Management must understand what needs to change. A culture of performance excellence is very different from a traditional management culture. Many traditional practices stem from the fundamental structure of U.S. business, which derives from the Adam Smith principles of division of labor in the eighteenth century and their reinforcement during Frederick Taylor's scientific management era.39 These include autocratic leadership, internal competition, functional silos, and rigid procedures. The Bonus Materials folder for this chapter on the Premium website, elaborates on the key differences between traditional practices and TQ. Although they were quite appropriate in their time and contributed to past economic success, those practices no longer suffice. Julia Graham has summarized characteristics of a culture of performance excellence:40 A premium is placed on excellence in performanceobtaining desired behaviors and results. That is, there is a clear focus on results that support the organization's mission, vision, and strategic objectives. Organizations acknowledge that their success is contingent upon the successful performance of their employees. People are the most important driver of performance. Strategic outcomes drive the work. There is clear alignment at the three levels of qualityorganization, process, and individualthat we discussed in Chapter 1. Management is strongly committed to creating conditions and consequences that support and sustain strong performance. Finally, leadership is vital to success. To drive change, organizations must change behavior as well as policies and procedures. Juran and others suggest that an organization must foster five key behaviors to develop a positive quality culture: 41 1. It must create and maintain an awareness of quality by disseminating results throughout the organization. 2. It must provide evidence of management leadership, such as serving on a quality council, providing resources, or championing quality projects (Six Sigma, for example). 3. It must encourage self-development and empowerment through the design of jobs, use of empowered teams, and personal commitment to quality. 4. It must provide opportunities for employee participation to inspire action, such as improvement teams, product design reviews, or Six Sigma training. 5. It must provide recognition and rewards, including public acknowledgment for good performance as well as tangible benefits. It is interesting to note that these suggestions generally revolve around people, and as we have emphasized, people are the most important element in a successful organization. All employees play a critical role in achieving performance excellence. We have already discussed extensively the role of senior leadership. Middle managers provide the leadership by which the vision of senior management is translated into the operations of the organization. Middle management has been tagged by many as a direct obstacle to creating a supportive environment for performance excellence.42 Because of their position in the organization, middle managers have been accused of feeding territorial competition and stifling information flow. They have also been blamed for not developing or preparing employees for change. Unwilling to take initiatives that contribute to continuous improvement, middle managers appear to be threatened by continuous improvement efforts. Often, they are left out of the equation, with attention being paid to top management and the front-line workforce. However, middle management's role in creating and sustaining a culture of performance excellence is critical. Middle managers improve the operational processes that are the foundation of customer satisfaction. They can make or break cooperation and teamwork; and they are the principal means by which the remaining workforce prepares for change. Middle managers must exhibit behaviors that are supportive of performance excellence, as they act as role models for first-level managers and employees. Such behaviors include listening to employees as customers, creating a positive work environment, being role models for first-level managers and supervisors, implementing quality improvements enthusiastically, challenging people to develop new ideas and reach their potential, encouraging supervisors to empower their people, setting challenging goals and providing positive feedback, and following through on promises. These changes are often difficult for many middle managers to accept. In the end, the workforce delivers quality and, for a performance excellence strategy to succeed, must be granted not only empowerment, but ownership. Ownership goes beyond empowerment; it gives the employee the right to have a voice in deciding what needs to be done and how to do it.43 At Westinghouse, workers defined ownership as \"taking personal responsibility for our jobs ... for assuring that we meet or exceed our customers' standards and our own. We believe that ownership is a state of mind and heart that is characterized by a personal and emotional commitment to approach every decision and task with the confidence and leadership of an owner.\" Self-managed teams, discussed in Chapter 6, represent one form of ownership. Organizational policies and procedures such as reward systems often must be adjusted for the new culture to take hold. For instance, customer service representatives in many firms are rewarded for the speed with which they process calls, rather than for how completely they satisfy the customers who call. Unless this type of reward system is changed, management's pleas to increase customer satisfaction will fall upon deaf ears. Another reason for failure is the lack of a holistic systems perspective one of the Core Values and Concepts of the Baldrige criteria. Many approaches to \"implementing quality\" are one-dimensional and are consequently prone to failure. For example, some firms might emphasize the use of Six Sigma, but may only deploy them in a narrow part of the organization, such as manufacturing. These firms will see some improvement, but because the entire organization is not involved success will be limited. Others might focus on reducing defects in production and customer service but ignore product design and customer relationship management processes. Achieving performance excellence requires a comprehensive effort that encompasses all of the elements discussed in this book thus far and span across the \"three levels of quality\"individual, process, and organizationthat we have discussed. Even though it is easy to focus on process improvement, it is certainly more difficult to establish cross-functional cooperation and to build the entire organization around a framework such as Baldrige. Alignment is defined as consistency of plans, processes, actions, information, decisions, results, analysis, and learning to support key organization-wide goals. Integration refers to the harmonization of plans, processes, information, resource decisions, actions, results, and analyses to support key organization-wide goals. Perhaps the most significant failure encountered in most organizations is a lack of alignment and integration with the organizational system. The Baldrige criteria emphasize these concepts. Effective alignment requires common understanding of purposes and goals and use of complementary measures and information for planning, tracking, analysis, and improvement at each of the three levels of quality. Integration goes beyond alignment and is achieved when the individual components of a performance management system operate as a fully interconnected unit. A well-aligned organization has its processes focused on achieving a shared vision and strategy. Aligning the organization is a challenging task that is accomplished through a sound strategy and effective deployment. Best Practices The organizational infrastructure, as evidenced by an organization's management systems and practices, is vital to successful quality implementation. Best practices are simply those that are recognized by the business community (and often verified through some type of research) to lead to successful performance. Such organizations as Disney, Microsoft, and many Baldrige winners have recognized best practices that are adopted by other organizations. Research performed by H. James Harrington with Ernst & Young and the American Quality Foundation, called the International Quality Study (IQS), suggested that trying to implement all the best practices of worldclass organizations may not be a good strategy.45 In fact, implementing the wrong practices can actually hurt the organization. The study indicated that only five best practices are \"universal,\" and the chances are only 5 percent that they may not improve performance. They are: 1. Cycle-time analysis 2. Process value analysis 3. Process simplification 4. Strategic planning 5. Formal supplier certification programs Beyond these five, best practices depend on an organization's current level of performance. That is, organizations must build their capability slowly and methodically. For example, organizations starting out on the road to performance excellence can reap the highest benefits by concentrating on fundamentals. These fundamentals include departmental and cross-functional teamwork, training in customer relationships, problem solving and suggestion systems, using internal customer complaint systems for new product and service ideas, emphasizing cost reduction when acquiring new technology, using customer satisfaction measures in strategic planning, increased training for all levels of employees, and focusing quality strategy on \"building it in\" and \"inspecting it in.\" Once these fundamentals are in place, they can move on to practices such as department-level improvement teams, training employees in problem solving and other specialized topics, listening to supplier suggestions about new products, emphasizing the role of enforcement for quality assurance, making regular and consistent measurements of progress and sharing quality performance information with middle management, and emphasizing quality as a key to an organization's reputation. Finally, organizations that have a solid quality system in place can gain the most from providing customer-relationship training for new employees, emphasizing quality and teamwork for senior management assessment, encouraging widespread participation in quality meetings among non-management employees, using worldclass benchmarking, communicating strategic plans to customers and suppliers, conducting after-sales service to build customer loyalty, and emphasizing competitor-comparison measures and customer satisfaction measures when developing plans. The study also showed that certain practices could have a negative impact on performance if applied inappropriately. For example, organizations at the early stages of the quality journey do not benefit from process benchmarking while those that have solid systems in place attain no benefit from increased training. Strangely, the IQS Best Practices Report was interpreted by some news media as a criticism of the quality management philosophies that were advocated at that time.46 They translated the report as simply saying that many quality practices are a waste of time and ineffective. On the contrary, the results were the first significant effort to develop a prescriptive theory (back to Deming again) of implementing quality and performance excellence, rather than relying on intuition and anecdotal evidence. Impatient managers often seek immediate results by adopting off-theshelf quality programs and practices, or by imitating other successful organizations. In most cases, this approach is setting themselves up for failure. Best practices, however, cannot be blindly benchmarked and adopted. Unfortunately, many organizations seek the magic quick fix for quality. 47 In a famous anecdote, a person once wrote a letter to W. Edwards Deming and asked for the formula to quality improvement, offering to pay whatever price Deming required. This led to what has become one Deming's most famous quotes: \"There is no instant pudding.\" We have seen similar behavior with Six Sigma. Many firms rushed to benchmark GE. However, GE already had a culture of quality improvement and extensive experience when Six Sigma began. The other firms were unable to copy the GE Method without the GE culture. Rather, organizations advance in stages along a learning curve in their development of a quality culture and must carefully design their programs to optimize its effect. A good example is the Toyota Production System. It has never been a secret, yet many companies have tried and failed to duplicate it. Toyota's approach can be summarized as follows: They stayed the course and developed, implemented, and tweaked that system until it fit the organization like a glove. They did not spend their time looking for a prefabricated answer to all their problems that might or might not work in their organization. They took the time to understand their organization and their business and created a system that delivered the things they knew would make them a force in their industry. As one professional observed: \"The closest we will come to a silver bullet is innovative leadership. Courageous leaders have vision, take time to comprehend their own organizations, and create an indigenous strategy to fit their organization.\"48 THE JOURNEY TOWARD PERFORMANCE EXCELLENCE Successful organizations realize that quality and performance excellence is a never-ending journey. As an old Chinese proverb says, a journey begins with a single step. Getting started often seems easy by comparison with sustaining a performance excellence focus. Numerous organizational barriers and challenges get in the way. New efforts usually begin with much enthusiasm, in part because of the sheer novelty of the effort. After awhile, reality sets in and doubts surface. Real problems develop as early supporters begin to question the process. At this point, the organization can resign itself to inevitable failure or persist and seek to overcome the obstacles. Sustaining performance excellence requires the ability to overcome barriers and frustration, to view performance excellence as a journey, not an end, and the ability to develop into a \"learning organization.\" The Life Cycle of Quality Initiatives To help understand these issues, it is useful to recognize that quality initiativesas well as most any business initiativefollows a natural life cycle.49 Leonard and McAdam suggest that understanding the life cycle \"provides a strategic mechanism to chart and sustain quality while proactively countering shortcomings of its implementation, such as stagnation and limited application, which can ultimately result in failure.\" The six stages of a quality life cycle are 1. Adoption: The implementation stage of a new quality initiative. 2. Regeneration: When a new quality initiative is used in conjunction with an existing one to generate new energy and impact 3. Energizing: When an existing quality initiative is refocused and given new resources 4. Maturation: When quality is strategically aligned and deployed across the organization 5. Limitation or stagnation: When quality has not been strategically driven or aligned 6. Decline: When a quality management system (QMS) has had a limited impact, initiatives are failing, and the QMS is awaiting termination The following example serves to illustrate the implications of this life cycle model. One organization began adopting quality by introducing team building and establishing problem-solving teams. However, after four years the quality management initiative failed. Initial training had been limited, and implementation was unfocused and not directly related to the strategic objectives of the organization. As a result, the new teamwork approach came as a culture shock to the organization, and its quality initiative began a decline. The organization was determined to continue with quality management and subsequently adopted a second initiative. This involved new training and teams provided with improvement kits based on problem solving tools and techniques. In addition, senior management focused on the coordination of improvement efforts with strong links to the organization's strategic goals. Structured performance assessments monitored progress. The quality manager cited \"management commitment and leadership from the top\" as the key to its successful second quality initiative. The quality life cycle of this second initiative reflects its progress from adoption to maturity. This approach created strong quality dynamics, which achieved strategic alignment and deployment throughout the organization. From this example, we observe two things: 1. Awareness that separate initiatives create a cumulative impact leads to an appreciation that selection of new quality initiatives must be based on where an organization is in the quality life cycle. 2. Understanding that the quality life cycle elements enable an organization to apply energizing or regenerating actions proactively to successfully sustain its quality journey. An awareness of such impacts on the dynamics of quality, in particular on the characteristics of the quality life cycle, provides the capability to sustain successful quality management by strategically adopting responses based on energizing and regenerating elements. In studying Baldrige recipients in the health care sector, a group of former Baldrige examiners and judges proposed a similar model that describes the Baldrige journey, shown in Figure 9.4.50 At Stage 0, organizations opt to wait for mandates and regulations, and they implement change when required to maintain compliance. While they may experience occasional \"random acts of improvement,\" there is no overarching impetus to drive the organization to higher levels of performance. In Stage 1, organizations commit to a proactive approach to improvement. Initial steps tend to include learning and implementing quality improvement tools and methods. Often this project-focused phase brings new capabilities to execute initiatives that change routine practices and processes for the better. However, organizations at this stage typically reach a plateau. Leaders became frustrated with the overall impact of their continuous improvement efforts and the pace of change. For most of these organizations, projects succeed often enough, but the overall culture does not change and system-wide performance excellence is elusive. Visionary leaders recognize the inherent limitations of a project-based approach to performance improvement: slow pace of change, incremental gains, and depleted organizational energy. They seek an approach to build system integration across silos and departments in order to create a high-performance, results-oriented culture throughout their organizations. Figure 9.4: Excellence Baldrige Roadmap to Performance Source: Reprinted with permission from Kathleen J. Goonan, Joseph Muzikowski & Patricia K. Stoltz, \"Journey to Excellence: Healthcare Baldridge Leaders Speak Out,\" Quality in Healthcare, January 2009, pp. 11-15. Copyright 2009 American Society for Quality, Quality Press. No further distribution without permission. When senior leaders became personally and actively engaged with the criteria and feedbackwhether through simply answering the questions, conducting a self-assessment, or writing an application for a state or national award programthey begin to experience traction on their organizational transformation strategies (Stage 2). This phase marks the transition from the singular focus on change through projects, however well executed, to systematic evaluation and improvement of leadership approaches. Projects become more focused and aligned to organizational strategy while leadership and management processes receive attention as well, shoring up capability to spread improvements and hardwire sustainability. As organizations become more skillful at these approaches, integration (Stage 3) begins to occur. Approaches and processes of leadership, such as values deployment and culture building, begin to link and align with strategic planning and action planning, scorecards and dashboards, job descriptions and performance review methods, and other operational processes. Nonaligned improvement initiatives are dropped or postponed as focused effort replaces frenetic activity. The Integration phase is characterized by action on the feedback, usually by incorporating it into the strategic planning process. Finally, the Sustaining stage (Stage 4) can result in two outcomes: continued improvement or decline as organizations lose focus or become distracted. While Baldrige Award recognition might appear to carry with it the potential for loss of momentum, many organizations renew their commitment to achieving even higher levels of performance. This may occur through continuing annual participation in a Baldrigebased award process, or through internal assessment processes, often as a first step in annual strategic planning. Quality Spotlight St. Luke's Hospital One example that reflects this roadmap is St. Luke's Hospital, which began its journey around 1988.51 Key organizational milestones are summarized below: 1988-1991: Limited focus Patient Care Committee to a broader organizational quality assurance concept Hierarchal nursing governance to a shared governance model Decreased focus on the \"bad apple\" to process improvement activities Specialty-specific committees reconfigured to organizational cross-functional multidisciplinary teams 1992-1993: Development of an organization-wide customer satisfaction research program Individual care plans to formal clinical care pathways Cultural shift to organizational empowerment Board, medical staff, and administration retreat to implement Total Quality Management 1994: Organizational learning in statistical process control techniques Patient focused work redesign initiated Adopted Baldrige framework Participated on health care criteria design team for Missouri Quality Award 1995-1996: Embraced corporate culture of external performance review Received Missouri Quality Award (MQA) Began voluntarily reporting outcome data to the community Shared best practices across Missouri Used MQA feedback to improve performance 1997-1999: Deployed \"Commitment to Excellence\" initiative: an internal Baldrige-based assessment Received second Missouri Quality Award Quality was elevated to vice president status Restructured metrics architecture and developed Balanced Scorecard 2000-2001 Used 1999 Baldrige and MQA feedback to improve organizational processes and share best practices Prepared internal Baldrige assessment and had it scored externally Focused on multiple action-oriented process teams Medical staff and senior leaders joined to drive organizational performance via Performance Improvement Steering Committee (PISC) 2002: Received third Missouri Quality Award Site visit by MBNQA Third refinement of the Balanced Scorecard Deployed 90-Day Action Planning Process 2003: Began preparation to achieve Nursing Magnet designation Created the role of Chief Learning Officer Developed and deployed process level scorecards in key areas Selected as a Malcolm Baldrige National Quality Award recipient As you can clearly see, such a journey takes persistence and commitment. Organizational Learning Organizations are dynamic entities. Managers must consider the dynamic component in order to deal with instability in the environment, imperfect plans, the need for innovation, and the common human desire for variety and change. Sustainability requires continual learning. Therefore, both the culture and the organizational structure should be designed to support the established direction in which the organization is moving, and modified whenever that direction changes significantly. Managers, especially those who do not understand the nature of leadership, are often hesitant to make needed organizational changes as the organization grows, even when the need for change becomes obvious. This need to change is embodied in a concept called the learning organization. The concept of organizational learning is not new. It has its roots in general systems theory52 and systems dynamics53 developed in the 1950s and 1960s, as well as theories of learning from organizational psychology. Peter Senge, a professor at the Massachusetts Institute of Technology (MIT), defines the learning organization as: ... an organization that is continually expanding its capacity to create its future. For such an organization, it is not enough merely to survive. \"Survival learning\" or what is more often termed \"adaptive learning\" is importantindeed it is necessary. But for a learning organization, \"adaptive learning\" must be joined by \"generative learning,\" learning that enhances our capacity to create.54 The conceptual framework behind this definition requires an understanding and integration of many of the concepts and principles that are part of the TQ philosophy. Senge repeatedly points out, \"Over the long run, superior performance depends on superior learning.\" What he means is that organizations cannot count on being successful in the long run if they merely have committed leaders who use TQ principles for strategic planning and policy deployment, practice TQ in daily operations, and use it for continuous improvement of the current process. Quality Spotlight General Electric Learning organizations have become skilled in creating, acquiring, and transferring knowledge and in modifying the behavior of their employees and other contributors to their enterprises. A good example of a learning organization (and a learning individual!) is General Electric and its former CEO Jack Welch. In his first letter to GE shareholders in 1981, he noted, \"This commitment to the utmost in quality and personal excellence is our surest path to continued business success. Quality is our best assurance of customer allegiance. It is our strongest defense against foreign competition and the only path to sustained growth and earnings.\" Welch's approach to business improvement has gone through three cycles of learning: 1. In the first cycle (early 1980s to late 1980s), he focused GE on the elimination of variety in its portfolio of businesses by reducing the nonperforming business units as judged by market performance. The elimination of unprofitable businesses permitted a better use of working capital. However, only so much gain can result from trimming the organization or eliminating bureaucracy, which led to the next phase of learning. 2. During the late 1980s to mid-1990s, he focused the company on simplifying and eliminating non-value-added activities through creative efforts of teams using Work-Outs and the Change Action Process (later renamed the Change Acceleration Process). Work-Out is a tool for involving all people from all ranks, levels, and functions of the organization in problem solving and improvement. Work-Out demolished the artificial barriers and walls within the organization and fostered the idea of \"boundary-less learning.\" 3. Throughout his learning journey, Welch challenged his people to keep looking for creative ways to apply new learning from any source to improve the business. In 1995, Welch discovered Six Sigma and studied its implementation at both Motorola and Allied Signal. This phase of discovery focused on the elimination of variation from already lean business operations to drive gains in productivity and financial performance with a better focus on the customer. Welch's process for continuous learning led to the discovery that business must simplify first, then automate best practices that have been designed for robust performance in the face of variation in business conditions. As Welch noted, \"It is this passion for learning and sharing that forms the basis for the unrelenting optimism with which we view the future, and for the conviction that our greatest days lie ahead.\" The emphasis on quality and improvement through Six Sigma has been continued by Jeffrey Immelt, who succeeded Jack Welch as CEO at GE in 2001. Immelt's \"Letter to Stakeholders\" in the 2004 annual report stated: We have a new area of focus that we call Lean Six Sigma. We have leveraged Lean manufacturing's classic tools for reducing cycle time with the problem-solving capability of Six Sigma. In the last two years, Transportation improved inventory turns from seven to nine, and Advanced Materials improved receivables by six turns. We achieved $2.7 billion of improvements in working capital in 2003-04 and intend to continue this progress. We have a broad operating initiative called Simplification. We are targeting a reduction in \"non-growth cost\" of $3 billion over three years. We are measuring reductions in legal entities, headquarters, \"rooftops,\" computer systems ... anything that is not directly linked with customer satisfaction and growth. We are creating \"Centers of Excellence\" to share best practices and reduce cost.55 The 2007 annual report describes the results of a new initiative called \"Growth as a Process,\" and its approaches to operational excellence that include using Lean Six Sigma, quality, and simplification to enhance value. The key to developing learning organizations, according to Senge, is a new approach to leadership. Leaders must develop the capability to integrate creative thinking and problem solving throughout the organization. Instead of the traditional focus on reacting to events and responding to historical trends, leaders must encourage and model decision making based on understanding the causes of events and the behavior behind the trends in order to make positive changes to the system. Researchers have suggested that both transactional and transformational leadership support organizational learning; in times of change, organizational learning benefits more from transformational leadership while in times of stability, organizational learning processes serve to refresh and reinforce current learninga task best suited to transactional leadership. The ideal leader needs to identify and exercise the leadership behaviors appropriate to the circumstances.56 Learning organizations have to become good at performing five main activities, including systematic problem solving, experimentation with new approaches, learning from their own experiences and history, learning from the experiences and best practices of others, and transferring knowledge quickly and efficiently throughout the organization.57 Virtually all of these skills are central to the philosophy of performance excellence. For example, systematic problem solving is reflected in Six Sigma and other improvement methodologies; experimentation is the basis for Deming's plan-do-study-act cycle; learning from experiences and history is often termed Santayana review58 and is basic to Deming's philosophy; learning from the experiences and best practices of others is reflected in benchmarking practices; and transferring knowledge quickly and efficiently throughout the organization is the basis for modern knowledge management practices that we discussed in Chapter 8. Cole has called for \"continuous innovation\" as an evolutionary step for extending \"continuous improvement.\"59 He pointed out that market pressures for better and cheaper products, delivered faster to the marketplace than ever before, require a new strategy that he advocates as a \"probe and learn\" process. Probe-and-learn is described as a nonlinear, discontinuous, experimental, back-and-forth process that is needed in order to develop products and services to compete in the existing turbulent business environment. It requires methods such as rapid prototyping, beta testing with intentional generation of errors if they contribute to learning, learning from failure (and successes), and rapidly making decisions through peer and customer review. You need only go back to the relationship between quality and profitability (Figure 1.6 in Chapter 1) to understand the importance of continuous innovation. From this argument, it is evident that the need for innovation has been known all along; however, most efforts (TQM, ISO 9000, Six Sigma, for example) have focused mainly on the quality of conformance rather than innovative design. Businesses are now closing the loop on a more complete performance excellence system with increasing emphasis on design and innovation. Leaders in twenty-first-century organizations are finding that not only must they create learning organizations, but they must also create teaching organizations. For example, GE developed the concept of the virtuous teaching cycle (VTC) that guides their entire leadership development process, of which the Six Sigma approach is a vital part. The VTC includes some of the following concepts and assumptions, as well as others:60 Leadership at all levels [as opposed to leadership at the top] Teamwork [as opposed to passive-aggressive behavior] Teachable point of view (TPOV) throughout [as opposed to a rigid, top-down process] Organizational knowledge grows [as opposed to organizational knowledge being depleted] Boundarylessness [as opposed to a boundary-laden, turf-oriented organization] Self-Assessment One way for organizations to build accomplish organizational learning is to conduct self-assessments of where it stands relative to best practices and key requirements. Self-assessment is the holistic evaluation of processes and performance.61 It helps managers answer essential questions such as \"How are we doing?,\" \"What are our strengths?,\" and \"What areas require improvement?\" The self part of the term means that it should be conducted internally rather than simply relying on an external consultant, which promotes greater involvement of the organization's people, yielding a higher level of understanding and buyin. Self-assessment should identify both strengths and opportunities for improvement, creating a basis for evolving toward higher levels of performance. Thus, a major objective of most self-assessment projects is the improvement of organizational processes based on opportunities identified by the evaluation. At a minimum, a self-assessment should address the following: Management involvement and leadership. To what extent are all levels of management involved? Product and process design. Do products meet customer needs? Are products designed for easy manufacturability? Product control. Is a strong product control system in place that concentrates on defect prevention before the fact, rather than defect removal after the product is made? Customer and supplier communications. Does everyone understand who the customer is? To what extent do customers and suppliers communicate with each other? Quality improvement. Is a quality improvement plan in place? What results have been achieved? Employee participation. Are all employees actively involved in quality improvement? Education and training. What is done to ensure that everyone understands his or her job and has the necessary skills? Are employees trained in quality improvement techniques? Quality information. How is feedback on quality results collected and used? BONUS MATERIALS Many self-assessment instruments that provide a picture of the state of quality in the organization are available.62 The Baldrige National Quality Program provides two simple instruments called Are We Making Progress? (one for employees and one for leaders). They provide a way of capturing the voice of the employee and the perspective of leadership to develop baseline measurements of an organization's progress using the Baldrige criteria. The Are We Making Progress? surveys are available in the Baldrige Materials folder on the Premium website. Most selfadministered surveys, however, can only provide a rudimentary assessment of an organization's strengths and weaknesses. The most complete way to assess the level of performance excellence maturity in an organization is to evaluate its practices and results against the Malcolm Baldrige National Quality Award criteria by using trained internal or external examiners, or by actually applying for the Baldrige or a similar state award and receiving comprehensive examiner feedback. Of course, many organizations, especially smaller ones, that are just starting on a quality journey should begin with the basics, for example, a well-documented and consistent quality assurance system such as ISO 9000. Assessment findings often identify specific processes and activities that require extensive modification.63 A Baldrige assessment, for example, might find that the organization lacks a systematic approach for determining customer satisfaction relative to its competitors. A number of actions might be taken to address this opportunity. The organization might consider instituting a competitive analysis program, sponsoring an industry-wide customer satisfaction research program, benchmarking best-in-class organizations, or undertaking some other initiatives to improve its intelligence gathering practices. Although interventions of such scope commonly involve many employees, involvement of senior management in direction setting, resource provision, and subsequent monitoring is usually necessary for effective implementation. Because the Baldrige process is based on self-assessment against the criteria, it is not surprising that some of the best examples of learning organizations are Baldrige winners. In pursuing their improvement efforts that eventually led to the award, they have continually and systematically translated the examiner feedback into improvements in their management practices. A vice president at Texas Instruments Defense Systems & Electronics (DS&E) Group noted that \"participating in the Baldrige Award process energized improvement efforts.\"64 By 1997, just before its purchase by Raytheon, DS&E had reduced the number of in-process defects to one-tenth of what they were at the time it won the Baldrige. Production processes that took four weeks several years before were reduced to one week, with 20 to 30 percent less cost. As another example, the superintendent of Iredell-Statesville Schools, a 2008 recipient, noted \"The big [opportunity for improvement provided by the Baldrige feedback report] that kept us from achieving recognition in 2007 was that we had a well-deployed Baldrige criteria at the classroom level, but were so focused on meeting the requirements of the No Child Left Behind Act in student learning that we missed opportunities for improvement on the operation side, for example, in maintenance, transportation, and child nutrition. We were using Deming's plan-do-study-act cycles, and once we got into the operation side of the house we found all kinds of expenses that could be reduced, with the savings then used in the academic side of the house. So, it was a great feedback report. It gave us the impetus to go to the next level.\"65 Although some research suggests a positive relationship between the conduct of self-assessment and performance outcomes, other evidence suggests that many organizations derive little benefit from conducting self-assessment and achieve few of the process improvements suggested by self-study. It is not uncommon for organizations to spend considerable time and effort on assessing their organizations, only to seemingly ignore the results.66 This lack of follow-through might seem a bit surprising. Why would organizations take the time to conduct a self-assessment and then not follow up on the results? After all, improvement opportunities usually offer significant gains in organizational effectiveness and competitive performance. Some managers may not follow up because they truly do not sense a problemdespite information suggesting otherwise. Often, however, managers get the message but choose not to respond. Many managers react negatively or by denial: \"These are wrong,\" \"This is not how it is here,\" and \"These [examiners] missed the boat\" are often heard. Such remarks are particularly likely when the report suggested that the organization was a less-than-stellar performer in areas perceived as strengths by senior managers. Other mangers may not know what to do with the information. Managers possessing little understanding of how the organization operates may not know which levers to pull in order to effect change or simply do it to appease their superiors. Typical comments include, \"There's some good stuff here, but I have no idea where to go from here,\" and \"It's hard for me to understand how to turn this [assessment report] into action.\" After reading his copy of the feedback report, the head of one manufacturing company manager muttered, \"Well, we've satisfied [the boss's demand for conducting the self-assessment] for another year. Now we can put this all away and get back to business.\" Following up requires senior leaders to engage in two types of activities: action planning and subsequently tracking implementation progress. Managers must take a positive approach to self-assessment findings, no matter how unpleasant they might appear\"OK, what should we do to improve these areas?\" Positive reactions often reinforce long-held but suppressed views about how the organization functioned. For example, at a meeting where results were being presented to the top management team, the chief engineering manager, upon hearing of low evaluations related to the organization's communications processes, exclaimed, \"I've been telling you guys this for years! Maybe now you'll believe me that we need to do something.\" The action plan identifies particular activities necessary to address the improvement opportunities. Effective action plans share some common characteristics. First, key actions to address the opportunities must be identified. A meeting to discuss the findings with key employees is often an excellent way to begin. Once identified, action plans should be documented and the who, what, when, where, and how of each action item specified. A draft version of the action plan should be communicated to inform those directly affected and gain their cooperation. Finally, the action plan should be reviewed to ensure that it effectively addresses the key opportunities identified by the selfassessment findings. Many managers consider their job finished when action plans are set in motion. However, planned changes are rarely implemented as initially intended. Moreover, people responsible for implementing the plans may need to use encouragement or involvement in order to effectively execute their portions of the intended change. Change implementation demands a second component of effective follow-uptracking the progress of action plan executionto provide managers with crucial feedback on whether the intervention is effective. To leverage self-assessment findings, managers must do four things: 1. Prepare to be humbled. \"Humbling\" is a word we often hear from managers who have recently digested assessment findings. Many of them have trouble believing that the performance levels of the organization are as low as they appear. Managers can temper their expectations by learning about the self-assessment activities and experiences of other organizations. Hearing it from peers, through phone calls to colleagues, and attending conferences, permit managers to learn firsthand about the self-assessment experiences of others. 2. Talk though the findings. Follow-up can be enhanced when the top management team discusses the self-assessment findings. Discussing the issues, concerns, and ideas can generate greater shared perspective among executives and improve consensus. 3. Recognize institutional influences. Managers should be sensitive to the institutional forces working on their self-assessment activities, such as pressures from customers. Institutional influence can be covertly transmitted through the literature, presentations, and conversation that managers encounter. During the planning phase of the assessment, frank discussion about the environmental motivators of the project can sensitize managers to these outside influences. 4. Grind out the follow-up. Even though follow-up activities may not be as exciting as plotting competitive strategy or entertaining customers, they provide infrastructure for realizing the process improvements possible from self-assessment. LEADERSHIP IN THE BALDRIGE CRITERIA, ISO 9000, AND SIX SIGMA Category 1 of the Malcolm Baldrige National Quality Award Criteria for Performance Excellence is Leadership. As the first of the seven categories, it signifies the critical importance of leadership to business success. Item 1.1, Senior Leadership, examines how senior leaders guide and sustain an organization by setting and deploying its vision and values; creating an environment for performance improvement, role-model performance leadership, organizational agility, workforce learning, and legal and ethical behavior; communicate with the workforce and take an active role in reward and recognition programs; and create a focus on action to accomplish objectives, improve performance, and attain the vision. Item 1.2, Governance and Societal Responsibilities, addresses how the organization's governance system addresses management and fiscal accountability and protection of stakeholder interests; how performance of senior leaders is evaluated; and how senior leaders use performance reviews to improve leadership effectiveness and the leadership system. It also addresses how an organization fulfills its public responsibilities, ensures ethical behavior, and practices good citizenship. These responsibilities include how the organization addresses impacts and risks of products, services, and operations on society in a proactive manner; how it ensures ethical business practices in all stakeholder interactions; and how the organization, its senior leaders, and employees identify, support, and strengthen key communities as part of good citizenship practices. Leadership underlies many of the requirements of ISO 9000:2000. The entire section on Management Responsibility is concerned with the role of leadership in driving a quality system. For example, the standards require that \"Top management shall provide evidence of its commitment to the development and implementation of the quality management system and continually improving its effectiveness by a) communicating to the organization the importance of meeting customer as well as statutory and regulatory requirements, b) establishing the quality policy, c) ensuring that quality objectives are established, d) conducting management reviews, and e) ensuring the availability of resources.\" More specific responsibilities are spelled out in detail in other clauses of the standards. Leadership is a fundamental value of Six Sigma. Driving organizational change to create and sustain a Six Sigma culture simply cannot be done without strong leadership. In other words, Six Sigma cannot be an add-on or a \"flavor of the month.\" It must become the way business is done in organizations that adopt it. A VIEW TOWARD THE FUTURE As we close this part of the book, it is a good exercise to try to look into the future and think about how things will be. In reflecting on quality in the past century, A.V. Feigenbaum and Donald S. Feigenbaum observed: [Quality] has become one of the 20th century's most important management ideas. It has exorcised the traditional business and graduate management school notion that a company's success means making products and offering services quicker and cheaper, selling them hard and providing a product service net to try to catch those that don't work well. It has replaced this notion with the business principle that making products better is the best way to make them quicker and cheaper and that what is done to make quality better anywhere in an organization makes it better everywhere in the organization.67 What the future will hold is never predictable. We face a serious challenge in sustaining the principles of quality amidst the continuing emergence of short-lived management fads, changing leadership driven by pressures of the stock market, e-commerce, and a myriad of other factors. In the January 2000 issue of Quality Progress, the American Society for Quality invited 21 individuals to provide comments on quality in the 21st century.68 We conclude this chapter with a sample of those comments, and invite you to reflect on what they mean for you as you continue your education and embark on your future careers. \"Those who understand that quality is derived from effectively managing systems will provide leadership in the new millennium. How many CEOs do you know who arise from the ranks of quality? Few, if any. Yet, I believe tomorrow's business leaders will have deep roots in quality and advanced understanding of how it nourishes their organizations' broader management systems.\"Alexander Chong \"The new millennium presents us with some fundamental challenges: Altered labor markets with higher skill levels, a greater gender balance, and increasing diversity. Competitive demands for continuous improvement, customer responsiveness, and levels of business excellence that are not price prohibitive. These can only be met through an emphasis on quality with equality.\" Eileen Drew \"The 21st century will see leading edge companies apply to information the quality principles successfully applied to manufacturing. This will usher in the next economic revolutionthe 'realized' Information Age, created by applying information quality management to information and knowledge processes.\"Larry P. English \"Quality is necessary for public education to thrive in the future. We have a moral imperative to use quality to make a difference in the lives of our children.\"Diane Rivers \"The quality perspective will shape the redefinition of the role of government. This new role will mean serving as a facilitator of relationships and innovative partnerships across all sectors, with less focus on direct delivery of service. Those who understand this context will thrive.\"Tina Sung Finally, Miles Maguire, Editor of Quality Progress noted: In the first 10 seconds of the new century ... the world will witness the birth of 44 infants ... by the time a year has passed almost 140 million children will have been born ... Consider all the new technologies and products and concepts and ideologies that have taken hold in the last decade: flip phones, fax machines, hiphop, SUVs, global markets, cyberschooling, eco-tourism, eco-terrorism, extreme sports, e-commerce, gene therapy, streaming media, and digital en-cryptionto name just a few. And now consider how the next decade, the first 1 percent of the new millennium, will bring at least as great a proliferation of ideas, innovations, and improvements. These developments will set a higher standard of expectations, creating a marketplace with a dizzying diversity of demands that can scarcely be imagined. What will the voice of the 21st century customer be telling us? We'll have to listen carefully to find out.69 Time will tell how whether or not these predictions will be realized. How do you see the organizations that you are familiar with addressing them? SUMMARY OF KEY POINTS AND TERMINOLOGY BONUS MATERIALS The Bonus Materials folder for this chapter on the Premium website provides a summary of key concepts and terminology introduced in this chapter. QUALITY IN PRACTICE: CHANGES AT ALCOA LEADERSHIP 70 Alcoa, ranked as the 79th largest firm in the 2005 Fortune 500, employs approximately 129,000 people worldwide and had 2004 annual sales of $23.96 billion. Alcoa has been known for progressive, innovative management. It treats its employees well, tries to avoid layoffs and plant closures unless forced to make changes as a result of continued negative results, and has unions at only about 15 of its 47 locations. Nevertheless, at Alcoa's industrial magnesium plant in Addy, Washington, a crisis of epic proportions rocked the plant and rattled the company, leading to some key leadership changes that ultimately resulted in dramatic improvements in safety, productivity, and profits. At the time of this case (in the late 1980's) the plant was facing two severe problems: an unacceptable rate of serious injuries that averaged 12.8 per year, and five years of unprofitable operations. No clear, easilyimplemented solutions were apparent for the first problem, but corporate management had suggested that layoffs of 100 or more employees were all but inevitable in order to stem the tide of red ink. Operating statistics bore out the depth and breadth of the problem. Prices of magnesium had dropped, and units selling for $1.45 on the open market cost $1.48 to make at Alcoa's plant. Quality control was below what was needed to counteract market forces, with magnesium recovery at only 72 percent of the raw material being processed. The apparent causes of plant problems consisted of a complex mix of lack of accountability, poor quality control, inadequate leadership, and low morale, especially among hourly employees. Corporate management stressed safety above all, and profitability second. The death of an employee, who was related to seven other employees, and the unacceptable financial losses led senior corporate management to decide that a change in plant management was essential. Don Simonic, a former college football coach, with Alcoa experience, was tapped for the job of plant manager. His turnaround team members included the then-personnel manager, Tom McCombs and outside consultants Robert and Patricia Crosby. If the new leadership team could not turn the plant around, plant closure or sell-off were the only remaining options. Since its construction, the plant had been designed with an opensystems, team-based culture, adapted from socio-technical systems theory. It was structured similar to the way that Procter and Gamble had set up its soap plants, and was considered a leading-edge organizational design. The process for producing the industrial magnesium was highly advanced and technical, and the innovative work team structure seemed to fit the technical systems characteristics. The plant attracted visitors from inside and outside the company who wanted to benchmark the operation and talk to team members. The organizational structure included: Autonomous, self-directed teams with no immediate supervisors. Teams were responsible for their own work areas. Hourly employee leadership that consisted of a team coordinator, safety person, training person, and team resource (internal facilitator) on each team. Supervisors, called shift coordinators, with four or five teams reporting to them, who were connected to the team coordinators. Shift coordinators generally stayed at arm's length, because if they intervened in team operations, they would get in trouble. The teams would say, \"Leave us alone. We know what we're doing.\" If they didn't intervene, upper management would say that the teams weren't doing what they should be. The supervisors were caught in the middle. Employees were empowered, but unable to face critical decisions that needed to be made to stem the crisis. The Crosbys identified lack of clarity in decision making and authority as the main culprit in the plant's environment. The new leadership model, conceived by the Crosbys and the plant leaders, involved major changes in goal-setting and decisionmaking practices. It required: New clarity in goal-setting A consultative, instead of a pure consensus approach to decision making Coming to grips with the need to cut costs pragmatically As the turnaround proceeded, Simonic decided that cutting staff was essential to meeting the new goals. First, all temporary and contract workers were laid off. As leaders were explaining the facts that had led to a decision to lay off an additional 100 workers, an hourly worker revealed a breakthrough that his team had made to significantly reduce the downtime required to turn a magnesium smelting furnace around. This process involved switching over to a new crucible once the other was filled (a form of the Japanese manufacturing technique called SMED single minute exchange of dies). The new team approach required more labor, but cut the downtime from the usual one-and-a-half-hour turnaround time to just one hour. Simonic called off the impending layoffs. When the new process was implemented on all nine furnaces in the plant, the savings reached $10 million. This was more than the wages of the 100 employees, who were allowed to keep their jobs. Simonic held strategic meetings where he engaged salaried and nonsalaried employees in intensive dialogue. His objective was to align all parts of the system, clarify who would be making what decisions, explain how decisions could be influenced, and communicate why decisions were made. Simonic then set the goals. Simonic made clear statements like, \"These are the goals. You and all our employees have firsthand knowledge of how things work around here. I don't care how you get there. I will support you in making choices about how to get there. And, if you can't get there, I will step in and decide how we will get there.\" McCombs, the personnel manager, remembered how they developed a matrix reflecting what kind of decisions team members and supervisors would make. Supervisors would still retain authority over all decisions, if needed. Before Simonic's arrival, decisions had been made largely by consensus. As a result of this process, one person was made responsible for every project or task, known as single-point accountability. This proved to be a critical change that was used instead of the consensus (team) approach, which was previously the only way to perform projects. McCombs and Simonic believed that for single-point accountability to succeed, it was necessary to establish the \"by whens\"when particular tasks would be accomplished. After making clear to the teams and employees what was expected, they started achieving goals better. Eighteen months after Alcoa's brought Simonic in as plant manager, the change efforts had produced impressive results: Unit costs had been reduced from $1.48 to $1.18, recovery of magnesium increased by 5 percentage points (worth $1.3 million per point), and the serious-injury frequency fell from 12.8 to 6.3 per year. Although positive signs appeared throughout the process, the incident in which the layoffs were averted proved to be the most critical, because employees subsequently had taken responsibility for applying their own creativity to meeting plant goals. Over the next two years, the plant became the lowest-cost producer in the world, and shortly afterward had boosted productivity by 72 percent. The president of Alcoa even asked all of the plant managers to visit the site and learn from Addy's turnaround. One decision-making technique that was practiced at Addy and several other Alcoa plants was consultative decision-making, where the manager makes the final decision but consults with the team first. For example, McCombs recalls an incident requiring disciplinary action on several teams: \"The teams would have 24 hours to give their recommendations to management on how the discipline should be handled-up to and including termination and management would administer the discipline. At least 95 percent of the time we took the team's recommendation and moved on,\" says McCombs. The consultative method was also used to make hiring decisions. For example, the boundaries laid out for a team might concern Alcoa's desire to hire minorities. Typically, \"the team would present their selection of who to hire to the manager, and often they would do such a good job the decision was just \"'rubber-stamped,'\" explains McCombs. Another successful approach was called the \"cadre.\" During the turnaround, Simonic and the Crosbys would work with the cadre, a group of key people, chosen from a vertical slice of the employees, who engaged in two specific roles: (1) observing and evaluating the change process as it played out while (2) simultaneously participating in the process The cadre became a skilled resource for the plant on leadership development, change management, conflict management, quality, and work processes. In reflecting on Simonic's impact on the organization, McCombs noted: \"Don had a dynamic personality and was very charismatic. He possessed a very strong leadership style and was very clear. But you also must work with the intact families in the organizationone of Simonic's own beliefs. That's where change happensin the small groups. You must work with that supervisor and that crew and get them aligned with the organization and work out any conflict.\" According to McCombs, Simonic was guided by four clear principles: \"Leaders have to lead, make decisions, have a clear vision, and set direction. Once leaders set direction and get a breakthrough goal in mind that people can rally around, then people can tell the leader how they are going to get it done. A leader shouldn't tell how to do it, but he or she needs to set that direction. And that's what Simonic did very well,\" insists McCombs. Unfortunately, Addy didn't sustain the momentum of the turnaround. In 1992, Simonic and McCombs left to help turn around other Alcoa plants. Corporate management continued to reduce the workforce. They eliminated all the department heads and everybody ended up reporting to the shift supervisor or plant manager. This caused lack of clarity about leadership and authority in decision making all over again, and as McCombs explained, \"They stripped away the leadership that could have supported the change efforts afterwards.\" Perhaps because of the previous successes and the skills gained in the previous turnaround, Crosby believed that the second recovery that occurred some time after Simonic and McCombs left, was going to be much easier. The plant appeared to be back on track and headed for success again, but the fortunes of business intervened. There was another drop in the price of magnesium, and the Addy plant lost its competitive edge. In fall of 2001, the plant was closed down and approximately 350 employees lost their jobs.71 Key Issues for Discussion 1. From a strategic management standpoint, why do you think that corporate management at Alcoa delayed taking action for five years as the plant continued to lose money and deteriorate in other operational measures? 2. What type of leadership style did Simonic seem to follow? Does it fit any of the leadership theories that were developed in the chapter? 3. How easy or difficult would it be for other organizations to duplicate the leadership style of Simonic and the organizational systems practiced at Addy, prior to, and after Simonic's tenure? QUALITY IN PRACTICE: MERGING DIVERGENT QUALITY SYSTEMS AT HONEYWELL72 AlliedSignal and Honeywell each had years invested in their quality management systems (QMSs) when they merged in 1999 into Honeywell International. AlliedSignal was a leading supporter of, and participant in, the Six Sigma movement. By the time of the merger, AlliedSignal was five years into its Six Sigma program, which was key to the company's effort to capture growth and productivity opportunities more rapidly and efficiently. Meanwhile, Honeywell had developed its own Baldrige-based QMSthe Honeywell Quality Value (HQV) program. The merger between AlliedSignal and Honeywell required merging and reshaping these two diverse approaches, which was renamed Six Sigma Plus. Six Sigma Plus combines the characteristics of the former AlliedSignal's Six Sigma program and the former Honeywell's HQV method, including lean enterprise, a lean manufacturing component; and activity-based management (ABM), which aids in analyzing customer profitability and targeting future costs for new product development. Key to making Six Sigma Plus universal in each of Honeywell International's businesses was committing to a strategy of approaching every improvement project with the same logical method, the DMAIC process. Their leadership criteria were also logical and rigorous. Candidates for Six Sigma Plus leadership positions were expected to possess an aptitude for learning, the ability to lead, the ability to mentor others, and the desire to continue to progress through the organization. Honeywell International's CEO Michael R. Bonsignore made clear the future of Six Sigma at the new company: \"As a new organization, our challenge is to continue the performance improvements of our predecessors, delight customers, and achieve aggressive growth. Six Sigma Plus will drive growth and productivity by energizing all of Honeywell International's 120,000 employees worldwideproviding the skills and tools to create more value for our customers, improve our processes, and capitalize on the power of the Internet through ebusiness. I am determined to make it a way of life at Honeywell International.\" Edward M. Romanoff, Honeywell International's commun