What is the purpose of a firm



Question set one

uidaho.edu/~metlen/

Read CH1-5 and 10-13 about the quality gurus and their frameworks, and the quality awards around the world.

Set of questions designed to determine what quality is, what quality management is, what management of quality is, and why we need to consider them. Information is presented below and in Question Set Two to inform the ‘Stakeholder Satisfaction Causal Model’ you will use to answer the first three homework assignments.

1. What is the purpose of a firm?

To make the correct product.(maximizing shareholder wealth is a side benefit to making the correct product, shareholder wealth is one of the dependent variables )

2. What is a product?

Service and/or good Tangible and/or intangible

3. Differences between service and good

Perishability, Co-production, Standardization vs. customization, degree of tangibility, consumption patterns, cost structure (direct vs. fixed), opportunity for error and quality control, degree of autonomy of production worker

4. What is the correct product? One that satisfies all stakeholders (impossible due to dynamic nature of satisfaction unless expectations are controlled)

a) Meets wants and needs of customers better than competition and any other product the firm could make

b) Makes the owners a profit

c) does a and b in such a way that the net sum gain short and long term is positive to the environment and society/community (encompasses environmental sustainability (ES) and community services)

d) Meets lower bound of employees wants and needs (living wage and growth)

e) enables/empowers suppliers

Understanding relationship between 6 variables is important

One that satisfies all stakeholders. It satisfies the customers’ wants and needs better than the competition (provides high value: does what the customer wants at a price the customer is willing to pay) and makes the company money or is an outcome that helps the company to produce the correct product and is environmentally sustainable (green, recycle, produce with low energy, sustains the environment)

5. What is value?

What you get for what you give up.

6. From a strategic perspective, what strategic characteristics will produce the correct product?

The correct product will be the result of the correct mix of the following strategic characteristics relative to competition.

Cost

Flexibility (delivery, bells and whistles (diversification/customization), amount)

Speed (delivery, development, production)

Quality

Trade off theory vs. sandcone theory

As quality is an order qualifier vs. winner and thus, is the bases (sandcone) of any strategic mix of the above strategies, we are going to concentrate on Quality (management of quality) and organizational traits that are necessary to achieve consistently high levels of quality (Quality Management).

7. What is an order qualifier vs. winner

Qualifier means that a given level of the trait/characteristic has to be achieved before a product is even considered for purchase.

Winner is the product characteristic that drove the purchase

8. What is quality? First off, quality needs a qualifier, as the degree of quality is a state/measure of the quality characteristic of a product. Relative to something, expectations, design standards, competitors and own past products,

Presented in the book are several perspectives of quality:

judgmental/transcendent perspective: rise above competitors (subjective/holistic)

product-based perspective: measurable characteristic of product (0-60)

user-based perspective: fitness for intended use (subjective)

value-based perspective: function of quality level respective to price (subjective)

manufacturing-base perspective: conformance to specifications (objective, but the link from what is measured to consumer perception may be subjective)

9. Which perspective of quality is correct?

All perspectives are correct, so how to reconcile the perspectives. Recognize/discover the subjective and decide what level of product characteristic delivers/represents the subjective level needed.

10. What are the two cost categories of quality and what is the relationship between the two categories relative to percent conformance to some standard or expectation (in a service, an expectation can be like the specification of a good such as 30mm +/- .05mm)

Cost of preventing failure (Cost of prevention): Some say cost of assessment, but certain types of assessment are part of prevention. Inspection/control, supply chain management (management of the supply chain (from raw materials to customer to service repair), training, process management (design, maintenance, improvement, control), quality management, cost of detection (the assessment that can be seen as a third type of cost, different than prevention and holds when talking about preventing in house failure (versus out of house failure).

Cost of failure: scrap, rework, guaranty program, loss of customers, service recovery, brand recovery, market share recovery

Static theory vs. dynamic theory “Graph” Static vs dynamic cost of quality.xlsx

11. What are the main characteristics of quality according to Garvin, and how would you categorize them relative to Kano’s classes of customer requirements Kano: Product traits/characteristics are either Dis-satisfiers(Expected, if not there ( low satisfaction; Satisfiers, not expected, but known, and when there ( high satisfaction; Exciters/delighters not known or expected, when there, very high satisfaction. Garvin’s Dimensions of Quality (198-200) PFRCDSA

First why would we care about what the main product characteristics are ( we need to know how customers measure quality in our products (subjective perception)

| |Good |Service |

|Performance (dissatisfier) |0-60 |Time to complete transaction |

|Features (satisfiers & exciters) |Bells and whistles |Bells and whistles |

|Reliability (all 3) |Mean time to failure |Statistical sense (every time the same) |

|Conformance (all 3) |Meets expected specifications |Task done as expected (including empathy & |

| | |responsiveness) |

|Durability (all 3) |Useful life |Service stays current |

|Serviceability (all 3) |Ease of repair |Service recovery |

|Aesthetics (all 3) |What makes you feel good about the good |Comfort and security (assurance from |

| |Holistic over all opinion of good |tangibles and intangibles) |

Let us first discuss the difference between reliability and durability. One measure of durability is represented by the duration of product ownership. Reliability, on the other hand, represents interruptions in usage during that ownership. The ownership of any product or system cannot be enjoyed if it is continually interrupted and the desired functions lost for even a brief time. This contrast means reliability takes precedence over durability even though both are desired in most applications. Hans Bajaria

Quality Framework

Garvin proposes eight critical dimensions or categories of quality (used to be seven, still seven in Lindsay & Evans) that can serve as a framework for strategic analysis: Performance, features, reliability, conformance, durability, serviceability, aesthetics, and perceived quality.

1. Performance

Performance refers to a product's primary operating characteristics. For an automobile, performance would include traits like acceleration, handling, cruising speed, and comfort. Because this dimension of quality involves measurable attributes, brands can usually be ranked objectively on individual aspects of performance. Overall performance rankings, however, are more difficult to develop, especially when they involve benefits that not every customer needs.

2. Features

Features are usually the secondary aspects of performance, the "bells and whistles" of products and services, those characteristics that supplement their basic functioning. The line separating primary performance characteristics from secondary features is often difficult to draw. What is crucial is that features involve objective and measurable attributes; objective individual needs, not prejudices, affect their translation into quality differences.

3. Reliability

This dimension reflects the probability of a product malfunctioning or failing within a specified time period. Among the most common measures of reliability are the mean time to first failure, the mean time between failures, and the failure rate per unit time. Because these measures require a product to be in use for a specified period, they are more relevant to durable goods than to products or services that are consumed instantly.

4. Conformance

Conformance is the degree to which a product's design and operating characteristics meet established standards. The two most common measures of failure in conformance are defect rates in the factory and, once a product is in the hands of the customer, the incidence of service calls. These measures neglect other deviations from standard, like misspelled labels or shoddy construction, that do not lead to service or repair.

5. Durability

A measure of product life, durability has both economic and technical dimensions. Technically, durability can be defined as the amount of use one gets from a product before it deteriorates. Alternatively, it may be defined as the amount of use one gets from a product before it breaks down and replacement is preferable to continued repair.

6. Serviceability

Serviceability is the speed, courtesy, competence, and ease of repair. Consumers are concerned not only about a product breaking down but also about the time before service is restored, the timeliness with which service appointments are kept, the nature of dealings with service personnel, and the frequency with which service calls or repairs fail to correct outstanding problems. In those cases where problems are not immediately resolved and complaints are filed, a company's complaints handling procedures are also likely to affect customers' ultimate evaluation of product and service quality.

7. Aesthetics

Aesthetics is a subjective dimension of quality. How a product looks, feels, sounds, tastes, or smells is a matter of personal judgement and a reflection of individual preference. On this dimension of quality it may be difficult to please everyone.

8. Perceived Quality

Consumers do not always have complete information about a product's or service's attributes; indirect measures may be their only basis for comparing brands. A product's durability for example can seldom be observed directly; it must usually be inferred from various tangible and intangible aspects of the product. In such circumstances, images, advertising, and brand names - inferences about quality rather than the reality itself - can be critical.

Some product characteristic may create several quality characteristics, the important thing to know is how that product characteristic is creating satisfaction. Is some level of reliability an exciter and, thus drives the feeling of aesthetics. Understand that these perceptions change as a customer gets used to the product and more advanced products come out.

12. How does a firm achieve the correct level of quality? (never can achieve the correct level of quality because it is too complicated and is a moving target, but all you have to do is put on your tennis shoes)

Have perfect Knowledge, Motivation, and Integration (KMI)

Knowledge of what: everything (customer wants and needs (even if they do not know them), technology, material, time and motion studies, cost figures, demand forecasts, distribution channels & supply chain capabilities, budget, nature (including human nature ( physiological & psychological), abilities, skills, change agents, key success factors, competitors, substitutions, laws, customs, rules…….)

Motivation of whom: everyone in the supply chain (intrinsic and the extrinsic motivation called integrated regulation motivation (a person is positively motivated because he/she has “evaluated and brought into congruence [imposed values] with one’s other values and needs” (Ryan and Deci, 2000, p. 73))

Integration of what: all processes within a supply chain (each set of value chains), and knowledge and motivation

13. How does a firm achieve perfect knowledge, motivation, and integration

TQM or TQ as they like to call it now, and programs such as lean manufacturing, six sigma….

14. What are TQ, lean, six sigma: They are philosophies and tool sets developed to continually improve effectiveness and to maintain those improvements. TQ is presented on page 15-16, it is a set of principles, practices, and techniques. A management system that aims at the continual increase in customer satisfaction at continually lower real cost. TQ is a total system approach (not a separate area or program) and an integral part of high-level strategy; it works horizontally across functions and departments, involves all employees, top to bottom, and extends backward and forward to include the supply chain and customer chain (part of the supply chain). TQ stresses learning and adaptation to continual change as keys to organizational success.

The foundation of TQ is philosophical: the scientific method. TQ includes systems, methods, and tools. The systems permit change; the philosophy stays the same. TQ is anchored in values that stress the dignity of the individual and the power of community action.

Proctor and gamble: The unyielding and continually improving effort by everyone in an organization to understand, meet, and exceed the expectations of customers.

Metlen: Every process has a purpose in producing the “correct end product”. There are quality goals for the product of all processes involved in producing the correct end product output, and that quality is monitored for all processes. Due to the fact that the nature/characteristics of the end product is continually shifting, the quality goal and method of monitoring each process has to be continually assessed and changed if it is impeding the goal of correct product thus, also has to be dynamic.

15. What organizational level processes are involved in producing the correct end product

Leadership Process: mission, vision, strategy to accomplish

Management process: oversees that strategy is accomplished effectively

R&D process

Marketing process

Finance process

Production process

Logistics process

HR process

Accounting process

Knowledge process (assimilation, storage, dissimulation) IT process

Etc.

16. Thus, at what levels of a firm does quality have to be considered (all levels)?

Organizational/top management level (strategic level): mission and strategy development to meet customer wants and needs better than the competition (what product portfolio to have): need to know what is happening in the environment and the ability of your firm ( SWOT process, decision making process, goal congruency process

Process level (functional/departmental) (tactical level): overseeing execution of the strategy, what support and primary processes needed to produce the final ‘correct product’

Individual/performer/task/job level (operational level): completion of tasks needed to operationalize strategy

| |Strategic |Tactical |Personal |

|Organizational |xxxx | | |

|Process | |xxxx | |

|Operational | | |xxxx |

| |Organizational |Process |Operational |

|Knowledge |Specialize in SWOT know rest |Specialize in Process Mgt |Specialize in Policy and procedure know rest |

| | |Know rest | |

|Motivation |To gain K and use K in a constructive |Ditto |Ditto |

| |way | | |

|Integration |Abilities, skills, desire/motivation to |Abilities, skills, |Abilities, skills, desire/motivation to |

| |perform & improve Tasks |desire/motivation to perform & |perform & improve production Tasks |

| |SWOT information to develop realistic M |improve Tasks Integrating k to | |

| |V S of correct product |create and improve integrated | |

| | |processes to create correct | |

| | |products internal and external | |

To achieve the correct product (strategic mix of cost flexibility speed and quality (CFSQ) and PFRCDSA to meet a given MM (marketing mix of the Ps), firms have to have exemplary management, assessment, design, conformance, and control processes (five root causes of success if done well, failure if not done well), thus, many say a firm has to have at all three levels:

Quality management/leadership

Quality assessment

Quality design

Quality conformance

Quality control

To achieve the correct KMI to get the correct product (strategic mix of CFSQ and PFRCDSA) firms have to have exemplary management, assessment, design, conformance, and control thus, many say a firm has to have:

Quality management/leadership: Leadership determines the correct P/P, mission, vision, strategy to achieve correct product. Resource allocation (goes without saying that resources are scarce) it is knowing when to lead and when to manage

Quality assessment (internal and external) internal is the assessment of processes and products to determine conformance, first step of control. External is assessment of customers’ wants and needs and how the environment is affecting those wants and needs (competitors, general knowledge level of everything, political, condition of earth)

Quality design (products and processes)

Quality conformance (conform to design which conforms to wants and needs)

Quality control (enables/determines conformance and improvement) keep conforming

17. What do you think is meant by each type of quality above?

Quality Management: Leaders concentrate on doing the correct thing, managers concentrate on doing things correctly (hopefully the correct things, if you do the wrong thing correctly, it probably only helps your competition).

Au-toc-ra-cy: government by a single person, unlimited power

|Managers focus on |Leadership focuses on |

|Goals & objectives |Mission & Vision |

|Telling how and when |Selling what and why (goal congruency) |

|Shorter range |Longer range |

|Organization & structure |People |

|Autocracy |Democracy |

|Restraining |Enabling |

|Maintaining |Developing |

|Conforming |Challenging |

|Imitating |Originating |

|Administrating |Innovating |

|Directing & Controlling |Inspiring trust |

|Procedures |Policy |

|Consistency |Flexibility |

|Risk-avoidance |Risk-opportunity |

|Cost driven |Profit driven |

Stewardship encompasses both

So, quality management is doing the correct thing correctly all of the time at all levels to produce the correct product.

Under QM/TQ, when you manage (will have to sometime), lead(make sure that what you are doing correct is the correct thing to do, understand the dynamics of the world and be willing to help change the firm to meet those changes or cause those changes in a positive way.

| |Organizational |Process |Operational |

|QM |Leader/manager |Manager/Leader |Manage work place relationships,|

| | | |resources, and self |

|Old |Manage |Manage |Obey |

|QA |SWOT & understand the key |What processes need to be |Assess wants and needs of |

| |success factors & change agents |executed to accomplish mission |customers performance of self, |

| |in your industry &assess | |leaders/managers, subordinates |

| |effectiveness | | |

| |SWOT |Ditto, & what worked before |Own task, decide what customer |

| | | |wants, customer assess product |

| | | |features |

|QD |Design of SWOT |Design processes to accomplish |Execute processes such as Design|

| | |mission, w/input |product |

| | | | |

|Qconformance |Do you conform to the SWOT |Are processes doing what |Make product that matches design|

| |process |designed for |which matches wants and needs |

| | | | |

|Qcontrol |Assess process to determine |Ditto |Are all processes on this level |

| |conformance | |performing to limits of their |

| | | |design (ditto) |

| | | | |

Supply Chain Management (SCM) operates on the principal that all of us are working together against entropy (all matter and energy to evolve toward a state of inert uniformity) and that when we have a hostile supply chain (SC), we are just accelerating that process.

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