Executive Summary

There are many unsuccessful stories in quality improvement implementations. We have read and heard several trends in quality improvements, namely: Total Quality Management (TQM), Six Sigma, Lean Process, Toyota Production System, and some others, but there are not many companies successfully implementing quality improvement programs despite the high amount of budget that have been spent in implementing those programs. Some of the companies have been trying many methodologies; they have tried TQM, and then switched to Lean Process, and then again switched to Six Sigma without giving the expected result.

Generally, high level executives in many firms often blame today’s workforce as the main problem of those failures. They say, people today are too lazy or have low commitment to work to be part of a successful company. In addition, some of them perceive that most of the employees today do not have the proper technical competence to work in a quality field. They conclude that many quality improvements fail due to peoples’ lack of skill and commitment.

On the contrary, there is another opinion states that management is responsible for the failure of quality improvement programs. Unsuccessful quality improvements efforts stem from executives that do not know exactly what kind of program they are trying to implement. Management does not communicate to its employees nor does it receive any feedback from low ranked employees. In such a situation, employees become cynical and do not have commitment to that program nor do they perform well on the job.

It is important to analyze the above issue in order to develop a good quality improvement program. Each perspective will lead to a different strategy in implementing the quality improvement program, so it is important to determine who is accountable for the main problem of quality control; employees or management?

Research reveals that it is mainly management’s fault when a quality improvement program fails. When management is unaware of what they are doing and fail to communicate with their employees, every effort will be useless. In addition, many times executives are inconsistent between their rhetoric and their actions. We have heard many executives say that they are very committed to quality, but in reality, most executives never take part in employee quality training. This is just a small example that management often does not “walk the talk.”

Therefore, a good quality improvement system must be created to motivate employees to become enthusiastic about quality improvement efforts that will help to achieve the company’s objective. Implementing quality improvement programs is not an easy and painless effort; management must understand that every quality improvement program also involves change in management in addition to some technical/statistical operations. The program requires high commitment and resources (including manpower, machines, time, and cash) to achieve the targeted objective.

To identify the benefit of a program, management must perform Cost-Benefit and Return on Investment (ROI) Analysis. These will be the parameters to link the quality improvement programs with the firm’s bottom line.  A study has proved that it does not matter which methodology a company chooses, TQM, Six Sigma, or another methodology; a company will improve its performance as long as it implements that program consistently.

Background

There are many quality improvement programs not successful today. Some people, usually high-level executives, think failure stems from the lack of employee capabilities, such as limited job skills.  Even worse, management often believes that failure is derived from employee laziness and lack of motivation to achieve the company’s objective.  Due to this perspective, when a project or quality improvement program does not succeed, management always tries to solve the problem by trying to provide more training or other solutions that they thought would eliminate the source of the problem such as by rotating employees, or just simply firing them.

On the other hand, there is another opinion that sees quality improvement failures in many companies as management’s faults. It is management, not the employee, which is the main source of the failure. Many quality improvement programs, such as Total Quality Management (TQM), fail because management does not build good systems that will allow and motivate employees to perform optimally.

The perspective that people are lazy is mainly based on McGregor’s Theory X which states that people by nature always try to work as little as possible. However, to see this theory we should also analyze it as a whole with Theory Y, another theory from McGregor, which basically says people will work hard to achieve their objective if they are committed. [1] It is management’s task to make employees committed to their work.

The differences in viewing this issue have resulted in differences in management’s action and, consequently, the results of every quality improvement effort.  Which argumentation is right?

            It is Management’s Fault, Not the People!

Based on my opinion, unsuccessful implementations of quality programs are not because people are lazy or technically incapable but mostly because of management failure. It is not true that the main problem in implementing sustainable quality improvement is people. People generally are willing to work if the directions are clear; on the other hand, most people will become very lazy if there are no clear directions from their bosses.

There are several common mistakes by management that often occur in implementing quality improvement programs. These mistakes are the biggest problems in implementing quality improvement programs.

 First, executives often do not understand what they are doing. Many firms implement quality improvement because that is one of the current business trends and because other companies have done the same program. Executives do not really understand why they want to implement TQM or Six Sigma and what they are. Many of them probably see quality improvement as just some kind of project that includes employee training and the installation of the best software to all computers within the firm. If that is the case, it is not a surprise that management could not provide clear directions to its employees. Furthermore, without good understanding about the subject, they could not establish a good objective and performance measure. Management may not be aware that when they develop their financial and time objectives that they expect something that is impossible, such as huge savings in a very short period of time. When they see that the effort does not provide the expected result, they often withdraw their support (resources and budget) and replace the project with a new effort. This kind of implementation makes employees cynical because management just keeps moving from one program to another, from one fad to another fad.

Second, management does not communicate the quality improvement very well. CEOs just want to push the implementation of the program and usually it is a top-down approach. From management’s point of view, quality project obviously will provide big benefits to the firm, but it is possible that the employees do not see it because executives and employees are not on the same page. When management tries to push the implementation of the project, the employees just keep questioning, “What are they doing? We don’t see anything.” [2] According to a research conducted by John Wanous, a professor of management and human resources at Ohio State University, the low commitment and cynical employee is caused by the management itself. Employees are upset because management does not seem to know what they are doing and just try to push the employee to do whatever the new projects are. [3]  Other research indicates that a project or an improvement effort will fail if the initiated change follows a top down approach. [4] Thus, it is critical for management to make sure that they have clearly identified the project and have developed a good implementation plan and finally communicate the plan with their employee. Management must receive a buy-in from the employees, especially from the people who should perform the work. A committed employee will have a higher probability to perform his or her job better compared to a confused and upset employee who will not perform his or her job as well. Most of the improvement processes fail because of human rather than technical reasons. [5] It is not to say that people are incapable of doing quality related projects, but because management cannot make it successful. When management just tries to push the implementation of some quality improvement efforts without good planning and no established communication with its employees, the employees will become cynical. This situation could lead to failure of any program.

The third common mistake is about consistency. Many failures have occurred because management did not “walk the talk.” Management often fails to identify the gaps between their rhetoric and the reality of actual practice. Many quality efforts are way too absurd to be grasped by employees because the efforts are superficial. Employees often see quality improvement efforts as something related to politics or giving the appearance of a good public image. Moreover, the lower and middle management often hide the painful truth about the temporary bad results in quality projects or about the resistances on the shop floor. The pressure from above is just too high and makes lower and middle management not want to look like the deliver of bad news, so lower management only delivers the good news to their bosses.  Without accurate feedback, a quality improvement program will be a disaster.

Recommendations

To improve the result of quality improvement efforts, there are some recommendations:

1.      Clearly understand the effort

It is critical for management to understand that a quality improvement effort is not an easy and painless process. They must not implement any quality improvement merely because other firms do so.  Management must ask themselves the reasons of the improvement effort. Furthermore, management must understand that every effort is a long and hard process and it involves a change in the organizational culture and requires a high commitment and many resources.

2.      Develop a plan and strategy

Management needs to establish some good strategies to manage the change. High level executives must have patience to work hard to implement the quality improvement effort consistently even though the result is not as expected in the short run. The most important thing for management is that they must develop a system and environment that will create a quality-minded culture within the firm. In other words, management must nurture the “fertile managerial soil” essential for the “quality improvement” seed. [6]

3.      Communicate to employees

 The most important part in implementing quality improvement is communication. High level executives should wisely use any means of communication to inform their employees about the program; they should use websites, emails, banners and department meetings as well as small group meetings as a way to communicate. In addition, management must embrace and be open to questions, feedback, and criticism from their employees so that communication is not only from top-down but also bottom-up. The ultimate goal of the communication strategy is to educate employees and simultaneously to receive their support in meeting the goal. If employees understood the program well, management will receive a higher level of commitment from workers.

4.      Implement the plan on a small scale.

Many unsuccessful quality improvement efforts are conducted on a large scale implementation from the beginning. Executives are too excited with the prospects, so they do not even think about pilot project. Many big companies push their employees to attend training, only to receive little return on their investment. Extensive mass employee training is very expensive while the result may not appear proportional to the cost.  The best method is to implement on a small scale because it will allow management to learn the implementation on a relatively small budget.

5. Review the result of the pilot

The most important part of implementing a pilot project is the opportunity to understand and learn more detail about a particular program. Therefore, a review must be conducted diligently after the pilot project is completed. All experiences and lessons learned from the pilot project must be documented and shared among the decision makers, then use the materials to develop a comprehensive strategy for executing a company-wide quality improvement plan. It is important to note that the pilot project team must be very honest with the result. The team must not hide any failures or obstacles in implementing the pilot project so that management will have accurate information to decide whether to continue with the large-scale implementation, continue the pilot to get more data, or just to abort the program.

6.      Large-scale implementation/company-wide effort

If the pilot project leads to the decision to continue with the company-wide implementation then a strategy for execution should be developed.  Large scale implementation of the quality improvement plan should be carried out on a step by step basis. The deployment of the plan should begin in only one region/department at a time in order to allow management to handle the execution and concurrently give management time to learn from it. A careful and step by step deployment would allow all teams involved and executives to learn and understand the process well and it will be easier to manage the quality improvement effort.

            Calculating the Financial Benefit

In order to be successful, a firm must establish a good system to guide employees.  It is necessary to analyze the trade-off between cost and benefit of developing a good system for quality improvement programs. It is essential to mention that while TQM does not provide a good base to calculate cost-benefit and Return on Investment (ROI), another methodology, Six Sigma, provides a more practical base; this is one main reason why Six Sigma is so trendy today.  Here, we will discuss the two most common analyses in quality improvement programs:

1.      Cost-Benefit Analysis

Cost-Benefit Analysis is basically an analysis to see what the net benefit of a project/program is after the total cost and the benefit are adjusted by a risk-adjusted rate (e.g. federal bank interest rate). By deducting the cost from the benefit we will have the NPV (net present value) of a program/project. As long as the NPV is greater then 0, a project is considered “a go” project; but if there is more than one project competing for the same funding resource, then other parameters should be considered to make a good decision. Those other parameters consist of the amount of the capital needed, timeline, Rate of Return (ROR) and ROI.

Calculating cost usually is not difficult.  Most costs related to quality improvement programs can be easily calculated by summing up all of the cost, such as training cost, consultant cost, and resources needed (man, equipment including measurement devices, etc.). There are some other costs that could be harder to calculate such as: the cost related to organization changes (transition cost) or the opportunity cost if the same budget is used by other prospective projects.

The challenge in this analysis is mainly the benefit calculation. There are several ways in determining the benefit of a quality project and there are a lot of debates regarding validity of a benefit claim. If we had some proven data (or good estimation analysis) on some benefit, we could calculate the hard savings of our quality improvement. Some examples of hard savings are the benefit because of time reduction, waste reduction and better product quality. [7] However, there are some soft savings that are difficult to quantify such as: customer satisfaction, better company image, new competitive advantage or better environment to work. Management must provide a guideline for this saving calculation to make it easier for employees to develop Cost-Benefit Analysis.

2.      Calculating Return on Investment (ROI)

Calculating ROI is basically using the same steps just like Cost-Benefit Analysis. Company-wide Return on Investment is defined as:

ROI = Net Income/ Total Assets.

However, for a more simple analysis, for a single project, ROI could be calculated by comparing the net benefit with the cost:

ROI = Benefit-Cost/Cost

Just like the NPV calculation, both Benefit and Cost are adjusted with a risk-adjusted rate to include the concept of time-value of money.

In addition to ROI, there is another term that is almost similar to ROI, which is called ROIC (Return on Invested Capital).  ROIC could be calculated as follows:

ROIC = NOPAT/Invested Capital

= Net Income/(Total Assets - Excess Cash + Interest-bearing Liabilities).

NOPAT: Net Operating Profit After Tax

ROIC is an important term in investment because this is the number, that compared with WACC (weighted average cost of capital) as the “hurdle rate” is used to identify whether a company is in good state or not; the bigger the difference between ROIC and WACC (ROIC-WACC>0) the better the corporate value in the stock market. [8]

What is the Best Solution?

So far, we have learned that a good quality improvement program requires management to understand, communicate, and implement the program consistently. We also have acquired knowledge that a quality improvement effort requires a company to incur costs in order to gain desired benefits. Knowing that NPV and ROI could be used to determine whether or not a project is successful, the question is what is the best solution?  Which method delivers the best financial benefit? What is the right technology that will motivate employees to perform optimally? What is the best methodology for building the best system that will create a quality-minded culture?

There are a lot of methodologies available in quality field now, namely: TQM, Lean Manufacturing, Six-Sigma, Lean and Six Sigma, Toyota Production System, etc. Based on a census that was conducted by IndustryWeek, it does not matter which methodology a company implements as long as that firm implements the methodology well and consistently. About 58.6% of manufacturers that implement a methodology completely have ROIC above 13.5%, therefore it is better than companies that have no methodology at all (only 43% that exceed ROIC 13.5%). [9]

Conclusion

In conclusion, the main problem in implementing quality improvement is not because employees are too lazy or technically incapable to perform the task. Many quality improvements efforts fail because management does not understand their own program. Many executives implement a program such as TQM or Six Sigma because other firms have done the same thing.  Without a clear understanding about the programs executives cannot develop a good objective and strategy to implement it. The unsuccessful quality projects also occur because of communication breakdown. Management does not inform its employees about the program and does not accept feedback from them. Management just pushes the implementation with a strict top-down approach. It creates cynical employees who do not commit to the program nor perform well on the job. Furthermore, many high level executives are also inconsistent in implementing many quality programs. There is a big gap between management rhetoric and actions. In rhetorical speech, manager say that quality is important, but in practice, many times they encourage behaviors that only focus on minimizing cost (neglecting quality process).

In order to avoid the same mistakes from happening again, management must try to completely understand the program/methodology that they choose. They must communicate the program openly to employees and willingly accept feedback and criticism from the bottom level of management. Furthermore, every program must begin with a pilot project because it provides the opportunity to learn and manage a program in a relatively low cost. If a pilot project is successful then the implementation should be an incremental deployment, one department/region at a time, to allow all parties to understand and learn from past mistakes. In the implementation phase, an honest report will be very critical to create a learning system.

Cost-Benefit and Return on Investment (ROI) Analysis should be performed as part of a preparation of all quality improvement programs and as a post-mortem review for all completed programs. The financial analysis would link every quality improvement effort to the bottom line of a company. Based on a research that is explained shortly in this paper, it does not matter what methodology a company chooses: TQM, Six Sigma, Lean Process, or another, as long as management performs it consistently. If management develops a good system and a good program in improving quality, the financial objective will be achieved. Finally, with a well-planned program, employees will be more committed to perform their job and achieve the company’s goal.

References

Beer, Michael. “Why Total Quality Management Do Not Persist: The Role of Management Quality and Implication for Leading a TQM Transformation.” Technology and Operation Management Seminars-Harvard Business School 11 December 2003. Accessed 28 May 2004 from <http://www.hbs.edu/units/tom/research-seminars.html>

George, Michael L. Lean Six Sigma. McGraw-Hill, 2002.

“Human Behavior and the Workplace: Core Theories.” Organization Development Consulting Training website. Accessed 28 May 2004 from <http://www.orgdct.com/human_behavior_and_the_workplace.htm>

Keller, Larry. “Mirror on Management.” CNN 31 October 2000. Accessed 28 May 2004 from <http://www.cnn.com/2000/CAREER/trends/10/31/cynical/>

Lopez-Ona, John. “Ask the Expert: Six Sigma and Return on Investment.” Accessed 29 May 2004 from <http://www.isixsigma.com/library/content/ask-06.asp>

Palmer, Brien. “Overcoming Resistance to Change.” Quality Progress April 2004: p.35-39.

Taninecz, George. “Faster But Not Better.” Accessed 29 May 2004 from <http://www.industryweek.com/CurrentArticles/asp/articles.asp?ArticleID=1589>