1

SU8MI11LD 8 LAL1nCMAS




BUSINESS POLICY
AND STRATEGIC
MANAGEMENT


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. 'Strategic choice is made in the context oI decision situation as well as decision making.
Explain this and show various objective and subjective Iactors that aIIect strategic choice.
WHAT IS STRATEGY?
A strategy may be deIined as a course oI organized action. This rather pithy deIinition
contains all the necessary ingredients to develop dimensions oI strategy which emphasize
action in an environment.
At Iirst sight this deIinition oI strategy is at variance with well-established deIinitions in
business policy. For example, HoIer and Schendel (1978:25) carry out an extensive survey oI
the various uses to which the term strategy is put, and derive their own deIinition:
'Iundamental pattern oI present and planned resource deployments and environmental
interactions that indicates how the organization will achieve its objectives'. HoIer and
Schendel tend to emphasize strategy as a means to an end rather than what the end is. Further,
they view ends (objectives) as deIined and measurable, which may Iit the constraints oI
manuIacturing Iirms but does not Iit the much wider sample oI organizations oI interest here.
Nevertheless, as we go on to consider the dimensions oI strategy; we will see that these can
contain the essential ingredients oI strategy proposed by writers such as HoIer and Schendel.
Other authors in the business policy area do not make this distinction between strategy
and objectives, Ior example Chandler and AnsoII. For Chandler, strategy is the:
'determination oI the basic long term goals and objectives oI the enterprise' (1962:1), and the
'Decision to expand the volume oI activities to set up distinct plants and oIIices . . . involve
the deIining oI new basic goals.'
An unusual view oI the strategy oI an organization taken by Mintzberg is to see it as a
'pattern in a stream oI decisions'. This accentuates strategy Iormulation as an ad-hoc
muddling-through kind oI activity, which it undoubtedly is in many organizations.
Mintzberg's deIinition, however, is post-Iacto; one can only determine the strategy aIter it has
happened, which removes that purposive aspect oI strategy seen as an organized course oI
action.
The concept oI organizational strategy is undeveloped in the literature. Business policy
and strategic management authors (e.g. AnsoII, 1968; HoIer and Schendel, 1978; Glueck,
1980) have tended to emphasize how organizations, and business Iirms in particular, can
expand this choice. The emphasis is to provide rules Ior eIIective strategy with stress upon
the use oI search methods and the pedagogy oI the case teaching method.
From a more sociological angle organizational analysts have emphasized dimensions
or variables which may be used to describe the strategy across many types oI organization,
not just business Iirms. Miles (1980, Ch. 10) gives an excellent review oI the dimensions
proposed by many oI these authors.
Thompson (1967: 25-8), in his book Organizations in Action, has gone beyond the
presumptions oI the business policy authors. In the space oI a Iew pages he has presented an
outline oI the conditions under which an organization might choose a particular strategy. We



attempt to develop these ideas by allying them to our general theme and to some ideas
presented by other authors Irom organizational analysis and business policy. At this stage this
must be an incomplete attempt, but at least it serves to pinpoint an aspect oI the theory oI
organization which must attract Iurther attention.
THE ENVIRONMENT OF ORGANIZATIONS
An organization has to negotiate (PIeIIer and Salancik, 1978) or navigate (Bourgeois
and Astley, 1979) between oIten conIlicting demands and expectations oI powerIul elements
in its environment upon which it is dependent. These elements may be called supporters:
typically they are customers, suppliers, government agencies who provide Iinance or other
kinds oI support, banks, Iinancial institutions, and so Iorth.
There is another important category oI environmental elements who are trying to
attract the attention oI the same set oI supporters. An organization is not directly dependent
upon these elements but must take cognizance oI their existence. These elements may be
called competitors: typically they are recognized as such as regards business organizations,
but non-business organizations also compete Ior a pool oI support alongside other
organizations.
Together supporters and competitors Iorm the task environment Ior an organization.
Exchanges have to be made directly with some supporters, as when a Iirm sells a product to a
customer, the proceeds oI which allow supplies to be bought; or indirectly, as when a
voluntary organization collects contributions Irom donors to be later distributed to client
receivers; although diIIerent rules govern this kind oI exchange than govern market
exchanges (Butler, 198), an exchange oI some kind is eventually made in the environment.
During these exchanges the competitors act as reIerence groups (Festinger, 1954) to which
the perIormance oI a Iocal organization may be compared by supporters. II a supporting
element realizes that its expectations can be better realized elsewhere through a competitor,
then it may exit (Hirschman, 1970) to that competitor.
Supporters have certain expectations as to the perIormance oI an organization; many oI
these expectations may be expressed as economic measures but others can take a more
normative aspect. An organization may be pulled in one direction by one set oI expectations
and pulled in another by a diIIerent set, as we see when a nationalized corporation is told by
government to make a proIit, but whose customers expect a social service. Overall, then, an
organization must satisIy suIIicient oI these expectations oI powerIul elements to achieve a
domain consensus (Thompson, 1967). Without this suIIicient consensus an organization
cannot survive.
THE CONCENTRATION OF SUPPORT AND COMPETITION
Four limiting conditions may now be identiIied arising Irom the density or
concentration oI competitors and supporters. As shown in Figure 1, a Iocal organization is
strong in relation.








Few Many
Few Oligopoly Monopoly
Competitors
Many Oligopoly Competition

Fig 1.
The strength oI a Iocal organization in relation to its supporters to its supporters when there
are many supporters and Iew competitors; in economics this is called a monopoly.
The weakest position Ior a Iocal organization is Iound when it has Iew supporters
and many competitors; this is an oligopsony when applied to economic organizations as
Iound when a manuIacturer oI components is highly dependent upon one large corporation to
take its output. Equal power can be obtained with Iew supporters and Iew competitors (equal
and strong), a bilateral oligopoly, or with many supporters and many competitors (equal and
weak,) perIect competition.
Although the terms applicable to economic organizations have been used in Figure 1,
these conditions will be Iound in other kinds oI organizations. For example, some voluntary
organizations gather support Irom a wide range oI organizations, whereas others may be
highly dependent upon a single supporter; the manuIacturer who supplies to one very large
customer is in this category.
Both dimensions oI Figure 1 may be seen as variables oI concentration oI supporters
and oI competitors. Again, economists have developed measures oI this concept and, again,
the principle can be applied to non-economic organizations. Generally, a concentrated market
is one in which production is in the hands oI perhaps two or three producers oI equal size or
oI one dominant producer. Concentration can also occur, likewise, on the demand side.
Supporter and competitor concentration are, then, vital aspects oI the strength an organization
have in relation to its task environment.
REGULATORS AND INSTITUTIONS
To see the environment oI an organization in terms oI only the population oI supporters
and competitors is still only a partial view oI that environment. We also need to understand
how these elements come to be there and what governs their relationships; we need to



understand the making and the enIorcement oI the rules oI the game governing the population
oI organizations in the domain. Two Iurther aspects oI the environment oI organizations need
to be considered. First is the general culture within which an organization operates. This
includes the general ideology and dominant values oI a host society; the state oI knowledge
in that society, an important aspect oI which in Western industrial societies is the scientiIic
community; and the political institutions that are the essential value-mediating and rule-
setting institutions. Any organization has to operate within the values and rules set by these
institutions; Ior instance the proIit-seeking Iirm derives its right to pursue proIit in a capitalist
society through the acceptance oI proIit as value and enIorcement oI property rights.
Second, the regulatory environment consisting oI those regulators whose purpose is to
enIorce these rules needs to be considered. Government may create regulatory agencies to
enIorce laws about monopolies, pollution, saIety standards, the operation oI charities and so
Iorth. There can also be non-governmental regulators such as proIessional associations, trade
unions or industry associations. The nature and manner oI operation oI these agencies
become apparent later.
STRATEGIES
Much has been written on strategy, and some limitations oI this literature have already
been pointed to. We are now, however, in a position to consider the conditions under which
various strategies might be pursued. Institutional and task strategies One distinction oI
importance is between organizations that pursue task goals, or what Rhenman (197) calls
sLraLeglc goals and Lhose whlch pursue lnsLlLuLlonal goals or as llgure shows a
comblnaLlon of boLh
INSTITUTIONAL AND TASK STRATEGIES
One distinction oI importance is between organizations that pursue task goals, or what
Rhenman (197) calls strategic goals, and those which pursue institutional goals.
We adapt Rhenman's argument and point to organizations that have no task or
institutional goals as entrepreneurial; entrepreneurship is based upon the opportunity oI 'time
and place' (Hayek, 1945) and does not involve either long-term planning or concerns with the
management oI the institutional environment. At the opposite extreme are those
organizations, the BBC would be an example, which have long-term plans concerning task
(the kinds oI programmes and so Iorth) and which also have to pay considerable attention to
institutions and regulators. As the BBC is highly dependent upon government regulations
permitting the raising oI revenue and controlling the number oI competitors, considerable
attention must be given to institutional goals.
Subsidiary organizations are those Ior which task goals are secondary to institutional
goals since the major problem in managing the environment is to IulIil headquarters
expectations: typically a manuIacturing subsidiary is expected to be a primary source oI raw
material Ior the parent company. Corporations are those organizations which plan task goals
but are relatively unconcerned with institutional goals. Typically, these are medium-sized



Iirms operating in Iairly unconcentrated environments; they are Iirms which have not yet
become institutions.
The signiIicance oI Rhenman's analysis is that we can identiIy the extent to which the
task or institutional environments are targets Ior strategic action. Within that broad
Iramework, Iour broad types oI strategy can be identiIied which subsume a variety oI
particular strategies mentioned by other authors (Glueck, 1980; HoIer and Schendel, 1978).
The Iour strategies are competition, innovation, cooperation and consolidation.
The general principle behind each strategy is that an organization will try to manage
interdependence with environmental elements by reducing or controlling dependence upon
those elements. The general logic oI strategy is to acquire power (Thompson, 1967) over the
environment.
COMPETITION
The thrust oI a competitive strategy is to use pricing and internal operating eIIiciency to
undermine competitors' ability to obtain resources Irom supporters. This is a strategy
particularly appropriate Ior low competitor concentration and low ambiguity oI task
knowledge. Cost-cutting and price competition correspond with the theory oI the Iirm in the
classical economics theory oI perIect competition. Organizations constrained by such market
conditions will tend to be oI the entrepreneurial type mentioned above and will generally not
have goals in the institutional environment. Sometimes we can see entrepreneurial activity as
breaking regulations. In this cell the incentive is greatest Ior regulation-breaking; Staw and
Szwajkowski (1975) have shown how Iirms in scare environments, that is those with many
competitors and Iew supporters in our terms, tend to break regulations. More typical is the
simple expedient oI ignoring regulations as the chance oI detection among dispersed
competitors is low (PIeIIer and Salancik, 1978). It is also in this condition that a great deal oI
the black economy takes place.
We see the competitive strategy as having a proactive time and place Ilavour to it
although others have stressed its reactive qualities. For instance, Miles and Snow's (1978)
non-planning type oI organization is called a reactor. Similarly, the behaviour oI the
population in random-placid environments (Emery and Trist, 1965) are viewed as
organizations Ior whom 'the optimal strategy' is the simple tactic oI attempting to do one's
best on a purely local basis.
COOPERATION
A cooperative strategy is diametrically opposed to the competitive and is suitable Ior
conditions oI high concentration and high task ambiguity. The main problem Ior an
organization in this condition is to ensure a supply oI supporters and avoid the entrance oI
competitors. As the organization is weak in its ability to control critical dependencies it can,
however, use task ambiguity as a base oI power, rather in the manner that coping with
uncertainty may be used as a source oI intra-organizational power (Hickson et al., 1971;
Hinings et al., 1974). As Thompson (1967: 5) points out, cooperative strategies achieve
power through the exchange oI commitments, and hence the reduction oI potential
uncertainties Ior both parties.



Joint ventures are one way oI making these commitments. Each organization will bring
special task knowledge and resources which the other does not possess. A joint venture may
be surrounded by a considerable legal contract trying to speciIy contingencies. As task
knowledge, however, gets more ambiguous the resort to litigation to settle disputes becomes
increasingly cumbersome (Butler and Carney, 198) and the relationship has to rest upon
good Iaith and trust. Tacit agreements are based upon mutual trust and may be used to hedge
the more Iormal contracting oI joint ventures, to control competition, or to ensure continuity
oI custom or supply. Both joint ventures and tacit agreements are appropriate between
organizations oI equal power; that is, when competitor and supporter concentration is high.
Because oI the greater Iormality oI joint ventures, task knowledge will tend to be less
ambiguous although not suIIiciently so to make a joint venture as part oI a consolidation
strategy.
Generally, the cooperative strategy is particularly useIul Ior organizations embarking
on a project in a technologically ambiguous and concentrated environment as it can bring
together a variety oI 'core skills' or 'distinctive competences'. The case oI Project Mercury,
described below, shows how a consortium composed oI very diIIerent organizations may
enter a domain commonly considered a natural monopoly.
CONSOLIDATION
When competitor concentration is high but task ambiguity is low we would expect to
see consolidative strategies pursued. This is the strategy oI an organization that operates an
essentially routine technology and enjoys a monopoly.
The Iirst aspect oI its strategy will be deIence oI the existing domain in order to prevent
competitors entering. This is similar to the notion oI a deIender organization (Miles and
Snow, 1978) which has a rather myopic internal orientation. In contrast we wish to draw
attention to the strategy's environmental management Ieatures. DeIence can be achieved
through institution-building, that is, by legitimizing the monopoly or near-monopoly within
the institutional environment. Considerable public relations and political activity will be
required to achieve this. Another approach may be to capture regulatory agencies to ensure
that rules oI the game are enIorced in a Iavourable way. This will usually be used in
conjunction with institution-building.
Institution-building and capture oI regulatory agencies are strategies particularly
available to publicly owned organizations since public ownership gives them access to the
corridors oI political and regulatory power. Private business corporations have to be more
circumspect in dealing with these aspects oI their environments although, as Dunkerley,
Spybey and Thrasher (1981) have argued, large multi-national corporations are not
necessarily powerless over governments.
Another type oI consolidative strategy is integration. Integration may be vertical, as
when a Iirm acquires or merges with a supplier or contractor, or horizontal iI there is a
merger with a competitor. Formulation is a consolidative strategy that Ialls short oI complete
integration and is seen, Ior instance, whenever a Iocal organization closely Iormulates



standards Ior suppliers which tend to tie that supplier in with a particular organization. We
see this when Marks and Spencer closely speciIies the manuIacturing methods Ior its
suppliers or, as we shall see, British Telecom (BT) unnecessarily speciIies high engineering
standards Ior its suppliers. Formulation oI standards in this way creates a barrier to entry Ior
competitors and links in supporters to the Iocal organization.
INNOVATION
When an organization operates in a task environment oI low concentration but oI high
task ambiguity it will tend to pursue an innovative strategy. In that an organization tries to
gain an advantage over competitors, innovation is similar to competition; but the strategy is
similar to cooperation in that superior task knowledge, through product or service
diIIerentiation, results in concentration oI competitors. Any consequent monopoly, however,
is expected to be temporary until competitors re-enter the market emulating or improving
upon the innovation.
Innovation, thereIore, leads to diIIerentiation and diversiIication. This strategy is likely
to be particularly dynamic. Because competitors are dispersed any one organization can only
proceed with innovation incrementally. Innovation involves internal expenditures which are
related to an uncertain Iuture beneIit. Organizations in this sector oI an industry cannot
usually Iind the resources Ior large-scale innovation without moving to a cooperative
strategy. Hence, in telecommunications we see the development oI joint ventures Ior risky
large-scale research and development.
Alternatively, an organization can routinize its technology and move towards the
competitive strategy with its concern Ior operating eIIiciency and price advantage. A
diversiIied organization will hedge risks by balancing the cash-hungry 'star' projects
involving high ambiguous task knowledge, against the more cautious incremental
development oI maturing 'cash cow' products, where the production process has been
thoroughly learned but market growth is low. The cash-hungry projects may be Iinanced
internally by cash cows or externally through joint ventures. Joint ventures may also be
required to develop the requisite task knowledge.
Innovation may be pursued by acquisition, by which means an organization buys itselI
into new products or services, but this is expensive and only likely to be carried out by strong
organizations. Thompson has pointed to prestige-seeking as a cheap method oI gaining power
over the task environment. This strategy enables an organization to diIIerentiate itselI Irom
competitors so that supporters see some distinct advantage in dealing with a prestigious
organization. Such advantages would accrue iI the supporter is able to use the reputation oI
an organization as an economical way oI assessing its work. It is under conditions oI high
task ambiguity that supporters Iind it particularly diIIicult to assess the perIormance oI an
organization, since this is when inIormation is asymmetrically distributed (Williamson,
1975). Prestige provides a kind oI shorthand whereby supporters can carry out such
assessments.




4. Describe the strategic approaches that Japanese companies have adopted in
terms oI TQM and continuous improvement.
Early organizational research anticipated convergence on the Western model, with
Harbison conIidently concluding that otherwise 'Japan is destined to Iall behind in the ranks
oI modern industrialized nations. But Japan`s remarkable success in the post-war period
made the opposite conclusion credible. Most notably, Dore and Lincoln and Kalleberg (1992)
argue that the combination oI liIetime employment, age-based wages, and company unions
provides a powerIul recipe Ior eIIective cooperation within the Iirm. Dore contends that as a
'late developer Japan was able to avoid the class conIlict that marked the British workplace.
The success oI Japan and other 'late developers, in company with an expanding
knowledge base in comparative organizational studies, has led to a variety oI ideas about how
to transcend or enrich the convergence/divergence debate. In this volume, Ior example, Harry
Katz argues that a pattern oI 'converging divergence is emerging where national business
communities show standardized Iorms oI diversity, while Chris Smith`s model oI system,
societal, and dominance eIIects describes Iorces promoting both convergence and divergence.
Whether viewed in simple or complex ways, the convergence/divergence debate tends
to Iocus attention on outcomes rather than the concrete movement oI organizational practices
Irom one place to another. But arguments like the 'advantages oI backwardness imply an
important role Ior contact and communication across national boundaries --- it is knowledge
oI the problems others Iaced and how they sought to resolve them that distinguishes early and
late developers. We think it is useIul to start Irom an assumption that international linkages
are pervasive.
Multinationals embody the most explicit sort oI organizational tie, where business units
in diIIerent countries are managed under a single authority and ownership structure. Kosteva
and Roth examine how management practices are transIerred Irom headquarters to national
subsidiaries, with varying reception depending on their Iit to national institutional
environments. InIluence may also Ilow in the opposite direction; Ior example, Cole Iound
that Hewlett-Packard`s quality program was based on the experience oI its Japanese
subsidiary. Other Iorms oI direct organizational contacts include partnerships, strategic
alliances, and joint ventures like NUMMI.
Firms are also linked by trans-national communities oI experts. The papers collected in
Alvarez, Ior example, provide a rich account oI the burgeoning management knowledge
industry. Industry boards and associations, proIessional associations Ior managers, business
journals, consultants, and schools oI management are all growing apace, and show much
homogeneity across national borders. These experts act as key carriers oI management ideas
by advocating, explaining, and oIten implementing organizational innovations.
Given this thick web oI interconnections, it seems more useIul to think oI
organizational practices and structures as diIIusing Irom one place to another than as being
independently constructed in each location. This perspective suggests new questions. 'What
linkages Iacilitate the movement oI a practice across national borders? 'What sorts oI
practices are quick to move, and which are not? 'What determines the direction oI
diIIusion? 'How are practices translated as they diIIuse?
Rather than try to comprehend a 'global diIIusion system, we limit our attention to the
examine the Ilow oI management practices oI Japan. Much research has sought to explicitly
10


link or implicitly contrast these two organizational communities, Ior a number oI good
reasons: the size oI each national economy and critical role oI Japanese corporations in global
markets, the cultural and institutional distance between the two, and the degree to which the
two countries have provided each other with organizational models. The relationship between
the United States and Japan should not be assumed typical, but it is certainly important.
apanese Quality Control Circles
Quality control circles developed in Japan to involve Ioremen and workers in quality
control. They consist oI a small group drawn Irom a workshop or unit that studies and applies
quality control methods, particularly careIul observation and statistical analysis, to production
problems. They are fishusei, a term oIten translated as voluntary, but perhaps closer in
meaning to autonomous. Japanese managers might set up quality control circles throughout
the Iirm, but would not direct them or make them responsible Ior carrying out oIIicial duties.
Quality control circles stemmed not Irom a single author or network oI competing
consultants, but Irom a collective one: the Japanese Union oI Scientists and Engineers.
Established in 1946 during the period oI American occupation, JUSE began by promoting
American statistical quality control techniques like Shewhart`s control chart and sampling
inspection methods. In 1950, JUSE invited W. Edwards Deming, a student oI Shewhart and
director oI SQC training in the US War Production Board, to give eight days oI workshops.
When Deming declined the honorarium Ior the talks, JUSE used the Iunds to establish the
Deming Prize Ior Quality Control.
As a concrete work innovation with an identiIiable 'author, quality control circles can
be quite precisely dated. The idea was promulgated in 1962, when the Japanese Union oI
Scientists and Engineers Iirst published Genba-to-QC (Quality Control Ior the Foreman) and
launched a drive to encourage the Iormation oI quality control circles in Japanese industry.
The Iirst QCC was registered in May 1962 (the Matsuyama Carrier Equipment Circle oI
Japan Telephone and Telegraph).
QC Circles spread widely and rapidly throughout Japanese industry. By 1970 0,000
circles were registered with JUSE, and by 1980 more than 100,000 were registered (Lillrank
and Kano 1989). While never the 'management secret they were touted to be in the
American business press, quality control circles played a substantial and well institutionalized
role as the participatory wing oI Japanese quality control.
InIormation about quality circles was disseminated Irom Japan to the United States and
around the world in several ways. Quality control experts like Joseph Juran returned Irom
trips to Japan with news oI how shopIloor workers were solving manuIacturing problems
(Juran, 1968).
1
Japanese quality circles toured American and European businesses describing
their approach, and delegations Irom abroad made the return trip.
The Iirst major quality circle program within the US was started in 1974 at Lockheed's
Aeronautics division in Santa Clara, CaliIornia. Lockheed's circle program was stimulated by
the visit oI a touring quality circle party Irom Japan, Iollowed by a return visit by American
managers to Japan in 197. They enjoyed considerable success, reporting a cost savings oI $
million, tenIold reduction in deIects, a 600 percent return on investment, and improved
morale. Lockheed manuIacturing manager Wayne Rieker, QC coordinator Donald Dewar,
and QC training manager JeII Beardsley advertised their success widely, preparing
presentations at the American Society Ior Quality Control. All three ultimately leIt Lockheed
to become business consultants setting up circles elsewhere.


11


The idea oI QC circles was slow to generate interest within American industry. In the
mid 1970s, QC programs were located mainly in the aerospace and electronics industries, and
propagated mainly via inter-organizational networks. For example, Lockheed managers
suggested that their colleagues at Honeywell might Iind quality circles useIul, and in turn
Honeywell passed the idea on to Westinghouse.
As circles gained currency in the United States, they were renamed `quality circles,'
(the term `quality control circle' had some initial currency, but was gradually dropped Irom
American discourse). The American `quality circle' model builds on its Japanese parent, but it
also diIIered Irom it in crucial respects. First, while Japanese circles Iocused on quality
control, American quality circles were understood as potentially addressing almost any
workplace problem or issue. Second, while Japanese QC Circles Iormulated and carried out
workplace improvements, American quality circles centered on making recommendations to
management.
These diIIerences were not random copying errors, but instead modiIications produced
by the concerns, interpretive Iramework, and structural conditions oI American business.
Problematic issues included the undesirable connotations oI `control' Ior a participatory
managerial practice, a desire to limit the role oI the QC Department, the small role oI
Ioremen and cohesive workgroups within American industry relative to Japan, and the
oppositional character oI management-labor relations. All oI these conditions led quality
circles to play a more passive role (see Cole 1989 Ior an extensive and insightIul analysis).
Paul Lillrank (1995; Lillrank and Kano 1989) argues that American eIIorts at quality
circles were Iurther hampered because they wrenched the practice out oI its organizational
context. American managers were drawn to circles as a stand-alone technology whose
success would be automatic given worker knowledge oI operational problems and
willingness to contribute once asked. This view minimized the social and technical
inIrastructure needed to make circles selI-sustaining over time. Lillrank (1995) provides a
glimpse oI the managerial inIrastructure behind QC circles in Japan:
'...to keep the circles active and working on relevant problems, strict management guidance
was necessary. For this, a parallel support structure was constructed, made up oI steering
committees at various levels. Top management strategies were broken down into objectives
Ior each level. While most oI the circles could still choose the topics to work with,
management suggestions, annual policy proclamations, slogans and campaigns provided the
circles with indirect guidance on what types oI issues to Iocus on

Quality circles 'took oII within American organizations in the late 1970s and early
1980s, a time when Japanese dominance oI core American markets had brought the search
Ior 'Japanese management secrets to a Iever pitch. A national association (the inaccurately
named 'International Association oI Quality Circles) was established in 1978 and
experienced exponential growth, doubling in membership until 198 (Cole 1989: 18). As
Figure 1 shows, journal articles on quality circles peaked in the US in 1981 (Strang 1997;
Abrahamson and Fairchild 1999), as did business consultants listing quality circle services
(Strang and Macy 2001: 150-1). Organizational surveys Iound quality circles in more than
40 oI large manuIacturers (Freund and Epstein 1982).

apanese Company-wide Quality Control

Japanese quality control circles were only one wing oI a vigorous national quality
control movement. While quality control circles mobilized Ioremen and Iront-line employees
to measure and solve workplace problems, complementary strategies were promoted at other
organizational levels as well. Senior managers established quality plans and emphasized the
1


strategic opportunity to out-compete rivals on both quality and cost. Middle managers
conducted quality audits that helped align these plans with production targets. Engineers
sought to simpliIy work processes to simultaneously improve product quality and reduce
cycle-times. Marketing and design personnel sought to measure customer satisIaction and
integrate consumer concerns into the design process.
Three main organizations promoted the development and spread oI these quality control
activities. As with quality control circles, the Japanese Union oI Scientists and Engineers
played a core role. In addition, the Japanese Standards Association (JSA) and the Japan
Productivity Center (JPC) organized workshops and published standardized QC texts,
providing a common language and strengthening communication networks across Japanese
Iirms. All three organizations were strongly linked to the Japanese state: most oI the directors
oI the JSA and JUSE were Iormer oIIicials within MITI, and the JPC was sponsored by
MITI.
Japan`s new quality model marked a clear departure Irom traditional inspection and
statistically based notions oI quality control (see Hackman and Wageman, 1995 and Cole,
1999 Ior more detailed discussion). Features oI the new approach included
Customer focus: a proactive emphasis on introducing customer concerns and reactions
into the deIinition oI quality goals and integrating quality and design issues
Process focus: the notion that all aspects oI what an organization does can be
understood in terms oI work processes that cross Iunctional specializations
Measurement focus: an emphasis on 'management by Iact based on quantitative
summaries and analysis
Employee involvement and participation: all employees should be directly and
meaningIully involved in improving quality, in their own individual work, as members oI
production teams, and as contributors to various work processes
Kai:en or continuous improvement: a strategy oI continually streamlining work
processes and reducing production errors.

This complex oI ideas and supporting practices became widespread in the 1960s, a
period when trade liberalization reinIorced the importance oI product quality Ior Japanese
Iirms (Nonaka, 1995). In 1968, the term 'Company Wide Quality Control (CWQC) was
proposed to describe the evolving quality model.
2
Kaoru Ishikawa, the 'Iather oI Japanese
quality control, deIines CWQC as 'all-department participation, 'all-employee
participation, and 'integrated process control (1984).
Overall, however, American eIIorts to learn Irom Japan`s quality model came oI age
in the late 1980s. In 1987, the establishment oI the Malcolm Baldrige National Quality
Award signalled that the total quality movement had gained national prominence as well as
the support oI leading corporations. And in the late 1980s, the term 'total quality
management (TQM) gained currency as a way oI integrating the complex oI quality
methods that American companies were learning Irom Japan.
As with quality circles, America`s renewed attention to Japan stemmed in large part
Irom Japan`s competitive success. The US economy grew at a signiIicantly slower pace than


1


Japan`s throughout the 1980s, with a severe dip at the end oI the decade --- just the time
when American quality eIIorts coalesced around the Baldrige. Key industries like
automobiles, electronics, and computer hardware continued to lose market share to Japanese
Iirms both globally and domestically. And consumers continued to view the quality oI
Japanese products as signiIicantly higher than those oI American companies.
American TQM also grew out oI lessons learned Irom earlier, more partial innovation
attempts. While quality circles had Iailed in most Iirms, they laid the groundwork Ior more
aggressive eIIorts by introducing the notion oI quality as a 'strategic issue and by
sponsoring the growth oI a consulting community with expertise in quality techniques. Philip
Crosby`s 'Zero DeIects program played a similar role in introducing many American
companies to a home-grown version oI quality management that combined traditional
elements with newer ones (Cole 1999; Easton and Jarrell 1998). Quality 'gurus like
Deming, Juran, and Feigenbaum became prominent during the quality circle Iad, and these
experts all argued that deeper managerial commitment was needed.
The total quality journey was not a smooth one, however. Robert Cole (1999) details
the diIIiculty that managers at Hewlett-Packard had in comprehending and Iollowing the
Japanese quality model. Early on, HP managers Iaced strong psychological as well as
cognitive barriers: they Ielt they had little to learn Irom the Japanese, and regarded the
assumptions oI the new quality model (particularly the lack oI conIlict between quality and
other organizational goals) as implausible. During the 1980s, top manager communication oI
quality successes at HP-Yokohama stimulated interest in and acceptance oI major elements oI
TQM in the manuIacturer`s American divisions. Nevertheless, Cole portrays even a quality
exemplar like Hewlett-Packard as having learned to 'surI quality Iads rather than having
established a coherent, well-institutionalized program.
Organizational surveys show widespread development oI TQM in American industry
by the late 1980s. Easton and Jarrell (1998) examine 44 companies with 'advanced TQM
programs: oI these, about halI had begun implementation aIter 1985. Lawler, Mohrman, and
LedIord`s (1992, 1995) surveys oI the Fortune 1000 indicated that about three quarters had
TQM programs in the early 1990s, with modest increases in usage and program coverage by
1995.
While relative market size surely explains some oI this diIIerential, we think it is
more importantly a product oI the diIIerent ways that managerial innovation is organized in
the two countries. In the US, management practices are discussed in public Iorums, and
academics, consultants, and journalists compete with each other to promote diIIerent ideas
and techniques. In Japan, academia is less tightly connected to the business world and key
organizations (like JUSE and JPC) promote management practices through direct contact
with companies rather than within a public marketplace oI innovation advocacy and debate.
At the level oI concrete practices, American TQM is not readily distinguished Irom its
Japanese parent. For example, an American-headquartered bank we observed implemented a
total quality initiative between 1997 and 2000. This initiative involved training oI all
employees in a statistical language and methodology Ior analyzing error rates (Motorola`s Six
Sigma
TM
system), Iormation oI more than a thousand cross-Iunctional process improvement
teams to reduce organizational errors and speed up work processes, measurement oI
organizational units on the basis oI 'quality metrics targeting customer interactions, and
eIIorts to share inIormation with suppliers. All oI these practices are widespread in both
Japanese CWQC and American TQM.
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While many oI the techniques involved in Japanese CWQC were Iollowed in the US,
they were oIten implemented in a way that reversed core meanings. For example, Osterman
(2000) Iound a strong positive correlation between TQM programs in the US and employee
downsizing, and a negative relationship between TQM and gain-sharing programs. The
'employee unIriendly context oI much American TQM contrasts with Japan, where at least
until recently quality eIIorts are supported by liIetime employment and cooperative labour-
management relations (Nakamura and Nitta, 1995).

Scholarly debate over TQM in the West

has largely centered on whether it empowers workers or intensiIies managerial control (see
Ior example Adler 199; Wilkinson 1997; Parker and Slaughter 1998).
Management-labour conIlict leads quality programs to be more Iragile in the US than
in Japan. In studying the multinational described above, Ior example, we were struck by how
strongly program eIIorts and success varied across national settings. In the US, the bank`s
quality initiative Iaced scepticism Irom managers and low rates oI quality team Iormation
(Sine and Strang 2001; Strang 200; Strang and Jung 2004). Many questioned whether the
quality program would lead to downsizing. Tensions over the empirical meaning oI
'empowerment also ran high; Ior example, one team studied by the Iirst author experienced
much conIlict over whether its high ranking sponsor would control the team`s
communications.
Regularities in Diffusion and Domestication

The cases oI scientiIic management, quality (control) circles, and CWQC/TQM provide
both a historical record oI connections between Japanese and American management and a
set oI examples oI the diIIusion oI organizational practices. We comment on several patterns
suggested by their juxtaposition.
First, the Ilow oI practices Irom one country to another seems driven by perIormance
gaps, where Iirms and entire business communities seek to learn Irom success. also see
Strang and Macy 2001 Ior a Iormal model oI emulating success.) Japan pursued scientiIic
management to learn Irom American industrial success in the 1910s and 1920s. American
Iirms returned the Iavour in the 1980s and 1990s, when Japanese quality control circles and
company-wide quality control were the Iocus oI eIIorts in the US to 'catch up with the
Japanese.
Japan and the US cannot be described as equally susceptible to each other`s practices,
however. The Japanese business community was very quick in attending to and incorporating
American management models, while the US was reluctant to learn Irom Japan. ScientiIic
management was rapidly disseminated in Japan, with Taylor`s key treatise translated within a
year and early development oI an organizational inIrastructure within Japan. By contrast,
Japanese quality practices were introduced in the US long aIter their development in Japan.
Quality circles became popular in the US more than IiIteen years aIter their dramatic
launching in Japanese industry, and it took more than twenty years Ior Japanese company-
wide quality control to be recognized within the American business community.
Asymmetry is also evident when we consider 'boomerang eIIects: how the exporter
oI management practices is aIIected by the diIIusion oI its ideas abroad. As Iar as we know,
proponents oI scientiIic management in the US were uninIluenced by the interest their ideas
generated in Japan. By contrast, Japanese business was keenly aware oI American interest in


1


quality circles and TQM. Japanese quality circle registrations skyrocketed aIter the American
quality circle Iad was launched, and the label oI 'company-wide quality control was
discarded in Japanese management discourse in Iavour oI the American label 'TQM.
In an insightIul discussion oI the sources oI American sluggishness, Cole (1998)
emphasizes the emotional as well as cognitive diIIiculty that American managers had in
acknowledging that they had something to learn Irom Japan. More structurally, America`s
early technological lead and oIten hegemonic position within the global economy and polity
promoted an internal Iocus. Japan`s late industrialism and politically subordinate position
aIter World War II led to an emphasis on learning Irom abroad (Ior a more general argument
about the impact oI national position within the global economy, see Arias and Guillen 1998).
Asymmetries in diIIusion appear on a broader scale as well. One can argue that the
American business community is relatively unsusceptible to external inIluence but at the
same time highly inIectious. This is particularly evident iI we consider the dominant position
oI the US in international consultancy, business education, proIessional associations, and
organizational research. For example, Engwall (1998) details trends towards homogenization
oI management models within Europe and the leading role oI American management journals
and texts.
These diIIerentials in responsiveness notwithstanding, organizational practices moved
Irom Japan to the United States as well as Irom the United States to Japan. In both cases, we
are struck by the Iact that practices were not imported wholesale. Instead, Ioreign
management practices were domesticated in transit.
A good example oI domestication is the way Americans reinterpreted Japan`s
autonomous quality control activities based on small groups within the workplace as
voluntary groups that made recommendations to management. 'Sponsored but autonomous
QC circles made little sense in American Iirms Iacing substantial conIlict between
management and labour and where the role oI the Ioreman on the shop Iloor had eroded.
Similarly, Japanese business was enthusiastic about scientiIic management techniques like
time and motion study, but not about its emphasis on piece rate incentives.
Firms and innovation experts in each country thus reinterpreted Ioreign management
ideas to make them compatible with domestic concerns and agendas. In
Japan, scientiIic management was assimilated into eIIorts to maintain a pre-industrial
sense oI community, while in the United States it was presented as an alternative to hoary
notions oI industrial betterment. American Iirms combined TQM with downsizing, making
its implementation an occasion Ior intensiIied rather than reduced workplace conIlict.
The domestication oI particular Ieatures oI diIIusing practices provides an opportunity
to see 'institutions in action. As Guillen (1994) argues, institutions are both cognitive
models Ior behavior and structures oI power. For example, American managers and
consultants developed a simpliIied, context-independent notion oI the quality circle that Iit
American notions oI 'participatory management. And the oppositional structure oI
American labour relations and the hegemonic position oI top management led American
TQM to be combined with downsizing rather than revive the notion that employment
represents an implicit social contract.
Finally, the United States and Japan possess qualitatively diIIerent 'diIIusion
inIrastructures: patterned ways oI learning about and disseminating new practices (see Cole
1989 Ior insightIul discussion along these lines Ior the case oI small group activities). In the
1


US, all three practices described here spread via a decentralized market Ior organizational
innovation. Frederick Taylor, the Gilberts, and a horde oI 'eIIiciency experts touted their
own versions oI scientiIic management aIter the turn oI the century. A Ilurry oI independent
consultants Irom Lockheed and elsewhere promoted quality circles, and TQM`s early spread
involved competition between gurus like Feigenbaum, Juran, and Deming. This competition
occurred in a very public way through the business press as well as less visibly through
managerial networks.
In Japan, by contrast, corporate innovation was promoted in centralized Iashion by
publicly supported organizations. The Industrial Research Institute, the Japanese Union oI
Scientists and Engineers, and the Japanese Standards Association all enjoyed a combination
oI government and corporate sponsorship that no American consultant could lay claim to
(and that would have been immediately attacked by rival consultants iI it had). These
organizations promulgated best practices through direct ties to top managers and leading
corporations rather than through a 'Iree-Ior-all within the media.
These very diIIerent ways oI diIIusing managerial practices have a variety oI
implications. They are most obviously related to the contrast between the 'boom and bust
cycle characteristic oI American managerial innovation versus the Japanese pattern oI
relative stability and internal evolution. In the US, consultants tend to converge on popular
innovations, increasing the volume oI unsustainable claims as competing advocates seek to
distinguish their approach and undercut their rivals. Since managerial expectations grow
while the average level oI consultant experience and expertise Ialls, a proclivity towards
Iaddish cycles is reinIorced (David and Strang 200). In Japan, by contrast, direct ties
between peak associations oI experts and major Iirms generate better prospects Ior
'continuous improvement (though perhaps Iewer new ideas).