Post launch investments in continuous quality improvement

Product innovation is increasingly becoming the core strategy of leading firms in many industries.  Innovation strategy can be examined in the context of new product development by focusing on pre-launch product design and development activities carried out by firms. The critical link between innovation investments and product quality is well-established fact. There are persuasive reasons for firms to consider the evolution of quality in their product-process innovation decisions since profitability of firms depends on the development and successful launch of new products that have superior quality than the competitors' products. Boeing, BMW, and Mercedes-Benz, are examples of firms that use product quality as their key metric for success in new product development projects. Where competition is primarily based on quality, it is important to consider aspects of product innovation as an integral part of product management. Thus, firms must make strategic investments in innovation to remain competitive.

While quality of a new product is critical for competitive success, competition in today's market is not only influenced by investments in product design before launch but also by continuous product improvements carried out by the firm post launch. Investments in continuous quality improvement practices and programs aimed at improving such discernible aspects of product quality as feature, fit and finish; improving conformance quality, reliability; and in developing a "quality culture" in the organization to attain superior customer satisfaction, all contribute to sustaining competitive advantage throughout the product life-cycle. The elements of basic concurrent engineering, enhanced quality function deployment and quality engineering using robust design help firms to practice more effective information processing that provides strong responsiveness to the voice of the customer and helps ensure the viability of the core concepts, the robustness of functional quality, the precision of production, the success of integration, and effective reusability.  Managerial programs and practices underlying continuous quality improvement, such as product-process innovation, total quality management, six sigma etc., are some of the most significant managerial innovations of the last 20 years.

Competing on quality requires a clear understanding of how to manage investments in continuous quality improvements in the long-run. An examination of investments that firms make in continuous quality improvement practices and programs post product launch is essential for effective product management that extends throughout the product life cycle. In general, post launch competing firms can influence quality of their new products by investing in the following:

(i) product-process innovation and quality management initiatives such as people management (work attitudes, training and employee relations)
(ii) process management (use of statistical process control, control charts and standardization of process instructions given to personnel)
(iii) product design and management (emphasis on shop floor experience and marketing experience for the design team, use of design and error-proofing techniques, use of quality function deployment (QFD) techniques and interdisciplinary approach to product design)
(iv) quality data analysis (analysis, evaluation and reporting of quality data)
(v) supplier quality management (quality management as well as other relational practices associated with the suppliers)
(vi) customer focus (by emphasizing on customer commitment).

The results of an analytical study that I am current working on provide the following guidelines for post launch investment planning:

(1) A firm must invest aggressively during the introduction stage of the product life cycle and then gradually decrease the investments over time as the product passes through growth and maturity stages. Once the product is introduced into the market, the product's successful diffusion is critical. The results of the study suggest that aggressive investment in continuous quality improvement of the product must be pursued during the introduction stage of a product's life cycle. Firms must allocate adequate funds for improving product quality post launch. Refinements in product design and processes reinforce increasesin scale economies by enlarging the amount of product variety that a given technology can support.  Continuous quality improvement requires stability of product design and sources of materials that support directed technological progress, engineering improvements, market refinements and continuing process development.  It is important to establish a system that enables volume production and scale economies, which lowers costs and improves products.  Moreover, the investments in products and processes must be made taking into account the potential interactions between products and processes.

The investments are aimed at improving product quality. While the rate of product quality improvements decrease over time, by ensuring that the product quality is higher relative to the competitor'sproduct, the sales rate increases over time. Thus the difference between a firm's sales vis-a-vis the competitor's sales keeps increasing. Managers must take into account the long-run implication of this sales differential. A myopic view of the firm's profits relative to that of the competitor might suggest that a firm must contain its costs by reducing investments. However, such a strategy will miss the potential rise in instantaneous profits during the later stages of product life cycle.

(2) Firms must strive to achieve comparative advantage over their competitors in terms of resource productivity and/or capital investments in technology. The results of the study suggests that having an advantage in terms of resource productivity or capital investment can be translated into higher product quality, sales and profits. Thus, the real competition between firms is in attaining relative advantage in resource productivity and/or in having higher capital investment in technology.

Resource productivity can be enhanced by means of improvement of processes. Techniques and practices such as employee training, six sigma, concurrent engineering etc. enable translation of investmentsin continuous quality improvement into improved product quality, higher sales and higher profits. Improving product quality by means of continuous quality improvement invariably involves new skills.  Therefore, it is essential to develop greater depth of job knowledge and greater breadth of task expertise.  Continuous learning environment must be created so that employees are able to work in a team, are well-equipped to handle new technologies, and if required are cross-trained to handle responsibilities of other team members. Mechanisms for skill variety, task identity, task significance, autonomy, and feedback, should be developed to boost employee motivation.

The coordination and streamlining effects of process management techniques enhance resource productivity and affect a firm's ability to innovate beyond a set technology trajectory. This is accomplished by undertaking improvements by means of controlled experiments that involve repetition ofpractices and measurement prior to making small testable changes. These initial small testable changes over time become standardized best practices that augment resource productivity.  

Capital investment in technology also enable competitive success. Technologies such as product lifecycle management (PLM) and web-based communication technologies help users to share information ina secure, real-time environment to increase collaboration among all participants involved in a produ
ct's design, manufacture, use and support. Technologies that help to organize product data, generate product metrics, and establish a shared bill of material as a central framework for coordinated communicationand design activities, enable to extract full potential of investment in continuous quality improvement ofthe product. Investment in technologies that allow non-technical personnel to configure, design, documentand cost complex products without technical assistance also enhance the comparative advantage of competing firms.  A coordinated development of resource productivity and capital investment with higher emphasis on creation of inimitable capabilities is advisable for long-term sustained competitive advantage.

(3) When a firm has an inherent competitive advantage (based on some inimitable resource productivityor based on technology investments), it cannot merely match the investment intensity of its competitor. It must aggressively exploit that competence and turn it into a strategic capability by out-investing its competitor.  Resource advantage can potentially create complacency among organizations. An organization that possesses the advantage in terms of resource productivity of its assets or in terms of availability of technology, might expect these resources to deliver benefits on their own. Several examples of firms investing in technologies and then leaving it unutilized exist. The results of the study suggest that a constancy of purpose is needed such that availability of high resource productivity and technology should be complemented with investments in continuous quality improvement initiatives.

Early proponents of the resource-based view of the firm have argued that firms tend to grow in ways that allow them to exploit organizational resources that have not been fully utilized.  A key insight from this study is that innovation, seemingly an outcome of exploration, could actually be an outcome of a firm’s exploitation of existing knowledge base. An innovation consists of certain know-how – partly codified and partly tacit – which generates profits when complementary assets are utilized appropriately.  This way, prior task experience, organizational routines, best practices and technology investments could generate future innovation that improve the quality of a product post launch. Even if a firm lacks prior task experience in a specific area, it may exploit an existing knowledge base of the corporation through inter-corporate knowledge transfer.  

The results of the study highlight that firms must convert core competence into core capabilities by aggressively investing in continuous quality improvement. It is important to recognize that the asymmetries in firm resources can be very short lived. Thus, when a firm possesses an advantage in terms of these resources,the resources need to be fully utilized and converted into core capabilities. Sustainable competitive advantage is attained when a firm implements a distinct and aggressive strategy and when owing to resource differentials, other firms are unable to duplicate the benefits of this strategy.Thus, a firm aiming for sustained competitive advantage views not only its current competition to devise a strategic intent, but also potential competitors poised to enter at a later time period. An aggressive pursuit of utilizing the current resource advantage and converting them into core capability, core product and high quality end product are the means to attain sustainable competitive advantage over an extended time frame.

*Working paper