Quality and Global competitiveness

1. CHARACTERISTICS OF WORLD- CLASS ORGANIZATIONS

It is often said that only “world-class” organizations can com­pete in the global marketplace. But what is a world-class orga­nization? In an attempt to answer this question, the American Management Association (AMA) conducted a global survey.⁴ According to this survey, the following are the top 15 areas in which organizations are concerned about doing well as they attempt to compete in the global marketplace:

1. Customer service
2. Quality control and assurance
3. Research and development/new product development
4. Acquiring new technologies
5. Innovation
6. Team-based approach (adopting and using effectively)
7. Best practices (study and use of)
8. Manpower planning
9. Environmentally sound practices
10. Business partnerships and alliances

11. Reengineering of processes
12. Mergers and acquisitions
13. Outsourcing and contracting
14. Reliance on consulting services
15. Political lobbying

Of the 15 areas listed in the survey, several are directly as­sociated with the larger issue of quality. Customer service, quality control and assurance, innovation, team-based ap­proach to work, partnerships and alliances, and reengineer­ing of processes are all topics that figure prominently in any discussion of total quality.

In addition to these issues, the AMA survey found that respondents were concerned about a number of human re­sources topics. The ten most important of these are as follows:

1. Worker productivity (improvement)
2. Employee training and development
3. Open communication between management and employees
4. Employee benefits and perquisites
5. Codes of workplace conduct
6. Conflict resolution
7. Employee satisfaction
8. Flextime arrangements
9. Management-employee-union relations
10. Child care

Once again, the AMA survey identified numerous quality- related concerns and functions that organizations must do well if they hope to compete globally. Worker productivity, em­ployee training and development, codes of workplace conduct, conflict resolution, employee satisfaction, and management- employee-union relations are all total quality-related topics that are addressed at various points in this text.

World-Class Manufacturing: What It Takes

Organizations in business sectors ranging from banking to commercial transportation attempt to compete on a global scale. The most prominent of these come from the manufac­turing sector. World-class manufacturers are those that con­sistently provide superior value (quality, cost, and service) for customers. The methods of world-class manufacturers are summarized in the following subsections:

Competitive Analysis Strategies In the area of com­petitive analysis, world-class manufacturers use the follow­ing methods to compare themselves with the competition for the purpose of improving their own performance: cost efficiencies in operations, speed to market, research and development supremacy, rapid delivery from suppliers, first-class delivery logistics, zero defects, real-time order management, seamless integration with sales and market­ing, close to zero inventory, and networked or collaborative operations. By applying these criteria to themselves and their competitors, world-class manufacturers determine where their performance is and where it needs to be in order to compete globally.

Production and Supply-Chain Strategies In the area of production and supply-chain strategies, world-class man­ufacturers use the following methods to stay ahead of the competition: collaborative planning, forecasting, and replen­ishment; collaborative manufacturing and product design; direct delivery of materials to point of use; supplier-managed inventory; and use of channel-assembly distributors. Other manufacturers also use these strategies to varying degrees. Ultimate manufacturers stay ahead of the competition by using them extensively.

Customization Strategies In the area of customiza­tion strategies, world-class manufacturers use the following methods: building to order, mass production that is config­ured for individual customers, configuring to order (linking sales operations to production schedules), one-to-one cus­tomization for customers in real time, and global sourcing and manufacturing. As with the other strategies, it is not just the fact that ultimate manufacturers use these customiza­tion methods that makes them world class; it is the extent to which they use them.

Electronic Commerce Strategies In the area of electronic commerce strategies, world-class manufactur­ers use the following methods: supply management, buy­ing, auctioning, Internet ordering, status and availability tracking by Internet, and accepting Internet orders from customers. World-class manufacturers use electronic com­merce strategies almost twice as often as their competi­tors. In addition, these world-class organizations are on track to increase their use of electronic commerce over the next five years at a rate well beyond the projected rates of competitors.

Compensation Systems In the area of compensa­tion systems, world-class manufacturers use the following methods as benchmarks for rewarding and recognizing managers and employees: product profitability, inventory levels, manufactured/delivered costs per unit, worker pro­ductivity, level of customer satisfaction, manufacturing cycle time, cost efficiencies in operations, employee reten­tion rates, speed of response to market demands, percent of revenues from new products, total delivered cost per unit, zero defects, percent of costs saved from strategic outsourcing, integration of functions across the organiza­tion, economic value added, and percent of products from strategic alliances. Figure 2.14 contains a brief checklist of minimum performance benchmarks that manufactur­ers must be able to meet in order to compete in the global marketplace.

2. MANAGEMENT-BY-ACCOUNTING: ANTITHESIS OF TOTAL QUALITY

In too many businesses, accounting trumps quality. Often, managerial accounting becomes the tail that wags the dog—a questionable approach to doing business in a highly com­petitive environment. When managerial accounting becomes management-by-accounting, quality inevitably suffers. Management-by-accounting amounts to focusing solely on an organization’s financial performance rather than manag­ing the factors that most affect financial performance (e.g., people, process, and quality).

The most obvious problem with management-by­accounting is that it leads to short-term thinking and short­term decision making. According to this approach, one of the fastest ways to improve financial performance in the short run is to ignore investing in continual improvement that are nec­essary to remain competitive in the long run. The practices like (1) keeping people trained and well equipped; (2) employ­ing best practices to keep processes operating at peak perfor­mance levels; and (3) maintaining world-class quality in all aspects of an organization’s operations cost money in the short run but pay off in the long run. In other words, total quality is a long-term concept while management-by-accounting is a short-term concept.

One of the many reasons why companies fall into the management-by-accounting trap is that many CEOs come from a finance-related background, the most com­mon college degree among the American CEOs being an MBA—a degree with a strong finance orientation. To avoid such ideological pitfalls, all business-related de­grees need to include a more thorough study of quality. It is also why more quality professionals need to put them­selves on the “CEO track” in their professions. Consider the following problems that result from the application of management-by-accounting:

• Management-by-accounting leads to decision making by analysis of financial spreadsheets rather than by consider­ation of the factors that lead to organizational excellence and world-class quality.
• Management-by-accounting encourages short-term cost cutting instead of long-term improvements to quality, value, and competitiveness.
• Management-by-accounting leads to narrowly focused leadership of companies based solely on short-term
  financial considerations rather than broader thinking that encompasses all factors that contribute to organizational excellence and make a company competitive.

The master’s of business administration degree, or MBA, is an excellent credential. So are the various other under­graduate and graduate degrees available from colleges and universities in the United States. It is the concept of focusing excessively on the score rather than the game— management-by-accounting—that is being questioned by quality advocates, not any specific degree. Management- by-accounting is an approach to management, not an aca­demic credential.

As anyone knows, both the game and the score are im­portant. We advocate a blending of the principles of quality management with the curricula of business, engineering, technology, and management programs. Students pursuing a degree in any of these disciplines should learn the principles of quality management set forth in this book as well as their tra­ditional curriculum content. This will ensure that they know how to continually improve both performance and the score.

3. U.S. COMPANIES: GLOBAL STRENGTHS AND WEAKNESSES

As business continues the current trend toward global­ization, how are companies in the United States faring? A business trying to compete in the global marketplace is like an athlete trying to compete in the Olympics. Nowhere is the competition tougher. Correspondingly, no country in the world gives its businesses such a solid foundation from which to work. The following factors account for a country’s ability to compete in the international marketplace:

1. An economy that is open to foreign investment and trade
2. A government that minimizes controls on business but does a good job of supervising financial institutions
3. A judicial system that works well and helps reduce corruption
4. Greater transparency and availability of economic information
5. High labor mobility
6. Ease of entry by new businesses

In varying degrees, the United States meets all of these crite­ria. Of course, how well these criteria are fulfilled is a matter
of debate between and among various interest groups and stakeholders. Nonetheless, when compared with other coun­tries competing in the global marketplace, the United States fares well in all of these key areas. This being the case, a key advantage of American firms trying to compete in the global marketplace is these six factors working in their favor. Other advantages and disadvantages are summarized in the follow­ing sections.

3.1. Global Advantages of U.S. Companies

In the global marketplace, the United States is the world leader in the following industries: aerospace, airlines, bev­erages, chemicals, computer services, electrical products, entertainment, general merchandise, motor vehicles, office equipment, paper products, pharmaceuticals, photographic and scientific equipment, semiconductors, soap and cosmet­ics, and tobacco. Some of the reasons the United States is able to lead the world in these key industries include

1. Strong entrepreneurial spirit
2. Presence of a “small capitalization” stock market for small and mid-sized companies
3. Rapidly advancing technologies
4. Comparatively low taxes
5. Low rate of unionization
6. World-class system of higher education (colleges and universities)

The United States leads the world in new business start-ups. This is because the entrepreneurial spirit is an integral part of the American persona. The presence of a small capitaliza­tion stock market allows small and mid-sized companies to start up and expand without having to use all of their own capital or to take out higher-interest loans from banks, as is often the case in other countries. The United States leads the world in the development, transfer, diffusion, and use of technology. This helps ensure a continual stream of new products on the one hand and improved productivity on the other. Americans complain constantly about taxes (as they are entitled to do in exercising their rights as free citizens). But when compared with other industrialized nations, the United States has a low tax burden. Tension between labor and management can harm productivity and, in turn, de­crease a company’s ability to compete in the global market­place. The amount of tension that exists between labor and management can typically be demonstrated by the level of union activity: the more the tension, the more the union activity. Compared with other industrialized nations, union activity in the United States is low.

The United States also provides the world’s best higher education system. The number of top-notch colleges and universities in the United States is so much greater than those in other countries that comparisons are irrelevant. The cost of higher education in America, although viewed as high by U.S. citizens, is inexpensive when compared with that of other industrialized nations. In addition, financial aid is so readily available that almost any person with the necessary academic ability can pursue a college education in the United States.

3.2. Global Disadvantages of U.S. Companies

In spite of the many strengths companies in the United States can bring to the global marketplace, and in spite of this country’s world-leading position in several key indus­tries, there are still some disadvantages with which compa­nies have to deal. The primary global disadvantages of U.S. companies are these:

1. Expanding government regulation
2. A growing “underclass” of have-nots
3. A weak public school system (K-12)
4. A poorly skilled labor force and poor training opportunities
5. An increasing protectionist sentiment (to restrict imports)
6. Growing public alienation with large institutions (pub­lic and private)

Regardless of which major political party has controlled Congress over the past 40 years, the general trend has been toward increasing government regulation of business. Regulating business is a difficult balancing act. On the one hand, businesses cannot be allowed to simply pursue profits, disregarding the potential consequences to the environment and other national interests. On the other hand, too much regulation or unnecessary regulation can make it impossible to compete globally. The growing divide between haves and have-nots in the United States might lead to the establish­ment and perpetuation of a permanent economic and social underclass. This is precisely what happened in Russia when Czar Nicholas II was overthrown by the Communists in the early 1900s. People who lose hope might very well respond in ways that threaten the peace, stability, and social fabric of the United States. One of the key factors in the establish­ment of a social and economic underclass is the failure of America’s public school system (K-12). Even with the best system of higher education in the world, America cannot overcome the shortcomings of its K-12 system. In fact, if drastic improvements are not made, over time those short­comings will begin to erode the quality of our higher educa­tion system.

The most fundamental problem with the public school system from the perspective of global competition is that most of the jobs in companies that need to compete glob­ally require less than a college education. These jobs must be performed by high school graduates who, if they cannot read, write, speak, listen, think, and calculate better than their counterparts in other countries, will be outperformed. Poorly skilled workers are an outgrowth of the failure of the nation’s public school system, in which the overwhelm­ing majority of Americans are educated. Ideally, every high school graduate should be fully prepared to either go to work or go on to college. When this is not the case, as it certainly is not, American companies must try to compete with a less- skilled labor force. This is like a baseball coach trying to win with a team of players who cannot pitch, catch, run, or hit.

One of the factors that contributed to the Great Depression of the 1930s was global protectionism. Americans wanted their farmers and their manufacturers to be “protected” from their counterparts in other countries. Protectionism hurts ev­eryone and never really protects anyone. But as other coun­tries (principally Japan, Korea, and China) have entered U.S. markets, the jobs of American workers have been threatened. A natural but ill-informed response is to call for protection­ist measures and to adopt slogans such as “Buy American.” Economists are quick to point out, however, that the only valid reason to “buy American” is that American products are the best made. If they are not, buying them makes little sense and is nothing more than misguided patriotism. The better ap­proach is to ask why the American products are not the best and then to do what is necessary to make them the best.

The final factor that gives U.S. companies a disadvantage is the growing tendency of the public to see big organizations as the “bad guys.” This is displayed in many different ways. Disgruntled employees will sometimes pretend injuries and file fraudulent workers’ compensation claims. Employees will cheat and steal from their employers. Of course, the most common way animosity toward big business is acted out is by employees giving less than their best on the job. Another expression is when the public at large supports anti­business legislation and unnecessary regulations.

4. QUALITY MANAGEMENT PRACTICES IN ASIAN COUNTRIES

Companies in the United States compete for market share every day with companies all over the world. Global com­petition has become a way of life for business and industry. Some of the most intense competition comes from Asia, where companies have effectively adopted many of the qual­ity management practices set forth in this book. The most intense competition for companies in the United States now comes from Japan, South Korea, and China. Most students of quality are familiar with the strides Japanese companies have made since beginning to adopt quality management practices after World War II. But what is less known is that many other Asian companies are following Japan’s lead as a way to compete effectively at the global level. These coun­tries include Bangladesh, Brunei, India, Indonesia, Malaysia, the Philippines, Singapore, and Thailand.

Industrialization in these Asian countries began to gain a foothold in the 1960s and developed rapidly through the 1980s. In the 1980s, companies in these countries began to form quality control circles as a way to gain employee input for continually improving processes and products. By the 1990s, companies in these Asian countries were well along in the adoption and effective application of the principles of total quality management including ISO 9000 registration. By the late 1990s, many companies in these countries had re­fined their total quality techniques and had begun to empha­size not just the product quality but the service quality, too.

The dawning of the new century saw Asian companies adopting ISO 14000 as a way to ensure effective environmental management. National quality awards similar to the Baldrige Award in the United States and the Deming Prize in Japan were adopted by several of these Asian countries. As of now, the leading companies throughout Asia are applying global best practices to maximize performance, value, and quality.

The globalization of the marketplace has transformed doing business into an enterprise similar to competing in the Olympics. In the global arena, only the best of the best survive and thrive, the intensity of the competition only in­creases, what was considered outstanding performance yes­terday won’t even make the grade tomorrow, and even the smallest countries can produce world-class performers.

Companies in the United States that used to compete only locally or regionally now find themselves battling daily against companies from not just Japan but also India, Brunei, Bangladesh, Thailand, South Korea, Singapore, Malaysia, Indonesia, and the Philippines. What’s more, companies from these countries have learned the value of effectively adopting and applying the principles set forth in this book.

Source: Goetsch David L., Davis Stanley B. (2016), Quality Management for organizational excellence introduction to total Quality, Pearson; 8th edition.