Start-Ups: Total Quality Management and the start-up principle

The start-up is among the most exciting and demanding of management tasks. It starts with an enormous advantage. The entrenched habits that are the greatest obstacle to organisational change don't exist. A company like National Westminster Life Assurance - announced in September 1991, and starting business on New Year's Day in 1993 - is a greenfield operation, free to build 'an excellent company by any test' in its own way, and thus to realise its 'vision'.

The method chosen was TQM - total quality management. It's a cause which several leading British companies have adopted in recent years. British Telecom set out to prove that '(1) We put our customer first (2) We are professional (3) We respect each other (4) We work as one team (5) We are committed to continuous improvement.' Honeywell (UK) launched a drive 'to envelop all aspects of quality and its subsequent impact on business success.' For Rank Xerox, the task was 'providing our external and internal customers with innovative products and services that fully satisfy their requirements.'

In sum, the TQM visionaries seek perfection, even though part of the quality gospel is that perfection is never achieved. In top-level sport, every team and every player shares the same almost impossible vision - to play a perfect game. Even when an individual champion reaches the seemingly absolute heights, like Pete Sampras at Wimbledon in 1994, defeating an in-form and brilliant opponent with decisive power, unforced errors creep in - and unjustified criticism follows: Sampras was so good that he was 'boring'. What's hard for individuals is fifteen times more difficult for rugby players. How can an international team all play perfectly?

Reality must fall short of the vision. Fifteen times actually under-estimates the difficulty, since the possible and indispensable connections between the fifteen amount to a mind-boggling total. Every pass has to be correctly weighted and aimed, every ball caught at the right speed and correct angle of run, etc. Impossible - and the difficulties are, of course, vastly greater in a business unit, let alone a whole company. The numbers aren't just fifteen: NatWest Life had ten times that many sales people operating out of bank branches, plus 650 head office staff: the possible combinations require a super-computer's calculations.

Moreover, while a start-up gains from being brand-new, that also has disadvantages: it's a scratch side, few of whose members have ever worked together. The scratch side rarely succeeds in sports. Sometimes, magically, an established team does play as one superb champion. Graham Mourie's All Blacks defeated Wales with one such legendary performance. You might expect that from a thoroughly drilled touring side coming from a deep, shared tradition. But not from a scratch team. Yet when the Southern Hemisphere once played the Rest of the World, fifteen players who had never all been on the same side clicked into an irresistible combination.

Chance played its part. But there was an underlying cause. Every player possessed high and highly trained skills: each knew exactly what to do in any situation: each, moreover, trusted all the other fourteen to be equally expert: everybody shared the same objective, to move forward towards the tryline with maximum speed and power; and, above all, each player acted decisively on the instant when action was demanded. Much the same thing happened when the scratch Barbarians side, drawn from ten nations, defeated the powerful Springboks in 1994 - shared purpose and commitment magically overcame the odds.

Interestingly, another greenfield start-up, Nissan Motors UK at Sunderland, stresses that very need in its vision statement: 'To give a common sense of direction and purpose for the whole company and its suppliers.' That follows on from 'To improve every aspect of our business and our products...To improve the future security and prosperity of NMUK, its employees and its suppliers...To improve the quality of life at work for all employees.' These aims clearly interlock. But the cement lies in the 'shared purpose and commitment' that can turn a scratch side into a major industry force.

The two drivers are the essence of vision and of TQM. They are evidently difficult to achieve, given that TQM's disappointments probably outnumber its successes. The disappointments, however, enshrine a fundamental misunderstanding: TQM is founded on the facts, not of perfection, but imperfection. Progress towards the vision arises from meticulously measuring where any operation is now and plotting how it can be improved. Then you go on improving. In fact, continuous improvement is really an unspoken part of the vision, just as when a very young Sampras decides to become a champion, or an infant NatWest Life decides on this aim:

'We will be a leading provider in our chosen sectors of financial services...First Choice for customers throughout their lives for outstanding services, straightforward products and superior investment returns.'

Lawrence Churchill, the managing director, used this Vision Statement as a powerful tool for many purposes, including recruitment. It appeared in first draft a month after the announcement of the launch, and was used to find people who 'also passionately believed in the quality process.' A would-be chief actuary who only believed in managing by numbers wouldn't fit and wouldn't be recruited. Early on, a vision conference was held off-site to develop further the concept and rationale. But the statement, deliberately, wasn't finalised until September 1992, when all the senior executives were in place.

This wasn't the idea of some enthused visitor from another industrial planet. Churchill comes from a deep background in financial services, having spent his career largely with Allied Dunbar. That's one of the highly successful players in equity-linked life assurance whose common bond is the business genius of Sir Mark Weinberg, the South African who revolutionised the marketing of insurance in Britain. Some of that revolution's results, in terms of sales ethics in particular, were less than splendid. Churchill wanted a vision which would transcend all previous standards and transform industry practice.

To that end, every member of the seven-man team had to agree every word. It took long discussions to reach unanimity. But at that point the new company's leaders were committed to a vision in which they wholly believed. It may sound like a somewhat academic exercise. But the start-up succeeded brilliantly. After only 15 months, all the needed systems were in place on time: all the insurance products had been designed and implemented. Success in the offices was matched in the market: so much business had been transacted within the first three months that a company with a market value of £1 billion had been created on total initial capital of £300 million.

By the end of 1994, the start-up had won an amazing tenth position among Britain's life insurers. Visions are no use unless they likewise embody effective strategies and lead to efficient execution. Churchill's task was to exploit the strong sales foundation laid by the parent National Westminster Bank in many years of insurance broking. This also supplied a massive database, from which the fledgling company discovered an unsurprising fact: a dozen of the 60 insurance products offered by the Bank accounted for over 90% of sales. NatWest Life could therefore start up with a streamlined roster of products known to appeal to the customer.

In modern business, that's the starting point for most vision statements, whether or not the company concerned is practising TQM. The aim's the same: to satisfy or, far better, delight the customer. The highly successful American retail group, Nordstrom, consequently enjoins its people to 'Respond to Unreasonable Customer Requests.' If the request is unreasonable, the customer doesn't fully expect it to be met - and doing more than the customer expects is the key to delight: at Nordstrom, that could even mean changing a customer's flat tyre in the car park.

Delight in turn is the key to customer retention, or loyalty. The delighted customer who thinks your service excellent is six times more likely than the merely satisfied customer, according to research by Xerox, to buy from you again. That's why Rank Xerox's quality aims lead off with 'Be number 1 in Customer Satisfaction in reprographics and printing and make significant progress towards the goal of 100% satisfaction.' It's also why NatWest Life affirms in its vision statement that 'Our customers are the focus of everything we do' and adds that 'We value our customers, and will':

• enable them to achieve a more secure future for themselves and their dependants
• build lasting relationships with them
• deliver outstanding service and heed their feedback
• provide simple, easy to understand products and above-average investment returns.

That's all stirring and excellent stuff. But you won't find much different in other life insurance companies that have composed vision statements, and before long you won't find many such companies that haven't. Anybody can write fine words, though. The question isn't even whether top management (as at NatWest Life) has agreed to and underwritten every word. It isn't even an issue of whether an executive team like Churchill's, seven strong in all, is 'living the vision' or 'walking the talk'. The crunch question is whether everybody in the company is equally enthused with the vision - and, above all, with turning it into action.

One NatWest executive, rcruited from the parent bank, plainly felt that this had been achieved. 'I was sold by the passion for living the vision - it doesn't give anyone else the chance not to believe. I've never seen anything like this before in the bank.' This kind of indoctrination doesn't come easily. Churchill isn't exaggerating when he says that 'the 15-month timetable was colossal.' That would have been true even if the launch had gone unbelievably smoothly. In the last five launch months, however, managers were 'up to our armpit in alligators.' Yet, crucially, top managers kept 10% of their time free for the vision and the culture.

Getting right the 'hard' things, like insurance technicalities, was vital, of course. But the team accepted that the 'soft' beliefs and values were just as critical. Nobody, least of all Churchill, denies that keeping up the quality momentum was 'a strain': it would have been 'easier to stop. But I'm very glad that we didn't.' Like a great sports team, the vision-driven company can't halt the drive without losing both impetus and vision. The evidence that they've been preserved lies in the arena: 'The behaviour of staff tells you whether the vision is living or not.'

We saw one piece of behaviour that told a great deal. As a total quality exercise, a group of new finance department recruits - green employees in a greenfield company - had been asked to look at the accounts payable operation to see if it could be improved. They had come up with a better system, but which offered no savings. So they sent themselves back to the drawing board and came up with a far superior, truly radical idea. Why have an accounts payable function at all?

The reasoning was that all invoices are preceded by a purchasing order. Why not rebuild the system round the orders? Then as soon as correct delivery was confirmed, the system would automatically issue the cheque. We were doubly impressed. First, this young, inexperienced team had, completely independently, reached the same conclusion as seasoned managers at Ford Motor in the US. Second, they had been trusted to review, not some minor detail of administration, but a major area of corporate concern. The vision was being lived - and empowerers and empowered alike were quite visibly tickled pink.

The similar reform at Ford was part of changes that over the Eighties, according to Goss, Pascale and Athos (Harvard Business Review, November-December 1993), created 'an entirely different company' - or so Ford's employees say. 'Ford had left behind its past as a rigidly hierarchical company driven by financial considerations to pursue a future in which a concern for quality and new products became the overriding priority.' A new and radically different vision, in other words, can 'reinvent' a company so powerfully that it can come near to the greenfield standards of a Nissan UK or a NatWest Life.

But there's a catch. As the three authors continue, 'unfortunately the company's leaders at the time were not similarly reinvented, as their failure to invest sufficiently in the core business revealed. Sustaining the company's momentum in the 1990s, therefore, has become a challenging task.' In fact, Ford's performance in Europe slipped back badly into losses: in contrast, General Motors' business flourished, even though Ford's American operations were showing GM a clean pair of heels. The total quality ethos is right: you can never afford to let up, anywhere, anyhow, or for any length of time.

That's why all the successful TQM efforts we visited were distinguished, not by the words in the statements, but by the personal commitment of the leaders to the vision. Their styles differed markedly: but men as disparate as Churchill, Sir Iain Vallance of British Telecom, Dennis Kennedy of Honeywell UK and Bernard Fournier of Rank Xerox share the ability to keep their sights on the long-range vision while mastering the detailed work that alone turns vision into action. Measurement, meetings, training, tools, techniques, etc. make the total quality life total indeed.

The sporting analogy is obvious. The vision is lofty and inspiring and long-range - like making the final of a Rugby World Cup years ahead, or winning gold at the next Olympics but two. But achieving the vision rests on long hours of arduous training and practice, on the effort to achieve continuous improvement, of surviving challenge and difficulty, of being prepared to endure and respond to criticism. That doesn't sound much fun: but neither does losing. Strong vision statements are about winning - about becoming and staying Number One: which, significantly, Honeywell was, in nearly all its markets, when Kennedy launched his total quality drive - with the object of staying on top.

In other words, the vision has to be focused on results: not just any results, but those which will take this particular company forward into a better and brighter future. Many vision statements fall at this hurdle. They are interchangeable, not only between companies in the same industry, but between industries. We have even come across major companies whose vision statements were entrusted to their public relations advisers. The ideal vision should be short, sharp, to the point - something (like fast food chain Taco Bell's 'to be Number One in share of stomach') that everybody in the business can grasp.

Moreover, the object of the vision is to set the scene for changes in behaviour that will achieve the mission. At NatWest Life, a top insider claims that 'people don't walk away from difficult issues': that 'the flat structure (only three layers, compared to a dozen in the parent bank) means that 'you can cut across more easily from function to function'; that 'jobs are larger - you are empowered, no doubt about it.' People are aware that 'it's very important to correct glitches quickly' and to get rapid answers as to 'whether it's OK to do XYZ.'

All that doesn't make jobs less onerous. On the contrary, people whose jobs have genuinely been enlarged, and who now have total responsibility for a process, instead of only part, may well feel a heavier weight on their shoulders. That was the case in another life company. To the question whether they wanted to return to the previous method of working, however, the answer was an unequivocal No. 'Living the vision' is thus not something confined to managers: indeed, the vision won't be realised unless people right down the organisation feel that they are part of turning dream into reality.

It would be easy to dismiss NatWest Life as a one-off, operating in a special set of circumstances, adopting unusual ideas to confound the critics who thought 'we couldn't do it.' But Churchill goes on to stress that the quality processes which his managers put in place were 'all things they had to have anyway.' All companies have at least some vague, unarticulated idea of purpose and role, and all consist of systems of processes. The total quality companies choose articulation and ambition and they adapt their processes in order to realise their expressed, understood and shared aims.

It isn't an easy option, and it doesn't guarantee victory. Of the dozen TQM companies we studied in depth, two have serious business problems, and a couple more are plainly under-performing by their own standards. Sometimes, failures of ownership contribute to disappointments (for instance, when companies are under obstructive State control): often, leadership is at fault. But the principles of the start-up that started right can't be gainsaid. More: realising visions keeps you in start-up mode all your life.