"The absence of alternatives ...."

We've talked at some length about how companies learn to improve. But in many ways it sounds like a difficult process, requiring a lot of persuasion over a long period of time. So it must be tempting to wonder if there is anyway to shorten the exercise. 

Can you force a company to get better?

Henry Kissinger, of course!

You can certainly supply strong motivation. Years ago I worked for a small startup that had no special interest in certification. We knew our technology was good, and that's where we focused our attention. Then one day our largest customer told us that they had adopted a new policy: after January 1 of the next year, they were going to cancel all contracts with any supplier that had neither ISO 9001 certification nor a solid plan to get it. I remember our CEO announced to us in a Town Hall meeting that our new strategic plan required us to work towards certification with all deliberate haste. As he laid out the details, he quoted Henry Kissinger: "The absence of alternatives clears the mind marvelously."

Grigory Potemkin: Don't
let him plan your ISO
9001 implementation!

Does it work? Well, we got our ISO 9001 certification, although by the time we finally achieved it our market had changed and we no longer relied so heavily on that one customer. (The tech market is notorious for turning on a dime.) But there's a risk to this kind of forced compliance. If you are not very careful with the implementation of the new measures—ISO 9001 regulations or whatever else they might be—your organization could settle for a superficial or "Potemkin" compliance in which the new methods are used to create an overlay over top of the old ones. One day every year, at the time of the audit, everyone follows the new methods and uses the new terminology; then for the next 364 days, work is done like it always was before. This is not an effective approach.

We've talked about this risk before (for example, in this post and this one) and it is always real. When Robert Cole summarized research on American companies adopting Japanese quality methods in the 1980's and 1990's, one study in his pool focused on six second-tier automotive suppliers who were required by the major OEMs* to adopt Total Quality Management (TQM). Of those six, only one adopted the methods in a way that made a lasting difference, or that was fully integrated into the normal way of working. Four suppliers adopted the new approach "rather mechanistically, with the methods not being used regularly or to their greatest potential." And one supplier did nothing at all. Cole describes this nearly-perfect statistical distribution dryly as "a full range of outcomes," and points out that in many cases it was only years later that these suppliers finally put in the effort to upgrade their operations.** 

Naturally this is only one study. It doesn't prove that if you try to force improvements on your suppliers, you'll have only one in six odds of success. But it does remind us—what we already know—that improvement is never easy. It does suggest that if you want your suppliers to improve in some respect, you should work with them, stay engaged, and support them on their journey. As we've seen, external support always makes a difference. And in the long run that support may be more effective than giving your suppliers an offer they can't refuse.    

__________

* OEM = Original Equipment Manufacturer. In this context, it means General Motors, Ford, Chrysler, and so on. 

** Robert E. Cole, Managing Quality Fads: How American Business Learned to Play the Quality Game (New York, Oxford: Oxford University Press, 1999), pp, 127-128.       

           

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 sets 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.   

           

Managing quality fads

Recently I've been reading a book about the history of our field, Robert E. Cole's study, Managing Quality Fads: How American Business Learned to Play the Quality Game. The book came out in 1999, so whenever Cole talks about "current practice in industry today" I had to remind myself to reset my mental frame by a quarter century. But mostly the book is a history. Cole examines the period when American manufacturers learned to rethink their approach to the Quality discipline, in the face of strong and successful competition from Japan. He starts his story in the early-to-mid-1970's, when American manufacturers first began to face serious competition from Japanese firms offering superior product quality. Then he brings it up to "the present day" (1999), by which time the awareness of Quality had become normalized in American industry and American manufacturers—some, at least—could once again compete with their Japanese counterparts on a level playing field. It's a big story, with a lot of moving parts. And ultimately Cole organizes his material to address one large, overarching question: How do organizations learn?     

The book is not one to read quickly. Cole writes for an academic audience more than for a business one, and there is a lot of detail. Often it seems that Cole is telling us everything he knows about a topic, even when he could make his point more clearly by saying less. And there are many places where he describes a Quality initiative in a certain company, only to start the next paragraph by saying (in effect), "Of course there were other people in the same company doing the exact opposite." It takes him a long time to paint the full picture.

In one sense, though, Cole's presentation is relentlessly true to the facts where a clearer storyline would distort them. When American firms were first successfully challenged by Japanese companies that reliably produced higher quality products, they didn't know what hit them! Cole makes it clear that the American manufacturers didn't understand what made the Japanese products better—and not only did they not know how to improve their own operations, but they didn't even know what "improve­ment" might mean. Cole's slow, methodical "on the one hand ... but on the other hand" exposition can be frustrating if you want answers: What finally worked? How do organizations learn? But the players at the time felt that same frustration too. There were a lot of false starts, a lot of "quick-fixes" that went nowhere, and a lot of confusion all around. Cole's very deliberate approach to his story helps the reader to feel that, and to appreciate it in retrospect.

The other advantage to Cole's presentation is that it is rich in detail. There are a lot of little nuggets that are worth exploring for their own sakes. Over the next few weeks I plan to pull out some of these nuggets and write about them. Oh, I'll write about other things too. But I expect to come back to this book several times in the blog, before I finally put it back on the shelf. There is a lot here.

For today's post, I'll limit myself to summarizing Cole's final conclusion, in an abbreviated form. (I can write another post later with more detail, if there's interest.) Cole introduces the last section of his last chapter in a way that feels distinctly unpromising:

[The] question is often posed: how do managers learn to identify best practices and diffuse them across an organization? Survey data suggest the answer is, not very well.*   

But then he describes the approach which, in the long run, seemed to be the most productive. He focuses his results in two ways. 

• First, his attention is on large organizations with many divisions: partly, no doubt, because those are the companies he got to know through his consulting practice; but also, I think, because those present the most difficult case for organizational learning. The size of such companies means that any organizational transformation has to be adopted by many people; since the number of affected individuals is large, progress is necessarily slow and the institutional inertia is enormous.
• Second, he is writing specifically about how large corporations learn "under conditions of uncertainty and incomplete information"**—exactly the conditions that characterized the Quality challenge from Japan. 

In that context, Cole identifies the most robust approach to be a collaboration between a central function at headquarters and implementation in the "periphery" (i.e., the operating divisions).

• The central function sets high-level goals, targets and incentives, but does not specify exactly how they should be implemented. This is because the prevailing "uncertainty and incomplete information" mean that headquarters doesn't really know how they should be implemented!
• The operating divisions figure out methods that work for them. Since they are the ones who actually do the work, they will have a much better understanding than headquarters does of what methods are practical and what are not.
• But then the central function monitors the innovations and the results, "to identify, synthesize, and diffuse best practices; otherwise the mutation process [i.e., local innovations in the operating divisions] will lead to dilution and degeneration."***

During the twenty or thirty years when American companies were relearning how to think about Quality, there were many different approaches. But this one seems to have been the most robust, involving shared responsibility across the organization: with central guidance and local adaptation. 

In fact, Cole argues that the same center-and-periphery topology describes how Quality knowledge spread across the country as a whole, from early-adopting industries even to those that were more protected from the challenge. But that, as they say, is another story. 

__________

* Emphasis mine. The quote is from Robert E. Cole, Managing Quality Fads: How American Business Learned to Play the Quality Game (New York, Oxford: Oxfor University Press, 1999), p. 243. 

** Ibid., p. 246. 

*** Ibid., pp. 245-246.