Shareholders or stakeholders – who are you focusing on?

I was recently made aware of an article from MIT – Sloan Management Review, from my colleague Aina Bjørknes. The article is more than 20 years old, written in the winter of 1994, but the main topic remain valid. The article is titled “TQM’s challenge to management theory and practice” and is written by Robert M. Grant, Rami Shani and R. Krishnan. You can find and read the article HERE.

Nobody talks about TQM anymore. It stands for Total Quality Management and was a big buzz in the 80s and 90s.

My father was one of the first Quality Managers in Norway, in the 80ties, which gave me a flavour that it was something called Quality Management. He was educated in the military forces at the The Norwegian Defence University College and then on to a Master of Science degree at the Norwegian Institute of Technology (NTH, now NTNU). He worked as an officer in the army in various roles and grades until 1981 when he started out as technical manager in Norsk Data(in Norwegian). ND was an adventure on the stock market and had an enormous growth in the early 80s. My father’s workforce grew from 80 to 400 in just two years. In 1984 or 85 he and another colleague set up the first Quality Department in ND and started working from a Total Quality Management perspective to ensure quality deliveries from ND’s production of computers. My father, as me, believed in learning from theory and books and purchased a whole library of books in the subject. Those of you who have visited me at my desk have probably noticed the huge book that I have on my cupboard called Quality Control Handbook by Dr Juran, an inheritance from this library. My father passed away in 1994 at the age of 55.

But, that was not the topic today – it was about this article regarding TQM’s challenges. Why did it end up as a buzzword and not widespread popularity? The reasons why is still something all quality professionals struggle with today, I think. We struggle to get our top management to commit to quality, to our management system and to really understand what we are talking about. There are several exceptions from this statement. The companies who are awarded with Baldridge or EFQM, who really uses Lean Six Sigma and/or has an ISO 9000-certification because they believe in it (not just because their customers demand it to award a contract). They have created a culture (and structure) for quality in their organization. Successful companies like Wells Fargo, Boeing, Dupont and Toyota are all famous for their culture to enable both their people to perform and a sustained success for the company.

The article says, and I agree, that the reason why Quality Management is still struggling to catch on in a corporate setting, is due to a conflict between QM and more traditional management approaches to change management and to the strategical objectives on a corporate level. Many leaders on top level of larger corporations come from business schools and universities, having MBAs etc. Many quality leaders have worked their way up and have attended courses and found networks to share experience using more practical sources. The former have learned about business and economics from an academical perspective which quality leadership lacks. The bottom up way of working is very much a revolutionary way, and those on the top are afraid of the control and power they will (they think) lose from such revolutions.

The table (a snip from the article) shows the paradigms between them. Just look at the first line – organizational goals – while the quality leader (following a TQMish approach) wishes to focus on customers/ stakeholders, the more traditional line used in many companies is to maximize profit to give out to the shareholders. The ultimate goal might be the same, but the approaches are very different, as we can read from the table.

Both approaches recognize that any company’s primary objective is to make money, but they have very different ways of making the strategies on how to reach that objective. 

What is more important? Serving your customers/stakeholders to ensure that they are satisfied (and comes back for more) or to use maximizing profitability to guide your decisions? As the article says: “The risk of using shareholder value maximization to guide decisions is that the firm loses touch with it’s raison d’être – serving the customer”, and asks: “What value is a 25% increase in the quarterly dividend to a company that is out of business five years from now?” Unfortunately, the theories underlying the quality management approach and the more standard economic model is inherently incompatible.

Needless to say, I’m all for the quality approach. The long term perspective, the focus on our customers/stakeholders, the trust in your people, the open information flow, the decisions based on facts, continual improvement etc, all this adds to my strong belief in this. Quality really works. It has been proven again and again. It is smart for business; it saves costs and improves the working life of everyone involved. But we, as quality people, have a sales-job to do to connect the dots between high quality deliveries and the implementation of quality management. Remember what Dr. Juran said about communication and quality: “Top management speaks in the language of money, workers speak in the language of things, and middle management must be able to speak both languages and translate between money and things. Thus, to get top management's attention, quality issues must be cast in the language of money.”