ARC: What Quality Means

When Toshiba executive vice president Joe Formichelli sits down to play poker, he doesn't bother to bet unless he's holding face cards. "Jacks or better is a minimum baseline to work from in our game," says the former IBM Corp. veteran, the first American given a shot at running Toshiba's U.S. computer group. "You simply cannot compete with anything less." Interestingly enough, Formichelli regards product quality in much the same way. At Toshiba America Inc., product engineers work long hours to ensure that their machines are as reliable as they can be. Their work is paying off: Only a tiny fraction of Toshiba computers

that roll off the company's assembly line have any defects. Most endure an entire lifetime of use without problems. But the same is true at most of the other top computer makers. So Formichelli is looking for better ways to define quality that will help him distinguish his company from those of its rivals. His conclusion: Toshiba policies, programs and incentives must perform as flawlessly as its products.

Plenty of other industry executives now believe the same. And not just those who work for manufacturers that sell commodity products with similar features and price points. A proliferation of commodity products within almost all product categories has forced product manufacturers of all types to rethink the way they define, approach and provide quality. The same is true of service providers, who also see commoditization in their market segments. Gartner Group Inc., for example, notes that desktop and network operation services are viewed as the "hottest" emerging opportunities in outsourcing. "But profit levels," the Stamford, Conn.-based researcher reports, "are not 'off the charts' as might be expected." Even application outsourcing providers report only medium profitability, Gartner notes.

All of this has led to a profound change in the way channel companies,resellers, software development partners, consultants, professional service organizations and Web integrators that align themselves with manufacturers,measure quality both provided to them and, by way of extension, provided by them.

This article reports which manufacturers provide product quality today, as defined and measured by this year's Annual Report Card survey. It also looks at how manufacturers, including Toshiba, are trying to improve the quality in other facets of their businesses. In addition, this article takes a look at what channel companies think about quality, and what they are doing to raise the level of quality they provide to their own customers.

As evidenced from the information below, the notion of quality is changing. Product quality, as Formichelli notes, is only a baseline. Real excellence, as measured by partners and customers alike, embodies much more.

Winners of This Year's ARC Quality Awards

Time and again, when the editors at VARBusiness ask VARs what they rate as a key attribute when choosing a partner, they typically rank "product quality" as the most important criteria.

In this year's study, VARs rated Apple Computer Inc. tops in desktops, and IBM in notebooks, technical workstations, midrange servers and SQL databases. They also rated Hewlett-Packard Co. as having best product quality in the area of entry-level servers, The Santa Cruz Operation Inc. in network operating systems software, Symantec Corp. in Java tools, Sun Microsystems Inc. in Web application servers and Cisco Systems Inc. in networking hardware.

Interestingly enough, the organizations that won in product quality,the category that VARs consistently rated as most important to them,did not necessarily win as VARs' overall favorite. For example, VARs rated Cisco as tops in product quality among networking hardware vendors, but gave the overall ARC award in that to 3Com Corp., based on the Santa Clara, Calif., company's attention to communication, presales support, ease of doing business and other criteria. Of course, 3Com was only one point behind Cisco for quality.

As for Toshiba and its vaunted attention to detail, the Irvine, Calif.-based company finished dead last when it came to product quality in desktops. While a significant concern to Formichelli and members of his executive team, he says an all-out effort to ascend to the top in product quality will unlikely change Toshiba's position in the market unless the company performs better in other areas. He has a point.

More than other areas measured in this year's ARC survey, product quality was a closely contested competition. Indeed, the spread between the best and the worst in technical workstations and entry-level servers was just six points on a 100-point scale. As a result, the winners are closely trailed by the laggards. (In the case of desktop PCs, Toshiba was within seven points of category winner Apple.)

For vendors to improve their ARC scores, they must raise their quality of work in other areas. That could be difficult, especially since few organizations can agree on what constitutes quality.

How the Definition of Quality Is Changing

A traditional definition of quality comes from Bruce Armstrong, a professor of information studies at Southern Cross University in Nortouth Wales, Australia. He says quality in software is measured by "the extent to which the software meets user requirements and is free from errors."

While straightforward, the definition leaves a bit to be desired. Without a true definition, much is left to interpretation. That confounds the likes of Michael Pehl, CEO of i-Cube, the Web integration company recently acquired by Razorfish Inc. He laments that Web integration companies and

e-commerce vendors are judged more by their outward appearance than by the work they do. He jokes that some followers of

e-business seem to measure the quality of professional services organizations not by the e-business sites they build but rather by the number of pierced body parts on the people they employ.

"I can attest very quickly that this is not something different between i-Cube and Razorfish," he says. But it's the quality of work that each of the respective organizations does that has them on customers' radar screens, he adds, not just the brash, hip or progressive posture they have adopted.

One of the most respected judges of quality is the National Institute for Standards Testing. The group is responsible for handing out the much-coveted Malcom Baldridge Awards.

The 1999 criteria that will be used to identify this year's winners for Performance Excellence will look at leadership, strategic planning, customer and market focus, information and analysis, human resource focus, process management and business results. Truly, it's an exhaustive test.

But does it result in and truly reflect those that provide top quality? Critics wonder. Cadillac, for example, has won the Baldridge award, something Cisco, Intel Corp. and Microsoft Corp. have never won. But of the four companies, could Cadillac be considered the most successful? That's doubtful.

An apples-and-oranges comparison? Perhaps. But don't forget that Xerox Corp. has also won the Baldridge award. In fact, it boasts it's the only company to have won all three major quality awards: The European Quality Award (1992), The Deming Award in Japan (1980), and The Malcom Baldridge National Quality Award in the U.S. (1989 and 1997). Still, few would argue that the company is as successful as other computer industry companies, especially Cisco, Intel or Microsoft.

Clearly, quality alone will not make a company successful. Even successful companies that receive recognition for quality struggle in the very areas for which they are rewarded. Microsoft is an example. A year ago, J.D. Power and Associates released a study that concluded Microsoft, of all companies, rated highest in overall customer satisfaction among the largest national Internet Service Providers (ISPs).

The Redmond, Wash.-based software giant bested those with more customers, including American Online Inc. In fact, market leader AOL finished well behind the Microsoft Network, AT&T WorldNet, Prodigy and CompuServe,rivals AOL has essentially buried.

J.D. Power and Associates attributed part of Microsoft's victory to the company's strong influence in related software. It "has natural carryover effects with Internet-savvy consumers," the report concluded.

Quality In Action

While they may not be able to

define it to an exact extent, smart manufacturers are applying what they have learned from product manufacturing to other aspects of their businesses. Partners, too, are also applying what they have learned from serving customers to improve their quality.

Because there is so much parity among products, manufacturers are trying to distinguish themselves in nonprocess areas. For example, several networking vendors have tried to demonstrate improvements in their quality of service. Cisco and Nortel Networks this fall made quality of service announcements. Their goal: to help ISPs and application service providers that rely on their gear deliver guaranteed levels of service over the Internet.

Experts believe the Internet will eventually mature to include quality of service (QOS) protocols commonly used on private and local area networks. Once in place, network administrators should be able to use QOS to prioritize the delivery of certain types of information and ensure basic service quality.

Whether such efforts will actually improve measurable quality is anyone's guess. But clearly, companies are investing millions of dollars and thousands of man-hours to solve the problem.

That includes channel companies such as Policy Management Systems Corp. (PMSC), Columbia, S.C. PMSC provides enterprise and e-commerce application software, professional services and outsourcing to global insurance and related financial services companies. Bob Fintak, chief quality officer at PMSC, notes his company has learned that "quality is what the client says it is; nothing more, nothing less."

PMSC began surveying clients in 1996 to determine how effectively it was satisfying them. Clients told the company that its products offered acceptable functionality, but admonished the company to improve its code quality and its responsiveness to correcting problems. They also told the company to reduce implementation times.

That captured the attention of PMSC executives, who began a focused effort to improve quality several years ago. In 1994, they created the position of chief quality officer and set out to improve the company's quality management system, increase client and employee satisfaction and reduce customer complaints.

The company has since continued to survey customers and, in the fourth quarter of 1997, achieved worldwide certification to ISO/9001. In addition, PMSC has licensed a formal disciplined process improvement methodology, implemented a best practices project management methodology and initiated a more rigorous software quality assurance program.

In the second quarter of this year alone, the company's various quality initiatives resulted in the implementation of the Software Quality Program developed in the first quarter, continued progress on its Tatham continuous process improvement process and the rollout of a "best practices" project management methodology, according to the company.

Such work will go a long way in determining who emerges as the next generation of leaders in professional services. Gartner Group, for one, concludes that "creating a best-in-class management methodology and leveraging technology to reduce labor dependency and costs, and a more realistic process of expectation setting, will be key differentiators as IS organizations look for desktop management solution vendors."

Among other things, Gartner Group wonders what impact such efforts will have on the market. As more external service providers begin to catch on to developing best practices, more services will likely become commoditized. While good for customers, this could hurt the margins service providers hope to recoup. Already, many service providers see this occurring in relatively new fields such as e-commerce. Their response: increase the quality they provide in even newer areas.

Web integrator Nexgenix Inc., for one, confirms that building transaction Web sites has already become a commodity business.

"Most people are focused on getting a site up, driving traffic to that site and then moving on. What they find is a tremendous drop-off as sites proliferate and Web users transform from bookers to lookers," says company co-founder Don Ganguly.

His company is thus refining its deliverables and has created what it calls "360-degree" customer relationships, which it says offer an entirely new level of quality.

"If you look at the traditional e-business services companies we compete with, none of them are articulating this message," says Ganguly. "Some call themselves innovators, others are talking about 'digital change management.' [But] their focus is a first-generation focus."

He adds, "We're putting a stake that is one, perhaps two, steps ahead of these guys in terms of what will create long-term, sustainable differentiation for those sites once they get up."

Founded in the early 1990s, Nexgenix is generally older than its competitors. Many of them are either rollups, or hail from markets that have only recently become enamored with technology services delivery.

NexGenix, meanwhile, has years of uninterrupted profitability and appears primed for bigger things. The company, which generated $30 million in sales last year, is preparing for an initial public offering. "That's our credibility statement behind our vision," sums Ganguly.

That's a measure of quality that's tough to argue with.