The BaldrigePlus Newsletter
Issue 12, Sunday April 2nd, 2000
Quality customers
'Quality is what your customers tell you it is' has been a common but too simplistic throw-away line in some quarters of 'the movement' for some time. It serves a useful 'made you stop and think' purpose, but has never captured the essence of what can be a very subtle, and fluid, relationship. So stop and think for a moment. Are all your customers equal? Are there some you'd rather not have? I'll bet! Do you want them telling you what quality is?
OK, it's an old and tired debate, but it's more than semantics.
Are there better definitions of 'quality?' And, by the way, why can't we find a better word? As long as quality, in any environment - commercial or non-commercial - is about means and about ends, about process and about product, there will be misunderstanding.
As email correspondent Bill Latzko says "there is much confusion about the meaning of quality [because] people are trying to describe a transcendental term and are failing. Quality can be used as both a noun and an adjective. This adds further to the confusion. When used as an adjective, it means the features that make a product saleable. When used as a noun, it means the performance of a process. This confusion causes managers to say, 'I can't afford any more quality.' They are thinking that they can't afford any more features."
What brought all this on? Mikel Harry, the Six Sigma cowboy, actually. In his February 2000 Quality Progress "Frontiers of Quality" article (www.asq.org), Mikel explores the heretical idea that making customers happy can be bad for business. Providers have needs as well, says Mikel, including the need to stay in business. His new definition of quality: "... a state in which value entitlement is realized for the customer and provider in every aspect of the business relationship," looks to define satisfaction in both customer and provider terms (and, not incidentally, wrap it up in Six Sigma methodology).
As always, there are firms pushing the envelope. In a practice called weblining (after redlining - ruling whole low-value socio-economic neighbourhoods off limits), some banks rank customers by value, and vary levels of service accordingly. What if you resent getting the bums rush and decide to go elsewhere? That's sort of the point, according to Paul Rachel in a Newsweek e.biz supplement (April 3, 2000, EB 16) - 'whatever the customer wants' is dead, Rachel says, Now, it's whatever companies can afford to offer, based on each customer's worth. Not all customers are created equal. In some cases, companies effectively pay customers to go away.
What's made this possible? Good IT, which delivers surprisingly comprehensive data about millions of individuals, and the internet (hence Weblining) - and it's got some industrial-strength privacy implications, a subject we'll return to later (and elsewhere - watch this space).
While we're on the subject, just what is best practice? According to New Zealand's Business Development News, a government giveaway, it's "The cooperative way in which firms and their employees undertake all business activities in all key processes: leadership, planning, people, customers, suppliers, community relations, production and supply of products and services, and the use of benchmarking." Sound familiar?
"These practices, when effectively linked together, can be expected to lead to sustainable world-class outcomes in quality, customer service, flexibility, timeliness, innovation, and cost competitiveness." We just thought you'd like to hear that again.
Innovation – the missing Baldrige category
In Newsletter Eight, Christensen and Overdorf, authors of an HBR article – Meeting the Challenge of Disruptive Change (March-April 2000) argued that it’s no wonder established firms struggle to innovate. It's because they employ highly capable people, then set them to work within processes and business models that doom them to failure.
FORTUNE magazine (April 3, 2000) has picked up the same issue, interviewing co-author and Harvard biz school professor Clayton Christensen (also author of The Innovator’s Dilemma), and identifying the core of his thesis (success handcuffs corporations) as 'companies with the best technology tend to work to improve it, rather than focusing on creating new ideas and new products.'
In their HBR paper, Christensen and Overdorf explain why that’s the case. FORTUNE decided to measure the size of the effect, by surveying over 800 managers.
Asked to respond to ‘your company has recently lost relatively low-value customers in small market niches or low-end market segments,’ 55% agreed.
‘Your organisation passes up growth opportunities it would have pursued when the company was smaller’ got a 60% response.
‘There’s a disconnect between the kind of innovations your frontline troops suggest and the types of innovations upper management invests in,’ yielded 64% agreement.
‘New entrants have exploited opportunities where uncertainty over market size and customer needs resulted in inaction by your company,’ saw a 68% response.
Baldrige implications? Is there a risk that focusing on Baldrige principles – like customer satisfaction, process superiority, best practice and benchmarks – is to fall into Christensen’s trap? Is this why Baldrige advocates are worrying about the ‘missing Category Eight’ – innovation? Will this issue emerge in the year 2001 re-write of the Baldrige criteria? We hope so. Are you listening Harry!?
ISO-Busting – the response
Steve Prevette’s response to last week’s special issue on ISO-Busting was by way of a couple of his favourite horror stories, collected from his father's 43 years in the foundry business. We'll summarise (sorry Steve). The first is about a foreign iron casting foundry which "proudly flies an ISO 9001 certification banner." The foundry makes 3,300lb 'tank' treads, 37 pinned together to make a track, which were fracturing repeatedly (some even in storage prior to use) and being shipped back at the foundry's expense. "There was an ISO 9001 certified process to heat treat and stress load these castings," Steve wrote, and "the QC manager had been told ‘I do not care what you do, just get me ISO’ by management. His forms were the neatest forms and the best paper methods you ever saw. The ISO certification led to large contracts for castings."
Part of the production process involved stress relief - the castings were heated and sent to a machine to apply a stress to the metal, to align the metal grains and make the casting stronger. Visiting the foundry, Steve's father discovered a long line of heated (but now cooling off) castings waiting for the stress machine. The ISO 9001 approved procedure specified a time between heating and stress loading, but no one was measuring it. Because they were stressed when cold, the process was actually putting stress cracks in the castings. Not following the ISO-approved procedure was blamed the unskilled work force.
Management promised the American customer that the problem was fixed, didn't change the process, and castings still failed. The foundry flew in customer's representatives and two PhD metallurgists. Management explained how the customer's metal specifications were at fault, causing ‘delayed stress cracking.’ The PhD's went into the foundry, and discovered the real reason. The customer cancelled the contract.
Steve's second story - The 20 Pound Sledgehammer - involved a different foundry, making castings which incorporated thin cooling fins which - in spite of the all of the metallurgical data and machines specs indicating that they should have been strong enough - kept breaking off. Managers and engineers worked long hours trying to figure out the problem. A multi-million dollar highly sophisticated and automated set of machinery made the castings. Data was analyzed, computer figures verified. Specifications were checked. Production quotas were set. But still the fins were breaking.
"My father decided to watch a casting being made," Steve wrote. "The patterns were brought out and sand blown into the molds by the automated machine. The molds were automatically aligned, and the metal poured in. The castings were then lowered to the basement to be cooled.
"My father followed the casting to the basement. A worker with a 20lb sledgehammer came up and swung it into the casting. Sand and cooling fins went flying. My father asked the worker what he was doing. The reply was ‘I am doing what I do to every casting - I am knocking the sand off of it.’ Most of the foundry work force had been transferred from a traditional shovel and sand foundry to this automated facility with a minimal of preparation."
Steve’s ‘observations,’ (also summarised – sorry Steve) are:
- Sometimes watching a process is better than blindly collecting numbers. Even hand-collected data (on waiting times, temperature of castings, or backlog for the stress loading machine, in the first case for example) would have helped. Automatically-collected data, if it measures the wrong things, can be worse than useless.
- The dollar costs [of poor quality] to these two foundries was extremely high [maybe $1m in the first], and could have been an input to a ‘cost of quality’ calculation. The true value of the losses was unknowable, but probably about $4m in lost future sales alone in the first case.
- Both foundries had machinery and documented procedures (verified by ISO 9001 in the first case) capable of producing a quality product. The workers were also capable. The interaction between the worker and the procedure and the machinery failed. Both cases demonstrate a lack of ‘systems thinking.’
Letters 2
James Krikau wrote “Excellent piece re: ISO-busting! For years, I have been a sort of ‘anti-ISO’ person for several reasons, not the least of which is how it has become a mandate for suppliers to ‘comply’ with the standard in order to do business with their customer (who typically are not ISO-registered!). The concept of quality is truly tainted when such a double-standard is perpetrated on the suppliers!
”For quality professionals, this makes our job quite difficult when we attempt to enlighten people with really quality systems (eg Baldrige). ISO (and its hybrids – QS9000, et al) becomes a project for most suppliers to the auto industry [who] ‘go to sleep’ once they receive their certification. The total focus is on corrective actions and auditing – not process improvement and systems enhancement.
”I am intrigued and highly motivated to join the ISO-busting ‘corps’ so that the real business values of true quality systems can be understood and hopefully embraced by organizations.”
Letters 3
Russ Russo, author of the 1995 ISO 9000 and Malcolm Baldrige in Training and Education, (www.charropubs.com), wrote “I read with great interest your supplemental newsletter on ISO [busting].
"I have been working with ISO, Baldrige and now Six Sigma as an independent consultant for ten years. And I am always flabbergasted when I read something like this.
”I tell my clients that quality management approaches are particular to a given organization. ISO is a plain, basic, vanilla approach for companies with non existent or minimal quality systems in place. Using the standard is a great way to set a foundation system in place and then move on to more sophisticated models such as Baldrige or Six Sigma.
”Carping about the standard usually comes from folks who don't understand the basics – with all due respect to John Seddon. Generally there are four reasons an organization cannot apply the standard and become registered:
(1) they have an excellent quality system in place and ISO represents a step down for them;
(2) the organization is dysfunctional and anything that reveals that to their management is heresy;
(3) ISO is seen as an add on or a certificate on the wall and a function of a quality control department rather than a management initiative;
(4) folks who are trying to apply the standard [who] do not understand ... what they are doing and inflict themselves with a bunch of nonsense.
"The fifth reason, of course is incompetent consultants and registrar auditors, along with book authors with an axe to grind. Anyone who things ISO is somehow a magic bullet to solve fundamental problems is deluded."
Letters 4
And Michael Voss wrote “Great summary. John Seddon] certainly is on the button. The whole working party approach is cumbersome ... the nearly 6 year period between updates to the ISO 9001 standard is totally unrealistic given the fact that many fast moving organisations have completely re-invented themselves within the interval. “You have only to consider the significance of the changes that are being made to the standard this time for the 2000 revision. Contrast this to Baldrige, with its annual review. The whole Baldrige approach with ‘many changes more frequently’ is more likely to fit in with an organisation’s normal continuous improvement cycle than the more radical implementation required by most organisations to comply with the latest ISO 9001:2000 standard. I understand that companies will be given 1 year to comply with the new standard – nearly 8 years after work began. This is just too slow given the fast pace of today’s world.”