Facing Crisis Through Quality: Back to Basics

Quality professionals need to communicate the dollar value of quality actions.

Published: Tuesday, August 11, 2009 - 14:58

Real estate bubble, subprime mortgages, financial system, stock markets, and finally, Main Street. The deepest crisis in decades is here, monopolizing media’s headlines, freezing our economies and strongly affecting us not only as citizens (or should I say consumers?) but also as quality professionals within our organizations.

This brief article provides an overview on how the quality function should positively affect an organization's bottom-line results, contributing in a very visible and accountable way to its sustainable success—even its survival. Quality is not only for dead calm times.

What is going on?

Simply put, the economic slowdown—clearly entering the heart of recession as I write this article—is severely impacting employment numbers and production needs. Obviously, companies are aligning their work force according to new activity levels.

Job cuts are not limited to blue-collar positions; they have extended to white-collar positions as well. Quality positions outside of the production line are being targeted. Because their contribution to the organization's bottom-line are often not clear enough, they are more vulnerable than ever.

Let’s face it, quality professionals are comfortable when working with quality tools and methods of improvement processes (QFD, DOE, SPC, Cpk, Ppm, etc.) to meet the requirements of quality management systems (QMS) and positively contribute to our organizations’ bottom-line. Yet we do an awful job in making these outstanding contributions fully visible, accountable, and even understandable for CEOs in their own language, the financial one.

This reminds me of Julius Caesar’s well-known quote, “Caesar’s wife must be above suspicion.” The quality function must not only improve organizations’ bottom-line results, but be above suspicion of not improving them. If quality departments do not firmly strive to translate their technically-well-measured achievements into financial data, their contribution will continue to be poorly visible, or worse, be thought of as negatively impacting the bottom line; and they may remain at the top of the list of potential job cuts. We have seen this before during the recession that took place in the early-1990s and we are seeing it again.

Organizations should never underestimate the quality function’s contribution to bottom-line results. The days when high quality was associated with a high cost have passed. For many years, the quality function has effectively delivered products or services that fully match customers’ changing needs and expectations in the most cost-efficient way.

As Philip B. Crosby said, “Quality is free, but no one is ever going to know it if there isn’t some sort of agreed-on system of measurement.” How can we justify the return on quality investments without a financially-expressed measurement system? Financial indicators make clear the effectiveness of quality initiatives in reducing costs (less nonconforming products, etc.) and also in helping to identify areas for improvement to be faced by means of corrective actions. The relationship between investments in quality (prevention and appraisal costs) and failure costs are well known, as shown in figure 1.

Figure 1. Impact of QMS maturity on brand and financial results

The quality professional should raise awareness of quality costs so that organizations can clearly weigh their priorities. Do they want to invest in prevention or appraisal?

At first, appraisal-focused investments, such as inspection, aim at transforming external failure costs into internal ones. External failure costs are those produced when it's the customer who finds the problem (fines, product replacement, shipping costs, etc.). Internal failure costs are those produced when the problem is detected within your company (rework, etc.). External costs are much more expensive than the internal costs and the brand image suffers more.  If we improve our inspection techniques, we increase the possibility of detecting problems before the customer sees them.  This clearly benefits both the brand and the bottom line.

While inspection may help put out a fire, it would be better to prevent the fire from ever occurring. With appraisal, we do not solve problems, we only detect them before shipment to the customer. With prevention, we analyze the problems, find the root causes, implement corrective actions, plan preventive ones, and improve processes, so that the problems never occur. Decreasing investments in prevention is always bad business. Investing in prevention over inspection is a much more cost effective route.

Of course, as shown in figure 1, there are diminishing returns on investment in quality. When a QMS is young, one dollar invested in prevention produces much more than one dollar in savings because of a strong drop in failure costs. The opposite, of course, is that decreasing investments in prevention only serves to escalate failure costs. As the QMS matures, that same dollar invested in prevention does not produce as much of a benefit. In fact, at some point, the investment in quality costs more than the value it gives the product, except perhaps in brand image.  

It's not that difficult a concept to understand, and it's important that quality managers communicate these concepts to their managers. A comprehensive and accurate accountancy of costs provides the organization with an excellent tool, not only to manage its journey toward quality in a well-balanced way, but to realize the importance of preventive quality planning. 

Quality management systems and excellence models

Establishing a QMS is an excellent way to address both corrective and preventive quality initiatives. A QMS shouldn’t be a goal in itself, but a useful and powerful tool to achieve the organization’s objectives. Done well, a properly deployed and, more important, a used QMS can have a positive impact on a company's financials.

Unfortunately, we often find that the QMS has created artificial needs and a bureaucracy that doesn't add value and only serves itself. Costly measurement processes that collect plenty of data that is not analyzed, is one example. Another is extremely complex documentation pyramids, obviously perfect, but whose complexity eventually buries the creator. As much as possible, keep the QMS simple.

There are plenty of opportunities to consider efficiency when managing a QMS. A couple of the eight quality management principles underpinning ISO 9001 (process approach and system approach to management) explicitly address efficiency and there are processes such as setting quality objectives, QMS planning, management review, monitoring and measurement of processes, and so forth, that are excellent choices when approaching efficiency.
  
The European Foundation for Quality Management (EFQM) and the Malcolm Baldrige excellence models consider explicit and implicit bottom-line results across their different criteria. Further, they focus, not only on customers but also on the other stakeholders (including shareholders).

Concerning the EFQM excellence model, this commitment is present in several of its fundamental concepts of excellence:
- Results orientation
- Management by processes and facts
- Continuous learning, innovation, and improvement
- Partnership development

and criteria:
- Policy and strategy
- Partnerships and resources
- Processes
- Key performance results

Conclusion

Finally, it is worth stressing again that although effectiveness and efficiency should be always a must, in crisis times they are even more mandatory. Quality should not be a mere technical exercise; it should be strongly pragmatic and clearly focused on the organizations’ bottom-line results.

Showing a constancy of purpose and remaining technically sound, quality professionals should provide tangible results clearly accountable in financial terms. 

About The Author

Esteve Garriga

Esteve Garriga is responsible for quality assurance at AJP INDUSTRIAL, S.A., a Barcelona-based Spanish designer and manufacturer of safety parts--mainly hydraulic brake systems for the automotive industry.

He was educated in business administration at EADA (Escuela de Alta Dirección y Administración) in Barcelona and specialized in quality at UPC (Universitat Politècnica de Catalunya) in Barcelona.

He is a European Excellence Assessor by EFQM, ISTO certified  via IQA, and is a member of the Spanish Association for Quality (AEC).