BUSINESS EXCELLENCE MODELS:Excellence in all functions

<< OVERVIEW OF TOTAL QUALITY APPROACHES:The Future of Quality Management

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Total Quality Management MGT510

Lesson # 20

BUSINESS EXCELLENCE MODELS

Excellence starts with `Marketing'

The `marketing' function of an organization must take the lead in establishing the true requirements for

the product or service. Having determined the need, marketing should define the market sector and

demand. This will determine product or service features such as the grade, price, quality, timings, etc.

For example, a major hotel chain, before opening a new hotel or refurbishing an old one, will need to

consider its location and accessibility, before deciding whether it will be predominantly a budget, first

class, business or family hotel.

Marketing will also need to establish customer requirements by reviewing the market needs, particularly

in terms of unclear or unstated expectations or preconceived ideas held by customers. Marketing is

responsible for determining the key characteristics which determine the suitability of the product or

service in the eyes of the customer. This may, of course, involve the use of market research techniques,

data gathering, and analysis of customer complaints.

Excellent communication between customers and suppliers is the key to total organizational excellence.

This will eradicate the `demanding nuisance/idiot' view of customers, which pervades some

organizations. Poor communications often occur in the supply chain between organizations, when

neither party realizes how poor they are. Feedback from both customers and suppliers needs to be

improved, where dissatisfied customers and suppliers do not communicate their problems. In such cases

non-conformance of purchased products or services is often due to the customer's inability to

communicate their requirements clearly. If these ideas are also used within an organization, then the

internal supplier/customer interfaces will operate much more smoothly.

Marketing must also establish systems for feedback of customer information and reaction, which should

be designed on a continuous monitoring basis. Any information pertinent to the product or service

should be collected and collated, interpreted, analyzed, and communicated to improve the response to

customer experience and expectations. These same principles must also be applied inside the

organization for continuous improvement at every transformation process interface to be achieved. If

one department has problems recruiting the correct sort of staff, and `HR' have not established

mechanisms for gathering, analyzing, and responding to information on new employees, then frustration

and conflict will replace communication and co-operation.

Excellence in all functions

For an organization to be truly excellent, each part of it must work properly together. Each part, each

activity, each person in the organization affects and is in turn affected by others. Errors have a way of

multiplying and failure to meet the requirements in one part or area creates problems elsewhere, leading

to yet more errors, yet more problems and so on. The benefits of getting it right first time everywhere

are enormous.

Everyone experience almost accepts problems in working life. This causes people to spend a large

part of their time on useless activities, correcting errors, looking for things, finding out why things are

late, and checking suspect information, rectifying and reworking, apologizing to customers for mistakes,

poor quality and lateness. The list is endless and it is estimated that about one-third of our efforts are

wasted in this way. In the service sector it can be much higher.

Quality, the way we have defined it as meeting the customer requirements, gives people indifferent

functions of an organization a common language for improvement. It enables all the people, with

different abilities and priorities, to communicate readily with one another, in pursuit of a common goal.

When business and industry was local, the craftsman could manage more or less on his own. Business is

Total Quality Management MGT510

now so complex and employs so many different specialist skills that everyone has to rely on the

activities of others in doing their jobs.

Frameworks for Quality and Performance Excellence

The philosophies of Deming, Juran, and Crosby provide fundamental principles on which total quality is

based. Business firms tend to be highly individualized. As a result, it is difficult to apply one specific

philosophy. Company leaders must understand the differences and commonalties in the three

philosophies and tailor an approach that fits their unique culture. Some of the most successful firms,

such as Texas Instruments and Dana Corporation, have done this. Aspects of implementation are

addressed further in chapter 11.

None of thee philosophies, however, provide a framework for how to implement total quality within an

organization or a means of assessing total quality efforts relative to one's peers or world-class

companies. Award criteria and certification procedures fill this important role. The two most prominent

frameworks for quality that have had world-wide influence are ISO 9000 and the Malcolm Baldrige

National Quality Award Criteria.

The Malcolm Baldrige National Quality Award

In this section we present an overview of the Award, the Criteria, and the Award Process. The Baladrige

Award recognizes U.S. companies that excel in quality management practice and performance. The

Baldrige Award does not exist simply to practice and performance. The Baldrige Award does not exist

simply to recognize product excellence, nor does it exist for the purposes of "winning." Its principal

focus is on promoting high-performance management practices that lead to customer satisfaction and

business results. Up to three companies can receive an award in each of the categories of manufacturing,

small business, service, nonprofit health care, and nonprofit education. Health care and education award

categories were established in 1999.

The purposes of the award are to

Help stimulate American companies to improve quality and productivity for the pride of recognition

while obtaining a competitive edge through increased profits;

Recognize the achievements of those companies that improve the quality of their goods and services

and provide an example to others;

Establish guidelines and criteria that can be used by business, industrial, governmental, and other

enterprises in evaluating their own quality improvement efforts; and

Provide specific guidance for other American enterprises that wish to learn how to manage for high

quality by making available detailed information on how winning enterprises were able to change

their cultures and achieve eminence.

The Criteria for Performance Excellence

The award examination is based upon a rigorous set of criteria, called the Criteria for Performance

Excellence, designed to encourage companies to enhance their competitiveness through an aligned

approach to organizational performance management that result in:

Deliver of ever-improving value to customers, contributing to marketplace success.

Improvement of overall company performance and capabilities

Organizational and personal learning

The criteria consist of a hierarchical set of categories, items, and areas to address. The seven categories

are

Total Quality Management MGT510

Leadership: This category examines how an organization's senior leaders address values,

direction, and performance expectations, as well as their focus on customer s and other

stakeholders, empowerment, innovation, and learning. Also examined is how an organization

addresses its responsibilities to the public and supports its key communities.

Strategic Planning: this category examines how an organization develops strategic objectives

and action plans. Also examined are how chosen strategic objectives and action plans are

deployed and how progress is measured.

Customer and Market Focus: This category examines how an organization determines

requirements, expectations, and preferences of customer s and markets. Also examined is how

the organization builds relationships with customers and determines the key factors that lead to

customer acquisition, satisfaction, and retention and to business expansion.

Information and Analysis: This category examines an organization's information management

and performance measurement systems and how the organization analyzes performance data

and ensures hardware and software quality.

Human Resource Focus: This category examines how an organization motivates and enables

employees to develop and utilize their full potential in alignment with the organization's overall

objectives and action plans. Also examined are the organization's efforts to build and maintain a

work environment and an employee support climate conducive to performance excellence and

to personal and organizational growth.

Process Management: This category examines the key aspects of an organization's process

management, including customer-focused design, product and service delivery, key business,

and support processes. This category encompasses all key processes and all work units.

Business Results: This category examines an organization's performance and improvement in

key business areas customer satisfaction, product and service performance, financial and

marketplace performance, human resource results, and operational performance. Also examined

are performance levels, relative to those of competitors.

The seven categories form an integrated management system. The umbrella over the seven categories

reflects the focus that organizations must have on customers through their strategy and action plans for

all key decisions. Leadership, Strategic Planning, and Customer and Market Focus represent the

"leadership triad," and suggest the importance of integrating these three functions. Human Resource

focus and Process Management represent how the work in an organization is accomplished and leads to

Business Results. These functions are linked to the leadership triad.

Malcolm Baldrige National Quality Award Criteria Framework

Total Quality Management MGT510

Baldrige Award Criteria Framework

A systems Perspective

Organizational Profile:

Environment, Relationships, and Challenges

Strategic

Human

Resources

Planning

Focus

Business

Leadership

Results

Customer

Process

and Market

Management

Focus

Information and Analysis

Each category consists of several items (numbered 1.1, 1.2, 2.1, etc.) or major requirements on which

businesses should focus. For example, the Leadership Category consists of the following items and

areas to address:

1.1

Organizational Leadership

Senior Leadership Direction

Organizational Performance Review

1.2

Public Responsibility and Citizenship

Responsibilities to the Public

Support of Key Communities

The Senior Leadership Direction area asks organizations to answer the following questions:

How do senior leaders set and deploy organizational values, short-and longer-term directions, and

performance expectations, including a focus on creating and balancing value for customers and

other stakeholders? Include how senior leaders communicate values, directions, and expectations

through your leadership system and to all employees.

How do senior leaders create an environment for empowerment, innovation, organizational agility,

and organizational and employee learning?

One thing the criteria do not do is prescribe specific quality tolls, techniques, technologies, systems, or

starting points. Companies are encouraged to develop and demonstrate creative, adaptive, and flexible

approaches to meeting basic requirements. Many innovative approaches have been developed by

Baldrige winners and are now commonly used by many other companies.

Total Quality Management MGT510

Baldrige Award Item Point Values

2002 Categories/Items

Point Values

Leadership

120

1.1

Organizational Leadership. ... .......................................................... 80

1.2

Public Responsibility and Citizenship ............................................. ....40

Strategic Planning

2.1

Strategy Development. ................................................................... 40

2.2

Strategy Development. ................................................................... 45

Customer and Market Focus

3.1

Customer and Market Knowledge. . ....................................................40

3.2

Customer Satisfaction and Relationships. .............................................45

Information and Analysis

4.1

Measurement and Analysis of Organizational Performance ........................50

4.2

Information Management. ...............................................................40

Human Resources Focus

5.1

Work systems. ............................................................................ 35

5.2

Employee Education, Training, and Development. ..................................25

5.3

Employee Well-Being and Satisfaction. . .............................................25

Process Management

6.1

Product and Service Processes...........................................................55

6.2

Business Process. .........................................................................15

6.3

Support Processes.........................................................................15

Business Results

450

7.1

Customer-Focused Results ............................................................ 125

7.2

Financial and Market Results ........................................................ 125

7.3

Human Resource Results .............................................................. 80

7.4

Organizational Effectiveness Results ............................................... 120

Total Points .......................................................................................1, 000

ISO 9000 (2000) International Quality Management System

As quality became a major focus of businesses throughout the world, various organizations developed

standards and guidelines. Terms such as quality management, quality control, quality system, and

quality assurance acquired different, and sometimes conflicting meanings from country to country,

within a country, and even within an industry.10 As the European Community moved toward the

European free trade agreement, which went into effect at the end of 1992, quality management became a

key strategic objective. To standardize quality requirements for European countries within the common

market and those wishing to do business with those countries, a specialized agency for standardization,

the International Organization for Standardization, founded in 1946 and composed of representatives

from the national standards bodies of 91 nations, adopted a series of written quality standards in 1987,

which were revised in 1994, and again (significantly) in 2000. The most recent version is called the ISO

9000:2000 family of standards.

Total Quality Management MGT510

ISO 9000 is an international quality standard for goods and services. The term quality standard tends to

be misleading. For example, ISO 9000 does not set any specifications for quality. Rather, it sets broad

requirements for the assurance of quality and for management's involvement. The emphasis is on

prevention rather than inspection and rework. In fact, this emphasis is placed not only on the production

process but also on the product design process. The ISO 9000 approach is completely compatible with

the total quality philosophy, though it is not as all encompassing. ISO 9000 is composed of three

standards:

ISO 9000:2000 Quality Management Systems Fundamentals and Vocabulary

ISO 9001:2000 Quality Management Systems Requirements

ISO 9004:2000 Quality Management Systems Guidelines for Performance Improvements

ISO 9000 Can Improve Operations in a Traditional Environment

By "traditional environment," we mean an organizational environment that has persisted in companies

for decades, until the Total Quality Management movement began to change things. A traditional

organizational environment is one which still operates according to the "old way of doing things" rather

than according to the principles of Total Quality Management.

When ISO 9000 is implemented by a traditional organization, the company should be the better for it.

We will not go so far as to say it will be the better for it, because much depends on the organization's

reasons for adopting ISO 9000 and the degree of executive-level commitment to it. Put another way, if

ISO 9000 is approached inappropriately and for the wrong reasons, it can become nothing more than a

marketing ploy, and the organization's functional departments might develop even more problems than

they had before ISO 9000.

ISO 9000 May be Redundant in a Mature TQM Environment

Just as ISO 9000 should help traditional organizations, it should also benefit TQM organizations.

However, in an organization that has achieved a high level of maturity in its total quality journey, say in

the 400-600 range on the Baldrige scale of 1,000 points, all ISO 9000 criteria may already be in place.

In such a case, the only compelling reason for registration under ISO 9000 would be for marketing

purposes. What would a company such as Toyota gain from ISO 9000 registration? Probably nothing. It

already does everything required by ISO 9000. Its products and processes are recognized as world class.

Consequently, It wouldn't gain even a marketing advantage. However, there are many fine TQM

organizations that are not as well known as Toyota. Such organizations, even though they may already

meet or exceed the requirements of ISO 9000, may find it necessary to register in order to let potential

customers know that their products or services satisfy the international standard.

For Software and IT companies, the standard which is more acceptable and regarded worldwide is

called CMMI levels 1-5.

ISO 9000 and TQM are not in Competition

This is not case of one or the other. Organizations can adopt TQM or ISO 9000, or both. While there

may be those who advocate one to the exclusion of the other, in the larger scheme of things, the two

concepts fit well with each other. Both have worthwhile and similar aims. Our view is those not only are

TQM and ISO 9000 compatible; they actually support each other and are complementary. There are

good reasons for using both in a single management system.

Management Motivation for Registration to ISO 9000

Management motivation for adopting either ISO 9000 or TQM can vary widely. There are both

appropriate and inappropriate motives. For example, if a company seeks ISO 9000 registration to obtain

Total Quality Management MGT510

a marketing advantage, its motive is inappropriate. As a result, the organization will likely give mere lip

service to adopting the standard. Appropriate motives for adopting ISO 9000 include the following:

To improve operations by implementing a quality management system that satisfies the ISO

9000 requirements for management responsibility; resource management; product realization;

and measurement, analysis, and improvement

To create or improve a quality management system that will be recognized by customers

worldwide.

To improve product or service quality r the consistency of quality

To improve customer satisfaction.

To improve competitive posture

To conform to the requirements of one or more major customers (although adoption would be

better motivated by internal consideration, such as the preceding five)

What we are saying here is that, ideally, management will adopt ISO 9000 as a way to make real

improvements in the company's operations, serve its customers in a more responsible way, and, as a

result, be more successful. This approach is more likely to assure commitment and participation by top

management. Approaching ISO 9000 from a strictly marketing perspective may result in a negative

reaction t the amount of work required by the functional departments, ad only enough management

commitment to do the bare minimum for registration. In other words, if ISO 9000 is viewed as a

necessary evil that one must adopt to compete in certain markets, every dollar and every hour spent on

ISO 9000 will be seen as a burden to be endured rather than an investment in the organization's future.

By definition, a burden is a load that is difficult to bear; the connotation is negative. When negative

feelings abound among employees, commitment to ISO 9000 will suffer. It may be possible to fool the

ISO 9000 registrar's auditor, but we guarantee that customers will not be fooled at least not for long.

Newfound markets will soon wither and disappear. If ISO 9000 is to have a real and permanent effect, it

must be approached with a positive attitude and the unwavering commitment of top management.

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