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

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New Manager’s Question 2

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

1 2 3 4 5Strongly agree Strongly

Disagree

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New Manager’s Question 3

• Total quality management is just another fad.

1 2 3 4 5Strongly agree Strongly

Disagree

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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.

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The Meaning of Control

• 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

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The Meaning of Control

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

tickets – reduces the dependence on box office sales

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Choosing Standards and Measures

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

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

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The Balanced Scorecard Comprehensive management control

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

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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

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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

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

Set targets

Evaluate performance

Guide discussion about what further actions to take

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The Balanced Scorecard Not right for every organization

Causes managers to underestimate the time & commitment needed

Use performance-management not performance-measurement

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The Balanced Scorecard Example

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Steps of Feedback Control

Establish Standards of Performance

Measuring Actual Performance

Compare Performance to Standards

Take Corrective Action

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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

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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

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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

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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

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Feedback-Control Model

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Application to Budgeting

• Budgetary control – setting targets and monitoring expenditures

• Budgets list planned and actual expenditures

• Budgets are associated with a division or department

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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

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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

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Balance Sheet

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Income Statement

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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

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Hierarchical and Decentralized Methods of Control

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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

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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

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TQM Techniques Quality Circles

Benchmarking

Six Sigma

Reduced Cycle Time

Continuous Improvement

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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

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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

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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

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The Importance of Quality Improvement Programs

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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

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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

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Quality Program Success Factors

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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

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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