Action and reaction

How do companies learn?

We've discussed this question on and off for years, and mostly it's not easy. Two years ago, in the middle of a series of posts on Boeing, I wrote about data falsification scandals at Toyota and suggested that it can be phenomenally difficult for a company to learn new attitudes. Two weeks later I backed off to say that it's possible but not easy. And just last month I wrote about Robert Cole's study, Managing Quality Fads, about how American companies learned quality methods from the Japanese during the 1980's. So yes, it's possible but not easy. 

That conclusion just brings us back to the original question: If it's possible, then how? And here it can be useful to look at success stories—companies that did learn a lot from others, and improved their operations accordingly. One advantage of Cole's book is that he gives a lot of detailed data about the period he describes, including a number of case studies. Of these, the first big success in adopting the new quality methods was Florida Power and Light (or FPL).

What made their success possible?

Cole stes the stage by explaining: "FPL [began] its quality improvement ... in 1981. In 1985, it became the first large American company ... [to start] learning directly from the Japanese. It entered into a deep exchange relationship with Kansai Electric and other ... Japanese companies[,] and worked closely with Japanese professors...."* But there were a number of special factors that supported FPL's quality initiative.

• FPL was in the same line of work as Kansai Electric, but they were not direct competitors. So neither company feared accidentally revealing trade secrets to the other.
• FPL and Kansai Electric used the same equipment—they both used Westinghouse-designed nuclear plants. So FPL trusted Kansai's reported metrics, rather than waving them aside as "apples and oranges." When they learned that Kansai's Mihama plant reported 10% as many quality problems as FPL's Turkey Point plant, they looked right away for management and operational differences that could explain such different performance from the same infrastructure.
• FPL and Kansai set up an extensive program of travel and visitation, so that personnel from each company could build personal contacts with their counterparts.
• Crucially, the CEOs of the two companies built a strong personal rapport. It soon became flatly unacceptable to express anti-Japanese sentiments at FPL.**   

What did they do?

With this background as a framework, FPL adopted Kansai's Total Quality Control (TQC) measures almost intact. The successes were dramatic enough that four years later (in 1989), FPL was the first non-Japanese company to win the Deming Quality prize.

Perhaps more to the point, FPL's success got the attention of other American companies. Soon FPL was giving seminars on quality improvement; and in 1986 they spun off a subsidiary (Qualtec) as a for-profit consulting firm. In the end, Qualtec could not keep up with the demand for its services, so FPL sold it to the Marshall Group in 1995.

What happened next?

Newton's Third Law of Motion famously says that to every action corresponds a reaction, and I'm not the first author to apply the same phrase metaphorically to human organizations as well. In 1989, James Broadhead took over as FPL's new CEO; and after the company won the Deming Prize, he began to dismantle much of the quality superstructure and documentation requirements. He argued that this structure and these requirements were too extensive to be cost-effective, and therefore that they were inconsistent with FPL's overall business objectives.

But it is important to understand that Broadhead did not rip out the company's quality measures root and branch. And FPL's overall quality levels did not suffer under his administration.*** What he did was to integrate the quality measures into normal operations, so that they became "just how we do things" rather than adding them as special steps administered by the Quality Department. As that integration took place, he could also shrink the size of the Quality Department because there was no longer a need for so many extra staff. He found that FPL had implemented a lot of documentation requirements because they were demanded by the Deming Prize; but in fact, no one ever looked at the documents again after the prize committee left. So he eliminated those requirements that had no use. He continued to support benchmarking, self-managing teams, process reengineering, and employee empowerment. So while the American business press described Broadhead's administration as a massive rejection of Japanese quality principles, it was nothing of the kind. He kept what worked—all the measures that reduced downtime and outages and disruption of service—because they worked! All these measures were profitable. He just made them unremarkable enough that they no longer drew special attention.  

Points to take away

The original question was, How do companies learn? So concretely it is fair to ask, How much of FPL's experience can apply to another company?

Obviously FPL faced special circumstances that gave it almost a perfect framework for learning from someone else: for starters, the partnership with Kansai, who was not a competitor and who used exactly the same equipment.

But I think there are three points that have a wider application, and it is important to remember all three.

1. Any learning initiative—really any change initiative of any kind—has to have strong and consistent executive support. The forces opposing change are always powerful; so without reliable pressure from the top, it is likely that nothing will happen.
2. 
   The more widely you spread information about the initiative or the new way of thinking—and the more personal you make it—the better your success will be. One of FPL's big successes was their travel initiative, that brought so many of their employees face-to-face with their counterparts at Kansai. Once they made friends, it was easier to talk about problems at work—and to listen to the answer.
3. Unless there are external measures to guarantee the change is permanent (for example, if one company has bought another), there will be a backlash in time. Don't waste effort trying to fight or avoid it. The better strategy is to make sure that all the most important parts of the change are fully embedded into normal practice by the time that the backlash arrives. Let the new managers pull down some posters or eliminate other symbolic reminders of the change initiative. But make sure the new methods themselves are so routine and so profitable that no one thinks of changing them.   

If you remember all three points, is that enough to make it easy for your company to learn? Probably not. But they are sure to help.

__________

* Robert E. Cole, Managing Quality Fads: How American Business Learned to Play the Quality Game (New York, Oxford: Oxford University Press, 1999), p. 66. This whole story comes from the same work, pp. 66-71. 

** If I remember the early 1980's correctly, FPL's attitude could not yet be reliably assumed across the country as a whole. 

*** So James Broadhead's career at FPL does not foreshadow that of (let's say) Harry Stonecipher at Boeing, a few years later.