MGT510 - Total Quality Management - Lecture Handout 04

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FUNDAMENTALS OF TOTAL QUALITY AND RATERS VIEW

Total quality–a comprehensive, organization-wide effort to improve the quality of products and service–applies not only to large manufacturers, but to small companies alike. All organization–large and small, manufacturing and service, profit and not-for-profit-can benefit from applying the principles of total quality.

During the 1990s, health care, government, and education began to pay increased attention to quality. As more public and government attention focuses on the nation’s health care system, its providers turn toward quality as a means of achieving better performance and lower costs. One hospital, for example, lowered its rate of post-surgical infections to less than one-fifth of the acceptable national norms through the use of quality tools.

Although quality initiatives focused initially on reducing defects and errors in products and services through the use of measurement, statistics, and other problem-solving tools, organizations began to recognize that lasting improvement could not be accomplished without significant attention to the quality of the management practices used on a daily basis. Managers began to realize that the approaches they use to listen to customers and develop long-term relationships, develop strategy, measure performance and analyze data, reward and train employees, design and deliver products and services, and act as leaders in their organizations are the true enablers of quality, customer satisfaction, and business results. In other words, they recognized that the “quality of management” is as important as the “management of quality.” As organizations began to integrate quality principles into their management systems, the notion of total quality management, or TQM, became popular. Quality took on a new meaning of organization-wide performance excellence rather than an engineering-based technical discipline.

As quality principles have matured in organizations, attention to quality as “something new” has faded, and the term “total quality management (TQM),” which was popular throughout the 1980s and early 1990s has all but fallen out of the business vernacular. Critics suggested that “TQM is as dead as a pet rock” (Business Week, June 23, 1997, p. 47). Perhaps it is unfortunate that a three-letter acronym was chosen to represent such as powerful management concept. It is equally unfortunate that people point to the demise of faddish terminology as a generalization of the concepts themselves. Reasons for failure of quality initiatives are rooted in organizational approaches and systems. As the editor of Quality Digest put it: “No, TQM isn’t dead….TQM failures just prove that bad management is still alive and kicking.” The most successful organizations have found that the fundamental principles of total quality are essential to effective management practice, and continue to represent a sound approach for achieving business success.

The real challenge today is to ensure that managers do not lose sight of the basic principles on which quality management and performance excellence are based. The global marketplace and domestic and international competition has made organizations around the world realize that their survival depends on high quality. Many countries, such as Korea and China, are mounting national efforts to increase quality awareness, including conferences, seminars, radio shows, school essay contests, and pamphlet distribution. Spain and Brazil are encouraging the publication of quality books in their native language to make them more accessible. These trends will only increase the level of competition in the future. Even the tools used to achieve quality a decade ago are no longer sufficient to achieve the performance levels necessary to compete in today’s world. Many organizations are embracing highly sophisticated, statistically based tools as part of popular “Six Sigma” initiatives. These require increased levels of training and education for managers and frontline employees alike, as well as the development of technical staff. As Tom Engibous, president and chief executive officer of Texas Instruments commented on the present and future importance of quality in 1997: Quality will have to be everywhere, integrated into all aspects of a winning organization.

The Concept of Quality

People define quality in many ways. Some think of quality as superiority or excellence, others view it as a lack of manufacturing or service defects, still others think of quality as related to product features or price. Followings are some of many ways to look at quality.

  1. perfection
  2. consistency
  3. eliminating waste
  4. speed of delivery
  5. compliance with policies and procedures
  6. providing a good, usable product
  7. doing it right the first time
  8. delighting or pleasing customers
  9. total customers service and satisfaction

Today most managers agree that the main reason to pursue quality is to satisfy customers. The American National Standards Institute (ANSI) and the American Society for Quality (ASQ) define quality as "“the totality of features and characteristics of a product or service that bears on its ability to satisfy given needs.” The view of quality as the satisfaction of customer needs is often called fitness for use. In highly competitive markets, merely satisfying customer needs will not achieve success. To beat the competition, organizations often must exceed customer expectations. Thus, one of the most popular definitions of quality is meeting or exceeding customer expectations.

QUALITY IN MANUFACTURING

Well-developed quality systems have existed in manufacturing for some time. However, these systems focused primarily on technical issues such as equipment reliability, inspections, defect measurement, and process control. The transition to a customer-driven organization has caused fundamental changes in manufacturing practices, changes that are particularly evident in areas such as product design, human resource management, and supplier relations. Product design activities, for example, now closely integrate marketing, engineering, and manufacturing operations. Human resource practices concentrate on empowering workers to collect and analyze data, make critical operations decisions, and take responsibility for continuous improvements, thereby moving the responsibility for quality from the
quality control department onto the factory floor. Suppliers have become partners in product design and manufacturing efforts. Many of these efforts were stimulated by the automobile industry, which forced their network of suppliers to improve quality.

Manufactured products have several quality dimensions including the following:

  1. Performance: a product’s primary operating characteristics.
  2. Feature: the “bells and whistles” of a product.
  3. Reliability: the probability of a product’s surviving over a specified period of time under stated conditions of use.
  4. Conformance: the degree to which physical and performance characteristics of a product match pre-established standards.
  5. Durability: the amount of use one gets from a product before it physically deteriorates or until replacement is preferable.
  6. Serviceability: the ability to repair a product quickly and easily.
  7. Aesthetics: how a product looks, feels, sounds, tastes, or smells.
  8. Perceived quality: subjective assessment resulting from image, advertising, or brand names.

Most of these dimensions revolve around the design of the product.

Quality control in manufacturing is usually based on conformance, specifically conformance to specifications. Specifications are targets and tolerances determined by designers of products and services. Targets are the ideal values for which production strives; tolerances are acceptable deviations from these ideal values. For example, a computer chip manufacturer might specify that the distance between pins on a computer chip should be 0.095 + 0.005 inches. The value 0.090 and 0.100 would be acceptable.

QUALITY IN SERVICES

Service can be defined as “any primary or complementary activity that does not directly produce a physical product–that is, the non goods part of the transaction between buyer (customer) and seller (provider).” A service might be as simple as handling a complaint or as complex as approving a home mortgage. Service organizations include hotels; health, legal, engineering, and other professional services; educational institutions; financial services; retailers; transportation; and public utilities.

Today services account for nearly 80 percent of the U.S., Singapore and Sweden workforce. The importance of quality in services cannot be underestimated, as statistics from a variety of studies reveals:

  • The average company never hears from more than 90 percent of its unhappy customers. For every complaint it receives, the company has at least 25 customers with problems, about onefourth of which are serious.
  • Of the customers who make a complaint, more than half will do business again with that organization is their complaint is resolved. If the customer feels that the complaint was resolved quickly, this figure jumps to about 95 percent.
  • The average customer who has had a problem will tell nine or ten others about it. Customers who have had complaints resolved satisfactorily will only tell about five others.
  • It costs six times more to get a new customer than to keep a current customer.

So why do many companies treat customers as commodities? In Japan the notion of customer is equated with “honored guest.” Service clearly should be at the forefront of a firm’s priorities.

The service sector began to recognize the importance of quality several years after manufacturing had done so. This can be attributed to the fact that service industries had not confronted the same aggressive foreign competition that faced manufacturing. Another factor is the high turnover rate in service industry jobs, which typically pay less than manufacturing jobs. Constantly changing personnel makes establishing a culture for continuous improvement more difficult.

The production of services differs from manufacturing in many ways, and these differences have important implications for managing quality. The most critical differences are:

  1. Customer needs and performance standards are often difficult to identify and measure, primarily because the customers define what they are, and each customer is different.
  2. The production of services typically requires a higher degree of customization than does manufacturing. Doctors, lawyers, insurance salespeople, and food-service employees must tailor their services to individual customers. In manufacturing, the goal is uniformity.
  3. The output of many service systems is intangible, whereas manufacturing produces tangible, visible products. Manufacturing quality can be assessed against firm design specifications, but service quality can only be assessed against customers’ subjective, nebulous expectations and past experiences. Manufactured goods can be recalled or replaced by the manufacturer, but poor service can only be followed up by apologies and reparations.
  4. Services are produced and consumed simultaneously, whereas manufactured goods are produced prior to consumption. In addition, many services must be performed at the convenience of the customer. Therefore, services cannot be stored, inventoried, or inspected prior to delivery as manufactured goods are. Much more attention must therefore be paid to training and building quality into the service as a means of quality assurance.
  5. Customers often are involved in the service process and present while it is being performed, whereas manufacturing is performed away from the customer. For example, customers of a quick-service restaurant pace their own orders, carry their food to the table, and are expected to clear the table when they have finished eating.
  6. Services are generally labor intensive, whereas manufacturing is more capital intensive. The quality of human interaction is a vital factor for services that involve human contact. For example, the quality of hospital care depends heavily on interactions among the patients, nurses, doctors, and other medical staff. Hence, the behavior and morale of service employees is critical in delivering a quality service experience.
  7. Many service organizations must handle very large numbers of customer transactions. For example, on a given business day, the National Bank of Pakistan might process more than 5.5 million transactions for 7.5 million customer through 1,600 branches and more than 3,500 banking machines, and TCS or Fed Ex might handle more than 1.5 million shipments across the globe. Such large volumes increase the opportunity for error.

These differences have made it difficult for many service organizations to apply total quality principles.

Many service organization have well-developed quality assurance systems. Most of them, however, are based on manufacturing analogies and tend to be more product-oriented than service-oriented. Many of the key dimensions of product quality apply to services. For instance, “on time arrival” for an airline is a measure of service performance; frequent flyer awards and “business class” sections represent features. A typical hotel’s quality assurance systems focus on technical specifications such as properly made-up rooms. However, service organizations have special requirements that manufacturing systems cannot fulfill. The most important dimensions of service quality include the following; you may remember the most important ones by RATER:

  • Reliability: How much reliable is the service provider?
  • Accessibility and convenience: Is the service easy to obtain?
  • Timeliness: Will a service be performed when promised?
  • Completeness: Are all items in the order included?
  • Consistency: Are services delivered in the same fashion for every customer, and every time for the same customer?
  • Tangibility: After the service is over, is there any thing to take home to remind the service experience?
  • Empathy or Courtesy: Do frontline employees greet each customer cheerfully?
  • Responsiveness: Can service personnel react quickly and resolve unexpected problems?

Service organizations must look beyond product orientation and pay significant attention to customer transactions and employee behavior. Several points that service organizations should consider are as follows:

  • The quality characteristics that a firm should control may not be the obvious ones. Customer perceptions are critical although it may be difficult to define what the customer wants. For example, speed of service is an important quality characteristic, yet perceptions of speed may differ significantly among different service organization and customers. Marketing and consumer research can play a significant role.
  • Behavior is a quality characteristic. The quality of human interaction is vital in every transaction that involves human contact. For example, banks have found that the friendliness of tellers is a principal factor in retaining depositors.
  • Image is a major factor in shaping customer expectations of a service and in setting standards by which customers evaluate that service. A breakdown in image can be as harmful as a breakdown in delivery of the service itself. Top management is responsible for shaping and guiding the image that the firm projects.
  • Establishing and measuring service levels may be difficult. Service standards, particularly those relating to human behavior, are often set judgmentally and are hard to measure. In manufacturing, it is easy to quantify output, scrap, and rework. Customer attitudes and employee competence are not as easily measured.
  • Quality control activity may be required at times or in places where supervision and control personnel are not present. Often work must be performed at the convenience of the customer.
    This calls for more training of employees and self-management.

These issues suggest that the approach to managing quality in services differs from that used in manufacturing. However, manufacturing can be seen as a set of interrelated services, not only between the company and the ultimate consumer, but within the organization. Manufacturing is a customer of product design; assembly is a customer of manufacturing; sales are a customer of packaging and distribution. If quality is meeting and exceeding customer expectations, then manufacturing takes on a new meaning, far beyond product orientation. Total quality provides the umbrella under which everyone in the organization can strive to create customer satisfaction.

Quality in ICT Sector

Quality in IT and IS was taken seriously only after SW Engineering principles were established. SWE Institute at CM University developed the CMM levels to indicate the maturity levels of an organization taking care of RATER along with issues of Configuration Management, Verification and Validation issues along with Scalability and Reusability issues.

PRINCIPLES OF TOTAL QUALITY

A definition of total quality was endorsed in 1992 by the chairs and CEOs of nine major U.S. corporations in cooperation with deans of business and engineering departments of major universities, and recognized consultants:

Total Quality (TQ) is a people-focused management system that aims at continual increase in customer satisfaction at continually lower real cost. TQ is a total system approach (not a separate area or program) and an integral part of high-level strategy; it works horizontally across functions and departments, involves all employees, top to bottom, and extends backward and forward to include the supply chain and the customer chain. TQ stresses learning and adaptation to continual change as keys to organizational success.

The foundation of total quality is philosophical: TQ includes systems, methods, and tools. The systems permit change; the philosophy stays the same. TQ is anchored in values that stress the dignity of the individual and the power of community action.

There probably are as many different approaches to TQ as there are businesses. However, most share some basic elements: (1) customer focus, (2) a process orientation, (3) continuous improvement and learning, (4) empowerment and teamwork, (5) management by fact, and (6) leadership and strategic planning.

Customer Focus

The customer is the judge of quality. Understanding customer needs, both current and future, and keeping pace with changing markets requires effective strategies for listening to and learning from customers, measuring their satisfaction relative to competitors, and building relationships, Customer needs–particularly differences among key customer groups – must be linked closely to an organization’s strategic planning, product design, process improvement, and workforce training activities. Satisfaction and dissatisfaction information are important because understanding them leads to the right improvements that can create satisfied customers who reward the company with loyalty, repeat business, and positive referrals. Creating satisfied customers includes prompt and effective response and solutions to their needs and desires as well as building and maintaining good relationships. A business can achieve success only by understanding and fulfilling the needs of customers. From a total quality perspective, all strategic decisions a company makes are “customer-driven.” In other words, the company shows constant sensitivity to emerging customer and market requirements. This requires an awareness of developments in technology and rapid and flexible response to customer and market needs.

Customer-driven firms measure the factors that drive customer satisfaction. A company close to its customer knows what the customer wants, how the customer uses its products, and anticipates the needs that the customer may not even by able to express. It also continually develops new techniques to obtain customer feedback. Customer opinion surveys and focus groups can help companies understand customer requirements and values. Some companies require their sales and marketing executives to meet with random group of key customers on a regular basis. Other companies bring customers and suppliers into internal product design and development meetings.

A firm also must recognize that internal customers–the recipients of any work output, such as the next department in a manufacturing process or the order-picker who receives instructions from an order entry clerk – are as important in assuring quality as are external customers who purchase the product. Failure to meet the needs of internal customers will likely affect external customers. Employees must view themselves as customers of some employees and suppliers to others. Employees who view themselves as both customers of and suppliers to other employees understand how their work links to the final product. After all, the responsibility of any supplier is to understand and meet customer
requirements in the most efficient and effective manner possible.

Customer focus extends beyond the consumer and internal relationships, however. Society represents an important customer of business. A world-class company, by definition, is an exemplary corporate citizen. Business ethics, public health and safety measures, concern for the environment, and sharing quality-related information in the company'’ business and geographic communities are required. In addition, company support–within reasonable limits of its resources–of national, industry, trade, and community activities and the sharing of nonproprietary quality-related information demonstrate farreaching benefits.

Customers may be of following types:

  1. External Customer
  2. Internal Customer
  3. Investor Customer
  4. Social or Society Customer

Process Orientation

The traditional way of viewing an organization is by surveying the vertical dimension – by keeping an eye on an organization chart. However, work gets done (or fails to get done) horizontally or crossfunctionally, not hierarchically. A process is a sequence of activities that is intended to achieve some result. According to AT&T, a process is how work creates value for customers. We typically think of processes in the context of production: the collection of activities and operations involved in transforming inputs-physical facilities, materials, capital, equipment, people, and energy-into outputsproducts and services. Common types of production processes include machining, mixing, assembly, filling orders, or approving loans. However, nearly every major activity within an organization involves a process that crosses traditional organizational boundaries. For example, an order fulfillment process might involve a salesperson placing the order; a marketing representative entering it on the company’ computer system; a credit check by finance; picking, packaging, and shipping by distribution and logistics personnel; invoicing by finance; and installation by field service engineers. A process perspective links all necessary activities together and increases one’s understanding of the entire system, rather than focusing on only a small part. Many of the greatest opportunities for improving organizational performance lie in the organizational interfaces – those spaces between the boxes on an
organization chart.

CONTINUOUS IMPROVEMENT AND LEARNING

Continuous improvement is part of the management of all systems and processes. Achieving the highest levels of performance requires a well-defined and well-executed approach to continuous improvement and learning. “Continuous improvement” refers to both incremental and “breakthrough” improvement. Improvement and learning need to be embedded in the way an organization operates. This means they should be a regular part of daily work, seek to eliminate problems at their source, and be driven by opportunities to do better as well as by problems that need to be corrected. Improvements may be of several types:

  • Enhancing value to the customer through new and improved products and services;
  • Improving productivity and operational performance through better work processes and reductions in errors, defects, and waste; and
  • Improving flexibility, responsiveness, and cycle time performance.

MANAGEMENT BY FACT

Organizations needs performance measures for three reasons:

  • To lead the entire organization in a particular direction; that is, to drive strategies and organizational change,
  • To manage the resources needed to travel in this direction by evaluating the effectiveness of action plans, and
  • To operate the processes that makes the organization work and continuously improves.

Data and information support analysis at all organizational levels. The types of information and how it is disseminated and aligned with organizational levels are equally vital to success. At the work level, data provide real-time information to identify assignable reasons for variation, determine root causes, and take corrective action as needed. This might require lean communication a channel consisting of bulletins, computerized quality reports, and digital readouts of part dimensions to provide immediate information on what is happening and how things are progressing. At the process level, operational performance data such as yields, cycle times, and productivity measures help manager determine
whether they are doing the right job, whether they are using resources effectively, and whether they are improving. Information at this level generally is aggregated; for example daily or weekly scrap reports, customer complaint data obtained from customer service representatives or monthly sales and cost figures faxed in from field offices. At the organization level, quality and operational performance data from all areas of the firm, along with relevant financial, market, human resources, and supplier data, form the basis for strategic planning and decision making. Such information is highly aggregated and obtained from many different sources throughout the organization.

A company should select performance measures and indicator that best represent the factor that lead to improved customer, operational, and financial performance. These typically include:

  • Customer satisfaction,
  • Product and service performance,
  • Market assessments,
  • Competitive comparisons,
  • Supplier performance,
  • Employee performance, and
  • Cost and financial performance.

A comprehensive set of measures and indicators tied to customer and company performance requirements provides a clear basis for aligning all activities of the company with its goals.

LEADERSHIP AND STRATEGIC PLANNING

Leadership for quality is the responsibility of top management. Senior leadership must set directions; create a customer orientation, clear quality values, and high expectations that address the needs of all stakeholders; and build them into the way the company operates. Senior leaders need to commit to the development of the entire workforce and should encourage participation, learning, innovation, and creativity throughout the organization. Reinforcement of the values and expectations requires the substantial personal commitment and involvement of senior management. Through their personal roles in planning, reviewing company quality performance, and recognizing employees for quality achievement, the senior leaders serve as role models, reinforcing the values and encouraging leadership throughout the organization.

If commitment to quality is not a priority, any initiative is doomed to failure. Lip service to quality improvement is the kiss of death. Many companies have a corporate quality council made up of top executives and managers, which sets quality policy and reviews performance goals within the company. Quality should be a major factor in strategic planning and competitive analysis processes.

Many of the management principles and practices required in a TQ environment may be contrary to long-standing practice. Top managers, ideally starting with the CEO, must be the organization’s TQ leaders. The CEO should be the focal point providing broad perspectives and vision, encouragement, and recognition. The leader must be determined to establish TQ initiatives and committed to sustain TQ activities through daily actions in order to overcome employees’ inevitable resistance to change.

Unfortunately, many organizations do not have the commitment and leadership of their top managers. This does not mean that these organizations cannot develop a quality focus. Improved quality can be fostered through the strong leadership of middle managers and the involvement of the workforce. In many cases, this is where quality begins. In the long run, however, an organization cannot sustain quality initiatives without strong top management leadership.

Achieving quality and market leadership requires a strong future orientation and a willingness to make long-term commitments to key stakeholders-customers, employees, suppliers, stockholders, the public, and the community. Strategic business planning should be the driver for quality excellence throughout the organization and needs to anticipate many changes, such as customer’s expectations, new business and partnering opportunities, the global and electronic marketplaces, technological developments, new customer segments, evolving regulatory requirements, community / societal expectations, and strategic changes by competitors. Plans, strategies, and resource allocations need to reflect these influences. Improvements do not happen overnight. The success of market penetration by Japanese manufacturers evolved over several decades.

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