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Chapter-2 TQM
Chapter-2 TQM
Chapter Objectives:
Introduction
In this chapter you will gain different ways how companies compete and why some
organizations are good in competing in the fast changing world of business. You will also learn what
are the different strategies can be used in order to lead the firm in a competitive advantage. It also
tackles why productivity is important and how the companies can improve it.
COMPETITIVENESS
In any industry, companies must be competitive to promote, sell their goods and services in
the market. Competitiveness, being one of the factors of identifying how the company works, in a
way of recognizing the prosperity, hardly competing with other company, or even why they fail. In a
simple way Competitiveness is how effectively the organization encounters the needs and wants of
the customers relating to other organization that is offering the same good or services.
Business Organization tends to compete through the combination of their operation and marketing
function. Marketing influences the way the firm competing with other firms such as identifying the
customer needs and wants, pricing strategy, advertising and promotional tactics, as well as the
location or place of distribution.
1. Identifying customer needs and wants is mainly the major input on the decision making
process of the company, and the central or core of competitiveness. The thought is to match
what is the customer demands and the good or services that the firm will be offering in
order to meet the needs and wants of the customer.
2. Pricing Strategy and output quality are the main factors in customer buying-decisions. It is
significant to understand by the firm the trade-off of prices of goods and services and the
quality of the output on the customer buying-decisions.
3. Advertising and promotional tactics are ways of the businesses to inform their customer
that such goods and services are present in the market in such a way they channel the
features of their products and services to potential customers.
4. Place of distribution is also one factor for customer buying-decision as it entails where can
they buy the products or use such services in order to meet their needs and wants. It is also
important in terms of cost and convenience of the customers.
1. Product and service design should be in complement on different areas such as financial
resources, operations, supply chain capabilities, and the consumers’ needs and wants. The
feature of the products and services are one of the main factors in consumer buying
decisions. Other important factors are innovation, and time-to-market for some products
and services.
2. Cost of the firms output is an important aspects of pricing as well as profit. Firms’ efforts to
reduce cost are supposedly ongoing and continuous. Productivity being one of the main
drivers of cost, the higher productivity that the firms has as compare to its competitor can
gain competitive advantage. Some of the firms outsourced part of the operation to gain
lower cost, higher quality, and better productivity.
3. Quality refers to the supplies, proficiency, scheme and service. It is also entails of some
standards as well as excellence execution of something. Consumer judgments tend to look at
quality if specific product and services meet its intended purpose. Consumer will be willing
to pay more if products and services will give them the perceived value they are looking at.
4. Quick response is one of the important factors on competitiveness. It can be in the form of
delivering the product and services to the market as soon as the orders for it will be placed.
Further, it also in terms of how firms will deliver an improved product and services to the
market.
5. Flexibility means the ability of ones’ firm to rapid changes. Changes can be in terms of
modification of certain feature of the product or services, or in terms of the demanded
volume of the consumer. High flexibility means high reliability of the company as well as the
high response to fast changing environment.
7. Supply chain management includes the efficient coordination with internal and external
forces such as supplier and buyer, and within the organizations’ unit in order to achieved
cost-efficient and timely delivery throughout its value-chain.
9. Managers and workers is one of the most important factors of operation to be competitive.
People are the soul and heart of the business, if they are committed and highly motivated,
they will handle your customer more efficiently. The development of the skills of your
personnel might be considered in order for them to create idealistic and creative handling of
any situation.
There are various reasons why firms fail or performing below its mission. Firms must be aware of
these reasons for them to handle it effectively. It also helps managers to avoid any similar instances.
In order to successfully compete with other organization is to consider two issues and must be
addressed properly: 1. what are the customers want? 2. How or what is the best way in meeting this
demands and wants?
Kodak is a technology company that dominated the photographic film market during most of
the 20th century. The company blew its chance to lead the digital photography revolution as they
were in denial for too long. Steve Sasson, the Kodak engineer, actually invented the first digital
camera back in 1975. “But it was filmless photography, so management’s reaction was, ‘that’s cute
—but don’t tell anyone about it,” says Sasson. The leaders of Kodak failed to see digital photography
as a disruptive technology. A former vice-president of Kodak Don Strickland says: “We developed the
world’s first consumer digital camera but we could not get approval to launch or sell it because of
fear of the effects on the film market.” The management was so focused on the film success that
they missed the digital revolution after starting it. Kodak filed for bankruptcy in 2012. The Kodak
failure surprised many.
Source: www.valuer.ai 50 examples of corporations that failed to innovate and missed their chance
Organizations’ strategy is important because it is how the firm will be guided as well as to
how the firm will take action in a competitive environment. According to Michael Porter, there are
generic competitive strategies that ones’ firm can follow. These are overall cost leadership,
differentiation, and focus
One of the strategies, which are commonly used in the late 1970s, is the reduction of cost
through the set of functional policies that aimed at the basic objective. Cost leadership is a vigorous
reduction of cost in some areas, construction of efficient-scale facilities, and cost control for
overhead, expenses in Research and Development, as well as advertising.
Differentiation
Second strategy is differentiation; it entails the strategy of differentiating the products and
services offered by the firm, or creating something that perceived throughout the industry or being
unique in some ways. There are many forms of differentiation within the company such as in the
area of technology, design and brand image, networks, or other dimensions of the operations.
Focus
The third strategy is focus; Focusing on development of a particular such as buyer group or
segments, product line, or market entails by this strategy. Focus also can either mean lowering cost
position, or high differentiation or having both as strategy.
Being the goals are tend to compare as destination, strategies are the roadmaps in order to
attain its destination. Strategy is mainly comes from the Greek word “strategia” which means the
office of the general or territory. Strategy provides focus on organizations’ decision making process.
Whereas, the overall or general strategy of the firm called as Organization Strategy on the other
hand, they also have Functional Strategies that is related to the area of finance, marketing,
operation as well as human resources.
Tactics are methods and actions that the organizations needs to undergo in order to fulfill the
strategy of the firm. In a simplest term tactics are more detailed that strategies, it provides control
as well as direction for carrying the actual operation of the organization. It needs more detailed and
specific plans as well as decision making in an organization.
It can simply put to a hierarchical illustration (see Figure 2) to see the perspective of
planning and decision making in the organization. Hence it is important to know what should be the
first thing to do or the process that the organization needs to undertake.
Example
Casey is a high school student in Rizal National High School. She would like to land a career
in business, have a good job, and earn money to live a comfortable life. The possible situation in
achieving Casey’s goals maybe summarized as follows:
Mission: To live a comfortable Life
Goal: Successful Career in business and to have a good income.
Strategy: Obtain a College Degree in any Business related course
Tactics: Select a university/college and decide of a major or course: decide on how to finance the
education
Operations: Register, buy books, takes courses, study
Mission
Organizations
Goal
Organizational
Strategies
Functional
Goals
Human
Finance Marketing Operation
Resource
Strategy Strategy Strategy
Strategy
1. Low cost – outsourcing of operation to third party or countries that have low labor costs.
2. Scale-based strategies – use of capital-intensive approaches to realize high output volume at
lower cost.
3. Specialization – focus on narrow product line or limited services to attain higher quality
output.
4. Newness – focusing on creating new or innovative products or services.
5. Flexible operations – focusing on response time and customization.
6. High Quality – focusing on high quality than other competitors in the industry.
7. Service – focus on several aspects of service such as reliability, accuracy, timeliness, validity,
completeness, and efficiency.
8. Sustainability – focusing on environmental efforts and operation, and energy efficient
operation.
There are instances that company is using two or more of these methodologies depending on
their strategies. In particular, strategy formulation takes into consideration when organization is
competing so as to the assessment of their strengths and weaknesses in order for them to take into
account the core competencies of the firm. Core competencies entail various special qualities and
abilities that the organization has that eventually will give them competitive advantage from other
competing firms. These core competencies are normally align with customers wants and needs as
well as the intensity of the competition. In order to compete successfully, the need for alignment of
strategies and core competencies is a must for organization.
Strategy Formulation
There are key steps in formulating strategy for a competitive environment. These are:
1. Link your strategy directly to the vision and mission of statement of the organization.
2. There’s a need for the assessment for internal (strength and weaknesses) and external
(opportunities and threats) environment of the business.
3. Identifying imperative winners and frontrunners.
4. Selection of one or combinations of strategies to focus on.
Supply chain is the sequences of processes involved in the production and distribution of a
certain commodities and/or products. In supply chain strategy, it specifies how the supply chain
should function in order to meet the supply chain goals. It should be aligning with the business
strategy wherein if this will be executed well, it will bring or create great value to the organization. It
institutes how the firm will be working with suppliers and also the policies relating to customer
sustainability and relationships.
Sustainability Strategy
Global Strategy
As the emergence of globalization has been felt several years ago, many companies are into
looking for global strategy. Globalization gives the business an opportunity to expand its horizon in
doing business operation, penetrating much larger market and even outsourcing of low price raw
materials. Despite of different advantages of globalization, there are also threats that the
organization must take into consideration such as but not limited to political and social disturbance.
Hence, it is important for the organization to take into consideration global strategy.
Operations Strategy
In any business, organization strategy gives a general scope on how will the firm be directed.
It is broader in terms of scope, and usually covering the whole organization. Operations strategy is
more specific and narrow in nature. Basically, it covers the operation of the organization. Operations
strategy is related to products and services, methods and processes, operating resources, quality,
cost, time table, as well as scheduling.
This strategic operations management decision has its two factors that tend to drive
operational strategies. The important of quality and time must take into consideration.
Most of the organization traditionally focusing on cost minimization and product differentiation;
however, today most of the businesses tend to look after quality and time strategies. Quality-based
strategies focuses on maintaining and/or improving the quality of output of the organization
whether products or services. Quality-based strategies tend to be one of the main reasons in order
to attract customer or retain them. There are variety of reasons why some company used this kind
of strategies, for instance to cope up with low-quality production, to meet or to balance the quality
amongst competitors or it can be to retain the image of a high quality output of the company.
Further, some of the organizations tend to have combination reasons in using this kind of strategies.
On the other hand, Time-based strategies focuses on decreasing the time required to finish
various activities. By doing these kind of strategies, organizations tend to have competitive
advantage than other competitor by means of improving the service to customer by minimizing the
time for them to delivery such services. Time-based strategies focus on reducing the time of a
certain activities within the functional areas, organizations have the ability to minimized cost with
high productivity, tend to have high quality delivery of products and services, the visibility of the
products can be soon be seen and experienced by customers. Organization can improved their time
in different activities such as:
1. Planning Time – the time is needed in order for the organization to react on certain threats,
to develop strategies and selection of tactics. It also improves proposed changes in facilities
as well as processes, able to adopt in technology-based environment, and many more.
2. Product/Service design time – the time that the organization to design output or redesign
the products and services in the market.
3. Processing time – this involves the productions of goods or providing services to customer. It
can be in the form of scheduling, equipment repairs, inventories, methodologies, training,
quality, and the like.
4. Changeover time – this pertains to the time that the organization needed to change the
production of one type of product or services to another. These involves changing of
equipment, different methods and processes as well as scheduling and material planning.
5. Response time to complaints – there is no perfect operations; hence the need for the
flexibility and response time for customer complaints must take into consideration. This
pertains to timing of delivery, quality of output, as well as incorrect shipment for customer.
This also can be in connections with employees working conditions, quality problems and
equipment problems.
It is important for the marketing and operations team to have collaborative efforts in
formulating strategies to address and meeting the needs and wants as well as expectations of
customers whether in what segment they belong. Agile Operation is also one of strategic approach
used for competitive advantage of by adapting flexibility in a fast changing environment. This type of
operation tend to combine different variables in the quality management or quality service such as
reliability, cost efficiency, quality as well as flexibility, accuracy, and validity of services. It is
important to blend these variables in information technology. A successful agile operation means a
careful development of a system that includes flexibility, information technology, as well as its
people. It also involved the time management needed in performing works in the organization by
improving the key metric in operation which is productivity.
There are major impacts of organization strategy in operation management as well as supply
chain management. For instance, if an organization is using over-all cost leadership with high volume
strategy, it limits the amount of variation offered to customers. It gives a result of easier operations
in supply chain. On the other hand, a strategy that gives a customer a wide variety of products and
services creates substantial operational and supply chain activities, which give more challenging
ways of doing these activities.
Vision
Customer
and Internal
Business
Strateg Processes
Learning
and
Growth
Internal Business Processes perspective looks on how the organizations’ do smoothly their
operations. Being efficient is important factor for this. It means that processes should speed-up,
minimizing waste, and doing more in less time possible. It also entails on how the organization
adopts with the changing environment and how the firm executes it new ideas. Customer outlook
focuses on the people who essentially buy the product and pay for the service rendered. It is how
you win new segments in the market and maintaining them. It also entails the benchmarking with
other competitors. Satisfaction of the customer is a great indicator of success, but the real challenge
is to provide them the perceived value they wanted to receive and also how the organization will
likely to maintain customer satisfaction and loyalty.
Financial as traditional way of measuring the health of the business, financial measures are
not to be ignored. It is the major focus on the balanced scorecard. Do the organization making
money? Are shareholders happy? Money keeps the organization alive and financial measures mainly
focusing on this. Putting it together, the organization may focus on the following:
Productivity
One of the primary objectives of a manager is to ensure that organizations’ resources are
use productively. Productivity can used to describe this, which means a measurement of effective
use of resources, usually express in a ratio of an output and input. Outputs pertains to the products
and services, on the other hand inputs are related to labor, material, energy, and other company
resources.
Output
________
Productivity =
_
Input
In productivity, the organization should also have a strategy in a form of low-cost as the
higher the productivity the lower the cost of the output. It is then can be seen in productivity ratio.
Productivity ratio is the fraction of the amount produced by a person, machine, business or industry
(output) over the process and system put into it (input). It can be used to compute the operation of
a division, department or the organization as a whole. In business, it was used for planning the work-
force requirements, scheduling, and analysis of financial, and other significant tasks that the
organization must do.
It is important in any industry to know the productivity level of its operation. For instance, in
a non-profit organization, the higher the productivity, the lower the cost, on the other hand, in profit
organization, the higher the productivity, the more the organization is competitive. Moreover, it is
also important to know the productivity growth in any organization. Productivity Growth implies the
increase of productivity overtime. Thus it can be interpreted in a formula below:
Cp - Pp
PG = X 100
Pp
PG = Productivity Growth
Cp = Current productivity
Pp = Previous productivity
For example, if the productivity rate increases from 100 to 110, the growth rate would be
110-
PG = 100 X 100
100
PG = 10%
Productivity growth gives an important factor in determining the standard of living of its people also
for country’s rate of inflation. Hence, Productivity raises the value of economy while we are looking
the rate of inflation.
There are different ways in measuring the productivity, in terms of single operation (partial
productivity), one or more inputs (multifactor productivity), or on all inputs of the organization (total
productivity). These different ways of measuring the productivity depends on the purpose of
measurement.
Partial Measures
Output Output Output Output
Machin
Labor e Capital Energy
Multifactor Measures
Output Output
Labor + Labor + Capital +
Machine Energy
Total Measures
Goods or Service Produced
All Inputs used to produce them
The unit of output used in productivity measurement depends on the job that has been done.
Example
Number of rooms = 25
Hotel workers = 5
25 rooms
= 5 rooms per workers
5 workers
2. Determining the number of yard of curtains installed by workers per labor hour
720 yards
4 workers x 8
hours/worker
Calculation of multifactor productivity measure the output and input using the same unit of
measurement, for instance the cost of input.
Quantity of Output
Labor cost + Material cost + Overhead
Using the value given, here is the computation of multifactor measurement of productivity
10,000
Multifactor 2 units per
= 1,900 + 600 + =
Productivity peso input
2,500
There are numerous factors affecting the productivity of the organization such as:
1. Methods;
2. Capital;
3. Quality;
4. Technology; and
5. Management
There are common mistakes that workers are only the factor or the determinant of productivity.
However, in the recent year’s technology plays a big role in productivity measurement. It can
improve the process through automation and innovation of products and services.
Improving Productivity
1. Cultivate productivity measure in all level of operation. Measurement is the first to manage,
and then control the operation.
2. Look at the organizations’ system as a whole, and then identify the most critical operations
of the firm.
3. The needs for development of methods are needed. It can be done through consultation
with workers who are actually working in different areas of operations.
4. Create a rational goals for improvement
5. Mark it as important and clear for the management that they upkeep and inspires
improvements in productivity.
6. Quantify the improvement and made an announcement about it.