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Sunday, March 22, 2009

Quality is The Way Out

This week I picked up additional responsibility over Facilities and Travel. I'm glad to take on whatever needs to be done and add value wherever I can. This move will take me somewhat out of my role as "the HR guy" and back into a more general managerial role as in my life before Nelson, and that's gotten me thinking back to how we managed in my prior life.

That inevitably takes me back to W. Edwards Deming whose teachings were the basis of the Japanese system in which I last held this type of role. His systems have turned around so many companies, and helped others actualize into outstanding enterprises. I believe we have much to learn from Deming and that adopting several of his teachings, both you as an individual and us as an organization, can accelerate our turnaround.

For those of you who aren't familiar with Dr. Deming the link above is very informative. What it doesn't say is that Dr. Deming, who developed his theories while improving industrial output in the U.S. during WWII, was laughed out of Detroit by each of the Big Three. He then took his theories and methods to Japan which at the time was known for making cheap, inferior goods. He was embraced there and today is a national hero and many American companies have now adopted his teachings. His theories are the basis for GE's Six Sigma approach and are credited for turnarounds at Proctor and Gamble and Harley Davidson. In Japan, their Noble Prize equivalent for business excellence is the Deming prize.

Although his system is comprehensive, I believe the relevant points for us in these troubled times are:

  1. A relentless focus on continuous improvement in quality drives down cost, while a focus on driving down costs both increases cost and drives down quality. A certain Latin American printer comes to mind.

  2. Training and education are central to empowering employees; and empowered employees are central to quality.

  3. 85% of all problems are caused by management (and that includes me), as managers control the system in which people work and the system is what does or does not produce quality.

Here's a somewhat oversimplified view of how this works.

A trained and engaged workforce works within a system free from fear and speaking truth to management about what's wrong and how to fix it. The sum total of the individual learning from this training, when combined with this freedom to have conversations about quality, results in organizational learning. As the organization gets smarter, quality improves not only initially but continuously.

It is management's job to set up the system by which training and communication are caused to happen, to set and communicate the standard for the quality expected, and to measure everything that can be reasonably measured as a feedback loop so that everyone knows how they're doing regarding product quality.

The inverse of this, sadly, is what so often happens in tough economies.

Worker stress leads to uncertainty about jobs which suppresses communication. Cost cutting takes the forefront which leads to problems in service and product quality. Lower service levels and decreased product quality lead to loss of customers, which drives down sales volume, which in turn increases product cost per unit.

As managers our role in improving quality performance is to:

  1. Decide that you want quality and focus on that and not just the budget.
  2. Communicate to your team that you expect quality.
  3. Teach what quality looks like to your team. Don't assume that they know.
  4. Inspect or spot-check what you expect. When you just look at something it improves.
  5. Measure the 3-5 important aspects of your business, track those measurements, and share with the team how they're doing.
  6. Actively ask for feedback from your team as to how to improve these numbers.
  7. Learn from them and teach what they taught you to everyone else. This the manager's role in helping the organization learn.

Here's an example of how this works. A few years ago we were having payroll accuracy problems. We had a payroll supervisor and a payroll processor and averaged about 96% accuracy. In trying to drill down as to why we had accuracy issues the finger pointing went in all directions. Time cards were late from the supervisor, the employee's handwritten entries were illegible, the payroll processor was pulled off on other tasks and didn't have time to do an accurate job, the ADP processor in Atlanta made a mistake, our payroll processor made a mistake, commissions weren't received on time from Sales, etc... Meanwhile, I'm getting pressure from upstairs to reduce staff and wondering how I would ever produce a decent payroll with one fewer person.

The solution was that I expected and communicated (1) a standard of 99.5% accuracy each payroll, and (2) that we track payroll system accuracy via a bi-weekly Payroll Accuracy Report. It required the processor to report all inaccurate pays after every payroll, the reason for each error, and the overall percentage of accuracy. I got pushback from payroll and half my staff that it wasn't fair to measure the processor's performance because of everyone else's mistakes. My pushback was that this was a measure of system quality.

The first thing that happened was a immediate improvement in quality without any other action. Just measuring it made the people doing the work more diligent. Next, we started following up on employees with habitually late time cards. We established a cutoff time for commissions to be in payroll and enforced it. I followed up on managers with habitually unapproved time cards, late time cards, and late commission sheets.

Today we average 99.8% payroll accuracy and we have one Payroll Specialist and no Payroll Supervisor. The difference between 96% and 99.8% accuracy is 20 fewer mistakes every payroll. Every payroll mistake became an immediate priority to be researched and corrected, and it took more HR staff time to clean up a mistake than it did to produce an accurate payroll in the first place. We reduced our need for staff by increasing quality.

This example can be replicated in any business unit of our company. The cool thing is that we, every employee and every manager, can control quality every day. Deming refers to his system as emphasizing a "craftsman" mentality when performing our work (as opposed to cost focus, a productivity focus, or worse-yet, a disengaged mentality). Each of us can communicate with one another and share knowledge openly and freely. Each of us can take seriously the quality of the work that we do, from filling orders in the warehouse to payroll accuracy to the layout of book jackets to the editing of manuscripts or even what manuscripts we acquire.

Just go be craftsmen.

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