Costs of Quality

A few weeks back, I was working with a wind energy company having multi-location operations with about 1600 employees. I was engaged to run a training on Cost of Quality which I explained, was better run as a workshop, working on real problems at the place where the work actually gets done - the remote sites where wind turbines are installed and costs actually incurred.


However, the Managers heading the site activities insisted they had better quality data at the head office. Training was completed for Managers and key site personnel in 2 weeks & when I got down to work on the numbers with the managers, enthusiasm was high and all data pertaining to expenses was made available. All that was needed was to assign these expenses to the right "cost baskets" of "Preventive costs", Appraisal costs" & "Failure costs". 


This is where the problems started.

• Defining costs
• Assigning cost baskets
• Explain why a training program that is ineffective needs to be included in the Quality costs under the "Prevention Costs" basket? Is prevention not an investment for the future?
• How can a poorly worded agreement entered into with a supplier, be termed as Cost of Quality? 
• How do other companies assign costs? 
• Can the quality costs or one be compared with another?

The training had to be repeated, with small groups, with the Finance function taking ownership of the entire project and Quality facilitating the training and overall understanding of the Quality costs System at all levels in the organization.This resulted in not only better understanding of the concept but threw up several such poor quality costs that the Head office was not aware of. 


Most organizations believe that 

• They are not as bad as the Quality costs make them out to be.  
• The only costs that need to be measured are the costs of failure; others can be ignored.  

Failure costs are visible and hence, quite understandably, get measured. What  remains invisible, remains unresolved and continues to bleed the organization. 

 

Every mound of data has information hiding within.Excellence is being able to gather the right people, use the right tools, see, measure and manage the invisible.

Word of the Year - Word of the Decade

The word "Austerity" has, quite understandably, been voted the word of the year, but with mixed reactions. While we see violent protests in Greece, the Indian reaction was characterised by comical comments about travelling in "Cattle Class" and some symbolic attempts at reigning in the growing wasteful expenditure. As an individual, our reaction to the most important things in our daily lives, is serious in nature. Why, then, is our reaction to most isues affecting the nation, symbolic? 

In your opinion, which word or phrase could qualify as the word/phrase of the decade? I would vote for "Customer Care" - the phrase we see everywhere - on boxes of cereals, jam & pickle bottles, your mobile phone bills, Banks, online stores, Haldiram Bhujia, service centers and websites covering thousands of products & services. The question here is how much of it is just symbolic? 

There was a time when we could expect the best individual attention at a bank (& there is still one bank that I know of where I can always exect the best service at no extra cost!). A decade ago, the worlds' businesses "looked inward" & discovered the large savings that were possible through cost arbitrage. The call centers were born and as of today, more and more services are moving their customer care to call centers.

When organizations choose to move their most important function - that of Customer care - to call centers, then the customer care function is nothing more than mere symbolism. Even if the phrase "Customer care" were actually be voted the phrase of the decade, it would largely remain symbolic.

The Corporate Bermuda Triangle

Continueing from from where I left last........When does an Organination structure become a liability instead of facilitating seamless interaction between various functions? When a structure is decided upon much before the intricacies of activities are understood, it will give rise to what could easily be identified as a corporate equivalent of the notorious "Bermuda Traingle"; unexplained activity (read accountability) dissapperances within loosely defined boundaries. In all such cases, "Bermuda triangles" will give rise to adhoc appointments, that usually end up being permanent, like the ones most of us are already familiar with 

• OSD (Officers on Special Duty) reporting directly to the CMO/CEO/COO
• Expediters at the factory floor with "special powers" to bypass any process
• Favoured lower level employees with substantial funds under thinly veiled expense heads like the "Business Promotion Expense"  to grease the wheels that move things. I have come accross a GM(PR & Logistics) who managed this function with elan. 

While a Functional structure gives rise to functional experts who can offer only futional solutions for business problems, the Bermuda Triangle gives rise to a culture of adhocism and "jugaad"  - creating heroes out of ordinary people.

Where, in your organization, do you see the corporate equivalent of  a "Bermuda Triangle"? A flawed organizational structure could be the one that needs fixing.

What comes first ?

Managers take pride in being a part of a structure that produces results. Every output seems to happen just as planned, with no activity left uncovered. How does this come about?

Some time back, I was a part a discussion that centred around various organizational structures and this discussion seemed to get stuck on what could be regarded as the one that delivered results, consistently.

An organization could decide on any structure or a combination depending upon how each one served its business interests. There are several options to pick from

• A Functional setup with regional reporting for an MNC
• A Project based reporting & setup where the organization specializes in project execution or a R&D arm of an organization.
• A Matrix structure, with business interests taking precedence over functional reporting
• A Regional structure where different products or services may be preferred by its customers. 
• A Business vertical covering Institutional sales, Retail, Governments, Defence sector, Overseas, Special purpose vehicles etc
• Product verticals where the organization approaches its customers with a wide offering of product options for specific customer needs

In all these options, the question is not which is the best one. The question is "what comes first" ?

• What business are we in? (Products, Services, both, R&D organization, Projects....)
• Who are our customers?
• What do they expect from us?
• How do we structure ourselves so that we can deliver what customers expect from us, consistently?
• In a project based organization, this becomes even more critical. Does every large activity in the WBS (Work Breakdown Structure) have ownership in the proposed structure?

Several large organizations are a combination of different "businesses/entities/profit centres" like R&D, Pojects, Operations & maintenance, Post-Sales Services, Manufacturing -(for themselves as well as the industry they are in), but, most inexplicably, have a single structure to support activities with contrasting requirements and approaches.

A Functional structure, while it may work fine for Operations, would fail in an R&D or a project environment. Several organizations have fallen prey to the allure neat looking organizational charts only to get up bruised and rarely chastised.

Such organizations experiment with one structure after another, rarely realizing that it is the nature of their most important activity or work, the markets that they are present in, their customer and their continuously changing preferences, the nature of their products & services or the changed regulatory environment and hence the new customers............. that decide how they need to need to organize.

Coming back to the quation "What comes First" - Is there any doubt?

Power of ordinary measurements

A 5% reduction in manpower, another 5% in inventory, a 10% in travel expenses, productivity improvement (no figures here) and there are many more such arbitrary goals – we have all heard it before and it these are still quite common at most meetings & in Annual Operating Plans.

When faced with such arbitrary (I call these figures arbitrary for a reason) exhortations, how would you react?

1.    Accept and start working to achieve them?

2.    Form focused teams with these goals in mind?

3.    Haggle with the boss for a 7% change and not 10% as demanded?

4.    Grumble how difficult it is to achieve even half of what is demanded?

 Most reactions would be one of the above but none that would demand the basis of such goals.

1.    The methodology used to arrive at these figures

2.    In what way could a 5% reduction in inventory benefit the organization? Would negotiating on supply lead times give us more benefits? Can setting up an offsite inventory achieve benefits several times the one being demanded arbitrarily?

3.    Would a 5% reduction in head count reduce the number of layers from 14 to 6; would the decision making process be speeded up? Would the number of signatures on the approval form be reduced from 8 to 2?

4.    How can a 15% growth in sales be an achievement when the market that we are present in, has grown by 40%?

5.    Any measurement to support such goals?

In one of my previous jobs, an improvement of 10% in OEE (Overall equipment effectiveness) was set, needless to say, without relevant measurements. Our measurements showed that a lot more was possible. A 245% improvement was achieved against a target of 300% that the team had set for itself. To imagine that the organization was actually planning to underperform with an arbitrary target of a 10% improvement!

Any goal that is set without measurements is arbitrary and needs to be treated with the contempt it deserves. Such arbitrary goals have the negative effect of getting the organization to underperform. Managers may channelize entire departments and motivated individuals in pursuit of underperformance.

Keep the measurements relevant, simple and reliable. Measurements will lead to breakthrough achievements. Several such achievements lead to pride; and pride in the jobs that we do, leads to Excellence.

"First Step" in Operational excellence

Recently, I had a very good experience with a new-age company that expertly packages their products in a service wrapper. The company and its people are in the business of delivering customized products. They need to foresee customer preferences, predict changes & create unique products, provide excellent service - all at the same time or lose business to a compeitor.

Though I was initially engaged for Lean Six Sigma Training for all the service and product managers, creative heads and HR manager, I insisted, as I do with all clients I work with, to start the excercise with establishing the organization's Vision, the Strategy, Objectives, Goals, Tactics and Action plans.

The Vision excercise was done along with their top management, Service & Product managers, HR manager and creative managers. This activity lasted a week with several improvements to the original vision statement. What emerged at the end end of this activity was a distilled view of the entire organization as to

• Who they are
• Where they want to be
• What makes them "who they are"
• How do they appear to their customers

Another interesting aspect of the excercise was a spectrum of reactions on display. While there were those who were thrilled to be a part of the activity that aimed to clearly articulate the Vision of the organization, there were those who were cynical about its usefulness, to those who were bewildered at being included in an activity that is clearly the responsibility of the top management. While there were some who seemed indifferent, there were few who feared what they might be asked to do next. But then, everyone owned this new vision. 

Starting the Six Sigma journey with this approach has several advantages:

1. Establishes a clear line of sight between the strategy and quality improvement initiatives that are taken up as Six Sigma improvement projects.
2. All quality initiatives, including Six Sigma, thrive only if top management(read CEO) is interested in the outcomes. While Vision and strategy is at the top management end of the business, Six Sigma is at the "tactics" end. Without the Vision being tied to Tactics, improvement projects are arbitrary, departmental in nature and rarely address the organizational needs. With nothing to hold the CEO's interest in the new initiative Six Sigma is sure to fail.
3. When Six Sigma improvement projects are tied to Strategy, the CEO supports these projects with the necessary investments, takes interest in the outcomes and thus ensures that all such projects meet their business objectives.
4. People run projects and move processes. When people know that their projects directly address the business needs and contribute positively to the organization's growth, they are more likely to value themselves and the jobs they do
5. Strategy cascade creates an unending pipeline of improvement projects, the life blood of Six Sigma initiative.

The list could go on....... 

Extend this excerise to cover improvement initiatives tied to investments or budgets, people competence and training, hiring to fill skill gaps instead of number gaps......and a clear line of sight is established between the organization's Vision and the daily activities.

Could we, then, say that the first step to achieving operational excellence is Owning The Vision ? 

Jugaad needs heroes; systems don't

There was a time when a manufacturing or technology company got into exporting carpets, incense sticks, leather goods and the like, just to import materials or components essential for their core manufacturing activity.

That is getting around policies that were a major obstacle to doing business. The much celebrated Indian "Jugaad" was born. Jugaad is the Indian( read Hindi) word for working around obstacles. Working around is defined as methods adopted to work around obstacles but those that do not remove or eliminate obstacles. While results, though not always the most ideal ones, are achieved, the problems remain.

The above image is from http://gizmoghost.wordpress.com/2008/03/25/the-jugaad-riding-through-dusty-village-roads/

The celebration is a tribute to innovation at grassroots levels. Where, being a common man is not easy, such innovations are hailed as the spirit of India overcoming obstacles that exist at every step of the way. 

At some point, Jugaad found its way, from the grassroots up into every level, right upto the decision making level. This is when the country, people included, started loosing out on their thought process, work culture, outcomes and opportunities.

Extend the same argument to an organization. How many of us could say that we work in a culture that does not support "working-around". A culture of jugaad creates heroes out of those who find a better way to work around and such heroes are the biggest stumbling blocks in the way of implementing systems that replace "jugaad" with processes. 

Jugaad benefits employees; they get a chance at becoming a hero. It benefits organizations; they get their results, quick and cheap, without bothering about policies or systems. But little do they realize that jugaad eventually works out costlier by way of

• A poor work culture
• Employee burnout
• Whimsical or invented Just-In-Time decisions
• Low respect
• Employee indifference

Jugaad is here to stay unless excellence becomes a foundation upon which every organizational initiative is built. With our attention firmly on short term quarterly results, lowest-cost suppliers, lowest operating costs, does Jugaad have any chance of getting out of our work culture ?