Historically, strategy and industry have evolved hand in hand and by the beginning of twentieth century industry had emerged as a major economic institution. During this time strategy was centered on big volumes, low prices and standardized product – success went to the firm with the lowest price. Over time newer firms emerged with focus on product differentiation, market segmentation, variety and promotion to capture the increasingly competitive markets. The decade of 1950s marked the beginning of a new era of unprecedented changes in the business environment, with the advent of newer technologies, ushering in products and services unimaginable till then. Focus shifted on higher investment in R&D to compress the time lags in the development and commercialization of new products, in order to maintain the competitive edge. And technology continues to change the world like never before, necessitating the industry to be on high alert ever since to sustain the advantages it holds.
It was at this time in 1950 that a renowned consultant, Dr. Edwards Deming on an invitation from Union for Japanese Scientists and Engineers (JUSE), inspired Japanese industry with the principles of statistical quality control, to such an extent that the implementation of these techniques changed the image of Japanese industry completely – Japanese products were now hallmark of quality, world wide, gaining a huge competitive advantage over the competitors. In appreciation JUSE, created a prize to commemorate Dr. Deming's contribution and friendship and to promote the continued development of quality control in Japan.
Malcolm Baldridge award recognizes achievement in TQM by companies based in USA, and thus promotes TQM in USA.
A framework to achieve such an excellence is provided by European Foundation for Quality Management (EFQM), a body initially formed at the initiation of presidents of leading business organizations in Europe in 1988 with a mission to promote, and where possible to assist industry in the understanding and application of total quality principles. EFQM Excellence model was launched in 1991 along the lines of the Malcolm Baldridge in USA and Deming prize in Japan as both these awards had demonstrable improvements in the organizations that adopted them.
The EFQM Excellence Model is based on eight fundamental concepts that constitute organizational excellence:
- Results orientation – to satisfy the needs of all relevant stakeholders.
- Customer focus – a clear focus on current and potential customer will ensure customer retention and gain in market share.
- Leadership and constancy of purpose – leaders with clarity of purpose create an environment where organization and its people can excel.
- Management by processes and facts – organizations perform better and improve when all activities are understood and systematically managed by making use of reliable information, including that of stakeholders’ perception.
- People development and involvement – a culture of trust, empowerment and shared values encourages the involvement of every one.
- Continuous learning, innovation and improvement – maximized organizational performance through knowledge sharing.
- Partnership development – organization works more effectively if mutually beneficial partnerships are forged with trust and knowledge.
- Public responsibility – long term interests are best served by adopting an ethical approach and expectations and regulations of community are exceeded.
The model was initially meant to assess the applications for awards but more and more organizations were adopting the model as a management tool for self assessment and a basis for quality and improvement programmes. EFQM also realized the importance of model as a basis for strategic direction that it could provide to an organization and their objective therefore became to “provide a model that ideally represents business excellence philosophy and can be applied in practice to all organizations irrespective of country, size, sector or stage along their journey to excellence”. EFQM then benchmarked its model against the best award models in the world and also taking the inputs from its stakeholder the EFQM model for business excellence in its present form was announced in April 1999.
The model recognizes that there are several approaches to sustainable excellence in all aspects of performance and is non-prescriptive in nature. The model is typically represented through the block diagram as shown below:
The model is based on the premise that “excellent results with respect to performance, society, customer and people are achieved through leadership driving people, processes and partnerships through clear policy and strategy”.
As can be seen that the model is based on nine criteria (represented by nine boxes above) five of them are called enablers (what an organization does - practices), which are interlinked between them, and the rest four are results criteria (what an organization achieves - performance), interlinked between them and linked to enablers through processes.
The arrows apart from indicating that results are caused by the enablers, signify the dynamic nature of the model that learning from the results can be used to improve enablers, which in turn leads to improved results.
Achievement is not a financial matter alone. A journey is not measured only by speed but also by safety, timeliness, comfort and fuel efficiency. Good management looks for a multi-dimensional view of the health and success of its organization and sets up a coherent framework of performance indicators. Results criteria is further divided into:
- Perception measures
- Performance indicators
Perception is basically the opinion of an individual or group. Perception is generally obtained from surveys, focus groups, vendor ratings, compliments, complaints etc.
- Perception with respect to customer results may mean measures relating to an organization’s responsiveness, communication, tech. Literature, after sales service, quality, reliability etc.
- Perception measures for people results may include job security, empowerment, opportunity to learn, recognition, work environment etc.
- Society’s perception of an organization may depend on impact on local and national economies, ethical behavior, pollution hazards, involvement in voluntary work etc.
- key results outcome as perceived from outside include gross margins, share price, market share etc.
Indicators provide most direct evidence / measure of the condition or result that is being sought. Performance indicators in various results criteria are a direct result of actions taken by the firm to achieve its goals, and a means to assess the progress. Indicators are used by the organization to monitor, understand, predict and improve the performance.
- Performance indicators with respect to customer results may cover duration of relationship, frequency / value of orders, time to market, delivery schedules, customer accolades, press coverage etc.
- Performance indicators with respect to people in the organization may include perfect competency mapping, involvement in suggestion / improvement schemes, accident levels, absenteeism, recognition of individuals and teams etc.
- Indicators for society results include press coverage, certification by statutory authorities, development in surrounding areas etc.
- Key performance indicators may include cash flow items, balance sheet items, ROE, supplier price, value added and innovative products, defect rates, inventory etc.
Performance indicators are the immediate effect of any action taken and perceptions follow the indicators i.e. indicators are leading indicators and perception is a lagging indicator. Performance measures in essence provide a feedback loop in the process of strategic management. In order to achieve complete learning, a performance measurement system should reflect the true concerns of all the organization’s stakeholders. The learning thus obtained should be used for improving our actions to achieve better results. In a dynamic environment the need for better performance measures may also arise, it therefore becomes necessary to constantly review the performance measuring system and make projections on future measurement requirements.
RADAR is a powerful tool for self-assessment and a basis for scoring the application for awards in EFQM model. It can be used for evaluating the results, identifying improvement opportunities, planing the actions, implementing them and again assessing the effectiveness. So results lead through approach, deployment and assessment and review to a new set of results, which again are starting point of yet another iteration. In short the RADAR (Results Approach Deployment Assessment Review) logically states that identify the gaps in results that an organization was aiming for through its policy and strategy, plan and develop an integrated approach to deliver the required results, deploy the plan in a systematic way ensuring implementation in totality, assess and review the approach based on the analysis of the results and plan for further improvements if necessary.
The model takes account of five aspects of performance in order to clearly understand the results:
- Trends – how perceptions / indicators are changing over a period of time, are they improving
- Targets – are the target set appropriately (targets should exceed currently achievable levels of performance) and are they being met
- Comparisons – does the organization compare its results with those of its competitors, best in industry and best across industries
- Causes – are the results caused by meticulously planned approach or are they ‘accidental’
- Scope – are the results measured in all the relevant areas of the organization
In an excellent organization results will show positive trends (sustained good performance), targets will be appropriate and met / exceeded, performance will compare favourably with best in class and will be caused by well planned approach. Additionally thescope of the results will cover all relevant areas.
In summary, it is necessary to constantly compare actual performance against past, target benchmarks and check the sustainability of good performance with clear linkages to the initiatives taken by the organization.
Feedback from relevant metrics makes learning possible and stimulates innovation and creativity to provide better results. As is apparent from the block diagram of the EFQM excellence model, the learning derived from the results is applied to the enablers to improve upon the results, the approach, deployment and assessment & review in RADAR tool apply to enablers.
Approach covers what an organization intends to do and reasons for it. The learning from the results is consolidated and an action plan is charted out towards the desired improvement. In an excellent organization the approach will be sound – having a clear rationale, well defined and developed systems and a clear focus on stakeholders needs, and will be integrated – supporting policy and strategy and in line with other approaches where appropriate.
- Soundly based
- Focused on stakeholder needs
- Supporting policy and strategy
- Prevention based
- Integrated into planning
- Sustainable
- Innovative
- Flexible
Deployment covers the extent to which the organization uses the approach and what it does to deploy it. Action plan drawn out for an improvement is implemented in relevant areas to get the desired results. In an excellent organization the action plan will beimplemented in relevant areas and in systematic way.
- Implemented in all potential areas across the organization
- Implemented to its full potential / capability
- Achieving all the planned benefits
- Fast in application
- Systematic
- Understood and accepted by all stakeholders
- Measurable
Assessment & Review covers what an organization does to assess and review the effectiveness of an approach and its deployment. In an excellent organization the effectiveness of approach and deployment is subject to regular measurement and appropriate learning activities are undertaken and output of these activities will be used to identify, prioritize, plan and implement the improvements.
- Measured for effectiveness regularly
- Providing learning opportunities
- Benchmarked with others, for example competitors, industry averages or best in class
- Improvement based on the output from learning and performance measures
Five enablers specified by EFQM excellence model are Leadership, Policy and Strategy, People, Partnerships & Resources and Processes. The model provides guidelines for the enablers through a list of specific items.
Leadership, develops vision, mission, values required for the long term success ensuring the development of organization’s management system. Leaders are the people, who co-ordinate and balance the interests of all stakeholders. Effective leadership is crucial to the development of policy and strategy that drives the people to manage resources and external partnerships to the overall organizational growth. Leadership at different levels has different responsibility – retainment of existing levels of performance is the responsibility of front line leaders, leaders at middle level in the hierarchy are responsible for incremental improvement and senior level leaders are involved with breakthrough issues.
In an excellent organization leadership may facilitate the following:
Leaders develop mission with clear line of sight – stake holder to customer - and communicate the same in such a manner that people in the organization are inspired and are able to share the values and purpose of the organization. Focus on means, not on the end. Ensure effective management processes to facilitate the growth of the organization with a mechanism to review the effectiveness of processes and improvement of the same. Motivate the people - Ensure that not only, people are empowered, capability is recognized, efforts are rewarded but also ensure that truly meritorious are awarded. Involve - with representatives of society to take up activities that are beneficial to society and organization as well, with customers and suppliers to understand their needs and expectations.
Policy and strategy ensures that everyone in the company pulls in the same direction, towards clearly defined and delegated goals. Policy is a set of ground rules designed to ensure that the activity with in the organization conforms to an agreed set of parameters, e.g. all external communications should be honest, decent and fair. Strategy is a framework designed to develop the organization in the desired direction.
In an excellent organization policy and strategy,
are based on information from performance measurement and expectations and needs of stakeholders, based on the organization’s vision of the future. Objectives thus evolved are prioritized, progressively divided and allocated to lower level in the hierarchy, so that specific actions to be taken and responsibility for implementation is made clear to give one complete structure of aligned effort. Once the strategy deployment and measures are agreed they are constantly communicated down the hierarchy, through group meetings, face to face sessions, progress charts etc. to reinforce their importance (in fact some organizations have democratized the process of strategy making by involving people from broad spectrum of organization functions, which resulted in enhanced ability to implement the strategy with high degree of commitment and lots of options never looked at in the past). Business as usual is not a deployable policy. Progress through strategic objectives is monitored for making decisions, setting direction and correcting course.
People, how the organization manages, develops, releases the knowledge and full potential of its people at individual, team and organizational level. People are those employed by organization, including fulltime, part time, temporary and those on contract basis.
In an excellent organization,
People are always kept motivated by giving them meaningful work - the people need to know why they are doing something, not just what to do - Processes and technology can all enable but they cannot make extra ordinary things happen, only with appropriate motivation will people flourish and maximize upon their own potential to take the organization towards profitability. People are provided skills and knowledge necessary to meet challenging business needs. Employee surveys are regularly conducted to identify people needs and suitable actions are initiated in the direction. Properly designed performance appraisal system is implemented. Competency is identified and improved through specific training programmes. Sharing of knowledge is enabled through knowledge management. People are involved and empowered through formation of task force for benchmarking studies, material review teams, customer satisfaction teams, problem solving teams etc. to recommend solutions and carry out those recommendations. Have clear communication channels vertically and horizontally i.e. through intranet, web site, open door meetings, employee survey etc. Different platforms are created to recognize and reward the extra ordinary efforts of the people. Encouraged to acquire knowledge and turn the knowledge into business.
Partnerships and Resources, how well an organization manages external partnerships and internal resources in order to support its policy and strategy. Partnership is working relationship between two or more parties for mutual benefit. Partners can include JVs, alliances, suppliers, customers etc. resources in the model mean things other than people that need to be managed effectively to ensure continuous growth and profit.
Excellent companies,
Strategically enter into various kinds of partnerships like technological partnership, distributor / customer partnerships, partnership with government, educational institutes, suppliers etc. and create other alliances for benefits like quality production, maximizing market share, reliable supplies resulting in improved inventory management etc. Finance, materials and other assets are efficiently managed to maximize shareholders’ value, optimize inventory and eliminate wastage / recycling of wastes. Acquire latest technologies and improve efficiency through automation and use of IT.
Processes, organizations design, manage and improve their processes to support policy and strategy to generate increasing value for the stakeholders. Process management is a way to continuously improve the quality and productivity in the business operations. A business usually starts with non-existent or adhoc processes and once the process is defined, described, refined and sufficient resources are allocated, the output falls in line with the business objectives. Improvement in processes may result in shorter lead time, increased productivity, reduced cost and higher quality. So a process becomes a cause for competitive advantage and a vehicle for strategy implementation. A process can be further defined as a bound set of inter related work activities, each having prescribed inputs and outputs. A process owner is a designated person responsible for total performance and improvement of process. He is responsible for introducing and implementing best practices.
World class organizations,
Subject their processes to continuous monitoring with a view to improve upon them, improvement are usually carried out using an aid called Deming wheel (Plan, Do, Check, Act). Continuously streamline processes by ESCAP method – Eliminate non value adding steps, Simplify individual step, Combine two or more steps into one, Automate to make it faster and cheaper, Parallel path i.e. execute two or more steps at the same time. Have processes / sub-processes that are systematically designed with clarity of output and required performance levels. Effect incremental improvements in the process by following ISO 9000 standards, six sigma, QIPs, benchmarking etc. Use processes to design newer products / enhance customer relations.
The journey to “world class” starts with concentrating on enabler criteria (practices) with sound and integrated approach, systematic implementation, constant assessment and review of effectiveness of deployment to improve upon approach and deployment and present the performance (trends, targets, comparison and causes) to cover all relevant areas (scope) to derive a meaningful learning for further improvement. A cyclic, comprehensive and systematic self assessment referenced against all criteria of the model to evaluate current position and effectiveness of strategy and actions for sustainable competitiveness may help an organization find the missing links in practices and performance and prioritize the execution plans for improvements. More importantly to be recognized as “world class” requires a clear evidence of adherence to the above process – the model ensures that companies build the capability to anticipate the changes in environment by picking up the clues through systematic measurement and review mechanism and initiate the changes by themselves rather than reacting to failures or external / internal pressures.
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