Innovation and entrepreneurship: you can’t skip the quality step!

By Forum member Professor Danny Samson

With all the talk in business and government about innovation, entrepreneurship and start-ups these days, what about quality? From the 1970s and 1980s when Western businesses found themselves to be relatively poor in ‘quality management’ compared to Japanese companies, many approaches have come and most have gone in emphasis, such as Total Quality Management, quality control, accreditation and other initiatives and even fads. Most Australian organisations tried some of these. Some few achieved great gains while others searched in vain for a ‘silver bullet’.

So what does ‘quality’ mean, and does effectively managing it really matter in 2018? Quality mostly means having products and services that are ‘fit for purpose’ and that meet the customer requirements. And yes, it matters a lot: let us recall why the Japanese products from Sony, Matsushita, Honda and Toyota originally took all that market share from Zenith, RCA, Motorola, GM and Ford and Chrysler: it was because of large deficits in ‘Western’ manufacturing quality. Western products had high defect rates and low reliability and durability, that drained productivity and customer satisfaction.

Beneath the quality of businesses’ market offerings, being their goods and services, lies their quality of their processes. Most organisations have lots of room for improvement of their processes, with our research demonstrating that on average, over one third of a firm’s activities are actually ‘noise’, being wasteful work steps that should be eliminated. Organisations that have addressed their process quality challenges have achieved significant productivity and cost advantages over their rivals. The most famous example is Toyota, that has achieved process stability and control at high levels through 50 years of consistently conducting continuous improvement of all aspects of its processes. No wonder Toyota is so much more profitable and highly valued in capital markets than its competitors. We note that quality should not necessarily mean ‘luxury’, unless that is the customer’s requirement and market segment we are in, but it means delivering value to customers in whatever segment we choose to operate in. Achieving quality is just as important in mass markets as in luxury segments. Importantly, quality effectiveness drives health and safety too.

At the deepest level of quality is ‘organisational quality’. A number of business excellence frameworks have been rigorously devised and validated that powerfully address this. The best known of these, the American ‘Baldrige’ framework, provides a valid and comprehensive way to assess and drive forward the key aspects of organisational quality, which are categorised as leadership, human resources effectiveness, customer focus, process/ operations, information and knowledge management, strategic planning, and of course, the organisation’s outcomes. This system has been demonstrated over 30 years to be ‘the right stuff’, such that an organisation can readily be assessed in detail against these dimensions, then improvement plans can be formulated and implemented until a state of organisational excellence is achieved. As practices are improved, performance outcomes lift. At its best, these practices are founded on core pillars of alignment, execution excellence, and a culture of distributed leadership. We have seen the price to be paid in organisations in past decades that were poor at managing quality such as a major Australian telco, an erstwhile manufacturing leader that failed (Pacific Dunlop), in contrast to a highly successful innovator that based its innovation on process quality excellence: CSL.

Returning to the question of the relationship between quality and innovation, consider what would happen if an organisation was somehow able to come up with a world class ‘new-stream’ of innovations, but had a poor quality ‘mainstream’ meaning that is was unreliable and unstable in its production, distribution and servicing of its market offerings. The new innovations, no matter how attractive their features, would suffer from reputational quality problems, and would fail. It is a matter of compelling logic that innovation success should be founded on a base of quality maturity, lest much value will be lost. McDonald’s spent decades getting its productive systems honed and stable before it drove innovation, and so did Toyota. Newer efficient approaches can achieve quality maturity in a much shorter time than in previous decades, yet whether it takes just a year or longer, we would argue that there is still great merit in pursuing quality at every level. This involves products and services, processes, and the whole of organisation itself, with benefits that come from ‘getting it right the first time’, with zero defects as the goal and customer satisfaction as the vision.

While it is clearly possible to get lucky and have a single innovation breakthrough without having a systematic approach to quality, having a systematic approach to innovation as is the case in Apple and Samsung can only work if founded on a systematic approach (to quality) in the first place. If we wish to personally or organisationally be sustainably successful, we can’t skip the quality step!

Professor Danny Samson is Director of the Master of Enterprise and Master of Supply Chain Management degrees at the University of Melbourne: [email protected]

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