A comparative case study of sustaining quality as a competitive advantage

May, 2015

Paper’s summary

A comparative case study of sustaining quality as a competitive advantage (Su et al 2014)

Based on the paper “Su, H. et al. “A comparative case study of sustaining quality as a competitive advantage”. JOM 32(2014) 429-445

Leonardo Laranjeira Gomes PhD Student MIT-‐Zaragoza Interna5onal Logis5cs Program Zaragoza Logis5cs Center

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Contents

1.   Introduc>on 2.   Conceptual background 3.   Methodology 4.   Results 5.   Conclusions, contribu>ons and discussion 6.   Personal opinion

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Contents


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Opera>ons strategy scholars have long noted the importance of establishing compe>>ve advantage in quality

Previous research: • The link between quality and financial performance (Buzzell and Gale, 1987; Garvin, 1988):

•  Increased revenues: more aArac5ve products and market advantage •  Reduced costs: efficiency

• Compe55ve advantage in quality is the founda>on for other opera>onal compe>>ve advantages (Ferdows andDe Meyer, 1990). Later confirmed with empirical evidence (Rosenzweig and Roth, 2004; Roth and Miller, 1992) • How organiza5ons can obtain a compe>>ve advantage through quality performance (Ahire, 1996; Ahire and Dreyfus, 2000; Anderson et al.,1994; Benson et al., 1991; Flynn et al., 1994, 1995; Kaynak, 2003) • Different theore5cal perspec5ves to understand the rela5onship between quality and compe55ve advantage:

•  e.g.: resource-‐based view (RBV) (Barney, 1991) of the firm to explain how a number of prac>ces, and frameworks such as TQM (Flynn et al.,1994, 1995; Powell, 1995), Baldrige (Flynn and Saladin, 2001) and ISO 9000 (CorbeA et al., 2005; Mar^nez-‐Costa et al., 2009; Navehand Marcus, 2005) lead to a compe55ve advantage in quality

Source: Su et al 2014

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“In a … complicated world, once unques>oned posi>on at the top of the automo>ve pecking order is under threat as never before” (Taylor, 2003)

Indicators of the difficulty to sustain quality performance from long-‐>me quality leaders: • Toyota (Ohnsman et al., 2010; Valasic, 2010):

•  Product recalls, uncontrolled accelera5on, accidents •  Ul5mately, Toyota’s Consumer Report’s reliability ranking slipped from number one to fidh in 2007 and the company’s market share dropped (Oliver, 2014)

• Mercedes-‐Benz: •  In the 90’s was in the top 10 and oden ranked in 1st place on the J.D. Power surveys for vehicle quality. Then suddenly they dropped to 26th in 2003 and had more than 300 problems reported per 100 vehicles (Taylor, 2003)

• Other leading companies such as Sony and Hitachi experienced similar difficul5es in sustaining a compe55ve advantage in quality (Fackler, 2006; Taylor,2003)


However, li]le is known about how to sustain compe>>ve advantage in quality

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Previous studies have not fully considered the consistency dimension of quality performance


The study defines compe>>ve advantage in quality as having a high level and high consistency of quality performance over >me

Defining compe>>ve advantage in quality in previous studies:

•  High quality performance rela5ve to compe55on as an indicator of a compe55ve advantage in quality (Ward and Duray, 2000)

•  Organiza5ons that meet or exceed customer expecta5ons achieve high quality performance (Evans and Lindsay, 2008)

Consistency = low variance:

•  “Collec5ve outcomes of a certain minimum level repeatedly”(Hannan and Freeman, 1984, p. 153)

The view of Su et al The view of previous studies

High level + high consistency

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Su et al aims at filling the gap on how to sustain a compe>>ve advantage in quality

Main research ques>on: • How do organiza5ons sustain a compe55ve advantage in quality? Addi>onal ques>ons: • What are the common characteris5cs of high-‐performance quality companies, according to the previous literature?

• Why do different business uni5es, within the same company, perform different in terms of quality? • What are the common characteris5cs that differen5ate organiza5ons that sustain quality from those that don’t?


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The research: compara>ve case analysis itera>ng between the literature and the case data to built a theory on sustaining a quality advantage

Basic literature: • Quality management (Flynn et al., 1994, 1995) • Dynamic capability (Teece et al., 1997; Zollo and Winter, 2002) • Red Queen Effect (BarneA and Hansen, 1996; BarneA and McKendrick,2004; BarneA and Pon5kes, 2005)

• Organiza>onal learning (Argote,2013; Argyris and Schön, 1996) • High reliability organiza>on(HRO) theory (Weick and Sutcliffe, 2001, 2007; Weick et al., 1999) Compara>ve case analysis: •  Brings together literature streams that have been previously disconnected

•  It views sustaining a quality advantage as an ongoing race

Itera>ve process: •  A priory theories •  Empirical data

•  Theory elabora5on


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Contents


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Dynamic capabili>es: the ability to adapt and change. An overarching theory in the study

The concept: • Sustaining a compe>>ve advantage requires dynamic capabili>es (Helfatet al., 2007; Teece, 2007, 2009) • “a learned and stable paAern of collec5ve ac5vity through which the organiza5on systema>cally generates and modifies its opera>ng rou>nes in pursuit of improved effec5veness”(Zollo and Winter, 2002, p. 340) • Integra5ng, building, and reconfiguring resources to adapt to changes (Teece, 2009; Teece et al., 1997) • Are embedded in organiza>onal rou>nes that enable organiza5onal change (Amit and ZoA, 2001; Eisenhardt and Mar5n,2000).


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Organiza>onal learning: learn how to be]er learn (meta-‐learning)


Key concepts on organiza>onal learning: • Organiza5onal learning: a change in organiza>onal knowledge that increases the range of its poten5al behaviors (Argote 2012, Urber, 1991) • First-‐order learning: refinement, efficiency, improvement and exploita5on

•  E.g. detec5ng and correc5ng quality defects

• Second-‐order learning: search, experimenta5on, innova5on, and explora5on •  E.g. understanding the underlying causes of problems

• Meta-‐learning: learn how to be]er learn (systema5cally improve first and second order learning processes)

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Quality management: focus on quality capabili>es, instead of prac>ces


•  “Set of mutually reinforcing principles, each of which is supported by a set of prac5ces and techniques” (Dean and Bowen, 1994)

•  Quality prac>ces such as leadership support, customer focus, workforce involvement, process management, and cross-‐func5onal product development have a posi5ve effect on quality performance (Ahire and O’Shaughnessy, 1998; Dow et al., 1999;Flynn et al., 1995). Kaynak (2003)

•  Once difficult-‐to-‐replicate resources can eventually become replicated due to learning efforts triggered by intense compe>>on (Teece et al., 1997)

•  It is difficult to sustain a compe>>ve advantage using sta>c resources in today’s highly dynamic environments (D’Aveni,1994; D’Aveni et al., 2010; Eisenhardt and Mar5n, 2000).

Different quality prac>ces lead to different capabili>es

•  Total quality control (TQC): ability to refine and stabilize products and processes (first-‐order learning)

•  Total quality learning (TQL): ability to explore the unknown (second-‐order learning)

Background Types of quality prac:ces

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High reliability organiza>onal theory: learns from high-‐risk environments


•  High-‐risk environments: nuclear aircrad carriers, air traffic control systems, nuclear power genera5on plants

•  Research in HRO seeks to explain how these organiza5ons sustain reliable performance under high risk condi5ons (Carroll, 1998; La Porte, 1996; Schulman, 1993).

•  Ability to “discover and correct errors that could escalate into crisis”

•  Five types of behaviors in HROs that promote reliable performance (Weick et al., 1999):

•  Preoccupa5on with failure

•  Reluctance to simplify

•  Sensi5vity to opera5ons

•  Commitment to resilience

•  Deference to exper5se

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Red Queen Effect: performance is a func>on of compe>>ve ac>ons between a focal firm and its rivals


•  The Red Queen Effect emphasizes the need for dynamic capabili5es to adapt and evolve faster than compe5tors to sustain a compe55ve advantage. From a quality perspec5ve, sustaining a quality advantage is not just achieving high quality performance, but it is about how organiza5ons stay in the race.

Red Queen said to Alice: “Here, you see, it takes all the running you can

do, to keep in the same place. If you want to get somewhere else, you must run at least twice as

fast as that!” Through the Looking Glass, Lewis Carroll, 1960, p. 345)

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Contents


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Data collec>on and research methods: compara>ve case study using induc>ve theory building approach


•  Six-‐business units in three manufacturing firms •  Award-‐winners (on quality) •  Two business units from each, with varying degrees of quality performance

•  Iden5fied by the President or VP •  First assessment (President or VP): high-‐level, low-‐level, sustaining •  Senior managers in business units: confirma5on

•  Focus on general quality indicators: quality awards, customer sa>sfac>on, product quality, process quality

•  Comparison of independent classifica>ons (4 researches) •  Site visits: quality, opera5ons, general management, marke5ng, and finance

•  Mul>ple rounds of interviews within 3 years: assessment, evolu5on, tes5ng •  Round 1: assessment and shaping of second-‐order themes •  Round 2: addi5onal data and verifica5on of second-‐order themes •  Round 3: tes5ng

•  Triangula>on of qualita>ve data with the literature •  Within-‐case analysis •  Cross-‐case analysis •  Transcrip5on •  N-‐VIVO •  Independent evalua5on (mul5ple researchers)

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Overview of the research methodology


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Contents


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First-‐order indicators, second-‐order concepts, and theore>cal themes were derived from the research (1/3)


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Capabili>es of meta-‐learning, sensing weak signals, and resilience are related to sustaining compe>>ve advantage in quality


•  Proposi>on 1: firms with a strong capability of meta-‐learning (renew and update their first-‐order and second-‐order learning processes on an ongoing basis) are more likely to sustain high levels of quality performance.

•  Proposi>on 2: firms with strong capability of sensing weak signals (vigilant aAen5on to changes in the internal and external environment) are more likely to sustain high consistency in quality performance.

•  Proposi>on 3. firms with a strong capability of resilience (where employees are highly commiAed to solving quality problems and can quickly access required social capital) are more likely to sustain high consistency in quality performance

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Theore>cal framework that emerged from the study


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Summary of the conceptual model


Dynamic capability consists of three broad components: (1) sensing changes; (2) seizing opportuni>es; and (3) reconfiguring resources and processes (Teece, 2007,2009).

1.   Reconfigura>on component: business high level of meta-‐learning capability con>nuously renew their quality system, enhancing both first-‐order and second-‐order learning processes. Consistent with the Red Queen perspec5ve, this helps sustain a high level of quality performance rela5ve to the compe55on

2.   Sensing component: the capability to sense weak signals enables organiza5ons to sense emerging quality problems that may affect the consistency of performance. These organiza5ons have a strong tendency to iden5fy poten5al internal problems and recognize important changes in the external environment

3.   Seizing component: the capability of resilience to quality disrup>ons helps minimize disrup5ons to quality and ul5mately enhance performance consistency. In a sense, capability of resilience seizes the opportuni5es to correct quality problems and increase consistency in quality performance

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Contents


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The research provides a conceptual model for sustaining a compe>>ve advantage in quality


•  The compara5ve case analysis integrates several literature streams to develop a coherent dynamic capability that helps sustain a quality advantage

•  The case data helps iden5fy concepts in different literature streams and connect them to an opera5ons management context

•  Sustaining quality advantage is a never-‐ending race

1.  While racing, organiza5ons need to be engaged in meta-‐learning in order to increase their adaptability to compete (Siggelkow, 2001)

2.  Organiza5ons also need to be vigilantly a]en>ve of their surrounding sand sense weak signals that may disrupt quality, which prevents them from stumbling in the quality race

3.  Finally, if they do stumble, they need to be resilient and quickly get back on their feet so that they can s5ll remain in the quality race

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The capabili>es iden>fied in this study have important implica>ons for prac>ce


•  Meta-‐learning: organiza5ons can benefit from periodic assessments of their quality system to renew and enhance the processes that lead to first-‐order and second-‐order leaning

•  Sensing weak signals: organiza5ons could adopt prac5ces that foster employees’ a]en>veness to their opera>ons environment and also prac5ces that increase the visibility of poten5al quality failures

•  Resilience to quality disrup>ons: organiza5ons can establish a strong core commitment to quality by training programs and selec>ve hiring

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The study challenges the exis>ng view of the resource-‐based strategy to sustain quality performance


•  Previous studies: complex interac5ons of various quality prac5ces lead to a quality system that other firms cannot easily replicate, which explains sustained high performance

•  Red Queen logic: the once difficult-‐to-‐replicate resources (such as a complicated quality system) can eventually become replicable due to rivals’ intense learning efforts triggered by compe55on

•  Dynamic capability approach to stay in race

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Limita>ons


•  Purpose: developing proposi5ons and a theory for future tes5ng

•  Sample: six business units of manufacturing organiza5ons

•  It does not consider disrup>ve forces, such as disrup5ve technology, fundamental changes in business structure or changes in regula5on that could render the compe>>ve advantage irrelevant

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Contents


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Personal opinion


•  Interes5ng contribu5ons for theory and prac5ce

•  Very well structured research method

•  Mul5ple researchers

•  Integra5ng theories

•  Qualita5ve (with mul5ple interpreta5ons) technology-‐assisted data analysis

•  Mul5ple years

•  Possible extensions:

•  Other sectors: e.g. services

•  Other quality levels: e.g. low-‐quality firms

•  Emerging-‐quality companies

•  Tes5ng the theory in industries or markets highly suscep5ble to disrup5ons (e.g. technology, regulated, emerging markets)

A comparative case study of sustaining quality as a competitive advantage

Business

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