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A History of Managing for Quality in the United States-Part 1
Until the voyage of discovery by Christopher Columbus in 1492, the North American continent was populated by numerous native American tribes. Some had evolved advanced civilizations, including sophistication in astronomy, but most were lacking in technology and even a system of writing. These lived off the land as food gatherers, farmers, fishermen, hunters and so on. Nevertheless, some of their handicrafts reached high levels of quality, as evidenced by artifacts that are preserved in museums. What is now the United States was colonized mainly by Great Britain, Spain and France. These European countries subdued the natives through superior weaponry and took possession of the continent. In due course, the colonists revolted against foreign rule, declared their independence in 1776 and formed the United States of America. Following independence, the United States became a haven for large numbers of immigrants, at first mainly from Great Britain and northern Europe, and later from southern and eastern Europe. It also expanded its territory, by purchase and conquest, to reach its present boundaries.
Early systems of managing for quality The origins of managing for quality in the United States are to be found in Europe rather than in North America. At first, the principal industries in the colonies were agriculture plus production for self-use. The British government favored retaining for the British Isles the roles of manufacture and sale of finished goods while using the colonies as a source of materials and as a captive market for manufactured goods. The colonists resisted these restricted roles and sought to create their own manufacturing capabilities. The early colonists and immigrants also faced the problems and opportunities associated with exploiting the immense natural resources of their new world. An innovative spirit emerged and became a driving force when the new nation undertook to industrialize. Self-reliance and risk taking became major and respected traditions. These traditions in turn raised individualism and entrepreneurship to a state of respect.
Craftsmanship In their approach to manufacture, the colonists and immigrants tended to follow the craftsmanship concept prevailing in their respective European countries of origin. A boy learned a skilled trade as an apprentice to a master. The master trained the apprentice in how to produce the product. The master also maintained a form of quality control by inspecting the goods before sale. Once the apprentice had learned his trade, he became self-employed or employed by the master of a small shop. Quality under craftsmanship was usually in good hands -- the hands of the craftsmen. Achievement of quality was one of the essential skills learned by the apprentice. Most goods were sold locally, so the craftsman had a large personal stake in meeting his customers' needs for quality.
The Industrial Revolution The Industrial Revolution, which originated in Europe, created the factory system. The factory system usually subdivided former trades into multiple, specialized tasks. It soon outproduced the craftsmen and the small independent shops, and made them largely obsolete. It forced many craftsmen to become factory workers, and many shop owners to become production supervisors. (The factories employed many semiskilled and unskilled workers as well.) Managing for quality remained a production function. Large production departments employed full-time inspectors, who reported to the respective production supervisors. Quality was assured through the skills of the workers, supplemented by supervisory audit or by departmental inspectors. When the Industrial Revolution was exported from Europe to North America, the United States again followed European practice, with further damage to craftsmanship.
The Taylor system and its impact Late in the 19th century, the United States broke sharply with European tradition by adopting Frederick W. Taylor's system of scientific management (Juran, 1973). Taylor's goal was to increase production and productivity without increasing the number of skilled craftsmen. His concept was to separate planning from execution. In those days, planning of factory work was done largely by factory supervisors and workers who, in Taylor's view, lacked the necessary technological literacy. Taylor's solution was to assign the planning to engineers and to limit the supervisors and workers to executing the plans. This approach became the basis for a remarkable rise in productivity. In the judgment of the author, the Taylor system was a major contributor to making the United States the world leader in productivity.
The emergence of independent inspection departments The Taylor system also had negative consequences. It damaged human relations by further crippling the craftsmanship concept. In addition, the new emphasis on productivity had a negative effect on quality. To restore the balance, factory managers created central inspection departments, headed by a chief inspector. The various departmental inspectors were then transferred to the new inspection departments. This was done over the bitter opposition of the production supervisors. The major job of the new inspection departments was to keep defective products from reaching the customers. This was done by inspection in various forms. Raw materials and goods in process were commonly sampled. The results of the sampling determined the disposition of the lot. Finished goods were usually detail-inspected to separate the good from the bad. In many companies, the assignment of responsibility for quality took a curious turn. If defective goods did get out to clients, it was common for the upper managers to ask the chief inspector, "Why did you let this get out?" It was less common to ask the production manager, "Why did you make it this way?" In due course, there evolved a widely held belief that quality was the responsibility of the inspection department.
The first wave of statistical quality control The middle 1920s witnessed the first significant wave of so-called "statistical quality control." It had its origin in the Bell System. It was initiated in 1926 when a team from the Bell Telephone Laboratories proposed that the Hawthorne Works of Western Electric Co. (the manufacturing arm of the Bell System) apply certain tools of statistical methodology to the control of quality of manufactured telephone products. Those tools consisted of: * The new Shewhart control chart. * Use of probability theory to put sampling inspection on a scientific basis. * A demerits plan for evaluating outgoing quality of telephone products. That initiative resulted in creation of a Joint Committee on Inspection Statistics and Economy. The most fruitful activity of the committee was the development of sampling tables. The Hawthorne Works made extensive use of sampling inspection, but in empirical ways. The committee produced many innovations: the identification and terminology of sampling risks; sampling plans -- single, multiple and continuous; the average outgoing quality limit concept; the process average concept, which was an early version of the process capability concept; and so on. Derivatives of the sampling plans were published as MIL-STD-105, the Dodge-Romig tables (Dodge and Romig, 1959) and others. In contrast, the control chart concept did not arouse much interest at the Hawthorne Works, whose major quality problems required remedies of a far more fundamental sort: * The physical layout of that huge plant was on a colony basis -- each production department housed a single species of process machinery. This arrangement resulted in long production intervals, huge process inventories, gridlocked transportation and chaotic paperwork. * Manufacturing planning was done empirically. The planners had no grasp of the concept of quantifying process variability. * Measuring instruments were mostly of the go/no go type, to facilitate sorting of good products from bad. * The priorities assigned to the production departments were to meet the schedules, achieve high productivity and maintain piecework earnings. Quality was left to the inspection department.
During the 1920s and 1930s, the committee activities did impact Bell System practices, notably with respect to sampling inspection. However, there was hardly any impact on U.S. practice as a whole. That had to await the events of World War II. During that war, the work done by the committee became the basis for the wartime training courses in statistical quality control, and for various published sampling tables.
Quality during World War II U.S. involvement in World War II began as a supplier to the Allies during the late 1930s. The Japanese attack on Pearl Harbor in December 1941 then brought the United States into the war as a combatant. Legislation was enacted to put the country on a war footing. A War Production Board was created to gear the civilian economy to the war machine and to produce enormous quantities of military products, many of which used new, sophisticated technology. Regulations were established to give the war effort priority in allocation of facilities, materials, skilled personnel and services of all sorts. Production of a wide range of civilian products came to a halt. These included automobiles, household appliances, entertainment products and many others. A massive shortage of civilian goods developed while defense factory employees were working overtime and building up a great hoard of purchasing power. The effect on quality of military products The traditional approach had been to award military contracts based on competitive bidding, the contract usually going to the lowest bidder. Upon delivery, the products were inspected and tested for conformance to specifications. Often this involved inspecting and testing every single unit of product. This same basic approach was retained during World War II. It required a huge expansion of the inspection forces, with massive problems in recruitment, training, employee turnover and so on. The armed forces tried to reduce these problems by greater use of sampling inspection. In doing so, they decided to replace their empirical ways of sampling with methods based on the laws of probability. With the aid of industry consultants, especially from the Bell Telephone Laboratories, they adapted the sampling tables which had earlier been devised by the Bell System. The resulting tables were published as MIL-STD-105 and were incorporated into the contracts by reference. In turn, many contractors referenced these same tables in the contracts they made with their suppliers. Despite this progress in improving the inspection process, the top priority was on meeting the delivery schedules. This was underscored by the system of awarding the coveted Army-Navy "E" to government contractors. The award was for meeting delivery schedules.
The effect on quality of civilian products World War II ended in 1945, but meanwhile a massive shortage of goods had built up. It then took the rest of that decade to refill the pipelines and for supply to catch up with demand. During those years, the quality of products declined severely (quality always goes down during shortages.) The traditional, experienced manufacturers gave top priority to volume of production in order to secure maximum share of market. The shortage also attracted new competitors, and their inexperience contributed further to the decline in quality. The most subtle effect of the shortages was to create a habit of giving top priority to meeting schedules. As the years went on, this priority found its way into company policies and procedures. The resulting habit patterns then developed vested interests which resisted change. So the habit of giving top priority to delivery dates persisted long after the shortages were gone.
The second wave of statistical quality control During World War II, there re-emerged a surge of interest in statistical quality control. The War Production Board, in its effort to help contractors improve their quality, sponsored numerous training courses in the statistical techniques evolved by the Bell System during the 1920s. (Working, 1945; Grant, 1953). Some of this training stimulated quality improvement in specific companies. However, most wartime applications of SQC were tool-oriented rather than results-oriented. As long as government contracts paid for everything, the companies could not lose. In due course, the government contracts came to an end, and the SQC programs were re-examined from the standpoint of cost-effectiveness. Most of them failed the test, resulting in wholesale cutbacks. Creation of ASQC One aspect of the training courses appealed to all attendees. They relished the opportunity to meet for eight days with people who faced the problems of quality control in other companies. For many attendees, this opportunity for sharing experiences was unprecedented. Some proceeded to create local societies to enable such sharing to continue. These local societies then merged to form the American Society for Quality Control.
Quality control engineering A residual effect of the War Production Board training courses was the creation of quality specialists who were assigned to make use of the new tools. Many of these specialists prepared texts and conducted in-house training courses within their own companies. Some went further: They established data systems, investigated abnormal conditions, initiated quality planning, prepared manuals of procedure, conducted quality audits, published quality reports and so on. The conduct of such activities created a demand for a new job category for quality specialists. The companies responded positively, and the term "quality control engineer" emerged as the most popular title. There also arose the question, "Where shall we put the quality control engineers on the organizational chart?" Large companies tended to create new departments called "statistical quality control" or "quality control engineering" for the new specialists. Such departments were not made subordinate to the chief inspectors. Instead, a new office was created -- the quality control department, headed by a quality control manager. This new department then presided over the inspection department and the new quality control engineering department. The quality control manager was usually assigned to report to the plant manager.
The quality control department The new quality control department now occupied a higher place in the company hierarchy than any previous quality-oriented organization unit. Yet this situation soon changed as a result of the postwar decline of product quality due to shortages. During the years of shortages, the merchants tended to avoid complaining about quality. They were fearful that their suppliers might reduce their allocations. Then, as the pipelines did fill up, the complaints about quality intensified. The unqualified suppliers soon disappeared, but poor quality also threatened the market share of the survivors. That threat then attracted the attention of the marketers and upper managers. The solution usually took two major forms. One was to create a function of reliability engineering. The other was to raise the stature of the quality control department. Reliability engineering was a response to the growing problem of field failures of durable goods. Conventional quality control had focused on time zero -- performance when tested prior to shipment. This focus did not assure that the products would perform reliably during long use in the field. Reliability engineering evolved to develop tools and procedures that would contribute to reducing field failures. Many companies recognized this need and created a new job category of reliability engineer. Some went further and established a department of reliability engineering. In such cases, the new department became part of the quality control department. The name of the quality control department was also changed, as well as its status. It now housed the functions of inspection and test, quality control engineering, reliability engineering and quality audit. In addition, there was a need to give it added status to help it deal with the entrenched habit of giving top priority to meeting schedules. To provide this new status, the department name was changed (typically) to quality department. The chief was given (typically) the title of quality manager and (typically) reported to the vice president for manufacture. Considering that early in the century, the organization charts were devoid of anything oriented to quality, this was a high status indeed.
Managing for quality at mid-20th century By the middle of the 20th century, managing for quality in the United States was carried out largely as follows: * Each functional department in the company carried out its assigned function and then handed off the result to the next function in the sequence. This was often called "throwing it over the wall." * At the end of the sequence, the quality department separated the good products from the bad. * For defective products that escaped to the customer, redress was to be provided through customer service based on warranties.
This approach contained numerous deficiencies, such as: * Training in how to manage for quality was limited to members of the quality department. * Quality had top priority in the quality department, but not in other departments. * The over-the-wall concept permitted departments unilaterally to create quality problems for their customers, internal and external. * The reliance on inspection and test fostered the belief that quality was the responsibility of the quality department. The extreme dimensions of this strategy can be seen from the situation prevailing in the Hawthorne Works of Western Electric Co. during the late 1920s. Hawthorne was at that time virtually the only factory in the Bell System. At the peak (about 1928), it employed more than 40,000 people, of whom 5,200 were in the quality department. * The upper managers were detached from the quality function. In their mind, they had delegated quality to the quality managers. * There was no organized approach for quality improvement -- for improving the processes so as to reduce the incidence of defects and field failures. The responsibility for prevention was vague. By the standards of later decades, these deficiencies seem formidable. Yet they were no handicap to companies whose competitors employed the same concepts, and such was usually the case. Despite the deficiencies inherent in the concept of detection, many U.S. goods came to be well-regarded as to quality. In some product lines, U.S. companies became the quality leaders. In addition, the U.S. economy grew to superpower size. The domestic economy was unified by the laws governing movement of goods in interstate commerce; these laws avoided the obstacles inherent in the national boundaries then prevailing in Western Europe. The American belief in a market-based economy and the spirit of entrepreneurship stimulated investment to bring new and improved products to market. Additionally, managers were willing to invest in facilities to improve productivity. Some of those investments (for example, in machines, tools and instruments) improved quality as well. The emerging forces During the second half of the 20th century, some massive forces emerged to challenge the adequacy of quality in the United States. The chief forces included: * The growth of consumerism * The growth of litigation over quality * The growth of government regulation of quality * The Japanese quality revolution
In due course, U.S. managers evolved responses to those massive forces, but not before much damage had been done to the economy.
The growth of consumerism Consumerism is a popular name for the movement to help consumers solve their problems through collective action. Applied to quality, consumerism addresses such problems as: * Ignorance, before purchase, of the relative merits of competing products * Misleading advertising or labeling * Products that fail during use * Poor after-sale service * Inadequate redress following complaints
No one knows whether the rate of consumer grievances has grown over the centuries. However, we know very well that the volume of grievances has grown to enormous numbers due to the growth in volume of goods and services. By the mid-20th century, consumer frustrations had reached levels that stimulated attacks on industrial companies for their alleged responsibility for consumers' problems. Lacking the credible data needed for a successful defense, the companies lost the initiative for action. The resulting vacuum attracted numerous contenders for leadership of the consumerism movement: government agencies, politicians, social reformers, consumer advocates ("consumerists"), consumer associations, standardization organizations, independent test laboratories and still others. A serious risk arose that a bargaining agent would intervene between industrial companies and their customers.
Product information before purchase Consumers would be helped in their buying decision if they had access to information relative to competitive product quality, after-sale service and so on. Many industrial companies possess such information but regard it as proprietary. In the field of finance, companies that are publicly owned do publish independently audited statements disclosing their financial status. This practice does not extend to disclosure of information about the quality of their products. As a result, other forms of quality information have emerged to fill the vacuum. Consumer Test Services. Test laboratories have emerged that are independent of the companies producing and selling the products. (Independence depends largely on whether the financing comes from unbiased sources.) These laboratories evaluate the quality of competing goods and services, and then make the resulting information available to consumers. The most widely known is Consumers Union, which publishes its findings in the journal Consumer Reports. It derives its income from selling the journal and related publications. Certification Testing. In this form, the test laboratory derives its income from manufacturers who want a certificate (mark, seal, label) attesting to certain features of their products. These test services vary widely in their purpose and especially in their objectivity. An example of such a laboratory is Underwriters' Laboratories Inc. It was originally created by the National Board of Fire Underwriters to aid in fire prevention but has since been made independent. UL is mainly involved in matters of safety -- fire protection, burglary protection, hazardous chemicals and so on. Its activities include: * Developing and publishing standards for materials, products and systems. * Testing manufacturers' products for compliance with these standards (or with other recognized standards). * Awarding the UL mark to products that comply. This is known as listing the products.
Numerous other laboratories are similarly involved in safety matters; for example, steam boilers and marine safety. In some of these product categories, it is now unlawful to market the products without the certificate of the testing service. In other cases it is lawful, but the testing is done for economic reasons -- the insurance companies will demand extremely high premiums or will not provide insurance at all. Government Certification. In the Unites States, federal law requires that certain health-related products must be government-approved before they may be sold to the public. The trend to such legislation began early in the 20th century. It now extends to such products as pharmaceuticals as well as foods and food additives. Data Banks on Business Practices. Many consumer complaints are traceable to company business practices, such as failure to meet the provisions of guarantees. Experience has shown that a small percent of the companies create the bulk of such consumer complaints. As a result, a data bank on companies' business practices can help to identify those companies that have the worst records, and so aid in removing their influence. The organizations known as Better Business Bureaus have been active in creating such data banks. When citizens call the BBB, they are able to learn whether the company under inquiry has a significant record of complaints lodged against it. (The BBB also receives consumer complaints on unethical business practices and tries as an ombudsman to get these practices changed. See later discussion.)
Remedies after the fact Consumers who encounter product quality problems during the warranty period are faced with a choice of alternatives. They may be able to resolve the problem unaided -- they study the product information and then apply their skills and ingenuity. Alternatively, they may decide to complain, in which case they have a range of choice. By a wide margin, consumers complain to the merchant (store, dealer) rather than to the manufacturer. A third choice is to complain to the Better Business Bureau. (Sentry, 1976, page 15). There are other choices as well. The Ombudsman. Ombudsman is a Swedish name for an official whose job is to receive citizens' complaints and help them secure remedial action. The ombudsman has no authority to compel action but has the power to publicize failures to act. The concept of the ombudsman has been applied to problems in product quality. Some companies have created an in-house ombudsman and have publicized the name and telephone number. Consumers can phone (free of charge) to air grievances and secure information. In the United States, a more usual title for the ombudsman is manager of consumer relations. Such managers often carry additional responsibilities, such as stimulating changes to improve relations with consumers generally.Another form is the industry ombudsman. An example is the Major Appliance Consumer Action Panel (a group of independent consumer experts) created by the Association of Home Appliance Manufacturers to receive complaints from consumers who have not been able to secure satisfaction locally. The concept of the ombudsman is fundamentally sound. It is widely supported by consumers and regulators, as well as by a strong minority of business managers (Sentry, 1976, page 77). Some newspapers now provide an ombudsman service as part of their department of "Letters to the Editor." Mediation. Under this concept, a third party -- the mediator -- helps the contesting parties to work out a settlement. The mediation process tends to open up the channels of communication and thereby clear up misunderstandings. In addition, an experienced mediator exerts a moderating influence that encourages a search for a solution. The mediator lacks the power of enforcement -- there is no binding agreement to abide by the opinion of the mediator. Nevertheless, mediation stimulates settlements. Best (1981) reported that the New York City Department of Human Affairs achieved a 60-percent settlement rate during 1977 and 1978. Arbitration. Under this concept, the parties agree to be bound by the decision of a third party. Arbitration is an attractive form of resolving differences because it avoids the high costs and long delays inherent in most lawsuits. In the great majority of consumer claims, the cost of a lawsuit is far greater than the amount of the claim. Nevertheless, there are obstacles to using the arbitration process. Both parties must agree to binding arbitration. There is need to establish local, low-cost arbitration centers and secure the services of volunteer arbitrators at nominal fees or no fees. These obstacles have limited the growth of use of arbitration for consumer complaints. No Remedy. Under the system of free enterprise prevailing in the United States, many valid consumer complaints result in no satisfaction to the consumer. This is a defect in the free-enterprise system, but in the experience of the author, every other system is worse. Nevertheless, the system includes some built-in long-range corrections. Companies that fail to provide satisfaction to consumers also fail to attract repeat business. In due course, they mend their ways or lose out to competitors who have a better record of providing satisfaction.
Consumer organizations Consumer organizations exist in a wide variety of forms. Some are closely focused; for example, product testing, automotive safety, truth in lending. Others are adjuncts of broader organizations, such as labor unions or farm cooperatives. Still others set out to deal broadly with consumer problems in general. In addition, there are efforts to strengthen the consumerism movement through umbrella organizations that try to unify the collective force of all consumer groups. The consumerism movement is extensively supported by government agencies at all levels -- national, state and local. Some agencies try to help complaining consumers, either in an ombudsman role or by threat of legal action. Some have the legal power to investigate malpractice and punish the guilty companies. Others are active in consumer education -- they publish information to aid consumers in making purchase decisions and handling grievances. (See, for example, Consumer's Source Handbook, 1980.) Still other agencies conduct research on consumer problems. Their reports become the basis for proposing new legislation or issuing new administrative regulations. It should be noted that consumer organizations exhibit strong biases. They are quite emphatic when discussing the failings of industrial companies, but they have little to say about the failings of consumers. Yet many consumer grievances are based on consumer neglect or deceit -- the instruction manual had been discarded; the product failed because it was misused. In addition, many consumers exhibit unwise behavior. They spend money on drugs, alcohol or tobacco; kill themselves (and others) by driving in a drunken state; eat junk food; gamble their money away. Unbiased observers may well conclude that consumers who are gullible or stupid will learn only from their mistakes. However, consumer organizations never characterize consumers (their clientele) as being gullible or stupid. Of course, industrial companies exhibit corresponding biases. In fact, the early business indifference to the very real problems of consumers was part of the reason for the rise of the consumerism movement in the first place. In those days, the economic forces were tilted in favor of the industrial companies. The consumerism movement has helped to balance those forces, with an assist from the fact that, politically, the consumers greatly outnumber the industrial managers.
Government regulation of quality From time immemorial, governments have established and enforced standards of quality. Some of these governments have been political -- national, provincial, local. Others have been nonpolitical -- guilds, trade associations, standardization bodies and so on. Whether through delegation of political power or through long custom, these governing bodies attained a status that enabled them to carry out programs of regulation.
Safety, health and the environment The earliest applications of government regulation were chiefly concerned with the safety and health of the state and its citizens. Since then, and especially in industrialized countries, government regulation has widened in scope. The United States had generally followed this trend, but the second half of the 20th century witnessed considerable proliferation. A major segment of such proliferation has related to safety and health of the citizenry. New laws were enacted to deal with major areas such as highway traffic safety, consumer product safety, occupational safety and health, environmental protection and so on. Each such major area has involved establishing new statutes along with new government agencies to administer them.
Economics of the consumer An extensive body of the new legislation falls within the scope of the Federal Trade Commission, which exercises a degree of oversight relative to "unfair or deceptive practices in commerce." That scope has led to specific legislation or administrative action relative to product warranties; packaging and labeling; truth in lending; and so on. In its oversight, the Federal Trade Commission stresses two major requirements: * The advertising, labeling and other product information must be clear and unequivocal as to what is meant by the seller's representation. * The product must comply with the representation.
Such government regulation is a sharp break from the ancient rule of caveat emptor (let the buyer beware). That rule was (and still is) quite sensible as applied to conditions in the village marketplaces of developing countries. However, it is no longer appropriate to the conditions prevailing in industrialized, developed countries. In the United States, there is much resistance to the idea of applying government regulation to the area of consumer economics. Some of the resistance is on ideological grounds -- the competitive marketplace is asserted to be more efficient in meeting consumer needs than government regulation. Other resistance is based on the widespread belief that government operation is inherently much less efficient than private industry. Nevertheless, the growth of the consumerism movement has stimulated an associated growth of government in the area of consumer economics. Powers of the regulatory agencies The statutes give the regulatory agencies wide powers, such as the right to: * Investigate product failures and user complaints * Inspect the companies' processes and systems of controls * Test products in all stages of distribution * Recall products already sold to users * Revoke the companies' right to sell or apply the mark * Inform users of deficiencies * Issue cease-and-desist orders
Nevertheless, the companies retain the right to challenge agency decisions by appeal to the courts.
The effectiveness of regulation Regulations face the difficult problem of balance -- how to protect consumer interests without adding burdens to the economy, burdens which, in the end, are damaging to consumer interests. Political expediency can be an obstacle to striking the proper balance. An example is seen in the regulation of highway traffic safety. Political Expediency. In 1966, the National Highway Traffic Safety Administration was created to administer two new laws: * The National Traffic and Motor Vehicle Safety Act, directed primarily at the vehicle. * The Highway Safety Act, directed primarily at the motorist and the driving environment. As of 1966, the U.S. traffic fatality rate was in fact the lowest among all industrialized countries. This was largely due to cumulative improvements in safety made by the designers of vehicles, roads, traffic signals and so on. In addition, it was known, from overwhelming arrays of data, that the limiting factor in traffic safety was the motorist. * Alcohol was involved in about half of all fatal accidents. * Young drivers (under age 24) constituted 22 percent of the driver population but were involved in 39 percent of the accidents. * Excessive speed and other forms of "improper" driving were reported as factors in about 75 percent of the accidents. (During the subsequent oil crisis of 1974, the mandated reduction of highway speeds resulted in a 15-percent reduction in traffic fatalities, without any change in vehicles.) * Most motorists did not buy safety belts when they were optional, most did not wear them when they were provided as standard equipment, and many do not wear them even when their use is mandated by law.
In the face of this overwhelming evidence, NHTSA paid little attention to the main problem -- improving the performance of the motorists. Instead, it concentrated on setting numerous standards for vehicle design. These standards did provide some gains in safety. However, these gains were minor, while the added costs ran to billions of dollars -- to be paid for by consumers. In effect, the policy of NHTSA was one of dealing strictly with a highly visible political target -- the vehicle makers -- while avoiding any confrontation with a large body of voters -- the motorists. The policy was safe politically, but it did little for safety. Design Standards or Performance Standards. Regulation often involves setting standards. A major question is whether to establish design standards or performance standards. Design standards admit of precise definition, but they have serious disadvantages. Their nature and numbers are such that they often lack flexibility, are difficult to understand, become very numerous and are difficult to keep up-to-date. Performance standards are generally free from these disadvantages. However, they place on the employer the burden of determining how to meet the performance standard; that is, the burden of creating or acquiring a design. Performance standards also demand a level of compliance officers who have the education, experience and training needed to make the subjective judgments of whether the standard has been met. When this question was faced by the Occupational Safety and Health Administration, it opted for design standards and encountered all the associated problems. Later, a presidential task force was assigned to review the question. The task force recommended going to a performance/hazard concept. Under the concept, employers are free to determine the most appropriate manner in which to guard against any hazard, but compliance is objectively measurable by determining whether or not an employee is exposed to the hazard. (For elaboration, see OSHA Safety Regulation, 1977.) Focus on the Vital Few. A common deficiency in the regulatory process is failure to concentrate on the vital few problems that are responsible for the bulk of the adverse effects -- injuries, malpractices and so on. Regulatory agencies receive a barrage of alerts: consumer complaints, reports of injuries, accusations directed at specific products and the like. Collectively, the numbers are overwhelming. There is no possibility of dealing thoroughly with each and every case. Agencies that try to do so become hopelessly bogged down. The resulting paralysis then becomes a target for critics, with associated threats to the tenure of the administrator or even to the continued existence of the agency. OSHA faced just such a threat in the mid-1970s. In response, it undertook to establish a classification for its cases based on the seriousness of the threats to safety and health. It also recalled about 1,000 safety regulations that were under attack for adding much to industry costs and little to worker safety. With experience, the agencies tend to adopt the Pareto principle of vital few and useful many. This helps them concentrate their resources on the opportunities to provide the public with maximum benefits. What to Do About the Useful Many. Focus on the vital few is a valid policy, yet it provides no solution for a prickly problem -- what to do about those consumer complaints, employee injuries and so on, each of which is of a minor nature -- the so-called "useful many." These cases are numerous, but their collective impact is far less than that of the vital few. It is rare for a regulatory agency to have the resources to deal with every one of these cases individually. One solution involves forthrightly making clear that a federal agency is in no position to resolve such problems on an individual basis. What the agency can do is to provide the public with information and educational material of a self-help nature: where to apply for assistance; how to apply for assistance; what are the rights of the individual; what to do and not to do. (See, for example, Consumer's Source Handbook, 1980.) Some agencies have failed to face up to their inability to deal individually with the useful many. The typical end result has been a huge backlog of cases, a frustrated public and a badly damaged public image.
Cost and benefits of regulation The costs of regulation consist largely of two major components: * The costs of running the regulatory agencies. These costs can be determined with precision. They are paid for by the public in the form of taxes. * The costs of complying with the regulations. These are not known with precision but are reliably estimated to be many times the costs of running the regulatory agencies. While these costs are in the first instance paid by the industrial companies, they are ultimately paid by the public in the form of higher prices.
The benefit from all this regulation is difficult to estimate. (There is no agreement on the value of a human life.) Safety, health and a clean environment are widely believed to be enormously valuable. Providing consumers with honest information and prompt redress is likewise regarded as enormously valuable. Ideally, each instance should be examined as to its cost-benefit relationship. Yet the statutes have generally been vague on setting guidelines to be followed when making cost-benefit analyses and on requiring the regulators to make such analyses. In addition, the regulators have generally not been eager to get into cost-benefit analyses. In contrast, the industrial companies have supported cost-benefit analyses. For example, a study of mandated vehicle-safety systems found that: * States that employ mandatory periodic inspection programs do not have lower accident rates than those states without such requirements. * Only a relatively small portion of highway accidents -- some 2 to 6 percent -- are conclusively attributable to mechanical (vehicle) defects. * Human factors (such as excess speeds) are far more important causes of highway accidents than vehicle condition.
Any indifference of regulators to costs inevitably creates regulation and rigid enforcement's so absurd that in due course they become the means for securing a change in policy. The companies call such absurdities to the attention of the media, who relish publicizing them. The resulting publicity then puts the regulators on the defensive while stimulating the legislators to hold hearings. During such hearings (and depending on the political climate), the way is open to securing a better cost-benefit balance. The political climate is an important variable in securing attention to cost-benefit considerations. During the 1960s and 1970s, the political climate in the United States was generally favorable to regulatory legislation. Then, during the 1980s, the climate changed, and with it a trend toward requiring cost justifications.
Product liability: Growth of the problem Until the early 20th century, lawsuits based on injuries from use of manufactured products were rarely filed. When filed, they were often unsuccessful. Even if successful, the damages awarded were modest in size. Since then, the number of such lawsuits has risen remarkably, as has the success rate and the size of the damages awarded. Collectively, these changes have done much damage to the U.S. economy and continue to do so. As a byproduct, insurance rates for product liability have also risen remarkably and have become major factors in cost of operations. In some fields, the costs of product liability have forced companies to abandon specific product lines or go out of business altogether. Grant (1994) notes, "Twenty years ago, 20 companies manufactured football helmets in the United States. Since that time, 18 of these companies have discontinued making this product because of high product-liability costs." Similarly, prohibitive insurance rates have forced many surgeons into early retirement. Several developments have converged to bring about this growth of the product-liability problem: * The "population explosion" of products. The industrial society has placed huge numbers of manufactured products into the hands of amateurs. Some of these products are inherently dangerous. Others are misused. The injury rate (injuries per million hours of usage) has been declining, but the total number of injuries has been rising. Each such injury becomes the basis for a potential lawsuit. * Erosion of manufacturers' defenses. During the 20th century, the law courts eroded some long-standing legal defenses available to manufacturers. Formerly, a plaintiff's lawsuit rested on one of two main grounds: -- A contract for purchase of the product, with an actual or implied warranty of freedom from hazards. In such cases, the plaintiff had to establish privity, that is, that he or she was a party to the contract. The courts have in effect abolished the need for privity on the theory that the warranty (of freedom from hazards) follows the product around, irrespective of who the user is. -- Negligence by the manufacturer. In such cases, the burden of proof was formerly on the plaintiff to show that the manufacturer was negligent. The courts have to a high degree adopted the principle of strict liability on the ground that the cost of injuries resulting from hazardous products should be borne "by the manufacturers that put such products on the market rather than by the injured persons who are powerless to protect themselves." (Sometimes the injured persons are not powerless; they cause or contribute to their own injuries. However, juries are notoriously sympathetic to injured plaintiffs.)
Avoiding lawsuits The best defense against lawsuits is to eliminate the conditions that generate lawsuits in the first place. To this end, many companies have adopted strategies that involve contributions from all company functions and from all levels in the hierarchy. To illustrate: * Top management can evolve policies and goals relative to product liability and institute measures and audits to assure that the policies are followed and the goals are met. * Product design can adopt product safety as a design parameter; adopt a fail-safe philosophy of design; organize formal design reviews; follow the established codes; secure listings from the established laboratories; and utilize modern tools of design technique. * Manufacture can establish a sound system of quality control; provide procedures for error-proofing matters of product safety; train supervisors and workers in how the product is used (and misused); open up suggestion plans to ideas on product safety; set up means for providing traceability; and so on.
And so for other functions: legal, marketing, advertising, customer service. Additional activities require contributions from multiple functions. For example, the growth of safety legislation and product liability has enormously increased the need for documentation. A great deal of this documentation is mandated by legislation, along with retention periods.
Defense against lawsuits The growth of the product-liability problem has also led to re-examination of how best to defend against lawsuits once they are filed. Experience has shown the need for special preparation for such defense, including reconstruction of the events that led up to the injury; study of the relevant documents -- specifications, manuals, procedures, correspondence, reports; analysis of internal performance records for the products and associated processes; analysis of field performance information; physical examinations of the pertinent facilities; study of the failed hardware. All of this should be done promptly, by qualified experts and with early notification to the insurance company.
Prognosis As of the mid-1990s, there remained some formidable unsolved problems in the area of product liability. To many observers, the U.S. legal system for dealing with product liability lawsuits contained some serious deficiencies: * Lay juries lack the technological literacy needed to determine liability on technological matters. In most other developed countries, judges make such decisions. * Lay juries are too easily swayed emotionally to determine the proper size of awards. * In the United States, punitive damages may be awarded along with compensatory damages and damages for pain and suffering. Punitive damages sometimes run into many millions of dollars. * In the United States, lawyers are permitted to work on a contingency fee basis -- an arrangement that greatly stimulates lawsuits. This arrangement is illegal in most countries. * Only a minority of the award money goes to the injured parties. The majority goes to lawyers and to pay administrative expenses.
The legal system that endures these deficiencies is deeply rooted in the American culture. It is therefore speculative whether the system will soon be changed. The main resistance has come from the lawyers, who have strong vested interests in the present system. In addition, they are very influential in the legislative process -- many legislators are lawyers. In most developed countries, the legal system for dealing with product liability is generally free from the deficiencies mentioned. Those same countries are also free from the extensive damage that product liability is doing to the U.S. economy. (See the December 1995 Quality Digest for the conclusion of this book excerpt.)
References Best, Arthur, When Consumers Complain, Columbus University Press, New York, 1981.
About the author . . . J.M. Juran, Chairman Emeritus, Juran Institute, has since 1924 pursued a varied career in management as engineer, industrial executive, government administrator, university professor, impartial labor arbitrator, corporate director and management consultant. Juran is the author of 15 books, including the best-selling Juran's Quality Control Handbook, and has received more than 40 medals and awards from 12 countries for his innovations in and contributions to quality. |
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