Continuous improvement: role of organisational learning mechanisms October 7, 2009Posted by Bima Hermastho in Change Management.
Journal: International Journal of Quality & Reliability Management, Volume: 26, Number: 6, Year: 2009, pp: 546-563
The Authors: Judy Oliver, Swinburne University, Melbourne, Australia
Purpose – The purpose of this study is to explore the use of the performance measurement system as an organizational learning mechanism to support continuous improvement.
Design/methodology/approach – The paper reports the results of a survey of Australian organizations certified to quality standard ISO 9000.
Findings – For those respondents who consider their organization’s quality program to be successful, the findings indicate that such organizations have embedded quality into the culture of the organization, and have developed performance measurement systems as an organizational learning mechanism to support the continuous improvement initiatives.
Practical implications – The paper highlights the need for management to ensure that the organization’s management control systems are structured to support continuous improvement initiatives.
Originality/value – The paper explores the links between continuous improvement and organizational learning.
Quality management has become recognised as one of the key strategies for organizations to improve their productivity and international competitiveness and thereby meet the demands of customers (Chenall, 1997; Czuchry et al., 1997; Evans and Lindsay, 1996; Lee and Walden, 1998; Sambrook and Stewart, 2000; Spong, 1994). However, the literature reports mixed success of quality management programs and it is suggested that 60 percent to 80 percent of attempted implementations failed to meet their objectives (Lau and Anderson, 1998, p. 85). This high level of reported failure would be of concern to stakeholders given the considerable amount of resources that are invested in quality initiatives (Srinidhi, 1998). One of the biggest causes of failed quality initiatives has been a lack of management and employee commitment. Perhaps the greatest cost for an organization as a result of failure is the loss of morale or an increase in cynicism among employees (Dooley and O’Sullivan, 1999). Lau and Anderson (1998) suggest that for a quality program to be successful an organization needs to have: a strategy that guides the quality initiative; an infrastructure, such as a performance measurement and evaluation system, to monitor and control quality programs; and the necessary cues to encourage organizational learning.
The purpose of this paper is to report the results of a survey of managers of Australian organizations certified to quality standard ISO9000. The survey was structured to seek the perceptions of managers on a range of issues in relation to their organization’s quality initiatives. In particular, the focus was on the investigation of the role of organizational learning to support continuous improvement, and to identify the organizational attributes, in particular organizational learning mechanisms, for those organizations where management view the quality program as successful. The mixed success of quality programs as reported in the literature provides the motivation for this study.
The paper is organized as follows: The next section provides a discussion of the quality management and organizational learning and associated links. This is followed by a discussion of the role of the performance measurement system to support continuous improvement. In the next section an outline of the research method is detailed. Then the survey results are discussed and are then followed by some concluding comments.
Quality and learning. There is no universally accepted definition of quality and, as such an organization will need to develop its own working definition that will find its origin in the organization’s vision (Chapman et al., 1997; Groth, 1995; Lau and Anderson, 1998; Sinclair and Zairi, 1995; Reeves and Bednar, 1994; Srinidhi, 1998). Therefore, the meaning of quality will be peculiar to individual organizations with different definitions of quality appropriate under different circumstances (Reeves and Bednar, 1994). During the evolution of quality the terminology used to describe the quality movement changed without any clear declaration and at some point the term total quality management (TQM) began to be used instead of total quality control or just quality control (Dahlgaard, 1999). Today TQM is the term generally used to describe quality practices within organizations. TQM can be regarded as a management approach characterised by three core principles: customer focus; continuous improvement; and employee involvement (Dean and Bowen, 1994; Evans and Lindsay, 1996; Sitkin et al., 1994; Yong and Wilkinson, 2001).
It is suggested that the success of TQM is dependent on an organization’s ability to learn, to absorb, to adapt and to apply conceptual changes and integrate them throughout the organization (Ford, 1991, cited by Terziovski et al., 2000). The ability to learn new sets of skills on a continuing basis represents a sustainable source of advantage for the future (Liedtka and Rosenblum, 1996; Sambrook and Stewart, 2000; Tranfield et al., 2000); suggesting continuous improvement will be achieved if learning takes place within the organization (Bessant and Francis, 1999; Egan, 1993). A learning focus will encourage employees to provide feedback to evaluate performance, enabling the outcomes of the continuous improvement activities to be incorporated into the knowledge base within the organization. From this knowledge base, it allows future improvement to be built on past accomplishments (Jha et al., 1996).
Organizational learning has been described as the process of improving actions through better knowledge and understanding (Fiol and Lyles, 1985; Huber, 1991). With the objective of maintaining or improving performance based on experience (Wick and León, 1995; DiBella and Nevis, 1998). It can be viewed as a characteristic of an organization that is observed through the actions of the parts and describes certain types of activities or processes that may occur at several levels of analysis (for example, individuals, teams and companies). Organizational learning can be found in any organization, but the learning organization will embody organizational learning in all its actions and exemplifies the ideal application of organizational learning. Learning organizations are those that purposefully construct structures and strategies so as to enhance and maximise organizational learning (Dodgson, 1993, p. 377).
Terziovski et al. (2000) carried out field research to examine the mutual dependence between TQM and the learning organization. They concluded that the success of the companies’ quality programs was due to the sustained commitment to “learning” and will involve the process of building procedural knowledge, cognitive strategies and attitudes. Learning can concentrate on methods and tools to improve what is already being done, known as single-loop learning, or on testing the assumptions underlying what is being done, known as double-loop learning. Organizations may have a preference for one mode over the other, but a sound learning system requires both approaches (Appelbaum and Reichart, 1997).
Organizational learning is operationalised through organizational learning mechanisms (OLMs), which are the institutionalised structural and procedural arrangements that aid the learning process (Lipshitz and Oz, 1996). Such mechanisms allow organizations to collect, analyse, store, disseminate and use information that is relevant to the organization. It is due to the existence of such “mechanisms” that organizational learning can be studied as an actual phenomenon. OLMs enable the experiences of individual organizational members to be analysed and shared by other organizational members. The experience becomes the property of the entire organization through distribution of lessons learned to relevant units or through changes in standard operating procedures (Lipshitz and Popper, 2000).
Therefore, learning can be viewed as the foundation for improvement activities. It provides the organization with the capabilities to take action and without which any attempts at improvement will possibly fail (Bessant and Francis, 1999; Wick and León, 1995). Learning can assist an organization in its quest for continuous improvement by helping to avoid repeating mistakes; building sensitivity to the changing world so that the organization can adapt better; and improving operations by understanding the weaknesses in the past and identifying how to correct them (Lee, 1995). Learning will be seen to have occurred when an organization performs in changed and better ways (Dodgson, 1993). Perhaps the underlying reason behind the lack of success of some quality programs is that the processes put in place lack the necessary cues for quality learning. This research may contribute to an understanding of whether a lack of learning is inhibiting the success of quality programs.
Management control system. The management control system (MCS) can be viewed as the organization’s control package, with components such as of the accounting information system (cost systems and budget systems), performance measurement and reward systems and planning systems. However, in reality it could be any system to monitor and assist work practices. An organization’s MCS can empower organizational learning through its design features and interactively influence strategy (Simons, 1990) and thereby act as an OLM. Control is the continuing process of evaluating performance and taking corrective action when necessary and enabling the organization to maintain high quality processes, and also to bring processes under control in order for improvements to be made (Evans and Lindsay, 1996). As noted by Simons (1991, p. 49) the MCS is influential on organizational activity as it represents “…the formalized routines and procedures that use information to maintain or alter patterns in organizational activity … ”. Therefore, if the MCS is structured to support the learning environment it should be a system that supports decision-making, facilitates rapid and effective learning and unlearning, and enables the acquisition and development of information, knowledge and understanding.
The MCS sets a framework for an organization’s information seeking, accountability and feedback designed to ensure that it adapts to changes in its environment (Kloot, 1997; Lowe, 1971). As noted by Simons (1991) control systems allow employees to access information to undertake their tasks, and also provide direction in the accomplishment of those tasks by providing information necessary for feedback and control. MCS are an important element of strategy implementation by translating the plans into action (Simons, 1992). The MCS should support and put into practice the operating philosophies of continuous improvement, and be adaptable to revision whenever changes are made to the operating strategy (Banker et al., 1993; Bessant and Francis, 1999).
The ability of an organization to adapt successfully to changes in the competitive environment can be seriously inhibited by a poorly designed performance measurement system (Sinclair and Zairi, 1995). “Ownership” of the measurement system is important to embed the behaviour that promotes improvement (Bessant and Francis, 1999), and those directly involved in the continuous improvement process should be involved in its operation and implementation. The performance measurement system is a key enabler to encourage improvement as it gives focus to improvement activities and assists in the identifying the extent to which performance has changed (Bessant and Francis, 1999). This can be achieved if an organization is able to define, in specific performance terms, what it means by quality and then to measure these performance variables objectively (Krishnan et al., 1993). Without an appropriate performance measurement system, improvement activities can fail (Banker et al., 1993; Chapman and Hyland, 2000). It is suggested by Oakland (1993) cited by Sinclair and Zairi (1995) that appropriate performance measurement systems play the following roles in quality and productivity improvement: ensures customer requirements have been met; provides standards for establishing comparisons; provides visibility and provides a “scoreboard” for people to monitor their own performance levels; gives an indication of the costs of poor quality; justifies the use of resources; and provides feedback for driving the improvement effort. Employees should be able to monitor and (if necessary) change their actions based on the feedback gained from comparing actual performance against target. For example, Chapman and Hyland (2000) concluded from a study of small-to-medium Australian manufacturing organizations that there was a low level of correlation between the competitive measures and the motivation for continuous improvement or content of the continuous improvement program. They also identified that the measurement system often did not include a closed feedback loop and any learning that did take place was usually localised owing to the absence of any effective information collection and storage mechanisms.
Therefore, a well-structured measurement system provides the linkage between strategies and actions. The links are established by the performance goals developed to encourage employee behaviour to meet the organization’s objectives and facilitate and support induced quality learning by incorporating goal-setting feedback as an essential component of the system. Goals are broad statements that set the direction for the organization in realising its mission and closing the gap between where it is and where it wants to be (Evans and Lindsay, 1996). The goals need to be consistent with the key factors that drive the business and must not undermine quality. Fine (1986) argues that to achieve cost reduction and productivity improvement the performance measurement system should support quality-based learning by making use of frequently revised goals. Further support to the benefits of performance goals is found in the goal setting literature which identifies that individuals with specific and hard or challenging goals outperform individuals with specific easy goals, do-best goals, or no assigned goals (Dossett et al., 1979; Locke et al., 1981). A review of all available experimental field studies on goal setting found that when goals are set the median improvement in productivity and quality was 16 percent and when combined with monetary incentives, median performance was improved by more than 40 percent (Locke et al., 1981).
Quality goals are the central focus of an effective quality program and should be supported by a strong measurement system and must be quantifiable (Lau and Anderson, 1998). Such quantitative measures allow specific goals to be established and specific results to be forecast and also provide the basis for clear company-wide quality discussions at all levels of the organization. This will provide a higher level of precision for discussing results. If such measures are clear it should lead to worker acceptance and commitment. To provide more meaning to employees, the organization needs to translate the quality goals into operational goals.
Chapman et al. (1997, p. 433) identified best practice in relation to performance measurement by examining organizations that have won Australian quality awards (Chapman et al., 1997, p. 433). Best practice attributes identified included:
- Goals, priorities and targets, which are clear and unambiguous to all employees. These have been deployed throughout the organization while retaining alignment to organization-wide improvement strategies.
- Quantifiable goals with measurement/benchmarking processes to provide clear indications of progress towards the goal.
- Competitor benchmarking in the area of customer satisfaction is a continuing activity and the information is fed into the strategy and goal setting process.
- Data collection and analysis relating to key internal processes are a fundamental part of routine work. Results of such measurement are used to produce revised goals and targets.
Specific performance goals or targets to support quality have also broadened with the move from quality control to TQM (Dahlgaard, 1999). Initially, quality was measured in defect rates, complaint rates, returns, etc., and has now extended to measures with a focus on customers and employees. However, it has been suggested that the poor performance of many new TQM initiatives can be accounted for by the continued reliance on out-dated traditional performance measures that focus on the financials. As mentioned by Oakland (1993) the key success factors today are not easily found in the financials, and the focus should be on customer satisfaction and non-financial information relating to the work effort and to costs relating specifically to quality. It is suggested that goal conflicts can be avoided by ensuring that goals are consistent, subsume other goals and are sequentially prioritised. Consensus on what goals to pursue helps to avoid confusion caused by simultaneously pursuing multiple quality programs (Krishnan et al., 1993). The goals need to be consistent with the key factors that drive the business and must not undermine quality. For example, Lincoln Electric, a US manufacturer, gave employees no credit for units that did not meet the quality standard so as to ensure there was no quantity/quality trade off (Wright, 1994). Daniel and Reitsperger (1992) suggest if quality is a strategic priority then the provision of quality targets and feedback to operating management should reflect the importance of quality improvement and emphasise the importance of continuous improvement.
A study undertaken in New Zealand explored the changes in the management accounting system (MAS) in relation to performance measures as a result of a TQM implementation (Hoque and Alam, 1999). Pre-TQM the organization’s MAS was historical and financial accounting orientated and post-TQM the organization recorded both financial and non-financial events of the company. Managers from the research site “expressed a high degree of satisfaction with the post-TQM MAS (management accounting system) … .. helped them coordinate, plan and communicate the TQM related work to the best interests of the company”.
The research questions
Deming (1993) proposed a “theory of profound knowledge” and a key aspect of this theory is that the success of quality management efforts depends on the effective integration of various management sub-systems (Waldman, 1994, p. 33). Therefore, the maximum effectiveness of TQM may be dependent on whether the performance management sub-systems are consistent and integrated with continuous improvement sub-systems. Organization’s seeking advancement must have a set of metrics to quantify both the efficiency and effectiveness of actions.
It is argued that for a continuous improvement philosophy to be successful the organization must have in place both the commitment to learning and the control systems that are flexible enough to meet the changing needs of the business environment. The absence of such attributes may account for the lack of success of some quality programs. It is important for management to recognise the need to create the environment, which will encourage learning to achieve continuous improvement, and to have the MCS act as an organizational learning mechanism. As noted by Berling (2000) “the task is not only to start the improvement process, but also to sustain it and to incorporate it into the normal part of everyday work”.
The decision to apply a continuous improvement philosophy to all activities within the organization in itself implies a learning approach, as the organization would be focused on improving the way it currently operates its business. However, the learning must be nurtured and encouraged by the practices adopted within the organization. OLMs will be instrumental in developing the learning culture, and the form and extent of the adoption of OLMs will be a determinant of the level of success achieved by an organization in its continuous improvement endeavours. Therefore, the research questions emanating from this general proposition are:
RQ1. What is the motivation for an organization to adopt a quality approach to its operations?
RQ2. What are the characteristics of the organizational learning mechanisms used by quality-focused organizations to support continuous improvement?
RQ3. What are the characteristics of the organizational learning mechanisms favoured by organizations with a more successful quality program?
The empirical research will focus on organizations that have adopted a quality focus as it would be expected that such organizations are more likely to have an operating philosophy of continuous improvement (Abraham et al., 1997; Terziovski et al., 2000). Organizations that have ISO 9000 certification were selected as such certification provides an independent third-party assessment that the organization has implemented a quality approach to its operations, at least in terms of the requirements of the quality standard; and the use of such organizations is seen in the research of others (Claver et al., 2002; Hendricks and Singhal, 1997; Llopis and Tari, 2001). Quality managers and finance managers were considered to be the most appropriate respondents as their work responsibilities would expose them to their organization’s operating practices in relation to quality management and the use of control systems.
Potential respondents were sourced from the publicly available on-line Joint Accreditation System of Australia and New Zealand (JAS-ANZ) database of certified organizations. A random sample, from each state of Australia, was selected comprising 500 organizations.
Surveys were posted to both the Quality Manager and Finance Manager of each organization representing a mail out to 1,000 managers, and a follow-up mail out was undertaken two months later. A total of 16 questionnaires were received marked “return to sender” which left the potential for nine hundred and eighty four managers to respond. In all, three hundred and three responses were received representing a 30.6 percent response rate, and of these two hundred and seventy seven represented usable responses, resulting in a usable response rate of 28.2 percent. A usable survey was deemed to be one in which the respondent answered all but a few questions. To test for non-response bias an independent sample t-test was conducted comparing early and late respondents. The null hypothesis was posed that the samples came from the same population and for all characteristics, expect gender; the null hypothesis is not rejected at the 0.05 percent level of confidence. Further examination of this result shows that in the second mail out fewer males responded. However, this was not considered significant because of the high percentage of female responses overall.
Profile of respondents
The majority of respondents (62.6 percent) is responsible for quality management activities, with 26.8 percent responsible for financial management and 10 percent responsible for general management, with a further two surveys completed jointly by the Quality Manager and the Finance Manager. The majority of respondents are female (80.9 percent), of whom 138 are responsible for quality management; 62 for financial management; and 20 have general management responsibilities. Of the males responding (19.1 percent), 32 are responsible for quality management; 11 for financial management; and 8 have general management responsibilities. The majority of respondents (84.1 percent) have more than 10 years experience in business with 77.1 percent of respondents having undertaken post-secondary education. Such a profile suggests that respondents have the working knowledge to comment on the issues raised in the questionnaire in relation to their organization and its quality initiatives.
Profile of organizations
The number of employees is used as a measure to determine the size of respondents’ organizations, with the findings showing 49.6 percent small- to medium-sized organizations (under 100 employees); 31.5 percent medium sized organizations (101 – 500 employees); and 18.9 percent large organizations (over 500 employees). The majority of the respondents (97.7 percent) consider their organizations are operating in a competitive environment, with 59.2 percent of the respondents rating the environment as very competitive. The majority of respondents (57.7 percent) view their organization’s product/service as superior quality to competitors, with 41.2 percent ranking it as similar and only one respondent giving a ranking below competitors. Two respondents from Government organizations did not rank their organization.
The majority of respondents (96.3 percent) identify quality-related factors as the main source of competitive advantage. In particular, the nominated sources of competitive advantage by respondents are: flexibility in responding to customer needs (24.2 percent), higher quality (of product/service) than competitors (23.0 percent), and product/service differentiation (18.3 percent). A combination of these factors was nominated by 24.0 percent of respondents, with another 10.5 percent identifying a combination of both quality and cost related factors. As respondents are from organizations with ISO 9000 certification it would be anticipated that a quality approach would influence the development of competitive strategies.
For the majority of respondents’ organizations (54.5 percent), quality has been important for more than 10 years, with a further 35.5 percent stating that quality has been important for more than five years. Quality has been adopted organization-wide for the majority of respondents’ organizations (86.8 percent) with the remaining (13.2 percent) noting its influence at either the individual work-unit level or project level. In relation to the outcomes of the quality program the majority of respondents (82.76 percent) consider overall performance has improved, with 75.78 percent noting an improvement in their organizations’ competitive position. In fact, 80 percent of respondents indicate that their organization would not have performed as well without a quality program.
The majority of respondents (86.1 percent) agree that top management in their organization is committed to the quality program; and 83.4 percent of respondents note that management ensure employees are aware of what quality means to the organization. However, only 53.5 percent of respondents consider that management view quality as the way to increase profits. To further explore this respondents were asked to comment on whether management viewed results as more important than processes. The responses show that 22.8 percent of respondents agree with the statement, 45.5 percent disagree and 31.6 percent are uncertain. This could raise issues about management’s full commitment to the quality program. The ownership of the quality program is not clear, as only 58.7 percent of respondents indicate that employees believe that quality is their responsibility. Given that employees are an important key to success this bare majority is a concern as this relatively low level of ownership could inhibit the diffusion of quality management within the organization. To be successful quality programs require the support of both management and employees. Selected comments from respondents that further explain these findings are:
[…] (lack of) support of supervisors and middle management …
[…] moderately high standard of quality but needs to be pushed to get the people in the field to keep it ongoing. They think of it as a burden (cost) not a tool to help …
[…] the systems (as advised by external parties) are at the cutting edge. While senior management support is excellent intentionally it is not necessarily practised and driven with the same support. Middle managers give moderate to nil support …
It is important for the organization to create the environment that will encourage individuals to learn, which, in turn, may lead to organizational learning. As noted by Ahmed et al. (1999) a learning and continuously improving company requires an organizational culture to guide employees. An understanding of an organization’s learning orientation, that is, its values and practices, will identify whether the environment created will encourage learning. To build a shared vision within the organization, that is, to give everyone a common identity and sense of destiny, it is important for management to provide direction. This direction can be given by the performance goals to guide activities, the organization’s values and its mission statement.
Respondents were asked to comment on particular values (espoused theories) in their organization. The majority of respondents (93.5 percent) identify continuous improvement as an important goal for their organization and this is reinforced by 86.5 percent of respondents noting its influence when formulating the strategic plan. A goal of continuous improvement implies the need for learning, and 87.0 percent of respondents agree that continuous learning is valued in their organization. These findings suggest that such organizational values should encourage a learning environment in respondent organizations. However, are these values supported within the organization?
The majority of respondents (51.7 percent) agree that “what gets said gets done”, that is, the espoused theories are in line with the theories in action. However, the findings also indicate that 33.5 percent of respondents are unsure, which could suggest that management inactions are inhibiting learning. A bare majority of respondents (50.2 percent) disagrees that operational planning only involves managers, which questions the participation of employees in the planning process in some respondent organizations. The encouragement for continuous improvement is noted by 50.9 percent of respondents who agree that their organization encourages employees to look at other approaches to organizational activities. But, once again, the findings show that 30.7 percent of respondents are unsure about management’s attitude.
Learning can be seen to occur when organizations perform in changed and better ways. The majority of respondents (96.4 percent) identify the importance of their organization being adaptable to changes in the business environment. Learning will involve the process of building procedural knowledge, cognitive strategies and attitude. The majority of respondents (85 percent) agree that employees are encouraged to work smarter not harder, which is in line with the motivation for management to improve performance. This suggestion is reinforced by 84.5 percent of respondents who agree that their organization encourages employees to question current work practices and find new ways of doing things. In addition, 80.2 percent of respondents agree that in their organization standard operating procedures are reviewed regularly, which would encourage improvement in existing capabilities and promote single-loop learning and also may encourage double-loop learning from the review process. 74.2 percent of respondents note that managers do not punish mistakes but encourage employees to explore alternatives. Further encouragement is given to employees as 70.7 percent of respondents agree that employees have been given decision-making responsibilities to deal with problems relating to specific work activities.
However, despite the encouragement only 58.7 percent of respondents identify that employees are focused on improving existing capabilities. The empowerment of employees to initiate change is unclear as only 42.9 percent of respondents agree that this is encouraged in their organization, and a further 35.0 percent of respondents are unsure about their organization.
Respondents were asked to rate the importance of certain factors in the development of the key performance indicators (KPIs) for their organization. Factors ranked as extremely important are customer satisfaction (mean 4.76), process improvement (by way of cost efficiency) (mean 4.38), and profit (mean 4.30). These are in line with the key factors in relation to the motivation for the quality initiatives and indicate that the KPIs are supporting the organizations’ objectives. Revenue growth (mean 4.00) and return on assets (mean 3.9) are ranked lower than other factors which may be due to the organizations focusing on maintaining the existing customer base by improving both customer satisfaction and internal processes. Least important is the market share (mean 3.76), which might be explained by many organizations being in a competitive environment thereby reducing opportunities for expansion. Retention of existing customers may be more critical.
For the majority of respondents (89.2 percent) the key performance indicators (KPIs) are an output of the strategic planning process. Respondents’ comments noting the importance of developing KPIs are:
[…] there is a high development process occurring at this time in regards to strategic management (KPIs etc) …
[…] KPIs and benchmarking are the two most important areas to ensure continual improvement and financial stability …
[…] our basic quality system is solid and reliable to ensure quality of product. Our next step is to become more proactive and create more KPIs and reporting on and gauging progress with clearly identified benchmarks …
The majority of respondents (81.5 percent) agree that their organization is able to link the operational performance measures to the strategic plan which suggests that employees’ effort should be in line with the performance outcomes embodied within the organization’s overall strategy. However, 34.3 percent of respondents identify that their organization has difficulty in translating the quality goals into operational goals, which could compromise the success of the quality program in such organizations.
Of the respondents, 80 percent consider that all appropriate management and employees in their organization are made aware of the performance measures to encourage continuous improvement; and 73.3 percent agree that employee involvement in goal setting is important. It is assumed that this is in relation to operational goals as only 20.9 percent of respondents agree that employees are involved in the development of the strategic plan. One comment made by a respondent highlights the importance of this involvement:
[…] more employee involvement in goal setting required – not enough performance review at divisional levels. Require more time to be spent on review of performance on projects and identify lessons learnt and implement correction action and improve systems, procedures etc. Goals should also be communicated to all employees not management and this also applies to performance results – this would increase a sense of ownership and commitment at all levels …
Characteristics of performance goals
Performance goals should provide the signals to employees of what actions are required to meet organizational objectives. Respondents (73.3 percent) agree that the performance goals are clear and consistent; with 65.2 percent of respondents suggesting that the performance goals reflect the importance of quality improvement activities, which is consistent with 68.2 percent of respondents agreeing that performance measures encourage employees to work towards quality goals. Of concern is that only 55.7 percent of respondents agree that their organization frequently revise the performance measures to adapt to changes in operating conditions.
It could be expected that the performance goals would encourage the learning style, that is, either double-loop or single-loop learning. Only 49 percent of respondents consider that the performance goals are structured to encourage employees to explore new ways of doing their jobs. The use of stretch goals as a means to encourage improved performance is only noted by 41.6 percent of respondents and only 48.9 percent of respondents agree that performance goals are used to modify employee behaviour. The minority of respondents (44.5 percent) agrees that performance goals promote dialogue and debate among employees with 56.5 percent of respondents who agree that performance goals encourage cooperation and interaction between employees. The above findings raise doubts as to whether the performance goals would encourage double-loop learning.
Planning and control are strengthened by the ability of employees to respond to problems. The evaluation of actual performance against targets is important for the control of operations. The majority of respondents (84.8 percent) agree that performance feedback is important for investigating problem areas. 60 percent of respondents agree that feedback gained from assessing performance against target enables the instigation of rapid corrective action. The ability of employees to react to feedback may be limited as only 60 percent of respondents agree that employees receive regular appraisal and feedback about their work performance. The responses also indicate that despite feedback being important, 28.4 percent of respondents are unsure whether feedback enables rapid corrective action, and 26 percent of respondents are unsure whether employees receive regular feedback.
Factors influencing success of quality initiative
The success of the quality program in respondents’ organizations has been mixed. For the majority of respondents (77.4 percent), the quality program has met the expectations set, with 16.1 percent of respondents rating their organization’s achievement as exceeding expectations. Of the respondents, 14 (5.1 percent) perceive their organization’s disappointment with the outcome of the quality program with a further four respondents unable to determine the outcome of the quality program at the time of the study. It should be noted that the interpretation of success in this study is based on a subjective assessment, given that it represents each respondent’s view of success in relation to his or her own organization. It is argued that this is an appropriate approach given that, in the end, if management is dissatisfied with the outcomes of practices/initiatives put into place, then such practices will not have longevity within the organization, despite any external commentator suggesting differently.
Comments from respondents who rate the quality initiative as “fell short of expectations” reinforce the barriers to success identified by Kaye and Dyason (1995), Krishnan et al. (1993), Lorente et al. (1999), Sitkin et al. (1994) and Lau and Anderson (1998). Selected comments highlighting the reasons behind the lack of success of the quality program follow:
[…] we are constantly trying to improve our quality system, but middle management and supervisors still see it as a hindrance not a help. Unwilling to change …
[…] poor management understanding and support …
[…] lack of resources… people, plant and equipment, to maintain quality focus; productive focus instead of a market (customer) focus …
[…] we plan well but action/review poorly…lack of resources (constant drive to reduce costs by reducing people) leaves little opportunity to explore in-depth continuous improvement …
[…] our quality initiatives have been production related rather than encompassing all business activities …
[…] conflict in measuring KPI’s (quality vs reject rate, on-time delivery); not clearly walking the talk …
[…] large organization; quality means different things to different areas. Quality is seen as an input to improve efficiency, not so much an output …
Further analysis of the results were undertaken to identify significant relationships between the perception of respondents to a range of factors in relation to their organization and the success of the quality program. An analysis of the most significant variables suggests that there is a relationship between the level of success of the quality program and the following attributes:
- quality being part of organizational culture;
- supportive leadership;
- a performance measurement system that supports the quality program;
- employee involvement encouraged;
- quality program linked to strategy; and
- transparency of information regarding quality program.
The following list details the results of the chi square test showing only those variables which displayed the most significant relationships (p=0.000):
- quality is embedded into the organizations culture;
- Key Performance Indicators (KPIs) are identified as part of the strategic planning process;
- operational performance measures link operational activities to the strategic plan;
- quality goals are able to be translated into operational goals;
- the organization environment is such that what gets said gets done;
- employees are encouraged to work smarter not harder;
- managers support staff not by punishing mistakes but by encouraging staff to learn;
- top management is committed to the quality program;
- management ensure that employees are aware of what quality means to the organization;
- all appropriate management and employees are made aware of the performance measures to encourage ongoing improvement;
- performance goals – clear and consistent;
- performance goals – reflect the importance of the quality improvement activities;
- feedback gained from assessing performance against target enables the instigation of rapid corrective action; and
- new ideas are encouraged.
The objective of this study was to identify the role of organizational learning mechanisms to support continuous improvement. In particular, a focus was given to the performance measurement system. The findings suggest that for a quality program to be successful the organization must have in place the commitment to learning and adopt supportive control systems flexible enough to meet the changing needs of the business environment. The absence of such attributes may account for the lack of success of some quality programs. As noted by Berling (2000):
[…] the task is not only to start the improvement process, but also to sustain it and to incorporate it into the normal part of everyday work.
In line with Evans and Lindsay (1996), Kaye and Dyason (1995), Kossoff (1993), Lillrank et al. (2001), Melan (1993), the findings indicate that quality has been embraced by respondents’ organizations as a key competitive weapon to enable survival in the competitive market place. As noted by Butz (1995), Ehrenberg and Stupak (1994), and Bessant and Francis (1999) continuous improvement must be embodied within the strategy if it is to achieve the desired outcomes. Respondents identified that their organizations have focused their strategy on meeting customer needs and improving business processes, both of which suggest a strategy built on continuous improvement. This will be particularly important for a number of respondents’ organizations, especially for the 42.3 percent of respondents who consider their organization’s product/service is similar or inferior to competitors. This indicates that an opportunity exists for such organizations to improve their operations and close the performance gap thereby improving their position in the market place.
The findings suggest that the quality program has assisted organizations in meeting the strategic objectives. For the majority of respondents (82.7 percent) performance has improved, with 75.8 percent of respondents noting an overall improvement in their organization’s competitive position in the market. The majority of respondents (80.8 percent) did not consider that the quality program has had an adverse affect on profitability.
Those organizations that have achieved or exceeded the desired quality outcomes have embedded quality into the organization’s culture. This has been assisted by management ensuring that all employees are made aware of what quality means to the organization and by showing their own commitment to the quality initiative. It is interesting to note that respondents who rate their organization’s quality initiative as less successful (“fell short of expectations”) comment on the lack of employee commitment to the quality program. As noted in the literature, the loss of morale or an increase in cynicism among employees is a major factor in TQM failures (Beck and Yeager, 1996; Dooley and O’Sullivan, 1999).
Therefore, respondents who perceive their organization’s quality program as more successful consider that their organization has a culture that encourages both continuous improvement and learning. The learning environment is supported by a performance measurement system that assists in building the shared vision which is necessary for the learning organization (Senge, 1990). Performance measures are clear and consistent and support the strategic objectives of customer satisfaction. The relevance of the performance goals is strengthened by employee involvement in the goal setting process. Performance goals play an important role in assessing operational activities and employee performance. It could be argued that such organizations have become a learning community, whereby, as the individuals learn, the organization learns its way forward.
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About the author
Judy Oliver is a senior lecturer in accounting at Swinburne University. She has previously held appointments at Victoria University and University of Tasmania. Her teaching has been in the area of management accounting and introductory financial accounting. Her research interests lie in management accounting, total quality management and corporate governance. Judy Oliver can be contacted at: email@example.com