BM 15 daft7e ppt_ch15 - revised

Chapter 15

Managing Quality and Performance

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New Manager’s Question 1

• Controls are for bean counters.

1 2 3 4 5Strongly agree Strongly

Disagree



• When there’s a problem, a good manager finds who’s at fault.


Disagree



• Total quality management is just another fad.


Disagree


The Meaning of Control

Organizational control is the systematic process through which managers regulate

organizational activities to make them consistent with expectations established in

plans, targets, and standards of performance.



• Manager’s require information about:– Performance standards– Actual performance– Actions to correct deviations from the standards

• Manager’s need to decide:– What information is essential– How they will obtain it– How they can respond to it



• Manager’s also decide:– Standards– Measurements– Metrics• Example: pro football or basketball team # of season

tickets – reduces the dependence on box office sales


Choosing Standards and Measures

• Common measures and controls:– Sales– Revenue– Profit

• More focus on measuring intangibles– Customer service– Increased revenue


The Balanced Scorecard Comprehensive management control

system that balances traditional financial measures with operational measures relating to a company’s critical success factors


The Balanced Scorecard 4 major perspectives:

Financial performance: concern that the activities contribute to improving short-and long-term financial performance

Customer service: measure things such as how customers view the organization, as well as customer retention & satisfaction


The Balanced Scorecard 4 major perspectives (cont’d):

Business-process: focus on production & operating statistics

Potential for learning & growth: focus on how well resources & human capital are being managed for the company’s future


The Balanced Scorecard Manager’s focus on various elements to:

Set targets

Evaluate performance

Guide discussion about what further actions to take


The Balanced Scorecard Not right for every organization

Causes managers to underestimate the time & commitment needed

Use performance-management not performance-measurement


The Balanced Scorecard Example


Steps of Feedback Control

Establish Standards of Performance

Measuring Actual Performance

Compare Performance to Standards

Take Corrective Action


Establish Standards of Performance

• Define goals for departments in specific terms– Includes a “standard of performance”• Ex: reduce the reject rate from 15% to 3%

• Carefully assess what they will measure & how they will define it

• Standards defined clearly & precisely


Measure Actual Performance

• Prepare formal reports for quantitative performance measurements

• Relate measurements to standards in step 1• Do not rely exclusively on measurements• Observe for self whether employees are

participating in decision making


Compare Performance of Standards

• Compare actual activities to standards• Performance deviates from standard –

managers must interpret the deviation– Ex: increase # of sales calls by 10%, but it’s

actually 8%--why?

• Dig beneath surface – find cause of problem• Involves subjective judgment, employee

discussions & objective analysis


Take Corrective Action

• Determine what changes are necessary– Encourage, redesign, fire

• If participative control then collaborate with employees

• Take corrective action to change standards• Standards may need to be altered to make

realistic & provide motivation


Feedback-Control Model


Application to Budgeting

• Budgetary control – setting targets and monitoring expenditures

• Budgets list planned and actual expenditures

• Budgets are associated with a division or department


Application to Budgeting (cont’d)

• The unit of analysis for budgeting is the responsibility center– Any department/unit under the supervision of a

single person who is responsible for its activity

• Typical budgets include:– Expense– Revenue– Cash– Capital


Financial Control

Financial Statements provide basic information for financial control

Income Statement profit-and-loss statement or P&L highlights firm’s financial performance

*bottom line indicates net income (profit or loss)

Balance Sheet shows firm’s financial position

*Assets*Liabilities

*Owners’ equity


Balance Sheet


Income Statement


The Changing Philosophy of Control

• Hierarchical controls include the monitoring of behavior through rules, policies, reward systems and written documentation

• Decentralized controls based on values and assumptions, rules are only used when necessary– Culture is adaptive, uniting individuals & teams


Hierarchical and Decentralized Methods of Control


Open-Book Management Decentralized philosophy

Get every employee thinking like an owner

Information sharing and teamwork

Allows employees to see the financial condition of company

See how his/her job fits into organizational success


Total Quality Management (TQM)

• Infuse quality into every aspect of the business, all day-to-day activities

• Became popular in the U.S. in the 1980s• Focuses on:– Teamwork– Collaboration– Identifying improvements

• The goal of TQM is zero-defects


TQM Techniques Quality Circles

Benchmarking

Six Sigma

Reduced Cycle Time

Continuous Improvement


Quality Circles

• Group of 6-12 volunteer employees• Meet regularly• Identify problems• Find solutions• Reasoning: push decision making to a level

at which decisions are being made by people who do the job


Benchmarking

• Process of measuring products, services & practices again the competitor

• Introduced by Xerox in 1979• Key to successful benchmarking lies in

analysis• Select competitor & emulate processes &

procedures


Six Sigma

• Introduced by Motorola in 1980s• Specifies a goal of no more than 3.4 defects

per million parts (quality standard)• Generic – emphasizes higher quality & lower

costs• Based on DMAIC (define, measure, analyze,

improve & control)• Requires major commitment from top mgmt


The Importance of Quality Improvement Programs


Reduced Cycle Time

• Refers to the steps taken to complete a company process– Designing a new car/making airline reservation

• Focus on improved responsiveness & acceleration of activities into a shorter time

• Reduction in cycle time improves overall company performance as well as quality


Continuous Improvement

• Implementation of a large number of small incremental improvements in all areas on an on-going basis

• All employees expected to contribute• Improving things a little bit at a time, all the

time, has the highest probability of success


Quality Program Success Factors


International Quality Standards

• ISO 9000 standards – International Organization for Standardization– Organization certification– 157 Countries

• Organizations demonstrate a commitment to quality

• Europe leads in certifications but the United States has had large increases


Economic Value-Added (EVA)• Measures performance of after-tax profits

minus the cost of capital invested in tangible assets

• Capture all the things a company can do to add value– Efficiency– Customer satisfaction– Rewarding shareholders

• Drive more cost-effective decisions

Education

BM 15 daft7e ppt_ch15 - revised