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Home arrow Management arrow Strategic Management in the 21st Century. Corporate Strategy

Linkage of the Quality Function with the Overall Strategic Function

Product and service quality is an integral element of the overall strategic development process, and also influences the setting of goals and objectives in the implementation phase. Accordingly, the organizational structure must allow for the effective formulation and execution of quality strategies in a manner that is consistent with and integrated into overall company strategies. Given the importance of the quality function, its representation at the senior management level is crucial. It is essential that through participation in the strategic mission-setting process, input from the quality function is incorporated. Similarly, the impact of various organizational entities, functions, and processes on the accomplishment of the quality function's objectives should be examined. This requires the acceptance of a philosophy that everyone has a role in the production of a quality product or the delivery of a quality service. It is not enough to simply display the quality motto or the quality mission in prominent places. It must be voluntarily embraced by everyone. When employees are convinced of the importance of the quality function and its role in creating better products or services, acceptance of the quality philosophy will follow and be sustainable. Thus, in addition to creating an organizational structure that embraces the quality function, a formidable task exists in effectively communicating that quality is the responsibility of everyone in the organization.

It is imperative to recognize that lip service from top management on the importance of the quality function is insufficient. Unless management truly embraces a commitment to quality and makes it a priority to ensure it is similarly embraced throughout the organization, efforts to build a culture of improvement will not work. It may be necessary for management to hold sessions with employees to communicate the importance of each person's role in fulfilling the quality mission. Employees in a line organization who have responsibility for only a part of the overall process may have to be educated about how each part of the process plays an important role in delivering quality in the finished product. As employees begin to visualize this connection, they will develop a sense of participation and involvement in serving the quality mission of the company. The deeper this goes, the greater will be the effort employees are willing to make in producing a quality product.

Top management may also need to create certain operational policies to support the realization of quality objectives. Bonuses or incentives for producing defect-free products that require no rework or involve no scrap, is one approach. Employees will be motivated to achieve quality in the processes under their jurisdiction as they realize the impact of their work on subsequent process steps. Adoption of such a policy may also promote teamwork since employees in each operating unit will come to realize that overall product quality is a function of the operational quality of every subprocess. An organization in which all employees pursue a common goal as opposed to myopically suboptimizing based on the needs of an individual department or unit can be referred to as a "motivated organization." It is known that in such motivated organizations, employees from individual subprocesses may voluntarily try to assist those at other sub-processes since they care about finished product quality. Achieving this, however, will require ensuring that everyone in the organization is adequately exposed to the organization's mission and strategic plans, and the role of each of the respective units in supporting them. General Electric, for example, requires all new hires, regardless of position, to undergo training and exposure to the organization's plans and objectives.

The importance of the quality function in the context of the overall strategic plan can also be conveyed through the acceptance of a "do it right the first time" philosophy. The focus should be on defect prevention rather than defect detection. Such an approach has several implications. From an operational cost perspective, the production of defective products increases rework and scrap costs, and thus increases the unit production cost of acceptable products. This either cuts into profit margins or necessitates higher prices, which may have an adverse effect on sales volume. Either way, the result to stakeholders more broadly is that competitiveness is compromised, which may negatively impact the rate of return on investment, employment levels, and growth opportunities. Again, although the implications are clear, everyone in the organization must be convinced of the importance of such an approach.

Defect prevention can also be viewed from the perspective of its impact on available capacity. The production of scrap or items that must be reworked implies a need for additional capacity to meet the same demand requirements. Given capacity constraints, this will have an impact on the ability to meet demand in a timely manner. When sufficient capacity is not available, it may force an organization to utilize overtime to increase output. The availability of equipment and personnel on an overtime basis will have to be explored and its cost feasibility determined. If the use of overtime is not feasible or cost effective, other options such as outsourcing may need to be explored, and issues associated with managing the quality of outsourced processes addressed. Conversely, producing defect-free products may cause an increase in available capacity. With rework and scrap eliminated, the time and effort spent on those will not only be freed up, capacity will be made available in a timely manner.

The choice of appropriate metrics for assessing performance toward meeting both company and associated quality function goals is an important issue. The metrics selected must not only directly reflect the goals, they must also be measurable, for without measurement and monitoring, it is not possible to track the progress toward goal attainment. Further, a distinction must be made between short-term and long-term measures. Consider, for example, the rate of return on investment. This is typically a long-term measure that reflects the magnitude of investments made in equipment/machinery and the life of the equipment. For equipment that lasts 15 to 20 years, an adequate rate of return may not be realized if the entire cost of the equipment is depreciated in only one or two years. In contrast, unit product cost is influenced by direct costs that may include material and direct labor costs, overhead costs that may include administrative and maintenance costs, and selling costs that may include marketing and related costs. Some of these costs such as direct labor and material costs may be influenced by short-term decisions, whereas others may be impacted more by decisions with long-term implications.

Utilization of Organizational Strengths

Senior management plays a pivotal role in establishing a corporate strategy that will address the needs of various stakeholders of the organization. Organizations with the ability to accurately analyze current trends and incorporate them in creating implementation plans will be at a competitive advantage. An important factor in this context is the organization's maturity with respect to a particular product or market. Whether the company is at the market entry stage for an already established product or is already an established competitor will be a key question to be addressed. Similarly, answers to questions about the amount and nature of competition, existing product mix, balance of products in the conception versus the maturity phase, and future diversification plans will influence the corporate strategy and the associated quality function strategy and initiatives.

It is essential that an organization take into account not only its core competencies but also the relative competitive position of the company in establishing strategy. Both of these factors will influence which functions the company will conduct in-house and those that it will outsource. The selection of corporate goals and quality initiatives will thus be impacted by such decisions. Related to this is the reality that product quality is influenced by the quality level of each of the units in the supply chain, and typically, the weakest link in the supply chain determines quality at the end-user level. It thus becomes top management's responsibility to coordinate quality throughout the supply chain. In many instances, product safety concerns mean that rigorous monitoring of quality is not only critical but also mandatory for all steps in the supply chain. An example of this is the pharmaceutical industry. This places greater pressure on management to ensure that appropriate checks and balances are in place to monitor quality for each supplier as well as to institute sound manufacturing practices throughout the supply chain.

In summary, the importance of the quality strategy can be captured with a simple message. The quest for quality is a never-ending process. Although perfection is a goal, improvement is always a possibility.

NOTES

1. Deming, W. Edwards. Quality, Productivity, and Competitive Position. Cambridge, MA: Center for Advanced Engineering Study, Massachusetts Institute of Technology, 1982. Deming, W. Edwards. Out of the Crisis. Cambridge, MA: Center for Advanced Engineering Study, Massachusetts Institute of Technology, 1986.

2. Crosby, Philip B. Quality Is Free. New York: McGraw-Hill, 1979.

3. Juran, Joseph M. Juran on Planning for Quality. New York: The Free Press, 1988. Juran, Joseph M. Juran's Quality Control Handbook. New York: McGraw-Hill, 1988.

4. Mitra, Amitava. Fundamentals of Quality Control and Improvement, 3rd ed. Hoboken, NJ: Wiley, 2008.

5. Crosby, Philip B. Quality Is Free. New York: McGraw-Hill, 1979.

6. Ibid.

7. Cohen, L. Quality Functional Deployment: How to Make QFD Work for You. Reading, MA: Addison-Wesley, 1995.

8 . Maslow, Abraham H. "A Theory of Human Motivation," Psychological Review 50(4): 370-396, 1943.

9 . Sarbanes-Oxley Act, Public Law 107-204, 116 Stat. 745, U.S. Federal Law, July 30, 2002.

 
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