The Cost of Non-Quality: COPQ and Social Responsibility

In his latest blog post, ASQ CEO Paul Borawski asks whether economists have the tools to make a compelling argument for the cost of poor quality at a societal level?  For me, the COPQ Iceberg came immediately to mind. In an article written by Joseph A. DeFeo and published in the May 2011 issue of Quality Progress, quality costs were represented as "Visible" and "Hidden" costs. Visible costs of poor quality include scrap, waste, rework, inspection, disposition, disposal, customer complaints and warranty costs, etc. Hidden costs of poor quality are more difficult to measure and quantify - but often yield the greatest opportunity to positively impact organizational performance - such as lost customers, employee turnover, pricing and billing errors, inventory costs, costs to expedite orders, premium freight, overtime, and many other forms of waste (muda).  According to a report published  in 2005 by the Juran Institute, the Cost of Quality is estimated at 10-40% of sales, depending on the quality level (i.e. "Sigma") of the process.

But COPQ alone is not an adequate measure of Quality and its impact to organizational success. It has been my experience that most measures of COPQ are inward facing (i.e. internally-focused) and often solely process focused. Every organization should also deploy measures of business process speed, employee engagement and customer satisfaction; measures such as value stream cycle time and lead time, factory escapes (defective parts per million), customer complaint resolution time and effectiveness, customer satisfaction, employee engagement pulse surveys, etc.  Organizational speed, agility, flexibility and responsiveness provide critical competitive advantage in today's global economy. For example, a story recently published in the New York Times reveals Apple's decision to manufacture the iPhone outside the United States was based primarily on the need the need for a low cost yet capable, flexible workforce, as well as an agile and responsive manufacturing and supply chain.

On the flip side, a story appearing in a Yahoo finance blog sheds some light on the appalling labor conditions inside Foxconn, Apple's largest overseas contract manufacturer. Indeed, Corporate Social Responsibility (CSR) and Sustainability are two significant - and growing - opportunities for the Quality discipline to help show organizations the way towards profitable organizational performance improvement with minimal loss to society. If, as attributed to Peter Drucker, Tom Peters, Edwards Deming, Lord Kelvin and others, What gets measured, gets done (improved), then how do we measure CSR and Sustainability? I believe the Baldrige Program, with its Criteria, site visits and role model best practices provides an excellent framework for improving the net economic and social value of organizational performance.

Book Review - Journey to Emerald City

I've been asked to write a series of reviews for the ASQ MN Section on books I have read and recommend with respect to leadership and continuous improvement. One of the books I recommend for every Quality Manager's library is Journey to Emerald City.

Journey to Emerald City is not a new book – it was copyrighted in 1999 – but it is one of my “Top 15” for every Quality Manager’s library.  Journey to Emerald City is a follow-up book to The Oz Principle in which the authors illustrate the importance of self-accountability towards achieving team and organizational goals. In The Oz Principle the authors present a “Steps to Accountability”^SM roadmap, which explains “Above the Line” and “Below the Line” thoughts and actions. “Below the Line” habits result in the blame game; “Above the Line” habits result in accountability.  In Journey to Emerald City, Connors and Smith explore the relationship between a company's culture and its ability or inability to effectively implement its strategic plan to achieve the desired results, and describe how to “Create a Culture of Accountability”^SM.

Both books use the characters in L. Frank Baum’s The Wizard of Oz to illustrate the key points. For example, an organization’s strategic plan is depicted as the yellow brick road; reaching the Emerald City is the goal. Each Oz character has their own failings and needs – and brings their own set of unique skills. Through personal accountability, teamwork and a shared common vision they are able to overcome tremendous obstacles to achieve personal and team goals.

I first became exposed to Journey to Emerald City while serving as Chair of the ASQ Statistics Division. During our 2000 Long Range Planning session, the Division leadership team was seeking to fundamentally change the direction of the Division from being perceived as a statistical tool pharmacy to an organization purposed to promote and advance statistical thinking everywhere. ("Statistical Thinking Everywhere" was the Statistics Division's vision statement first verbalized back in 1996. New division products and services were developed and distributed in alignment with this vision). The division leadership team recognized that a culture change was required to sustain our mission and vision as division leaders rotated on and off the Council.  Then Chair-elect, Davis Balestracci, a degreed statistician and management consultant, had been focused on helping his clients’ leaders drive organizational change. Davis brought the "Results Pyramid"^SM (see below) to the Division planning process. The ASQ Statistics Division leadership team bought into Connors and Smith’s prescribed culture change model and we successfully implemented our strategic, annual and tactical plans that resulted in 11 consecutive years of ASQ “Top Achiever” status in division operations and member satisfaction.

I especially like Journey to Emerald City because it clearly communicates the important role of management as change agents to create the experiences and model the desired behaviors to achieve the expected results. The main points of Connors and Smith’ message is simple:

•    An organization’s leaders must create its culture

•    The organization’s culture will create its results

•    A Culture of Accountability is the most effective culture to achieve results

•    Accelerating the transition to a Culture of Accountability creates competitive and organizational advantage.

In Journey to Emerald City, the authors present the “Results Pyramid”^SM that clearly explains how experiences, beliefs and actions create culture; and, discuss how management must create experiences and model behaviors to foster beliefs that will drive the actions necessary to achieve desired results.

As I explained in the first paragraph, Journey to Emerald City was written back in 1999. More recently, the authors have launched a new website, Partners in Leadership, offering free web seminars on workplace accountability.