Week 7 - Topic 4: Control Systems and Quality Management

Control

Consists of monitoring performance, comparing it with goals, and taking corrective action as needed, it is the fourth management function

The purpose of control

To make sure that performance meets objectives

Control helps an organization…

1. Adapt to change & uncertainty
2. Discover irregularities & errors
3. Reduce costs, increase productivity, or add value
4. Detect opportunities
5. Deal with complexity
6. Decentralize decision making & facilitate teamwork

Four Steps of the COntrol Process

1. Establish standards
2. Measure performance
3. Compare performance to standards
4. Take corrective action if needed

Control Standard

The desired performance level for a given goal

Standards are best measured when they can be…

Quantified

By measuring performance, we want to observe…

“What is the actual outcome we got?“

Sources of Performance Data

1. Employee behavior and deliverables
2. Peer input or observations
3. Customer feedback
4. Managerial observations
5. Output from a production process

Control Charts

Visual statistical tools used for quality control purposes

Management by Exception

A control principle that states that managers should be informed of a situation only if data show a significant deviation from standards

Evaluating Performance Requires…

That a range of acceptable variation be built into standards

Three Possible Courses of Action

1. Make no changes
2. Recognize and reinforce positive performance
3. Take action to correct negative performance

Types of Controls

Concurrent, feedback, feedforward

Concurrent Control

Entails collecting performance information in real time. Helps managers to determine if employees and processes conform to standards and regulations
Corrective action can be taken immediately, if required

Feedback Control

Amount to collecting performance information after a task or project is done, can be used to correct or improve future performance of the existing task or process

Feedforward Control

Focuses on preventing future problems, collects performance information about past performance and then uses this information to help plan new future tasks or new processes

Balanced Scorecard

Provides top managers a fast but comprehensive view of the organization via four indicators to establish goals and performance measures

Four BSC Indicators

1. Financial metrics
2. Customer metrics
3. Internal business process metrics
4. Innovation and learning metrics

Key Idea Behind the BSC

Reliance on only one standard (or control) is not sufficient to achieve successful business results

The Financial Perspective

Finding measures from:
- Budgets
- Financial statements
- Financial ratios

Budget

A formal financial projection that becomes the standard against which actual performance is compared

Fixed Budget

A projection in which resources are allocated on a single estimate of costs. Does not allow for adjustment over time

Variable Budget

Allocates resources in proportion with various levels of activity, can be adjusted over time

Financial Statement

Summary of some aspect of an organization's financial status

Balance Sheet

An organization's overall financial worth, that is, assets and liabilities, at a specific point in time

Income Statement

An organization's financial results, revenues and expenses, over a period of time, such as a year

Financial Ratios

Indicators determined from a company's financial information and used for comparison purposes

The Customer Perspective

Includes customer satisfaction and customer retention, it costs less in marketing expenses to retain an existing customer

Customer Satisfaction

The measure of how products or services provided by a firm meet customer expectations

Customer Retention

Refers to the actions companies take to reduce customer defections

Internal Business Perspective

Includes productivity, efficiency, and effectiveness, along with benchmarking and best practices

Benchmarking

A process by which a company compares its performance to others

Best Practices

Refers to a set of guidelines, ethics, or ideas that have been shown to produce optimal results

Productivity

Defined by the formula of outputs divided by inputs for a specified period of time

Outputs

All goods and services produced

Inputs

Includes labor, capital, materials, and energy

Formulas for Productivity

Outputs/Inputs or Goods + Services/Labor + Capital + Materials + Energy

Businesses become more productive when:

- Increase production at a greater rate than the required increase in inputs
- Reduce the required inputs for a given level of production
When they become more productive, they become more competitive

Effectiveness

Measures typically look at the outputs of a business process, can measure either quality or quantity
Can only be measured in relation to your goals, focuses on outcomes

Efficiency

Minimizing the time, cost, and resources associated with achieving our goals, looks at the inputs

Innovation and Learning Perspective

Necessary for businesses to maximize the quality of their human capital (workforce) and to anticipate, and respond to, changing market conditions

BSC Measures related to Innovation and Learning Perspective is…

- Number of new patents awarded in a year
- Number of new product or service introductions
- Number or magnitude of employee training programs
- Measures of employee attitudes or culture through surveys
- Employee turnover

Total Quality Management (TQM)

Approach led by top management and supported throughout the organization - dedicated to continuous quality improvement, training, and customer satisfaction.

Two Core Principles of TQM

People orientation and improvement orientation

People Orientation

Everyone involved with the organization should focus on delivering value to customers

Improvement Orientation

Everyone should work on continuously improving the work processes

Quality

The total ability of a product or service to meet customer needs

Quality Control

Strategy for minimizing errors by managing each stage of production

Quality Assurance

Focuses on the performance of workers, urging employees to strive for "zero defects"

Deming Management

1. Quality should be aimed at the needs of the consumer
2. Companies should aim at improving the system, not blaming workers
3. Improved quality leads to increased market share, increased company prospects, and increased employment
4. Quality can be improved on the basis of hard data, using the PDCA cycle (see next slide)

PDCA Meaning

Plan, Do, Check, Act

Plan

Desired and important changes, based on observed data. Make pilot test, if necessary

Do

Implement the change or make a small-scale test

Act

Act on lessons learned, after study of results. Determine if predictions can be made as basis for new methods

Check

Observe what happened after the change or during the test

Key Assumptions of People Orientation

- Delivering customer value is most important
- People focus if given empowerment
- TQM requires training, teamwork, and cross-functional efforts

Continuous Improvement

Ongoing small, incremental improvements in all parts of an organization

Key Assumptions of Improvement Orientation

- It's less expensive to do it right the first time
- It's better to make small improvements all the time
- Accurate standards must be followed to eliminate small variations
- There must be a strong commitment from top management

Kaizen

Similar to TQM; Japanese philosophy of small continuous improvement that seeks to involve everyone at every level of the organization in the process of identifying opportunities and implementing and testing solutions

Tips for Implementing Kaizen Methods

- Actively look for unconventional ideas
- Think about how to do something instead of why it can't be done
- Avoid both excuses and perfection

Outsourcing

Subcontracting of services and operations to an outside vendor

Reducing Cycle Time

Reduction in steps in a work process

Statistical Process Control

A statistical technique that uses periodic random samples from production runs to see if quality is being maintained within a standard range of acceptability

Six Sigma

A rigorous statistical analysis process that reduces defects in manufacturing and service-related processes; focuses on excellence

Lean Six Sigma

Focuses on problem solving and performance improvement of a well-defined project; speed on excellence

International Organization for Standardization (ISO)

- In 1987, the International Organization for Standardization (ISO) created a set of quality standards known as the 9000 series
- Companies can signal the high quality of their products by achieving ISO standards
- Two sets: 9000 and 14000

ISO 9000

Set of international standards on quality management and quality assurance, critical to international business; reduce flaws in manufacturing and improve productivity

ISO 14000

Extends the concept, identifying standards for environmental performance