The 2 Faces of Quality: Operational Excellence & Compliance First

We’ve been busy delivering against our 2016 research agendas here at LNS. The Quality practice is working on a number of topics, but arguably the most important is the “Business Case for Quality.” Industry needs the tools to build solid business cases for quality management enhancements, and with nearly 1,000 respondents to its quality management survey, LNS Research has the data to help identify the tools companies need to make their Business Case. The tools we are developing are frameworks, metrics, typical performance guidelines, and Operational Excellence levers (People, Process, and Technology).

Why Does This Matter?

Last week we kicked off our 2016 project work with a global pharmaceutical company. This company had started a quality transformation initiative a little over a year ago when they built a corporate-wide quality strategy and vision. They’ve seen that the FDA’s shift in focus from pure compliance to good quality as a result of compliance has resulted in a shift in FDA Audits – moving outside of conference rooms and onto the shop floor. This company wants to transform into a global leader in good quality and not just compliance for compliance sake, which is a huge shift in mindset.

This will also produce a whole new way to develop the Business Case for Quality in this company. How should they prioritize work differently? How do they change the culture on the shop floor? Which processes need to change? Where do they need automation? And what is the benefit of all of this work? How is it measured and traced to the work being done?

To deal with this radical shift any organization would need to change their mindset. They need to think like a CFO for a minute, like someone that needs to prioritize funding across many projects. If you are doing ths you need to compare the two highly simplified justifications below – with identical ROI’s. How would you prioritize these if you were the CFO? Are these realistic justifications? Do you see that the Option 1 justification is based on efficiency improvements, and therefore the only way to actually realize the ROI would be to reduce or otherwise redeploy the work-force? Option 2, conversely, provides a steady stream of cost reduction as a result of improved processes, and it doesn’t propose a likely unsustainable reduction in force or require redeployment of staff against other assets.

For some, the Option 2 justification is possible since they have metrics, and traceability from the metrics to the underlying Operational Excellence model. Many will protest that the Option 2 data is difficult or impossible to get – “no one” can get this information accurately. (In this case, we used real data based on LNS research: the average cross-industry Internal CoPQ, and the impact of Automating Audits on CoPQ Internal.)

And therein lie the Two Faces of Quality: Operational Excellence versus Compliance First. Where Quality is driving Operational Excellence there is a Culture of Quality, with strong Executive Leadership and Organizational Structure, integrated with corporate objectives, integrated processes, and real-time traceable metric measurement. Our statistics show that these industry leaders track CoQ 2.37 times more than market laggards, and in general track 78% more quality metrics.

Compliance First organizations are fragmented in process, culture, and technology. Quality is seen as the Quality Police and as the responsibility of the Quality department. These organizations are 3.3x more likely NOT to track any of the top 9 Quality metrics.

So why is the business case for quality management so important?

• It means something to the management, the leadership that ultimately signs the checks. Without data that clearly traces metrics to performance of the Operational Excellence model (People, Process, and Technology), the connection between Quality Management and business performance is not clear nor substantiated.
• It means something to you, the quality leader. Without this data Quality Management doesn’t really know which levers to pull to generate a desired outcome on core corporate metrics. Levers can be pulled, but without understanding the traceability of metrics to the process the results are unclear. The levers are critical – they are how investment priorities should be made.

Insist on Metrics and Traceability

In some cases, a formal business case justification for quality management enhancements isn’t needed due to executive support, which is good and "bad". Obviously the good - for quality and presumably the company at large - is that the quality improvement is very likely to both occur and gain widespread support in these cases, which means it will likely be “successful.” The "bad" is that without a business case with clearly defined success metrics, the connection between quality and business improvements remains unclear. How successful was it? What drove that success? How can we repeat this in the future? Without the direct linkage support may wane over time as leadership changes or business conditions force cultural changes that drive the organization away from their focus on quality.

This underscores the need for traceability and metrics. Without building the clear traceability between metrics and the Operational Excellence model (People, Process and Technology), how can the success of both this project and future projects be proven? Does this “success” advance the idea that Quality impacts the top and bottom line of the company and therefore is not a compliance-only activity?

The Business Case for Quality is an Expression of Priorities & Culture

The business case for Quality at your organization isn’t just the justification for your projects, it also captures your priorities, direction, and culture. While Compliance is an important part of Quality, more so in more regulated industries, Quality’s role in business should never be defined by Compliance. A Compliance-first view fosters the concept of Quality as a Cost Center and as the Quality Police.

Any move away from this and toward a Quality Culture and Quality as a Value Center should be married, or even led by, a shift in the Business Case for Quality. We’ll commit to providing more information to aid in this shift over the coming months.