Total Quality, Competitive Advantage, and Strategic Management

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Chapter 3

• Total Quality, Competitive Advantage, and
  Strategic Management

2
Competitive Advantage

• Competitive advantage a firms ability to
  achieve market superiority over its competitors.
• Characteristics
• Is driven by customer wants and needs
• Makes significant contribution to business
  success
• Matches organizations unique resources with
  opportunities
• Is durable and lasting
• Provides basis for further improvement
• Provides direction and motivation

3
Product Quality and Business Performance - PIMS
Studies

• Product quality is the most important determinant
  of business profitability.
• Businesses offering premium quality products and
  services usually have large market shares and
  were early entrants into their markets.
• Quality is positively and significantly related
  to a higher return on investment for almost all
  kinds of products and market situations.
• A strategy of quality improvement usually leads
  to increased market share but at a cost in terms
  of reduced short-run profitability.
• High-quality producers can usually charge premium
  prices.

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Quality and Profitability
Improved quality of design
Improved quality of conformance
Higher perceived value
Higher prices
Lower manufacturing and service costs
Increased market share
Increased revenues
Higher profitability
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Quality and Business Results Studies

• General Accounting Office study of Baldrige Award
  applicants
• Baldrige stock study (see www.baldrige.org)
• Hendricks and Singhal study of quality award
  winners
• Performance results of Baldrige Award winners

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GAO Study Model
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Sources of Competitive Advantage

• Cost Leadership
• Differentiation
• People

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Quality and Differentiation Strategies

• Superior product and service design
• Outstanding service
• High agility
• Continuous innovation
• Rapid response

9
TQ and Product Design

• Understanding customer needs and expectations
• Systematic processes for design and product
  improvement
• Tools and techniques
• Concurrent engineering
• Value analysis
• Design reviews
• Experimental design

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TQ and Outstanding Service

• Key components of service quality employees and
  information technology
• Dimensions of service quality
• Reliability ability to provide what was
  promised
• Assurance knowledge and courtesy of employees
  and ability to convey trust
• Tangibles physical facilities and appearance of
  personnel
• Empathy degree of caring and individual
  attention
• Responsiveness willingness to help customers
  and provide prompt service

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TQ and Agility

• Agility capacity for flexibility and rapid
  change
• Continual monitoring and sensing of changing
  customer needs and expectations
• Fast design changes
• Rapid roll out of new products and processes
• Cross-functional cooperation and coordination
• Good supplier relations

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TQ and Innovation

• Innovation is vital to competing in todays world
• Innovation creates new customer needs and
  expectations and leads to higher levels of
  performance
• Creativity and breakthrough thinking are
  encouraged

13
TQ and Time

• Cycle time the time it takes to accomplish one
  cycle of a process
• Success in todays markets requires increasingly
  shorter cycle times
• Major improvements in response time often require
  work organizations, processes, and paths to be
  simplified and shortened. Simplified processes
  reduce opportunities for errors, leading to
  improved quality.
• Improvements in response time often result from
  increased understanding of internal
  customer-supplier relationships and teamwork.

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Information and Knowledge for Competitive
Advantage

• A supply of consistent, accurate, and timely data
  across all functional areas of business provides
  real-time information for the evaluation,
  control, and improvement of processes, products,
  and services to meet both business objectives and
  rapidly changing customer needs.

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Need for Performance Measurement

• To lead the entire organization in a particular
  direction that is, to drive strategies and
  organizational change
• to manage the resources needed to travel in this
  direction by evaluating the effectiveness of
  action plans and
• to operate the processes that make the
  organization work and continuously improve

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Balanced Scorecard

• Financial perspective
• Internal perspective
• Customer perspective
• Innovation and learning perspective

Leading measures Lagging measures
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Baldrige Classification of Performance Measures

• Customer
• Product and service
• Financial and market
• Human resource
• Organizational effectiveness
• Governance and social responsibility

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Goals of Strategic Planning

• Plan for the long term, and understand the key
  influences, risks, challenges, and other
  requirements that might affect the organizations
  future opportunities and directions.
• Project the future competitive environment to
  help detect and reduce competitive threats,
  shorten reaction time, and identify
  opportunities.
• Develop action plans and deploy
  resourcesparticularly human resourcesto achieve
  alignment and consistency, and provide a basis
  for setting and communicating priorities for
  ongoing improvement activities.
• Ensure that deployment will be effectivethat a
  measurement system enables tracking of action
  plan achievement in all areas.

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Strategic Planning Process
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Mission

• Definition of products and services, markets,
  customer needs, and distinctive competencies
• Solectron to provide worldwide responsiveness
  to our customers by offering the highest quality,
  lowest total cost, customized, integrated,
  design, supply chain, and manufacturing solutions
  through long-term partnerships based on integrity
  and ethical business practices.

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Vision

• Where the organization is headed and what it
  intends to be
• Brief and memorable - grab attention
• Inspiring and challenging - creates excitement
• Descriptive of an ideal state - provides guidance
• Appealing to all stakeholders - employees can
  identify with
• Solectron Be the best and continuously improve

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Values (Guiding Principles)

• Define attitudes and policies for all employees,
  which are reinforced through conscious and
  subconscious behavior at all levels of the
  organization.
• Pepsico integrity, honesty, teamwork,
  accountability, balance

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Environmental Assessment

• Customer and market requirements, expectations,
  and opportunities
• Technological and other innovations
• Organizational strengths and weaknesses
• Financial, societal, ethical, regulatory and
  other potential risks
• Changes in global or national economy
• Factors unique to the organization, such as
  partner and supply chain needs

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Strategies and Action Plans

• Strategies are broad statements that set the
  direction for the organization to take in
  realizing its mission and vision.
• Strategic objectives are what an organization
  must change or improve to remain or become
  competitive.
• Action plans are things that an organization must
  do to achieve its strategic objectives.

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Strategy Implementation

• Developing detailed action plans, defining
  resource requirements and performance measures,
  and aligning work unit, supplier, or partner
  plans with overall strategic objectives.

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Policy Deployment (Hoshin Kanri)

• Top management vision leading to long-term
  objectives
• Deployment through annual objectives and action
  plans
• Negotiation for short-term objectives and
  resources (catchball)
• Periodic reviews

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Hoshin Planning
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Linking Human Resource Plans and Business Strategy

• Changes in strategy often require changes in HR
  plans
• Examples
• Redesign of the work organization to increase
  empowerment or teamwork
• Changes in labor/management partnerships
• Directed training and education
• Improved processes for knowledge sharing

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Requirements for Effective Strategic Planning

• A definable approach for developing company
  strategy.
• A clear company strategy with action plans
  derived from it, and human resource plans related
  to the action plans.
• An approach for implementing action plans.
• An approach for monitoring company performance
  relative to the strategic plan.
• Projections of strategy-related changes in key
  indicators of company performance.

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TQ and Strategic Management Theory

• Classic strategy formulation addresses the market
  environment, competitive environment, and company
  capabilities
• Other TQ-related factors financial and societal
  risk, human resource capabilities, and
  supplier/partner capabilities are addressed
  only indirectly in the literature