ACCA P3 Business Analysis - 2010 - Study text - Emile Woolf Publishing
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Chapter 13: Business strategy and quality initiatives
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reputation for excellence in particular areas of operation, such as fleet
management or customer order handling.
An example in the past of process benchmarking is the collaboration between Xerox
and Bean, a catalogue retailer specialising in outdoor clothing. After a wide-ranging
search, Xerox identified Bean as an outstanding leader in its industry in order
fulfilment and processing activities, and obtained the agreement of Bean to
collaborate in a benchmarking exercise. Xerox managers visited Bean to learn about
its warehousing and order fulfilment processes, and as a result, Xerox was able to
improve order picking in its own warehouse.
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Total Quality Management (TQM)
The nature and origins of Total Quality Management
Quality management and the views of W Edwards Deming
Quality management and the views of Juran
Quality management and the views of Crosby
Summary of the main features of TQM
2 Total Quality Management (TQM)
2.1 The nature and origins of Total Quality Management
Total Quality Management (TQM) is an approach to improving quality in processes
and products that originated in Japan in the 1950s. Manufacturing methods and
quality management are credited with giving Japanese manufacturers the leading
position in many global industries that many of them still enjoy today.
TQM is ‘an effective system for integrating the quality development, quality
maintenance and quality improvement efforts of various groups in an
organisation so as to enable production and service at the most economical
levels which allow for full customer satisfaction’ (Feigenbaum).
TQM is ‘the continuous improvement in quality, productivity and effectiveness
obtained by establishing management responsibility for processes as well as
outputs. In this every process has an identified process owner and every person
in an entity operates within a process and contributes to its improvement’
(CIMA).
Many of the concepts of TQM are applicable to all business entities. Some of these
concepts are explained below, by describing the views of some of the management
‘theorists’ who helped to develop TQM.
2.2 Quality management and the views of W Edwards Deming
Deming (1900 – 1993) introduced concepts of quality management into Japanese
manufacturing in the 1950s. Much of his work was based on the introduction of
statistical quality measurement and statistical quality control.
He is also associated with the concept that companies should seek continuous
improvement in their processes and methods of working. Continuous improvement
(‘kaizen’) is a key aspect of Total Quality Management. Deming is perhaps most
well known for his fourteen points for achieving quality.
1 Constancy of purpose. An entity should establish a constant purpose of
achieving continual improvements in systems and processes. The long-term
purpose of improving quality should have priority over short-term profit
requirements.
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2 A new philosophy. Companies outside Japan should adopt the new
philosophy of quality that Japanese manufacturers apply. Delays, mistakes
and defects in materials and workmanship that some companies consider
‘acceptable’ should not be tolerated.
3 Cease dependence on mass inspection to achieve quality. Quality should be
built into products and processes in the first place, so that defects do not
happen. It is inappropriate to rely on quality checks and inspections to
achieve target standards of output quality.
4 End lowest tender contracts. Companies should not always buy from the
supplier who quotes the lowest prices. The quality of supplied items is
important, and the purchasing decision should be based on factors other than
cost.
5 Improve every process. Every process should be improved. There should be a
continual search for ways of introducing further improvements into
processes. Improvements should never end.
6 Institute training on the job. On-the-job training should be used to improve
the skills levels of employees.
7 Institute leadership. Managers should provide leadership that helps
everyone to do their job better. Managements should be responsible for
quality, not just larger volumes of output.
8 Drive out fear. Two-way communications between manager s and employees
should be developed, so that communications are open and honest. This mans
driving out the fear of blame for making mistakes.
9 Break down barriers. The barriers between different functions and
departments within the entity should be removed. Individuals in different
functions and departments should learn to co-operate with each other,
working in teams where necessary to deal with problems that arise.
10 Eliminate exhortations. Management should eliminate the use of slogans that
urge individuals to do better. Slogans such as ‘Avoid waste!’ or ‘Keep on
doing better!’ are more likely to arouse hostility than obedience.
11 Eliminate arbitrary numerical targets. Quantifiable targets should not be
used of they are arbitrary. (Deming was a supporter of the concept of
statistical quality control, but this does not require arbitrary quality standards:
quality standards can be set objectively through statistical methods.)
12 Permit pride of workmanship. Employees should be given the opportunity to
take pride in their quality performance. This could mean avoiding reward
systems that reward employees for ‘good performance’, because ‘good
performance’ usually means a high volume of production or sales rather than
better quality.
13 Encourage education. Employees should be encouraged to improve their
education, because the knowledge built up within an entity is a way of
achieving competitive advantage.
14 Top management commitment and action. The success of quality
management initiatives depends on the total support and commitment of top
management.
Deming’s views can be applied to business strategy development, where quality is
considered an important strategic objective. Deming would have argued that in
order to achieve continuous quality impro
vements, it is essential to remain
committed to the objective of better quality, even if this means some loss of profits
and benefits in the short term.
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2.3 Quality management and the views of Juran
Juran is another quality management ‘theorist’ whose ideas originated in the 1950s.
He argued that improvements in quality must be planning, and quality planning is
a crucial aspect of successful business management. A system of quality
management should have the following elements.
Identify the needs of customers.
Establish optimal quality objectives that will meet these customer needs.
Establish measurements for quality, so that quality can be planned and
monitored.
Plan processes that are capable of meeting the quality objectives under normal
operating conditions.
Continually plan for further improvements in quality.
Juran developed a ‘quality road map’, which is a way to achieving better quality
through planning.
Having identified customer needs, develop a product that meets those needs.
Optimise the features of the product so that the needs of the company are met as
well as the needs of customers.
Develop a process for making the product.
Optimise the process.
Prove that the process sis capable of making the product to the required quality
standard under normal operating conditions.
Make the process operational.
2.4 Quality management and the views of Crosby
Crosby (1926 – 2001) developed ideas on quality management during the 1950s,
when he worked on the Pershing missile project in the US. He found that it was
normal practice in industry to consider that a certain level of errors or defects in
quality was acceptable. He argued that if management are willing to work with
‘acceptable quality levels’ that allows for defects, they will get the defects that they
plan for.
Defects can accumulate throughout the production process. As a result, tolerating a
low level of defects at each stage In the production process could mean that the end
product contains an unacceptably high defect level. For example if a product
contains 100 components and an acceptable level of 1% defects is tolerated for each
component, Crosby argued that only 36.5% of finished products would be free from
defects.
He therefore argued that the objective in all processes should be ‘zero defects’.
There should be a continual search for improvements in processes and methods that
reduce defect levels and make progress towards the ideal ‘zero defect’ quality
standard.
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Crosby specified ‘Four Absolutes of Quality Management’.
Quality means ‘conformance to requirements’. This is not the same as ‘being
good’.
Quality is achieved through preventing defects in processes and products, not
through inspection to find defects.
The performance standard for quality should be zero defects.
Quality should be measured by the price of non-conformance (which is the cost
of failing to achieve a zero defects standard).
2.5 Summary of the main features of TQM
The main features of TQM can be summarised as follows:
The aim should be to meet the needs and expectations of customers. Quality
should be defined as meeting the needs and expectations of customers.
TQM should be applied to every process within the organisation.
TQM is achieved by involving all employees. This requires a culture of quality
within the entity. Every employee contributes to one or more processes, and so
has an effect on quality. It is the responsibility of every employee to get quality
right. They will accept this responsibility, but only if they are empowered to
make some decisions themselves, about how they organise and perform their
work. The concept of empowerment of employees is closely associated with
TQM.
All costs relating to quality should be measured and controlled.
In the long term it costs less to prevent defects than to discover defects after they
have occurred. The costs of putting errors right (for example, dealing with
customer complaints) can be very costly, especially over the long term.
Customer perceptions of the quality of a company’s products or services could
have a long-term strategic impact.
The aim should be to avoid mistakes, and ‘get things right the first time’.
Systems for improving quality (quality assurance) should be established. These
include systems for planning quality, setting objective quality standards and
quality control systems.
There should be a search for continual improvement. The ISO 9004 quality standard
describes continuous improvement as an eight-step method:
1. Involve the entire organisation
2. Initiate quality improvement projects or activities
3. Investigate possible causes of quality problems
4. Establish cause-and-effect relationships
5. Take preventative or corrective action to improve quality
6. Confirm the improvement
7. Sustain the gains
8. Continue the improvement.
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It is not important that each successive improvement is usually small. The key to
success with continuous improvement is that it should happen all the time. There
should always be a momentum for change and improvement.
Quality chains
The TQM approach recognises the importance of quality chains. The concept of a
quality chain is similar to the idea of the supply chain or a value chain. Within a
total operation, there are many inter-linking smaller operations. For each of these
small operations within the total operation, there is an internal supplier and an
internal customer. Quality can only be achieved if every internal supplier within the
quality chain meets the needs and expectations of its internal customer.
The strength of the total quality chain throughout an operation is only as strong as
its weakest link. It only takes one person in the chain to produce work which is
below the quality required for the whole chain to be broken.
For example in a top-class restaurant customers expect a high quality mean with
high quality service. Workers in the kitchen are internal suppliers for the head chef,
who acts as internal supplier for the waiters. The quality of the end-product to the
customer depends on this entire quality chain, and a weakness in any part of the
chain will affect the customer’s perception of value received.
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Quality management systems and certification
Quality standards
ISO9000 quality standards
ISO9000 and the eight principles of quality management
ISO9000 and certification
Benefits of ISO9000 compliance
3 Quality management systems and certification
3.1 Quality standards
Total Quality Management is a philosophy of management. It includes statistical
quality measurement and control, but it does not provide a specific statement of
what an entity should do to achieve an acceptable quality standard in its processes
and products or services.
The recognition of quality as an important factor in business planning and
performance has led to the development of specific quality management standards.
Companies and other entities might establish their own quality standards.
However, external quality standards have been developed for a wide range of
business activities, including:
quality standards in specific industries or products, and
more general quality standards for management
3.2 ISO9000 quality standards
External quality standards were developed in the UK by the British Standards
Institute, now called the BSI Group. There are also some organisations in the EU
that establish external standards.
Standards produced by the BSI influenced the development of international quality
standards by the International Organisation for Standardisation (ISO) which is
based in Switzerland.
Like the BSI, ISO has a range of quality standards for specific industries and
products, but also has a series of standards for quality management. This is called
the ISO9000 series, or sometimes the ISO9000:2000 series, because the standards
were revised in 2000.
The ISO9000 series includes:
ISO9000:2000 ‘Quality management systems: fundamentals and vocabulary’.
This provides definitions for the terms used in the ISO9000 series.
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ISO9001:2000 ‘Quality management system – requirements’. This specifies the
requirements that must be met by an entity wishing to meet the ISO9000 quality
standards and obtain certification for having done so.
ISO9004:2000 ‘Quality management systems – guidelines for performance
improvements’. As the title indicates, this provides guidelines on how an entity
can continue to improve its quality management system.
The purpose of the ISO9000 series
The International Organisation for Standardisation has stated that the ISO9000
series is concerned with quality management, and what an entity should do to:
meet the quality requirements of its customers
meet applicable regulatory requirements for quality, and at the same time
enhance customer satisfaction, and
achieve continued improvement in performance in pursuit of these quality
objectives.
The ISO9000 series specifies the requirements for a generic management system,
and the same standards can be applied to all types of entity, large and small,
business and non-business.
Definition of a quality management system
A management system is defined as the organisation structure for managing
processes and activities. A quality management system is a management system
that produces consistent standards of quality.
The approach set out in the ISO9000 series specifies what management must do to:
specify the quality that is to be achieved
achieve the quality specified
prove that this quality standard has been achieved in practice.
‘Quality management’ refers to what the entity does to ensure that its products or
services satisfy the customer's quality requirements and comply with any
regulations applicable to those products or services. It concerns processes and
systems, and not products. ISO9000 is not a product quality standard. The
management system standards in ISO 9000 state requirements for what the
organisation must do to manage processes influencing quality.
3.3 ISO9000 and the eight principles of quality management
The ISO9000 series is based on eight quality management principles.
Customer focus. Entities depend on their customers. They should therefore
understand the current and future needs of their customers, and should meet
these requirements and should try to exceed customer expectations. The benefits
of meeting this requirement are:
- more sales revenue and a bigger market share achieved through flexible
responses to market opportunities
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- increased effectiveness in using the resources of the entity to increase
customer satisfaction
- improved customer loyalty, leading to repeat business in the future.
Leadership. The leaders of an entity provide purpose and a sense of direction.
Leaders should create and maintain an ‘internal environment’ in which
individuals can become fully involved in achieving the entity’s objectives. The
benefits of meeting this requirement are:
- motivating individuals towards the entity’s goals and objectives
- improved communications between different levels of the organisation
structure.
Involvement of people. Individuals at all levels within the organisation are the
‘essence’ of the organisation. Getting them fully involved will enable the entity
to make the best use of their abilities. The benefits of meeting this requirement
are:
- a motivated and committed work force
- the encouragement of innovation and creativity
- individuals willing to be accountable for their own performance
- individuals wanting to participate and find ways of achieving continual
improvement.
Process approach. A desired result is achieved more efficiently when activities
and related resources are managed as a process. The benefits of meeting this
requirement are:
- lower costs and shorter cycle times through the more efficient use of
resources
- improved and consistent results
- an ability to focus on and prioritise opportunities for improvement.
System approach to management. Interrelated processes should be identified,
understood and managed as an integrated system. This will improve the
efficiency and effectiveness of the entity in achieving its objectives.
Continual improvement. Continual improvement in performance should be a
permanent objective of the entity.
Factual approach to decision-making. Effective decisions are based on the
analysis of data and information – facts, not opinions or guesswork. The key
benefits are (1) informed decision-making, (2) an ability to question the rationale
for decisions and (3) change opinions and decisions if appropriate.
Mutually beneficial supplier relationships. An entity and its suppliers are
interdependent. A mutually beneficial relationship helps both to create value.
The benefits of meeting this requirement are:
- a better ability to improve value in the supply chain
- more flexibility and speed of joint response to changing markets and
customer needs and expectations
- better uses of resources and lower costs.
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3.4 ISO9000 and certification
The ISO9000 quality management standards are voluntary standards. However,
entities may apply for ISO9000 certification if they believe that they comply with the
ISO9000 standards.
Certification means obtaining a certificate of compliance from an external
auditing/inspecting body. An independent, external body (recognised by ISO)
audits the entity’s quality management system and verifies that it conforms to the
requirements specified in the standard.
The auditing body then records the certification in its client register. The entity’s
management system is therefore both certified and registered.
3.5 Benefits of ISO9000 compliance
If an entity complies with the requirements of ISO9000, it will benefit from a high
standard of quality management. Many of the benefits are set out in the eight
principles of quality management.
In addition, if an entity is certified under ISO9000, this provides independent
‘evidence’ that the entity has an excellent system of quality management, and so is
in control of its processes and is focussed on customer satisfaction. This can have
marketing benefits.
Some large companies and governments insist that their suppliers should have
ISO9000 certification. This provides a specific commercial reason for achieving –
and maintaining – ISO9000 certification.