The startling fact is that most continuous improvement programs – whether they use Six Sigma, Lean, total quality management or some other methodology – fail to survive in the long term (Edward Pound, 2014). This stands in stark contrast with programs like the Toyota Production System that has been successful for over 60 years and Motorola Six Sigma which has been a guiding principle since 1988. Why?
In 2001, I had the privilege of listening to a keynote address at the 51st ASQ World Congress (Schultze, 2001) by the former CEO of Ritz Carlton Hotels – Horst Schultze. Herr Schultze summed up the differences between success and failure in succinct terms: Successful companies have, in all their endeavors but particularly with regard to quality, a strong moral compass. When they follow these guidelines and constantly strive for the “benefit of all concerned,” they cannot help but succeed. We get into trouble only when we deviate from what we know to be the best actions for our customers, shareholders, suppliers, regulators and employees. Follow this simple maxim – “The best for all concerned” – and you will be the best in everything you do.
It seems so simple. No one really argues when we implore them to serve their customers in the best manner possible. No one openly suggests that taking advantage of our employees and suppliers is a good idea. You will never find a business leader who suggests that excellent service and workmanship is optional. Everyone agrees that we should strive for excellence and yet most process improvement programs fail one or more of these simple litmus tests.
We focus on cost cutting, delivering to the minimum specifications and remaining minimally compliant with our regulations. The best interest of one or more of our stakeholders is frequently sacrificed in order to make these short-term gains. This is not pursing the “best for all concerned.” When we deviate from our corporate missions and goals and when we ignore that moral compass, the ultimate result is always failure in the long-term. Success is not an issue of using the best methods or having the best talent. Success comes from knowing who you intend to serve, how you intend to serve them, and why this is important. Success is a function not of always doing the right things but rather doing things for the right reasons. We must pursue a value proposition that creates value for the market we serve, do what we know is best for all concerned in that market and then stick to those guidelines even when deviations look better in the short term. Always do the right thing and you will succeed.
The problem with “do the right thing,” and “pursue the benefit of all concerned,” is that statements like these are vague and subjective. It’s easy to justify why the needs of some stakeholders supersede the needs of others and many businesses are held to short-term economic expectations that perpetuate these inequalities. Investors expect rapid return on investment. Customers often demand features and qualities that do not change their market behavior. Unions demand concessions that are not in keeping with the market conditions. In short, everyone is demanding that their interests are the most important so when business leaders choose one faction over another there is no clear signal that they are not pursuing the best interest of all concerned. This is why Herr Schultze equated these decisions to moral decisions. The guidelines for what is best for your business must come from within and be guided by the firm conviction of what the company stands for who they serve and why. These ideals then need to be enforced in all aspects of the business constantly and universally.
Deviating from these simple mission and value statements is when companies get into trouble (Why Lean Programs Fail, 2011). How many of these statements state that their overt goal is to “Cut Costs?” How many of these mission statements state that they will exploit their suppliers, employees or other stakeholders for better profitability? So why are these so often the overt goals of the continuous improvement programs? Continuous improvement is all about making the business successful and meeting the stated goals.
Pursuing short-term goals destroys and erodes the trust of everyone in the value stream (customers, suppliers, employees, etc). Pursuing short-term goals destroys employee and customer loyalty and generates an environment where the predominant emotion is fear. These negative effects are not immediately visible which encourages further cuts and exploitation until the whole program begins to implode upon itself. Continuous improvement programs that deliver results outside the mission and goals of the company, outside the aims and expectations of those who do the work, become increasingly less effective and wither away rather than collapse catastrophically (Chakovorski, 2012).
By wither, consider that 60 percent of Six Sigma projects and more than 90 percent of Lean projects fail to deliver projected and expected benefits (Edward Pound, 2014). This is partially because of the common “project culture” most improvement programs adopt, striving to engage in as many projects as possible, but the overarching issue is far more disturbing. Many of the “improvements” resulting from these projects are ultimately reversed when business conditions improve. These temporary improvements were meant to be permanent but because they were not firmly aligned with the goals and culture of the business, they are easily and effortlessly overturned, in many cases back to the original conditions before the improvement. Quality improvements are only long lasting when they fit the mission and goals of the corporation.
Leaders who don’t integrate continuous improvement as part of the corporate mission, goals and business culture are actually better off not engaging in business excellence over the long-term. That’s not an endorsement for cancelling your operational excellence program but rather an acknowledgement that bolt-on programs are an expensive drain on corporate resources. It’s a simple matter of return on investment, invest in what you believe in, in what you know adds value. When leadership’s endorsement of improvement is forced and disingenuous, EVERYONE knows and most people just wait for things to go back to normal rather than push for a better situation. As leaders, we must create a new normal and this demands convincing people that they should be on board rather than demanding that they should be. When your employees embrace change because they know it is the right thing to do, when it is part of the job they already do and not an add-on, that embrace creates value and the changes made will be sustained long-term. This is what Herr Schultze called being “morally successful.”
Being “morally successful” means profitable and growing while serving the needs of all key stakeholders. “Morally successful” means delivering the best product you can for the needs of your customers. “Morally successful” means that you strive to improve the profitability and cash flow of all player in the value stream. “Morally successful” means doing what is right. Above all being “morally successful” means you create a business environment where people are honored to be your employee. Everyone who is touched by your operation benefits through that association. To do this, you must know yourself, know your customers and their needs, know your competitors and their capabilities, and know the fears of your regulators. You must strive to optimize your position within each of these relationships. It’s not as simple as “always do the right thing” but it’s also not that much more complex. Know your business and do it well (Schultze, 2001).
Fully understanding your business, optimizing business relationships and constantly driving improvements in how the business creates value for all parties IS the goal of continuous improvement. Unfortunately, that’s not the way most of our programs are managed. You see, it is possible to reduce inventory, optimize production flow, and reduce waste while not optimizing the value proposition created by the business. When you do projects that create short-term gains that are not sustainable, this is exactly what we are doing. It’s not poor execution nor is it a lack of executive support that undermines these gains. These short-term gains are not sustained because they create changes that are alien to the mission and goals of the organization. Herr Schultze very elegantly called these so-called improvements for short-term gain “long term economic suicide.” Ultimately these suicidal behaviors kill the business excellence program hence it would be better to not engage rather than take this common pathway to ruination.
Of course, this is not the way it has to be. Many companies buck the trend. They don’t base their business excellence on certifications, training and cost cutting but rather on delivering the same results they would strive for had they not started a continuous improvement program. Lean and Six Sigma are not bolt-on programs led by some group outside the central leadership team. They are integrated into the strategy. These companies are in for the long-haul. These companies know that short-term gains are only useful as part of a long term investment strategy. They have chosen to become “morally successful!”
Chakovorski, S. (2012, June). “When Process Improvements Go Wrong.” Wall Street Journal.
Edward Pound, J. B. (2014). Factory Physics for Managers. New York: McGraw Hill.
Schultze, H. (2001). Quality Is a Moral Thing. Keynote Address – 51st World Quality Congress . Kansas City, MO: American Society For Quality.
“Why Lean Programs Fail.” (2011). Forbes.