1. Why cant the knowledge developer just get the CEO to tell in other parts of the corporation what the most advanced companies are doing and their benefits, and get them to use new knowledge? What is the problem with this top-down mode?
2. Apart from resistance by divisions, what other resistance to change might you expect to this new initiative?
3. What leverage could be derived from the QMS?

Richard LeVitt faced some hard decisions as he contemplated his new position at Hewlett- Packard (HP) as Corporate Director of Quality. His predecessor had led the introduction of a Japanese-style Total Quality Control program at HP but, despite early successes, in the eyes of a number of key managers the program had stalled. LeVitt had been critical of the way these practices had been advocated, and now as Quality Director he had to produce an alternative approach. Japanese-style TQC emphasized careful planning, testing, data analysis, and incremental improvement. While these methods were useful, a number of HP business managers saw them as slow to produce results, and thus ill-suited to the rapidly-changing business and competitive realities that they faced. By the early 1990s, LeVitt felt that Japanese quality practices had become frozen like the tea ceremony in a timeless pattern that could not keep pace with the changes occurring in HP's businesses. In addition, competitors using the same tools and methods were increasingly closing the quality gap. LeVitt believed that quality tools and methods as a technology, like any other, must evolve rapidly to stay competitive. In short, HP needed a dynamic approach to quality improvement that would fit with the dynamic culture that HP needed to nurture to survive in the future. He thought HP's quality specialists had placed too much emphasis on the use of specific tools in prescribed ways and not enough emphasis on the results that were most important to customers. These concerns were shared by a number of senior managers who believed they had not seen the results promised by quality proponents. It was this that had brought the issue to a head and led to LeVitt's mission to reinvent quality at HP. Nevertheless, creating new knowledge and new practices might prove to be the easiest of the challenges facing him. LeVitt also had to find a way to get the 104 divisions that constituted HP worldwide to buy into whatever new direction the corporate staff developed. These divisions had a tradition of fierce autonomy and could not be expected to fall into line with just any new approach laid out by corporate staff. Traditionally at HP, the only highly centralized functions were finance and personnel. Beyond these, it was hard to get coordinated action from business groups and divisions, especially in situations where there was uncertainty and incomplete knowledge. If LeVitt failed to win divisional support, it wouldn't be the first time the divisions had rejected new initiatives proposed by corporate. Indeed, the more successful a division, the greater its ability to go its own way. Yet the successful divisions were precisely the ones that LeVitt hoped would provide a model for others to emulate. How LeVitt chose to handle this challenge had weighty consequences not only for LeVitt's career, but also for whether HP could sustain quality as a source of competitive advantage. Background Organizational Structure Founded in 1939, Hewlett-Packard is one of the world's largest computer companies with annual net sales reaching more than $40 billion U.S. dollars (See Exhibit 1). It has 600 sales and support offices and distributorships worldwide in more than 120 countries. Beginning in 1957, HP adopted a multi-divisional structure composed of autonomous product-oriented divisions. Each division contained all of the resources manufacturing, marketing, R&D, human resources and finance needed to support its profit-making activities. This decentralized form allowed the company to grow rapidly, spinning off new divisions as product lines either achieved self- sufficiency or existing divisions got too large. Being the key players, general managers held profit and loss responsibilities for their own product-focused divisions and had considerable autonomy in making business decisions for that division. Very few directives were made from the top of the organization, and divisions sought their own paths in everything from establishing product strategy to process adoptions. Corporate management controlled only the human resources, finance, and accounting functions within all divisions (See Exhibit 2). A primary goal in setting up these divisions was to give each one considerable autonomy, creating an environment that fostered individual motivation, initiative, and creativity, and that gave a wide latitude of freedom in working toward common goals and objectives. We wanted to avoid bureaucracy and to be sure that problem-solving decisions be made as close as possible to the level where the problem occurred. We also wanted each division to retain and nurture the kind of intimacy, the caring for people, and the ease of communication that were characteristic of the company when it was smaller. David Packard, 1995 Quality Leader One of HP's competitive advantages had been its strong reputation for quality. Key HP leaders believed that careful attention to quality had enabled the firm to meet or exceed customer expectations, and that this capability had a direct and substantial effect on its operating costs and profitability. Doing a job properly the first time, and doing it consistently, allows us to employ fewer assets, reduces our costs, and contributes significantly to higher productivity and profits. This applies to every aspect of our business, from research and development to order fulfillment and support. Each of us must strive for quality and efficiency in everything we do." Corporate Objectives Most large internationally competitive U.S. manufacturing firms in the early 1980s faced enormous challenge and uncertainty as Japanese competitors led an assault on their markets with products of superior quality. HP was not immune from this challenge. Indeed its reputation as a quality leader made it hard for many employees to accept that they had a problem. At the same time, it had many unique advantages in rising to such challenges. In the 1980s, HP went through a major transition from batch production, using highly skilled, high-priced manual labor in what was largely its instrumentation business (electronic testing and measuring) toward high-volume, high-quality production for its emergent computer products business. The transition involved a shift from manufacturing stand-alone instruments to making products like computer systems that required products to interact well in complex, networked configurations. HP also started to enter the consumer market, which demanded new marketing expertise and an ability to tap into customer expectations. Reliance on contract manufacturers and sales channel partners increased dramatically as HP moved rapidly to address these new business opportunities. Managers recognized that to sustain HP's quality reputation, they had to do better than the competition in meeting customer expectations, despite new cost pressures and the accelerating pace of product development. Some even worried that quality had suffered in the transition. A unique advantage of HP was its source of knowledge on Japanese quality practices. Most U.S. managers, given the limitations of their background and experience, relied upon existing management knowledge to deal with the new competitive pressures emanating from Japan. Traditional competitive strategies involved cost-cutting, moving upscale to higher value-added products, and technological leapfrogging of the competition, but none of these addressed competition around product quality. Most U.S. managers lacked the knowledge of how the Japanese achieved success in quality. By contrast, HP had a model and a channel to tap into the Japanese quality movement: Yokogawa Hewlett-Packard (YHP), one of its own divisions. As a producer of high-technology products designed, assembled, and sold in different parts of the world, YHP had a significant problem with products arriving DOA deficient in some way when they arrived on the customer's doorstep. The problem seemed particularly acute in Japan, no doubt due to the high expectation for quality among Japanese customers. Although YHP, which assembled products designed in the United States, complained to HP throughout the 1970s about the failure rates of the products sent to Japan, it felt its complaints were ignored. Nevertheless, YHP saw the ailure of HP products as well as the failure of its own emergent line of products as major impediments to the success and growth of the company. Leaders at YHP decided to adopt Total Quality Control (TQC) in 1977 as an effective method to solve the quality problem. The results of this decision soon became apparent. For example, the wave-solder rate of non- conformity at YHP had been 4,000 parts per million (ppm) in 1977 but by early 1979 YHP was starting to record dramatic performance improvement. Dropping to 40 ppm in 1979, the wave- solder rate of non-conformity was reduced by a factor of 100 in two years, eventually falling to 3 ppm in 1982. Moreover, YHP won the Deming Prize in 1982, a highly regarded quality award. Most importantly for the reception of its ideas at HP, from being among the lowest ranking divisions in profit performance, it became the highest in all of HP from 1981 to 1984, thus giving its approach to quality improvement huge visibility and credibility in the corporation. Transfer of the Japanese Quality Program to HP As a successful model and a legitimate source of knowledge, YHP was critical to the acceptance and diffusion of TQC at HP. It served as a model by providing information about what was possible and how this differed from what employees at HP were currently thinking or doing. YHP's success had a major impact on HP's goal-setting in the quality arena and YHP's TQC activities provided a set of concrete processes and outcome benchmarks that served as a template for HP action. In the course of solving business problems, YHP transferred declarative and procedural knowledge about TQC to other HP divisions with which it had business relationships through daily business routines and activities. A second channel for the diffusion of knowledge about TQC involved the strong leadership provided by HP's corporate management and a reinvigorated quality department. Together they actively promoted the new knowledge about quality improvement throughout the corporation, pushing divisions to adopt new approaches. The decentralized business practices of HP came under strong pressure in the 1980s as the company searched for a corporate-wide response to a variety of challenges. It needed to make better collective use of resources that were often underutilized in the divisions and to find a better way to coordinate the production and marketing of complex system products, the components of which were often produced by units in multiple divisions and business units. And finally, of course, there was the Japanese quality challenge. All these factors contributed to the undermining of the traditional autonomy of the divisions as corporate officers and their corporate staffs, including the quality department, began to wield greater clout in the corporation. Two developments associated with the process of learning how to do quality improvement symbolized this growing corporate role: hoshin management" and the Quality Maturity System (QMS). YHP provided support for both of these developments. Hoshin Management Hoshin management (sometimes called policy management and policy deployment) is a planning and implementation approach that seeks to align all organizational layers and employees toward a few key company goals with a sense of urgency. It provides a systems approach to the management of change in critical business processes and involves negotiated dialogues both vertically and horizontally through the organization in the selection and coordination of the means to achieve change objectives. Hoshin management became a widely-used annual planning tool and was more or less expected for all divisions by the then COO Dean Morton. When Lew Platt became the chairman, president and CEO of HP in late 1992, at his first meeting with the general managers he showed that he intended to use this approach to run the company, sending a clear message of support for hoshin management and implicitly advising others to get on board (See Exhibit 3). Many general managers at the divisions responded well and seemed to like hoshin management - it helped them run their business and focus energies and resources. Several divisions that experimented with hoshin management gave public testimony that they liked its clarity and the sense of control it appeared to provide. In addition, Platt held quarterly review meetings for roughly 10 major groups. The group managers were held accountable for their business objectives at these meetings, including the achievement of hoshin objectives. Each group was expected to set specific and measurable goals to meet their annual hoshin objectives and group managers had their results publicly displayed at these meetings. Public display of the results put strong pressure on the group managers to hold their divisional managers responsible for satisfying these objectives. In particular, the general managers' meetings served as a major channel for communicating a common message across the organization and enabled the formation of corporate-wide understanding, evaluations, and objectives. Quality Maturity System Another quality initiative was the Quality Maturity System (CMS). The QMS involved a two-day review by two evaluators meeting with division management and asking a set of questions designed to tap the level of maturity of their quality system. Based on their evaluation, the evaluators would make recommendations for improvement. The initial QMS reviews were done in 1988. They were audits to check whether divisions had institutionalized Japanese-style TQC as characterized by YHP's activities and were more or less mandated by John Young, the former CEO. Pressed by a vocal group of critical managers, the corporate quality department revised the initial QMS criteria to reflect a sharper focus on strategic decisions and business outcomes. QMS 1.0 emphasized using the Plan-Do-Check-Act cycle for improvement, whereas QMS 2.0 focused on the process of managing improvement projects and its coordination with key strategic objectives (See Exhibit 4). QMS evolved from a standardized quality audit into a consultative review to be performed by any manager trained to conduct such activities. If QMS 1.0 was oriented to seeing how well divisions were conforming to TQC practices, then QMS 2.0 could be seen as shifting the focus to Total Quality Management (TQM) as it evolved in the early 1990s. While CEO Lew Platt had publicly stated his support for QMS in 1993, a few years later the reviews were made optional so that QMS would stand or fall on the strength of the value it delivered to the businesses as its customers. QMS 2.0 was rolled out in 1993 and by 1996, 70% of the divisions had used either QMS 1.0 or QMS 2.0 and the corporation as a whole was carrying out 50 to 60 reviews a year. By the beginning of 1997, over 400 formal QMS reviews had been done at various levels and entities (e.g., divisions and business units, geographic regions, sales offices) since its initiation in 1988. Additionally, more than twice as many informal reviews had been completed in support of given business units' own improvement efforts. Seeds of Discontent Nevertheless, over time, the transfer of the Japanese quality program to HP created much frustration and discontent. Although the Japanese-style TQC initially used at HP had evolved to fit the U.S. business environment, many managers thought the activities focused too much on tools and methods, not enough on business results. The corporate quality department could not demonstrate business payoffs for improved QMS scores. Many engineers, schooled to believe in the importance of creativity and individualism, did not understand the purpose of mastering the quality tools; they associated predefined problem-solving methods with bureaucracy. Further, there was confusion between means and ends. Some successful divisions, like the InkJet division, had ignored hoshin management and their business success allowed them to argue forcefully that their own planning activities seem to work just fine without it. Moreover, a growing number of general managers and line managers, as well as quality managers became concerned that the quality approaches were beginning to stagnate. An HP-sponsored worldwide benchmarking study on quality, conducted in 1994 with 12 companies known for quality leadership, showed that HPs traditional quality advantage was eroding. The quality tools, ideas, and methodologies of the other leading companies were much the same as those in place at HP. The benchmarking study revealed that these companies had essentially closed the gap and that everyone seemed stuck in about the same place. To once again wield quality as a competitive advantage, HP would need to create new knowledge on quality improvement. The New Challenge: Creating and Spreading New Knowledge By the mid-1990s, HP was increasingly concerned with radically changing customers, markets, and business models. For the first time, the company had become a major player in the personal computer industry. The LaserJet and Inkjet printer businesses had grown from interesting sidelines into hugely successful product categories, each with a major impact on consumer perceptions of the HP brand. Cost pressures mounted as competing products became more alike and differentiation became more elusive. Product divisions began to rely heavily on low-cost contract manufacturers. Retailers and other reseller channels grew more important, supplanting much of the company's reliance on direct sales and support personnel. These developments challenged HP's traditional position as a high-quality producer. At the same time as converging technology began to turn many of HP's products into commodities, outsourcing to contract manufacturers largely removed the manufacturing quality advantage so painstakingly won by HP. Service and support, long a hallmark of HP, became harder to differentiate as third party firms assumed a greater role in customer care. Knowing quality, as customers experienced it when using HP's products and services, became more problematic. In many of HP's businesses, ideas about customer-centered solutions that would then drive design and production, became increasingly prominent. A new basis for defining quality began to emerge, one grounded in knowledge of customer experiences, preferences, and behavior. Acquiring, communicating, and using such knowledge came to be seen as critical for HP's growth and profitability. Communications between business divisions were focused within the product groups. The divisions of the same product group mainly exchanged information on product strategy and resource allocation, rather than knowledge on culture, process or skill-oriented management. Consequently, if a way could be found to share how customer knowledge was gathered and used, it would affect the roles and responsibilities of quality departments, the business divisions, and partner organizations up and down the value chain. Adding more complexity to the situation - and in a reversal of the trends of the 1980s the founders and the leading managers in the early- and mid- 1990s called for a reduction of corporate power and thus downsized many mid-level coordinating units. Business divisions were given greater autonomy while some corporate functions were eliminated. General managers of the business divisions became more responsible for setting strategic targets and more accountable for meeting business goals. Part of this shift involved a revision of the budget process that gave businesses more influence over the budgets of corporate departments. Up to the early 1990s, the corporate quality department had been mostly funded through a corporate surcharge from business units. Under the new system, the corporate quality department had to negotiate a significant part of its budget with its customers in the businesses. Thus, it faced new challenges with weaker levers of control over the divisions. The R&D Committee and Quality Roles Task Force An R&D committee, chaired by Richard LeVitt, was created in 1994 to begin the task of rethinking the role of quality managers. They soon realized that the problem was larger than that and came to be charged with reinventing quality at HP. During 1994 and 1995, members visited leading companies in quality, benchmarked against leading competitors, researched the academic literature and brainstormed on the skill sets required for quality mangers under a broadened vision of what quality was to mean. This aimed at developing a vision of the new initiative as well as the concepts and tools that would embody it and a strategy and tactics for diffusing it. Gradually a vision of the new customer-centered initiative began to form. The new initiative, they believed, should stress seeing the product or service from a customer point of view, moving from being simply producer-centered to also being customer-centered, and creating one-on-one relationships between employees and customers where possible. The idea was that HP employees should know quality the way a customer does. Employees should systematically act on that knowledge across the value chain to grow their business. In particular, they should document the various links and motivation for the participation of the various actors across the whole design, production, distribution and use chain to identify and shore up weak links and bolster customer satisfaction and loyalty. Richard LeVitt also formed a Quality Roles Task Force in 1994 to serve as a sounding board for the new quality vision. Providing a broad geographical representation and a cross section of the quality community, most of the 12 members were quality managers from product divisions and field organizations (See Exhibit 5). Some were strong supporters of TQC, some were passionate advocates of an innovative approach to quality. Many of LeVitt's corporate staff as well as divisional quality managers were committed to the TQC and TQM concepts that they believed had served the corporation quite well in the past. LeVitt's challenge was to keep the devotees of TQC on board while making the case for profound change. During the first Task Force meeting, Jack Smith from the Medical Products division argued that HP's high quality reputation now rested on its adoption of Japanese-style quality. He urged caution in adopting a new approach because deviations from the traditional approach may compromise its effectiveness. Others argued that they saw a stagnation of the quality initiative as employees went through the motions of using quality tools without much sense of commitment. We haven't gotten the real results we need, said another, emphasizing the need to focus on customers not tools. As the members debated noisily, Le Vitt thought quietly to himself: Couching a new customer- centered approach too much in terms of past success with TQC may alienate innovators and potential implementers of the new quality approach. Striking out in new directions unencumbered by the past involves risks of its own. But perhaps this is just what we need to do. Maybe we need to achieve a complete breakthrough. George ther, from one of the most successful divisions, argued that his bosses thought they had been pretty darn successful without being so focused on quality. Moreover, they liked to point out that Japan's fall from grace in the 1990s showed that quality wasn't the key to profits and growth after all. Later in the meeting, Michele Jenkins, from one of the smaller divisions, raised her concern with the lack of senior level sponsorship: The division that I work with perceives itself as doing well enough, said Jenkins. "People are under a lot of pressure from daily work demands which stretch their resources, systems, and processes thin. I don't know how to motivate them to make this new initiative happen. There just isn't a mandate for change. We aren't in the mandate business, LeVitt responded. The corporate quality department is funded by the business divisions to focus on their needs. We provide consulting, encouragement and support to facilitate the creation and transfer of useful knowledge throughout HP. But, how? 'Where's the beef for this new initiative? murmured Jenkins, feeling frustrated. Moreover, the quality managers faced huge challenges in building a new approach to quality improvement. In the divisions they were expected to be change agents mediating between the corporate quality department and the general managers running the divisions. There was, however, variability in their competencies and leadership skills. Some two-thirds of the quality managers had been in their jobs for less than three years. This high turnover suggested that the quality manager position was seen as a way-station until something better came along, rather than a promising career opportunity in its own right. This limited their effectiveness as transmission links and catalysts. Creating and spreading new knowledge was at the heart of many issues facing HP including the quality issue. Successful companies of the 21st century will be those who do the best jobs of capturing, storing and leveraging what their employees know," had been the view of Platt, the