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"It is impossible for ideas to
compete in the marketplace if no forum for
their presentation is provided or available."
Thomas Mann, 1896
The Business Forum
Journal
Quality
First
By Hamid R.
Karimianpour
Abstract
Globalization has important ramifications for American economy. By
opening up the US market to competition from abroad, the American
consumers can enjoy a wealth of imported goods at low cost. But the
flood of cheap imported products into the US market has threatened the
very existence of many American suppliers. This article suggests that a
fundamental strategic shift from low-cost to quality production is
essential for American businesses to survive in today�s global economy.
A Succinct Overview
Quality
awareness is not a new phenomenon. The ancient Egyptians, Persians, and
Chinese, sought to produce highest quality products such as rugs or
other ornamental items thousands of years ago. But in America, a wave of
quality initiatives swept the country after WWII, when competition
against foreign goods stiffened and American businesses realized the
need to focus on quality in order to stay competitive against imported
goods.
Zero-Base
Budgeting
One of the
first quality initiatives in this country began with the concept of
Zero-Base Budgeting, which was invented by Peter Pyhrr. The idea was to
equip middle-managers with their own budgets. These budgets were based
on minimum cost of operation. Zero-Base budgeting was thought to empower
and encourage middle-managers to take higher responsibility for
efficiency and quality.
Theory Z
William
Ouchi published in 1981, his bestselling book How
American Management Can Meet the Japanese Challenge.
Ouchi contrasted American and Japanese management styles
and developed a concept known as Theory Z. Theory Z drew upon
best practices from both cultures such as, long-term employment,
consensual decision making, and individual accountability. Theory Z was
adopted by many American businesses in 1980s, but implementing aspects
of a foreign culture in America proved to be only partially successful.
Total Quality
Management (TQM)
Businesses
and management professionals realized that quality initiatives needed a
holistic approach, and so the idea of Total Quality Management (TQM) was
born. The TQM approach became a huge buzz word in the world of business,
in the public sector, and in nonprofit organizations. A large volume of
literature was generated on TQM. Many business consultants became
engaged in helping organizations implement the system.
TQM integrated all
organizational functions to meet customer needs and specifications. It sought to
fully integrate into the design, development, and delivery schedule of products
and services, consumers� needs and requirements. This put the consumers on the
top of the production and supply pyramid. Their feedback was analyzed using
sophisticated statistical models and converted into specifications that would
guide product design and development teams in their search for quality. This
integrated approach resulted in better designs, faster production and delivery,
and fewer products being returned by customers. The
scheme involved the full life-cycle of a product�from production to
consumption. Every employee at every layer of organization through every step of
a product�s life-cycle became accountable for ensuring quality. This meant a
push for quality from top-down and bottom-up in organizations. A change in
organizational culture was required to make quality �Job One� on every
employee�s mind and heart. The employees were �empowered� to act on behalf of
consumers and rectify product errors that had resulted during the production
processes. This goal required promoting team-working as well as individual
responsibility.
Manufacturers such
as Ford and General Electric employed hundreds or thousands of inspectors to
examine the quality of raw materials from vendors, production processes, end
products, and even customer service and after-care operations. To feed the
quality drive, complex statistical and theoretical models were developed over
the years. The aim was to achieve continuous measurable quality improvements.
Advanced Product
Quality Planning (APQP)
Advanced
Product Quality Planning provided a framework for product development in
the auto-industry. The Big Three, Ford, Chrysler, and General Motors,
implemented the system to achieve much of the same objectives as those
of TQM by focusing on five general activities throughout the production
process: planning, product design and development, process design and
development, product and process validation, and production.
Benchmarking
The
concept of benchmarking was developed as a way of comparing the quality
of a product to other similar products available on the market. A
business would identify a competitor with products and services of the
highest quality. This competitor would be classified as the �best
practice� and the quality of its products and services as the
�benchmarks� in the market. The business would then measure the quality
of its own products and services against the benchmarks while
continuously seeking to improve or differentiate its performance in the
market.
Business Process
Reengineering (BPR)
Michael
Hammer published an article in 1990, stating that the main challenge for
American businesses was to eliminate non-value adding work, rather than
applying technology for automating it. According to Hammer, much of the
work being done was unnecessary and wasteful.
Hammer�s article
triggered a major movement in the business world, nicknamed Business Process
Reengineering (BPR). BPR provided a framework of procedures and techniques that
enabled managers to completely rethink and redesign business processes to
eliminate waste, reduce cost, improve quality, and speed up products and service
delivery.
ISO 9000
ISO 9000
offers internationally endorsed standards for quality management
systems. Organizations typically have to go through a rigorous process
to quality for ISO 9000 certification. The system was initially
developed for the manufacturing sector, but different versions of it are
now available for other sectors of the economy, including the service
sector. ISO 9000 has been reviewed and updated several times, and is
currently embraced especially by manufacturers and service providers in
EU, East Asian countries, and North America. ISO 9000 considers quality
as a process of improving products from the beginning of production
cycle to the end-user. ISO 9001 and ISO 9002 series provide a set of
standards targeting the quality of design, development, production,
installation, and servicing. The ISO 9003 targets only the final
inspection and test of the end product wit no regard for how the product
was created. ISO 14000 is a new set of environmental standards.
Six Sigma
Six Sigma
is one of the latest inventions in quality management. The system was
developed by Motorola in 1981, and has allegedly saved the company
millions of dollars by detecting and rectifying errors in production
process. Process improvement is an important cost-saving measure. By
eliminating errors, manufacturers minimize the possibility of customers
returning defected products.
The Meaning of
Quality
The above
is but some of the buzz words in the world of quality management.
Manufacturers and service providers in public and private sectors have
implemented sophisticated quality management systems for more than half
a century. But contrary to major slogans such as �Continuous Quality
Improvement�, �Customer Satisfaction�, �Quality First�, and so on, the
underlying objectives for most of these programs are product
standardization and production process improvement.
Product
standardization is about ensuring that all products within a given category are
identical. Standardization efforts do not aim at improving the overall quality
of the products, but at making sure that all products are of the same quality. A
customer who walks into a McDonald�s restaurant has certain expectations about
the taste, flavor, volume, and design of a burger. McDonald�s seeks to satisfy
the customer�s expectations by supplying identical burgers every time the
customer visits the restaurant. For McDonald�s, quality management is not about
improving the nutritional value or the design or the taste of the burgers, but
it is about ensuring that customers can enjoy identical burgers every time.
Product standardization is an important measure to secure customer loyalty, but
not to raise the quality of the end product.
Production process
improvement focuses on the production process and operational efficiency. It
aims at eliminating waste and inefficiency, but it does not address the quality
of the end product. Of course, many of the quality schemes discussed above rely
on customer feedback in their quest for �quality�. The application of customer
feedback is certainly a step in the right direction. But the fact that a
low-cost manufacturer such as Ford employed APQP and ISO 9000 clearly
demonstrated that these schemes were implemented in an environment where quality
was subordinate to cost. It is reasonable that the APQP was named Advanced
Product Quality Planning, and not Advanced Product Quality Improvement
Planning.
Although
standardization and process improvement play significant roles in ensuring the
overall quality, they are not primarily designed for raising the quality of the
end product. Standardization and process improvement are ingredients of the
cost-driven production strategy rather than quality-driven strategy. After the
top management of a company has made a decision about what level of quality the
firm wants to achieve, these methods are implemented to reach the set goal in
the cheapest and fastest possible way.
The message of
this article is not standardization or process improvement, but the quality of
the end product. This is not to say that standardization and process improvement
are not essential for a firm�s success. Any supplier has to design efficient
operations that eliminate waste and errors. But the point of this article is
about making a strategic choice to compete on quality rather than cost.
Strategic Options
The
strategy of low-cost versus high-quality production has guided
businesses for centuries, though it was formalized in 1980s by Michael
Porter, who claimed that competitive edge was achieved by either cutting
cost or differentiating. The key for Porter was to choose the strategy
that enabled a business to specialize in one market segment only,
instead of trying to be everything for everybody at the same time. In
other words, for a business to succeed, Porter argued, it needed to
specialize in supplying products that were either qualitatively
indifferent but were affordable for low-budget consumers, or products
that were qualitatively differentiated but targeted consumers willing to
pay premium prices for them (see discussion on generic strategies in
Competitive Strategy: Techniques for Analysing
Industries and Competitors, The Free Press 1980).
With a rapidly
growing population and little competition from abroad, the obvious strategic
choice for American businesses in the beginning of the twentieth century was
mass production of cheap goods. Many new-comers to America were poor and had few
resources. Thomas C. Cochran noted that the immigrants brought with them
relatively little household goods. They wanted new supplies fast and at low
cost, and were not in the position to haggle about quality (see: Challenges
to American Values, Oxford University Press 1985, page 7). American
businesses strategically positioned themselves to cater this growing market by
supplying large volumes of affordable goods.
Pioneered by Ford
Motor Company in the beginning of the previous century, American corporations
became the engine for prosperity by focusing on standardization and low-cost
production. The application of assembly line and interchangeable parts enabled
American manufacturers to speed up the production process and at the same time
cut down production cost. As a result, consumers indulged in easily accessible
and low-priced goods, and American businesses saw their profits mushroom. But
there was a catch that many American firms had not foreseen. As the middle class
Americans grew wealthier, they increasingly demanded higher quality products
such as, BMW, Mercedes, and Toyota in the car market, Sony and Philips in
electronics market, and so on. On the other hand, the rising tide of
globalization opened up the US market to low-cost suppliers from China, India,
and other developing countries. With those Americans looking for quality turning
to the European or Japanese products and those demanding affordable products
turning to the Chinese or Indians, the customer base for many American firms
dried up.
As America�s
demographics became more stable and goods from the Third World saturated the US
market, it became apparent that the low-cost production strategy was sustainable
only in a static world, where there was no competition from outside and the
market factors remained unchanged, or in a world where in order to meet changing
market factors, companies could switch their strategic focus forward and back
with no implications for their brand image. But the real world never works in
this way. Market factors change frequently in a dynamic world, whereas brand
images remain inflexible. When a company positions itself as a low-cost
provider, it builds its brand accordingly. The brand image makes it hard for the
company, though not impossible, to change its strategic focus from cost to
quality when market factors change. It would be as hard for Ford to shift its
brand image from one of a low-cost producer to a quality provider as it would be
for McDonald�s to switch over to French cuisine.
The low-cost
production techniques that proved indispensable for American progress and
prosperity in early twentieth century, turned out to be America�s worst enemy in
the long run. A hundred years ago, mass production of low-priced goods enabled
America to develop a strong economy. Ironically, the same technique has in the
last few decades allowed countries with lower labor cost to compete out many
American businesses.
Faced with growing
competition from other countries, a paradigm shift from cost saving to a focus
on quality is required for American businesses to stay competitive at home and
abroad. In an increasingly global market, the only viable option for US
businesses is to produce high-quality products for the simple reason that the
relatively high labor cost in the US will force American low-cost producers out
of business, when competing with foreign suppliers. The American challenge a
hundred years ago was to build the country rapidly, and low-cost production was
the answer. The struggle now is to rescue American businesses from competition
from low-cost countries, and quality seems to be the only solution.
The Realization
that the cost-driven strategy was not a feasible option in the long-run led to
the development of the concept of sustainable competitive advantage, where the
idea was to supply high-quality goods that were cost-effective, but not
necessarily the cheapest. With cost-effective goods it was meant products that,
given their relatively high quality, were the best value for the money, though
not the cheapest on the market. In other words, the idea was about supplying
products of higher quality than the competition sold at prices higher than the
competition but low considering the quality. The concept incorporated two
objectives: relatively high quality and relatively low prices. But
it left it an open-ended question as to which of these objectives must be the
primary focus for suppliers. As it turned out in practice, many American
businesses continued to focus more on pricing than on quality of their products.
The priority in the US has been to search for innovative technology that could
help bring down cost and keep prices low, instead of shifting over to products
of higher quality sold at a premium. While it is undeniably vital for American
firms to invest in new technology, history has demonstrated that new technology
has been quickly adopted by foreign competitors, whereas quality-driven
businesses have been booming as long as rising national income in the West has
enabled consumers to pay increased prices for high-quality products.
Germany provides
an example of a quality-driven economy. After WWII, Germany began its economic
recovery program based on high-quality manufacturing. As the average income
level rose in Western Europe, demand for German goods increased, proving that
striving for quality is the only long-term strategic choice for businesses in
soaring economies.
American
businesses must put quality first. It is no longer good enough for American
firms to supply standard products at low cost. In this global market, American
car manufacturing must build the American equivalent of Mercedes or better;
American vineyards must supply American equivalent of French wine or better, and
so on.
The shift of focus
from cost to quality does not only seem to offer a viable survival strategy for
American businesses in an increasingly global market, but it also seems to
present a solution to many of the problems of this generation. High quality
products last longer, which help reduce waste and protect the environment. High
quality products will also help Americans regain their trust in American brands,
and the world to once again acknowledge the American excellence.
Hamid R. Karimianpour
earned a BA in
Economics and Political Philosophy from the University of Oslo in
Norway, and an MBA with specialization in Strategic Management from the
University of Hull in the United Kingdom. He has over ten years
experience as a business consultant for the oil and gas, telecoms, and
the electronics industry. He has worked with multinational corporations
such as BP, Halliburton, and Schlumberger in the oil and gas market, and
Nokia, Ericson and Philips Electronics in the telecoms and electronics
markets. Hamid has coached middle- and senior managers in implementing
techniques to optimize performance and productivity, design strategies
for meeting domestic and foreign competition, plan for business
augmentation and evaluate options and opportunities for market
repositioning. Hamid has extensive experience working with companies in
North America, East and South-East Asia, the European Union and
Scandinavia. He has participated as delegate/speaker in international
forums and conferences such as the Oil & Gas Forum in Barcelona, Spain
and the Technology Conference in London, United Kingdom. Hamid is also
involved in charity initiatives and nonprofit organizations. He recently
participated in a ten million dollar fund-raising efforts for youth
related activities in Central Virginia. Prior to becoming a business
consultant, Hamid worked as a mediator under the Norwegian Ministry of
Justice for four years. The role involved close collaboration with
law-enforcement authorities in the country. He has had articles
published in both Europe and the United States.
[email protected]
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