Azerbaijan, Baku, Dec. 24 / Trend A.Badalova /
Trend conducted interview with one of the prominent and leading business advisers in the field of quality management, benchmarking and statistics, Gregory H. Watson, who last week held a workshop on "Quality Strategy: Creative Ideas for Efficient Management'' in Baku.
Trend : What should be done in order to overcome the consequences of the global financial and economic crisis and to avoid it in the future? What do you think when can we expect the complete recovery of the world economy?
Watson: The world economy has been in crisis for over eighteen months, and it is probably only half-way through a turnaround. However, there are still risks that need to be managed in a better way to assure that a reversal of the weak improvement trend does not occur. If our global governments can keep us on the current track to improvement, we may be fortunate to see that there is a return to a more stable condition in the next eighteen months. However, we must also address some of the critical failings in our economic system in order to assure that such a crisis does not recur. Corrective action must be followed by preventive action. I would like to suggest three actions that must occur in order to keep the global financial situation - these are necessary, but not sufficient conditions. I will return to this thought at the end of the description of these three actions.
First, a quality management system for finance must be put in place to manage the risks in a more effective manner. Inability to measure risk and manage risk was at the root of the crisis - especially as the risk was coupled with a distorted viewpoint of benefits. The risk-benefit equation should not be internally focused only upon return to the financial institutions and its employees (bonus systems), but on its contribution to the strength of society. The public responsibility of financial institutions must be emphasized in the way they are managed for quality.
Second, standard of quality for financial products must be strengthened. Some reasons that the crisis occurred were due to the more exotic schemes that were initiated without any appropriate review. Scandals that have been uncovered in the financial management community emphasize that public responsibility is not part of this community's inherent way of working and that this must be imposed through regulation and reinforced by the strengthening of internal controls. However, laws are not as effective in doing this as the development of an effective quality management system that is motivated by the proper respect for the rights of customers and markets. Only when customers are satisfied and shareholders are respected should employees receive additional compensation for work they accomplish. It is inexcusable that employees receive bonuses while at the same time customers suffer financial loss as a result of employee actions. This is not capitalism; it is a more like a form of financial terrorism.
Third, compensation systems must be adjusted to assure that the financial interests of the customers are placed above the self-interests of employees. The financial community has been run by its own rules and has not been responsive to collective demands of society for integrity and transparency. If we demand these conditions from our governments and corporate boards of directors, should we not have a similar response from our financial institutions?
Q: Watson, you have the reputation as one of the greatest modern specialists in the field of benchmarking and "six sigma" quality systems. You are considered a "Guru of the quality" in the world. Tell us please about the beginning of your professional activity. When did you become interested in quality?
A: Thank you. You are very kind in considering me a "guru" - but this is something that I don't really wish to claim. In my mind a "guru" sits on a mountain top and contemplates life. My own self-image is as someone who enjoys being in the mainstream of life and working with people to make a difference. Quality is the way that I have chosen to make a difference in life and my approach to quality is through the discipline of industrial engineering. I didn't always understand my life as clearly as I do now. Perhaps this clarity is something that comes with age as we take a more serious view about our own mortality and the value that we are providing to the world. My first position in quality was in the late 1980s at the Hewlett-Packard Corporate Quality Office as Manager of the Quality Leadership Development Program. However, in retrospect, my quality career began much earlier with the study of many quality methods as part of my earlier career: statistics, reliability engineering, systems management, and Japanese management systems. I think that when I was offered this position within the HP Corporate Quality Office that I realized that over the first 15 years of my career, I had migrated through many different experiences and that I had in fact naturally transitioned into quality as a profession. At about the same time, I realized that the academic discipline that I should study in more depth is industrial engineering, in particular how Japanese companies have applied these methods in developing such a strong national quality culture.
Q: Which are the most important problems in the field of quality that management must address on a priority basis today?
A: There are three issues which must become top priority for management to develop improved systems for organizational administration: the first issue deals with the processes of work, the second deals with measuring performance and making decisions; and the third deals with the way management engages its workers. Allow me to explain each of these three issues briefly.
Application of process management and its integration with IT tools are key elements in the foundation of quality. The first steps of an organization need to be toward a degree of systematization. In most companies their initial task is to develop a quality management system based on the ISO9001 standard. This can provide a sound basis for process management which improves the application of information technology for organizing business information. However, I firmly believe that business IT systems should not be used to manage work processes. When this is done, working systems are almost always sub-optimized and workers are deprived of the joy of working that comes from participating in the creation of their own work processes in a manner that waste is reduced and their process can operate without producing defects. Pride in the work that we do is a basic need of all workers. This is a lesson that I learned from my mother. She always emphasized that in teaching children that each human must learn to appreciate the special contributions that they make in their work or family. If we cannot appreciate ourselves, then we are unable to help others and the quality of our life is reduced. We increase the quality of our life when we like what we do and feel that our efforts are appreciated. In a similar expression, these same feelings lay a foundation for enduring love.
Performance measurement and decision-making go hand-in-hand to comprise the second issue. In order for us to learn about the way we should work and to gain insights about how to improve the quality of our work it is essential we have a sound way to measure our work and that we have been given the right to make decisions that improve the quality of our work. Measurement systems and decision-making rights are delegated by management as part of a "power-sharing" approach to work which increases worker self-esteem and motivation while concurrently engaging their creativity to enhance the quality of their actions. When workers can observe their own performance and are given ability to decide how to improve that work then an organization is empowering them and it will enjoy an increase in pragmatic knowledge about how to increase its effectiveness as well as its efficiency. Since time is money, this will also equate into savings in costs that are not related to reductions in jobs. Thus, employee motivation and the delegation of responsibility provide the final ingredient of the change management agenda for strategic improvement of organizational quality.
It is clear that all three of these ingredients are necessary to assure a sound foundation for quality management. However, they are not sufficient. In addition, management must deploy its resources properly to gain the broad benefit of quality management across the organization in both its vertical as well as horizontal dimensions. This emphasis on quality management must provide knowledge of the job people need to accomplish; knowledge of their current performance; and the personal desire and ability to regulate their work processes to achieve desired performance. When doing this an organization can minimize its losses from poorly designed work processes.
Q: What resources do companies need to minimize losses in the difficult times they face today?
A: This challenge is shared by all organizations - perhaps affecting smaller businesses even more profoundly than larger businesses. The first concern is that management must be able to see the losses that are occurring. This requires that they gain insight into the reasons why the work processes are experiencing defects, taking too much time, or requiring rework. This has been called profound knowledge of operations and results when we gain statistical understanding of the way we conduct our work processes. Only by understanding the reasons for inconsistency in work and reducing the sources of this variation can the work place be permanently improved. But, in order to drive this improvement, management must gain the moral will power to change in a way that accomplishes the reduction of these losses. This may mean changing the way we have worked in the past, allocating decision-rights as described in the previous question, as well as employing a company-wide methodology that has been proven effective in loss reduction and process improvement.
Q: The last decades have been characterized by wider understanding of the quality's importance both in products and services. The most recent popular phrase regarding business improvement is "Six Sigma." What is distinct about this approach to quality and what assures that it will be able to contribute to achieve increased performance above previous methods?
A: Coming from a "journalist" background, I believe that the global quality movement has suffered from the concept of "news" - always seeking a "new and different" approach that is somehow rejecting all that has gone before. If science worked this way, there would be no real development. In fact, the very first observations of how to improve quality are still with us in the form of standards of work and performance management. However, these are no longer the "new" focus of quality as their role has been validated and their continued presence in a quality management system is largely overlooked as a routine part of quality. Likewise, we still have a quality checking (control) aspect to final production and we use quality assurance to evaluate a product from the customer's perspective. Combining these fundamental quality approaches with a team-based improvement process created "Total Quality Management" and Six Sigma is now adding a more prescriptive statistical methodology along with linkage of business systems, lean production methods, and measurement-directed improvement to produce the latest evolution of quality thinking. In other words, when we look for "news" in Six Sigma, we find really that there is nothing truly new as most of the elements have been developed previously. However, in the Six Sigma approach, these elements are reorganized and an effective implementation of this approach is embedded into the way the organization works. This means that quality is now the job of everyone and that everyone is given the tools, methods, and direction to accept their own responsibility for the task of improvement. Effective implementation of Six Sigma provides the set of tools for improvement while at the same time restructuring company-wide quality efforts to distribute the responsibility of quality to the source of the work. For Six Sigma to work, the answers to the two previous questions must be part of management's new approach to work.
Q: What is the necessity of benchmarking for Azerbaijan organizations and how do you see its development here?
A: Benchmarking is an essential part of an organization's improvement effort. This is because this methodology forces an organization to evaluate its performance based on external results and not merely evaluating its own improvement trends. When an organization's standard of comparison for improvement is self-focused, e.g., comparing results in one financial reporting period to those of prior periods, then an organization may be surprised by external developments. Benchmarking externally keeps an organization from falling into a trap of self-limiting forecasts which either over-estimate or under-estimate its potential. Reality is external to an organization, not internal. It is in the realm of customers and markets and competitors. All internally-focused performance measures ignore the "world of possibilities" that is outside our walls. We must be working on improving both dimensions simultaneously - improving the quality of our processes so they produce less waste and are more consistent while at the same time aligning these same processes to the external control signals from the market and competition to increase the degree of flexibility within our organization and make it more responsive to shifts and trends that are occurring in the market. If we don't keep our eyes open externally, then we become blind and are more likely to have unpleasant surprises change our way of doing business, instead of taking a managed approach that keeps the organization ahead of the impact of external change. To do this, we must gain knowledge of external trends and adapt this information as part of a planning process to direct internal actions. This is the value of benchmarking for any organization. In the context of Azerbaijan, benchmarking is essential to learn lessons that your global competitors have already learned and assure that your businesses do not waste time on 'redeveloping' things that are common knowledge externally.
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