Does your company imbed quality into its culture and performance, or does it simply look for quality control?
In March 1987, ISO (International Organization for Standardization) released ISO 9001 to the world. This standard has become ISO’s most successful standard (1) with over one million companies in over 170 countries (2) registered as ISO 9001 certified, and many others use it as a baseline for their quality management systems (QMS). But if adherence to ISO 9001 is so widespread, why do so many companies struggle to improve their quality of products, processes and services? Why do we still hear of catastrophic failures like the Boeing 737 MAX, Deep Water Horizon and Space Shuttle Challenger? Or demoralized quality professionals? I believe the answer lies with leadership and the culture of the companies that leaders help to create. This article will look into three key aspects related to corporate leadership and quality’s involvement in operational improvement.
• Do leaders understand the benefits of a healthy quality culture?
• How do quality professionals learn to communicate with business leaders?
• What brings all of this together?
Leaders and Culture
What is quality culture? Perhaps it would be better to replace the word “quality” with “business” instead. At its core, ISO 9001 is intended to be a business management system, NOT a quality management system. During my career, I have always attempted (with varying degrees of success) to move away from the concept of having a quality department that inadvertently becomes the owner of all quality-related issues. Quality cannot be the work of only one department within an organization. Quality thinking should be embedded into a company’s business culture and day-to-day activities. Every employee must understand the importance of the work they do and the impact they have on the customer experience. Working in the automotive safety world really brought this concept home for me. The work we did actually saved lives, and we made sure that every associate understood that. I remember listening with great pride as our TS16949 auditor asked multiple associates in various departments the same question, “What impact do you have on the quality of the product?” and they got the same response, “If I get it wrong, someone may die” from everyone. There was ownership of quality throughout the organization. It was a sign of a healthy “quality/business culture.”
I’ve given a lot of thought to what defines a business culture and have distilled it down to seven steps:
1. Design for quality from the start - Prevention is the key here. It is far easier (and cheaper) to build quality into everything you do and design failures out rather than to try to detect and fix them later.
2. Discipline - Using the right tool(s) at the right time requires a disciplined approach to continuous improvement.
3. Awareness - Know the financial impact of quality on your business and understand the impact the cost of quality has on margins.
4. No Fires - Application of the first three keys leads to a controlled environment that can facilitate continual improvement.
5. Ownership - Ensure that “quality” is owned by everyone at every step of every process
6. X-Teams - Use the power of diversity and build cross-functional teams to challenge siloed thinking.
7. No Heroes - Steps five and six combined with the first four remove the need for firefighting heroes to save the day. Processes and products have predictable performance and customer satisfaction is guaranteed.
Unfortunately, quality in most organizations is viewed as a cost to the business, or the cost of the detection of errors. These include the cost of audits, the cost of paying employees to “push paper” and not really produce anything, and the cost to test a product to find out if it is ready to release. These are the ongoing costs that organizations associate with quality, with some viewed as necessary and some not. But what if the culture was to change to one of prevention rather than one of detection? Preventive measures may cost more upfront (not in all cases) but they are one-time costs to the business that rapidly pay for themselves.
Communicate, Communicate, Communicate
So if preventative measures are the key and they save the company money, why is it so hard to put them in place? I believe it is a question of language. Quality professionals speak the language of CpK, PpK, SPC, APQP, PFMEA, Kaizen, Muda, Mura, yadda, yadda, yadda. Business leaders speak the language of ROI, NPV, EBITDA, ROA, ROS, etc. While both groups have the best interests of the organization at heart, they are divided by the way they speak, the business languages that they use and the methodologies that they employ. If they want to be taken seriously by business leaders, I believe quality professionals must start speaking the language of business and argue in terms of the most important issue at every company: Money.
The easiest way to do this is to translate the language of quality into the language of dollars and cents, and the easiest way to do that is to focus on Cost of Quality (CoQ). Probably one of the most neglected areas of quality in the past years, CoQ is seeing a resurgence in interest recently, and it is really the one that needs to be focused on the most. Cost of Quality is where the rubber meets the road and it can make or break a company. CoQ is composed of two equally important areas, Cost of Poor Quality (CoPQ) and Cost of Good Quality (CoGQ).
The Cost of Poor Quality includes:
1. External failures - The worst type of failure, discovered by your customer or by the end-user of the product. This type of failure results in warranty claims, chargebacks, administration costs, sorting costs, rework, etc. but also includes other costs not usually accounted for (the hidden costs) including loss of reputation, additional testing and time spent by resources on corrective action.
2. Internal failures - Failures found within your organization, that necessitate similar costs like rework, scrap, testing, etc. and hidden costs like missed sales revenue.
These two types of failures cost companies more than they may realize. For example, a business with a CoPQ number of $10,000,000 (something I have witnessed), a 10% margin and a selling price of $0.02 (a commodity product) would have to generate $100,000,000 in sales just to cover the COPQ number! And that is just the visible cost. What if I were to include the hidden costs that most companies neglect to account for? CoPQ can kill your business.
The other side of the coin is the cost of good quality, which takes into account:
1. Appraisal costs - The cost for detecting a poor-quality product or a process that is not running at optimum level. These are the cost of detection. They help to internalize the failures, but they also help to reduce the external failures. These costs represent daily ongoing costs to the business.
2. Prevention costs - This is where I would want to spend my money. Prevention occurs before we create a product or service. It eliminates poor quality and is a one-time expense that might be more expensive in the short term, but is far more cost-effective in the long run.
Bringing It All Together
To imbed quality throughout an organization, quality professionals need to shift their focus and their budget from detecting poor quality to preventing it in the first place. This means spending more time and money upfront when the product or process is designed and implementing mistake-proofing and preventive actions that keep mistakes from happening.
Great, you say, I understand the concept, but how do I get this across to leadership? Well, this comes back to communication and choosing the correct language to articulate your needs. We need the conversations to move from “I need $X so I can improve CpK and give you six sigma performance” to “I need $X - so I can add $XXXXX to the bottom line and increase capacity by Y%”. Now we are speaking the language that business leaders understand. I am certain your request will get far more attention and a higher approval rate than before.
Here are four obvious (yet hard to accomplish) steps I recommend that quality professionals should take to begin a culture change at their organizations:
1. Swap out your terms - Stop using the term “quality.” Not literally, just use “business” instead, especially when talking to management types. Replace “Quality Management System” with “Business Management System.” Instead of talking about quality standards, use business standards in its place.
2. Change how you communicate - Change the language of quality to the language of business. Move a management review from an annual torture session for your executives to a quarterly review of your quality financial performance.
3. Remove the silos - Become one tribe speaking the same language and pull accounting, operations, executive leadership and quality together.
4. Use the tools - There are an almost endless number of tools in the quality professional’s tool kit, like cloud-based ERP and EQMS solutions. Use the correct one for the job at hand. You will be amazed at how effective your teams become.
Good luck with your efforts. It is worth it in the end.