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A guide to organizational productivity and quality improvement.

Business organizations need to improve to meet the challenge of world competitiveness. Productivity and quality improvement is most effective when it is done in a balanced manner to include managerial, behavioral and technical initiatives. Organizations need to introduce a much more data-driven orientation, facilitating both grassroots continuous improvement and top-down strategic projects to correct bench-marked shortfalls. The most common improvement theme is taking the variation and waste out of upstream systems in order to create complete customer satisfaction with finished products and services.

IT IS GENERALLY agreed that the United States could do a great deal better as a nation in productivity and quality improvement. Many differences of opinion prevail about how much better is necessary and/or possible, the role of government industrial policy in national improvement, and which industries are ahead or behind on the issue. But we are back to general agreement again with the idea that much (or all) of the responsibility for national improvement rests with the millions of individual firms and public agencies that make up the economy.

Organizations will take up the improvement challenge in different ways and for different reasons, but behind it all is the need to be internationally competitive, either directly or as a supplier to those who compete abroad. (1) All organizations need to improve; all have occasionally done so accidentally or otherwise. Larger organizations have typically been studying and later implementing improvement initiatives under different names for years. Relatively recently, smaller organizations have realized the necessity for improvement on their own or, many times, through a "supplier program" of a major customer.

So, the challenge is clear -- everyone must improve. How organizations are going about it is the subject of this article. A composite set of "best practices" is presented, recognizing that what is specifically appropriate will vary widely from organization to organization. Akey reference is provided for each category of best practice to allow for further study by the reader.


One source of confusion in sorting out best practices in organizational improvement is that very similar activities and initiatives carry a variety of names, depending on whether the majo theme is quality, productivity, customer satisfaction, excellence, competitiveness or something else.

Quality, for example, can be defined in a number of wasy. (2) Older definitions emphasize fidelity to a set of final product or service standards or specifications worked out by the organization in the past with (presumably) some reference to the customer's interest. More recent definitions feature the customer's complete satisfaction, excitement, or delight with the final product or service. (3) The most recent definitions accept the need for complete customer satisfaction, but also recognize that the organization itself needs to design, install and operate high quality internal systems that allow customer satisfaction to occur, and the organization must operate in a strategic context that is satisfactory to all stakeholders, not just customers.

Productivity starts from a definition that relates an amount of physical output to its related labor input. More recent work has recognized that other inputs (capital, materials, energy, business services) are appropriately the subject of productivity analysis, and that output, especially in support groups or service-providers, may not be clearly physical. Productivity improvement requires balanced attention to the behavioral and managerial systems in addition to the technical configuration. (4) Output should not be counted unless it is "good" output. Thus we find quite a convergence between organizational productivity improvement and organizational process quality improvement. Both are aimed at the customer's interest in better (including lower cost) products and services and are achieved through balanced systems improvement.

Total Quality Management provides the best current example of a comprehensive improvement philosophy. Even this comes in different flavors and sizes, but the "total" in Total Quality Management has four fundamental definitions: horizontal, vertical, intellectual, and strategic.

Horizontal means that the unit of analysis is the business process that cuts its way across the organization, starting with external suppliers, passing through operational and/or support groups of the organization and ending with the final customer.

Every person or subgroup making up part of the process has one or more immediate suppliers and one or more immediate customers, most of these being "internal" to the organization. Each supplier-customer interface should exhibit the care and attention normally associated with external contacts. Departmental memberships is an organizational convenience but should not influence the effort put into a process.

Vertical total means that all levels of the organization have adopted the basic quality ethic and apply it in the processes they touch or otherwise influence. Quality is not the exclusive interest of production workers, or executives, or first-line supervisors. Problem-solving teams are often made from several organizational levels. There is a quality way to issue legal opinions and to advertise the products, just as there is a quality way to make and sell the products.

An intellectual total means that the thoughts and models that drive the improvement process have been derived from and reflect the best of managerial, behavioral and technical thinking. It is easy to spot imbalance as executives describe their organization's efforts. It is easy to talk about "empowering" workers, for example, but if the organizational structure is still designed for control of job processes, there won't be much voluntary redesign by the work force. Process control statistics will be of little use if no one understands them.

Finally the subject of the improvement effort must be that which is strategically important to the organization. Improvement efforts can start out with pilots or "practice" initiatives, but ultimately there must be a linkage between the main subject matter of the various improvement teams and the priority needs of the organization as identified in the strategic planning exercises. That is where the Quality Circles of the late 1970s and early 1980s fell short of the original expectation. They were generally established within single departments and chose their improvement issues from the immediate neighborhood, rather than being prefocused on issues (typically cutting across departments) that were of high priority to the organization.

What all Total Quality Management (or, for that matter, Total Productivity Management) efforts have as underlying principles are: continuous improvement, management-by-fact, and "every work station a control point." The intent is that each worker at each level takes upon himself/herself to do the work right the first time, never pass on bad work, and strive to make improvements in the work processes based on data they receive (or generate themselves) concerning "their" process(es).


One of the trickiest parts of the productivity and quality literature is the shifting role of the "planning" process. In order to start a formal productivity or quality effort in an organization where there has not been one before, it is clearly necessary to plan what is to be done. Where will this effort begin, what is the role of senior managers, who carries the day-to-day coordination responsibility, what tools and techniques will be brought in and taught and in what timing, how will the effort be communicated and by whom, and who decides the project priorities?

In the past, productivity and quality work has often been grafted onto an existing management process by loosely authorized zealots. However, the essence of productivity and quality improvement is that line managemen takes full responsibility for "grass roots" improvement itself. Increasingly, the productivity or quality effort has been started from the top in a systematic manner, making the zealots advisory or even unnecessary. Routine line management takes its main direction from the strategic business plan, so the productivity and/or quality plan eventually needs to be folded into the routine business plan and cease its independent existence. Thus the common phrase among productivity and quality managers or advisors is that their goal is to work themselves out of a job. In other words, the formal organization initially required for such an effort becomes unnecessary within a few years as productivity and quality thinking becomes fully absorbed into the "routine" business direction of the line managers of the organization.

In this intermediate time period, great attention needs to be given to integrating the quality effort and the business planning process. This is most frequently done through assessment projects. An early part of most formal improvement efforts is to conduct, or have conducted, an assessment of the quality and productivity improvement potential of the organization. The type of criteria associated first with the NASA Quality and Excellence Award (for its contractors) and more recently with the Malcolm Baldrige National Quality Award (for all private industry) are now the most commonly used basis for this exercise. By setting the priority targets of the improvement process to be supportive of the already-determined key targets of the strategic business planning process, the organization lays the groundwork for eventual "disappearance" through absorption of the formal productivity or quality process. (5)

Terms associated with the planning aspect of quality are Hoshin Planning and Quality Function Deployment. (6) To somewhat oversimplify, the leading Japanese companies have succeeded in pushing the planning process down further in the organization than is standard practice in the U.S. Hoshin Planning takes the top level plans and decomposes them into the implications for lower organizational groups. QFD takes another cut through the organization. What are the implications for upstream processes of the findings from analysis of the input from and about downstream customers' requirements and expectations?

Another managerial initiative that will be of significant additional importance as comprehensive productivity and quality efforts become common-place is Activity Based Cost Management. (7) Managerial Accounting as a profession has been eclipsed by Financial Accounting over the past fifty years or so. The main data generated by an accounting organization serve to feed the reporting process to the outside world rather than the internal process of managing the business. Thus cost allocations tend to follow easily understood but otherwise unnatural category breakdowns that are thoroughly divorced from their reason-for-being. "Overhead" has no single reason for being there. It needs to be decomposed and attached to its various reasons-for-being (or "drivers") to allow proper costing, pricing and waste elimination analyses.

Connections need to be made also between the improvement initiatives of an organization and its reward and recognition systems. Normal corporate rhetoric will suggest that the connection has been made at the top executive level. Most organizations claim that executive total compensation is partly a function of organizational performance, although most of the evidence is that this connection is loose and long-term at best. There is little disagreement that the connection between organizational performance and the pay of the main work force is limited to firing and promotion time, with an occasional employee-of-the-month or caps and jackets ceremony.

Productivity Gainsharing has a long history of success in promoting productivity improvement in innovative organizations. Gainsharing is now being adapted to enhanced interest in quality using a "family of measures" approach that reflects all strategic concerns, not just physical or financial productivity. (8)


A major feature of organizational improvement efforts is attempts to flatten the organization and make it more flexible, usually through the use of teams. (9) The classical organization chart shows a steep hierarchy with as many as fifteen or twenty layers in the largest of plants. The new model favored by Japanese export-oriented industries is three or four levels in the typical plant; a plant manager, a production superintendent, possibly a product-line and/or area manager, and then the standard "team member." The member is typically cross-trained to do several if not all of the tasks required of that team.

This sort of flat organization only functions well because managers have learned to communicate directly to standard workers without the need for filtering or interpretation, and because workers have taken on at least some extra responsibility for ensuring that assigned work gets done and gets done well. This form of organization sounds very cost-effective; after all, several managerial layers have been removed. But much more planning and training is required to start up and nurture such an organization. It can usually succeed if it manages to serve the customer better, either through faster response time or through more reliable product or service.

Not all teams created as part of productivity and quality initiatives are created to accomplish routine work in a leaner organization. There are also special, temporary quality teams created to solve a specific problem that has typically been identified in an assessment project. Unlike the quality circles discussed above, the nonvolunteer members of these teams are usually from different parts of the organization and were identified because they make up part of the process being analyzed.

There are many types of teams, and an alert organization will be operating several different types for different purposes. It is critical that everyone understands what the teams are doing and how they fit together. Thus, regardless of structures, information sharing becomes a critical part of any quality and productivity initiative. This is the oppostive of "need-to-know" that is commonly practiced; the new presumption is that everyone needs access to nearly everything with a few specific exceptions.


The major news in technical improvement could be viewed as somewhat antitechnical. Manufacturers, following Japanese experience in some industries, are recognizing the shortcomings of "economies of scale" as a manufacturing theme. As customer satisfaction becomes the main strategic driver, customers are learning to demand shorter lead times for existing supplied products and services and to feel free to change specifications on short notice. Once one company in an industry is able and willing to cater to the customers' changing tastes and urge the "latest," all companies in the industry have at least to consider offering the same level of flexibility. (10)

From an equipment point of view, the desired feature is now flexibility and not necessarily size, speed of power. The idea of quick changeover, which applies to service areas in addition to die-containing machinery, is now a major improvement goal. "Just-in-time" manufacturing, utilizing flexible machinery and equally flexible machine operators and support people, has brought revolutionary change to many companies. (11)

A major effect of flexibility is severe reduction in the work-in-process inventory caused by scheduling. Once a unit is started, it tends to flow on through and be finished and shipped. Extensive quality training of the line workers usually accompanies this shift in philosophy, so work in process that is accumulated due to quality defects also is reduced. The rules of plant layout have also been changed to accommodate a customization ethic. It is no longer automatic that a production line dedicated to a single product must get a high utilization rate. Similar parts are now often manufactured in "cells" regardless of what finished product they belong to.

Advances are being made in design also. Concurrent engineering recognizes that much of the complex design-manufacture-market cycle can be overlapped and thus reduced in order to hit the market earlier in response to competition. Value engineering, the systematic search for superfluous parts and functions in a product (or service), is being actively practiced. And it is now becoming commonplace to train "ordinary" workers, blue and white collar, to participate in systems redesign work, using flow-charting of the process in which those people work day to day.

Flatter organization, more flexible scheduling and progressive management practice all call for more attention to the performance measurement and feedback cycle. It is now recognized that all employees need measures of the performance of themselves and their processes in order to stimulate grass-roots improvement. Measurement of improvement trend must be done everywhere in the organization, not just at the finished product stations seen by the outside world. Rarely is a single measure sufficient at any level of the organization. There is always a dynamic interplay among productivity, quality, cycle time, utilization, on-time delivery, safety, creativity, and many other aspects of work. Thus a "family of measures" is called for, typically resulting in a performance index for each work group within an organization. (12)

Improvement is the major goal, but continuous improvement, with its gradualist implication, is not sufficient in many competitive realities. A new emphasis is being placed on Benchmarking. This includes identification of where the best examples of implementation of your particular process can be found and consequent goal-setting aimed at equaling or exceeding that best practice in a planned time frame. Organizations famous for their superlative performance in certain areas are now being asked to share their process methodology and typical result patterns with customers and suppliers in exchange for the other organizations' sharing of their best practices. (13) A Benchmarking Clearinghouse is being created at the American Productivity & Quality Center to bring order to what has to date been a fragmented activity.


One of the recent features of productivity and quality improvement is the creation and administration of awards for the best performing companies. The best known and most comprehensive of these awards is the Malcolm Baldridge National Quality Award. This was created by the U.S. Congress in 1987 to highlight companies that demonstrate world class quality efforts, taking into account the general approach they use, the degree of deployment of quality throughout the organization (including white-collar and support areas) and the demonstrated results derived from the effort. Seven major areas of analysis are required in the application: leadership, information and analysis, strategic quality planning, human resources utilization, quality assurance, quality results and customer satisfaction.

There have been nine winners of the Baldridge Award in the first three years. Most are large manufacturers, but there have also been service companies and small businesses. The developers and administrators of this award emphasize its self-assessment value: Apply for it if you want but by all means use it in your internal improvement efforts as a model or template that constantly reminds the organization of the comprehensiveness of world class quality.

Preceding in time the Baldrige Award was the NASA Quality and Excellence Award, created to analyze NASA's contractors. It is equally comprehensive and emphasizes error prevention, teamwork and continuous improvement. The Shingo Prize was created in 1988 to stimulate the use of flexible manufacturing techniques as developed and promoted by Shigeo Shingo, a Japanese consultant. There is a Federal Quality Award for government agencies, and many states have developed productivity and/or quality awards using various related criteria. (14)

Going through the assessment process required to apply for one of these awards, whether the application is ultimately submitted or not, will generate a strong awareness of quality and productivity among the study team, regardless of their previous level of experience and responsibility. The study effort will especially increase the awareness of the importance of suppliers and customers, both internal and external to the organization. If an application is actually submitted, executive commitment to quality and productivity improvement often goes up several notches.

Awareness often leads to tangible improvements, sometimes immediate and sometimes lagged to wait for off-line study. The assessment team will turn up unanswered questions, odd-looking practices and conflicting opinions on customer needs that can lead to immediate fixes. Contact with outside customers and suppliers may develop additional ideas for simplification or enhancement. Most awards provide a feedback report from the examiners that can suggest other important potential improvements from a hard-to-find outside perspective.

Some of the intangibles are important too. Internal quality and productivity advocates are strengthened in their conviction and will have renewed enthusiasm. The members of an assessment team will often emerge from the experience as additional improvement advocates. Respect for the importance of data ("management by fact") is spread through the organization. At least a few of the participants now understand the importance of the linkage between strategic plans and quality and productivity initiatives, having wrestled with that issue during the applicated preparation.

Winners, of course, have some special gains -- tangible publicity value and an intangible but vital pride of accomplishment. Their responsibility as winners to communicate their approach may seem to some less than a blessing, but at least they will have no problem finding benchmarking partners.


No one can afford not to improve! Every organization is directly or indirectly part of the international competition treadmill. If they don't improve their product or service, reduce costs and increase customer satisfaction, someone else will take their place. This may be difficult on organizations that view themselves as "disadvantaged" in some way, but disadvantages have often been shown to be mere tradition and can be overcome. The dramatically increased emphasis we are now seeing on productivity and quality improvement in the U.S. may be the route that allows the U.S. to keep its leadership position in the world. But there have been other apparently salvations that have failed because they were not communicated or applied well.

Quality and productivity improvement efforts must be balanced and comprehensive, applying equal doses of managerial, behavioral and technical improvement under the direction of a special kind of leader. (15) That leader must be comfortable with a data-driven approach, but must also be unusually successful in stimulating interest and responsibility in all levels of the organization. Every work station is a control point -- all work will be done in the best possible way.

The principles of quality and productivity must also be extended into the community. Each organization will not become and remain a world class organization unless it has well-educated, healthy and innovative people in its work force and the cooperation of an effective community infrastructure to aid and not retard the inevitable improvement the next decade requires.

(1) Grayson, C. Jackson, Jr., and O'Dell, Carla, American Business: A Two Minute Warning, New York, Free Press.

(2) Garvin, David A., Managing Quality, New York, Free Press.

(3) Zeithaml, Valarie A.; Parasuraman, A.; and Berry, Leonard L., Delivering Quality Service: Balancing Customer Perceptions and Expectations; New York, Free Press, 1990.

(4) Belcher, Joh, Productivity Plus, Houston, Gulf Publishing, 1987.

(5) Bremer, Michael S., "Linking Strategic Management and Ongoing Quality Improvement," National Productivity Review, Vol. 8, No. 1, Winter 1988-89, pages 11-22.

(6) Akao, Yoji, Quality Function Development; Integrating Customer Requirements into Product Design, Productivity Plus, Cambridge, MA, 1990.

(7) Miller, John A., "The Best Way to Implement an Activity-Based Cost Management System," Corporate Controller, Sept.-Oct. 1990, pp.8-32.

(8) Thor, Carl G., "Employee Involvement and Productivity Gainsharing," Industrial Management, July-August 1987, pp. 21-25.

(9) Lawler, Edward E. III: Ledford, Gerald E., Jr.; and Mohrman, Susan A., Employee Involvement in America: A Study of Contemporary Practice, Houston, American Productivity & Quality Center, 1989.

(1) Schonberger, Richard J., World Class Manufacturing, New York, Free Press, 1986.

(11) Shingo, Shigeo, Non-Stock Production; the Shingo System for Customer Improvement, Cambridge, MA, Productivity Press, 1988.

(12) Thor, Carl G., "A Complete Organization Measurement System," International Productivity Journal, Spring 1990, pp. 21-25.

(13) Camp, Robert C., Benchmarking, Milwaukee, Quality Press, 1989.

(14) Information on their respective awards can be obtained from:

--Malcolm Baldrige National Quality Award, National Institute of Standards and Technology, Room A537, Gaithersburg, MD 20899, (301) 975-2036.

--George M. Low Trophy: NASA's Quality and Excellence Award, NASA, Code QB, Washington, DC 20546, (202) 453-8415.

--Shingo Prize, College of Business, Utah State University, Logan, UT 84322-3521, (801) 750-2279.

(15) Huge, Ernest C., The Spirit of Manufacturing Excellence; and Executive's Guide to the New Mind Set, Homewood, IL, Dow Jones Irwin, 1988.
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Author:Thor, Carl G.
Publication:Business Economics
Date:Oct 1, 1991
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