In a previous column, I talked about three types of CEOs—the honeymooner, the cost-cutter, and the institution-builder. I don’t presume to preach to senior management, but having worked with a number of leaders in several companies over the years, I’ve observed that institution-builders are able to get bigger and more sustained results from the pursuit of business excellence.
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I’ve observed certain qualities in these leaders that seem to set them apart from others. Here they are:
Creating a legacy
Business leaders who achieved significant and sustained results through business excellence are those who sought to create an enduring legacy—apart from leading their businesses to their immediate revenue and profit goals. These leaders seem to draw their motivation not merely from short-term financial results, but also from the thought of creating a long-term legacy.
Expecting breakthrough results
Leaders get the results that they expect. It’s a self-fulfilling prophecy: If the leader’s expectations are low, naturally their involvement in business excellence will be low, leading to low results. The reverse is equally true. Leaders with high expectations know that it is worth spending their time on excellence, and this gives them results.
Treating excellence as a strategy and not a task
For these leaders, excellence is a strategy to achieve sustained success in business—and not a task to be left to junior staff or consultants.
Being involved
I have observed that leaders with high expectations for business excellence get involved, and that involvement is primarily in the form of regular reviews and guidance to their teams engaged in excellence initiatives. I have had the pleasure of working with some leaders who haven’t missed a single month of reviewing their company’s customer and quality-related performance dashboards and quality improvement projects. I knew one leader who would start his monthly business review with quality and customer-related performance measures, even before looking at financial numbers such as revenue and profit. This sent a very powerful message to the team about the leader’s priorities, and this faith in excellence was not misplaced—this leader consistently achieved better financial results than most others.
Knowing that quality is free, and poor quality carries a huge cost
I have come across a few business leaders who told me, “I’d love to have better quality, but we can’t afford it.” They seemed to think that a business excellence program costs a lot of money.
My experience during nearly 15 years of work with three large business groups is exactly the opposite. Between them, these groups consist of more than 30 companies in diverse businesses, manufacturing as well as services. Quality cost is next to nothing, and paid for itself several times over. To calculate the return on investment of quality, we took the costs saved through excellence initiatives and divided it by the total cost of quality, including the salaries of employees in full-time quality roles, any costs incurred on consultants or training, and any other hard costs of process improvements. This calculation showed a 16-fold return on investment in a three-year period in one group of companies. We also demonstrated a 50-fold return in a five-year period in another group. This calculation takes into account only the direct cost savings; we haven’t even considered the other benefits we derived from quality, such as higher revenues, improvements in customer satisfaction, and reduction in defects. In fact, in the second group, it was estimated that revenue and profit through these five years were on an average about 20-percent higher because of excellence initiatives.
Clearly, our focus on improved quality was the best investment we made. On the other hand, we experienced that the cost of not having quality (sometimes called the “cost of poor quality”) could be heavy in terms of rework, repairs, cost of resolving complaints, litigation costs when customers sue the company for poor quality, lost customers, the loss of reputation, and so on. For a shrewd business leader, the choice between a small investment in quality and the huge cost of poor quality should be an easy one.
Making excellence a key part of performance appraisals
Nothing sends a more powerful message about the leader’s seriousness than making business excellence a part of people’s performance appraisals and linking their growth and bonuses to it. After all, if you are rewarding your people for doing their jobs, shouldn’t you reward them a bit more for doing their jobs well? Note that by “well,” I mean performing to your customers’ satisfaction, or at a lower cost to the company, or right the first time with zero defects, or faster without compromising quality, etc.
On the other hand, shouldn’t you withdraw some reward from people who may somehow manage to make their numbers, but at a higher cost to the company, or after causing inconvenience to your customers, or after much rework? I have known leaders who achieved sustained results by making excellence a part of the performance appraisal of everybody in the organization, beginning with senior management, and including all contributing functions, such as sales, HR, operations, accounting, or any other area.
Holding senior people accountable for quality
I’ve noticed that the companies that achieved the biggest business results through quality were the ones where the business leader made senior managers (typically those reporting directly to the CEO) accountable for quality in their respective areas. Quality is too important to be the job of just the quality department. Everybody needs to be responsible for quality in their jobs and to their customers. Effective leaders enforce this.
Helping everyone see things from the customer’s perspective
Great leaders make themselves and their senior colleagues accountable for quality to the company’s customers, and they help everyone in the organization see things from the customer’s perspective rather than their own narrow departmental view.
Putting the best people in quality roles
I have observed that these types of leaders recognize the value of having a small set of people whose full-time job it is to help the company identify opportunities for continuous improvement, and then to achieve and maintain those improvements. How can you afford to have anyone but your best performers in such important roles? These leaders, in fact, actively select their best performers for this duty.
Spreading the quality culture
Over a period of time, we found it useful to involve more and more people from all functional areas of the business in quality projects, or even as full-time quality team members. This helped to create and spread an organizational culture of data, analysis, waste consciousness, and continuous improvement.
Investing in rewards and recognition
Rewards and recognition, given in a visible way, play an important role in encouraging a culture of quality, customer-centricity, and continuous improvement. The role of rewards is especially important in creating the desired culture when the company first embarks upon its excellence journey. I have seen that these leaders make it a point to reward people who show exemplary customer focus, deliver high quality, or help to make quality problems visible and then solve them.
Seeking consensus as far as possible
Some CEOs seek the consensus of their top team for all major decisions. I have seen some companies that faced internal opposition at every step—for launching business excellence, for instituting a rewards program, for making quality problems visible, or for linking excellence with performance appraisals, to name a few. If you wait for consensus at every step, you may never be able to move forward.
In nearly every company that has achieved significant success through excellence, the program has been driven with complete conviction and involvement by the business leader. I have seen that another quality of successful leaders is that they are prepared to make and stick with tough decisions when required. Too much democracy could at times slow down your business excellence program. Dissenting voices will die away as people experience the results for themselves. Push your senior team into the deep end of the pool—they will quickly learn to swim. I have also seen that most of the opponents come around once they see that a commitment to business excellence actually helps them get better results (and perhaps bonuses) in their own business or functional area. If some of them continue to remain cynical, well, read on.
Weeding out the cynics
Here, I quote the chairman of a company that is globally known for quality. This company is a preferred parts supplier to global car manufacturers across the world. The manufacturers prefer them because of their high quality standards. The chairman once said, “Every organization has a small minority of employees who are recognized as highly intelligent but who are also highly cynical of any strategic change initiative. Such people are a big threat to your business excellence program. Because of their intelligence, they wield considerable influence over their co-workers, and, because of their influence over others, their cynicism spreads rapidly to the rest of the people. In an atmosphere of cynicism and low expectations, your excellence program is bound to fail.”
This chairman advises that the first step before launching any change initiative must be to weed out the intelligent cynics from your organization. In fact, according to him, that’s one of the first things they did in his company when they started their business excellence program. Visionary leaders put people who are highly enthusiastic as well as high performers in key business excellence roles. Such people will work as early adapters or role models for the rest of your organization.
Avoiding being a “helicopter” CEO
For most companies that have achieved competitive success through quality and customer satisfaction, excellence is a key strategic tool—and hence worth the CEO’s time. I believe that the days of the “helicopter” CEO are over. Today’s business world is too competitive, and successful CEOs today must be more hands-on and more willing to go into details. In my experience, leaders who have achieved significant results through excellence are the ones who go into some amount of detail themselves.
Never saying “business first, quality later”
We read in an earlier article about the sad end of a company whose leader said, “Business first, quality can wait.” Successful leaders know that they need quality first (and always) to attract and keep their customers, and to have a business.
Creating a culture of seeing problems as opportunities
Without exception, leaders who achieve the biggest business results through excellence see customer complaints and defects as opportunities rather than problems. They encourage their people to make quality problems visible and get to the root causes of issues so that problems can be eliminated. They discourage employees from getting into blame games.
Setting personal examples of waste consciousness and lean thinking
Another quality of successful leaders is that they set personal examples. I have seen such CEOs personally asking how to achieve even small improvements in processes, and personally practicing the frugality that they expect from their employees. In one group of businesses, for years, talking about cost reduction or waste was not very fashionable. Theirs was a “growth” culture (or so they thought), and nobody paid any attention to wasteful expenditures. All this changed when a new leader took charge. His personal example and belief in lean and waste consciousness made these ideas fashionable in the organization. Not surprisingly, the group made a profit for the first time after this new leader took over, and has been profitable every year since.
Outsourcing processes should not be considered “out of scope” for quality
Much of the work in companies I deal with is outsourced. We realized that we may outsource some processes, but we continue to be accountable to customers. Outsourced processes cannot be left “out of scope” or “outside our control.” In fact, wherever it would help, we involved outsourced partners in our quality projects. This is only logical, because our customers don’t care if our internal processes are outsourced—they hold us accountable for quality and on-time delivery anyway.
Having a proactive strategy for retaining your quality talent
We found employees who were trained and experienced in lean, Six Sigma and other quality methods were in demand from other companies. We realized that the company needed a proactive retention strategy to retain these critical resources.
You may be able to think of a few more qualities or priorities that you, as a business leader, would bring to lead your organization to sustained business success through excellence. The message of this article is simple—the business leader is the biggest make-or-break factor that will determine if your company will achieve breakthrough results through business excellence.
My book Continuous Permanent Improvement talks in depth about the role and qualities of institution-building leaders. I would be happy to hear your views after you read the book.
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