It goes without saying that quality is a key competitive factor in every industry. To provide high-quality products and services means to fulfill explicit and implicit customer expectations, along every step of the value chain: R&D, procurement, production, sales and distribution, and after-sales service. Problems with quality translate quickly to lower levels of customer satisfaction, higher costs, and shrinking revenues.
Over the past 20 years, most companies have invested heavily in quality improvement—including quality management systems, quality processes, and IT systems—aiming to secure and consistently improve the quality of their operations. Despite the marked improvements that have come from these efforts, however, recalls due to quality deficiencies are still common, costing companies billions of dollars. Without a transformation within an organization’s culture, quality management will continue to suffer.
Notable examples of recalls from the past 15 years include artificial hip joints, arthritis drugs, car ignitions, car pedals, airbags, and exploding battery packs in mobile phones—adding up to $50 billion in losses. According to insurance records, the auto industry has claimed the highest costs, followed by the food and beverage industry. (See Exhibit 1.)
What leads to these significant quality defects? Here are three examples:
On the whole, people tend to behave rationally and are influenced by the behavior of others; seldom does anyone intentionally act to the detriment of corporate goals and values. In order to raise performance and quality, employee behavior has to change. Leaders are often aware of this, attempting to change employee attitudes—and therefore behavior—through broad communication programs. But this approach tends to trigger self-defense mechanisms. People prefer to stay within their established way of working—if they see no rational reason to change. Simply telling them to change is not enough.
To change the behavior of employees, you have to adjust the context in which they work. This might mean making change within processes, organizational structures, performance metrics, incentive systems, or the distribution of roles and tasks. In the medium term, values and attitudes will shift, which then leads to a sustainable improvement in quality.
It’s crucial to understand how employees are behaving—and why—in order to change their context.
In one example, a company became aware that employees were only following rules and processes when it was absolutely essential. Project managers monitored quality criteria for full compliance but did not question the results. Their performance was evaluated more on the basis of adherence to budgets and time schedules than on long-term quality goals, such as nonquality costs in production or warranty costs.
At another organization, employees placed more weight on costs than quality—behavior that was a direct result of the fact that their superiors looked primarily at cost metrics and did not emphasize quality metrics.
And at another, cross-divisional cooperation took place in development only sporadically, even though it was prescribed in the standardized development processes. Employees explained that involving colleagues from other departments would slow down coordination and decision-making processes when they had ambitious time-to-market targets to reach.
Such behavior often results in unnecessary costs, delays in launching new products because of elaborate error correction late in the process, dissatisfied customers, and dissatisfied employees.
Changing the context can correct the root causes of behavior issues. Employees have to see fast decision making and a focus on sustainable improvements as useful, worthwhile, and rational. And management has to move employees from having a silo mentality toward embracing a cooperative culture.
Observing six simple rules can help foster cooperation and reduce complexity, often leading to a noticeable change in behavior within a short period of time.
In order to foster cross-functional cooperation, an automotive OEM applied numbers 1 and 2 from this list. The company implemented a quality council to foster a cross-functional common understanding about quality issues and required actions. The roles of the quality council, quality management department, and functions are now clearly defined. This has led to flat hierarchies and fast decisions.
Another automotive OEM leveraged number 5, extending the shadow of the future. R&D engineers had previously only been incentivized to adhere to budget and timeline. Now the project manager for the development of a new car has the burden of the warranty cost of the former model, which comes in addition to cost-saving targets for the new model.
At a toy manufacturer, rewarding those who cooperate—number 6—is an important part of the company’s values. The CEO has stated that he expects cooperation from his employees—a value that has become engrained in the culture. No one is blamed for failures, only for not helping others.
Changing corporate culture requires a holistic transformation program with an end-to-end view. A few adjustments made here and there will not suffice. Such a program typically addresses a number of issues:
Success with quality transformation requires three far-reaching adjustments within companies.
Corporate management has to show commitment to the cause. Transparency—in this case, a clear understanding of the work everyone does—begins at management level and trickles down to lower levels. Top-level management should lead and participate in cross-functional quality meetings and hold regular discussions of quality status and improvement projects.
Top managers also need to participate in status meetings, such as reviews of quality programs and “quality gate” meetings. Many of the six abovementioned rules require fundamental changes in reward and incentive systems, processes, and organizational structures—adjustments for which corporate management support is absolutely vital.
There has to be cross-functional responsibility for quality transformation. Meaningful change to quality management needs to be implemented throughout the entire company, with measures rolled out across functions in order to boost cooperation among the departments from the very beginning.
The quality-management department might, for example, be made responsible for central coordination and communication. It could also promote governance issues in close cooperation with individual departments, as well as knowledge management and training. Cross-departmental teams must be made responsible for improving processes.
A central, systematic project management office is indispensable. This office is responsible for planning the program timeline and resources and implementing the project in waves in order to avoid disrupting the company.
It also has to ensure that implementation takes place within the set timeline and budget. A successful project management office—supported by experts from production, R&D, procurement, and supply chain management—holds regular review meetings with those responsible for each of the measures.
Leaders everywhere know that a culture geared toward quality is essential to long-term success and competitive advantage. To get there, they have to change employee behavior by transforming the context in which people work so that behavior leading to high quality becomes rational. The most important desired behavior should be cooperation across an organization, which means designing an overall setup that fosters that cooperation. A successful quality management program needs a holistic end-to-end view and must be at the top of every management’s agenda. Without it, companies are doomed to make—and repeat—costly mistakes.