CSR, INNOVATION, KNOWLEDGE MANAGEMENT AND INTRODUCING LEARNING ORGANIZATION

<< UNDERSTANDING EMPOWERMENT FOR TQ AND CUSTOMER-SUPPLIER RELATIONSHIP

Total Quality Management MGT510

Lesson # 45

CSR, INNOVATION, KNOWLEDGE MANAGEMENT AND INTRODUCING LEARNING

ORGANIZATION

The Importance of Customers in CSR:

The importance of customers has evolved over the years, from a view of the customer as a buyer to

increase profitability, to a view of the customer as an active partner and the focus of all quality

activities. Customer satisfaction translates directly into increased profits. However, while satisfaction is

important, modern firms need to look further. Achieving strong profitability and market share requires

loyal customers-those who stay with a company and make positive referrals. Poor-quality products and

services, on the other hand, lead to customer dissatisfaction in the form of complaints, returns, and

unfavorable word-of-mouth publicity. Dissatisfied customers purchase from competitors. One study

found that customers are five times more likely to switch because of perceived service problems than for

price concerns or product quality issues. Studies have also shown that dissatisfied customers tell at least

twice as many friends about bad experiences than they tell about good ones. For many companies, "The

Customer Comes First" is a guiding principle. It is impossible to overstate the importance of customers

to TQ. Customers are at the very center of every TQ activity, and devotion to satisfying them is the first

principle of TQ. Customers are recognized as the guarantee of the organization's continued existence.

Therefore, a focus on customers, rather than internal issues, is the foundation of the TQ approach to

management.

The Importance of Suppliers

The quality of goods and services received from suppliers, the upstream potion of the supply chain, has

a significant effect on the quality of goods and services that downstream customers receive. Suppliers

are those companies that provide the organization with goods and services that help them to satisfy the

needs of their own customers. A manufacturing company assembling parts made by suppliers illustrates

this point: the final product cannot be any better than the parts that comprise it. If a supplier's

performance is of consistently high quality; its customer can decrease or eliminate costly incoming

inspections that add no value to the product. For these reasons, many organizations have increasingly

demanded tangible progress in quality from all their suppliers. Companies that do not accept this

requirement are dropped from supplier lists. The importance of suppliers is at least as great when they

provide training, software, or other goods or services that do not physically become part of the final

product; they will influence its quality nevertheless by shaping the quality of the processes used to

produce it. In business today, operations are often highly decentralized and dispersed around the world.

Consequently, managing a complex network of suppliers becomes a critical inter organizational issue.

Suppliers play a vital role throughout the product development process, from design through

distribution. Suppliers can provide technology or production processes not internally available, early

design advice, and increased capacity, which can result in lower costs, faster time-to-market, and

improved quality for their customers. In turn, they are assured of stable and long-term business.

Principles for Customer-Supplier Relationships

Three governing principles describe CSRs under total quality:

Recognition of the strategic importance of customers and suppliers,

Development of win-win relationships between customers and suppliers, and

Establishing relationships based on trust..

Customer must be at the center of the organizational universe. Satisfying their needs leads to repeat

business and positive referrals, as opposed to one-shot business and negative referrals. Suppliers must

also be considered crucial to organizational success, because they make it possible to create customer

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satisfaction. Neither the quality nor the cost of the organization's product can be brought to competitive

levels and continuously improved without the contributions of suppliers.

The second principle of customer-supplier relationships is the need to develop mutually beneficial

(often called win-win) relationships between customers and suppliers. This was discussed previously as

working together to increase the size of the pie, rather than competing over how to divide it. The goal of

building partnerships with customers and suppliers can be seen as an extension of the teamwork

principle that applies to all TQ activities and as recognition that the needs of both partners must be

satisfied if productive long-term relationships are to be created.

The third principle of effective CSRs is that they must be based on trust rather than suspicion. Aside

from the obvious teamwork implications for relationships based on trust versus suspicion, monitoring

supplier or customer behavior does not add any value to the product. If a trusting relationship between

customers and suppliers can be developed so that neither must check up on the behavior of the other, the

costs of monitoring, such as inspection and auditing, can be avoided. Many Japanese firms do not

inspect items purchased from other companies in Japan; they do, however, often inspect those purchased

from America.

Practices for Dealing with Customers

How can these principles be translated into specific practices? The most basic practices for dealing with

customers are (1) to collect information constantly on customer expectations, (2) to disseminate this

information widely within the organization, and (3) to use this information to design, produce, and

deliver the organization's products and services.

Collect Customer Information

Acquiring customer information is critical to understanding customer needs and identifying

opportunities for improvement. The Japanese auto industry is known for trying to understand customer

needs so thoroughly that it can incorporate design features that customers would never have asked for

but love once they experience them. Teams of automobile designers visit people at home and observe

how they live in order to anticipate their automotive needs.

Perhaps one of the best examples of understanding customer needs and using this information to

improve competitiveness is XYZ chicken business. XYZ Company learned what customers'

key purchase criteria were; these included a yellow bird, high meat-to-bone ration, no

pinfeathers, freshness, availability, and brand image. He also determined the relative importance

of each criterion, and how well the company and its competitors were meting, each of them. By

systematically improving his ability to exceed customers' expectations relative to the

competition, XYZ gained market share even though his chickens were premium-priced.

In trying to understand customer needs, it is important to go beyond what customers say the need and

anticipate what will really excite them. It is a well-known principle of innovation that customers will

seldom express enthusiasm for a product that is different from anything they have experienced. Some of

the most popular ways to collect information about customers are surveys, service evaluation cards,

focus groups, and listening to what customers say during business transactions, especially when they

complain. Getting employees involved in collecting customer information improves worker skills and

learning, makes work more meaningful, and enhances motivation.

Disseminate Customer Information

After people in the organization have gathered information about customer needs, the next step is to

broadcast this information within the organization. After all, if the people in the firm are going to work

as a team to meet customer expectations, they must all be "signing from the same hymnbook," as the

saying goes. Information does little good if it stays with the person or department that brought it into the

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organization. Customer information must be translated into the features of the organization's products

and services. This is the bottom line of quality customer-supplier relations from the supplier's point of

view: giving the customers what they want. Translating customer needs into product features can be

done in a structured manner using quality function deployment (QFD).

Use Customer Information

Customer information is worthless unless it is used. Customer feedback should be integrated into

continuous improvement activities.

Manage Customer Relationships

A company builds customer loyalty by developing trust and effectively managing the interactions and

relationships with customers through customer-contact employees. Truly excellent companies foster

close and total relationships with customers. These companies also provide easy access to their

employee.

Practices for Dealing with Suppliers

In business today, operations are often highly decentralized and dispersed around the world.

Consequently, managing a complex network of suppliers becomes a critical inter-organizational issue.

Suppliers play a vital role throughout the product development process, from design through

distribution. Suppliers can provide technology or production processes not internally available, early

design advice, and increased capacity, which can result in lower costs, faster time-to-market, and

improved quality for their customers. In turn, they are assured of stable a long-term business.

Successful suppliers have a culture where employees and managers share in customers' goals,

commitments, and risks to promote such long-term relationships (recall one of Deming's 14 Points

about supplier relationshipsnot purchasing solely on the basis of price). Strong customer / supplier

relationships are based on three guiding principles:

recognizing the strategic importance of suppliers in accomplishing business objectives,

particularly minimizing the total cost of ownership,

developing win-win relationships through partnerships rather than as adversaries, and

establishing trust through openness and honesty, thus leading to mutual advantages

Although the principles of CSRs are the same in dealing with supplier as they are with customers, the

practices are somewhat different. In many companies, suppliers are treated as if they were actually a

part of the organization. For example, functions such as cafeteria service, mailroom operations, and

information processing are being performed by suppliers at their customers' facilities. As more and

more of this type of outsourcing is done, the lines between the customer and the supplier become

increasingly blurred.

Creativity and Innovation

Creativity is the ability to discover useful new relationships or ideas; innovation refers to the practical

implementation of such ideas. Research studies have suggested that the achievement of business

excellence requires a change-oriented environment where creativity of employees is nurtured,

developed, and sustained.10

From the perspective of total quality, creativity and innovation are needed to better respond to customer

needs, particularly the "exciters / delighters" that customers cannot articulate, and to develop the

products and services that will position an organization strategically ahead of its competitors. Thus,

creativity and innovation are instrumental in achieving the principles of total quality.

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Concepts of Knowledge Management:

Knowledge is the human capacity (Potential and Ability) to take effective decisions and action in varied

and uncertain conditions. Knowledge carried and possessed by a human being is of two types namely,

Explicit and Tacit. Knowledge Management involves transforming data into information and the

acquisition or creation or sharing of knowledge. The creation of knowledge from information requires

human intervention, and applying wisdom is strictly a human function.

With the change from silo/functional thinking to enterprise/system thinking, organizations of 21st

century are realizing the collective values of the knowledge bases (both tacit and explicit) i.e. their

intellectual capital. It is being realized that knowledge can provide leverage to gain competitive

advantage in the net based market place.

The Learning Organization:

As individuals must continue to learn, so must organizations. Prof. Peter Senge of MIT portrays

organizational learning as going beyond the mere capture of knowledge to include gaining a deeper and

complete understanding of how things work, and involve five learning disciplines:

Personal Mastery---a continual drive for personal and organizational development

Mental Models---understanding how our cognitive schema affect our view of the world, and

continually improving the accuracy of the model

Shared Vision---working jointly toward a common view to which all aspire

Team Learning---the use of dialogue to move beyond mere conversation to true joint

understanding

Systems Thinking---understanding the multiple cause-and-effect relationships and how they

are interconnected in organizations, society and other systems.

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