July 18, 2009

Value of good quality?

Eight months ago, I wrote a blog on the "Cost of Bad Quality" (see here). The choice for this title is, well, my childish way of responding to my previous entry :P

The idea for this blog actually came from doing my project research which is going pretty well (thank you for asking). In my research I became particularly interested in the causal relationship between Doing Quality and Business Performance.  Since few would dispute that quality is highly desirable in product and service that we consume.  We generally take for granted that all things associated with quality is probably good for us, including the popular quality methods used and advocated by consultants and practitioners. In fact, most books on quality seem to suggest either explicitly(i.e. Harry & Schroeder (2000); Pande et al (2002;2000), or implicitly (Deming 2000, Crosby 1984) that quality contribute to direct business performance (i.e. Six Sigma).  However, I feel because people have taken these ideas for granted that anything associated with quality (such as quality methods) are generally being treated in an unscrupulous fashion.  

One of the exciting (but also tedious) thing about this area of research is that there seem to be huge inconsistency in the literature. Many empirical studies suggest positive correlation when just as many suggest the opposite. How to explain such disparity in finding? Various suggestions are posed such as researcher  bias (Powell 995), unscientific research methodology (Powell 1995), lack of objective information on actual practise & different interpretation and application of quality (Easton and Jarrel 1998)and selection bias in firm (Powell 1995)and so on.

But these are , in my opinion, minor error in research methodology that do not fully explain why there are two large body of contradicting conclusions. Is there an actual difference on the firm level (i.e. between adopt & non-adopting)? Or is there another explanation (beyond firm level) for such empirical disagreement?

What I find most exciting is that I seem to have found at least two arguements, both offers macro level explanations for the observed discrepancies. The first one is from an institutional theory perspective (a strand of organisational theory). I won't describe its origins. It is suffice to say that the theory argues firms tends to conform to existing practises (thus becoming more alike) because they want to be seen as legitimate (justified in existence) in the eyes of stakeholders. In another word, Firm A sees many companies doing Six Sigma and it feels it has to do Six Sigma as well in order not to be seen as falling behind. Evidence of this phenomenon has been observed particular in heavily regulated industries such as health care and financial sector (presumably to conform to regulation or compete for state resources) (Westphal 1997, Deephouse 1995). However,  in less-regulated industries, managers will choose to conform to industry practise because doing so give them better reputation and pay (Staw and Epstein 2000). Now, how does this relate to Doing Quality and Business Performance? Institutional theory argues firms adopt quality methods not because it want to improve process efficiency or yield but because of other reasons such as regulation or higher compensation. Therefore, there is likely to be a gap between rhetoric (what firms say they will do) and practise (what firms actually do). Now, when researchers send out questionnaires to company manager asking about their quality effort. The pool is likely to be made up of firms that are totally serious of quality effort and firms that approach quality in an apathetic, half-hearted manner.  The inclusion of firms passive about quality leads to results that show quality effort made no significant (or even negative) effect on business performance.

Now, you may say "But that doesn't explain everything! What about those studies that are careful about choice of sample to make sure only firms serious about quality are selected?". Indeed there are studies that control for such bias by selecting only firms that won quality awards (Baldridge or EFQM), or certified with ISO 9000. Because of the third party assessment process, the selected firms are more likely to have implemented consistent quality practises. But there is another explanation for this situation too. It is from the resource based view of organisation-namely firm success is determined by the resource it posses. Since possession of quality practice (a resource) confers an advantage (in product, process quality, and customer perception) over its competition, firms will choose to practise quality in order to outcompete or in the case of slower adopters compete with earlier adopters. Now, that is all very well and good. Competition is good for the society. However, the problem comes when a quality practise diffuse to the extent that most firms have it and the quality practise itself no longer confers a competitive advantage (Porter 1996). Imagine if everybody in your class got an "A" for final exam, how does this make your own "A" special or unique? This is particularly problematic in the case of pre-packaged, generic quality practises (i.e. Six Sigma) because of the ease of implementation (faster industry adoption), but also the faster the rate of loss in competitive edge. Think about why some firms choose not to be seen as associated with certain quality methodologies - simply because otherwise it would be seen as indifferent with its competition in customer's eyes. You may also relate this to the faddish phenomenon of management initiatives. As one "idea" become saturated in the marketplace, firms look for the next "big" thing to differentiate themselves from competitors. Consultants and business managers are in a mutually dependent relationship. Consultants (and partly academics) simply provide an avenue for such "ideas". Now, like before, I must ask "how does this relate to doing quality and business performance?".  According to the resource based view of the firm, early pioneers of a quality practise would enjoy a first mover advantage (Lieberman & Montgomery 1988) of huge financial benefits from process improvements marketing.  Late adopter of a quality practise would gain virtually no benefit due to the extended diffusion of practise.

To conclude, is good quality valuable? Probably so. But does this mean practising quality will always deliver good business value? The empirical evidence seem to have given us a largely confusing and contradicting answer. In this short entry I have tried to offer a macro-level for such discrepancy in literature from both organisational behavior and strategy perspectives. When quality practise is adopted only superficially, the difference in actual practise between serious and passive adopters may be difficult for researcher to detect. Even with the inequality in actual practise controlled, the ease of quality practise diffusion in the industry means competitive advantage based on quality is becoming more difficult to sustain. This in turn, differentiate early adopters from the later adopters whom may both be doing exactly the same thing!


- 3 comments by 0 or more people Not publicly viewable

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    19 Aug 2009, 15:27

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