by Peter Merrill

In November 2011, my QP article "All Over the Map" analyzed the findings of the World Economic Forum (WEF).1 I showed how different countries perform from a global perspective in regard to their innovation capabilities. In November 2013, my QP article "Changing Tides" examined global innovation trends from 2011-2013, revealing how innovation in the United States and Canada was slipping compared to countries such as Sweden, Finland and Germany, which I called the Nordic cluster.2

The WEF report is a massive document at 565 pages.3 In this QP issue, which focuses on global quality, I’m not going into the deep data analysis I’ve done in years past. Instead, I will explain the process the WEF uses to establish its global competitive index (GCI).

Understanding this process helps in understanding where to find fertile ground for quality and innovation on a global level. It also reminds us to apply these economic principles in our own backyard. It’s easy to assume that everyone is open to the quality principles, but that is not necessarily so. I’m also going to show that all roads ultimately lead to innovation.

Competitiveness essentials

The WEF’s GCI is based on 12 pillars:

Institutions.
Infrastructure.
Macroeconomic environment.
Health and primary education.
Higher education and training.
Goods market efficiency.
Labor market efficiency.
Financial market development.
Technological readiness.
Market size.
Business sophistication.
Innovation.

The WEF explains the pillars in complex language and 6,000 words—and that is only the introduction. I’m going to distill the essentials from the 12-pillar description to show how quality and innovation become increasingly important as a nation’s economy develops, enhancing its productivity and, as a result, the prosperity of its people.

1. Institutions

The legal and administrative framework in which a nation’s people and its organizations interact must be free of bureaucracy and corruption so it can provide efficient services. There also must be freedom from political interference in the judiciary. China and India’s GCIs especially suffer in this regard, but you also may recognize some of these issues closer to home. This is why quality in government is vital.

2. Infrastructure

Well-developed roads, rail, sea and air communications enable the producers of goods and services to deliver efficiently. Reliable electricity supplies and a telecom network mean business can be conducted without impediment. The British government made a fundamentally flawed decision in the 1980s when it decided to invest North Sea oil revenues into entrepreneurship without simultaneously investing in infrastructure. Most of that funding flowed offshore, and the country now has an inadequate road system in which travel times between major cities can take two or three hours for an 80-mile journey.

In Canada and the United States in August 2013, a fallen tree caused a massive blackout in the Northeast, affecting more than 50 million people for two or three days. An ice storm in December 2013 took out power for up to a week for some—again, the cause was fallen trees. These events demonstrate a lack of preventive thinking for infrastructure. Prevention, of course, is a fundamental principle in quality.

3. Macroeconomics

Joseph M. Juran said: "You plan and manage quality in the same way as you plan and manage finances."4 Many miss this important link, thinking about quality and environmental management systems, but forgetting about the financial link.

One principle of macroeconomics is that if you go deep into debt, you start paying higher rates of interest because you are a higher risk. A good example is Japan. Although the country scores well in the innovative capability (pillar 12) it is beset by debt problems that hold it back globally.

Apply this principle to your organization. If you start running high debt, it will get in the way of your ability to deliver quality products and services. You can’t take advantage of new innovative opportunities if you can’t finance them.

4. Health, primary education

It’s now understood, even more so than just 20 years ago, that investing in basic education is fundamental to a nation’s success. It must be open to all and enable everyone to contribute to the success of a business and a nation. Yet, there are still parts of the world in which this is not an inalienable right.

Health and safety are also fundamental to people being able to make that same contribution. OHSAS 18001, soon to be ISO 45001, has become widely adopted and recognizes that to be able to draw on the invaluable knowledge in people’s minds, it’s important to protect their physical health. Absenteeism due to illness or injury is a huge cost to quality. Ireland has benefited from its many years of investment in this area and now is a leader in pillars 11 and 12.

5. Higher education and training

I recall a conversation as an undergraduate with the dean of the university I was attending. We were discussing Britain’s move to expand higher education to make it more available to everyone. The dean scoffed at this notion, saying, "We’ll have dustmen with degrees." In the United Kingdom, a dustman is a garbage collector. Such arrogance was common at that time.

Fast forward to my own daughter’s graduation. I recall her dean saying, "One thing that separates the United States from the United Kingdom is that in the United States, everyone gets a chance at higher education, whether or not they choose to take it."

While neither statement is totally true, they do emphasize the importance of higher education. Even if students are not ready for it at the end of high school, it’s important to have the opportunity later in life.

At the same time, education must lead to jobs. One of the problems that many countries have is they have invested in education, but it is disconnected from industry sectors. This becomes especially important in pillar 12.

We also have learned that education and training are a lifetime experience in our rapidly changing world. Countries such as Germany are showing the benefit, not just in today’s productivity, but in tomorrow’s innovations.

6. Goods market efficiency

The everyday term for goods market efficiency is "free trade." Goods market efficiency is where the importance of quality management becomes evident, internal wasted cost is eliminated, and ultimately, a focus on the customer drives business. As customers become more educated and demanding, the need for customer focus becomes even more important.

7. Labor market efficiency

There have been an increasing number of quality-related standards released on competency development, such as ISO 10018. Talent management is connected to pillar five, which recognizes that competency needs change, and a "hire and fire" mentality is a foolish and expensive way to run a business. A person’s competency is not just about job skills, it is also about understanding the organization and how it operates. Treating employees as merely an adjunct to a machine misses a major knowledge opportunity. Good organizations invest in their people.

8. Financial market development

Financial market development links back to pillar three on macroeconomics, but this pillar focuses on ensuring the wealth of the nation flows back into those ventures, which will create more wealth. This involves risk assessment while also looking forward and investing in tomorrow’s innovative opportunities.

Loans from a sound banking sector make this work. Canada’s financial sector weathered the 2008 crisis as a result of good risk management in the preceding years. The financial sector in the United States showed how unregulated financial innovation can cause serious damage to ordinary citizens.

9. Technological readiness

After quality management, the topics in this pillar prepare for pillar 12—innovation. Pillar nine is about willingness to adopt new technology, or willingness to change. New technology often will need to be financed, which was discussed in pillar eight, and also requires an educated workforce, which was addressed in pillars four and five.

Information and communication technology (ICT) has become core to any business, and most schools are producing tech savvy students who are not necessarily work savvy. ICT is a critical enabler of any business. Norway has advanced significantly due to investment in this area.

10. Market size

This pillar is about economies of scale, which is traditional manufacturing thinking. The arrival of 3-D manufacturing may cause this pillar to be rethought. This pillar also links to free trade (pillar six). The WEF concedes in its discussion that trade openness and growth do not necessarily correlate. Nevertheless, export-driven economies are generally beneficial.

11. Business sophistication

Although not well expressed in the WEF report, this is about partnering and using advanced manufacturing techniques. Networks and clusters of firms show greater efficiency—not just in the transfer of goods, but also in the transfer of knowledge.

Japan tops the list in this area. The sharing of ideas has made Silicon Valley succeed, whereas the privacy complex of Boston-based IT companies led to their decline.

The WEF report points out that this pillar becomes essential when the more basic forms of productivity improvement have been exhausted. This becomes the platform for innovation in processes and products, and leads us to the final pillar.

12. Innovation

The WEF sees nontechnological innovation as residing in pillar 11 and technological innovation being in pillar 12. It sees improvements in all the previous pillars as eventually running into the law of diminishing returns. It talks of the technological breakthroughs that have occurred going back to the steam engine through the use of electricity to today’s digitization.

Innovation becomes vital as economies approach the frontiers of knowledge. The environment for innovation, which countries have reached by this stage of development, means investment in R&D by the private sector, high-caliber research institutions and extensive collaboration between universities and industry. The protection of intellectual property and, of course, access to venture capital or finance, as mentioned in pillar eight, are essential.

Interrelation of the 12 pillars

From this discussion, you can see how the pillars interlink. For example, having a strong innovation capacity will be difficult without a healthy, well-educated workforce (pillars four and five) that can absorb new technology (pillar nine) and adequate financing (pillar eight) for R&D. There is also a need for an efficient goods market (pillar six) to take innovations to market.

The WEF report lays this information out in a rather daunting way—565 pages written for economists. But when it’s translated into the language of quality practitioners, you can see how all roads eventually lead to innovation.

References

Peter Merrill, "All Over the Map," Quality Progress, November 2011, pp. 24-29.
Peter Merrill, "Changing Tides," Quality Progress, November 2013, pp. 44-46.
World Economic Forum, "Global Competitiveness Report 2014-2015," http://www.weforum.org/reports/global-competitiveness-report-2014-2015.
Joseph M. Juran and Frank M. Gryna, ed., Juran’s Quality Control Handbook, fourth edition, McGraw-Hill, 1988.