Alternative Quality Improvement Practices and Organization Performance

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<ul><li><p>7/27/2019 Alternative Quality Improvement Practices and Organization Performance</p><p> 1/18</p><p>JOURNAL FOPERATIONS</p><p>MANAGEMENTELSEVTER Journal of Operations Management 12 (1994) 27-44</p><p>Alternative quality improvement practices and organizationperformance</p><p>Everett E. Adam, Jr.Management Department, College of Business and Public Administration, University of Missouri-Columbia, Columbia, MO 65211, USA</p><p>Received 20 September 1993; accepted in revised form 5 June 1994</p><p>AbstractQuality improvement is a highly desired objective in the fiercely competitive international business world, yet it</p><p>remains elusive to many US organizations. This study relates alternative quality improvement approaches to actualoperating and financial performance. Productivity improvement approaches are also investigated and related toperformance to define better the relationship between quality and productivity. In this study, multiple quality andproductivity approaches are correlated to eight quality, three operating, and three financial performance measures for187 US business firms. Results indicate a strong relationship between a quality improvement approach and performancequality. The relationship between a quality improvement approach and operating or financial performance is weaker, butsignificant. Productivity improvement approaches also help predict quality, operating, and financial performance -often similarly to quality improvement approaches. This study suggests that the profile of quality and productivityimprovement approach should vary, depending upon whether the firm is most interested in performance quality,operating improvement, or financial performance.</p><p>Competitiveness is a driving force behind the re-evaluation of North American business. Duringthe recession in the early 1980s chief executiveofficers seemingly awoke to the realities that noteverything made or every service offered ~ nomatter how well-developed or shoddy - couldbe sold. This realization resulted in a genuineinterest in quality improvement, an interest height-ened by the economic, downturn of the early 1990s.</p><p>This paper addresses the issue of competitivenessand the necessary ingredients to remain or becomea world-class competitor, focusing on the quality ofthe organizations product or service. More spe-cifically, this study identiJies alternative approachesto quality improvement practiced in the UnitedStates and then relates quality improvement prac-tice to actual quality, quality costs, operating per-</p><p>formance, andjinancial performance. The strengthof the correlations between quality improvementalternatives and actual performance should con-tribute to our understanding and guide qualityimprovement practices in the future.</p><p>1. Literature reviewImproved quality is commonly thought to</p><p>reduce cost, as waste is eliminated by doingthings correctly the first time (Crosby, 1979, 1984;Deming, 1986; Juran, 1982, 1989). An approachtoward improvement, total quality management(TQM), that is popular today has its roots in elimi-nating waste, reducing variations, and continuallyimproving. Although Feigenbaum (1983) outlined</p><p>0272-6963/94/$07.00 0 1994 Elsevier Science B.V. All rights reservedSSDI 0272-6963(94)00004-X</p></li><li><p>7/27/2019 Alternative Quality Improvement Practices and Organization Performance</p><p> 2/18</p><p>28 E.E. A dam, Jr./Journal of Operati ons M anagement 12 (1994) 27-44</p><p>this approach in the 1970s perhaps the Japaneseexperience popularized these cornerstones, as wellas some of the techniques, for improvement (see,for example, (Ishikawa, 1976)).</p><p>But what is the empirical evidence that qualityimprovement leads to improved business perfor-mance? The evidence is limited at best, and tothat we now turn.Wor ld-wide quali ty pr act i ces</p><p>US manufacturing strategy in the 1990s reflectsthe continuing challenges from the 1980s - theneed for continuous improvement in quality,costs, and product development. During the1980s United States priorities were more similarto Europe than Japan. Japan, having achievedcompetitive advantages in manufacturing quality,seemed to focus more than the United States onproduct development speed and cost reduction.This focus can be seen in Boston Universitysannual survey of manufacturing executives in theUnited States, Europe, and Japan (Miller and Kim,1990). During 1985-1987, US quality was the mostrapidly improving of seven primary manufacturingcore performance measures, increasing at morethan a 6 percent annual rate. In 1990-1992,inventory turns increased the fastest, about 7.5percent annually, while overall quality clusteredwith five other performance measures, each atabout a 6 percent annual improvement. Qualitysposition in the manufacturing strategy portfoliochanged substantially from 1984 to 1992. In 1984,quality improvement was not yet a top-fivestrategy. By 1986, the top three strategies were allquality related: implementing SPC, introducingzero defects programs, and involving vendors inquality efforts. Vendor quality and SPC remainedthe top two manufacturing strategies in 1988, whileimproving conformance quality and vendor qualitywere the top two strategies in 1990. The 1992study indicates that the top five most importantcompetitive capabilities of US manufacturersare, in order of importance (Kim and Miller,1992, p. 1):_ conformance quality,- product reliability,_ on-time delivery,</p><p>- performance quality, and- price.It is noteworthy that three of the top four capa-bilities reflect quality.</p><p>Further support for a quality emphasis in theUnited States comes from Carl Thor, the presidentof the American Productivity and Quality Center(Thor, 1990). To remain competitive, he suggeststhe United States need to do the right things,regardless of what its competitors/partners do. Inparticular, he suggest (p. 40) that US companieswill have to take their own initiatives to improveproductivity and quality significantly. This alonedoes not guarantee success, but it is the partcorporate executives can control.</p><p>A comprehensive study conducted jointly by theAmerican Quality Foundation and the publicaccounting firm Ernest &amp; Young investigated bestquality management practices (1992). The studywas quite broad, examining 945 managementpractices in more than 580 organizations in fourindustries on three continents. The study hadtwo objectives: to asses the impact of individualmanagement practices on profitability, productiv-ity, and quality and to structure a causal model tounderstand better the interaction of practices thatcreate the critical path for improvement. Resultswere presented in a format that suggested a firmcould position itself as low-, medium-, or high-performing and then, based on similar firms,understand the characteristics (actions) requiredto improve. Dos and don% were suggestedfor each of three broad categories: people,process, and strategy/technology. The tonewas clearly managerial and focused on summariz-ing results rather than presenting the data andanalysis.</p><p>From the report emerged two important pointsfor this study. First, only three managementpractices reportedly have significant impact onperformance, regardless of industry, country, orstarting positions. Those are process improvementmethods, strategic plan deployment, and suppliercertification programs. Process improvement(reflected by practices such as process value analy-sis, process simplification, and process cycle timeanalysis) significantly impact profitability, produc-tivity, and quality ~ but especially so productivity.</p></li><li><p>7/27/2019 Alternative Quality Improvement Practices and Organization Performance</p><p> 3/18</p><p>E.E. Adam, Jr./Journal of Operations Management 12 (1994) 27-44 29</p><p>Strategic plan deployment significantly affectsall three performances measures, and middlemanagers must understand strategies for the bestresults. Supplier certification programs relate moreclosely to increased quality and productivity. Thesecond point important to this study is that thedata and analysis were not publicly shared. Anappendix of assessment areas was provided - alisting of many of the 945 management practices- but the report did not provide the scores forthese measures nor correlations to actual profit-ability, productivity, and quality. A causal modewas not provided. In short, one could not replicatethis study, but presuming the report was preparedas a guide for management, replication might nothave been the reports intent.US quality experiences</p><p>Experienced executives understand the relation-ship between product (and service) quality andmarket share. The Boston Consulting Groupand Harvard Business School faculty, for instance,have developed the widely quoted Profit Impact ofMarketing Strategy (PIMS) database. Althoughthe database is not readily available as a part ofthe public domain, it has been cited for some 10years as one source supporting market share aspositively and strongly related to perceived qualityof a firms products (Buzzell and Wiersema, 1981;Leonard and Sasser, 1982; Garvin, 1984; Maani,1988; Craig and Douglas, 1982; Phillips et al.,1983).</p><p>The Malcom Baldrige National Quality Award,patterned after the Deming Prize in Japan, was firstawarded in 1988 and is becoming highly valued inthe United States. What practices do Baldridgeaward winners follow, and what are their results?A fairly recent US General Accounting Office(1991) study provides some answers. In the GAOstudy of 1988 and 1989 Baldrige finalists andwinners, evaluation focused on employees, oper-ating achievements, customer satisfaction, andfinancial performance. For these companies -among the best in the Unites States - the primaryemployee responses were increased suggestions(15 percent average annual improvement) and low-ered turnover (6 percent lower rate annually).</p><p>Operating gains were most noticeable in averageannual improvements in order-processing time(12 percent), reliability (12 percent), errors ordefect reduction (10 percent), and cost of qualitydecreases (9 percent). Customer satisfaction wasreflected by decreased complaints (12 percent peryear) and small increases in overall satisfaction andcustomer retention. Financial performance acrossall finalists and winners indicated increased annualmarket share (14 percent) and sales per employee (9percent), but only a small increase was found inreturn-on-assets (2 percent) and return on sales(1 percent).Empirical studies relating quality improvement andoperations management</p><p>The production and operations managementliterature has identified quality as a core contentvariable that has strategic significance within theoperations function and for the firm (Adamand Swamidass, 1989; Miller and Roth, 1988;Schroeder et al., 1986; Skinner, 1978; Wheel-wright, 1984), with profitability, to some extent,driven by quality (Adam et al., 1986; Heyl, 1987;Sluti, 1992).</p><p>Sluti (1992), in the most complete empiricalstudy on quality, utilized structural equationsmodeling to study 184 manufacturing firms inNew Zealand. Quality was found to have mixedresults when related to performance. For many ofthe measured direct relationships between qualityand business financial performance, results werenot significant, yet, the relationship betweenquality and production/operations outcomeswas significant. Quality had significant positiveimpacts on performance measures for processutilization, process output, production costs, work-in-process inventory levels, and on-time delivery.Alternative views exist on how quality should bemanaged in organizations. Practicing managersseem to favour one quality expert (guru) overanother, while the empirical studies indicate noclear directions. To illustrate, Benson et al. (1991)have proposed a system-structure model of qualitymanagement that relates organization context,actual quality management, ideal quality manage-ment, and quality performance. Their results</p></li><li><p>7/27/2019 Alternative Quality Improvement Practices and Organization Performance</p><p> 4/18</p><p>30 E.E. Adam, Jr./Journal ofOperations anagement 12 (1994) 27-44suggest that organizational context influencesmanagers perceptions of both ideal and actualquality management. Important contextual vari-ables are corporate support for quality, pastquality performance, managerial knowledge, andthe extent of external quality demands.</p><p>With the practice of quality improvement litera-ture as background, it is the empirical literaturethat provides the clearest direction for this study.Specifically, the work of Benson et al. (1991) isextended to include a wider array of contextualvariables, an alternative set of quality improve-ment practices or approaches, and a full spectrumof performance variables (Sluti, 1992) - bothoperational and financial performance measures.</p><p>2. Research question, experimental design, andprocedureResearch question</p><p>Alternative approaches to quality improvementdo exist. For example, current total quality man-agement (TQM) infers that the entire organizationis involved (total). TQM suggests customer focus,top-management leadership, statistical thinking,continuous improvement, problem solving, andworkforce training (Evans and Lindsay, 1993, pp.32-33). It often includes variation reduction andemployee empowerment as key TQM attributesas well. If one desires to achieve improvements inthese attributes, what approaches are available?There are many, including behavioural interven-tions, differing management practices, alternativeproblem-solving methods, and statistical processcontrol.</p><p>Similar to quality, a range of productivityimprovement approaches also exist. Approachesinclude traditional cost reduction, industrial engi-neering work and process analysis, wage incen-tives, and management practices. Contemporaryproduction/operations managers have availableinventory reduction (via just-in-time (JIT) ormaterial requirements planning (MRP)), increasedspeed of product/process design, and flexiblemanufacturing, to name but a few alternatives.</p><p>The choice of an underlying theory against</p><p>which to test hypotheses is a complex issue. Whatis the prevailing quality improvement theory? Is it thetotal cost curve approach and the minimization ofthe costs as proposed by the Lundvall-Juranmodel (Juran, 1974; Fine, 1986)? Is it statisticalprocess control and the application of samplingand statistical inference in control charting(Western Electric, 1956)? Or, is appropriate theoryfrom problem solving and the application of thescientific method (Ishikawa, 1976)? Is appropriatetheory grounded in employee empowerment,small-group behaviour, and leadership in thebehavioral science literature? The difficulty inspecifying an underlying quality improvementtheory is quite real.</p><p>The quality outcomes in this study are best pre-dicted by the Lundvall-Juran model, while theitems thought to influence these outcomes arefound in the statistical process control (SPC) andbehavioral components of total quality manage-ment (TQM). The operating and financial out-comes evaluated in this study are derived fromthe production/operations management theoryinvolving the technology of resource...</p></li></ul>