All entries for Sunday 18 October 2009

October 18, 2009

Comparison or understanding variation?

Typically managers use monthly or weekly reports to assess company’s performance and make decisions whether to change something in the process or leave it as it goes. Usually they compare two values: results of the period with results of previous period, results and targets, results of the period compared with the results of the same period in the last year. However, the comparison of two values can not give overall picture of the process, therefore, comparison is limited. Moreover, the comparison with the values of the previous period is weak, because previous period or last year can be different from the present, different external forces may affect previous period. Furthermore, the numbers and values are subjects to continual variation, they are not static, that is to say one weak you may be doing ok, but another you may be in trouble. If you follow the numbers and make decisions based on comparison of two values you probably take action when you are in mess and do nothing if you are ok. The period of active actions changes the periods of neglect, but is this the way to continual improvement? What should managers do in order to measure the performance in right way?

First of all it is understanding of the process and understanding what numbers are going to tell you about the process. Numbers should be presented in the broader context as it is a process. Data should be analyzed and interpret and variation should be taken into account. As D. Wheeler (2000) claimed, “before you can improve any system you must listen to the voice of the system”. (Wheller 2000, 21). Wheeler encourages to differentiate between the voice of the customer in the form of the targets, plans and the voice of the process. The comparison approach is to follow the voice of the customer and it does not give understanding how process works.

One of the alternative approaches to measure the company’s performance may be the Shewart’s behavior chart, which differentiate between types of variation and shows it in the graphic format using time series. By setting limitations chart filters out routine variation from exceptional variation and helps managers to see when actions and changes are needed. Also it helps to predict how process will behave in the future, because chart shows the behavior of the underlying process.  

The work of Wheeler throws lights upon the new ways of thinking about the data. It helps to understand that numbers, reflecting the company’s processes are dynamic, because process itself is not static, but changing. Managers should feel and deeply understand the company’s process and data and there are ways and tools exist to help managers to do it. While some of them focuses on financial data and statistical tools as Process behavior chart, others (for example Balanced scorecard) assess the work of the system not only focusing on financial results but also from different organizational perspectives.

Excellence models: ISO vs EFQM

What I have understood after reading articles and papers on the web-sites is that both ISO and EFQM are approaches or models to achieve quality or excellence in business. While ISO is presented as standard, that sets the requirements to achieve excellence, EFQM is non-prescriptive model, which recognizes that there are many ways to approach excellence. The basic focus of ISO is meeting customer needs and providing customer satisfaction trough effective system and process, whereas EFQM focuses on overall performance of the company and customer satisfaction is just part of it. This is, in my opinion, the main difference in the scope of the models. As far as scope of models is concerned it is important to mention the principles of the models. Each model has its own principles, most of which are the same. Despite the similarity of the principles, some of them are covered by each model in different scope.

ISO                                                                            EFQM                                                                            

Customer focus                                                    Customer focus

Leadership                                                            Leadership and constancy of Purpose

Involvement of people                                           People development and involvement

Process approach                                                    

System approach to management                            Management by process and facts

Factual approach to decision-making

Continual improvement                                          Continuous learning, innovation and improvement

Mutually beneficial supplier relationships                 Partnership development

                                                                            Public Responsibility

                                                                             Result orientation

Both of them have a customer focus, leadership and people involvement. However EFQM gives an emphasis not only on people’s involvement, but also on their development. Development and involvement of people is presented as non-separated process. The models also recognize the importance of the process and management of this process and that decision should be made on facts. Despite the fact that each model has continual improvement as a principle, the EFQM includes innovations and learning as principles to sustainable success. As far as partnership development is concerned ISO is limited only with beneficial relationships with the suppliers, while the EFQM focuses on satisfying the needs of all stakeholders, including shareholders, suppliers, customers and employees. Moreover, EFQM includes principles such as Public responsibility and Result orientation, which are not covered in ISO. Thus, the comparison of the principles shows that although ISO and EFQM have many common things, EFQM covers them in wider scope. However, this is just a comparison on the theoretical level.

The interesting thing that we discussed with our team is which model of comparison is right. At the beginning we thought that both of the models have similar scope, that they have things in common and aspects which ISO has and EFQM doesn’t have and vice versa, then after comparing the principles we understood that EFQM has a broader scope and understood that ISO may be part of EFQM, however we can't say it, because despite the fact that EFQM has a wider  approach,  ISO has aspects that EFQM does not cover.          

As far differences of the models are concerned, one of the significant differences is the way models measure and assess the performance of the organization. While ISO uses so called Quality Audit, EFQM uses Self-assessment approach.

Differences of QA and SA

-         QA – comparison of the organizational performance evidence with the standard to find out whether findings comply or not with the standard;

-         SA – identification of strengths, weaknesses and opportunities for further development of the organization in areas presented by EFQM criteria;

-         QA- comparison is made with the static standard;

-         SA- comparison in dynamic with the continually improving points of excellence;

-         QA-is implemented by qualified external auditor;

-         SA- is implemented by trained employees within the company

-         QA – function-based process and covers just one process in organization at one audit time

-         SA- covers all functions and processes in organization

-         QA- single procedure

-         SA – five different approaches depends on maturity of organization and effort put in the SA

Advantages of SA

-         measures both effectiveness and efficiency of the organization

-         involves people at all levels in process of self-assessment

-         internally motivated process, which helps to identify own strengths, weaknesses and opportunities

-         integrates the findings of assessment into business plans and operations

-         encourages the improvement within the organization

-         flexible and less formal approach

Disadvantages of SA

     - since SA involves it’s own people in the process of assessment subjectivity may negatively affect reliability of the findings

     - has different approaches for assessing the organization’s performance and none of them are universally applicable

Benefits of QA

-         single procedure for assessment

-         objective and independent process

Weaknesses of QA

-         is limited to looking for non-compliances with the standard and if the results comply with the standard there is no need for changes;

-         comparison is made with the static standards

-         findings often is not integrated in further plans and operations of the organization

-         often neither auditors nor managers are interested in usage of audit findings for improvements

-         often is used for external purposes such as reputation or ratings

-         independent process which is implemented by auditor and managers, restricted opportunities for participation of employees.

Thus, the comparison between QA and SA shows that both of the approaches have differences, advantages and weaknesses. However, the comparison helps to understand that SA has more advantages for the company’s development and improvement; it is more oriented towards people, their involvement and assessment of their own activities and therefore their development. As for the QA, despite the fact that findings of audit can be more reliable because of independent auditor, these findings often can not enable changes and improvement. However, I do not believe that the ISO do not have advantages more than I found out, so many companies nowadays uses ISO? Why? May be this is because EFQM is more reliable on the theoretical level, but it is not the case in practice, may be it is harder to use EFQM in real life than ISO? It is opportunity for further exploration))))

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