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Chapter 4 ©2001 Prentice-Hall S. Thomas Foster, Jr. Boise State University Slides Prepared by Bruce R. Barringer University of Central Florida S. Thomas Foster, Jr. Boise State University Slides Prepared by Bruce R. Barringer University of Central Florida Strategic Quality Planning
Transparency 4-2 © 2001 Prentice-Hall Chapter Overview Slide 1 of 2 Strategy Content The Importance of Time in Quality Improvement Leadership for Quality Quality and Ethics Quality as a Strategy Quality Strategy Process
Transparency 4-3 © 2001 Prentice-Hall Chapter Overview Slide 2 of 2 Deploying Quality (Hoshin Kanri) Does Quality Lead to Better Business Results?
Transparency 4-4 © 2001 Prentice-Hall Strategy Planning Strategic planning has two important dimensions. These are content and process. Strategic content answers the question of what is to be contained in the strategic plan. Strategic process consists of the steps used to develop the strategy.
Transparency 4-5 © 2001 Prentice-Hall Strategy Planning Strategic content refers to the variables, definitions, components, and concepts that are included in the strategy. Strategic process consists of the steps for developing strategy within an organization.
Transparency 4-6 © 2001 Prentice-Hall Strategy Content 1 of 2 Why is Quality Planning Important? –As we have discussed in previous chapters, quality improvement is a planned managerial activity. –Quality improvement involves identifying potential improvements, prioritizing potential areas for improvement, and planning the implementation of projects and improvements.
Transparency 4-7 © 2001 Prentice-Hall Strategy Content 2 of 2 Strategy Content Variables –Among the strategy content variables we discuss are time, leadership, quality costs, generic strategies(cost, differentiation, and focus), orders winners, and quality as a core competency.
Transparency 4-8 © 2001 Prentice-Hall The Importance of Time in Quality Improvement Two Important Aspects of Time –There are two aspects of time that we discuss: The time it takes to achieve business goals as a result of quality. The speed at which companies improve.
Transparency 4-9 © 2001 Prentice-Hall The Importance of Time in Quality Improvement Real-life experience shows that time is a key variable in improving quality. A review of many studies and writings suggests that time is an important variable to consider when managing successful quality improvement. Time is also an important component of strategy. Thus, strategic planning is important for continuous quality improvement.
Transparency 4-10 © 2001 Prentice-Hall The Importance of Time in Quality Improvement One of the approaches that some managers use we will call the “management by dictate” model. Using management by dictate, we set numeric goals for the coming year. These goals are analogous to what Deming referred to as creating goals and not providing systems to achieve the goals.
Transparency 4-11 © 2001 Prentice-Hall The Importance of Time in Quality Improvement According to Donald Wheeler, when goals such as these are set, one of three things will occur: 1. People will achieve the goals and incur positive results. 2. People will distort the data. 3. People will distort the system.. The PDCA cycle allows for organizational learning and freezing of learning to take place.. We still do not know the optimal time for learning to take place.
Transparency 4-12 © 2001 Prentice-Hall Leadership For Quality Slide 1 of 5 Leadership –Leadership is the process by which a leader influences a group to move toward the attainment of super-ordinate goals. Super-ordinate goals are those goals that pertain to achieving a higher end that benefits not just the individual, but the group.
Transparency 4-13 © 2001 Prentice-Hall Leadership For Quality Some leaders are selected because they have the highest intellect. In still organizations, leaders are appointed. As a result, leadership is about the sharing of power. This power takes many forms.
Transparency 4-14 © 2001 Prentice-Hall Leadership For Quality Slide 2 of 5 Types of Power Power of Expertise Reward Power Sometimes a leader has special knowledge (or is perceived to have special knowledge). If a leader has rewards that he or she can bestow on subordinates in return for some desirable position, the leader has reward power.
Transparency 4-15 © 2001 Prentice-Hall Leadership For Quality Slide 3 of 5 Types of Power Coercive PowerReferent Power If the leader has power to punish the follower for not following rules or guidelines, the leader has coercive power. If a leader is charismatic or charming and is followed because he or she is liked, then the leader has referent power.
Transparency 4-16 © 2001 Prentice-Hall Leadership For Quality Slide 4 of 5 Types of Power Legitimate Power Legitimate power comes with the position.
Transparency 4-17 © 2001 Prentice-Hall Leadership For Quality Slide 5 of 5 Leadership Dimensions –Trait dimension Leadership characteristics tied to the personal “traits” of leaders (such as height and intelligence). –Leader skills (see next slide, Table 4.1) Attributes such as knowledge, communication, planning, and vision. –Leader behavior This approach discusses how leaders behave to identify specific leadership styles and the effects of leadership style on subordinate performance.
Transparency 4-18 © 2001 Prentice-Hall Leadership Skills
Transparency 4-19 © 2001 Prentice-Hall Leadership For Quality Leadership Dimensions –Leader behavior Leaders who are successful in leading quality- related efforts must be worthy of trust. Leaders are consistent over time in their actions so employees will trust the leader enough to pursue quality. Leadership must be absolutely consistent and fair in gaining and earning trust or else future potential for quality improvement will be reduced.
Transparency 4-20 © 2001 Prentice-Hall Leadership For Quality Nothing can damage a quality improvement effort faster than management failure to consider implementing changes that employees recommend. Employees may begin to think “nothing will already change.” Another important attribute of quality manager is commitment over the long term. Commitment to quality means that leader provide funding, slack time, and resources for quality improvement efforts to be successful.
Transparency 4-21 © 2001 Prentice-Hall Leadership For Quality As we see in the case of Solectron (Quality Highlight 4.1), the leadership of Winston Chen is key to its success. One of the things a leader must be able to do is manage conflict in the organization. Leaders must be able to resolve conflict effectively in organization. Leaders resolve conflict in a variety of ways as next slides.
Transparency 4-22 © 2001 Prentice-Hall How Leaders Resolve Conflict Slide 1 of 2 Passive Conflict Resolution –Some managers and leaders ignore conflict. Win-win –Leaders might seek solutions to problems that satisfy both sides of a conflict by providing win-win scenarios. Structured Problem Solving –Conflicts can be resolved in a fact-based manner by gathering data regarding the problem and have the data analyzed by a disinterested observer.
Transparency 4-23 © 2001 Prentice-Hall How Leaders Resolve Conflict Slide 2 of 2 Confronting Conflict –At times, it is best to confront the conflict and help subordinates resolve conflicts. Choosing a Winner –In some cases the leader may choose a winner of the conflict and develop a plan of action for conflict resolution between the parties. Selecting a Better Alternative –Sometimes there is an alternative neither of the parties to the conflict has considered.
Transparency 4-24 © 2001 Prentice-Hall How Leaders Resolve Conflict Preventing Conflict –To create an environment that is relatively free of conflict. –As shown in Table 4.2, these organizational design fundamentals are useful in reducing conflict in organizations. –By carefully defining goals, rewards, communication systems, coordination, and the nature of competition in a firm, conflict can be reduced or eliminated.
Transparency 4-25 © 2001 Prentice-Hall How Leaders Resolve Conflict
Transparency 4-26 © 2001 Prentice-Hall Quality and Ethics Quality appears to be good business. Quality is also good ethics. It is unethical to ship defective products knowingly to a customer. Reliable products reflect an ethical approach of management’s care for its customers. “We build good ships. At a profit if we can, at a loss if we must. But, we build good ships”—New Bedford, a shipbuilder.
Transparency 4-27 © 2001 Prentice-Hall Quality and Ethics Companies focusing on their customers often develop a set of ethics that includes valuing employees. Companies such as HP are seriously striving to improve the lives of their employees. Environmental friendliness is seen as an ethical concern. As a result, more companies are implementing recycling programs and making efforts to improve environmental practices.
Transparency 4-28 © 2001 Prentice-Hall Quality as Strategy Although quality can still win orders in some market, in many markets quality has become an order qualifier. This means that high-quality production is an essential ingredient to participation in the market. Quality is still an effective tool in successful exporting in the international market.
Transparency 4-29 © 2001 Prentice-Hall Quality as Strategy Slide 1 of 8 Quality as a Strategy –We now discuss quality as a strategy from the perspective of generic strategies. These generic strategies are cost, differentiation, and focus.
Transparency 4-30 © 2001 Prentice-Hall Quality as Strategy Costs of Quality –New definitions of cost are expansive, considering the the summation of costs over the life of a product. –This includes service, maintenance, and operating costs for products –The life cycle costs for many products may be staggering when environmental costs are considered. –There are two broad categories of costs: costs due to poor quality and costs associated with improving quality.
Transparency 4-31 © 2001 Prentice-Hall Quality as Strategy Costs of Quality –Taguchi and others have provided insight into the issue of quality costs. –The title of the classic book by Crosby Quality Is Free reveals an interest in the costs of quality.
Transparency 4-32 © 2001 Prentice-Hall Quality as Strategy Slide 2 of 8 PAF Paradigm –Prevention costs are those costs associated with preventing defects and imperfections from occurring. –Prevention costs include costs such as training, quality planning, process engineering, and other costs associated with assuring quality beforehand (see Table 4.3).
Transparency 4-33 © 2001 Prentice-Hall Examples of Prevention Cost
Transparency 4-34 © 2001 Prentice-Hall Quality as Strategy PAF Paradigm –Appraisal costs are associated with the direct costs of measuring quality. –These can include a variety of activities such as lab testing, inspection, test equipment and materials, losses because of destructive tests, and costs associated with assessments for ISO 9000 or other awards (see Table 4.4).
Transparency 4-35 © 2001 Prentice-Hall Quality as Strategy Slide 3 of 8 Table 4.4 Examples of Appraisal Costs Laboratory acceptance testing Inspection and tests by inspectors Inspection and tests by non-inspectors Set-up for inspection and testing Product quality audits Review of test and inspection data On-site performance tests ISO 9000 qualification activates Quality award assessments
Transparency 4-36 © 2001 Prentice-Hall Quality as Strategy Slide 4 of 8 PAF Paradigm (continued) –Failure costs are roughly categorized into two areas of costs. Internal failure costs are those associated with on-line failure. External failure costs are associated with product failure after the production process. This includes failure after the customer takes possession of the products (see Table 4.5).
Transparency 4-37 © 2001 Prentice-Hall Examples of Failure Cost
Transparency 4-38 © 2001 Prentice-Hall Accounting for Quality-Related Costs One of the impediments to the collection of quality cost data has been the lack of acceptable accounting standards for these costs. A reason for this is that accounting rules require definitions that are not open ended or open to alternative interpretations.
Transparency 4-39 © 2001 Prentice-Hall Lundvall-Juran Quality Cost Model The Lundvall-Juran model is a simple economic model, is shown in Figure 4.1. It states that as expenditures in prevention and appraisal activities increase, quality conformance should increase. This is an interesting case because there should be an economic quality level that minimizes quality-related costs and this flies in the face of the idea of continuous improvement proposed by Deming and others.
Transparency 4-40 © 2001 Prentice-Hall Quality as Strategy Slide 5 of 8 Figure 4.1 Lundvall-Juran Quality Cost Model Cost Conformance Ratio C 1 = = Prevention & appraisal costs C 2 = = Failure Costs C 1 C 2 + 0% 100% q q c min
Transparency 4-41 © 2001 Prentice-Hall Quality as Strategy Slide 6 of 8 Differentiation Through Quality –Differentiation is achieved by a competitor if the customer perceives the product or service to be unique in an important way –It is increasingly difficult to differentiate products based on quality alone.
Transparency 4-42 © 2001 Prentice-Hall Quality as Strategy Quality Through Focus –Think of a product that is particularly regional or is marked to a particular group. –That limited region or group is the object of the focus strategy. –Such a focus strategy can be very profitable.
Transparency 4-43 © 2001 Prentice-Hall Quality as Strategy Slide 7 of 8 Order Winners –Terry Hill of the London Business School defined a process for setting strategy that is centered on the identification of the order winning criteria (OWC). - Table 4.6 provides an overview of the planning framework defined by Terry Hill.
Transparency 4-44 © 2001 Prentice-Hall Hill’s Strategy Framework
Transparency 4-45 © 2001 Prentice-Hall Quality as Strategy Quality as a Core Competency –Communication, involvement, and a deep commitment to working across organizational boundaries. –It involves many levels of people and all functions. –Core competencies do not diminish with use. –Competencies are enhanced as they are applied and shared.
Transparency 4-46 © 2001 Prentice-Hall Quality as Strategy Slide 8 of 8 Quality as a Core Competency –Quality, in and of itself, is probably not a core competency. –However, core competency is built on the foundation of a long-term commitment to quality and continual process improvement.
Transparency 4-47 © 2001 Prentice-Hall Quality Strategy Process There are many different processes for developing strategy. We will highlight a strategic planning process for firms: -- forced-choice model, a little or no experience developing strategy. -- mature strategic planning process, please see A Closer Look at Quality 4.1.
Transparency 4-48 © 2001 Prentice-Hall Quality Strategy Process Slide 1 of 2 Forced-Choice Model –The forced-choice model is one of several strategic-planning models that could be adapted to demonstrate integrated quality planning. –The forced-choice model is particularly useful for companies that are relatively inexperienced in strategic planning.
Transparency 4-49 © 2001 Prentice-Hall Quality Strategy Process The forced-choice model is generic and is used simple for explanation purposes. The forced-choice model is used by firms that are new to strategic planning. Figure 4.2 provides an outline of the forced- choice strategic planning model.
Transparency 4-50 © 2001 Prentice-Hall Quality Strategy Process Slide 2 of 2 Figure 4.2 Forced-Choice Model Environmental Assessment Organization’s Position 11. Strategic options Requirements for implementing options Contingency plans 1. Statement of mission 2. Interrelated set of financial and non-financial objectives 3. Statement of strengths and weaknesses 4. Forecast of operational needs 5. Major future programs 6. Broad economic assumptions 7. Key government and regulatory issues 8. Major technological forces 9. Significant market opportunities and threats 10. Explicit strategies of competitors
Transparency 4-51 © 2001 Prentice-Hall Quality Strategy Process The forced-choice model is particularly useful for companies that are relatively inexperienced in strategic planning. Individual steps are listed in Table 4.7, emphasizing quality-related issues.
Transparency 4-52 © 2001 Prentice-Hall Forced Choice Steps
Transparency 4-53 © 2001 Prentice-Hall Deploying Quality (Hoshin Kanri) Slide 1 of 2 Hoshin –Hoshin is Japanese for a compass, a course, a policy, or a plan. Kanri refers to management control. In English, this is generally referred to as policy deployment. - Implicit in the Hoshin Kanri is the use of the basis seven tools of quality ( chapter 10), the new tools of quality, and quality function deployment.
Transparency 4-54 © 2001 Prentice-Hall Deploying Quality (Hoshin Kanri) Hoshin Process –Figure 4.4 gives an overview of the Hoshin process. –The company develops a three- to five-year plan, and senior executives develop the current year’s Hoshin objectives. –Then the process of catchball occurs.
Transparency 4-55 © 2001 Prentice-Hall Deploying Quality (Hoshin Kanri) Hoshin Process –Catchball is the term used to describe the interactive nature of the Hoshin planning process. –Catchball involves reporting from teams and feedback from management. –As shown in Figure 4.4, functional managers also should develop Hoshins in conjunction with upper management.
Transparency 4-56 © 2001 Prentice-Hall Deploying Quality (Hoshin Kanri)
Transparency 4-57 © 2001 Prentice-Hall Does Quality Lead to Better Business Results? Slide 1 of 3 “Do Quality Efforts Pay Off?” –An answer to this question was provided by Deming’s concluding the quality will pat off. –The effects of quality on business results is mixed. –Some firms have been widely successful with their quality efforts and other companies have been unsuccessful in gaining bottom-line results.
Transparency 4-58 © 2001 Prentice-Hall Does Quality Lead to Better Business Results? “Do Quality Efforts Pay Off?” -- There are two primary reasons for this: First, there are many variables that affect profitability besides quality. Second, many companies implement quality incorrectly.
Transparency 4-59 © 2001 Prentice-Hall Does Quality Lead to Better Business Results? many companies implement quality incorrectly. - That you can claim you are implementing quality does not guarantee you will be successful. - Quality improvement takes along time, and many firms desire quick returns on investment for quality training program.
Transparency 4-60 © 2001 Prentice-Hall Does Quality Lead to Better Business Results? many companies implement quality incorrectly. - When these results are slow in coming, the companies give up midstream and wonder why their quality efforts were ineffective. - At the same time, quality programs have been shown to be effective in a variety of cultures and industries when implemented correctly. - We need to understand the relationships between quality and other variables.
Transparency 4-61 © 2001 Prentice-Hall Does Quality Lead to Better Business Results? Slide 2 of 3 Quality and Price –The price-quality relationship becomes increasingly unclear when culture differences in an international setting are considered. –Different cultures could perceive the price- quality relationship either positively or negatively, resulting in variations in financial performance.
Transparency 4-62 © 2001 Prentice-Hall Does Quality Lead to Better Business Results? Quality and Price –Another reason the the price-quality relationship might be difficult to assess has to do with the increase in high-quality, low-priced goods over the past two decades. –An example of these alternative methods of pricing is apparent in the many Japanese consumer electronics that are less expensive in U.S. markets than in their native Japanese market. –Research is unclear concerning the price-quality relationship.
Transparency 4-63 © 2001 Prentice-Hall Does Quality Lead to Better Business Results? Quality and Cost –A fundamental difference exists between a low- cost strategy based on competitive pricing, and a low-cost orientation that is based on continual learning and production competence.
Transparency 4-64 © 2001 Prentice-Hall Does Quality Lead to Better Business Results? Slide 3 of 3 Quality and Productivity –The relationship between quality and productivity is clear. The elimination of waste results in higher productivity. –Simplification of processes also results in flows that are simpler and of higher productivity. –There are many different measures of productivity.
Transparency 4-65 © 2001 Prentice-Hall Does Quality Lead to Better Business Results? Quality and Productivity –Total-factor productivity measures are generally considered the most robust means of measures productivity. –Several measures have been developed that simultaneously monitor the relationship between quality and productivity. –It appears that changes to processes and procedures often will result in a temporary worsening of productivity.
Transparency 4-66 © 2001 Prentice-Hall Does Quality Lead to Better Business Results? Quality and Productivity –The variable appearing to be able to moderate the effects of too much change is training. –Changes resulting from process improvement must be managed and paced at the rate that the firm cab absorb. –The “rate of absorption” of change that different firms can handle is variable and can be managed by creating a learning organization.
Transparency 4-67 © 2001 Prentice-Hall Does Quality Lead to Better Business Results? Quality and Profitability –In recent study of quality and profitability, Adam found that quality improvement in specific firms to be more long term rather than immediate. –This make some intuitive sense as quality improvement may not be recognized by the customers for some time.
Transparency 4-68 © 2001 Prentice-Hall Does Quality Lead to Better Business Results? Quality and Profitability –High quality is no guarantee of success. –Firms must still successfully market, manage cash, and do the many other things that ensure profitability.
Transparency 4-69 © 2001 Prentice-Hall Does Quality Lead to Better Business Results? Quality and the Environment –Companies have to address many environmental issues. –Besides the regulatory requirements, firms realize more and more that environmental friendliness is part of being a good corporate citizen. –Firms are implementing quality-based environmental management, sometimes referred to as total quality environmental management (TQEM).
Transparency 4-70 © 2001 Prentice-Hall Does Quality Lead to Better Business Results? Quality and the Environment –These systems involve a holistic “system” view of the process causing environmental degradation. –This involves a focus on preventive rather than reactive clean up. –Other technique that is used in TQEM is life cycle costing. –Figure 4.5 is an example of life cycle costing for a typical hamburger.
Transparency 4-71 © 2001 Prentice-Hall Does Quality Lead to Better Business Results?
Transparency 4-72 © 2001 Prentice-Hall Does Quality Lead to Better Business Results? Quality and the Environment –Regardless of one’s political stance concerning these issues, the debate will rage for many years; and regulation likely will not reduce over time. –It is in the best interest of management to address these issues in a proactive manner. –Quality management philosophies and continuous improvement approaches can help in addressing these issues.
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