competitive strategy, quality improvement, statistical methods, evaluation research, philosophy of science, critical thinking

Competitive Strategy

This post was written by John on August 28, 2006
Posted Under: Deming

Presenting the consumer with high value to gain market share is not a new idea. Neither is the idea that value is a combination of benefit received and cost expended. There is, however, wide disagreement on whether both higher value and lower cost can be achieved and, how best to go about trying to attain this achievement.
Moreover, while no one will voice the opinion that delivering value to the consumer is unnecessary to achieve a profitable business, there is example upon example of instances where businesses are operated in this way. The objective seems to be to deliver the maximum amount of cash to the business operator with the minimum outlay. Short-term profit is all that matters.

One might wonder if providing value to the consumer over the long haul is worth the effort.Some of the approaches to providing value have concentrated on improving features and/or performance. Usually these efforts and launched as ‘special programs’ designed to produce improvement. Typically they are labeled ‘Quality Improvement Program’ or ‘Continuous Improvement Program’. Other examples are Total Quality Management (TQM) or “Six Sigma Program” reflecting particular methodologies. Examples abound. Like most special programs the expense associated with them is added to normal operating expense. As such they are easily excised.

Other efforts to improve value are targeted at lowering cost. Again these programs have a special status in the organization and are usually given labels and, typically, some acronym is used to designate efforts associated with the program. Examples are ‘Profit Improvement Program (PIP)’ or the Cost Containment Program (CCP). As above, there is no shortage of examples.

While these programs may produce some benefit to the organization and to the consumer they suffer from two fundamental flaws. First, people within the organization see clearly that they are special programs; not a part of the routine. Thus work associated with the programs is carried out in addition to one’s normal duties. In other words, there is normal work associated with the business of the organization (commercial or not) and then there is this added program.Thus quality improvement efforts or cost containment efforts are not seen as the business of the organization, but rather something that gets done when the ‘real’ work is completed. That is not consistent with a competitive strategy based on providing value for the customer.

When providing value is the prime competitive or operational strategy, then quality improvement and lowering cost are the business of the organization. Not extra effort or ‘make-work’.The-second problem with these programs is a little more subtle, but no less serious. Even if one is successful with the feature and performance improvement program or the cost lowering program, the best that can be achieved is a status of competitive limbo. The key to competitive dominance is to have both improving quality and lower cost. Thus, what is needed is not a strategy that either improves features and performance (at the same or higher cos0 or that lowers cost (at the same or lesser quality), but rather a method that produces both simultaneously. There is such a method.

It is outlined in detail in W. E. Deming’s books, “Quality, Productivity and Competitive Position” and “Out of the Crisis”. The crisis to which Deming referred in his book is the competitive crisis in which we find ourselves today. I’m assuming you are aware of GM and Ford.

Reader Comments

There’s a great paper (from the 1950s) about the problems with “peice-work” pay…similar to pay-for-performance, at
http://www.globalro.org/resource/books.php#workno096

It’s titled Piecework Abandoned – The Effect of Wage Incentive.

Check it out.

#1 
Written By David on December 6th, 2006 @ 11:58 am

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