Chapter Seventeen

Organizational Control and Quality Improvement

Chapter Objectives
Identify three types of control and the components common to all control systems. Discuss organizational control from a strategic perspective. Identify the four key elements of a crisis management program. Identify five types of product quality. Explain how providing a service differs from manufacturing a product and identify the five service-quality dimensions.
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Chapter Objectives (contd)

Define total quality management (TQM) and specify the four basic TQM principles. Describe at least three of the seven TQM process improvement tools. Explain how Demings PDCA cycle can improve the overall management process. Specify and discuss at least four of Demings famous 14 points.

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Fundamentals of Organizational Control

Control
Taking preventive or corrective action to keep things on track
Checking, testing, regulating, verifying, or adjusting Objectives are yardsticks for measuring actual performance.

Purpose of the control function

To get the job done despite environmental, organizational, and behavioral obstacles and uncertainties

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Types of Controls
Feedforward Control
The active anticipation and prevention of problems, rather than passive reaction

Concurrent Control
Monitoring and adjusting ongoing activities and processes

Feedback Control
Checking a completed activity and learning from mistakes

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Figure 17.1: Three Types of Control

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Organizational Control Subsystems

Strategic plans Long-range plans Annual operating budget Statistical reports Performance appraisals Policies and procedures The organizations culture

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Components of Organizational Control Systems

Objectives
Measurable reference points (targets) for corrective action

Standards
Guideposts on the way to achieving objectives Benchmarking: Identifying, studying, and building upon the best practices of organizational role models

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Evaluation-Reward Systems
Goals of System
To measure and reward individual and team contributions to attaining organizational objectives To shape effort-reward expectancies in order to motivate better performance

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Strategic Control
Strategic planning and strategic control go hand in hand. Top-level strategy sets and/or determines objectives through the organization. Control measures of activities and results are translated up the organizational pyramid.

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Figure 17.2: The Performance Pyramid for Strategic Control

Source: C. J. McNair, Richard L. Lynch, and Kelvin F. Cross, "Do Financial and Nonfinancial Performance Measures Have to Agree?" MANAGEMENT ACCOUNTING published by the Institute of Management Accountants, Montvale, NJ, 72 (November l990): 30. Copyright by Institute of Management Accountants. Reprinted by permission. Copyright Houghton Mifflin Company. All rights reserved. Chapter Seventeen | 11

Identifying Control Problems

Executive Reality Checks
Top managers periodically work at lower-level jobs to become more aware of operations.

Internal Audits
Independent appraisals of organizational operations and systems are conducted to assess effectiveness and efficiency.

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Identifying Control Problems (contd)

Symptoms of Inadequate Control

An unexplained decline in revenues or profits A degradation of service (customer complaints) Employee dissatisfaction Cash shortages caused by bloated inventories or delinquent accounts receivable Idle facilities or personnel Disorganized operations Excess costs Evidence of waste and inefficiency

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Crisis Management
Organizational Crisis
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

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Crisis Management (contd)

Crisis Management
Anticipating and preparing for events that could damage the organization

Two Biggest Mistakes Regarding Organizational Crises

Ignoring early warning signs of an impending disaster Denying the existence of a problem when disaster actually strikes

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Figure 17.3: Key Elements of a Crisis Management Program

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Developing a Crisis Management Program

Conduct a crisis audit seeking out trouble spots and vulnerabilities. Formulate contingency plans that specify early warning signals, actions to be taken, and consequences of those actions. Create crisis management teams with specific skills to deal with a crisis. Perfect the program through serious practice and rehearsals.

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The Quality Challenge

Defining Quality
Conformance to requirements (Crosby) A subjective response by customers to the adequacy of product or service quality in meeting their expectations/needs/requirements

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Five Types of Product Quality

Transcendent Quality
Inherent value or innate excellence apparent to the individual

Product-Based Quality
The presence or absence of a given product attribute

User-Based Quality
The ability of the product to meet the users expectations

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Five Types of Product Quality (contd)

Manufacturing-Based Quality
How well the product conforms to its design specification or blueprint

Value-Based Quality
How much value each customer separately attributes to the product in calculating his/her personal cost-benefit ratio

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Unique Challenges for Service Providers

Strategic Service Challenge
To anticipate and exceed customers expectations Distinctive service characteristics
Customers participate directly in the production process. Services are consumed immediately and cannot be stored. Services are provided where and when the customer desires. Services tend to be labor-intensive. Services are intangible.

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Unique Challenges for Service Providers (contd)

Defining Service Quality
Five service quality dimensions
Reliability (most important) Assurance Tangibles Empathy Responsiveness

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Total Quality Management (TQM)

Creating an organizational culture committed to the continuous improvement of skills, teamwork, processes, product and service quality, and customer satisfaction Four Principles of TQM
Do it right the first time. Be customer-centered. Make continuous improvement a way of life. Build teamwork and empowerment.

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Introduction to Total Quality Management (TQM)

Do It Right the First Time
Designing and building quality into the product

Be Customer-Centered
Satisfying the customers needs by anticipating, listening, and responding Internal customers: Anyone in the organization who cannot do a good job unless you do a good job

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Introduction to Total Quality Management (TQM) (Contd)

Make Continuous Improvement A Way of Life
Kaizen: A Japanese word meaning continuous improvement (quality is an endless journey) A gain in one area does not mean loss in another. Venues for Continuous Improvement
Improved and more consistent product and service quality Faster cycle times Greater flexibility Lower costs and less waste

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Introduction to Total Quality Management (TQM) (Contd)

Build Teamwork and Empowerment
Teamwork
Suggestion systems QC circles and self-managed teams Teamwork and cross-functional teams

Empowerment
Adequate training Access to information and tools Involvement in key decisions Fair rewards for results
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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. Copyright Houghton Mifflin Company. All rights reserved. Chapter Seventeen | 29

The Seven Basic TQM Process Improvement Tools

Flow Chart
A graphic display of a sequence of activities and decisions

Cause-and-Effect Analysis
A fishbone diagram that helps visualize important cause-and-effect relationships

Pareto Analysis (80/20 Analysis)

A bar chart indicating which problem needs the most attention

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The Seven Basic TQM Process Improvement Tools (contd)

Control Chart
Visual aid showing acceptable and unacceptable variations from the norm for repetitive operations

Histogram
A bar chart indicating deviations from a standard bellshaped curve

Scatter Diagram
A plot of relationships between two variables

Run Chart
A trend chart for tracking a variable over time

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Figure 17.5: Everyone Benefits from Improved Quality

Source: Adapted from W. Edwards Deming, Out of Crisis (Cambridge, MA: MIT Press, 1986), p. 3.

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Deming Management
Deming Management
Application of W. Edwards Demings ideas to revitalize productive systems to make them more responsive to the customer, more democratic, and less wasteful Essentially the opposite of scientific management

Principles of Deming Management

Quality improvement drives the entire economy. The customer always comes first. Dont blame the person; fix the system. Plan-Do-Check-Act (PDCA cycle).

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Figure 17.6: Demings PDCA Cycle

Source: Adapted from W. Edwards Deming, Out of Crisis (Cambridge, MA: MIT Press, 1986), p. 88.

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Demings 14 Points
1. Constant purpose 2. New philosophy 3. Give up on quality by inspection 4. Avoid the constant search for lowest-cost suppliers 5. Seek continuous improvement 6. Train everybody 7. Provide real leadership 8. Drive fear out of the workplace 9. Promote teamwork 10. Avoid slogans and targets 11. Get rid of numerical quotas 12. Remove barriers that stifle pride in workmanship 13. Education and selfimprovement are key 14. The transformation is everyones job
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Terms to Understand
Control Feedforward control Concurrent control Feedback control Benchmarking Executive reality check Internal auditing Crisis management Contingency plans Quality Total quality management (TQM) Internal customers Customer-centered Kaizen Flow chart Fishbone diagram Pareto analysis Control chart Histogram Scatter diagram Run chart Deming management PDCA cycle
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