New Operations Creating Problems

Like the roller coaster experiences of their regional economies during the final years of the twentieth century, operations managers had encountered a similar cycle of extravagant and then dashed expectations as they attempted to implement a number of new approaches to operations (NAOs). Throughout the 1980s and 1990s, Western manufacturers had pursued world class manufacturing status through a shotgun blast of three letter acronyms: TQM (total quality management), JIT (Just in time production scheduling), DFM (design for manufacturability), QFD (quality function deployment), QPD (quick   product / process development), and CIM (computer integrated manufacturing). The power of these NAOs in improving quality, production scheduling product development and supplier management had been forcefully demonstrated in the early 1980s by a number  of leading companies such as AT&T Hewlett Packard, Motorola and Xerox leading hundreds of others to strive to emulate them and their Japanese role models.

Despite many remarkable successes, depicted in glowing accounts in the business media, a number of subsequent studies revealed a distributing pattern of failure. Even efforts initially labelled as successes often turned out to be so only up to a point after which, improvements stagnated or even regressed. For example, Ford Motor Company which had led the quality improvement drive in the US auto industry in the 1980s later lost its quality leadership and in 2002 had the highest number of consumer reported problems per vehicle of the top seven auto producers. The Big Three US producers as a hole had quality records that were below the average and they were losing market share in all vehicle categories.

The conclusion of most large studies has been that only about a third of the companies that attempted to implement the most popular NAOs achieved the results expected by the companies own admissions. In the few studies that asked customers and suppliers, rather than the companies themselves to evaluate the overall effectiveness of such programs the success rate was even lower. For example,  an extensive study of 584 companies in Canada, Europe, Japan,  and the US conducted jointly by Ernst & Young and the American Quality Foundation found that most TQM programs had achieved shoddy results. Other studies suggested that only a third or less of those same programs had had a significant effect on their companies market success. Similarly, a Bain & Co survey of managers, evaluations of a variety of new management tools involving operations as well as other functions found that 81 per cent of the respondents felt that most tools promise more than they deliver. As a  result of  such dissatisfaction the survey found that the average company had tried ten different management tools.

Finally, a number of attempts to links TQM activities with corporate financial success have produced troublingly ambiguous results although these may be due largely to the thorny methodological problems encountered. For example, although one might reasonably assume that a company that successfully implemented NAOs faster than its competitors would superior financial results, it would be difficult to measure any individual economic benefit if all companies in its industry were making similar improvements. As a result, it is difficult to find evidence that the widespread adoption of the NAOs has been somehow superior to the steady operating improvements that US companies have been making ever since aggregate productivity first began to be measured more than fifty years ago.

Such findings have resulted in a growing cynicism among top managers to the point where the chairman of one consulting company, who had been CEO of two Fortune 500 companies and a member of several corporate boards has called the steady coming and going of popular management programs TQM and reengineering and others like them another sign [of an underperforming CEO].

How can one reconcile these disappointing findings with all the anecdotes about companies that became “lean and mean” through right sizing delayering and reengineering: and closer to their customers through attention to quality response time and faster product development? One explanation is that the business press tends to focus on the new shining (apparent) successes, and pays little heed to the much larger number of dissatisfied adapters.

A second is that NAOs may be more effective in manufacturing industries than in the much larger service sector.  Although it is not altogether clear why this would be the case, several factors may be responsible. First, the output (and therefore the productivity) and quality of service companies are more subjective and difficult to measure and evaluate.

Another explanation for lower productivity in service operations is that their direct output is accompanied by attributes that standard productivity statistics don’t measure. These include improvements in quality, response time, and innovativeness, which cannot be observed in financial data unless they have been reflected in appropriate price changes. Standard productivity statistics do not reflect the convenience of automatic teller machines.