I am often struck by a remark of W. Edwards Deming that the aim of a system must include plans for the future. As Deming wrote in The New Economics, “A system must have an aim. Without an aim, there is no system. The aim of the system must be clear to everyone in the system. The aim must include plans for the future. The aim is a value judgment.”(The New Economics, The MIT Press, 1994, p. 50). This remark, it seems to me, goes right to the heart of needing to think about continuous improvement strategically, rather than tactically as a program or initiative to be undertaken.

Many firms undertake improvement initiatives to improve quality or, in the case of lean manufacturing, to increase added value by reducing and eliminating the amount of non-value adding activity. The rationale for many of these initiatives is the desire to reduce costs, thereby improving a firm’s profitability. However, high quality and low costs are no guarantee of profits.

To see why this is so, consider the ways in which a firm may position itself to compete in the marketplace. As outlined by Harvard Business School’s Michael Porter (Competitive Advantage, The Free Press, 1985), there are essentially three generic strategies through which a firm may position itself to compete in the marketplace:

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