Strategic Quality Planning Chapter 4 Strategic Quality Planning S. Thomas Foster, Jr. Boise State University PowerPoint prepared by Dave Magee University of Kentucky Lexington Community College ©2004 Prentice-Hall

Chapter Overview Strategy Content The Importance of Time in Quality Improvement Leadership for Quality Quality and Ethics Quality as a Strategy Quality Strategy Process Deploying Quality (Hoshin Kanri) Does Quality Lead to Better Business Results?

Strategy Content Importance of Quality Planning 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. Strategy Content Variables Among the strategy content variables we discuss are time, leadership, quality costs, generic strategies, order winners, and quality as a core competency. These outline key considerations when developing a strategic plan.

Strategy Content Variables Time Leadership Ethics Quality costs Generic strategies Order winners Quality as a core competency

The Importance of Time in Quality Improvement Two Aspects of Time The time it takes to achieve business goals as a result of quality. The speed at which companies improve. Studies indicate a significant time lag between the implementation of quality improvement programs and recognizable results. Management that is looking for a quick fix to long-term problems probably will not be too satisfied with this fact.

Leadership For Quality Slide 1 of 7 The process by which a leader influences a group to move toward the attainment of superordinate goals. A key strategic variable for quality management. Superordinate goals Those goals that pertain to achieving a higher end that benefits not just the individual, but the group.

Leadership For Quality Slide 2 of 7 Types of Power Power of expertise Reward power Coercive power Referent power Legitimate power Leadership Dimensions Trait dimension Leader skills Leader behavior

Leadership For Quality Slide 3 of 7 Types of Power Power of Expertise Reward Power If a leader has rewards that he or she can bestow on subordinates in return for some desirable position, the leader has reward power. Sometimes a leader has special knowledge (or is perceived to have special knowledge).

Leadership For Quality Slide 4 of 7 Types of Power Coercive Power Referent Power If a leader is charismatic or charming and is followed because he or she is liked, then the leader has referent power. If the leader has power to punish the follower for not following rules or guidelines, the leader has coercive power.

Leadership For Quality Slide 5 of 7 Types of Power Legitimate Power Legitimate power comes with the position.

Leadership For Quality Slide 6 of 7 Leadership Dimensions Trait dimension Leadership characteristics tied to the personal “traits” of leaders (such as height and intelligence). Leader skills 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.

Leadership For Quality Slide 7 of 7 Commitment to Quality An important attribute of quality managers is commitment over the long term. Quality management is hard, painstaking, slow work. Often, victories in quality are rare and should be celebrated - especially at first. Leaders need to provide funding, slack time, and resources for quality improvement efforts to be successful. This commitment is measured in decades, not quarters or budget cycles.

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 to management. There is a need for integrity, which gets down to honesty, in doing business.

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 Costs of Quality There are two broad categories of costs Costs due to poor quality. Costs associated with improving quality.

Quality as Strategy Slide 2 of 8 PAF Paradigm Prevention costs are those costs associated with preventing defects and imperfections from occurring. Appraisal costs are associated with the direct costs of measuring quality. 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.

Quality as Strategy Slide 3 of 8 Examples of Appraisal Costs Laboratory acceptance testing Inspection and tests by inspectors Inspection and tests by noninspectors 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

Quality as Strategy Slide 4 of 8 Examples of Failure Costs Cost of troubleshooting Reinspection of stocks after defect detection Disruption of production schedules Complaint-handling and replacements Cost of corrective maintenance to plant Cost of corrective action to product Lost production Process waste Cost of product scrapped at product audit Cost associated with disposition of scrap

Quality as Strategy Slide 5 of 8 Lundvall-Juran Model Cost C + C 1 2 c C Prevention & appraisal costs 1 = C 2 = Failure Costs 1 q Conformance

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. 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.

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). The organization determines its competitive priorities and defines how it wins orders in the marketplace. The key is reaching a consensus on the OWC by developing an understanding of the markets the company is serving.

Quality as Strategy Slide 8 of 8 Quality as Core Competency Quality, in and of itself, is probably not a core competency. The ability to change can be more important than the actual changing technology of the moment for organizations operating in rapidly evolving markets or industries. However, core competency is built on the foundation of a long-term commitment to quality and continual process improvement.

Quality Strategy Process Slide 1 of 4 Forced-Choice Model One of several strategic-planning models that could be adapted to demonstrate integrated quality planning. Particularly useful for companies that are relatively inexperienced in strategic planning. Mature Strategic Planning Process A comprehensive strategy development process used in companies with mature quality processes. The process contains quality concerns at every step. Many metrics and indicators are used to monitor performance as it relates to the strategic business plan.

Quality Strategy Process Slide 2 of 4 Forced-Choice Model The process begins by sequestering members of upper management at a retreat. An organizational assessment is performed to identify strengths and weaknesses within the firm. An environmental assessment is performed to evaluate the company’s relative position in the marketplace. In the wrap-up session, alternative strategies are developed.

Quality Strategy Process Slide 3 of 4 Forced-Choice Model Figure 4.2 Organization’s Position Environmental Assessment 1 Statement of mission 6 Broad economic assumptions 2 Interrelated set of financial and nonfinancial objectives 7 Key government and regulatory issues 8 Major technological forces 3 Statement of strengths and weaknesses 9 Significant market opportunities and threats 4 Forecast of operational needs 5 Major future programs 10 Explicit strategies of competitors 11 Strategic options Requirements for implementing options Contingency plans

Quality Strategy Process Slide 4 of 4 Mature Strategic Planning Process Figure 4.3 Step 1. Mission, vision, values, and current strategy. Step 2. Market assessment. Prepare for next planning cycle Step 3. Set goals by assessing future markets. Step 4. Develop broad goals and plans by product line. Step 5. Review and monitor implementation of strategic plan.

Deploying Quality (Hoshin Kanri) Slide 1 of 2 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. Hoshin Process The company develops a 3 to 5 year plan, and senior executives develop the current year’s Hoshin objectives. Then the process of catchball occurs. This involves reporting from teams and feedback from management. Development of the Hoshin plan results in the cascading of action plans designed to achieve corporate goals.

Deploying Quality (Hoshin Kanri) Slide 2 of 2 Hoshin Planning Development of 3-5 years Hoshin Figure 4.4 Senior management develops 1-year Hoshin goals Catchball: Top management 1-year Hoshin goals, targets, measurements to ensure alignment Catchball: Product management Product management develops 1-year Hoshin goals Review Hoshin Process Senior management action plans Product management action plans Review by CEO Review by senior management Quarterly Problems Yes Yes No

Does Quality Lead to Better Business Results? Slide 1 of 4 The effects of quality on business results is mixed for two primary reasons: First, there are many variables that affect profitability besides quality. Second, many companies implement quality incorrectly. As a result of the mixed results, it is important to understand the relationships between quality and other variables.

Does Quality Lead to Better Business Results? Slide 2 of 4 Variables that interrelate with quality Quality and price Quality and cost Quality and productivity Quality and profitability Quality and the environment

Does Quality Lead to Better Business Results? Slide 3 of 4 Quality and Price This relationship has long been studied. The price-quality relationship becomes increasingly unclear when culture differences in an international setting are considered. Quality and Cost A fundamental difference exists between a low-price strategy based on competitive pricing, and a low-cost orientation that is based on continual learning and production competence. Quality will tend to provide a competitive advantage.

Does Quality Lead to Better Business Results? Slide 4 of 4 Quality and Productivity The relationship between quality and productivity is clear and has been demonstrated over time. The elimination of waste results in higher productivity. 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. Quality and the Environment Companies have to address environmental issues in ways that involve a focus on prevention.

Summary Strategy Content The Importance of Time in Quality Improvement Leadership for Quality Quality and Ethics Quality as a Strategy Quality Strategy Process Deploying Quality (Hoshin Kanri) Does Quality Lead to Better Business Results?