chapter seventeen organizational control and quality improvement

Chapter Seventeen

Organizational Control and Quality Improvement

Copyright © Houghton Mifflin Company. All rights reserved. Chapter Seventeen | 2

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.


Chapter Objectives (cont’d)

• 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 Deming’s PDCA cycle can improve the overall management process.

• Specify and discuss at least four of Deming’s famous 14 points.


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


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


Figure 17.1:Three Types of Control


Organizational Control Subsystems

• Strategic plans• Long-range plans• Annual operating budget• Statistical reports• Performance appraisals• Policies and procedures• The organization’s culture


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


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


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.


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.


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.


Identifying Control Problems (cont’d)

• 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


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


Crisis Management (cont’d)

• 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


Figure 17.3: Key Elements of a Crisis Management Program


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.


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


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 user’s

expectations


Five Types of Product Quality (cont’d)

• 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


Unique Challenges for Service Providers

• Strategic Service Challenge– To anticipate and exceed customer’s 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.


Unique Challenges for Service Providers (cont’d)

• Defining Service Quality– Five service quality dimensions

• Reliability (most important)• Assurance• Tangibles• Empathy• Responsiveness


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.


Introduction to Total Quality Management (TQM)

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

• Be Customer-Centered– Satisfying the customer’s needs by anticipating,

listening, and responding– Internal customers: Anyone in the organization who

cannot do a good job unless you do a good job


Introduction to Total Quality Management (TQM) (Cont’d)

• 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


Introduction to Total Quality Management (TQM) (Cont’d)

• 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


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.


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


The Seven Basic TQM Process Improvement Tools (cont’d)

• Control Chart– Visual aid showing acceptable and unacceptable

variations from the norm for repetitive operations

• Histogram– A bar chart indicating deviations from a standard bell-

shaped curve

• Scatter Diagram– A plot of relationships between two variables

• Run Chart– A trend chart for tracking a variable over time


Figure 17.5: Everyone Benefits from Improved Quality

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


Deming Management

• Deming Management– Application of W. Edwards Deming’s 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.– Don’t blame the person; fix the system.– Plan-Do-Check-Act (PDCA cycle).

Copyright © Houghton Mifflin Company. All rights reserved. Chapter Seventeen | 34Source: Adapted from W. Edwards Deming, Out of Crisis (Cambridge, MA: MIT Press, 1986), p. 88.

Figure 17.6: Deming’s PDCA Cycle


Deming’s 14 Points

1. Constant purpose2. New philosophy3. Give up on quality by

inspection4. Avoid the constant search

for lowest-cost suppliers5. Seek continuous

improvement6. Train everybody7. Provide real leadership

8. Drive fear out of the workplace

9. Promote teamwork10.Avoid slogans and targets11.Get rid of numerical

quotas12.Remove barriers that

stifle pride in workmanship

13.Education and self-improvement are key

14.“The transformation is everyone’s job”


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

chapter seventeen organizational control and quality improvement

Documents

types of control slide

control function

organizational objectives

chapter objectives contd

control measures of

processes feedback control

quality improvement

organizational pyramid