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The Business Forum Journal

 

Quality First

 

By Hamid R. Karimianpour

 

Abstract

Globalization has important ramifications for American economy. By opening up the US market to competition from abroad, the American consumers can enjoy a wealth of imported goods at low cost. But the flood of cheap imported products into the US market has threatened the very existence of many American suppliers. This article suggests that a fundamental strategic shift from low-cost to quality production is essential for American businesses to survive in today’s global economy. 

A Succinct Overview

Quality awareness is not a new phenomenon. The ancient Egyptians, Persians, and Chinese, sought to produce highest quality products such as rugs or other ornamental items thousands of years ago. But in America, a wave of quality initiatives swept the country after WWII, when competition against foreign goods stiffened and American businesses realized the need to focus on quality in order to stay competitive against imported goods.

Zero-Base Budgeting

One of the first quality initiatives in this country began with the concept of Zero-Base Budgeting, which was invented by Peter Pyhrr. The idea was to equip middle-managers with their own budgets. These budgets were based on minimum cost of operation. Zero-Base budgeting was thought to empower and encourage middle-managers to take higher responsibility for efficiency and quality.

Theory Z

William Ouchi published in 1981, his bestselling book How American Management Can Meet the Japanese Challenge. Ouchi contrasted American and Japanese management styles and developed a concept known as Theory Z. Theory Z drew upon best practices from both cultures such as, long-term employment, consensual decision making, and individual accountability. Theory Z was adopted by many American businesses in 1980s, but implementing aspects of a foreign culture in America proved to be only partially successful.

Total Quality Management (TQM)

Businesses and management professionals realized that quality initiatives needed a holistic approach, and so the idea of Total Quality Management (TQM) was born. The TQM approach became a huge buzz word in the world of business, in the public sector, and in nonprofit organizations. A large volume of literature was generated on TQM. Many business consultants became engaged in helping organizations implement the system.

TQM integrated all organizational functions to meet customer needs and specifications. It sought to fully integrate into the design, development, and delivery schedule of products and services, consumers’ needs and requirements. This put the consumers on the top of the production and supply pyramid. Their feedback was analyzed using sophisticated statistical models and converted into specifications that would guide product design and development teams in their search for quality. This integrated approach resulted in better designs, faster production and delivery, and fewer products being returned by customers. The scheme involved the full life-cycle of a product—from production to consumption. Every employee at every layer of organization through every step of a product’s life-cycle became accountable for ensuring quality. This meant a push for quality from top-down and bottom-up in organizations. A change in organizational culture was required to make quality “Job One” on every employee’s mind and heart. The employees were “empowered” to act on behalf of consumers and rectify product errors that had resulted during the production processes. This goal required promoting team-working as well as individual responsibility.

Manufacturers such as Ford and General Electric employed hundreds or thousands of inspectors to examine the quality of raw materials from vendors, production processes, end products, and even customer service and after-care operations. To feed the quality drive, complex statistical and theoretical models were developed over the years. The aim was to achieve continuous measurable quality improvements.

Advanced Product Quality Planning (APQP)

Advanced Product Quality Planning provided a framework for product development in the auto-industry. The Big Three, Ford, Chrysler, and General Motors, implemented the system to achieve much of the same objectives as those of TQM by focusing on five general activities throughout the production process: planning, product design and development, process design and development, product and process validation, and production.

Benchmarking

The concept of benchmarking was developed as a way of comparing the quality of a product to other similar products available on the market. A business would identify a competitor with products and services of the highest quality. This competitor would be classified as the “best practice” and the quality of its products and services as the “benchmarks” in the market. The business would then measure the quality of its own products and services against the benchmarks while continuously seeking to improve or differentiate its performance in the market.

Business Process Reengineering (BPR)

Michael Hammer published an article in 1990, stating that the main challenge for American businesses was to eliminate non-value adding work, rather than applying technology for automating it. According to Hammer, much of the work being done was unnecessary and wasteful.

Hammer’s article triggered a major movement in the business world, nicknamed Business Process Reengineering (BPR). BPR provided a framework of procedures and techniques that enabled managers to completely rethink and redesign business processes to eliminate waste, reduce cost, improve quality, and speed up products and service delivery.

ISO 9000

ISO 9000 offers internationally endorsed standards for quality management systems. Organizations typically have to go through a rigorous process to quality for ISO 9000 certification. The system was initially developed for the manufacturing sector, but different versions of it are now available for other sectors of the economy, including the service sector. ISO 9000 has been reviewed and updated several times, and is currently embraced especially by manufacturers and service providers in EU, East Asian countries, and North America. ISO 9000 considers quality as a process of improving products from the beginning of production cycle to the end-user. ISO 9001 and ISO 9002 series provide a set of standards targeting the quality of design, development, production, installation, and servicing. The ISO 9003 targets only the final inspection and test of the end product wit no regard for how the product was created. ISO 14000 is a new set of environmental standards.

Six Sigma

Six Sigma is one of the latest inventions in quality management. The system was developed by Motorola in 1981, and has allegedly saved the company millions of dollars by detecting and rectifying errors in production process. Process improvement is an important cost-saving measure. By eliminating errors, manufacturers minimize the possibility of customers returning defected products.

The Meaning of Quality

The above is but some of the buzz words in the world of quality management. Manufacturers and service providers in public and private sectors have implemented sophisticated quality management systems for more than half a century. But contrary to major slogans such as “Continuous Quality Improvement”, “Customer Satisfaction”, “Quality First”, and so on, the underlying objectives for most of these programs are product standardization and production process improvement.

Product standardization is about ensuring that all products within a given category are identical. Standardization efforts do not aim at improving the overall quality of the products, but at making sure that all products are of the same quality. A customer who walks into a McDonald’s restaurant has certain expectations about the taste, flavor, volume, and design of a burger. McDonald’s seeks to satisfy the customer’s expectations by supplying identical burgers every time the customer visits the restaurant. For McDonald’s, quality management is not about improving the nutritional value or the design or the taste of the burgers, but it is about ensuring that customers can enjoy identical burgers every time. Product standardization is an important measure to secure customer loyalty, but not to raise the quality of the end product.

Production process improvement focuses on the production process and operational efficiency. It aims at eliminating waste and inefficiency, but it does not address the quality of the end product. Of course, many of the quality schemes discussed above rely on customer feedback in their quest for “quality”. The application of customer feedback is certainly a step in the right direction. But the fact that a low-cost manufacturer such as Ford employed APQP and ISO 9000 clearly demonstrated that these schemes were implemented in an environment where quality was subordinate to cost. It is reasonable that the APQP was named Advanced Product Quality Planning, and not Advanced Product Quality Improvement Planning.

Although standardization and process improvement play significant roles in ensuring the overall quality, they are not primarily designed for raising the quality of the end product. Standardization and process improvement are ingredients of the cost-driven production strategy rather than quality-driven strategy. After the top management of a company has made a decision about what level of quality the firm wants to achieve, these methods are implemented to reach the set goal in the cheapest and fastest possible way.

The message of this article is not standardization or process improvement, but the quality of the end product. This is not to say that standardization and process improvement are not essential for a firm’s success. Any supplier has to design efficient operations that eliminate waste and errors. But the point of this article is about making a strategic choice to compete on quality rather than cost.

Strategic Options

The strategy of low-cost versus high-quality production has guided businesses for centuries, though it was formalized in 1980s by Michael Porter, who claimed that competitive edge was achieved by either cutting cost or differentiating. The key for Porter was to choose the strategy that enabled a business to specialize in one market segment only, instead of trying to be everything for everybody at the same time. In other words, for a business to succeed, Porter argued, it needed to specialize in supplying products that were either qualitatively indifferent but were affordable for low-budget consumers, or products that were qualitatively differentiated but targeted consumers willing to pay premium prices for them (see discussion on generic strategies in Competitive Strategy: Techniques for Analysing Industries and Competitors, The Free Press 1980).

With a rapidly growing population and little competition from abroad, the obvious strategic choice for American businesses in the beginning of the twentieth century was mass production of cheap goods. Many new-comers to America were poor and had few resources. Thomas C. Cochran noted that the immigrants brought with them relatively little household goods. They wanted new supplies fast and at low cost, and were not in the position to haggle about quality (see: Challenges to American Values, Oxford University Press 1985, page 7). American businesses strategically positioned themselves to cater this growing market by supplying large volumes of affordable goods.

Pioneered by Ford Motor Company in the beginning of the previous century, American corporations became the engine for prosperity by focusing on standardization and low-cost production. The application of assembly line and interchangeable parts enabled American manufacturers to speed up the production process and at the same time cut down production cost. As a result, consumers indulged in easily accessible and low-priced goods, and American businesses saw their profits mushroom. But there was a catch that many American firms had not foreseen. As the middle class Americans grew wealthier, they increasingly demanded higher quality products such as, BMW, Mercedes, and Toyota in the car market, Sony and Philips in electronics market, and so on. On the other hand, the rising tide of globalization opened up the US market to low-cost suppliers from China, India, and other developing countries. With those Americans looking for quality turning to the European or Japanese products and those demanding affordable products turning to the Chinese or Indians, the customer base for many American firms dried up.

As America’s demographics became more stable and goods from the Third World saturated the US market, it became apparent that the low-cost production strategy was sustainable only in a static world, where there was no competition from outside and the market factors remained unchanged, or in a world where in order to meet changing market factors, companies could switch their strategic focus forward and back with no implications for their brand image. But the real world never works in this way. Market factors change frequently in a dynamic world, whereas brand images remain inflexible. When a company positions itself as a low-cost provider, it builds its brand accordingly. The brand image makes it hard for the company, though not impossible, to change its strategic focus from cost to quality when market factors change. It would be as hard for Ford to shift its brand image from one of a low-cost producer to a quality provider as it would be for McDonald’s to switch over to French cuisine.

The low-cost production techniques that proved indispensable for American progress and prosperity in early twentieth century, turned out to be America’s worst enemy in the long run. A hundred years ago, mass production of low-priced goods enabled America to develop a strong economy. Ironically, the same technique has in the last few decades allowed countries with lower labor cost to compete out many American businesses.

Faced with growing competition from other countries, a paradigm shift from cost saving to a focus on quality is required for American businesses to stay competitive at home and abroad. In an increasingly global market, the only viable option for US businesses is to produce high-quality products for the simple reason that the relatively high labor cost in the US will force American low-cost producers out of business, when competing with foreign suppliers. The American challenge a hundred years ago was to build the country rapidly, and low-cost production was the answer. The struggle now is to rescue American businesses from competition from low-cost countries, and quality seems to be the only solution.

The Realization that the cost-driven strategy was not a feasible option in the long-run led to the development of the concept of sustainable competitive advantage, where the idea was to supply high-quality goods that were cost-effective, but not necessarily the cheapest. With cost-effective goods it was meant products that, given their relatively high quality, were the best value for the money, though not the cheapest on the market. In other words, the idea was about supplying products of higher quality than the competition sold at prices higher than the competition but low considering the quality. The concept incorporated two objectives: relatively high quality and relatively low prices. But it left it an open-ended question as to which of these objectives must be the primary focus for suppliers. As it turned out in practice, many American businesses continued to focus more on pricing than on quality of their products. The priority in the US has been to search for innovative technology that could help bring down cost and keep prices low, instead of shifting over to products of higher quality sold at a premium. While it is undeniably vital for American firms to invest in new technology, history has demonstrated that new technology has been quickly adopted by foreign competitors, whereas quality-driven businesses have been booming as long as rising national income in the West has enabled consumers to pay increased prices for high-quality products.

Germany provides an example of a quality-driven economy. After WWII, Germany began its economic recovery program based on high-quality manufacturing. As the average income level rose in Western Europe, demand for German goods increased, proving that striving for quality is the only long-term strategic choice for businesses in soaring economies.

American businesses must put quality first. It is no longer good enough for American firms to supply standard products at low cost. In this global market, American car manufacturing must build the American equivalent of Mercedes or better; American vineyards must supply American equivalent of French wine or better, and so on.

The shift of focus from cost to quality does not only seem to offer a viable survival strategy for American businesses in an increasingly global market, but it also seems to present a solution to many of the problems of this generation. High quality products last longer, which help reduce waste and protect the environment. High quality products will also help Americans regain their trust in American brands, and the world to once again acknowledge the American excellence.


Hamid R. Karimianpour earned a BA in Economics and Political Philosophy from the University of Oslo in Norway, and an MBA with specialization in Strategic Management from the University of Hull in the United Kingdom. He has over ten years experience as a business consultant for the oil and gas, telecoms, and the electronics industry. He has worked with multinational corporations such as BP, Halliburton, and Schlumberger in the oil and gas market, and Nokia, Ericson and Philips Electronics in the telecoms and electronics markets. Hamid has coached middle- and senior managers in implementing techniques to optimize performance and productivity, design strategies for meeting domestic and foreign competition, plan for business augmentation and evaluate options and opportunities for market repositioning. Hamid has extensive experience working with companies in North America, East and South-East Asia, the European Union and Scandinavia. He has participated as delegate/speaker in international forums and conferences such as the Oil & Gas Forum in Barcelona, Spain and the Technology Conference in London, United Kingdom. Hamid is also involved in charity initiatives and nonprofit organizations. He recently participated in a ten million dollar fund-raising efforts for youth related activities in Central Virginia. Prior to becoming a business consultant, Hamid worked as a mediator under the Norwegian Ministry of Justice for four years. The role involved close collaboration with law-enforcement authorities in the country. He has had articles published in both Europe and the United States.


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