DejaNews or Starbucks?

“Entrepreneurs are dreamers that do.”
-Malcolm Baldridge

In the late ’90s, I had the pleasure of working for an Internet start-up called DejaNews.com, later Deja.com. This was a wonderful time for technology people—the industry was awash in venture capital money, new companies were being formed daily, and opportunities for rapid professional and financial growth were everywhere. Every week stock-optioned entrepreneurs became instant millionaires. The NASDAQ composite average went from around 2,000 in early 1999 to over 5,000 in the first quarter of 2000. Unfortunately, it was back down to around 2,000 (and plummeting fast!) by the first quarter of 2001.

While there were many reasons for the technology bust, the inescapable facts are that much of this new technology had quality problems. It just didn’t work very well. Our DejaNews Web site—which was quite large, with more than 250 dual-processor Linux servers managing some 7.5 terabytes of magnetic storage—routinely experienced software outages and hardware failures. Yet our venture-capitalist board and youthful senior management were not concerned with quality: it was all about being first-to-market with an innovative product. I’ll never forget the day our CEO explained to me (as the guy in charge of Technical Operations who had something of a bone to pick with the software developers who installed untested code on our production Web site on an hourly basis) that “the whole Internet is buggy and people don’t really expect it to work right all the time”. Say what??!!!

Fulfill the Promise
A few weeks ago, my colleague Steve Williams wrote a compelling article on the topic of Innovation (see Can Banks be Innovators?, GonzoBanker, May 27, 2005). His premise is that banks exist in a hyper-commoditized industry and we must innovate to be successful. You’ll get no argument here! Innovation is the spark required to kindle the flames of success. But once you’ve innovated, you must also execute. I’m a regular at my neighborhood Starbucks, and I have never yet found them to be out of fresh decaffeinated coffee when I didn’t also get my coffee for free that morning—their idea, not mine, because I wouldn’t mind waiting an extra few minutes to get what I want. In a previous job, I used FedEx several times every week. I never, ever, had them fail to deliver at the right time and to the proper address as long as I met their drop-off deadline and got the address right. I pay a premium for my Starbucks, and FedEx is not the least-expensive overnight delivery service. Why do people pay extra for these products?

It’s an unfortunate truism that the best technology doesn’t always win the battle for dominance and long-term survival. Continued success in business is as much about fulfilling the promise of innovation as it is about having ground-breaking products or services. Old-timers in the banking industry will remember the Burroughs vs. IBM battles of the ’70s and ’80’s. Burroughs had more innovative technology: advances such as the ability to drive a check sorter in a multi-tasking environment (enabled by one of the first implementations of an interruptible operating system, something an IBM 360 couldn’t do) and demonstrably lower Total Cost of Ownership (due to its easy-to-use MCP operating system and programming languages that didn’t require something called JCL). Yet Burroughs’ successor in the marketplace is, today, virtually a niche player when it comes to hardware platforms, while a preponderance of the banking activity in the world is powered by IBM’s zSeries legacy machines, IBM’s iSeries (AS/400) machines, and IBM’s pSeries AIX (Unix) machines. What happened?

To Be or Not To Be
Several months ago, the trade press carried a story about a small credit union in Ohio that became the first financial institution in the nation to receive ISO 9001:2000 certification. ISO (International Organization for Standardization) is an international network of standards institutes focused on quality management. Quoted in the Feb. 7, 2005, Credit Union Journal, Great Lakes Credit Union CEO David Seeger said, “In the book of good to great, we’re a good company. We would like to be a great one.”

HOORAY for David! Quality does matter. In a hyper-commoditized industry, organizations that dare to innovate are on the right path—but innovation alone isn’t enough. Fred Smith at Federal Express had an innovative idea—but he backed it up with a steely-eyed commitment to timely and accurate delivery that is legendary. Starbucks took a commodity product available at any diner for pocket change and added a passion for product excellence to innovative marketing. At my local Starbucks, people are lined up 10 or 12 deep at 7 AM for the privilege of paying three or four dollars for a venti half-caf non-fat latte without foam. In the case of Burroughs vs. IBM, Burroughs never really got its arms around quality the way IBM did, so even though it had highly innovative features, customers continued to drift away because the reliability just wasn’t there. (I believe that Burroughs’ successor may have solved its quality issue, but the organization is a shadow of its former self and certainly doesn’t challenge IBM very often.)

Meeting the Challenge
Maintaining quality is a challenge. Employees committed to excellence still make mistakes. Priorities—from customers or from management—can be communicated poorly, or expectations misunderstood. Some organizations become too successful too quickly and can’t maintain quality as they grow. Others measure “adequate” quality only by the local competition.

So what is management to do? Interestingly, there is a body of knowledge that can help achieve good quality. Formal quality initiatives can easily degrade into an exercise in paperwork and aren’t right for everyone, but most organizations committed to operational excellence find that the essentials of quality management include the following concepts:

1. Quality is defined by the customer.
2. Quality comes from improving an entire process.
3. Consistency is a must. This requires measuring, understanding the causes of, and then managing the variation in every process.
4. Top management’s commitment to quality comes first. Then all levels of management must provide adequate resources; exhortations to “do better” don’t work, while leadership by example does.
5. Continuous and all-encompassing product quality improvement must involve every member of an organization.
6. Training and education is a prerequisite for the ongoing analysis that leads to continuous quality improvement.
7. Most employees will take pride in their work and will strive for improvement. It is management’s responsibility to provide an environment that demands excellence, and to deal appropriately with individuals not in synch with that environment.

GonzoBankers, there’s a wealth of information available—a Google search on the words “quality program” yielded about 25.4 million responses in .21 seconds. Some are not well-suited for a service industry such as banking, and many are a blend of art and science (they have to be implemented giving due consideration to the unique aspects of banking). We’re not here to advocate for any particular quality program, but we are here to ask banks to stop and think about what they are doing to proactively establish and maintain high quality throughout the organization. The Malcolm Baldridge Quality Award evaluates prospective award winners using the seven general categories listed below. These categories provide a good framework for self-analysis:

1. Leadership – How senior executives guide the company and how the company addresses its responsibilities to the public and practices good citizenship
2. Strategic Planning – How the company sets strategic directions and how it determines key action plans
3. Customer and Market Focus – How the company determines requirements and expectations of customers and markets
4. Measurement, Analysis, and Knowledge Management – Examines the management, effective use, and analysis of data and information to support key company processes and the company’s performance management system
5. Human Resource Focus – Examines how the company enables its workforce to develop its full potential and how the workforce is aligned with the company’s objectives
6. Process Management – Examines aspects of how key production/delivery and support processes are designed, managed, and improved
7. Business Results – Examines the company’s performance and improvement in its key business areas, such as:
   
   
   • Customer satisfaction
   • Financial and marketplace performance (e.g. better stock-price performance, gains in market share, and customer retention and satisfaction)
   • Human resources (such as turnover ratio and employee job satisfaction)
   • Supplier and partner performance
   • Operational performance

Taking Action
What are some practical steps bankers can take to improve quality and, more importantly, establish an environment that fosters continuous quality improvement?

• Change the mentality from “If it ain’t broke, don’t fix it” to “If it ain’t broke, you’re not looking hard enough.”
• Make quality the responsibility of every individual—it is a team effort, not an individual effort.
• Use benchmarking to compare the bank’s processes to best practices in the industry.
• Establish ongoing measurements (Service Level Agreements, internal performance metrics, benchmarks, etc.) to continually monitor and improve the quality of the bank’s operational processes.

The end of my DejaNews story is that Deja.com was acquired by Google in 2001. The huge and unique newsgroup archives we created and maintained exist to this day (entering DejaNews.com or Deja.com leads straight to Google Groups) but DejaNews corporately is long gone.

FedEx, the first service company to win the Malcolm Baldrige National Quality Award in 1990, is on Fortune magazine’s list of the “100 Best Companies to Work For.” Starbucks makes quality a priority and is also on Fortune’s 2005 list of the “100 Best Companies to Work For”. IBM’s quality awards are too numerous to mention.

I predict that Great Lakes Credit Union will succeed in its quest to be great, not just good. What are you doing to ensure quality? Do you want your bank to wind up like DejaNews or like Starbucks?
-bm