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Despite the demonstrated benefits of improvement programs such as total quality management and reengineering, most improvement programs end in failure. Companies have found it extremely difficult to sustain even initially successful process improvement programs. Even more puzzling, successful improvement programs sometimes worsen business performance, triggering layoffs, low morale, and the collapse of commitment to continuous improvement. We term this phenomenon the `Improvement Paradox.' For the last four years, we have worked with a variety of firms to understand the paradox and design policies to overcome it. Our findings suggest that the inability to manage an improvement program as a dynamic process is the main determinant of program failure. Improvement programs are tightly coupled to other functions and processes in the firm, and to the firm's customers, suppliers, competitors and capital markets. Failure to account for the feedbacks among these tightly coupled activities leads to unanticipated and often harmful side effects. We describe these dynamics and offer some guidance for managers seeking to design sustainable process improvement programs.

Process improvement has become an imperative for businesses seeking competitive advantage, yet it is disturbing how few organizations make lasting and successful use of process improvement tools such as total quality management and reengineering. These tools should help to raise productivity, boost quality and enhance competitiveness. However, quality programs often struggle to gain initial acceptance and to sustain continuous improvement (US General Accounting Office, 1991, Young, 1991a and Young, 1991b). Despite the demonstrated benefits of many improvement techniques, most attempts by companies to use them have ended in failure (Easton and Jarrell, 1998). In fact, companies have found it extremely difficult to sustain even initially successful process improvement programs. Even more puzzling, successful improvement programs have sometimes led to declining business performance, causing layoffs, low morale, and the collapse of commitment to continuous improvement. We term this phenomenon the `Improvement Paradox.' If improvement tools were ineffective it would be easy to explain their low use. The evidence, however, does not support that explanation. Firms that win quality awards have higher share-holder returns (Hendricks and Singhal, 1996). Easton and Jarrell (1998)found that among the top 1000 publicly-held companies in the United States, firms with well developed quality programs significantly outperform their counterparts in profitability, share price and return on assets. These large sample results are consistent with our own findings. In hundreds of hours of interviews with our partner companies, discussing both successful and unsuccessful programs, we rarely heard `the program was just no good.' Typical comments on stalled or abandoned programs were `I believe [a particular program] is a good process. Some day I'd really like to work on a project that actually follows it' and `We've left a lot on the table by letting this program go.' Our findings suggest that the inability to manage an improvement program as a dynamic process — one tightly coupled to other processes in the firm and to the firm's customers, suppliers, competitors and capital markets — is the main determinant of program failure. Failure to account for feedback from these tightly coupled activities leads to unanticipated, and often harmful, side effects that can cause the premature collapse and abandonment of otherwise successful improvement programs. We describe these dynamics and offer some guidance for managers seeking to design sustainable process improvement programs. For the last four years we have worked with managers at Ford Motor Company, Harley-Davidson, Lucent Technologies, and National Semiconductor Corporation to understand why improvement programs often fail, and how practitioners can design sustainable improvement programs (Jones et al., 1996 and Sterman et al., 1996). This work extends earlier research on the paradoxically poor financial performance experienced by Analog Devices shortly after a highly successful manufacturing improvement program (Sterman et al., 1997). Our research involved detailed field studies with our partner organizations. We stressed multiple data sources including extensive interviews and archival data on the various metrics of quality, product histories, internal company materials, and financial results. We used the system dynamics method (Forrester, 1961) to understand the multiple feedback mechanisms that affect the implementation of improvement programs, and to formulate integrative formal models to test our hypotheses. Our findings span both the internal dynamics of an improvement program and the interactions of a program with forces outside the intended area of improvement focus. We first describe the internal dynamics of an improvement program and the managerial challenges they create. We then examine how an improvement program interacts with other improvement initiatives, other organizational units, and with customers. Other improvement programs, organizational practices, and market response have a profound influence on whether programs can be sustained and contribute to the improved performance of the entire company.

Process improvement has become an imperative for businesses seeking competitive advantage, yet it is disturbing how few organizations make lasting and successful use of process improvement tools such as total quality management and reengineering. These tools should help to raise productivity, boost quality and enhance competitiveness. However, quality programs often struggle to gain initial acceptance and to sustain continuous improvement (US General Accounting Office, 1991, Young, 1991a and Young, 1991b). Despite the demonstrated benefits of many improvement techniques, most attempts by companies to use them have ended in failure (Easton and Jarrell, 1998). In fact, companies have found it extremely difficult to sustain even initially successful process improvement programs. Even more puzzling, successful improvement programs have sometimes led to declining business performance, causing layoffs, low morale, and the collapse of commitment to continuous improvement. We term this phenomenon the `Improvement Paradox.' If improvement tools were ineffective it would be easy to explain their low use. The evidence, however, does not support that explanation. Firms that win quality awards have higher share-holder returns (Hendricks and Singhal, 1996). Easton and Jarrell (1998)found that among the top 1000 publicly-held companies in the United States, firms with well developed quality programs significantly outperform their counterparts in profitability, share price and return on assets. These large sample results are consistent with our own findings. In hundreds of hours of interviews with our partner companies, discussing both successful and unsuccessful programs, we rarely heard `the program was just no good.' Typical comments on stalled or abandoned programs were `I believe [a particular program] is a good process. Some day I'd really like to work on a project that actually follows it' and `We've left a lot on the table by letting this program go.' Our findings suggest that the inability to manage an improvement program as a dynamic process — one tightly coupled to other processes in the firm and to the firm's customers, suppliers, competitors and capital markets — is the main determinant of program failure. Failure to account for feedback from these tightly coupled activities leads to unanticipated, and often harmful, side effects that can cause the premature collapse and abandonment of otherwise successful improvement programs. We describe these dynamics and offer some guidance for managers seeking to design sustainable process improvement programs. For the last four years we have worked with managers at Ford Motor Company, Harley-Davidson, Lucent Technologies, and National Semiconductor Corporation to understand why improvement programs often fail, and how practitioners can design sustainable improvement programs (Jones et al., 1996 and Sterman et al., 1996). This work extends earlier research on the paradoxically poor financial performance experienced by Analog Devices shortly after a highly successful manufacturing improvement program (Sterman et al., 1997). Our research involved detailed field studies with our partner organizations. We stressed multiple data sources including extensive interviews and archival data on the various metrics of quality, product histories, internal company materials, and financial results. We used the system dynamics method (Forrester, 1961) to understand the multiple feedback mechanisms that affect the implementation of improvement programs, and to formulate integrative formal models to test our hypotheses. Our findings span both the internal dynamics of an improvement program and the interactions of a program with forces outside the intended area of improvement focus. We first describe the internal dynamics of an improvement program and the managerial challenges they create. We then examine how an improvement program interacts with other improvement initiatives, other organizational units, and with customers. Other improvement programs, organizational practices, and market response have a profound influence on whether programs can be sustained and contribute to the improved performance of the entire company.