A CFO's view: invest in "quality teams" for decision making.

Paul L. Smith Senior Vice President and CFO Eastman Kodak Company

The changes at Kodak over the last decade have changed not only our structure, but our culture. They've changed how we interact with one another on a day-to-day basis, how we think, how we operate. One of those changes is how we view those we serve and how they view tis.

In broad strokes, Kodak's finance and administration people are no longer viewed as a corporate resource. Instead, we're viewed as suppliers. And we no longer view anyone seeking information and advice as just another business associate. We view them as valued customers. And that's the lingo of quality.

Nowadays, many companies have their own quality processes, all focused on best meeting the needs of the customer. Our chairman and CEO, Kay Whitmore, has asked us to go beyond the traditional measures of performance - cash flow, earnings from operations, sales, and ROA - and begin to measure the behaviors and activities that ultimately drive those traditional numbers for long-term value. What we're talking about is making quality count, even in the financial environment. But to do this successfully requires investment in a quality process, in leadership, and in people.

Seduction of correcting for quality

We call Kodak's investment quality process the quality leadership process, or QLP. It goes beyond the performance appraisal. I think some of us assumed that if the people we served didn't complain loudly enough, we had done quality work. We never established an ongoing process of quality measurement. We never knew how we were doing or what we needed to do to continuously improve, just how we had done.

But, a few years ago, we asked ourselves a very insightful question: can a quality product or service be achieved by non-quality methods? You might jump to the conclusion that the answer is no. After more thought, you'll likely join our position that the answer is yes. It happens whenever we waste valuable resources, when we waste time, effort, and money by not doing things right the first time and having to correct them later. We realized Kodak could be producing quality products in an environment that operates without top-quality practices.

Today, when we refer to quality in Kodak's finance and administration organization, we mean the quality of all our business activities and the impact these activities have on current and future customers, both internally and externally.

Our QLP begins and ends with these directives: assess, plan, do, and verify. The most important element is the idea that we can't be just customer-focused. We have to be customer-obsessed! Our challenge is not in seeing our customers, but in seeing ourselves as our customers see us. That means current customers, customers we lost but wish to regain, and new customers. It's like asking, "Would you like to be your customer?"

The nuts and bolts of quality teams

Kodak's commitment to quality has required a lot of hard work. It began with developing a mission statement that says who we are, what we do, and for which customers.

Next, we developed a vision statement, describing what we desire for the future. And this statement wasn't developed by fiat. I worked with my direct reports in quality team meetings and they, in turn, worked with their direct reports in quality team meetings, and so on. These teams are interlocking. Each one depends on the others, and communications flow in all directions, even to the CFO. We didn't establish the teams simply to create a framework; they still meet to continuously improve the quality of our work.

When you establish a quality team, the more diversity you can drive into the make-up of the team, the richer the problem-solving you'll come up with. Look for a range in the characteristics of the team members, such as the length of time each has been with the company, gender, race, education level, area of the company in which each works, even parts of the U.S. or the globe in which each has worked previously. The advantage of this strategy may not be immediately obvious, but you'll begin to see it work.

As far as implementing the quality team approach, in the initial stages the time investment is tremendous. I estimate, as team leader, I increased my work time by 20 percent in the beginning. But I reaped the benefits quickly, and the net is that I now have more time to work on the items I ought to be working on. I'm more productive and so is my team.

The structure of our quality team meetings differs from that of standard meetings. We dispensed with the weekly staff meeting, where we sat around and shared anecdotes about what was happening in each of our divisions. We found we kept each other informed that way, but we never made any decisions. Now, we have two concentrated quality team meetings every month, each lasting five and a half hours. I prepare and distribute an agenda ahead of time, which takes me about an hour and a half. And I set a timeframe for discussing each subject, which suggests to the team members the priority of the topic. After just six months of these meetings, we've become incredibly productive, often knocking off as many as 15 action items per meeting.

We've also identified key result areas and measures. Key result areas are like a patient's vital signs; without performing in these areas, an organization wouldn't survive. When measured, these broad-based areas give an evaluation of critical, customer-driven processes.

We're also benchmarking ourselves against other companies. And we're conducting detailed surveys of both internal and external customers, asking them to rate not only our performance but the relative importance of our services and to tell us how we can better serve them.

We even put some of these comments on videotape and bicycled them around the finance and administration department to show our people firsthand how other departments view us. Here's what one of our key customers, the group vice president and general manager of our Photographic Products Group, said:

"The cash generated from the Photographic Products Division is used to fuel the future of the Eastman Kodak Company.... Getting information and analyzing it helps me manage this critical division. If a financial person comes in, totes up the beans, tells me what the facts are, and walks out, that's not very helpful. I can get a computer to do that. I need something more - I need timely responses, piercing analyses.

"Everybody in business today is experiencing more rapid cycle times. We're working to reduce our development time, to get new products to the marketplace faster, and we're trying to react to customer problems in a timely fashion. Everything is occurring faster. And that means we have to have our financial information faster, it has to be accurate, and we have to analyze our various alternatives faster. To be more effective, I need new and different kinds of analyses. I need to know more than the numbers. I need to know what's behind the numbers and, more important, what drives the numbers."

Clearly, what we do in finance and administration does count. But our challenge is to increase the value of our contribution to our customers' operation.

How can we do that? The videotape gives us several concrete examples. One vice president said he values the teamwork we offer areas of his organization. Another noted that the faster we can supply information, the better. information that's just about right provided quickly is more valuable than absolutely precise data that arrives later.

In finance and administration, we take comments like those, add them to all the other data we've collected from benchmarking exercises and customer surveys, and - keeping in mind our mission, vision, and key result areas and measures - we select opportunities for improvement. We discuss these in quality team meetings. We develop plans. We discuss approaches. And we implement them.

For instance, this year our Travel Accounting Group conducted a benchmarking study of how 12 companies, including Kodak, process and manage their travel and entertainment expenses and reimbursements. We mailed detailed surveys to each of the companies and followed up with site visits to Corning, DuPont, and Xerox. We identified several areas for improvement, the most promising of which is the direct deposit into the travelers' accounts of travel expense reimbursement payments. This action alone will save Kodak approximately $100,000 every year.

The benchmark survey also led the Travel Accounting Group to consider expanding the use of our corporate credit card to casual travelers and renegotiating our contract with the firm that microfilms all of our expense reports and supporting documentation.

QLP at work

The Eastman Kodak Credit Corporation, Kodak's leasing arm, provides yet another example of how quality counts. Using contract flow analysis, EKCC brought together five team members, from the areas of marketing, operations, and systems, to improve total customer satisfaction in the processing of leases.

The results were spectacular. The team came up with ways to reduce lease processing time by two to three weeks and to reduce the number of internal forms required from 12 to five. The five members appointed a customer advocate team to look at operations from the customer's point of view. They arranged for better back-up support for employees. They identified, in all, six major quality improvements and assigned another 34 improvement opportunities to various QLP teams.

QLP also prompted a similar change in EKCC's customer service team, which fields as many as 1,000 calls a week from customers with leasing questions and problems. The team now documents how many calls it receives and tracks the calls by type of concern. if many customers have the same type of concern, the team formulates a plan to improve the process in that area. To measure the success of the plan, the team looks for a reduction in the number of customer phone calls. Using this kind of analysis, EKCC recently changed its invoices to make it easier for customers to pay and thereby improve our statistics on the number of days sales outstanding.

Our quality leadership process has also sparked major improvements in morale. The 30 financial analysts and cost accountants in the Copy Products Division, for instance, decided to use a NASA-inspired theme to launch its planning process for 1991. During a half-day exercise, presenters wore NASA lab coats as they walked through various "sub-stations" to receive information and meet the financial people they'd be dealing with. The exercise enhanced communication, and it definitely solidified teamwork.

Creating this kind of team spirit was invaluable when the department converted to a customized estimating and production scheduling system. The group posted a list of nearly 100 specific goals it had to achieve before its conversion deadline. Each time the group reached a goal, the department rang a bell, signaling that the group was one step closer. The department stood and cheered each ringing, and celebrated milestones of 25 completed goals with pizza parties.

Who can lead?

Kodak's second investment for continuous improvement is in leadership. Organizationally, our leaders are our managers and supervisors. They should be inspiring others to share in a vision of what can be. They should be taking risks, serving as role models, reinforcing and rewarding the accomplishments of others, and helping others to act.

But leadership doesn't just happen - it has to be cultivated. All too often, the people we moved into supervisory roles were top performers but not top supervisors. So, in late 1986, we commissioned a special quality team to look at how best to measure supervisory performance. They came up with what we call the Supervisory Performance Evaluation Guide, or SPEG, to give supervisors a better idea of what was expected of them and to serve as a coaching and training tool. (See pages 56 and 57 for a copy of the SPEG.)

We encourage supervisors to have their people fill out SPEGs on them and send these evaluations to the next level of supervision to discuss opportunities for improvement - but you do need to "let go" to allow the process to work. After three years of using the SPEG, we can't imagine how we got along without it.

We've also developed leadership classes and training to enhance listening skills, among other things, to help bring us through the quality process more effectively. We've raised the profile of supervision as a topic in meetings. We've covered promotions and atypical rate treatment. We've recognized superior supervisory performance, and we've done something about poor Supervisory performance. We've reinforced good supervisory techniques by sitting down with our supervisors periodically, either one on one or in small groups, and reviewing the basic principles of good supervision.

We've learned a lot from this emphasis on supervision. Promoting people, for example, should be done on the basis of their potential or demonstrated supervisory skills and their behavior in the quality process, not on the basis of their technical skills and capability or a high capacity for work output. Those qualities are not enough.

We found that we must reward behavior as well as results. The right behavior must come before results, especially in a time of change and transition. If we reward results alone, the right behavior won't develop.

We also have a better idea of what it means to lead. We want our leaders to:

* Lead by example.

* Improve the quality of information flow.

* Be visible.

* Be compulsive listeners.

* Actively engage the quality process.

* Minimize the debilitating hurdles and obstructions that stand in the way of quality work.

* Create incentives and rewards for people who innovate and excel.

The evidence that we are succeeding in providing that kind of leadership can be found in the positive responses we're getting from two items: a new performance appraisal form used to evaluate an employee's work and a new career support policy. The new appraisal form better ties measures to behavior, and the new career policy helps find a job for any employee who puts himself out of a job as he finds better ways of operating.

Control your destiny

The third investment involves empowering people, enabling others to act for the betterment of all.

This is a radical departure from the traditional top-down management style that many of us have grown up with. We have grown to realize that there is no commitment without participation. By sharing, discussing, and coming together in interlocking work teams, we discover more fully the vital role and potential of our commitment to quality. Commitment spreads through our quality teams, through natural work teams, and through empowered employees.

With in interest in giving employees more control over their destinies, our financial organization sponsored a special employee quality team to study our career development process. The team's recommendation was a new job posting network, which went into effect last year. Now, most jobs are advertised through a computer network, and anyone with the appropriate credentials can apply. Every applicant receives a reply from the hiring manager.

This is a big change for us and has made a tremendous difference in employee and supervisor behavior. The new approach takes into consideration employee desire, interest, and potential. it allows employees to enhance their own careers and makes better matches between jobs and applicants.

Another example of empowering employees is through incentives and rewards. At Kodak, we recognize people in a variety of ways, from simply saying, "You did a great job.," to celebrating the end of a successful project with a pizza lunch or a coffee get-together for the project team, to making individual lump-sum payments of as much as $10,000. Occasionally, when we want to recognize superior group performance, we monetarily reward four or five people simultaneously.

The lesson

So, what's the significance of citing all these examples of changes at Kodak in the name of quality improvement? As you may guess, I believe there is no end to the number of ways we can improve our own work as long as we invest in the quality process, leadership, and empowering employees. Quality is not a destination, but a continuous journey. And it is measurable.