Reconciling IT Governance and Quality

After the Total Quality Management (TQM) wave that swept over the industry at large during the 1980s, and the success of ISO 9000 for the software industry in the 1990s, the quality imperative has continued its march in the new millennium with a spike in popularity of Six Sigma. Today it is not unusual to see a company’s commercial brochure highlight its special commitment to quality, as a way of identifying itself as a “quality company.”

Is there anything wrong with being a “quality company”?

Six Sigma dates from 1986, but was popularized along with the ISO 9000 movement in the software quality sector in the 1990s and early 2000s, and so it is a bit early to assess the long-term financial performance of companies that have embraced these movements as a governing objective to date. But a useful comparison can be made to the performance of companies that embraced Total Quality Management, a phenomenon that has been with us for some time now.The figure above shows the financial performance of several TQM companies relative to their peers on the Standard & Poors 500 during a full decade in which TQM adoption was at a peak. Among them were several technology leaders, such as Xerox, IBM, and General Motors—all of whom pioneered software systems respected for their high quality (yes, even GM).

Although it would clearly be an exaggeration to say that the financial performance of these companies was disastrous during that period, it is equally clear that the results were not what might have been hoped for, given the undeniable technical superiority of the systems that were produced under their rigorous quality programs. What explanation might exist for the inability of companies who adopted a quality-oriented governing objective to generate financial results as impressive as their technical results?

Some reflection reveals that quality is well-suited as an operational framework, but does not offer an economic framework for strategic decision-making. Some of the most critical decisions that a company is faced with have little to do with its quality program. At the same time that General Motors was embracing TQM, it embarked on a multi-year program of investment in factory automation and robotics, spearheading many software innovations such as the Manufacturing Automation Protocol (MAP). In retrospect, though, this was an ill-advised allocation of precious company resources, which certainly contributed to GM’s under-performance of the market by a full ten percent during that period. It is now generally recognized that at the same time IBM was pursuing TQM in those days, it was paying a heavy premium for its acquisition of Lotus Development Corporation.

In other words: both GM and IBM had great quality programs, but terrible strategic programs, and the bad strategy won out. Now look at how each of those two companies is faring today: IBM is thriving, while GM fights for its very survival. It certainly isn't their quality programs that are making the difference: it is their competitive strategies - one very successful, the other not.

Another, more subtle problem with a “quality strategy” is related to the very fact that programs like ISO 9000 have become so well-accepted: in many markets (for example, aerospace and defense), quality certification has become mandatory for participation – a “union card” for market entry, thereby levelling the field for all players and reducing dramatically the possibilities for building competitive advantage based on quality. Indeed, in these markets, any benefits from quality tend to accrue to customers.

Yet another problem is the “corporate culture” that sometimes arises around quality. A colleague of mine relates that he first began to suspect problems with TQM as a corporate culture when his company worked with Eastman Kodak and observed their operations. G. Newman has described the problem in the following way: “...the fadmongers [of TQM] have converted a pragmatic, economic issue into an ideological, fanatical crusade. The language is revealing. The terms of quality as an economic issue are analysis, cost, benefit, and tradeoff. The terms of quality as a crusade are total, 100 percent quality, and zero defects; they are the absolutes of zealots. This language may have its place in pep talks ... but once it is taken seriously and literally, we are in trouble.” When quality becomes a company-level obsession elaborate (and expensive) bureaucratic infrastructures too often arise, with the inevitable adverse financial consequences.

Quality only adds business value if customers are willing to pay more for higher quality. But in some sectors of the software industry, technical innovation is valued over quality per se. In fact, a December 2005 article in the Wall Street Journal noted observations that a quality management process is thought to actually hinder innovation in many cases. “For stuff you’re already good at, you get better and better,” Michael Tushman, a management professor at Harvard Business School was quoted as saying. “But it can actually get in the way of things that are more exploratory.”

Given these considerations, the practical consequences become evident. Quality is not suitable as a top-down governing strategy, to be followed in any and all cases and contexts. It is up to the business strategist to determine—in his own particular context—whether quality should become a competitive weapon in pursuit of business value.