Unanticipated Side Effects of Successful Quality Programs: Exploring a Paradox of Organizational Improvement

Abstract

Recent evidence suggests the connection between quality improvement and financial results may be weak. Consider the case of Analog Devices, Inc., a leading manufacturer of integrated circuits. Analog's TQM program included top management commitment and excellent training. Analog introduced a "Balanced Scorecard" emphasizing nonfinancial measures such as delivery performance, cycle time, wafer yield, and product development time to supplement the traditional managerial accounting system. The TQM program was a dramatic success. Yield doubled, cycle time was cut in half, and product defects fell by a factor of ten. However, Analog's financial performance worsened. To explore the apparent paradox we develop a detailed simulation model of Analog, including operations, financial and cost accounting, product development, human resources, the competitive environment, and the financial markets. We used econometric estimation, interviews, observation, and archival data to specify and estimate the model. We find that employee-based improvement programs like TQM can present a firm with a tradeoff between short and long run effects. In the long run TQM can increase productivity, raise quality, and lower costs. In the short run, these improvements can interact with prevailing accounting systems and organizational routines to create excess capacity, financial stress, and pressures for layoffs that undercut commitment to continuous improvement. We explore policies to integrate improvement programs like TQM with the dynamics of the firm as a whole to promote sustained improvement in financial as well as nonfinancial measures of performance.

A Simulation-Based Approach to Understanding the Dynamics of Innovation Implementation

“…Manufacturing, with its relatively short cycle times and well understood technology, typically improves more rapidly than product development. Improvement rates that differ across functions have been documented in efforts to implement TQM (Schneiderman 1988, Sterman et al 1997 and reduce cycle time (Repenning and Sterman 1997). Area two's decline in commitment slows the improvement rate and further strengthens the experts' commitment to support area one.…”

“…statistical process control) in manufacturing, the half-life parameter, φ i , is assumed to be nine months (Schneiderman 1988). The average time to develop normative pressure, τ C , is assumed to be twelve months based on research on the diffusion of commitment to TQM (see Sterman et al 1997). All parameter assumptions are listed in the appendix.…”

“…For example, Lawler and Mohrman (1987), in their research on quality circles, found that early circles were typically successful, but subsequent attempts to spread that success throughout the organization often foundered. Similarly, Sterman et al (1997) and Repenning and Sterman (in press) both study organizations that were able to successfully introduce improvement-oriented innovations in manufacturing but subsequent efforts to propagate that success to other areas failed. A central question facing any theory of implementation is "why is success difficult to propagate from one group or function to another?"…”

The Implementation of TQM in R & D Environments

“…Specifically, scholars have referred to different performance types, such as financial (Agus and Hassan, 2000), organizational (Sterman et al, 1997), business (Easton and Jarrell, 1994;Brah et al, 2000), innovative (Bigliardi, 2013), operational and quality (Zehir et al, 2012). For example, different studies (e.g., Brah et al, 2002;Kaynak, 2003;Prajogo and Sohal, 2003;Prajogo, 2005;Zehir et al, 2012) have proven that TQM implementation has strong and positive relations with quality performance.…”

Coping but not coping in health and social care: masking the reality of running organisations beyond safe design capacity

“…Some of these fix-that-fails actions have been reported in health capacity studies before (Lane et al, 2000;Levin and Roberts, 1976;Manley et al, 2005), but also in capacity studies in a number of other fields, such as market growth (Forrester, 1968), new product development (Repenning, 2001;, process improvement (Repenning and Sterman, 2001) and quality (Oliva, 2001(Oliva, /2002Oliva and Sterman, 2001;Sterman et al, 1997).…”