You would think that when you install a successful total quality management (TQM) program, you would see some great side-effects going throughout the organization. But that’s not always true. Installing any new system is tricky and sometimes doing something “good” leads to performance problems.
Researchers John Sterman, Nelson Repenning, and Fred Kofman wrote up a study of a successful Quality program that led to some unanticipated and unhappy side effects. (John Sterman, Nelson Repenning, and Fred Kofman. “Unanticipated Side Effects of Successful Quality Programs: Exploring a Paradox of Organizational Improvement”. Management Science, 43(4), April 1997. Available online.) They show how a fairly basic model can show the results of a TQM implementation at a largish company. They also discuss the problems inherent in the implementation of TQM, including the systemic imbalances created by most implementations.
The authors do not use the language of Requisite Organization or Stratified Systems Theory in their article, although I will be using it here to discuss the problems they raise.
One of the issues addressed is the need for quick results to bolster support of the program. These inevitably come in the form of Stratum 1 processes, since you can experiment and see results on them quickly. Processes at higher levels of work (or stratum), such as product development, take longer to see results and are therefore not looked at initially.
The authors point out that the problem comes when you increase production in a process at the first level of work but not in the higher-level processes that feed it. Production, always a lower stratum process, now can produce faster but there is no new demand that needs it. Capacity now outstrips demand resulting in redundancies / layoffs / firings.
Working on the processes at lower work levels first also forces a longer wait to create any dent in the higher work level processes. While I am a advocate of democracy and bottom-up change, this is a strong support for those who say that change has to start at the top of the organization. Without that, you get things moving too fast at the bottom, resulting in the top thinning it out.
Of course, starting at the top and forgetting the bottom also creates problems. The higher processes, flush with faster times, is now trying to push these new needs to a pipeline that is not in any way ready to receive them. “Tony Stark’s” problems at Specialty Chemical Co. probably fit here. He started at the top but ignored the plant-level issues. While it will probably work out in the end (just as ADI’s TQM did), it has caused him a few problems as the top grows impatient with the bottom.
Many of ADI’s problems seemed related to time-horizon: the higher levels of the organization were not thinking out far enough into the future to anticipate problems. Since they started and had phenomenal growth, it’s likely that ADI management were not big enough to be able to see through the likely problems, which the authors point out were clearly evident. However, hindsight is always 20/20. I’d still like to see how they line up. I’m betting that their roles grew faster than they did.
ARTICLE REVIEWED
Sterman, John; Repenning, Nelson; and Kofman, Fred (1997). “Unanticipated Side Effects of Successful Quality Programs: Exploring a Paradox of Organizational Improvement“. Management Science, 43(4)..
ABSTRACT: Recent evidence suggests the connection between quality improvement and financial results may be weak. Consider the case of Analog Devices, Inc., a leading manufacturer of integrated circuits. Analog’s TQM program was a dramatic success. Yield doubled, cycle time was cut in half, and product defects fell by a factor of ten. However, financial performance worsened. To explore the apparent paradox we develop a detailed simulation model of Analog, including operations, financial and cost accounting, product development, human resources, the competitive environment, and the financial markets. We used econometric estimation, interviews, observation, and archival data to specify and estimate the model. We find that improvement programs like TQM can present firms with a tradeoff between short and long run effects. In the long run TQM can increase productivity, raise quality, and lower costs. In the short run, these improvements can interact with prevailing accounting systems and organizational routines to create excess capacity, financial stress, and pressures for layoffs that undercut commitment to continuous improvement. We explore policies to promote sustained improvement in financial as well as nonfinancial measures of performance.
Image Credit: “Painting the American insignia on airplane wings is a job that Mrs. Irma Lee McElroy, a former office worker, does with precision ….” 1942. By Howard R. Hollem, via Library of Congress.