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Arun Hariharan

Quality Insider

The Quality Paradox

Prevent the fire, or fight it?

Published: Tuesday, January 20, 2015 - 17:29

Have you encountered the following situation? A company has no time for quality, and therefore has more and more business problems. So they spend even more time fire-fighting, and as a result has even less time for quality, and so on. 

I call this the quality paradox.


Figure 1: The vicious cycle of fire fighting

I once knew an ultra-aggressive CEO, Mr. Bando, who personified the quality paradox. Bando’s company, in its hurry to achieve rapid growth, took some shortcuts to quality—and was inundated with customer complaints. When I tried to reason with Bando to first spend some time fixing the quality problems and establishing the right processes, he retorted, “I have no time for quality now. I have to grow the company fast.”

Needless to say, after a year or two of subjecting the company to this paradox, Bando was fired. Bando is a typical “honeymoon CEO.” During the six years since, the company has never really recovered from the effects of his actions and inactions. A company that set out to achieve rapid growth had its growth stunted for life.

In a business, clearly, profitability and market share are key measures of success. A culture of excellence is an important enabler to achieve sustained financial results. A culture of excellence will ensure that the organization is proactive and doesn't miss improvement opportunities. It can be said that financial results are the end, and that a culture of excellence is an important means to achieve this end—that’s how they work together. It’s absurd to expect to achieve the end without focusing on the means.

A tale of two companies

I’d like to use the examples of Toyota and Hindustan Motors,which is an Indian automobile manufacturer. Both started their automobile manufacturing operations around the same time some decades ago. Toyota decided to follow the path of excellence.

Hindustan Motors, because it enjoyed a monopoly for many years in its market, made good money for years despite palming off a shoddy quality product with its once-popular Ambassador brand. The party lasted as long as customers had no choice. During the 1980s competition set in, but the company still refused to pay attention to quality or excellence. It believed that it would always have “loyal” customers despite its poor quality and competitors offering better value.

The reality turned out to be very different. From the first year competition set in, the company that didn't believe in excellence started losing market share, eventually going bankrupt. Hindustan Motors recently announced that it’s shutting down production, citing “very low productivity, growing indiscipline, critical shortage of funds, lack of demand for its core product... and large accumulation of liabilities.”

On the other hand, Toyota, a company that believes in a culture of excellence, is a world leader in profitability and market share—as well as in quality.

A widespread phenomenon

The quality paradox seems to be a fairly widespread phenomenon. It would be funny if it weren't so ubiquitous. In my experience, companies that don’t exhibit this paradox are the exceptions. Some companies realize sooner or later that the quality paradox is killing them and try to divert resources, time, and energy from silly fire fighting to preventing the fire in the first place.

Others wait till the fire burns them up and then it’s too late.

The opening chapter of my book Continuous Permanent Improvement (ASQ Quality Press, 2014) tells the sad story of an ambitious company that saw quality as something that would slow down its growth. In reality, however, it was failure to plan for quality that killed the company.

As Toyota’s Shigeo Shingo once said, “Are you too busy for improvement?... Look, you’ll stop being busy either when you die, or when the company goes bankrupt.”

It sounds like common sense, doesn't it? How can you have customers without quality, and how can you have a business without customers? However, companies that try to cheat this logic seem to be the rule rather than exceptions.

Perhaps that’s why it’s a paradox.

Don’t let your company be a quality paradox. Take time out for quality—unless you have plenty of time to learn things the hard way.

Discuss

About The Author

Arun Hariharan’s picture

Arun Hariharan

Arun Hariharan, author of Continuous Permanent Improvement (ASQ 2014), and The Strategic Knowledge Management Handbook (ASQ 2015) is a strategic quality, knowledge management (KM), and performance management practitioner with nearly three decades of experience in these fields. He has worked with several large companies and helped them achieve substantial and sustained results through quality and customer focus. He is the founder and CEO of The CPi Coach, a company that provides partnership, consulting, and training in business excellence and related areas. Former roles held by Hariharan include president of quality and knowledge management at Reliance Capital Ltd, and senior vice-president of quality and knowledge management at Bharti Airtel Ltd, India. He is a frequent speaker at quality and KM events around the world. He is also the author of more than 50 published papers on quality and KM.

Comments

Lots of time now

I was once the quality coordinator for a manufacturing company. Time and again I asked the accounting manager to set up a system to track warranty costs. The response: "No time!" Then one day, the company went bankrupt and closed down. When I came home and told my wife, her response was "He has lots of time now."

Solving the Paradox

The paradox that you refer to is serious and difficult but not impossible to resolve.  In the situations you refer to the CEOs have competing priorities of immediate term increase in shareholder value and long term corporate growth.  This is made important since the bottom line results are constantly reviewed by the BOD and stockholders and their focus on short term success plays a large part in the CEO’s continued employment.  In a 2011 article in Chief Executive, David Brookmire states, “The average tenure of Fortune 500 CEOs is only 4.6 years."[i]  This situation is well understood by anyone accepting a new CEO position and it is reflected in the priorities they set.   

My own unscientific analysis of CEO action priorities goes something like this:

Year 1 – The newly hired CEO knows that the previous person was released because the BOD was unhappy with his/her overall performance.  This shows the road not to take.  In addition, there is the need to quickly demonstrate his/her ability to increase shareholder value so that everyone knows he/she can be successful and they were “correct” in their hiring decision.  The CEO evaluates the organization, lays out a course of action and begins the change process.  The issue of poor field quality must be dealt with using a short term focus on “firefighting” as this provides the lowest current cost and it is necessary to prevent wholesale customer flight.  This activity is independent of longer term quality improvement and is easier to implement and justify.  In addition, the external failure costs can be blamed on the previous CEO so the new person gets a bit of a honeymoon.

Year 2 – The changes begin to take shape, but the improvements are early in their deployment and there are few large scale successes.  The paradox raises its ugly head as the CEO knows that the clock is ticking.  With the average tenure for a CEO at 4.6 years, there must be significant stockholder value increase within the next year or so.  If not, the BOD will experience shareholder dissatisfaction and confidence in the CEO will be eroded.  What this means is that the improvements cannot require sweeping changes and/or long term cultural change.  Success must be financially measurable at the bottom line and large enough to maintain confidence in the progress.  The effective use of quality improvement tools like CAPA, FMEA and Audit can bring timely improvements because they are straight forward and simple enough to deploy widely in the organization.  They do, however take a couple of years to develop from nothing to meaningful improvement.

Year 3 – This is where the progress needs to appear.  If the CEO does not deliver the goods this year, he/she should be sharpening up their resume because the BOD will make sure that the “failures” do not go on too much longer.  If the priorities have remained with seeking short term gain and little focus on the longer term health, the organization looks like Hindustani Motors (or any US auto company in the 1960’s) that is unable to compete in the new reality.  If the CEO has brought in a few tools and changed the internal focus to be one of improvement, these activities should be starting to show reductions of external and internal failures.  This results in improved productivity and reduced costs – thereby improving the bottom line.  Trying to sustain bottom line improvement through cost reduction and firefighting is difficult to do and it often results in quality decrease rather than increase. 

Year 4 – By the end of the third year, the BOD will begin to weigh the CEO’s performance and decide if there is a “beyond Year 4” or if they are spending this year searching for the “next” CEO.

 The paradox of “Prevent the fire or fight it” is answered by one word – both.  You must first fight the external fires to prevent customer defections.  At the same time, you must move the failures in-house so the customers are protected and the extent of the fires is visible to all inside the organization.  This is where the CEO needs to realize that there is a successful path to the future and that it does not require huge investment or wholesale cultural change.  The first year or two will be difficult because there are many fires to fight and smoldering stuff to remove.  With the current shareholder and BOD expectations for continually increasing share value, there is no room for grandiose programs or fundamental cultural change – they simply take too long and cost too much.  In order for a CEO to have tenure longer than the average, the changes will need to be simple to deploy, straightforward to use and provide effective results.  As quality professionals, we need to assist with the effort by bringing reasonable and effective solutions to the organization.  This is a way to leverage the entire organization and turn everyone from firefighters to fire-preventers and solvers of the paradox.

[i] (Brookmire, 2011)