March 14, 2008

Quality and Business Performance are Linked

In Search of Failure.  That's the title of chapter seven in Frederick Reichheld's book "The Loyalty Effect" (©1996).  In that chapter Reichheld points out that an investor who built a stock portfolio out of the companies profiled in the book "In Search of Excellence" (Peters and Waterman ©1982) would have seen their returns trounced by the mediocre performance of the S&P index during the ten year period following the books 1982 publication.  In fact, by time Reichheld's book came out in 1996 only one-fifth of the original companies profiled as "excellent" had remained excellent. If success breeds success, how in the "quest for benchmarking best practices" did those companies lose their lofty status?  In Reichheld's opinion what really helps us to achieve excellence is actually the study of failure.  It's not exactly in our nature to seek out failure though; in fact, your career is probably linked to success, which means that getting too close to failure may feel threatening.  However, most people will admit that mistakes are often better teachers than success.  In fact, QA experts will attest that when one component fails, it can cast a spotlight on the workings of an entire program. The analysis of failure is not that easy; but when the analysis leads to sustained quality the pay-off is big.  In the Profit Impact of Marketing Strategy (PIMS) project the researchers (Buzzell and Gale, 1987) reported that the profitability of a business is affected by 37 basic factors. Based on analysis of information available in the PIMS database, Buzzell and Gale hypothesized that in the long run, the most important single factor affecting a business unit's performance is the quality of its products and services relative to those of competitors. The trick is to set up a process and system to track, test, analyze, and address potential issues, defects or problems before they negatively impact profitability.  In many ways quality and value are interlocked.  Customer value proposition models are based on the idea that customers with different needs require different experiences and different value propositions if the relationship between the customer and company is to be mutually beneficial.  And no value proposition will succeed in delivering profit to a company unless the customer perceives the product (or service) as meeting their needs best.