The connected world of business frameworks - EFQM

The connected world of business frameworks
Good ideas spread between companies, in a process of
diffusion and adaptation that parallels Darwin’s natural
selection of species. A business that is successful will be
studied and copied by others in an attempt to capture the
essential features that have led to its success. Like bees flying
between flowers in bloom, the highly regarded staff of these
companies is hired by their rivals, carrying with them
knowledge that ‘pollinates’ the transfer of intellectual capital.
The ideas may find fertile territory in the new company, and
will be enriched and adapted to their new environment, being
changed and improved in the process. The best business
frameworks survive and become widely copied, while those that prove difficult to replicate either die or
remain curiosities.
The twentieth century saw the beginning of formalised approaches to the diffusion of good practices.
Frederick Winslow Taylor, an American engineer, sought to improve industrial efficiency by studying
and implementing good practices of work (published in ‘The Principles of Scientific Management’, in
1911). As the first management consultant, he anticipated a movement which has often promoted its
value around the identification and implementation of ideal ‘models’ of organisation. Accompanying
the increasing success of management consultants, business schools developed and improved the
theory of management practice, and promoted case based learning. But it was individuals within
companies themselves who would have the most profound and long lasting impact on the actual
practice of management. In adopting and modifying Taylor’s ideas, Henry Ford would demonstrate the
power of scientific management: by implementing specialisation in the tasks of workers and a
continuous and carefully organised workflow he revolutionised mass production in his own and
indirectly all other industrial sectors.
This wasn’t the first or last time that an idea from outside would fundamentally impact the automobile
industry. In 1914 another engineer, F. Donaldson Brown at DuPont, invented a systematic model for
financial analysis – linking the ratios of Return on Capital Employed (ROCE), Return on Assets (ROA) and
Return on Equity (ROE) and in doing so provided structured insight into the factors that drive
profitability and the value of the firm. In the 1930’s DuPont purchased 23% of General Motors at a time
in which the car giant had run into financial difficulty. Brown’s team implemented the use of the
DuPont Analysis and in doing so helped to untangle the complicated finances that were beginning to
ruin the car firm. Arthur Sloan would credit the adoption of this analysis tool and its rigorous use as a
fundamental contributor to GM’s later success. Success is admired, and the DuPont Analysis would be
widely copied by major corporations well into the 1970’s.
The oil shocks of 1973 and 1978 would create a discontinuity in how organisations planned and
organised their activities. A sustained period of reliable growth after the Second World War came to an
end and with it the certainties of fixed models of production and straight line projections. Royal Dutch
Shell pioneered the techniques of ‘scenario planning’, considering the options and consequences of an
James Howe 03 September 2009, Page 1/3
EFQM, Private Stichting/Fondation Privée – Avenue des Olympiades 2 – 1140 Brussels, Belgium – tel : +32 2 7753511 – fax : +32 2 7753535
Email : info@efqm.org – website : www.efqm.org – VAT BE 0871.740.087 – RPR/RPM Brussels

uncertain future. The approach has subsequently been adopted by other major corporations such as
Motorola, Disney and Accenture. Erste Allgemeine Versicherung, an insurance company based in
Austria, first used scenarios in 1988. The objective was to look at the business environment and
opportunities for growth. The company anticipated the fall of the Berlin Wall more than a year before
it happened and successfully pioneered investments in Eastern Europe well ahead of its competitors.
The scenario planning approach is getting more popular. According to Bain & Company’s annual survey
of management tools (quoted in the Economist, 1 st September 2008), fewer than 40% of companies
used scenario planning in 1999, but by 2006 its usage had risen to 70%.
The Spanish fashion giant Zara (part of the Inditex group of companies) is widely held as an example of
best practice in logistics: by adopting ‘Lean’ production principles and rationalising the product design
process the company has been able to grow profitably to become the world’s largest fashion retailer.
The ‘connected world’ of these ideas can be traced from the practices of Frederick Taylor, interpreted
by Ford and perfected by Toyota. However, the truth is that Zara can thank Toyota executives for
spending time studying the retailing sector itself.
In the 1950’s the management team of Toyota came to the United States to learn the secrets of the
world’s largest automobile producing country. They visited Ford, hoping to learn the secrets of efficient
production, but came away disappointed. The delegation led by the engineer Taiichi Ohno were
appalled by the large amounts of inventory on site, by how uneven the amount of work being
performed in various departments within the factory was, and the amount of rework at the end of the
process.
In fact, it was the visit to a supermarket chain operating in the Midwestern and Southern regions of the
United States called ‘Piggly Wiggly’ that prompted the most revolutionary idea. Piggly Wiggly had
invented the self service supermarket in 1916, but more significantly to the visitors was pioneering
techniques in efficient stock handling. The Japanese visitors were struck by a simple and powerful idea:
goods were only reordered from the warehouse when customers purchased them. A cornerstone of
the ‘Toyota way’, the famous ‘Just in Time’ replenishment technique was inspired, key to Zara’s later
success.
Perhaps the most widespread of all modern management frameworks is ‘Six Sigma’, pioneered in
Motorola in the 1980’s. In the early 1980s under Chairman Bob Galvin, Motorola engineers decided
that traditional quality levels, which measured defects in thousands of opportunities, were not precise
enough. Instead, they wanted to measure the defects per million opportunities. Motorola developed
this new standard and created the methodology associated with its organisational implementation. Six
Sigma helped Motorola realize impressive improvements: more than $16 Billion in associated savings
were documented from the programme. Since then, hundreds of companies around the world have
adopted Six Sigma as a way of doing business.
Despite Six Sigma’s proven contribution to the bottom line of many businesses, there are an increasing
number of cases where it has proven disappointing or even negative. There are several cases in which
executives moving outside the manufacturing environment have sought to apply the lessons too
rigorously. One of America’s leading retailers, Home Depot, ran into financial difficulty after an
extensive implementation of Six Sigma inspired stock handling and administration: its efficiency
increased, but customer satisfaction fell from first to worst among retailers in 2005.
James Howe 03 September 2009, Page 2/3
EFQM, Private Stichting/Fondation Privée – Avenue des Olympiades 2 – 1140 Brussels, Belgium – tel : +32 2 7753511 – fax : +32 2 7753535
Email : info@efqm.org – website : www.efqm.org – VAT BE 0871.740.087 – RPR/RPM Brussels

The approach has run into particular difficulty in business environments that depend on creativity and
innovation for their continued success. The advertising executives at Young & Rubicam, rebelled
against the initiative of their new CEO (a former GE board member), after she tried to implement Six
Sigma. Under new leadership, 3M is reconsidering how and where it applies Six Sigma in an effort to
reinvigorate innovation at the company.
The history of management frameworks, including Six Sigma, is one of evolution in which new and
successful ideas are copied, spreading beyond the frontiers of their original application until they find
new terrain for growth or encounter failure. Depending on how the framework is adapted to these
different circumstances it will either get stronger or change into something else.
In the next article, we will consider the evolution of the EFQM Excellence framework, and how it too is
the product of adaptation in a connected world.
James Howe 03 September 2009, Page 3/3
EFQM, Private Stichting/Fondation Privée – Avenue des Olympiades 2 – 1140 Brussels, Belgium – tel : +32 2 7753511 – fax : +32 2 7753535
Email : info@efqm.org – website : www.efqm.org – VAT BE 0871.740.087 – RPR/RPM Brussels