental leadership skills based on Stephen Covey’s Seven Habits of Highly Effective People.

WHERE’S THE PAPERWORK? QUALITY IMPROVEMENT AT OREGON STATE UNIVERSITY19

Oregon State University was among the first uni- versities to embrace TQ. In 1990, faced with state budget cuts and trying to improve the quality of its operation, Oregon State began the process of quality improvement. Like many schools, it focused first on improving administrative areas.

The physical plant was among the first areas singled out for quality improvement. Specifically, the group that did repair and remodeling at the university tackled the time it took to complete a work order, which its internal customers identified as the number one problem with the service they were receiving. When the group began to address the problem, they found that the average time to complete a job was 195 days, just over six months.

None of the people who actually did the work could believe the entire process took so long, as individually each knew that his or her work lasted only a few days or weeks. In attempting to understand why it took so long, the group set up a flowchart of the process they used in their work.

They discovered that a woman in another group received their work orders first, and it took 10 days for the paperwork to make its way

to the repair and remodeling group. Group members approached the woman and asked what she did with the paperwork during the time she kept it. She did her job and she did it well, exactly as she had been instructed, she told them.

What exactly had she been told to do? When the paperwork arrives, put it aside. After 10 days, send it on to the repair and remodeling group! As it turned out, there had been a time when the group had had trouble getting the material they needed for jobs delivered. Having no success in expediting the flow of material, they simply slo- wed down the flow of paperwork, so that they would have a headstart on the job when the paperwork arrived. Eventually the problems with material delivery were resolved, but no one had remembered to undo the 10-day waiting period. Because the paperwork was held by another functional group, no one in repair and remodeling had a broad enough view of the process to see what was going on. Sometimes process improvement is hard work. But, in this case, the repair and remodeling group could get off to a fast start by immediately knocking 10 days off of their time!

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Mark Kelly provides an example of an organizational structure based on teams in The Adventures of a Self-Managing Team.20 The building blocks of the “Clear Lake Plant” organization are process-based teams. Tasks that transcend processes (such as innovation and safety) are handled in task teams made up of members drawn from each of the process teams. This organization is depicted in Figure 7.6. (Compare this to the functional organization in Figure 7.1 to get an idea of the size of the changes we are talking about.)

Another example is that of the former GTE Directories (since acquired by Verizon Information Services), shown in Figure 7.7. In this organizational structure, the management board leads the quality effort, meeting twice each month to discuss

Core Process Teams

Safety Team

Innovation Team

Quality Reps

Safety Reps

Team Reps Council

FIGURE 7.6 | ORGANIZATIONAL STRUCTURE OF THE CLEAR LAKE PLANT

Core Business Process

Team

Cross- Functional

Coordinating Committee

Regional Management

Councils

Major Business

PMTs MBNQA Teams

Quality Improvement

Teams

Management Board

FIGURE 7.7 | FORMER GTE DIRECTORIES MANAGEMENT STRUCTURE Source: Courtesy of Verizon Information Services.

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and review management and quality issues. Quality is implemented through various teams: core process business team, cross-functional coordinating committee, regional management councils, major business process management teams (PMTs), Baldrige teams, and quality improvement teams. The regional management councils identify and address key regional issues; the cross-functional coordinating committee reviews major proposals for consistency with the strategic plan and business priorities. Such team-based organization structures spread the ownership, and the accountability, for quality throughout the organization. The “quality department” serves as an internal consulting group, providing advice, training, and organizational development to the teams. Clearly, each organization needs to create a structure that meets its own unique needs.

Depending on the size of the organization and the nature of the processes, teams may include everyone who contributes to a given process or only a represen- tative subset. Similarly, the teams may meet continuously on a crash basis until their new process design is complete, after which they may meet periodically or on an ad hoc basis whenever necessary. For example, Solectron Corporation, a two- time Baldrige recipient, has a customer focus team for each customer that includes personnel from quality, manufacturing management, project engineering, sales, production control, test engineering, and a project buyer and program manager.

This approach eliminates many of the problems with the functional structure. By bringing together everyone associated with a process, practices that are wasteful or com- promise quality become much easier to identify and eliminate. If a team has responsibil- ity for an entire process, they don’t have to worry that their improvement efforts will be undermined—intentionally or unintentionally—by the actions of another group.

Using processes as a grouping method can create substantial improvement in organizations by allowing people to see and change procedures they couldn’t see or change in the functional structure. As Robert Brookhouse, member of a pro- cess organization at Xerox, puts it, “When you create a flow [Xerox’s term for process organization], you find where you’re wasting time, doing things twice. And because we own the entire process, we can change it.”21

This is not to suggest that changing to a process-based organization is simple or easy. On the contrary, it takes a lot of thought, because it means essentially taking the organization apart and putting it back together again. As Robert Knorr and Edward Thiede describe it: “The restructuring should begin by defining each process in terms of its operations, information, and skill needs…. Process definition also answers key questions about the lines of integration needed among processes and functions, such as who must interact and when? What changes are needed in upstream processes to accommodate the needs of those downstream, and vice versa?”22

Project teams are fundamental to Six Sigma. Six Sigma projects require a diver- sity of skills that range from technical analysis, creative solution development, and implementation. Thus, Six Sigma teams not only address immediate problems but also provide an environment for individual learning, management development, and career advancement. Six Sigma teams will be discussed further in Chapter 8.

REDUCE HIERARCHY

Another type of structural change that often results from a focus on internal custom- ers and the creation of process teams is a reduction in the number of hierarchical

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layers in the organization. Several levels of middle management are often eliminated. (Of course, if an organization is designed for quality from its inception, those levels are not there in the first place.) This reduction in middle management is also facili- tated by advances in information systems that have taken over many of the informa- tion summarization and transmission roles formerly played by middle managers.

With the elimination of non–value-added activities and the empowerment of frontline workers to improve processes, there is also less supervision and coordina- tion for managers to do. An additional benefit of such “flatter” organizations is improved communication between top managers and frontline employees, as well as between customers and the decision makers.

This is not to say that the flattening of organizational structures is without its drawbacks. People—sometimes many people—lose their jobs. This is not only a significant disruption in the lives of the individuals affected but also a loss to the organization of their experience. Furthermore, the morale of the people who remain in the organization may suffer. For all of these reasons, organizations should approach flattening with an attitude of caution and concern.

USE LEADERSHIP TEAMS

One type of structural change associated with TQ is the creation of a high-level plan- ning group, as opposed to a single individual, invested with the responsibility for guiding the organization’s performance excellence efforts. Such groups—traditionally called steering committees or quality councils, but which are more commonly known today as simply leadership teams—are a key part of many organizations’ leadership structures. At Custom Research Inc., for example, a four-person steering committee is the center of the leadership system (see Figure 7.8). The steering committee sets the company directions, integrates performance excellence goals, and promotes the development of all employees. Leadership team members have frequent interaction

Leadership System at CRI

Steering Committee

Lead with Vision

Plan and Align

• Align and communicate vision and CRI Star • Maintain client focus

• Set goals • Communicate goals • Align team/department/ individual goals

Learn and Improve • Communicate performance to plan • Share information/learning among teams/departments • Review/improve management system

Inform and Develop • Align data/information with vision/CRI Star/client focus • Communicate data and information throughout CRI • Promote the development of all employees

FIGURE 7.8 | CUSTOM RESEARCH INC. LEADERSHIP SYSTEM

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with associates, and review overall company performance daily. They meet formally each month to evaluate performance and identify areas for improvement. Park Place Lexus, a Baldrige recipient located in Texas, has a corporate leadership team that consists of the chairman, presidents of dealership groups, VP of human resources, and the CFO, and management teams at individual dealerships that consist of the president, general managers, and various other managers.

Leadership teams are often characterized by four elements:23

• Leadership: promoting and articulating the quality vision, communicating responsibilities and expectations for management action, aligning the business management process with the quality approach, maintaining high visibility for commitment and involvement, and ensuring that business-wide support is available in the form of education, consulting, methods, and tools.

• Planning: planning strategic quality goals, understanding basic customer needs and business capabilities, developing long-term goals and near-term priorities, formulating human resource goals and policies, understanding employees’ per- ceptions about quality and work, ensuring that all employees have the oppor- tunity and skills to participate, and aligning reward and recognition systems to support the quality approach.

• Implementation: forming key business process teams, chartering teams to manage and improve these processes, reviewing improvement plans, providing resources for improvement, enlisting all managers in the process, reviewing quality plans of major organizational units, and working with suppliers and business partners in joint quality planning.

• Review: tracking progress through customer satisfaction and internal measures of quality, monitoring progress in attaining improvement objectives, celebrat- ing successes, improving the quality system through auditing and identifying improvement opportunities, planning improvements, and validating the impact of improvements.

Although many firms use only top managers in such groups, Portman Equip- ment Company—an industrial equipment sales, service, and rental company—uses people from all types of jobs. Richard Buck, Portman’s vice president for quality, argues that the presence of frontline associates in the committee has made a big dif- ference in the decisions the group has made:

We have general managers, we have some supervisory people, and we have some hourly people. It was our decision in forming a steering committee to break precedence from every company we’ve studied that used only executives on the steering committee. We opted to break that pattern and listen to the voices of all of our people as we for- mulate our plans. I think it’s one of the better decisions we’ve made. And looking back on decisions we have made in the steering committee, I think there’s good evidence that some of our decisions would not have been the same if we did not have representation from hourly people. I think as managers we tend to learn to think the way managers think … having hourly people gives us a different perspective. We see a broader picture and it’s been good for our quality initiative.24

DEVELOP AN AGILE ORGANIZATION

Agility, which we introduced in Chapter 5, is an important characteristic for any organization that wishes to develop and maintain a focus on the customer and

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react to competitive challenges, particularly as e-commerce grows and requires more rapid, flexible, and customized responses. Businesses face ever shorter cycles for the introduction of new or improved products and services. These often require simplification of work processes and rapid changeover from one process to another.

In the early days of the quality movement, it was the large companies that received the glory. Motorola, Xerox, and AT&T were among the large companies that received Baldrige awards, some having multiple winners across divisions. Large companies were early adopters of quality tools and processes, and had the resources to implement them. Although some large organizations such as Boeing continue to excel in performance excellence, many smaller companies, for example, Stoner, Inc. and TNC, both with under 50 employees, and Custom Research Incor- porated with about 100 employees, for example, have received Baldrige awards and have outstanding quality systems and business results. Small organizations are often more agile, meaning that they can adapt quickly and flexibly to changing cus- tomer requirements and demand, a key characteristic in today’s globally competi- tive markets. Small organizations also often have simple leadership systems, highly motivated employees, and are closer to customers. In addition, small organizations avoid bureaucratic barriers that stifle innovation and lead to complex processes, and thus, they can implement changes more effectively and smoothly.

In recent years, evidence suggests that many large companies, including Johnson & Johnson, AT&T, IBM, and Microsoft, are undergoing massive reorganizations by forming groups of small companies or divisions. The reorganization is aimed at embracing a large company/small company hybrid that combines a large com- pany’s resources, market share, and capital with a small company’s mindset of simplicity, flexibility, and ability to get closer to the customer.

Research has suggested that organization size can have a significant effect on employee job satisfaction and customer satisfaction; thus, organizations that are attempting to make a transformation to a large company/small company hybrid should pay close attention to employee satisfaction.25

REDESIGN WORK SYSTEMS

It’s difficult to make any fundamental changes in organizational structure or strate- gic direction without considering their impacts on work systems. TQ organizations design work systems to achieve high performance. Performance simply means the extent to which an individual contributes to achieving the goals and objectives of an organization. High-performance work is characterized by flexibility, innovation, knowledge and skill sharing, alignment with organizational directions, customer focus, and rapid response to changing business needs and marketplace require- ments. Teams, as we have already suggested, often provide the infrastructure for high-performance work systems.

A culture for high-performance work leads to successful results. Employees need to understand the importance of customer satisfaction, to be given the training and responsibilities to achieve it, and to feel that they do indeed make a difference. Creating such a culture begins with senior leadership’s commitment to the work- force.26 Leading organizations make a commitment to people explicit in their

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vision, mission, and values, and have robust systems in place to listen to their peo- ple and to understand what matters to them. They strive to be the best place to work. Rulon Stacey, president and CEO of Poudre Valley Health System located in Fort Collins, Colorado, says, “I love working at a place where people love work- ing. I love going around this organization and talking to people and seeing them happy. Our first strategic objective has always been to meet the needs of our employees because so much builds off of that.” And he says to his people, “We expect you’re going to give the best patient care that our patients have ever received, and it’s not fair for us to expect you’re going to give the best care if you don’t work in the best place you’ve ever worked.”27

Kay Kendall and Glenn Bodinson propose five “Conditions of Collaboration” that characterize a culture of high performance: respect, aligned values, shared pur- pose, communication, and trust. Respect means believing in the inherent worth of another person. Respect also is taking into consideration the views and desires of others. When you respect another person, you consider what is important to him or her when you are planning and making decisions. Values embody how an orga- nization and its people are expected to operate. Values reflect and reinforce an organization’s culture. Aligned values create a congruency between what the orga- nization stands for and the personal beliefs of the individual. Purpose is the funda- mental reason an organization exists. It inspires an organization and guide its setting of values. Typically, individuals who share a purpose with the organization for whom they work are frequently more motivated. Having a shared purpose pro- motes collaboration because it minimizes the focus on individual desires and ele- vates the focus to a greater good. Communication is often cited as one of the most important factors related to employee motivation. Communication that flows freely in all directions promotes collaboration. Trust—that management trusts the work- force and vice-versa—is vital. A survey by Annandale, Virginia-based Mastery- Works Inc. concluded that employees leave their organizations because of trust, observing that “Lack of trust was an issue with almost every person who had left an organization.”28 These attributes are usually evident in companies that are rec- ognized as outstanding places to work.

Organizations may be viewed at three levels: the individual job level, the pro- cess level, and the organizational level (think of front-line or shop floor workers, middle managers, and senior executives). The design of high-performance work sys- tems can be addressed using this framework. At the individual level, work systems should enable effective accomplishment of work activities and promote flexibility and individual initiative in managing and improving work processes. Empowering employees and using work teams are ways to achieve these objectives. At the pro- cess level, work systems must promote cooperation, cross-functional teamwork, and communication. This often is done through project teams and other forms of cross-functional communication (such as product design teams). At the organiza- tional level, senior managers must design a supportive work environment through compensation and recognition policies, and health, safety, and support services.

Several common approaches to work design—job enlargement, job rotation, and job enrichment—support TQ-based work systems. IBM was apparently the first user of job enlargement, in which workers’ jobs were expanded to include several tasks rather than one single, low-level task. This approach reduced

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fragmentation of jobs and generally resulted in lower production costs, greater worker satisfaction, and higher quality, but it required higher wage rates and the purchase of more inspection equipment. Job rotation is a technique by which indi- vidual workers learn several tasks by rotating from one to another. The purpose of job rotation is to renew interest or motivation of the individual and to increase his or her complement of skills. However, several studies showed that the main benefit was to increase workers’ skills but that little, if any, motivational benefit could be expected.29 Finally, job enrichment entails “vertical job loading” in which workers are given more authority, responsibility, and autonomy rather than simply more or different work to do. Job enrichment has been used success- fully in a number of firms, notably AT&T, which experienced better employee attitudes and performance, as well as Texas Instruments, IBM, and General Foods. See box “No Egg on Their Faces” for a good example of the value of these approaches.

In today’s technology-dominated world, the nature of work is constantly changing. Today’s entry-level workers are accustomed to new ways of interacting, such as blogs and wikis (editable websites). For instance, about 1,500 employees of the financial firm Dresdner Kleinwort Wasserstein use wikis and blogs as virtual

NO EGG ON THEIR FACES30

Cargill Kitchen Solutions (formerly called Sunny Fresh Foods) manufactures and distributes more than 160 different types of egg-based food products to more than 2,000 customers, such as quick-service restaurants, schools, hospitals, convenience stores, and food pro- cessors. A subsidiary of Cargill, Inc., the com- pany operates five manufacturing facilities with a total of about 620 employees. A satisfied, motivated workforce is a vital ingredient of the company’s successful operational and busi- ness performance.

The company refers to its workers as “stake- holders,” and ensures that they share in the benefits of continuous improvement. For exam- ple, although the base pay is set slightly below the industry midpoint for salaried workers, incentives can increase earnings above the 75th percentile. In addition, extensive reward and rec- ognition systems, including monetary rewards for exemplary safety performance to extra vacation days for quality achievements, also help to moti- vate employees to contribute to the company’s progress toward its improvement goals.

Cargill Kitchen Solutions designs its work systems to emphasize safety, quality, compen- sation and recognition, and employee develop- ment in support of individual development and the company’s long-term goals. Many of its work systems are unique to the industry. Examples are a “ramp-in” schedule in which new employees are allowed to work for only a specified number of hours to learn their jobs and minimize the potential for repetitive-stress injuries; and a rotation system by which employees rotate to another workstation every 20 minutes. This format ensures that workers can understand and respond to product quality issues at any stage of the process and under- stand their internal customers; it also fights boredom, reduces repetitive-stress injuries, and promotes learning. In addition, the company uses a “buddy” system in which new employees are matched with high-performing experienced employees who serve as role models for oper- ational excellence and behavioral competencies.

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workspaces to create, edit, comment, and revise projects in real time. Another example is Basecamp®, a collaborative project-management service that lets groups of people post messages and files, create to-do lists, and set milestones for a project, all on simple private web pages. One firm cut the time to complete a massive rede- sign project from at least two years to about eight months by using Basecamp®. New capabilities to use Basecamp® for interactive collaboration anywhere and any- time are available now via an iPhone application.31 Thus, with new technologies constantly becoming available, managers face new challenges to design work and jobs that are effective in meeting organizational goals and objectives as well as being motivating and satisfying to the people in their organizations.

ORGANIZATIONAL DESIGN FOR QUALITY IN ACTION

Promoting the concept of internal customers, forming process teams, reducing hierar- chy, and creating leadership teams all facilitate quality. This section presents examples of organizations that use these ideas to ensure or improve quality in their operations.

BOEING AIRLIFT AND TANKER PROGRAMS32

Boeing A&T Programs designs, develops, and produces the C-17 airlifter used by the U.S. Air Force to transport large, heavy cargo to sites around the world. In 1996, Boeing A&T signed a $14.2 billion agreement to deliver 80 C-17s to the Air Force. A few years earlier, the U.S. Defense Department had threatened to can- cel the C-17 program because of technical problems, cost overruns, and late deliv- eries. The organization, then a unit of McDonnell Douglas Corp., responded with a complete overhaul of its business, aiming to become “process-focused and customer-driven.” It initiated partnerships with customers, unions, and suppliers, and replaced manager-controlled teams with empowered teams that now function like small businesses motivated by common, systematically developed goals. Boeing A&T directly involved its 7,000 Air Force customers and suppliers in planning and decision making at all organizational levels.

Interdependence and integration characterize Boeing A&T’s organizational structure and its approaches to performance improvement. A high-level “enterprise process model” defines the entire business as eight interconnected process “families.” These major groupings range from enterprise leadership and new business develop- ment to production and post-delivery product support.

Each family encompasses up to 10 major processes, which, in turn, are made up of several tiers of supporting subprocesses. The result is a coherent framework for process management. The model provides a direct line-of-sight from Boeing A&T-wide initiatives to the work plans and goals of teams and workers. It also helps to identify apparent operational dependencies that link subsets of process families. Boeing A&T manages these cross-cutting relationships as “megapro- cesses” that typically extend to suppliers and customers.

VA HOSPITALS33

The Veterans’ Affairs (VA) health system was once considered one of the worst health care systems in America, and even ridiculed in popular movies such as Born

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on the Fourth of July with Tom Cruise. Today the VA health system—which pro- vides lifetime medical care to veterans with service-related disabilities, as well as to low-income and other qualifying vets and their families—has turned that reputa- tion around. The nation’s largest health network, with 1,300 hospitals, community clinics, and other facilities, the VA beats most other medical providers on dozens of quality indicators, such as administering regular cancer screenings or prescribing beta-blockers to heart-attack survivors.

This transformation was accomplished by improving the organizational design using many of the ideas described in this chapter. In the mid-1990s, Dr. Kenneth W. Kizer, the VA Under Secretary for Health, installed the most extensive elec- tronic medical-records system in the United States Kizer also decentralized decision-making, closed underused hospitals, reallocated resources, and, most criti- cally, instituted a culture of accountability and quality measurements. “Our whole motivation was to make the system work for the patient,” says Kizer, now director of the National Quality Forum, a nonprofit dedicated to improving health care. “We did a top-to-bottom makeover with that goal always in mind.”

Soon after taking over, Kizer summoned a dozen top managers for a week-long brainstorming session. They decided to change the organizational structure, ending Washington’s centralized decision-making and creating a dozen territories, each with its own budget, managers, and performance goals. And over the next several years, the agency shifted away from an expensive, hospital-based model to one that emphasized outpatient community clinics and primary care.

Kizer also encouraged creative thinking. During a monthly meeting with his top managers in 1998, a VA staffer mentioned a project at the medical center in Topeka that had reduced medication errors 70 percent by using barcode scanners to match patients, drugs, and doctors’ orders. Sue Kinnick, a longtime nurse at the hospital, had conceived the idea after watching a car-rental agent wield a wireless barcode scanner to check in her car. Intrigued, Kizer hopped on a flight to Topeka, liked what he saw, and decided to install the technology. By September 2000, the system was operating in every VA hospital.

Technology is at the heart of the transformation. A networked software pro- gram—dubbed Vista—runs a powerful electronic medical recordkeeping system that acts as the VA’s brain. Through Vista, doctors submit prescriptions electroni- cally, minimizing errors that stem from illegible handwriting. They are notified when their patient needs a flu shot, a chest X-ray, or other follow-up care. (In a pilot program, many vets also get reminders over home computers.) By using tech- nology to practice preventive medicine and reduce unnecessary doctor visits, the VA has proved that quality can actually save money. “The VA turns the paradigm on its head,” says Margaret O’Kane, president of the National Committee for Quality Assurance, a private nonprofit that accredits health organizations based on various performance measures. “It shows that better quality pays.”

SOLAR TURBINES, INC.34

Solar Turbines, Inc. (Solar) is a wholly owned subsidiary of Caterpillar and one of the world’s largest suppliers of midrange industrial gas turbine systems. Solar combines both a traditional functional organizational structure with team-based

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approaches. First, through a functional organizational structure led by the presi- dent’s staff, Solar maintains a focus on functional excellence through recruitment, hiring, development of critical skills, and the application of tools and common processes to continuously improve functional effectiveness. Second, three cross- functional leadership structures, made up of managers and technical experts selected from multiple levels of the organization, facilitate company-wide teamwork and decision making.

This Expanded Leadership Team, consisting of the Operations Council (74 leaders from across the business) and the Expanded Leadership Group (more than 400 managers and supervisors), enable Solar to develop the next generation of business leaders. It also promotes rapid, effective communication among employees with cross-functional teams at all levels of the organization.

The third organizational structure is the set of 10 interlocking committees that coordinate and integrate all business areas. These committees, which include sales and operations planning, products committee, ERP/IT committee, and ethics and compliance committee, provide a mechanism to strengthen organizational learning through cross-functional sharing, company-wide communication, and strategic direction setting. Members of the president’s staff chair key committees and, along with other senior business leaders, actively participate to provide guidance, learn, share, and support each other’s decisions.

OCTICON35

It sounds like the corporate paradise of the future. Workers organize themselves, coalescing around natural leaders and gravitating to the most exciting projects. There are no middle managers, no hierarchies, no fixed assignments. At Oticon, a midsize Danish maker of hearing aids, the future started back in 1991. That’s when its chief executive, Lars Kolind, turned traditional notions of the workplace upside down. Kolind, a corporate renegade trained as a mathematician, swept away old structures. Workers were suddenly free to concentrate on any project and join any team.

Kolind’s radical idea was to transform the company’s once-stodgy culture into a free marketplace of ideas. He moved headquarters to a new location where none of the 150 employees had a permanent desk or office, only filing cabinets on wheels that they pushed from project to project. Meeting areas had no tables or chairs. He called it the “spaghetti organization,” because the place had no fixed structure, yet somehow held together. Ideas bubbled up and turned into hits such as a new hearing aid that required less adjustment. Sales and profits soared. The company became a model for management creativity. Even CNN showed up to tape a segment. Yet, as the company grew and went public, many of the old struc- tures crept back.

Kolind eventually left, and these days there’s not much talk about his spaghetti revolution. Everyone has a boss to whom they report and they no longer have total freedom to choose projects.

Still, its spirit survives. None of the 500 head-office employees at Oticon has even a cubicle. The latest headquarters features few interior walls. Workers sit around the perimeter of the building at simple desks. They attend meetings on

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sofas in the middle of each floor. The relaxed atmosphere helps retain top engi- neers, keeping Oticon at the forefront of innovation. Its unobtrusive Delta hearing aid has been a success. Sales of parent William Demant Holding Group, of which Oticon is the largest business, have grown 36 percent since 2002, to $927 million, while operating profit has risen 57 percent, to $232 million.

THE SAN DIEGO ZOO36

With $75 million in revenues, 1,200 employees, and 5 million visitors annually, the Zoological Society of San Diego (a.k.a. the San Diego Zoo) is a force to be reck- oned with in the animal world. Even during the recession of the early 1990s, the zoo (and its Wild Animal Park) managed to increase attendance. Its overall objec- tives include recreation, education, and conservation.

One of the reasons for the zoo’s success may be its reorganization. In the old system, the animals were organized by species (e.g., Phascolarctos cinereus) and the humans by functions (e.g., Homo sapiens beancounterus). In fact, the humans were divided into 50 different departments, each of which played a role in the care and feeding of either animals, customers, or both.

This led to a somewhat sterile and unrealistic environment for everyone involved. For example, a groundskeeper confessed to occasionally sweeping a ciga- rette butt from the path under a bush, so it would become the gardener’s responsi- bility instead of his own.

In the new organization, the animals are grouped into bioclimatic zones that mirror their natural habitats. Gorilla Tropics groups the animals normally found in an African rain forest, while Tiger River recreates the environment of a jungle in Asia. The humans haven’t been forgotten in the new zoo design. They are now organized into teams, each of which has responsibility for one of the bioclimatic zones. The team that runs Tiger River includes specialists in mammals and birds, as well as maintenance and construction personnel. Although turf was jealously guarded in the old organization, team members are now learning one another’s skills and cooperate in making improvements that transcend the old functional boundaries. As the teams have taken over responsibility for activities that were pre- viously the prerogatives of management, managers have been freed up to find ways to bring more people to the zoo. (As in any organization with a high level of fixed costs, maintaining a consistently high level of revenues is crucial to its survival.)

COMPARISON TO ORGANIZATIONAL DESIGN THEORY

This section compares the TQ view of organizational design to the viewpoint from organization theory. Topics discussed are structural contingency theory and the institutional theory of organization structure, and the impact of contextual factors on TQ practices and performance.

STRUCTURAL CONTINGENCY THEORY

The structural contingency model, which originated in the 1960s, is the dominant view of organizational design in the management literature. According to this

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view, the two principal types of organization structures are mechanistic (central- ized, many rules, strict division of labor, formal coordination across departments) and organic (decentralized, few rules, loose division of labor, informal coordination across departments).37 These structures are described in detail in most management and organizational theory textbooks. The structural contingency model holds that there is no “one best way” to organize and that the choice between mechanistic and organic structures should be a function of certain contingencies, most often characteristics of the organization’s environment and technology.

The choice between mechanistic and organic structures is usually seen as a function of uncertainty. Organizations face a great deal of uncertainty if their environments are complex and changing and if the technology they use in creating their products is not well understood. The microcomputer industry is a good exam- ple of this type of industry. The contingency model says that organizations facing uncertainty should adopt an organic structure. By contrast, organizations that experience little uncertainty—their environments are simple and stable, and their technology is well understood—are seen as needing a mechanistic structure.

The rationale for these recommendations is that organic organizations are bet- ter able to process the information necessary to deal with a complex environment and uncertain technology. They also are more flexible and can adapt to the chang- ing circumstances associated with an unstable environment.

However, this information processing and adaptive capacity comes at the expense of efficiency and control. Although mechanistic organizations may not be able to accomplish uncertain tasks or to change rapidly, they are better suited for accomplishing straightforward tasks in a predictable environment. The mechanistic organization will accomplish such tasks quite reliably, with little danger of employ- ees engaging in costly experiments to see whether there is a better way to do the job. The organic organization sacrifices reliability for flexibility.

Clearly, a quality-oriented organization practicing continuous improvement cannot afford to freeze its processes by using a mechanistic structure, although some do. Some organizations view quality as a set of rigid procedures and formal coordination activities among groups. These organizations often plateau or eventu- ally disband their quality efforts. Most organizations practicing TQ move in the direction of organic structures. The number of levels in their hierarchy decreases, teams are created, and employees are given the authority (and even the responsibil- ity) to develop new and better ways of accomplishing their tasks. Coordination also tends toward the informal, as people who are interdependent are able to coor- dinate their work on a personal basis without the interference of a bureaucratic hierarchy. The relatively broader jobs in a TQ company give employees a better sense of how their work contributes to customer satisfaction, whether their custo- mers are internal or external.

John Akers, the former CEO of IBM who presided over a substantial reorgani- zation of his company, stated that “Every reorganization solves some problems and creates some problems.’’38 Are problems created by the adoption of organic-type TQ organizational designs? It is too early to tell. Few organizations are more than a few years into TQ, so there is not enough of a track record on which to judge. Even fewer, however, have reverted from a TQ-type design to a more mechanistic design, and more organizations all the time are adopting a design that features

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internal customers, process teams, broad employee responsibilities, and quality steering committees. This indicates that such structures are seen as viable and nec- essary by an increasing number of managers and organizations.

How can the “one best way” approach of the quality movement be justified in light of organization theory’s historical endorsement of a contingency approach to design? It may be that few industries and technologies are simple and stable enough for a mechanistic design to operate effectively.

A second possibility is that TQ designs have capacities for producing efficien- cies unanticipated in the old mechanistic-organic distinction. Once the improve- ment of a particular process has reached the point where it is impractical to search for further gains, teams may establish the process as their standard and attempt to recreate it perfectly each time without the involvement of their managers. In other words, efficiencies would be created through different methods than those used in mechanistic firms.

A third possibility is that TQ-oriented firms pay a price in efficiency for their organizational structures, but that the superior quality of their products more than makes up for the higher prices that a lack of efficiency entails. Such firms would be unlikely to compete effectively in markets, such as textiles, where price is the over- riding competitive factor.

A final possibility is that firms structured to achieve quality are paying a price for inefficiency that is not offset by their advantages. In this case, such structures are not viable in the long run. This possibility does not seem to be the case, based on the limited information currently available.

INSTITUTIONAL THEORY

Structural contingency theory, like most organizational design theories, is based on the assumption that organizations choose structures to help them perform better— provide high quality, low costs, and so forth. Institutional theory, by contrast, holds that organizations try to succeed by creating structures that will be seen as appropriate by important external constituencies—customers, other organizations in the industry, government agencies, and so on.39

According to institutional theory, an aspect of organizational structure need not contribute to organizational performance to be worthwhile. If the adoption of a certain structure helps the organization to be seen as legitimate in the eyes of those who have power to determine the organization’s fate, then it is worthwhile. For example, many businesses have departments devoted to achieving environmen- tal goals. Whether these departments help achieve these goals is debatable, but the existence of such departments helps to promote the legitimacy of these organiza- tions as being concerned about the environment.

From an institutional theory standpoint, it is important to ask whether quality- oriented organization designs that include steering committees and extensive use of teams are actually intended to promote quality or are merely a means of legitimiz- ing the organization as a progressive, quality-conscious organization. Little evi- dence has been generated to suggest that such structures demonstrably improve performance; yet, they continue to be adopted in huge numbers by organizations in all sectors of the economy. Some writers describe these structures as “fads” or

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“fashions.”40 A fad is something that is normally a new idea, developed in a vague and previously undefined area, and about which users are initially enthusiastic, but can quickly lose interest. A fashion has been defined as the pursuit of novelty for its own sake. Both are temporary phases in an organization, and unless they become entrenched in the organization, they will never achieve their purpose or endure for the long haul.

In some settings, the adoption of quality-oriented structures is motivated pri- marily by institution concerns. For example, any company that wishes to compete in Europe must be certified as complying with the ISO 9000 quality standards. Suppliers to American automobile producers must also have elaborate quality pro- grams in place. Many organizations have adopted a Six Sigma approach, primarily because of the publicity surrounding the use of Six Sigma by Jack Welch at General Electric. Thus, institutional theory provides another way of thinking about the rapid proliferation of quality-oriented structures in organizations. Although some organizations may be primarily seeking higher performance through the adoption of teams and steering committees, others may be primarily seeking the approval of important constituencies.

CONTEXTUAL FACTORS AND TQ PERFORMANCE

Although much has been written about quality, little attention has been paid to the potential effects of contextual factors on quality and performance.41 The use of organizational theory to formulate propositions regarding the effects of such fac- tors is especially scarce in the literature. However, one research study used institu- tional theory and contingency theory to derive and test a number of interesting propositions. Using data obtained from a survey, the effects of five contextual factors—three institutional factors and two contingency factors—on the implemen- tation of TQ practices and on the impact of TQ on key organizational performance measures were analyzed. The three institutional factors included TQ implementa- tion, ISO 9000 registration, and country of origin; and the two contingency factors included company size and scope of operations. The four performance measures were organizational effectiveness, human resource results, financial and market results, and customer results.

The results showed that the implementation of TQ practices is similar across subgroups of companies within each contextual factor. In addition, the effects of TQ on four performance measures, as well as the relationships among these mea- sures, are generally similar across subgroup companies. Thus, for the five contextual factors analyzed, the overall findings suggest that TQ and TQ-performance relation- ships are not dependent on context, and that the holistic implementation of TQ prac- tices contributes to improved performance consistently across subgroups of companies within each institutional and contingency factor. By implementing these practices effectively, managers can expect to realize improvements in all of the four performance areas. However, improvements in human resource results, customer results, and organizational effectiveness would be more immediate than those in financial and market results. This finding supports the argument that a long-term view should be taken in implementing TQ and that TQ initiatives should not be ter- minated if there are no significant improvements in the bottom line in the short-term.

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The research findings between TQ companies and non-TQ companies show that for a company to be a TQ company, it does not have to formally implement TQ. There was also no difference between ISO-registered companies and non–ISO- registered companies. These results could be explained by the fact that a large num- ber of companies responding to the survey had a number of other quality initiatives such as kaizen, lean manufacturing, constraint management, and Juran training, as well as other quality initiatives with no formal name. Therefore, the important question is how effectively these companies are implementing the various compo- nents of TQ in the absence of a formal quality program. This suggests that compa- nies need to decide whether significant resources and effort should be allocated to the implementation of a TQ program to achieve desired performance outcomes. Companies that already have other quality initiatives in place have to determine whether they will reap extra benefits by implementing a separate TQ program. The results suggest that similar performance outcomes can be achieved by either undertaking other quality initiatives or simply establishing organizational systems that incorporate common TQ practices.

This study also indicates that the TQ practices of U.S. and non-U.S. companies operating in the United States are similar. This finding should be useful to the man- agers of these companies in planning and implementing the appropriate TQ prac- tices. However, they should expect to see different results in some of the performance areas. Although TQ practices were first implemented in large compa- nies, this study shows that small- and medium-size companies have come a long way in employing the same practices and that they can benefit similarly from the same concepts. These findings support prior research, which found that small com- panies could implement TQ practices as effectively as large companies and obtain high product quality. Similarly, the fit of TQ practices is similar across domestic and international operating companies. This suggests that domestic operating com- panies have developed comparable TQ practices. Even though learning and adop- tion of new management techniques in international companies may be faster, the fact that the TQ philosophy has been in practice for a long time may have nar- rowed the TQ knowledge gap between the two subgroups.

Discussion Questions and Experiential Exercises

1. Many managers believe that process thinking is only relevant in operations (e.g., manufacturing and service delivery). How is a process focus reflected in nearly everything that Boeing AS does in the Performance Excellence Profile at the beginning of this chapter and what does this suggest to the managers in the first question?

2. What are the advantages and disadvantages of the functional structure? How does a process focus overcome some of the disadvantages?

3. What are the major types of structural change exhibited by organizations pursuing TQ?

4. Think back to an experience you have had with poor customer service from an organi- zation. Whom did you blame for it? Do you know anything about the design of the organization involved? Do you think it was the fault of the individual(s) involved or could the problem have resulted from a poorly designed system? Would what you have learned in this chapter change your

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reaction to receiving poor quality service? How?

5. What are the core processes in a video rental store? A department store? A grocery store? How could these organizations be rede- signed around these processes? What bar- riers would need to be overcome to accomplish this?

6. Find an organizational chart for your college or university. Is it primarily functional or process-focused? What advantages or prob- lems do you see with this organizational structure? How might the structure be rede- signed to better meet the needs of students and other stakeholders?

7. How does the organizational structure of Gold Star Chili reflect Deming’s view of a production system? (See the introduction to Chapter 6.)

8. Explain how a focus on internal customers and a team-based organization supports the process view of organizations.

9. Design an instrument for evaluating the “process focus” of an organization. For example, what characteristics would you look for in firms that have a strong process orientation?

10. How do teams support organizational design for TQ?

11. What is high-performance work? What types of HR practices contribute to a high- performance work environment?

12. Explain the differences between job enlarge- ment, job enrichment, and job rotation. Provide some examples from your experience.

13. Discuss how each of the organizations described in the section “Organizational Design for Quality in Action” apply the principles presented in the section on “Redesigning Organizations for Quality.”

14. An executive was quoted in Fortune as saying that “people in different functions hate each other.” Allowing for some exaggeration because of dramatic license, do you find this to be true? Talk to several people in a func- tional organization, and ask them about their feelings for people in other functions. How would you explain the variation in attitudes? If you were assigned to try to solve the prob- lem of bad feelings between departments, how would you begin?

15. Could TQ be effective in a company with a mechanistic structure? How would it work?

16. Do you feel that the institutional theory of structure is a good description of why orga- nizations choose quality-oriented organiza- tion designs? Why or why not?

CASES

Masterson Ad Agency42

Masterson Ad Agency (MAA) had been in business for about 10 years. It had a strong regional reputation, and counted divisions of five Fortune 500 firms among its clients. Michael Newberg, co-founder and president, had built the firm on a foundation of client focus, adherence to a quality system, and rapid response.

One of their largest customers, a Fortune 500 con- sumer products company, required compliance to jointly developed protocols and a mature quality management system, but not to registration under ISO. A documen- ted system was in place, and Newberg chaired an active steering committee. Members were department heads,

including the quality manager, and the union president. System upgrades were made on a routine basis. How- ever, this valued customer, Megaproducts Inc., had missed a scheduled launch date for a new, potentially important mega-product because of miscommunications with MAA’s project team and faulty ad copy, which had to be revised after being sent to the printer. These pro- blems could have been prevented if MAA’s protocols had been followed and required quality checks had been performed.

Time was a factor because noncompliant product had been reaching the customer despite MAA’s assur- ances that protocols were being followed. Much of the documentation had been written by the quality man- ager and edited by the president. Review by managers

Chapter 7: Designing Organizations for Performance Excellence 319

and supervisors, who were asked to implement appli- cable elements in their departments, was minimal. Consequently, many of the procedures and instruc- tions did not reflect work realities. They depicted an ideal and were ultimately challenged as supervisors and process operators tried to implement them. But, since the clock was ticking and Megaproducts was threaten- ing to cancel orders, implementation proceeded with promises of a complete quality management system revision once improvements were in place.

Making the quality system operable was chaotic. Managers, not wanting to appear unsure of their changed responsibilities and authority, clung to the status quo. Training—when done—focused on lower level employees, which left supervisors without a good understanding of new requirements. They were caught saying one thing but doing another. Interfaces between departments and individuals, although described in an organizational chart and statements of authority and responsibility, were not truly func- tional. System workflow faltered because new rela- tionships and interdependencies encountered old departmental barriers. Audit reports and corrective actions languished because the president periodically overrode the quality manager’s authority, fearing delivery promises might be compromised. However, early implementation steps were handled well. Gaps and shortfalls were identified, and proposed solutions recommended. But, because of time, it was assumed that acceptance and adoption would be automatic. Steering committee members rationalized that every- one knew what needed to be done because solution finding had been such a fervent effort. However, like many improvement projects, concluding steps were inadequately thought through and poorly managed. Proposed solutions were not completely integrated into daily activities.

Eventually the Steering Committee realized that they lacked a comprehensive plan that would make system changes truly operational. The Committee understood that this created indecision at supervisory levels, plus inadequate coordination and dissatisfac- tion by those trying to make the changes workable. They saw that first-line design project managers, wri- ters, and artists were trying to maintain a sense of order and get their work done by falling back on cus- tomary routines. Amazingly, their “stopgap” actions allowed them to get some of the Megaproducts pro- jects back on schedule, but they realized that they must go back to the drawing board to develop a com- prehensive plan. Time was running out.

Discussion Questions 1. What mistakes did Newberg and the Steering

Committee make in the initial development of the protocols and documentation and the early implementation stage?

2. What were the early indications that the system was not working as planned, and why were they ignored? Why weren’t improvement efforts more effective?

3. What steps should be taken to revise and imple- ment an improved organizational structure and quality management system?

You Want Us to Work With Marketing???43

On her second day as division level financial manager, one of Kay’s employees (someone she had known for several years) told her about a transactional problem with sales data. Kay suggested that the employee resolve the issue with someone in marketing. The response was the last thing she expected: “Our depart- ment hasn’t talked to marketing about these kinds of problems for seven years.”

Shocked, Kay decided to do some investigating. She called one of the marketing managers she had known for many years and asked what he knew about this problem. He confirmed there was an issue between the two departments but said he didn’t under- stand the details. What made this situation even more puzzling was that this barrier had survived a move of the entire division (85 people) from Denver to Phoenix six years earlier. Significant synergy could be gained by having the two groups work closely. How could managers in either department have permitted these silos? Did they lack the courage to address the prob- lem, or were they so disengaged from the day-to-day activities that they didn’t even see it?

To address this issue, Kay wanted to have both groups share their process flows with each other in a series of joint departmental meetings. Each session would develop process thinking and help the groups understand how to support each other by seeing them- selves as customers and suppliers of each other. She called the marketing manager again and shared her plan. Without hesitation, he agreed to help. The mar- keting department already had process maps it shared with customers. They agreed not to tell their groups what situation had initiated these sessions.

Within a week, the first session was scheduled. It was interesting to watch everyone find a seat. One group gathered on the right side of the room and the

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other on the left. The meeting went well. At first, there were no questions or discussion, but toward the end, employees from both groups began exchanging ideas about how they could better support each other at their process touchpoints—the points at which the two departments’ processes overlapped. The morning after the first session, one of the marketing employees came to Kay’s department to ask for help with a pro- cess problem. Within three weeks, a customer service manager asked the group to participate in a confer- ence call to the computer support department. The purpose of the call was to raise the priority for fixing a marketing system problem that resulted in data errors for both marketing and my department.

Because marketing now understood more about the data flow connection between our departments, they also understood the impact of the system error reached beyond the marketing group and recognized the potential to help both groups by correcting the problem. This joint effort was the first of many syn- ergistic efforts between the departments. Remaining process review sessions were scheduled regularly, and cooperation between both groups continued to grow.

Discussion Questions 1. What are some symptoms of typical cultural

barriers that create obstacles to improvement? 2. How can a process focus help to break down silos

in an organization? 3. What types of tools and techniques can be used to

help to support a process focus and improve the process of change?

Patterson Auto Sales and Service, Revisited

The organization chart for Patterson Auto Sales and Service is shown in Figure 7.9. Use this to address the discussion questions below.

Discussion Questions 1. Specifically in the context of an automobile deal-

ership (see part A for this case in Chapter 1), discuss the problems that this functional structure might have.

2. Using the principles discussed in this chapter, suggest some organizational redesign proposals that might better help this company pursue a performance excellence strategy.

New Car Sales

Manager

Pre-Owned Car Sales Manager

Service Manager

Parts Manager IT Manager

Human Resources Receptionist

Finance Manager

Sales- people

Owner/CEO

General Manager

FIGURE 7.9 | ORGANIZATION CHART FOR PATTERSON AUTO SALES AND SERVICE

g ag

e Le

ar n in g

Chapter 7: Designing Organizations for Performance Excellence 321

Endnotes

1. 2003 Malcolm Baldrige National Quality Award Recipient Profile, U.S. Department of Commerce.

2. Kermit F. Wasmuth, “Organization and Planning,” in Loren Walsh, Ralph Wurster, and Raymond J. Kimber (eds.), Quality Management Handbook, Wheaton, IL: Hitchcock Publishing Company, 1986, pp. 9–34.

3. An interesting perspective on this problem is pro- vided by Benson P. Shapiro, V. Kasturi Rangan, and John J. Sviokla, in “Staple Yourself to an Order,” Harvard Business Review, July–August 1992, pp. 113–122.

4. Myron Tribus, “Total Quality in Education,” unpublished manuscript. Hayward, CA: Exergy, Inc.

5. Quoted from “The CEO as Organizational Archi- tect: An Interview with Xerox’s Paul Allaire” by Robert Howard, in Harvard Business Review, September–October 1992, pp. 106–121.

6. Thomas A. Stewart, “The Search for the Organi- zation of Tomorrow,” Fortune, May 18, 1992.

7. J. M. Juran, Juran on Leadership for Quality: An Executive Handbook, New York: Free Press, 1989.

8. Jamison V. Kovach and Lawrence D. Fredendall, “The Influence of Continuous Improvement Prac- tices on Learning: An Empirical Study,” Quality Management Journal, 20, 4, 2013, pp. 6–20.

9. W. E. Deming, Out of the Crisis. Cambridge, MA: MIT Center for Advanced Engineering Study, 1986.

10. Paula K. Martin and Karen Tate, “Projects That Get Quality Treatment,” Journal for Quality and Participation, November/December 1998, 58–61.

11. Custom Research Incorporated, “Highlights of CRI’s Best Practices,” 1996 Baldrige Application Abstract, 13–14.

12. Adapted from Texas Nameplate Company, Inc. 1998 Award Winner Profile, Baldrige National Quality Program, U.S. Department of Commerce.

13. City of Coral Springs Florida 2007 Baldrige Award Application.

14. R.J. Schonberger, Building a Chain of Customers, New York: Free Press, 1990.

15. See Jack Reilly, “Using the Methods of Fernando Flores,” Center for Quality of Management Jour- nal, Vol. 6, No. 1, Spring 1997; and Grant Harris and Steve Taylor, “Escaping from the Box: Using a New Process Model to Support Participation

and Improve Coordination,” Center for Quality of Management Journal, Vol. 6, No. 3, Winter 1997.

16. The author is indebted to Jackie Messerschmidt of Workflow Dynamics for graciously providing this example.

17. Jerry G. Bowles, “Leading the World-Class Company,” Fortune, September 21, 1992.

18. Jeannie Coyle, “Aligning Human Resource Pro- cesses with Total Quality,” Employment Relations Today, Vol. 18, No. 3, Fall 1991.

19. Based on “TQM-Quality with Reduced Resources,” a talk given by Dr. Edwin Coate, vice president for finance and administration, Oregon State University, presented via teleconference by Cuyahoga Commu- nity College, September 9, 1992.

20. Mark Kelly, The Adventures of a Self-Managing Team, Raleigh, NC: Mark Kelly Books, 1990.

21. Stewart, “The Search for the Organization of Tomorrow.”

22. Robert O. Knorr and Edward F. Thiede, Jr., “Making New Technologies Work,” The Journal of Business Strategy, Vol. 12, No. 1, pp. 46–49.

23. AT&T Quality Steering Committee, Leading the Quality Initiative, AT&T Bell Laboratories, 1990, pp. 13–14.

24. Interview by former co-author James W. Dean, Jr. with Richard Buck.

25. Nadav Goldschmidt and Beth G. Chung, “Size Does Matter: The Effect of Organizational Size on Customer Satisfaction,” Journal of Quality Man- agement, Vol. 6, 2001, pp. 47–60.

26. See Kay Kendall and Glenn Bodinson, “The Power of People in Achieving Performance Excellence,” Journal for Quality and Participation, July 2010, pp. 10–14 for an interesting discussion of this concept.

27. Poudre Valley Health System Baldrige Award Video, U.S. Department of Commerce, Baldrige Award Program.

28. “It’s My Manager, Stupid,” Across the Board, January 2000, 9.

29. J. R. Hackman and G. R. Oldham, Work Rede- sign, Reading, MA: Addison-Wesley, 1980.

30. Malcolm Baldrige National Quality Award, Profiles of Winners, National Institute of Standards and Technology, U.S. Department of Commerce.

31. Robert D. Hof, “Teamwork, Supercharged,” BusinessWeek, November 21, 2005, 90–94.

322 Part 2: Performance Excellence, Strategy, and Organization Theory

32. Adapted from Boeing Airlift and Tanker Pro- grams 1998 Award Winner Profile, Baldrige National Quality Program, U.S. Department of Commerce.

33. Sources: David Stires, “How the VA Healed Itself,” Fortune, May 15, 2006, 128–136; Catherine Arnst, “The Best Medical Care in the U.S.,” Business- Week, July 17, 2006, 50–56.

34. Solar Turbines, Inc. Malcolm Baldrige National Quality Award Application Summary, 1999, p. 4.

35. Jack Ewing, “No Cubicle Culture” Business Week, August 20, 2007. http://www.businessweek.com/ magazine/content/07_34/b4047412.htm. Reprinted with permission.

36. Based on Stewart, “The Search for the Organiza- tion of Tomorrow.”

37. This version of the contingency model comes from T. Burns and G. M. Stalker, The Management of Innovation. London: Tavistock, 1961.

38. Quoted in D. Hellriegel, J. W. Slocum and R. W. Woodman, Organizational Behavior, 5th ed., St. Paul, MN: West Publishing Company, 1989.

39. See J. W. Meyer and B. Rowan, “Institutionalized Organizations: Formal Structure as Myth and Ceremony,” American Journal of Sociology, Vol. 83, 1977, pp. 340–363; and W. R. Scott,

“The Adolescence of Institutional Theory,” Administrative Science Quarterly, Vol. 32, 1987, pp. 493–511.

40. R. E. Cole, Managing Quality Fads, Oxford Uni- versity Press, New York, 1999; B. G. Dale, M. B. F. Elkjaer, A. van der Wiele, and A. R. T. Williams, “Fad, Fashion, and Fit: An Examination of Quality Circles, Business Process Re-engineering and Sta- tistical Process Control,” International Journal of Production Economics, Vol. 73, 2001, pp. 137– 152; Gerald Zeitz, Vikas Mittal, and Brian McAulay, “Distinguishing Adoption and Entrenchment of Management Practices: A Frame- work for Analysis,” Organization Studies, Vol. 20, No. 5, 1999, pp. 741–776.

41. Ismail Sila, “Examining the effects of contextual factors on TQM and performance through the lens of organizational theories: An empirical study,” Journal of Operations Management, 25, 2007, pp. 83–109.

42. This case was inspired by the article by John R. Schultz “Eight Steps to Sustain Change,” Quality Progress, November 2007, 25–31.

43. “The Power of Process Orientation” by Kay Sever, Quality Progress, January 2007, pp. 46–52.

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P A R T

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3PERFORMANCE EXCELLENCEAND ORGANIZATIONAL BEHAVIOR

CHAPTER 8 Quality Teamwork 327

CHAPTER 9 Engagement, Empowerment, and Motivation 359

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8QUALITY TEAMWORK Performance Excellence Profile: KARLEE Company, Inc.1

Located in Garland, Texas, KARLEE is a contract manufacturer of precision sheet metal and machined components for customers in the telecommunications, semiconductor, and medical-equipment industries. Since beginning in 1974 as a one-man, garage-based machine shop, the company has developed into a one-stop supplier of manufacturing services. Its work ranges from initial design and prototyping to painting and assembly to integration of cabling and power elements. KARLEE won the Texas Quality Award in 1999, and was named Texas Business of the Year in 2000, the same year in which it received the Baldrige Award.

KARLEE is organized as a team of teams that are unified by a shared mission. Whether executive, managerial, operational, administrative, or support, each team aims “to exceed stakeholders’ expectations.” Although this organizational ambition is not unique to KARLEE, the manufacturer does distinguish itself in the way it uses team approaches to promote an intense focus on the customer throughout the company. The company encourages open communications among teams, team participation in setting goals, and team responsibility for managing and improving processes. To foster a common sense of business direction, for example, KARLEE shuts down its manufacturing cells so that everyone can be included in company-wide meetings. The company’s chief asset in motivating a shared commitment, however, may be the culture of mutual trust, honesty, and respect that KARLEE leadership actively encourages.

An integrated leadership system links KARLEE’s present operational course to its future direction. The Senior Executive Leader (SEL) team concentrates on identifying and clarifying long-term strategic issues and opportunities, including future customer requirements. The KARLEE Steering Committee, consisting of the seven senior executives and the leaders of departmental teams, distills the SEL’s five-year plan and its forward-looking performance targets into annual business and operational objectives. Decisions are guided by customer assessments—based on annual survey results and almost daily customer

327

feedback—and by equally detailed reviews of KARLEE’s performance, workforce, and operational capabilities.

Annual goals are aligned with the company’s five key business drivers— customer satisfaction; operational performance; financial performance; community service; and team member safety, satisfaction, and development. Members of the Steering Committee work with functional and cross-functional teams to translate the goals into improvement projects with measurable objectives.

Manufacturing teams use statistical process control methods to monitor process performance. In addition, teams in all areas conduct monthly self- audits, and the Quality Assurance Department performs a monthly assessment of team performance, yielding a weighted quality rating for each team and each department. Results of these evaluations are posted on team, department, and corporate bulletin boards. This permits all team members to check progress toward accomplishing company objectives.

KARLEE promotes cooperation, collaboration, and initiative through its team structure. Teams are expected to perform at high levels and to take full responsibility for meeting the requirements of internal and external customers. Cross-training and job rotation are encouraged because they foster organizational flexibility and broaden the base of skills and knowledge needed to respond quickly to changing customer demands.

Manufacturing cell teams are empowered to schedule work, manage inventory, and design the layout of their work areas. Every team has a budget for recognition and celebration, which complements the company’s broader program of rewards and recognition. These range from free movie passes to monthly and quarterly awards for outstanding performance by team members and leaders.

New approaches to cultivate the company’s family atmosphere and to reinforce team member commitment to KARLEE’s mission are recommended by the Cultural Advisory Committee. Members of this committee are chosen specifically to reflect the ethnic diversity of the company’s workforce. Other vehicles for creating a climate of teamwork and mutual support include the KARLEE Cares Team, which members formed to help fellow workers during times of personal crisis.

Deming urged leaders to abandon competition and to seek cooperation. Teams provide a way of doing this, as well as enhancing Deming’s concept of “pride and joy in work.” A team is a group of people who work together and cooperate to share work and responsibility.2 Teams are everywhere in our world—on the foot- ball or baseball field, reality shows such as the Amazing Race, the Navy SEALS, the Tokyo String Quartet, and Danica Patrick’s pit crew, to name just a few. Teams also are a central facet of performance excellence initiatives, as the KARLEE Company illustrates in this chapter’s opening profile.

328 Part 3: Performance Excellence and Organizational Behavior

Although many types of teams exist in organizations pursuing quality and performance excellence, the concept of teamwork is widespread and is a key contributor to success in just about any setting. This chapter will:

• explain the importance of teams in a quality environment, • identify the different types of teams used in organizations, • explain some of the factors associated with the successful use of teams, • give examples of effective teams in action, and • relate the use of quality-focused teams to organizational behavior theories.

THE IMPORTANCE OF TEAMS

Teams are everywhere in high-performing organizations: at the top and bottom and in every function and department in between. For instance, Corning Telecom- munications Product’s Division, a former Baldrige recipient, has employee-designed work teams, customer account teams, market teams, new product development teams, and manufacturing operation teams. Boeing Airlift and Tanker Division has more than 100 integrated product teams (IPTs) that are typically made up of engi- neering, work-team, customer, and supplier representatives. The City of Irving, Texas, uses 50 cross-functional teams for accomplishing work and strategic goals; this cross-training enabled the city to avoid workforce reductions during a recent economic downturn and continue to meet the needs of its citizens. Graniterock, with fewer than 400 employees, has about 100 functioning teams, ranging from 10 corporate quality teams to project teams, purchasing teams, task forces, and function teams composed of people who do the same job at different locations.

Why are there so many teams? In studying highly successful teams, Fortune mag- azine discovered that although chemistry matters, as does having a common goal, there is no single formula for making teams work: “… while there’s no one way to build strong teams, you can’t build a successful company without them.”3 The prin- ciples of total quality (TQ) recognize the interdependence of various parts of the organization and uses teams as a way to coordinate work. Teamwork enables vari- ous parts of the organization to work together in meeting customer needs that can seldom be fulfilled by employees limited to one specialty. Teams promote equality among individuals, encouraging a positive attitude and trust. The diversity inherent in teams often provides unique perspectives on work, spontaneous thought, and crea- tivity. In addition, teams develop a greater sense of responsibility for achieving goals and performing tasks. In short, teams provide a variety of benefits that are not derived from individuals working alone. Look at Apple’s incredible success. One con- sultant noted that most of Steve Jobs’s top managers at Apple were with him for over a decade, stating “He was the only person to build such a team in a big company.”4

High-performing organizations recognize that the potential contributions of employees are much greater than in the traditional organization, and teams are an attempt to take advantage of this potential. Furthermore, the competitive environment of modern business requires flexible, fast reaction to changes in customer demands or technological capacity. Teams can provide the capacity for rapid response. Many com- panies have gone public with stories of their successful teams as well as sharing their recognition efforts (see box “Teams are Motivating”). Managers are always looking for ideas that produce results, and teams certainly fall squarely within this category.

Chapter 8: Quality Teamwork 329

TYPES OF TEAMS

Organizations use so many different types of teams that sometimes it is difficult to tell one from another. Some common types of teams include:

• Leadership teams (often termed steering committees or quality councils)— teams that lead quality initiatives in an organization and provide direction and focus.

• Problem-solving teams—teams of workers and supervisors that meet to address workplace problems involving quality and productivity, or ad-hoc teams with a specific mission such as organizational design teams that act as architects of change as discussed in the previous chapter.

• Natural work teams—people who work together every day to perform a com- plete unit of work.

• Self-managed teams—Work teams that are empowered to make and control their own decisions.

• Virtual teams—teams whose members communicate electronically, take turns as leaders, and jump in and out as necessary. These types of teams use a com- bination of Internet, e-mail, phone, fax, video conferencing, PC-to-PC connec- tions, and shared computer screen technologies to get their jobs done.

• Project teams—teams with a specific mission to develop something new or to accomplish a complex task. Project teams have recently gained a new measure of importance and respect in the context of Six Sigma.

Leadership teams, natural work teams, self-managed teams, and virtual teams typi- cally work on routine business activities—managing an organization, building a product, or designing an electronic system—and are an integral part of how work is organized and designed. Problem-solving teams and project teams, by contrast,

TEAMS ARE MOTIVATING5

Several teams from Boeing received awards in the 2007 International Team Excellence Competition sponsored by the American Society for Quality’s Team and Workplace Excellence Forum. Using a variety of quality tools, the first-place team devel- oped a solution that eliminated unsafe conditions that occurred during installation of details in C-17 aircraft tailcones. The team also initiated process improvements with positive results in areas of quality, cost, and schedule with direct impact on organizational goals. Perhaps the most encour- aging aspect of the team experience was the reaction from one of the team members:

Watching the [other] Boeing teams receive their awards brought a great feeling of pride for the

company we work for, but it also brought a momentary feeling of going home empty-handed… “The 2007 ASQ International Team Excellence Gold winning team is … the C-17…” That was all we needed to hear to know we had just won the biggest prize in the quality team competition. By the time they had finished announcing us, we were on our feet and headed to the stage. Far from the accolades and congratulations, I take from this experience a renewed desire to achieve even higher levels of quality in the projects I am a part of at Boeing. I understand more about the essence of using quality tools, how they help to define direc- tion and substance in managing a project, and how to better prepare a team for future competitions.

—Daniel Munoz

330 Part 3: Performance Excellence and Organizational Behavior

work more on an ad-hoc basis to address specific tasks or issues, often relating to quality improvement.

LEADERSHIP TEAMS

Quality leadership teams, which we introduced in Chapter 7, have long been pro- moted by quality gurus such as Juran and Crosby. Juran advocated the use of steering committees, called quality councils, while Crosby suggested the use of quality improvement teams.6 Steering committees are responsible for establishing overall quality policy and for guiding the implementation and evolution of quality throughout the organization. Quality improvement teams provide the leadership for quality at mid- and lower levels of the organization.

The top manager of the organization is usually on the quality council, as is the manager with overall responsibility for quality—for example, the Vice President/ Director of Performance Excellence. The steering committee may meet fairly often when a quality initiative is getting started, but usually meets only monthly or quar- terly once things are under way. This group makes key decisions about the quality process—how quality should be measured and what structures and approaches should be used to improve quality. The steering committee also periodically reviews the status of the effort and makes the adjustments necessary to ensure customer satisfaction and continuous improvement. In general, the steering committee has overall responsibility for the progress and success of the entire performance excel- lence effort. Often, this revolves around using the Baldrige criteria and conducting routine self- or external-assessments to measure progress and identify improvement opportunities (see Chapter 11 for further discussion of this topic).

As performance excellence became a routine part of overall business manage- ment, the roles of independent quality councils have been assimilated into executive leadership teams in many organizations, signifying that quality planning is not a separate activity, but rather an integrated part of overall business planning. Thus, the executive leadership team acts both as a quality council and a business leader- ship team. At Custom Research, Inc., for example, a four-person steering commit- tee sets company directions, integrates performance excellence goals, and promotes the development of all employees. Committee members have frequent interaction with associates, review overall company performance daily, and meet formally each month to identify areas for improvement.

PROBLEM-SOLVING TEAMS

The second, and probably most common, type of team used in quality is the problem-solving team. As the name implies, problem-solving teams work to improve quality by identifying and solving specific quality-related problems facing the organization. Such teams are sometimes referred to as corrective action teams, or quality circles, although many organizations have created their own names for them. Quality circles were one of the first types of teams to focus specifically on quality. Although quality circles were popularized and implemented on a wide- spread basis in Japan beginning around 1960 and are often attributed to Kaoru Ishikawa of the University of Tokyo, history suggests that the concept was first implemented by Daniel Willard at the Baltimore and Ohio Railroad as part of

Chapter 8: Quality Teamwork 331

“The Cooperative Plan,” which began from joint worker-management meetings designed to raise and evaluate service-quality-related issues and suggestions.7 Qual- ity control circles are still alive and well internationally, especially in Asia (see box “Quality Circles in Japan: Still Unbroken”).

Two basic types of problem-solving teams are departmental and cross- functional. These teams are limited in membership to employees of a specific department and are limited in scope to problems within that department. Such groups typically meet once a week for one to two hours and progress through a standardized problem-solving methodology. First, they identify a set of problems and select one to work on. Then they collect data about the causes of the problem and determine the best approach to solving it. (Often this will entail using many of the techniques described in Chapter 4.)

If the solution does not require any major changes in procedures or substantial resources, the group frequently can implement its own solution. If this is not the case, group members will make a presentation to some level of management, request- ing approval for their solution and the resources to implement it. These teams typi- cally remain relatively intact as they address a number of problems in succession.

The problems that such teams work on can be quite diverse. A team of hourly workers at U.S. Steel’s Gary Works has solved a number of crippling quality pro- blems, helping to reduce the amount of steel rejected by automotive customers by 80 percent.8 A team of service technicians at an equipment rental company simplified the form used to perform preventive maintenance, saving the company considerable time in the process. A team of people from the “re-sort” department at Federal Express improved the process of package sorting, which created savings in labor costs and helped to avoid the cost and embarrassment of having to send overnight packages via commercial airlines.9 An information systems team for a manufacturing company addressed a serious problem with internal customer satisfaction about its response to requests for application changes and help with using new software.10

NATURAL WORK TEAMS

Natural work teams are organized to perform a complete unit of work, such as assembling a motorcycle, creating circuit plans for a television set, or performing a market research study from beginning to end. The “unit of work” need not be the final product, but some intermediate component. Natural work teams replace, rather than complement, the traditional organization of work. What is different in this work design structure is that work tasks are not narrowly defined as they would be on an assembly line, for instance.

Team members share responsibility for completing the job and are usually cross-trained to perform all work tasks and often rotate among them. A team in an automotive manufacturing plant placed an advertisement in the classified sec- tion of their local newspaper that read in part:

Our team is down one good player. Join our group of multiskilled Maintenance Associ- ates who work together to support our assembly teams. … We are looking for a versatile person with … ability to set up and operate various welding machinery … willingness to work on detailed projects for extended time periods, and general overall knowledge of the automobile manufacturing process. … You must be a real team player, have excellent interpersonal skills, and be motivated to work in a highly participative environment.11

332 Part 3: Performance Excellence and Organizational Behavior

This ad illustrates many of the differences between natural work teams and the traditional organization of work for non-managerial employees. For example, members of such teams are expected to actually work as a team, rather than just perform their own jobs capably. Their knowledge must be broad rather than nar- row, their skills interpersonal as well as technical. Natural work teams lead to self-managed teams, which are discussed next.

SELF-MANAGED TEAMS

Self-managed teams (SMTs), also known as self-directed teams or autonomous work groups, are natural work teams with broad responsibilities, including the responsibility to manage themselves. SMTs are empowered to take corrective

QUALITY CIRCLES IN JAPAN: STILL UNBROKEN

Quality circles were among the first Japanese management practices used in the United States. When visiting Japan in the 1970s, American managers noticed groups of workers meeting to address quality problems. The managers recog- nized this is a practice that could easily be copied and returned home to institute it in their own companies. Quality circles (QCs) took off in the United States as the Japanese management mania peaked, and firms like Lockheed and Westinghouse reported early successes with QCs. The movement boomed in the early 1980s as most large American companies introduced the practice.

The bloom was soon off the rose, however, as firms found themselves devoting a lot of time and attention to QCs and receiving relatively little in return. There were a number of reasons for the lack of results. Employees were only encouraged to work on quality problems during their meetings (usually about an hour a week) and spent the rest of their week just “doing their job.” Supervisors were often not involved in the program and were indifferent, if not downright hostile, to it. Perhaps the biggest problem was that QCs were “just a program,” cut off from and often opposed to the way the organization usually worked. Managers preached about the importance of quality work

during their QC events, but when crunch time came, their attitude was, in the words of one QC member, “If it doesn’t smoke, ship it!” Not sur- prisingly, companies started to disband their QC programs, which were soon dismissed as just another passing fad. In the context of the current interest in total quality, many managers look back on QCs as essentially a false start on the road to quality. It is interesting in this light to note that many Japanese companies still operate QCs and that they are seen as a critical part of the total quality control (TQC) effort in these companies.12

According to the Union of Japanese Scientists and Engineers, as many as 5.5 million workers take part in 750,000 circles. Managers as well as frontline employees are involved, and the circles are considered a normal part of working life, rather than a “program.” In fact, QCs often work to achieve the objectives set in the kaizen process (see Chapter 6), which puts them in the main- stream of TQC activity. Some organizations pro- vide monetary incentives for suggestions provided by circles, and employees in some firms make dozens of suggestions per year. It appears that the mistake made in the U.S. introduction of quality circles was not in introducing them, but in not taking them seriously.

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action and resolve day-to-day problems; they also have direct access to infor- mation that allows them to plan, control, and improve their operations. Self- managed teams have been used for decades, (the SMT concept was developed in Britain and Sweden in the 1950s, and one of the early companies to adopt it was Volvo, the Swedish auto manufacturer), and are common in TQ organizations.

In the absence of a supervisor, SMTs often handle budgeting, scheduling, setting goals, and ordering supplies. Some teams even evaluate one another’s performance and hire replacements for departing team members. For example, the GE aircraft-engine plant in Durham, North Carolina, is a totally self- managing facility. Workers manage everything from process-improvement and work schedules to overtime budgets. Each engine is built by a single group of people, and that group “owns” the engine—from initial assembly to the moment it’s put on the truck. GE/Durham team members take such pride in the engines they make that they routinely take brooms in hand to sweep out the beds of the 18-wheelers that transport those engines—just to make sure that no damage occurs in transit. Equipment maintenance and the cleaning of areas like bathrooms are contracted out, but team members keep their own areas clean.13 In short, members of such teams are more like managers than employees in the traditional sense, hence the term self-managed teams (see box “A Little Spice and a Heaping Scoop of Teamwork”).

SMTs have resulted in improved quality and customer service, greater flex- ibility, reduced costs, faster response, simpler job classifications, increased employee commitment to the organization, and the ability to attract and retain the best people.14 Experts estimate that SMTs are 30 to 50 percent more pro- ductive than conventional teams. FedEx, for instance, reduced service errors by 13 percent; one 3M facility increased production by 300 percent; in a Mercedes-Benz plant, defects were reduced by 50 percent. A study of 22 manufacturing plants using SMTs found that more than half of them made improvements in quality and productivity, removed at least one layer of man- agement or supervision, and decreased their levels of grievances, absenteeism, and turnover.15

VIRTUAL TEAMS

Virtual teams are groups of people who work closely together despite being geographically separated. Virtual teams rarely meet face-to-face; their primary interaction is through technologies such as telephone, fax, shared databases and collaborative software systems, the Internet, e-mail, and video conferenc- ing. In 1998, over eight million workers were members of such teams, and this number has undoubtedly grown as new technology has proliferated.

Virtual teams are becoming important because of increasing globalization, flatter organizational structures, an increasing shift to knowledge work, and the need to bring diverse talents and expertise to complex projects and custom- ize solutions to meet market demands. For example, a product design team in the United States can hand off its work to another team in Asia or Australia,

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resulting in an almost continuous work effort that speeds up development time considerably.

Because of their physical separation, some have difficulty applying the team concept to virtual teams. Virtual teams can face some unique challenges, including language, culture, style differences, and the lack of social relation- ships that can lessen team commitment.17 These require special efforts to ensure that a team environment is truly realized, particularly paying attention to communication, strong interpersonal relationships, and formal structures that support their work. For example, team member roles and objectives often must be made more explicit. All the issues that we describe in subsequent sec- tions affect virtual teams in the same fashion as co-located teams, and should be incorporated into their design. See box “Virtual Teaming at MySQL” for an interesting example of some of these issues.

PROJECT TEAMS

Project teams are chartered to perform one-time tasks such as technology imple- mentation. They are fundamental to Six Sigma. Six Sigma projects require a diversity of skills that range from technical analysis, creative solution develop- ment, and implementation. Thus, Six Sigma teams not only address immediate problems, but also provide an environment for individual learning, management development, and career advancement. Six Sigma teams are comprised of several types of individuals:

• Champions: Senior-level managers who promote and lead the deployment of Six Sigma in a significant area of the business. Champions understand the philosophy and tools of Six Sigma, select projects, set objectives, allocate resources, and mentor teams. Champions own Six Sigma projects and are responsible for their completion and results; typically, they also own the

A LITTLE SPICE AND A HEAPING SCOOP OF TEAMWORK16

Great restaurants should certainly have superior food, a pleasing environment, and an excellent chef. One restaurant in Boston, Radius, adds another ingredient: teamwork. In the kitchen, two people work at each preparation station, such as meat, fish, or pastry. They are empowered with full responsibility for their part of the meal. For example, the meat station team would cut the meat, season it, and cook it. In most other res- taurants, sous chefs simply do the cooking. Teamwork is reinforced regularly in meetings. Each week, for instance, chefs, waiters, and

support staff meet together to review the menu and procedures and discuss service issues. Each day, the staff meets to focus on kitchen opera- tions and discuss daily plans with the chef. In addition, waiters, hosts and hostesses, and floor managers also meet each day to review reserva- tions so that they can customize the customer experience. These meetings also serve as train- ing sessions—the manager might ask a server to describe a dish, even down to each of the spe- cific ingredients!

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process that the project is focused on improving. They select teams, set strate- gic direction, create measurable objectives, provide resources, monitor perfor- mance, make key implementation decisions, and report results to top management. More importantly, champions work toward removing barriers— organizational, financial, personal—that might inhibit the successful imple- mentation of a Six Sigma project.

• Master Black Belts: Full-time Six Sigma experts who are responsible for Six Sigma strategy, training, mentoring, deployment, and results. Master Black Belts are highly trained in how to use Six Sigma tools and methods and pro- vide advanced technical expertise. They work across the organization to develop and coach teams, conduct training, and lead change, but are typically not members of Six Sigma project teams.

• Black Belts: Fully-trained Six Sigma experts with up to 160 hours of training who perform much of the technical analyses required of Six Sigma projects, usually on a full-time basis. They have advanced knowledge of tools and DMAIC methods, and can apply them either indi- vidually or as team leaders. They also mentor and develop Green Belts. Black Belts need good leadership and communication skills in addition to technical skills and process knowledge. They should be highly motivated, eager to gain new knowledge, and well-respected among their peers. As such, Black Belts are often targeted by the organization as future business leaders.

• Green Belts: Functional employees who are trained in introductory Six Sigma tools and methodology and work on projects on a part-time basis, assisting Black Belts while developing their own knowledge and expertise. Typically, one of the requirements for receiving a Green Belt designation is to successfully complete a Six Sigma project. Successful Green Belts are often promoted to Black Belts.

• Team Members: Individuals from various functional areas who support spe- cific projects. The roles of the Six Sigma champion and the Master Black Belt leader are similar to those of the champion and sponsor. The role of a Black

VIRTUAL TEAMING AT MYSQL18

MySQL is a $40 million company that develops open source database software. MySQL employs 320 workers in 25 countries, and more than two-thirds of them work from home. Being so geographically distributed, the company must rely on virtual teams. Each morning, Thomas Basil, director of support, signs on to the company’s Internet Relay Chat (IRC) and greets every support team member by name. Staff might also start a

chat session on the side while on a conference call with a customer. In addition to IRC, the company uses Skype to keep employees con- nected and eliminate a deluge of emails. At MySQL, teaming goes beyond the simple use of technology, employees learn behavioral skills that build effective teams, such as knowing when not to send an emotional e-mail or why the phone is necessary for certain interactions.

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Belt is similar to a staff quality expert, while Green Belts are typically given the team leadership role.

CROSS-FUNCTIONAL TEAMWORK

Natural work teams, self-managed teams, and problem-solving teams typically are intraorganizational; that is, members usually come from the same department or function. Leadership teams, virtual teams, and project teams are usually cross-functional; they work on specific tasks or processes that cut across boundaries of several different departments regardless of their organiza- tional home. Cross-functional teams are not unique to quality—they are com- monly used in new product development, for example—but are increasingly becoming a mainstay of quality initiatives. These teams are similar in many ways to the departmental teams just discussed: They receive training in problem solving, identify and solve problems, and either implement or recommend solutions.

The differences are that members of cross-functional teams come from several departments or functions, deal with problems that involve a variety of functions, and typically dissolve after the problem is solved. For example, a cross-functional team in a brokerage might deal with problems in handling questions from clients. The issues raised would not be limited to stocks, bonds, or mutual funds, so people from all of these areas would be involved.

Cross-functional teams make a great deal of sense in an organization devoted to process improvement, because most processes do not respect func- tional boundaries. If a process is to be comprehensively addressed, the team addressing it cannot be limited, by either membership or charter, to only one function. To be effective, cross-functional teams should include people from several departments: those who are feeling the effects of the problem, those who may be causing it, those who can provide remedies, and those who can furnish data.19

Cross-functional teams are often used for solving specific problems. For example, one cross-functional team made up of nurses, dieticians, and other nurs- ing unit and food services staff addressed the problem of patients receiving their dinners late. This problem was quite aggravating to patients, but if it had been addressed by only the nursing unit, ignorance or apathy in the food services department would most likely have been blamed. Had the problem been addressed by food services, nursing would likely have been blamed. In either case, little would have been accomplished. A cross-functional team was required to unravel the complex scheduling and delivery issues associated with the prob- lem. Similarly, a cross-functional team at New York Life Insurance Company addressed the problem of returned mail. This was crucial for the company, because if policyholders do not receive their premium notices, New York Life does not get paid (see box “Gravedigging in New York”).

Cross-functional teams are natural vehicles for implementing large-scale organizational changes. A large North American wholesale and retail grocery

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company had embarked on a major organizational transformation because of competitive threats. Several cross-functional teams were established to support the transformation effort. Some were leadership teams that focused on organi- zational change and improvement; others were more specific design and devel- opment teams.20

An example of the cross-functional nature of teams is the platform team approach to automotive vehicle development introduced by Chrysler.21 This cross-functional team approach brings together professionals from engineering, design, quality, manufacturing, business planning, program management, pur- chasing, sales, marketing, and finance to work together to get a new vehicle to market. This idea, brought to Chrysler by its merger with smaller, more innova- tive AMC/Jeep was not accepted at Chrysler without significant upheaval and struggles. “You talk about internal strife,” recalls one Chrysler loyalist, “This was war!”22 Nevertheless, the concept was just what was needed to pull the com- pany from bankruptcy and near collapse. The Dodge Viper, introduced in 1992, and the 1993 Jeep Grand Cherokee tested this approach, which led to the devel- opment of the Chrysler Concorde, Dodge Intrepid, and Eagle Vision in just 39 months, not only on time and under budget, but exceeding 230 product excel- lence targets. Today, all automobile manufacturers develop products using similar cross-functional team approaches.

GRAVEDIGGING IN NEW YORK23

Have you ever sent a letter only to have it returned as “undeliverable” by the post office? How about 7,000 undeliverable pieces of mail every week? This was the problem faced by New York Life Insurance Company. Most of the mail being returned was notices to people that their premiums were due, so a great deal of revenue was being lost. In fact, the company estimated the problem to be costing them as much as $80 million.

The team formed to attack this problem became known as the Gravediggers, because of their relentlessness in “digging up” addresses so that premium notices could be delivered. The 18-member team, whose members were drawn from around the nation, met via teleconference once or twice a week. Following total quality principles, the team began by looking for the root causes of undeliverable mail. Some of the

most common were: (1) policyholders who for- got to notify New York Life when they moved, and (2) long addresses that did not fit into the window on the mailing envelope.

The Gravediggers instituted a number of cor- rective measures to deal with the problem. They created units in each of the company’s service offices to find addresses and keep company records up to date, they worked out a deal with the post office to forward mail and provide the company with corrected addresses, and they used a more elaborate mail-sorting system with bar codes. Early results found that the volume of returned mail was reduced by more than 20 percent, and the postal service provided the company with 61,000 correct addresses in a nine- month period. In fact, the Gravediggers are already among the most successful teams in the history of New York Life’s total quality effort.

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EFFECTIVE TEAMWORK

Teams are the main structure of many high-performing organizations.24 Thus, effective teamwork is critical to a successful quality effort. If teams are not effec- tive, key business processes will suffer. Steering committees will choose poor directions and policies for the organization; departmental and cross-functional problem-solving teams will choose inappropriate problems or won’t be able to solve the problems they identify; and self-managed teams will not be able to fulfill the promise of an empowered, creative workforce.

This section explores what it takes for teams to be effective in a high-performance environment. Although the relative importance of these factors will vary from one type of team to another, they generally apply to any type of team. As you read this section, consider the ideas in light of your own experiences, rewarding or otherwise, on teams. If you are currently on a team, you may identify some ideas for improvement.

CRITERIA FOR TEAM EFFECTIVENESS

There are several criteria for team effectiveness. First, the team must achieve its goals of quality improvement. For example, a steering committee must move the performance excellence effort ahead, a problem-solving team must identify and solve important problems, a self-managed team must operate and improve a set of production or service processes.

Second, teams that improve quality performance quickly are more effective than those that take a long period of time to do so. One of the strengths of teams is their potential for rapid adaptation to changing conditions. A team that takes a long time to accomplish anything is losing the potential benefits of having prob- lems solved sooner and is consuming a greater-than-necessary amount of resources, including the time devoted to team meetings. In short, it is inefficient.

Third, the team must maintain or increase its strength as a unit. Think of the team as representing an asset—a quantity of human capital—beyond that repre- sented by its individual members. This additional human capital is based on the ability to understand and adjust to one another’s work styles, the development of an effective set of routines, the growth of trust among team members, and so on. A team that remains intact over a period of time preserves and enhances this human capital. A team that solves an important problem, but has such miserable relations that it dissolves, does not. It may make a contribution to the quality effort, but it squanders a considerable amount of human capital in the process.

Fourth, the team must preserve or strengthen its relationship with the rest of the organization. With apologies to John Donne, “no team is an island,” especially in a high-quality environment. A team that accomplishes its goals at the cost of alienating others in the organization violates the TQ principle of teamwork and compromises its ability to perform successfully in the future, when the collabora- tion of others may well be needed.

Peter Scholtes, a leading authority on teams for quality improvement, has sug- gested 10 ingredients for a successful team:

1. Clarity in team goals. As a sound basis, a team agrees on a mission, purpose, and goals.

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2. An improvement plan. A plan guides the team in determining schedules and mileposts by helping the team decide what advice, assistance, training, materi- als, and other resources it may need.

3. Clearly defined roles. All members must understand their duties and know who is responsible for what issues and tasks.

4. Clear communication. Team members should speak with clarity, listen actively, and share information.

5. Beneficial team behaviors. Teams should encourage members to use effective skills and practices to facilitate discussions and meetings.

6. Well-defined decision procedures. Teams should use data as the basis for deci- sions and learn to reach consensus on important issues.

7. Balanced participation. Everyone should participate, contribute their talents, and share commitment to the team’s success.

8. Established ground rules. The group outlines acceptable and unacceptable behaviors.

9. Awareness of group process. Team members exhibit sensitivity to nonverbal communication, understand group dynamics, and work on group process issues.

10. Use of the scientific approach. With structured problem-solving processes, teams can more easily find root causes of problems.25

TEAM MEMBERSHIP AND ROLES

Like any system, teams cannot function effectively without high-quality input. On the surface, this might suggest the “dream team” approach—assemble a group of stars like the 1992 U.S. basketball team that won the gold medal in the Barcelona Olympics. That approach has failed more often than not (the 2004 U.S. Olympic team also consisted entirely of NBA stars, lost to Lithuania, and finished third). In contrast, the 1980 U.S. hockey team that shocked the world in the Lake Placid Olympics left out the best players; it was built on team chemistry.

One company that has been successful in choosing team members is Worthington Industries, an Ohio-based steel processor. When an employee is hired to join a plant- floor team, he works for a 90-day probationary period, after which the team votes to determine whether he can stay. The system works because much of the team’s pay is based on performance, so members are clear-eyed and unsparing in evaluating a new candidate’s contribution. Worthington’s CEO, John McConnell, could be talking about teams at any level when he says, “Give us people who are dedicated to making the team work, as opposed to a bunch of talented people with big egos, and we’ll win every time.”26

The most important elements of team processes are the team members them- selves. Managers need to understand why people do and do not join teams. People participate on teams for many reasons:27

• They want to be progressive in making decisions that affect their work. • They believe that being involved in teams will enhance their potential for

promotion or other job opportunities. • They believe that teams will be privy to information that typically is not

available to individuals.

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• They enjoy the feeling of accomplishment and believe that teams provide greater possibilities.

• They want to use team meetings to address personal agendas. • They are genuinely concerned about the future of the organization and feel

a sense of obligation to help improve it. • They enjoy the recognition and rewards associated with team activity. • They find teams to be a comfortable social environment.

Likewise, many people refuse to join teams for reasons such as outside commit- ments, fear or embarrassment, an overwhelming workload, mistrust of manage- ment, fear of failure or losing one’s job, or simply an “I don’t care” attitude. True leaders need to develop strategies for dealing with these issues.

To be effective, team members must be representative of the departments or functions related to the problem being addressed. For example, a steering commit- tee made up of members from one part of the organization would be insufficiently representative of the organization to be effective. Representation is particularly important for cross-functional teams.

Team members assume a variety of roles in performing their duties. Some are task-oriented, for example, initiating projects, collecting information, analyzing data, using quality tools (flowcharts, cause-and-effect diagrams, etc.), creating action plans, writing reports, and so on. Others are relationship-oriented, such as encouraging other team members, listening carefully, and respecting others’ opin- ions. Both types of roles are necessary for teams to function effectively, and proper selection and training of team members is important to ensure that they possess both technical and interpersonal skills to perform these roles. In fact, one study of cross-functional organizational design teams suggests that team skills, as well as a clear purpose and expectations, are significant predictors of team performance.28

Team members must possess the necessary technical knowledge to solve the problem at hand. This may mean understanding metallurgy for a team in a steel mill or understanding credit approval for a team in a bank. All members need not share the same knowledge, and in fact, team members are often selected on the basis of specialized knowledge, but all of the appropriate technical bases must be covered for the team to be effective.

The critical importance of interpersonal skills is demonstrated by the following passage from a book on self-managed teams: “We often hear experienced team leaders and members make remarks like this one: ‘I’ll take someone with a good attitude over someone with just technical skills any day. I can train technical skills.’ With further prodding, we usually discover that they are really talking about interpersonal skills. … Because these qualities can be difficult to detect in a casual selection process, they are often overlooked in the pursuit of apparent, more objectively measured technical skills.”29

What is meant by interpersonal skills? Think of people who are easy to work with in a group. They are good listeners and do not ignore or downgrade someone else’s ideas in order to promote their own. They try to understand other people’s positions, even when they do not agree with them. They offer help to other group members, rather than waiting to be asked. They are willing and able to

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communicate their opinions, ideas, and any information that needs to be shared. They can deal with conflict without turning it into a personal issue. Finally, they are willing to share credit for accomplishments with other members of the group, rather than trying to keep the limelight for themselves.30 If you have worked on a team with people who possess even most of these skills, you are lucky indeed!

Another important attribute of team membership is diversity. Many organiza- tions have found that the best decisions stem from cross-fertilization of ideas from individuals with varied backgrounds, experiences, and interests; it has become a cli- ché that decisions emanating from groups of aging white males won’t do.31 Kraft Foods, for example, has developed a course for every new employee called The Power of Differences. The course focuses on the company’s conviction that it is a team-based organization, that innovation and ideas are critical to its business, and that the diversity of thought gives the best solution. The course teaches that these solutions arise from the interactions of style and approach and personality types. It gets people thinking in terms of What’s our skill set?, What’s our match?, and How do we know when we’ve actually got a blind spot?

TEAM PROCESSES

Many processes are undertaken within TQ teams, including quality planning, prob- lem selection and diagnosis, communication, data collection, and implementation of solutions. Team processes are not fundamentally different from other processes, such as assembling an electronic device, taking a patient’s vital signs, or preparing coq au vin. The customers of all these processes can be identified, their elements can be placed in a flowchart, steps that do not add value can be removed, and their quality can be improved continuously.

Most people, however, are not accustomed to thinking of group processes in this manner. This may be why group meetings are often long and boring and why so many people try to escape committee assignments and avoid committee meetings like the plague. A willingness to tolerate poor quality group processes has no place in organizations practicing TQ. This section identifies a few of the processes used in teams and provides some ideas about how teams can use them to operate effectively.

Problem Selection One of the processes undertaken at least occasionally by most teams and frequently by problem-solving teams is the choice of problems or issues on which to work. This process can be particularly difficult for newly empowered employees, who are more accustomed to being told what to do than they are to establishing their own agenda. New teams are often tempted to select the biggest, most glaring problem in sight that has been haunting them for years. Selecting such problems—often called “world hunger” problems—is usually a mistake.

New teams generally are not skilled enough to solve massive problems, and a failure to address such a visible problem successfully may be difficult for the team to overcome. It makes more sense for a team initially to select a problem of moder- ate importance and difficulty and to move on to more complex and difficult prob- lems when the team is better established. This approach is more likely to lead to

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successful solutions, which will build momentum for each team and for the quality effort as a whole.

Another common problem among new teams is that they select problems that are not associated—at least in management’s eyes—with important business or quality issues. When given a voice for the first time, many teams ask for things they have been denied in the past, such as a better lunch area or break room. Although managers often consider such behavior an indictment of quality teams, it is in fact an indictment of management itself. It is unrealistic to expect employees to focus on business issues when managers have not taken seriously employee requests for adequate facilities. In fact, it is better for issues such as these to be worked out prior to initiating a team-based quality effort, rather than allowing them to undermine such efforts.

The selection of “trivial” problems by teams may also indicate that manage- ment has not done an effective job of sharing information about the business with team members. If they truly understand the nature of the important problems faced by the organization, teams are much more likely to choose worthwhile issues on which to work.

Problem Diagnosis After problems to be addressed are identified, their causes must be ascertained. Thus, a second critical process in TQ groups is problem diag- nosis, the process by which the team investigates potential causes of problems to identify potential solutions. Juran refers to this step as the “diagnostic journey” and explains that it consists of three parts:

1. understanding the symptoms (e.g., a process out of control), 2. theorizing as to causes (e.g., preventive maintenance neglected), and 3. testing the theories (e.g., reviewing preventive maintenance records to see

whether they relate to the problems experienced).

Many teams want to bypass problem diagnosis and begin problem solving as soon as possible, usually because they mistakenly believe that the problem’s causes are obvious. Teams that spend more time diagnosing problems have been shown to be much more effective than those that proceed immediately to solutions. Spending time pinning down the sources of problems is consistent with the TQ principle of decision making based on facts and reduces the potential for what are sometimes called “type 3 errors”—solving the wrong problem. Training in methods of diagno- sis and analysis is important for team effectiveness.

Work Allocation Another important process is the allocation of work within the team. Many teams approach this process haphazardly, assigning tasks to the next in line or the first person who volunteers. Assigning tasks is one of the keys to team effectiveness and should not be taken so lightly.32 Each team member has certain skills and will perform well on tasks that use those skills and not so well on tasks that use other skills. The team needs to assign people tasks that will uti- lize their skills to the greatest extent possible.

Imagine a women’s college basketball team that consists of some tall women who are excellent rebounders and inside shooters and some shorter (vertically chal- lenged?) women who are skilled ball handlers and outside shooters. This team will

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be much more successful if the coach takes the time to assess the skills of each player and assigns them to the position where they can best help the team.

When explained in this context, the point is obvious, but you would be amazed at how many teams have the tall members bring the ball down the floor and pass to the short members underneath the basket! Differences in status within the group can be a problem if team members in higher positions are assigned the more glamorous roles, even when others are more qualified to fulfill them.33 The status problem is particularly acute in organizations that have very high- and very low-status members, especially when (as in medicine) these differences are institutionalized in society. The vice president of quality at one hospital described a team with this problem: “We had an emergency room physician who was a disaster. He was very much the old-school expert and he was not about to be egalitarian in his approach. This created a lot of problems for that team. In spite of that, we were able to achieve some success with that team but it was, I’m sure, limited. If there was one factor [that hurt us], it was probably his impact on the team.”

Communication Communication is a key process for any team attempting to improve quality. Steering committees communicate priorities to employees. Mem- bers of problem-solving teams communicate among themselves and to their inter- nal and external customers. For example, problem-solving teams often have to present their recommendations to management. Self-managed teams have similar communication needs and often must communicate effectively across shifts.

Three times every day in thousands of hospitals, mines, and manufacturing plants, teams of nurses, miners, and machine operators explain to the next shift what has happened in the last eight hours and what needs to be done in the next. The quality of this communication can dramatically affect the performance of the team on the next shift. The communication process can be improved by carefully assigning people to key communication tasks and by training people in communication.

We spend so much time communicating in our daily lives that we sometimes forget that skills such as listening and asking questions are vital to effective com- munication. Communication within and across teams also can be enhanced by using a variety of media. Many teams use e-mail and fax machines, but also benefit from such low-tech media as posters and graphs posted on the walls. As with many team processes, any specific recommendations are less important than the general idea of recognizing communication as a process that consists of a series of steps that can be improved.

Coordination Another key process is coordinating the team’s work with other teams and departments in the organization. Teams cannot work in isolation, and maintaining good relationships outside the team is one criterion of team effectiveness.

New product teams, for example, depend on other parts of the organization for resources, information, and support while also acting as primary internal sup- pliers. One of the reasons for the success of Lockheed’s Skunk Works operations, which pushed the envelop of aeronautics research and development that resulted in the F-104 Starfighter and the U-2 and SR-71 spy planes, was the fact that its

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leader put designers right next to metalworkers so they didn’t draft anything unbuildable.34 Coordination often involves resolving issues of interdependent schedules, but may also include some negotiation. Thus, teams often play a “boundary spanner” role.35 The boundary-spanning literature shows positive rela- tionships between communication and performance. However, researchers have often found a tendency among teams to turn inward, believing that their own needs, ideas, and plans are more valid than those of “outsiders.” Ironically, the more cohesive the team becomes, the greater the likelihood of this occurring.36

Such a tendency is antithetical to TQ, but it is a danger faced by virtually all groups. Teams can try to overcome this problem by keeping their customers in mind and using customer satisfaction as the yardstick against which ideas and plans are measured. Remaining aware of the need to improve team processes should also guard against the tendency to downplay the potential contributions of non-team members, as outsiders are often the source of ideas for improvement that team members have overlooked.

Finally, good communication should also help to coordinate work with other teams and departments. The likelihood of following a path that works against the needs or plans of other groups will be diminished if teams communicate with other groups early and often. Tools such as quality function deployment and affin- ity diagrams, discussed in Chapters 3 and 5, respectively, can be used to enhance such communication.

In a sense, quality-oriented process improvement and problem solving are a minefield for the unsuspecting team. Whenever changes are made in an organiza- tion, vested interests are challenged. By carefully managing the coordination process, teams will reduce the potential for unnecessary conflict with groups out- side the team and will greatly enhance their potential for long-term effectiveness.

In summary, team processes can be improved just like any other process. Several key processes that are candidates for improvement are problem identifica- tion and diagnosis, work allocation, communication, and coordination of work with other teams and departments.

Organizational Support However skillful the team, they will find it hard to be suc- cessful unless their efforts are supported by the organization in general and by manage- ment in particular. Organizational support is the foundation for effective teamwork.

Management must provide the following if a team is to be successful. First, management must issue a clear charge to the group; that is, a description of what the group is and is not expected to do. Many teams have wasted a great deal of time and energy on issues that they later found they were not authorized to pursue. Management’s guidance as to the quality priorities of the organization is crucial, especially in the early stages of a team’s work. Second, human resource manage- ment (HRM) systems often must be adjusted. Conventional HRM systems may be barriers to effective teamwork that will undermine TQ if not changed.37 The need for enhanced training is particularly acute, as team members must be brought up to speed on the various types of skills necessary for effective teamwork.

Performance appraisal and reward systems are also a concern. Many of these systems are designed to reward individual effort or the attainment of functional goals, rather than teamwork. Numerous research studies over the past several

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decades have pointed out the problems and pitfalls of performance appraisals.38

Many legitimate objections can be made:39

• They tend to foster mediocrity and discourage risk taking. • They focus on short-term and measurable results, thereby discouraging long-

term planning or thinking and ignoring important behaviors that are more difficult to measure.

• They focus on the individual and therefore tend to discourage or destroy teamwork within and between departments.

• The process is detection-oriented rather than prevention-oriented. • They are often unfair, since managers frequently do not possess observational

accuracy. • They fail to distinguish between factors that are within the employees’ control

and system-determined factors that are beyond their control.

This can greatly undermine teamwork and can be fatal to the team if not addressed.

Performance appraisals are most effective when they are based on the objec- tives of the work teams that support the organization.40 In this respect, they act as a diagnostic tool and review process for individual, team, and organizational devel- opment and achievement. The performance appraisal can also be a motivator when it is developed and used by the work team itself. Team efforts are harnessed when team members are empowered to monitor their own workplace activities. In a per- formance excellence culture, quality improvement is one of the major dimensions on which employees are evaluated.

Xerox, for instance, changed its performance review criteria by replacing tradi- tional measures such as “follows procedures” and “meets standards” to evaluating employees on the basis of quality improvement, problem solving, and team contri- butions. Many companies use peer review, customer evaluations, and self- assessments as a part of the appraisal process.

Selection processes may also be changed in a performance excellence environ- ment. Companies like Procter & Gamble seek entry-level college graduates who understand TQ principles. They specifically want their new employees to think in terms of creating quality and value for consumers, to understand their customers and needs, and to work toward results despite obstacles. The members of self- managed teams often take much of the responsibility for hiring people for their team. Human resource professionals should play a consultative role in such efforts, however, to make sure that selection is done in a fair and legal manner.

Third, management must provide the team with the resources necessary to be successful. These include a place and time to meet and the tools to get the job done. Human resources are also important: Management should avoid moving people on and off teams frequently, as this can disrupt teamwork and send a mes- sage that quality and teamwork are really not a high priority for the organization.

Fourth, when teams make a proposal, management must respond swiftly and constructively. It is not realistic to expect that every quality improvement proposal made by a team will be implemented. For those proposals that cannot be imple- mented, management owes the team a reasonable explanation as to why it is not feasible and some guidance as to how the proposal might be modified so that it

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would be acceptable. Few experiences are as demoralizing to quality teams as mak- ing an elaborate, reasoned presentation, only to be met with deafening silence from management. This was one of the problems that undermined quality circle pro- grams. It is less of a problem for self-managed teams that generally have broad authority to implement their own solutions.

For those proposals that are accepted, some form of recognition for the team is in order. At The Ritz-Carlton Hotel Company, L.L.C., team awards include bonus pools and sharing in the gratuity system. Many companies have formal corporate recognition programs, such as IBM’s Market Driven Quality Award for outstand- ing individual and team achievements in quality improvement, or the Xerox Presi- dent’s Award and Team Excellence Award. Often the most effective forms of recognition are symbolic, such as a citation or picture in the company newspaper.

Many organizations view team development as an important business process and manage it accordingly. Figure 8.1 shows the approach used by Boeing Airlift & Tanker Programs to develop raw teams into self-managed teams, a result of an historic agreement between the company and union to support employee participa- tion. See box “Team Effectiveness and Organizational Design” for some research- based perspectives on managing for effective team performance.

Team Charters Team responsibilities and processes are often summarized in a team charter. A team charter is an explicit, written document that offers guidelines, rules, and policies for team members. It often includes a mission statement; values that guide behavior; structural issues such as logistics, meeting agendas, task responsibilities, and target dates; methods for group decision making; processes

• Plan team tasks

• Develop team communication

Directs Team— Builds Trust

• Identify goals, outcomes, timelines

• Provide direction

• Lead in solving problems, making decisions

• Control budget and some scheduling

• Give frequent follow-up

Coaches Team— Shares Information

• Involve team in problem solving

• Control team budget

• Provide support

• Work with team to define performance and how it is measured

Supports Team— Creates Autonomy

• Help in problem solving

• Share budget responsibility

• Ask team to lead in solving problems

Delegates Authority—

Provides Support

• Support multiple teams

• Define measures

• Develop team milestones

• Improve quality, cost, and cycle time

• Schedule and hold team meetings

• Attack larger problems

• Review team measures

• Control inventory

• Schedule team training

• Perform equipment maintenance

• Manage team performance

• Continually improve quality, cost, and cycle time

• Identify own jobs

• Perform team budget; track costs and take accountability

• Select team members

Amount of Empowerment at Team Level

Transition from Manager to Leader

Stage 1* Team Formation

Stage 2* Team Building

Stage 3* Empowerment

Stage 4* Self-Direction/

High Performance

FIGURE 8.1 | BOEING AIRLIFT & TANKER TEAM DEVELOPMENT PROCESS Source: Reprinted by permission of Boeing Global Mobility.

Chapter 8: Quality Teamwork 347

for dealing with conflicts; and methods for resolving problems with team members. Several organizational researchers have found that team performance improved for teams with charters and clear expectations.42 Benefits include reduced intragroup conflict, improved speed of making decisions, better decision quality, stronger shared values, higher group member satisfaction, and reduced exposure to litigation.

TEAMWORK IN ACTION

This section provides two examples of quality teamwork: one a problem-solving team in a general hospital, and a high-tech team at Analog Devices. As you read these examples, reflect on whether the teams are effectively practicing the team pro- cesses we have discussed. For other examples of teamwork in action, see box “The ASQ Team Excellence Awards.”

A TEAM WITH A TRANSPARENT PROBLEM43

Have you ever had tests done in a hospital and wondered why it takes so long to get the results back? So did the employees and managers in the radiology depart- ment at Sentara Norfolk General Hospital in Norfolk, Virginia.

TEAM EFFECTIVENESS AND ORGANIZATIONAL DESIGN41

Using in-depth case study analysis, researchers from the University of Valencia, Spain, examined the relationship between organizational design variables and team effectiveness. Their main con- clusions were

• The more intense the level of decentralization, the more powerful the degree of coordination within and among teams and the degree of team autonomy and, consequently, the more effective the team becomes.

• The more intense the level of formalization in the firm, the more powerful the degree of coordination and the link between functions (in cross-functional teams) and, as a result, the more effective the team turns out to be.

• The more participative the leadership style and the more intense the level of decentrali- zation, the more intense the degree of team autonomy and the level of resources required to exercise that power, so the more effective the team becomes.

• Motivational human resource policies and a high level of socialization and values in the

organization will strengthen the team’s interi- orization of the firm’s mission and, as a result, its effectiveness.

• The higher the hierarchical level at which the team is inserted, the more developed the reward system designed for the team becomes.

• The existence of TQM practices reinforces the use of the different design variables (decentralization, leadership style, motiva- tional policies) and increases, as a result, the relevance of socialization and values in the firm, contributing to the effective- ness of the teams created within this framework.

From these results, managers can better understand the functioning of teams by recogniz- ing the impact of these key design variables (specialization, decentralization, human resource policies, leadership styles, and rewards), and they can modify a team’s organizational context by changing these variables to improve team effectiveness.

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Although everyone associated with the process felt that they were working as fast as they could, performing and reporting the results of an X-ray or CAT scan was taking three days on average (72.5 hours, to be precise). A nine-person team was formed to address the problem, and they vowed to cut the time down to 24 hours.

The first step was to focus the team on the process, rather than on individual performance, and to create a sense of teamwork that would override the differences in status that sometimes hamper the work of medical professionals. Pat Curtis, head of cardiac nursing, was chosen as the team’s facilitator, partially for her rec- ognized skills but also because she was from outside radiology and had no formal authority over team members.

Although the team met infrequently, the members had plenty of work to do between meetings, mostly on collecting information. Using techniques associated with Norfolk General Hospital’s CQI effort (Continuous Quality Improvement, as TQ is often known in health care), the team identified 40 steps in the X-ray process and 50 possible causes of delay, only a few of which were causing most of the problems. Rather than waiting for a grand changeover at the culmination of their

THE ASQ TEAM EXCELLENCE AWARDS44

The International Team Excellence Award compe- tition was launched in 1985. Sponsored by the American Society for Quality, it has drawn partici- pants from the U.S., Costa Rica, and Mexico, and as far away as China. Teams submit a 25-minute video explaining their project and process, and are judged on how well they meet 36 criteria that ranges from project selection and action planning to results and the project’s impact on organiza- tional goals. Some examples of finalists are:

Fidelity Wide Processing Bulk Shipping Process Management Team (Gold Award Winner) The purpose of the team was to reduce control- lable shipping costs and operating unit costs, and improve productivity in the bulk shipping opera- tions area. Through implementation of a cross- functional process management team and utiliza- tion of quality tools, shipping costs were reduced by 20 percent, productivity improved by 30 per- cent, and unit costs were lowered by 36 percent.

DynMcDermott Petroleum Operations Company, Vehicle Accident Performance Improvement Team

The Vehicle Accident Prevention Team was char- tered to develop strategies to reduce the number of vehicle accidents involving government vehi- cles. As a result of the team’s activities, the rate was reduced from 5.6 vehicle accidents per million miles traveled to 1.8.

Baxter, Cartago, Costa Rica, Anesthesia Circuits Problem Solving Team This team faced the problem of easy separation of components on Anesthesia Circuits. The root cause was identified as Adult Isoflex tubing cuff design. Solutions included new cuff design, new resin, and improvement of assembly operation. This resulted in a 100 percent reduction of com- plaints, a savings of $240,000, and a better ergo- nomic assembly process.

JPMorgan Chase, Right the First Time The team used Six Sigma methodology to analyze data and internal processes and reduce adjust- ments in northeast item processing by 50 percent. This cross-functional team of 72 employees worked together to improve the customer experi- ence, streamline internal processes, and reduce operating costs by $1.4 million annually.

Chapter 8: Quality Teamwork 349

work, the team made improvements to the process as they discovered them. This was greatly facilitated by the cross-functional representation and the presence of managers on the team. As one member put it, “Folks who could effect change were part of the decision making.” None of the changes the team made were par- ticularly dramatic. Curtis helped the nursing department to reduce errors such as forgetting to note whether patients would need stretchers or oxygen. X-ray technol- ogists began to deliver developed films to the next person in the process, rather than waiting for the internal mail service to move them. Fourteen of the 40 steps were redesigned out of the process.

The results were clearly dramatic. The average time to process an X-ray dropped to 13.8 hours, an 81 percent improvement! Physicians in the hospital report that the faster availability of diagnostic information is helping them to improve their own processes, and other companies and government agencies in the Norfolk area are looking to the hospital for help with their own quality improve- ment challenges.

The team has responded to its success with a renewed commitment to continu- ous improvement. The introduction of a CD-based digital system to replace tapes for dictating physician comments is expected to cut the time down to 11 hours. The team’s new goal? Eight hours.

SELF-MANAGED TEAMS AT ANALOG DEVICES45

In 1996, one unit of Analog Devices was under intense time pressure to get a new wafer fabrication plant up and running in an empty building in Cam- bridge, Massachusetts. The new “wafer fab” (as such plants are typically called in the semiconductor industry) was for a new division and would be relatively small, as wafer fabs go. At an early step of the process, it became clear they needed people who were very experienced, unusually flexible, and highly cross- trained, and who had unusually effective and efficient communication mechan- isms available. The director of manufacturing saw this small-scale, clean-slate situation as an appropriate opportunity for him to deploy self-directed work teams (SDWT).

The Analog Devices Cambridge wafer fab runs 24 hours a day, seven days a week. Four separate teams handle a continuous operations schedule of shifts. During any one shift, the one team on duty for that shift runs the plant. Each team must cover the areas of chemical vapor deposition, trim, diffusion, etch, implant, photolithography, and thin film. Each area includes several relevant func- tions, and it is desirable for team members to become certified for all functions within multiple areas. These teams do not have supervisors on their shifts. In fact, all of the operators (called manufacturing technicians or MTs in the Cambridge operation) on all four teams report to the production manager. These supervisor- less teams completely run the plant day by day, planning and deciding everything that must be done.

Because various aspects of operation require specific attention, each team rotates members through roles: production representative, yield representative, safety representative, continuous improvement representative, and training repre- sentative, to push cross-training. The people in some of these roles need to

350 Part 3: Performance Excellence and Organizational Behavior

coordinate with engineering and with the senior managers of the plant, and appro- priate meetings are held. The relevant representatives are expected to attend these meetings, which may be at times when the people are not on shift. Someone on each team is also designated “site manager”: the person who is to speak for the plant in case of some sort of emergency.

In addition to getting the new plant up and running well with a small staff over a short time, the company found that in the long run, productivity has been higher than expected because the self-directed work teams run the plant very effec- tively and efficiently.

Some comments from team members show their perspectives on SDWTs:

The biggest pro is that SDWT enables a group of people to manage themselves using a set of predetermined guidelines through constant communication and redefinition of these guidelines for the common goals of an organization. In addition, it provides a sense of worth that one usually doesn’t feel in a normal work environment.

Cons? It takes a strong amount of respect, both for yourself and for your team- mates, to communicate on an even plane. Most people do not have it in them; and because of this a lot of issues arise and, many times, never go away.

Trust is an important factor for the SDWT to succeed. When one member of the team loses trust, the team breaks down, causing animosity. Regaining the trust is essential. Maintaining a positive attitude and an open mind gives you flexibility and encourages participation from all members. Opinions shouldn’t be taken personally but understood professionally and utilized in formulating decisions.

A TEAM OF MILLIONS

Wikipedia is an online encyclopedia with millions of entries and is operated by the nonprofit Wikipedia Foundation. It has a paid staff of only four people, but mil- lions of active volunteers. Since its launch in 2001, founder Jimmy Wales has made it easy for contributors to monitor one another’s activities. Wikipedians (those who contribute to Wikipedia) are alerted when any changes are made on pages they’ve worked on. Every edit can be traced to its originator, and most ver- sions of each entry, along with online conversations about it, can be retrieved. Though vandals strike occasionally, virtual vigilantes are always on patrol. Volun- teers who misbehave risk banishment. Official policy requires that entries stay neu- tral and that members treat each other civilly.46

COMPARISON TO ORGANIZATIONAL BEHAVIOR THEORIES

Little conflict exists between the use of teams in TQ and theories of organizational behavior, but there are differences in emphasis. Along with social psychology and sociology, organizational behavior (OB) is the source of much of what is known about groups or teams. Since there is no separate tradition of research or thinking about groups within TQ, virtually all of the practices and recommendations ulti- mately derive from conventional (or unconventional) management theory.

The sociotechnical systems (STS) approach is devoted to the effective blending of both the technical (job requirements) and social aspects of the work environ- ment. These two factors must be considered jointly, because work designs that

Chapter 8: Quality Teamwork 351

optimize one factor may not be optimal for the other. The STS approach has been prevalent since the 1950s, and its principles were first developed in manufacturing by Eric Trist, its leading founder, who was guided by earlier systems thinking, research on participation, and the action research work of Kurt Lewin. More recently, this approach has been adapted and refined to non-manufacturing organi- zations. The approach has more relevance today than ever before, as organizational personnel seek more fruitful means of empowerment and as their organizations strive for greater productivity and viability in increasingly turbulent environ- ments.47 Teams—particularly self-directed teams—support many of the benefits of STS approaches.

Research knowledge about groups is most heavily emphasized in organiza- tional development (OD), the branch of the organizational sciences that deals with changing and improving organizations. Most team-based practices in TQ come from OD. Some of these practices, such as the nominal group technique, are based on research in organizational behavior or social psychology; others are not.

Teams are actually a subset of the organizational behavior/social psychology concept of groups. All teams are groups, but not all groups are teams. Compare our definition of a team as “people working together to achieve a goal” to the fol- lowing definition of a group: “A number of persons who communicate with one another often over a span of time, and who are few enough in number that each person may communicate with all the others.’’48

Clearly, we ask more of our teams than we do of our groups! Organizational behavior has traditionally focused on workgroups, people who work together in the same function. Theory has addressed why some groups are more cohesive or productive than others and whether groups are likely to support or undermine organizational goals.

The specific types of teams used in TQ efforts are also derived from OB research. Self-managed teams are a modern version of semiautonomous work groups, which were championed for use in underground coal mines by researchers from Britain’s Tavistock Institute more than 40 years ago. Similarly, cross- functional teams have been discussed within OB for many years as a way to inte- grate work across interdependent functions.49

Much of the knowledge from OB research on groups has not yet been absorbed into TQ thinking in a widespread manner, but it probably should be. This includes the research on the relative advantages of homogeneous and hetero- geneous groups, which appears to be relevant to effective team building. Research has shown that homogenous groups (those in which members are similar in age, race, gender, experience, and so on) are better suited to well-defined, familiar tasks, where the emphasis is on efficient production.

Heterogeneous groups, on the other hand, are better at tasks that require crea- tive thinking. This implies that teams used in TQ efforts generally should be quite diverse, due to the heavy emphasis on creativity and fresh thinking in the tasks they face. Based on this research, managers selecting people for teams should make heterogeneity their goal.

Research also suggests that cultural values play a role in an employee’s support of, or resistance to, self-managed teams (SMTs).50 This is particularly important as companies expand globally. (Motorola and Eastman Kodak, for example, each

352 Part 3: Performance Excellence and Organizational Behavior

have operations in more than 50 countries.) People from collectivistic cultures— those who value the welfare of the group more than the individual, such as South Korea, China, and Sweden—appear to have more of the skills and attitudes that lead to the acceptance of SMTs. In contrast, people in individualistic cultures like the United States have more of a tendency to resist SMTs. The success of SMTs is therefore related to the extent to which organizations manage culture-based resis- tance. Practitioners should consider using selection systems in each country to obtain employees having those values most compatible with SMT requirements and adopt SMTs that mesh with the cultural values of the country.

Recently, more research on the impacts of diversity is being conducted.51

Although the anecdotal thinking promotes diversity as beneficial, research results suggest some contingencies. For instance, a multimethod field study of 92 work- groups explored the influence of three types of workgroup diversity (social category diversity, value diversity, and informational diversity) and two moderators (task type and task interdependence) on workgroup outcomes. Informational diversity positively influenced group performance, while social category diversity positively influenced group member morale.

However, value diversity decreased satisfaction, intent to remain, and commit- ment to the group. Another study found that social category diversity resulted in increased relationship conflict, even though group members reported increased morale, which runs counter to both conventional wisdom and past research. This study also shed light on patterns that practitioners can expect in diverse work groups. In particular, task conflict is likely in these teams and such conflict may enhance performance, something that managers and members of cross-functional teams can take comfort in. At the same time, race and tenure diversity may increase emotional conflict, especially in new groups with non-routine tasks. Anticipating such a possibility may be critical if organizations hope to manage employees’ back- ground differences successfully.

Discussion Questions and Experiential Exercises

1. Describe the use of teams at KARLEE in the Performance Excellence Profile. How does the team-based structure support perfor- mance excellence?

2. Donald Peterson, former CEO of Ford, said “No matter what you are trying to do, teams are the most effective way to get the job done.” Do you agree? Why or why not?

3. Petronius, a Roman satirist, noted back in 66 A.D.: “We trained hard—but it seemed that every time we were beginning to form up into teams, we would be reorganized. I was to learn later in life we tend to meet any new situation by reorganizing, and a wonderful method it can be for creating the

illusion of progress while producing confu- sion, inefficiency, and demoralization.” What implications does this quote have for modern managers?

4. How might a jazz quartet be viewed as a metaphor for a team in a business situa- tion? If possible, watch the individuals in a jazz quartet in action in addition to simply listening to the music (the author’s favorite is Diana Krall’s Live in Paris DVD!).

5. What are the similarities and differences among the types of teams used in TQ?

6. Think of a team that you are on, or have been on recently. How does it stack up against the criteria for quality teamwork?

Chapter 8: Quality Teamwork 353

What specific steps could be used to improve the performance of your team? How could TQ techniques be used to improve team processes?

7. How are Six Sigma project teams different from the other types of teams discussed in this chapter?

8. How did the team at Norfolk General Hospital illustrate the effective teamwork practices discussed in the text?

9. If self-managed teams can succeed without active intervention from managers, what— if anything—does this imply about the traditional roles of management (to plan, organize, and control) in organizations? Should a new set of roles be identified for such situations?

10. Do you think that the current popularity of teams in organizations is a fad or a funda- mental change in the way we manage orga- nizations? Why?

11. Are teams absolutely necessary for TQ to be successful? Sketch out a plan for a TQ effort that does not involve teams.

12. Discuss the conditions under which team incentives may work. When is it a poor idea to install such systems?

13. How might a team leader deal with “social loafing,” when members of the team are freeloaders, willing to receive the benefits of teamwork without doing the work them- selves? How would you deal with it if it occurred in a class project?

14. How does the Wikipedia virtual team environment reflect the principles discussed in this chapter? For instance, which of Peter Scholtes’ ingredients for a successful team are evident? Can you suggest any improvements to the Wikipedia approach based on these principles?

15. You have undoubtedly been assigned to teams for student projects. Suppose that you are assigned to work with a group of your fellow students on a term project. Draft a team charter that will guide your work. Compare your charter with those of other classmates and discuss similarities and differences.

16. Investigate the extent of team participation at some local companies. What kinds of teams do you find? Do managers believe these teams are effective?

CASES

Golden Plaza Hotel

Sandra Wilford was recently promoted to general manager of the Golden Plaza Hotel, San Francisco. She had previously been an assistant manager at the corporation’s hotel in Denver. The Denver hotel was truly a team-based organization. Sandra had seen the benefits from teamwork that propelled the hotel to the top of the corporation in customer satisfaction ratings. In fact, it was one of the reasons she was asked to take over the San Francisco property. The previous general manager’s policies had created large turnover among the staff and continuing loss of market share that led to his firing.

Sandra was reviewing her notes from a meeting with all the hotel’s supervisors and assistant managers. The meeting had tried to identify why many employ- ees were reluctant to be “team players” or even to participate on teams that she was trying to initiate

based on her experiences in Denver. Among the rea- sons that surfaced were the following:

• Child care obligations, classes, and other outside commitments made it difficult for some associates to meet before or after shifts.

• Many of the custodial workers who were func- tionally illiterate seemed to be uncomfortable in interactions with other associates.

• Several associates feel that their current jobs are simply too demanding to take on the additional meetings that would be necessary.

• One assistant manager felt that some of her peo- ple preferred to work alone and usually disrupted meetings in which they were involved.

• Because of the previous general manager, there was a lot of cynicism among the associates and many didn’t trust management. They felt that teams were simply a political ploy to get support

354 Part 3: Performance Excellence and Organizational Behavior

for unpopular decisions. The previous GM had established some teams that had failed miserably and many associates were bitter and had conflicts with other departments. There seemed to be a widespread attitude of “What’s in it for me?”

• Some associates thought that the expectations of team processes would be overwhelming and were afraid that if the team failed, they would be held personally responsible and their careers would be in jeopardy. Others thought that their jobs might be eliminated.

Sandra stared at this list and wondered what she had gotten herself into. What recommendations would you make to her to address these issues?

The Power of Leadership Teams52

When the top management group at Georgia Power Company’s Plant Hammond decided to become a team, everyone was quite sure that they were already a team and worked pretty well together. The top lead- ership group in early 1995 was 10 people from three management levels and two individual contributors. The management style was much the same as they had been using for many years in the utility industry and was characterized by an emphasis on the chain of command for most decisions—with the important ones made by one or two people. Information and business results were communicated on a “need to know” basis. For the most part, each department operated and made decisions independently.

This management style served the utility business well, given its business requirements. The business was relatively predictable and structured with a regu- lated rate of return, regional market protection, and 100 percent control of access to its own distribution facilities. A watershed development, however, occurred in the early 1990s—a move toward deregulation. This demanded fundamental changes in the way Plant Ham- mond operated and managed its resources.

In the early 1990s, the plant had reduced the num- ber of employees by about one third, resulting in fewer management levels and fewer managers in those levels. In early 1995, the parent organization, Southern Com- pany, implemented a transformation process to improve the plant’s ability to compete.

This transformation process required an emphasis on business results at all levels and creation of an organization culture that could deal with uncertainty and competition.

As the plant manager considered the requirements for the future, he determined that the structure, pro- cesses, and culture of the plant would need to change. Therefore, top management must change how it oper- ated, broadening capabilities at all levels. Processes were needed to manage decision-making risk and gain consensus on direction. A new organizational structure was one of the early steps in their transformation. The structure provided an “outside in” focus—identifying the operations function as the primary internal cus- tomer, and grouped plant activities into several func- tional areas.

However, plant management knew that simply changing the boxes on an organization chart was not sufficient for real change. In the summer of 1995, the plant manager and nine other employees took their first step toward becoming a team when they came together at a facilitated off-site meeting. They clarified individual roles and responsibilities on this new team and began developing team relationships. They agreed that the role of each leadership-team member should be one of “shared responsibilities with a functional focus.” Top managers at the plant could no longer make decisions from only their own departments’ view. In fact, man- agers were required to consider the impact of their decisions—not only on the total plant but also on the total operating system of the Southern Company.

Each member took on the responsibility to cham- pion specific transformation activities for the leader- ship team. The team began to have regular one-day session meetings where they discussed and made deci- sions on strategic and operational issues. This man- agement team took a key developmental step in 1996 by setting expectations for their behavior and present- ing them to their organizations during reviews of the 1996 plant strategic plan. Putting these expectations “on the record” built incentives to act accordingly.

The team found several tools to be helpful in its operation and development. One was a common work plan that served multiple purposes: (1) to ensure integration of their efforts and to track team results; (2) to establish member accountability; (3) to facilitate the delegation of traditional plant manager tasks; and (4) as a catalyst to surface strategic issues. Each team member took responsibility for the accomplishment of particular parts of the work plan.

The team also used various assessment instru- ments to understand and deal with the different indi- vidual styles of team members. Each team member discussed his or her assessment in an open forum. As a result, members made commitments for change

Chapter 8: Quality Teamwork 355

and support. Each team member also formulated his or her own development plan based on these and other assessments.

Because one of the plant’s strategies was to improve the capabilities of the management team, the team worked with an outside consultant to identify strengths and weaknesses. The consultant observed each of the team members in work situations and pro- vided specific personal feedback and suggestions over an extended period of time. Each team member reviewed his or her assessment with the group and asked for reactions and recommendations.

The consultant also provided feedback on group processes and worked in concert with an internal con- sultant to improve teamwork processes.

Discussion Questions 1. What lessons do you think the company learned

about transforming its leadership system to a team-based organization?

2. What conditions do you think are necessary for management teams to become “real teams” and not just a grouping of independent functional managers who cooperate with each other?

3. What challenges do such leadership teams face?

Landmark Dining: Team Processes

Landmark Dining, Inc. (Landmark) is a family-owned and operated steak and seafood restaurant small busi- ness in south Texas. The first restaurant, Harrisburg Station, and its associated catering business, Harrisburg Station Catering, are located in one of the oldest standing landmarks in Houston—a train station built in 1857 in the small settlement then known as Harrisburg. The second restaurant, Texas Lightkeeper, is located in a restored lighthouse built in 1853 in Galveston. Landmark restaurants offer an exceptional dining experience at a good value to the Houston and Galveston metropolitan areas.

As a key strategic challenge, the availability of skilled, motivated employees is essential to Landmark’s competitive success factor of superior service and to its Value of Employee Development. To address that chal- lenge, a focus on teamwork and the development of employees improves service and reduces turnover. Until the early 1990s, work and jobs were organized accord- ing to accepted industry practices. Employees were hired for specific jobs, worked specific hours, and had very little input into how tasks were performed. With the initiation of a formal Strategic Planning Process

and the articulation of its Vision, Mission, and Values, Landmark began to develop innovative processes to manage work and jobs in support of high performance.

In order to facilitate cooperation and empowerment, employees in all business divisions, including Catering, Dinner Delivery Service, and Administration, are orga- nized in empowered process teams that align with its key processes (see Figure 8.2). Each team is responsible for its own scheduling and process improvement, and each has a member in the role of team leader. The team leader is not considered a part of management, but is compensated for assuming required extra duties,

Accurate reservations

Prompt seating

Timely/courteous greeting

Short wait time

Accurate order

Responsive/informed server

Healthy meals

Attractive presentation

Good taste

As described in menu

Appropriate tempo/pace

Dishes removed as finished

Timely event scheduling Positive client relations

(Same as for restaurants)

Delivered/served as planned

Accurate orders

Accurate, on-time delivery

New products and services valued by customers

Favorable menu performance semi-annual menu review Menu changes quarterly

Accurate delivery of products

Restaurants, restrooms, and kitchens clean and free of pests

Purchasing Consortium

Menu Design and Re-engineering

New Product Introduction

HMR Delivery Service

HMR Delivery Order Taking

Delivery and Event Cleanup

Food Prep.

Event Planning

Table Bussing

Table Service

Food Preparation

Order Taking

Reservations and Greeting

Facility Cleaning

A ll

B u

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Endnotes

1. 2000 Malcolm Baldrige National Quality Award Recipient Profile, U.S Department of Commerce.

2. Dictionary of Human Resources and Personnel Management (2006), © A & C Black Publishers Ltd 2006. Retrieved from http://www.credo reference.com/entry/acb/team, accessed 2/6/12.

3. “The New Teamwork,” Fortune, April 28, 2014, 78–82.

4. Geoff Colvin, “Tem Players Trump All-Stars,” Fortune, May 21, 2012; http://management .fortune.cnn.com/2012/05/23/executive-dream- team-players/

5. “A Gold Medal Solution” by Nicole Adrian, Quality Progress, March 2008, pp. 44–49.

6. J. M. Juran, Juran on Leadership for Quality: An Executive Handbook. New York: Free Press, 1989; P. B. Crosby, Quality Is Free: The Art of Making Quality Certain, New York: McGraw-Hill, 1979.

7. David M. Vrooman,Daniel Willard and Progressive Management on the Baltimore and Ohio Railroad, Ohio State University Press, Columbus (1991).

8. James R. Healey, “U.S. Steel Learns from Experi- ence,” USA Today, April 10, 1992.

9. Martha T. Moore, “Hourly Workers Apply Training in Problem Solving,” USA Today, April 10, 1992.

10. Helene F. Uhlfelder, “It’s All About Improving Performance,” Quality Progress, February 2000, pp. 47–52.

11. Richard S. Wellins, William C. Byham, and Jeanne M. Wilson, Empowered Teams: Creating Self- Directed Work Groups That Improve Quality, Productivity, and Participation, San Francisco: Jossey-Bass, 1991, p. 21.

12. The information on quality circles in Japan is from B. G. Dale and J. Tidd, “Japanese Total Quality Control: A Study of Best Practice,” Proceedings of the Institution of Mechanical Engineers, Vol. 205, No. 4, pp. 221–232.

13. Charles Fishman, “How Teamwork Took Flight,” Fast Company, October 1999, p. 188.

14. Ron Williams, “Self-Directed Work Teams: A Competitive Advantage,” Quality Digest, November 1995, pp. 50–52.

15. Peter Lazes and Marty Falkenberg, “Work Groups in America Today,” The Journal for Quality and Participation, Vol. 14, No. 3, June 1991, pp. 58–69.

16. Gina Imperato, “Their Specialty? Teamwork,” Fast Company, January 2000, p. 54.

17. Jane E. Henry and Meg Hartzler, “Virtual Teams: Today’s Reality, Today’s Challenge,” Quality Progress, May 1997, pp. 108–109.

18. Josh Hyatt, “The Soul of a New Team,” Fortune, June 12, 2006, pp. 134–143.

19. Juran, Juran on Leadership for Quality. 20. Eileen M. van Aken and Brian M. Kleiner,

“Determinants of Effectiveness for Cross- Functional Organizational Design Teams,” Quality Management Journal, Vol. 4, No. 2, 1997, pp. 51–79.

21. “Platform Approach at Chrysler,” Quality ’93: Empowering People with Technology, Fortune, September 20, 1993, advertisement.

22. Brock Yates, The Critical Path, Boston: Little, Brown and Co., 1996, p. 76.

23. Based on Jerry G. Bowles, “Leading the World- Class Company,” Fortune, September 21, 1992.

24. P. Alexander, M. Biro, E. G. Garry, D. Seamon, T. Slaughter, and D. Valerio, “New Organizational Structures and New Quality Systems,” in J. P. Kern, J. J. Riley, and L. N. Jones (eds.), Human Resources Management, Milwaukee: ASQ Quality Press, 1987, pp. 203–268.

25. Peter R. Scholtes, et al., The Team Handbook: How to Use Teams to Improve Quality, Madison, WI: Joiner Associates, Inc., 1988, pp. 6-10–6-22.

26. Geoffrey Colvin, “Why Dream Teams Fail,” Fortune, June 12, 2006, pp. 87–92.

27. Michael Jaycox, “How to Get Nonbelievers to Participate in Teams,” Quality Progress, March 1996, pp. 45–49.

28. Van Aken and Kleiner, op. cit. 29. Wellins et al., Empowered Teams, p. 147. 30. Partially based on Wellins et al., Empowered

Teams, and H. J. Harrington, The Improvement

including (1) ensuring the team schedule is developed, (2) training new employees and providing refresher training for all team members, (3) monitoring and coordinating improvement of the team’s processes (including reporting metrics), and (4) providing input for team members’ performance appraisals.

Assignment: Examine Landmark’s processes in Figure 8.2 and develop a “white paper” proposing how teams can best accomplish their work in ensuring that process requirements are accomplished. Address such issues as team membership and roles and team processes in your response.

Chapter 8: Quality Teamwork 357

Process: How America’s Leading Companies Improve Quality, New York: McGraw-Hill, 1987.

31. Willard C. Rappleye, Jr., “Diversity in the Work- force,” Across the Board, Vol. 37, No. 10, November/December 2000, special advertising section.

32. This point is based on a model developed by I. Steiner in his book Group Process and Productiv- ity, New York: Academic Press, 1972.

33. The problems of differential status in groups are discussed by Alvin Zander in Making Groups Effective, San Francisco: Jossey-Bass, 1982.

34. Stuart F. Brown, “The Right Stuff,” Fortune, June 12, 2006, special insert: “The Secrets of Greatness.”

35. Deborah G. Ancona and David F. Caldwell, “Bridging the Boundary: External Activity and Performance,” Administrative Science Quarterly, Vol. 37, No. 4, December 1992, p. 634.

36. The classic statement of this problem is by Irving Janis in his book Groupthink, 2nd ed. Boston: Houghton-Mifflin, 1982.

37. Wellins et al., Empowered Teams. See also S. A. Snell and J. W. Dean, Jr., “Integrated Manufacturing and Human Resource Manage- ment: A Human Capital Perspective,” Academy of Management Journal, August 1992, pp. 467–504.

38. Douglas McGregor, “An Uneasy Look at Perfor- mance Appraisal,” Harvard Business Review, September/October 1972; Herbert H. Meyer, Emanuel Kay, and John R. P. French, Jr., “Split Roles in Performance Appraisal,” Harvard Busi- ness Review, January/February 1965; Harry Levinson, “Appraisal of What Performance?” Harvard Business Review, January/February 1965; A. M. Mohrman, Deming versus Performance Appraisal: Is There a Resolution? Los Angeles: Center for Effective Organizations, University of Southern California, 1989.

39. John F. Milliman and Fred R. McFadden, “Toward Changing Performance Appraisal to Address TQM Concerns: The 360-Degree Feed- back Process,” Quality Management Journal, Vol. 4, No. 3, 1997, pp. 44–64.

40. Stanley M. Moss, “Appraise Your Performance Appraisal Process,” Quality Progress, November 1989, p. 60.

41. M. Ángeles Escribá-Moreno, Maria Teresa Canet- Giner, and María Moreno-Luzón, “TQM and

Teamwork Effectiveness: The Intermediate Role of Organizational Design,” Quality Management Journal, 15, 3, pp. 41–59.

42. William I. Norton Jr. and Lyle Sussman, “Team Charters: Theoretical Foundations and Practical Implications or Quality and Performance,” Quality Management Journal, 16, 1, pp. 7–17. Also see Van Aken and Kleiner, op. cit.

43. Based on Kevin Anderson, “X-Ray Processing Time Cut 81%,” USA Today, April 10, 1992.

44. “The International Team Excellence Award” by ASQ Staff, Journal for Quality and Participation, June 2004, pp. 34–41.

45. Adapted from Ira Moskowitz and Ken Bethea, “Self-Directed Work Teams at Analog Devices,” Center for Quality of Management Journal, Vol. 9, No. 1, Summer 2000, pp. 17–24.

46. “The Wonder of Wikipedia,” Fortune, June 12, 2006, p. 140.

47. William M. Fox, “Sociotechnical System Principles and Guidelines: Past and Present,” The Journal of Applied Behavioral Science, Vol. 3, No. 1, March 1995.

48. G. C. Homans, The Human Group, New York: Harcourt, Brace, and World, 1959, p. 2.

49. E. Trist and K. W. Bamforth, “Some Social and Psychological Consequences of the Long Wall Method of Coal-Getting,” Human Relations, Vol. 4, No. 1, 1952, pp. 3–38.

50. Bradley L. Kirkman and Debra L. Shapiro, “The Impact of Cultural Values on Employee Resistance to Teams: Toward a Model of Globalized Self- Managing Work Team Effectiveness,” Academy of Management Review, Vol. 22, No. 3, 1997, pp. 730–757.

51. This discussion stems from Karen A. Jehn, Gregory B. Northcraft, and Margaret A. Neale, “Why Dif- ferences Make a Difference: A Field Study of Diversity, Conflict, and Performance in Work- groups,” Administrative Science Quarterly, Vol. 44, No. 4, December 1999, pp. 741–763; and Lisa Hope Pelled, Kathleen M. Eisenhardt, and Katherine R. Xin, “Exploring the Black Box: An Analysis of Work Group Diversity, Conflict, and Performance,” Administrative Science Quarterly, Vol. 44, No. 1, March 1999, pp. 1–28.

52. Adapted from Billie R. Day and Michael Moore, “Plugging Into the Power of Leadership Teams,” The Journal for Quality and Participation, May/June 1998, pp. 21–24.

358 Part 3: Performance Excellence and Organizational Behavior

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9ENGAGEMENT, EMPOWERMENT,AND MOTIVATION Performance Excellence Profile: Veterans Affairs Cooperative Studies Program Clinical Research Pharmacy Coordinating Center1

The Veterans Affairs Cooperative Studies Program (VACSP) Clinical Research Pharmacy Coordinating Center (the Center) is a federal government organization that supports clinical trials targeting current health issues for America’s veterans. The Center focuses on the pharmaceutical, safety, and regulatory aspects related to designing and implementing clinical trials conducted worldwide by the VACSP and other federal agencies and industries. The Center manufactures, packages, stores, labels, distributes, and tracks clinical trial materials (drugs and devices), and monitors patient safety.

The Center has five core values—leadership, customer service, safety, teamwork, and continuous learning—that support goals and help yield outstanding performance results, including the following examples:

• The Center’s financial results demonstrate its success and sustainability; its revenues grew 143 percent from 2002 to 2008, compared to 58 percent for the Veterans Affairs (VA) over the same period.

• The Center’s 2008 productivity of $221,000 in revenue per full-time employee compares favorably to eight top competitors, with the highest competitor’s performance at approximately $195,000.

• Since 2001, zero quality defects in the Center’s pharmaceuticals have been reported by customers for all but one of those years.

Such success stems from an agile, learning organization that supports sustainability through several team approaches: a fully deployed matrix- management system, an interlocking committee governance structure, and cross-functional strategic planning teams.

The matrix-management system creates teams from different functional sections at the outset of each clinical trial. With each employee serving as a member of both a functional section and a clinical trial team, the matrix

359

organization ensures open communication, cooperation, and skill-sharing across the entire company.

Performance excellence requires an organization to have an engaged workforce as well as engaged customers. To keep that concept fresh in the minds of all who work at the Center, every employee badge is inscribed with the following mantra: “Our commitment to quality is integral to the way we conduct our operations, treat our employees, and honor our commitments to customers. We reinforce our commitment to quality through visionary leadership, employee development, continuous improvement, and a systematic focus on safety and our customers.”

The Center sees engagement as the single most important criterion for workforce satisfaction. Excellence in the workplace, superior customer service, and personal involvement in organizational improvement are rewarded through the Center’s performance management system with visible, tangible benefits, such as time off or cash. Both management and peers can use multiple methods to recognize a job well done. The Center also encourages career and personal advancement for its workforce by providing financial and other support for education and training. In fact, application of formal and informal learning is required for employees to be eligible for the organization’s highest performance rating.

The Center’s ratings for workforce engagement have outperformed the Gallup Q12 75th percentile for the Professional, Scientific, and Technical Services segment, and for workforce satisfaction, results have exceeded Gallup’s overall 75th percentile. Low turnover, a supportive learning environment, and leadership effectiveness are factors in the Center’s recognition as a Federal Executive Board Employer of Choice for 2008 and 2009, as well as a top 10 ranking in the “New Mexico Best Places to Work for 2009.”

Toyota’s Georgetown, Kentucky, plant has been a multiple winner of the J. D. Power Gold Plant Quality Award. When asked about the “secret” behind the super- ior Toyota paint finishes, one manager replied, “We’ve got nothing, technology- wise, that anyone else can’t have. There’s no secret Toyota Quality Machine out there. The quality machine is the workforce—the team members on the paint line, the suppliers, the engineers—everybody who has a hand in production here takes the attitude that we’re making world-class vehicles.”2 High-performing organiza- tions like the VACSP have recognized that engaged employees (associates, team members, stakeholders, or whatever term may be used to describe employees) deliver better performance and generate satisfied customers. Nevertheless, the Gallup organization estimates that over half of the nation’s employees are not engaged and a significant percentage are actually actively disengaged in their work!

This chapter will:

• explain the scope of employee engagement, • explain the importance of empowerment and principles of successful

empowerment,

360 Part 3: Performance Excellence and Organizational Behavior

• provide examples of firms practicing employee engagement, and • link engagement and empowerment to theories of motivation.

WORKFORCE ENGAGEMENT

Businesses have learned that to satisfy customers, they must first satisfy the work- force. FedEx, for instance, has found direct statistical correlation between customer and workforce satisfaction; a drop in workforce satisfaction scores precedes a drop in customer satisfaction by about two months. Academic research has found similar relationships.3 For example, in a study of service operations in industries ranging from communications to banking to fast food, researchers found that as workforce satisfaction increased, so did customer satisfaction and loyalty to the organization. If employees were satisfied with their working conditions and jobs, they stayed with the company, became familiar with customers and their needs, had the opportunity to correct errors because the customers knew and trusted them, and had outcomes of higher productivity and high service quality. Customers of these firms became more loyal, thus providing more repeat business, were will- ing to complain about service problems so that employees could fix them, and benefited from the relationship by seeing lower costs and better service, thus leading to a new cycle of increased customer satisfaction.

So how can organizations create more satisfied employees? One way is to engage them in their work and make them a part of the “fabric” of the organi- zation. A professor at the London Business School noted that instead of asking “How do we get people to serve our company?”, managers should ask, “How do we create a work environment and a sense of belonging and purpose to develop creativity and passion?”4 Workforce engagement refers to the extent of workforce commitment, both emotional and intellectual, to accomplishing the work, mission,

TOP TEN DRIVERS OF WORKFORCE ENGAGEMENT

A global benchmarking study of employee engagement conducted by Right Management identified the following as the top 10 drivers (among 26 in the survey) of workforce engagement:5

1. Commitment to organizational values. 2. Knowing that customers are satisfied with

products and services. 3. Belief that opinions count. 4. Clearly understanding work expectations. 5. Understanding of how personal contributions

help meet customer needs. 6. Being recognized and rewarded fairly.

7. Knowing that senior leaders value the workforce.

8. Being treated equally with respect. 9. Being able to concentrate on the job and

work processes. 10. Alignment of personal work objectives to

work plans.

The study found that the drivers of engage- ment vary by country. However, one driver was constant across all countries: Commitment to organizational values. This suggests the impor- tance of creating and building a values-driven organization.

Chapter 9: Engagement, Empowerment, and Motivation 361

and vision of the organization. It simply means that workers have a strong emotional bond to their organization, are actively involved in and committed to their work, feel that their jobs are important, know that their opinions and ideas have value, and often go beyond their immediate job responsibilities for the good of the organization. Engagement leads to greater levels of satisfaction among the workforce.6 Further- more, engagement improves organizational performance.7 A survey of 55,000 work- ers by the Gallup Organization found that four key employee attitudes, taken together, correlate strongly with higher profits:

• Workers feel they are given the opportunity to do what they do best every day.

• They believe their opinions count. • They sense their fellow workers are committed to quality. • They’ve made a direct connection between their work and the company’s

mission.

Related research supported the conclusions that workforce satisfaction and engage- ment is strongly correlated with business-unit outcomes of customer satisfaction, productivity, profit, employee retention, and employee safety, and that these results generalize across organizations. For example, a study of Spanish firms suggested that organizational success depends to a greater extent on the leadership, human resource (HR) management, and learning factors and quality planning, and to a lower extent upon other practices. Firms showing a higher concern for empower- ment, personnel policies, and work knowledge were those with a wider implemen- tation of Total Quality (TQ) practices and better performance. Another study comparing U.S. and Japanese firms found that innovative HR practices lead to higher productivity.8

The benefits of workforce engagement have become obvious to many man- agers, such as Art Wegner, president of Pratt & Whitney, a producer of jet engines: “If I try to make a lot of decisions with the goal of reducing costs by 30 percent, I’m not likely to understand all the issues very well. But if you get everybody—all those people in the organization—asking themselves, ‘How am I going to get 30 percent of the costs out of there?’ the power of that is unbelievable.”9

IT’S NOT MY JOB—IT’S OUR JOB

Engagement is manifest in Deming’s concept of “pride and joy” in work. A compelling example of workforce engagement occurred in 2002 when former Southwest Airlines CEO Herb Kelleher sent a letter concerning the current fuel cost crisis to the home of every employee. “Jet fuel costs three times what it did one year ago. Southwest uses 19 million gallons a week. Our profitability is in jeopardy,” he wrote. He asked

each worker to help by identifying a way to save $5 a day. That would, he explained in the letter, save Southwest $51 million annually. The response was immediate. A group of mechanics figured out how to reduce the costs of heating the aircraft. Another department offered to do its own janitorial work. Within six weeks of the letter being sent to the employees, this large organi- zation found ways to save more than $2M.10

362 Part 3: Performance Excellence and Organizational Behavior

Although engagement is relevant for all aspects of organizational performance, it plays a special role in quality improvement. TQ requires people to make real changes in the way work is done and relies on in-depth understanding of the cur- rent system. Only employees involved in the system day-to-day possess such an understanding, which is why so many managers see involved employees as an inte- gral part of TQ. As one survey concluded, “Employee involvement … may be viewed as creating the organizational context needed to support quality improve- ment processes.’’11 The relationship between engagement and quality is summa- rized in Figure 9.1.

Organizations that provide an environment in which workers can do their best every single day foster engagement. This includes providing job autonomy, the right tools and equipment to do a quality job, challenging work and continuous learning opportunities, flexible work options, involvement in decision-making, recognition for a job well done, managers and supervisors showing sincere care and encouragement along with effective communication, and a healthful and safe work environment with satisfying social relationships. One need only look at Fortune magazine’s annual list of the “100 Best Companies to Work For” to support these findings (see box “How Can You Not Love Working Here?”). As Hal Rosenbluth, president of Rosenbluth Travel, puts it, “By maintaining an enjoyable, bureaucracy- free work environment, one that encourages innovative thinking … and honest com- munication, people are freed to concentrate solely on the needs of the clients.”12

Employee engagement is rooted in the psychology of human needs and sup- ported by the motivation models of Maslow, Herzberg, and McGregor. Employees are motivated through exciting work, responsibility, and recognition. Engagement provides a powerful means of achieving the highest order individual needs of self- realization and fulfillment. Employee engagement offers many advantages over traditional management practices as it:

• Replaces the adversarial mentality with trust and cooperation • Develops the skills and leadership capability of individuals, creating a sense

of mission and fostering trust • Increases employee morale and commitment to the organization

Continuous Improvement

Quality Products and

Customer Service Engagement

Job Satisfaction

FIGURE 9.1 | HOW ENGAGEMENT LEADS TO QUALITY

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Chapter 9: Engagement, Empowerment, and Motivation 363

• Fosters creativity and innovation, the source of competitive advantage • Helps people understand quality principles and instills these principles into

the corporate culture • Allows employees to solve problems at the source immediately • Improves quality and productivity14

Engagement begins with involvement. Employee involvement (EI) refers to any activity by which employees participate in work-related decisions and improvement activities, with the objectives of tapping the creative energies of all employees and improving their motivation. Tom Peters suggested involving everyone in every- thing, in such activities as quality and productivity improvement, measuring and monitoring results, budget development, new technology assessment, recruiting and hiring, making customer calls, and participating in customer visits.15

Pete Coors, CEO of Coors Brewing, explained it simply, “We’re moving from an environment where the supervisor says, ‘This is the way it is going to be done and if you don’t like it, go someplace else,’ to an environment where the supervisor can grow with the changes, get his troops together and say, ‘Look, you guys are oper- ating the equipment, what do you think we ought to do?’”16 EI approaches can range from simple sharing of information or providing input on work-related issues and making suggestions to self-directed responsibilities such as setting goals, making business decisions, and solving problems, often in cross-functional teams.

EI initiatives are by no means new. Many programs and experiments have been implemented over more than 100 years by industrial engineers, statisticians, and behavioral scientists. Early attempts influenced modern practices considerably. Unfortunately, these approaches lacked the complementary elements of TQ, such as a customer orientation, top management leadership and support, and a common set of tools for problem solving and continuous improvement.

One of the easiest ways to involve employees on an individual basis is the suggestion system. An employee suggestion system is a management tool for the submission, evaluation, and implementation of an employee’s idea to save cost, increase quality, or improve other elements of work such as safety. Companies typically reward employees for implemented suggestions. At Toyota, for instance, employees generate nearly 3 million ideas each year—an average of 60 per

HOW CAN YOU NOT LOVE WORKING HERE?13

At Google, you can do your laundry; drop off your dry cleaning; get an oil change, then have your car washed; work out in the gym; attend subsidized exercise classes; get a massage; study Mandarin, Japanese, Spanish, and French; and ask a per- sonal concierge to arrange dinner reservations. Naturally, you can get haircuts onsite. Want to buy a hybrid car? The company will give you $5,000 toward that environmentally friendly end. Care to

refer a friend to work at Google? Google would like that too, and it’ll give you a $2,000 reward. Just had a new baby? Congratulations! Your employer will reimburse you for up to $500 in takeout food to ease your first four weeks at home. Looking to make new friends? Attend a weekly TGIF party, where there’s usually a band playing. Five onsite doctors are available to give you a checkup, free of charge.

364 Part 3: Performance Excellence and Organizational Behavior

employee—of which 85 percent are implemented by management. Suggestion systems are often tied to incentives.

Wainwright Industries developed a unique and effective approach that has been benchmarked extensively.17 Suggestion programs were viewed as neither sys- tematic nor continuous, and not woven into the fabric of daily operations. Their approach was designed to overcome these shortcomings in the following ways:

• Focusing employees on small, incremental improvements within their own areas of responsibility and control

• Recognizing all employees for their level of participation regardless of the value of the improvement

• Scaling team-based improvement efforts in a way that minimizes downtime and provides people with the tools and techniques to produce successful outcomes

• Positioning supervisors as the catalyst for cultural change through a coaching and support role in the employee involvement and improvement process

The process contains two main components: individual implemented improve- ments and team-based system improvements. Rather than submitting suggestions for someone else to approve and implement, employees are provided with training and given the responsibility to take the initiative to make improvements on their own without prior approval within the scope of their main job responsibilities. Upon making improvements, they complete a form to document what they have done and present it to the supervisors, whose role is not to approve or disapprove, but to acknowledge the improvement and to point out any issues that the employee needs to understand. All forms submitted during the week are placed into a ran- dom drawing for some type of award determined by the individual unit. At the end of each quarter, every individual who met his or her goal of implemented improvements receives some type of valued recognition. The team-based approach breaks large initiatives into smaller manageable projects. Breaking down large tasks allows employees to understand how their individual jobs fit into the big pic- ture and maximizes participation reduces time requirements for any particular employee. Wainwright was able to cite more than 50 implemented improvements

NOT GETTING LEAN ENOUGH? LOOK AT EMPLOYEE INVOLVEMENT

A research study compared a sample of suc- cessful lean initiatives with less successful ones and concluded that a critical component miss- ing in underperforming initiatives is the ability to get large numbers of improvement ideas from front-line employees. “High-performing idea systems”—which the authors define as those that implement 12 or more ideas per employee per year—were found to be a major factor in successful lean initiatives for three

reasons. First, they created a “lean culture” of daily improvement. Second, they addressed improvement opportunities that were difficult for managers to spot. Third, they promoted rapid organizational learning. They also suggest reasons that such systems are relatively rare in business: reliance on the old suggestion box and the fact that they frequently require signifi- cant and difficult changes in operating practices.18

Chapter 9: Engagement, Empowerment, and Motivation 365

per employee per year, far exceeding those of most American and Japanese companies.

Fostering employee creativity has many benefits. Thinking about solutions to problems at work makes even routine work enjoyable; writing down the suggestions improves workers’ reasoning ability and writing skills. Satisfaction is the by-product of an implemented idea and a job made easier, safer, or better. Recognition for sug- gestions leads to higher levels of motivation, peer recognition, and possible monetary rewards. Workers gain an increased understanding of their work, which may lead to promotions and better interpersonal relationships in the workplace.

EMPOWERMENT

Empowerment represents the highest level of engagement. Empowerment means giving someone power—granting the authority to do whatever is necessary to sat- isfy customers, and trusting employees to make the right choices without waiting for management approval. The objective of empowerment is “to tap the creative and intellectual energy of everybody in the company, not just those in the executive suite … to provide everyone with the responsibility and the resources to display real leadership within their own individual spheres of competence.”19 By empower- ing employees, organizations drive decision making down to its lowest possible level. Empowerment allows organizations to flatten their organizational structure because fewer managers are needed to “direct and control” employees. Giving employees responsibility for their own work has led not only to improvements in motivation, customer service, and morale, but also to improvements in quality, productivity, and the speed of decision making.20

Empowerment is a natural extension of EI concepts. In some companies, empowerment is used as the umbrella term for increasing EI in decision making. Empowerment is more than another term for involvement, however. It represents a high degree of involvement in which employees make decisions themselves and are responsible for their outcomes. This is a more radical change than having employees merely participate in managers’ decisions, even when they are given some influence (see Figure 9.2).

Examples of empowerment abound. Self-managed teams discussed in the previous chapter are perfect examples. Workers in the Coors Brewery container operation give each other performance evaluations, and even screen, interview, and hire new people for the line. At Motorola, sales representatives have the authority to replace defective products up to six years after purchase, a decision that used to require top manage- ment approval. Hourly employees at GM’s antilock brake system plant in Dayton, Ohio, can call in suppliers to help solve problems, and manage scrap, machine down- time, absences, and rework. See box “Stuff Happens” for a good example.

Participation

Low Small

Empowerment

High Large

Involvement Change f rom Traditional Organization

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366 Part 3: Performance Excellence and Organizational Behavior

One survey found that more than 40 percent of the largest U.S. corporations are moderate to high users of EI practices such as empowerment.21 Manufacturing, especially in the chemical and electronics industries, has tended to empower employees more than service organizations, although the financial services industry has taken a leading role.

Empowerment has even played a role in such business successes as the Ford Taurus program.22 Employee ideas were responsible for reducing the number of different welding guns on the assembly line from three to one and for developing a standard screw size for use in the car’s interior plastic moldings. Although these changes may not sound very dramatic, a Ford executive estimated that such ideas often are worth more than $300,000 each.

The need to empower the entire workforce in order for quality to succeed has long been recognized, even if it is only recently coming into practice. Five of Deming’s 14 Points relate directly to the notion of empowerment.

Point 6: Institute training.

Point 7: Teach and institute leadership.

Point 8: Drive out fear. Create trust. Create a climate for innovation.

Point 10: Eliminate exhortations for the workforce.

Point 13: Encourage education and self-improvement for everyone.23

Juran wrote that “ideally, quality control should be delegated to the workforce to the maximum extent possible.”24 Empowerment resembles Juran’s concept of “self-control.” For employees to practice self-control, they must know their unit’s goals and their actual performance and have a means for changing performance if the goals are not being met.25 Although it is a difficult struggle, organizations are increasingly meeting these conditions.

For empowerment to occur, managers must undertake two major initiatives:26

1. identify and change organizational conditions that make people powerless and 2. increase people’s confidence that their efforts to accomplish something impor-

tant will be successful.

The need to do both of these implies that organizational systems often create powerless employees and that these systems must be changed first. Examples of sys- tems in need of change are those that specify who can (and cannot) make certain types of decisions and systems of standard operating procedures (and who can over- ride them). Even when systems are changed to permit empowerment, individuals who have lived under those systems are not readily able to operate in an empowered manner. The other need in empowering people is to deal with the psychological aftereffects of powerlessness by convincing people that they are in fact able to “make a difference.” Empowerment is an application of the teamwork principle of TQ, embodying “vertical” teamwork between managerial and nonmanagerial personnel. If employees are given important responsibilities—and the authority that goes along with them—it is more realistic to describe their relationship with management as teamwork than it would be in a hierarchical system. After all, people can hardly be seen as team members if they only execute decisions made by others.

Chapter 9: Engagement, Empowerment, and Motivation 367

The traditional treatment of employees by American managers led W. Edwards Deming to plead with managers to drive out fear—defined as “feeling threatened by possible repercussions as a result of speaking up about work-related concerns.”28

Today, managers in quality-oriented companies, hampered by decades of policies encouraging employees to keep their ideas to themselves, struggle to find ways to encourage employees to take responsibility for their work.

PRINCIPLES OF EMPOWERMENT

Although many organizations have undertaken the journey toward empowerment, many have become lost along the way. Empowerment may sound easy, but there is a lot more to it than telling employees they are (poof!) empowered, like the Fairy Godmother’s transformation of Cinderella before the ball. A number of principles are involved in successfully giving power to employees.

Empower Sincerely and Completely It should go without saying that empower- ment must be done sincerely. It cannot be done superficially. One executive observed that in many large companies, empowerment is 90 percent psychological and only fractionally real.29 To gain its benefits, managers must empower for its improvement value, not for its public relations value. As Dan Ciampa, a consultant with expertise in empowerment, puts it: “Simply bringing employees together once a month and exhorting them to work harder to achieve the business’s objectives is not enough.”30

A process is needed that enables them to make significant improvements in their own work area that help meet the business imperatives in a way that will satisfy the needs of the individual employee.31 Furthermore, nothing could be worse for employ- ees than to be told they are responsible for something, only to be jerked back at the first sign of trouble or uncertainty. Managers must think long and hard before making

STUFF HAPPENS27

Jim Kelly, UPS chairman and CEO recounted an example of empowerment in a speech to Rutgers University:

At UPS, we’ve got thousands of heroes every day. Not the kind that make headlines, but the kind that do make a difference. For instance, there’s the story of an account executive who took responsi- bility for a damaged parcel that was packed incor- rectly. This particular parcel was a rare numbered art print sent by an elderly homebound couple in Florida to their son in Wisconsin. The print was valued at $350, but it had much greater emotional value. It was a beautiful limited edition of an elk in a forest, and the couple sent it as a best wishes offering to their son who raised elk on his farm.

It arrived in Wisconsin badly damaged. The elderly couple was devastated.

However, our account executive in Wisconsin wanted to help. A wildlife art collector himself, he knew that most artists keep a couple of extra unnumbered prints around for such misfortunes. He contacted the artist in Florida, had a new print renumbered and shipped back to Wisconsin. He then personally delivered it to the delighted son. The son was impressed. His parents were overjoyed. The point is, one of our people took a lot of initiative and responsibility for a problem he didn’t even directly cause. He took a bad situation and turned it into a customer-for-life situation.

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the commitment to empowerment—once done, it can’t be done halfway. Semi- empowerment just doesn’t work. Senior managers need to ask three critical questions:

1. How can I make fewer decisions, thereby letting others become more involved in managing the business?

2. How can I teach others how to make solid decisions once they’re given the chance?

3. How can I recruit others to be more aware of changes that need to be made in order to keep our company competitive—and then help them feel they can make these changes without begging for permission each and every time?32

This does not mean that there should be no limits. On the contrary, managers must be clear on exactly what responsibility and authority rests with employees. Questions such as “What procedures can we change?” and “How much money can we commit?” must be answered ahead of time. Finally, managers must be willing to wait for results, as miracles do not happen overnight.33

Establish Mutual Trust As Juran has put it, “The managers must trust the work- force enough to be willing to make the delegation, and the workforce must have enough confidence in the managers to be willing to accept the responsibility.”34

Trust is not created just by saying you trust someone; it must be backed up by actions (see box “All You Need Is Trust”).

ALL YOU NEED IS TRUST35

Texas Nameplate Company (TNC) was introduced in the opening Performance Excellence Profile in Chapter 3. When serious work started on reducing nonconformances through statistical process control in 1992, total nonconformances amounted to about 15–18 percent of billing—a significant amount of lost profit. Improvement activities were able to drive that rate down to 3.7 percent by 1997, in an industry that averages around 10 percent. But Dale Crownover, the company president, wasn’t happy. He started a gainsharing plan that distrib- uted bonuses equally to all employees, beginning with nonconformance rates of less than 5 percent. Results were posted daily. By the end of 1997, TNC employees whittled nonconformances down to 1 percent. In January 1998, in an attempt to further carve away at the problem, TNC did away with its quality control department. In the first month following that move, which Crownover said was part of the company’s strategic plan,

nonconformances were cut in half. Quality improvement now comes through DOIT—Daily Operation Innovation Team—consisting of super- visors who meet every other week to discuss accomplishments and opportunities for further improvements. They are charged with sharing information discussed at meetings with their employees.

“People on the floor can figure out what’s hap- pening and make adjustments the fastest,” says Troy Knowlton, company operations manager. He added that they are quick to help out when one person is having a problem; they know what’s at stake. “People listen to peers more than supervi- sors. We tried that for 45 years, and it didn’t work. We have found the value of letting people do the work, with management providing the guidance.” Not surprisingly, in 1998 TNC became the smallest company ever to receive a Baldrige Award and repeated this accomplishment a second time.

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In one plant utilizing self-managed teams, trust was symbolized by giving each new employee a key to the plant, a highly unusual practice.36 The ultimate issue for many employees, however, is job security. They must trust that management will not take advantage of productivity increases to cut the workforce, in effect working themselves out of a job. Firms embarking on EI activities often make explicit commitments to this effect to employees.37 Southwest Airlines, for example, has never downsized a single employee, even through jet fuel spikes, recessions, and the Gulf War.

Even in the aftermath of the September 11, 2001, terrorist attacks, when com- petitors announced job cuts of 20 percent, Southwest managers schemed how to cut costs by delaying deliveries of new planes and scrapping plans to renovate headquarters. CEO James F. Parker noted, “We are willing to suffer some damage, even to our stock price, to protect the jobs of our people.” Think employees are fiercely loyal? You bet. And empowerment is a major principle of the airline’s philosophy, as the example in Chapter 4 illustrated.

Provide Employees with Business Information For empowerment to succeed, it must focus on making the organization more competitive.38 Empowerment can contribute to organizational performance only if employees have access to the nec- essary information about the business and its performance, such as their personnel files and resources such as the quality improvement budget.39 Information about the employees’ department or other subunit is particularly necessary, as this is the level of performance that they can affect. Sharing business information with employees relates directly to quality, customer service, and competitiveness.40 At DuPont’s Delaware River plant, for example, management shares cost figures with all workers.41 By sharing this information, management believes that workers will think more for themselves and identify with company goals. To help employees make decisions on issues affecting production, a department manager at Texas Eastman Chemicals Plant supplied operators with a daily financial report that showed how their decisions affected the bottom line. As a result, department profits doubled in four months and quality improved by 50 percent as employees began suggesting cost-saving improvements.42

In the absence of appropriate information, empowered employees may squan- der their power on problems that are not very important. As Peter Senge has put it, “Empowering the individual where there is a relatively low level of alignment [between organizational and employee goals] worsens the chaos and makes manag- ing … even more difficult.”43

The criticism of misplaced goals was often leveled at earlier EI efforts, such as quality circles. Although managers formerly blamed employees for having the wrong priorities, sophisticated managers today recognize that they are responsible for providing employees with the information necessary to develop educated priorities.

Ensure That Employees Are Capable “You can’t empower incompetence,” says one manager. If employees are going to take on important organizational responsibilities, they must be prepared to do so. To operate in an empowered, TQ environment, employees must possess not only technical skills (including

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statistics) but also interpersonal and problem-solving skills (see box “Spilling the Beans: Secrets of Starbucks’ Success”). Unfortunately, many people entering the workforce today lack even the most basic skills in reading and math, let alone these relatively advanced skills.44

Employee capability can be ensured through selection and training processes. Unless the HR processes are adapted to provide capable employees, empowerment cannot succeed, and management’s worst nightmares will be realized. Unfortu- nately, many employees are not trained in these areas, which helps explain the mixed results many organizations have had with empowerment.45

A Corning Glass plant in Erwin, New York, exemplifies this principle.46

The union agreed to replace 21 different jobs with one “specialist” job. Employees were placed in teams and given broad authority over production scheduling and the division of labor. Did a bright new day dawn at Erwin? Not exactly. Conflict and confusion went up, and productivity went down. Plant manager Gary Vogt concluded: “We took steps to empower people, but the desired outcomes were not reached because we had not prepared them.” An elaborate training program was created, and workers now become certified for the various tasks in the operation through testing. The promise of empowerment is now being fulfilled, and quality and productivity have increased.

Empowerment also requires that employees understand their appropriate limits of discretion. At The Ritz-Carlton Hotel Company, L.L.C., each employee can “Move heaven and earth” and spend up to $2,000 to satisfy a customer. However,

SPILLING THE BEANS: SECRETS OF STARBUCKS’ SUCCESS47

Starbucks Coffee, which grew from a small Seattle retailer to a national phenomenon, can be found in cities and airports across America, as well as up in the friendly skies. Its consistency and precision stem from its employee training program. All “partners,” as employees are called, complete five classes during their first six weeks with the company, including “Brewing the Perfect Cup,” “Coffee Knowledge,” and “Customer Service.” All partners have to memorize and practice the rules. Milk must be steamed to at least 150º F but never more than 170º F. Every espresso shot must be pulled within 23 seconds—or tossed. Trainers demonstrate how to wipe oil from the coffee bin, open a giant bag of beans (“In a sanitary manner! You never put your hand in there!”), and clean the milk wand on the espresso machine (“It’s like blowing a little boy’s nose”). They demonstrate how to fill sacks with coffee and affix a sticker

exactly one-half inch over the Starbucks logo. Practicing on lattes, the trainer cries out, “Fabulous foam! It’s okay to practice in your stores. Pull ten shots and dump ’em. And what does it taste like when the milk in your latte is 190º F? Be a mad scientist behind the bar … you’ll understand why customers complain.”

Three guidelines (Star Skills) govern interper- sonal relations: maintain and enhance self-esteem, listen and acknowledge, and ask for help. Throughout the training, partners are encouraged to share their feelings about selling, about coffee, about working for the company. They also learn relaxation techniques so they can focus on the cappuccinos, to take personal responsibility for the cleanliness of the coffee bins—even when it’s someone else’s job—and to treat partners respectfully and do the right thing when one of them spills a gallon of milk.

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whenever they apply this privilege, they must complete a report that explains the problem and actions taken, which is evaluated to determine why the problem occurred, take preventive measures, and ensure that the empowered action taken was appropriate.

Don’t Ignore Middle Management A well-known principle of organization theory popularized by Deming is that organizations are systems. When changing one part of an organization, it is necessary to consider the effects of the change on other parts of the system. Thus, managers must consider how empowering lower-level employees will affect middle managers. If the needs and expectations of middle managers are ignored, empowerment will be confusing at best and disas- trous at worst. One manager described the situation with middle managers in his company like this:

We pretty much promoted people because of their technical knowledge, not their management skills. Therefore we have a group of people in supervisory positions who aren’t people-oriented; they don’t know how to get the ideas and the solutions and better ways of doing things out of their people. And they are not receptive to employee-involvement programs, they are not receptive to too much change in their lives, they feel comfortable in this doing role rather than a coaching or facilitator’s role. So therefore we have to train these people to think differently and manage their departments from a management point of view rather than a doer’s point of view. … It’s the middle management transition from the old style of management to today’s new style of management that’s the problem, that stops companies from getting where they need to be as fast as they need to get there.

Among the roles for middle managers in organizations with empowered work- forces are:48

• maintaining focus on the organization’s values, • managing solutions to system-level problems (those that involve many func-

tions and departments), and • acting as teachers and coaches.

It’s tempting to think of middle managers faced with empowerment efforts as dinosaurs, rapidly becoming extinct because the world has changed too quickly for them. However, remember that most middle managers are a product of their organizations and have attained their level of success in an environment that rewarded different things than are needed from managers now. Given a new set of instructions from top management, backed up by new performance appraisal criteria, many (but far from all) managers will be able to make the necessary transition.

Change the Reward System Rarely can substantial organizational change be created without changing the reward system. When organizations ask employees to assume new challenges and responsibilities, the question “What’s in it for me?” ulti- mately gets asked. The reward system includes all of the rewards that employees receive, as well as the criteria for distributing these rewards. An organization is to

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its reward system like a boat is to its anchor: Unless the reward system is changed, the organization may drift a little bit in one direction or another, but it won’t get very far.

It is hard to specify exactly what kind of reward systems will be needed to complement empowerment. Some of the practices common to organizations using empowerment include pay-for-skills, in which employees’ pay increases as they learn new job-relevant skills, and profit sharing, in which employees receive bonuses related to the profits of their organization.49 (The box “All You Need Is Trust” describes Texas Nameplate Company’s gainsharing plan.) Nor should intrinsic rewards be overlooked: Simple but sincere expressions of appreciation by supervisors, a picture in the company newsletter, or an evening of celebration upon a major accomplishment may be of tremendous value to employees who have seldom received any recognition at all in the past (see box “Caught Doing Things Right”). In fact, a Conference Board survey found that noncash recogni- tion for hourly/production workers was found to be effective to “great/some extent” by 84 percent of business units in contrast to only 63 percent for cash recognition.50

As one example, in October 1994, Continental Airlines’ new CEO Gordon Bethune calculated that late and canceled flights were costing the company $6 mil- lion per month to put passengers on rival airlines or send them to hotels. He declared that if Continental ranked among the top three airlines for on-time perfor- mance in any month, he would split half the savings (about $65 per person) with all non-executive employees. Within two months, Continental was first. To ensure that the bonuses made a vivid impression, Bethune issued the checks separately and traveled around the country to distribute thousands of them personally. The behavioral changes are best illustrated by a story executives like to retell. A cater- ing truck pulls up to a plane but is 10 meals short. In the old days, the flight atten- dant would have told the driver to get the extra meals while the plane sat at the gate for 40 minutes. The newly gung-ho flight attendant, however, crisply tells the catering guy not to screw up again and shuts the cabin door. The plane pushes back on schedule, and she finds a bunch of investment bankers and offers them free liquor in place of the meal.51

CAUGHT DOING THINGS RIGHT

Many companies recognize employees when they do a great job. At Pal’s Sudden Service, any staff member or team caught making an improved or exemplary job contribution in production or customer service is recognized on the spot with written public praise for the deed. They call it the “Caught Doing Good (CDG)” program. Any staff member, assistant manager, owner/operator, or

senior leader (or even a customer or supplier) can document a CDG on a specially designed form and post it on the store bulletin board.52 A senior VP at KFC’s parent company, who received excep- tional service at a KFC restaurant, recognized an employee in front of everyone, saying ‘You didn’t know that I work at Yum [KFC’s parent company]. I want you to know how proud I am of you.’”53

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WHEN EMPOWERMENT DOESN’T WORK

Beverly Reynolds thought she wanted to be an empowered worker.54 After nine months at an Eaton Corporation plant, however, she left for another job. Although she liked the idea of being her own boss, she hated the headaches that came with it—fixing broken machines and having to learn a wide variety of jobs.

Many workers prefer the old-style approach with narrowly defined tasks and find that an empowered organizational culture is simply not for them. Saturn Corporation, for instance, found that many job candidates from old-style General Motors plants just couldn’t adjust to a new style of work. This provides a big challenge to organizations to recruit the right people at the outset.

Other efforts at empowerment have failed because of the inability of management to understand and implement it properly. Among the reasons for failure are:55

• Management support and commitment is nonexistent or not sustained. • Empowerment is used as a manipulative tool to ensure employees complete

tasks and assignments without giving them any real responsibility or authority. • Managers use empowerment to abdicate responsibility or task accountability,

accepting accolades for successes and assigning fault to others for failure. • Empowerment is deployed selectively, segmenting the workforce into those

who are empowered and those who are not. • Empowerment is used as an excuse to not invest in training or employee

development. • Managers fail to provide feedback and do not recognize achievements.

These problems can be avoided by applying the principles discussed earlier in this chapter.

EMPLOYEE ENGAGEMENT IN ACTION

We present three examples of how empowerment is practiced followed by some observations as to its lack of universal appeal.

DYNMCDERMOTT56

DynMcDermott (DM) Petroleum Operations Company is the sole contractor responsible for managing the U.S. Strategic Petroleum Reserve (SPR) for the Depart- ment of Energy (DOE). DM addresses many of the factors discussed in this chapter with respect to employee engagement and empowerment. Cooperation, initiative, innovation, and empowerment are the basis of their high-performance, values-based culture. All employees are empowered to innovate and improve processes and com- plete their work in self-directed informal and formal functionally diverse work groups and/or teams. Formal teams are chartered, managed, and members trained just in time during the Performance Improvement process, which uses Six Sigma and lean tools to systematically analyze processes and reduce variation and waste.

DM adapts to changing business needs through individual empowerment and authority and, when additional resources are required, uses teams with members

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from different functions, disciplines, and locations, including supplier/contractor per- sonnel, to capitalize on diverse skills and facilitate interdepartmental cooperation. They use teams for major initiatives, continuing responsibilities, and improvements. One major DM initiative, Vapor Pressure, was a new requirement developed as a result of using leading indicator measures. To maximize cooperation, coordination, and ensure that appropriate skills were in place to support this initiative, this project was managed by a cross-functional project team. This included development of work task assignments, job descriptions, recruitment, and training, resulting in a successful start-up of the Vapor Pressure plant in April 2004.

The DM employee performance management system uses performance eval- uations to manage an employee’s career, set work goals, reinforce and reward good performance, provide timely feedback to each employee on their perfor- mance, and to establish Individual Development Plans (IDP) that ensure the employee has support for career development. DM strongly supports training and allots resources for individual development. Employee performance evalua- tion procedures require that employees’ goals directly support organizational goals, action plans, and reinforce an understanding of how their performance contributes to DM’s success. Periodically, HR also conducts a complete review of each job to ensure that job descriptions remain relevant to the DM mission and that employee skill requirements remain aligned with business needs and cus- tomer requirements. This systematic process provides each employee with the opportunity to participate in the overall evaluation process; supports employee job ownership in support of DM’s action plans to achieve the Mission; and facil- itates the timely identification of employee training and development needs, as required, to maximize agility and responsiveness to changing mission require- ments. One of the most important rewards is employee profit sharing based on DM’s performance fee received from DOE, which is based on overall company performance.

As part of DM’s annual merit increase funding process, HR conducts a com- prehensive evaluation of the compensation program, which includes a thorough review of industry practices and measurement of key program components, such as salary range structures to ensure that this program is capable of attracting and retaining high-performing employees with the appropriate skills. DM participates in a number of national salary benchmarking studies to support this effort and, by using this comparative benchmarking data, DM is able to gauge the competitive market and determine adjustments needed to sustain its competitive position as defined in its Compensation Plan.

DM recognizes the need to maintain a highly talented workforce, especially due to the special needs of the SPR and recent budget reductions. To accomplish this, each manager works with his employees during the performance evaluation process to review organizational goals and personal goals in relation to the employ- ees’ position. They review the previously agreed-upon training plan and update it to enable the employee to achieve his/her stated goals. DM offers a continuing education reimbursement program for employees. Employees are able to pursue undergraduate, graduate, and single-course study programs. In addition, employees can choose conferences and seminars to develop their potential. Job and career development are part of the annual performance evaluation process. Employees

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work with their managers to select development objectives for the coming year and together review accomplishment of the previous year’s goals.

HEWITT ASSOCIATES57

Hewitt Associates, based in Lincolnshire, IL, is a HR outsourcing and consulting company. The customer service (CS) role at Hewitt—and many other companies that rely heavily on CS to deliver outsourced processes—requires significant train- ing in the proprietary systems used to handle data from client organizations. Main- taining CS talent, which typically has a high turnover rate, is a top priority. One way to do this is to increase employee engagement. Based on the work Hewitt does with its HR consulting clients, the company knows that there is a strong posi- tive relationship between engagement and organizational performance. Specifically, companies with higher levels of engagement are likely to have greater sales growth and higher total shareholder return.

Hewitt conducts an annual associate engagement survey that measures not only all the standard employee opinion survey components, such as satisfaction with opportunities, but also intent to display certain behaviors known to have an impact on business results. This is based on the framework shown in Figure 9.3. One of those survey items asked: “How likely is it that you will be working at Hewitt one year from now?” Predictive analysis has shown that of the representa- tives who respond that it is unlikely they will be working at Hewitt, about half actually leave within one year, making this item an important leading indicator of retention. Hewitt also uses regression analysis to determine the most important drivers of retention for the CS representatives. Elements of the work environment in which satisfaction is low but the relationship to retention is high were identified as opportunities for growth and training and rewards (pay and recognition).

People • Senior leadership • Manager • Co-workers/colleagues • Valuing people • Customers

Total Rewards • Pay • Benefits • Recognition

Company Practices • Policies and practices • Performance management • Brand alignment • Company reputation

Work • Work activities • Sense of accomplishment • Resources • Processes

Opportunities • Career opportunities • Training and development

Engagement

Quality of Life • Work/life balance • Physical work environment

FIGURE 9.3 | HEWITT’S EMPLOYEE ENGAGEMENT FRAMEWORK Source: “Talent Show” by Jon Leatherbury, Quality Progress, Nov. 2008, pp. 48–55.

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Elements of the work environment in which satisfaction is high but the threat to retention is high if the area is neglected were work activities and managers and leadership. Understanding these factors has helped the company to make better decisions on recruiting, compensation, and other workforce practices.

LOS ALAMOS NATIONAL BANK

Los Alamos National Bank (LANB) is the largest independent bank in New Mexico.58

In the mid-1990s, employee survey results revealed that workers did not understand their role in the bank’s strategic direction. Under the leadership of LANB’s Quality Council, which has members from every area and level of the company, the per- formance appraisal system was redesigned to magnify the direct link between job performance and corporate performance.

The form used for this system lists corporate goals, departmental objectives, and the annual and long-term goals of the employee, which he or she writes in consultation with a supervisor. Employees also complete a personal self-assessment of their strengths and of opportunities to improve their customer-service skills and technical competence. Once they complete the annual appraisal process, employees have a complete snapshot of what they must do to perform at a high level and to earn the attendant incentives and rewards, which include profit sharing and employee stock ownership. Such incentive payouts average over 21 percent of an employee’s annual salary.

Employee empowerment is vital to accomplishing LANB’s goals for perfor- mance improvement and double-digit growth in annual income. Management consciously acts to distribute leadership responsibilities throughout the organiza- tion. In fact, over 90 percent of LANB’s employees received leadership training in 1999 as compared to 8 percent of bank employees nationally.

Employees are expected to create value for customers, and they are given the authority and resources to act proactively and decisively. For example, all workers have the authority to resolve complaints on the spot. Also, high lending limits and flexible underwriting standards enable loan officers to respond innova- tively to loan applicants with special circumstances. Yet, LANB’s charge-offs for loan losses (as a percentage of average assets) have been declining since 1997 to about one-third the average percentage for local competitors. The bank’s empower- ment strategies were clearly evident during the 2000 Cerro Grande fire that ravaged over 48,000 acres and destroyed 280 homes, when employees set up shop without direct supervision in schools and other locations to keep the bank running and provide extraordinary measures to help the community overcome the crisis.

MOTIVATION

Without willing, sustained, individual effort and coordinated teamwork focused on meeting organizational goals, TQ is an impossible dream. However, when organi- zations ask employees to assume new challenges and responsibilities, the question “What’s in it for me?” ultimately gets asked. Understanding human behavior and motivation are major elements of Deming’s Profound Knowledge discussed in Chapter 1. Deming spoke of motivation as being primarily intrinsic (internal), and was suspicious of extrinsic (external) forms of motivation, such as incentives

Chapter 9: Engagement, Empowerment, and Motivation 377

and bonuses, even though they are popular with business organizations and appear to positively reinforce employees.

Both extrinsic and intrinsic rewards are vital to sustained individual efforts. As managers in a TQ environment increasingly take on the roles of coaches and facilitators, their skills in motivating employees become even more crucial. There is no such thing as an unmotivated employee, but the system within which people work can either seriously impede motivation or enhance it. Compensa- tion, recognition/reward systems, and the work environment must be carefully designed to motivate employees to achieve organizational as well as personal objectives.

COMPENSATION

Compensation is always a sticky issue, closely tied to the subject of motivation and employee satisfaction. Although money can be a motivator, it often causes employ- ees to believe they are being treated unfairly, and forces managers to deliver negative messages. Eventually, it diminishes intrinsic motivation and creates win- lose situations. The objectives of a good compensation system should be to attract, retain, and not demotivate employees. Other objectives include reducing unexplain- able variation in pay (think about Deming’s principles) and encouraging internal cooperation rather than competition. Most companies still use traditional financial measures, such as revenue growth, profitability, and cost management, as a basis for compensation; more progressive organizations use quality measures such as customer satisfaction, defect prevention, and cycle time reduction to make compen- sation decisions.

Many companies link compensation to company track records, unit performance, team success, or individual achievement (see box “Motivating Compensation”).59

For instance, Medrad bases its pay range on market pricing rather than on an inter- nally focused job evaluation process. A cross-functional project team developed a market-based compensation system that reinforced the goals and objectives of the company and pays base pay in the top quartile of similar positions in the market. The team redesigned the pay structure to:

• Retain and attract high performance individuals at all levels of the company; • Align individuals and teams with corporate goals; • Support Medrad’s culture and employee growth and development; and, • Maintain the view of base pay as one component of total compensation that

also includes variable incentive pay, gainsharing, benefits, and other rewards and programs.

Medrad uses role profiles to match all jobs to market salary data. The new pay equation combines market value for a given job with the unique qualities of the individual. Every job now has a market range with a target zone. Medrad’s goal is to move employees to their target zone over time, based on their performance and experience.

Team-based pay and gainsharing, an approach in which all employees share savings equally, are gaining in popularity and importance. Compensation for indi- viduals is sometimes tied to the acquisition of new skills, often within the context

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of a continuous improvement program in which all employees are given opportu- nities to broaden their work-related competencies.

RECOGNITION AND REWARDS

Studies have shown that organizations that have a “recognition-rich culture” outperform those that do not; for example, those in the top 20 percent had 31 percent lower voluntary turnover.61 Special recognition and rewards can be monetary or nonmonetary, formal or informal, individual or group. These rewards might include trips, promotional gifts, clothing, time off, or special company-sponsored awards and events. Most important, rewards should lead to behaviors that increase customer satisfaction. Whatever the recognition, it should have symbolic value that employees can inspire employees in the future. A Conference Board study found that a combination of cash and noncash recog- nition works better for clerical and hourly workers than for managers and pro- fessional/technical employees; for these groups, compensation-based incentives such as stock options are more successful.

Recognition provides a visible means of promoting quality efforts and telling employees that the organization values their efforts, which stimulates their moti- vation to improve. Employees should contribute to the company’s performance and recognition approaches. L.L. Bean, for example, gives dinners or certificates exchangeable for merchandise. Winners of “Bean’s Best Awards” are selected by cross-functional teams based on innovative ideas, exceptional customer service, role modeling, expertise at their jobs, and exceptional management ability.62

MOTIVATING COMPENSATION

Nucor Corporation, one of the nation’s largest steel producers, is well-known for having succeeded in attacking quality, productivity, participation, and compensation issues through use of a unique sys- tem of gainsharing.60 Although Nucor is a multibil- lion dollar company, its headquarters staff consists of only 95 people, and it maintains a relatively simple organizational structure, with only five levels from the CEO down to the first-line employee. Nucor boasts that there is an absence of corporate perks for executives, with no special parking places, vacation plans, or first-class travel. When times are tight, executives’ pay is cut before first- line employees’ pay. Nucor’s compensation at all levels is based on pay for performance. In the mills, this means that pay is tied to the number of tons of steel produced each day. The company has found

that this results in above-industry-average wages for employees and phenomenal productivity levels. By pushing decision-making to the lowest levels of the organization, employees are empowered to do such things as stop production when they see a problem or talk directly with customers to explore ways to improve quality. Employees are given freedom to fail in order to encourage them to try new ideas.

During downturns, managers at Nucor fre- quently find that their bonuses are cut, even while hourly workers continue to receive theirs, based on production rates. However, even in tough times, Nucor maintained its policy of no layoffs as it had throughout its history. More about the Nucor story can be found on its website at http:// www.nucor.com.

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Certain key practices lead to effective employee recognition and rewards:

• Giving both individual and team awards. At The Ritz-Carlton, individual awards include verbal and written praise and the most desirable job assign- ments. Team awards include bonus pools and sharing in the gratuity system. Many companies have formal corporate recognition programs, such as IBM’s Market Driven Quality Award for outstanding individual and team achievements in quality improvement, or the Xerox President’s Award and Team Excellence Award.

• Involving everyone. Recognition programs should be available to everyone in the organization, including both front-line employees and senior management. A Monsanto Company chemical plant ties worker bonuses to results at indi- vidual units and rewards workers for helping to prevent accidents.63 What is particularly interesting is that different programs exist in different Monsanto plants—all developed with the participation of workers. Bonus plans that failed had been ones decreed by corporate headquarters, rather than those formulated in cooperation with employees.

• Tying rewards to measurable performance and behaviors that support organi- zational values. Rewards should lead to behaviors that increase customer sat- isfaction and quality. When Custom Research, Inc. attains a specific corporate goal, the entire company is taken on a trip to destinations such as San Fran- cisco and Disney World! Leading companies recognize and reward behavior, not just results.

• Allowing peers and customers to nominate and recognize superior perfor- mance. Employees at FedEx who receive favorable comments from a customer are automatically nominated for the Golden Falcon Award. Recipients chosen by a review committee receive a gold pin, a congratulatory call from the CEO, recognition in the company newsletter, and 10 shares of company stock.

• Publicizing extensively. Many companies recognize employees through news- letters, certificates and pins, special breakfasts or luncheons, and annual events such as competitions. Making recognition public reinforces its significance, and having top managers preside in giving recognition sends an important message that they really understand and appreciate employees’ efforts.

• Making recognition fun. Wells Fargo Bank gives employees a choice of unusual rewards, like “a menu item named after you in the company cafeteria,” or “The Chairman or President does your job for a day while you train and supervise.” Instead of just giving a cash bonus to his staff, a dentist closed down his office and took them to a shopping mall. He handed them each an envelope containing the money and said “You have to spend all the money on gifts for yourself. You have one hour to spend it, and you have to buy at least five different items. Any money you haven’t spent in the next hour comes back to me. Go get ‘em!” The employees spent the next hour dashing wildly from one store to the next, yelling back and forth to each other about the treasures they’d found. At the next staff meeting, everyone brought the presents they had purchased for themselves for a show-and-tell session with the group.64

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WORK ENVIRONMENT

Working in an organization that cares for its employees is perhaps the best form of motivation (see the box “How Can You Not Love Working Here?” about Google earlier in this chapter). Most companies provide many opportunities to enhance the quality of working life. They can provide personal and career counseling, career devel- opment and employability services, recreational or cultural activities, daycare, special leave for family responsibilities or for community services, flexible work hours, out- placement services, and extended health care for retirees. Johnson & Johnson’s Ethicon Endosurgery Division, in Blue Ash, Ohio, has a Wellness Center with exercise rooms and equipment to support employees in their manufacturing and R&D facility. Employees can use the center before or after working hours or during their breaks. In addition, those workers who are assembling products get regular, programmed “ergonomic” breaks every few hours, where they are required to do exercises designed to prevent repetitive motion injuries. All of these opportunities contribute to creating a more productive, safer, and more enjoyable in work environment.

EMPLOYEE ENGAGEMENT AND THEORIES OF MOTIVATION

The TQ perspective of employee engagement, and empowerment in particular, are quite consistent with organizational behavior (OB) theory. In fact, most TQ-based thinking about empowerment and motivation is derived, directly or indirectly, from OB theory. Managers’ willingness to accept these ideas and put them into practice, however, has been greatly increased by the incorporation of these ideas into the TQ package.

A few examples should serve to make our point. The idea that quality prob- lems are usually attributable to management-created systems rather than employee motivation was proposed by organizational psychologist Chris Argyris.66 Rensis Likert described an organizational system he called “System IV,” which featured empowered workgroups and cross-functional teams. Douglas McGregor developed the well-known “Theory Y” approach to managing employees, which is based on the assumption that people wish to do a good job and emphasizes that people in organizations should make decisions for themselves. These are the fundamental principles of the human side of performance excellence, but they were developed

HRM PRACTICES AND SERVICE QUALITY

A research study examined the relative impor- tance of six HRM practices—communication, training, teamwork, performance appraisals and reward, recruitment and selection, and empowerment—regarding their impact on culture for improving service quality.65 Using empirical data, it was found that culture and these manage- ment practices were all significantly associated. Among the six practices, communication was most

strongly associated with culture. The strength of the associations between culture and training, teamwork, and performance appraisals and reward was very similar. Empowerment was found to be the least influential on culture, although the asso- ciation was moderate. The findings suggest that service organizations should adopt a range of communication methods to inspire and constantly reinforce employees’ service orientation.

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decades ago by theorists concerned with reconciling the psychological needs of people and the economic needs of businesses.

The performance excellence philosophy is also consistent with several more recent theories of work motivation. This means that implementing the principles of TQ should result in increased employee motivation, because the kinds of changes that TQ represents are among those that theories say will result in increased effort on the job. Specifically, the following sections discuss performance excellence in terms of job characteristics theory, acquired need theory, and goal set- ting theory. The theories themselves are not described in detail, as they are covered in OB and management textbooks. Here they are compared to TQ practices.

JOB CHARACTERISTICS THEORY

The job characteristics theory (JCT) states that people will be more motivated to work and more satisfied with their jobs to the extent that their jobs possess certain core characteristics: skill variety, task identity (doing a meaning- ful unit of work), task significance, autonomy, and feedback. If jobs do not have such characteristics—that is, involve few skills and give workers little con- trol over what they do—most employees are likely to be unmotivated and dis- satisfied.67 This theory was developed by Hackman and Oldham. Their model has been validated in numerous organizational settings.

The model proposes that five core characteristics of job design influence three critical psychological states, which in turn, drive work outcomes. These core job design characteristics are:

1. Task significance: The degree to which the job gives the participants the feeling that they have a substantial impact on the organization or the world, for example, solving a customer’s problem rather than simply filing papers

2. Task identity: The degree to which the worker can perceive the task as a whole, identifiable piece of work from start to finish, for example, building an entire component rather than performing a small repetitive task

3. Skill variety: The degree to which the job requires the worker to use a variety of skills and talents, for example, physical skills in machining a part and mental skills in using a computer to track quality measurements

4. Autonomy: The degree to which the task permits freedom, independence, and personal control to be exercised over the work, for example, being able to stop a production line to solve a problem

5. Feedback from the job: The degree to which clear, timely information about the effectiveness of performance of the individual is available, not only from supervisors, but also from measurements that the worker might take directly High levels of skill variety, task identity, and task significance create a psycho- logical state of “experienced meaningfulness”—the psychological need of workers to have the feeling that their work is a significant contribution to the organization and society.

High autonomy drives the psychological state of “experienced responsibility”— the need of workers to be accountable for the quality and quantity of work pro- duced. Finally, feedback from the job creates the psychological state “knowledge of

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results”—the need of workers to know how their work is evaluated and the results of their evaluation.

Together, these psychological states drive key work outcomes of employee motivation, growth satisfaction, overall job satisfaction, and work effectiveness. The model suggests that if managers want to improve employee motivation, satis- faction, and work effectiveness, they should strive to improve the meaningfulness of work, responsibility, and knowledge of results by improving the five core job characteristics.

In general, we would expect a performance excellence focus to increase the moti- vating potential of jobs through increases in the foregoing task characteristics. In fact, performance excellence practices resemble some of the steps recommended by job design experts for making jobs more motivating. For example, getting people involved in problem solving and other quality improvement activities should increase both the variety of skills they use in their jobs and their perception of doing a mean- ingful unit of work. Empowerment should increase the degree of autonomy people feel they have in doing their work. Focusing their efforts on increasing customer sat- isfaction should increase people’s perception of the significance of their roles in the organization.

Three factors have been identified that will influence the way people react to jobs that have high levels of the task characteristics: knowledge and skill, growth-need strength, and satisfaction with contextual factors.68 Knowledge of how to do one’s job should be enhanced by the training that often accompanies performance excellence initiatives and empowerment. Growth-need strength, by contrast, is rooted in people’s personalities and is unlikely to be affected by TQ. Satisfaction with contextual factors (company policies, working conditions) may increase with implementation of performance excellence, as various groups in the organization make improvements to satisfy internal customers. This means it is likely not only to increase the levels of task characteristics that peo- ple find motivating, but also to change two of the three factors that influence how people react to these characteristics, in such a way that they are more likely to find such jobs motivating. Such work design practices, prevalent in high- performing organizations as job enlargement, job rotation, and job enrichment, are supported by this theory.

ACQUIRED NEEDS THEORY

Another perspective on employee motivation states that people are motivated by work that fulfills their needs. Specifically, the need for achievement, the need for affiliation, and the need for power have been the subjects of extensive research.69 People who have a strong need for achievement will work hard to reach a high standard of excellence. The need for affiliation refers to the desire to have close relationships with other people, for example, as part of a team. The need for power is the desire to have influence over one’s environment and the people in it.

How will the implementation of performance excellence, including empower- ment practices, influence people who are motivated by these needs? As research has not addressed this question, we can only speculate. The need most likely to be

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fulfilled by participation in quality-based initiatives is the need for affiliation. The most obvious way this would occur is through the formation of self-managed or cross-functional teams. A TQ focus promotes close relationships between people in the same or different subunits, and even in different organizations in the customer- supplier chain.

The connection between quality and the need for achievement is a bit murk- ier. Effective utilization of quality principles should allow organizations to achieve higher levels of performance in such areas as quality and customer satis- faction, but these achievements are likely to come through team, rather than individual, efforts. Thus, the opportunity to participate in such efforts is likely to motivate people with high achievement motivation only if they can see the relationship between their own work and team performance and feel a sense of achievement on that basis. Performance excellence and empowerment are likely to be motivating for employees with a high need for power. In fact, employees with a high need for power are likely to be quite frustrated with traditional organizations that give them little influence. Empowerment, if it follows the principles described in this chapter, should go a long way toward reducing this frustration and provide newfound motivation for individuals with a high need for power.

However, empowerment can be a double-edged sword. Middle managers whose subordinates are being empowered may feel that their own needs for power are less fulfilled in a performance excellence environment. This need not occur, as empowerment of lower-level employees should be accompanied by finding new and fulfilling roles for middle managers. Many organizations will not be able to accomplish this, however, and even if they do, a certain number of middle managers with a high need for power will miss the old “command and control” type of organization.

GOAL-SETTING THEORY

The central insight of goal-setting theory is that people whose goals are clear will work more quickly, perform better, and generally be more motivated than people who lack clear goals (you might look back on the Los Alamos National Bank case as a practical example of this concept). A great deal of research has been performed on goal-setting theory and generally supports the theory’s pre- dictions. According to the theory, goals will be motivating to people when they are specific and difficult, and people accept them as their own.70 However, goals should also be attainable; specific, challenging goals that seem impossible are demotivating.

How does goal-setting theory relate to TQ in general and empowerment in particular? This connection has not been the subject of research, but we can offer some conjecture about it. One likely link between empowerment and goal setting is the goal-acceptance aspect of the theory. Although there has been some debate about this among scholars, it seems that people who set their own goals (as in empowerment) are likely to be more motivated by them than are people whose goals are set by others (as in the traditional organization). People who set their own goals may also find that their goals are clearer (to them, at least).

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The principle that goals should be specific and difficult can be related to TQ and empowerment. In general, the principle of breakthrough improvement leads to fairly difficult goals. In traditional management, when an acceptable level of performance is reached, people simply try to maintain it. In a quality-focused environment, an acceptable performance level would be a stepping-stone to fur- ther improvements. Therefore, the difficulty of goals would be enhanced by performance excellence approaches. Goals need not be impossible; even incre- mental (and thus seemingly achievable) improvement goals supported by the kai- zen philosophy fall into this realm. One wonders whether this compromises the long-run specificity of goals.

Continuous improvement is a noble ideal, likely to spur heroic efforts in many cases. When, if ever, is the goal reached? Can workers be motivated by a goal of eternal improvement or must milestones be placed along the way to maintain moti- vation and enthusiasm? Perhaps, as organizations gain more experience with per- formance excellence, such questions will be answered. Given the increasing importance of continuous improvement for competitiveness, organizations will need to find ways to motivate employees for sustained improvement in order to be economically viable in today’s complex business environment.

Discussion Questions and Experiential Exercises

1. Explain the concept of employee engage- ment. How does it differ from employee involvement?

2. What might you see in an organization that provides evidence that employees are truly engaged?

3. Provide several examples of employee involve- ment. How might these fall in the continuum shown in Figure 9.1?

4. What is employee empowerment? What do you see as the most important barriers to employee empowerment?

5. How might the concept of empowerment be employed in a classroom?

6. Have you ever experienced fear in the work- place? What impact did it have on your performance? Is a little bit of fear a good thing for motivating performance?

7. Are there circumstances in which employee empowerment would hurt rather than improve quality? Why would this occur?

8. What risks does an organization face in empowering its employees?

9. How will employees know when they are empowered?

10. What sort of performance appraisal process would be appropriate for empowered work- ers in a TQ company?

11. Which of the principles of empowerment do you think is most important? Why?

12. Have you ever received exceptional service from an empowered employee? What happened? How did you react to it?

13. In what ways do DynMcDermott, Hewitt, and LANB exemplify the principles of employee engagement?

14. What can managers do to mitigate the risks of failure associated with employee engagement?

15. Which theory of motivation do you see as most consistent with empowerment? Why?

16. Philip Atkinson tells the story of a govern- ment agency that fired up its employees to do great things with a wilderness train- ing experience.71 One young man, on his return to work, noticed some parking spaces owned by the organization in a busy part of the city. The spaces were always free and could be rented for a substantial sum. The young man made a proposal to do so, but it was rejected out of hand.

Chapter 9: Engagement, Empowerment, and Motivation 385

Undeterred, he rented the spaces himself, only to find that there was no mechanism to deposit the checks into corporate accounts. Eventually, the young man left the company to work for one in which people’s ideas were taken more seriously, and initiative was valued. How does this story illustrate the principles of empower- ment discussed in this chapter?

17. Think of a job you have had. Apply the Hackman and Oldham model to evaluate how the job design impacted your motiva- tion and satisfaction, as well as organiza- tional effectiveness.

18. How does empowerment differ from such approaches as job enrichment and other forms of employee involvement?

19. Review the most recent list of Fortune’s “100 Best Companies to Work For” and summarize the best practices of these com- panies, classifying them into themes such as engagement, work environment, training, and so on.

20. Survey local companies to determine if and how they use suggestion systems. What levels of participation do they have? Are suggestions tied to rewards and recognitions?

CASES

The Frustrated Manager

A professional colleague who teaches total quality concepts received the following e-mail from a former student:72

I was wondering if you could offer me some thoughts on a particular situation that plagues the company I work for. Our workforce is unionized and has a long history of anti-company sentiment. Upper management has set up the assembly area as an example of employee involvement and the blossoming empowered workforce to show off to customers. They often bring in customers to help gain future contracts. One customer in particular is very sensitive to cost, quality, and schedule, and has had some bad experiences with us in the past. The customer has clearly told us that it wants to see an empowered work force making key decisions. If this does not happen, it will not award the contract. This information has been relayed to the work teams in the area, but several work teams, in their team meetings, tell us they don’t want to be empow- ered. The attitude (as I see it) appears to be as follows: “We know how to build our products, the customers do not. So, get the customers out of our business and tell them to take the product when we’re done with it, regardless of how we choose to build it.” As many times as I inform them that customers will not buy our products in that manner, I am given the same answer. How

would you suggest I get these teams to take the gun away from their own heads? They have a management who is willing to hand over the power. They have the tools necessary to make informed decisions on the shop floor. They just don’t have the inspiration to take the power and to run with it. My question is simple: Is it possi- ble to create an empowered workforce in an old union environment?

How would you advise him?

Carla’s Quick Service Restaurant Job73

Carla works at a typical quick service restaurant (QSR). She is never involved in any problem-solving activities because the system dictates they must defer to managers when problems arise. In addition, she has never been asked to provide any input at the store level of the organization. Her manager tells her what to do and micro-manages her work. Daily informa- tion, schedules, and work method changes (e.g., when new menu items are introduced) are posted on notes in a break room bulletin board. Carla isn’t very happy in her job and is thinking of quitting to find something else. She has seen about half of her co- workers quit in the last year.

Discussion Questions 1. High attrition rates in the QSR industry may be

attributed to low levels of employee engagement within the organization. How does high turnover

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impact product quality and customer service in the QSR industry, as well as the costs to the organization?

2. How can Carla’s manager or the corporate office improve employee involvement and engagement?

Tri-State National Bank Engagement Survey

Tri-State National Bank (TNB) conducts an annual associate engagement survey. The survey asks associ- ates to provide their perceptions on six factors of engagement. The engagement factors are (1) commit- ment to the mission, vision, and values; (2) emotional commitment; (3) intellectual commitment; (4) per- sonal meaning in work; (5) trusting relationships within TNB, and (6) a safe and cooperative environ- ment. Write a short paper describing some initiatives and actions that TNB might take to strengthen employee engagement on these factors. Clearly justify your reasoning and explain how and why your sug- gestions will address these factors.

Landmark Dining: Employee Engagement and Motivation

Landmark Dining closely monitors employee turn- over, the rate of completion of individual develop- ment plans, absenteeism, sales per server, results from exit interviews, and the work environment. When declining results occur in any of these areas, they are investigated and improved through the use of cross-functional improvement teams. For example, last year, a team investigated a decrease in the com- pletion of exit interviews. The team found that the lower numbers reflected a large decline in interviews with servers and then linked this to a lack of time for the Business Excellence Director to manage the inter- view process. The methodology was streamlined and the process was delegated to Staffing Solutions, Inc. The current completion rate has improved to higher levels than in previous years.

However, the company doesn’t feel that this infor- mation, being somewhat passive and after-the-fact, provides a complete picture of employee satisfaction. Thus, it believes that it should develop a formal employee satisfaction survey as the key tool for deter- mining employee satisfaction. What specific factors

should it address in such a survey? (See the Landmark Dining case in Chapter 8 also for a description of team processes that may be relevant here.) How should it use the results in conjunction with the Voices system (see the Landmark Dining case in Chapter 6)?

The MBA Candidate

Gretchen Faulkner was interviewing for an MBA program. She was a liberal arts major in college, and for the last several years had worked at the art museum in the city where she attended college. Dur- ing the conversation, the MBA program director asked her why she decided to quit and pursue an MBA. “Actually, I had been quite happy with the job,” she said. “After I’d been there for three years, I was able to work more autonomously, trouble- shooting problems, taking steps to resolve those pro- blems, and taking the initiative to improve my job. Guided by the mission statements of the museum and my department, I felt empowered to make changes or take steps to achieve the museum’s strate- gic goals. After a while, I learned that my job wasn’t entirely about following strict procedures. It was a real epiphany for me to figure out that I could make decisions and think on my feet to benefit a visi- tor, a volunteer, a co-worker, etc. For example, every year in May, the museum experiences a rush of school tours. It’s the busiest time of year with school groups touring every day, Tuesday through Friday, on the hour or half-hour. The more years I worked through this crunch, the better equipped I was to pro- mote positive changes for the ‘spring rush.’ Two years ago, the museum had a spring exhibit of Egyp- tian artifacts that was expected to attract many school tours. Working with many other departments like Security and Marketing, I was able to help imple- ment school tours on Mondays when we were nor- mally closed to the public and relieve some of the problems associated with the high demand. That said, though, I ended up leaving the museum because there was no place for me to go in my position.”

How does Gretchen’s job relate to the Hackman and Oldham job characteristics theory? What aspects motivated her? What positive outcomes in the model were evident? What aspects of the theory explain her decision to leave?

Chapter 9: Engagement, Empowerment, and Motivation 387

Endnotes

1. 2009 Malcolm Baldrige National Quality Award Recipient Profile, U.S. Department of Commerce.

2. Quoted in David Ulrich and Dale Lake, “Organi- zational Capability: Creating Competitive Advan- tage,” Academy of Management Executive, Vol. 5, No. 1, 1991, pp. 77–92.

3. James L. Heskett, W. Earl Sasser, Jr., and Leonard A. Schlesinger, The Service Profit Chain, New York: Free Press, 1997, p. 101.

4. B. Martinuzzi, “How to get disengaged employees to go the extra mile,” American Express Open Forum, 2013. https://www.americanexpress.com/ us/small-business/openforum/articles/how-to-get- your-staff-to-go-the-extra-mile/?linknav=us-open- forum-search-article-link2.

5. Right Management Global Benchmarking Employee Engagement Study, December 2008; cited in Tom Becker, “Happiness Helps: Career development breeds employee engagement, boosts organizational performance,” Quality Progress, January 2011.

6. Lawler, Mohrman, and Ledford, Employee Involvement, p. 60.

7. Linda Grant, “Happy Workers, High Returns,” Fortune, January 12, 1998, p. 81. A formal research study of the relationship between employee engagement and business outcomes is reported in James K. Harter, Frank L. Schmidt, and Theodore L. Hayes, “Business-Unit-Level Rela- tionship Between Employee Satisfaction, Employee Engagement, and Business Outcomes: A Meta- Analysis,” Journal of Applied Psychology 87, 2, 2002, pp. 268–279.

8. See Casey Ichniowski and Kathryn Shaw, “The effects of human resource management sys- tems on economic performance: An International Comparison of U.S. and Japanese Plants,” Management Science, May 1999, Vol. 45, No. 5 pp. 704–721; Juan J. Tarı and Vicente Sabater, “Human aspects in a quality management context and their effects on performance.“ Int. J. of Human Resource Management, Vol. 17, No. 3, March 2006, pp. 484–503.

9. Quoted in Whiteley, The Customer-Driven Company, p. 180.

10. The Employee Involvement Association’s e-newsletter Ideas & Inspirations, which gave credit to The CEO Refresher by Freda Turner, PhD. http://www.bcpublicservice.ca/awards/ai/ ai_index/emp_engage/emp_engage.htm.

11. Lawler, Mohrman, and Ledford, Employee Involvement, p. 105.

12. Hal F. Rosenbluth, “Have Quality, Will Travel,” The TQM Magazine, November/December 1992, pp. 267–270.

13. Adam Lashinsky, “Google is No. 1: Search and enjoy,” Fortune, January 8, 2007. http:// money.cnn.com/magazines/fortune/fortune_ archive/2007/01/22/8397996/index.htm accessed on 4/9/09.

14. Joseph J. Gufreda, Larry A. Maynard, and Lucy N. Lytle, “Employee Involvement in the Quality Process,” in Ernst & Young Quality Improvement Consulting Group, Total Quality!: An Executive’s Guide for the 1990s (Homewood, IL: Richard D. Irwin, 1990).

15. Tom J. Peters, Thriving on Chaos: Handbook for a Management Revolution (New York: Alfred A. Knopf, 1988).

16. Alan Wolf, “Golden Opportunities,” Beverage World, February 1991.

17. From materials provided by Mike Simms, former plant manager.

18. Alan G. Robinson and Dean M. Schroeder, “The Role of Front-Line Ideas in Lean Performance Improvement,” Quality Management Journal, 16, 4, 2009, pp. 27–40.

19. M. J. Kiernan, “The New Strategic Architecture: Learning to Compete in the Twenty-First Century,” Academy of Management Executive, Vol. 7, No. 1, 1993, p. 14.

20. Lawler, Mohrman, and Ledford, Employee Involvement; Dan Ciampa, Total Quality: A User’s Guide for Implementation, Reading, MA: Addison-Wesley, 1992.

21. E. E. Lawler, S. A. Mohrman, and G. E. Ledford, Employee Involvement and Total Quality Management, San Francisco: Jossey-Bass, 1992.

22. Richard C. Whiteley, The Customer-Driven Com- pany: Moving from Talk to Action, Reading, MA: Addison-Wesley, 1991.

23. Phillip A. Smith, William D. Anderson, and Stanley A. Brooking, “Employee Empowerment: A Case Study,” Production and Inventory Management, Vol. 34, No. 3, 1993, pp. 45–50.

24. J. M. Juran, Juran on Leadership for Quality: An Executive Handbook, New York: Free Press, 1989, p. 264.

25. Juran, Juran on Leadership for Quality, pp. 147–148.

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26. J. A. Conger and R. N. Kanungo, “The Empow- erment Process: Integrating Theory and Practice,” Academy of Management Review, Vol. 13, No. 3, 1988, pp. 471–482.

27. “UPS: Its Long-Term Design Delivers Quality Millions of Times Each Day” by Brad Stratton, Quality Progress, Oct. 1998, pp. 37–38.

28. Kathleen D. Ryan and Daniel K. Oestreich, Driving Fear Out of the Workplace, San Francisco: Jossey-Bass, 1991.

29. Tom Brown, “The Empowerment Myth,” Across the Board, March/April 2001, pp. 71–72.

30. Dan Ciampa, Total Quality: A User’s Guide for Implementation, Reading, MA: Addison-Wesley, 1991.

31. Ciampa, ibid. 32. Brown, ibid. 33. Lawler, Mohrman, and Ledford, Employee

Involvement, p. 51. 34. Juran, Juran on Leadership for Quality, p. 277. 35. Adapted from Brad Stratton, “Texas Nameplate

Company: All You Need Is Trust,” Quality Progress, October 1998, pp. 29–32.

36. Mark Kelly, The Adventures of a Self-Managing Team, Raleigh, NC: Mark Kelly Books, 1990.

37. Lawler, Mohrman, and Ledford, Employee Involvement, p. 47.

38. Ciampa, Total Quality. 39. A. R. Tenner and I. J. DeToro, Total Quality

Management: Three Steps to Continuous Improvement, Reading, MA: Addison-Wesley, 1992.

40. Lawler, Mohrman, and Ledford, Employee Involvement, p. 60.

41. “Changing a Culture: DuPont Tries to Make Sure That Its Research Wizardry Serves the Bottom Line,” Wall Street Journal, March 27, 1992, p. A5.

42. Robert S. Kaplan, “Texas Eastman Company,” Harvard Business School Case, No. 9-190-039.

43. Peter M. Senge, The Fifth Discipline: The Art and Practice of the Learning Organization, New York: Doubleday Currency, 1990.

44. See America’s Choice: High Skills or Low Wages!, National Center on Education and the Economy’s Commission on the Skills of the American Work- force, National Center on Education and the Economy, 1990.

45. Lawler, Mohrman, and Ledford, Employee Involvement, p. 16.

46. Based on Ronald Henkoff, “Companies That Train Best,” Fortune, March 22, 1993, pp. 62–75.

47. Jennifer Reese, “Starbucks: Inside the Coffee Cult,” Fortune, December 9, 1996, pp. 190–200.

48. Based on Jack Johnson and Jack T. Mollen, “Ten Tasks for Managers in the Empowered Workplace,” Journal for Quality and Participa- tion, December 1992, pp. 18–20.

49. Lawler, Mohrman, and Ledford, Employee Involvement, p. 20.

50. The Conference Board, “Innovative Reward and Recognition Strategies in TQM,” Report Number 1051, 1993, p. 15.

51. Brian O’Reilly, “The Mechanic Who Fixed Conti- nental,” Fortune, December 20, 1999, pp. 176–186.

52. Curtis Sittenfeld, “Great Job! Here’s a Seat Belt!” Fast Company, January 2004, p. 29.

53. Pal’s Sudden Service 2001 Malcolm Baldrige National Quality Award Application Summary, www.nist.gov/baldrige

54. Timothy Aeppel, “Not All Workers Find Idea of Empowerment as Neat as It Sounds,” Wall Street Journal, September 8, 1998, pp. A1, A13.

55. Sharafat Khan, “The Key to Being a Leader Com- pany: Empowerment,” Journal for Quality and Participation, January/February 1997, pp. 44–50.

56. 2005 Malcolm Baldrige National Quality Award Program Application Summary.

57. “Talent Show” by Jon Leatherbury, Quality Progress, Nov. 2008, pp. 48–55. Reprinted with permission from Quality Progress ©2010 American Society for Quality. No further distribution allowed without permission.

58. Los Alamos National Bank 2000 Award Winner Profile, Baldrige National Quality Program, U.S. Department of Commerce, and Los Alamos National Bank Baldrige National Quality Award Application Summary.

59. “Bonus Pay: Buzzword or Bonanza?” Business- Week, November 14, 1994, pp. 62–64.

60. Nancy J. Perry, “Here Come Richer, Riskier Pay Plans,” Fortune, December 19, 1988, pp. 50–58; “The Nucor Story,” available at http://www.nucor .com.

61. Josh Bersin, “New Research Unlocks the Secret of Employee Recognition,” http://www.forbes.com/ sites/joshbersin/2012/06/13/new-research-unlocks- the-secret-of-employee-recognition/.

62. Dawn Anfuso, “L.L. Bean’s TQM Efforts Put People Before Processes,” Personnel Journal, July 1994, pp. 73–83.

63. “Bonus Pay: Buzzword or Bonanza?“ Business- Week, November 14, 1994, pp. 62–64.

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64. Matt Weinstein “Having Fun With Reward and Recognition,” #284 from Innovative Leader Volume 6, Number 7, July 1997, http://www. winstonbrill.com/bril001/html/article_index/ articles/251-300/article284_body.html, accessed 3/4/12. Reprinted by permission.

65. Akiko Ueno, “Which HRM Practices Contribute to Service Culture?” Total Quality Management, Vol. 23, No. 11, November 2012, 1227–1239.

66. This discussion of organizational behavior theory’s contribution to TQ thinking is based on J. J. Riley, “Human Resource Development: An Overview,” in J. P. Kern, J. J. Riley, and L. N. Jones (eds.), Human Resources Management, Milwaukee: ASQ Quality Press, 1987.

67. Job characteristics theory is described in J. R. Hackman and G. R. Oldham, Work Rede- sign, Reading, MA: Addison-Wesley Publishing Company, 1980.

68. Hackman and Oldham, Work Redesign. 69. D. C. McClelland, Assessing Human Motivation,

Morristown, NJ: General Learning Press, 1971.

See also D. C. McClelland and R. E. Boyatzis, “Leadership Motive Pattern and Long-Term Success in Management,” Journal of Applied Psychology, 1982, pp. 67, 737–743.

70. Edwin Locke, “Toward a Theory of Task Perfor- mance and Incentives,” Organizational Behavior and Human Performance, Fall 1968, pp. 167–189. For a more recent treatment of goal-setting, see Mark E. Tubbs and Steven E. Ekeberg, “The Role of Intentions in Work Motivation: Implications for Goal-Setting Theory and Research,” Academy of Management Review, January 1991, pp. 180–199.

71. Philip Atkinson, “Leadership, Total Quality, and Cultural Change,” Management Services, Vol. 35, No. 6, 1991, pp. 16–19.

72. My thanks go to Professor James Thom of Purdue University for sharing this anecdote. The actual letter was edited to preserve the confidentiality of the company.

73. This case was inspired by Carlotta S. Walker, “Get Them in the Game,” Quality Progress, December 2012, 53—56.

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10LEADERSHIP FOR PERFORMANCEEXCELLENCE Performance Excellence Profile: Stoner, Inc.1

Stoner, Inc. (Stoner) is a small, family-owned business located in Lancaster County, the heart of Pennsylvania Amish country. The company was founded more than 60 years ago by Paul Stoner, an orphan, chemist, and entrepreneur who started the business by making printing inks. In 1986, the company was purchased by Paul Stoner’s grandson, Rob Ecklin, who repositioned the company for growth and evolved the product line to more than 300 specialized cleaners, lubricants, coatings, and car care products. Today, Stoner is the largest supplier of aerosol and bulk release agents for plastics and other molded materials in the United States. In other markets, which include automotive car care and electronics cleaning, Stoner is a niche player but is still highly competitive with much larger companies.

Stoner President Rob Ecklin personally managed the company throughout the 1980s. Although Ecklin is still the sole owner, in 1990, he empowered a six- member senior leadership team to manage the business. These hands-on leaders facilitate strategic planning, develop team processes, and mentor team members to implement the company’s strategy. The company’s core values—exceed customer expectations, foster and develop a motivated team, be safety/health/ environment responsible, innovate new and better solutions, and continuously improve—guide all aspects of Stoner’s business culture.

At the heart of Stoner’s success is the Stoner Excellence System, visualized as a pyramid with leadership at the top, supported by strategy and process. Stakeholder Value has a prominent place in the center of the system and is surrounded by Assess, Improve, Implement—the company’s simple, but effective, three-step process for continuous improvement. All Stoner employees, known as team members, understand that continuous improvement is the key to sustaining competitive success and are focused on finding and implementing ways to add value for customers. Stoner’s Advisory Board, which includes people outside of the company, is another resource to help provide direction and focus to the strategic planning process and advice on priority

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improvements. The board helps evaluate risk, assess leadership effectiveness, and oversee financial and ethical governance.

The leadership team uses a scorecard called “Stoner 60” to set goals and measure business initiatives. The scorecard identifies 60 key operational measurements, linked goals, and strategic milestones for each of the next five years. Senior leaders regularly monitor and discuss business results; compare them to the Stoner 60 goals; and develop improvement action items at weekly, monthly, and quarterly meetings. Stoner also uses an integrated key indicator database, known as “Key 1,” to collect, analyze, and deploy data to help in daily decision-making. The database helps to spot emerging trends that require corrective action or reallocation of resources. To manage data and increase customer satisfaction, Stoner has implemented an enterprise resource planning system that helps ensure that 100 percent of orders are shipped on the same day they are received and has reduced shipping errors to less than 0.05 percent of all orders shipped.

Through its leadership system, clearly articulated goals, the company’s vision and mission, its strategic objectives, its values and beliefs, and the established Stoner Excellence System process, Team Stoner has achieved remarkable results. Stoner has sustained consistent profitability that has grown along with its sales, fueling the company’s improvement initiatives and growth. Manufacturing productivity has increased 150 percent since 1991, and weekly average output of aerosol can products has increased 33 percent from 1998 to 2003. Stoner’s 39 percent return on assets exceeds the industry average by 29 percent and its best competitor by 14 percent.

Leadership is fundamental to management and organizational behavior and is on just about everyone’s short list of prerequisites for organizational success. Thus, it is not surprising that leadership plays a crucial role in high-performing organiza- tions like Stoner. Virtually every article and book written about quality emphasizes leadership. Deming set the stage for leadership for quality. Several of his 14 Points refer to leadership either directly or indirectly:

• Point 1. Create and publish to all employees a statement of the aims and purposes of the company or other organization. The management must demonstrate constantly their commitment to this statement.

• Point 7. Teach and institute leadership. • Point 8. Drive out fear. Create trust. Create a climate for innovation. • Point 12. Remove barriers that rob people of pride in workmanship. • Point 14. Take action to accomplish the transformation.

One can safely say that the other points also require the necessity of strong leader- ship to accomplish them.

Leadership is the first category in the Baldrige Award and is recognized as the “driver” of performance excellence. Indeed, leadership is seen by many experts as the sine qua non (if you don’t have it, you have nothing) of quality and performance

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excellence. A compelling example is Motorola’s former CEO, Bob Galvin, who made a habit of making quality the first item on the agenda of executive staff meetings— and leaving the meeting before discussion of financials. His actions spoke louder than words: If quality was taken care of, financial performance would follow. His leadership guided Motorola to become one of the first recipients of the Baldrige Award. A co-director of the Juran Center for Leadership in at the University of Minnesota observed:

• Despite substantial efforts, only a few U.S. organizations have reached world- class excellence.

• Even fewer companies have sustained such excellence during changes in leadership.

• Most corporate quality failures rest with leadership.2

As one professional observed, managers manage for the present; leaders lead for the future. Effective leadership demands continual learning and adaption to the changing global business landscape. An important element of organizational sus- tainability is ensuring future leadership; thus, the development of future leaders and a formal succession plan are vital. A 2011 survey of CEOs sponsored by the Conference Board identified talent as one of the most pressing leadership challenges.3 The top two global strategies for addressing this challenge were to improve leadership development programs to grow talent internally and to enhance the effectiveness of the senior management team.

This chapter will:

• discuss the importance of leadership for quality, • describe the role of leaders in performance excellence, • provide some examples of leaders who have inspired their organizations

to achieve quality and performance excellence in businesses, • provide examples of leadership practices in high-performing organizations, and • compare the Total Quality (TQ) view of leadership to several prominent lead-

ership theories.

PERSPECTIVES ON LEADERSHIP

In practice, the notion of leadership can be as elusive as the notion of quality itself. Most definitions of leadership reflect an assortment of behaviors, for example:

• vision that stimulates hope and mission that transforms hope into reality; • radical servanthood that saturates the organization; • stewardship that shepherds its resources; • integration that drives its economy; • the courage to sacrifice personal or team goals for the greater community good; • communication that coordinates its efforts; • consensus that drives unity of purpose; • empowerment that grants permission to make mistakes, encourages the

honesty to admit them, and gives the opportunity to learn from them; and

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• conviction that provides the stamina to continually strive toward business excellence.4

Various studies of leadership have identified key leadership activities and competencies:

1. Leaders create shared values among the people in an organization and estab- lish a compelling vision and mission. Often this entails risk, as the desired outcomes are not always achieved.

2. Leaders listen carefully and promote honest, two-way communication 3. Leaders act as mentors and role models, and help develop leadership abilities

in others. 4. Leaders improve their own skills and knowledge through formal and informal

activities. 5. Leaders build strong leadership systems and provide the resources necessary to

achieve the organizations’ mission and vision. 6. Leaders motivate their subordinates to ensure that they perform to

expectations.

To accomplish these things, leaders must assume responsibility and be account- able for their actions and results; have courage and perseverance to lead in an uncertain environment; have humility and recognize that they serve others (often called “servant leadership”); make good moral judgments in their decisions; see the future from new and innovative perspectives (think Steve Jobs); persevere even when the going gets rough; and maintain their own physical and mental well-being to be able to do the job and not burn out. These characteristics provide the founda- tion for exercising the competencies. Many notable leaders, from presidents to CEOs, have exhibited these characteristics, and they are reflected in the Baldrige Leadership category criteria.

Although true leadership applies to everyone in an organization, we gener- ally think of executive leadership, which focuses on the roles of senior man- agers in guiding an organization to fulfill its mission and meet its goals, when we use the term. The many activities that senior executives perform include the following:

• defining and communicating business directions • ensuring that goals and expectations are met • reviewing business performance and taking appropriate action • creating an enjoyable work environment that promotes creativity, innovation,

and continual improvement • soliciting input and feedback from customers • ensuring that employees are effective contributors to the business • motivating, inspiring, and energizing employees • recognizing employee contributions • providing honest feedback

Effective leaders empower employees to assume ownership of problems or opportunities, and to be proactive in implementing improvements and making

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decisions in the best interests of the organization. The philosophy of the CEO at the former GTE Directories Corporation (now part of Verizon) summarized this facet of leadership nicely: Put a stake in the ground, get out of the way, and stay the course.

Why is leadership so important to quality and performance excellence? Leaders establish plans and goals for the organization. If the plans and goals do not include quality or, worse yet, are antithetical to quality, the quality effort will die. Leaders help to shape the culture of the organization through key deci- sions and symbolic actions. If they help to shape a culture that puts convenience or short-term benefits ahead of quality, it will die. Leaders distribute resources. If resources are showered on programs that cut short-term costs while quality is starved for resources, quality will die. This list could go on. Virtually everything that an organization needs to succeed in meeting its customers’ expectations— goals, plans, culture, resources—can either be helped or hurt by leaders (see box “The Man Who Hated Quality”). With this in mind, let us examine in more detail the roles that leaders play in a TQ company.

Many writers and managers have tried to define what a manager must do as an effective quality leader. Edwin L. Artzt was Chairman of Procter & Gam- ble, one of the nation’s oldest and most successful companies and one of the earliest to emphasize quality. He believes: “To lead quality—and I’m talking about leaders at every level in an organization—means providing the clear stra- tegic choices, the guiding principles, and the disciplined application to continu- ally improve and reinvent ourselves … and to do that with a focus on the good of the whole.”6

The Baldrige criteria also dwell heavily on leadership. Here is the philosophy of leadership within the Baldrige criteria: “An organization’s senior leaders should set directions and create a customer focus, clear and visible values, and high

REBUILDING ORGANIZATIONS THROUGH LEADERSHIP5

Baptist Hospital, Inc. (BHI) is part of the Baptist Health Care System in Florida. Senior leaders set a vision of becoming the best health system in America, and decided to rebuild the organization by engaging its staff and listening to its patients. One of their first actions was to create a flat, fluid, and open leadership system based on communication. Under this new system, staff are not just encouraged, they are expected to contact anyone in the organization, including the president, at any time to discuss work issues and improvement opportunities. To reinforce this

message, the president established an “open- door” office that has a large glass window facing the busiest part of the hospital. Senior leaders also serve as role models and are personally engaged in creating a “no secrets” environment through activities such as the Daily Line-up, in which all leaders and employees gather at each shift to review information in the Baptist Daily, and quarterly around-the-clock employee forums. They are also accountable for organiza- tional performance through a “No Excuses” policy.

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expectations. … The directions, values, and expectations should balance the needs of all your stakeholders. Your leaders should ensure the creation of strategies, sys- tems, and methods for achieving excellence, stimulating innovation, and building knowledge and capabilities. The values and strategies should help guide all activi- ties and decisions of your organization.”7

Senior leaders should inspire and motivate the entire workforce and should encourage all employees to contribute, to develop and learn, to be innovative, and to be creative. Senior leaders should serve as role models through their eth- ical behavior and their personal involvement in planning, communications, coaching, development of future leaders, review of organizational performance, and employee recognition. As role models, they can reinforce values and expec- tations when building leadership, commitment, and initiative throughout the organization.8

A final overview of the concept of quality leadership comes from Dan Ciampa, president and chief executive officer of Rath & Strong, a consulting group special- izing in TQ: The mandate is to inspire, to invoke commitment, to enable employees to form a different concept of the organization in which they believe deeply, and to change without being threatened.9

THE ROLES OF A QUALITY LEADER

Underlying the concept of quality leadership are three clear imperatives for managers who aspire to quality leadership. First, they must establish a vision. Second, they must live the values. Third, they must lead the improvement efforts. Let’s examine each of these in turn.

THE MAN WHO HATED QUALITY10

Jack Welch, CEO of General Electric, is proba- bly regarded as the most admired CEO of his generation. A Fortune magazine reporter inter- viewed Mr. Welch in 1999, prior to his retirement from GE about General Electric’s Six Sigma quality initiative (see Chapter 3). When asked why he decided to pursue a total quality initia- tive some 10 to 15 years after most other com- panies has embarked on them, Mr. Welch told a story of Larry Bossidy, a former GE employee who worked at Allied Signal. Welch said he hated quality, and believed it would result from operating well and fast. He said that Bossidy hated quality even more than he did. But when

Bossidy needed to rebuild Allied Signal, he learned how Motorola was using Six Sigma and told Mr. Welch that this is “really great stuff.” Welch took Bossidy’s advice, did some investi- gating, learned that GE needed to improve quality, and soon adopted Six Sigma. The ini- tiative saved over $1 billion in 1999, and improved GE’s operating margin and working capital. Jack Welch showed that not only was he a strong leader but also that he didn’t have all the answers. Welch needed to continually learn—which is one of the hallmarks of leader- ship for quality.

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ESTABLISH A VISION

Leaders are visionaries; they manage for the future, not the past (think back to the first of Deming’s 14 Points). Vision is crucial at every level during times of change. Leaders recognize the radical organizational changes taking place today as oppor- tunities to move closer to TQ. Jack Welch, for example, pushed GE to become a leader among traditional Old Economy companies in embracing the Internet after noticing his wife Christmas shopping on the Web. “I realized that if I didn’t watch it, I would retire as a Neanderthal,” he was reported as saying, “So I just started reading everything I could about it.” He began by pairing 1,000 Web-savvy men- tors with senior people to get his top teams up to Internet speed quickly.11 Vision- ary leaders create mental and verbal pictures of desirable future states and share these visions with their organizational partners, including customers, suppliers, and employees.

A vision is a vivid concept of what an organization could be (we introduced this in Chapter 5 in the context of strategic planning). For Texas Nameplate Company, the vision is simple: We want to be the best. A vision is a striking depic- tion of possibilities, of potential. It is a dream, both in the sense of being desirable and in the sense of being a long way from the current reality, but it is not an “impossible dream.” “Establishing” a vision implies both the intellectual and emo- tional work of conceiving the vision and the interpersonal and managerial work of communicating the vision to the organization and leading employees to embrace it, and this process is the responsibility of leadership.

Quality-oriented visions have inspired some of the most dramatic corporate success stories in business history. IBM was founded on the idea of exceptional customer service and fair treatment of employees. Federal Express sought what at the time was seen as almost inconceivable speed and reliability in the package delivery market. Apple Computers wanted to make computing accessi- ble to the masses.12 These visions were creative, captivating, and most of all, achievable.

Jane Carroll, president of The Forum Corporation, Europe/Asia, emphasizes the visionary role of leadership for quality, which she calls focus. She believes that most managers do not understand the need for a quality vision and their personal involvement in establishing it: “In our experience, very few CEOs have a real sense of what their role is in the quality improvement process (QIP). It goes far beyond simply being a cheerleader and handing out an occasional award. Top management has to provide the proper focus for the organization. This is not something that can be delegated.”13

Putting together a vision is hard work, but quality leaders do not have to do it alone. They can draw on the talents and imagination of all the members of their organizations in developing their vision. In fact, in many organizations, people are walking around with “minivisions” of their own that sound like “if only we could [do something they have been told can’t be done], things would be so much better around here.” The raw material for a vision may be all around leaders in the organization. The first step may be simply listening for it. Leaders who are open to the ideas of people throughout the organization will be much better prepared to develop a vision that people will accept.

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In the current competitive environment, if a given organization is not pursuing a customer-oriented vision, competing organizations probably are and are planning to use their vision to win over the competition’s customers (or are already doing so). This is why a quality vision is such a crucial first step in quality leadership. An organization with no vision about how to create long-term customer loyalty has little chance of survival (unless, of course, it’s a monopoly).

The second part of establishing a vision is instilling it in all the members of the organization. This will be a lot easier if many people were involved in the first part of the process, and the leader doesn’t act like a dictator from some third-world country. When Corning Glass instituted a quality vision, Chairman Jamie Houghton introduced it to employees at all levels in countries all over the world. Communication is vitally important. A leader who is able to present the vision in an intriguing way has an advantage in trying to capture the imagina- tion of the people in the organization, according to Francis Adamson, manager of quality engineering/TQM at Heinz U.S.A.: “The ability to fascinate is one of the most powerful tools of the charismatic leader. Leaders can use it to weave a fabric of commitment throughout the organization. This is the empowering function of the leader: allowing everyone to buy into the vision.”14

LIVE THE VALUES

Pursuing the quality vision commits the organization to living by a set of values such as devotion to customers, continuous improvement, and teamwork. A manager who hopes the organization will embrace and live by these values must live them to the utmost. As former Procter & Gamble Chairman and CEO Edwin Artzt puts it, “Leaders of the best companies profoundly believe in, and promote, the core values of customer-focused quality.”15 By “walking the talk,” leaders serve as role models for the whole organization.

Many CEOs lead quality training sessions, serve on quality improvement teams, work on projects that do not usually require top-level input, and personally visit cus- tomers. For example, senior managers at Texas Instruments Defense Systems and Electronics Group (now part of Raytheon) led 150 of 1,900 cross-functional teams. At Custom Research, Inc., the top four senior leaders ensure that employees have the responsibility, training, and information they need to do their jobs through empowering everyone to do what it takes to serve clients, work with nine other senior people to set strategy, and make middle managers the real leaders.

When dramatic organizational changes are taking place, people in organiza- tions are very sensitive to any sign of hypocrisy. A leader can undermine 100 hours of speeches with one decision that reveals his or her commitment to quality values to be superficial. This is not just a symbolic issue: Harvard’s David Garvin found in a study of the air-conditioner industry that the quality of a firm’s products was strongly related to the quality values expressed by management.16

Managers’ actions can symbolize their commitment to quality-oriented values in many concrete ways. For example, they can attend training programs on various aspects of quality, instead of just sending others. They can practice continuous improvement in processes that they control, such as strategic planning and capital budgeting. Perhaps most importantly, they can provide adequate funding for quality efforts, so that TQ will not be the “poor cousin” to other business issues.17

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Virtually every management team that has staged a major quality turnaround has recognized this need to “walk,” not just “talk,” quality. In looking back on the return to financial success from near-bankruptcy of his company, Harley-Davidson’s Ron Hutchinson stated: “We realized that, if we really wanted to communicate to our people a change in the company’s direction and approach, what we needed to do as senior managers was demonstrate that we were going to live by a new set of rules.”

LEAD CONTINUOUS IMPROVEMENT

Beyond establishing a vision for the organization and expressing quality values through their decisions and actions, quality-oriented leaders must lead the continu- ous process improvement efforts that are the meat and potatoes of TQ manage- ment. All of the vision and values in the world are worthless if the organization is not continuously making strides to improve its performance in the eyes of custo- mers. Visions of world-class quality and competitiveness can only be achieved if an organization keeps finding ways to do things a little better and a little faster. Leaders must be at the center of these efforts. A study by the American Productiv- ity and Quality Center and the American Society for Quality found that organiza- tions in which executive leaders directly govern or manage the quality process are 30 percent more likely to view quality as a continuous improvement activity to manage organization-wide performance.18

Managers are sometimes reluctant to take an active role in the organization’s improvement efforts for fear of dominating or undercutting their newly empowered workers. Like many aspects of management, this is a question of balance, but it is a mistake for managers to remain uninvolved in process improvement efforts. Harry Levinson and Chuck DeHont, quality leaders at Sierra Semiconductor, have thought about this dilemma and concluded: “It is often perceived, incorrectly, that management should never specify how problems should be solved, that to do so would be consid- ered improper delegation. What is actually true is that managers who set no rules for how problems should be solved have abdicated their leadership roles.”19

There are a number of ways for managers to lead continuous improvement, and which ones make the most sense will depend on the specific organization. One option already mentioned is for leaders to lead by example, by working continuously to improve the processes that they control. For some of these processes, organiza- tional members are among the customers, which gives management the opportunity to model for them the behaviors associated with obtaining and acting on customer input.20 If management were to streamline the capital budgeting procedure by speed- ing up the process and eliminating non–value-added activities, it would provide a powerful example for people to emulate.

A second way that managers can lead process improvement is to help organiza- tion members prioritize processes to work on. Here managers can take advantage of their knowledge of the “big picture” and suggest avenues of improvement that are likely to have big payoffs in terms of quality improvement and customer satisfaction. This point was underscored by a recent statement by Gerhard Schulmeyer, president and CEO of Asea Brown Boveri, a multinational company headquartered in Ger- many: It doesn’t help simply to encourage everybody to work harder. The issue is to take a fresh look at the problems and concentrate our efforts on core processes that have the largest leverage in improving our position in the market.21

Chapter 10: Leadership for Performance Excellence 401

A third way is to inspire people to do things they do not believe they can do. Motorola set aggressive goals of reducing defects per unit of output in every opera- tion by 100-fold in four years and reducing cycle time by 50 percent each year. One of Hewlett-Packard’s goals is to reduce the interval between product concept and investment payback by one-half in five years. The 3M Company seeks to generate 25 percent of sales from products less than two years old. To promote such “stretch goals,” leaders provide the resources and support necessary to meet them, especially training.

Of course, managers leading process improvement bear some responsibility for educating all their associates as to how the various processes within the company fit together. If this is done effectively, organization members will be able eventually to set their own priorities for process improvement.

Managers also can lead this effort by removing barriers to success in process improvement.22 Barriers may consist of a nettlesome standard operating procedure or a recalcitrant manager in a key position. Without leadership from management, such barriers may undermine efforts at process improvement. Of course, in dealing with such barriers, managers must continue to operate in a manner consistent with quality values. For example, managers who balk at changes must be treated with respect and their reservations considered seriously, even if they are eventually overruled.

One final way for managers to lead process improvement is to keep track of improvement efforts, to encourage them, and to provide recognition when key milestones are reached. Companies often recognize and reward groups of employ- ees for exceptional performance. Besides monetary awards, they might buy lunch for an entire division or bring in ice cream for the whole corporation. One top manager of our acquaintance makes it a practice always to be present for such rec- ognition ceremonies. If he cannot attend, the ceremony is rescheduled. By doing this, the manager is accomplishing several things at once: He is showing his sincere interest in the process, he is providing reinforcement for those people working to make key changes, and he is letting his subordinates know that it is not acceptable to make excuses for missing quality-related functions.

LEADERSHIP FOR PERFORMANCE EXCELLENCE IN ACTION

Some of the best examples of leadership come from Baldrige Award recipients. In this section, we describe some of the leadership activities of two of them, Branch-Smith Printing Division, and SSM Health Care, focusing on the three key roles of quality leadership that we have discussed. These organizations provide an interesting contrast because of the differences in their size and scope.

BRANCH-SMITH PRINTING DIVISION23

Branch-Smith, Inc. is a fourth-generation, family business. Branch-Smith Printing Division is one of two divisions within Branch-Smith, Inc. The Branch-Smith Printing Division is a small company with under 100 employees that specializes in creating multi-page, bound materials with services ranging from design to mailing for specialty customers. They offer a complete array of turnkey services to customers, including design, image scanning, electronic and conventional prepress work, print- ing, binding, and mailing/delivery.

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Leadership Role: Establish a Vision Organizational values and stakeholder expectations are set at multiple levels of the organization. At the top level, the Board of Directors and Corporate Leadership Team (CLT) created the Corporate Values Statement to focus all divisions on the needs of customers, employees, owners, and society. These values are:

• To honor God in all that we do, • To pursue excellence with integrity and commitment, • To help people develop as individuals and as a team, and • To grow profitably by committing ourselves to our customers’ success.

This mission is embraced and affirmed by the Print Leadership Team (PLT) and used as a foundation for the Division Mission Statement, which is “to provide expert solutions for publishers.” From the Corporate Values and Division Mission Statements comes a focus on the importance of quality and a Division-wide focus on meeting customer and stakeholder needs. This is described in the Quality Policy—“Branch-Smith Printing will seek to continuously improve results for all stakeholders through the application of its Innovating Excellence Process,” and is embodied in the Division Objectives, which are the firm’s highest-level directions and performance expectations. These Division Objectives are:

• Continuously Improve Business Results, • Become the Partner of Choice for Our Customers, and • Become the Employer of Choice.

The company’s senior leadership reviews organizational values, expectations, and directions for alignment each year during the strategic planning process. From those, they develop more detailed short- and longer-term directions and expecta- tions of their organization and their employees based upon input collected from all stakeholders. During the year, through the Management Review Process and PLT decisions, they continue to update directions through Action Plans (AP) and QIP activities.

LEADERSHIP CULTURE OF BALDRIGE CEOS24

A research study of CEO attitudes and motiva- tions found that CEOs of Baldrige Award recipient organizations, as compared to a comparison group of leaders from nonrecipient organizations:

• are more likely to want to evolve change and drive continuous improvement

• are strongly motivated to work with systems and processes

• are less likely to think having sole responsi- bility is important

• concentrate on studying the past and use their experience to make decisions

• are strongly motivated to work with facts and knowledge

• are likely to be intolerant of the actions of others when they differ from their own or are not consistent across the workforce

These findings can help leaders in their per- sonal development required for transforming an organization, help design of leadership training and development programs, and improve suc- cession planning and talent management for high- potential leader advancement.

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Leadership Role: Live the Values Ensuring that the values, directions, and expectations are communicated to all employees begins with a meeting following strategic planning. Senior leaders introduce the directions for the year and their roles in achieving these directions. This meeting is followed by communication meetings in each department facilitated by the leaders of those groups. Each team/ department works through an understanding of their role in the organization’s suc- cess and creates a mission statement that describes its role in fulfilling the Division mission. Based on their particular mission, each team develops strategies that sup- port the Division Objectives and Strategies. All employees develop work objectives to support Division and department directions. This drives the focus on all stake- holder needs down throughout the organization. These work objectives are created with the assistance of managers who help employees set and achieve these results. Values and expectations of employee responsibility and productive work are communicated and reinforced to employees through an employee handbook, job descriptions, and ISO work instructions.

Senior leaders encourage and motivate employees to engage in innovation and continuous improvement through an expectation that they actively participate in per- formance improvement activities after receiving training in quality and problem solv- ing. All employees receive training in the meaning of quality, elements of teamwork, and problem-solving skills when they begin with the company. The Quality Manager along with departmental QIP teams deliver ongoing training. The Quality Manager also oversees the use of statistical process control and continuous improvement tools.

Leadership Role: Lead Continuous Improvement Senior leaders review perfor- mance using a structured, comprehensive approach. Reviews are ordered consecu- tively with individuals and teams first reviewing their work and results, and then rolling results up through the organization in consecutive meetings. This bottom-up approach ensures accurate information, involvement, broad communications, and accountability at all levels. The Management Review is the core meeting of senior leaders. The meeting is designed to ensure they have full current situation and future outlook knowledge as it affects the company’s strategic position and direction. The senior leaders have comprehensive knowledge of business and industry activities because of their external involvement and the most up-to-date knowledge of their current position because of their roll-up meetings with departments and functions.

The primary driver of the meeting is the Quality Improvement Database (QID), which outlines measures and actions reviewed. All customer complaints, supplier nonconformances, internal nonconformances, productivity, progress toward department and Division goals, and other quality data are entered into this system by area leaders based on the outcomes of their reviews. Progress against goals for each team is reported through “Resource performance charts” and reviewed at that level in monthly meetings and posted as bar charts on their bulletin board. Progress made by QIP teams is also reported into the QID and reviewed by the MRT at this meeting. The QID automatically performs a Division-level roll-up of the data for review at the Management Review (MR). This database ensures that all vital performance information is available to assist senior managers’ analysis for prioritization and action. In addition, senior leaders conduct a series of reviews for their annual strategic planning meetings. These result in the culmination of the prior year performance results and dictate actions for the coming year and beyond.

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Through the MR process, every customer complaint, supplier non- conformance, employee suggestion, and open QIP, internal nonconformance, and on-time delivery issue are reviewed for status, prioritized for action, or reviewed for closure or referral to a team or individual. These involve the establishment of QIPs—the central problem-solving, implementation, and evaluation mechanisms in their management system. QIPs link to a specific Objective and Strategy. Open QIPs related to the current plan are posted on the PLT bulletin board. Before clo- sure, QIP owner(s) rate QIP effectiveness against its selected indicator, and an effort may be initiated to improve the solution’s effectiveness.

SSM HEALTH CARE25

Sponsored by the Franciscan Sisters of Mary, SSM Health Care (SSMHC) is based in St. Louis, Missouri, and operates as a private, not-for-profit health care system. SSMHC delivers its health care services in inpatient, outpatient, emergency depart- ment, and ambulatory surgery settings associated with 17 acute care hospitals in Missouri, Illinois, Wisconsin, and Oklahoma.

Leadership Role: Establish a Vision SSM Health Care is committed to provid- ing exceptional health care services to every person who seeks need of care. SSMHC’s Board of Directors sets the organization’s Vision Statement and affirms the Mission and Core Values statements developed by employees throughout the system. The Board consists of nine members, both religious and lay persons, and meets four times a year. Four regional boards and three local boards, operating under guidelines established by the SSMHC Board, are responsible for medical staff credentialing and performance assessment and improvement for SSMHC enti- ties within their service areas.

Approximately 190 regional and system executives, entity presidents and administrative council (AC) members, physicians, and corporate vice presidents make up SSMHC’s leadership system. Physician executive leaders, who are typically vice presidents of medical affairs, medical directors, or chief medical officers at the entities or networks, are fully participating members of the lead- ership system. The leadership system contains the following primary mandated groups:

• System Management, 11 senior leaders, who meet monthly. • Operations Council, 9 senior leaders, subset of System Management, who meet

monthly. • Innsbrook Group, 31 system, network and entity senior leaders, who meet

three times a year. The Innsbrook Group consists of all members of System Management and all hospital presidents, plus representative physician organi- zation, network, home care, and information systems executives.

• Network leadership, network president/CEO and his or her direct reports, 8 to 10 people, who meet weekly or biweekly.

• Entity leadership, presidents and members of their leadership teams, called administrative councils, and medical staff leaders, 8 to 10 people, who meet weekly or biweekly.

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Nearly 3,000 SSM Health Care employees and physicians participated in focus groups across the system to define the organization’s mission and values during 1999. Out of this discussion came recommended wording for a single, more con- cise, and memorable mission statement and core values. During 2000, educational sessions were conducted at each of the entities to communicate the new mission and core values to all physicians and employees. The education, designed to give definition to the mission and values, included group discussions of the personal meaning of the mission and values to individuals. A “Meeting in a Box” tool kit, including a video, brochures and pocket cards, was used to facilitate consistent deployment. Educational programs conducted in 2001 for the deployment of the 2002–04 Strategic, Financial & HR Plan (SFP) served to reinforce the mission and values.

Leadership Role: Live the Values SSMHC is a mission-and-values-driven orga- nization. Every executive leader throughout the system is responsible for ensuring that SSMHC’s mission and values are communicated and deployed. The corporate vice president–mission awareness develops SSMHC’s mission initiatives with input from the Mission Think Tank of about a dozen employees and entity/network mis- sion awareness representatives. System Management requires each entity to have a mission awareness team (MAT), made up of a cross section of employees. These teams sponsor an annual retreat day for their co-workers and a variety of works of mercy (e.g., fundraising for local charities), that emulate the mission and values. Mission and values statements and Quality Principles are reinforced in system, net- work and entity publications, such as SSM Network, SSMHC’s bimonthly news- paper, and posted in conference rooms throughout the system.

The Innsbrook Group sets the organization’s short- and long-term strategic directions and performance expectations through the Strategic, Financial & HR Planning Process (SFPP). They develop goals that support the Vision and Mission statements. Interactive processes occur within each entity and network to finalize the entity/network Strategic, Financial & HR Plans (SFPs). Use of the SFPP also enables the Innsbrook Group to create and balance value for all of its stake- holders (patients and their families; employees; all active and associate physicians; major suppliers; and payors) by ensuring the goals reflect each stakeholder’s requirements.

System Management translates short- and long-term directions and communi- cates organizational values and performance expectations to all employees through a system-wide tool called “Passport.” SSMHC employees receive a “Passport”—a card that contains the SSMHC mission and values; the characteristics of excep- tional health care services identified in the 2002–04 SFP; spaces for entity, departmental, and personal goals and measures; and a place for the employee and manager signatures and date. The Passport creates “line of sight” from personal goals to the organization’s goals. SSMHC’s senior leaders use communication plans (which identify key messages, audiences, leader spokespersons, methods, and timelines) and tools like “Meeting in a Box” to ensure consistent communication of values, directions, and expectations throughout the leadership system and to all employees and employed physicians.

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Leadership Role: Lead Continuous Improvement SSMHC committed to con- tinuous quality improvement (CQI) system-wide in 1990, and was among the first health care systems in the nation to do so. Sr. Mary Jean Ryan, FSM, president/CEO, and the system’s senior leadership team made this commitment after research showed strong parallels between SSMHC’s values and quality princi- ples. SSMHC has become a national role model for health care organizations across the country, even internationally, that are striving to create a culture of continuous improvement.

SSMHC executive leaders use a system-wide Performance Management Process to review and assess organizational performance as it relates to achieving the SFPP short- and long-term goals, and in meeting changing health care service needs. The process facilitates identification of the root causes of performance variations and establishes clear accountabilities for implementing corrective action. This Perfor- mance Management Process was developed during 2000 by the system-wide Accountability Team. The process improves accountability and monitoring of per- formance at all levels of the organization. The Performance Management Process defines the roles and responsibilities of leadership groups in managing the perfor- mance of SSMHC and its entities; defines a consistent set of performance reporting tools used throughout SSMHC; and establishes standardized definitions and indica- tors to ensure consistency in the measurement and evaluation of performance. The operational process covers three general areas of reporting: financial, customer satisfaction, and clinical quality performance.

System Management assesses the overall health of SSMHC monthly by examining the Combined Financial Statements and 16 System Level Indicators on a consolidated basis for the services of hospital operations, home health, long-term (nursing home) care, and physician practices. The Operations Council analyzes the operational performance of SSMHC monthly using the SSMHC Operations Perfor- mance Indicator Report (IPR), also known as the Stoplight Report, which contains the same 16 indicators reviewed by System Management plus other key measures. This report covers performance by network and freestanding campuses. If an unfa- vorable variance occurs for one of these system level indicators, the Operations Council looks at the Hospital Operations Performance Report to determine causal factors.

System, network, and entity leadership groups and the regional boards assess quality improvement and patient safety at SSMHC hospitals through the Quality Report. This quarterly electronic report contains 14 indicators in four categories: customer satisfaction, employee safety, clinical quality, and patient safety. It also contains information related to risk management, infection control and environment of care issues. Corrective action plans are required to remedy unfavorable variances. If an unfavorable variance occurs beyond an established performance threshold in any of the 16 System Level Indicators, a network or freestanding (non-network) entity is required to develop and implement a corrective action plan using a stan- dardized format. Corrective action plans include a root cause analysis, detailed implementation plans, description of the support needed, timelines, and responsibili- ties. These plans are reviewed by the SSMHC’s executive vice president and the Operations Council. The network/entity has implementation responsibility with oversight provided by the executive vice president/COO and Operations Council.

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SSMHC’s senior leaders deploy the organization’s performance results to employees at the appropriate system, network and entity levels. They communicate system performance review findings, priorities for improvement, and opportunities for innovation in their areas at System Management, Operations Council, and Innsbrook Group meetings. The network/entity presidents communicate findings, priorities, and opportunities for their network/entity at administrative council and entity department meetings. Network/entity presidents appoint teams or other accountable groups to deploy the corrective action plans. Entity presidents and other leaders deploy performance results to physicians at medical executive com- mittee meetings (monthly), medical staff meetings (at least annually), and employed physician board meetings (monthly).

LEADERSHIP SYSTEMS

In complex organizations, the ability to successfully lead requires an effective leadership system. The leadership system refers to how leadership is exercised, formally and informally, throughout an organization. These elements include how key decisions are made, communicated, and carried out at all levels. The leadership system includes structures and mechanisms for decision making; selection and development of leaders and managers; and reinforcement of values, directions, and performance expectations. It builds loyalties and teamwork based upon shared values, encourages initiative and risk taking, and subordinates organization to pur- pose and function. It respects the capabilities and requirements of employees and other stakeholders and sets high expectations for performance and performance improvements. An effective leadership system also includes mechanisms for leaders’ self-examination and self-improvement.

The leadership system in every organization is unique and reflects the vision and culture of the organization. As one example, the leadership system at Solar Turbines, Inc. (Solar), a division of Caterpillar, operates in three distinct, yet highly integrated, modes. First, through a functional organizational structure led by the president’s staff, Solar maintains a focus on functional excellence through the recruitment, hir- ing, development of critical skills, and the application of tools and common pro- cesses to continuously improve functional effectiveness. Second, three cross- functional leadership structures, made up of managers and technical experts selected from multiple levels of the organization, facilitate companywide teamwork and deci- sion making. This Expanded Leadership Team, consisting of the Operations Council (74 leaders from across the business) and the Expanded Leadership Group (more than 400 managers and supervisors), enables Solar to develop the next generation of business leaders. It also promotes rapid, effective communication among employ- ees with cross-functional teaming occurring at all levels of the organization. The third leadership structure is the set of 10 interlocking committees that coordinate and integrate all business areas. These committees provide a mechanism to strengthen organizational learning through cross-functional sharing, companywide communication, and strategic direction setting. Members of the president’s staff chair key committees and, along with other senior business leaders, actively partici- pate to provide guidance, learn, share, and support each other’s decisions as a leader- ship team.26

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In contrast to the large manufacturing environment at Solar, Stoner (profiled at the beginning of this chapter) has a six-member senior leadership team empowered by the owner to manage and lead the company. The leadership team created and refined the Stoner Excellence System to define and communicate to all team mem- bers how the business is run. The system is based on Leadership, Strategy, and Pro- cess, which are combined with an Assess/Improve/Implement continuous improvement approach. Stakeholder value is at the center of the system to charac- terize the main focus on the customer. Stoner’s leadership approach is built on (1) leadership at all levels, (2) worker leaders, and (3) strong fundamental leader- ship skills based on Stephen Covey’s Seven Habits of Highly Effective People.

PERFORMANCE EXCELLENCE AND LEADERSHIP THEORY

There are a great number of theories of leadership; we can discuss the relationship of TQ principles and performance excellence to only a few of them. This section outlines some of theories that seem to relate most closely to quality management philosophies.

THE ROLES OF MANAGERS

One well-known model, advanced by Henry Mintzberg, categorizes the work of managers into 10 roles. Although this is a model of managerial roles, rather than leadership per se, it is useful to explore how roles may change as managers attempt to practice leadership for performance excellence.

There are interpersonal roles (figurehead, leader, and liaison), informational roles (monitor, disseminator, and spokesperson), and decisional roles (entrepreneur, disturbance handler, resource allocator, and negotiator).27 Each of these roles is likely to be played by managers practicing TQ, although the relative importance of the roles, and the ways in which they are played, may differ from more traditional organizations.

Interpersonal Roles The figurehead role, which involves the ceremonial or symbolic tasks of managers, is certainly played in TQ organizations. A manager presiding at a recognition ceremony for a team’s quality accomplishments would be fulfilling this role. The leadership role would obviously be important for TQ- oriented managers, but the directing and controlling aspects of this role would be downplayed.

The liaison role—dealing with customers, suppliers, and others—would still be played, but also it would be fulfilled to an increasing extent by employees, as an outgrowth of their empowerment.

Informational Roles The informational roles of management would continue to be played, but nonmanagerial personnel would be more involved in these activi- ties, rather than looking to managers as the source of all information. Employees involved in benchmarking, for example, would play an important part in moni- toring and disseminating information. Whereas top managers would retain an important role as spokespersons, this role also would be increasingly shared with

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people throughout the organization. By now, probably hundreds, if not thousands, of nonmanagerial personnel have stepped up to the microphone to share their teams’ accomplishments with the world.

Decisional Roles Many of the behaviors leaders use to initiate and support a focus on performance excellence are characterized by the entrepreneurial role, one of the decisional roles. In this role, managers try to improve their organization by identifying problems and instituting processes to solve them. The disturbance- handler role—in which leaders resolve conflicts among subunits—should be diminished, at least in the long run, as people take on a more holistic view of the organizational mission. The resource-allocator role continues to be key, as perfor- mance excellence will not be achieved unless leaders are unswerving in their commit- ment of resources to continuous improvement and customer satisfaction. Finally, the negotiator role will still be played, but it will be different, as companies try to create long-term, win-win arrangements with suppliers, unions, and customers.

The Mintzberg model attempts to describe the behavior of managers, not to prescribe what they should do. It also attempts to capture the broad scope of managerial activities across many types of organizations. For this reason, it is diffi- cult to compare it directly to the more limited, but explicitly prescriptive, content of leadership for performance excellence. Nevertheless, the comparison is instructive in linking this discussion to the mainstream management literature on leadership: Managers in TQ settings will play some roles (entrepreneurial) more than other managers, other roles (disturbance handler) less often, and others (leader) differently.

CONSIDERATION AND INITIATING STRUCTURE

In a series of studies done several decades ago at Ohio State University, researchers tried to identify the behaviors associated with effective leadership. These studies concluded that many of these behaviors could be captured by two dimensions: consideration and initiating structure.

Consideration (also known as socioemotional orientation) means taking care of subordinates, explaining things to them, being approachable, and generally being concerned about their welfare. Initiating structure (also known as task orientation) means getting people organized, including setting goals and institut- ing and enforcing deadlines and standard operating procedures. Research has indicated that, although different situations will require different leadership beha- viors, most organizational units over a period of time will require both types of leadership in order to be successful.28

One apparent difference between this classic view of leadership and the TQ view is that the former emphasizes leadership at the workgroup level, whereas the latter deals with the more global level of organizations or major subunits. Writers on performance excellence leadership have focused less on lower-level leaders, due per- haps to the emphasis on self-management at those levels.

Despite these differences, consideration and initiating structure are not irrelevant for organizations pursuing performance excellence. Such organizations recognize the importance of employees for the success of their quality efforts and for their perfor- mance in general. Thus, leaders will certainly need to be considerate of employee

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needs. The section on Rosenbluth in Chapter 9 illustrated how consideration of employees minimizes their frustration and allows them to focus on customer service and continuous improvement. In a TQ environment, consideration would not be done in a paternalistic manner, emphasizing the power of leaders over subordinates. On the contrary, people would be treated as respected associates.

Initiating structure also will be appropriate in the TQ environment but perhaps will be accomplished differently than in the traditional organizational setting. Traditionally, leaders were responsible for the whole gamut of activities associated with initiating structure-setting goals, establishing deadlines, enforcing rules, and so on. In organizations striving for empowerment, many of these activities will be taken over by employees.

The discussion of leadership for performance excellence suggests that quality leadership consists more of setting a direction for people through establishing a vision and identifying values. By leading continuous improvement efforts, leaders will establish priorities for activities throughout the organization. Such activities will provide the necessary context for employees to initiate structure for themselves.

TRANSFORMATIONAL AND TRANSACTIONAL LEADERSHIP THEORY

Another model that has important implications for performance excellence is Transformational Leadership Theory.29 According to this model, leadership has four principal dimensions:

1. Inspirational motivation—providing followers with a sense of meaning and challenge in their work;

2. Intellectual stimulation—encouraging followers to question assumptions, explore new ideas and methods, and adopt new perspectives;

3. Idealized influence—behaviors that followers strive to emulate or mirror; 4. Individualized consideration—special attention to each follower’s needs for

achievement and growth.

Leaders who wish to have a major impact on their organizations must take a long- term perspective, work to stimulate their organizations intellectually, invest in training to develop individuals and groups, take some risks, promote a shared vision and values, and focus on customers and employees as individuals.

Transactional Leadership Theory assumes that certain leaders may develop the ability to inspire their subordinates to exert extraordinary efforts to achieve organi- zational goals, through behaviors that may include contingent rewards, and active and passive management by exception. Contingent reward behavior includes clar- ification of the work required to obtain rewards to influence motivation. Passive management by exception includes use of contingent punishments and other cor- rective actions in response to deviations from acceptable performance standards. Active management by exception is defined in terms of looking for mistakes and enforcing rules to avoid mistakes. Bernard Bass differentiated transformational from transactional leadership behavior, stating: “Transformational leaders have greater interest in continuous organizational change and improvement transcending or aligning self-interests for the longer-range greater good of the organization and its members. This is in contrast to transactional leaders, who are more focused

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on the satisfaction of self-interests and the maintenance of the organization’s status quo.”30

Transformational leadership is more aligned with organizational change required by TQ and Baldrige-like performance excellence models. The CEOs and executive team members of nearly every Baldrige Award recipient have generally modeled this leadership behavior, and some empirical evidence found in research suggests that transformational leadership behavior is strongly correlated with lower turnover, higher productivity and quality, and higher employee satisfaction than other approaches. Many of its aspects (emphasis on vision and focus on cus- tomers and employees as individuals) are right out of the Baldrige playbook, while others are generally consistent with performance excellence principles. For instance, Deming emphasized the necessity for managers to have “constancy of purpose”— to pursue diligently the long-term goal of remaining competitive through continu- ous improvement processes. They should also communicate an appealing vision emphasizing continuous improvement, teamwork, and customer service in order to inspire followers. Moreover, managers can act as role models by taking a personal interest in activities geared toward improving processes and customer relationships.31

An interesting study of patient safety in hospitals lends credibility to the role of transformational leadership in quality and performance excellence.32 Creating a culture that supports patient safety is likely to require significant organizational change within a hospital. The study proposed that transformational leadership drives a culture of patient safety, patient safety initiatives, and positive outcomes. Using data collected from 371 hospitals, the study provided empirical evidence that improving patient safety begins at the top of the organization with a hospital CEO who possesses a transformational leadership style, and it demonstrated that this leadership style is directly related to a culture of safety within the hospital, which is tied to the successful implementation of patient safety initiatives, and ultimately to improved patient safety outcomes.

It would be tempting to say that all managers in TQ organizations should be transformational leaders, but this is unrealistic and probably unwise. It is not real- istic because few, if any, organizations have such a concentration of transforma- tional leaders. It is not wise because such a concentration would likely breed more chaos than quality. An organization pursuing performance excellence needs both those who establish visions and those who are effective at the day-to-day tasks needed to achieve them.33 These “transactional leaders” play an important role in promoting TQ. See box “Transformational or Transactional? A Research Perspec- tive” for some empirical evidence on these theories.

SITUATIONAL LEADERSHIP

Ken Blanchard and Paul Hersey concluded that no single theory of leadership works in every situation, and they developed a simple model known as situational leadership in the late 1960s. This model suggests that the style of leadership that one should use depends on the maturity of those being led. The premise behind the situation leadership model is that leadership styles might vary from one person to another, depending on their “readiness,” which is characterized by their skills

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and abilities to perform the work, and their confidence, commitment, and motiva- tion to do it. The Situational Leadership model defines four levels of readiness:

1. Unable and unwilling 2. Unable but willing 3. Able but unwilling 4. Able and willing

Blanchard and Hersey defined four leadership styles that best address these four levels of readiness:

1. Directing. In this style of leadership, managers define tasks and roles, and closely supervise work. Communication is generally one way—top down. This style applies best to people who lack the skills and knowledge to perform a job and lack the confidence or commitment to their work (unable and unwilling).

2. Coaching. In this style, leaders set the overall approach and direction but work with subordinates and allow them to manage the details. Leaders might need to provide some experience or support to individuals having the drive and motivation to do a good job, but who might lack some experience or skills (unable but willing).

3. Supporting. Here, leaders allocate tasks and set direction, but the subordinate has full control over the performance of the work. These individuals do not need much supervision or direction, but may require motivation and confi- dence (able but unwilling), particularly if the task is new.

TRANSFORMATIONAL OR TRANSACTIONAL? A RESEARCH PERSPECTIVE34

A study was conducted to investigate the importance of transformational and transactional leadership to effective quality improvement. The study measured six dimensions of transforma- tional leadership and two dimensions of transactional leadership using items from prior literature. The items were measured on a seven- point Likert scale. A questionnaire was administered to a sample of quality managers representing 163 companies. Based on the data collected, the companies were classified as successful or unsuccessful in terms of quality improvement. The authors found that transfor- mational leadership significantly affects both infrastructure and core quality management practices, while transactional leadership does not significantly affect either set of practices. There were, however, significantly higher levels of both types of leadership behavior exhibited

in the successful firms compared to the unsuc- cessful firms. The finding that transformational leadership is associated with successful quality improvement supports theoretical arguments that it provides the visionary leadership needed for successful quality management. Some prior theories had argued that transactional leadership would decrease quality improvement because using contingent reward and contingent punish- ment would encourage employees to pursue their own goals at the expense of the company’s quality improvement goals. These findings support the arguments that transactional leader- ship is not in opposition to transformational leadership, but actually is a necessary type of leadership. Thus, leaders must not only provide visionary leadership but they also should use their reward and punishment power to direct employee behaviors.

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4. Delegating. In this style, subordinates can do their work with little supervision or support. Once the work is delegated, leaders take a hands-off approach, except when ask to provide assistance by the subordinate. They are both able and willing to work on a project by themselves with little supervision or support.

A leader also might apply different styles to the same person at different times. This can be difficult, as most people seem to be more comfortable in one style. However, the choice should not be driven by personal preference but, rather, the needs of the subordinates. In fully empowered organizations and those with strong self-directed teams, you would probably find the delegating style to be most preva- lent. However, when introducing new skills, such as Six Sigma, into an organiza- tion, it may be necessary to provide more direct control, coaching, or support when individuals are learning and practicing new skills or are transitioning into new job responsibilities. As managers work with different individuals in different stages of careers and maturity, it is his or her responsibility to adapt the leadership style to the individual and the situation.

The situational leadership model is directly reflected in the process model for creating self-directed teams at Boeing Airlift & Tanker that we illustrated in Chapter 8 (see Figure 8.1). Thus, it provides a structure for transitioning to an empowered organization. In fact, some research has suggested that the model pro- vides a natural basis for leading organizational change processes as organizations pursue performance excellence.35

MANAGEMENT AND LEADERSHIP

A recent treatment of leadership by John Kotter compares the concept of leadership to the concept of management.36 According to this view, management is needed to create order amid complexity, and leadership is needed to stimulate the organiza- tional change necessary to keep up with a changing environment. This view avoids the simplistic ideas that management is somehow trivial, generally unnecessary, and should be replaced by leadership, and that the same person cannot practice both management and leadership.

Kotter differentiates leadership from management by contrasting the activities central to each. Although management begins with planning and budgeting, leader- ship begins with setting a direction. Direction-setting involves creating a vision of the future, as well as a set of approaches for achieving the vision. To promote goal achievement, management practices organizing and staffing, whereas leadership works on aligning people—communicating the vision and developing commitment to it. Management achieves plans through controlling and problem solving, whereas leadership achieves its vision through motivating and inspiring.

Kotter’s view of leadership—similar to transformational theory—dovetails with our depiction of quality leadership. Both focus on developing and communicating a vision. Kotter’s view of inspiring resembles our discussion of giving people values to embrace and then making sure that the leader is practicing them. The idea of aligning people is consistent with the idea of empowerment, because it gives people a goal, then leaves them to move in that direction. Our description of the role of leaders in continuous improvement is more hands-on than Kotter’s description,

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perhaps suggesting that some management behaviors will continue to be important to leaders in TQ organizations.

LEADERSHIP, GOVERNANCE, AND SOCIETAL RESPONSIBILITIES

An important aspect of an organization’s leadership is its responsibility to the pub- lic and practice of good citizenship. General Electric’s CEO Jeffrey Immelt noted, “Good leaders give back. ... It’s up to us to use our platform to be a good citizen. Because not only is it a nice thing to do, it’s a business imperative.”37 Corporate social responsibility (CSR) is the “responsibility of enterprises for their impacts on society.”38 CSR implies that organizations must behave ethically and be sensitive of social, cultural, economic, and environmental issues. This includes compliance with legal and ethical standards, corporate governance, and protection of public health, safety, and environmental protection. These factors are becoming increas- ingly important to the workforce, to customers, and even to investors. CSR has become a strategic imperative and a competitive or marketplace necessity, particu- larly in the wake of corporate scandals that have occurred. Evidence suggests a positive relationship between CSR and business performance.39 An ethical business environment creates trust from customers and employees, resulting in higher cus- tomer satisfaction, stronger employee commitment, and improved quality, all of which lead to higher profits.

CSR has been prominent in the Baldrige criteria since its inception.40 In the initial 1988 Criteria, public responsibility was focused narrowly on mechanisms used for external communication of information concerning corporate support of quality assurance or improvement activities outside the company. Over the next several years, this item was expanded to include how the company extended its quality leadership to the external community and integrated its responsibilities to the public for health, safety, environmental protection, and ethical business practice into its quality policies and activities. This included how the company promoted quality awareness and sharing with external groups; how the company encouraged employee leadership and involvement in quality activities of external organizations; how the company defined and set quality improvement goals, indicators used to monitor quality, and progress reviews.

When the Baldrige Program first articulated its Core Values and Concepts in the 1992 criteria, one of the initial 10 core values was Public Responsibility:

A company’s customer requirements and quality system objectives should address areas of corporate citizenship and responsibility. These include business ethics, public health and safety, environment, and sharing of quality-related information in the company’s business and geographic communities. Health, safety, and environmental considerations need to take into account the life cycle of products and services and include factors such as waste generation. Quality planning in such cases should address adverse con- tingencies that may arise throughout the life cycle of production, distribution, and use of products. Plans should include problem avoidance and company response if avoid- ance fails, including how to maintain public trust and confidence. Inclusion of public responsibility areas within a quality system means not only meeting all local, state, and federal legal and regulatory requirements, but also treating these and related require- ments as areas for continuous improvement. In addition, companies should support– within reasonable limits of their resources–national, industry, trade, and community activities to share nonproprietary quality-related information.

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In 1993, the core value introduced the notion of treating local, state, and federal legal and regulatory requirements as areas for continuous improvement “beyond mere compliance.” It also expanded on the notion of corporate citizenship, stating: “Corporate citizenship refers to leadership and support – within reasonable limits of a company’s resources – of publicly important purposes, including the above- mentioned areas of corporate responsibility. Such purposes might include education, resource conservation, community services, improving industry and business prac- tices, and sharing of nonproprietary quality-related information.” This was further expanded upon in 1994 and 1995 with the additional statements “Leadership as a corporate citizen entails influencing other organizations, private and public, to partner for these purposes. For example, individual companies could lead efforts to help define the obligations of their industry to its communities.”

In 2000, a significant revision was made to this core value:

An organization’s leadership needs to stress its responsibilities to the public and needs to practice good citizenship. These responsibilities refer to basic expectations of your organization–business ethics and protection of public health, safety and the environ- ment. Health, safety, and the environment include your organization’s operations as well as the life cycles of your products and services. Also organizations need to empha- size resource conservation and waste reduction at the source. Planning should antici- pate adverse impacts from production, distribution, transportation, use, and disposal of your products. Plans should seek to prevent problems, to provide a forthright response if problems occur, and to make available information and support needed to maintain public awareness, safety, and confidence. For many organizations, the product design stage is critical from the point of view of public responsibility. Design decisions impact your production process and the content of municipal and industrial wastes. Effective design strategies should anticipate growing environmental demands and related factors. Organizations should not only meet all local, state, and federal laws and regulatory requirements, they should treat these and related requirements as opportunities for continuous improvement “beyond mere compliance”. This requires the use of appro- priate measures in managing performance. Practicing good citizenship refers to leader- ship and support–within the limits of your organization’s resources–of publicly important purposes. Such purposes might include improving education, health care in the community, environmental excellence, resource conservation, community service, industry and business practices, and sharing non-proprietary information. Leadership as a corporate citizen also entails influencing other organizations, private and public, to partner for these purposes. For example your organization could lead efforts to help define the obligations of your industry to its communities.

In 2003, the core value was renamed Social Responsibility, and more recently, Societal Responsibility.

ISO also has an international standard for social responsibility, ISO 26000, which defines the responsibilities of an organization for the impact of its decisions and activities on society and the environment through transparent and ethical behavior.41 The standard is based on seven principles: accountability, transparency, ethical behavior, respect for stakeholder interest, respect for the rule of law, respect for international norms of behavior, and respect for human rights. These principles can be applied to quality leadership.42 For example, being open to criticism and controversy from stakeholders demonstrates accountability; using honest, accurate,

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open, and available information on decisions and activities demonstrates transpar- ency. Respect for international norms of behavior is important when operating in developing countries where local norms may not be the same as international norms. Where conflicts exist, the socially responsible quality manager adheres to international norms. These principles can help managers better understand and integrate social responsibility into their leadership practices.

ORGANIZATIONAL GOVERNANCE

Senior leaders are responsible for creating an environment in which employees’ decisions and actions and stakeholder interactions conform to the organization’s moral and professional principles. Senior leaders must build stakeholders’ and employees’ trust in the governance of their organizations and ensure legal compli- ance and ethical behavior. For any organization, a focus on ethics leads to an orga- nizational culture that values sound governance, transparency, integrity, and social responsibility. At MEDRAD, for example, a Code of Conduct defines ethical behavior in all transactions and interactions and has been deployed to all employ- ees worldwide as well as to MEDRAD’s suppliers. Code of Conduct training is part of the company’s employee orientation program, and the training is reinforced through a quarterly Code of Conduct Challenge distributed by e-mail to all employ- ees. In addition, MEDRAD has an anonymous ethics hotline and e-mail address, a Business Ethics Committee, and a Legal Advisory Board.

An important aspect of any leadership system is governance, which refers to the system of management and controls exercised in the stewardship of an organization. Corporate charters, bylaws, and policies document the rights and responsibilities of owners/shareholders, board of directors, and the CEO, and describe how the organi- zation is managed to ensure accountability, transparency of operations, and fair treatment of all stakeholders. Governance processes may include approving strategic direction, monitoring and evaluating CEO performance, succession planning, finan- cial auditing, executive compensation, disclosure, and shareholder reporting. Effective governance processes can mitigate the types of problems manifested by stock manipulations, financial misreporting, and corporate and personal greed that have occurred in the past. In fact, evidence indicates that good governance and integrity are important ingredients for success; for example, organizations with the best corporate governance practices have also generally outperformed the major stock indexes.

The Public Company Accounting Reform and Investor Protection Act of 2002, commonly known as the Sarbanes-Oxley Act, was passed as a result of the corpo- rate financial scandals at firms such as Enron. As a result of the legislation, all publicly traded companies are required to submit an annual report of the effective- ness of their internal accounting controls to the SEC. The Sarbanes-Oxley Act imposes criminal and civil penalties for noncompliance, and requires certification of internal auditing, and increased financial disclosure.

In 2002, about the same time the Sarbanes-Oxley legislation was passed, The Business Roundtable, a respected group of CEOs from many of the Fortune 500 corporations, developed a set of Principles of Corporate Governance to provide guide- lines for compliance.43 These principles describe the responsibilities of the board of directors in overseeing senior managers and the ethical operation of the company, of

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management to operate in an effective and ethical manner, of producing fair and timely financial disclosures, of using an independent auditing firm to audit financial statements, of the independent accounting firm to avoid conflicts of interest and work in accordance with Generally Accepted Auditing Standards, of dealing with employees in a fair and equitable manner, of the board to respond to shareholders’ concerns, and of the corporation to deal with all its stakeholders in a fair and equitable manner. As one example, Caterpillar Financial Services Corporation (CFSC) has established strong internal financial control mechanisms. Segregation of duties and authorities prevents abuse, and systems are audited internally and externally. CFSC’s Business Excellence Council monitors portfolio quality, and, as an issuer of publicly traded debt, CFSC’s financial and portfolio practices and results are evaluated and made public by external rating agencies and analysts. The Caterpillar Executive Office and Audit Committee of the Board of Directors provide oversight to CFSC. Although not required by law, Caterpillar also established share ownership requirements for recipients of stock option grants more than a decade ago, and shareholders approve all equity programs.

SOCIETAL RESPONSIBILITIES

An important aspect of CSR is safety in product design and manufacturing. Planning activities such as product design should anticipate adverse impacts from production, distribution, transportation, use, and disposal of a company’s products to protect the welfare of consumers and society. Another responsibility is the management and security of sensitive information. For example, State Farm Insurance put in place physical, electronic, and organizational safeguards to protect customer information. They continually review their policies and practices, monitor computer networks, and test the strength of security in order to help ensure the safety of customer information. Finally, organizations have a responsibility to protect the environment. Research has suggested that superior environmental per- formance and superior quality are complementary. Firms that improve quality in goods and services can easily transfer their knowledge and learning to environmen- tal processes. In addition, there is evidence that achieving superior environmental performance can be a significant driver of higher quality.44

Practicing good citizenship refers to leadership and support—within the limits of an organization’s resources—of publicly important purposes, including improving education, community health, environmental excellence, resource con- servation, community service, and professional practices. It also entails leading efforts to help define the obligations of the industry to its communities. For example, Consolidated School District 15 supports the community in a variety of ways. It is one of the largest contributors to the local United Way, contribu- tions increased by more than 50 percent from 1998–99 to 2002–03; it established the Al Hoover/PTA Health fund, which partners with local health providers to serve D15 students who otherwise would be unable to obtain needed medical care; and its administrators contribute more than 1,500 volunteer hours on 48 local committees. In addition, D15 has established numerous community ser- vice opportunities for its students, such as providing labor to repair homeless shelters, donating clothing and books to needy families, making quilts for children in hospitals, and supporting food drives.45

418 Part 4: Leadership and Organizational Change

Discussion Questions and Experiential Exercises

1. How is leadership exercised at Stoner in the Performance Excellence Profile? How might leadership differ at a very small company like Stoner compared to much larger companies (e.g., Boeing, Xerox, and so on)?

2. What three processes must leaders undertake to promote TQ in their organizations?

3. Joseph Conklin proposes 10 questions for self-examination to help you understand your capacity for leadership.46 Answer the following questions, and discuss why they are important for leadership. a. How much do I like my job? b. How often do I have to repeat myself? c. How do I respond to failure? d. How well do I put up with second-

guessing? e. How early do I ask questions when

making a decision? f. How often do I say “thank you”? g. Do I tend to favor a loose or strict

interpretation of the rules? h. Can I tell an obstacle from an excuse? i. Is respect enough? j. Have I dispensed with feeling

indispensable? 4. State some examples in which leaders you

have worked for have exhibited leadership

practices discussed in this chapter. Can you provide examples for which they have not? How did their behavior affect you and your coworkers?

5. Using the information in this chapter, design a questionnaire that might be used to understand leadership effectiveness in an organization.

6. Interview someone you know about the lead- ership characteristics of their supervisor. What leadership style does he or she appear to reflect?

7. Review Deming’s 14 Points in Chapter 3. What aspects of leadership theories are evident in them, either individually or as a holistic philosophy?

8. Most of the talk on leadership for quality focuses on top managers. What can middle- and first-level managers do to promote quality in their organizations? How does this differ from the role of top management?

9. John Young, former president and CEO of Hewlett-Packard, has summarized the role of the CEO in quality improvement in the following recommendations.47

a. Dramatize the importance of quality to the organization.

SOCIETAL RESPONSIBILITY IS STRATEGIC

At Solar Turbines, a wholly owned subsidiary of Caterpillar Inc. and the world’s largest supplier of mid-range industrial gas turbine systems, its Social Responsibility Core Business Principle and Environmental, Health, and Safety Policy guide the company’s responsibility and citizenship actions. Solar’s environmental health and safety strategy for its internal operation is to surpass compliance and strive for industry leadership. Products and services must comply with local, state, and federal

standards in each locale as well as country- specific and governing body standards for emissions and effluent discharge. Solar’s strategy has yielded significant reduction in the use of hazardous raw materials and production of hazardous waste, increased recycling and reuse, improved energy efficiency, and reduced water consumption. Solar and one of its key suppliers partnered with Cal-Poly State University to estab- lish a Vibration and Rotor Dynamics Laboratory.

Chapter 10: Leadership for Performance Excellence 419

b. Establish agreed-on measures of quality. c. Set challenging and motivating goals. d. Give people the resources and informa-

tion needed to do the job. e. Reward results. f. Keep an attitude that high quality is not

only desirable, but possible. How do these recommendations differ from those given in this chapter? Are they really different or do they capture the same ideas in different words?

10. What are the challenges in designing (or redesigning) an effective leadership sys- tem for an organization?

11. William Scherkenbach, a quality expert and Deming disciple, states: “If management is to improve their organization, they must change the process. This means that they cannot accept conference room promises, but must work directly with their people on the process, the how and the why. During this period of transition, everyone must be willing to learn…. No one is too senior to be involved in the how.”48 Do you agree or disagree? Why?

12. What aspects of an organization’s culture or structure could keep managers from leading effectively?

13. Sir John Harvey-Jones, head of Britain’s Imperial Chemical Industries from 1982 to 1987, once commented, “The task of lead- ership is really to make the status quo more dangerous than launching into the unknown.”49 Do you think this statement represents a good approach to TQ leader- ship? Why or why not?

14. Compare the leadership practices of Branch- Smith Printing and SSM Health Care. How do these practices relate to the concepts developed in this chapter? What differences and similarities can you point to?

15. Can leadership be viewed as a business pro- cess? If so, how? How might an organization quantify the performance of its leadership system?

16. Which situational leadership style would be most appropriate for managing a team under the following circumstances? Explain your reasoning. a. Team members have the skills to do the

job, but don’t have the experience or confidence to work as a self-managed team.

b. Team members have minimal knowl- edge and experience in performing a task and lack motivation.

c. Team members have a desire to excel, are highly motivated, and have the skills and knowledge to perform a task.

d. Team members have a relatively low skill level to perform a task and little prior experience.

17. What is CSR and why is it important for organizations?

18. Explain how CSR is reflected in the Baldrige criteria.

19. What is governance? Why is it important that organizations have a strong governance system?

20. State some examples of how organizations address societal responsibilities. Use infor- mation about local organizations or infor- mation drawn from organizations’ web sites.

CASES

Where’s the Leadership?50

At Ablecor, Inc., senior management announced a restructuring/reorganization plan every January, with a target completion date of June. The reorganization directives mentioned strategic objectives and the com- petitive environment, but this changed very little from

year to year. There were no announcements from leadership on what was to be accomplished by the reorganization, nor were any process changes explained. In addition, there was no effort to get the workforce involved in new initiatives. At the end of the day, nothing ever changed from these reorganiza- tions—just a shuffling of managers and departments

420 Part 4: Leadership and Organizational Change

to justify reducing staff. First-line managers, middle managers, and junior executives throughout the com- pany spent the year dreading the reorganization, sweating through the process and wondering if this was the year their job was to be eliminated, and then being thankful that they were spared for one more year. The economy was down, so it was difficult to leave and take a job elsewhere. Except for a few criti- cal positions, there was little training or management development for those employees with new responsi- bilities. Customers were often confused and frustrated by having to deal with a succession of new or “re-shuffled” contact people each year.

At Baycor, Ltd., one department was asked by senior leadership to develop action plans and projects needed to launch a new product. The department manager took the initiative to implement a transfor- mational change and appointed a lead team consisting of her section managers and a few key subject-matter experts. As the employees became more inspired by the thoughts and ideas surrounding the transforma- tion, the lead team became aware that their power base was going to disappear if the changes were actually implemented, especially if employees were empowered to recommend changes and make some decisions on their own. The lead team decided implic- itly and explicitly not to allow any significant changes to occur. After four months of anticipation by super- visors and employees, the lead team just declared the transformation finished and went back to business as usual. This was frustrating and demoralizing to the employees.

Discussion Questions 1. Discuss how the leadership failed to foster change

in order to create a sustainable organizational structure and environment at Ablecor.

2. What aspects of effective leadership were ignored at Baycor?

3. What actions should the leadership of these two companies have taken?

Leadership at Advocate Good Samaritan Hospital51

Advocate Good Samaritan Hospital (GSAM), a part of Advocate Health Care located in Downer’s Grove, Illinois (a suburb of Chicago), is an acute-care medical facility that, since its opening in 1976, has grown from a mid-size community hospital to a nationally recog- nized leader in healthcare. However, it was not always

nationally recognized. In 2004, Good Samaritan was true to its name–a “good,” but not “great,” hospital. Quality was generally perceived as good, but nursing care was seen as uneven; associate satisfaction was pretty good but not exceptional, physician satisfaction was mixed, and patient satisfaction was at best mediocre; technology and facilities were increasingly falling behind other hospitals; and it was struggling financially in a highly competitive market. Its leader- ship was determined to achieve, sustain, and redefine health care excellence, so it embarked on an organiza- tional transformation to take the organization “from Good to Great (G2G).” The rationale for doing this was:

• To make good on its mission to be “a place of healing,”

• To create a framework for inspiring and inte- grating its efforts to build loyal relationships and provide great care, and

• To differentiate itself and ensure future success by becoming the best place for physicians to practice, associates to work, and patients to receive care.

The first steps that Good Samaritan took included.

1. Establishing an inspiring vision: To provide an exceptional patient experience marked by super- ior health outcomes, service, and value.

2. Enrolling leaders in the vision. 3. Creating alignment, ownership, and transparency

to support the vision. Quoting Ghandi, the pres- ident recognized that “you must be the change you want to see in the world.” He recognized that transforming an organization cannot be dele- gated. Leadership needed to create a sense of urgency, explain the “why,” and over- communicate by a factor of 10.

By 2006, the G2G journey had achieved some breakthrough results in patient satisfaction and clinical measures, and had spawned leading-edge innovations in health care. However, key questions remained: How would they ensure long-term sustainability? How would they create a legacy for the future? How could they hardwire best practices? How could they achieve repeatable excellence? Their response was to become a process-driven organization by embracing the Baldrige Criteria.

The next major step was to establish a systematic leadership process, Good Samaritan Leadership System (GSLS). The GSLS ensures that all leaders at

Chapter 10: Leadership for Performance Excellence 421

every level of the organization understand what is expected of them. Patients and stakeholders are at the center of the Leadership System Driven by their Mission, Values, and Philosophy, all leaders must understand stakeholder requirements. At the organiza- tional level, these requirements are determined in the Strategic Planning Process and used to set direction and establish and cascade goals. Action plans to achieve the goals are created, aligned, and communi- cated to engage the workforce. Goals and in-process measures are systematically reviewed and course cor- rections are made as necessary to ensure performance to plan. This focus on performance creates a rhythm of accountability and leads to subsequent associate development through the Capability Determination/ Workforce Learning and Development System and reward and recognition of high performance. Develop- ment and recognition ensures associates feel acknowl- edged and motivated. Stretch goals established in the SPP and a discomfort with the status quo prompts associates to learn, improve, and innovate through the Performance Improvement System. As leaders review annual performance, scan the environment, and re-cast organizational challenges, communication mechanisms are used to inspire and raise the bar.

GSAM has a systematic 8-step governance process that cascades guidance from the Advocate Health Care Governing Board and Senior Leadership to the GSAM Governing Council/Senior Leadership Team and to all associates. Guidelines and procedures at all organiza- tional levels ensure that the overall intent of governance is achieved and tracked through measures and goals. The process ensures transparency and equity for all sta- keholders via Governing Council committee oversight, independent audits and through the diverse composition of the board. Annual review of metrics, the mission, vision and philosophy, and Standards of Behaviors ensures accountability and compliance.

As a result of these initiatives, market share has risen; patient satisfaction has exceeded the 90th per- centile nationally for multiple segments, and physician and associate satisfaction reached the 97th percentile. The Delta Group ranked GSAM #1 in Illinois and #4 in the US for overall hospital care in 2010, one of 2011’s top 50 cardiovascular care hospitals by Thom- son Reuters, and at the 100th percentile for patient safety by Thomson Reuters in 2010.

Discussion Questions 1. What leadership behaviors and practices are

evident in this case?

2. Does their leadership approach appear to be more transactional or transformational? Why?

3. Sketch a diagram of the GSLS leadership system that would help to communicate its philosophy and approach in a meaningful fashion to the workforce of the hospital.

Situational Leadership in Action52

A large pharmaceutical manufacturer was highly moti- vated to meet quality challenges. It implemented an ISO 9000–compatible quality system to ensure not only FDA compliance requirements, but also customer satisfaction. As the manufacturing plants of the orga- nization were audited by the internal audit division, it became apparent that some plants were meeting the challenge, while others continued to struggle in both the quality and the regulatory aspects of production. This fact was evident in the reports of internal findings and in FDA inspection reports.

For the most part, the manufacturing plants share consistent resources and face similar environments. All were issued the responsibility of meeting the expectations of the quality system through the same mechanism. All understood the consequence of not conforming, that is, of jeopardizing their manufactur- ing license as bound by the consent decree. The issue then became why some plants could successfully design and implement the requirements of the quality system, whereas others could not and still cannot.

Although the plants are similar in many ways, they differ in terms of leadership, as each plant has its own CEO. The CEO, as the leader of his or her plant, has the responsibility of ensuring the successful implementation of a quality system. The plants also differ in their orga- nizational members, those who are to be led by the CEO. The relationship between the leader and the orga- nizational members is critical to a plant’s ability to implement an effective quality system, with effectiveness being a measure of how successfully a plant can comply with FDA regulations and internal quality standards.

Both plants have a similar culture that can be best described as conserving, reflecting a level of rigidity in response to the external environment, but demonstrat- ing organizational commitment. The strategy used by the leader in Plant A was a combination of moderate to high amounts of structuring actions, with high to moderate amounts of inspiring actions, whereas the strategy used by Plant B’s CEO was a combination of moderate to low amounts of structuring actions, with moderate to high amounts of inspiring actions.

422 Part 4: Leadership and Organizational Change

Endnotes

1. 2003 Malcolm Baldrige National Quality Award Recipient Profile, U.S. Department of Commerce.

2. Debbie Phillips-Donaldson, “On Leadership,” Quality Progress, August 2002.

3. “Answering the 2011 CEO Challenge: Accelerating Growth through Quality,” The Conference Board, CP-031, June 2011, available at http://www .conferenceboard.org.

4. Rick Edgeman, Su Mi Park Dahlgaard, Jens J. Dahlgaard, and Franz Scherer, “On Leaders and Leadership,” Quality Progress, October 1999, pp. 49–54.

5. 2003 Baldrige Award Profiles of Winners, National Institute of Standards and Technology, U.S. Department of Commerce.

6. Quoted in Jerry G. Bowles, “Leading the World- Class Company,” Fortune, September 21, 1992.

7. 2006 Malcolm Baldrige National Quality Award Criteria for Performance Excellence, U.S. Depart- ment of Commerce.

8. 2004 Criteria for Performance Excellence, Baldrige National Quality Program.

9. Dan Ciampa, Total Quality: A User’s Guide for Implementation, Reading, MA: Addison-Wesley, 1992, p. 115.

10. Jack Welch, Herb Kelleher, Geoffrey Colvin, and John Huey, “How to Create Great Companies and Keep Them That Way,” Fortune, Vol. 139, No. 1, January 11, 1999, p. 163.

11. Award, the Newsletter of Baldrigeplus, May 7, 2000. Available at http://www.baldrigeplus.com.

12. These examples are from A. R. Tenner and I. J. DeToro, Total Quality Management, Reading, MA: Addison-Wesley, 1992.

13. Quoted in Bowles, “Leading the World-Class Company.”

14. F. B. Adamson, “Cultivating a Charismatic Quality Leader,” Quality Progress, July 1989, pp. 56–57.

15. Quoted in Bowles, “Leading the World-Class Company.”

16. D. Garvin, “Quality Problems, Policies, and Attitudes in the United States and Japan: An Exploratory Study,” Academy of Management Journal, 1986, Vol. 29, No. 4, pp. 653–673.

17. These and other means of demonstrating commit- ment to TQ values were suggested by Tenner and DeToro, Total Quality Management.

18. The ASQ Global State of Quality Research Dis- coveries 2013, Milwaukee, WI, American Society for Quality.

19. Levinson and DeHont, “Leading to Quality,” p. 56. 20. See P. Richards, “Right-Side-Up Organization,”

Quality Progress, October 1991, pp. 95–96. 21. Quoted in Bowles, “Leading the World-Class

Company.” 22. This idea is discussed in Howard S. Gitlow and

Shelly J. Gitlow, The Deming Guide to Quality and Competitive Position, Englewood Cliffs, NJ: Prentice Hall, 1987.

23. Adapted from Branch-Smith Printing Division Malcolm Baldrige National Quality Award Appli- cation Summary, 2002.

Discussion Questions 1. What type of situational leadership style did the

CEO of each plant demonstrate? 2. Which of these styles was more appropriate in

view of the Situational Leadership model? Why? 3. Would it be surprising to find out that Plant A

was more successful in achieving the goals of the quality system?

Building a Leadership System for Landmark Dining

The Malcolm Baldrige Criteria asks organizations to describe how senior leaders lead organizations. The key questions on which the criteria focus are:

1. How do senior leaders set your organization’s vision and values?

2. How do senior leaders’ actions demonstrate their commitment to legal and ethical behavior?

3. How do senior leaders’ actions build an organi- zation that is successful now and in the future?

4. How do senior leaders communicate with and engage the entire workforce and key customers?

5. How do senior leaders create a focus on action that will achieve the organization’s mission?

Read the background of the Landmark Dining case in Chapter 8. Thinking of an “ideal” leadership system for the company, how would you address these questions? Specifically, develop a leadership system for this organization and describe performance excel- lence practices that the company might pursue to address these questions.

Chapter 10: Leadership for Performance Excellence 423

24. Milan D. Larson, John R. Latham, Charles A. Appleby, and Carl L. Harshman, “CEO Attitudes and Motivations: Are They Different for High- Performing Organizations?” Quality Management Journal, Vol. 19, No. 4, 2012, 55–69.

25. Adapted from SSM Health Care Malcolm Baldrige National Quality Award Application Summary.

26. Solar Turbines, Inc., Malcolm Baldrige National Quality Award Application Summary, 1999.

27. Henry Mintzberg, The Nature of Managerial Work, New York: Harper & Row, 1973.

28. R. House and M. Baetz, “Leadership: Some Generalizations and New Research Directions,” in B. M. Staw (ed.), Research in Organizational Behavior, Greenwich, CT: JAI Press, 1979, p. 359.

29. The term transformational leadership has been attributed to James M. Burns. See his book, Lead- ership (New York: Harper & Row, 1978). B. M. Bass, Leadership and Performance Beyond Expectations, New York: Free Press, 1985. This discussion is based on David A. Waldman, “A Theoretical Consideration of Leadership and Total Quality Management,” Leadership Quar- terly, 1993, Vol. 4, pp. 65–79. See also J. Conger and R. Kanungo, “Toward a Behavioral Theory of Charismatic Leadership in Organizational Settings,” Academy of Management Review, October 1987, pp. 637–647.

30. Bruce J. Avolio and Bernard M. Bass, eds., Devel- oping Potential Across a Full Range of Leadership: Cases on Transactional and Transformational Leadership, Mahwah, NJ: Lawrence Erlbaum Associates, 2002, pp. 117–118.

31. David A. Waldman, “The Contributions of Total Quality Management to a Theory of Work Performance,” Academy of Management Review, Vol. 19, No. 3, pp. 510–536.

32. Kathleen L. McFadden, Stephanie C. Henagan, and Charles R. Gowen III, “The patient safety chain: Transformational leadership’s effect on patient safety culture, initiatives, and outcomes,” Journal of Operations Management 27, No. 5, October 2009, pp. 390–404.

33. Philip Atkinson, “Leadership, Total Quality and Cultural Change,” Management Services, June 1991, pp. 16–19.

34. Tipparat Laohavichien, Lawrence D. Fredendall, and R. Steven Cantrell, “The Effects of Transfor- mational and Transactional Leadership on Quality

Improvement,” Quality Management Journal 16, 2, 2009, pp. 7–24.

35. Richard A. Grover and H. Fred Walker, “Changing from Production to Quality: Applica- tion of the Situational Leadership and Trans- theoretical Change Models,” Quality Management Journal, 10, 3, 2003, pp. 8–24.

36. J.P. Kotter, “What Leaders Really Do,” in J. J. Gabarro (ed.), Managing People and Organi- zations, Boston: Harvard Business School Press, 1992, pp. 102–114.

37. Marc Gunther, “Money and Morals at GE,” Fortune, November 15, 2004, 176–182.

38. This definition was put forth by the European Commission as noted in http://europa.eu/rapid/ pressReleasesAction.do?reference=MEMO/11/730, accessed 4/4/12.

39. Bjorn Andersen, “A Framework for Business Ethics,” Quality Progress, March 2000, 22–28.

40. A review of management theories and their rela- tionships with CSR and the Baldrige Criteria can be found in Jessica Foote, Nolan Gaffney, and James R. Evans, “Corporate Social Responsibility: Implications for Performance Excellence,” Total Quality Management & Business Excellence 21, No. 8, August 2010, pp. 799–812.

41. American National Standard, 2010. Guidance for social responsibility. Published as ASQ/ANSI/ISO 26000–2010.

42. Holly Duckworth, “Embedding Social Responsi- bility Principles Within Quality Leadership Prac- tices,” Quality Management Journal, 22, 1, 2015, 6–9.

43. n.a. The Business Roundtable. Principles of Corporate Governance (May 2002, revised in November, 2005), http://www.businessroundtable .org/pdf/CorporateGovPrinciples.pdf (accessed 3/2/06).

44. Frits K. Pil and Sandra Rothenberg, “Environ- mental Performance as a Driver of Superior Quality,” Production and Operations Manage- ment, 12, No. 3, 2003, 404–415.

45. Consolidated School District 15, Malcolm Baldrige National Quality Award Application Summary, 2003.

46. Joe Conklin, “What It Takes to Be a Leader,” Quality Progress, November 2001, p. 83.

47. John A. Young, “The Quality Focus at Hewlett- Packard,” The Journal of Business Strategy, Vol. 5, No. 3, 1985, pp. 6–9.

48. William W. Scherkenbach, The Deming Route to Quality and Productivity, Washington, D.C.: SPC

424 Part 4: Leadership and Organizational Change

Press Books, George Washington University, 1986, p. 139.

49. Quoted in Sir John Harvey-Jones, Harvard Business School Case 9-490013, p. 8.

50. Our thanks go to a former student, Emily Morgan, whose class discussions inspired this case.

51. Adapted from Advocate Good Samaritan Hospital Baldrige Award Application

Summary, www.nist.gov/baldrige; and PowerPoint presentation by David S. Fox, President “Leader- ship: Our Strategic Advantage,” presented at the 2011 Quest for Excellence conference, Washing- ton, D.C.

52. “Leading for Quality: The Implications of Situa- tional Leadership” by Lisa Walters, Quality Man- agement Journal, Oct. 2001, pp. 48–63.

Chapter 10: Leadership for Performance Excellence 425

CHAPTER

± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ± ±

11 PERFORMANCE EXCELLENCEAND ORGANIZATIONAL CHANGE Performance Excellence Profile: The City of Coral Springs, Florida1

Chartered in 1963 and once known as the “City in the Country,” Coral Springs is located in Broward County in southern Florida. During the 1980s, Coral Springs, Florida, was one of the fastest growing cities in the nation. The city of Coral Springs has a council-manager form of government with the City Commission serving as the board of directors and the City Manager as chief executive officer, with input from citizens and businesses.

In 1993, the City of Coral Springs began its journey to be a high-performing “municipal corporation,” a city government following a corporate management model. The city’s organizational culture is reflected in its four core values: customer focus—demonstrate a passion for customer service; leadership— establish an inspiring vision that creates a government that works better and costs less; empowered employees—empower the people closest to the customer to continuously improve the organization’s quality and services; and continuous improvement—commit every day, in every way to getting better and better. The city’s strategic plan, which is reviewed and updated annually, represents a shared vision for the future of the community and spells out its priorities: customer- involved government; financial health and economic development; excellence in education; neighborhood and environmental vitality; youth development and family values; strength in diversity; and traffic, mobility, and connectivity. The strategic planning process has been cited by a number of organizations, including the American Productivity and Quality Center, as a “best practice.”

The city relies heavily on input from its two key customer groups, residents and businesses, and on data analysis to develop priorities and make strategic and business decisions. Included are results from neighborhood “Slice of the Springs” meetings; 27 advisory committees and boards comprising residents and business people; customer surveys; trends in demographics; information on local, state, and national economic conditions; an overview of technological developments; and an analysis of current strengths, weaknesses, and opportunities.

426

A number of mechanisms make it as convenient as possible for customers to get information on services, conduct business, and communicate with city officials and employees. They include the city’s website, podcasts and streaming video, e-mail, the CityHelpDesk (automated comment and complaint system), and the City Hall in the Mall, which offers services such as paying cable and water bills and applying for a passport and permits.

A motivated, empowered, and high-performing workforce is vital to Coral Springs achieving its mission and priorities, and the city strives to retain its top- notch staff through job security, competitive pay and benefits, a safe and positive work environment, and recognition. The city’s flat organizational structure, training, and recognition encourage employees to be innovative in addressing customer concerns and make on-the-spot improvements. Teams of employees from across the organization work together to solve problems and review processes, promoting cooperation and driving organizational innovation. For the past 10 years, more than 90 percent of employees have been satisfied with their jobs and are willing to recommend the city as a place to work, outperforming a comparison group of federal government employees. The City of Coral Springs was the first state or local government agency to receive the Baldrige Award.

Psychologists suggest that individuals go through four stages of learning:

1. Unconscious incompetence: You don’t know that you don’t know. 2. Conscious incompetence: You realize that you don’t know. 3. Conscious competence: You learn to do, but with conscious effort. 4. Unconscious competence: Performance comes effortlessly.

Organizations seem to follow the same paradigm. Many companies in the United States languished in stage 1 until receiving a wake-up call in the 1980s with regard to quality. Many today are finding themselves in the same situation. Unfortunately, as many organizations move into stage 2, they tend to shoot the messenger and refuse to accept their state of “incompetence.” To move from stage 2 to stages 3 and 4, organizations must change. Drawing from best practices outside of its industry, The City of Coral Springs provides a good illustration of an organization that has embraced change, something certainly unusual in municipal government.

Lewis Lehr, former CEO of 3M Corporation, once observed, “Our successes of the past are no guarantee of the future. Perhaps our biggest need at 3M is for people who are uncomfortable without change.’’2 Organizational change is funda- mental to performance excellence. General Motors has struggled to change a cul- ture of insularity in which “more attention is given to wondering what the senior leadership will think than to figuring out the right path and trying to make it happen.” This was manifest in GM’s highly publicized problems of faulty ignition switches. The new CEO, Mary Barra, has set out to change the company’s culture through creating clear expectations and accountability and focusing on moment- by-moment behavior change.3 (Think of the concept of moments of truth that we introduced in Chapter 3—every interaction between employees will impact the cul- ture of an organization.)

Chapter 11: Performance Excellence and Organizational Change 427

Anyone concerned with managing an organization dedicated to performance excellence must understand what types of change are necessary in such an organi- zation, how to make them happen, and how to manage them. This chapter explores these issues. Specifically, we will:

• explain the importance and scope of organizational change to achieving performance excellence;

• explore how organizations build a strong quality culture, sustain performance, and continually improve organizational effectiveness;

• provide some examples of firms undertaking these changes and the approaches they use; and

• explain how Total Quality (TQ) perspectives on organizational change relate to organization theory.

THE IMPORTANCE OF CHANGE

For organizations committed to pursuing performance excellence, change is a way of life. Organizational change is needed to initiate performance excellence initiatives and constantly thereafter. In the initial stage, an effort must be mounted to begin to change the culture of the organization. Once a quality mindset is rooted in an orga- nization, continuous improvement efforts will relentlessly create changes in product designs, standard operating procedures, and virtually every other aspect of organiza- tions. Unless a culture based on customers, continuous improvement, and teamwork is established, quality will be little more than “just another one of management’s programs.” Indeed, this is often the cause of failure of TQ initiatives.

Why do organizations find themselves in need of change? The major reason is that customer expectations and the external environment continuously evolve. Features or services that delight customers one year may be taken for granted the next, and products that customers find acceptable one year may be perceived as substandard the next. Competition continues to raise the standard for quality, and organizations must keep up (see box “Quality Never Goes Out of Style”). When first published, USA Today’s use of color and graphics was exceptional. In short order, however, newspapers copied these features so widely that exclusive use of black and white on the front page began to look old-fashioned. With the ubiqui- tous presence of the Internet today, traditional newspapers are finding themselves turning more attention to online content and services.

Any organization that focuses on meeting a fixed set of quality goals quickly will find itself trampled into the dust by competitors racing to keep up with customers. As one Xerox executive stated, “Quality is a race without a finish line.” Change is also required because processes tend to become unnecessarily com- plicated over a period of time, even when they are initially designed in a sensible manner. Each new person working on a process adds a wrinkle or two until, even- tually, a monster has been created.

STRATEGIC CHANGE VERSUS PROCESS CHANGE4

It is important to differentiate between organizational changes resulting from strat- egy development and implementation (i.e., “strategic change”), and organizational

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changes resulting from operational assessment activities (i.e., “process change”). Strategic change stems from strategic objectives, which are generally externally focused and relate to significant customer, market, product/service, or technological opportunities and challenges. This is what an organization must change to remain or become competitive. Strategic change is broad in scope, is driven by environ- mental forces, and is tied closely to the organization’s ability to achieve its goals. Some examples are General Electric’s implementation of Six Sigma throughout the corporation, and Hewlett-Packard’s decision to merge with Compaq. In contrast, process change deals with the operations of an organization. Some examples of process change are a health care organization that discovered weaknesses in the organization’s ability to collect and analyze information, followed by a $50 million information system upgrade; or an AT&T division that found that many employ- ees did not recall the division’s strategic vision, which prompted managers to increase meetings and interactions with employees to improve communication.

QUALITY NEVER GOES OUT OF STYLE5

In 1853 a young German immigrant named Strauss took a 17,000-mile trip on a clipper ship from New York around South America to San Francisco. He intended to set up shop selling dry goods to people lured to California by the Gold Rush. By the time he reached San Francisco, however, he had sold all the goods he brought except for some canvas for tents.

The miners told him he should have brought pants instead of canvas to sell, because most pants fell apart too quickly while they dug for gold. The enterprising young Strauss immediately took the heavy brown canvas to a tailor and created the world’s first pair of jeans. Those “pants of Levi’s” (Strauss’s first name) were so popular that he quickly sold all of his canvas and switched to a heavy serge fabric made in Nimes, France (“serge de Nimes,” eventually shortened to “denim”). When the new fabric was treated with indigo dye, it attained its familiar deep blue cover.

Levi never liked the term “jeans” so he called his pants “waist-high overalls.” In fact, his company did not use the term—derived from the French word “genes” for a type of cotton trousers—until long after his death.

Levi noticed that miners often complained that the weight of gold nuggets was causing their pockets to tear. Always looking for ways to

improve the quality of his pants, Levi and tailor Jacob Davis patented in 1873 the innovation of riveting pocket corners to add strength. By the 1930s, Levi’s were worn by everyone from cowboys to school children. The rivets, much appreciated by miners, caused the company problems with other customers, which they quickly addressed. In 1937, the company covered the rivets on the rear pockets in response to complaints that they scratched both saddles and school desks.

The rivet at the base of the fly was removed by executive order after company president Walter Haas crouched a little too close to a roaring campfire for a little too long and discovered what the cowboys had been complaining about.

The popularity of Levi’s jeans surged again in the 1950s when actor James Dean wore them in the movie Rebel Without a Cause. Today, Levi’s jeans are sold in more than 70 nations. The company says that they are made with “the choicest fabric, the strongest thread, first-class buttons, rivets, and snaps, precise sewing, and careful inspection.” The jeans carry a “Levi’s promise” card guaranteeing customer satisfaction. With this history of continu- ous improvement in response to customer needs, it’s no wonder that, as the company’s slogan puts it, “quality never goes out of style.”

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Although change to a business process tends to have lasting effects, the change tends to be narrow in scope. Unlike strategic change, which motivates organization- wide changes in behavior, process change is often confined to a particular unit, division, or function of the organization. For example, changing an organization’s process for measuring customer satisfaction usually requires substantive adjustment to a limited number of functional areas, such as marketing or information systems. In Table 11.1, we describe the characteristics of strategic change in contrast with process change. Strategic changes are the ones that impact culture the most.

CULTURAL CHANGE

A major strategic change that organizations must make in pursuing performance excellence is a change in culture. Culture is the set of beliefs and values shared by the people in an organization. It is what binds them together and helps them make sense of what happens in their company (see box “The Eastman Way”). Cultures can vary dramatically between one company and another. In some firms, raw ambi- tion is taken for granted, while in others, subordination of one’s own agenda to the good of the organization is expected. Some companies create a status hierarchy remi- niscent of the court of Louis XIV, whereas others downplay status differences.

Culture is a powerful influence on people’s behavior; historically, most employ- ees at IBM would never wear anything other than a white shirt, whereas most people at Apple wouldn’t be caught dead in one. Culture has such power because it is shared widely within an organization, and because it operates without being talked about, indeed, often without even being thought of.

Organizations are in some ways like a circle of high school friends who share strong beliefs about which activities, people, and music are okay, and which are not. A new employee who did something that violated the culture might be told, “That’s just not how we do things around here.” The employee could be forgiven both for the error and for being perplexed at what was wrong, because the rules of culture are often not written down and must be deciphered.

TABLE 11.1 STRATEGIC VERSUS PROCESS CHANGE

Strategic Change Process Change

Theme of change Shift in organizational direction Adjustment of organizational processes

Driving force Usually environmental forces—market, rival, technological change

Usually internal—“How can we better align our processes?”

Typical antecedent Strategic planning process Self-assessment of management system

How much of the organization changes?

Typically widespread Often narrow—divisional or functional

Examples Entering new markets Improving information systems

Seeking low-cost position Establishing hiring guidelines

Mergers and acquisitions Developing improved customer satisfaction measures

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Despite its intangibility, one can learn about an organization’s culture in a number of ways. How people dress and how they address one another provide clues. The layout of offices, plant floors, and lounges may also reveal what is important in the organization. For example, do managers but not employees have reserved parking spots? Do offices have doors? Are there any private offices? Culture is expressed in the stories and jokes people tell, in how they spend their time at work, in what they display in their offices, and in a thousand other large

THE EASTMAN WAY6

Eastman Chemical Company recognizes that people create quality; this is embodied in a philosophy known as the “Eastman Way.” The Eastman Way describes a culture based on key beliefs and principles of respect, cooperation, fairness, trust, and teamwork. Developing such a culture depends not only on learning how to recognize and reward behavior, but also under- standing the processes and procedures that work against achieving corporate goals.

The wakeup call came in the late 1970s when a key customer told the company that its product was not as good as its competitor’s and indicated that if things did not change, Eastman would lose business. Eastman’s first realization was that cus- tomer feedback was essential to survival. In 1983, the company developed a quality policy and soon after began training in statistical process control, flowcharting, and other basic tools. Production employees were encouraged to post their quality results, which became known as “rat sheets.” As one employee stated, “You are asking all of us to post all of our mistakes. How will these things be used?” This clash between the traditional hierar- chical, disciplinary organizational culture and the open, honest environment demanded by TQ led to the Eastman Way, which is as follows:7

Eastman people are the key to success. We have recognized throughout our history the importance of treating each other fairly and with respect. We will enhance these beliefs by building upon the following values and principles:

Honesty and integrity. We are honest with ourselves and others. Our integrity is exhibited

through relationships with co-workers, custo- mers, suppliers, and neighbors. Our goal is truth in all relationships.

Fairness. We treat each other as we expect to be treated.

Trust. We respect and rely on each other. Fair treatment, honesty in our relationships, and confidence in each other create trust.

Teamwork. We are empowered to manage our areas of responsibility. We work together to achieve common goals for business suc- cess. Full participation, cooperation, and open communication lead to superior results.

Diversity. We value different points of view. Men and women from different races, cul- tures, and backgrounds enrich the generation and usefulness of these different points of view. We create an environment that enables all employees to reach their full potential in pursuit of company objectives.

Employee well-being. We have a safe, healthy, and desirable workplace. Stability of employment is given high priority. Growth in employee skills is essential. Recognition for contributions and full utilization of employees’ capabilities promote job satisfaction.

Citizenship. We are valued by our community for our contributions as individuals and as a company. We protect public health and safety and the environment by being good stewards of our products and our processes.

Winning attitude. Our can-do attitude and desire for excellence drive continual improve- ment, making us winners in everything we do.

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and small ways. Culture is also reflected by the management policies and actions that a company practices. Therefore, organizations that believe in the principles of TQ are more likely to successfully implement the practices. Conversely, actions set culture in motion. Behavior leads people to think in certain ways. Thus, as TQ practices are used routinely within an organization, its people learn to believe in the principles, and cultural changes can occur.

From this description, it should be clear why firms deciding to pursue TQ need cultural change. If a quality initiative is inconsistent with the organizational culture, it will be undermined. For example, employees in a company in which status is jealously guarded will feel uncomfortable participating on an equal basis in team meetings with individuals from three different levels of management. People who share the belief that stability is the source of business success will be skeptical about continuous improvement. In situations like these, TQ is like an organ trans- planted to a poorly matched donor and will be rejected.

A concept related to culture is organizational climate. Although some writers interchange the two concepts, many feel that organizational climate is separate from culture. Climate has been likened to an organization’s personality—its hopes, attitudes, and biases—in essence, its mood. Some researchers suggest that organiza- tions have one overall culture, but many underlying climates, which are specific to different areas. For example, there may be a climate for quality, a climate for safety, a climate for ethics, each of which is driven by different management practices and policies.8 Thus, although an organization may have a culture that supports teamwork and participation, it may not necessarily have a climate that facilitates the full adoption of TQ principles.

ELEMENTS OF A PERFORMANCE EXCELLENCE CULTURE

A culture of performance excellence can be described simply as one in which every employee embraces the organization’s quality vision, values, and goals as a way of life. For example, in an organization with a quality-friendly culture, everyone believes that customers are the key to the organization’s future and that their needs must come first. If two employees are having a conversation and a customer enters the shop, the conversation ends until the customer is served.

In a culture supportive of performance excellence, people expect their jobs to change due to improvements dictated by customer needs. They are always looking for better (faster, simpler, less expensive) ways to do things. “Because that’s the way we’ve always done it” is not a valid reason for doing anything. The culture of improvement is exemplified by the Levi Strauss and Eastman Chemical stories (see also the box “Defining a Performance-Based Culture”).

Employees in a quality-oriented culture instinctively act as a team. If someone is away from her desk and her phone rings, another employee will answer it rather than leave a customer hanging. Organizations where a focus on customers, contin- uous improvement, and teamwork are taken for granted have a good chance of succeeding at TQ. Most organizations do not have such a culture prior to exposure to TQ principles; some degree of cultural change is necessary.

One executive at Boeing described a simple strategy to create a culture of quality: ensure that all employees know their product or deliverable, know their customer,

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know their customer’s quality expectations, and have a metric to measure quality.10

A global survey of 2291 executives and managers in 2014 found that while 75% of senior executives felt that their organizations exhibit a culture of quality, only 47% of quality professionals in those organizations agree. Such statistics suggest that senior executives, who only see the big picture, are not fully aware of what is actually going on in the trenches and do not fully understand the challenges and difficulties at the process level. Thus, senior leaders must support and be engaged in quality initiatives. The survey also suggests that an organization seeking to build a culture of quality must have a clear vision of what quality means that is understood throughout the organization, clear quality values and goals, engagement with customers, quality- based performance expectations for everyone, and appropriate incentives.

A culture of performance excellence can be summarized by the “core values and concepts” in the Baldrige Performance Excellence Framework:

• systems perspective, • visionary leadership, • customer-focused excellence, • valuing people, • organizational learning and agility, • focus on success, • managing for innovation, • management by fact, • societal responsibility, • ethics and transparency, and • delivering value and results.

DEFINING A PERFORMANCE-BASED CULTURE9

Julia Graham summarized the characteristics of a performance-based culture from a variety of articles and books:

• In a performance-based culture, a premium is placed on excellence in performance— obtaining desired behaviors and results. Seniority-based cultures emphasize “sticking around longer than other people.” In best- effort cultures, trying hard is the focus—even if the expected results haven’t been achieved.

• Organizations with performance-based cultures acknowledge that their success is contingent upon the successful performance of their employees. They recognize that the ability of the organization to carry out its mission and achieve results is dependent on the competence, innovation, and productivity of its work force.

• Strategic outcomes drive the work of orga- nizations with performance-based cultures. Their people work to achieve the goals, not to the rules. The mindset of both managers and employees is to work together, cooper- atively and effectively, toward a common goal, ensuring the success of the organiza- tion by delivering timely, high quality prod- ucts/services to customers. Management in these organizations is strongly committed to creating conditions and consequences that support and sustain strong perfor- mance. Desired performance is fostered and rewarded; poor performance is not tolerated. All possible policies and practices are put in place to support sustained, high performance.

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These values provide a solid list of the cultural elements necessary to sustain a TQ environment and are embedded in the beliefs and behaviors of high-performing organizations.

The existence of a set of cultural values necessary for achieving performance excellence does not mean that all organizations that wish to practice TQ must have the same culture. Many aspects of culture differ greatly from one quality- oriented company to another. Company personnel may prefer to communicate in person or in writing; they may serve smoked salmon and champagne or a bushel of crabs and a keg of beer at the company picnic; they may wear uniforms, gray flannel suits, or jeans. As long as they hold the core values of TQ, quality can find a home in their organization.

CHANGING ORGANIZATIONAL CULTURE FOR PERFORMANCE EXCELLENCE

Perhaps the first question to address is why organizations decide to pursue a performance excellence-based organizational culture. A reluctance to pursue perfor- mance excellence often results from some common misconceptions, such as that it means doing lots of “things” like collecting data and organizing teams, or that it only applies to large companies. A focus on quality does, however, require signif- icant changes in organization design, processes, and culture. Such broad change has been a stumbling block for many companies.

Companies make the decision to adopt a performance excellence philosophy for two basic reasons:

1. A firm reacts to competition that poses a threat to its profitable survival by turning to quality.

2. Performance excellence represents an opportunity to improve.

Most firms—even Baldrige Award recipients—have made the decision because of the first reason. Xerox, for example, watched its market share fall from 90 percent to 13 percent in a little over a decade; Milliken faced increased competition from Asian textile manufacturers; Boeing Airlift and Tankers Programs was on the brink of losing its only customer, the Department of Defense. Although they were not facing dire crises, perceived future threats were the impetus for FedEx and Wainwright Industries. When faced with a threat to survival, a company effects cultural change more easily; under these circumstances, organizations generally implement TQ effectively. A company will generally have more difficulty gaining support for change when not facing a crisis. This reluctance is a reflection of the attitude “If it ain’t broke, don’t fix it.” In such cases, a company might attempt to manufacture a crisis mentality to effect change. Nevertheless, many organizations, like Texas Nameplate Company, SSM Healthcare, and Cargill Corn Milling, have pursued performance excellence simply because they recognized that it will make them stronger and more competitive.

The biggest dangers lie in the lack of complete understanding and the tendency to imitate others—the easy way out. Many of the experts and consultants have rewritten TQ management around their own discipline, such as accounting, engi- neering, human resources, or statistics. The “one best model” of performance excellence may not mesh with an organization’s culture; most successful companies

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have developed their own unique approaches to fit their own requirements. Research has shown that imitation of efforts made by one successful organization may not lead to good results in another (see box “Silver Bullets Can Kill”). Build- ing and sustaining performance excellence requires a readiness for change, the adoption of sound practices and implementation strategies, and an effective organization.

How can a company change its culture to be more consistent with quality? As with most aspects of performance excellence, it begins with leadership (see box “A Sincere Belief and Trust in People”).11 Leaders must articulate to employees the direction in which they want the company to go. They must set an example by expressing TQ values in their own behavior and by recognizing and rewarding others who do the same. The efforts of the new leadership team in a foundry to establish the values of continuous improvement and teamwork are described in this statement by the quality director, whose efforts had been frustrated under the old regime:12

They brought in a people-oriented environment. They made the environment conducive to change and tried to get to the point where employees felt safe to make change. Before, you did what the boss told you to do and if you didn’t you’re probably going to get fired. Now we have some coaches in place and facilitators, and they want the ideas from the employees and it’s a hell of a lot easier with their input.

A great deal of the effort leaders expend in cultural change is devoted to com- munication. Employees company-wide must be informed of the new values and prac- tices desired. Any early successes of the new approach must also be publicized. This is not always easy, especially when the company’s employees are geographically

“SILVER BULLETS” CAN KILL13

Mike Carnell provides some insights into why “silver bullets” don’t often work for organizations. Many have tried to imitate the now legendary Toyota Production System but were unable to achieve the outstanding results that Toyota did. Why? The company had a vision and strategy for a system that would create value for their organization:

• They stayed the course, developing, imple- menting, and tweaking that system until it fit the organization like a glove.

• They did not spend their time looking for a prefabricated answer to all their problems that might or might not work in their organization.

• They took the time to understand their orga- nization and their business and created a system that delivered the things they knew would make them a force in their industry.

A similar situation occurred when General Electric’s (GE) Six Sigma program became visible to the public. People rushed to benchmark GE. Unfortunately, people who spend their lives rushing from one benchmark to the next because they have an innate lack of creativity typically lack the same creativity when they benchmark. They benchmark the convenient, the obvious, and, oftentimes, the irrelevant. They ask: “Did the GE program succeed because Black Belts did X number of projects per year in X amount of time per project? Was the average value per project one of the real factors that drove the GE success?” The reality is that GE was already a fast-moving train when they began Six Sigma. Several initiatives, such as Work Out and their change acceleration process, were already in place, as was the experience of the Jack Welch leadership team.

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dispersed. In attempting to change the culture at Southern Pacific Lines, railroad executives held 125 “town meetings” at sites where employees worked, sometimes in groups as small as 5 to 10.15

In promoting a new culture, leaders also must personally practice behaviors associated with the new culture. This both provides a role model for employees and symbolizes management’s sincerity about the new approach. When the Indian soap company Godrej Soaps tried to initiate continuous improvement, workers were reluctant to unwrap defective soaps to see how mistakes could be avoided in the future. When informed of this, the managing director said he would go into the plant to unwrap the soaps. As it turned out, he didn’t need to do it. When workers heard that the top manager was willing to do this kind of work, they agreed to do it themselves.16

None of this should be interpreted to mean that cultural change is easy. On the contrary, it is very difficult, takes several years to complete, and often fails.17 One reason for the difficulty is resistance by middle management. Managers resist change because it creates more work for them when they often feel overburdened and disrupts the steady flow of work in the organization.18 Getting on board for a change in culture requires managers to acknowledge that the current approach is somehow lacking, despite any of their previous statements to the contrary. They also may be afraid that they will not be able to perform effectively in the new culture.

A SINCERE BELIEF AND TRUST IN PEOPLE14

One powerful example of the importance of cul- tural change is the case of Wainwright Industries, a former Baldrige recipient. During the 1970s and 1980s, Wainwright lost millions in sales; opera- tions slowed to three days a week; and tensions grew between employees and management. Recognizing the problem lay with management, the CEO made some radical changes. Workers were called “associates,” and everyone was put on salary. Associates are paid even if they miss work and they still receive time-and-a-half for overtime. The company has maintained over 99 percent attendance since this change.

Managers shed their white shirts and ties, and everyone from the CEO down wears a common uniform, embroidered with the label Team Wainwright. A team of associates developed a profit-sharing plan, whereby everyone receives the same bonus every six months. Everyone has access to the privately held company’s financial

records. In addition, all reserved parking spaces were removed; walls—including those for the CEO’s office—were replaced with glass. Custo- mers, both external and internal, are treated as partners with extensive communication. The most striking example occurred when one worker admitted accidentally damaging some equipment, even though most workers were afraid to report such incidents. The CEO called a plantwide meeting and explained what had happened. Then he called the man up, shook his hand, and thanked him for reporting the accident. Accident reporting increased from zero to 90 percent, along with suggestions on how to prevent them. Wainwright’s culture can be summed up as a sincere belief and trust in people. One measure of Wainwright’s success is that the number of implemented suggestions per person per year exceeds 50, while the previous benchmark that Wainwright identified was 15!

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Often, reward systems get in the way of cultural change and must be adjusted for the new culture to take hold. In many companies, telephone operators are rewarded for the speed with which they process calls, rather than for how completely they satisfy the customers who call. Unless this type of reward system is changed, management’s pleas to increase customer satisfaction will fall on deaf ears. Willing- ness to make such changes indicates management’s commitment to the new culture.

Managing change often requires a well-defined process, just like any other business process. In fact, an organization that doesn’t realize that change is a pro- cess probably won’t do a good job in TQ. This is critical because about 70 percent of all change efforts fail.19 Thinking of change management as a process helps to define the steps necessary to achieve the desired outcomes.

It also forces the organization to think of its employees as customers who will be affected by the change. American Express, for example, views its change process as consisting of five steps:20

1. Scope the change—why are we doing this? 2. Create a vision—what will the change look like? 3. Drive commitment—what needs to happen to make the change work? 4. Accelerate the transition—how are we going to manage the effort on an

ongoing basis? 5. Sustain momentum—what have we learned and how can we leverage it?

PEOPLE ROLES IN ORGANIZATIONAL CHANGE

Senior management, middle management, and the workforce each have a critical role to play in changing culture. Senior managers must ensure that their vision of performance excellence is successfully executed within the organization. Middle managers provide the leadership to design the systems and processes. In the end, it is the workforce that delivers quality.

Senior Management Senior managers must understand how quality can further the mission, vision, and values of the company and its impact on customers and stakeholders. Senior managers must identify the critical processes that need atten- tion and improvement and the resources and tradeoffs that must be made to fund the initiative. They must review progress and remove barriers to implementation. Finally, they must improve the processes in which they are involved (strategic planning, for example), both to improve the performance of the process and to demonstrate their ability to use quality tools for problem solving.21

Middle Management Middle management has been viewed by many as a direct obstacle to creating a supportive environment for performance excellence.22

Middle managers are often seen as feeding territorial competition, stifling information flow, not developing and/or preparing employees for change, and feeling threatened by continuous improvement efforts. However, middle management’s role in creating and sustaining a quality-focused culture is critical. Middle managers improve the operational processes that are the foundation of customer satisfaction; they can make or break cooperation and teamwork; and they are the principal means by which the workforce prepares for change.

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Mark Samuel suggests that transforming middle managers into change agents requires a systematic process that dissolves traditional management boundaries and replaces them with an empowered and team-oriented state of accountability for organizational performance.23 This process involves the following:

1. Empowerment. Middle managers must be accountable for the performance of the organization in meeting objectives.

2. Creating a common vision of excellence. This vision is then transformed into critical success factors that describe key areas of performance that relate to internal and external customer satisfaction.

3. New rules for playing the organizational game. Territorial walls must be broken, yielding a spirit of teamwork. One new approach is interlocking accountability, in which all managers are accountable to one another for their performance. The second is team representation, in which each manager is responsible for accurately representing the ideas and decisions of the team to others outside the team.

4. Implementing a continuous improvement process. These projects should improve operational systems and processes.

5. Developing and retaining peak performers. Middle managers must identify and develop future leaders of the organization.

The Workforce The workforce must develop ownership of the quality process. Ownership and empowerment gives employees the right to have a voice in deciding what needs to be done and how to do it.24 It is based on a belief that what is good for the organization is also good for the individual and vice versa.

At Westinghouse, ownership is defined as “… taking personal responsibility for our jobs … for assuring that we meet or exceed our customers’ standards and our own. We believe that ownership is a state of mind and heart that is character- ized by a personal and emotional commitment to approach every decision and task with the confidence and leadership of an owner.” Self-managed teams, discussed in Chapter 8, are one form of ownership.

Training, recognition, and better communication are key success factors for transferring ownership to the workforce. With increased ownership, however, comes a flatter organization—and the elimination of some middle managers. Increased ownership also requires increased sharing of information with the work- force and a commitment to the workforce in good times and in bad. This might mean reducing stock dividends and executive bonuses before laying off the work- force during economic downturns. This is what Japanese companies do when the business climate turns south.

COMMON IMPLEMENTATION MISTAKES

Performance excellence initiatives are often attempted without a full grasp of its nature, and certain mistakes are made repeatedly. The most frequent errors are as follows:25

1. The effort is regarded as a short-term program, despite rhetoric to the contrary.

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2. Compelling results are not obtained quickly. There may be no attempt to get short-term results, or management may believe that measurable benefits lie only in the distant future.

3. The process is not driven by a focus on the customer, strategic business issues, and senior management.

4. Structural elements in the organization (such as compensation systems, promotion systems, accounting systems, rigid policies and procedures, specialization and functionalization, and status symbols such as offices and perks) block change.

5. Goals are set too low. Management does not shoot for stretch goals or use outside benchmarks as targets.

6. The organizational culture remains one of “command and control,” and is driven by fear or game playing, budgets, schedules, or bureaucracy.

7. Training is not properly addressed. There is too little training of the work- force. Training may be of the wrong kind; for example, providing only classroom training without on-the-job reinforcement, or focusing on the mechanics of tools and not on identifying problems.

8. The focus is mainly on products, not processes. 9. Little real empowerment is given and what is given is not supported in actions. 10. The organization is too successful and complacent. It is not receptive to change

and learning and clings to the “not invented here” syndrome. 11. The organization fails to address three fundamental questions: Is this another

program? What’s in it for me? How can I do this on top of everything else? 12. Senior management is not personally and visibly committed and actively

participating. 13. The use of teams to solve cross-functional problems is overemphasized to the

neglect of individual efforts at local improvements. 14. The belief prevails that more data are always desirable, regardless of

relevance—”paralysis by analysis.” 15. Management fails to recognize that quality improvement is a personal respon-

sibility at all levels of the organization. 16. The organization does not see itself as a collection of interrelated processes

making up an overall system. Both the individual processes and the overall system need to be identified and understood.

Although this list is extensive, it is by no means exhaustive. It reflects the continued difficulty of change in organizations. Performance excellence requires a new set of skills and learning, including interpersonal awareness and competence, team build- ing, encouraging openness and trust, listening, giving and getting feedback, group participation, problem solving, clarifying goals, resolving conflicts, delegating and coaching, empowerment, and continuous improvement as a way of life.26 The pro- cess must begin by creating a set of feelings and attitudes that lead to lasting values.

SUSTAINING QUALITY AND PERFORMANCE EXCELLENCE

Successful organizations realize that the process of quality and performance excel- lence is a never-ending journey. As an old Chinese proverb says, a journey begins

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with a single step. Getting started often seems easy by comparison with sustaining a performance excellence focus. Numerous organizational barriers and challenges get in the way. New efforts usually begin with much enthusiasm, in part because of the sheer novelty of the effort. After a while, reality sets in and doubts surface. Real problems develop as early supporters begin to question the process. At this point, the organization can resign itself to inevitable failure or persist and seek to overcome the obstacles.

THE LIFE CYCLE OF QUALITY INITIATIVES

To help understand these issues, it is useful to recognize that quality initiatives—as most business initiatives—follow a natural life cycle.27 Leonard and McAdam sug- gest that understanding the life cycle “provides a strategic mechanism to chart and sustain quality while proactively countering shortcomings of its implementation, such as stagnation and limited application, which can ultimately result in failure.” The six stages of a quality life cycle are:

1. Adoption: the implementation stage of a new quality initiative. 2. Regeneration: when a new quality initiative is used in conjunction with an

existing one to generate new energy and impact. 3. Energizing: when an existing quality initiative is refocused and given new

resources. 4. Maturation: when quality is strategically aligned and deployed across the

organization. 5. Limitation or stagnation: when quality has not been strategically driven or

aligned. 6. Decline: when a quality initiative has had a limited impact, is failing and

the initiative is awaiting termination.

The following example serves to illustrate the implications of this life-cycle model. One organization began adopting quality by introducing team building and establishing problem-solving teams. However, after four years, the quality manage- ment initiative failed. Initial training had been limited, and implementation was unfocused and not directly related to the strategic objectives of the organization. As a result, the new teamwork approach came as a culture shock to the organiza- tion, and its quality initiative began a decline. The organization was determined to continue with quality management and subsequently adopted a second initiative. This involved new training and teams provided with improvement kits based on problem-solving tools and techniques. In addition, senior management focused on the coordination of improvement efforts with strong links to the organization’s strategic goals. Structured performance assessments monitored progress. The quality manager cited “management commitment and leadership from the top” as the key to its successful second quality initiative. The quality life cycle of this sec- ond initiative reflects its progress from adoption to maturity. This approach created strong quality dynamics, which achieved strategic alignment and deployment throughout the organization.

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From this example, we observe two things:

1. Awareness that separate initiatives create a cumulative impact leads to an appreciation that selection of new quality initiatives must be based on where an organization is in the quality life cycle.

2. Understanding that the quality life-cycle elements enable an organization to apply energizing or regenerating actions proactively to successfully sustain its quality journey.

Understanding such impacts on the dynamics of quality, in particular on the characteristics of the quality life cycle, provides the capability to sustain successful quality management by strategically adopting responses based on energizing and regenerating elements.

In studying Baldrige recipients in the health care sector, a group of former Baldrige examiners and judges proposed a similar model that describes the Baldrige journey, shown in Figure 11.1.28 At Stage 0, organizations opt to wait for man- dates and regulations, and they implement change when required to maintain compliance. While they may experience occasional “random acts of improvement,” there is no overarching impetus to drive the organization to higher levels of perfor- mance. In Stage 1, organizations commit to a proactive approach to improvement. Initial steps tend to include learning and implementing quality improvement tools and methods. Often this project-focused phase brings new capabilities to execute initiatives that change routine practices and processes for the better. However, organizations at this stage typically reach a plateau. Leaders became frustrated with the overall impact of their continuous improvement efforts and the pace of

Stage 0

“Status Quo”

P ro

g re

Regulatory compliance only

Stage 3

“Integration”

Clear linkage of process management and improvement to operational results

Stage 4

“Sustaining”

Continued improvement as methodologies are embedded into the organization’s culture

Stage 2

“Traction”

Alignment of projects to strategy, attention to leadership and management processes

Baldrige recipient

Baldrige start

- OR Give up on the process when managed as a delegated project

- OR Decline, as the organization loses discipline and changes course

Stage 1

“False Starts”

Project mentality, characterized by various tactical improvement activities

Time 3–8 Years

FIGURE 11.1 | BALDRIGE ROADMAP TO PERFORMANCE EXCELLENCE

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change. For most of these organizations, projects succeed often enough, but the overall culture does not change and system-wide performance excellence is elusive. Visionary leaders recognize the inherent limitations of a project-based approach to performance improvement: slow pace of change, incremental gains, and depleted organizational energy. They seek an approach to build system integration across silos and departments in order to create a high-performance, results-oriented culture throughout their organizations.

When senior leaders became personally and actively engaged with the criteria and feedback—whether through simply answering the questions, conducting a self- assessment, or writing an application for a state or national award program—they begin to experience traction on their organizational transformation strategies (Stage 2). This phase marks the transition from the singular focus on change through projects, however well executed, to systematic evaluation and improve- ment of leadership approaches. Projects become more focused and aligned to organizational strategy, while leadership and management processes receive attention as well, shoring up capability to spread improvements and hardwire sustainability. As organizations become more skillful at these approaches, integration (Stage 3) begins to occur. Approaches and processes of leadership, such as values deployment and culture building, begin to link and align with strategic planning and action plan- ning, scorecards and dashboards, job descriptions and performance review methods, and other operational processes. Nonaligned improvement initiatives are dropped or postponed as focused effort replaces frenetic activity. The Integration phase is char- acterized by action on the feedback, usually by incorporating it into the strategic planning process.

Finally, the sustaining stage (Stage 4) can result in two outcomes: continued improvement or decline as organizations lose focus or become distracted. Although receiving a Baldrige Award might appear to carry with it the potential for loss of momentum, many organizations renew their commitment to achieving even higher levels of performance. This may occur through continuing annual participation in a Baldrige-based award process, or through internal assessment processes, often as a first step in annual strategic planning.

SELF-ASSESSMENT

Organizations should begin with a critical self-assessment of where they stand. Such assessment identifies strengths and areas for improvement and determines what practices will yield the most benefit. At a minimum, a self-assessment should address the following:

• Management involvement and leadership. To what extent are all levels of management involved?

• Product and process design. Do products meet customer needs? Are products designed for easy manufacturability?

• Product control. Is a strong product control system in place that concentrates on defect prevention before the fact, rather than defect removal after the prod- uct is made?

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• Customer and supplier communications. Does everyone understand who the customer is? To what extent do customers and suppliers communicate with each other?

• Quality improvement. Is a quality improvement plan in place? What results have been achieved?

• Employee participation. Are all employees actively involved in quality improvement?

• Education and training. What is done to ensure that everyone understands his or her job and has the necessary skills? Are employees trained in quality improvement techniques?

• Quality information. How is feedback on quality results collected and used?

Many self-assessment instruments that provide a picture of the state of quality in the organization are available.29 Most self-administered surveys, however, can pro- vide only a rudimentary assessment of an organization’s strengths and weaknesses. The most complete way to assess the level of performance excellence maturity in an organization is to evaluate its practices and results against the Malcolm Baldrige National Quality Award criteria by using trained internal or external examiners, or by actually applying for the Baldrige or a similar state award and receiving compre- hensive examiner feedback (see box “Alignment through Assessment”). Understand- ing one’s strengths and opportunities for improvement creates a basis for evolving toward higher levels of performance. Of course, many companies, especially smaller firms, that are just starting on a quality journey should begin with the basics, for example, a well-documented and consistent quality assurance system such as ISO 9000, which was discussed in Chapter 2.

ALIGNMENT THROUGH ASSESSMENT30

Hartford Hospital used a Baldrige assessment to guide its improvement efforts. The hospital needed to align its processes with the rapidly growing managed care environment, leverage internal clinical financial strength, and align employee and department goals with each other and the strategic goals of the organization. Using the Baldrige Health Care criteria, a month-long assessment was completed in 1996. The analysis revealed that the hospital had numerous strengths and many opportunities for improve- ment. Most areas of the hospital were not aligned with each other, leading to a disconnect between the strategic plan and many of the operational units, processes, and personnel. Major systems, such as human resources, leadership, and planning, were functioning independently of each

other. Measures of performance were not trended and did not lead to improvement activities. Performance improvements were ad hoc, lacking priority, and not driven by the strategic plan.

Six initial performance improvement projects involved improving the leadership structure, link- ing information with the strategic plan, improving deployment of the strategic plan, improving human resource allocation, planning business and programs, and centralizing complaint man- agement processes. The success of the project exceeded all expectations. Despite closing more than 15 percent of its beds, Hartford Hospital has not lost any market share, and it has received numerous recognitions as one of Connecticut’s outstanding hospitals.

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Although some research suggests a positive relationship between the conduct of self-assessment and performance outcomes, other evidence suggests that many organizations derive little benefit from conducting self-assessment and achieve few of the process improvements suggested by self-study.31 This lack of follow-through might seem a bit surprising. Why would organizations take the time to conduct a self-assessment and then not follow up on the results? After all, improvement opportunities usually offer significant gains in organizational effectiveness and competitive performance. Some managers may not follow up because they truly do not sense a problem—despite information suggesting otherwise. Often, however, managers get the message but choose not to respond. Many managers react nega- tively or by denial: “These are wrong,” “This is not how it is here,” and “These [examiners] missed the boat” are often heard. Such remarks are particularly likely when the report suggested that the organization was a less-than-stellar performer in areas perceived as strengths by senior managers.

Other managers may not know what to do with the information. Managers possessing little understanding of how the organization operates may not know which levers to pull in order to effect change or simply do it to appease their superiors. Typical comments include, “There’s some good stuff here, but I have no idea where to go from here,” and “It’s hard for me to understand how to turn this [assessment report] into action.” After reading his copy of the feedback report, the head of one manufacturing company muttered, “Well, we’ve satisfied [the boss’s demand for conducting the self-assessment] for another year. Now we can put this all away and get back to business.”

Following up requires senior leaders to engage in two types of activities: action planning and subsequently tracking implementation progress. Managers must take a positive approach to self-assessment findings, no matter how unpleasant they might appear—“Okay, what should we do to improve these areas?” Positive reac- tions often reinforce long-held but suppressed views about how the organization functioned. For example, at a meeting where results were being presented to the top management team, the chief engineering manager, on hearing of low evaluations related to the organization’s communications processes, exclaimed, “I’ve been telling you guys this for years! Maybe now you’ll believe me that we need to do something.” The action plan identifies particular activities necessary to address the improvement opportunities. Effective action plans share some common characteristics. First, key actions to address the opportunities must be identified. A meeting to discuss the findings with key employees is often an excellent way to begin. Once identified, action plans should be documented and the who, what, when, where, and how of each action item specified. A draft version of the action plan should be communicated to inform those directly affected and gain their co- operation. Finally, the action plan should be reviewed to ensure that it effectively addresses the key opportunities identified by the self-assessment findings.

Many managers consider their job finished when action plans are set in motion. However, planned changes are rarely implemented as initially intended. Moreover, people responsible for implementing the plans may need to use encour- agement or involvement in order to effectively execute their portions of the intended change. Change implementation demands a second component of effective follow-up—tracking the progress of action plan execution—to provide managers with crucial feedback on whether the intervention is effective.

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KNOWLEDGE MANAGEMENT AND ORGANIZATIONAL LEARNING

One Hewlett-Packard manager noted, “The fundamental building material of a modern corporation is knowledge.” H. James Harrington observed, “All organi- zations have it, but most don’t know what they know, don’t use what they do know, and don’t reuse the knowledge they have.”32 Six Sigma efforts build a vast supply of knowledge within an organization, but knowledge is perishable, and if it is not renewed and replenished, it becomes worthless.

Knowledge assets refer to the accumulated intellectual resources that an orga- nization possesses, including information, ideas, learning, understanding, memory, insights, cognitive and technical skills, and capabilities. Explicit knowledge includes information stored in documents or other forms of media. Tacit knowledge is information that is formed around intangible factors resulting from an individual’s experience, and is personal and content-specific. These two aspects represent the “know how” that an organization has available to use, invest, and grow. Employees, software, patents, databases, documents, guides, policies and procedures, and techni- cal drawings are repositories of an organization’s knowledge assets. Customers, sup- pliers, and partners also may hold key knowledge assets. Knowledge assets have become more important than financial and physical assets in many organizations. Process improvement requires new knowledge to result in better processes and proce- dures. Increasing the knowledge of the organization, both in an individual sense as well as for the organization as a whole, is the essence of learning. Knowledge can easily be lost if information is not documented or when individuals are promoted or leave the organization.

LEVERAGING SELF-ASSESSMENT FINDINGS

Research suggests that to leverage self- assessment findings, managers must do four things:33

• Prepare to be humbled. “Humbling” is a word we often hear frommanagers who have recently digested assessment findings. Many of them have trouble believing that the performance levels of the organization are as low as they appear. Managers can temper their expecta- tions by learning about the self-assessment activities and experiences of other organiza- tions. Hearing it from peers, through phone calls to colleagues, and attending conferences, permit managers to learn firsthand about the self-assessment experiences of others.

• Talk though the findings. Follow-up can be enhanced when the top management team discusses the self-assessment findings. Discussing the issues, concerns, and ideas

can generate greater shared perspective among executives and improve consensus.

• Recognize institutional influences. Managers should be sensitive to the institutional forces working on their self-assessment activities, such as pressures from customers. Institu- tional influence can be covertly transmitted through the literature, presentations, and conversation that managers encounter. During the planning phase of the assessment, frank discussion about the environmental motivators of the project can sensitize managers to these outside influences.

• Grind out the follow-up. Even though follow- up activities may not be as exciting as plot- ting competitive strategy or entertaining customers, they provide infrastructure for realizing the process improvements possible from self-assessment.

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Knowledge management involves the process of identifying, capturing, organiz- ing, and using knowledge assets to create and sustain competitive advantage (see box “Reversing the Brain Drain”). Knowledge management differs from information management in that information management is focused on data, whereas knowledge management is focused on information. A knowledge manage- ment system allows intangible information to be managed as an organizational asset in a manner similar to tangible assets. Skandia, a large Swedish financial services company, internally audits its intellectual capital every year for inclusion in its annual report. An effective knowledge management system should include the following:

• A way of capturing and organizing explicit as well as tacit knowledge of how the business operates, including an understanding of how current business processes function.

• A systems-approach to management that facilitates assimilation of new knowl- edge into the business system and is oriented toward continuous improvement/ innovation.

• A common framework for managing knowledge and some way of validating and synthesizing new knowledge as it is acquired.

• A culture and values that support collaborative sharing of knowledge across functions and encourages full participation of all employees in the process.34

REVERSING THE BRAIN DRAIN35

As older employees retire and depart an organization, a wealth of critical knowledge can easily go out the door with them. The Tennessee Valley Authority (TVA) began to tackle this problem in 1999, when it broke down the daunting task of retaining knowledge into manageable parts by asking line managers three questions:

1. What knowledge is likely to be lost when particular employees leave? (“What?”)

2. What will be the business consequences of losing that knowledge? (“So what?”)

3. What can be done to prevent or minimize the damage? (“Now what?”)

To get an idea of who was planning to retire, the TVA sent out a questionnaire to all 13,000 employees asking about their retirement plans (“What?”). Based on those survey results, they gave each employee a score of 1 to 5, with 1 denoting a person who doesn’t plan to leave for six years or longer and 5 earmarking someone who will be gone within a year. Managers and

supervisors assigned the employees a second score of 1 to 5 (“So what?”), reflecting how essential their knowledge is to the power plants’ operations, with a score of 5 being the most critical. For instance, a nuclear engineer who plans to retire in six months and takes with him decades’ worth of arcane knowledge would receive a 5 on both dimensions, signifying a big red flag that managers needed to address.

The third part of the process (“Now what?”) was getting people to share their knowledge. Some information is easy to capture: say, whom to call at GE when a turbine is acting up.

Harder to replace is “tribal knowledge.” For example, the TVA had a steamfitter foreman at one plant who had developed an uncanny knack for detecting corrosion inside feedwater pipes by tapping on them with a wrench and listening for a particular sound. The solution was simple: assign a younger engineer to shadow the older one before he retires. John Deere, Chevron, and the World Bank have benchmarked and adopted TVA’s methods.

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The transfer of knowledge within organizations and the identification and sharing of best practices often set high-performing organizations apart from the rest. Many organizations perform similar activities at different locations or by dif- ferent people. Just consider a large organization with many Six Sigma Black and master Black Belts. What happens when one individual develops an innovative practice? How is this knowledge shared among others performing similar jobs? In most organizations, the answer is that knowledge is probably never shared.

Continuous improvement and organizational change are difficult to achieve without creating a “learning organization,” a term popularized by Peter Senge, a professor at the Massachusetts Institute of Technology (MIT). He defines the learning organization as: “… an organization that is continually expanding its capacity to create its future.” For such an organization, it is not enough merely to survive. “Survival learning” or what is more often termed “adaptive learning” is important—indeed it is necessary. But for a learning organization, “adaptive learning” must be joined by “generative learning,” learning that enhances our capacity to create.36 Art Schneiderman, who had worked with Senge and spent a long career with Analog Devices, offers the following simple definition of organi- zational learning: “… the acquisition, application, and mastery of new tools and methods that allow more rapid improvement of those processes whose improve- ment is critical to the success of the organization.”37

Senge repeatedly points out, “Over the long run, superior performance depends on superior learning.” The concept of organizational learning can be thought of as the process of moving through the four stages of learning that we described at the very beginning of this chapter. Effective learning requires an understanding and integration of many of the concepts and principles that are part of the TQ philoso- phy. It can help avoid repeating mistakes, build sensitivity, and better adapt to a changing world, and help to improve operations by understanding the weaknesses in the past and how to correct them.38

Organizational learning is considered a fundamental practice in the Baldrige criteria, which defines it as “continuous improvement of existing approaches and processes and adaptation to change, leading to new goals and/or approaches.”39

The criteria view learning as having four distinct stages:

1. planning, including the design of processes, selection of measures, and deploy- ment of requirements;

2. execution of plans; 3. assessment of progress, taking into account internal and external results; and 4. revision of plans based on assessment findings, learning, new inputs, and new

requirements.

In the Leadership category, for example, the requirement of Organizational Performance Review focuses organizations to provide a picture of their “state of health” and examine how well they are currently performing and also how well they are moving toward the future. This review capitalizes on the information generated from the measurement and analysis of business results and is intended to provide a reliable means to guide both improvement and change at the strategic planning level.

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Many companies learn from Baldrige recipients (see box “Organizational Learning at Texas Instruments”). Scott McNealy, CEO of Sun Microsystems (Sun), for example, invited three CEOs of Baldrige winners (FedEx, Motorola, and Xerox) to visit his company to discuss their quality processes. From those meetings came the core principles and strategies that Sun uses today. The key lessons that Sun learned were:

• Quality must be elevated to the level of a “core management process.”

JACK WELCH AND GE: ALWAYS LEARNING

A good example of a learning organization (and a learning individual!) is General Electric and its former CEO Jack Welch (we’ve discussed other examples of Mr. Welch as a learning individual in previous chapters). In his first letter to GE share- holders in 1981, he noted, “This commitment to the utmost in quality and personal excellence is our surest path to continued business success. Quality is our best assurance of customer allegiance. It is our strongest defense against foreign competition and the only path to sustained growth and earnings.” Welch’s approach to business improve- ment has gone through three cycles of learning:

1. In the first cycle (early 1980s to late 1980s), he focused GE on the elimination of variety in its portfolio of businesses by reducing the nonperforming business units as judged by market performance. The elimination of unprofitable businesses permitted a better use of working capital. However, only so much gain can result from trimming the organization or eliminating bureaucracy, which led to the next phase of learning.

2. During the late 1980s to mid-1990s, he focused the company on simplifying and eliminating non-value-added activities through creative efforts of teams using Work- Outs and the Change Action Process (later renamed the Change Acceleration Process). Work-Out is a tool for involving all people from all ranks, levels, and functions of the organization in problem solving and improvement. Work-Out demolished the arti- ficial barriers and walls within the organization

and fostered the idea of “boundary-less learning.”

3. Throughout his learning journey, Welch chal- lenged his people to keep looking for creative ways to apply new learning from any source to improve the business. In 1995, Welch discov- ered Six Sigma and studied its implementation at both Motorola and Allied Signal. This phase of discovery focused on the elimination of variation from already lean business operations to drive gains in productivity and financial per- formance with a better focus on the customer.

Welch’s process for continuous learning led to the discovery that business must simplify first, then automate best practices that have been designed for robust performance in the face of variation in business conditions. As Welch noted, “It is this passion for learning and sharing that forms the basis for the unrelenting optimism with which we view the future, and for the conviction that our greatest days lie ahead.” The emphasis on quality and improvement through Six Sigma has been continued by Jeffrey Immelt, who succeeded Jack Welch as CEO at GE in 2001. Immelt drove the implementation of Lean Six Sigma and a broad operating initiative called Simplification, which measures “non-growth cost reductions” in legal entities, headquarters, computer systems … anything that is not directly linked with customer satisfaction and growth.40 The 2007 annual report describes the results of a new initiative called “Growth as a Process,” and its approaches to operational excellence that include using Lean Six Sigma, quality, and simplification to enhance value.

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• Quality must be the first agenda item of every executive management and board meeting.

• Quality can be managed only if it is measured. • Quality starts with the employee. • Achievement in quality must be a factor in compensation.

In explaining this approach, McNealy noted that “Sun was launched as a com- pany in 1982, just about the time that Xerox was starting its Leadership Through Quality process. We wanted to learn as much as we could about what worked and what didn’t work before we started solving problems that had already been solved.”41

One of the indicators of a true learning organization is the ability to identify and transfer best practices within the organization, sometimes called internal benchmarking. This is one area where even the most mature organizations falter, even those that are adept at external benchmarking. The American Productivity and Quality Center (APQC) noted that executives have long been frustrated by their inability to identify or transfer outstanding practices from one location or function to another. They know that some facilities have superior practices and processes; yet, operation units continue to reinvent or ignore solutions and repeat mistakes.42

APQC suggests that, although most people have a natural desire to learn and share their knowledge, organizations have a variety of logistical, structural, and cultural hurdles to overcome. These include:

• organizational structures that promote “silo” thinking in which locations, divisions, and functions focus on maximizing their own accomplishments and rewards, or, as Deming called it, suboptimization;

• a culture that values personal technical expertise and knowledge creation over knowledge sharing;

• the lack of contact, relationships, and common perspectives among people who don’t work side by side;

• an overreliance on transmitting “explicit,” rather than “tacit,” information— the information that people need to implement a practice that cannot be codified or written down; and

• not allowing or rewarding people for taking the time to learn and share and help each other outside of their own small corporate village.

Internal benchmarking requires a process: first, identifying and collecting internal knowledge and best practices; second, sharing and understanding those practices; and third, adapting and applying them to new situations and bringing them up to best practice performance levels. Technology, culture, leadership, and measurement are enablers that can help or hinder the process. Many organizations have created internal databases by which employees can share their practices and knowledge. For example, Texas Instruments has a Best Practices Knowledge Base delivered via Lotus Notes, Intranet, and TI’s mainframe systems. Information is often organized around business core and support processes. Cultural issues include how to motivate and reward people for sharing best practices and establish a supportive culture. As with any performance excellence effort, senior leadership

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has to take an active role. This can be done by tying initiatives to the company’s vision and strategy, communicating success stories at executive meetings, removing implementation barriers, reinforcing and rewarding positive behaviors, leading by example, and communicating the importance of best practice sharing with all employees. Finally, measuring the frequency of use and satisfaction with best practices databases, linking practices to financial and customer satisfaction, focus- ing on cycle time to implement best practices, and measuring the growth of virtual teams that share information are ways in which the organization can monitor the effectiveness of its approaches.

Perhaps a more difficult thing for organizations to do is to accept assistance from outside the organization—the “Not Invented Here” syndrome. General Electric, for instance, suddenly asked Southwest Airlines to allow them to help their business become more efficient and cost-effective. GE offered to send over a Six Sigma Black Belt to work at no cost on a problem involving a component made by another company. Southwest balked, reluctant to share private information about one sup- plier with another, and many managers were unwilling to accept the rigid scientific approach of Six Sigma into the freewheeling Southwest culture. Nevertheless, Southwest relented and GE’s Black Belt helped eliminate the failures of the part.

ORGANIZATIONAL LEARNING AT TEXAS INSTRUMENTS

Many firms use self-assessment against the Baldrige criteria as a means of organizational learning. Thus, it is not surprising that perhaps the best examples of learning organizations are Baldrige recipients. In pursuing their TQ efforts that eventually led to the award, they have con- tinually and systematically translated the examiner feedback into improvements in their management practices.

A vice president at Texas Instruments Defense Systems & Electronics (DS&E) Group noted that “participating in the Baldrige Award process energized improvement efforts.”43 By 1997, just before its purchase by Raytheon, DS&E had reduced the number of in-process defects to one-tenth of what they were at the time it received the Baldrige. Production processes that took four weeks several years before were reduced to one week, with costs 20 to 30 percent less.

DS&E’s approach began in 1994, when the Texas Instruments Corporation launched the TI Business Excellence Standard (TI-BEST), an assessment and improvement process that grew

out of DS&E’s Baldrige Award experience.44

The process is applied to TI businesses around the world. The four steps of TI-BEST are:

1. define business excellence for your business; 2. assess your progress; 3. identify improvement opportunities; and 4. establish and deploy an action plan.

The TI approach to business excellence is achieved through the core principles of total quality discussed in Chapter 1 and a focus on operational excellence through achieving cus- tomer satisfaction with processes and teamwork and empowerment. The approach is implemented by an annual improvement process (Strategic Planning) and measured by a balanced scorecard involving customer, process, HR, and financial measurements and indicators.

TI is one of only two semiconductor companies in the world to have gained market share in each of the four consecutive years prior to 1997, and during that time jumped from last place to first in return on net assets, compared to Intel, Motorola, and National Semiconductor.

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Since then, Southwest has let dozens of other GE folks work on projects such as financial analysis and invoice flow.45

Although this story focused on organizational learning at Southwest, the underlying reason is a push from GE to share its best practices throughout the supply chain to its customers. Dubbed “At the Customer, For the Customer,” or ACFC, in GE jargon, this initiative is designed to add more customer value and differentiate the company from its competitors. Continuous improvement can be a unique corporate strategy.

ORGANIZATIONAL CHANGE IN ACTION

Many organizations have made substantial changes in their organizations that reflect continuous improvement, breakthrough improvement, and learning. In this section, we highlight some of their approaches.

BOEING

Many organizations have attempted to change their cultures to become more responsive to customer needs. Boeing is a good example of a company in a difficult competitive situation that has undertaken this task.46 Boeing has been a fixture in the aerospace industry since Bill Boeing built his first airplane—a single-engine seaplane—in 1916. Boeing’s planes were heavily involved in World War II, with almost 7,000 produced by Boeing and another 13,000 produced by other manufac- turers using Boeing designs. In modern times, approximately half the commercial jets in the world have been produced by Boeing; the company contributes substan- tially to the U.S. balance of trade by exporting planes all over the world.

Not content to rest on its corporate laurels, however, Boeing was among the early leaders of the quality movement in the United States, implementing quality circles in 1980. (Quality circles are groups of workers who meet for an hour or so each week to work on quality problems; they were a forerunner of TQ efforts in many companies.) Managers at Boeing quickly recognized, however, that the corporate culture would need to be changed if quality efforts were to be successful, and they began a process to do so. This process consisted of five steps:

1. identify norms that currently guide behaviors and attitudes; 2. identify the behaviors necessary to make the organization successful for

tomorrow; 3. develop a list of new norms that will move the organization forward; 4. identify the culture gaps—the difference between the desired norms and actual

norms; and 5. develop and put in place an action plan to implement the new cultural norms.

These new norms will replace the old ones, and this transition will be monitored and enforced.

Boeing backed up this commitment to cultural change with a great deal of training, surveying of employees and customers, and executive commitment. Today the company faces tremendous challenges, including a decline in demand for military aircraft, competition from Airbus Industries (the European airplane

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consortium), and a very weak global market for jets. Its quality-oriented culture, however, based on customers, continuous improvement, and teamwork, should help it to stay competitive for years to come.

As Boeing’s John Black reflected:

This process of continuous improvement, to which we are committed, is not one that can suddenly be grafted onto a company. Every organization must make it their own. Top management leadership must be provided, and all management must be brought on board. Only when all the people are committed and the process is locked in for the long term, will it achieve the breakthrough that it is capable of providing for us—the key to economic success in the future.

MOTOROLA

Although Motorola introduced the concept of Six Sigma back in 1986, it is signifi- cantly different today, clearly demonstrating the value of organizational change for long-term sustainability. Motorola’s “second-generation” Six Sigma is an overall high-performance system that executes business strategy.47 Its results are evident, as Motorola’s Commercial, Government, and Industrial Solutions Sector division received a Baldrige Award in 2002. Their new approach to Six Sigma is based on the following four steps.

1. Align executives to the right objectives and targets. This step means creating a balanced scorecard of strategic goals, metrics, and initiatives to identify the improvements that will have the most impact on the bottom line. Projects are not limited to traditional product and service domains but extend to market share improvements, better cash flow, and improved human resource processes.

2. Mobilize improvement teams around appropriate metrics. Teams use a struc- tured problem-solving process to drive fact-based decisions; however, the focus on defects and defects per million opportunities (dpmo) sigma levels is less important, particularly in human intensive processes such as marketing and human resources. For example, the definition of a defect as “employee perfor- mance that falls below a certain level” can be controversial and be easily manipulated. Continuous measures such as invoice delivery time or credit approval response time are replacing count-based measures such as the num- ber of overdue invoices or the percentage of dissatisfied customers.

3. Accelerate results. Motorola uses an action learning framework methodology that combines formal education with real-time project work and coaching to quickly take employees from learning to doing. Project teams receive support from coaches on a just-in-time basis. Projects are driven to be accomplished quickly, rather than over a long period of time. Finally, a campaign manage- ment approach helps integrate various project teams so that the cumulative impact on the organization is, in fact, accelerated.

4. Govern sustained improvement. Leaders actively and visibly sponsor the key improvement projects required to execute business strategy and review them in the context of outcome goals. An important step is for leaders to actively share best practices and knowledge about improvements with other parts of the organization that can benefit.

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Six Sigma continues to be Motorola’s method of choice for driving bottom line improvements. More efforts will be focused on product design that enhances the overall customer experience across the value chain. As such, Six Sigma projects increasingly involve key customers, suppliers, and other business partners.

ORGANIZATIONAL CHANGE AND ORGANIZATION THEORY

A large amount of research and writing in organization theory (OT) focuses on orga- nization change. Some of the more prominent organizational models include: Weis- bord’s six-box model, Nadler and Tushman’s congruence model, the McKinsey seven-S model, Tichy’s change framework and TPC (technical, political, cultural) matrix, and the Burke-Litwin model. Few change models have been rigorously vali- dated. Rather, the validity of most change models has been tested less formally, usu- ally through consultant-based applications with clients and through comparison to empirical observation. The plethora of change models in use suggests that there are many viewpoints of how organizational change is achieved. However, the success by which a number of these models have been employed by scholars and consultants in empirical situations suggests that a number of these viewpoints are valid.

One commonality among these change models is a teleological perspective of organizational change. Van de Ven and Poole48 suggested that teleology was one of four categories of change process theory. Teleological change theory posits that organizations change through an iterative process of goal setting, implementation, evaluation, and revision. Unlike other theories of change that suggest the environ- ment as the dominant change force, teleology represents change as a deliberate undertaking by individuals affiliated with the organization.

The organizational learning literature makes a fundamental distinction between single- and double-loop levels of learning. Single-loop learning is the most common level of learning, and encompasses the organization’s ability to perceive deviations from perceived performance and “fix” them. Single-loop learning occurs, for exam- ple, when managers detect a problem in implementing a specific strategic initiative and then take action to correct the deviation. Most diagnostic management control systems exhibit single-loop learning characteristics. Double-loop learning is more sophisticated, as the organization must review the underlying assumptions that created the problem to be “fixed” in the first place, and adapt a better set of assumptions to support future performance.

Research suggests that organizational learning is enhanced when people gather for “dialog.” Dialog is defined as a sustained collective inquiry into the processes, assumptions, and certainties that compose everyday experience. An important consequence of effective organizational dialog is the reduction of “defensive routines,” which are policies, practices, or actions that prevent people involved in a group activity from being embarrassed or threatened, and, at the same time, prevent people from learning how to reduce the causes of embarrass- ment or threat. Defensive routines can adversely impact the organization’s ability to implement large-scale strategic change. In one research experiment, executives learned to overcome defensive routines by engaging in dialog that forced the managers to articulate their underlying assumptions and reservations about

Chapter 11: Performance Excellence and Organizational Change 453

particular strategic decisions to be implemented in their organizations. After the experiment, most managers reported that their strategies were being implemented more effectively.49

Several researchers have attempted to draw close relationships between organiza- tional learning and strategy and leadership.50 For example, Crossan et al. suggest that organizational learning is a fundamental strategic process and the principal means of achieving strategic renewal. Vera and Crossan examine organizational learning in the context of leadership styles (see Chapter 10) and conclude that during times of stabil- ity organizational learning processes thrive under transactional leadership, while dur- ing times of change, they benefit more from transformational leadership.

ORGANIZATIONAL CHANGE AND TOTAL QUALITY

This section compares the perspective of TQ on organization change to the OT literature. Given the amount of work in this area, we can only identify a few of the major ideas in the literature on organization change and show how they relate to TQ. Organizational behavior and OT textbooks generally have at least one chapter on OT, which can be consulted for further details on this research. We compare TQ to OT in terms of the reasons for change, the source of change, the nature of change, the difficulty of change, and how to manage change. Our overall conclusion is that, despite some differences in focus, the research on change conducted by organization theorists is a rich source of infor- mation for those embarking on the changes required by TQ.

The Reason for Change The reason behind TQ-oriented change is quality improvement for customer satisfaction. This has not been a major focus of the OT literature on change, which has focused primarily on changes intended to improve productivity and/or improve job satisfaction. Of course, many quality- oriented changes may improve productivity or job satisfaction, but that isn’t usually their main objective.

The Source of Change The source of most change considered in OT is top man- agement. In general, top management responds to changes in the organizational environment, such as increased competitiveness or declining demand. This parallels the cultural change aspect of TQ. In fact, the OT literature on change is most relevant to cultural change, as opposed to continuous improvement or process redesign.

Types of Change The types of changes considered in OT theories partially over- lap with TQ-oriented changes. In particular, OT theories that deal with changes in values and norms are relevant to the transformations associated with cultural change in TQ. Other types of change featured in OT theories, such as the intro- duction of new technology, are not as directly relevant to TQ. (Reengineering, however, often involves the application of some type of information technology.)

Furthermore, the changes discussed in the OT literature tend to differ in two important ways from TQ-oriented change. First, they tend to be limited in scope,

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usually to one or two departments, and even to only a few aspects of the work of these departments. Second, they tend to be limited in duration, with the idea being to get the change over with and get on with organizational life. This may apply to cultural change (and to some extent to process redesign), but is very different from continuous improvement. Indeed, the management of continuous change over a long period of time has not been addressed often by OT research and presents a clear opportunity for research.

One of the earliest studies of organization change was conducted by Coch and French in a Virginia factory that produced pajamas.51 In this study, a change in procedure was made in three different ways. In one group, the workers themselves devised the change. In a second group, workers appointed representatives who devised the change. In a third group, the new system was imposed on the workers by management.

The study found that the change was much more successful in the more participative groups; this study is often cited as support for the need for employee participation in organizational change. What is interesting from a TQ perspective is that it is a study of process redesign and, in the participative groups at least, of process redesign initiated by the people actually doing the work. Thus, it antici- pates by 40 years the kinds of changes that have become commonplace among firms practicing TQ. True to the limits in the thinking at the time, however, the improvement was a one-shot deal. Continuous improvement was an idea whose time had not yet come.

TQ and the OT literature agree on the difficulty of successfully changing organizations and on the fact that “resistance to change” is often the underlying problem. OT research has made significant progress in identifying why organiza- tion members resist change and even in identifying various methods for dealing with this problem.52 Resistance is at least as likely to come from managers as from lower-level employees.

The whole idea of resistance, however, flows from a concept of change man- dated by top management. Managers or workers are unlikely to resist a process change that they themselves have devised. For such changes, the literature on resistance to change seems off the mark.

Perhaps the literature on population ecology provides a more helpful perspec- tive on the difficulty of organizational change in the TQ context.53 From this perspective, worker resistance is not to blame for the difficulty of change. Rather, the structures and systems that management has created are at fault. For example, the hierarchical organization structure of most firms makes it difficult for them to adapt effectively to environmental changes such as the evolution in customer demand. This idea is consistent with Deming’s theory that problems are more often related to system imperfections than to worker inability or lack of motivation.

Population ecology theorists generally argue that the difficulty of changing structures, authority, reward systems, and so forth, renders most organizations unsuccessful in their change efforts. Writers on TQ often have commented on the major impediments such structures and systems create, but have gone on to identify ways in which such obstacles can be removed. This difference in prognosis should

Chapter 11: Performance Excellence and Organizational Change 455

not mask the fundamental agreement between the ecological OT perspective and TQ on the importance of structural and systemic impediments to change.

From the ecological perspective, change in a set of similar organizations often comes about by ineffective organizations going out of business and being replaced by new ones, rather than by changing from ineffective to effective. Clearly both processes occur. Many organizations that did not provide the quality customers demanded are no longer with us, whereas others (Xerox is an excellent example) have managed to transform themselves in order to survive. Needless to say, the battle between transformation and extinction continues to be fought every day in many firms throughout the world.

Many of the principles for managing change derived from the OT literature apply directly to TQ change. Some of these principles are as follows:

1. It is necessary to “unfreeze” people’s attitudes and behavior before they can be changed.54 This principle, a staple of the OT understanding of change, relates directly to TQ. Before organizations can change in the direction of practicing TQ, people must see why the current approach is inappropriate or incomplete and what problems of competitiveness and customer dissatisfaction this causes. Cultural change in TQ is often the vehicle for unfreezing behavior.

2. Change can only succeed with effective leadership. One early proponent of this view was Thomas Bennett.55 Bennett identified the need for leaders to deal with the emotional aspects of the change for subordinates, the need for clear goals, and the importance of logical problem-solving processes. These and other aspects of the leader’s role identified by OT theorists clearly are relevant to TQ.

3. Change agents must manage interdependence. Few things in organizations— for example, jobs or technology—can be changed without affecting other things—structures or processes. Many OT theorists of change recognized this fact and based their theories on the need to identify and manage the interde- pendence among organizational phenomena.56 This applies directly to process redesign and is consistent with Deming’s emphasis on organizations as systems.

4. Effective change must involve the people whose jobs are being changed. This point was noted in reference to the Coch and French study. Although a variety of rationales for the importance of participation have been advanced, its significance for reducing resistance is an article of faith among organization change theorists.57 This is probably the point of greatest overlap between OT and TQ. The “participation” and “involvement” championed by OT theorists as much as 50 years ago have become so widely accepted in industry that they have evolved into today’s concepts of “empowerment” and “self-management.”

5. Refreezing is needed to make gains permanent. Research in OT has concluded that steps are needed to lock in the changes that have been made.58 This point has not been lost upon the TQ community, as many organizations are now becoming concerned about maintaining, as opposed to creating, change. Many of the recommendations of the OT literature, especially the need to monitor and revise change efforts continually, are quite relevant to TQ.

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Perhaps it is fitting to conclude this chapter and this book with a quote from Aristotle:

Excellence is an art won by training and habituation. We do not act rightly because we have virtue or excellence, but we rather have those because we have acted rightly. We are what we repeatedly do. Excellence, then, is not an act but a habit.59

We hope that quality and performance excellence becomes a habit in your life and business career.

Discussion Questions and Experiential Exercises

1. Describe some personal experiences in which you traveled through the four stages of learning described in this chapter.

2. Briefly describe the three kinds of organiza- tional change practiced in TQ efforts.

3. You probably have, unfortunately, heard the term dysfunctional family in news stories about our society. What might the term dysfunctional corporate culture mean?

4. Describe the culture of an organization you have worked in or are familiar with. What is valued in this culture? Do you think this culture provides fertile ground for TQ? Why or why not?

5. What might be some “warning signs” of a weak quality culture? For example, one might be “senior executives rarely discuss quality.”

6. How do the values stated in “The Eastman Way” promote a performance excellence culture?

7. Examine some corporate websites and com- ment on the cultural values that are reflected by the information you find. How important do these organizations view quality to their success?

8. For each of the core values of the Baldrige criteria, describe some practices that you would expect to see high-performing organizations implement.

9. Talk to individuals that you know from some local organizations (companies, schools, government agencies) about the organization’s commitment to quality and performance excellence principles. What factors do they attribute to either the success or failure of their organization’s approaches?

10. Managers can enforce rules about what people do and say at work. But can they enforce a culture? If yes, how can they do it? If no, what does this say about the limits of managers’ ability to ensure quality?

11. A major stumbling block in implementing TQ in the United States, and which still exists in some companies, is an adversarial relationship between unions and manage- ment. What should be the role of both unions and management in building a TQ culture?

12. Compare the quality life cycle with the Baldrige model in Figure 11.1. How are they similar? How do they differ?

13. What might the “learning organization” concept mean to a college or university?

14. How might internal benchmarking be applied within your college? What types of activities would be appropriate?

15. Interview your fellow students to identify a set of “best learning practices.” Develop a plan for sharing these throughout your school.

Chapter 11: Performance Excellence and Organizational Change 457

CASES

A Tale of Two Companies60

Company A was a very large, privately owned com- pany with diverse business units, mostly related to the hospitality industry. The deployment champion at this company had been successful in deploying Six Sigma at a smaller organization. In his new position, he was paid more, and his title was more impressive, but he was at least one layer lower in the organization than he had been at his earlier job. Although he had “the ear of the CEO,” he was one of many who did, and there were others in the chain with much more access to that CEO. In his earlier job, he had trained internal people to be Black Belts and, after three years, had advanced the strongest performers among them to become Master Black Belts.

At his current company, because his boss wanted Six Sigma to be implemented “faster,” they took a shortcut, hiring some Master Black Belts from the out- side. A couple of these deserved the title; most, as it turned out, did not. We had recommended an execu- tive session. The deployment champion told us “that isn’t going to happen—not as busy as these executives are,” but he assured us that he had the situation well in hand. He was meeting with them individually, an hour at a time when he could get it scheduled, and had given them all a required reading list.

Initially, champion (sponsor) training was sched- uled for three days. Managers told to attend com- plained to their managers, who managed to get the training requirement reduced to one day. One class of 20 champions attended a one-day workshop. Most of them stayed for the entire day. Some of them even chartered projects. This company had decided to start its efforts with two-week Green Belts, and we began training Green Belts at a rapid pace. When the first wave came to class, half of them were still looking for projects. Of those who did have projects, only a handful had champions who had been to champion training. The rest had been sent by their bosses, who had heard that “this Six Sigma thing is going to be in my expectations this year, so I need to get a project or two done.”

When the first wave came back for their second week, some of the projects had been dropped, some Green Belts were still looking for projects, and some had made a little progress. It got worse in subsequent waves: Fewer projects had champions; fewer of those

that did had trained champions (some of the trained champions had been promoted and were no longer able to function as champions); almost none of the projects could be tied to strategy; almost no one had data or baselines. Some could not even tie their project to a specific process. I expressed this concern to my managing director and told him that the company would be much better off if he diverted its deployment investment from training to coaching and thereby got some projects done. He called the deployment cham- pion. After a 20-minute conversation, my boss hung up and said, “He’s happy with things…. He says they are making lots of progress. From his perspective, it’s successful, and he wants you to keep going.” I asked for a meeting with the deployment champion so I could explain my views further. That never hap- pened. What did happen is that we kept training wave after wave of Green Belts. Midway through the second year, the organization held a “gallery walk” at its world headquarters to celebrate all the gains they had made in process improvement efforts. I attended this celebration; about 20 projects were on display. Not a single project had been led by a Green Belt. None of the gains could be proven with data. Many of the people involved in the projects questioned the advertised results.

At the end of two years, three things happened:

1. Corporate trainers decided to take over Green Belt training. They told me, “We are cutting out all the statistics—our feedback indicates that stu- dents didn’t like it and never used any of it.”

2. My new managing director had a meeting with the deployment champion, who was furious that he had spent more than half a million dollars on our training but couldn’t prove that any of our students had provided any return on that investment.

3. All the Master Black Belts quit and moved to other organizations.

In later years, I met several people from that orga- nization. All said pretty much the same thing: “We really tried, but it just didn’t work with our culture.”

Company B was a manufacturer and a spin-off from a larger, Fortune 25 company. This company was in crisis due to the “buggy whip syndrome”; in other words, they were very good at what they did, but their business was in trouble because other

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technologies were overshadowing the need for pro- ducts that had provided the bulk of their sales for a long time. The company had hired as its new CEO a well-known quality champion and author of a book on deploying lean. He hired me because he wanted Six Sigma aligned with his lean efforts to create a sys- tem for process improvement. This CEO personally led a two-day executive session, inviting us to present an overview during the first half of day two. He required his direct reports to personally sponsor pro- jects in the first round. He introduced his COO as deployment champion and told the executive team in no uncertain terms that she was his voice in this deployment. He then opened sponsor training to these individuals and their direct reports, which was scheduled to occur between the second and third weeks of Black Belt training. The top managers left having committed publicly to project ideas that were aligned with strategic objectives.

The CEO opened the first session of the first week of every Black Belt training class and required project sponsors for the wave being trained to give an elevator speech about the project they were sponsoring. The deployment champion sat through the entire first wave of training and had her second in command sit through the entirety of every subsequent wave. Each week, we set aside 90 minutes on Monday through Thursday for project reports from the Black Belts. The COO demanded a schedule set in advance for these presentations, and each project sponsor was required to sit in on all his projects’ presentations. The CEO always sat in on the first set of presentations in week two of each wave. In the first set of presenta- tions, one of the Black Belt candidates, an engineer, got up to present and said, “Here is my charter…. I’m afraid that’s all I have to report. I haven’t been able to get anything else done because I have two other projects that are priorities.” The COO, in front of everyone present, immediately turned to the project sponsor and asked, “Is this project important to you?” The sponsor started to talk about other priorities, and she cut him off. “We all have other priorities. What I asked was whether this project is important to you. This project, that you committed to support, that you said would drive a metric at the top of your stra- tegic objectives for the year… is this project important to you?” He again tried to talk about some other pri- ority, and she cut him off again. “Let’s meet on this, after the presentations are done.” She looked over at the CEO and said, “Are you available?” He nodded. That engineer was able to report significant progress

during the next rounds of project presentations. We never heard any whispers about lack of sponsor sup- port after that.

We trained 18 Black Belts in that first round. Two of them were victims of a reorganization (the day of the final exam). The other 16 completed their projects, and the validated NPV for the total portfolio from that first wave was $32 million in the first year. We saw similar results in each subsequent wave. The deployment champion’s second in command took over training at the end of the second year and became the company’s Master Black Belt. Most of the Black Belts ran between three and five projects per year, with gains varying between $250,000 and $2 million per project.

Discussion Questions 1. How would you characterize the culture of these

two companies? 2. Drawing from the concepts discussed in this

chapter, explain why Six Sigma failed in company A but was successful in company B.

The Yellow Brick Road to Quality61

In the film The Wizard of Oz, Dorothy learned many lessons. Surprisingly, managers can learn a lot from the Wizard of Oz also. For each of the following summaries of scenes in the film, discuss the lessons that organizations can learn in pursuing change and a performance excellence culture.

A. Dorothy was not happy with the world as she knew it. A tornado came along and transported her to the Land of Oz. The tornado dropped Dorothy’s house on the Wicked Witch of the East, killing the witch. “Ding, dong, the witch is dead!” rang through- out Munchkinland, but Dorothy had enraged the dead witch’s sister. Dorothy only temporarily lost her home support provided by family back in Kansas. All is not good, however, in the Land of Oz. Dorothy’s problem is to find her way home to Kansas. Her call to action was precipitated by a crisis—the tornado that trans- ported her to an alien land.

B. In the throes of a Kansas tornado, Dorothy is transported to an unfamiliar land. Immediately, she rea- lizes her world is different and the processes and people she encounters are different, yet bear some similarity to her Kansas existence. She is lost and confused and uncertain about the next steps to take. She realizes she is in a changed state—the Land of Oz—and must devise a plan to get home.

Chapter 11: Performance Excellence and Organizational Change 459

C. Dorothy is a hero for killing the Wicked Witch of the East. Glinda the Good Witch sends Dorothy on her way to meet the Wizard of Oz who will help her get back to Kansas. The Wicked Witch of the West tries to get Dorothy’s newly acquired ruby slippers, but to no avail. Dorothy and Toto leave for Oz via the Yellow Brick Road. Along the way, they are joined by the Scarecrow, the Tin Man, and the Lion. Through their teamwork, they provide mutual support to endure the vexing journey. They overcome many risks and barriers on the way to Oz, including a field of poppies that puts them to sleep, flying monkeys, and a haunted forest.

D. Dorothy and her entourage finally reach Oz and meet the Wizard. Rather than instantly granting their wishes, the Wizard gives them an assignment—to obtain the Wicked Witch’s broom. They depart for the West.

E. Charged with the task of obtaining the broom, Dorothy and company experience several encounters with near disaster, including Dorothy’s incarceration in the witch’s castle while an hourglass counts the time to her death. In a struggle to extinguish the Scarecrow’s fire (incited by the Wicked Witch), Dorothy tosses a bucket of water, some of which hits the Witch and melts her. Dorothy is rewarded with the broomstick and returns to Oz.

F. Returning to Oz, the group talks with the Wizard, expecting him to help Dorothy return to Kansas. After defrocking the Wizard, they find out he does not know how. The Wizard tries to use a hot air balloon to return and accidentally leaves Dor- othy and Toto behind upon takeoff. Glinda arrives and helps Dorothy realize she can return to Kansas on her own with the help of the ruby slippers.

G. Dorothy awakens from her dream and experi- ences a new understanding and appreciation for her home and family in Kansas. “Oh, Auntie Em, there’s no place like home.”

The Parable of the Green Lawn62

A new housing development has lots of packed earth and weeds but no grass. Two neighbors make a wager on who will be the first to have a lush lawn. Mr. Fast N. Furious knows that a lawn will not grow without grass seed, so he immediately buys the most expensive seed he can find because everyone knows that quality improves with price. Besides, he’ll recover the cost of the seed through his wager. Next, he stands knee deep in his weeds and tosses the seed around his yard. Confi- dent that he has a head start on his neighbor, who is not making much visible progress, he begins his next project.

Ms. Slo N. Steady, having grown up in the country, proceeds to clear the lot, till the soil, and even alter the slope of the terrain to provide better drainage. She checks the soil’s pH, applies weed killer and fertil- izer, and then distributes the grass seed evenly with a spreader. She applies a mulch cover and waters the lawn appropriately. She finishes several days after her neighbor, who asks if she would like to concede defeat. After all, he does have some blades of grass poking up already.

Mr. Furious is encouraged by the few clumps of grass that sprout. While these small, green islands are better developed than Ms. Steady’s fledgling lawn, they are surrounded by bare spots and weeds. If he main- tains these footholds, he reasons, they should spread to the rest of the yard. He notices that his neighbor’s lawn is more uniform and is really starting to grow. He attributes this to the Steady children, who water the lawn each evening. Not wanting to appear to be imitating his neighbor, Mr. Furious instructs his children to water his lawn at noon.

The noon watering proves to be detrimental, so he decides to fertilize the remaining patches of grass. Since he wants to make up for the losses the noon watering caused, he applies the fertilizer at twice the recom- mended application rate. Most of the patches of grass that escape being burned by the fertilizer, however, are eventually choked out by the weeds.

After winning the wager with Mr. Furious, Ms. Steady lounges on the deck enjoying her new grill, which she paid for with the money from the wager. Her lawn requires minimal maintenance, so she is free to attend to the landscaping. The combina- tion of the lawn and landscaping also results in an award from a neighborhood committee that deter- mines that her lawn is a true showplace.

Mr. Furious still labors on his lawn. He blames the poor performance on his children’s inability to properly water the lawn, nonconforming grass seed, insufficient sunlight, and poor soil. He claims that his neighbor has an unfair advantage and her success is based on condi- tions unique to her plot of land. He views the loss as grossly unfair; after all, he spends more time and money on his lawn than Ms. Steady does.

He continues to complain about how expensive the seed is and how much time he spends moving the sprinkler around to the few remaining clumps of grass that continue to grow. But Mr. Furious thinks that things will be better for him next year, because he plans to install an automatic sprinkler system and make a double-or-nothing wager with Ms. Steady.

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Discussion Questions 1. Within the context of the continual struggles to

create a “world-class” lawn and “world-class” business, draw analogies between the events described in this case.

2. What implications does this metaphor have for understanding the implementation barriers to achieving TQ?

St. Luke’s Hospital63

St. Luke’s Hospital began its quality journey around 1998. Key organizational milestones are summarized below:

1988–1991: • Limited-focus Patient Care Committee changed to

a broader organizational quality assurance concept

• Hierarchal nursing governance changed to a shared governance model

• Decreased focus on the “bad apple” to focus on process improvement activities

• Specialty-specific committees reconfigured to organizational cross-functional multidisciplinary teams

1992–1993: • Development of an organization-wide customer

satisfaction research program • Individual care plans changed to formal clinical

care pathways • Cultural shift to organizational empowerment

implemented • Board, medical staff, and administration retreat

to implement Total Quality Management

1994: • Organizational learning in statistical process

control techniques instituted • Patient-focused work redesign initiated • Adopted Baldrige framework • Participated on health care criteria design team

for Missouri Quality Award

1995–1996: • Embraced corporate culture of external perfor-

mance review

• Received Missouri Quality Award (MQA) • Began voluntarily reporting outcome data to

the community • Shared best practices across Missouri • Used MQA feedback to improve performance

1997–1999: • Deployed “Commitment to Excellence” initiative:

an internal Baldrige-based assessment • Received second Missouri Quality Award • Quality became a formal focus at the vice presi-

dent level • Restructured metrics architecture and developed

Balanced Scorecard

2000–2001: • Used 1999 Baldrige and MQA feedback to

improve organizational processes and share best practices

• Prepared internal Baldrige assessment and had it scored externally

• Focused on multiple action-oriented process teams

• Medical staff and senior leaders joined to drive organizational performance via Performance Improvement Steering Committee (PISC)

2002: • Received third Missouri Quality Award • Site visit by MBNQA • Third refinement of the Balanced Scorecard • Deployed 90-Day Action Planning Process

2003: • Began preparation to achieve Nursing Magnet

designation • Created the role of Chief Learning Officer • Developed and deployed process level scorecards

in key areas • Selected as a Baldrige Award recipient

Analyze this information from the perspective of the quality life cycle and Figure 11.1. Determine when St. Luke’s made the transition from one stage to the next.

Chapter 11: Performance Excellence and Organizational Change 461

Endnotes

1. 2007 Malcolm Baldrige National Quality Award Profile, U.S. Department of Commerce.

2. Quoted in E. F. Cudworth, “3M’s Commitment to Quality as a Way of Life,” Industrial Engineering, July 1985.

3. Geoff Colvin, “Mary Barra’s (Unexpected) Opportunity,” Fortune, October 6, 2014, pp. 102–110.

4. Matthew W. Ford and James R. Evans, “Baldrige Assessment and Organizational Learning: The Need for Change Management,” Quality Management Journal, Vol. 8, No. 3, 2001, pp. 9–25.

5. Based on Everyone Knows His First Name by Levi Strauss & Company.

6. Adapted from Weston F. Milliken, “The Eastman Way,” Quality Progress, Vol. 29, No. 10, October 1996, pp. 57–62.

7. Source: “To Be the Best,” Eastman Chemical Company publication ECC-67, January 1994.

8. See, for example, B. Schneider, Organizational Climate and Culture, Jossey-Bass, 1990; and B. Schneider, S. K. Gunnarson, and K. Niles-Jolly, “Creating the Climate and Culture of Success,” Organizational Dynamics, Vol. 23, Summer 1994.

9. “Developing a Performance-Based Culture” by Julia Graham, Journal for Quality and Participa- tion, March 2004, pp. 5–8.

10. “Culture of Quality: Accelerating Growth and Performance in the Enterprise,” Forbes Insights white paper (in association with ASQ). www.for- bes.com/forbesinsights

11. For a more detailed look at leadership’s role in performance excellence, see Chapter 9.

12. Interview with Richard Garula. 13. “3.4 Per Million: Forget Silver Bullets and Instant

Pudding” by Mike Carnell, Quality Progress, Jan. 2008, pp. 72–73.

14. Gregory P. Smith, “A Change in Culture Brings Dramatic Quality Improvements,” The Quality Observer, January 1997, pp. 14–15, 37.

15. J. M. Delsanter, “On the Right Track,” TQM Magazine, March/April 1992, pp. 17–20.

16. Kiron Kasbekar and Namita Devidayal, “Improvement Is Not All Smooth Sailing,” The Times of India, January 8, 1993.

17. Dan Ciampa, Total Quality: A User’s Guide to Implementation (Reading, MA: Addison-Wesley, 1992); Ciampa cautions about trying to change culture.

18. Several reasons for managerial resistance to change are outlined by J. M. Juran in Juran on Leadership for Quality, New York: Free Press, 1989.

19. Michael Beer and Nitin Nohria, “Cracking the Code of Change,” Harvard Business Review, May–June 2000.

20. Janet Young, “Driving Performance Results at American Express,” Six Sigma Forum Magazine, Vol. 1, No. 1, November 2001, pp. 19–27.

21. Arthur R. Tenner and Irving J. DeToro, Total Quality Management: Three Steps to Continuous Improvement, Reading, MA: Addison Wesley, 1992.

22. Mark Samuel, “Catalysts for Change,” TQM Magazine, 1992.

23. Samuel, “Catalysts for Change.” 24. James H. Davis, “Who Owns Your Quality

Program? Lessons from the Baldrige Award Winners,” College of Business Administration, University of Notre Dame (n.d.).

25. Leadership Steering Committee, A Report of the Total Quality Leadership Steering Committee and Working Councils, Procter & Gamble Total Quality Forum, November 1992.

26. Thomas H. Patten, Jr., “Beyond Systems—The Politics of Managing in a TQM Environment,” National Productivity Review, 1991/1992.

27. This discussion and examples are adapted from Denis Leonard and Rodney McAdam, “Quality’s Six Life Cycle Stages,” Quality Progress, August 2003, 50–55.

28. Kathleen J. Goonan, Joseph Muzikowski, and Patricia K. Stoltz, “Journey to Excellence: Healthcare Baldrige Leaders Speak Out,” Quality in Healthcare, American Society for Quality publication, January 2009, p. 11–15, www.asq.org/qhc.

29. See, for example, Mark Graham Brown, “Measuring Up Against the 1997 Baldrige Criteria,” Journal for Quality and Participation, Vol. 20, No. 4, September 1997, pp. 22–28.

30. Mark S. Leggitt and Rhonda Anderson, “Linking Strategic and Quality Plans,” Quality Progress, October 2001, pp. 61–63.

31. Matthew W. Ford and James R. Evans, “The Role of Follow-Up in Achieving Results from Self-Assessment Processes, (with M. W. Ford), International Journal of Quality and Reliability Management, Vol. 23, Issue 6, 2006. See also

462 Part 4: Leadership and Organizational Change

Matthew W. Ford, “A Model of Change Process and Its Use in Self Assessment,” Doctoral Disser- tation, University of Cincinnati, 2000.

32. H. James Harrington, “Creating Organizational Excellence—Part Four,” Quality Digest, April 2003, p. 14.

33. Ford and Evans, op. cit. 34. Chuck Cobb, “Knowledge Management and

Quality Systems,” The 54th Annual Quality Congress Proceedings, 2000, American Society for Quality, pp. 276–287.

35. Anne Fisher, “Retain Your Brains,” Fortune, July 24, 2006, pp. 49–50.

36. Peter M. Senge, The Fifth Discipline: The Art and Practice of the Learning Organization, New York: Doubleday Currency, 1990, p. 14.

37. Arthur M. Schneiderman, “Measuring Organiza- tional Learning,” Unpublished note; http://www .schneiderman.com/.

38. Thomas H. Lee, “Learning, What Does It Really Mean?” Center for Quality of Management Journal, Vol. 4, No. 4, Winter 1995, pp. 4–14.

39. See Matthew W. Ford and James R. Evans, “Baldrige Assessment and Organizational Learning: The Need for Change Management,” Quality Management Journal 8, No. 3, 2001, pp. 9–25.

40. Letter to Stakeholders, p. 4, http://www.ge.com/ ar2004/letter3.jsp, accessed 3/03/06.

41. Larry Hambly, “Sun Microsystems Embeds Quality into Its DNA,” The Quality Observer, July 1997, pp. 16–20, 45.

42. Carla O’Dell and C. Jackson Grayson, “Identifying and Transferring Internal Best Practices,” APQC White Paper, 2000 (www.apqc.org/free/ whitepapers/cmifwp/index.htm).

43. Ann B. Rich, “Continuous Improvement: The Key to Success,” Quality Progress, Vol. 30, No. 6, June 1997.

44. Brad Stratton, “TI Has Eye on Alignment,”Quality Progress,Vol. 30,No. 10,October 1997, pp. 28–34.

45. Diane Brady, “Will Jeff Immelt’s New Push Pay Off for GE?” BusinessWeek, October 13, 2003, pp. 94–98.

46. Based on John R. Black, “Boeing’s Quality Strat- egy: A Continuing Evolution,” The Quest for Competitiveness: Lessons from America’s Produc- tivity and Quality Leaders, Y. Krishna Shetty and Vernon M. Buehler (eds.), New York: Quorum Books, 1991.

47. Matt Barney, “Motorola’s Second Generation,” Six Sigma Forum Magazine 1, No. 3, May 2002, pp. 13–22.

48. A. H. Van de Ven and M. S. Poole, “Explaining Development and Change in Organizations,” Academy of Management Review, Vol. 20, No. 3, pp. 510–540.

49. C. Argyris, “Strategy Implementation: An Experi- ence in Learning,” Organizational Dynamics, Vol. 18, No. 2, pp. 5–15.

50. Dusya Vera and Mary Crossan, “Strategic Leadership and Organizational Learning,” Academy of Management Review, 2004, pp. 29, 2, 222–240.

51. L. Coch and J. P. French, “Overcoming Resistance to Change,” Human Relations, Vol. 1, 1948, pp. 512–532.

52. For a summary of this material, see J. P. Kotter and L. A. Schlesinger, “Choosing Strategies for Change,” in J. J. Gabarro (ed.), Managing People and Organizations, Boston: Harvard Business School Publications, 1992, pp. 395–409.

53. See, for example, H. A. Aldrich, Organizations and Environments, Englewood Cliffs, NJ: Prentice Hall, 1979.

54. K. Lewin, “Forces Behind Food Habits and Meth- ods of Change,” Bulletin of the National Research Council 108, 1947, pp. 35–65. See also E. Schein, “Organizational Socialization and the Profession of Management,” Industrial Management Review, 1968, pp. 1–16.

55. See Thomas R. Bennett III, Planning for Change, Washington, D.C.: Leadership Resources, 1961.

56. See, for example, Harold J. Leavitt, “Applied Organization Change in Industry: Structural, Technical, and Human Approaches,” in W. W. Cooper, H. J. Leavitt, and M. W. Shelly (eds.), New Perspectives in Organizational Research, New York: Wiley, 1964.

57. For an interesting (and now classic) discussion of this issue, see P. R. Lawrence, “How to Deal with Resistance to Change,” Harvard Business Review, May/June 1954.

58. See Schein, “Organizational Socialization,” Industrial Management Review. See also, P. S. Goodman and J. W. Dean, Jr., “Creating Long-Term Change,” in P. S. Goodman (ed.), Change in Organizations, San Francisco: Jossey-Bass, 1983.

Chapter 11: Performance Excellence and Organizational Change 463

59. QuotationsBook, http://quotationsbook.com/ quote/12996.

60. Republished with permission of QUALITY DIGEST by Q C I INTERNATIONAL, from “Is Six Sigma Dead?” by Rip Stauffer, 12/04/2014; permission conveyed through Copyright Clearance Center, Inc.

61. “We’re Not in Kansas Anymore, Toto: or Quality Lessons from the Land of Oz” by David M. Lyth

and Larry A. Mallak, Quality Engineering, March 1998, pp. 579–588.

62. “Laying the Groundwork for Total Quality” by James A. Alloway, Jr., Quality Progress, Jan. 1994, pp. 65–67.

63. Adapted from presentation notes at the 2004 Baldrige National Quality Program Quest for Excellence XVI conference, Washington D.C.

464 Part 4: Leadership and Organizational Change

INDEX

Absolutes of Quality Management (Crosby), 60–61

acquired needs theory, 383–384 action plans, 223–224 affinity diagrams, 229 agency theory, 280–281 TQ and, 38

agility, 34, 121, 307–308 competing in, 211–212 role of quality in, 212–213

aging population, future of quality, 15

Alaska Airlines, 210 alignment, 32 American Express, DMAIC, 159 American Improvement Glossary

(ASQ), 5 American National Standards Institute

(ANSI), 6 American Society for Quality

(ASQ), 5 Team Excellence Awards, 349

Analog Devices, self-managed teams, 350–351

analyze, Six Sigma, 158 approach, definition, 71 arrow diagrams, 234 assignable causes of variation, 51 AtlantiCare, 8 Baldrige Award, 75–77

AT&T Consumer Communications Services (CCS), 179

attribute data, 162 Australian Business Awards, 81–82

Baldrige Award, 12, 61–78, 179 AtlantiCare, 75–77 criteria evolution, 73–74 Deming Philosophy and, 77–78 evaluation process, 71–73 history and purpose, 61–62 impacts of the program, 74–75 K&N Management, 48, 70–71 leadership culture of CEOs, 403 recipients through 2014, 63–65

Baldrige Excellence Framework, 66–71 comparing with ISO 9000 and Six Sigma, 95–96

roadmap to performance excellence, 441

systems perspective, 68 Baldrige Health Care Criteria, 443 Baptist Hospital, Inc. (BH), 397 Basic Elements of Improvement

(Crosby), 61 Baxter, Cartago, Costa Rica, Anesthesia

Circuits Problem Solving Team, 349

benchmarking, 173–175 Best Buy, 172 best practices, definition, 173 Big Q, 13 Black Belts, Six Sigma team, 336 Boeing, 184–185, 216

Airlife and Tanger Programs, 311 organizational change, 451 teams, 330

Boeing Aerospace Support (AS), 289 Boomerang Principle, 257

Bowen, David E., 24 brain drain, reversal of, 446 Branch-Smith Printing Division,

238–241, 402–403 breakthrough improvement, 172–177 breakthrough objectives, 172 Bronson Methodist Hospital (BMH),

236–238 business information, in empowerment,

370 Business Week, letter to the editor about

quality, 8 360Buy.com, 267

Canadian Awards for Excellence, 81 Cargill Kitchen Solutions (Sunny Fresh

Foods), 310 Caught Doing Good (CDG), 373 cause-and-effect diagrams, 163–165,

192 Central Intelligence Agency (CIA), QC

and, 126 Champions, Six Sigma team, 335–336 change. see also specific type importance of, 428–430

check sheets, 161–162 China, birth of modern quality assur-

ance, 9–10 China Association for Quality (CAQ),

82–83 Chugach School District, 138–141 Cincinnati, Ohio, 162 coaching, 413 Coca-Cola, 125, 181

465

common causes of variation, 51 communication, in team processes, 344 compensation, in motivation, 378–379 competitive advantage, 197–248 bottom line and, 199–202 definition, 198 information and knowledge for, 216–219

sources of, 203–206 complaints, management of, 267–268 concept development, 108 definition, 109

concurrent engineering, 208 conscious competence, 427 conscious incompetence, 427 consideration, definition, 410 consumer awareness, future of quality,

14 contextual factors, TQ performance

and, 317–318 continuous improvement, 33–34, 37 products and services, 33 tools for, 160–172

continuous quality improvement (CQI), 21

control definition, 125 Six Sigma, 159

control charts, 166 coordination, in team processes,

344–344 Coral Springs, Florida, 8, 426–427 design for quality, 120 strategic work system design, 241

core competencies, definition, 235 core processes, 295 corporate social responsibility (CSR),

415 corrective action teams, 331 cost leadership, 203 creativity, 178–182 definition, 109 organizational systems and, 180–182

Criteria for Performance Excellence (Baldrige Award), 61

Crosby, Philip B., 48–49 Crosby Philosophy, 59–60 cross-functional teamwork, 337–338 culture. see also specific type change, 430–439 definition, 430

customer-driven quality circle, 263 customer engagement, 26, 254 customer errors, 123–124 during an encounter, 124 at resolution stage of encounter, 124

customer expectations, meeting or exceeding, 6

customer focus, 26–27, 37, 264 put external customers first, 299

customer information collection, 258–262

dissemination, 262 use of, 262–263

customer relationship management, 266–273

definition, 268 customers expression of needs, 260 importance of, 252–253 measurement of satisfaction, 264–266 practices for dealing with, 258–266

customer-supplier chain, 252 customer-supplier relationships, 249–288 performance excellence and, 251–255 principles for, 255–258

custom improvement methodologies, 160

custom products, 211 Custom Research Incorporation (CRI),

296 cycle time improvement, 34

Dahlgaarda, Jens, 82 Dean, James W., Jr., 24 decisional roles of managers, 410 decision making, factual approach to,

35, 37 Deer Valley Resort, 6 define, Six Sigma, 157–158 delegating, 413 delighters/exciters, class of customer

needs, 33 Dell, customer service, 119 Deming, W. Edwards, 11, 48–49 Deming Cycle, 156–157 Deming Philosophy, 49–58 Baldrige criteria and, 77–78 chain reaction, 50

Deming Prize, 12, 79–80 Deming’s 14 Points for Management, 55 revised version for the Twenty-First

Century, 97 deployment, definition, 71 design, failure, mode, and effects analy-

sis (DFMEA), 115–117 design development, 108 design for agility, 121–122 design for disassembly, 118 design for environment (DFE), 118 design for manufacturability (DFM),

117 design for quality processes, 120–124 design for services, 118–120 Design for Six Sigma (DFSS), 108–109 design optimization, 108 design reviews, 208 design verification, 108 differentiation, 204–205 differentiation strategies, 206–216 directing, 413 dissatisfiers, class of customer needs, 33

DMADV (define, measure, analyze, design, and verify), 109

DMAIC (define, measure, analyze, improve, and control), 92

Six Sigma, 157–159 Domino’s, 110, 215 drive out fear, 57 DynMcDermott (DM) Petroleum

Operations Company employee engagement, 374–375 Vehicle Accident Performance Improvement Team, 349

Eastman Chemical Company, 431 education, quality in, 20–23 Elevations Credit Union (ECU), 8 eliminate exhortations, 57 eliminate quotas and MBO, 57 EMC Corporation, 276 employee capability, in empowerment,

370–371 employee involvement (EI) continuum of practices, 366 engagement and, 364

empowerment, 366–374 ensure employee capability, 370–371 establish mutual trust, 369–370 middle management, 372 principles of, 368–373 provide employees with business information, 370

reward system changes, 372–373 sincerely and completely, 368–369 when it doesn’t work, 374

engagement, theories of motivation and, 381–385

engagement (workforce), 361–366 Deming’s concept of “pride and joy” in work, 362

drivers of, 361 leading to quality, 363

European Excellence Award, 80–81 European Foundation for Quality

Management (EFQM), 80 experimental design, 208 explicit knowledge, definition, 445 external customers, 299

FADE (focus, analyze, develop, and execute), 160

failure, learning from, 181 Fidelity Wide Processing Bulk Shipping

Process Management Team, 349 flexibility, 121 flexibility improvement, 34 Florida Power and Light, 79–80 flowcharts (process map), 160–161,

187, 190

466 Index

Ford, Henry, contribution to quality, 10 Freese and Nichols, 197–198 Froedtert Hospital, 183–184 functional structure, 292–294 inhibition of process improvement, 293–294

problems, 292–294 separate function for quality, 294 separation of employees from custo- mers, 292–293

General Accounting Office (GAO), 201–202

General Electric (GE), 182–183, 398, 435

learning organization, 448 General Systems Company, 200 globalization, future of quality, 14 Global Performance Excellence Pro-

grams, 78 global responsibility, future of quality,

14 goal-setting theory, 384–385 Gold Star Chili, Inc., 297–298 Google, 364 governance, definition, 417 government, quality in, 20–23 Graniterock Company, 265 gravedigging, 338 Green Belts, Six Sigma team, 336 GTE Directories Corporation, 179 GTE Supply, 270 guiding principles, definition, 221

Harrington, H. James, 7 Hartford Hospital, 443 health care, quality in, 20–23 Heinz, H. J., 11 Hendricks, Kevin, 9 Hennes & Mauritz, 122 Hewitt Associates, employee engage-

ment, 376–377 Hierarchy, reduction of, 305–306 high-performance work, definition, 308 Hillerich & Bradsby Co., Louisville

Slugger, 58 histograms, 162–163 Honda Element, 207 Hoshin, definition, 226–227 House of Quality, 112–115, 144 HRM practices, 381 human resource plans, linking to busi-

ness strategy, 227–228 humbling, in self-assessment, 445

IBM AS/400 Division, 219 imprint analysis, 261

improve, Six Sigma, 158 improve constantly, 56 improvement processes, 154–160 Industrial Revolution, quality and, 10 informational roles of managers,

409–410 information and knowledge, for com-

petitive advantage, 216–219 initiating structure, definition, 410 innovation, 178–182

competing on, 213 definition, 109 future of quality, 15 role of quality in, 213–214

In Search of Excellence (Peters and Waterman), 208

institute education, 57 Institute for Healthcare Improvement

(IHI), 21 institute training, 56 institutional theory, 316–317 integrated management system, 68 integration, 32

definition, 72 integrative bargaining, 279–280 internal customers, 269–270

recognition of, 300–301 International Team Excellence Award

competition, 349 interpersonal roles of managers, 409 interrelationship digraph, 229–230 involvement of people, 28–29, 37 Iredell-Statesville Schools, 148–150 ISO 9000:2000, 86–89

benefits, 88–89 comparing with Baldrige and Six Sigma, 95–96

implementation and registration, 87–88

Sears Roebuck and Co., 89 structure of standards, 86–87

job characteristics theory (JCT), 382–383

job enrichment, 310 Joint Commission on Accreditation of

Healthcare Organizations (JCAHO), 21

JPMorgan Chase, Right the First Time, 349

Juran, Joseph, 48–49 Juran, Joseph M., 11 Juran Philosophy, 58–59

Kaizen event (blitz), 154 Kaizen Philosophy, 151–153

at Toyota, 152 Kano, Noriaki, 33 KARLEE, 37

KARLEE Company, Inc., 327–328 K&N Management, 47–48, 70–71 knowledge assets, definition, 445 knowledge management definition, 446 organizational learning and, 445–451

Kroger Company, 137–138 Kull, Thomas, 84

leadership, 27–28, 37, 393–425 definitions, 395 examples, 402–408 governance, and societal responsibili- ties, 415–419

management and, 414–415 perspectives on, 395–398 roles of a quality leader, 398–402 styles, 413–414

leadership systems, 408–409 definition, 408

leadership teams, 306–307, 331 leadership theory, 409–415 lean, definition, 168 Lean Six Sigma (LSS), 171–172 lean thinking, 168–171 learning, 34 definition, 72 stages of, 427

learn the new philosophy, 55 Le Blanc, Honore, 10 Lexus, 134–136 Little Q, 13 Lockheed Martin Missiles and Fire

Control, 8 Los Alamos National Bank, employee

engagement, 377 Louisville Slugger, Hillerich & Bradsby

Co., 58 Loveman, Gary, 264

management, leadership and, 414–415 management by objective (MBO), 57 management commitment, 54–55 Managers, roles of, 409–410 manufacturing, quality in, 15–16 market research, 296 Marriott, standard operating procedures

(SOPs), 18 mass customization, 121 Master Black Belts, Six Sigma team, 336 matrix data analysis, 231–233 matrix diagrams, 231 McGregor’s Theory X model of moti-

vation, 28 measure, Six Sigma, 158 MEDRAD, 8 Mercy Health System (MHS), 249–250 MESA, 274–276 Metro Health Hospital, 171

Index 467

middle management, in empowerment, 372

Minimum Standards for Hospitals, 1917, 21

mission, definition, 221 mistake-proofing (Poka-yoke), 122–124 U. S. election process, 124

Moen, Inc., 215 Montgomery County Public Schools

(MCPS), 21 motivation, 377–381 compensation, 378–379 recognition and rewards, 379–380 teams and, 330 work environment and, 381

motivation theories, employee engage- ment and, 381–385

Motorola, organizational change, 452–453

mutual trust, empowerment and, 369–370

My Life and Work (Ford & Crowther), 10

MySQL, virtual teaming, 336

National Education Quality Initiative, 1991, 12

National Institute of Standards and Technology (NIST), 110

National Performance Review, 1993, 12 National Quality Award, China, 82–83 National Quality Institute (NQI),

Canada, 81 natural work teams, 332–333 Net Promoter (NP), 8 net promoter score (NPS), 265 New York Life Insurance Company, 338 North Mississippi Medical Center

(NMMC), 223 not-for-profits, quality in, 20–23 Nucor Corporation, 379

Octicon, 313–314 okyakusama, 250 optimize team effort, 57 option-oriented products, 211 Oregon State University, 303 organizational behavior theories,

351–353 organizational change, 426–464 common implementation mistakes, 438–439

examples, 451–453 middle management and, 437–438 organization theory and, 453–457 people role in, 437 senior management and, 437 total quality and, 454–457 workforce, 438

organizational culture, 432 changing for performance excellence,

434–437 organizational design, 289–323 agility, 307–308 comparison to organization theory,

314–318 functional structure, 292–294 for quality in action, 311–314 redesign for performance excellence,

294–311 structure, 291–292 team-based organization, 300–303 team effectiveness and, 348

organizational development, 352 organizational governance, 417–418 organizational learning Jack Welch and GE, 448 knowledge management and,

445–451 Texas Instruments, 450

organizational models, TQ and, 39–41

Organizational Profile, Baldrige Award, 71–73

organizational structure, 291–292 organizational support, in team pro-

cesses, 345–347 organizations, quality in, 15–23 organization theory change and, 453–457 comparison to organizational design

theory, 314–318 customer-supplier relationships in,

276–281

Pal’s Sudden Service, Caught Doing Good (CDG), 373

Pareto diagrams, 163, 164 people, 205–206 performance, definition, 308 performance-based culture, definition,

433 performance excellence culture, elements of, 432–434 definition, 7 frameworks for, 47–104 introduction, 3–46 Poudre Valley Health System (PVHS),

3–5 research on frameworks, 82

Pewaukee School District (PSD), 9 PIMS Associations, Inc., 200 Poka-yoke (mistake-proofing), 122–124 Poudre Valley Health System (PVHS),

3–5 Presidential Award for Management

Excellence—the President’s Quality Award (PQA), 23

price tag decisions, 56

pride in workmanship, remove barriers, 57

problem diagnosis, in team processes, 343

problem selection, in team processes, 342

problem-solving teams, 332–333 process, definition, 31–32 process approach, 31–32, 37 process change, versus strategic change,

428–430 process control, 125–128 in action, 134 in services, 132–134 statistical (SPC), 130–132

process control tools, statistical thinking and, 128–134

process decision program chart (PDPC), 233

process focus, 294–295 process improvement, 150–154 continuous, 401–402 examples, 182–186 inhibition in functional structure, 293–294

law firms, 153 organizational issues, 176–177

process management, definition, 106–107

process map (flowchart), 160–161 process owners, 295 Procter & Gamble, reengineering,

175–176 product design, role of quality in,

207–208 profitability, quality and, 201 project teams, 335–336 psychology, 53 purchasing decisions, 271

quality customer-driven, 6 definition, 5 everyone’s job, 297–299 future of, 14 goods and services, 108–109 Henry Ford’s contribution, 10 history of, 9–15 importance in organizations, 7–10 national culture and, 83–84 never-ending journey, 439–451 in organizations, 15–23 profitability and, 201 as a separate function, 294 total (see total quality (TQ))

quality assurance, definition and first use of, 11

quality circles (QCs), 331 Japan, 333

quality control, definition, 11

468 Index

Quality Control Handbook (Juran), 58–59

quality councils, 331 quality design and control, 105–147 Quality Digest magazine, 7, 13 quality function development (QFD),

110–115 quality improvement, tools and techni-

ques, 148–194 quality improvement teams, 331 quality initiatives life cycle of, 440–442 self-assessment, 442–444

Quality is Free (Crosby), 59, 200 quality leaders establish a vision, 399–400, 403, 405–406

lead continuous improvement, 401–402, 404–405, 407–408

live the values, 400–401, 404, 406 quality management systems (QMS),

84–85 quality manual, 85 quality policy, 84–85 quality revolution in America, 11–12 quality system standards, ISO 9000, 86 quality trilogy, 106 Quinn, Feargal, 257

Radius, teamwork, 335 rate of change increase, future of qual-

ity, 14 recognition and rewards, in motivation,

379–380 reengineering, 175–176 Resource Dependence Perspective

(RDP), 277–279 responsiveness improvement, 34 results, definition, 72 reward system, in empowerment,

372–373 Ritz-Carlton, 256 root cause analysis, 166–168

San Diego Zoo, 314 satisfiers, class of customer needs, 33 scatter diagrams, 165–166 Schlitz Brewing Company, 204 scientific management, concept of Tay-

lor, 10 Search Conference method, 225 Sears, Roebuck and Co., ISO 9000, 89 self-assessment in corporations, 442–444 leveraging findings, 445

self-managed teams (SMTs), 333–334 Analog Devices, 350–351

Sentara Norfolk General Hospital, teamwork, 348–350

service competing on, 208–210 five key dimensions of quality, 20 role of quality in, 210

Service-Profit-Chain, 264 services, quality in, 16–20 service standards, definition,

266–267 seven management and planning tools,

229 seven QC tools, 160–161 silver bullets, 435 Singhal, Vinod, 9 situational leadership, 412–414 Six Sigma, 90–94 comparing with Baldrige and ISO 9000, 95–96

DMAIC methodology, 157–159 emergence in 1990s, 13 evolution, 90–92 lean, 171–172 project teams, 335–336 as a quality framework, 9293 in service organizations, 93–94 total quality management and, 92

Small Business Administration, innova- tions, 110–111

societal responsibilities, 418–419 socioemotional orientation, 410 sociotechnical systems (STS) approach,

351–352 soikufu (creative thinking), 178 Solar Turbines, 419 Solar Turbines, Inc., 312–313 Southwest Airlines, 254, 362 special causes of variation, 51 SSM Health Care, 21, 405–408 process, requirements, and measures, 127

standard operating procedures (SOPs), 18

standard products, 211 Starbucks Coffee, 371 statistical process control (SPC),

130–132 statistical thinking, definition, 128 Stoner, Inc., 393–394 strategic challenges, 222 strategic change, versus process change,

428–430 strategic focus, quality and performance

excellence as, 220 strategic management, 197–248 definition, 190

strategic management theory, TQ and, 242–243

strategic objectives, definition, 223 strategic planning, 219–236 examples, 236–242 quality in the process of, 220–221

strategic work system design Coral Springs, Florida, 241 core competencies and, 235–236

strategies definition, 223 development, 221, 224–225 implementation, 225

Strauss, Levi, 429 stretch goals, 172 structural contingency theory,

314–316 superior product design, quality in,

206–207 Superquinn, 257 supplier relationships, mutually benefi-

cial, 36, 37 suppliers cooperative relationships and strate- gic alliances, 273–274

definition, 36 importance of, 254 long-term contracts, 272 measure and certify performance of, 272–273

practices for dealing with, 270–274 reducing number of, 271–272

supply chain, definition, 250 supporting, 413 support processes, 295 synthesis, 32 System of Profound Knowledge (Dem-

ing), 50–58 systems, definition, 50–51 systems approach to management,

32–33, 37

tacit knowledge, definition, 445 take action, 58 tangible errors, 123 task errors, 123 task orientation, 410 Taylor, Frederick W., 10 team-based organization, 300–303 team charters, in team processes,

347–348 team effectiveness, 339–348 communication, 344 coordination, 344–344 criteria, 339–340 membership and roles, 340–342 organizational design and, 348 organizational support, 345–347 problem diagnosis, 343 problem selection, 342 processes, 342–348 team charters, 347–348 work allocation, 343–344

team members Six Sigma team, 336 work allocation, 343

teams definition, 328 importance of, 329–330 types, 330–337

Index 469

teamwork, 29–30, 327–358 horizontal, 30 interorganizational partnerships, 30 vertical, 30

technology, 268–269 Tennessee Valley Authority (TVA), 446 Texas Instruments, learning organiza-

tion, 450 Texas Nameplate Company (TNC),

105–106, 369 The Adventures of Self-Managing Team

(Kelly), 304 theory of knowledge, 53 time, competing on, 214 time competitiveness, role of quality in,

215–216 total quality management (TQM), 13,

92–93 principles, 25

total quality (TQ) agency theory and, 38 organizational change and, 454–457 organizational models and, 39–41 principles and practices, 24–38 research validation of, 9 strategic management theory and, 242–243

Toyota, 435 Kaizen Philosophy, 152 power of supplier relationships, 36

transactional leadership theory, 411–412, 413

transformational leadership theory, 411–412, 413

treatment errors, 123 tree diagrams, 231 Twenty-first century quality, 15

unconscious competence, 427 unconscious incompetence, 427 understand inspection, 55 Union of Japanese Scientists and Engi-

neers (JUSE), 79 United Airlines, 253 United Way of America, quality

achievement recognition, 23 UPS, 368

VA Hospitals, 311–312 value, definition, 200

value analysis, 208 value-creation, 295, 296 values, definition, 221 variable data, 162 variation, 128–130 definition, 51–53

Veterans Affairs Cooperative Studies Program Clinical Research Phar- macy Coordinating Center, 359–361

virtual teams, 334–335 vision, definition, 399

Wacker, John, 84 Wainwright Industries, 179, 436 Washington Mutual, 27 Welch, Jack, 398, 448 Whitney, Eli, 10 Wikipedia, teams, 351 work environment, 87 in motivation, 381

workforce, future of quality, 14 work process improvement, 34 work systems, redesign of, 308–311

470 Index

Cover
Half Title
Title
Statement
Copyright
Brief Contents
Contents
Preface
Part 1: Foundations of Quality and Performance Excellence

Ch 1: Introduction to Quality and Performance Excellence

Ch 1: Introduction
Quality and Performance Excellence
The Importance of Quality in Organizations
A Brief History
Quality in Organizations
Principles and Practices of Total Quality and Performance Excellence
TQ and Agency Theory
TQ and Organizational Models
Ch 1: Discussion Questions and Experiential Exercises
Ch 1: Cases
Bishop’s Seafood
Patterson Auto Sales and Service
Ch 1: Endnotes

Ch 2: Frameworks for Quality and Performance Excellence

Ch 2: Introduction
Foundations of Performance Excellence
The Baldrige Award
International Quality and Performance Excellence Award Programs
Six Sigma
Comparing Baldrige, ISO 9000, and Six Sigma
Ch 2: Discussion Questions and Experiential Exercises
Ch 2: Cases
Ch 2: Endnotes

Ch 3: Tools and Techniques for Quality Design and Control

Ch 3: Introduction
Designing Quality Goods and Services
Designing Quality Processes
Process Control
Statistical Thinking and Process Control Tools
Process Design and Control in Action
Lexus
The Kroger Company
Chugach School District
Ch 3: Discussion Questions and Experiential Exercises
Ch 3: Cases
Ch 3: Endnotes

Ch 4: Tools and Techniques for Quality Improvement

Ch 4: Introduction
Process Improvement
Improvement Processes
Tools for Continuous Improvement
Breakthrough Improvement
Creativity and Innovation
Process Improvement in Action
Ch 4: Discussion Questions and Experiential Exercises
Ch 4: Cases
Ch 4: Endnotes

Part 2: Performance Excellence, Strategy, and Organization Theory

Ch 5: Competitive Advantage and Strategic Management for Performance Excellence

Ch 5: Introduction
Quality, Competitive Advantage, and the Bottom Line
Sources of Competitive Advantage
Quality and Differentiation Strategies
Information and Knowledge for Competitive Advantage
Strategic Planning for Performance Excellence
Strategic Planning for Performance Excellence in Action
TQ and Strategic Management Theory
Ch 5: Discussion Questions and Experiential Exercises
Ch 5: Cases
Ch 5: Endnotes

Ch 6: Quality in Customer-Supplier Relationships

Ch 6: Introduction
Customer-Supplier Relationships and Performance Excellence
Principles for Customer-Supplier Relationships
Practices for Dealing with Customers
Managing Customer Relationships
Practices for Dealing with Suppliers
Quality Customer-Supplier Relationships in Action
Customer-Supplier Relationships in Organization Theory
Ch 6: Discussion Questions and Experiential Exercises
Ch 6: Cases
Ch 6: Endnotes

Ch 7: Designing Organizations for Performance Excellence

Ch 7: Introduction
Organizational Structure
The Functional Structure
Redesigning Organizations for Performance Excellence
Organizational Design for Quality in Action
Comparison to Organizational Design Theory
Ch 7: Discussion Questions and Experiential Exercises
Ch 7: Cases
Ch 7: Endnotes

Part 3: Performance Excellence and Organizational Behavior

Ch 8: Quality Teamwork

Ch 8: Introduction
The Importance of Teams
Types of Teams
Cross-Functional Teamwork
Effective Teamwork
Teamwork in Action
Comparison to Organizational Behavior Theories
Ch 8: Discussion Questions and Experiential Exercises
Ch 8: Cases
Ch 8: Endnotes

Ch 9: Engagement, Empowerment, and Motivation

Ch 9: Introduction
Workforce Engagement
Empowerment
Employee Engagement in Action
Motivation
Employee Engagement and Theories of Motivation
Ch 9: Discussion Questions and Experiential Exercises
Ch 9: Cases
Ch 9: Endnotes

Part 4: Leadership and Organizational Change

Ch 10: Leadership for Performance Excellence

Ch 10: Introduction
Perspectives on Leadership
The Roles of a Quality Leader
Leadership for Performance Excellence in Action
Leadership Systems
Performance Excellence and Leadership Theory
Leadership, Governance, and Societal Responsibilities
Ch 10: Discussion Questions and Experiential Exercises
Ch 10: Cases
Ch 10: Endnotes

Ch 11: Performance Excellence and Organizational Change

Ch 11: Introduction
The Importance of Change
Cultural Change
Sustaining Quality and Performance Excellence
Organizational Change in Action
Organizational Change and Organization Theory
Ch 11: Discussion Questions and Experiential Exercises
Ch 11: Cases
Ch 11: Endnotes

Index

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2. Preflight Ticket Signature