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Continuous Improvement: The New
Quality Management Philosophy
Many industrial and service organizations have recognized that a sys-
tem based on prevention of errors rather than inspection is necessary to
improve quality and operate efficiently. This approach focuses on quality
improvement rather than inspection. Corporations in the U.S. (e.g., Motorola,
Xerox, and Ritz Carlton) and abroad, notably in Japan, have shown that
when a management system correctly implements a quality improvement
approach, the results are noteworthy. In some cases, Motorola, for ex-
ample, the businesses were saved. The value of this approach is exempli-
fied in industry by the Baldridge National Quality Award, given for out-
standing achievements in quality improvement. The federal government
recognizes the applicability of the approach with the Federal Quality Institute's
Quality Improvement Prototype Award and with the Presidential Award for
Quality.
Whether the operational term is total quality management, total quality,
or continuous improvement, a new philosophy of striving for continuous
quality improvement in all aspects of the enterprise pervades the thinking of
theorists and practitioners of quality management. Although approaches to
implementation vary in the literature, the basic "philosophy" is the same a
set of commonsense actions that should be part of good management. The
need to elevate these guidelines to a philosophy has arisen because, al-
though they are rooted in common sense and management theory, they are
not fully practiced in most organizations. Key elements include the follow-
~ng:
26
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CONTINUOUS IMPROVEMENT
27
· Focus on improving quality rather than only measuring it.
· Identify and focus on the customers' needs for a product or service
now and in the future.
· Emphasize thinking about the entire system rather than individual
operations in the system.
· Make decisions based on data.
· Anticipate and accept change.
· Emphasize nonhierarchical teamwork for decision making and imple-
mentation.
· Understand variation in measurements of the process and make a
commitment to reduce it.
· Identify and clearly communicate the aims and purpose of the enter-
prise.
· Foster the above activities through commitment and leadership of
top management.
The last of these key elements is crucial. A total quality approach
requires a commitment by the highest levels of management to lead quality
improvement efforts rather than just assigning responsibility for quality as-
surance to an organizational unit. Each of the elements of continuous im-
provement relates to the others. Above all, the philosophy stresses an un-
derstanding of the organization and its product as a system of people and
components working together toward common purposes. It requires having
suppliers and customers work together to define and solve problems. It
requires process simplification to reduce waste, remove redundant efforts,
and eliminate time-consuming and non-value-adding steps. Further, the
philosophy stresses a systematic approach to management, requiring data
collection and analysis that are designed for fact-based decision making and
problem solving.
These principles are as valid in the Department of Education and other
governmental agencies as they are in private industry. The student financial
aid delivery system, for example, constitutes a process with suppliers and
customers at each step. Early in the process the student is the supplier of
information to the department. Later, the department is the supplier of
funds to the student. A total quality approach to administering student
financial aid seeks continuous improvement in important outcomes of the
process, such as the accuracy of the award, customer satisfaction, and ac-
cessibility of aid for eligible students. Additionally, a total quality approach
seeks improvements that may eliminate mistakes before they are made and
strives to lower costs, provide faster processing, and reduce red tape. Such
an approach brings greater value to all the customers and stakeholders the
Department of Education, Congress, postsecondary institutions, students,
parents, and taxpayers.
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QUALITY IN STUDENT FINANCIAL AID PROGRAMS
This chapter briefly reviews key elements of the quality improvement
process. The discussion is not intended as a tutorial on quality management
in the student financial aid system, but rather as an introduction to the
concepts that the panel found useful in its review of the system.
IMPROVING QUALITY
Leading experts in the movement toward total quality management practices,
such as W. Edwards Deming (1986), stress that if an organization focuses
on improving quality, costs should ultimately go down and productivity
should increase. As quality improves, the negative activities associated
with controlling poor quality, such as inspections of work or verification of
documents, are less necessary, and that in turn results in less work. As
quality improves further, individuals in the organization have time to work
on further changes in activities and processes, which results in further im-
provements, and so on as the cycle of improvement continues.
A continuous improvement approach must be distinguished from a stan-
dard of zero defects, according to which any type of defect is unacceptable
and every defect must be investigated to the bitter end. Indeed, organiza-
tions held to such unattainable levels must spend more of their time on
detecting and correcting faulty outputs than on improving systems and pro-
cesses that cause the failures in the first place. Although zero defects is an
admirable goal, it may set standards that are impossible to meet, particu-
larly in the service sector, where the product is often more fluid, complex,
and variable. Thus, the process of quality improvement begins with identi-
fying the truly important quality issues and then learning how to find and
remove factors that cause poor performance.
IDENTIFYING CUSTOMER NEEDS
To identify appropriate quality issues, it is essential to create a greater
focus on the customers the consumers or users of the product or service-
and to seek input from them on issues relating to quality. One task is to
identify those many interests. A second is to characterize quality as it is
perceived by each of those interests. There are many different ways to
assess the different perceptions of quality and the program's effect on cus-
tomers, from analysis of the overall program to discussions with small groups
of consumers. All should be a part of efforts to improve quality.
In the case of student financial aid programs, the focus on customers
must include the constituent interests of the Congress, the Department of
Education, state and local authorities, the educational institutions, and the
students and families that are potential recipients of aid. Those constituents
determine who is to be served by the educational institutions and how the
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29
mechanics of student financial aid affect who is served, as well as how
public monies are to be safeguarded in the distribution of financial aid.
Some constituents are most concerned with the breadth of outreach of finan-
cial aid, others with liability and financial exposure, others with maldistribution
of scarce resources, and others with the immediate mechanics of loan appli-
cation that affect timeliness and ease of compliance. It would seem most
appropriate, however, to focus on students as the primary customers of a
student financial aid system. Appendix B provides an example of how another
federal agency, the Internal Revenue Service, takes a customer focus.
EMPHASIZING SYSTEMS THINKING
Learning to focus the attention of all activities within an organization
on the improvement of services is a significant element of the new philoso-
phy of quality management. Systems are composed of many interconnected
processes. Each process has materials, equipment, methods, environment,
and people blended in some manner to accomplish some task. Organiza-
tions often discover that their systems have complex structures and pro-
cesses. Flowcharts, a useful tool in developing systems thinking, often
reveal that many subprocesses occur before the output of any one process
goes on to the next. The interaction between the "supplier" and the "cus-
tomer" at each subprocess cannot be analyzed in isolation from the larger
system. Making changes, even to solve a problem, in one area or subpro-
cess without taking account of how it will affect another may result in
unexpected quality reduction in another part of the system and overall poor
service. Only by working on changes in relation to the entire system can an
organization make fundamental improvements.
Many quality experts believe that at least 85 percent of the problems
that exist in systems are attributable to sources other than people-for ex-
ample, methods, environment, equipment, and materials. Nonetheless, when
things go wrong within a process, even if caused by something other than
the individuals involved, a person is frequently blamed. Frontline workers
should be encouraged to work on quality improvement in their activities,
but they cannot be expected to resolve quality problems that are the result
of the system. In the case of a system as complex as student financial aid,
the Department of Education must take the lead to accomplish many of the
system changes that could improve overall quality.
Another fundamental concept in systems thinking is optimization. That
is, standards, goals, and processes must be established that optimize the
capabilities and product of the system as a whole.
Organizations often
require one department or component to make improvements, cut costs, or
otherwise satisfy some goal of another department. Such compliance by
one component may come at the expense of fulfilling another of the organization's
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QUALITY IN STUDENT FINANCIAL AID PROGRAMS
missions, or at least at the expense of improvements to service for the
ultimate customers. In the context of student financial aid, educational
institutions may be forced to allocate additional staff to the financial aid
office to comply with the Department of Education's quality control re-
quirements or face penalties for poor performance in financial aid manage-
ment. This may force reductions in other functions or force other depart-
ments at the school to offer lesser degrees of service.
Poor communication among parts of the system is also a principal cause
of poor service. The student financial aid system poses special problems
because of the relationships among federal, state, and private institutions
that must be addressed in considering efforts to reform current practices.
Problems in communication are to be expected unless all parties make great
efforts to solicit inputs and listen to suggestions offered. The panel heard
repeatedly of problems in communication between the Department of Edu-
cation and the educational institutions. As in other organizational contexts,
those institutions themselves are likely to have communication problems
internally. Efforts to improve communication should be at the top of the list
of problems to address in any management improvement effort.
MAKING DATA-BASED DECISIONS
Often decisions in organizations are made on the basis of the strongest
voice rather than the most reasoned deliberation. That is, the person with
the most persuasive argument or the highest rank wins the right to impose
decisions on others. Moreover, quality experts have often found that when
data are gathered that might be used in decision making, they are often
gathered without a plan concerning how they will be used. The basic pur-
pose of gathering data is to enable people to make better decisions. Further,
data should be gathered as part of an ongoing effort to improve manage
ment processes.
Fortunately, many organizations are learning that genuine improvements
can occur when individuals work together and make decisions using sound
empirical information. This approach requires more sophisticated methods
of data collection, measurement, and interpretation than are typically found
in long-standing management structures. Generating and using information
effectively require a rigorous system of planning, testing, assessing, and
replanning based on the knowledge gained. For example, Deming (1986)
called these "plan," "do," "study," and "act" cycles. Such a cyclical process
imposes discipline and systematic self-examination by teams in the work-
place, and it bolsters confidence in those who must ultimately implement
decisions generated by the process. Another effect of this cyclical process
is that the data are produced and analyzed to address problems as they are
perceived by a team that includes all levels directly involved in the opera
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CONTINUOUS IMPROVEMENT
31
lion under scrutiny. This also allows for small-scale studies and incremen-
tal reassessment of the data in order to determine when sufficient informa-
tion has been gathered to justify action.
Finally, to gather and use the data and information so generated, statis-
tical expertise must be available. Management at all levels needs good
information on which to base decisions; thus it needs help in properly de-
veloping studies and in interpreting the data in order to make decisions.
Such expertise is often not readily available in an organization, a situation
that if uncorrected may limit the success of management improvement ef-
forts.
ACCEPTING CHANGE
Improvement of quality requires acceptance of change. People are naturally
resistant to change. In many organizations, individuals may be reasonably
comfortable with the way things are, certainly when compared with the
unknown future. If changes are to occur within an organization, substantial
planning must take place and policies must be developed that encourage
innovation and support change. For innovation to occur within the planning
process, a culture of risk taking must be encouraged and supported by man-
agement and line workers, and the culture must include personnel policies
that support and even reward risk takers.
As alluded to above, the individuals who must implement the desired
changes must be directly involved in the planning and decision-making
process. Small, ongoing changes are easier to effect than large, break-
through changes. Often incremental changes can be made over many months
such that the impact on the individual is reduced. Innovative projects should
be tested on a pilot basis and in the spirit of partnership rather than hierar-
chical dictate whether within the organization or across organizations within
the total system. Changes that are effected in a "no surprises" environment
in which all parties feel they have contributed and learned from the plan-
ning process become a win-win undertaking and best ensure a lasting, posi-
tive impact.
WORKING TOGETHER
In most organizations, whether in the private or public sector, no single
activity, individual, or group provides the entire service to the customer.
Seeing one's responsibilities as part of a larger system and generating a
commitment to working in teams require training and education because
team structures are not characteristic of most management designs. Creat-
ing, training, and supporting cross-functional teams with a mission to im-
prove a particular process generally require many organizational adjust
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QUALITY IN STUDENT FINANCIAL AID PROGRAMS
meets. Yet, this approach has been successful in many organizations. In-
deed, over the past several years, the winners of the Baldrige National
Quality Award, the preeminent national award for meritorious quality im-
provement efforts, have been organizations that undertook just such restruc-
turing and changes in managerial styles.
UNDERSTANDING VARIATION
Measurement of any attribute in a system is subject to variation. An
organization may have an ideal value to which it wants all similar units
processed to "measure up," but a key to quality improvement is an under-
standing that individual units will vary from the ideal. Two types of varia-
tion are possible: that due to assignable causes and that due to random
causes (Shewhart, 1980~. Deming (1986) has suggested that these be called
special causes and common causes of variation, respectively. Special causes
of variation occur now and then, and are not part of the process at all times
or at all places, but arise because of specific circumstances. Examples
include a broken part in one of many machines producing the same item and
one person misinterpreting training on how to comply with an administra-
tive requirement.
Common causes of variation are inherently part of the process, are
present at all times in the process, and affect all outcomes of the process,
although the degree of their contribution may vary. Common-cause varia-
tion is the unit-to-unit deviation that occurs when the system is operating
according to its specifications. The type of equipment, the quality of mate-
rial, and the need to interpret regulations are examples of system specifica-
tions that result in common-cause variations. Measurement of a unit from
the system is expected to be within some limits, which are the result of the
system's requirements. Thus, there is no way to predict whether the next
measurement will be higher or lower than the previous one or to draw any
conclusions about why the variation occurs, especially about who or what is
at fault. Problems that many students are experiencing in filling out finan-
cial aid applications are likely examples of common causes of variation.
Too often organizations, reacting to an incidence of unacceptable or
unexplained variation in some units, attempt to solve the problem by setting
new goals or increasing regulations or inspections for all units. Such inap-
propriate actions are often referred to as common-cause solutions to spe-
cial-cause problems. When determining what problems to fix, it is first
essential to be able to distinguish between special causes and common causes
of variation (or error in the process). Special-cause solutions are applied to
those few units having trouble performing to a level that other units meet.
Common-cause solutions, on the other hand, are actions taken to address a
system limitation that is affecting all units doing some task. The appropri
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CONTINUOUS IMPROVEMENT
33
ate time to make the type of fundamental changes needed to fix common
problems affecting all units is when measured variation exceeds desirable
limits.
Failure to distinguish between common and special causes of variation
may result in inappropriate actions taken to correct sources of error or
variation. For example, if the Department of Education imposed new regu-
lations on everyone in response to problems only a few were experiencing,
the regulations would create systemic change and potentially add an unnec-
essary burden for everyone. This approach is referred to as tampering-
imposing inappropriate actions on everyone when something special, not
common to the system, has been observed. Similarly, punishing organiza-
tions when measured errors rise and rewarding them when the measurement
drops irrespective of any distinction between common and special causes
of the errors often does no good and indeed may make matters worse.
Chasing the numbers, as it is sometimes referred to, usually results in time-
wasting activities and leaves little energy for anything more productive.
Congress also must be careful not to create legislation in reaction to special
causes.
Defining standards is an important part of quality management, as is the
method used to ensure that the standards are met. Many organizations have
found that compliance inspection systems are apt to create adversarial rela-
tionships and a far more effective approach is to teach the organizations
how to recognize special causes of variation and how to analyze common
causes of variation. Then, individuals and groups within the organization
can monitor their own processes, thereby engaging the organization in an
overall effort of continuous improvement. Data gathered on an operating
process should be studied to determine the distribution of possible out-
comes. Understanding what is normal variation and what is not will enable
the investigators to distinguish when the process is operating effectively as
currently designed and when systemic redesign is required. Only with that
knowledge will individuals be able to tell the difference between improve-
ment and tampering.
Finally, when systemic changes are determined to be necessary and a
new goal or target is set, it is equally essential that the organizational mem-
bers assigned the responsibility to implement the change have available to it
the resources and methodology needed to bring about change and that the
system to be changed be under their authority.
UNDERSTANDING THE ORGANIZATION'S
AIMS AND PURPOSES
An organization must identify its mission, values, and guiding prin-
ciples in ways that are clear and easy to communicate to everyone in the
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QUALITY IN STUDENT FINANCIAL AID PROGRAMS
organization. Each division within an organization should prepare its own
mission statement so that everyone can clearly see the role of each organi-
zational entity. A clear statement of aims and purposes of the organization
is essential to continuous improvement efforts.
A vision statement should also be developed that expressly states where
the organization is headed and makes clear the relevance and appropriate-
ness of individual projects in the context of the overall purpose of the
organization. The vision statement sets the goals for the future and enables
those in the organization to "see" the picture of the desired future, at least
in the best of all possible worlds. Adjustments may be needed, but the
general vision and the roadmap to the goal must be understood.
The mission statement and the vision statement should be revised from
time to time. However, constancy of purpose requires that the changes not
merely reflect changes in administration and leadership.
FOSTERING TOP MANAGEMENT LEADERSHIP
Organizations that have been successful in implementing strategies for
continuous improvement have done so with leadership from the top man-
agement in the organization. Successful leaders provide clear direction in
an environment or culture that nurtures individuals and nurtures change.
Leaders work with people to create the vision and direction for change,
develop the plans, strategies, and methods, and then guide the organization
through the process of change. Further, leaders help by coaching, empow-
ering, and counseling their subordinates, not by directing them. And lead-
ers understand that there are frequently no easy solutions or quick fixes.
Leadership requires the perspective that fundamental change must be achieved
over the long term. In the context of federal student aid programs, top
management leadership in the Department of Education will be more diffi-
cult to achieve, perhaps because of the history of frequent changes of senior
appointees. Nevertheless, leadership is essential and must be ongoing, even
if changes are made. Otherwise, the continuous improvement efforts will
wither away.
Representative terms from entire chapter:
student financial
