This integration also shows you how to build the foundation for a new kind of organization – a learning organization, where front-line people work in self-managed groups, managers develop their research skills and take on the role of theory-builders, and leaders become more like philosophers who inspire the human spirit. At the core of any learning organization lie learning systems and processes firmly rooted in the two disciplines of TQC and systems thinking. Read this volume in our “Innovations in Management Series” to see how – together – these disciplines provide a powerful method for change.

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This volume explores these questions and introduces the principles and practice of a quietly growing field: systems thinking. With roots in disciplines as varied as biology, cybernetics, and ecology, systems thinking provides a way of looking at how the world works that differs markedly from the traditional reductionistic, analytic view. Why is a systemic perspective an important complement to analytic thinking? One reason is that understanding how systems work – and how we play a role in them – lets us function more effectively and proactively within them. The more we understand systemic behavior, the more we can anticipate that behavior and work with systems (rather than being controlled by them) to shape the quality of our lives.

It’s been said that systems thinking is one of the key management competencies for the 21st century. As our world becomes ever more tightly interwoven globally and as the pace of change continues to increase, we will all need to become increasingly “system-wise.” This volume gives you the language and tools you need to start applying systems thinking principles and practices in your own organization.

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One set of loops that can help us better understand the basic interactions between a company and its marketplace is the supply/demand structure. Most everyone is familiar with the basic law of supply and demand: if demand rises, price tends to go up (all else remaining the same), and conversely, as supply goes down, price tends to go up (again, all else remaining equal). From a systems thinking perspective, this dynamic can be simply described by two coupled balancing loops that attempt to stabilize around a particular variable—in this case, price.

Supply and Demand: A Generic View

If we look at the supply/demand structure from a more generic perspective, we can use it to describe any situation in which an ability to supply a good or service is being balanced with the demand, utilization, or consumption of that product or service. This structure acts like a see-saw, with supply on one side, demand on the other, and some pivot point in the middle (such as quality, price, availability, or service) that links the consumer actions and the company’s decisions (see “Balancing Loops with Delays: Teeter-Tottering on See-Saws,” June/July 1990). The central variable serves as the “adjusting variable” because it is the signal that causes players on both sides of the see-saw to adjust the imbalance between supply and demand (see “Generic Structure”). These dynamics can occur between the company and the market-place or within an organization, where an internal function or unit (such as training or l.S.) is supplying services to other parts of the company.

For example, in the medical industry, one common adjusting process revolves around waiting time to get an appointment with a physician. On the demand side, if the wait time to see a particular physician becomes too long, patients might either try to find another provider, put off receiving care (in the hopes that the problem will “take care of itself”), or, if the problem is serious enough, go to the emergency room. If enough patients find alternate solutions, this leads to a decline in the physician’s utilization rate, which then eases the pressure on the physician’s schedule so that the wait time is reduced (B1 in “Medical Supply/Demand,” page 8). Physicians, for their part, might try to reduce the wait time for care by processing patients faster, adding physicians to their practice, or asking ancillary staff (such as nurse practitioners) to play a more significant role in patient care. All of these actions would increase the patient capacity and reduce the wait (B2).

What is important to note is that both balancing actions are usually happening simultaneously—that is, at the same time that the physicians are looking for ways to ease the patient bottle-neck, the patients are already taking action to relieve that pressure by seeking alternate providers or finding other ways to take care of themselves. Because demand is falling at the same time that capacity is rising, these actions will create another imbalance this time, with more available capacity for seeing patients than the actual demand for appointments. When this occurs, both parties will once again take action to close the gap (patients will return to their original provider because of the reduced wait time, while the physician’s practice might ease scheduling pressure) and the see-saw invariably tips in the other direction.

Seeking a Balance

This same see-saw structure of balancing capacity and demand shows up in a variety of contexts, such as service quality (hospitals, banks, car-rental shops, fast-food restaurants, I.S., training) or product availability (retail stores, specialty products, manufacturers).

Of course, most companies would like to find a way to strike exactly the right balance between the demand in the marketplace and their ability to service that demand. Unfortunately, that rarely happens. As the medical example shows, what is more likely is a pattern of oscillation as the two sides overshoot each other, adjust, and overshoot again.

In part, this behavior occurs because of several significant delays in the system: customer perception delay, company perception delay, and capacity addition delay.

• Customer Perception. It takes time for word to get around that a company cannot provide a particular product or service (this signal usually comes in the form pf rising prices, lengthening delivery delays, or declining quality). It also takes time for people to alter their usage or consumption patterns. Similarly, once a company has added capacity, it takes time for that signal to make it into the marketplace and draw customers back.
• Company Perception. Just as it takes time for customers to realize that a company can no longer meet their needs, it takes time for the company to recognize that demand for its product or service is declining. This delay is often exacerbated because companies do not act upon the information immediately, believing that the drop off in demand is either temporary or due to factors other than capacity shortfall.
• Capacity Additions. Once the company has recognized the imbalance between the marketplace demand and its ability to meet that demand, there is a further delay while the company adds the needed capacity. The length of this delay depends on the nature of the capacity being added—for example, it takes a lot longer to add capital equipment than to increase customer service representatives or improve a process.

Using the Structure

The generic supply/demand causal loop structure provides a useful starting point for exploring how internal actions and marketplace decisions are intertwined. To see how the structure can be applied to a specific problem, let’s take a look at the example of ZSearch, a research company that specializes in tracking down research articles in the biochemical industry. ZSearch had built its reputation on the quality and timeliness of its response to its customers’ inquiries. However, the company’s managers have become concerned about two recent trends: customer surveys have ranked the company below its competitors in terms of customer service, and they have noticed a drop-off in the overall number of research requests per day.

1. Define the Variables. To begin mapping out the system, first define the different parts of the see-saw: what is being “supplied,” what is being “demanded,” and what is the fulcrum around which the imbalances between the two are resolved.

In ZSearch’s case, the “supply” would be the number of customer service representatives, the “demand” would be the number of requests from customers, and the “fulcrum” would be the wait time for service. If the number of requests coming in outstrips the available capacity, an imbalance appears in the system. Customers who are stuck on the phone waiting for a customer service rep might be inclined to hang up and call one of ZSearch’s competitors, thus decreasing the wait time for service (B1 in “ZSearch’s Balancing Act”). On the other side of the see-saw, once ZSearch gets the signal that it needs more capacity, it can respond by increasing the number of service reps or raking other actions that would likewise decrease wait time (B2).

2. Identify Delays. Once you have identified the fundamental balancing loops, it is important to identify and quantify the relevant delays. In ZSearch’s case, the customer perception delay may be fairly short—it doesn’t take lung for customers to get a busy signal, put down the phone, and call a competitor (although it does take time to establish new supplier relationships).

On ZSearch’s side, there might be a long perceptual delay before ZSearch identifies the source of the drop-off in call volume and how to respond to it. At this point, it would be easy for them to blame external forces, such as aggressive competitors, rather think examining how their own policies might be contributing to the decline. However, ZSearch’s managers felt that the problem might stem from a shortage of trained service reps. They knew they could case this burden in the short term by increasing the work hours of their current staff, though they acknowledged that it would take several months to hire and train the new reps.

3. Design Interventions. When considering any potential solution, it is important Lu evaluate the action in terms of both its internal consequences and its impact on the marketplace. In particular, look for ways you can more directly influence the customers’ behavior (the demand loop), rather than simply reacting after-the-fact (the supply loop).

At first, ZSearch’s managers were at a loss as to how they could have any direct influence on their customer’s decision to hang up and call a competitor. But after some thought, they came up with with a program that they called the “superior customer service guarantee.” They promised that any customer who waited longer than 60 seconds for an available representative would receive a 40% discount on the order. It was a costly gamble, but it paid off—the guarantee not only boosted ZSearch’s reputation in the field, bur on three occasions that the demand outstripped capacity, customers were willing to wait the extra time (to get the discount) and ZSearch retained the sale.

More importantly, ZSearch received timely, valuable feedback about their response time without risking losing customers. Knowing that they now had a strong system in place for tracking their call volume and service turnaround (the demand side of the diagram), they could focus their attention on the supply side of the diagram—finding ways to keep their staffing up to optimal levels.

Larger Implications

Many organizational “crises”—poor sales, quality problems, slipping delivery times–can be traced back to the mismatch between supply and demand and how this disequilibrium is corrected. Within organizations, this plays out in pressures to outsource in order to improve service or reduce costs. But it also occurs in whole industries, as poor service or high prices attract new competitors and innovators to the industry. This is the very mechanism by which customers see quality rise as prices decline over rime in an industry.

Michael Goodman is vice president of Innovation Associates, Inc. (Waltham MA) and heads IA’s Systems Thinking Group.

Colleen Lannon Is co-founder of Pegasus Communications and managing editor of The Systems Thinker•.

Balancing Act

If the number of incoming requests outstrips capacity, an imbalance appears. This imbalance can be resolved in one of two ways: (1) customer calls drop off due to the long wait (B1); or (2) customer service reps are added in order to reduce the time it takes to process requests (B2).

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In fact, such an event did occur in Sweden in 1992, when the OK Petroleum company successfully lobbied for an increase in the country’s tax on leaded gasoline. This surprising action stemmed from OK’s development of a high-octane (98) lead-free automobile fuel, which burned cleaner than other fuels while still maintaining high performance. The Swedish government agreed to the tax because it was in alignment with its own clean air policies and with international conventions that it supported. Since OK had the only lead-free product on the market, the gas tax gave the company a significant price advantage at the pumps. “The competition was forced to follow suit,” explained OK’s Per Wadstein, leading to cleaner air for all of Sweden.

Economy vs. Ecology

Economy and ecology arc often pitted against each other in the “profitability versus environment” debate. There is a perception that companies can either prosper financially or take care of the earth, but not both. However, as OK Petroleum showed, these pursuits do not have to be mutually exclusive. In fact, ecology and economy derive from the same Greek root, eco, meaning house. (Ecoloqy stands for “study of the house,” and economy means “management of the house.”) This etymology suggests that the two concepts are not contradictory, but actually part of the same larger idea. I low, then, can we study and manage our “house” (the earth) in ways that benefit both industry and society over the long term?

The “Systems ‘Thinking for a Sustainable Future” initiative, based at the MIT Center for Organizational Learning, provides a set of principles, practices, and processes that recognize and reinforce the synergistic link between long-term economic and ecological development. It seeks to provide industrial decision-makers with both a conceptual, framework stud practical tools for building financially healthy companies that arc also ecologically sustainable. In addition, the initiative attempts to foster learning environments in which various stakeholders can grapple with the larger issues of the day. The hope is that within these settings, the participants will create presently unimaginable solutions to some of the world’s most intractable problems.

Sustainabillty

What do we mean by “sustainable”? A sustainable society is one that is self-perpetuating over the long term—meaning that it uses resources at a rare that does not exceed the rare at which they can be replenished, and that it produces waste materials at a pace that does not exceed the rare at which they can be reabsorbed by the environment. Within this framework, a sustainable organization can be described as a company that provides customers with goods and services for living a satisfying life, while maintaining both a healthy balance sheet and a healthy balance with the natural world.

Creating environmentally sustain-able business practices used to be considered a choice for businesses—an optional activity for those companies that had the time, energy, and interest. But now it is becoming a more mainstream concern, due to several trends:

• The marketplace is demanding “greener” products that reflect environmentally responsible management. Supermarket aisles are filled with products that proclaim their eco-friendliness—from phosphate-free detergent and acid-free paper to recycled cardboard and “dolphin-safe” tuna.
• Material resources are becoming more scarce, resulting in a rise in production costs in many industries. For example, integrated steel producers virtually disappeared in the U.S. during the 1980s because the costs of mining iron ore grew financially prohibitive as the availability of that resource decreased.
• Regulatory compliance is becoming an increasingly costly concern. One petroleum company’s environmental compliance costs topped $1 billion in 1994—a figure that exceeded the company’s net profit for the year.

How can business managers think systemically about a sustainable future? How can they balance needs for economic prosperity and ecological survival? To address these challenges, companies need to expand their current strategic thinking to include economic and ecological concerns—creating what W. Edward Stead and Jean Garner Stead call “sustainability strategies.”

A Conceptual Framework

The Natural Step movement. which originated in Sweden, offers clear conceptual framework for creating such sustainability strategies. Lei Dr. Karl-Henrik Robert. The Natural Step has proven to be one the most effective sustainability movements in the world, aligning diverse social business and ecological interests around fundamental scientific principles of natural systems. The Natural step process has been studies: and practiced by corporate managers, urban community members, youth at risk, and schoolchildren; it has been shared via books, audiotape, board game, or CD-ROM with every household in Sweden. It is an approach that does not blame any one sector of society for our current problems, but rather encourages all of us to find ways to contribute CO effective solutions.

The guiding principles of The Natural Step, known as the “four systems conditions,” are derived from the basic hews of thermodynamics: matter cannot disappear, and matter tends to dispense (see “The Four Systems Conditions”). By using the four systems conditions to evaluate whether their products and services are economically and ecologically sustainable, some of Sweden’s largest corporations have produced significant changes in their business strategies.

For example, the ICA supermarket chain in Sweden was asked frequently by its customers whether its refrigerators and freezers emitted CFCs, which are linked to ozone layer damage. After familiarizing themselves with the four systems conditions, ICA’s leadership engaged in a conversation with Electrolux (Eureka in the U.S.), their primary vendor of refrigeration products. Aware that CFCs, a non-biodegradable, unnatural compound, violated systems condition 2, ICA’s leaders asked Electrolux what it would cost to eliminate this compound from their existing inventory. After some technical hedging, Electrolux designers answered that it would take 1 billion Swedish crowns (approximately $140 million) to convert to soft freons—another persistent and unnatural compound, but one that is thought to be less damaging than CFCs. The CEO’s response was, “You want me to invest 1 billion crowns in a product, of which the only thing I know for sure is that it is doomed to failure?! Please come up with a more suitable alternative.”

Electrolux, which had not previously encountered The Natural Step, subsequently phoned Dr. Robert and asked him to come “talk about your damned systems conditions.” A short time later, the Electrolux team announced the development of an interim compound that does not harm the ozone and that is now successfully being manufactured and marketed as a “green” refrigerant. The company is also well on its way to producing a refrigerant that is biologically harmless. As a result of its work with Dr. Robert and his colleagues, Electrolux has begun employing The Natural Step method throughout the company, and is now using the four systems conditions as a framework for its strategic planning process.

Integrating Sustainability Strategies and Organizational Learning

While the four systems conditions offer a basic conceptual framework for creating sustainable business strategies, they do not provide a specific process whereby those principles can be used to develop and implement such strategies. This is where the disciplines and tools of organizational learning can help. For example, the tools and methodology of systems thinking provide a means to test the long-term implications of policy decisions on the wider environmental system.

Systems thinking can also provide an overarching framework for understanding the industrial, governmental, and environmental interactions that play a role in sustainable development (see “The Sustainability Challenge”). An overall increase in industrial productivity (such as the U.S. has experienced for most of the 20th century) leads to a reinforcing cycle of economic growth and profitability (R1), but it can also lead to an accumulation of industrial wastes in the environment. In the U.S., this has led to heightened regulatory pressures designed to reduced waste.

At the same time, increased consumer awareness of the environmental impact of production is leading to emerging new market opportunities in terms of “clean” technologies (B3), which, for those companies that invest in them, can lead to profitable alternatives to unsustainable production techniques (R4). However, the subsequent increase in regulatory compliance costs can constrain profits (B2), which can potentially limit industry’s ability to invest in “clean” technologies (R4).

The disciplines of team learning and mental models also have much to offer in that they can help generate more informed, productive conversations. In the ecology/economy debate, dialogue skills of genuine inquiry, deep listening, displaying one’s own line of reasoning, and respect for other view-points are critical, as are the ability to surface our mental models and to inquire into those of other people (see “The Power of Mental Models”). Through the use of dialogue and role-playing, we can gain deeper understanding of diverse points of view and bring out new ideas and solutions that a single point of view might not have produced.

In a recent learning laboratory at a petroleum company, for example, role-reversal, dialogue, and consensus-building tools were used to develop a new framework for environmental leadership. As part of the workshop, employees from the environmental engineering division took turns role-playing the traditional contestants in the environmental debate: “Government Bureaucrats,” “Tree-Hugging Environmentalists,” and “Big Bad Business.” By humorously taking on their worst perceptions of each other, participants were able to see beyond the stereotypes that they had placed on their professional adversaries.

The Sustainability Challenge

Heightened consumer awareness of accumulated industrial wastes has led to heightened regulatory pressures designed to reduce waste. However, the subsequent increase In regulatory compliance costs can constrain profits (B2) which can potentially limit Industry’s Investment in “clean” technologies (R4).

In the dialogue that followed, the engineers gained insights into the motivation, logic, and humanity of the various stakeholders, and were better able to understand the validity and utility of each point of view, even if the perspective challenged their own position. The engineers found that their subsequent meetings with EPA representatives on a difficult Clean Air Act project were significantly enhanced in terms of quality of communications, creativity of thinking, and efficacy of solution generated—all as a result of their experience in the workshop.

Organizational Learning for a Sustainable Future Integrating sustainability strategies and organizational learning—one approach focused on content (where we need to. go) and the other focused on process (how we’ll get there)—may hold unprecedented potential for producing sustainable ecological and economic development. We have termed this synergy Sustainable Organizational Learning (SOL). Although the development of SOL is only in its initial stages, we can imagine a variety of learning practices through which SOL practitioners will work toward long-term economic and ecological sustainability:

• Aligning industrial cycles and natural systems. Conversations around strategy and future planning will include the question, “What business activities should we engage in that will be aligned with the systems conditions for sustainability?” The answers to this question will strongly influence investment decisions with respect to new products and services. In this way, SOL practitioners will begin to align their company’s industrial cycles with natural systems.
• Building cross-company consortiums. By building consortiums of companies engaged in a similar inquiry, sustainable learning organizations will participate in company-to-company conversations that will enable them to learn from each other’s challenges and successes in the pursuit of sustainability strategies.
• Engaging in ongoing practice. By studying and practicing the disciplines of SOL, practitioners will foster new learning in themselves, their compa

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But the importance of service quality is not limited to service industries like banking, insurance, or package delivery. As the global environment grows fiercer every day, manufacturing companies are realizing the importance of focusing on the quality of their services, not just their products.

“You can’t touch or feel a service, nor can you inspect it after the service is completed. At the point of ‘delivery,’ everything that is needed to provide the service must converge in order to provide the customer with high quality.”

“Moments of Truth”

Improving service quality promises a myriad of benefits. It costs far less to keep a customer than to win a new one, for example, and perceived high-quality service firms can often charge up to 10% more for their products than competitors. The question is how to do it.

In the rush to reap the benefits of improving service quality, companies may be too quick to borrow from past experience in manufacturing. But there are important differences that make improving service quality much more elusive.

One obvious difference between products and services is that one is tangible while the other is not. You can’t touch or feel a service, nor can you inspect it after the service is completed. At the point of “delivery,” everything that is needed to provide the service must converge in order to provide the customer with high quality. Each of those interactions are the “moments of truth” which determine whether you are seen as a high-quality service operation or not, according to Jan Carlzon in his highly-acclaimed book, Moments of Truth.

Quality, as seen by the customer, is determined by each moment-of-truth encounter with frontline personnel. The net benefit of millions of dollars worth of capital equipment, buildings, salaries, etc. that a company has assembled will be judged, in large measure, by the quality of those interactions. Those moments of truth are numerous, ephemeral and difficult, if not impossible, to measure. And yet, the long-term reputation and success of a service company is largely riding on them. This suggests that many companies are investing far too little in their front-line personnel. How many moments of truth are actually “moments of despair” for their customers?

Just-in-Time vs. Just-in-Case

For some companies, providing high quality service means creating a just-in-time (JIT) operation, where all the necessary ingredients converge at the point of delivery exactly when it is needed. In a JIT production system, inventories are kept to a minimum throughout the factory by making sure there is just enough inventory at each step of the process to supply the next batch. But it is dangerous to carry the JIT philosophy too far in the service arena.

In manufacturing, the product has already been designed; all that remains is to run the production line as smoothly as possible. Variances in the production line can then be control-charted and maintained. In a service setting, however, front-line personnel have to be ready to produce a service whose design is not fully complete until they interact with the customer. Unlike the manufacturing setting, customers often introduce variances that cannot be controlled in advance. Having adequate capacity online is critical to providing high quality service. In a JIT production system, if the production line goes down, the down-time does not affect the quality of the next product off the line. If there are enough buffer stocks of finished goods, the customer won’t even experience any difference in delivery. If you are under capacity in a service setting, however, there is no way to make it up in real time with “buffered” service time. In addition, it is virtually impossible to “recall” a poorly delivered service. A flight that arrives two hours late and causes people to miss a meeting cannot be changed. A package that is delivered too late for a speech is simply too late. The capacity has to be online and available precisely when the customer requests it. This suggests that, unlike JIT, one may need to plan in terms of Just-in-Case service capacity—that is, service capacity should be weighted more towards peak volume than average volume.

Complexity Line Model

Complexity Line Model

Work can be divided into simple and complex tasks. If the intrinsic needs of the customer is a 50-50 mix, there is a quality gap if any of the quality indicators differs from that mix. For example, Quality Goal assumes a 6040 mix, so a Gap 1 exists.

The Complexity Line Model offers a way of looking at service quality in terms of four different capacity requirements: voice of the customer, the quality goal, working quality standard, and actual quality. In the Complexity Line Model, all service work is viewed either as simple (processing) work or complex (technical) work. In reality, there are many gradations, but for ease of use we will work with the two categories. Simple work means things that can be handled by an entry-level person. Complex work, on the other hand, requires a lot more experience and skill. In general, complex work also requires more time.

Suppose we are managing a customer service call center. Ideally, we should be staffed to match the exact needs of the customer as shown on the Voice of the Customer line (see “Complexity Line Model” diagram). Suppose that the intrinsic needs of the customer calls coming into our center are split 50-50 between simple and complex. That is, on any given day, 50% of the calls are routine. The other 50% are complex and require more understanding about the business.

Gap 1: Understanding the Voice of the Customer. In reality, we never know exactly what the customer needs. The customers themselves may not fully know what they need. The quality goal line represents our current understanding of the customer’s needs. For example, we may be staffed and prepared to handle a call volume that we believe is 60% simple and 40% complex. Gap 1 represents the difference between what the customer actually needs and what we think the customer needs. In this case, 10% of the customers will not receive proper service. Reducing this gap requires an investment in understanding what the voice of the customer is.

Gap 2: Understanding the Voice of the Process. The Working Quality Standard line may be different from the quality goal if the service capacity in place is not sufficient to provide the stated quality goal. In this case, say the people doing the work are capable of handling a call volume where 70% of the work is simple, and 30% is complex. Gap 2 represents our lack of understanding of what our current system is capable of (voice of the process) relative to what we are asking it to do (quality goal). In this case, we fall short of our own goal by another 10%.

Gap 3: Managing Customer-Generated Variance. The Actual Quality line represents the day-to-day moments of truth in which the customer actually experiences our service quality. If we are staffed to meet a 70-30 complexity mix, and the volume of calls stays relatively constant, customers will experience quality at the working quality standard level. Suppose, however, that incoming call volume suddenly jumps by 20%. What will the pressure in the system do to actual quality? The only way to serve a larger number of customers with the same number of people and skill mix is to reassign complex work as simple. The work can then be given to less experienced staff (“I know Joe’s only 2 weeks on the job, but I think he can handle this one”) or we can treat it as simple and spend less time on it (“I don’t think they need to know about all the other options…”).

So now work is handled as if it is 80% simple, 20% complex, which represents the actual quality. Gap 3 represents the daily adjustments that have to be made when customer volume and special requests exceed the capacity established by the working quality standard. Although our working quality standard has not changed, actual quality has grown worse. If this becomes a frequent occurrence, the quality standard can be pulled downward toward actual quality. As the quality standard adjusts to a lower level, actual quality can get pulled down still further the next time the call volume exceeds the already lowered capacity (see “Quality Erosion over Time” diagram).

Drifting Goals Structure

The dynamics of service quality can be captured in a “Drifting Goals” archetype (B1 and B2 in “Managing All the Quality Gaps”). A gap between the quality goal and working quality standard can be closed in one of two ways—lowering the goal (B1) or raising the standard (B2). Lowering the goal is easy and quick; raising the standard takes time and investment (see “Drifting Goals: The Boiled Frog Syndrome,” Toolbox, October 1990).

Focusing on the needs of the customer can help balance the pressure to reduce the quality goal. The voice of the customer increases Gap 1 which increases the pressure to raise the quality goal (B3). In this model, we see that the art of setting quality goals requires balancing the voice of the customer with the voice of the process. In terms of TQM, this means continually trying to identify the intrinsic needs of the customer (voice of the customer) and understand the systems and processes enough (voice of the process) to design them to be in line with those needs.

Managing All the Quality Gaps

Achieving service quality excellence means managing all three gaps to set quality goals that are sensitive to the voice of the customer and the capabilities of the current system.

Maintaining the working quality standard without losing ground requires managing the gap between actual quality and working quality standard. A high-quality operation should have adequate capacity to handle the majority of the variance it encounters and should keep actual quality within a narrow band around the working quality standard. An operation that is out of control would have a wildly-fluctuating and persistent gap.

Managing All the Quality Gaps

Achieving service quality excellence means managing all three gaps simultaneously. Focusing exclusively on the customer and making your quality goals aligned with their needs will reduce Gap 1, but it will only make Gap 2 worse. If you raise the quality goal without investing in the requisite training, personnel and systems, employees will see it as nothing more than banner-waving and go on with business as usual.

If you focus exclusively on reducing Gap 2, however, you may encounter tremendous pressure in the system to close the gap by lowering the goal. The history of the quality standard can often provide compelling evidence that the quality goal is out of line with the “real” system, and lead to “Drifting Goals.” Focusing exclusively on eliminating Gap 3 will create an identical tendency for the standard to float with actual quality.

The customer’s experience of quality is determined by the sum of all three gaps. The challenge for service companies (as well as manufacturing firms with service operations) is to develop the ability to identify and eliminate all three gaps even as the voice of the customer continually changes. It requires investing in service capacity ahead of the current requirements in order to be able to treat each moment of truth with the quality that the customer intrinsically needs or wants. The Complexity Line Model is based on the work of Bob Bergin and Gerri Prusko at Hanover Insurance Co. (Worcester, MA). The author has developed and used a Service Quality Management computer simulator to provide practice fields for managers to understand the complexity line concepts. The software runs only on Macintosh computers. If you wish to acquire a copy, please write to Daniel II. Kim, MIT Organizational Learning Center, MO-294, 1 Amherst St., Cambridge, MA 02139.

Further reading: “Now Quality Means Service Too,” Fortune. Apri122, 1991; Jan Carlzon, Moments of Truth (New York: Harper & Row, 1987).

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