TQM: Exploring a Paradox of Organizational Improvement

July 4, 2008

The case of Analog Devices, Inc. (ADI) implementing Total Quality Program (TQM) suggests that the connection between quality improvement and finacial results may be weak.  In 1987, ADI initiated a company wide TQM program led by its founder and CEO Ray Stata. This created a quality office with the same level as the head of traditional functions such as engineering and sales. Hiring Art Schneiderman, with his small team, introduced the ‘half-life’ system, a method for setting realistic quality targets and monitoring performance against them.  Trainings for the personnel were provide throghout the company. Quality improved within the manufacturing unit, but the positive result did not lead to profitability and growth. ADI underperfomed compared to the semiconductor industry.

ADI’s case is truly pardoxial, because the quality improvements did not equate to financial improvement. Here are few details worth noting;

  • the severe recession in the semiconductor industry caused Analog’s profit and share price to fall, masking the benefits of TQM,
  • majority of the personnel needed to see results before commiting themselves to the quality program. the quality team spent a lot of time on projects they thought would succeed early on. this resulted to rewarding the areas improving faster with the support they need while starving the slow improving areas of resources, further impending their progress,
  • improvement came first and quickest in manufacturing and was slower in product development and other management function. Commitment to improvement in the product development area lags behind manufacturing, since results have not yet been observed and inadequate support leads to frustration
  • Management focus was not consistent whenever there’s a need to address financial challenges.
  • Half-Life application to units which are highly technical and organizationaly complex intrinsically takes longer to measure result, thus frustrating teams and having hard time to get support.

When Ray initiated the TQM program, it was meant to be deployed to the whole organization, apparently only the manufacturing unit was to benefit from its inception. Hewlett Packard (HP) considered ADI to be its number 1 supplier. The quality office is having hard time to convince the other business units to implement quality improvement such as product development. Research and Development (R&D) organization by charactiristics are autonomous, they tend to pride themselves as the source of value of the organization and so this will be a behavioral challenge to Art and his team. The sales organization on the otherhand may not stay in focus since the period was financially challenging and so other priorities are may be undertaken. The timely implementation of quality improvements did not shielded ADI from the recession. 

  • change requires a solid leadership, Stata by starting the TQM program, should have institutionalize it to all functional units by nominating a champion in each unit.
  • end to end performance result visibility and mitigation should be in place. to benefit from each of the units improvement it should be carried over through the value chain, i.e. product development to manufacturing to sales
  • Different functional units requires different TQM approaches, half-life may prove useful to manufacturing but not to complex and highly technical organization

The question therefore; are non-financial metrics linked to financial metrics? 

Reference: “Unticipated Side Effects of Successful Quality Programs: Exploring a Paradox of Organizational Improvement” John Sterman, Fred Kofman, Nelson Repenning

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