Strategic Management Accounting

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Strategic Management Accounting

• Topic 11
• TOTAL QUALITY MANAGEMENT

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Goals for this topic

• To gain an appreciation of the concepts of
  Quality and Continuous Improvement
• To investigate the history of quality theory
• To discuss the six Cs of TQM as essential
  requirements for the implementation of TQM
• To review the PRAISE system as a quality
  improvement process.

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THIS SESSION
MEASURING SERVICE QUALITY
A CONCEPTUAL MODEL OF SERVICE QUALITY
SERVICE QUALITY INFORMATION SYSTEMS
THE COST OF QUALITY

• What are the key characteristics of a Service
  Quality Information System?
• What issues does such a system address?

• What is Quality?
• How can we conceptualise this concept?
• How might we diagnose failiure gaps in service
  quality?

• How can we measure service quality?
• What diagnostic tool can we use to evaluate
  quality?
• What dimensions does this tool use?

• What are the costs of quality?
• How do we address these costs?

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A CONCEPTUAL MODEL OF SERVICE QUALITY
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THE DIFFERENCE BETWEEN CUSTOMER SATISFACTION AND
SERVICE QUALITY

• Customer Satisfaction
• short-run, transaction specific measure
• Service Quality
• long-run overall evaluation of the firms
  performance
• looks at how firms should perform
• measures a higher standard of service delivery
• expectations drive service quality perceptions

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A Conceptual Model of Service Quality
Knowledge Gap
Customer expectations
Management perceptions of customer expectations
Standards Gap
Retailer communications about services
Standards specifying service to be delivered
Service Gap
Delivery Gap
Communication Gap
Actual service delivered
Customer perception of service
Source Adapted from A. Parasuraman, Valerie
Zeithaml, and Leonard Berry, A Conceptual Model
of Service Quality and Its Implications for
Service Quality Research, Journal of Marketing
49 (Fall 1985), pp.41-50.
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DIAGNOSING FAILURE GAPS IN SERVICE QUALITY

• Gap 1 The Knowledge Gap
• research orientation
• upward communication
• levels of management

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• Gap 2 The Standards Gap
• perceptions of feasibility
• commitment to service quality vs.
• cost reduction and short-term profits
• no culture or goal setting for services
• timeliness, accuracy, responsiveness

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• Gap 3 The Delivery Gap
• unable or unwilling to perform service
• employee/job fit
• role conflict
• role ambiguity
• dispersion of control
• Learned helplessness
• inadequate support

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• Gap 4 The Communication Gap
• exaggerated promises
• attempts to acquire new business
• attempts to beat the competition
• absence of horizontal communication

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• Gap 5 The Service Gap
• expectations compared to perceptions
• Gap 5 f(Gaps 1234)

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MEASURING SERVICE QUALITY
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MEASURING SERVICE QUALITYSERVQUAL

• Diagnostic tool used to determine gap scores
• The larger the gap, the lower the service quality
  evaluation
• 44 Item Scale the Compares Should to
  Perceptions
• SQ consists of five dimensions
• Tangibles
• Reliability
• Responsiveness
• Assurance
• Empathy

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THE TANGIBLES DIMENSION

• Two-dimensional construct
• Equipment and facilities
• Personnel and communication materials
• E1 Excellent companies will have modern looking
  equipment
• E2 The physical facilities at excellent
  companies will be visually appealing.

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• E3 Employees of excellent companies will be
  neat-appearing.
• E4 Materials associated with the service (such
  as pamphlets or statements) will be visually
  appealing in an excellent company.

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THE RELIABILITY DIMENSION

• Reflects the consistency and dependability of the
  firms performance
• E5 When excellent companies promise to do
  something by a certain time, they will do so.
• E6 When customers have a problem, excellent
  companies will show a sincere interest in solving
  it.

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• E7 Excellent companies will perform the service
  right the first time.
• E8 Excellent companies will provide their
  services at the time they promised to do so.
• E9 Excellent companies will insist on
  error-free records.

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THE RESPONSIVENESS DIMENSION

• The willingness or readiness of employees to
  provide the service
• E10 Employees of excellent companies will tell
  customers exactly what services will be
  performed.
• E11 Employees of excellent companies will give
  prompt service to customers.

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• E12 Employees of excellent companies will
  always be willing to help customers.
• E13 Employees of excellent companies will never
  be too busy to respond to customer requests.

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THE ASSURANCE DIMENSION

• Reflects the competence of the firm, the courtesy
  extended to its customers, and the security of
  its operations
• E14 The behavior of employees of excellent
  companies will instill confidence in customers.

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• E15 Customers of excellent companies will feel
  safe in their transactions.
• E16 Employees of excellent companies will be
  consistently courteous with customers.
• E17 Employees of excellent companies will have
  the knowledge to answer customer questions.

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THE EMPATHY DIMENSION

• The ability to experience anothers feelings as
  ones own
• E18 Excellent companies will give customers
  individual attention.
• E19 Excellent companies will have operating
  hours convenient to all their customers.

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• E20 Excellent companies will have employees who
  give customers personal attention.
• E21 Excellent companies will have the
  customers best interest at heart.
• E22 The employees of excellent companies will
  understand the specific needs of their customers.

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SERVQUAL CRITICISMS

• Expectation and perception questions seem
  redundant
• whats the value of including the expectation
  set?
• compromises have been developed
• Questions need to be adjusted to fit specific
  industry under examination
• Measurement issues

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SERVICE QUALITY INFORMATION SYSTEMS
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SERVICE QUALITY INFORMATION SYSTEMS

• Solicitation of customer complaints
• Identify unhappy customers
• Identify weaknesses in the firms service
  delivery system
• After-sale surveys
• More active approach than above

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• Customer focus group interviews
• Group interaction provides ideas
• Other forms of research are needed to confirm the
  groups ideas
• Mystery shopping
• Measures individual employee behavior
• Aids in coaching, training, and evaluating

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• Employee surveys
• Employee satisfaction is directly related to
  customer satisfaction
• Employee surveys should examine morale,
  attitudes, and perceived obstacles
• Total market service quality surveys
• Assesses the firms and its competitors
  satisfaction ratings

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KEY COMPONENTS SERVICE QUALITY INFORMATION
SYSTEMS

• Listening
• quality is defined by the customer
• expectations are a rising bar
• Reliability
• little else matters when the service is
  unreliable
• Basic service
• deliver the basics first, the frills can come
  later

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• Service design
• design flaws hinder the basic service
• Recovery
• firms that do not respond to customer complaints
  escalate the service failure
• Surprising customers
• develops customers satisfaction into customer
  delightment

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• Fair play
• be careful of the squeaky wheel
• Teamwork
• service team building should not be left to
  chance
• customer service is everyones responsibility
• Employee research
• employee needs are as important as customer needs

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• Servant leadership
• leadership must serve the servers
• inspiring AND
• enabling

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THE COST OF QUALITY
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Optimum Quality Cost

• Assumes a trade-off between cost and conformance
  quality
• Prevention costs outweigh benefits
• Does not consider that competitors may be
  producing superior quality products
• Does not necessarily promote continuos improvement

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Zero defects model

• Quality is free - every improvement in quality
  must reduce costs or improve revenue
• Do it right the first time

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Quality costs...

• Prevention
• Appraisal
• Internal Failure
• External Failure

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Prevention Costs

• Quality engineering
• Training
• Planning
• Design reviews
• Quality circles

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Appraisal Costs

• Inspection of raw materials
• Inspection of work in process
• Product acceptance
• Field testing
• Supplier verification

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Internal Failure Costs

• Scrap
• Rework
• Downtime
• Reinspection

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External failure costs

• Lost sales
• Returns and allowances
• Warranties
• Repairs
• Product liability
• Corporate image