When you talked about, learning, learning theory you said that, the most important, characteristic of learning is to identify the complex cause and effect of a relationship among key manager variables. I want to apply that concept of cause and effect analysis to the issue of quality and I want to get some managerial issues related with quality improvement. Let's think about this cause and effect relationship. First we have quality here and we want to improve quality, we want to enhance our quality. Then we already said the quality improvement must be in, you know, conscious effort. It's not automatic. So let's say the company performed some quality improvement activities. Other things have been equal. If the company performs a search activity, the quality will increase. And therefore, I put the plus here. In other words, there is positive relationship between these two. When I say positive relationship, it doesn't mean that it's a good relationship. Or when I say negative relationship, it doesn't mean that it's a, you know, bad relationship. Positive and negative implies that, just the simply, the direction of a relationship. Let's say x and y has a positive relationship meaning that they moving that way. In other words, increase x, y will increase. So this is positive relationship. Or when I say that, there is negative relationship between x and y, that means that, if x increases, y decreases. Okay? So, I'm not saying, I'm not putting any value judgement when I say negative relationship and positive relationship. Let's return to these dynamics. In order to do this quality improvement activity, the company needs to have resources. And the more resources you can afford to perform, more quality improvement activities. So these is positive relationship. Where you got those resources, those resources coming prom, coming from profits. You have a more profit that means that you will have more resources. And the thing is that if we perform some quality improvement activities, the cost will increase, right? In other words this activity involves some, you know, the workers brainstorming and workers discuss with each other and they probably use some specialized equipment and machines and methodologies and they sometimes need software and so on and so forth. So let's say that, the more you perform your quality improvement activity, the costs will go up, therefore there is, there at, you, I'm sorry, positive relationship between those two, and it seems like we have, you know, certain closed loop here. I say this. Closed loop which is from profit to resources to quality improvement activity and then the cost, and as cost increases the profit will decrease. So if we go through these steps over and over again, then it's not moving too upward, it, it's not moving downward. It, it's sort of, like, zigzagging, right. It, it increases and then it decreases again, and it increases and it decreases. So it's not, it does not have any, you know, clear direction. So it's probably like moving something like this. Okay? The profit will increase and the profit will decrease. And therefore, we would say this is a balancing, this is a balancing loop. There is, this is balancing loop. Doesn't have any clear direction, it's not increasing, it's not decreasing continuously. So let's say, you know, I supposed that I need to tell manager of a company and then I tell the manager that look at this. If we perform this quality improvement activity, it actually doesn't have any impact on our profit in the long run. And therefore, it's almost useless for us to continue this quality improvement activity. Can you accept that statement? Probably not. Because this picture is certainly interesting, but it's not complete at all. We all know that. Because that is another cause and effect relationship starting from quality. In other words, if we increase our quality, that will somehow improve the customer perceptions about our product or service. And as customer has more positive perception about our product and service, the sales will increase. So we have positive sign here and as the sales increases, the profit will increase as well. And therefore, again, we have a one closed loop, here, right? Counter-clockwise action. And I put a plus because, if we look at this cyclone it is, reinforcing, right? As time goes on, the profit will increase like this. In other words profit, more resources, more quality improvement activity, higher quality, better customer perception, more sales and more profit. More profit transferring to more resources and so on and so forth. So I will just say that in the long run they do, go upward. On the other end we already said that there is a some balancing loop. In other words, the profit is not increasing. It's kind of, zigzagging like this. But that's all, I mean, just, it, you know, that's okay. When we look at this two cycles, it seems like, there is a balancing loop, and there is another reinforcing, reinforcing loop. So somehow it seems like we can improve our profitability over time. But I will just say that this is not the whole story, because we can think about other possible cause of relations additional relationship. Consider these quality improvement activities. For instance, if I say we want to, we want to implement this Six Sigma. Obviously it costs, it costs if we want to implement this Six Sigma project, but in many, in many cases, now consider this Six Sigma. Usually the project started with, starts with the very specific way define the problem, quality related problem. In other words the company starts at Six Sigma project focused on or based on very specific, narrowly sometimes narrowly-defined quality problem. So the team members discuss with each other, they do brainstorm with each other. And, they try to interpret with each other in order to solve that narrowly-defined quality problem. But as they continue such brainstorming and discussion and co-working, they actually find out more, more than just things they nee, they need to solve the specific problem. They know more about the process in general. They know more about their plant, their machines and their equipment. And they know more about their team members. And they become better in communicating with them. And, they become better in communicating or coworking or coordinating with the suppliers and with the vendors and so on and so forth. So they become more knowledgeable about their products and process, they have more knowledge and more experience, more expertise about this whole thing. That's good thing, but actually that's more than, much, much more than just a, their original intention. Original small, original narrowly-defined problem solving. In other words, as they continue their quality improvement activity, they not only improve their quality, but also they enhance their innovation capability. They, they become better at innovating things. And that will have process improvement. And as you improve your process, you can actually reduce, you can actually reduce your manufacturing cost. And therefore, whether we had, you know, three, two closed loops already. One is this one, reinforcing. The other was, balancing loop. And actually we now have another, another loop here, which start from here and it covers all this, right? And what is the sign here, this is positive. From profit to resources, quality improvement activity, quality improvement say, can do this from profit to resources and quality improvement activity you enhance your innovation capability, you increase your process and you reduce your costs and reducing costs meaning that you will have more profit. Very good, right? So now we have one, we have one balancing loop and we have a two reinforcing loop. Obviously, we have to identify the actual magnitude, but I would say that, I mean that intuitively I say that two reinforcing loops, the dominating one balancing loop, and therefore the quality's free. Why? If you spend some money, if you invest in order to improve your quality, that investment cost will be automatically compensated or recouped by these two things, you know. You have a quali, you have a sales increase on the one hand and on the other hand you will have more process rated improvement. So let's say I, you know, met a CEO of company and I explain the CEO about this whole dynamics and then I suggested look, quality is free. In other words if you invest money, if you invest your time in quality then all those expenses and all those resources will be automatically compensated by the sales increase and innovation. And therefore you have to spend a lot right now. [BLANK_AUDIO] If I say something like this, I want to ask the CEO again. How do you feel about my statement? You feel comfortable with my statement? You feel comfortable with what I suggest and therefore you invest a lot right now? Probably the CEO will be a little bit hesitant. Why? Because there is some delay here. In other words, if we increase our quality, obviously, I think that the customer perception would improve some day. But there is no guarantee that if I improve quality today, tomorrow the customer perception will improve. Probably not. It probably takes some time. So usually, this implies there is some delay. Time delay. Likewise, the customer perception improves, does that immediate translate to the sales? Probably not. There might be some delay as well. And now let's think about this one. Quality improvement activity would improve quality, but would it actually improve the innovation capability? Obviously. But the problem is, it's in the long run. And therefore, there is another time delay as well. What about this cost aside? The cost aside is immediate. In other words if you spend some money, it becomes immediately detracted in your income statement. On the other hand, and therefore the cost, cost is immediate. On the other hand, the benefit, benefit is in the future. Or maybe, the benefit has more uncertainty, right? More uncertainty than the cost. And therefore, there is huge discrepancy. Huge discrepancy between the cost and benefit. This is a short term and immediate, this is a long term and probably in the future. And therefore, from many just perspectives it is not always easy to invest a lot in quality improvement because the cost is immediate. On the other end the be-,. benefit will occur in the future. And how, how, how we can overcome this discrepancy? How we can overcome this discrepancy? How the manager, how the manager can overcome this discrepancy will be a very delicate issue in management. Very critical element in management. So unless the manager overcomes this discrepancy, he or she can not make a decision which is good for the company in the future. That also implies the company, or the board of directors should work very hard to find out incentive mechanism, that encourages, at least, that does not discourage the manager to invest for the future. Where actually the incentive mechanism must encourage the manager to make a reasonable or logical decision to increase the profit or to increase the benefit for the company in the long run. And I think that that's the lesson we should learn from this quality's free dynamics. This is one exercise we do for, you know, exercising. We, you know, practicing this cause and effect analysis we learned in our previous lecture on learning theory.
