1. Chapter Seventeen Organizational Control and Quality Improvement

2. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 2 Chapter Objectives Identify three types of control and the components common to all control systems. Discuss organizational control from a strategic perspective. Identify the four key elements of a crisis management program. Identify five types of product quality. Explain how providing a service differs from manufacturing a product and identify the five service-quality dimensions.

3. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 3 Chapter Objectives (cont’d) Define total quality management (TQM) and specify the four basic TQM principles. Describe at least three of the seven TQM process improvement tools. Explain how Deming’s PDCA cycle can improve the overall management process. Specify and discuss at least four of Deming’s famous 14 points.

4. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 4 Fundamentals of Organizational Control Control –Taking preventive or corrective action to keep things on track Checking, testing, regulating, verifying, or adjusting Objectives are yardsticks for measuring actual performance. –Purpose of the control function To get the job done despite environmental, organizational, and behavioral obstacles and uncertainties

5. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 5 Types of Controls Feedforward Control –The active anticipation and prevention of problems, rather than passive reaction Concurrent Control –Monitoring and adjusting ongoing activities and processes Feedback Control –Checking a completed activity and learning from mistakes

6. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 6 Figure 17.1: Three Types of Control

7. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 7 Organizational Control Subsystems Strategic plans Long-range plans Annual operating budget Statistical reports Performance appraisals Policies and procedures The organization’s culture

8. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 8 Components of Organizational Control Systems Objectives –Measurable reference points (targets) for corrective action Standards –Guideposts on the way to achieving objectives –Benchmarking: Identifying, studying, and building upon the best practices of organizational role models

9. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 9 Evaluation-Reward Systems Goals of System –To measure and reward individual and team contributions to attaining organizational objectives –To shape effort-reward expectancies in order to motivate better performance

10. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 10 Strategic Control Strategic planning and strategic control go hand in hand. Top-level strategy sets and/or determines objectives through the organization. Control measures of activities and results are translated up the organizational pyramid.

11. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 11 Figure 17.2: The Performance Pyramid for Strategic Control Source: C. J. McNair, Richard L. Lynch, and Kelvin F. Cross, "Do Financial and Nonfinancial Performance Measures Have to Agree?" MANAGEMENT ACCOUNTING published by the Institute of Management Accountants, Montvale, NJ, 72 (November l990): 30. Copyright by Institute of Management Accountants. Reprinted by permission.

12. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 12 Identifying Control Problems Executive Reality Checks –Top managers periodically work at lower-level jobs to become more aware of operations. Internal Audits –Independent appraisals of organizational operations and systems are conducted to assess effectiveness and efficiency.

13. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 13 Identifying Control Problems (cont’d) Symptoms of Inadequate Control –An unexplained decline in revenues or profits –A degradation of service (customer complaints) –Employee dissatisfaction –Cash shortages caused by bloated inventories or delinquent accounts receivable –Idle facilities or personnel –Disorganized operations –Excess costs –Evidence of waste and inefficiency

14. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 14 Crisis Management Organizational Crisis –A low-probability, high-impact event that threatens the viability of the organization and is characterized by ambiguity of cause, effect, and means of resolution, as well as by the belief that decisions must be made swiftly

15. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 15 Crisis Management (cont’d) Crisis Management –Anticipating and preparing for events that could damage the organization Two Biggest Mistakes Regarding Organizational Crises –Ignoring early warning signs of an impending disaster –Denying the existence of a problem when disaster actually strikes

16. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 16 Figure 17.3: Key Elements of a Crisis Management Program

17. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 17 Developing a Crisis Management Program Conduct a crisis audit seeking out trouble spots and vulnerabilities. Formulate contingency plans that specify early warning signals, actions to be taken, and consequences of those actions. Create crisis management teams with specific skills to deal with a crisis. Perfect the program through serious practice and rehearsals.

18. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 18

19. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 19 The Quality Challenge Defining Quality –“Conformance to requirements” (Crosby) –A subjective response by customers to the adequacy of product or service quality in meeting their expectations/needs/requirements

20. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 20 Five Types of Product Quality Transcendent Quality –Inherent value or innate excellence apparent to the individual Product-Based Quality –The presence or absence of a given product attribute User-Based Quality –The ability of the product to meet the user’s expectations

21. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 21 Five Types of Product Quality (cont’d) Manufacturing-Based Quality –How well the product conforms to its design specification or blueprint Value-Based Quality –How much value each customer separately attributes to the product in calculating his/her personal cost-benefit ratio

22. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 22 Unique Challenges for Service Providers Strategic Service Challenge –To anticipate and exceed customer’s expectations –Distinctive service characteristics Customers participate directly in the production process. Services are consumed immediately and cannot be stored. Services are provided where and when the customer desires. Services tend to be labor-intensive. Services are intangible.

23. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 23 Unique Challenges for Service Providers (cont’d) Defining Service Quality –Five service quality dimensions Reliability (most important) Assurance Tangibles Empathy Responsiveness

24. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 24 Total Quality Management (TQM) Creating an organizational culture committed to the continuous improvement of skills, teamwork, processes, product and service quality, and customer satisfaction Four Principles of TQM –Do it right the first time. –Be customer-centered. –Make continuous improvement a way of life. –Build teamwork and empowerment.

25. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 25 Introduction to Total Quality Management (TQM) Do It Right the First Time –Designing and building quality into the product Be Customer-Centered –Satisfying the customer’s needs by anticipating, listening, and responding –Internal customers: Anyone in the organization who cannot do a good job unless you do a good job

26. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 26

27. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 27 Introduction to Total Quality Management (TQM) (Cont’d) Make Continuous Improvement A Way of Life –Kaizen: A Japanese word meaning continuous improvement (quality is an endless journey) –A gain in one area does not mean loss in another. –Venues for Continuous Improvement Improved and more consistent product and service quality Faster cycle times Greater flexibility Lower costs and less waste

28. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 28 Introduction to Total Quality Management (TQM) (Cont’d) Build Teamwork and Empowerment –Teamwork Suggestion systems QC circles and self-managed teams Teamwork and cross-functional teams –Empowerment Adequate training Access to information and tools Involvement in key decisions Fair rewards for results

29. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 29 Figure 17.4: Seven Basic TQM Tools Source: Tenner/DeToro, TOTAL QUALITY MANAGEMENT (figure 9.2 from page 113). © 1992 by Addison-Wesley Publishing Company, Inc. Reprinted by permission of Pearson Education, Inc.

30. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 30 The Seven Basic TQM Process Improvement Tools Flow Chart –A graphic display of a sequence of activities and decisions Cause-and-Effect Analysis –A fishbone diagram that helps visualize important cause-and-effect relationships Pareto Analysis (80/20 Analysis) –A bar chart indicating which problem needs the most attention

31. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 31 The Seven Basic TQM Process Improvement Tools (cont’d) Control Chart –Visual aid showing acceptable and unacceptable variations from the norm for repetitive operations Histogram –A bar chart indicating deviations from a standard bell- shaped curve Scatter Diagram –A plot of relationships between two variables Run Chart –A trend chart for tracking a variable over time

32. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 32 Figure 17.5: Everyone Benefits from Improved Quality Source: Adapted from W. Edwards Deming, Out of Crisis (Cambridge, MA: MIT Press, 1986), p. 3.

33. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 33 Deming Management –Application of W. Edwards Deming’s ideas to revitalize productive systems to make them more responsive to the customer, more democratic, and less wasteful –Essentially the opposite of scientific management Principles of Deming Management –Quality improvement drives the entire economy. –The customer always comes first. –Don’t blame the person; fix the system. –Plan-Do-Check-Act (PDCA cycle).

34. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 34 Source: Adapted from W. Edwards Deming, Out of Crisis (Cambridge, MA: MIT Press, 1986), p. 88. Figure 17.6: Deming’s PDCA Cycle

35. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 35 Deming’s 14 Points 1.Constant purpose 2.New philosophy 3.Give up on quality by inspection 4.Avoid the constant search for lowest-cost suppliers 5.Seek continuous improvement 6.Train everybody 7.Provide real leadership 8.Drive fear out of the workplace 9.Promote teamwork 10.Avoid slogans and targets 11.Get rid of numerical quotas 12.Remove barriers that stifle pride in workmanship 13.Education and self- improvement are key 14.“The transformation is everyone’s job”

36. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Seventeen | 36 Terms to Understand Control Feedforward control Concurrent control Feedback control Benchmarking Executive reality check Internal auditing Crisis management Contingency plans Quality Total quality management (TQM) Internal customers Customer-centered Kaizen Flow chart Fishbone diagram Pareto analysis Control chart Histogram Scatter diagram Run chart Deming management PDCA cycle