Chapter 17


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Chapter 17

  1. 1. Chapter Seventeen Organizational Control and Quality Improvement
  2. 2. Chapter Objectives <ul><li>Identify three types of control and the components common to all control systems. </li></ul><ul><li>Discuss organizational control from a strategic perspective. </li></ul><ul><li>Identify the four key elements of a crisis management program. </li></ul><ul><li>Identify five types of product quality. </li></ul><ul><li>Explain how providing a service differs from manufacturing a product and identify the five service-quality dimensions. </li></ul>
  3. 3. Chapter Objectives (cont’d) <ul><li>Define total quality management (TQM) and specify the four basic TQM principles. </li></ul><ul><li>Describe at least three of the seven TQM process improvement tools. </li></ul><ul><li>Explain how Deming’s PDCA cycle can improve the overall management process. </li></ul><ul><li>Specify and discuss at least four of Deming’s famous 14 points. </li></ul>
  4. 4. Fundamentals of Organizational Control <ul><li>Control </li></ul><ul><ul><li>Taking preventive or corrective action to keep things on track </li></ul></ul><ul><ul><ul><li>Checking, testing, regulating, verifying, or adjusting </li></ul></ul></ul><ul><ul><ul><li>Objectives are yardsticks for measuring actual performance. </li></ul></ul></ul><ul><ul><li>Purpose of the control function </li></ul></ul><ul><ul><ul><li>To get the job done despite environmental, organizational, and behavioral obstacles and uncertainties </li></ul></ul></ul>
  5. 5. Types of Controls <ul><li>Feedforward Control </li></ul><ul><ul><li>The active anticipation and prevention of problems, rather than passive reaction </li></ul></ul><ul><li>Concurrent Control </li></ul><ul><ul><li>Monitoring and adjusting ongoing activities and processes </li></ul></ul><ul><li>Feedback Control </li></ul><ul><ul><li>Checking a completed activity and learning from mistakes </li></ul></ul>
  6. 6. Figure 17.1: Three Types of Control
  7. 7. Organizational Control Subsystems <ul><li>Strategic plans </li></ul><ul><li>Long-range plans </li></ul><ul><li>Annual operating budget </li></ul><ul><li>Statistical reports </li></ul><ul><li>Performance appraisals </li></ul><ul><li>Policies and procedures </li></ul><ul><li>The organization’s culture </li></ul>
  8. 8. Components of Organizational Control Systems <ul><li>Objectives </li></ul><ul><ul><li>Measurable reference points (targets) for corrective action </li></ul></ul><ul><li>Standards </li></ul><ul><ul><li>Guideposts on the way to achieving objectives </li></ul></ul><ul><ul><li>Benchmarking: Identifying, studying, and building upon the best practices of organizational role models </li></ul></ul>
  9. 9. Evaluation-Reward Systems <ul><li>Goals of System </li></ul><ul><ul><li>To measure and reward individual and team contributions to attaining organizational objectives </li></ul></ul><ul><ul><li>To shape effort-reward expectancies in order to motivate better performance </li></ul></ul>
  10. 10. Strategic Control <ul><li>Strategic planning and strategic control go hand in hand. </li></ul><ul><li>Top-level strategy sets and/or determines objectives through the organization. </li></ul><ul><li>Control measures of activities and results are translated up the organizational pyramid. </li></ul>
  11. 11. Figure 17.2: The Performance Pyramid for Strategic Control Source: C. J. McNair, Richard L. Lynch, and Kelvin F. Cross, &quot;Do Financial and Nonfinancial Performance Measures Have to Agree?&quot; MANAGEMENT ACCOUNTING published by the Institute of Management Accountants, Montvale, NJ, 72 (November l990): 30. Copyright by Institute of Management Accountants. Reprinted by permission.
  12. 12. Identifying Control Problems <ul><li>Executive Reality Checks </li></ul><ul><ul><li>Top managers periodically work at lower-level jobs to become more aware of operations. </li></ul></ul><ul><li>Internal Audits </li></ul><ul><ul><li>Independent appraisals of organizational operations and systems are conducted to assess effectiveness and efficiency. </li></ul></ul>
  13. 13. Identifying Control Problems (cont’d) <ul><li>Symptoms of Inadequate Control </li></ul><ul><ul><li>An unexplained decline in revenues or profits </li></ul></ul><ul><ul><li>A degradation of service (customer complaints) </li></ul></ul><ul><ul><li>Employee dissatisfaction </li></ul></ul><ul><ul><li>Cash shortages caused by bloated inventories or delinquent accounts receivable </li></ul></ul><ul><ul><li>Idle facilities or personnel </li></ul></ul><ul><ul><li>Disorganized operations </li></ul></ul><ul><ul><li>Excess costs </li></ul></ul><ul><ul><li>Evidence of waste and inefficiency </li></ul></ul>
  14. 14. Crisis Management <ul><li>Organizational Crisis </li></ul><ul><ul><li>A low-probability, high-impact event that threatens the viability of the organization and is characterized by ambiguity of cause, effect, and means of resolution, as well as by the belief that decisions must be made swiftly </li></ul></ul>
  15. 15. Crisis Management (cont’d) <ul><li>Crisis Management </li></ul><ul><ul><li>Anticipating and preparing for events that could damage the organization </li></ul></ul><ul><li>Two Biggest Mistakes Regarding Organizational Crises </li></ul><ul><ul><li>Ignoring early warning signs of an impending disaster </li></ul></ul><ul><ul><li>Denying the existence of a problem when disaster actually strikes </li></ul></ul>
  16. 16. Figure 17.3: Key Elements of a Crisis Management Program
  17. 17. Developing a Crisis Management Program <ul><li>Conduct a crisis audit seeking out trouble spots and vulnerabilities. </li></ul><ul><li>Formulate contingency plans that specify early warning signals, actions to be taken, and consequences of those actions. </li></ul><ul><li>Create crisis management teams with specific skills to deal with a crisis. </li></ul><ul><li>Perfect the program through serious practice and rehearsals. </li></ul>
  18. 19. The Quality Challenge <ul><li>Defining Quality </li></ul><ul><ul><li>“Conformance to requirements” (Crosby) </li></ul></ul><ul><ul><li>A subjective response by customers to the adequacy of product or service quality in meeting their expectations/needs/requirements </li></ul></ul>
  19. 20. Five Types of Product Quality <ul><li>Transcendent Quality </li></ul><ul><ul><li>Inherent value or innate excellence apparent to the individual </li></ul></ul><ul><li>Product-Based Quality </li></ul><ul><ul><li>The presence or absence of a given product attribute </li></ul></ul><ul><li>User-Based Quality </li></ul><ul><ul><li>The ability of the product to meet the user’s expectations </li></ul></ul>
  20. 21. Five Types of Product Quality (cont’d) <ul><li>Manufacturing-Based Quality </li></ul><ul><ul><li>How well the product conforms to its design specification or blueprint </li></ul></ul><ul><li>Value-Based Quality </li></ul><ul><ul><li>How much value each customer separately attributes to the product in calculating his/her personal cost-benefit ratio </li></ul></ul>
  21. 22. Unique Challenges for Service Providers <ul><li>Strategic Service Challenge </li></ul><ul><ul><li>To anticipate and exceed customer’s expectations </li></ul></ul><ul><ul><li>Distinctive service characteristics </li></ul></ul><ul><ul><ul><li>Customers participate directly in the production process. </li></ul></ul></ul><ul><ul><ul><li>Services are consumed immediately and cannot be stored. </li></ul></ul></ul><ul><ul><ul><li>Services are provided where and when the customer desires. </li></ul></ul></ul><ul><ul><ul><li>Services tend to be labor-intensive. </li></ul></ul></ul><ul><ul><ul><li>Services are intangible. </li></ul></ul></ul>
  22. 23. Unique Challenges for Service Providers (cont’d) <ul><li>Defining Service Quality </li></ul><ul><ul><li>Five service quality dimensions </li></ul></ul><ul><ul><ul><li>Reliability (most important) </li></ul></ul></ul><ul><ul><ul><li>Assurance </li></ul></ul></ul><ul><ul><ul><li>Tangibles </li></ul></ul></ul><ul><ul><ul><li>Empathy </li></ul></ul></ul><ul><ul><ul><li>Responsiveness </li></ul></ul></ul>
  23. 24. Total Quality Management (TQM) <ul><li>Creating an organizational culture committed to the continuous improvement of skills, teamwork, processes, product and service quality, and customer satisfaction </li></ul><ul><li>Four Principles of TQM </li></ul><ul><ul><li>Do it right the first time. </li></ul></ul><ul><ul><li>Be customer-centered. </li></ul></ul><ul><ul><li>Make continuous improvement a way of life. </li></ul></ul><ul><ul><li>Build teamwork and empowerment. </li></ul></ul>
  24. 25. Introduction to Total Quality Management (TQM) <ul><li>Do It Right the First Time </li></ul><ul><ul><li>Designing and building quality into the product </li></ul></ul><ul><li>Be Customer-Centered </li></ul><ul><ul><li>Satisfying the customer’s needs by anticipating, listening, and responding </li></ul></ul><ul><ul><li>Internal customers: Anyone in the organization who cannot do a good job unless you do a good job </li></ul></ul>
  25. 27. Introduction to Total Quality Management (TQM) (Cont’d) <ul><li>Make Continuous Improvement A Way of Life </li></ul><ul><ul><li>Kaizen: A Japanese word meaning continuous improvement (quality is an endless journey) </li></ul></ul><ul><ul><li>A gain in one area does not mean loss in another. </li></ul></ul><ul><ul><li>Venues for Continuous Improvement </li></ul></ul><ul><ul><ul><li>Improved and more consistent product and service quality </li></ul></ul></ul><ul><ul><ul><li>Faster cycle times </li></ul></ul></ul><ul><ul><ul><li>Greater flexibility </li></ul></ul></ul><ul><ul><ul><li>Lower costs and less waste </li></ul></ul></ul>
  26. 28. Introduction to Total Quality Management (TQM) (Cont’d) <ul><li>Build Teamwork and Empowerment </li></ul><ul><ul><li>Teamwork </li></ul></ul><ul><ul><ul><li>Suggestion systems </li></ul></ul></ul><ul><ul><ul><li>QC circles and self-managed teams </li></ul></ul></ul><ul><ul><ul><li>Teamwork and cross-functional teams </li></ul></ul></ul><ul><ul><li>Empowerment </li></ul></ul><ul><ul><ul><li>Adequate training </li></ul></ul></ul><ul><ul><ul><li>Access to information and tools </li></ul></ul></ul><ul><ul><ul><li>Involvement in key decisions </li></ul></ul></ul><ul><ul><ul><li>Fair rewards for results </li></ul></ul></ul>
  27. 29. Figure 17.4: Seven Basic TQM Tools Source: Tenner/DeToro, TOTAL QUALITY MANAGEMENT (figure 9.2 from page 113). © 1992 by Addison-Wesley Publishing Company, Inc. Reprinted by permission of Pearson Education, Inc.
  28. 30. The Seven Basic TQM Process Improvement Tools <ul><li>Flow Chart </li></ul><ul><ul><li>A graphic display of a sequence of activities and decisions </li></ul></ul><ul><li>Cause-and-Effect Analysis </li></ul><ul><ul><li>A fishbone diagram that helps visualize important cause-and-effect relationships </li></ul></ul><ul><li>Pareto Analysis (80/20 Analysis) </li></ul><ul><ul><li>A bar chart indicating which problem needs the most attention </li></ul></ul>
  29. 31. The Seven Basic TQM Process Improvement Tools (cont’d) <ul><li>Control Chart </li></ul><ul><ul><li>Visual aid showing acceptable and unacceptable variations from the norm for repetitive operations </li></ul></ul><ul><li>Histogram </li></ul><ul><ul><li>A bar chart indicating deviations from a standard bell-shaped curve </li></ul></ul><ul><li>Scatter Diagram </li></ul><ul><ul><li>A plot of relationships between two variables </li></ul></ul><ul><li>Run Chart </li></ul><ul><ul><li>A trend chart for tracking a variable over time </li></ul></ul>
  30. 32. Figure 17.5: Everyone Benefits from Improved Quality Source: Adapted from W. Edwards Deming, Out of Crisis (Cambridge, MA: MIT Press, 1986), p. 3.
  31. 33. Deming Management <ul><li>Deming Management </li></ul><ul><ul><li>Application of W. Edwards Deming’s ideas to revitalize productive systems to make them more responsive to the customer, more democratic, and less wasteful </li></ul></ul><ul><ul><li>Essentially the opposite of scientific management </li></ul></ul><ul><li>Principles of Deming Management </li></ul><ul><ul><li>Quality improvement drives the entire economy. </li></ul></ul><ul><ul><li>The customer always comes first. </li></ul></ul><ul><ul><li>Don’t blame the person; fix the system. </li></ul></ul><ul><ul><li>Plan-Do-Check-Act (PDCA cycle). </li></ul></ul>
  32. 34. Figure 17.6: Deming’s PDCA Cycle Source: Adapted from W. Edwards Deming, Out of Crisis (Cambridge, MA: MIT Press, 1986), p. 88.
  33. 35. Deming’s 14 Points <ul><li>Constant purpose </li></ul><ul><li>New philosophy </li></ul><ul><li>Give up on quality by inspection </li></ul><ul><li>Avoid the constant search for lowest-cost suppliers </li></ul><ul><li>Seek continuous improvement </li></ul><ul><li>Train everybody </li></ul><ul><li>Provide real leadership </li></ul><ul><li>Drive fear out of the workplace </li></ul><ul><li>Promote teamwork </li></ul><ul><li>Avoid slogans and targets </li></ul><ul><li>Get rid of numerical quotas </li></ul><ul><li>Remove barriers that stifle pride in workmanship </li></ul><ul><li>Education and self-improvement are key </li></ul><ul><li>“ The transformation is everyone’s job” </li></ul>
  34. 36. Terms to Understand <ul><li>Control </li></ul><ul><li>Feedforward control </li></ul><ul><li>Concurrent control </li></ul><ul><li>Feedback control </li></ul><ul><li>Benchmarking </li></ul><ul><li>Executive reality check </li></ul><ul><li>Internal auditing </li></ul><ul><li>Crisis management </li></ul><ul><li>Contingency plans </li></ul><ul><li>Quality </li></ul><ul><li>Total quality management (TQM) </li></ul><ul><li>Internal customers </li></ul><ul><li>Customer-centered </li></ul><ul><li>Kaizen </li></ul><ul><li>Flow chart </li></ul><ul><li>Fishbone diagram </li></ul><ul><li>Pareto analysis </li></ul><ul><li>Control chart </li></ul><ul><li>Histogram </li></ul><ul><li>Scatter diagram </li></ul><ul><li>Run chart </li></ul><ul><li>Deming management </li></ul><ul><li>PDCA cycle </li></ul>