OVERVIEW Cost Quality

OVERVIEW
The most important strategic elements for a firm are its long-term growth and survival. Strategic
decision making involves choosing among alternative strategies with the goal of selecting a strategy, or
strategies, that provides a company with a reasonable assurance of long-term growth and survival. The
key
to achieving long-term growth and survival is to gain a competitive advantage.
Competitive advantage is the process of creating better customer value for the same or lower cost than
that of competitors or creating equivalent value for lower cost than that of competitors. Customer value
is
the difference between what a customer receives (customer realization) and what the customer gives
up
(customer sacrifice). The total product is the complete range of tangible and intangible benefits that a
customer receives from a purchased product.
A strategy can be defined as choosing the market and customer segments the business unit intends to
serve, identifying the critical internal business processes that the unit must excel at to deliver the value
propositions to customers in the targeted market segments, and selecting the individual and
organizational
capabilities required for the internal, customer, and financial objectives.
Increasing customer value to achieve a competitive advantage is tied closely to judicious strategy
selection. Three general strategies have been identified:
1. Cost leadership
2. Product differentiation
3. Focusing
A company is pursuing a cost leadership strategy when it seeks to provide the same or better value
to customers at a lower cost than its competitors.
A differentiation strategy focuses on increasing customer value by increasing what the customer
receives (customer realization). For example, a retailer of computers might offer on-site repair service, a
feature not offered by other rivals in the local market.
A focusing strategy involves selecting or emphasizing a market or customer segment in which to

compete. This strategy takes into consideration that some segments are more attractive or more
serviceable
than others.
Strategic positioning is the process of selecting the optimal mix of these three general strategic
approaches. Successful pursuit of a sound strategic position mandates an understanding of the industrial
value chain. The industrial value chain is the linked set of value-creating activities from basic raw
materials
to the disposal of the finished product by end-use customers.
I. COST OF QUALITY
Quality as a competitive weapon - Focus on quality: reduces costs and increases customer satisfaction.
A
quality product or service is one that meets or exceeds customer expectations. Customer expectations
are
based on attributes such as performance, reliability, durability, and fitness for use. Quality of
conformance
is a measure of how a product meets its specifications. A defective product is one that does not conform
to
specifications.
Total Quality Management (TQM) refers to management methods used to enhance quality and
productivity in business organizations. TQM is a comprehensive management approach that works
horizontally across an organization, involving all departments and employees and extending backward
and
forward to include both suppliers and clients/customers.
TQM is only one of many acronyms used to label management systems that focus on quality. Other
acronyms include CQI (continuous quality improvement), SQC (statistical quality control), QFD (quality
function deployment), QIDW (quality in daily work), TQC (total quality control), etc. Like many of these
other systems, TQM provides a framework for implementing effective quality and productivity initiatives
that can increase the profitability and competitiveness of organizations.
The basic elements of TQM, as expounded by the American Society for Quality Control, are 1) policy,
planning, and administration; 2) product design and design change control; 3) control of purchased
material; 4) production quality control; 5) user contact and field performance; 6) corrective action; and
7)

OVERVIEW Cost Quality

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OVERVIEW

to achieving long-term growth and survival is to gain a competitive advantage.

customer receives from a purchased product.

capabilities required for the internal, customer, and financial objectives.

selection. Three general strategies have been identified:

to customers at a lower cost than its competitors.

feature not offered by other rivals in the local market.

A focusing strategy involves selecting or emphasizing a market or customer segment in which to

to the disposal of the finished product by end-use customers.

productivity in business organizations. TQM is a comprehensive management approach that works

forward to include both suppliers and clients/customers.

that can increase the profitability and competitiveness of organizations.

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