Using Quality Objectives to Drive Strategic Performance Improvement

Focusing your improvement efforts
will bring you better results.

________________
by Craig Cochran

The most significant change in the upcoming revision to ISO 9001 is probably not what you'd expect it to be: It's not customer satisfaction, continual improvement or even the process-model structure of the standard. The most significant change is the requirement for quality objectives. ISO 9001:2000 requires that quality objectives be established at each relevant function and level within the organization (i.e., just about everywhere). The manner in which quality objectives are established and managed will have an enormous impact on the organization's performance. The quality objectives will either drive strategic improvements throughout the organization, significantly elevating the importance of the quality management system, or they'll simply become a meaningless exercise in data collection. It all depends on how the task is carried out.

 The basic requirements for quality objectives are quite simple:

  Establish quality objectives at relevant functions and levels.

  Make sure they're measurable.

  Include objectives needed to meet product requirements.

  Communicate to all personnel the meaning of the objectives and how each person helps to achieve them.

  During management reviews, evaluate the need for changes to quality objectives.

 There's a right way and a wrong way to satisfy these requirements. The wrong way seems attractive to many organizations simply because it's easy: Gather all of the department managers in a staff meeting and tell them to select some measurable quality objectives by this time next week and have charts of their objectives ready for the next management review. The resulting objectives are a hodgepodge of pet projects and tactical issues that don't have any relationship to the strategic direction of the organization. In other words, they're a waste of time and money.

 The right way to select and manage quality objectives is not much more difficult than the wrong way, and the benefits will far outweigh the extra effort involved. Quality objectives should be attacked in four basic steps.

Step 1: Establish the foundation for objectives

 The organization's mission and strategy form the foundation for the selection of objectives. Both of these are defined by top management. Defining the organization's mission is the first step in the process. The mission can't be in the form of platitudes and meaningless generalities; it must be a serious, forward-looking vision of where the organization exists within the context of its competitive environment and where its management hopes to take it in the future. Top management must provide answers to the following questions as it defines the organization's mission:

  Why do we exist as an organization?

  Whom do we serve through our efforts?

  What basic needs or desires are being met by our efforts?

  What goods or services will we deliver now and in the future?

  Who are our stakeholders (employees, customers, suppliers, shareholders, neighbors, community leaders, politicians, etc.), and what are their individual strengths and importances in relation to what we're trying to accomplish?

  What beliefs and values form the cultural foundation of our organization?

  In a general sense, where are we moving (philosophically, operationally and competitively) compared to where we are today?

 The definition of the mission is considerably different from most quality policies that organizations put forth. The mission will be broad and universal, forming the core of the organization's very existence rather than simply the foundation of its quality system. A quality system, a given in most businesses today, is just one variable in a long list of success factors (including quality, reliability, innovation, delivery, price, prestige and convenience) that vary depending on circumstances. A traditional quality policy probably won't provide the sort of guidance needed to drive the formation of strategy.

 Once a mission has been clearly defined, top management must develop the organization's strategy. The purpose of a strategy is to enable the achievement of the organization's mission, that is, to define the specific steps necessary to fulfill the broad goals of the mission. Most organizations have strategic planning processes of some sort. The differences exist in the degree to which the strategy is actually put into use and the degree to which anyone below the upper tier of management has exposure to it. For a strategy to be fully implemented, it must be put into practice on a daily basis and understood well throughout the organization. The organization's quality objectives will ultimately be the means for achieving both of these requirements.

Step 2: Select key measures

 Mission and strategy are useful concepts, but they're often too abstract for people to use on a regular basis. What is needed is a set of tools that translates mission and strategy into concepts that can be measured and understood. Top management must translate mission and strategy into metrics that we'll call "key measures."

 What exactly are key measures? In general, they are:

  Measurable, just like quality objectives

  True indicators of success or failure within an organization

  Based on mission and strategy, which will naturally differ depending on the organization. However, some measures, such as revenue or profit, are so universal that they might be adopted by a wide range of organizations.

  Developed at the top of the organization. Only top management has the broad perspective and understanding of the competitive environment necessary to select key measures (although the process of selecting key measures can be facilitated by others within the organization).

  Few in number, generally between four and 10. The more measures that are adopted as key measures, the more unfocused the organization will become.

  Representative of a wide range of organizational interests, including financial results, customer perspectives, internal performance measures and human resource concerns

  Clearly defined

  Used to form the basis for the selection of quality objectives throughout the rest of the organization

 The typical for-profit business organization has dozens, if not hundreds, of high-level performance indices. A great many of these measures are necessary for accounting purposes, but significantly fewer relate directly to the organization's strategy and long-term success. The challenge will not be coming up with key measures; it will be keeping the list focused and manageable.

Step 3: Base quality objectives on key measures

 After top management has selected key measures for the organization, functions and departments at all levels will select measurable quality objectives that are consistent with the key measures. It may sometimes be possible for functions and levels to adopt objectives that are the same as key measures, but most of the time, it will be necessary to select close substitutes: objectives that have direct, logical connections to the key measures. For example, if the organization has selected net income as a key measure, the production department might opt for cycle time as an objective because it has a direct link to the organizational measure and the department is able to measure it. In this way, the link to strategy and mission remains unbroken (see Figure 1).

Figure 1: The Linkage to Mission and Strategy

 Departments must strike a balance between traditional quality objectives and measures that reflect other strategic concerns. ISO 9001:2000 requires that quality objectives include measures required to meet product requirements, and most organizations will naturally move in this direction when setting quality objectives. Metrics such as scrap, rework and first-quality inspection rates immediately come to mind; however, it's important to maintain a broad definition of product in this context.

 To reap the full benefit of quality objectives, the organization must expand its perspective on the meaning of "product." ISO 9001:2000 defines product as the "result of a process." This broad definition makes it clear that, in the eyes of the customers and other interested parties, "product" refers to almost anything the organization does. The product's ability to meet requirements could be reflected by a wide range of measures, including the accuracy of the organization's invoices, the safety of its trucks, the responsiveness of the company's sales and customer service personnel, the percentage of revenues derived from new product innovation, market share within each product line, and the profit that the organization pays its owners. The organization must ensure that it embraces the broad definition of the term "product," or it will miss many opportunities to choose measures that bear on the organization's long-term success.

 Quality objectives are selected by process owners, that is, the managers who are directly responsible for the processes concerned. Process owners will require assistance when selecting quality objectives, and the ISO 9000 management representative is an obvious resource in this capacity. The role of the facilitator is to challenge the paradigms that process owners may be using to develop their metrics. Process owners are accustomed to measuring their own performance, but the measures may or may not have any obvious links to the organization's key measures. Quality objectives must also be cross-checked against objectives in other areas to ensure that suboptimization doesn't occur. Sub-optimization occurs when an objective makes one function look good but harms other functions. Objectives linked to output or machine utilization sometimes cause suboptimization, especially in departments responsible for storing and moving finished goods.

 Process owners should set targets for their own quality objectives. The targets must be set with an understanding of the underlying process capability. The old standby "two percent better than last year" is a deception unless there is a logical basis for the target. Statistical control limits on the quality objectives can greatly assist in setting targets if there is statistical competence within the organization.

 Finally, remember that objectives must be measurable and clearly defined. ISO 9001:2000 requires that the objectives be measurable, and common sense requires that they be clearly defined. "Measurable" means the performance is trackable over time using quantitative data. If the objective can be plotted on a chart, then it probably passes the measurability test. Most organizations won't have too much trouble making their objectives measurable; the problems arise in trying to define them clearly. Definitions attached to each quality objective should answer the following questions:

  What exactly does the objective measure?

  What is the objective's link to key measures, mission and strategy?

  How is the objective calculated?

  What is the source of the data?

  Who collects the data, and how often?

 If these details are outlined in a straightforward manner, then misunderstandings, confusion and suspicion will likely be avoided, and the quality objectives will stand a much greater chance of driving organizational performance.

 Training personnel on the objectives in their areas is the final--and possibly most important--step in the process of setting objectives at the departmental level. Personnel must have a clear understanding of what their department is working toward and how they can contribute to the effort. ISO 9001:2000 requires that personnel understand their objectives, why the objectives are important, and what they can do to help reach them. This sets up significant responsibility for training on the departmental level. Vague statements from employees such as "We're trying to get better" and "We want to make the best quality possible" aren't going to meet with auditors' approval, nor will this level of understanding help anyone actually contribute to their department's pursuit of objectives. Training must be geared to practical, nuts-and-bolts understanding of the issues surrounding quality objectives.

Step 4: Analyze the data and manage the system

 Measurement without critical analysis is useless. Nevertheless, many organizations collect reams of data that nobody ever bothers to analyze. A robust system of objectives relies on data collection, followed by hard-edged, critical analysis.

 Progress toward quality objectives can be assessed in a number of settings, the most obvious of which is during management review. In fact, ISO 9001:2000 requires that quality objectives be addressed during management review. A number of important questions must be considered during the review of quality objectives:

  What constitutes normal variation vs. a trend that truly requires action? Personnel are sometimes very anxious to act on data changes, particularly at the beginning of a continuous improvement initiative. The problem is that trying to act on statistically insignificant changes can divert management's attention and resources from other trends that do have significance. The determination of statistical significance is very difficult to make without calculating control limits.

  Are there seasonal cycles to be aware of? A sled manufacturer will probably see a drop in revenues every summer, which is not necessarily a cause for alarm.

  What sort of background information do we have about the variables in question?

  Are there interactions between the objectives and other process variables within the department? Process experts can be very helpful in making these determinations and providing guidance during the analysis of objectives.

  Are there incentives in force that discourage achievement of the targets? It may sound ridiculous that an organization would have incentives that discourage its own objectives, but this is often true--for example, when personnel receive incentives based on output measures but the organization as a whole is trying to reduce inventory and/or increase inventory turnover.

Mistakes to be Avoided With Quality Objectives   Using quality objectives simply as a way to fulfill ISO 9001:2000 requirements instead of as a tool for decision making and strategic management   Using objectives that have no link to the mission or strategy of the organization   Using objectives that aren't measurable   Using objectives that aren't clearly defined   Using fuzzy, feel-good objectives    Allowing functions to select objectives without guidance and facilitation   Using objectives that put functions in competition with one another    Not properly training personnel on the practical meaning of their objectives and how each employee can contribute to their achievement

 Analysis of objectives and the targets will identify the areas most in need of improvement. Departments can then brainstorm actions they expect to positively affect the objectives needing improvement. The brainstorming should be led by the process owners and should include all key personnel in the area. Keep in mind that key personnel are not necessarily those who have formal authority and responsibility; they might be experienced operators, technicians, new employees with fresh perspectives or even "troublemakers" who express unconventional views. Assembling the right people to participate in the brainstorming is a critical part of the process. The actions that come out of the brainstorming session are then prioritized and acted upon, based on the expected effect on the organization and chances of success.

 It's important to remember that the selection and management of quality objectives is not an exact science. As long as the process is accompanied by logic and common sense--and steps are taken to avoid the mistakes shown in the sidebar--the organization will be successful. The organization must always keep in mind that the ultimate goal of setting objectives is to become a stronger, more successful organization, not just to satisfy third-party auditors. If organizations use and manage quality objectives correctly, ISO 9001:2000 will truly move into a new territory of driving strategic performance improvements throughout the entire organization.

About the author

 Craig Cochran is a project manager with Georgia Tech's Center for International Standards & Quality (CISQ). Cochran has an MBA from the University of Tennessee and a bachelor's degree in industrial management from the Georgia Institute of Technology. He's also an RAB-certified quality management systems lead auditor. For more information on CISQ, call (800) 859-0968 or visit the Web site at www.cisq.gatech.edu . E-mail Cochran at ccochran@qualitydigest.com .