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If you're going to compete, know the issues.

It's not news that today businesses face major challenges globally, with the changes in Eastern Europe, Germany, the Middle East, the "1992" countries, Mexico, and Hong Kong by 1997. Our businesses must change faster and more effectively as competition grows more intense. I believe that companies that excel in three areas will be the most influential: improving quality, keeping pace with technology, and mastering international accounting standards.

First: Quality:

At Ernst & Young, we're getting a unique view of how quality is managed in Germany, Japan, and the U.S. by cosponsoring a project with the American Quality Foundation. The product will be the International Quality Study, which looks at the automotive, health care, computer, and banking and financial services industries in the three countries. While the study isn't complete, we've already learned some important lessons:

Quality is not static. It's not built into the product. Quality processes must permeate the way organizations do business. The planning processes used by leading Japanese companies ask for greater involvement of people at much deeper levels of the organization than do ours. For example, top management at a Japanese firm may set a specific objective, such as achieving a 10-percent increase in sales, but lower-level employees construct the plan for reaching that goal and then communicate it to top management.

A nation's culture influences its quality management practices. Germany, for instance, has a guild system that plays a critical role in "professionalizing" the skills of lower-level employees. in the automotive sector, the guild dictates such practices as the selection and training of machinists. El Successful U.S. companies integrate quality into their organization-wide planning and reward systems, into the way they administer their business, making it the responsibility of all departments.

A 1990 American Society for Quality Control and Gallup survey found that more than one-third of the employees in companies with quality improvement programs do not participate. Most of them, we suspect, are in the administrative, marketing, and business management functions.

Companies at the forefront of global markets have an aggressive approach to product and service development. They apply benchmarking with greater vigor. They compare themselves to the best of the best. And they often benchmark themselves against organizations outside their particular industries.

General Motors' Saturn is the result of benchmarking the car to its market competition and the manufacturing process to the best in the world.

"Forward" quality is what puts one company above another Forward quality deals with the strategies that enable an organization to routinely discover and implement innovative ideas that enhance its image as a quality producer. It goes beyond technical performance. Companies practicing forward quality don't merely meet customer expectations; they strive to exceed them in new, often unanticipated, ways. In the process, they often establish the next generation of expectations.

Look at how Toyota handled a manufacturing defect in its Lexus automobile. When the vehicles were recalled, the dealers picked up each car, made the repair, filled the customer's gas tank, and in many cases left a small gift on the front seat of the car when it was returned. Customers certainly didn't expect that sort of service, but it probably made a big difference in their perception of the manufacturer.

Quality companies focus on customer interface-maintaining contact with the customer before, during, and after the purchase. Second: Technology For many of us, quality begins with information. This information allows us to measure our markets, monitor our performance, understand our environment, and communicate our achievements to our employees, suppliers, and customers.

Many companies need to reevaluate the role that information technology plays in their organizations so they see the process of implementing the technology as a part of the process of information management, not just procedural control. Examples of firms that have moved in this direction are American Airlines with its SABRE reservation system; American Hospital Supply's ASAP ordering system; Merrill Lynch's cash management account; Milliken's Economost ordering system; American Express' card management system; and Reuters Globex worldwide currency trading system.

Unfortunately, in most organizations, technology reflects yesterday's needs, relationships, and objectives. Systems are created in response to a particular need, such as order entry or check processing, and when circumstances change, the systems don't. They dissatisfy employees, are a barrier to effective decision-making, and are impossible to modify.

For many of you, a significant part of your systems budget is devoted to maintaining applications that may already be obsolete. If you want to change a pricing schedule, change a location, or introduce a new product, your programming backlog means the project must wait as long as six months.

New architectures and productivity tools, such as those using CASE (computer-aided software engineering), are needed to put global information resources in the hands of users. They allow executives to evaluate the information needs they must meet to execute a strategic plan. For example, in a merger, these tools allow for rapid integration of disparate data processing systems and practices. They allow executives to visualize not only their organization goals but the information and decision paths that will get them there.

So, if quality is the goal and information technology provides the tools, what is the third leg that financial executives need to operate successfully in a globalized business world? Level playing fields in global financial reporting.

Third: International accounting standards:

The level of concern about the difference in accounting standards worldwide varies from year to year and from regulator to regulator. Now we have a President whose administration has international trade and competitiveness as priority issues. Thus, SEC Chairman Richard Breeden is very interested in making U.S. debt and equity markets competitive so we can attract overseas companies and investors.

As most of you know, there has also been some question about the impact of U.S. accounting standards and financial reporting requirements, particularly those issued by the FASB, on international competitiveness. But closer scrutiny of the FASB's mission statement reveals that, surprisingly, the Board's role does not encompass the international aspect of standard setting. Furthermore, some members of the business community are showing discontent over the FASB's activities, domestically and internationally.

What will happen at the FASB and the SEC? I believe the FASB is likely to increase its focus on the international aspects of issues by working with the IASC (International Accounting Standards Committee) and the IOSCO (International Organization of Securities Commissions). However, based on the FASB's history, this probably won't happen fast enough or won't be significant enough a step to satisfy the market or the SEC.

So it's likely that soon the SEC will begin taking an aggressive approach, becoming directly involved in any standard setting and financial reporting that involves domestic and international issues that, if handled improperly, may spell a competitive disadvantage to U.S. companies.

This can take the form of changes to U.S. standards through the SEC's own rule-making authority or through active encouragement of the FASB for a change. Or the SEC can influence its counterparts in other countries to change their standards, as the Commission has done before in such areas as access to documents and information for insider-trading investigations.

In short, we are just beginning to focus on the interrelationships of internationalization and competitiveness, and, because of that, there will be diverse views. I encourage you, as financial executives, and your companies to participate in the debate.
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Title Annotation:Special Global Report
Author:Groves, Ray J.
Publication:Financial Executive
Date:Jan 1, 1991
Previous Article:Q&A: "Okay, but what about ...?" (financial management) (Special Global Report) (panel discussion)
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