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ASQ Quality Audit Division: 14th Annual Quality Audit Conference, St. Louis, Missouri, USA.

Keynote address, March 10, 2005

Auditing – at the dawn of opportunity
Delivered by Allan J. Sayle, President Allan Sayle Associates

“Quality auditing” is at the most significant crossroads in its history. Either it will become a premier business tool whose deployment is demanded by top management or it will languish as a low profile matter, almost shunned by executives and process owners alike. Those within its ranks must choose which way to go. Making the right choice will place them at the dawn of opportunity that I believe is being created by an incipient, unprecedented confluence of global forces and trends. It will enable the dedicated professional assessor to sparkle and prosper.

The business of nations

Calvin Coolidge averred, America’s business is business: globalization means every nation’s business is business. (In fact, it always has been so.) There are, in fact, two distinct global battles ensuing for every nation: one, for international trade and customers; and the other for international finance. They are inextricably linked, affected by the viability of a nation’s economy. The US trade deficit now exceeds a rate of $700 billion/ year proving America is not winning the first battle. The fall in the value of the US dollar since 2000 and current speculation about a possible collapse in its exchange rate shows America is losing the second.

That current account deficit is unsustainable as is the government’s future obligations for social welfare programs, estimated by USA Today as $53 trillion. Who will pay those bills? Rather how will the money be earned to pay them? Only by making its domestic enterprises into globally competitive entities can America rectify its fractured economy. For the professional assessor: threat, no; opportunity yes –– to contribute to the nation’s prospects. But, how?

Globalization: is centuries old. It caused America to prosper and reach the status of the world’s largest and richest economy. A challenging phenomenon, it confers the benefits of successful trade on those who possess or create a comparative advantage over others. (That is an economic principle attributed to Englishman David Ricardo). The professional assessor must help its client or employer identify, pursue and maximize that advantage. Improving trade and helping business develop world-class products offering value for money, VFM is the key to winning those two global battles. It is also the key to job creation.

Americans, like others, often view globalization as the destruction of domestic jobs by emerging nations’ low costs of labor. The associated outsourcing and offshoring, O&O, are often perceived as a threat. And, yet, neither is new and neither one is irreversible, as is popularly supposed. That fact presents an opportunity for assessors. The costs of ownership difference between competing suppliers and the cash flow implications of location and of time to market determine a buyer’s sourcing decision. By showing leadership in aggressively identifying avoidable costs, a quantified business case might be made by to repatriate work temporarily (or potentially) lost to overseas competitors. Business needs that information: we could supply it.

Trends in managing business

For responding to globalization, enterprises can take advantage of a significant trend occurring in “quality” and individual auditors can play a key role if they will make the transition and become “assessors”. So, too, can the movement as a whole provided it is willing to change its business model, of which more, later.

The bifurcation in “quality”: The distinction between quality management and business management is blurring: eventually it will disappear. As a result, a significant bifurcation has appeared in quality activities. Quality now has two branches summarized in the following table. We can see from it the principle activities that are getting management attention and support: compliance auditing is not a feature.

Branch Deals with Audit trend
Process management How processes must manage their work. Process auditing.
Self-auditing, (six sigma etc.)
Management processes What management processes the organization needs. Management auditing.
Value Assessing

Modern business now recognizes process management as the province of process owners. Indeed, product quality tools are migrating to them enabling them to control better their own work. (Something for which quality professionals have campaigned for years.) In tandem, a major trend in auditing is revealed: process owners are becoming “six sigma” people, searching for cost reductions and productivity improvements. Crucially, they are enjoying considerable success because they understand their processes. Management support has come naturally in train. Contrast the typical compliance auditor who can only perform bureaucratic checks and parrot ISO 9K clauses who receives little attention. So, process owners are the new age internal (and external) auditors – self-auditors – I have advocated since the 1980s. They are better-trained descendents of the old quality circle schemes, faddishly popular in the late 1970s and early ‘80s. And how gratifying it is, after some 30 years of effort to see one’s own approach – the process approach, a.k.a. the “task element” approach - now adopted as the standard way of organizing and “auditing” quality programs.

At a higher level comes “management processes”. When their quality is poor, business results and the product rapidly reveal the fact. Greater amounts of value are destroyed, not created. It is in concentrating on business management processes that the professional assessor will prosper: it is a central part of modern business improvement programs.

Business improvement programs, BIPs:
In dealing with competition, management priorities are: creating and keeping customers; preventing or eliminating avoidable costs; improving productivity; and, managing the balance sheet which, currently, requires reducing leverage, in preparation for rising interest rates. All of those are features in an effective BIP. Each one requires the careful selection, organization and improvement of the management processes. Otherwise, avoidable costs will inordinately rise. Assessors can greatly assist with each – if they are business savvy.

Avoiding loss is the prerequisite to making a profit. Loss avoidance and survival come first; a profit is a possible bonus. We can see sporadic cost-cutting campaigns, concentrating on “pencils and paper clips” economies, are vanishing, replaced by durable BIPs. They are now being viewed as a key strategy upon which cash flow and survival depend.

And it is not just about direct cost savings. Loss occurs in other ways when the organization fails to meet society’s expectations. In their recent response, Sarbanes-Oxley and the activities of New York’s attorney general have created demands for increased transparency, affecting all organizations, which will become a feature of BIPs. Management processes and process management will need to be assessed, to avoid the risk of prosecution and penalty. Management will need assistance from competent assessors in dealing with these new realities.


Part 2: New tools and techniques



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