Organizational Efficiency

Quality Management

Throughout this text, the concept of customer value has been emphasized. Intimately linked to customer value is the notion of quality. Therefore, it is extremely unfortunate that for most people, businesspeople included, the term quality is either totally misunderstood or viewed from a rather narrow perspective. This stems from two reasons. The first is based on a correct assumption that quality is defined by the user (customer); however, many then go on to believe that because quality is subjective, it then becomes impossible to define. The second problem centers on the tendency to view quality, particularly in products, as singularly the result of the use of costly raw materials, components, careful craftsmanship, and detailed processes. It is assumed that together these expensive elements must necessarily produce a quality but costly outcome. In this belief system, if one wants to identify the quality of the product, one has to look only at the price tag. Quality is synonymous with cost. This is a huge error because, as will be shown, a true commitment to quality can reduce costs and expenses—and do so quite significantly.

Without a fundamental understanding of what quality really means, it is impossible to achieve it—consistently. So how should one approach a useful definition of the term quality? Many authors suggest that when discussing quality, it is useful to distinguish between product quality and service quality. Today, there may be no clear-cut distinction between exclusively product-based businesses or exclusively service-based businesses. Few products can be viewed in isolation from supporting services. As an example, an automobile manufacturer clearly produces a product; however, few manufacturers would survive long if they totally excluded the area of follow-up services, such as vehicle maintenance across a car’s lifetime. Likewise, many service businesses rely on ancillary products. An investment company provides a service; however, it may also provide its clients with investment perspective reports. Many view McDonald’s as essentially a service company—the service being the delivery of fast food; obviously, the ancillary product is the food.

The literature indicates that rather than having a unitary definition of quality, it is important to identify the dimensions of quality. In a seminal 1984 article, David Garvin identified eight dimensions of product quality: performance, features, reliability, conformance, durability, serviceability, aesthetics, and perceived quality.David Garvin, “What Does ‘Product Quality’ Really Mean?,” Sloan Management Review 26, no. 1 (1984): 25–43. Table 13.1 “The Eight Dimensions of Product Quality” describes what these dimensions mean and gives examples. Garvin recognized that no consumer will find all eight dimensions equally important. However, to ensure success, a business must identify which of the eight dimensions are important to its customers. As an example, if we are dealing with a product such as a heart pacemaker, customers would be most interested in the reliability and durability dimensions of that product. If a customer is buying a car for street drag racing only, then that person’s focus would be on the performance dimensions of the vehicle.

Another approach to examining quality, this time in the service context, is to explicitly consider quality as a comparison between a customer’s expectations and a customer’s perception of performance. Parasuraman, Zeithaml, and Berry argued in their 1985 seminal article that there were ten determinants (dimensions) of service quality: reliability, responsiveness, competence, access, courtesy, communication, credibility, security, knowing the customer, and tangibles.A. Parasuraman, Valerie A. Zeithaml, and Leonard L. Berry, “A Conceptual Model of Service Quality and Its Implications for Future Research,” Journal of Marketing 49 (1985): 41. After some major research, they reduced this set to five dimensions: tangibles, reliability, responsiveness, assurance, and empathy.Valerie A. Zeithaml, A. Parasuraman, and Leonard L. Berry, Delivering Quality Service: Balancing Customer Perceptions and Expectations (New York: Free Press, 1990), 38. Again, it is critical to note that customers will not view all five dimensions as equally important. In fact, the relative rank of these dimensions may differ significantly across industries. The approach of Zeithaml et al. has become well known as the SERVQUAL instrument, and it plays a prominent role in improving quality in service environments. The five service quality dimensions are given in Table 13.2 “The Dimensions of Service Quality”. This SERVQUAL system explains the notion that quality is associated with a gap between expectations and perceptions. It identifies the following five types of gaps that a service organization should examine and attempt to minimize:

1. The gap between what customers expect and what a business believes are its customers’ expectations
2. The gap between a business’s evaluation of its own performance and how its customers evaluate its performance
3. The gap between a customer’s experience and a business’s specified level of performance
4. The gap between the communicated level of service by a business and what a customer actually experiences
5. The gap between a customer’s expectation and actual experience.

From looking at these five gaps, it should be obvious that a full utilization of the SERVQUAL instrument is quite a challenge and might be beyond the capacity of most small businesses. That does not mean, however, that a business interested in providing its customers with quality service cannot apply some of the elements of the SERVQUAL instrument or use it as a conceptual template.

When using the term quality management, we should recognize that there is no universally consistent notion of how one can produce quality products and services. In fact, the quality management movement has been evolving for nearly a century. Perhaps the best way of tracing this evolution is to examine the contributions of some of the key proponents of quality. One of the first bodies of work that should be reviewed is that of Walter A. Shewhart (1891–1967). Similar to two other “quality gurus”—W. Edwards Deming and Joseph Juran (the authors are hesitant to use the term guru because this might question the true value of the work of these individuals)—Shewhart worked for Western Electric Company, a division of AT&T.“Walter A. Shewhart,” ASQ, accessed February 4, 2012, asq.org/about-asq/who -we-are/bio_shewhart.html. There he developed what is now known as statistical process control (SPC), a mathematical approach that measures how well products conform to previously determined standards. The goal here is to develop a control chart that would enable an operator to distinguish between the random change associated with any manufacturing process and specifically assignable causes of such change. As an example, a machine produces 0.25-inch diameter bolts. Not all the manufactured bolts will be exactly 0.25 inches in diameter. There will be some natural variation around this value. Rather than test the diameter of every bolt, in SPC, a sample of bolts is tested on a regular basis. Based on statistical analysis, one can determine if this sample is within acceptable limits around the 0.25-inch value. If a sample is not within these acceptable limits, then the machine is shut down, and every effort is made to determine the assignable cause—faulty materials, machine error, or operator error. The benefit of this approach is that one can determine, with a high degree of accuracy, the operational characteristics of the system without the expense of testing every item produced. A full discussion of all aspects of SPC is beyond the focus of this text.

Shewhart’s two books, Economic Control of Quality of Manufactured ProductWalter A. Shewhart, Economic Control of Quality of Manufactured Product (New York: D. Van Nostrand Company, 1931).and Statistical Method from the Viewpoint of Quality Control,Walter A. Shewhart, Statistical Method from the Viewpoint of Quality Control (Long Island, NY: Dover Publications, 1980). are still available in print and are viewed as the foundation works in the field.

Shewhart also made major contributions in the way we think about implementing a quality program in any organization. He advocated a systematic approach structured in four cyclical phases. This approach is sometimes referred to as the PDCA cycle (see Figure 13.3 “The PDCA Cycle”) or the Deming cycle. (Yet the Deming cycle is an improper name for the PDCA cycle.) The PDCA cycle calls for a cycle of continuous improvement. The first step is to plan for a change that would lead to improvement. The planning process requires data collection to make a decision. Regardless of the approach to quality management, all decision making must be data driven. The second step in the cycle is the do phase. This entails implementing the change. It also implies that a business will implement that change on an experimental basis, meaning that the organization would run a pilot program rather than implementing it throughout the entire organization. The third phase of the cycle is check. This means that after a sufficient period of time following the initial implementation phase, the results are evaluated to ascertain if the change produced the desired effect. If that answer is positive, then the organization moves onto the fourth stage of the cycle (act), where the changes are implemented throughout the entire organization. At the end of the act phase, the process is repeated with respect to some new problem area.

The two other quality gurus who worked with Shewhart at Western Electric Company, as previously mentioned, were Joseph Juran and W. Edwards Deming. Juran’s numerous contributions to the field include the first standard reference work in the field of quality management: The Quality Control Handbook.“Joseph M. Juran,” Juran Institute Inc., accessed February 4, 2012, www.juran.com/about_juran_institute_our_founder.html. He also developed the Juran Trilogy, an approach to quality management that involves three phases: quality control, quality improvement, and quality planning.

Deming was born in 1900 and received an engineering degree from the University of Wyoming and a doctorate from Yale University. During his career, he worked for Western Electric Company, Bell Labs, and the US Department of Agriculture. During the Second World War, he taught SPC methods to thousands of engineers and plant personnel. After the war, Deming worked in Japan with Douglas McArthur’s Office of Supreme Command of Allied Powers. Several years later, he returned to Japan and worked with Japanese scientists and engineers and taught them about SPC. Deming’s work with the Japanese improved his understanding of what must transpire in a business organization to ensure quality products and services.Robert B. Austenfeld Jr., “W. Edwards Deming: The Story of a Truly Remarkable Person,” International Quality Federation, May 10, 2011, accessed February 4, 2012, www.iqfnet.org/Ff4203.pdf. The Japanese recognized his accomplishments by creating the Deming Prize, which is awarded to organizations that exemplify a commitment to quality.

Many consider Deming as the world’s preeminent proponent of quality. In fact, many see him as one of the most important business thinkers of the twentieth century. In a November 1999 issue, Fortuneidentified Deming, along with Peter Drucker and Frederick Taylor, as three individuals who had more impact on the operations of businesses than any CEO. In its April 22, 1991, edition, US News & World Report covered nine important turning points in human history. The final point was Deming’s impact on the Japanese quality movement.“History’s Hidden Turning Points,” Leadership Alliance, accessed March 2, 2012, www.leadershipalliance.com/demingnews.htm.

What distinguishes Deming from all other quality theorists is his comprehensiveness known as the Deming method. It has been stated that Deming proposed an alternative philosophy of doing business. He argued that one should believe that the purpose of a business is to delight a customer. If customers are delighted, then profits will follow. The Deming philosophy was summarized in his fourteen points, which are given in Table 13.3 “Deming’s Fourteen Points”.

The last quality theorist who should be discussed is Philip Crosby. Crosby was an executive at ITT and the Martin Company. His approach to quality reflected a practicing manager’s perspective. Although he is often associated (correctly) with the zero-defect program, his great contribution can be found in his first book Quality Is Free.Philip Crosby, Quality Is Free (New York: McGraw-Hill, 1979). In this text, Crosby argued that the definition of quality should be based on conformance to quality, and nonconformance is highly expensive. He estimates that the cost of nonconformance can run as high as 30 percent of revenue.Philip B. Crosby, “Quality Is Free—If You Understand It,” Philip Crosby Associates II Inc., accessed February 4, 2012, www.wppl.org/wphistory/philipcrosby/QualityIsFreeIfYouUnderstandIt.pdf. This figure includes costs associated with rework, scrap, warranties, lost goodwill, reputation, and customers. He further argues that expenditures on quality to guarantee conformance to requirements will always be less than the cost of nonconformance; therefore, quality should be seen as being free. Crosby was embraced by many American executives because of his emphasis on the practical and his formal acknowledgment of the importance of the bottom line. His approach is often referred to as Total Quality Management.

Implementing quality management concepts in American business has had a long and somewhat checkered history. In the last four decades, total quality and continuous quality movements have blossomed in popularity and then quickly died. Two decades ago, Walter Lareau argued that many American businesses, particularly large businesses, have an almost pathological antipathy toward quality management because some of its (quality) fundamental principles run totally counter to corporate belief systems, namely, customers are a pain and employees are an even bigger pain.Walter Lareau, American Samurai: Why Every American Executive Must Fight for Quality (New York: Warner Books, 1991), 47. In the intervening time, however, it appears that one approach to quality has captured the imagination of many businesses—both large and small. This quality program is known as Six Sigma.

Although Six Sigma is often associated, at least in the public’s mind, with General Electric, it began at Motorola in the 1980s and was spearheaded by William Smith.Wolf Akpose, “A History of Six Sigma,” December 2010, accessed February 4, 2012, www.todaysengineer.org/2010/Dec/six-sigma.asp. The term sigma (σ) comes from SPC and represents the concept of the standard deviation. Six standard deviations away from specifications signify that the process produces only 3.4 defects per million opportunities. This is a remarkable accomplishment. Imagine a restaurant that is open 12 hours a day, 365 days per year. On average, the restaurant serves 1 meal every 55 seconds or about 800 meals per day. It would take them approximately 3.4 years to serve one million meals. So if this restaurant was operating at a Six Sigma level, it would make a mistake in taking an order only once a year. Six Sigma draws on a battery of tools and techniques derived from SPC and earlier quality management programs. Six Sigma’s mantra for continuous improvement involves what is referred to as the DMAIC cycle (see Figure 13.4 “The DMAIC Cycle”), where D stands for design, M stands for measurement, A stands for analyze, I stands for improve, and C stands for control. Clearly, this concept is derived from the Shewhart cycle.

What was different about the Six Sigma program was that all these tools and techniques were packaged in a coherent program. There was a heavy emphasis on quick results and the ability to demonstrate to management tangible cost savings. Six Sigma involves committed training programs that promote statistical tools and management techniques. Graduates of the most basic certification training program are referred to as “green belts,” a term derived from the martial arts. Those who receive more advanced training are known as “black belts.”“Six Sigma Training, History, Definitions: Six Sigma and Quality Management Glossary,” BusinessBalls.com, accessed February 4, 2012, www.businessballs.com/sixsigma.htm. Given that Six Sigma is closely associated with large corporate entities and complex training programs, one might think that it would be irrelevant for smaller enterprises. Nothing could be further from the truth. Six Sigma offers a systematic and pragmatic approach for quality improvement in the smaller firm.Greg Brue, “Six Sigma for Small Business,” Entrepreneur Press, 2006, accessed February 4, 2012, www.entrepreneur.com/downloads/assist/six_sigma_for_smallbusiness.pdf.