10 Essentials for High Performance Quality in the 21st Century 2

1 1 The Need for Quality Performance In the introduction we emphasized the need to change and discussed some of the key issues in the quest for quality improvement. In this first chapter we discuss the concept of quality performance and address some issues in six diverse specific sectors of our economy. Quality has been an issue for a long time in many industries as well as service organizations. We are not so much interested in defining specific issues or problems but in demonstrating the need for quality performance regardless of the organization. We have selected the following diverse sec‑ tors of the economy to show this need. MANUFACTURING Why is manufacturing leaving the United States? And what can be done to stop the trend? Many say that the end of manufacturing in the United States is the natural and inevitable result of a global economy. They say that manufacturing, which is heavily labor dependent, will seek the cheap‑ est labor. But this is not the whole story. Most manufacturing is as capital dependent as it is labor dependent. And with more automation every day, labor costs are less of a factor than they once were. Instead, I propose that four other factors are just as important: • The Cost of Expensive Regulations. The U.S. regulatory burden, espe‑ cially unnecessarily expensive safety and environmental regulations, is almost nonexistent in Third World countries. • The Cost of Taxation Policies. The policies of redistributing income at the expense of corporations are a concern because some of that income should be reinvested in future technologies. Large 2  •  10 Essentials for High Performance Quality in the 21st Century international organizations always find a way to redirect profits to countries with the lowest tax rates; for example, Ireland with a 12.5 percent rate. At least for U.S. companies this means that the excess profits are not used in the United States to invest but remain outside the country. The result is that the United States suffers in innovation and technological endeavors as well as employment. • Too Little Investment in Improvement. U.S. manufacturers, in an attempt to cut costs, have failed to invest in problem‑solving/pre‑ venting technology like advanced root cause analysis. Thus, problems that could have been solved to cut costs recur while manufacturers implement ineffective, wasteful fixes. • Equipment Unreliability. The cost of unreliable equipment at facilities is an unrecognized source of expense that magnifies labor costs. If man‑ ufacturers had more reliable equipment, productivity would improve (people would not waste time waiting around for frequent repairs). The solution for two of these problems is not difficult or expensive in rela‑ tionship to the total cost that they present. They require political interven‑ tion and applicable laws that will benefit the overall economy. The last two issues can be solved or at least be minimized with appropriate and applicable managerial attitude, engineering know‑how, and quality meth‑ odologies for identifying opportunities for improvement. In the automotive industry, we all have observed a slippery road for qual‑ ity, performance, and financial stability during the last several years. The sale of an iconic brand such as Chrysler was an attention‑grabbing event, especially when its German parent in effect paid $650 million to unload it after paying $36 billion to buy it 9 years earlier. This less‑than‑zero valu‑ ation illustrates the deep trouble that Chrysler is in as the result of high labor costs and mounting liabilities, particularly to cover rising health care costs. For Chrysler’s new owners, the private equity firm Cerberus Capital Management, negotiating those costs down inevitably is job one. But another recent headline underscores what might be jobs two and three—innovation and investment—not just for Chrysler but also for General Motors and Ford (together known as the Big Three). The Big Three have completely overlooked the auto market for the past several years; specifically, what the customer wants. They keep on producing vehicles that are expensive, inefficient, and a style that the general public does not want. In addition, their Japanese competitors, like Honda and Toyota, have already introduced hybrids and the first hydrogen fuel cell car. Honda’s The Need for Quality Performance  •  3 announcement is particularly telling because history is repeating itself. Japanese companies were first to market gas–electric hybrids, and Toyota has become the world leader in this growing field. This happened despite two U.S. taxpayer‑funded research programs, the Partnership for a New Generation of Vehicles in the 1990s and President George W. Bush’s Hydrogen Fuel Initiative, each of which pumped more than $1 billion into research. This did not occur because Detroit’s labor costs are high (on average about $1,200/car). It did not occur because health costs were high (about $1,800/car) or because of pensions. It occurred because the Japanese car‑ makers take a long‑view approach and are willing to nurture cutting‑edge products. In the United States, on the other hand, the focus continues to be on quarterly profits. The Big Three have similar problems across the board; however, many analysts view GM as the closest competitor to the foreign transplants, in both current products and what it is planning. However, Ford, Chrysler, and GM will never truly catch up until they invest as much in research and development as their rivals, learn how to anticipate consumer demand, and nimbly execute a long‑term plan. Among their problems are the following: • Mileage myopia. In an era of $3‑ to $4‑a‑gallon gasoline, the Big Three are stuck with too many gas guzzlers. Even after two years of price swings, they have not aggressively made fuel economy a win‑ ning issue, as they did with air bags a generation ago. A version of the Ford Escape is the only American hybrid with any significant market share. In the 2008 model year all of the Big Three introduced several high‑mileage vehicles; however, the improvement was not as break‑ through as it was expected and certainly what the customers were anticipating in both styling and mileage increases. The opportunity for example to increase diesel consumption was not taken seriously as it is in Europe, primarily because in the United States there are old negative perceptions for its use such as noise and smell. Furthermore the hybrids and electric cars even though they started to infiltrate the market there was no real demand for them primarily because of high pricing and lack of understanding of the technology. Some research is being conducted but not enough and not at the level necessary. Here we would be amiss if we do not address the issue of the intro‑ duction of the electric car—especially the one introduced by GM. Though mileage and CO2 emissions will improve, the price of the car will be quite expensive even with government credits. In addition, the 4  •  10 Essentials for High Performance Quality in the 21st Century offset in pollution will be in the energy‑generating plants, who mostly depend on coal and not on clean environmental generating capabili‑ ties. Yet another issue with electric cars is the notion of replacing an expensive battery and the questionable availability of total electricity needed due to inappropriate and insufficient grid technology. • Too much emphasis on internal surveys as opposed to listening to the customer and looking at their competition. I have always been skep‑ tical about the value of organizational‑climate surveys—annual surveys that ask employees (a) how they feel about working for the company, (b) what is good or bad about the company, and (c) how they can improve their business. The premise is that results from these surveys will help management create a happier, healthier work‑ force and lead to better business performance. At best, surveys can only provide a rough idea about how people collectively feel about certain aspects of an organization’s culture. What is needed is a deeper understanding of what survey results really mean. For example, one popular survey question asks employ‑ ees whether the company communicates a clear strategic direction. The theory is that if employees know where they are going, they are motivated and can pull together in the same direction. This is a clas‑ sic question, especially for the “vision” of the company. So, what does a collective “no” mean? Does it mean that communicating a clear, strategic direction will help people focus and enhance business per‑ formance? Not if individual performance measures are misaligned or if translating the strategy into implementation means different things to different functions. What about empowerment? What if survey scores indicate that peo‑ ple feel that management does not give them the freedom to do their jobs? Is the solution to be more hands‑off? Not if employees do not have the experience or knowledge to make good decisions on their own. Many surveys evaluate areas that they should not. Some surveys ask whether employees are satisfied with their salaries. A better way to assess salaries is to benchmark them against the marketplace and work from there. It is important to evaluate the results of organi‑ zation surveys to understand their true implications for business performance. Otherwise, improving survey scores may not have any effect on business results (Chao 2008). • Myopia of customer concerns and innovation. Innovation is definitely the way to go. However, it must be focused on customer insight, The Need for Quality Performance  •  5 which should be determined by (a) customer need and (b) a specific problem to solve. A successful approach for either one should be to • Develop a real solution and deliver real benefits. The “real” should be determined by asking fundamental questions: Did the cus‑ tomer need this? Are we solving a problem? • Do not brainstorm too early. Before you embark on any brain‑ storming, make sure that you have enough information. That is, do we have enough preliminary research to justify the innova‑ tion? Is the problem widespread and needs fixing? By doing this prework you may find that something else is needed. • Innovation must fit specific brand and/or corporate strategy. Unless the innovation fits the brand and the overall strategy of the organization, it will fail. The appropriate fit is essential in developing effective and compelling innovations. • Be as specific as possible to the problem that needs solution. Unless the identification is specific, ideation of a nonspecific area will likely lead to a solution that will not satisfy the customer. • Manage risk. Companies that do not innovate well incur great risk. The development of a risk management process is impera‑ tive for the modern organization. It must be a complete process on its own, always keeping the customer central to the plan. A typical process may involve current information, gaps from existing to future wants by the customer, a list of the features and benefits that the customer wants, a rigorous innovation screening test plan for acceptance and buy‑in from internal decision mak‑ ers, appropriate budgets, further timing for future development, evaluation based on predefined milestone dates, and benchmarks for evaluating competitive products. • Diversity. The best ideas are usually those that come from peo‑ ple not close to the business or product under consideration. Therefore, get as many people involved within and outside the organization to give you ideas. • Know your research team. There are many methods to introduce innovation, including mind mapping, ethnographic observation, TRIZ, R&D, think tanks, blog mining, trend watching, and others. No matter whom you choose to be on your team in the innovation process, make sure that they know their process and, above all, that they have a track record of success. Do not partner with anyone who is clever in presenting innovation but is using you as the experiment. 6  •  10 Essentials for High Performance Quality in the 21st Century • Manage internal politics. Perhaps the most important element of innovation is managing internal politics. Is management com‑ mitted to innovation? Is there a budget for it? Is there a champion for it? For innovation to be effective and lasting, management must be in the center of it. If they are not part of it, innovation will never take hold. An interesting example of innovation that has applied innovation and creativity differently was reported by Chantapalaboon (2008). A company tried to think of a better way of building brand loyalty. They wanted to go beyond offering a great product and service. They came up with the idea of creative solutions beyond the obvious ones. Traditionally, such a perception was crafted among custom‑ ers through marketing communications. But this company wanted to encourage staff to think creatively. So they worked on matching customer perceptions of the product and service with the experience that sales and service staff provide. The new process is as follows: A customer walks in the showroom because she has the perception that this place offers creative solutions. She tells the staff what she wants. The staff offers solutions to her problem as well as some creative options. The staff may use one of the creative techniques, such as the basic three questions (3‑Q), by asking “what,” “why,” and “what else?” Or the staff may use the SCAMPER technique (S: substitute, C: combine, A: adjust, M: modify, P: put to other uses, E: eliminate, R: re arrange) to conceive more options for the customer. Of course, the staff may apply other creative tools as well if appropriate and applicable. Then, the staff will use the pluses, potentials, concerns, and oppor‑ tunities (PPCO) techniques to tweak those options to be more prac‑ tical and realistic. The staff and the customer will discuss the pluses and potentials of those options and then openly identify concerns and explore opportunities to resolve those concerns. The customer now has more practical options. And, the more choices there are, the better solution. From the customer’s point of view, we need to ask the following: Is the customer impressed with the product and or service? Will he talk to his friends about it? Will he be back to use it again? From company’s point of view, ask: What do you think about this application of creativity? Do you think the company would be able to differentiate itself from its competitors? Do you think it will surge ahead in its field? Would anyone try our product and services? The Need for Quality Performance  •  7 • Stop‑and‑go planning. Detroit churns through models while the Japanese companies keep improving old names, such as the Camry and Accord. The Ford Taurus could be the ultimate example. Once the best‑selling car in America, Ford starved it of resources and then pulled the plug. Now its new CEO has dusted off the old name and slapped it on the struggling Ford 500 (Jones 2007). • Too many models, too little identity. Detroit’s brands stand for a dizzying array of products, from compact cars to massive SUVs of varying quality and appeal, some targeted heavily toward the rental market. Then these Detroit manufacturers wonder why they cannot establish brand loyalty for either makes or mod‑ els. Detroit has, to be sure, made impressive strides in closing the quality gap with foreign companies—especially Ford Motor Company’s Fusion model. And given recent statements by the United Automotive Workers (UAW) at all three companies, it is clear that both management and labor realize the seriousness of their situation (Jones 2007). • Investing in the future. The top Japanese automakers spend more than their U.S. counterparts on research and development, as well capital expenditures, as a percentage of revenue (Shunk 2010). For example, according to the latest data available and reported by Merrill Lynch (2005) we see the disparity of investment shown in Table 1.1. But that’s not enough. The Big Three need more cars that excite people. And they need to be viewed as equal or better in quality. That—not just cutting labor costs, health care costs, and pension costs—will ensure their TABLE 1.1 Research and Development Spending Company R&D (%) Capital Expenditures (%) Total Expenditures (%) Nissan 5.0 6.0 11.0 Toyota 4.0 6.5 10.5 Honda 5.5 4.5 10.0 Chrysler 3.0 5.5 8.5 Ford 4.1 4.1 8.2 GM 3.3 4.7 8.0 8  •  10 Essentials for High Performance Quality in the 21st Century survival. They must persuade the general public to buy American vehicles. It is an issue of perception (an unfair one for sure, but that is reality). No amount of government bailout money or loans from the government will make them viable in the future. On the other hand, hybrids, electric, and fuel cell cars will not make them viable either because of the high costs. The return on the investment for the customer (even with government subsidies) is not commensurable with the benefits to the individual customer, not to mention the repair costs if these cars need repair. NONMANUFACTURING In the twenty‑first century, the world is becoming a global marketplace for all companies. Competition is intense and companies worldwide need to compete with an international mind‑set. Furthermore, the ser‑ vice element in most product and service organizations today is fast becoming a key differentiation that drives customer satisfaction as well as loyalty. That means that organizations must move beyond just deliver‑ ing a product or service. The goal of the future organization is to build customer loyalty. Quality in the nonmanufacturing (service organizations) sector as per‑ ceived by customers can be defined as the extent of discrepancy between the customers’ expectations or desires and their perceptions. There are certain critical dimensions of service quality that a high‑quality service organization must possess. They are as follows: • Reliability: The ability to provide the promised service dependably and accurately. • Tangibles: The appearance of facilities, equipment, and frontline employees. • Responsiveness: The ability and desire to serve the customer promptly and efficiently. • Assurance: The perceived competence and courtesy of frontline per‑ sonnel, which results in customer confidence and trust. • Empathy: The demonstration of a willingness to understand and meet each customer’s unique needs. The Need for Quality Performance  •  9 Reliability is largely concerned with service outcomes and is the most important dimension in meeting customer expectations. On the other hand, tangibles, responsiveness, assurance, and empathy are largely con‑ cerned with service process and are most important (especially responsive‑ ness, assurance, and empathy) in exceeding customer expectations. If an organization encompassed all of these dimensions would it be enough? The answer is maybe not. These dimensions may fail to deliver if the systems in the organization are not robust and dynamic. There are certain very critical issues that separate the good from the best and need to be understood. Is providing good quality service the prerogative of large organizations selling a premium product or service? Can organizations that sell a rea‑ sonably priced service get away with shoddy service? Not anymore. It is not just those customers who frequent five‑star hotels who have the right to good service on the basis that they are paying for it. Even the leading customer‑friendly organizations today fumble because they fail to explore on a continual basis the variation