Entrepreneurship as a Function of Quality – Deming and the Development of the Global Emerging Market

Quality as a category is a key factor of competitiveness, determining the success of entrepreneurship in any given society writes Dr. Vladimir Kvint, President of the International Academy of Emerging Markets and a member of the Bretton Woods Committee. In this week’s Deming Files, Dr. Kvint argues that quality is one of the keys to global economic prosperity and looks at how Deming’s teachings applies to the development of the Global Emerging Market.

Global trends such as new information and telecommunication technologies as well as democratization, have led to the fall of many dictatorial regimes, and to the affected societies’ understanding of their place and role in the global world order. The socio-economic processes taking place are immediately and adequately reflected in the economic category of "quality".

By that I mean quality as a category is a key factor of competitiveness, determining the success of entrepreneurship in any given society. Companies may operate successfully only if they are capable of selling their products or services over a long-term period with relative profitability in the local or global markets and competitive environment.

Quality, as a category, is of the utmost importance to the global emerging market because quality reflects the effectiveness and efficiency of a certain socio-economic system, not just of quality tools, methods, and processes used to achieve quality. Indeed, as a rule, the quality of a product or service cannot be narrowed down to its separate components, but relates to the sum-total of the system which produces the quality –including the practices which embody the beliefs of leaders about the best ways to manage.

For example, it was the analysis of the quality category that enabled the author of this paper to predict the disintegration of the Soviet Union years before it happened in December 1991. It was in part through reading Deming’s Out of the Crisis, and understanding the relationship between quality, productivity, and management methods that I became convinced that the socio-economic and management beliefs and practices in the USSR could not sustain efficiency and effectiveness in regard to quality. (Editor's Note: You can hear the author of this article elaborate on this in this podcast interview: Did Poor Quality Lead to the Soviet Union's Demise?)

Command-economy dictatorships are largely incapable of producing high-quality and technologically advanced goods over decades for a variety of reasons, including problems with motivation (a lack of motivation to be precise) and with socio-economic freedoms (which are restricted in command-economy dictatorships).

Those reasons represent a fundamental distinction between command-economy dictatorships and free-market economies. Quality of life (or standard of living) is determined by the availability of quality goods and services appropriate to varying individual preferences and needs. The production of high-quality goods and services requires a high quality of labor. High-quality labor is the result of an effective, intrinsically motivated workforce throughout the process of production. Effective intrinsic motivation (in contrast to commanded or mandated motivation) is self-sustaining over long periods, and helps ensure attentive, thorough, and professional workers year in and year out. They need not be threatened, bribed, nor manipulated.

When intrinsic motivation is damaged or removed from the process of production, the result is low-quality labor, goods, and services, and subsequently, a much lower quality of life. Such conditions destabilize the socio-economic systems and illustrate why quality as a category is so vital to understanding the future of nations as well as companies.

In the Soviet Union in the mid-1970s, the socio-economic conditions strongly indicated the need to impact manufacturing in order to produce the high-quality products. This led to imposed and mandatory standards for quality. However, as was later learned from reading Deming, the method of product quality improvement through mandatory standardization had two vital problems:

1. To provide the highest product quality, it was necessary to establish high standards of specification requirements. However, the specifications were not achievable for the majority of the companies. Not only that, the specifications were not based on customer needs, but on the needs of the government’s central planning. In other words, they were production industry- averaged specifications not desirable voice-of-the-customer ones. The planners in the USSR did not understand the problems with specification-based management and the associated reporting of results.
2. In reality, of course, such requirements could not be fulfilled because technology, engineering, and labor were not up to the challenge. Nor could they be up to the challenge because in a command economy there is little self-determination, and thus there is little human emotional energy/motivation for focusing on product quality improvement. Again, the USSR planners did not understand that conditions of the system in which people work can contribute to –or detract from—improvement and innovation.

Let’s jump ahead to today: it can be observed how the momentum for self-determination and democratization, combined with the power of communication via global IT, have made it practically impossible for the overwhelming majority of dictatorships to resist democratic pressures.

In the nations that have been emerging as players on the world stage, the newly elected leaders have looked abroad for proven methods to create economic growth and to improve the standard of living. This has led to a wave of market-oriented economic reforms and the appearance of the first modern emerging market countries, such as Brazil, Argentina, Malaysia, South Africa, Hungary, Russia, China, and South Korea, among others.

The emergence of up-and-coming market countries is, in turn, leading to a new economic and political phenomenon which is the global emerging market. This phenomenon has many factors which determine its stability as well as its course and speed. For example, in any emerging-market democracy, in order for a political regime to be sustainable, its major strategic concept should include preferences that reflect the basic needs and choices of the public –including affordable quality. As Deming pointed out affordable quality and increasing productivity are two sides of the same coin; that a focus on the sensible ways to improve quality also reduces costs and increases productivity.

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Simply stated: the birth and development of emerging economics and of the global emerging market have strong links to the truths Deming taught about management methods, quality, and productivity. The philosophical and practical links (of emerging nations and the global emerging market) to Deming are not well known. Nevertheless, they are powerful. In fact, having a deeper understanding of what Deming taught about management methods, quality and productivity will in part determine the long-term and sustainable success of nations and the global emerging market.

The general acceptance of democratic values, technological advancements (especially in communication), and international economic integration, have created an unprecedented level of global consciousness regarding human rights, cultural and religious tolerance, environmental protection, and other "quality of life" issues. This is at once both a cause and result of a new wave of increased political cooperation, economic integration, and the widespread dispersion of technological advancements, creating a virtuous cycle, leading to extraordinary improvements in the standard of living of most of the global population, despite the sad fact that the majority of the world’s people still live in poverty.

We all would do well to study W. Edwards Deming, whether we are in an emerging market nation or not. In his aptly titled book, The New Economics, Deming offers much guidance on management practices which foster quality, intrinsic motivation, self-determination, jobs, and alleviation of poverty. He warned us against mandated quality, imposed specifications, and about thinking that quality is merely the attributes of a product or service –separate from the system which produces them.

Quality, Deming said, starts in the boardroom, because it is in the boardroom that the aim, the purpose, of the organization is established. Purpose matters. A purpose that can be successfully sustained over decades goes well beyond the making of profits. In terms of nations, those with command economies tend to lack meaningful purpose. Therefore, fewer command economies will exist as the momentum and economics of democratization (purpose) continue. Similarly, just like nations with command economies, many management-by-command companies will find themselves struggling. Like nations with command economies, companies with management-by-command practices would do well to study better ways to lead. As Deming was fond of saying, "there is no substitute for knowledge."

Extending prosperity to more and more people is one of the most formidable challenges facing contemporary civilization. In fact, attempts to solve that challenge are leading to the creation of a new global order. A root of prosperity is quality. A root of quality is Deming. Because we all have a stake in a new global order, we all have a stake in gaining greater knowledge of how to assure its healthy birth and enlightened development. The knowledge that will help us to do that exists; we merely need to study it, understand it, and apply it in our nations and in our companies.

Dr. Kvint elaborates on some of the key concepts in this piece in the following podcast: Did Poor Quality Lead to the Soviet Union's Demise?)

Editor’s Note: The columns published in THE DEMING FILES have been written under the Editorial Guidelines set by The W. Edwards Deming Institute. The Institute views these columns as opportunities to enhance, extend, and illustrate Dr. Deming’s theories. The authors have knowledge of Dr. Deming’s body of work, and the content of each column is the expression of each author’s interpretation of the subject matter.

Copyright 2011 by Vladimir Kvint.