letter to editor significance of business quality ......

1. INTRODUCTION

Global competition and more demandingcustomers have been forcing enterprises tocontinuously improve the quality of

operations and business, generally. For thisreason quality is indispensable issue oftheory and practice at the beginning of XXIcentury. In this sense, the Crosby’s saying"the quality is free", still has not lose its

SIGNIFICANCE OF BUSINESS QUALITY MANAGEMENT FOR

INCREASING COMPETITIVENESS OF SERBIAN ECONOMY

Marija Andjelković Pešić*, Vesna Janković Milić and Jelena Stanković

University of Niš, Faculty of Economics, SerbiaTrg Kralja Aleksandra Ujedinitelja 11, 18000 Niš, Serbia

(Received 17 August 2011; accepted 24 December 2011)

Abstract

This paper points out some challenges Serbian economy is facing at the beginning of the XXIcentury. Based on the fact that the quality, both in theory and practice, has been promoted as the mostimportant dimension of competitiveness, improvement of quality stands out as the primary task ofenterprises in Serbia. In the last part of the paper there are some results of the research, conductedwith purpose of identifying opportunities for improving the quality of business in Serbian economy.The authors have been trying to establish the connection between Serbia’s competitiveness ratingaccording to research results of confidential institutions (World Bank’s Report on Business, GlobalCompetitiveness Report 2010-2011) and presence of quality management concepts and tools inbusiness practice in Serbia. The intention of the authors is to present the research results and toindicate the possibilities for improving competitiveness of Serbian economy, primarily throughimplementation of modern management concepts and models. The one that is suggested in this paperis the Six Sigma concept.

Keywords: competitiveness, quality, statistic analysis, Six Sigma.

* Corresponding author: [email protected]

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Serbian Journal of Management 7 (1) (2012) 149 - 170

www.sjm06.com

Letter to Editor

significance. However, due to the modernterms, it should be modified. It actuallymeans that quality improvement should bepromoted through the saying "quality is acost effective", because quality improvementassumes certain investments andcommitment, but the benefits and savings,which it provides, outweigh the investment.

Quality can be interpreted and explainedin different ways. However, the fact is thatthe starting point for the definition of thisterm is collection of data about customers’demands, since they are crucial arbiters ofquality assessment. If we have in mind theresults of numerous studies, according towhich quality means perfection, consistency,elimination of defects, and/or reduction oflosses due to the elimination of defects,delivery speed, compatibility with standards,reliability, etc., it can be said that qualityshould be viewed in a broader sense, or notonly as the quality of products and processes,but also as a quality business (Soin, 1992;Welch 1996; Kaplan & Norton, 2001; Brue,2002).

Significance of quality, as the basis andthe mean for providing competitiveadvantage, is pointed out by customers, sincethey prefer to express their needs anddemand from the enterprises to keep theirpromises. In order to help enterprises to meetcustomers’ demands in the efficient way,authors have been suggesting certain modelsand tools. The fact is that there is no one andonly solution for all enterprises, neither isone model or tool sufficient for providingquality improvement and gainingcompetitiveness advantage due to that.However, managers have to use a varioustools and to make their own combination ofdifferent models in order to adapt theconclusions of many authors to the specificcontext in which they operate.

2. QUALITY MANAGEMENT

APPROACHES AND CONTRIBUTORS

– THEORETICAL BACKGROUND

Quality has been present during thehuman development history, and itssignificance has not decreased yet. On thecontrary, the last few decades can beconsidered as decades of quality and thescience that is concerned with quality issuesis accepted as quality management science.Pioneers in the development of the qualitymanagement science are Edwards Deming,Joseph Juran and Armand Feigenbaum.Although their first papers were publishedeven in the first half of the twentieth century,they remained almost unknown for nearlytwo decades. The work of the mentionedauthors was recognized in the late 1940’s andsince then has been embraced by Japanesebusinessmen. In 1947 Deming held the firstlecture on quality control. The other famousscientist concerning quality managementscience development was Juran. Heemphasized the importance of verticalmanagement and technical methods. ExceptDeming and Juran, Feigenbaum has gainedrecognition due to his work in Japan. He isknown for developing the approach of TotalQuality Control – TQC (Feigenbaum, 1986).

The most famous among Japanese expertsin the field of quality are Kaoru Ishikawa,Genichi Taguchi and Shigeo Shingo. Theyare responsible for the further developmentof Total Quality Control. Ishikawa arguedthat the implementation of quality controlmeans the development, design, manufactureand service of quality products, which is themost economical, most useful way, andwhich always meets the needs of customers.Rounded Taguchi’s philosophy refersprimarily to the manufacturing processmanagement. Shingo has developed a

150 M.Anđelković Pešić / SJM 7 (1) (2012) 149 - 170

method known as Poka-Yoke (errorproofing) for such a production managementin which, theoretically, errors andunnecessary costs cannot occur.

When Japanese enterprises, through theirbusiness results, have confirmed theimportance of quality management, qualitystarted to occupies the attention of Americantheoreticians and practitioners. According toSimon (Simon, 1991), business modellingsystem involves the definition of inputs,processes and outputs with feedback. In thecontext of quality management, thisprinciple implies connection of processmanagement and quality assurance processes(Foster, 2004). During the 1970s and 1980s,the greatest Philip Crosby and Claus Moller,through their research and analysis ofresearch results, gave a great contribution todevelopment of science of quality. PhilipCrosby pointed out that quality is freebecause the costs of prevention will alwaysbe lower than the costs of identification andelimination of errors and mistakes that havealready been made (Crosby, 1979). ClausMoller in his work has pointed out thequality of care for people. The foundation oflearning of Claus Moller is the focus on thehuman factor. In this sense, he hasformulated 12 principles (Laguna &Marklund, 2005) that may be useful inimproving quality.

A significant contribution to developmentof science of quality in the last decade oftwentieth century and at the beginning of thetwentieth first century have given Bill Smith,Mikel Harry, Jack Welch, Peter Pande,George Michael. Bill Smith is known asfounder of the Six Sigma concept atMotorola. He was inspired by manyinnovations and achievements in the field ofquality production, all occurred continuouslysince the Great Depression in the 1930s.

Smith (Smith, 2001) pointed out that theenterprise, in order to eliminate variation anddefects, has to establish a specialinfrastructure of people, expert in qualitymanagement. Mikel Harry (Phelps,Parayitam & Olson, 2007) studied thevariations, while Jack Welch is known foradvocating transformational leadership.According to him, "the organization's abilityto continuously acquire new knowledge andit’s rapidly translation it into action are thebasic conditions for providing competitiveadvantage" (Welch, 1996).

To be able to "deal with" quality,especially in order to promote the same,managers must understand what qualitymeans for the enterprise and its stakeholders,as well as what is its role in creating aneffective organization. Although quality canbe correlated with the efficiency, it primarilyaffects the effectiveness. In this sense, wecan say that quality is the "right thing" whichhas its own market or the customers that arewilling to pay for it. Increasing awareness ofthe importance of quality (Oakland, 2007)and defining quality from the perspective ofeach stakeholder is the primary problemconcerned with the quality.

If the quality management is observed inits evolutionary way, one can identify fourapproaches to quality management:

- Approach based on the product - thequality will be provided if the characteristicsor attributes of products have beenidentified; according to those characteristicsand attributes, presence of quality isascertain; this approach assumes qualitycontrol,

- Approach based on manufacturing - thequality will be provided if the product has allcharacteristics predicted by the engineersspecifications; this approach corresponds tototal quality control,

151M.Anđelković Pešić / SJM 7 (1) (2012) 149 - 170

- Approach based on the product users -the quality will be provided if it fully meetsthe demands of customers or if it is "suitablefor use"; this approach assumes total qualitymanagement,

- Approach based on values - the qualitywill be provided if the product meetscustomers’ needs, and also has an acceptableprice, or if the variability of the process inwhich the product is produced is controlledat an acceptable level of costs; this approachcorresponds to Six Sigma qualitymanagement.

3. FACTORS AND IDEXES OF

COMPETITIVENESS

In the new economic era business isextremely dynamic and, therefore, one of thekey challenges for enterprises is to transformthe organizational design into a modern,more flexible. Functional silos and theprinciple of “command and control” cansignificantly interfere with implementationof the strategy, so managers have to renouncethose (Kaplan & Norton, 2001). On the otherside, with process approach to managementand employee empowerment, managerscreate conditions for understanding strategyand talking about strategy, and also for itssuccessful implementation.

Accordingly, changes in way offormulation and implementation of strategymust be accompanied by changes in the wayof measuring the success of itsimplementation. Not only financial criteriashould be considered, but also other criteriashould be noticed in long term and from allaspects (Salehi & Behzad, 2011). This meansthat, besides financial, managers need to usenon-financial measures and criteria, whichindicate the extent to which the enterprise

uses the intangible resources (Hanson &Erikson, 2002). Non-financial measuressupplement the financial, as indicators offuture financial picture of the enterprise.

Concerning both, financial and non-financial criteria and depending on what isthe basis of competitive advantage, fewdimensions of competitiveness can beidentified, and they are (Chase, et al., 2004):

- Costs (''make it cheap''), - Quality (''make it good''),- Delivery speed (''make it fast''),- Delivery reliability (''deliver when

promised''),- Volume flexibility (''change its volume''),- Innovativeness (''change it'').

These factors of competitiveness can beclassified into three dimensions: costs (interms of product price), quality andreliability (in terms of product functionalityand continuous fulfilment of customers’requirements), time and flexibility (in thesense that the product is always available tocustomers and that is always delivered ontime, or that new products and processes areintroduced in time). According to Skinner(Rao et al., 1996), the dimensions ofcompetitiveness are in the trade-offrelationship, because it is not possible tosimultaneously achieve high quality, lowcosts and on-time delivery of products.Guided by the above, in 1969 Skinnerformulated the trade-off model.Unreasonableness of this model has beenconfirmed many times in the practice ofsuccessful enterprises. The best indication ofthe nonexistence of model based on the“trade-off” of the dimensions ofcompetitiveness are the Japanese enterprisesthat have managed to provide theimprovement in all three dimensions. Theirproduction is characterized by low costs,


high quality, fast production and delivery.A World Bank survey, presented in the

Report on Business 2009(www.doingbusiness.org), showsdeterioration in business environment in theSerbian economy and 94 position in theranking of 181 countries (91 position in2007). Compared to the countries in theregion, Serbia had better position thanCroatia (106) and Bosnia and Herzegovina(119), and poorer than Hungary (41),Romania (47), Slovenia (54), Macedonia(71), Albania (86) and Montenegro (90).Comparative analysis of the dynamics andpace of improving performance indicatorswith countries in the region points to aslowdown of economic reforms in Serbiawith all negative consequences on the overallcompetitiveness of the economy(www.doingbusiness.org).

In addition to the World Bank survey, itmay be useful to realize the measures ofcompetitiveness from the World EconomicForum. World Economic Forum measurescompetitiveness of national economiesthrough Business Competitiveness Index(BCI,) Growth Competitiveness Index(GCI), and Global Competitiveness Index.(Önsel at al, 2008) Business

Competitiveness Index has been introducedby Michael Porter, in 2000. This index isbased on microeconomics variables. GrowthCompetitiveness Index was introduced bySachs and McArthur, in 2001. It is based ona stronger academic fountain in economicgrowth theory. The index that was lastmentioned is the latest compared to theprevious two. Therefore it is logic to expectthat it includes both macroeconomic andmicroeconomic factors of competitiveness.

Since 2005, the World Economic Forumhas based its competitiveness analysis on theGlobal Competitiveness Index, because it ishighly comprehensive index for measuringnational competitiveness, since it capturesthe microeconomic and macroeconomicfoundations of national competitiveness.This index is calculated as a weightedaverage of many different components, eachmeasuring a different aspect ofcompetitiveness and ranking on the scalefrom 1 to 7. These components are groupedinto 12 pillars of economic competitiveness:institutions, infrastructure, macroeconomicenvironment, health and primary education,higher education and training, goods marketefficiency, labour market efficiency,financial market development, technological


Figure 1. Scores of 12 pillars for SerbiaSource: WEF_GlobalCompetitivenessReport_2010-11 and 2009-2010

readiness, market size, businesssophistication and innovation (Schwab,2010). Scores for these components forSerbia are given in the Figure 1.

According to Global CompetitivenessReport 2010-2011, at the top of the list isSwitzerland with GCI score of 5.63. Resultsfor Serbia and countries from the region aregiven in the following table (table 1).

The average GCI score for these countriesis 4.08, which is quite low compared to thecountry which is leader, but still not so bad.However, as it is the case with any kind ofaverage, in this case also, GCI values for

countries as individuals express positive, onone side, and negative variations, on theother side. Variations for a certain countriesare presented in Figure 2.

The Report on Business from 2009(World Bank survey) and GlobalCompetitiveness Report for 2010-2011,unfortunately show the same fact –deterioration of Serbian economycompetitiveness. According to the Report onBusiness (www.doingbusiness.org), Serbia’sranking has decrease from 91 (in 2007) to 94(in 2009). Also, according to GlobalCompetitiveness Report 2010-2011, Serbia’s


Table 1. Rank and GCI value2010-2011 2009-2010 Change

Country Rank Score Rank Score Rank Score

Serbia 96 3.84 93 3.77 -3 + 1.8% Croatia 77 4.04 72 4.03 -5 +0.2% Montenegro 49 4.36 62 4.16 +13 +4.8% Bosnia and Herzegovina

102 3.70 109 3.53 +7 +4.8%

Macedonia 79 4.02 84 3.95 +5 +1.7% Albania 88 3.94 96 3.72 +8 +5.9% Hungary 52 4.33 58 4.22 +6 +2.6% Romania 67 4.16 64 4.11 -3 +1.2% Slovenia 45 4.42 37 4.55 -8 -2.8% Greece 83 3.99 71 4.04 -8 -1.2% Bulgaria 71 4.13 76 4.02 +5 +2.7%

Source: WEF_GlobalCompetitivenessReport_2010-11 and 2009-2010

Figure 2. Individual variations from the average GCI in 2010-2011Source: WEF_GlobalCompetitivenessReport_2010-11 and 2009-2010

competitiveness has decreased from 93 (in2010) to 96 (in 2011) place. These facts mustbe a warning for creators of Serbianeconomic policy and the basis forimprovement of conditions for doingbusiness in Serbia.

4. QUALITY AS A FACTOR OF

COMPETITIVENESS AND BUSINESS

RESULTS

One of the conditions for successfulSerbia's EU accession and efficientperformance in the international marketcertainly is higher level of competitivenessof Serbian products. However, products ofSerbian enterprises are generally notcompetitive, when it is about price, andquality, as well. The competitiveness ofSerbian enterprises is mainly based on exportof cooperative services (outsourcing), withthe usage of imported technology (licensing,joint ventures). Therefore, the model ofindustrial growth for period 2011-2020assumes (www.ntp.rs):

- Dynamical growth of investments,- Export rate growth,

- Industrial employment growth.

One of the ways for achieving these goalsis to increase the level of production quality,and the quality of business in general.Namely, higher quality of realization ofactivities and processes leads to reduction ofvariability and defects, and to increase offinished products’ quality while providessavings and cost reductions. Also, the effortfor improvement of quality results inincrease in higher productivity, satisfactionand loyalty of customers, competitiveadvantage, market share growth and, finally,leads to increase of financial results. Theimpact of quality improvement, therefore,can be viewed internally and externally.Internally, high quality means higherproductivity, which, consequently, allowslower prices and higher competitiveness,market share and profits. On the other hand,high quality, in terms of reducing ofvariations and defects, and thereforereducing of costs and increasing valueadded, also provides a positive effect onfinancial results (Soin, 1992). From anexternal point of view, higher quality meansincreased customer satisfaction, creating agood reputation of the enterprise and


Figure 3. Influence of quality improvement on financial result of an enterprise

increasing the number of loyal customers(Figure 3).

Development of new manufacturing andinformation technologies allows flexible anddiversified production directed towardssatisfaction of the sophisticated demands ofcustomers (Dedhia, 1995). In fact, todaycustomers are more informed and educated,and, due to that, more and more demandingwhen it comes to features, speed of deliveryand price of the products. For this reason,product quality must be defined bycustomers. The image of the enterprise hasan important role when customers make thedecision concerning choice of producer, andone of the most important factor thatinfluence image of enterprises is tested andcertified quality of products.

In order to deliver quality to customers, itmust be required from the suppliers. Thisimplies the establishment of cooperativerelationships with suppliers and in somecases the long-term partnership. In the neweconomy, knowledge economy, the role ofemployees who are not on managerialpositions has been changing. They are peoplewho can help managers to solve theproblems, and not “variable” costs.Therefore in addition to cooperation withcustomers and suppliers, it is necessary toestablish cooperation between employees inorder to ensure their commitment.

Despite the fact that economic reforms inSerbia deemed to be "slowed", theenterprises themselves must strive to ensurethe improvement of their operations andbusiness performances (Evans et al.,, 2004),particularly in terms of quality andproductivity improvement. According to theRepublic Development Bureau, index ofproductivity in industry decreased in 2009compared to 2008 year (www.odrzivi-razvoj.gov.rs). In order to check the extent to

which Serbian enterprises follow the trendsin business improvement, and if they are ontrack to increase quality and productivity andto contribute to the improvement ofcompetitive position of the Serbianeconomy, empirical research was conducted.This research shows "as-is" state of theSerbian economy, according to which it ispossible to formulate recommendations fortransferring into "to-be" state, as desirablestate for Serbian economy.

5. METHODOLOGICAL

FRAMEWORK OF RESEARCH

Modern management theory suggestsmany new or renewed concepts, models andtechniques, whose application can helpmanagers to provide or sustaincompetitiveness of enterprises in the crisisconditions. The key question that concernscompetitiveness in crisis conditions is ifmanagers are willing to accept theseconcepts, models and techniques, concerningthat their application demands certainabdication in terms of time and money. Theassumption of the research this paper isbased on is formulated as it follows: Theimplementation and continual application ofquality management concepts, models andtechniques has positive influence on businessperformances and competitiveness ofenterprise, and therefore on business results.The research was composed in the followingway:

1. Questionnaire formulation, 2. Sampling (choosing the enterprises

that will form the sample), 3. Collection of data (through survey of

Serbian enterprises’ managers), 4. Analysis of collected data, graphical


and statistical presentation of the researchresults, and finally,

5. Making conclusions and formulatingsuggestions for managers of Serbianenterprises with the purpose of diminishingexpected negative effects of economic crisis.

The questionnaire has two parts. The firstone has comprised the basic questionsconcerning enterprise size, capital origin,industry, as well as the amount of profit(loss). When the collection of data has beenrepeated this year, the first part of thequestionnaire was supplemented with fewmore questions concerning the most usedbusiness performance (including financial)indicators and those indicators’ levelcompared to the state in 2007 (in terms ofincrease or decrease in percentages).

The second part has comprised questionsconcerning the implementation of modernmanagement concepts, models, techniques,and methods. The intention was to evaluate ifmanagers are familiar with the tools ofmodern strategic and quality management.The accent was on the Balanced Scorecardand Performance Prism, precisely onimplementation of the principles andphilosophy that these tools promote.Concerning quality management, the focuswas on Total Quality Management and othermodern versions (like Six Sigma). One of therespondents’ taks was to evaluate theinfluence of certain ways (through price,quality, service or promotion) for providingcompetitivness advantage to customers’satisfaction. The second group of questionswas related to process capability measures,including statistical process control (Mishra& Dangayach, 2009). Finally, it quality isobserved as a characteristic of business, andnot only of product or service, the lastquestion referes to evaluation of factorsaffecting business quality. The questionnaire

form used for this investigation is presentedin appendix 1.

The data collected during the survey werecrossbreed and combined by certainstatistical software. The graphicalpresentation of results has provided clarity ofinformation and facilitated makingconclusions in the economic way. Based onthe information provided after data analysis,authors have formulated conclusions. Thoseconclusions show how close or far practicein Serbian enterprise is from the modernmanagement theory or in what extentmodern concepts, models, methods andtechniques have been implemented so far.Conclusions based on the research resultsrepresent the basis for formulatingrecommendations for managers in Serbianenterprises with purpose to provide the bestpossible performances in the crisisconditions. The following subtitle shows theresults of analysis of certain questions,which concern quality models and toolsimplementation in enterprises in Serbia.

6. THE RESEARCH RESULTS ON

IMPLEMENTATION OF QUALITY

MODELS AND TOOLS IN SERBIAN

ECONOMY

The task of the research was to determinewhether the enterprises in Serbia are familiarwith modern concepts and models ofbusiness management, particularly qualitymanagement, and whether they have beentrying to convey positive experiences ofenterprises in developed countries. Anothertask of the research was to evaluate the levelof quality presence in Serbian economy or, inthe other words, to determine which of thementioned approaches is represented in


enterprises in Serbia. These tasks werecarried out in order to point out thepossibilities for improving of thecompetitiveness of the Serbian economy.The survey was conducted in two stages:during July and August 2009 year and duringMay and June 2011 year. The first time thesample was randomly selected from thegroup of enterprises from the Republic ofSerbia, and it included 60 enterprises. Theseenterprises were randomly selected due tothe hypothesis that quality and businessexcellence is not something that Serbianeconomy can proud of. Therefore the samplewas not limited to one or few branches ofindustry, which means that the populationwas Serbian economy, as a whole. In order toincrease the relevance of the research, thechoice of enterprises in the sample was doneby using stratification. All enterprises weredivided into three groups: small, mediumand large. The sample was constructedproportionally to the number of employees inthese enterprises. In addition, the criterionfor stratification was the number ofemployees, because the assumption was thatall employees must be involved in qualityimprovement and business in general, andthat all employees are agents of change.Repeated survey, conducetd during 2011,

was carried out on the same sample, toensure the relevance of the data and thereality of making conclusions.

When it is about concepts primarily aimedto improvement of production quality,research results in 2009 showed thefollowing state:

- Just-In-Time (JIT) concept wasimplemented in only 15% of the enterprisesin the sample,

- Total Quality Management (TQM) in31.6%, while

- Six Sigma was present in only 3.3% ofthe enterprises in the sample (Figure 4a).

Sertaintly, it should be noted that asignificant number of managers did notactually understand the meaning ofmentioned concepts, and some of them, whoneglected their application, changed theirminds after the explanation of theseconcepts’ essence. Therefore, it may beconcluded that in certain number ofenterprises mentioned concepts have notbeen implemented formally, but rather justsome of their principles and ideas. Accordingto the survey repeated in 2011, the situationhas not changed significantly (Figure 4b)).The only difference is slightly larger share ofTQM presence (35%).


Figure 4. The presence of the quality management conceptsa) Research conducted in 2009. b) Research conducted in 2011.

a) b)

Although according to the representationof the quality improvement concepts (JIT,TQM, Six Sigma) could be concluded thatenterprises in Serbia do not attach sufficientimportance to quality, as the dimension ofcompetitive advantage, the answers relatedto the impact of assessment of certain waysof providing competitive advantage (price,quality, service, promotion) on theorientation of customers (in terms ofselection of products of specific enterprise)lead to the opposite conclusion (questionnumber 2 in the questionnaire). Given that inthe research have been used a qualitativeattributes (how managers find out ways forproviding competitive advantage), for theirmeasurement rating scale was used. In thisspecific case rating scale with five pointswas applied, in order to express the influenceof ways for providing competitive advantageto customers choice numerically (hugeimpact - 5, a major impact - 4, moderateimpact - 3, low impact - 2, a negligibleimpact - 1), as well as to provided moredetailed analysis. According to the survey in2009, the highest average rating received thequality (4.56), as determinant ofcompetitiveness (Table 2). Also, the standarddeviation for quality was the lowest (0.51),which means that the opinions of managerson impact of quality on improving thecompetitiveness are similar, and that thequality is considered the most influential forcustomers’ choice. Also, great impact on

customers’ choice has service, while priceand promotion, as a means for providingcompetitive advantage are found to be lessimportant for the customers from managers’point of view. Research results from 2011confirmed that the quality in the enterprisesin Serbia is considered the best way toimprove competitiveness, because again theaverage score for quality was highest (4.38).These results indicate that managers ofenterprises in Serbia do realize theimportance of quality as a dimension ofcompetitiveness, but (if we take into accountthe results concerning the representation ofconcepts for quality improvement) they donot behave in accordance with their beliefs.

An important instrument for improvingprocesses quality and, consequently, productquality, is statistical process control(Montgomery, 1991). An effectiveorganization knows that if they don’t haveenough information about process, productor service, they can’t control that part(Velimirović, Velimirović, Stanković, 2011,65). However, the research results show thatquality control is still observed primarily interms of finished products. In this sense,quality control of final products is present inall enterprises in the sample (Figure 5a)).Also, in more than half of the enterprises inthe sample there is control of unfinishedproducts and operations (65% for both typesof control according to a survey from 2009,and 68% for the control of the unfinishedproduct, and 60% for the control ofindividual operations according to a surveyfrom 2011). When it comes to control ofproduction quality, according to researchresults statistical process control is still notsufficiently present (23% according to asurvey from 2009 and 32% according to asurvey from 2011). On the other hand, theresults of iSixSigma Magazine, at the level


Table 2. Evaluation of elements ofcompetitiveness influence on customers’choice

Elements Average

2009

St. dev.

2009

Average

2011

St. dev.

2011

Price 3.95 0.98 3.73 1.10 Quality 4.56 0.51 4.38 0.69 Services 4.12 0.74 4.08 0.85

Promotion 3.22 1.06 3.32 1.13

of the world economy, shows that statisticalprocess control is presented in about 80% ofthe enterprises. These data indicate asignificant lag of the Serbian economy incomparison with the world, although,according to the latest research, someprogress can be noted (Figure 5b). If thetrend of increasing the presence of statisticalprocess control continues, the positive trendfor enterprises in Serbia in terms of theircompetitiveness may be expected.

Considering that statistical processcontrol itself includes a number ofinstruments, the research included a questionconcerning the presence of theseinstruments. When statistical process control

is seen in this way, one can conclude thatmany enterprises apply certain instrumentsof statistical process control. For example, aflow chart is represented in 28 enterprises inthe sample according to the survey from2009 and in 46 enterprises in the sampleaccording to the survey from 2011.According to the research results it can besaid that "cause-and-effect" diagramapplication also has possitive trend (24enterprises in 2009 and 32 enterprisesaccording to a survey from 2011). However,when it is about regression analysis,significance testing, control charts andPareto diagram situation is not quitesatisfactory. According to the research in


a) b)

Figure 5. The presence of certain quality control formsa) Research conducted in 2009. b) Research conducted in 2011.

Figure 6. Representation of statistical process control tools

both survey years, these instruments havebeen applied in less than 20% of enterprises.

Bearing in mind that parallel with theimprovement of quality of processes,managers have to ensure improvement ofquality of management, in addition toquestions relating to concepts and tools forprocess quality improvement, thequestionnaire included the issues related tothe representation of models for theformulation and implementation of businessstrategy, as well as issues related to the

factors of enterprises’ quality management.According to the research conducted in

2009, the models for the formulation andimplementation of business strategy (such asthe Balanced Scorecard and PerformancePrism) were implemented in only 28% of theenterprises in the sample. Specifically,enterprises that have implemented theBalanced Scorecard model represent 20%,while the enterprises that have implementedthe Performance Prism model represent only8% of enterprises in the sample. The lateststudy, from 2011, confirmed the findingsfrom 2009 (Balanced Scorecard 22%,Performance prism 10%), which means thatmanagers of enterprises in Serbia have notyet understood the importance of modernmanagement methods and concepts.

Although the connection between theapplication of these or other methods andconcepts of management and competitiveadvantages is not explicit, it certainly exists.Specifically, Balanced Scorecard andPerformance Prism facilitates managers to


Figure 7. Relative participation of enterprisesthat have implemented modern managementconcepts

Mark Dimensions of business quality 2009 2011 change

D1 Quality of business depends on amount of costs 3.86 3.73 -3.37%

D2 Quality of business depends on the structure of costs 3.75 3.72 -0.80%

D3 Quality of business depends on the quality of product (service) 4.38 4.45 1.60%

D4 Quality of business depends on the quality of business processes 4.16 4.32 3.85%

D5 Quality of business depends on creativity and innovativeness 3.82 3.93 2.88%

D6 Quality of business depends on the speed of process realization 4.00 4.05 1.25%

D7 Quality of business depends on the product delivery speed 4.25 4.32 1.65%

D8 Quality of business depends on the relationship with customers 4.18 4.30 2.87%

D9 Quality of business depends on the relationship with suppliers

4.06 4.03 -0.74%

D10 Quality of business depends on the employees’ competitiveness 4.59 4.48 -2.40%

D11 Quality of business depends on the employees’ improvement 4.15 4.27 2.89%

D12 Quality of business depends on the business culture 4.13 4.27 3.39%

Table 3. The rating of the factors influencing business quality

easily identify the connection between dailyoperations and ways of realization ofbusiness processes and to ensure customersatisfaction (and the other stakeholders), andprovide competitive advantage.

When it is about factors of businessquality, respondents were offered the 12dimensions presented in Table 3. Theobtained scores based on employees’ ratingsin 2009 and 2011 are presented in sametable.

In favour of the previously mentionedfindings, these results also show thatmanagers are aware of the importance ofproduct and processes quality, but that theirefforts to improve these aspects of thebusiness are insufficient. Factor analysis is ageneric term for a family of statisticaltechniques concerned with the reduction of aset of observable variables in terms of asmall number of latent factors.(Chandrasekaran, Natarajan, Sivasundaram,2010, 31). Factor analysis is a multivariate

method used for data reduction purposes.The basic idea is to represent correlatedvariables (dimensions of business quality inthis case) by a smaller set of “derived”variables, which are called factors. Thesefactors can be thought of as underlyingconstructs that cannot be measured by asingle variable (www.mlsc.lboro.ac.uk).

Testing the feasibility of factor analysisapplication is performed by Bartlett’s testand Kaiser-Meyer-Olkin (KMO) statistics.Bartlett’s test, based on χ2 distribution, isused to test the hypothesis that there is no

significant correlation between the originalvariables. The table that follows (Table 4)shows the results of this test (p-value=0.000), which show that nullhypothesis is rejected. This means that thereis significant correlation between originalvariables (D1, D2… D12). The rule of KMOstatistics says that if its’ value exceeds 0.5,the application of factor analysis isrecommended.

As a criterion for factors allocation inSPSS software (SPSS 14.0 for Windows, By:SPSS Inc.) characteristic value is used andthe critical value of this criterion is one. Inthis case the first two factors havecharacteristics value greater than 1, and thepercentage of explained variance with thesetwo factors is 62.84%.

After the rotation of factors, factor matrixwas obtained. In this matrix high values offactor loadings (associated with only a smallnumber of variables) can be clearly separatedfor each factor (Table 6).

High factor loadings for the first tenvariables correspond to the first factor, whilehigh factor loadings for the last two variablescorrespond to the second factor. Squares ofthese factor loadings represent the


Kaiser-Meyer-Olkin Measure of Sampling Adequacy .832

Approx. Chi-Square 409.374df 66

Bartlett's Test of Sphericity

Sig. .000

Table 4. KMO and Bartlett's Test

Component Initial Eigenvalues

Total % of Variance Cumulative %1 6.043 50.356 50.356

2 1.498 12.482 62.838

3 .990 8.246 71.0844 .626 5.220 76.3045 .579 4.823 81.1276 .539 4.491 85.6187 .446 3.717 89.3358 .386 3.217 92.5529 .340 2.836 95.38810 .254 2.119 97.50711 .198 1.651 99.15812 .101 .842 100.000

Table 5. Total Variance Explained

proportions of variance of certain variables,which are attributed to the effects of a givenfactor. Therefore, considering the data inTable 6, for these factors proportion ofvariance is calculated as it follows:

D1: (0,862)2 = 0.743 =74.3%D2: (0,815)2 = 0.6642 = 66.42%D3: (0,807)2 = 0.6512 = 65.12%...D11: (0,870)2 = 0.7569 =75.69%D12: (0,851)2 = 0.7242 = 72.42%

This means that the first factor explains74.3% of variance of variable D1, 66.42% ofvariance of variable D2, 65.12% of varianceof variable D3, and so on. The second factorexplains 75.69% of variance of variable D11,and 72.42% of variance of variable D12.These two factors may be observed as newvariables, which can be used in further

analysis. Based on results presented above,these two factors can be interpreted in thefollowing way:

• The first factor, considering variablesthat it explains, can be defined as non-pricefactor,

• The second factor, consideringvariables that it explains, can be defined asprice factor.

7. THE SIX SIGMA CONCEPT –

RECOMMENDATION FOR SERBIAN

ENTERPRISES

Considering the research results, it can besaid that managers in Serbia are aware ofneccesity of business quality management.They recognize the difference betweenquality management and business qualitymanagement. However, unfortunately, thesame research results show that thecontemporary quality management concepts


Table 6. Rotated Component MatrixComponent Mark Business quality dimensions 1 2

D1 Quality of business depends on the employees’ improvement .862 .202

D2 Quality of business depends on the employees’ competence .815

D3 Quality of business depends on the product delivery speed .807 .106

D4 Quality of business depends on the business culture .794

D5 Quality of business depends on the relationship with suppliers .780 .363

D6 Quality of business depends on business process quality .757

D7 Quality of business depends on the relationship with customers .661 .390

D8 Quality of business depends on creativity and innovativeness .620 .357

D9 Quality of business depends on the process realization speed .575 .472

D10 Quality of business depends on the quality of product (service) .496 .227

D11 Quality of business depends on the amount of costs .870

D12 Quality of business depends on the structure of costs .180 .851

and tools are not applied in sufficient numberof enterprises in order to provide criticalmass of enterprises to provide effect at theSerbien economy level. In order to increasethe number of enterprises in whichmanagers, but the other employees too, thinkand act in a way which providesperformances improvement andcompetitiveness rising, the implementationof the Six Sigma concept is recommended.

Despite its name, Six Sigma is not astatistical tool that is used for decades, butthe business concept for improvement of thebusiness quality. The Six Sigma conceptinvolves a continuous process improvement,incremental improvement or "kaizen"(Japanese term for continuousimprovement), where the improvementprocess is directed towards correcting of theexisting processes, focusing on key factorsthat determine the results of the process. Itincorporates a methodology forimplementation of improvement projects.Though authors usually speak aboutincremental improvements, improvementprojects can be directed to the introduction of

radical changes, too. Due to itscharacteristics, Six Sigma may beinteresting, usable concept for the enterprisesin Serbia, in the sense of their improvementand facilitated inclusion in global market.

The Six Sigma concept implementationincludes five phases, known as DMAICprocess that must be always present inbusiness, and must be continuously enforced.The first phase of this process is the definephase and it includes defining customers’requirements, key process for theirfulfilment and performance standards. Afterdefining, the next phase is measure, in whichmanagers have to establish a system ofmeasures and to evaluate the performance ofkey processes and activities. Informationobtained by measurement become subject ofanalysis, the phase during which managershave to identify potential areas forimprovement. Implementation of theimprovement must be evaluated andcontrolled, so therefore the controlrepresents the last phase of the DMAICprocess.

The path from the initiative for the


Figure 8. The Six Sigma concept: from the initiative to implementation

establishment of the Six Sigma concept, tillthe appearance of effects of theimplementation is not easy, but isrecommended if the enterprise wants toprovide or increase competitive advantage(Figure 8). In order to spread the businessprinciples on which this concept rests,through the enterprise, managers have toensure the acceptance of the same by theother employees (except managers). Toimplement this concept successfully, thecontinuous collection of information,education and training of employees, as wellas establishing a system of measurement isnecessary. All mentioned is in function ofselection of the processes(www.isixsigma.com), which shouldenhance or is in the function of successfulproject management. Such “behaviour” ofthe enterprise is an important condition forachieving competitive advantage in the neweconomy.

In order to avoid the confusion and ensureuniformity of performance measurement foractivities and processes, this conceptrecommends a measure known as sigmaquality level, which is based on the standarddeviation. The Six Sigma concept promotesthis measure of quality, because it assumesthat the enterprise should change its attitudeabout quality, since it is no longer acceptableto express defects in percentages. However,enterprises, which from the Six Sigmaconcept accept only sigma level, as measureof quality, in order to control variations anddefects, do not have many chances forsuccess. Successful enterprises are the onesthat, apart from the quality measures, adoptthe Six Sigma as a business philosophy andstrategy. The Six Sigma concept is based onDeming's idea of “striving for continuousimprovement” and Taguchi’s view accordingto which “any deviation from the target value

causes an increase in costs”. The pursuit ofthe Six Sigma concept is to reduce variation,because decrease of variation causes increaseof productivity, measured either as theamount of output per unit of input, or as theamount of output per unit of time, andtherefore it is recommended for the Serbianenterprises with purpose of competitivenessimprovement.

8. CONCLUSION

Based on the results of the researchconducted twice, in 2009 and in 2011 year,when it is about considering quality andquality improvement as factors ofcompetitiveness it can be said that there ispositive tendency, but not enough (which isconfirmed by official reports of the RepublicInstitute for Development). It can beconcluded that managers are aware of theimportance of the process approach and theprocess quality improvement, but the usageof tools and instruments that can contributeto discovering the opportunities for qualityimprovement is not sufficient. In addition, asignificant problem is the fact that theintroduction of modern concepts andmethods for quality management ischaracteristic for higher management levels.Managers must understand that at theoperational level there are significantopportunities for providing savings andimproving of competitiveness. For thisreason, it is considered that training formanagers and other employees forimplementation of measures and instrumentsfor analysis with purpose to identify possiblecauses of problems is necessary. Takingconcrete steps to improve the quality(primarily in terms of application of modernconcepts and tools) will greatly facilitate the


Serbian enterprises’ struggle with thecompetition in the domestic market, theappearance to the European and worldmarket, and establishment of partnerships orother forms of cooperation with enterprisesfrom developed countries.

The question managers often askthemselves in new economy is: how tobecome and remain competitive in the globalmarketplace? Considering the complexity ofproduction systems and the lack of simplesolutions to numerous problems, the answerto this question is not easy to give. However,enterprises must choose which of theavailable concepts, methods and models willuse in order to define their own solutions to

increase competitiveness. Regardless ofwhich model they choose, enterprises mustmeet customers’ requirements concerningquality, price (cost), speed of delivery andflexibility.

If the enterprise wants to be in a group ofsuccessful ones, it has to generate money -achieve positive financial results, constantly,day after day, but at the same time, it has tobuild and develop businesses, which willensure that the achieved results will maintainin the long run. The Six Sigma conceptshould help managers in resolving theparadox that assumes providing the short-term financial results through improvementprojects, and, at the same time, development


ЗНАЧАЈ УПРАВЉАЊА КВАЛИТЕТОМ ПОСЛОВАЊА ЗА

ПОВЕЋЕЊЕ КОНКУРЕНТНОСТИ ПРИВРЕДЕ СРБИЈЕ

Марија Анђелковић Пешић, Весна Јанковић Милић и Јелена Станковић

Универзитет у Нишу, Економски факултет, Србија

Извод

Овај рад указује на неке изазове са којима се суочава привреда Србије на почетку XXI века.Полазећи од тога да је квалитет, како у теорији, тако и у пракси, промовисан као најзначајнијадимензија конкурентности, унапређење квалитета представља примарни задатак предузећа уСрбији. У последњем делу рада приказани су неки резултати истраживања спроведеног сациљем идентификовања могућности за унапређење квалитета пословања у Србији. Ауторинастоје да успоставе везу између конкурентности Србије према резултатима истраживањаинституција од поверења (Извештај Светске банке о пословању, Извештај о глобалнојконкурентности 2010-2011) и заступљености концепата и алата за управљање квалитетом упословној пракси у Србији. Намера аутора јесте да прикажу резултате истраживања и да укажуна могућности за унапређење конкурентности привреде Србије, превасходно прекоимплементације савремених управљачких концепата и модела. Један од њих, чијуимплементацију аутори сугеришу, јесте концепт Six Sigma.

Кључне речи: конкурентност, квалитет, статистичка анализа, Six Sigma.

capacity for the future, through investment inhuman capital and key processes.

According to factor analysis results, thereare two groups of factor that can beidentified. The first one considers non-pricefactors, while the second considers pricefactors. This classification indicates thatSerbian economy does not have an integratedview of dimensions of business quality orthat some of enterprises use non-pricesdimensions for gaining competitiveadvantage, while the other use pricedimensions for the same pupose. In order toprovide sustainable competitive advantage,both groups of enterprises have tounderstand the significance of all dimensionsof business quality and the necessity ofproviding their optimal combination. Also,this classification of factors may beconsidered as an indicator for a questionnairestructuring for further research, meaning thatthe questionnaire which will be used forfuture research may have the questionsbelonging to these two groups clearlyseparated.

References

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M.Anđelković Pešić / SJM 7 (1) (2012) 149 - 170168

Apendix 1: Questionnaire for managers

Part I

1. Name of the enterprise: ____________________________________________

2. City: ___________________________________________________________

3. Industry: ________________________________________________________

4. Ownership: ______________________________________________________

5. Origin of the capital: a. The most of it comes from the Serbia b. The most of it comes from abroad

6. Function of the surveyed manager: ____________________________________

7. Number of employees: a. Less than 50 b. 51 – 250 c. Over 250


Part II 1. Have you adopted the principles of some modern concepts:

a. Just-In-Time b. Total Quality Management (including statistical quality control and its tools) c. Six Sigma

2. Evaluate the influence of the proposed ways for providing competitivness advantage to

customers’ satisfaction (the lowest mark or negligible impact = 1, the highest mark or very large impact = 5):

a. price..........................................................................1 2 3 4 5 b. quality ......................................................................1 2 3 4 5 c. service ......................................................................1 2 3 4 5 d. promotion.................................................................1 2 3 4 5

3. How do you provide wanted quality of products (services):

a. Control of finished products (services) b. Control of phased products c. Control of certain operations d. Statistical process control

4. Is the quality improvement based on application of some instruments, like:

a. Cause-and-effect diagram b. Flow diagram c. Pareto diagram d. Control charts e. Significance testing f. Regression analysis

5. Do you use some of the models for strategy formulation and implementation: a. Balanced Scorecard b. Performance Prism c. Something else (which one) _____________________________________

6. Evaluate the following assertions (the lowest mark = 1, the highest mark = 5):

a. Quality of business depends on amount of costs...................................1 2 3 4 5 b. Quality of business depends on the structure of costs ...........................1 2 3 4 5 c. Quality of business depends on the quality of product (service) ............1 2 3 4 5 d. Quality of business depends on the quality of business processes ..........1 2 3 4 5 e. Quality of business depends on creativity and innovativeness ...............1 2 3 4 5 f. Quality of business depends on the speed of process realization............1 2 3 4 5 g. Quality of business depends on the product delivery speed ...................1 2 3 4 5 h. Quality of business depends on the relationship with customers............1 2 3 4 5 i. Quality of business depends on the relationship with suppliers .............1 2 3 4 5 j. Quality of business depends on the employees’ competitiveness ...........1 2 3 4 5 k. Quality of business depends on the employees’ improvement ...............1 2 3 4 5 l. Quality of business depends on the business culture .............................1 2 3 4 5

M.Anđelković Pešić / SJM 7 (1) (2012) 149 - 170170

letter to editor significance of business quality ......

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