Speeches

Changing TQM Paradigm -
From Industrial Age to Knowledge Economy

"Industrial age techniques such as Kaizen, Benchmarking, TPM and Six Sigma ought not be engaging senior management attention in the network economy of today", says Dr Mehra. "In the warpspeed economy of today the value is added not by perfecting the same but by being different, profoundly different. Using your best people simply to cut costs through process improvements or trying to catch up with competitors through benchmarking is a gigantic waste of human capital."

The internet has created a Cambrian explosion of opportunities which has brought forth profound change in the competitive environment. Whether you call it a network economy, a digital economy, knowledge economy, e commerce, e business or e.world as I prefer to call it, it is clear that we are poised on the crest of a revolution as profound as the one that gave birth to the modern age. Contrary to the general belief, this revolution that is changing our lives hour by hour is not being driven by computers but by the power of communications. Four factors are responsible for it. These are:

Connectivity
Intangibles
Speed
Surprise

Connectivity is the most important ingredient of this CISS economy. The e-mail, the laptop, the mobile phone, pagers, barcode scanners, satellite phones, internet and other personal digital devices that connect us are the visible signs of this connectivity. Once these things connect with each other their action triggers a domino effect. It is that domino effect created by these four forces, which is transforming our world and challenging every aspect of our business. No longer the business can be sustained by the industrial age approaches of mass production and stable environment. Our new world, the e.World is characterised by constant change and instant accessibility. There are no clear lines between the business and the environment, customers and suppliers, between buyers and sellers, between products and services and employees and entrepreneurs.

Although human needs have changed little throughout human history, the manner in which these are being fulfilled is vastly different from the industrial age. We are not being influenced so much by the product itself but by the manner it is being delivered. The Intangibles are the second element of CISS economy. These comprise service, relationships, information and emotions about the producer or the service giver and are becoming increasingly important. Quite clearly, therefore, the rules of industrial age, which trained us to think in terms of perfection of products, division of labour, demarcations and compartmentalisation, have become irrelevant in the emerging world. Speed, the third element, is the acceleration of business in every respect. Speed is driving products and services in such a way that blurs any distinction between the various stages of product life cycles or between product and service. Product life cycles are a fraction of what they used to be. Speed is typified by the worldwide electronic network transferring money at a rate exceeding 31 billion dollars a minute. Bill Gates writing in "Business at the speed of thought " says "If the 1980s were about quality and if the 1990s were about reengineering then 2000s will be about velocity."

The fourth element of the "CISS" economy is Surprise. Business so far has built itself on the principle of consistency. Disney's underpark, the clockwork mechanism of the Magical Moments, the consistently clean toilets of McDonalds are no doubt the peerless examples of consistent service excellence. But 21st Century customer will take all that for granted. They will have a craving for something new. They no longer want the same thing even if it is the best. They want something different, something that is novel or makes its ownership exciting or gives an experience that is unforgettable. Excellence in 21st century would mean surprise through a passionate pursuit of inconsistency.

CISS economy would create rapid obsolescence. It would call for constant upgradation and replacement of products and services. You can no longer sell a product and then forget about it. The beginning, middle and end of the product life would dissolve into each other. This phenomenon is already evident in IT industry. While the current models of various products are being sold at floating street prices, advance copies of these models are being reviewed in newspapers, and the older model are sold at discount prices. Continuous upgrades downloaded electronically are replacing model years that required plants to close down. Built to last is becoming built to change. The need for speed is turning the products into services.

The creation of wealth in the CISS economy is not going to be through optimisation but innovation. We have reached the end of incrementalism. Nicholas Negroponte, the head and founder of MIT's Media Lab says "Incrementalism is innovation's worst enemy." Quality, cost, time to market, process improvement were highly valuable at one stage. But, in this new economy, driven by knowledge and change, these have reached the point of diminishing returns. Ford may be able to cut a couple of hours in its vehicle assembly line but if new companies totally reinvented the markets, Ford's incremental improvements won't count very much. Jim Utterback who teaches in MIT and wrote a tome called "Mastering the Dynamics of Innovation" is regarded as an authority on innovation. He describes how time after time business's response to change is by polishing yesterday's apple. When electric entrepreneurs arrived on the scene in 1880s with the technology so much superior than gas, the gas lighting monopolies strove to make gas lighting more efficient. This resulted in the surge of productivity and for a while it took the old technology to unheard of heights. But in the end the inevitable happened. These improvements simply delayed the impending death of the old technology.

The above example, as many others in this book, is a lesson for us. Faced with unforgiving markets and dwindling bottomlines a number of companies in India are running like chickens with their heads cut off and looking for quick fixes. There is a sudden upsurge of process improvement programmes based on industrial age techniques such as Kaizen, Benchmarking, TPM and Six Sigma which have been the high ground of quality for the past 40 years. Toyoda and Ohno of Toyota Motor Co had been implementing TPM and flexible manufacturing well before their visit to the Rouge River plant of Ford in the fifties and with tremendously successful results. Statistical Quality Control, the bedrock of Six Sigma was started by Walter Shewhart in the forties and has been practised by the companies long before it was codified by Motorola in its new avatar and hyped by Allied Signal's Bossidy and General Electric's Jack Welsh. They are all wonderful techniques and would have been ideal for the 1980s. But they ought not be engaging senior management attention in the network economy of today where the challenge is not how to cut costs but how to create wealth. Studies of even industrial age high performing companies have shown that the potential to grow is much higher than the potential to cut cost. A study of 36 best performing companies out of FORTUNE 1000, covering the period between 1985 and 1995, showed that the maximum improvement in operating margins was 6.7% per annum whereas maximum value of shareholders returns grew to 25.3%. The connectivity of the new economy has increased the potential of opportunity to infinite levels. In the warpspeed economy of today the value is added not by perfecting the same but by being different, profoundly different. Using your best people simply to cut costs through process improvements or trying to catch up with competitors through benchmarking is a gigantic waste of human capital.

In the network economy management focus has to be on building advantages by leading from the front and not just catching up. In a survey conducted towards the end of 1980s of US managers quoted by C K Prahalad and Gary Hammel in "Competing for the Future", 80% believed that quality would be a fundamental source of competitive advantage in the year 2000. But barely half of Japanese managers agreed. Their primary goal was to create new products and businesses. This does not mean they will turn their back on quality. We just raise the bar of quality by a few notches. Instead of satisfying customers' existing needs the focus of quality shifts to anticipating their future needs. The competitive differentiator in the 21st century will not be through benchmarking which will only help companies to read the markets and not lead them. It will come from discovering a cascade of new opportunities, however, inefficient the voyage of discovery may be.

The entire internet with its 400 million pages at the last count is an engine of opportunities. These opportunities are increasing day by day as more and more pieces of the world get connected into nods on this gigantic network.

Peter Drucker foresaw the impact of internet when he said: "Don't solve problems. Pursue opportunities". Pursuit of opportunities creates wealth for everyone. Kevin Kelly, editor of "Wired" magazine, in his book "New Rules for the new Economy" strongly advocates why opportunities should be pursued before efficiencies. According to him any job, which is routine enough to be measured, should go to the robots and should be outlawed for the humans. The key decision today is not how to raise productivity by doing the same better but how to negotiate among the explosion of opportunities and choose the right ones. Increasing productivity and doing it right first time were the central economic imperatives of the industrial age. To repeat them now would be suicidal. The central economic imperative of the network economy is to innovate.

90% of the products we see today will disappear in the first 10 years of the 21st Century. Our cars, our homes, our clothes, our TV, phones and even food are going to be changed in ways we can not even imagine. How can you talk of quality as conformance to requirements when the customers themselves do not know what they would want. We are talking about products which are not there, markets which are yet to be invented and technologies which are yet to emerge. All this is grist to innovator's mill. It is left to him and her to imagine, innovate and deliver the products and services that will be lapped up by customers in the years to come. The cyber revolution will make it possible for many more people and things to connect together. The value addition will come not from the product itself but the way it relates to the customer, caters to his/her emotions or appeals to his sense of well being. This would call for a relentless pursuit of the unknown and of the territory which is uncharted. In this realm, there is no way you will get it right first time or even the second time or the twenty second time. Thomas Edison had to blow out tens of thousands of bulbs before he could get one light up. Success through repeated failures will have to be the order of the day. Companies with a culture to reward good tries and celebrate laggards who never do it right first time will get badges of honour for experimenting and innovating.

It was Marshall McLuhan who visualised the world as a village. The internet economy has turned into one shopping mall. It has broken the business free of its umbilical geographical cord. The death of geography has made an internet a great equaliser. Producer would no longer be able to manipulate the customer because of the distance. The networld customer can no longer de seduced on low prices alone. He wants a quality at low cost and products which is distinctive. Being efficient is no advantage. It is in being different. The net is a noose for old thinking and for mediocrity. The new century is of customer. The big question is that how your company can thrive in this customer controlled economy. The answer is innovation, innovation, innovation! The companies who do not innovate will simply evaporate.

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