Fundamentals of

Total Quality Management

 Fundamentals of
Total Quality Management
Process analysis and improvement

Jens J.Dahlgaard
Division of Quality and Human Systems Engineering,
Linköping University,
Sweden

Kai Kristensen
Aarhus School of Business,
Aarhus, Denmark

and

Gopal K.Kanji
Centre for Quality and Innovation,
Sheffield Hallam University,
Sheffield, UK

LONDON AND NEW YORK

 Text © Jens J. Dahlgaard, Kai Kristensen and Gopal K. Kanji 2002
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 Contents
Preface x

Part One Fundamentals of Total Quality Management 1

1 Introduction 3
2 Historical evolution of Total Quality Management 7
3 Some definitions of quality 11
3.1 Exceptional 12
3.2 Perfection or consistency 12
3.3 Fitness for purpose 13
3.4 Value for money 13
3.5 Transformative 13
3.6 Conclusion 14
4 Philosophy, principles and concepts of TQM 16
4.1 The foundation and the four sides of the TQM pyramid 17
4.2 Focus on the customer and the employee 22
4.3 Focus on facts 26
4.4 Continuous improvements 32
4.5 Everybody’s participation 35
5 Quality management systems and standardization 42
5.1 The concept of system 42
5.2 Quality management systems 43
 5.3 Joharry’s new window on standardization and causes of quality failures 45
5.4 Standardization and creativity 53
5.5 ISO 9000 and BS 5750—a stepping stone to TQM? 55
6 The European Quality Award 60
6.1 The background to the European Quality Award 61
6.2 The model 62
6.3 Assessment criteria 64
6.4 Experiences of the European Quality Award 66

Part Two Methods of Total Quality Management 70

7 Tools for the quality journey 72

7.1 The quality story 72
7.2 The seven+ tools for quality control 74
7.3 Check sheets 76
7.4 The Pareto diagram 78
7.5 The cause-and-effect diagram and the connection with the Pareto
diagram and stratification 80
7.6 Histograms 85
7.7 Control charts 89
7.8 Scatter diagrams and the connection with the stratification principle 104
7.9 Case example: problem solving in a QC circle using some of the seven
tools (Hamanako Denso) 105
7.10 Flow Charts 113
7.11 Relationship between the tools and the PDCA cycle 117
8 Some new management techniques 119
8.1 Matrix data analysis 120
8.2 Affinity analysis 124
8.3 Matrix diagrams 126
 8.4 Prioritization matrices and analytical hierarchies 129
8.5 An example 134
9 Measurement of quality: an introduction 138
10 Measurement of customer satisfaction 144
10.1 Introduction 144
10.2 Theoretical considerations 144
10.3 A practical procedure 146
11 Measurement of employee satisfaction 154
11.1 Set up focus with employees to determine relevant topics 154
11.2 Design the questionnaire including questions about both evaluation
and importance for each topic 155
11.3 Compile presentation material for all departments andpresent the
material to the departments 157
11.4 Carry out the survey 157
11.5 Report at both total and departmental level 157
11.6 Form improvement teams 159
11.7 Hold an employee conference 159
12 Quality checkpoints and quality control points 160
13 Quality measurement in product development 163
13.1 Definition of the quality concept from a measurement point of view 163
13.2 Direct measurement of quality 164
13.3 Indirect measurement of quality 170
14 Quality costing 183
14.1 The concept of TQM and quality costs 183
14.2 A new method to estimate the total quality costs 186
14.3 Advantages and disadvantages of the new method to estimate total
quality costs 190
14.4 Quality cost measurement and continuous improvements 192
 15 Benchmarking 196
15.1 What is benchmarking? 197
15.2 What can be benchmarked? 200
15.3 How is benchmarking carried through? 203

Part Three Process Management and Improvement 207

16 Leadership, policy deployment and quality motivation 209

16.1 Introduction 209
16.2 The PDCA Leadership Model—a model for policy deployment 209
16.3 Leadership and quality motivation 212
16.4 Conclusion 222
17 Implementation process 224
17.1 Introduction 224
17.2 Four stages of implementation 224
17.3 Plan 224
17.4 Do 227
17.5 Check 228
17.6 Act 232
18 Quality culture and learning 235
18.1 Introduction 235
18.2 The concept of culture 236
18.3 Organizational theory and corporate culture 237
18.4 Corporate culture 237
18.5 Classifying a culture 240
18.6 Corporate and quality culture 242
18.7 Working with quality culture 246
18.8 Quality culture, quality improvement and TQM 249
 18.9 Quality learning 253
18.10 Conclusion 257
19 Milliken Denmark A/S case studies: leadership, participation and
quality costing 260
19.1 Context, imperatives for change and objectives for quality
management 260
19.2 History of quality management 263
19.3 Measurement of quality costs (the results of quality management) 275
19.4 Conclusion 283
20 International Service System A/S case studies: the winning hand 286
20.1 Changing for the future—adhering to our core beliefs: preface by
Group Chief Executive Waldemar Schmidt 286
20.2 Context, imperatives for change and objectives for quality
management 288
20.3 History of quality management 291
20.4 Some results 311
20.5 Conclusion 315

Appendix A 317
Appendix B 318
Index 320
 Preface

The principles of TQM have proven very valuable to individuals, groups of people and
organizations and many organizations have now discovered a relationship between
quality and profitability. It has now become important for organizations to develop a
quality strategy by adopting the principles of TQM.
In the present changing environment of the business world, it is evident that education
will play a vital role in coping with the change process. There is now a real need to
incorporate the principles of TQM in any education and there is an even greater need
to educate specialists in this field and to propagate new ideas.
The purpose of this textbook is to provide a framework for the development of
understanding of some of the basic aspects of Total Quality Management. The aim is to
provide students with deeper knowledge of various principles and core concepts of Total
Quality Management. It will also help them to learn and appreciate the role of
measurement, quality strategy and quality systems, etc. in the development of the Total
Quality Management process.
This book will also provide the readers with a basic knowledge and understanding of
various aspects of the effective organizational process and quality improvement plans for
the development of the required change in the process of management. We believe that
with the help of this book students will be able to use the process specification and
analysis tools to create process-oriented organizations. They will also be able to
understand the need to change the management process and required motivation to create
a quality organization.
Finally this book is designed to help students towards an understanding of the problem-
solving process and the tools to overcome the difficulties created by process
development. It will also give them the know-how of various statistical methods which
can be applied to the control and improvement of processes.
This book is divided into three parts but interlinked to each other in order to provide
an integrated approach. The three parts of the book, i.e. Fundamentals of TQM, Methods
of TQM and Process Management and Improvement, are linked together in a tree
diagram to provide an overall understanding of the subject.

Jens J. Dahlgaard, Kai Kristensen (Aarhus) and

Gopal K. Kanji (Sheffield)
August, 1997
 PART ONE
Fundamentals of
Total Quality Management
 1
Introduction

It is hard to believe that the current approach to Japan’s quality improvement programme
has changed the balance of the present trade situation between Japan and the rest of the
world. It is evident that one of the most important aspects of Japanese quality
improvement is the Japanese approach to quality management. Japanese companies have
developed quality improvement (QI) in various stages, that is, from inspection after
production to new product development through the stages of process control. The
Japanese way of QI has been described by Ishikawa (1985), Sullivan (1986) and
Yoshizawa (1987) who have pointed out the importance of the seven stages of QI. Even
now, the value of effective QI has not been fully realized by many industries. In fact
some people still think that it is the role of a quality department. They do not realize that
QI is a way of life and the human aspect of it requires a great deal of education and
training at all levels.
Improving quality is very often regarded as an activity which is going to increase cost.
This view confuses the terms used in industry concerning quality and grade. Improving or
raising the grade of products relates to the use of more expensive materials or processes
to produce a product and will raise product costs. Improving quality means, among other
things, making less faulty products with the same amount of effort or cost which usually
gives a lower unit cost.
The cost of producing faulty products in the United Kingdom has been estimated as
10% of the gross national product: several thousand million pounds (Dale and Plunkett,
1991, p. 11). Improving quality aims to reduce this cost. This cannot be achieved
overnight but requires an investment to be made in activities which are designed to avoid
defective production, not activities designed to detect defects after they have been made.
The problem is knowing in what to invest (systems, technology, people) and it is this
which seems to have bewildered Western industrialists. The search for the key to quality
has been going on since the Japanese made us aware that we had missed something out
along the way. Various analyses of Japanese success have attempted to condense the
effect to one particular activity; hence fashions of ‘quality circles’ and ‘statistical process
control’. The latest analysis has developed the concept of Total Quality Management’,
which may well provide an answer to the problem. The keynote here is that the
achievement of quality should not be considered to be a separate activity from the
achievement of production.
Many large organizations are now trying to emulate that Japanese achievement in their
commitment to quality. Each is developing its own approach and may give a different
title to its efforts but each has similar elements to Total Quality Management’ (TQM).
The development of Total Quality Management in America started at the beginning
of the 1980s when American companies realized that not only Japan but also Korea
and Taiwan were coming forward with quality products and services to capture the
American market.
 Fundamentals of total quality management 4
In Europe even now, with some exceptions, it is not unfair to say that European
organizations lag behind those of Japan and the United States and it will be many years
before they catch up with them. For the development of TQM European organizations
looked for real explanations of the Japanese quality improvement in their quality culture
and consensus management. Further, like the Japanese, European industrialists also tried
to develop TQM from the teaching of American experts. In doing so, they realized that
for the proper implementation of TQM they must understand the quality culture of their
organizations and the country.
Kristensen, Dahlgaard and Kanji (1993) noted the importance of product quality to
various business parameters. In order to assess the importance of competitive parameters
for the company they investigated three different countries and the results are presented
in Table 1.1 below. The respondents were allowed to choose between the following
answers:
• irrelevant (1)
• unimportant (2)
• modestly important (3)
• rather important (4)
• very important (5)

It appears from the table that among manufacturing companies ‘product quality’ is
considered to be the most important competitive parameter in all three countries. At the
other end of the scale, we find that advertising is considered the least important parameter
in all countries. However, between these two extremes we have found that the market
price is ranked 5 in Taiwan and Korea and 4 in Japan. There is also reasonable consensus
about the importance of assortment, which is ranked 8 in Taiwan and 7 in Japan
and Korea.

Table 1.1 Evaluation of business parameters

Country
Taiwan Japan Korea
Business parameter Mean Rank Mean Rank Mean Rank
Market price 4.11 5 4.20 4 4.08 5
Product quality 4.72 1 4.88 1 4.56 1
Delivery 3.98 7 4.48 2 4.32 3
Advertising 3.00 9 3.20 9 2.89 9
Service before sale 4.02 6 3.56 8 3.27 8
Service after sale 4.49 4 4.20 4 4.00 6
Assortment 3.94 8 3.68 7 3.73 7
Warranty 4.68 2 3.80 6 4.38 2
Handling of complaints 4.55 3 4.48 2 4.21 4
 Introduction 5
Regarding delivery and warranty, opinions differ considerably among the three countries.
For example, in Japan and Korea, delivery is considered very important with a rank of 2
and 3 respectively, whereas it plays a modest role in Taiwan. Since we were expecting
delivery to be a very important parameter we were a bit surprised about the Taiwanese
result. One explanation for this could be that the companies in Taiwan produce less goods
to order than the companies in Japan and Korea.
The difference concerning the importance of warranty is much easier to explain. When
the perception of quality is high, as is the case for Japanese products, warranty is not an
important business parameter. On the other hand, when the quality level is unknown or is
considered to be less than world class, as is the case for the newly industrialized countries
of Taiwan and Korea, warranty becomes a very important selling point.
The authors’ recent QED studies (Dahlgaard, Kanji and Kristensen, 1992) regarding
the importance of product quality to various business parameters for nine countries can
be seen in Figure 1.1. The result indicates the differences between the various countries
with respect to quality and four business parameters.
It is evident that in this competitive world, organizations and countries as a whole
must achieve recognition from consumers about their top quality activities at all times in
order to conduct business successfully. According to a worldwide Gallup poll of 20 000
people conducted recently by Bozell Worldwide of America (Figure 1.2), world
consumers believe the best quality goods are made by Japan.

Fig. 1.1 Quality versus other business

parameters. 1= irrevelant; 5 = very important.
 Fundamentals of total quality management 6

Fig. 1.2 Quality league. (Source: Bozell

Gallup poll.)

REFERENCES

Dahlgaard, J.J., Kanji, G.K. and Kristensen, K. (1992) Quality and economic development project.
Total Quality Management, 3(1), 115–18.
Dale, B.G. and Plunkett, J.J. (1991) Quality Costing, Chapman & Hall, London.
Ishikawa, K. (1985) What is Total Quality Control?—The Japanese Way, Prentice Hall, Englewood
Cliffs, USA.
Kristensen, K., Dahlgaard, J.J. and Kanji, G.K. (1993) Quality motivation in East Asian countries.
Total Quality Management, 4(1), 79–89.
Sullivan, L.P. (1986) The seven stages in company-wide quality control. Quality Progress,
19, 77–83.
Yoshizawa, T. (1987) Exploratory Data Analysis in the Development Stage of New Products.
Proceedings of the 46th session of the ISI invited papers, 5.3, 1–11.
 2
Historical evolution of Total Quality
Management

The historical evolution of Total Quality Management has taken place in four stages.
They can be categorized as follows:
1. quality inspection
2. quality control
3. quality assurance
4. Total Quality Management.
Quality has been evident in human activities for as long as we can remember. However
the first stage of this development can be seen in the 1910s when the Ford Motor
Company’s ‘T’ Model car rolled off the production line. The company started to employ
teams of inspectors to compare or test the product with the project standard. This was
applied at all stages covering the production process and delivery, etc. The purpose of the
inspection was that the poor quality product found by the inspectors would be separated
from the acceptable quality product and then would be scrapped, reworked or sold as
lower quality.
With further industrial advancement came the second stage of TQM development and
quality was controlled through supervised skills, written specification, measurement and
standardization. During the Second World War, manufacturing systems became complex
and the quality began to be verified by inspections rather than the workers themselves.
Statistical quality control by inspection—the post-production effort to separate the good
product from the bad product—was then developed. The development of control charts
and accepting sampling methods by Shewhart and Dodge-Roming during the period
1924–1931 helped this era to prosper further from the previous inspection era. At this
stage Shewhart introduced the idea that quality control can help to distinguish and
separate two types of process variation; firstly the variation resulting from random causes
and secondly the variation resulting from assignable or special causes. He also suggested
that a process can be made to function predictably by separating the variation due to
special causes. Further, he designed a control chart for monitoring such process variation
in order to decide when to interact with the process.
The main processes which help products and services to meet customers’ needs are
inspection and quality control which require greater process control and lower evidence
of non-conformance.
The third stage of this development, i.e. quality assurance contains all the previous
stages in order to provide sufficient confidence that a product or service will satisfy
customers’ needs. Other activities such as comprehensive quality manuals, use of cost of
quality, development of process control and auditing of quality systems are also
developed in order to progress from quality control to the quality assurance era of Total
 Fundamentals of total quality management 8
Quality Management. At this stage there was also an emphasis of change from detection
activities towards prevention of bad quality.
The fourth level, i.e. Total Quality Management involves the understanding and
implementation of quality management principles and concepts in every aspect of
business activities. Total Quality Management demands that the principles of quality
management must be applied at every level, every stage and in every department of the
organization. The idea of Total Quality Management philosophy must also be enriched
by the application of sophisticated quality management techniques. The process of
quality management would also be beyond the inner organization in order to develop
close collaboration with suppliers. Various characteristics of the different stages in the
development of Total Quality Management can be seen in Table 2.1. Here QI, QC, QA
and TQM are abbreviations of Quality Inspection, Quality Control, Quality Assurance
and Total Quality Management.
The development of total quality management from 1950 onwards can be credited to
the works of various American experts. Among them, Dr Edward Deming, Dr Joseph
Juran and Philip Crosby have contributed significantly towards the continuous
development of the subject.
According to Deming (1982), organization problems lie within the management
process and statistical methods can be used to trace the source of the problem. In order to
help the managers to improve the quality of their organizations he has offered them the
following 14 management points.
1. Constancy of purpose: create constancy of purpose for continual improvement of
product and service.
2. The new philosophy: adopt the new philosophy. We are in a new economic age,
created in Japan.
3. Cease dependence on inspection: eliminate the need for mass inspection as a way to
achieve quality.
4. End ‘lowest tender’ contracts: end the practice of awarding business solely on the basis
of price tag.
5. Improve every process: improve constantly and forever every process for planning,
production and service.
6. Institute training on the job: institute modern methods of training on the job.

Table 2.1 Characteristics of the different stages

in TQM
Stage Characteristics
Ql (1910) Salvage Sorting Corrective action Identify sources of non-conformance
QC (1924) Quality manual Performance data Self-inspection Product testing Quality planning
Use of statistics Paperwork control
QA (1950) Third-party approvals Systems audits Quality planning Quality manuals Quality costs
Process control Failure mode and effect analysis Non-production operation
TQM (1980) Focused vision Continuous improvements Internal customer Performance measure
Prevention Company-wide application Interdepartmental barriers Management
leadership
 Historical evolution of total quality management 9

7. Institute leadership: adopt and institute leadership aimed at helping people and
machines to do a better job.
8. Drive out fear: encourage effective two-way communication and other means to drive
out fear throughout the organization.
9. Break down barriers: break down barriers between department and staff areas.
10. Eliminate exhortations: eliminate the use of slogans, posters and exhortations.
11. Eliminate targets: eliminate work standards that prescribe numerical quotas for the
workforce and numerical goals for people in management.
12. Permit pride of workmanship: remove the barriers that rob hourly workers, and
people in management, of the right to pride of workmanship.
13. Encourage education: institute a vigorous programme of education and encourage
self-improvement for everyone.
14. Top management commitment: clearly define top management’s permanent
commitment to ever-improving quality and productivity.
At the same time Dr Joseph Juran (1980) through his teaching was stressing the
customer’s point of view of products’ fitness for use or purpose. According to him a
product could easily meet all the specifications and still may not be fit for use or purpose.
Juran advocated 10 steps for quality improvements as follows:
1. Build awareness of the need and opportunity for improvement.
2. Set goals for improvement.
3. Organize to reach the goals (establish a quality council, identify problems, select
projects, appoint teams, designate facilitators).
4. Provide training.
5. Carry out projects to solve problems.
6. Report progress.
7. Give recognition.
8. Communicate results.
9. Keep score
10. Maintain momentum by making annual improvement part of the regular systems and
processes of the company.
Both Deming and Juran were in favour of using statistical process control for the
understanding of total quality management.
However, Crosby (1982) on the other hand was not keen to accept quality which is
related to statistical methods. According to him quality is conformance to requirement
and can only be measured by the cost of non-conformance. Crosby provides four
absolutes and the 14 steps for the quality improvement process. His four absolutes are:
1. Definition of quality—conformance to requirements.
2. Quality system—prevention.
3. Quality standard—zero defects.
4. Measurement of quality—price of non-conformance.
His 14 steps for quality improvement can be described as follows:
1. Management commitment: to make it clear where management stands on quality.
2. Quality improvement team: to run the quality improvement process.
 Fundamentals of total quality management 10

3. Measurement: to provide a display of current and potential non-conformance problems

in a manner thet permits objective.
4. Cost of quality: to define the ingredients of the cost of quality (COQ) and explain its
use as a management tool.
5. Quality awareness: to provide a method of raising the personal concern felt by all
employees toward the conformance of the product or service and the quality reputation
of the company.
6. Corrective action: to provide a systematic method for resolving forever the problems
that are identified through the previous action steps.
7. Zero defects: to examine the various activities that must be conducted in preparation
for formally launching zero-defects day.
8. Employee education: to define the type of training all employees need in order actively
to carry out their role in the quality improvement process.
9. Planning and zero-defects day: to create an event that will let all employees realize,
through a personal experience, that there has been a change.
10. Goal setting: to turn pledges and commitments into action by encouraging individuals
to establish improvement goals for themselves and their groups.
11. Error-cause removal: to give the individual employee a method of communicating to
management the situations that make it difficult for the employee to meet the pledge to
improve.
12. Recognition: to appreciate those who participate.
13. Quality councils: to bring together the appropriate people to share quality
management information on a regular basis.
14. Do it all over again: to emphasize that the quality improvement process is continuous.
In this section we have only indicated a few detailed contributions to the historical
evaluation of TQM. Many other people also (e.g. Ishikawa, Feigenbaum) have
contributed and it is not our intention to present all the details of that development in this
section.

REFERENCES

Crosby, P.B. (1982) Quality is Free, The New American Library Inc., New York, USA.
Deming, W.E. (1982) Quality, Productivity and Competitive Position, MIT, USA.
Juran, J.M. and Gryna, F.M. (1980) Quality Planning and Analysis—From Product Development
through Use, McGraw-Hill, New York, USA.
Shewhart, W.A. (1931) Economic Control of Quality and Manufactured Products, D. van Nostrand
& Co., Inc., New York, USA.
 3
Some definitions of quality

Quality is an important issue in the modern competitive business world. Like the ‘theory
of relativity’ quality is sometimes expressed as a relative concept and can be different
things to different people (e.g. a Rolls Royce car is a quality car for certain customers
whereas a VW Beatle can be a quality car for other customers).
Sometimes people visualize quality in absolute terms and for them it can be compared
with beauty and sweetness. According to them it can be compared with certain absolute
characteristics and the product and services must achieve a pre-set standard in order to
obtain a quality rating.
Hence, one can find a variety of definitions of quality For example, Garvin (1984,
1988) has given reasons why quality should have different meanings in different
contexts. He suggested the following five co-existing definitions:
1. transcendent (excellence);
2. product-based (amount of desirable attribute);
3. user-based (fitness for use);
4. manufacturing-based (conformance to specification);
5. value-based (satisfaction relative to price).
According to Garvin it is necessary to change the approach from user-based to product-
based as products move through market research to design and then from product-based
to manufacturing-based as they go from design into manufacture. Hence the definition of
quality will change in each approach and can coexist. He also suggested that the
definition of quality will also change from industry to industry.
According to some authors, the definition ‘quality is the capacity of a commodity or
service to satisfy human wants’ and the human ‘wants’ are complex and may not always
be satisfied in a particular way. Users of products make a personal assessment of quality.
Each case will be influenced by how well numerous aspects of performance are able to
provide satisfaction of multiple wants and further distinguished by the subjective
importance attached by the individual.
In recent years, like Garvin, Harvey and Green (1993) have suggested five discrete
and interrelated definitions of quality. They are:
1. exceptional
2. perfection
3. fitness for purpose
4. value for money
5. transformative.
Further explanation of the above quality grouping can be seen as follows.
 Fundamentals of total quality management 12
3.1 EXCEPTIONAL

There are three variations of this ‘exceptional’ concept. These are:

1. traditional
2. excellence
3. standards.

TRADITIONAL
This can be expressed as the distinctiveness, something special or high class. It confers
status on the owner or users and implies exclusivity. This definition of quality promotes
the elitist’s view of the high quality.

EXCELLENCE
There are two schools of thought about this definition of quality. First of all it relates to
high standards and secondly it describes the ‘zero defects’. Here, ‘excellence’ is similar
to the ‘traditional’ definition and identifies the component of excellence which is also
unattainable. It is also an elitist concept and sees quality to be only attainable in limited
circumstances. The best is required in order to achieve excellence.

STANDARDS
A quality idea in this case is one that has passed a set of quality checks, where the checks
are based on certain criteria in order to eliminate defective items. Here quality is
measured by the items which fulfil the minimum standards prescribed by the producer
and can be described as ‘conformance to standards’.

3.2 PERFECTION OR CONSISTENCY

Perfection definition concentrates on process and with the help of proper specification it
transforms the ‘traditional’ idea of quality into something which can be achieved by
everybody. It can also be redefined in terms of conformance to specification rather than
high standards. However, one must realize that there is a difference between quality and
standard because quality here simply conforms to a certain specification and the
specification in general cannot be expressed as a standard. Under this definition,
conformance to specification takes the role of achieving benchmark standard. Here the
complete perfection means making sure that everything is perfect and there are no
defects. Furthermore, no defects or zero defects demands that the perfection of product or
services is delivered consistently. Therefore the idea of reliability in terms of
‘exceptional’ becomes the perfection view of quality.
Here, quality is one which conforms exactly to specification and whose output is free
of defects at all times. Further, perfection here is not only the conformance to
specification, it also acts as a philosophy of prevention. The idea is to make sure that a
fault does not occur in the various stages of the process that is helping to create a quality
culture.
 Some definitions of quality 13
For an organization, a quality culture is one in which everybody is responsible for
quality improvement. With the help of this quality culture each organization develops a
system of interrelated ‘teams’ which provide inputs and outputs. Hence the team plays a
dual role (i.e. a customer and a supplier) and takes the responsibility of ensuring that
its output matches the required input. So the idea of perfection as a definition of quality
suggests that it has a philosophy of prevention which is an essential part of
quality culture. Here the definition of quality focuses on everybody’s involvements in
quality improvement for achieving quality goals at each stage of the process.

3.3 FITNESS FOR PURPOSE

This definition focuses on the relationship between the purpose of the product or services
and its quality. It examines each in terms of the product or services in order to compare
whether it fits its purpose. This definition is a functional one and is different from the
earlier ‘exceptional’ definition
Here, fitness of purpose is used in order to propagate and measure the perfection. If it
does not fit its purpose then this definition of quality may run a risk of being totally
useless. Although it is a simple idea, nevertheless, it raises some questions such as whose
purpose and how is the fitness assessed?

3.4 VALUE FOR MONEY

Under this definition quality is described as the price you can afford to pay for your
requirements at a reasonable cost, which means quality is compared with the level of
specification and is directly related to cost. However, it ignores the effect of
competitiveness which is based on the assumptions of quality improvement.
Here quality is equated with value for money and is assessed against such criteria as
standards and reliability. The value for money definition therefore suggests the idea of
accountability (e.g. public services are accountable to the Government). In general,
market forces and competition help to develop the links between the value for money
and quality.

3.5 TRANSFORMATIVE

Harvey and Green suggested the transformative view of quality as follows:

The transformative view of quality is rooted in the notion of ‘qualitative

change’, a fundamental change of form. Ice is transformed into water and
eventually steam if it experiences an increase of temperature. Whilst the
increase in temperature can be measured the transformation involves a
qualitative change.
 Fundamentals of total quality management 14
Ice has different qualities to that of steam or water. Transformation is not restricted to
apparent or physical transformation but also includes cognitive transcendence. This
transformative notion of quality is well established in Western philosophy and can be
found in the discussion of dialectical transforms in the works of Aristotle, Kant, Hegel
and Marx. It is also at the heart of transcendental philosophies around the world, such as
Buddhism and Jainism. More recently it has been entertainingly explored in Pirsig’s
(1976) Zen and the Art of Motorcycle Maintenance. This notion of quality such as
transformative raises issues about the relevance of a product-centred notion of quality
such as fitness for purpose.
The measurement of value added, for example of input and output qualifications,
provides a quantifiable indicator of ‘added value’ but conceals the nature of the
qualitative transformation. Arguing against a fitness for purpose approach Müller and
Funnell (1992) suggested that quality should be explored in terms of a wide range of
factors leading to a notion of ‘Value Addedness’.
The second element of transformative quality is empowerment (Harvey and Barrows,
1992). This involves giving power to participants to influence their own transformation.
This is much more than the accountability to the consumer which is found in customer
charters. Consumerist charters essentially keep producers and providers on their toes, but
rarely affect the decision-making process or policy. The control remains with the
producer or provider. Empowering the employee in order to capitalize on their
knowledge and skill is a well established strategy in the business world (Stratton, 1988).

3.6 Conclusion

Quality has different meanings for different people (Ishikawa (1976), Taguchi (1986),
Deming (1982), Kano (1984), Scherkenback (1988), Juran and Gryna (1980)). It is a
philosophy with dimensions and can be summed up as ‘doing things properly’ for
competitiveness and profitability.
It is a holistic concept and includes two different ideas of quality, i.e. quality as
‘consistency’ and quality as ‘fitness for purpose’. The above two ideas are brought
together to create quality as perfection within the context of quality culture.
Quality philosophy reflects various perspectives of individuals, groups of people and
society. In a modern business world people are allowed to hold various views regarding
quality which of course can change with time and situations. Many people, instead of
getting involved with different definitions of quality, have developed some underlying
principles and concepts of Total Quality Management.
In general we will follow the definition of TQM by Kanji (1990). According to him
‘TQM is the way of life of an organization committed to customer satisfaction through
continuous improvement. This way of life varies from organization to organization and
from one country to another but has certain essential principles which can be
implemented to secure greater market share, increase profits and reduce cost’.
We will be discussing principles, concepts and definitions of Total Quality
Management in the next chapter.
 Some definitions of quality 15
REFERENCES

Deming, W.E. (1982) Quality, Productivity and Competitive Position, MIT, USA.
Garvin, D.A. (1984, 1988) Managing Quality Edge, Free Press, New York, USA.
Harvey, L. and Barrows, A. (1992) Empowering students. New Academic, 1(3), 1–4.
Harvey, L. and Green, D. (1993) Defining quality. Assessment and Evaluation in Higher
Education, 18(1), 9–34.
Ishikawa, K. (1976) Guide to Quality Control, Asian Productivity Organization, Tokyo, Japan.
Juran, J.M. and Gryna, F.M. (1980) Quality Planning and Analysis—From Product Development
through Use, McGraw-Hill, New York, USA.
Kano, N. (1984) Attractive quality and must be quality. Quality, 14(2).
Müller, D. and Funnel!, P. (1992) Exploring Learners’ Perception of Quality. Paper presented at
the AETT Conference on Quality in Education, April 6–8, 1992, University of York.
Pirsig, R.M. (1976) Zen and the Art of Motor Cycle Maintenance, Copenhagen, Denmark.
Scherkenback, W.W. (1988) The Deming Route to Quality and Productivity, CEE Press Books
Washington, DC, USA.
Stratton, A.D. (1988) An Approach to Quality Improvement that Works with an Emphasis on the
White-collar Area, American Society for Quality Control, Milwaukee, USA.
Taguchi, G. (1986) Introduction to Quality Engineering, American Supplier Institute, Dearborn,
Michigan, USA.
 4
Philosophy, priniciples and concepts
of TQM

TQM is a vision which the firm can only achieve through long-term planning, by drawing
up and implementing annual quality plans which gradually lead the firm towards the
fulfilment of the vision, i.e. to the point where the following definition of TQM becomes
a reality:

A corporate culture characterized by increased customer satisfaction

through continuous improvements, in which all employees in the firm
actively participate.

Quality is a part of this definition in that TQM can be said to be the culmination of a
hierarchy of quality definitions:
1. Quality—is to continuously satisfy customers’ expectations.
2. Total quality—is to achieve quality at low cost.
3. Total Quality Management—is to achieve total quality through everybody’s
participation.
TQM is no inconsequential vision. At a time when most domestic and overseas markets
are characterized by ‘cutthroat competition’, more and more firms are coming to realize
that TQM is necessary just to survive. Today, consumers can pick and choose between a
mass of competing products—and they do. Consumers choose the products that give the
‘highest value for money’, i.e. those products and services which give the highest degree
of customer satisfaction in relation to price.
A verse from the Book of Proverbs reads: ‘A people without visions will perish.’
Likewise, firms without visions will also perish, or, as Professor Yoshio Kondo, of Kyoto
University, Japan, put it at one of his visiting lectures at the Århus School of Business in
Spring, 1992: Companies without CWQC will sooner or later disappear from the
telephone directory.
The concept of company-wide quality control (CWQC) has been described in more
detail in Dahlgaard, Kristensen and Kanji (1994), from which the following quote has
been taken:

The concept of TQM is a logical development of Total Quality Control

(TQC), a concept first introduced by A.V. Feigenbaum in 1960 in a book
of the same name. Though Feigenbaum had other things in mind with
TQC, it only really caught on in engineering circles, and thus never
achieved the total acceptance in western companies intended. TQC was a
 Philosophy, principles and concepts of TQM 17
‘hit’ in Japan, on the other hand, where the first quality circles were set up
in 1962, and which later developed into what the Japanese themselves call
CWQC, Company-Wide Quality Control. This is identical with what we
in the West today call TQM.

In his book Total Quality Control, Feigenbaum (1960) states that TQC is an effective
system for integrating the various initiatives in the field of quality to enable production
and services to be carried out as cheaply as possible consistent with customer satisfaction.
This definition contains the very root of the problem. The reason why TQC was not a
success in Western forms is especially due to the fact that Western management was
misled by Feigenbaum’s reference to an effective system into thinking that TQC could be
left to a central quality department. As a result, management failed to realize that an
essential ingredient of TQC is management’s unequivocal commitment to quality
improvements. Effective systems are a necessary but by no means sufficient condition
for TQC.
The aim of the new concept of TQM is, by deliberately including management in the
concept’s definition, to ensure that history does not repeat itself. It makes it impossible
for management to disclaim its responsibility and sends a clear message through the
‘corridors of power’ that this is a task for top management and thus also for the board of
directors.
There is more to it than just substituting an M for a C, of course. Visions and
definitions have to be operationalized before they can be applied in everyday life. We
attempt to do this below through the construction of the so-called TQM pyramid.

4.1 THE FOUNDATION AND THE FOUR SIDES OF THE TQM

PYRAMID

The Quality Journey’ firmly believes in tearing down outdated management pyramids,
arguing instead for the need to build a whole new management pyramid—one which can
live up to the vision and challenges inherent in the definition of TQM. An apt name for
this pyramid would be the TQM pyramid (Figure 4.1).
As can be seen from Figure 4.1, the TQM pyramid (an adaptation of the Kanji and
Asher pyramid model) is a proper pyramid, with a foundation and four sides.
TQM is characterized by five principles:
1. management’s commitment (leadership);
2. focus on the customer and the employee;
3. focus on facts;
4. continuous improvements (KAIZEN);
5. everybody’s participation.

These five principles will be discussed in greater detail below.

 Fundamentals of total quality management 18

Fig. 4.1 The TQM pyramid.

4.1.1 MANAGEMENT’S COMMITMENT (LEADERSHIP)

As mentioned earlier, TQM is the West’s answer to Japan’s companywide quality control
(CWQC). TQM’s forerunner, TQC, had never been seen as anything other than the
special responsibility of the quality department. Management at all levels and in all
departments just could not see that ‘total quality’ can only be achieved with the active
participation of management.
A vital task for any management is to outline quality goals, quality policies and quality
plans in accordance with the four sides of the TQM pyramid. This is extremely
important—so important in fact that, in many firms, top management (the board of
directors) ought to review the firm’s quality goals and policies and if necessary
reformulate them so that they conform to the four sides of the TQM pyramid. Just as
important, these goals and policies should be clear and meaningful to all employees in the
firm. It is extremely important, for example, that the firm’s quality goals signal to
employees that the firm’s principal task is to satisfy its external customers and that this
can only be achieved if the firm is able to exceed customers’ expectations. This is
discussed in greater depth below.
The firm’s quality goals give all employees a clear indication of what is going to be
achieved concerning quality. The firm’s quality policies, on the other hand, describe in
more detail how employees are to achieve that goal. The firm’s quality policies must also
conform to the four sides of the TQM pyramid. One example of how a firm (ISS) had
formulated its quality goals and quality policies can be found in section 2.3.
 Philosophy, principles and concepts of TQM 19
Quality goals and quality policies must be followed by meaningful action plans.
Experience from firms which have understood and realized the TQM vision shows that
firms ought to concentrate on short-term plans (one-year plans) and long-term plans, the
latter often being three-year plans which are revised annually in connection with an
annual quality audit.
The annual quality audit is an essential part of the TQM vision and is much too
important to be left to a central quality department. Only through active participation in
the quality audit can top management acquire the necessary insight into the problems the
firm has had in realizing the quality plan. The annual quality audit gives top management
the opportunity to put a number of important questions to departmental managers. Apart
from the usual questions about quality problems and defects, they should include the
following four questions:
1. How have ‘customers’ been identified (both internal and external customers)?
2. How have customers’ requirements and expectations been identified?
3. How have managers and employees tried to satisfy customers?
4. What do customers think of our products and services and how has this information
been collected?
These questions allow top management to check whether employees are in fact seriously
trying to fulfil the firm’s quality goals. By actively participating in the annual quality
audit, top management shows that it has understood the TQM message, which is an
essential condition for making and realizing new, meaningful quality plans. Such active
participation by top management also makes its commitment highly visible, which will
have an extremely important effect throughout the organization when new action plans
are drawn up—among other things, employees will be reminded that the customer, not
the product, is top priority.

Fig. 4.2 Top management participation in

quality audit, (a) West developed;
(b) East developed. (Source: The QED
Research Project.)
 Fundamentals of total quality management 20
Unfortunately, as Figure 4.2 shows, top Western managers of especially bigger
companies do not seem to have understood the necessity of participating in the annual
quality audit as well as many of their international competitors. Today it is widely
recognized that ‘the art of TQM' when we talk about leadership is an attempt to bring the
qualities of the small company into the large company. Figure 4.2 gives empirical
evidence that this is exactly what has been understood in the East contrary to what we
observe in the West. The bigger the company in the West the smaller the participation in
the vital quality audit. On the other hand even if the Eastern companies are very large
they have succeeded in creating a quality culture which resembles that of smaller
companies.
In the run-up to the action plan, management must answer the following questions:
1. Where are we now? (the present situation).
2. Where do we want to be? (vision).
3. How do we get there? (action plans).
To do this requires knowledge of a number of management methods that have been
specially developed within the field of quality. The question ‘where are we now’ is
answered increasingly by means of self-assessment, based on the criteria of
internationally-recognized quality awards. At present, there are four such awards:
1. The Deming Prize, founded in Japan in 1951.
2. The Malcolm Baldridge Quality Award, founded in the USA in 1988.
3. The European Quality Award, founded in 1992.
4. The Australian Quality Award, founded in 1988.
The American quality award in particular has been a great success in connection with
self-evaluation, with several thousand firms sending off for information on self-
evaluation every year (e.g. more than 250 000 in 1991). We hope that similar success
awaits the European Quality Award (founded in 1992) and that the criteria of the award
will, as in Japan and the USA, be used as a management tool in identifying ‘opportunities
for improvement’. See section 4.3 for further details on the European Quality Award.
Questions 2 and 3—‘where do we want to be’ and ‘how do we get there’—can be
answered by means of the benchmarking method. Bench-marking can be defined as a
continuous process, the purpose of which is to measure services, products and procedures
against the toughest competitors or leading procedures in a given market, the idea being
to procure the information necessary for a firm to become the best of the best (Chapter
15).
The basic philosophy behind benchmarking can be traced back to the Chinese
philosopher Sun Tzu (500 BC) and the Japanese art of warfare and can be summarized in
the following points:
Ɣ know your own strengths and weaknesses;
Ɣ know your competitors (opponents) and the best in the field;
Ɣ learn from the best;
Ɣ achieve leadership.
 Philosophy, principles and concepts of TQM 21
It is important to realize that benchmarking is not just a question of comparing yourself
with your competitors. Basically, there are four main types of benchmarking that can be
used: internal benchmarking, competitor-based benchmarking, functional benchmarking
and generic benchmarking.
Internal benchmarking means comparing yourself with departments and divisions in
the same organization. This is normally the simplest form of benchmarking because data
will always be available for the comparison. The most difficult form of benchmarking
will normally be competitor-based benchmarking, where the firm compares itself with
its direct competitors. In this case, data can be difficult to come by and must often be
acquired by indirect means. This is not a problem in functional or generic benchmarking.
Functional benchmarking is based on the functions which the firm concerned is
especially noted for, the idea being that the firm compares itself with the leading firm in
these functions (e.g. the use of robots, automization of the assembly lines, etc.). These
firms can be direct competitors of the company concerned but will often not be. Finally,
generic benchmarking includes procedures which are common on all types of
companies, such as order-taking, the payment of wages, word processing and the like.
Benchmarking is a useful management tool in that the gap it reveals between internal
and external practice in itself creates the need for change. In addition, an understanding
of the ‘best practice’ has the virtue of identifying areas in need of change and gives an
idea of what the department or company will look like after the change.
There is widespread consensus today that it is possible to produce goods and services
with higher quality at lower costs. The best evidence for this has been collected in the
book The Machine that Changed the World (Womack, Jones and Roos, 1990), which
compares car assembly plants from all over the world. Benchmarking is a natural
consequence of the results presented in this book.
The decision to use benchmarking is, of course, solely a management decision. The
same is true of the decision to allow the firm to be assessed through comparison with the
criteria for internationally-recognized quality prizes. Such evaluations can be acutely
embarrassing for a company, since some of the criteria involve the evaluation of
management’s commitment—or lack of it. Fear of what such evaluations might reveal
could therefore mean that the method is not used in the first place. It is thus crucial to
point out from the start that the purpose of such evaluations is not to find sufficient
grounds to fire a weak management but only to identify weak areas in the company. Such
comparisons are, of course, only relevant to the extent that the company’s owners and top
management want to change its quality culture. The decision to change is entirely
voluntary but if the TQM vision is to be realized, management’s commitment is not. The
realization of TQM requires both a profound knowledge of TQM and the active
participation of top management.
This brings us to a very crucial point—it is easy enough to say that TQM requires
management’s commitment but it is much harder to explain how management should
tackle the further implementation of TQM. This is essential.
Deming (1982) has formulated what management ought to do in his renowned
14 points (Dahlgaard, Kristensen and Kanji, 1994) and in point 14 presents seven points
for implementing TQM which are often overseen. In shortened form, these seven
points are:
 Fundamentals of total quality management 22

1. Management must agree about goals, conditions and obstacles to the introduction
of TQM.
2. Management must have the courage to break with tradition.
3. In building up a new ‘quality organization’, management must appoint a manager for
quality improvements who has direct access to top management.
4. Management must, as quickly as possible, build up an organization to advise on the
carrying out of continuous improvements throughout the firm.
5. Management must explain to employees why changes are necessary and that they will
involve everybody in the company.
6. Management must explain that every activity and every job has its own customers and
suppliers.
7. Management must ensure that every employee in the company participates actively in
a team (work team, quality circle).
The above points implicitly include all four sides of the TQM pyramid to which we now
turn in the following sections.

4.2 FOCUS ON THE CUSTOMER AND THE EMPLOYEE

Focusing on the customer and the customer’s requirements and expectations is neither
new nor revolutionary. This is precisely what the Service Management movement of the
1980s was about. The new message in TQM is:
1. In addition to focusing on external customers and their expectations and demands, it is
necessary to focus on so-called internal customer and supplier relations.
2. To create customer satisfaction, it is not enough just to live up to the customer’s
expectations.
These points require some elaboration.
The first point is meant to show that employees are part of the firm’s processes and
that improving quality at lower and lower costs can only be achieved if a company has
good, committed and satisfied employees. Before you can satisfy external customers,
however, you must first eliminate some of the obstacles to the internal customers (i.e. the
employees) and create the conditions necessary for them to produce and deliver quality.
One such obstacle that must be eliminated in an organization is fear, while an example of
the latter is education and training. Deming’s 14 points contain the most important
obstacles to eliminate and conditions to institute in order to improve quality at lower and
lower costs.
At the same time, improvements ought to be process-oriented. A firm can be defined
as a series of connected processes, of which employees are a part, so any management
interested in quality must start by looking at the firm’s processes. This is one of the
reasons why the foundation of the TQM pyramid is called ‘management’s commitment’.
The processes are established and function ‘on the shop floor’. Quality improvements can
only be achieved where things happen, which the Japanese express as ‘Genba to QC’,
which means ‘improve quality where things happen’.
 Philosophy, principles and concepts of TQM 23
In order to produce and deliver quality, employees need to know what both internal
and external customers want/expect of them. Only when employees have this information
will they be able to start improving the processes which is a first step towards becoming a
‘TQM firm’.
The second point is attributed to Professor Noriaki Kano of Tokyo Science University,
whose expanded concept of quality, formulated in 1984, contains the following five types
of quality:
1. Expected quality, or must-be quality.
2. Proportional quality.
3. Value-added quality (‘exciting/charming quality’).
4. Indifferent quality.
5. Reverse quality.
In order to deliver the expected quality, firms have to know what the customers expect.
When/if firms have this knowledge, they must then try to live up these expectations—this
is so obvious that the Japanese also call this type of quality ‘must-be quality’.
For many customers it is not enough, however, just to live up to their expectations.
This in itself does not create satisfaction, it ‘only’ removes dissatisfactions. Creating
satisfaction demands more. This ‘more’ is what Kano calls ‘exciting quality’. We have
chosen to call it ‘value-added’ quality because this describes more directly that the
producer has added one or more qualities to the product or service in addition to those the
customer expects and that these extra qualities give the customer extra value. These extra
qualities will, so to speak, surprise the customer and make him/her happy, satisfied, or
excited with the product. This is why Kano calls it ‘exciting quality’. A closer study of
the Japanese language reveals another name for this type of quality, however, namely
‘charming quality’, which is actually quite a good name for it.
Many firms seem to have had a great deal of difficulty in understanding and thus also
accepting the relevance of ‘value-added’ quality. We will therefore try to explain this and
the other types of quality with the help of an example which most of us are familiar
with—hotel service.
Most people have a clear idea of the kind of service they expect at a hotel. Among
other things, we expect the room to be clean and tidy when we arrive, we expect it to be
cleaned every day and we expect there to be hot water in the taps, shower etc. We do not
react much if these expectations are fulfilled—it is no more than we expected. We would
not start singing the praises of a hotel that only lived up to these expectations. If, on the
other hand, our expectations are not fulfilled, we immediately become dissatisfied and
will often tell our friends and acquaintances about it. This is yet another explanation for
the term ‘must-be quality’. In order to survive, firms have to at least live up to customers’
expectations.
When it comes to ‘value-added qualities’ in the hotel business, however, things may
look complicated. Value-added qualities can be many things, limited only by our
creativity and imagination. The main thing is to think about the customer’s requirements
and not one’s own product.
 Fundamentals of total quality management 24
Examples of typical value-added qualities are personal welcome cards in the hotel
room, the morning paper every day, fruit, chocolates etc. although these do tend to be
taken for granted these days. Another example is that the hotel provides a service which
has nothing to do with the hotel’s main business of providing accommodation, e.g.
advising about traffic conditions, entertainment requirements (e.g. always being able to
get hold of theatre tickets) and the creation of a home-like atmosphere (e.g. the possibility
to cook your own meals). In most cases, ‘value-added quality’ has an enormous effect on
customer satisfaction, while costs are often minimal. It is therefore foolish not to try to
give the customer more than he/she expects. At the same time, however, one must
remember that ‘value-added quality’ is not a static concept—after a while, ‘value-added
qualities’ become expected qualities. Customers always expect more and only those firms
which understand this dynamism will survive in the longer term.
‘Proportional quality’ or ‘one-dimensional quality’ is more straightforward. If the
product or service—or an attribute of a product or service - lives up to some agreed
physical condition then satisfaction for some people will be the result and if not,
dissatisfaction will become the consequence. Taking the hotel business once again, the
variety of the breakfast may be an example of proportional quality. It should be noticed,
however, that what is proportional quality to one customer may be regarded as expected
or value-added quality by another customer.
Previously this ‘one-dimensional quality view’ was the most dominating and this is
the reason why quality management was also more simple than it is today. Today the
customers are more complicated and this is one of the reasons why quality and TQM
have become so important.
The last two types of quality—‘indifferent quality’ and ‘reverse quality’—are also
straightforward and easy to understand in theory. As both types of quality may be
important to identify in practice we will discuss them below.
Any product or service consists of a large number of quality attributes and some of the
customers will always be indifferent if a specific attribute is or is not inherent in the
product. This is the characteristic of ‘indifferent quality’.
For some specific quality attributes we sometimes experience that customers become
dissatisfied if the attribute is inherent in the product/ service and the customers become
satisfied if it is not. It is seen that these attributes have a reverse effect on customer
satisfaction. This is the reason why Kano calls this type of ‘quality’ attribute ‘reverse
quality’.
Walt Disney Corporation is one of the firms to have incorporated some of the new
concepts of quality in its definition of ‘quality service’ (Dahlgaard, Kristensen and Kanji,
1994, p. 5): ‘Attention to detail and exceeding our guests’ expectations’.
Disney gives the following explanation of the importance of this definition:
• Our guests are considered to be VIPs—very important people and very individual
people, too. What contributes to Disney’s success is people serving people. It is up to
us to make things easier for our guests.
• Each time our guests return, they expect more. That is why attention to detail and VIP
guest treatment is extremely important to the success of the Disney Corporation.
 Philosophy, principles and concepts of TQM 25
These definitions and explanations are not only relevant for the Disney Corporation.
They are as relevant for any firm, whether they are production firms or service firms. The
customers, including the internal customers, are the starting point of all quality efforts.
However, while internal customers and internal processes are very important, one
must never lose sight of the fact that, in the final analysis, the main purpose of focusing
on internal customers is to create satisfied external customers.
Unfortunately, in their eagerness to improve the processes, many firms totally forget
their external customers, which a 1989 Gallup Survey of American corporate leaders,
undertaken for the American Society for Quality Control, clearly shows. The main results
of the survey, which reports on the best methods of improving quality, are shown in
Table 4.1 below.
Astonishingly, all the most important methods focus on internal processes. Not one of
the methods concern relations to the external customers. This carries the considerable risk
that despite vastly improving its internal quality, the firm will still lose market position. If
the company wants to survive in the longer term, improved internal quality must be
accompanied by improved external quality. Internal and external quality will be discussed
further in section 4.4.

Table 4.1 Quality improvement methods of American

corporate managers (1989)
Area %
1. Motivation 86
2. Leadership 85
3. Education 84
4. Process control 59
5. Improvement teams 55
6. Technology 44
7. Supplier control 41
8. Administrative support 34
9. Inspection 29
Source: American Society for Quality Control.

The overall conclusion of this section is that one must always ensure the customer’s
satisfaction. Satisfied customers today are a condition for a satisfactory business result
tomorrow. It is therefore imperative that firms establish the means to check customer
satisfaction. On this score, Western firms leave a lot to be desired. This can be seen from
the international survey on the use of TQM (the QED project), from which the above
figures on the existence of systems for continuous monitoring of customer satisfaction are
taken (Figure 4.3).
From Figure 4.3 it is seen that in general the level in the East is higher than the level in
the West apart from small companies. No less than 86% of the large companies in the
East report to have a system for monitoring customer satisfaction. In the West the figure
is 73% and we find corresponding differences for the other sizes of groups except for the
 Fundamentals of total quality management 26
small companies. The results in the samples have not been weighted with the number of
manufacturing companies in the different countries. Had this been the case we would
have seen even larger differences than the ones reported in Figure 4.3.

Fig. 4.3 System to check customer satisfaction,

(a) West developed; (b) East developed.

4.3 FOCUS ON FACTS

Knowledge of customers’ experiences of products and services is essential before the

processes necessary for creating customer satisfaction can be improved. More and more
firms are therefore coming to the conclusion that, to realize the TQM vision, they must
first set up a system for the continuous measurement, collection and reporting of quality
facts.
Milliken has written the following about the importance of quality measurements
(Dahlgaard, Kristensen and Kanji, 1994):

Before you start to change anything, find out where you are now! Or, put
another way:
The quality process starts with measurements
What the Danish Milliken organization was being told, in fact, was that
the firm’s future operations should be based on facts, not beliefs and
opinions. This was echoed by Peter Hørsman, managing director, who
declared that, from now on, guesswork was out, adding that
1 measurement was better than 10 opinions.

What kind of measurements are needed then? In this book we will deal briefly with three
main groups:
 Philosophy, principles and concepts of TQM 27

1. External customers’ satisfaction (CSI=Customer Satisfaction Index).

2. Internal customers’ satisfaction (ESI=Employee Satisfaction Index).
3. Other quality measurements of the firm’s internal processes, often called ‘quality
checkpoints’ and ‘quality control points’.
These three main groups are taken from the following proposal for a new classification of
quality measurements. This proposal is a logical outcome of the expanded concept of
quality implicit in TQM and is also an element of the European Quality Award.
As Table 4.2 shows, the measurements are divided according to both the party
concerned and whether the measurement concerns the process or the final result. This is
because, on the one hand, TQM is basically process-oriented while, on the other hand, the
processes and results depend on the party concerned.
Traditionally, managers have mainly measured the firm’s business result. The problem
with this, however, is that it is retrospective, since the business result only gives a picture
of past events. What is needed is a number of forward-looking measurements connected
with the business result.
Focus on the customer and the employee is the cornerstone of TQM. It is only natural,
therefore, that both employee and customer satisfaction are included as quality goals.
Satisfied customers and satisfied employees are prerequisites for a good business result,
as are, of course, solid and dependable products and services. There is therefore a need
for control and checkpoints in the processes the firm is built around. Finally, the firm’s
result will be a function of its general reputation in society. This is reported in both the
ethical/social accounting and in relevant external checkpoints in, e.g. the environmental
and social areas.
Table 4.2 Quality measurements: the expanded concept
Firm Customer Society
Process Employee Control and External checkpoints (environmental, political,
satisfaction checkpoints social)
Result Business result Customer satisfaction Ethical/social accounting

Many corporate managers are sceptical about the need for measurements. They find
them unnecessary, time-consuming and bureaucratic, relying instead on the STINGER
principle:
ST = STrength
IN = INtuition
G = Guts
E = Experience
R = Reason

While STINGER is undoubtedly useful to any manager, the complexity and dynamics of
today’s markets make it necessary to supplement STINGER with other skills than those
which were sufficient only a decade ago. Furthermore, measurements are, in themselves,
both a challenge and a motivation to achieve quality. Who could imagine playing a
football match without goals?
In short we recommend below the combination of STINGER, Data and Methods:
 Fundamentals of total quality management 28

STINGER+Data+Methods—MBF (Management By Facts)

As we see it, success with TQM implementation depends on all elements of this equation.

4.3.1 MEASUREMENT OF CUSTOMER SATISFACTION

Total quality, as experienced by the customer, consists of a large number of different
elements, one example of which is shown in Figure 4.4 below.
It can be seen from the above that the customer’s experience of the quality of a
product or service is the result of a large number of stimuli relating to both the product
itself, the services and the circumstances under which it is delivered to the customer. The
customer’s satisfaction must therefore be measured in many different dimensions (quality
parameters) if it is to form the basis of quality improvements.
When measuring customers’ satisfaction it is important to realize that the importance
of the different quality parameters varies. We assume, therefore, that the customers
evaluate the firm on n different dimensions or sub-areas, both as regards the quality of
individual areas and the importance of these areas. We let the resulting evaluation for the
ith subarea be Ci and the associated importance Wi. Overall customer satisfaction—the
Customer Satisfaction Index, or CSI—can then be calculated as a simple weighted
average:

Fig. 4.4 Total experienced quality.

CSI=W1C1+W2C2+…+ WnCn
(4.1)
 Philosophy, principles and concepts of TQM 29
The main use of this index is to provide the company with an instrument to choose the
vital dimensions of customer satisfaction and to allocate resources to these areas. More
on this subject in Chapter 10.

4.3.2 MEASURING EMPLOYEE SATISFACTION

The internal customer/supplier relationship is all-important in TQM. Being able to satisfy
external customers depends on having satisfied internal customers or, as Imai (1986)
puts it:

When you talk about quality, you immediately tend to think about product
quality. Nothing could be further from the truth. In TQM, the main
interest is in ‘human quality’. To instil quality into people has always
been fundamental to TQM. A firm that manages to build quality into its
employees is already half way towards the goal of making quality
products. The three building blocks of any business are hardware,
software, and ‘humanware’. TQM starts with ‘humanware’. Only when
the human aspects have been taken care of can the firm start to consider
the hardware and software aspects. To build quality into people is
synonymous with helping them to become KAIZEN-conscious.

One of the main control points of ‘human quality’ is employee satisfaction, which should
be measured and balanced in the same way as customer satisfaction. The details on
measuring employee satisfaction will be explained in Chapter 11.

4.3.3 QUALITY CONTROL POINTS AND QUALITY CHECKPOINTS

Any firm can be described as a collection of connected processes producing some ‘result’
or other—either input to subsequent processes (the internal customers) or output to
external customers. We can measure the quality of the result of any process, i.e. ascertain
whether we are satisfied with a particular result. When measuring the quality of a process
result, we say that we have established a ‘quality control point’.
Examples of important quality control points vary with the type of company
concerned and thus also with the process or function concerned. Furthermore, the
processes can be described and thus considered, in more or less detail. A firm can be seen
as a process which, on the basis of input from suppliers, produces one type of output (the
finished products) for external customers. This output thus becomes the only potential
quality control point in the firm.
This way of looking at things is insufficient in connection with TQM, however. TQM,
as mentioned above, is process-oriented, which means that management and employees
must be aware of, and deal with, the many defects/problems in the internal processes and,
in particular, with their causes. The most common internal quality measurement that can
be used as a control point in most processes is:
Total defects per unit = number of defects/number of units produced or tested
 Fundamentals of total quality management 30
This internal quality measurement, which can be used in most firms and processes, has
been used with great success at Motorola, as the following quote from Motorola: Six
Sigma Quality—TQC American Style (1990, p. 12) shows:

The most difficult problem which faced Motorola during this period
(1981–86) was the fact that each organizational unit was free to define its
own quality metrics. Within Motorola, a very decentralized company of
many different businesses, it was a generally held belief that each business
was truly different, so it made sense that each knew the best way to
measure quality for its business.
Because of the different way each business measured its quality level,
it was nearly impossible for top management, in the normal course of
conducting periodic operations reviews, to assess whether the
improvement made by one division was equivalent to the improvement
made by another. In fact, it was difficult for the manager of an operation
to rate his quality level compared to that of another operation, because the
measurements were in different terms. However, significant
improvements were made regardless of the metric used.
During the second half of 1985…the Communications Sector
established a single metric for quality, Total Defects per Unit. This
dramatically changed the ease with which management could measure and
compare the quality improvement rates of all divisions. For the first time
it was easy for the general manager of one division to gauge his
performance relative to the other divisions. They all spoke the same
language.
The use of the common metric, Defects per Unit, at last provided a
common denominator in all quality discussions. It provided a common
terminology and methodology in driving the quality improvement process.
The definition was the same throughout the company. A defect was
anything which caused customer dissatisfaction, whether specified or not.
A unit was any unit of work. A unit was an equipment, a circuit board
assemble, a page of technical manual, a line of software code, an hour of
labor, a wire transfer of funds, or whatever output your organization
produced.

In his famous book Kaizen, Imai (1986) recommends supplementing quality control
points with so-called ‘quality check points’. Imai also calls quality control points
‘R criteria’ (=result criteria), while he calls quality checkpoints ‘P criteria’ (=process
criteria). These alternative names clearly describe the difference between quality control
points and quality checkpoints.
While a quality control point measures a given process result, a quality checkpoint
measures the state of the process. Of the many different states that can be measured, it is
important to choose one, or a few, which can be expected to have an effect on the result.
Process characteristics, which must be expected to cause the results of the process, are
good potential quality checkpoints. Clearly, a quality control point for one process can
also be seen as a quality checkpoint for another. Deciding which is which therefore
 Philosophy, principles and concepts of TQM 31
depends on how one defines the concept of process. For example, employee satisfaction
is a quality control point for the firm’s human resource process, but a quality checkpoint
for others.
Examples of quality measures other than employee satisfaction and customer
satisfaction that can be used as quality control points or quality checkpoints are given in
Chapter 12.

4.3.4 QUALITY COSTS

Traditionally, so-called quality costs have been divided into the following four main
groups:
1. preventive costs;
2. inspection/appraisal costs;
3. internal failure costs;
4. external failure costs.
In the quality literature, it is often claimed that total quality costs are very considerable,
typically between 10–40% of turnover. This is why these costs are also called ‘the hidden
factory’ or ‘the gold in the mine’. We believe these figures can be much higher,
especially if invisible costs are taken into account.
Invisible costs are everywhere. This can easily be seen by looking at developments in
quality cost theory from before ‘the TQM age’ to the present.

(a) Before TQM

Quality costs consisted of the costs of the quality department (including the inspection
department), costs of scrapping, repairs and rework and cost of complaints.
Firms were aware of the above division of quality costs and understood that
prevention was better than inspection and that an increase in preventive costs was the
means of reducing total quality costs. Most firms, however, did not deal either
systematically or totally (i.e. in all the processes in the firm) with these costs.

(b) ‘The TQM age’

Total quality costs are defined as the difference between the firm’s costs of development,
production, marketing and supply of products and services and what the (reduced) costs
would be in the absence of defects or inefficiencies in these activities. Put another way,
total costs can be found by comparing the firm with ‘the perfect firm’ or ‘the perfect
processes’. In this sense, there is a close connection between the concept of quality cost
and benchmarking.
There is also a close connection between quality control points and quality costs. In
the previous section, a quality control point was defined as a result (output) of a process
which management has decided to control and therefore measure. The result of any
process is thus a potential quality control point. Since all firms consist of a large number
of processes, there will be a similarly large number of potential control points. Each of
the firm’s processes can be compared with ‘the perfect process’ and all the potential
 Fundamentals of total quality management 32
control points can therefore be compared with the result of ‘the perfect process’. If the
difference between the result of the perfect process and the firm’s present process result
is valued in money, we get the process’s contribution to the total quality costs. We can
also call this the process’s OFI (Opportunity For Improvement) measured in money. The
OFIs of individual processes can best be determined either at the time of the annual
quality audit or during the year when the quality improvement teams choose new quality
problems to solve. This will be discussed further in section 14.4.
It can easily be seen from the above that a large part of the total quality costs is
invisible. Only a small part appears in the firm’s accounting systems. This is the reason
why The Quality Journey’ calls for a new classification of quality costs. The division,
which takes account of ‘the invisible cost’, is shown in Table 4.3.
Table 4.3 shows that total costs can be classified according to internal and external
costs on the one hand and visible and invisible quality costs on the other. In Table 4.3, we
have classified total costs into six groups. The question marks indicate that apart from the
visible costs (1+2), the size of the individual cost totals is unknown.
Visible costs are costs which the firm has decided to record. In both theory and
practice, the criterion for whether a cost should be recorded or not is that the benefit of
doing so is greater than the costs involved. In this connection, the processes’ estimated
contribution to the total quality costs is a good starting point in deciding whether it is
worthwhile measuring and recording a potential control point.
Table 4.3 A new classification of the firm’s quality costs
Internal costs External costs Total
Visible 1a. Scrap/repair costs 2. Guarantee/ ex gratia costs 1+2
costs 1 b. Preventive/ appraisal costs (complaints)
Invisible 3a. Loss of efficiency due to poor quality/ 4. Loss of goodwill due to 3+4 (?)
costs bad management 3b. Preventive/ appraisal poor quality/ bad management
costs
Total 1+3 (?) 2+4 (?) 1+2+3+4 (?)

In contrast to opinions from many writers, our view is that it is neither possible nor
economically justifiable to determine total quality costs by expanding the recordings.
There is therefore a need for other methods. One method is to compare oneself with one’s
most profitable competitor. This is a form of benchmarking, where the ratio ‘ordinary
financial result’ is used in the comparison. This and other methods will be explained in
Chapter 14.

4.4 CONTINUOUS IMPROVEMENTS

The importance of continuous improvements has by now been amply illustrated. Masaaki
Imai’s world-famous book Kaizen, written in 1986, focused precisely on this aspect of
TQM. In this book, Imai presented an interesting, but also singular, definition of quality.
He simply defined quality as ‘everything which can be improved’. From a Western point
of view, this sounds a bit extreme.
 Philosophy, principles and concepts of TQM 33
The interesting thing is, however, that the Japanese (or, at any rate, Imai) apparently
see a very close connection between quality and the concept of improvement which is,
in fact, an important message in TQM (Dahlgaard, Kristensen and Kanji, 1994, p. 45):
‘A way can always be found to achieve higher quality at lower cost.’
Higher quality both should and can be achieved through:
1. internal quality improvements
2. external quality improvements.
The main aim of internal quality improvements is to make the internal processes ‘leaner’,
i.e. to prevent defects and problems in the internal processes which will lead to lower
costs.
As their name suggests, external quality improvements are aimed at the external
customer, the aim being to increase customer satisfaction and thereby achieve a bigger
market share and with it, higher earnings.
Both types of improvements are closely connected with the questions top management
asks at the annual quality audit. These questions, together with the answers, are not only
important in connection with the quality audit. The whole exercise should gradually
develop to become an integral part of the company’s quality culture, with the questions
being regularly asked by all employees in all departments and all employees actively
participating in answering them by suggesting quality improvements. The two types of
quality improvements are shown in Figure 4.5. As the figure shows, both types of quality
improvements—which should not be seen independently of each other—result in higher
profits. This fact led to Phil Crosby’s (1982) famous observation that ‘quality is free’.
Only poor quality is expensive.

Fig. 4.5 Continuous improvements and their

consequences.
 Fundamentals of total quality management 34
Developing ideas for quality improvements is one of the approaches which gives the
biggest return on investment. If the firm approaches the quality improvement process in
the right way, a return of several hundred per cent would not be unusual.
Fukuda (1983, p. 133) has shown that the number of quality improvement suggestions
from employees should be a very important quality measure in all firms. In 1978, Ryuji
Fukuda received the prestigious Deming Award for his contributions to the improvement
of quality and productivity. In the 1970s, Fukuda analysed the huge variation in
productivity between the plants which together made up Sumitomo Electric Co. By
collecting and analysing more than 30 variables which could possibly explain the
variation in productivity growth, Fukuda was able to show that the most explanatory
ones were:
1. Number of suggestions for improvements per employee per year.
2. Investment in machines, tools etc. per employee-year.
The results were presented in the model shown in Figure 4.6 below, with the number of
improvement proposals per employee on the x axis and investments in machines, tools
etc. on the y axis. The curve shows the possible combinations which, according to the
empirical model, achieve a given productivity growth.
As an example the model shows that a particular plant has had a 20% growth in
productivity and that this growth was achieved by means of an average of 3.2 employee
suggestions per year and an investment of $3500 per employee-year. The model also
shows that, if the firm wants to increase productivity by, e.g. 25%, there are various ways
of achieving it. The figure shows three ways: A (increase capital investment per
employee-year by about $7500), B (increase the number of suggestions per employee-
year by about 2.5) and C (increase the number of suggestions by about 1.7 and capital
investment by about $2500). The best way is normally a balanced compromise (e.g. C)
between the two extreme points A and B.

Fig. 4.6 A model to explain the productivity

growth.
 Philosophy, principles and concepts of TQM 35

It can also be seen from the model that, for the firm in question, the effect of increasing
the number of suggestions per employee-year by one is the same as an increase in capital
investment of $3000. The effect of both the suggested improvements and the capital
injection depends, of course, on the starting point, i.e. the level of technology and
management in the firm concerned. The number of suggested improvements per
employee-year is in itself a reflection of the managerial level in the firm. This is why the
number of suggested quality improvements is increasingly being used as an indicator of
management quality.
While the model in Figure 4.6 should be seen as a general model, the message is still
absolutely valid. This is that firms wanting to increase productivity growth have a very
important alternative to the traditional approach of investing in new technology. This
alternative is that firms increase their investments in education and training, so that all
employees are motivated to make suggestions for improvements. Some Danish
companies have already started along this path, e.g. Milliken, which has a target of 26
suggestions for improvement per employee in 1996 (see Chapter 19).
Education and training are only two, albeit necessary, conditions for the involvement
of the firm’s employees. They are far from sufficient. However, continuous
improvements also require ‘leadership’, which was also part of the TQM pyramid.
Without this solid foundation, the four sides of the ‘pyramid’ will never be built.

4.5 EVERYBODY’S PARTICIPATION

As previously mentioned, TQM is process-oriented. Customers, including internal

customers (i.e. the firm’s employees), are part of the firm’s processes. These customers,
together with their requirements and expectations, must be identified in all the processes.
The next step is to plan how these requirements and expectations can be fulfilled. This
requires feedback from the customers, so that their experiences and problems become
known in all processes. This feedback is a condition for the continuous improvement of
both products and processes. For this to be effective, it seems only common sense that
everybody should participate.
However, things are not this simple. To get everybody to participate demands the
education and motivation of both management and employees. The firm’s management
must get involved in as many education and training activities as possible. In our view,
the active participation of top management in the annual quality audit is an important part
of these activities, the effect of which will quickly filter down throughout the
organization. Department managers will make demands on middle managers, who will
make demands on their subordinates and so on down the hierarchy. Deming’s seventh
point of his plan to implement TQM (section 2.1) will be a natural consequence of the
diffusion of the quality message: ‘Management must ensure that every employee in the
company participates actively in a team (work team, quality circle).’
These work teams are an important and indispensable part of the firm’s quality
organization and Japanese experiences (Lillrank, 1988) show that, to make sure that work
teams start making improvements as quickly as possible, it may be necessary to establish
a parallel quality organization (Deming, 1982, point 4): ‘Management must, as quickly as
 Fundamentals of total quality management 36
possible, build up an organization to advise on the carrying out of continuous
improvements throughout the firm.’
Through its active and committed participation in the quality audit and by making the
necessary organizational changes, management has thus shown a leadership wholly in
keeping with the Japanese definition of leadership, which is shown in Figure 4.7 below.
To sum up, leadership in Japanese means ‘guidance by powerful education and
training’.

Fig. 4.7 Leadership in Japanese.

To realize the TQM vision, management must believe ‘that it will help’ to involve all
employees. The next condition is that management also invests in the education and
training of all employees at all levels in:
1. Identifying defects and problems.
2. Finding the causes of defects and problems.
3. Prevention, i.e. preventing the causes of defects and problems. A condition for
effective prevention is that employees have completed points 1 and 2 and that, on the
basis of a causal analysis, they make suggestions for and implement quality
improvements.
4. Start again.
The thing that often prevents employees from participating in even a simple quality
improvement process, such as the one outlined above, is that most employees in Western
firms, including management, lack both knowledge of and training in the use of quality
tools. There is a crying need for massive educational and training programmes to equip
management and employees with both the knowledge and the motivation to want to go
through the above quality improvement process again and again.
The above-mentioned parallel organization calls for additional comments. Figure 4.8
shows a general model for this parallel organization.
It can be seen from the figure that the parallel organization is extremely well
organized but not as a part of the formal organizational structure. At the top of the
parallel organization is the firm’s overall steering committee for TQM and under this, the
quality improvement teams. If the firm is divided up into divisions, then the next level
 Philosophy, principles and concepts of TQM 37
would be a divisional steering committee. Under this, a department co-ordinator for
quality improvement is appointed for each department. It will often be a good idea for
each department to train a number of quality instructors whom succeeding levels can
draw on. Employees in the individual departments are organized in quality improvement
teams or quality circles, each team having a team leader either chosen by the team or
appointed by management.

Fig. 4.8 The parallel quality organization.

The powers and responsibilities of the quality organization are as follows:
1. To set meaningful and ambitious quality goals for the individual team/employees. This
is done is close co-operation with the teams/ employees who fulfil the goals.
2. To ensure that quality improvements are started and implemented in all parts of the
organization, both by top-down and bottom-up initiatives. Quality improvement
suggestions can come both from quality improvement teams and individual
employees. The annual and three-year plans ensure that the improvements do not
peter out.
In order to fulfil this responsibility, all tasks, schedules etc. for individual employees and
co-ordinators must be described in detail.
All of the firm’s managers and employees have a role in the new quality organization.
The only problem is who to appoint to the various steering committees and who to
appoint as department co-ordinators.
The managing director ought to be the leader of the overall steering committee. The
other members can be the leaders of the various divisional steering committees, plus the
firm’s quality manager if it has one. The leaders of the divisional steering committees can
be the divisional managing directors but they can also be one of the other managers. The
reason for this is simple—the divisional managing directors often have not got the time.
This is actually one of the reasons why it is necessary to build up a parallel quality
organization. However, divisional managing directors ought to be members of the
 Fundamentals of total quality management 38
steering committee. On account of the time problem, departmental managers should not
also be departmental co-ordinators. These co-ordinators can also be part of the divisional
steering committee. It is up to the departmental co-ordinator to ensure that all employees
in the various departments belong to a quality improvement team.
When the various positions in the quality organization have been filled, the quality
journey, i.e. fulfilment of the TQM vision, can begin. The organization consists of small,
permanent quality improvement teams in each department, together with cross-
organizational and/or cross-hierarchical ‘task forces’, which can either be permanent or
ad hoc. The quality improvement teams report to the overall quality co-ordinator, who in
turn reports to the quality committee.
Both managing directors, departmental managers and ordinary employees work on
equal terms in the quality improvement teams and they all strive to find common
solutions to quality improvement problems. The construction of the quality organization
resembles Likert and Seashore’s (1962) ‘team-oriented organization plan’, shown in the
form of a general model in Figure 4.9.
Likert’s idea was that the formal organization should be built up after the team-
oriented organization plan. The parallel quality organization, on the other hand, as the
name suggests, does not change the formal organization plan. This is one of several
advantages of this organizational form. It can be difficult to make changes in the formal
organization and above all it takes time. The parallel organization, which often operates
on its own conditions, solves this problem. The parallel organization is a mixture between
a formal and an informal organizational form.
The smallest units of the quality organization are the permanent quality improvement
teams. These teams have a great deal of freedom to choose the problems, or OFIs
(Opportunities For Improvements), they want and even have the freedom to suggest
solutions. It is up to the overall quality organization to make sure that the teams are
working effectively and to ensure that they receive the necessary education and training
in such elementary quality methods as:

Fig. 4.9 The team-orientated organization plan.

1=top manager; 2=department managers;
3=middle managers; 4=operators, supervisors
and other employees.
 Philosophy, principles and concepts of TQM 39

• brainstorming
• cause-and-effect diagrams
• pareto diagrams
• affinity diagrams
• flow charts.
After they have received the necessary education, employees can begin training. The best
form of training is to use the techniques on the problems the teams want to solve, i.e.
training is job-oriented. This is the best guarantee that the quality journey will be
embarked on. There will be more about education for quality in Chapter 18.
To close this section, we present some results from the QED survey. This focuses on
various methods of ensuring that quality improvement suggestions are followed up and
developed in the firm.
One of the aims of the afore-mentioned QED project is to understand the different
methods used in different cultures to motivate employees to make suggestions for
improving quality. We therefore put the following question to the participating
companies: How do you ensure that your employees actively contribute with
suggestions?
There were six main groups of answers:
• monetary rewards
• standards for number of suggestions
• prizes
• competitions
• education/training
• bonus systems.
The results appear in Figure 4.10.
Figure 4.10 shows that there are considerable differences between East and West. In
the first four groups, Eastern firms have a much higher percentage of answers than
Western firms, while in group 5 (education) and group 6 (bonus systems) the Eastern
companies only have a slightly higher percentage of answers. The most noteworthy
difference is in group 2 (standards), group 1 (monetary rewards) and group 3 (prizes).
Using standards for handling suggestions and for the number of suggestions per
employee is practically non-existent in the West and using prizes to motivate employees
is also relatively rare in these countries. An important observation, which cannot be seen
from the figure, is that all Japanese companies reported that they used prizes as a
motivator to ensure that the employees actively contribute with making suggestions.
The differences shown in Figure 4.10 are partly a result of cultural differences and
partly a result of differences in management philosophies. Many employees in Eastern
countries work in quality circles which is not the case in Western countries. With the use
of quality circles, it is only natural to use the four methods which have the greatest
differences. Interestingly, the least developed country (Estonia), which is not included in
Figure 4.10, has the highest percentage in group 6 (bonus systems), while Japan has the
lowest percentage in this group. Our explanation for this is that the more developed a
country becomes and the more it uses quality management methods and principles, the
less important bonus systems are as motivators.
 Fundamentals of total quality management 40
Another observation is that there is, in most cases, a clear relationship between the
use of motivators and the size of the company. It appears that the use of standards in the
East becomes more and more necessary as the size of the company increases. This
relationship is, of course, not surprising since the need for systems grows as a company
becomes bigger. What is surprising, however, is that we do not observe such a
relationship in the West.

Fig. 4.10 Quality suggestions in East and

West, (a) West developed; (b) Eastdeveloped.

REFERENCES

Crosby, P.B. (1982) Quality is Free, The New American Library Inc., New York, USA.
Dahlgaard, J., Kristensen, K. and Kanji, G.K. (1995) The Quality Journey—A Journey Without An
End, Productivity Press (India) Pvt. Ltd, Madras, India.
Deming, W.E. (1982) Quality, Productivity and Competitive Position, MIT, USA.
Feigenbaum, A.V. (1960) Total Quality Control, McGraw-Hill, New York, USA.
Fukuda, R. (1983) Managerial Engineering, Productivity Inc., Stanford, USA.
Imai, M. (1986) KAIZEN—The Key to Japan’s Competitive Success, The Kaizen Institute Ltd,
London.
 Philosophy, principles and concepts of TQM 41
Kano, N. (1984) Attractive quality and must be quality. Quality, 14(2), 10–17.
Kondo, Y. (1991) Human Motivation: A Key Factor for Management, 3 A Corporation, Tokyo,
Japan.
Likert, R. and Seashore, S.E. (1962) Making Cost Control Work. Harvard Business Review,
Nov./Dec., 10–14..
Lillrank, P.M. (1988) Organization for Continuous Improvement—Quality Control Circle Activities
in Japanese Industry (PhD thesis), Helsingfors, Finland.
Motorola (1990) Six Sigma Quality—TQC American Style, Motorola, USA.
Womack, J.P., Jones, D. and Roos, D. (1990) The Machine that Changed the World, MIT, USA.
 5
Quality management systems and
standardization

5.1 THE CONCEPT OF SYSTEM

In recent years the term ‘system’ in TQM has become closely associated with
documenting internal organizational processes which are repeatedly performed in such a
way as to gain certification from an external validating body. Here we refer to such
‘systems’ as ISO 9000 and BS 5750. But the term ‘system’ has another broader
connotation, a connotation which found favour during the development of TQM. It is
upon ‘system’ in this wider, original meaning that emphasis is now placed.
Kanji et al. (1993) suggested that the origin of a system approach can be traced to the
analogy drawn between the human body and simple, human society. The initial use made
of the concept of system in social anthropology was further developed in sociology by
such writers as Talcott Parsons before making its appearance in management writings. In
its most basic form, a system can be portrayed thus:

Input–Throughput–Output (transformation)

To add complexity, a feedback loop can be added to link output to input and thus to
reactivate the system into another cycle.
It is important to note that a system approach contains a set of assumptions which are
inherent within the model. The message is simple: use the model, accept the assumptions.
The assumptions can be stated as follows:
• a number of more or less interrelated elements each of which contributes to the
maintenance of the total system;
• synergy, in that the totality of the system is greater than the sum of its component
elements;
• a boundary, which delineated the system and which may be open, partially open or
closed in relation to exchanges between the system and its environment;
• sub-systems, comprising interrelations between particular elements within the total
system and which themselves have the characteristics of a system;
• a flow or process throughout the system;
• feedback, which serves to keep the system in a state of dynamic equilibrium with
respect to its environment.
The system approach in this wider, original sense and its application to the productive
process can, e.g. be seen in Deming’s work (1986) (Figure 5.1).
 Quality management systems and standardization 43

Fig. 5.1 System approach to the productive

process.
Indeed, it is feasible to contend that it was through the utilization of a system model that
Deming’s contribution to the development of TQM was born and permitted the
delineation of the Deming Cycle of ‘PLAN, DO, CHECK, ACT’.

5.2 QUALITY MANAGEMENT SYSTEMS

If a synthesis is attempted of the philosophical and system components of TQM with a

view to the development of a model of implementation which encapsulates both of those
key aspects, then, the following is offered as one way in which that might be brought to
fruition (Figure 5.2).
Some explanation is required of the terms used in the above model.
Vision: refers to the future desired state, the situation which is being sought, to which
the organization and its personnel are committed. It provides a central focus against
which the managerial process of planning, leading, organizing and controlling can be co-
ordinated. Its acceptance serves to give purpose day-to-day actions and activities at all
organizational levels and to all organizational functions.
Mission: represents a series of statements of discrete objectives, allied to vision, the
attainment of all of which will ensure the attainment of the future desired state which is
itself the vision.
Strategy: comprises the sequencing and added specificity of the mission statements to
provide a set of objectives which the organization has pledged itself to attain.
Values: serve as a source of unity and cohesion between the members of the
organization and also serve to ensure congruence between organizational actions and
external customer demands and expectations. Without such congruence no organization
can expect to attain efficiency, effectiveness and economy let alone ensure its long-term
survival. Key issues: these are issues which must be addressed in pursuit of the quality
which is demanded by customers to meet their needs and expectations.
 Fundamentals of total quality management 44

Fig. 5.2 Philosophy and system components

of TQM. (Source: Kanji, Morris and Haigh,
1993.)
The understanding of quality systems depends on two areas of thinking. Firstly, the
understanding of Total Quality Management and secondly, the general understanding of
system.
In his recent works (1986, 1993) Dr Deming was advocating very strongly the concept
of ‘profound knowledge’ which shared the vision of system concept. In 1991, Senge
advocated the development of learning organizations. According to him, system thinking
plays a very important role in creating a learning organization. Here systems is a network
of interrelated factors that work together to achieve the goal of the system.
According to us, an organization is a system, the goal of which is to create value-
added activities for both internal and external customers. Sometimes value chains have
been used to obtain the borderlines of the local system (sub-system) but it can be seen
that the local system is merely part of a larger system consisting of customers, suppliers,
competitors and other aspects of the market and the society. In order to be successful it is
therefore necessary to understand both the local system and a much bigger system. Senge
(1991) has discussed a number of systems in order to help the readers understand the
complexity of the system that exists in real life. According to Senge, developing a
learning organization requires not only human mastery, teamwork, shared vision and
image building, but also system thinking.
System thinking is also an important aspect of ‘profound knowledge’ and profound
knowledge further incorporates theory of knowledge, theory of psychology and statistical
thinking.
To sum up, the quality system can be looked at as a system which provides a high
quality of activities incorporating TQM philosophy, principles and concepts and which
creates added value to every aspect of an organization.
 Quality management systems and standardization 45
5.3 JOHARRY’S NEW WINDOW ON STANDARDIZATION AND
CAUSES OF QUALITY FAILURES

Joharry’s ‘new window’ is a diagram for classification of failures and causes of failures.
The diagram was developed in a manufacturing company in Japan but the conclusions
and the experience gained in this company are valid to both service companies and
manufacturing companies. The conclusions were as follows:
1. Standardization is the basis of continuous improvements.
2. Standardization only is not sufficient. It may take a while before the standard methods
for control and prevention of defects are in fact practised by everybody they concern.
3. Communication and motivation is the basis for everybody to practise the standardized
methods and is also the basis for everybody trying continuously to improve existing
standards.
4. There is no reason to try to find better methods before the existing know-how is being
used by everybody it concerns.
The title of this section implies that Joharry had several windows. Who is Joharry and
how do these ‘windows’ look? According to Fukuda (1983, p. 47) the name Joharry is an
acronym made from the two names Joseph and Harry and Joharry’s ‘window’ (the old
window) was applied by Joseph Ruft and Harry Ingram to describe the communication
between two persons (you and I). Joharry’s window can be seen in Table 5.1.

Table 5.1 Joharry’s window

We see that, in fact, Joharry’s window consists of four small windows:

1. The first ‘window’ (category I) refers to what both you and I know.
2. The second ‘window’ (category II) refers to what I know and you do not know.
3. The third ‘window’ (category III) refers to what you know and I do not know.
4. The fourth ‘window’ (category IV) refers to that which neither knows.
Ruft and Ingram used this model to explain the internal conditions of the mind and it is
not difficult to apply the model for describing the communication problems which may
occur between two persons who are successively classified in the above four categories.
In Sumitomo Electric Industries, the Japanese company, Fukuda worked with quality
and quality improvements in the late 1970s and for many years it was a major problem
for Fukuda and many others to find the general causes of poor quality. Joharry’s
‘window’ gave Fukuda ‘the key’ to find some important general causes of poor quality
and at the same time it became ‘the key’ to understanding why a relatively simple quality
management tool called ‘CEDAC’ showed to be so efficient, which in fact it was.
 Fundamentals of total quality management 46
Before ‘CEDAC’ can be described, Joharry’s ‘new window’ must be dealt with briefly
(Figure 5.2).
We see that Joharry’s ‘new window’ is a further development of the ‘old window’ as
the model now contains nine ‘windows’ or categories in total.
The following explanation of the model is given by Fukuda (1983, p. 48):
1. The different categories represent interrelationship of the counterparts Section A and
Section B. These terms can be used to refer to individuals, groups, teams, sections
within the organization etc.
2. In the ‘known-practised’ column, the respective party already knows the right methods
to prevent defects and also executes them correctly.
3. In the ‘known-unpractised’ column, the respective party knows the right methods but
executes them insufficiently or not at all.
4. In the ‘unknown’ column, the respective party does not yet know the right methods to
prevent defects.

Fig. 5.3 Joharry’s ‘new window’. Step

1=define the standard operation clearly and
communicate it to all concerned; Step 2=put
into correct practice the established standard
operation; Step 3=improve the manufacturing
method if a satisfactory quality level is not yet
achieved; Step 4=revise the standard
operations.
 Quality management systems and standardization 47

5. In category I, everyone in both parties knows and correctly practises the best and most
effective operation known at any given time. All standard operations must be included
in this category.
6. In category II, everyone in both parties is informed of the standard operations but there
is someone who does not practise them correctly. This includes the case where
someone fails to adhere to standard operations out of carelessness.
7. In category III, one party knows but the other party does not know the right operations
for preventing defects.
8. In category IV, no one in either party knows the right techniques yet. The technical
problems which cause defects remain unsolved in this category.
Through the development and use of Joharry’s ‘new window’ it was realized that all
previous measures for preventing failures could be explained as measures for transferring
the categories II, III and IV to category I. This transfer can be made through the
application of a basic quality improvement method consisting of four steps as shown in
Figure 5.3. The importance of this method will be illustrated below.
In manufacturing companies as well as in service companies, you often hear the
following excuses for failures and poor quality:
1. We have done our best but it is not possible to improve the quality further.
2. You cannot make an omelette without breaking eggs.
3. We must live with a certain number of failures.
When you start looking for the causes of defects in a serious way, it almost always turns
out that the human factor is the main causal factor. This ‘discovery’ was also made by
Fukuda in Sumitomo Electric Industries.
In order to understand the importance of this ‘discovery’, it was decided to use
Joharry’s ‘new window’ for the classification of all failures found in a certain plant of
production for a certain period (January-February 1978). During the stated period, 165
failures were found, all produced in the plant in question. In order to make the
classification of failures which best suited the problem, it was realized that the most
reasonable ‘group division’ was a division in quality circle leaders on one side and
quality circle members on the other.
The reason for this was that the employees in the specific production plant had created
the so-called ‘quality circles’ (four in all), which had each appointed a ‘quality circle
leader’. The quality circles consisted of 6–8 employees within the same working area.
The communication between the quality circle leader and the quality circle members had
a crucial importance for the quality level of the processes for which the quality circles
had responsibility and which the quality circles had taken on to improve.
For every failure found it was discussed whether both the quality circle leader as well
as the quality circle members knew the cause of defect and in doing so, knew the method
or methods which could be applied (practised) in order to prevent the failure found.
Furthermore, it was discussed whether the methods were in fact practised by both quality
circle leader and quality circle members. The result of this attempt to classify all failures
found can be sen in Figure 5.4.
It appears that in the majority of cases, both the causes of failures and the preventing
methods (the countermeasures) were known by a part of the employees. The number was
exactly as shown in Table 5.2.
 Fundamentals of total quality management 48
For the quality circle leaders a total number of 20 failures were classified under
unknown causes/methods, whereas for the quality circle members a total of 81 failures
were classified under unknown causes/ methods. It also appears that, to a large extent,
neither the quality circle leaders nor the quality circle members practised the well-known
methods for preventing failures. A total of 76 out of the 165 failures were classified in
this ‘class’ (II).

Fig. 5.4 Classification of failures made during

the period January to February 1978.

Looking at this number of failures found, the importance of the four-step method for
quality improvements indicated in Figure 5.3 was obvious to everybody. The problem
was now to implement the method. For this purpose it turned out that the so-called
‘CEDAC diagram’ was very efficient.
CEDAC is an abbreviation of the ‘Cause-and-Effect Diagram with Addition of Cards’.
The diagram is a further development of the ‘cause and effect diagram’ typically used
in quality improvements. An example of a cause and effect diagram can be seen in
Figure 5.5.
The idea of this cause-and-effect diagram is that the ‘causes’ stated point at the
‘effect’ which means the quality problem, which you want to solve. In Figure 5.5 are
indicated four main causes why the car will not start (man, materials, machine, method).
These main causes must now be divided up into more specific sub-causes, e.g. a possible
sub-cause may be a fault in the gas supply. Sub-causes are indicated as arrows pointing at
the arrows from the main causes. The sub-causes may possibly be divided up further
 Quality management systems and standardization 49
which is shown in the diagram by arrows pointing at the arrows from the main causes,
e.g. the gas supply error is divided up in to three possible causes of defects (a defect at
the filter, carburettor or gas pump).

Table 5.2 Number of causes of failures and the preventing

methods
Category II 8+32+36 = 76
Category III 8+39+30 = 77
Total II+III = 153

Fig. 5.5 An example of a cause-and-effect

diagram (quality problem: the car will not
start).
The cause-and-effect diagram can be applied for analysing and thus for finding causes of
quality defects or possible causes of other incidents than quality failures. In connection
with brainstorming the diagram has proved to be a very efficient tool for teams (quality
circles). In teamwork the problems are usually enlightened in several ways and in this
way more ideas come up than one individual only may bring up, as a team has a larger
experience pool than the single individual and team members can inspire one another to
show more creativity.
Through the construction of the cause-and-effect diagram team members gain a deeper
understanding of the causes creating poor quality. The idea is, of course, that team
members become more motivated to control the causes stated in the diagram. In fact, the
diagram ‘invites’ the team members to be creative as far as development of methods for
controlling the specific causes are concerned.
However, there are more problems when the diagram is going to be used practically.
Two of the main problems are:
 Fundamentals of total quality management 50

1. Which causes are the main causes of failures and which control methods (prevention
methods) are the most efficient?
2. The diagram does not contain any direct information about the methods t o be applied
for controlling each single cause of error.
The first problem is big enough as it is and shall be dealt with in Chapters 7 and 8.
Suffice it to say that often people have a tendency of neglecting or refusing known
methods because of the idea that a better method may be in existence. If we can find this
‘better method’ our quality problem will be solved. Therefore, much effort is used to find
new and better methods, whereas quality problems may be better solved if the existing
know-how was applied instead.
This was, in fact, one of the major problems in Sumitomo Electric Industries. The
problem was that known methods were not efficiently communicated to the ‘sections’
who needed them. The method of communication was the well-known big manuals made
for the various production processes in which the standard methods (production and
control methods) were described. The problem with this communication method was,
inter alia, that people forgot what was in the manual, or thought that each employee was
perhaps ‘wiser’ than the manual and therefore developed their own home-made methods
which may be better than the ones described in the manual. There are two main problems
concerning such home-made methods:
1. The constructor believes that the method is at least just as good as the standard method
although it may in fact be worse. The consequences of using the home-made method is
that the quality gets poorer. This can get worse if other employees become ‘infected’,
meaning that the home-made method turns into being the general method.
2. The home-made method is in fact better than the one described in the manual but the
method is being used only by a limited number of people, possibly only by the person
who has developed the method. Of course this is a waste of resources.
The second problem can be solved with the cause-and-effect diagram.
The solution in Sumitomo Electric Industries was that the individual quality circles
were encouraged to add small cards to the causes in the diagram on which were written,
in simple words, what the single quality circles or the single members considered was the
best method for controlling the individual cause. When the cause-and-effect diagram was
hung up in the various production processes, this method, which on the surface seemed
rather common, acted as a very efficient communication tool. The employees working in
production got a daily reminder about the causes of failures and which methods were
most effective for controlling the causes of failures considering the knowledge they had.
The effect of this new tool (the CEDAC diagram) was, inter alia, that in fact the
employees started using the known knowledge. Besides CEDAC, another method also
was introduced to improve quality, namely the so-called OET method. OET is an
abbreviation of ‘On the Error Training’ and the idea of the method is that all shall learn
from the failures which are made.
The joint effect of the CEDAC and OET methods measured on the number of failures
found, appears by comparing Figure 5.6 with Figure 5.4. It can be seen that the number of
failures found has dropped from 165 to 17. The production technology and the production
level had remained practically unchanged!
 Quality management systems and standardization 51
In order to get a more general explanation of the success of the CEDAC diagram, 86
were selected at random from about the 300 CEDAC diagrams drawn until April 1978.
The selected diagrams, and thus the selected quality circles, were divided into two
groups. Group A consisted of the quality circles which did not find new methods during
the use of CEDAC. Despite the fact that no new methods for improving the quality were
found, the typical quality improvement was a 40–70% decrease of the percentage of
failures (Figure 5.7a).
The explanation for this result was the one previously mentioned that, through the
drawing of CEDAC and by looking daily at the CEDAC diagram, all quality circle
members had the causes of failures and the already existing methods (standards) for
controlling causes of failures repeated all over again. The result of this application of
CEDAC was that the quality circle members started to use the existing but, for some
members, unknown methods. The use of CEDAC implied that the existing standards
were communicated out to all quality circle members and they were—only by means of
this communication—also motivated to observe the existing standards. The effect of this
communication and motivation process can be seen in Figure 5.7a.

Fig. 5.6 Classification of failures made during

the period January to February 1979.
 Fundamentals of total quality management 52

Fig. 5.7 Quality results by means of CEDAC

(86 working groups selected at random),
a=groups which focused their efforts only on
adhering to established standards; b=groups
which succeeded in finding new operation
(production) methods. (Source: Fukuda, 1983.)
Group B consisted of the quality circles which first applied CEDAC as described above,
meaning as the quality circles in Group A. The existing standards being communicated
out and also adhered to in a satisfactory way, group A succeeded in finding improved
methods for the control of the causes of failures through the use of CEDAC. The effect of
these new methods and the effect of communication concerning CEDAC can be seen in
Figure 5.7(b).
By comparing Figure 5.7b and Figure 5.7a, it can be seen that the joint effect in Figure
5.7b is of course the largest but the most important conclusion is that you must not think
of developing new methods before you have succeeded in communicating and applying
the known methods. This philosophy is the ‘basic method for the improvement of quality’
which appeared from Figure 5.2.
As indicated in the preface, the shown methods and results are not only of interest for
quality management in manufacturing companies. The shown methods and results have
equal importance in service companies and the results are not interesting only to the area
of quality. Fukuda (1983, p. 51) says it indirectly in the following way:

Our method for transferring conditions in categories II, III, and IV to

category I could have important implications for fields other than quality
control. In a communications /information-oriented society, where
knowledge and information play a key role, effective methods for
perfecting channels of communication will be at a premium. Management
in this society will have to provide a system in which all employees
concerned with a given problem share necessary information and
voluntarily participate in achieving shared objectives.
 Quality management systems and standardization 53
With respect to quality management systems, it is a very important message that a vital
method of improving every company’s quality, productivity and thus competitiveness is
to improve communication and thus motivation within all departments of the company.
The content of communication to each individual employee of the company is of course
not unimportant. What every manager should be sure of is that every employee knows:
1. His or her own quality goals.
2. The causes of quality problems.
3. The necessary ‘countermeasures’, meaning the most efficient prevention.
The methods in item 3 above are the ones to be standardized and these are the methods
which should form the backbone of the quality system in the company. These methods
must not be static but should be continuously improved as soon as they are
communicated out and practised by everybody they concern. Only if these conditions are
fulfilled are the necessary conditions of quality production fulfilled.
When analysing the use of standardization in different countries we see that there is a
big difference between East and West. In the West, many companies are sceptical
towards the concept and hence they reject the concept as a management parameter. In the
East, on the other hand, standardization is regarded as the entrance to quality
improvement and hence the use of standardization is widespread in this area. The
difference appears very clearly from Figure 5.8 below.
The use of standardization on the factory floor is almost twice as high in the East as in
the West. When analysing the data more closely we find that this holds good whether the
company is large or small or whether the country is developing or developed. One reason
that standardization very often is rejected in the West is that it is believed to kill
creativity. This assumption will be discussed more closely below.

5.4 STANDARDIZATION AND CREATIVITY

In section 5.3 we have presented strong arguments for standardization of work, i.e.
standardization of operations (key procedures and methods) to follow until better
methods have been developed. Even if we feel that the arguments and results shown are
strong enough to convince any manager, experience shows us that we should also analyse
more deeply what standardization really is and what the relationship is between
standardization and creativity. Standardization is misunderstood in many companies and
because of that we too often meet objections towards it.
One of the objections is that standardization of work will kill creativity. Creative
people in sales and product development especially use this argument. Another objection
is that preparing standards is a complicated and difficult job and, at the end of the day,
the standards are often not adhered to by the people concerned.
The problem of non-adherence is, in our view, caused by a lack of understanding of
what work standards should include and what should not be included in the standards.
The consequences may be that standards are made too complicated and hence are very
difficult both to follow and to change. The standards act as barriers against continuous
improvements instead of supporting improvements.
 Fundamentals of total quality management 54

Fig. 5.8 The use of standards on the factory

floor. (Source: QED study.)
It is important to realize that standards may be set in various ways but it is also
important—and may be more important—to realize that standards usually include the
following three items (Kondo, 1991):
1. The objective of the work: taking a production process as an example, this includes the
quality specifications or quality standards for the intermediate or final products which
must be made in the process.
2. Constraints on carrying out the work: these consist of restrictions which must be
adhered to in performing the work; items which ensure the safety of employees or
assure product quality are the most important of these.
3. The means and methods to be employed in performing the work.
Item 1. above must always be achieved and therefore it is important to include this item
in the work standard. Therefore it is also important to check and discuss the objectives of
the many different processes production as well as supporting processes—to secure that
the objectives are existing, understood and accepted. In too many cases objectives are not
existing, not understood and not accepted by the people responsible for the work or the
people do not understand the objective and the relationship to items 2. and 3. above.
Item 2. must always be obeyed or adhered to by whoever is responsible for doing the
work. There are usually no objections to including in the work standards items which
ensure the safety of employees.
The objections may emerge on the items which have been included in order to assure
product quality. The problem may be that too many of these items have been included in
item 2. of the work standards and hence the workers feel that too many restrictions have
been put on them. They do not feel responsibility because of the many restrictions and
they feel that the work is not easy to do. It is therefore obvious that we should consider
these constraints very carefully and we should strive to eliminate as many of them as
possible. The fewer the restrictions listed under item 2. the greater the workers feel the
degree of freedom and responsibility.
 Quality management systems and standardization 55
If we include restrictions in item 2. we must secure that they are well understood and
accepted by everyone. The best guarantee for that is that the people concerned are
involved in continuous quality improvements and hence the writing of the work
standards. Then people know which restrictions are necessary to follow because they
have understood the cause and effect relationships which must be controlled in order to
assure quality. In other words they have realized which causes are crucial to control and
which methods are crucial to follow.
Concerning item 3. there is a tendency to conclude that everybody must obey these
standardization means and methods because they usually have been standardized after
careful considerarion to quality and productivity. We often conclude that because they
reflect existing knowhow of the most effective means and methods everybody must
adhere to these standards. But this is not necessarily true. We are convinced that no single
standard method can be the most efficient for all people considering their different
characteristics.
According to Kondo (1991) therefore the standardized means and methods in item 3.
should be divided into two types or two manuals:
1. manual for beginners (novices);
2. manual for experienced workers.
The purpose of the manual for beginners is to help newcomers in their understanding and
training. Newcomers have to understand and learn the basic rules and, if needed, the
basic actions. Having understood, learned and practised the basic rules they are ready for
experimentation, i.e. to find the best means and methods for themselves and they should
be encouraged to do so.
The purpose of the manual for experienced workers is to have an updated collection of
best practices in all areas of the company. Whenever an experienced worker finds a better
way of performing a particular job this should be included in the work standards for
experienced workers. It is extremely important that the management of the company
establishes a system which secures that hints and ideas concerning new ways of doing
things are collected and, if needed, included in the manual for experienced workers.
From this it is seen that this way of looking at standards will support creativity. It is of
course necessary that management leads the process and encourages people to always be
on the lookout for improvement of the standards. An existing standard should be a
challenge for everybody.
In relation to ISO 9000 and other international standards it is apparent that items 1.
and 2. mentioned above are well suited for certification while this is not necessarily true
for all the elements mentioned under item 3.

5.5 ISO 9000 AND BS 5750-A STEPPING STONE TO TQM?

5.5.1 ISO—A QUICK FIX

The ISO 9001 (BS 5750 part 1) requirements represent 20 qualified questions put to the
company in order to determine the company’s ability to control the specified quality
agreed upon in a contract situation. Provided that the buyer is capable of expressing all
 Fundamentals of total quality management 56
his expectations for the delivery and putting them down in the contract, the 20 quality
activities represented by ISO 9001 may create an excellent quality assurance for the
buyer.
As a consequence of the importance of the basis on which a contract is made up and
the faith in the quality assurance of the other 19 ISO 9001 requirements, the ISO people’
are not necessarily interested in such vital areas as:
• vision and strategies;
• sales and marketing activities;
• customer satisfaction;
• management accounting;
• company culture and employee satisfaction;
• continuous improvement;
• technology;
• business ethics;
• impact on society.
If you build your quality management system narrow-mindedly on the ISO 9001, 9002
(BS 5750 part 2), or 9003 (BS 5750 part 3) standards, there is a big risk that the company
will be divided up into two sections A and B. The ‘A team’ consists of the employees and
activities influenced by ‘ISO’ and the ‘B team’ consists of the employees and the
activities which are influenced by ‘ISO’ only to a limited degree. The sales and
marketing function is often a significant example of one of the company’s ‘B teams’
where quality management is concerned.
However, in many companies, to build a quality management system which alone is
closely focusing on ISO 9001, 9002 or 9003 has turned out to be a barrier against
subsequent quality development with everybody’s participation.
ISO 9001, 9002 and 9003 represent a set of external standards for the assurance of the
customer’s interest (quality assurance). We have been familiar with such standards for
decades, as a number of external quality standards flooded the international market in the
time after the Second World War. The development of the standards had its root in the
US military, space and atomic energy programmes but gradually any self-respecting
country acquired its own standard.
The new and important characteristic about ISO 9000 has been the thought that the
ISO series should represent the best among the numerous national, military and other
standards used, which consisted either of one total standard (e.g. ANSI Z-1.15) or—as
ISO 9000—consisted of more standards divided up into levels (such as NATO’s AQAP
series and BS 5750). Canada was pretty much alone with its CSA Z299 standards in four
levels but the Canadian quality standards, which were considered by many to be those
most intensively prepared, were refused and instead BS 5750 was chosen as the
foundation of ISO 9000 in 1987.
Whether the ISO 9000 series does represent the best from the previous standards is
still a question to be answered as the first edition of the ISO 9000 from 1987 must in fact
be seen as the ‘compromise of the compromises’, which had, as its superior goal, to
create one series of standards which were internationally recognized. The international
recognition of the ISO 9000 standards and the international co-operation between the
 Quality management systems and standardization 57
certifying bodies of every country gives an ISO 9000 certification international
importance.
An ISO 9000 certification is in the process of becoming a necessary driver’s licence
being internationally recognized. A driver’s licence the credibility of which is dependent
on at least three factors: the qualifications of those who give the certification, the check-
list (the ISO standard) and the time reserved for the certification. The purpose of this
section is to focus on the advantages and disadvantages of the spread of the ISO 9000
series seen in relation to the TQM strategy.
When we entitled this section ‘ISO 9000—a quick fix’, it was not to detract from the
long-standing efforts made by many companies to obtain an ISO 9000 certificate. The
reason for the phrase ‘a quick fix’ has two elements. Firstly, it is possible to certify nearly
every company within a few years once the money for it is granted. Secondly, there is a
considerable risk—and we will go deeper into this later—that, once certified, the quality
management system, which is orientated toward customers’ demands, will be frozen and
only improved concurrently with the improvements of the ISO 9000 standard.
However, we are of the opinion that an ISO certification used in a thoughtful way may
be a useful step in a company’s efforts ‘to do things right’ and thus contribute to the
company’s TQM development for which the goal is not only to do things right, but to do
‘the right things’.
The ISO series is trying to quality assure the customer requirements specified in the
contract. In other words, the company tries to do the things right which are specified in
the contract. There are, however, two limitations in this ‘philosophy’. One of them is that
the customer is not always able to specify his real needs and the other is that customer
requirements are dynamic and are therefore constantly developing. ISO 9000 does thus
not necessarily assure that we do the right things.
The difference between an ISO 9000 certificate and the visionary TQM goal can be
expressed in this way: ‘Catch a fish for a man and he is fed for a day (a quick fix), teach
him to fish (not a quick fix) and he is fed for life.’

5.5.2 ISO 9000—A MEANS OF STANDARDIZATION?

We must admit that we profess the mere ISO certification process is recognized as a
means of standardization and this opinion is based especially on the following two facts:
1. It is allowable to use the ISO 9000 and the result of a certification in the best possible
way.
2. A certification can be an excellent starting point for the support of a disciplined effort
to get the best practice standardized as the foundation and necessary condition for
continuous improvements.
Besides this disciplined effort to attain the perhaps much-needed standards demanded by
an ISO certification and which we consider the most important positive element of a
certification, we should like also to emphasize other elements which are considered
positive by many companies:
• Uniform criteria for external assessment of the quality management system of a
company.
• A third party certification may often result in a heavy decrease of second party audit.
 Fundamentals of total quality management 58

• A simplification and rationalization of new contract situations between customers and

their suppliers.
A last element of an ISO 9000 certification, which is certainly not to be underestimated,
is the fact that for many of the companies it is the first time that money is granted for a
quality project.

5.5.3 ISO 9000—A BARRIER TOWARDS NEW THINKING AND

IMPROVEMENTS?
Since the ISO 9000 series first appeared in 1987, a rigid debate for and against ISO has
been carried on.
Sympathizers of ISO are often people who have carried through a certification process
and the opponents on the other side are people who have never been involved in a
certification process. The opponents attack sympathizers as people who are in a tight
corner. People in this category can be company owners who have spent a great deal of
money on the project or perhaps certification bodies which have gained permanent
income from the increasing number of certified companies or it can be ISO consultants.
Sympathizers attack opponents and accuse them of being people without any ISO
experience. People in this category can be those company owners who prefer to go for the
European Quality Award, it can be TQM experts, TQM consultants or just people who
doubt the excellence of the ISO 9000.
The only issue upon which sympathizers and opponents seem to agree is that often an
ISO certification requires a great deal of paperwork and money.
As this section will especially focus on the more critical sides of an ISO 9000
certification, we should like to include some statements from a newspaper article by
Louis Printz, professor at the Aarhus School of Business, Denmark, in which he—under
the headline ‘Highly Dangerous Medicine’—expresses the following opinions:
• ISO is gradually developing to become patented medicine for leaders and specialists
who do not know the real requirements of a company.
• Nobody has, for instance, criticized the concept for not taking into consideration the
company’s place in the right market.
• Today the concept is, as a rule, used uncritically without any explanation that it
certainly also has its limitations.
• ISO is only a single medicine in the company’s cabinet and it should be used together
with other tools in the correct order and in the right dosage to have the maximum
effect. Otherwise, the organization lacks what it needs to survive. The medicine may
become highly dangerous.
• ISO is easily applied and managed to create discipline in the production process without
any involvement by the management worth mentioning.
• At the same time an organization is created in which necessary alterations at a later
stage will be both costly and difficult to make.
• It is not only a question of the quality of a product. Quality applies to the same extent to
the management, the culture of the company, the marketing etc.
The essence of Professor Printz’s message is, in our opinion, that the ISO 9000 is very
appropriate for the standardization process but the company will not make any progress
 Quality management systems and standardization 59
without relying on excellent leadership—that is what we have named Total Quality
Management.
We see two problems in the current ISO debate. One of them is that no objective
investigation based upon facts of what an ISO certification does actually mean for the
company has ever been made. The other problem, which is often ignored, is that it is not
the ISO 9000 standards—or their fathers, the technical committee behind the ISO
standards—who claim that the standards are more than the documents of requirements.
No, it is the sympathizers, opponents and doubters trying to overestimate, underestimate,
or who do not care at all about the ISO 9000 standards who are the real problem.
We do not believe that the ISO crusade can be stopped and why indeed stop a
reasonable work of standardization? The real issue is to ensure that standardization goes
hand in hand with excellent management and creativity and, as we have seen from both
Joharry’s window and from Kondo, this is indeed possible.

REFERENCES

Deming, W.E. (1986, 1993) Out of the Crisis, MIT, USA.

Fukuda, R. (1983) Managerial Engineering, Productivity Inc., Stanford, USA.
Kanji, G.K., Morris, D. and Haigh, R. (1993) Philosophy and system dimension of T.Q.M.:
a further education case study, in Proceedings of the Advances in Quality Systems for TQM,
Taipei, Taiwan.
Kondo, Y. (1991) Human Motivation: A Key factor for Management, 3 A Corporation, Tokyo,
Japan.
Senge, P.M. (1991) The Fifth Discipline—The Art and Practice of the Learning Organization.
Doubleday Currency, New York, USA.
Printz, L. (1993) Highly Dangerous Medicine, Aarhus Stiftistidende, Aarhus, Denmark.
 6
The European Quality Award

The aim of including a section about the European Quality Award is to give companies
an operational tool. This tool can be applied in the education of internal management as
well as in the internal auditing process.
Many companies, of course, already have a management education programme, but it
is only rarely that such a programme builds on a joint description (model) of what
signifies good management. Such a model is included in the assessment material for the
European Quality Award which thus gives an obvious opportunity of creating an
educational programme in a balanced way which is also internationally recognized.
This way of approaching education has gradually become more recognized,
e.g. Renault, the large European car manufacturer, built its management education
systematically upon the model of the American Quality Award (Malcolm Baldridge) and
at the University of Kaiserslautern they have consistently built their two-year master
programme in TQM upon the model for the European Quality Award.
It may seem strange to the reader that we advocate building an educational model on
the basis of a quality award. Our comment on this is that the models behind the modern
quality awards comprise many other areas than product quality, although this is, of
course, also included. In reality these models are a description of the joint enablers and
the joint results of the company, that means the total quality and they therefore comprise
all aspects of management.
As previously indicated in section 4.1.1 the annual quality audit of the management is
an important condition for the implementation of TQM. The effort made by European
companies in this area ought to be improved in the light of the results found in the QED
investigation. We realize that many European companies carry out auditing following
their ISO 9000 certification but in our opinion this auditing is too narrow from a TQM
point of view. The model for the European Quality Award comprises the whole company
and all elements of the new management pyramid (the TQM pyramid) are included. This
model opens up the possibility of a deeper and more varied auditing than that following
the certification.
SIQ, the Swedish Institute for Quality, points out that all companies which carry out a
self-assessment based upon the criteria of the Swedish Quality Award are winners
whether they win the Award or not. They write:

Through self-assessment the development of the company is stimulated.

The organization gets knowledge of where it stands and what can be
improved. Everybody who carries through such an assessment are winners
as they have gained knowledge of their own strengths and weaknesses.
Employees in the whole organization have obtained new knowledge and a
natural motivation for working with improvements is created.
 The European quality award 61
6.1 THE BACKGROUND TO THE EUROPEAN QUALITY
AWARD

The European Foundation for Quality Management (EFQM) awards the European
Quality Award to an applicant who:

has demonstrated that their effort in the TQM area has contributed
considerably to satisfy customers’ and employees’ expectations and also
those of others with interest in the company in recent years. An award
winner is a company who enlightens the European market place. It can be
of any size or type, but its excellence through quality is a model to any
other companies which can measure their own quality results and their
own effort to obtain current improvements.

The initiator of this Award was EFQM which is an organization whose purpose is to
promote quality as the fundamental process for continuous improvements within a
company. EFQM was created in 1988 on the initiative of 14 leading European companies
(inter alia Philips, L.M. Ericson, British Telecom and Volkswagen). EFQM today has
around 600 members. The European Quality Award was awarded for the first time on 15
October 1992 to Rank Xerox Limited. This yearly award is recognized as the most
successful exponent of TQM in Europe for that particular year. In 1993, the award was
given to Milliken Europe, a company which was runner-up in 1992. Among the runners-
up in 1993 was the British computer company ICL (i.e. D2D) which became the winner
in the following year. The 1994 Award Winner was D2D, UK. The Award Winner in
1995 was Texas Instruments, Europe, and the Winner in 1996 was BRISA, Turkey.

Fig. 6.1 The model for the European Quality

Award.
 Fundamentals of total quality management 62
6.2 THE MODEL

The model for the European Quality Award is given in Figure 6.1.
It appears that the model consists of nine elements grouped in two halves, one of
which comprises the enablers of the company and the other the results.
The interesting thing about the model is the fact that it comprises both the enablers and
the results. Through ISO 9000 many European companies have gradually become
acquainted with the assessment of parts of the enablers of quality management and of
course they are also familiar with the assessment of parts of the results (the business
results). However, there is no tradition that the two areas are assessed as a whole and in
the same detail as shown here. Furthermore, it is interesting that an exact weight is stated
for each single element of the model. These weights can of course be discussed and may
be changed as time goes by. The assessment reflects the general perception of what
characterizes leading TQM companies. In the following section each single element of
the model is explained including also the detailed areas of every element which will later
form the basis of the actual assessment.

6.2.1 ENABLERS

Criterion 1: Leadership
How the behaviour and actions of the executive team and all other leaders inspire,
support and promote a culture of Total Quality Management.
Criterion parts:
1a. How leaders visibly demonstrate their commitment to a culture of Total Quality Management.
1b. How leaders support improvement and involvement by providing appropriate resources and
assistance.
1c. How leaders are involved with customers, suppliers and other external organizations.
1d. How leaders recognize and appreciate people’s efforts and achievements.

Criterion 2: Policy and strategy

How the organization formulates, deploys, reviews and turns policy and strategy into
plans and actions.
Criterion parts:
2a. How policy and strategy are based on information which is relevant and comprehensive.
2b. How policy and strategy are developed.
2c. How policy and strategy are communicated and implemented.
2d. How policy and strategy are regularly updated and improved.

Criterion 3: People management

How the organization releases the full potential of its people.
 The European quality award 63
Criterion parts:
3a. How people resources are planned and improved.
3b. How people capabilities are sustained and developed.
3c. How people agree targets and continuously review performance.
3d. How people are involved, empowered and recognized.
3e. How people and the organization have an effective dialogue.
3f. How people are cared for.

Criterion 4: Resources
How the organization manages resources effectively and efficiently.
Criterion parts:
4a. How financial resources are managed.
4b. How information resources are managed.
4c. How supplier relationships and materials are managed.
4d. How buildings, equipment and other assets are managed.
4e. How technology and intellectual property are managed.

Criterion 5: Processes
How the organization identifies, manages, reviews and improves its processes.
Criterion parts:
5a. How processes key to the success of the business are identified.
5b. How processes are systematically managed.
5c. How processes are reviewed and targets are set for improvements.
5d. How processes are improved using innovation and creativity.
5e. How processes are changed and the benefits evaluated.

6.2.2 RESULTS

Criterion 6: Customer satisfaction

What the organization is achieving in relation to the satisfaction of its external customers.
Criterion parts:
6a. The customers’ perception of the organization’s products, services and customer relationships.
6b. Additional measurements relating to the satisfaction of the organisation’s customers.

Criterion 7: People satisfaction

What the organization is achieving in relation to the satisfaction of its people.
 Fundamentals of total quality management 64
Criterion parts:

7a. The people’s perception of the organization.

7b. Additional measurements relating to people satisfaction.

Criterion 8: Impact on society

What the organization is achieving in satisfying the needs and the expectations of the
local, national and international community at large (as appropriate). This includes the
perception of the organization’s approach to quality of life, the environment and the
preservation of global resources, and the organization’s own internal measures of
effectiveness. It will include its relations with authorities and bodies which affect and
regulate its business.
Criterion parts:
8a. Society’s perception of the organization.
8b. Additional measurements of the organization’s impact on society.

Criterion 9: Business results

What the organization is achieving in relation to its planned business objectives and in
satisfying the needs and expectations of everyone with a financial interest or other stake
in the organization.
Criterion parts:
9a. Financial measurements of the organization’s performance.
9b. Additional measurements of the organization’s performance.

6.3 ASSESSMENT CRITERIA

Generally speaking, assessment of the above elements is made in the same way as at a
skating competition: scores are given both for artistic impression and for technical
performance. The principle is illustrated in Figure 6.2.
The exact assessment is carried through as indicated below as the score given within
each part area as an average of the artistic impression and the technical performance.

6.3.1 ENABLERS
Scores are given in each part of the enablers criteria on the basis of a combination of two
factors:
1. the approach chosen;
2. the deployment and extent of the approach.
 The European quality award 65

Fig. 6.2 Assessment according to principles at

a skating competition.
Scores are given as a percentage of the maximum score obtainable according to Table 6.1
below. For both parts one of the five levels can be chosen or scores can be interpolated
between the values.

6.3.2 RESULTS
Scores are given for each of the results criteria on the basis of the combination of two
factors (Table 6.2):
1. the degree of excellence of the results;
2. the scope of the results.
Table 6.1 Scores for enablers
Approach Score Deployment
%
Anecdotal or non-value adding 0 Little effective usage
Some evidence of soundly based approaches and prevention 25 Applied to about one-
based systems. Subject to occasional review. Some areas of quarter of the potential
integration into normal operation when considering all
relevant areas and activities
Evidence of soundly based systematic approaches and 50 Applied to about half the
prevention based systems. Subject to regular review with potential when considering
respect to business effectiveness. Integration into normal all relevant areas and
operations and planning well established activities
Clear evidence of soundly based systematic approaches and 75 Applied to about three-
prevention based systems. Clear evidence of refinement and quarters of the potential
improved business effectiveness through review cycles. Good when considering all
integration of approach into normal operations and planning relevant areas and activities
Clear evidence of soundly based systematic approaches and 100 Applied to full potential in
prevention based systems. Clear evidence of refinement and all relevant areas and
improved business effectiveness through review cycles. activities
Approach has become totally integrated into normal working
patterns. Could be used as a role model for other organizations
 Fundamentals of total quality management 66

Table 6.2 Scores for results

Degree of excellence Score Scope
%
Anecdotal 0 Results address few
relevant areas and
activities
Some results show positive trends. Some favourable comparisons 25 Results address some
with own targets relevant areas and
activities
Many results show positive trends over at least three years. Some 50 Results address many
comparisons with external organizations. Some results are caused by relevant areas and
approach activities
Most results show strongly positive trends over at least three years. 75 Results address all
Favourable comparisons with own targets in many areas. Results relevant areas and
address most relevant areas and activities. Favourable comparisons facets of the
with external organizations in many areas. Many results are caused organization
by approach
Strongly positive trends in all areas over at least five years. Excellent 100 Results address all
comparisons with own targets and external organizations in most relevant areas and
areas. ‘Best in Class’ in many areas of activity. Results are clearly facets of the
caused by approach. Positive indication that leading position will be organization
maintained

Scores are given as a percentage of the maximum score obtainable as below. For both
parts one of the five levels can be chosen or scores can be interpolated between
the values.
The joint score for an area is then calculated as an average of the score of each
sub-area. If a sub-area is not relevant to a certain company, it is acceptable to calculate
the average on the basis of the sub-areas used. The joint score for the whole company is
calculated by using the weights which each area has been given in the model. The joint
score will be a number between 0 and 1000 (see Table 6.3).

6.4 EXPERIENCES OF THE EUROPEAN QUALITY AWARD

The European Quality Award was awarded for the first time in 1992 as mentioned above.
The Award was applied for by approximately 150 companies which were evaluated by a
specially trained assessement committee according to the above principles. The result of
this assessment made as average scores for all applicants is shown in Figure 6.3.
It appears from Figure 6.3 that there are three areas which were assessed relatively
high, namely people management, the management of resources and business results,
while three other areas are assessed rather low, namely people satisfaction, customer
satisfaction and impact on society. The average scores lie in the area from around 425 to
510. We do not have any information on the variation in each single area but it is of
course obvious that the winner lies considerably above the average scores presented in
the figure.
 The European quality award 67

Table 6.3 Chart for calculation of the joint score

Area Score i (%) Weight Points
1. Leadership × 1.0
2. Policy and strategy × 0.8
3. People management × 0.9
4. Resources × 0.9
5. Processes × 1.4
6. Customer satisfaction × 2.0
7. People satisfaction × 0.9
8. Impact on society × 0.6
9. Business results × 1.5
Total score

Whether the scores found are good or bad, we cannot say, as we have no basis for
comparison. However, we can raise the question whether the companies have adapted
themselves to the weights in the model. If an area of the model is considered to have a
high weight, we must expect that high scores are also obtained in this area. To what
degree this is the case is shown in Figure 6.4.

Fig. 6.3 Average scores for the European

Quality Award 1992.
 Fundamentals of total quality management 68

Fig. 6.4 Relation between importance

(weights) and the scores obtained in European
Quality Award 1992.

From Figure 6.4 it appears that by and large there is no relation between the scores
obtained and the weights of the areas. This can be expounded in two ways. Either the
companies disagree on the weights expressed by the model. In that case there will be
some auditing work ahead. Another exposition is that the companies in Europe are very
far from the ideal situation expressed by the model.
No matter whether one or the other of these expositions is correct, it gives food for
thought that customer satisfaction, which is the area valued highest in the model, scores
so relatively poorly as is the case here. No doubt this shows that European companies
have a long way to go before the TQM vision becomes a reality.
 PART TWO
Methods of Total Quality
Management
 7
Tools for the quality journey

As was mentioned earlier in section 4.4, quality improvements can be divided into the
following two categories:
1. internal quality improvements;
2. external quality improvements.
The aim of this part of the book is to present the reader with the methods (tools and
techniques) which may be used in the quality improvement process.
As a carpenter needs tools, e.g. a saw, a hammer, a screwdriver etc. management and
employees need tools in order to make effective quality improvements. The quality tools
are valuable both when planning for quality improvements and when checking/study ing
the results after the implementation.
It is also important to understand that some of the tools which are presented in this
part of the book may be used by top and middle management in their planning and
checking activities while other tools have been developed in order to satisfy the needs of
the masses (blue collar workers, supervisors, employees in administration etc.). To put it
another way, the different tools have been developed to be used in different
circumstances. Only when understanding both the circumstances and the tools to be used
under these circumstances can the quality improvement process become effective.

7.1 THE QUALITY STORY

The main aim of internal quality improvements is to make the internal processes
‘learner’, i.e. to prevent defects and problems in the internal processes which will lead to
lower costs.
At the start of the 1960s the Japanese discovered that if they were to continue their
quality improvements it was indispensable that blue collar workers became involved in
the quality improvement process. The Japanese managers noticed that the workers were
passive in the quality improvement process and they realized that something had to be
changed. It is interesting in this context to make reference to the founder of the Japanese
quality control (QCC) circles Kaoru Ishikawa (1985, p. 138):

Since 1949, when we first established a basic course in quality control, we

have endeavoured to promote QC education across the country. It began
with the education of engineers, and then spread to top and middle
managers and then to other groups. However, it became clear that we
could not make good quality products by merely giving good education to
top managers and engineers. We needed the full cooperation of the line
 Tools for the quality journey 73
workers actually making the products. This was the beginning of the
journal Gemba-to-QC (or QC for Foreman), referred to as FQC, first
issued in April 1962. With the publication of this journal, we began QC
circle activities.

This is quality history and we know that QC circles have become an enormous success in
Eastern countries and that Western countries have experienced a great deal of trouble
when trying to implement them. There are many reasons for that which we will not
discuss in this chapter. What we will discuss is the problem-solving process called ‘the
QC story’, which has proven to be very valuable when working with quality
improvements. We believe that a lack of knowledge or a general misunderstanding of the
following quality improvement process may have been one of the reasons for the lack of
success with QC circles in the West.
The problem-solving process called ‘the QC story’ results from the following 10 steps
(a slight extension of Ishikawa’s nine steps, 1985):

• Plan: 1. deciding on a theme (establishing goals);

2. clarifying the reasons this particular theme is chosen;
3. assessing the present situation;
4. analysis (probing into the causes);
5. establishing corrective measures;
• Do: 6. implementation;
• Check: 7. evaluating the results;
• Action: 8. standardization;
9. after-thought and reflection, consideration of remaining problems;
10. planning for the future.

The above 10 steps were initially designed to make the reporting of QC activities easier.
From the beginning it was stressed that the QC problem-solving process was as important
as the result. Hence it was natural that the reporting contained the whole process from
deciding on the theme to evaluation, consideration of remaining problems and planning
for the future.
Reporting ‘the quality story’ became an important training activity which we in the
West did not understand. The companies had (and still have) their annual QC circle
conferences where the best presentations were awarded and those QC circles participated
in the regional QC circle conferences where the best presentations were awarded. The
awarded QC circles participated in the national QC circle conference where the best
presentations again were awarded (gold, silver and bronze medals) and were selected to
participate in the international QC circle conference.
It soon became clear that the 10 steps of ‘the quality story’ were more than a good way
to report (Ishikawa, 1985): ‘If an individual circle follows these steps closely, problems
can be solved; the nine steps are now used for the problem-solving process.’
The quality story solved the problem of standardizing the problem-solving process. If
the problem-solving process is not standardized much experience tell us that the process
of continuous improvements will only become a top-down activity which is not very
effective. The QC circles must have a standard to follow otherwise they will not
 Fundamentals of total quality management 74
participate actively with continuous improvements. The start-up will simply become
too difficult.
It can be seen from the 10 steps that ‘the quality story’ follows the quality
improvement (PDCA) cycle or the Deming cycle and each step is written in a language
which is easy to understand for the members of the QC circle.
It is important to realize that the PDCA cycle is the common work cycle to follow
when working with quality improvements but it is also important to realize that it has
many appearances depending on the purpose of the improvements and the participants in
the improvement process. The 10 steps of ‘the quality story’ have proven to be successful
in relation to QC circle activities while the PDCA cycle may appear quite different when
focusing on top management’s TQM-leadership cycle (Chapter 16).
The quality tools which are presented in this part of the book may be used in different
steps of the PDCA cycle and some of the tools are especially designed to be used in
relation to QC circle activities, i.e. in relation to the problem-solving process called ‘the
quality story’. These tools will be dealt with in the next section.

7.2 THE SEVEN+TOOLS FOR QUALITY CONTROL

In section 7.1 we discussed the so-called ‘quality story’ which today has become a
standardized quality improvement process in which Japanese quality circles are trained to
follow. As ‘the seven tools of quality control’ is a phrase which originated from Japan
and which is inseparable from quality circles we will begin this section with a definition
from the ‘quality circle bible’ (Japanese Union of Scientists and Engineers, 1970).
A quality circle is:
• a small group
• voluntarily carrying out quality control activities
• within its own work area.
This small group, where each member participates, carries out:
• continuously
• as part of the company’s total quality control activities
• quality and improvement
• within its own work area
• using quality control techniques.
It is apparent from the definition that the use of quality control techniques in problem
solving has been regarded as so important that it has been included in the definition of a
quality circle.
One of the reasons for the success of the so-called quality circles in Japan is that in the
‘Deming cycle’ a substantial part of the activities—‘check’, ‘action’ and ‘planning’—
have been transferred to the ‘process level’ (operator level). This ‘transfer’ of
responsibility and competence is shown in Figure 7.1.
By training workers in a number of basic quality control tools including ‘the quality
story’ it has been possible to create such a transfer of responsibility and competence. The
result of this transfer has been more satisfied employees and, at the same time, the
 Tools for the quality journey 75
employees’ creative abilities have been utilized much better than before which in turn has
resulted in better quality, greater productivity and thus a better financial position in the
company.
In order for the groups to qualify as ‘quality circles’ they ‘must’ use a suitable quality
control technique (method or tool) in their work. This of course requires training.
How important the different quality control techniques are depends on the nature of
the problem. In a comparative study between Denmark, Japan and South Korea
(Dahlgaard, Kristensen and Kanji, 1990) there was an attempt to collect data clarifying
the importance of the quality techniques most often ‘mentioned’ in literature, by asking
the companies to rank the quality techniques shown in Table 7.1 in order of importance.

Fig. 7.1 Transfer of PDCA activities to the

‘do’ level.
Table 7.1 Average ranking values for 10 different quality
techniques
Quality technique Denmark Japan South Korea
1. Stratification 6.4 (8) 2.9 (3) 5.0 (7)
2. Pareto diagram 3.6 (5) 2.9 (2) 3.5 (3)
3. Check sheet 3.3 (2) 4.5 (4) 3.0 (1)
4. Histogram 3.5 (4) 4.5 (5) 3.9 (5)
5. Cause-and-effect diagram 5.0 (6) 2.9 (1) 3.6 (4)
6. Control chart 3.4 (3) 4.6 (6) 3.1 (2)
7. Scatter diagram 7.4 (9) 6.5 (8) 6.6 (8)
8. Sample plans 2.6(1) 8.0(10) 8.0 (9)
9. Analysis of variance 6.2 (7) 7.6 (9) 9.0(10)
10. Regression analysis 7.7 (10) 5.8 (7) 4.0 (6)

In Japan, the first seven quality control techniques in Table 7.1 are called The 7 basic
tools for Quality Control’.
The table shows the average ranking values of these seven basic techniques plus three
others in the three different countries.
The figures in parentheses indicate the ranks of the different techniques, as the ranking
has been made on the basis of average ranking values.
 Fundamentals of total quality management 76
It can be seen from Table 7.1 that the most important quality technique in Japan is the
cause-and-effect diagram and as the Pareto diagram is often used in connection with the
cause-and-effect diagram, it is not surprising that this quality technique in Japan is ranked
as number 2.
In South Korea these two quality techniques are ranked as 4 and 3, whereas the
techniques in Denmark are ranked as 6 and 5 respectively.
The cause-and-effect diagram and the Pareto diagram are examples of two relatively
simple quality techniques the use of which does not require any special theoretical
education in contrast to the quality technique of ‘sample plans’. This is one reason why
these two quality techniques are regarded as extremely effective in quality circle work.
This is why these techniques are regarded as the most important in Japan.
By inspection and cause analyses it is important that lots from different processes,
suppliers etc. are not mixed up. Stratification is the name of this philosophy or procedure.
It is interesting that this quality technique in Japan is ranked as number 3 and with an
average ranking value equal to the average ranking values of the cause-and-effect
diagram and the Pareto diagram. In South Korea and in Denmark this quality technique is
considered quite unimportant. The most important quality technique in Denmark is
‘sample plans’, typically used to check the failure proportion of purchased lots, own
semi-manufactures or finished goods. This is called inspection. At this point, it is worth
recalling the well-known sentence: ‘Quality cannot be inspected into a product/
The three most important quality techniques in Japan are typically used to find and
remove the causes of poor quality. When these causes have been found and removed, the
importance of the use of sample plans is reduced. This correlation explains why Japanese
companies, in contrast to Danish companies, have given the lowest rank to ‘sample
plans’. Japanese companies are simply in the lead when it comes to finding and removing
the causes of quality errors. This is an important reason why the quality of Japanese
products is regarded as the best in the world.
All employees, including management, need training in the use of a number of the
basic quality tools. Only through familiarity with these tools can give employees the deep
understanding of the concept of variation necessary for total commitment to quality.
Management and employees in most Western firms have only a superficial knowledge
of these tools. Some of them will be familiar from school and college (e.g. with
stratification, check sheets, histograms and scatter diagrams) but it is not always fully
appreciated that they can actually be used in combination to great effect in the quality
improvement cycle (PDCA) in all the firm’s functions and at all levels.
The basic principles underlying the methods also are not fully understood. In Japan,
quality training courses for managers attach great importance to these basic principles. In
the description of the various methods, we will therefore focus on these principles and in
section 7.11 we will summarize where in the PDCA cycle the various methods can
be used.

7.3 CHECK SHEETS

There are two different types of ‘checks’ in the quality improvement cycle (the PDCA
cycle). For both types of checks a specifically designed sheet (form) may be very helpful.
 Tools for the quality journey 77
In the ‘do phase’ of the PDCA cycle there are usually some standards (standard
operations) which must be followed. Such ‘must-be operations’ were previously
described in section 5.4 as ‘constraints on carrying out the work’.
These constraints consist of restrictions which must be adhered to in performing the
work; items which ensure the safety of employees or assure product quality are the most
important of these.
To ensure adherence it is advisable to design a check-list check sheet with the
constraints (‘must-be operations’) listed. During the process the operator has to document
that all the must-be operations have been followed. The documentation may be the
signature of the operator or an ‘OK mark’ for each operation listed and a signature at the
end of the check-list.
It is a good idea that the operators are educated, trained and motivated to use such a
check-list check sheet. In many cases it is possible and a good idea to involve the
operators in the design or improvement (redesign) of check-lists. An example of a check-
list check sheet is shown in Table 7.2.
The second type of ‘check’ during the PDCA cycle is done in ‘the check phase’. Here
the results are compared with the plan and the causes behind any significant gaps are
identified and studied. The keywords here are study, learn and understand variations. If,
and only if, the variations are understood it is possible to continue the rotation of the
PDCA cycle in an efficient way. But profound understanding is only possible if
meaningful data is available and meaningful data will only be available if it has been well
planned.
In the plan phase of the PDCA cycle the necessary data collection must be planned so
that the collection can be done in the do phase and so that the necessary data analysis can
be done in the check phase.
Table 7.2 An example of a check-list check sheet
Prepare car for vacation
1. Check parts important for safety
Lights ()
Tyre tread depth ()
Bumpers ()
Steering ()
Brakes ()
2. Clean car
Interior ()
Windshield ()
Lights ()
3. Check, fill
Brake, fluid ()
Battery water ()
Coolant ()
Windshield washer system ()
Frost protection ()
Fuel ()
 Fundamentals of total quality management 78
Tyre pressure ()
Maps ()
Music cassettes ()

Table 7.3 An example of a check sheet

Machine Number of failures

1 IIIII I
2 IIIII IIIII I
3 II

In order to carry out the data collection and analysis effectively it is a good idea to design
a check sheet which simplifies the whole process. Such a check sheet must be specifically
designed for each PDCA application because the need for data varies from application to
application.
As a rule of thumb check sheets need both ‘result data’ and ‘cause data’. Examples of
result data are number of defects/failures, production size or inspection size. Examples of
cause data come from ‘the six Ms’ (men, machines, materials, methods, management and
mileu). An example of a check sheet is shown in Table 7.3.

7.4 THE PARETO DIAGRAM

The Pareto diagram is a graphic depiction showing both the relative distribution as well
as the absolute distribution of types of errors, problems or causes of errors. It is generally
known that in most cases a few types of errors (problems or causes) account for 80–90%
of the total number of errors in the products and it is therefore important to identify these
few major types of errors. This is what the Pareto diagram is used for. An example will
show how the diagram is constructed.
Table 7.4 shows data collected from a given production process. The table shows that
the process functions with a failure rate of about 19% and that almost half of the errors
stem from error type 1, whereas error types 1 and 3 account for about 72% of all errors.
The Pareto diagram is constructed on the basis of Table 7.4, ranking the error types
according to their failure percentage, thus giving a better overview of the same
distributions, cf. Figure 7.2.
Table 7.4 Absolute distribution and relative distribution of errors on
different error types (number of components inspected=2165)
Error type Number of errors Failure percentage (%) Relative failure percentage (%)
198 9.2 47.7
II 25 1.2 6.0
III 103 4.8 24.7
IV 18 0.8 4.3
V 72 3.3 17.3
Total 416 19.3 1000
 Tools for the quality journey 79

Fig. 7.2 The Pareto diagram.

It should be noted that the relative failure percentage expresses the failure percentage in
proportion to the total failure percentage.
It can be seen from Figure 7.2 that the Pareto diagram consists of a bar chart showing
the error distribution measured in absolute terms (left axis) as well as relative terms (right
axis). Furthermore, the Pareto diagram consists of a broken curve showing the
accumulated number of errors and the accumulated relative failure proportion.
The Pareto diagram indicates the type of error (problem) to be reduced first to improve
the production process. Judging from Figure 7.2, one should concentrate on reducing
error type I first, then error type III etc. If this procedure is to be economically optimal,
the greatest reduction in quality costs is obtained by first concentrating on error type I,
then error type III etc. The Pareto diagram is often used as the first step of a quality
improvement programme. A precondition for using the Pareto diagram in the first steps
of a quality improvement programme is of course that data has been collected, i.e. the
PDCA cycle has rotated at least once. Otherwise more soft data must be used to identify
‘the vital few’ causes.
When quality improvement programmes are initiated, it is important that:
1. all those involved co-operate;
2. a concrete goal is chosen (the problem);
3. the programme has a great effect.
If all the persons involved try to bring about improvements individually, the result will
often be that much energy is wasted and only modest results are achieved.
The Pareto diagram has proved to be useful for establishing co-operation around the
solution of common problems as simply looking at the diagram tells the persons involved
what the greatest problems are. When this is known to everybody, the next step is to find
and remove the causes of these problems. The cause-and-effect diagram may be useful in
further quality improvement work.
 Fundamentals of total quality management 80
7.5 THE CAUSE-AND-EFFECT DIAGRAM AND THE
CONNECTION WITH THE PARETO DIAGRAM AND
STRATIFICATION

The cause-and-effect diagram is also called an Ishikawa diagram because the diagram
was first introduced by Dr Kaoru Ishikawa in 1943 in connection with a quality
programme at the Kawasaki Steel Works in Japan. Sometimes the diagram is also called
a fishbone diagram.
Cause-and-effect diagrams can be extremely useful tools for hypothesizing about the
causes of quality defects and problems. The diagram’s strength is that it is both simple to
use and understand and it can be used in all departments at all levels.
Returning to the underlying connection between quality tools, when the first cause-
and-effect diagram has been drawn, it is necessary to identify the most important causes,
including the eventual testing of some of them. It is not always easy to identify the most
important causes of a given quality problem. If it were, poor quality would be a rare
occurrence and this is far from being the case.
Most causes can be put down to men, materials, management, methods, machinery
and milieu (the environment), cf. Figure 7.3.
The above diagram may be a good starting point for constructing the first cause-and-
effect diagram for a given problem. Note that there are now six main causes in the
diagram. Whether any of the six causes can be left out must be determined separately in
each specific problem situation.

Fig. 7.3 A cause-and-effect diagram showing

the most common main causes of a given
problem.

Identification of the main causes is carried out through a series of data analyses in which
the other quality tools (stratification, check sheets etc.) may be extremely useful when
hard data are collected. Some situations call for the use of more advanced statistical
methods, e.g. design of experiments or when soft data are used the so-called ‘seven new
management tools’ which are presented in Chapter 8.
When hard data are not available you can only construct the causeand-effect diagram
by using soft data. One method is to use brainstorming and constructing an affinity
diagram (Chapter 8) which can be used as an input to a further brainstorming process or
 Tools for the quality journey 81
cause analysis where the participants try to describe the first identified causes from the
affinity diagram in more detail.
This cause analysis consists of a series of why…? questions, cf. Toyota’s method, ‘the
five whys’. The answer to the first ‘why’ will typically consist of a list of the problems
which have prevented the results being as planned. It will normally be quite easy to
collect data for a Pareto diagram at this level. The answer to the next ‘why’ will be an
enumeration of the causes of one or more of the problems which were uncovered after the
first ‘why’. The third ‘why’ seeks to uncover causes of causes and the questions continue
until the problems/causes have become so concrete that it is possible to start planning
how to control them.
If the problems/causes are so abstract that planning a quality improvement programme
to control them is too difficult, then the questions must continue. Thus it can be seen that
the cause-and-effect diagram and the Pareto diagram can and in many cases ought to be
used simultaneously.
The answers to the individual ‘whys’ can be directly plotted on the first constructed
cause-and-effect diagram, making if gradually more and more detailed. The main trunk
and branches of the diagram show the answers to the first ‘why’, while secondary
branches show the answers to the next ‘why’, and so on, cf. Figure 7.4. Having been very
careful in this process the cause-and-effect diagram may look like a fish where the causes
resemble fishbones.

Fig. 7.4 Identifying root causes of a quality

problem.

On completion of the data analyses and with the most important causes identified, quality
planning can begin. Quality planning involves both determining which preventive
methods to use in controlling identified causes and setting goals for ‘planned action’.
Since it is not such a good idea to ‘attack’ all the causes at the same time, the Pareto
diagram may be a valuable tool. An example of how the Pareto diagram can be used can
be seen in Figure 7.5.
It can be seen from Figure 7.5 that problem A (=cause A) has consumed by far the
most working time and more than the other three problems together. It is therefore
decided to ‘attack’ this problem first and a method is found to control A. After one
rotation of the Deming Circle (Plan-Do-Check-Act), a new Pareto diagram can be
constructed. This can be seen in the right part of Figure 7.5 and it now shows that new
quality improvement activities ought to be directed towards problems B and C which
now constitute the ‘vital few’. The Pareto diagram in Figure 7.5 shows that the quality
 Fundamentals of total quality management 82
improvement programme has been effective. If there is not any change in ‘the vital few’
after one rotation of the Deming Circle, it is a sign that the programme has not been
effective.
In the above, we have equated problems with causes. This is perhaps a bit confusing
but the explanation is really quite simple. If a problem has many causes, which is often
the case, then it can be necessary to construct a cause-and-effect diagram to show in more
detail exactly which causes underlie the given problem. If data on the individual causes
are available, then the Pareto diagram can be used again afterwards, as shown in Figure
7.5. The Pareto diagram can therefore be used both at the problem level and the cause
level. This can be extremely useful in connection with step 4 of the Deming Circle, i.e. in
connection with the analysis of causes.

Fig. 7.5 An example of the use of a Pareto

diagram before and after the implementation of
a preventive method.
The Pareto diagram, which is used in connection with data analysis, can only be used to
the extent that data exists on the problems or causes. Quality planning should therefore
also take account of the data which are expected to be used in the subsequent data and
causal analyses. Since, as previously mentioned, the cause-and-effect diagram is basically
a hypothesis of the connection between the plotted causes and the stated problem, then it
should also be used in the planning of which data to collect. If this is neglected, it can be
very difficult to test the hypotheses of the cause-and-effect diagram and thus difficult to
identify the most important causes.
This brings us to the important stratification principle which, in Japan, is regarded as
the third most important quality tool, after the cause-and-effect and Pareto diagrams,
cf. Table 7.1.
The principle of stratification is, simply, that consignments of goods must not be
mixed up, so making effective data analysis impossible. Put another way, it should be
possible to divide production results up into a sufficiently large number of subgroups
(strata) to enable an effective causal analysis to be carried out. This is made easier if
 Tools for the quality journey 83
measurements of the production result are supplemented by data on the most important
causes. Experience shows, e.g. that measurements of the production result in many
manufacturing firms ought to be supplemented by data on people (which operator),
materials (which supplier), machines (type, age, factory), time (time of day, day, season),
environment (temperature, humidity) etc. Without such data, it can, e.g. be impossible to
determine whether the cause of a particular quality problem can be narrowed down to a
particular operator or whether it is due to something completely different.
In Denmark, stratification was ranked eighth out of ten quality tools, with the Pareto
and cause-and-effect diagrams coming in at numbers 5 and 6 respectively. In Japan, these
three were ranked as the three most important quality tools of the 10. This makes it easier
to understand Deming’s characterization of the Japanese: ‘They don’t work harder,
just smarter.’
When constructing cause-and-effect diagrams it may sometimes be a good idea to
equate the main causes in the diagram with the processes to follow when producing a
product or service. The production process of preparing (boiling) rice can be used as an
example.
The rice is the raw material which has to be washed first (process 1). Next, the rice is
boiled (process 2) in a pot (means of production) and finally, the rice is ‘steamed’ at
moderate heat for a suitable period of time (process 3).

Fig. 7.6 The quality you wish to improve.

The following steps are used in the construction of the cause-and-effect diagram:
Step 1: Choose the quality you wish to improve or control. In the ‘rice example’ it is
the taste of rice. The effect most people wish to obtain is ‘delicious rice’.
Step 2: Write the desired quality in the ‘box’ to the right and draw a fat arrow from the
left towards the box on the right.
Step 3: Write down the most important factors (causes) that may be of importance to
the quality considered. These possible causes are written in boxes and arrows are drawn
from the boxes towards the fat arrow drawn in Figure 7.6.
Within quality control of industrial products, the ‘six Ms’ are often listed as the most
important potential causes, i.e.
• manpower
• materials
• methods
• machines
• management
• milieu.
This division is only one out of many possible divisions, however and in the production
process under review it may be relevant to disregard one or more of the above causes and
another division may also be informative.
 Fundamentals of total quality management 84
In the ‘rice example’ the main causes shown in Figure 7.7 have been chosen.

Fig. 7.7 The main causes for cooking delicious rice.

In Figure 7.7 the ‘serving process’ has been included, as that may be the reason why the
rice is regarded as being delicious (or the opposite).
Step 4: New arrows or branches are now drawn on each of the side arrows in Figure
7.7 explaining in greater detail what may be the cause of the desired effect. New branches
(= arrows) may be drawn on these branches, describing in even greater detail what the
possible causes are. If this method is used in connection with group discussion or
‘brainstorming’, there is a greater chance that the causes will be uncovered. Often new
causes, hitherto unknown, will ‘pop up’ as a result of a brainstorming and the
construction of the ‘cause and-effect diagram’.
Figure 7.8 shows the cause-and-effect diagram in the rice examples.
It should be pointed out that the ‘cause-and-effect diagram’ shown in Figure 7.8 is
only one of several possible results. Some will be of the opinion that the causes shown
are less important and can therefore be left out, while others will be of the opinion that
the way the rice is served has nothing to do with ‘delicious rice’. In that connection it is
important, of course, that you fully understand the event (here ‘delicious rice’). To a
Japanese, the importance of ‘delicious rice’ will be different from the importance of
delicious rice to a Dane and the importance varies from person to person. What is needed,
in fact, is a specification explaining in detail what exactly is meant by the event indicated.
In practical quality control the ‘cause-and-effect diagram’ is typically used in the
production process partly as a means of finding the causes of the quality problems that
may arise and partly as a daily reminder of the causes to be inspected if the production
result is to be satisfactory. Together with the process control charts and the Pareto
diagram the ‘cause-and-effect diagram’ is probably the most widely used quality control
technique at the process level, i.e. thus also the technique most often used by quality
circles.
 Tools for the quality journey 85

Fig. 7.8 An example of a cause-and-effect

diagram.
The ‘cause-and-effect diagram’ can be used in all departments of a company, however,
from product development to sales and, as mentioned before, on problems other than
quality problems.

7.6 HISTOGRAMS

A histogram is a graphic summary (a bar chart) of variation in a specific set of data. The
idea of the histogram is to present the data pictorially rather than as columns of numbers
so that the readers can see ‘the obvious conclusions’ which are not always easy to see
when looking more or less blindly at columns of numbers. This attribute (simplicity) is an
important asset in QC circle activities.
The construction of the histogram may be done directly after the collection of data, i.e.
in combination with the construction and use of a check sheet or the construction may be
done independently of the use of check sheets, i.e. when analyzing data which have been
collected by other ways.
The data which are presented in histograms are variables data, i.e. time, length, height,
weight. An example will show how to construct a histogram.
A fictive company with 200 employees (the data has been constructed from several
companies of that average size) has had some success with the involvement of the
 Fundamentals of total quality management 86
employees in continuous quality improvements. The employees have been educated in
using the seven QC tools and a suggestion system has been set up to handle the
suggestions which are expected to come up. During the first year the total number of
suggestions was 235.
From the beginning it had been decided that the suggestion committee should have
meetings once a week (every Monday morning) in order to make sure that suggestions
were evaluated almost continuously so a quick feedback could be given to the individual
or to the group which had written the suggestion. The members of the suggestion
committee realized that the response time was an important ‘checkpoint’ for the number
of suggestions and they realized that the higher the response time the fewer suggestions
would be the result of the suggestion system.
A standard for the response time was discussed and a so-called ‘loose standard’ of 13
working days (= two weeks and three working days) was decided. The standard of the 13
working days was decided because it was expected that the complex and difficult
questions would need detailed analysis and discussions at perhaps one to two meetings of
the suggestion committee.
It was also decided that the response time for each suggestion should be measured and
after a year the collected data from the first year should be analysed in order to better
understand the system for suggestions and to decide on a fixed standard for the following
year. Table 7.5 shows the collected data arranged in groups of five and in the order of
suggestions.
From Table 7.5 it can be seen that the response time varies from seven days to 20
days. It is also apparent that ‘the loose standard’ of 13 working days has been difficult to
meet.
To achieve a deeper understanding of the variation in the data it was decided to
construct a histogram.
The following four steps are recommended when constructing a histogram.
Step 1: Plan and collect the data. The data has been collected and shown in Table 7.5.
Step 2: Calculate the range of the data. The range is equal to the difference between
the highest and the smallest number in the data set. In the case example the range is equal
to (20–7) days=13 days.
Step 3: Determine intervals and boundaries. The purpose of this step is to divide the
range into a number of equal broad intervals in order to be able to calculate the
frequencies in each interval. The number of intervals depends on the number of data but
both too few intervals and too many intervals should be avoided. A number of intervals
between eight and 12 is normally a good rule of thumb.
When you have determined the desired number of intervals then the width of each
interval can be calculated by dividing the range by the desired number of intervals.
In the example it would be natural to construct a histogram with 13 intervals, so the
width of each interval would be equal to one day. If the variation in the data had been
higher the width of each interval would have been higher. For example if the range had
been 24 days than each interval would have been equal to two days. The intervals are
usually calculated by a computer program.
 Tools for the quality journey 87

Table 7.5 Response time (days) of suggestions

Group Response time
1 14, 14, 11, 13, 10
2 19, 10, 11, 11, 14
3 11, 11, 17, 10, 11
4 13, 10, 13, 10, 13
5 11, 13, 10, 13, 10
6 11, 16, 12, 10, 13
7 11, 16, 10, 10, 9
8 9, 14, 12, 10, 13
9 13, 14, 10, 10, 11
10 10, 13, 11, 9, 11
11 13, 9, 11, 10, 10
12 10, 9, 11, 11, 10
13 14, 11, 11, 9, 10
14 10, 11, 9, 14, 11
15 14, 11, 17, 10, 11
16 11, 11, 9, 16, 10
17 10, 11, 10, 10, 14
18 14, 13, 9, 11, 14
19 10, 10, 10, 14, 11
20 11, 14, 11, 10, 11
21 8, 11, 11, 11, 11
22 9, 11, 11, 10, 10
23 10, 11, 9, 10, 13
24 11, 11, 10, 20, 14
25 10, 10, 11, 10, 11
26 11, 9, 11, 14, 11
27 11, 14, 17, 14, 9
28 9, 12, 11, 11, 14
29 16, 16, 13, 11, 15
30 16, 14, 13, 9, 16
31 18, 16, 14, 9, 16
32 15, 13, 13, 10, 10
33 13, 13, 11, 18, 9
34 11, 10, 14, 7, 14
35 10, 14, 9, 9, 13
36 11, 10, 11, 10, 9
37 9, 9, 10, 14, 10
38 13, 14, 16, 17, 14
39 10, 16, 19, 11, 11
40 9, 12, 13, 14, 11
41 11, 10, 14, 11, 11
42 11, 10, 13, 16, 10
 Fundamentals of total quality management 88
43 11, 11, 11, 11, 11
44 9, 14, 14, 13, 13
45 10, 13, 16, 11, 14
46 13, 9, 11, 14, 14
47 11, 13, 14, 14, 11

Fig. 7.9 Response time for suggestions

(in days).

Step 4: Determine the frequencies and prepare the histogram. Now the data in each
interval shall be tallied, i.e. the frequencies have to be calculated so that the histogram
can be constructed. Today when data is usually stored in a computer this step is
unnecessary. For most software packages steps 2 to 4 are done interactively with a
computer program.
Figure 7.9 shows the histogram of the subgroup averages constructed on a computer
package.
The following are easily concluded from the histogram:
1. The standard of 13 days was met only in approximately two out of three cases.
2. There seem to be two different distributions mixed in the same histogram. Perhaps the
left distribution is the result of simple suggestions and the right distribution is the
result of more complex suggestions.
One weakness of the histogram is that you do not see a picture of the variation in time.
For example the variation shown in a histogram may be the result of a combination of
two or more different distributions. In Figure 7.9 the response time data may have come
from a distribution with a higher mean in the first half-year than in the second half-year,
or the data may have come from distributions where the means have changed following a
 Tools for the quality journey 89
decreasing trend. To analyse if that is the case you have to construct a control chart. This
will be examined in section 7.7.2.

7.7 CONTROL CHARTS

7.7.1 THEORY
Control charts may be used partly to control variation and partly in the identification and
control of the causes which give rise to these variations. To better understand this, we
must go back to Shewhart’s 1931 definition of a production process and his division of
the causes of failures.
Shewhart defined a production process as, in principle, a specific mixture of causes.
Changing just one of the causes, e.g. change of operator, results in a completely different
production process. A new machine, a different tool, new management, a new training
programme etc. are all changes in causes which, after Shewhart’s reasoning, mean that
we are now faced with a whole new process. It is vital for managers to understand this.
Without such an understanding, it will be practically impossible for them to demonstrate
leadership.
Shewhart divided the causes of quality variations into the following groups:
1. specific causes
2. ‘random’ causes (=system causes).
‘Random’ causes are characterized by the fact that there are many of them and that the
effect of each of these causes is relatively small compared to the special causes. On the
other hand, the total effect of random causes is usually quite considerable. If the
aggregate effect of the many ‘random’ causes is unacceptable, then the process
(production system) must be changed. Put another way, another set of causes must be
found.
Shewhart’s use of the word ‘random’ is somewhat unfortunate—we prefer system
causes instead. Deming (1982) uses the designation ‘common causes’ and emphasizes
that it is these causes which must be ‘attacked’ if the system is to be improved. This is
our justification for calling them system causes. With this definition there is no doubt as
to where responsibility for these causes lies.
As opposed to system causes, there are only a small number of specific causes and the
effect of each specific cause may be considerable. This being so, it is possible to discover
when such specific causes have been at work which, at the same time, allows us to locate
and thus eliminate them. An example of a specific cause is when new employees are
allowed to start work without the necessary education and training. This is management’s
responsibility. Another example could be an employee who arrives for work on Monday
morning, exhausted after a strenuous weekend, with the result that the quality of the
employee’s work suffers as the day progresses. The employee is responsible here. It can
be seen, therefore, that while responsibility for system causes can be wholly laid at
management’s door, responsibility for specific causes can be placed with both employees
and management.
 Fundamentals of total quality management 90
A process control chart is a graphic comparison of the results of one or more
processes, with estimated control limits plotted onto the chart. Normally, process results
consist of groups of measurements which are collected regularly and in the same
sequence as the production the measurements are taken from. The main aim of control
charts is to discover the specific causes of variation in the production results.
We can see from the control chart when specific causes are affecting the production
result because the measurement of this result lies outside the control limits plotted onto
the chart. The job of having to find the cause or causes of this brings us back to the data
analysis, where the Pareto and cause-and-effect diagrams can be invaluable aids.
Figure 7.10 shows the basic construction of one of the most widely-used control
charts. This chart shows the average measurements of a production process plotted in the
same sequence as production has taken place, e.g. the five last-produced units of each
hour’s production could be measured. The average of these five measurements is then
plotted on the control chart.
The control limits are known as UCL (Upper Control Limits) and LCL (Lower
Control Limits), which are international designations. Exactly how these limits are
calculated depends on the type of control chart used, many different kinds having been
developed for use in different situations. As a rule, control limits are calculated as an
average of the measurements plus/minus three standard deviations, where the standard
deviation is a statistical measure of the variation in the measurements. The technicalities
of these calculations lie outside the framework of this book.
As Figure 7.10 shows, there are two points outside the control limits. This is a sign
that the process is out of statistical control. Each of these two points has had a special
cause which must now be found. If a point outside the control limits represents an
unsatisfactory result, then the cause must be controlled (eliminated). This of course does
not apply if it represents a good result. In such a case, employees and management,
working together, should try to use the new knowledge thrown up by the analysis to
change the system, turning the sporadic, special cause into a permanent system cause,
thus permanently altering the system’s results in the direction indicated by the analysis.

Fig. 7.10 The basic outline of a control chart

for the control of average measurements.
 Tools for the quality journey 91
As Figure 7.10 also shows, there is also a variation inside the control limits. This is due to
the many system causes which can be more difficult to identify.
One aim of the control chart is to help in evaluating if the quality production process is
in statistical control. In fact quality improvements should start with bringing the process
in statistical control and then improving the system (re-engineering) if the quality is not
satisfactory. Hence it is very important that any manager has a profound understanding of
this concept.
A production process is in statistical control if the control chart’s measurements vary
randomly within the control limits.
It follows from this that a production process is out of statistical control if either the
control chart’s measurements lie outside the control limits, or if these measurements do
not vary randomly within the control limits.
Concerning the variations within the control limits there are many rules to use when
deciding if variations are random or not. One wellknown rule is that seven points in
succession either above or below the chart average indicates the presence of a special
cause. This is due to the fact that there is a less than 1% probability of getting such a
result if the process is in statistical control.
A production process in statistical control is said to be both stable and predictable.
Unless new special causes turn up, we can predict that the future results of the process
will lie within the central limits. Characteristic of a production process in statistical
control is that all special causes so far detected have been removed, the only causes
remaining being system causes.
We can derive two very important principles from the basic concepts mentioned
above:
1. If we can accept the variation which results from system causes, then we should not
tamper with the system. There is no point in reacting to individual measurements in
the control chart. If we do react to individual measurements of a process in statistical
control, the variations will increase and the quality will deteriorate.
2. If we are dissatisfied with the results of the process, despite the fact that it is in
statistical control, then we must try to identify some of the most important system
causes and control them. The process must be changed so that it comes to function
under another set of causes. The production system must be changed, and this is
always management’s responsibility.
We have previously mentioned the so-called CEDAC diagram. Introducing this diagram
at Sumitomo Electric led to a fall in visible failure costs of 90% in only one year, due to
the control of a number of causes. The problem was that existing knowledge about the
causes of defects and existing knowledge of preventive methods was not always used in
daily production. A study showed (Fukuda, 1983) that a relatively large number of
production group members were ignorant of the existing knowledge about causes and
methods which was written down in production or quality manuals and even when they
had the requisite knowledge, a relatively large number of them did not always make use
of it. There are many reasons for this, of course and we will not go into them here, except
to repeat that the CEDAC diagram was able to control a number of these causes, so that
visible failure costs fell by 90%. The production processes were in statistical control both
before and after CEDAC was introduced but management (Fukuda, 1983) still was not
 Fundamentals of total quality management 92
satisfied, which resulted in the development and implementation of CEDAC. If
management still is not satisfied after such a ‘quality lift’, which Fukuda was not, then it
has no option but to continue identifying new system causes and developing new
methods to control them.
Using the theory we have just described, it is now possible to define the so-called
capability. The capability of a production process which is in statistical control is equal to
the acceptable spread of variation in the product specification divided by the variation
due to system causes. Since the acceptable spread of variation in a production process can
be expressed as the upper specification limit minus the lower specification limit, the
capability can be calculated as:

(7.1)

where:
USL=Upper Specification Limit
LSL=Lower Specification Limit
UCL=Upper Control Limit
LCL=Lower Control Limit
n=Sample size
į=the standard deviation of the individual measurements.

If the capability is less than 1.25, there is a real risk that the process will be unable to
meet the quality expressed by the specification limits. The reason for setting the critical
limit at 1.25 is that experience shows that there must be room for the process mean to
shift both upwards and downwards. Motorola’s quality goal was that, by 1992 at the
latest, all their processes, both administrative and production, should have a capability of
at least 2.0.

7.7.2 VARIABLES CONTROL CHART AND CASE EXAMPLE

In section 7.6 a histogram was constructed by using the data from a case example. The
data collected was the response times on each of 235 suggestions for improvements.
The data was presented in the same order as the suggestions were received by the
suggestion committee and the data was grouped with five measurements in each
subgroup (Table 7.5).
The grouping of observations is done in order to calculate and analyse the variation
between the mean response times and the variation within the groups measured by the
range. The suggestion system may be out of statistical control either because of
non-random patterns in the means or non-random patterns in the range. Table 7.6 shows
the calculated means and ranges within each subgroup.
The number of observations within each subgroup determines the number of
subgroups. The number may vary according to the total number of observations in the
data set but five observations are usually recommended in each subgroup and for the first
construction of the control chart which we deal with in this example, it is recommended
 Tools for the quality journey 93
that there are at least 80–100 observations (16–20 subgroups). For further explanations
study the literature concerning control charts.
The steps to be followed when constructing the M-R control chart are the following.
Step 1: Plot the calculated means (M) and ranges (R) in two different charts (diagrams)
where the abcissa is equal to subgroup number and the ordinate measure are the means
and ranges respectively.
Step 2: Calculate the average range and the process average (=the average of the
subgroup means):

(7.2)

(7.3)

Step 3: Calculate the control limits UCL (Upper Control Limit) and LCL (Lower Control
Limit):
Control limits for the means (=M):

(7.4)

(7.5)
Table 7.6 Response times, means and ranges for quality
suggestions
Subgroup Response time (X) Mean (M) Range (R)
1 14, 14, 11, 13, 10 12.4 4
2 19, 10, 11, 11, 14 13.0 9
3 11, 11, 17, 10, 11 12.4 7
4 13, 10, 13, 10, 13 11.8 3
5 11, 13, 10, 13, 10 11.4 3
6 11, 16, 12, 10, 13 12.4 6
7 11, 16, 10, 10, 9 11.2 7
8 9, 14, 12, 10, 13 11.6 5
9 13, 14, 10, 10, 11 11.6 4
10 10, 13, 11, 9, 11 10.8 4
11 13, 9, 11, 10, 10 10.6 4
12 10, 9, 11, 11, 10 10.2 2
13 14, 11, 11, 9, 10 11.0 5
14 10, 11, 9, 14, 11 11.0 5
15 14, 11, 17, 10, 11 12.6 7
16 11, 11, 9, 16, 10 11.4 7
17 10, 11, 10, 10, 14 11.0 4
18 14, 13, 9, 11, 14 12.2 5
 Fundamentals of total quality management 94
19 10, 10, 10, 14, 11 11.0 4
20 11, 14, 11, 10, 11 11.4 4
21 8, 11, 11, 11, 11 10.4 3
22 9, 11, 11, 10, 10 10.2 2
23 10, 11, 9, 10, 13 10.6 4
24 11, 11, 10, 20, 14 13.2 10
25 10, 10, 11, 10, 11 10.4 1
26 11, 9, 11, 14, 11 11.2 5
27 11, 14, 17, 14, 9 13.0 5
28 9, 12, 11, 11, 14 11.4 5
29 16, 16, 13, 11, 15 14.2 5
30 16, 14, 13, 9, 16 13.6 7
31 18, 16, 14, 9, 16 14.6 9
32 15, 13, 13, 10, 10 12.2 5
33 13, 13, 11, 18, 9 12.8 9
34 11, 10, 14, 7, 14 11.2 7
35 10, 14, 9, 9, 13 11.0 5
36 11, 10, 11, 10, 9 10.2 2
37 9, 9, 10, 14, 10 10.4 5
38 13, 14, 16, 17, 14 14.8 4
39 10, 16, 19, 11, 11 13.4 9
40 9, 12, 13, 14, 11 11.8 5
41 11, 10, 14, 11, 11 11.4 4
42 11, 10, 13, 16, 10 12.0 6
43 11, 11, 11, 11, 11 11.0 0
44 9, 14, 14, 13, 13 12.6 5
45 10, 13, 16, 11, 14 12.8 6
46 13, 9, 11, 14, 14 12.2 5
47 11, 13, 14, 14, 11 12.6 3

Table 7.7 Factors for M and R charts

Number of observations in A2 D3 D4
each subgroup
2 1.880 0 3.268
3 1.023 0 2.574
4 0.729 0 2.282
5 0.577 0 2.114
6 0.483 0 2.004
7 0.419 0.076 1.924
8 0.373 0.136 1.864
9 0.337 0.184 1.816
10 0.308 0.223 1.777
 Tools for the quality journey 95
Control Limits for the ranges (=R):

(7.6)

(7.7)

The factors A2, D3 and D4 can be found in Table 7.7.

The factors in this table have been calculated in order to make the calculations of the
control limits easier. The theory behind these factors is a known relationship between the
standard deviation and the range when it can be assumed that the calculated means follow
a normal distribution.
The following control limits can now be calculated:
Control limits for the means (=M):

(7.8)

(7.9)

Control limits for the ranges (=R):

(7.10)

(7.11)

Control charts constructed with a computer package are shown in Figure 7.11.
By analyzing the control charts the following can easily be concluded:
1. In the first chart one of the means is out of control and another mean is near to the
upper control limit (UCL). A specific cause has to be found and removed.
The point which is outside the control limit should be investigated. This is a
signal that a specific cause has not been controlled. This specific cause should be
identified and controlled so that the cause will not impact variations in the future.
This data should be taken out of the data set and a revised control chart for future
use should be constructed.
 Fundamentals of total quality management 96

Fig. 7.11 Control charts (M and R) for the

response time for suggestions.
2. In the second control chart (Figure 7.12(a)) it is assumed that the specific cause has
been removed so that new control limits can be calculated without the out-of-control
point. But still there is one point out of control. Having found the specific cause
behind the out-of-control point a revised control chart can be calculated.
3. In the third control chart (Figure 7.12(b)) there are no points out of control limits. It
looks as if the mean chart is in statistical control. In the R-chart there are nine points in
a row above the centre line. This is a signal that there is a specific cause behind these
points which should be found and controlled. Looking at the mean chart it can be seen
that most of the means are above the centre line. So the specific cause may be that the
stratification principle has not been used when constructing the control chart (refer to
section 7.6). It may be the complex suggestions which dominate the observations in
that period. If that is the case two control charts should be constructed to control the
process—one for the simple suggestions and one for the complex suggestions. The
two control charts will then each have smaller variations than the combined chart.
4. The revised control charts can then be used to control the process (the suggestion
system) in the future. If the average response time in each chart is not satisfactory the
suggestion system must be changed (change the system causes) and new control charts
must be constructed for this new system.
Tools for the quality journey 97

Fig. 7.12 Revised control charts (M and R) for

the response time.
 Fundamentals of total quality management 98
7.7.3 ATTRIBUTE CONTROL CHARTS
In many cases the data are not a result of measuring a continuous variable, but are the
result of counting how often a specific event or attribute, e.g. a failure has occurred. For
these circumstances another type of control chart has been developed—the attribute
control charts.
There are four types of attribute control chart as shown in Table 7.8.
As shown in Table 7.8 the attribute control charts are classified into the four groups
depending on what kind of measurements are being used. The simplest control charts
to use are the np chart and the c chart because the number of non-conforming units or
non-comformities are charted. It is a drawback, however, that the sample size must be
constant for these simple charts. The charts to measure and analyse proportions are a little
bit more difficult to use but both can adjust for varying sample sizes. Some further
explanations will be given below.
The p chart is a control chart to analyse and control the proportion of failures or
defects in subgroups or samples of size n. This control chart, as well as the np chart, is
based on assumptions such as the binomial distribution.
The attribute being looked at must have two mutually exclusive outcomes and must be
independent from one sampled unit to another. For example the unit being looked at must
either be good or bad according to some quality specification or standard. The unit may
be a tangible product or it may be a non-tangible product (event). For example the
suggestions analysed in section 7.7.2 could be analysed by a p chart because each
response time either conformed to the standard (13 days) or not. Another assumption
from the binomial distribution is that the probability for the specified event, e.g. defect, is
constant from sample to sample, i.e. variation around the average is random. This and the
other assumptions are analysed and tested by using the control chart.
The np chart is a control chart to analyse and control the number of failures or defects
in subgroups or samples of size n. As mentioned above the assumptions of the binomial
distribution are the theoretical foundation of this chart.
Table 7.8 The four types of attribute control chart
Data Non-conforming units Non-conformities
Numbers np chart c chart
Proportion p chart u chart

The c chart is a control chart to analyse and control the number of non-conformities
(defects, failures) with a constant sample size. The difference from the np chart is that for
each unit inspected there are more than two mutually exclusive outcomes.
The sample space for the number of non-conformities for each inspected unit has no
limits, i.e. the number of non-conformities (failures) may in theory vary from zero to
infinity. The c chart as well as the u chart is based on the poisson distribution. As with
the assumptions for the binomial distribution it is assumed that the probability for the
specified event (e.g. defect) is constant, i.e. variation around the distribution average
is random.
 Tools for the quality journey 99
Complex products, e.g. cars, computers, TV sets etc., require the use of c charts or u
charts. The same is the case with continuous products, e.g. cloth, paper, tubes etc. For
random events occurring in fixed time intervals, e.g. the number of complaints within a
month, the poisson distribution is also the correct distribution to apply and hence the
control charts to apply should be the c chart or the u chart.
The u chart is a control chart to analyse and control the proportion of non-conformities
(defects, failures) with a varying sample size. As with the c chart the theoretical
foundation and hence the assumptions behind the u chart is the poisson distribution.
To construct the control charts use the following formulas:

(a) The p chart

For each sample (subgroup) the failure proportion (p) is calculated and charted in the
control chart. The failure proportion is calculated as shown below:

(7.12)

where:
NF=number of failures in the sample
n=sample size (number inspected in sub group)
Construction of control limits is done as follows:

(7.13)

(7.14)

where:

(7.15)

and:
TNF=Total Number of Failures in all the samples inspected
TNI=Total Number Inspected (the sum of all samples).

For varying sample sizes the control limits vary from sample to sample. If varying
control limits may give problems to the users then plan for fixed sample sizes. For small
variations (±20%) using the average sample size is recommended. The benefit of using
the average sample size is that the control limits are constant from sample to sample.
 Fundamentals of total quality management 100
(b) The np chart
For each sample the number of failures (np=the number of non-conforming units) is
counted and charted in the control chart. Construction of the control limits is done as
follows:

(7.16)

(7.17)

(c) The c chart

For each sample (subgroup) the number of non-conformities (c) is counted and charted
on the c chart.
Construction of the control limits is done as follows:

(7.18)

(7.19)

where:

(d) The u chart

For each sample the number of non-conformities (failures) is counted and measured
relatively (u) to the number of units inspected and chartered in the control chart.
The average number of non-conformities per inspected unit is calculated as follows:

where:
TNc=total number of non-conformities (c) in all samples
TNI=total number of units inspected
Construction of the control limits is done as follows:
As with the p chart the control limits vary if the sample size (=n) varies.
 Tools for the quality journey 101

(7.21)

(7.22)

(e) A case example

A company decided to choose the number of credit notes per week as a checkpoint
because they realized that credit notes were a good indicator for customer dissatisfaction.
The historical data for the last 20 weeks were collected and the data are shown in Table
7.9. The number of sales invoices per week was relatively constant in this period.
Table 7.9 The number of credit notes per week in 20 weeks
Week Number
1 2
2 0
3 11
4 5
5 3
6 4
7 4
8 1
9 3
10 7
11 1
12 1
13 3
14 0
15 2
16 10
17 3
18 5
19 3
20 4
 Fundamentals of total quality management 102

Fig. 7.13 Control chart (c chart) for the

number of credit notes per week.

Using the c chart the following control limits can be computed.

(7.23)

(7.24)

(7.25)

The control chart is shown in Figure 7.13.

From Figure 7.13 we can see that the process is not in statistical control. The specific
causes behind the out of control data in weeks 3 and 16 should be identified and
controlled. Under these assumptions the control chart should be revised by deleting the
data from these two weeks.
The revised control chart is shown in Figure 7.14 and as we see the process is now in
statistical control. The control chart can now be used to control future credit note data.

Fig. 7.14 Revised control chart for the number

of credit notes per week.
 Tools for the quality journey 103
7.7.4 RECOMMENDATIONS FOR APPLICATION
We have described above the fundamental and extremely important theory underlying the
use of control charts in controlling average measurements (M-R charts, p charts and the
u chart) together with the charts to control absolute measurements (the np chart and the
c chart). There are many other types of control charts which, however, lie outside the
framework of this book but the fundamental theory is the same for all. It is essential that
all managers understand this theory, irrespective of whether control charts are used
explicitly in the firm’s administrative and production processes or not. We are convinced,
however, that control charts both can and ought to be used far more than is the case in
Western firms today. Together with the other quality tools, control charts can, as
mentioned above, be used in many of the traditional functions of the firm, whether they
be actual production functions or other functions such as administration, sales and
services. The basic theory underlying control charts is still the same as described here.
Some examples of such uses follow.

(a) Traditional production

1. Number of defects per manufactured unit, both overall and for individual processes.
2. Visible failure costs as a percentage of the production value for both internal and
external failure costs.
3. CSI (consumer satisfaction index) for internal customer relations.
4. Average measures of individual production processes.
5. Number of quality improvement proposals per employee.
6. Number of defects per employee or production per employee. What is controlled here
is whether some employees are ‘special causes’ who either need help themselves
(negative deviation), or who can help other employees (positive deviation).

(b) Administration, sales and service

1. Number of defects per produced unit in the individual functions. The unit chosen can
be an invoice, a sales order, an item in the accounts, an inventory order, a sales
monetary unit, etc.
2. Sales costs as a percentage of the invoiced sale.
3. Production per employee.
4. Sales per employee.
5. CSI for the firm as a whole and possibly also for the more important products/services.
The first example in each category, number of defects per unit, is a general quality metric
which can be used in all the functions of the firm. Motorola has had great success with
this, cf. Chapter 4. We will not comment further on the above examples other than to say
that they are a good illustration of the many possible uses to which control charts can be
put in a number of the firm’s departments. That this tool is not used more in the West is
because, in our opinion, firms have not done enough to train their employees in its use.
These charts will not be successful until employees understand the basic theory behind
them. This deep understanding can only come from education and training on the job.
 Fundamentals of total quality management 104
7.8 SCATTER DIAGRAMS AND THE CONNECTION WITH THE
STRATIFICATION PRINCIPLE

In section 7.5 the important stratification principle was discussed in relation to the
cause-and-effect diagram and the Pareto diagrams. The basic reason for dealing with
stratification is that it enables an effective causal analysis to be carried out and so
improves the design of effective prevention methods.
An effective causal analysis will only be effective if measurements of production
results are supplemented by data on the most important causes, e.g. by data on people
(which operator), materials (which supplier), machines (type, age, factory), time (time of
day, which day, season), environment (temperature, humidity) etc. Without such data, it
can, e.g. be impossible to determine whether the cause of a particular quality problem can
be narrowed down to a particular operator, or whether it is due to something completely
different.
When planning the first data collection you usually have some weak hypotheses about
the relation between ‘results’ and ‘causes’. Budgets and other goals are in fact predictions
of results based on incomplete knowledge about the set of causes (the cause system). The
better the knowledge about the relationship between the cause system and the result the
better the predictions will be.
In many situations we might have result data, e.g. data on the number of failures,
failure proportions, number of complaints, productivity, quality costs etc. which may be
continuous, related to some cause data. There may, e.g. be a linear relationship between
the result data and the cause data which can be estimated by traditional regression
analysis. The drawback to using this method is that employees at the shop floor level very
seldom have the necessary background for using such an ‘advanced method’. The method
will not ‘invite’ employees at the shop floor level to participate in problem solving.
Instead the method may act as a barrier against everybody’s participation. More simple
methods are needed. In these circumstances the scatter diagram may prove to be very
powerful.
In the following section we will show a scatter diagram which has been constructed by
a QC circle in Hamanako Denso, a company which belongs to the Toyota group. The QC
circle at the coil-winding section, which consisted of a foreman and nine female workers,
had problems with a high break rate for coils. The break rate was equal to 0.2% and the
circle members decided on an aggressive goal which should decrease the break rate to
0.02% within six months.
By using flow charting, cause-and effect diagrams, data collection (check sheets),
Pareto diagrams, histograms and scatter diagrams they succeeded in decreasing the break
rate to 0.01% within the six months.
Another example of a scatter diagram is shown in Chapter 14 where the relationship
between the ordinary profit and the company size measured by the number of full-time
employees in the Danish printing industry is presented. This is an example of where there
is no direct causal relationship between the two variables. It was not possible to construct
and measure a causal variable in this example and hence it was decided to use a simple
variable instead which correlated with the cause system (see section 14.2).
 Tools for the quality journey 105
7.9 CASE EXAMPLE: PROBLEM SOLVING IN A QC CIRCLE
USING SOME OF THE SEVEN TOOLS (HAMANAKO DENSO)

The following case study has been included by permission from the Asian Productivity
Organization, Tokyo, Japan. The case was published in 1984 in Quality Control Circles
at Work—cases from Japan’s manufacturing and service sectors. Even though we are
aware that production technology has changed since the case was written we have chosen
to include the case as it was written in 1979.

7.9.1 PREVENTING BREAKAGE IN V COILS

Full participation as the first step in reducing defects
Takeshi Kawai
Parts Manager, 1st Production Section
Hamanako Denso
(March 1979)
Editor’s introduction: this QC circle is made up primarily of housewives who approach
their circle activities in the spirit of brightening and enlivening their work, an important
factor when one must manage both a home and a job. The company is sited near the
birthplace of Sakichi Toyoda. In fact, the circle meetings are held in the house where he
was born and to pay respect to his dying exhortation to ‘strive to learn and create and stay
ahead of the times’. The three lines of their QC circle motto start with the three syllables
of his given name:
SAra ni hatten (further development)
KItaeyo tagai ni (mutual improvement)
CHIe to doryoku de (with wisdom and effort)
The following account of their activities concerns the use of special equipment for
winding automobile regular coils. Responding to a zero-defects policy at the company,
the entire group set out to reduce the rate of defects from 0.2% to 0.02%. To see this
difficult project through to completion, the leader applied the whole range of
QC techniques and obtained co-operation from the company staff as well as the full QC
circle. Patient data collection and analysis bore fruit and after six months, the target was
more than achieved.
The report below covers all the necessary information about reducing defects in a
machine processing step but, doubtless due to space limitations, it is less detailed than
one would like in describing the housewife-dominated membership of the circle and
explaining how the improvements were carried out.

(a) Introduction
Our QC circle is engaged in making one of the important parts of an automobile: we wind
regulator coils. Stimulated by the catch-phrase ‘zero major defects/ we decided to tackle
the problem of breaks in these V coils.
 Fundamentals of total quality management 106
(b) Process and our circle
Our process consists of machine-winding the coil, wrapping the lead wire around the
terminal, soldering it to the terminal, checking the resistance and visual appearance and
delivering the coil to the next process (Figure 7.15). I am the only male in this 12-
member circle. Nine of the women are housewives. The housewives’ average age is 38
and they have an average of two children each.

Fig. 7.15 Regular coil winding. (Source: Asian

Productivity Organization, 1984.)
The QC circle got off to a difficult start, with only 50% attendance at the weekly after
work meetings. The low attendance was discussed during the noon breaks and members
gave such reasons as, ‘It makes people late in fixing meals for their families’ and
Transportation home afterwards is a problem.’ As a result, we decided to:
1. Hold the meetings on Mondays, so that members could make their dinner preparations
the day before (Sunday).
2. Give everybody a lift home afterwards.
We also decided to put craft materials and other diversions in the rest area at the factory
and to take other steps to create a pleasant atmosphere, as well as to supply members who
could not attend meetings with notepaper on which they could submit their suggestions
so that everyone could participate in some way.

(c) Reason for starting the project

The company had begun a zero-defect campaign. Since breaks were the most serious
defect in the regulator coils for which we were responsible, we chose this as our project.

(d) Goal setting

We set a target of reducing the break rate from its current (June 1977) value of 0.2% to
0.02% by the end of December.
 Tools for the quality journey 107
(e) Understanding the present situation
I looked over 500 defective coils manufactured during June to see where the breaks had
occurred and showed 206 of them to the entire circle. Together, we summarized the
general results of this study in a Pareto diagram (Figure 7.16).

(f) Study of causes

We decided to focus on breaks at the beginning of the winding and had each member
suggest three reasons why breaks might occur there. We then arranged these suggestions
in a cause-and-effect diagram (Figure 7.17).

(g) Factorial analysis

1. Individual differences: to see how different workers performed, we had three people
wind coils on the same machine (No. 1). These turned out to be no great difference in
the rate of defects.
2. Material differences: three gauges of copper wire are used. All of the breaks occurred
with the thinnest gauge (diameter 0.14 mm).
3. Machine differences: breaks occurred on all the machines but we found that the rate
increased with the tension load.
4. Correlation between tension load and rate of breaks was determined from a study of
3000 coils produced at each workstation (Figure 7.18). I did this analysis myself and
presented the results to the circle members.
Our QC circle then made another cause-and-effect diagram to try to find the reason for
the variation in tension. We investigated and planned studies of the spring pressure, the
felts and rollers A and B (Figure 7.19). A special instrument was needed to measure
spring pressure, so we asked the production engineering section to make that
measurement.

(h) Actions and results

By putting sealed bearings on both rollers A and B, we got the variation in tension load
within the designated limits and the defect rate, which had been 0.2% in June, fell to
0.09% in September (Figure 7.20). But this was still short of our target of 0.02%. Our
circle therefore made yet another factorial analysis to search for other causes that might
be keeping the defect rate high (Figure 7.21).
In regard to action 3, slackening the lead wire, I showed the members how to put light
thumb pressure on the wire when wrapping it around the terminal. As a result, breaks at
the beginning of the winding disappeared.
Fundamentals of total quality management 108

Fig. 7.16 Pareto diagram showing locations of

breaks. (Source: Asian Productivity
Organization, 1984.)

Fig. 7.17. Cause-and-effect-diagram for

suggestions why breaks occur. (Source: Asian
Productivity Organisation, 1984.)
Tools for the quality journey 109

Fig. 7.18 Correlation between tension load and

rate of breaks. (Source: Asian Productivity
Organization, 1984.)
 Fundamentals of total quality management 110

Fig. 7.19 Investigation plan. (Source: Asian

Productivity Organization, 1984.)

(i) Results and institutionalization

By actions 1 to 4, we were able to get the rate of breaks down from 0.2% in June 1977 to
the 0.02% target level in November (Figure 7.22).
To institutionalize this result, we had the following four items added to the check sheet
and work instructions:
1. Check tension load.
2. Check tension, roller A and roller B.
3. Clean rollers.
4. Handle coils correctly.
 Tools for the quality journey 111
(j) Conclusion
Through the co-operation of the QC circle members, the causes of the breaks were found,
corrective actions were taken and the target was achieved by the end of the year. There
was a time along the way when the circle’s efforts did not seem to be having results and
members began to lose heart but, thanks in part to advice from management, we were
able to complete our project and enjoy a sense of collective satisfaction.

Fig. 7.20 Results of actions. (Source: Asian

Productivity Organization, 1984.)
 Fundamentals of total quality management 112

Fig. 7.21 Further factorial analysis and actions.

(Source: Asian Productivity Organisation,
1984.)

Fig. 7.22 Results achieved. (Source: Asian

Productivity Organization, 1984.)

(k) Future plans

1. Having achieved our year-end target of 0.02% break defects, we plan to revise our goal
and go for zero.
2. By stimulating QC circle activities and getting everybody to work on the problem, we
hope to reduce the break rate in other steps in the production process.
 Tools for the quality journey 113
7.10 FLOW CHARTS

With this last tool we have ‘passed the seven basic tools for quality control’. That is the
reason why we use the phrase in section 7.2 ‘the seven+tools for quality control’. But as
the bible says—the last shall be the first—so is it often with the flow chart technique.
John T.Burr (Costin, 1994) said it in this way:
• Before you try to solve a problem, define it.
• Before you try to control a process, understand it.
• Before trying to control everything, find out what is important.
• Start by picturing the process.
We also agree 100% with his following comments:

Making and using flow charts are among the most important actions in
bringing process control to both administrative and manufacturing
processes. While it is obvious that to control a process one must first
understand that process, many companies are still trying to solve problems
and improve processes without realizing how important flow charts are as
a first step.
The easiest and best way to understand a process is to draw a picture of
it—that’s basically what flow charting is.

In the early days of ISO 9000 many companies made many mistakes on the
recommendation of consultants who neither understood the basics of standardization (see
section 5.5.1) nor the key points which we quoted at the beginning of this section.
The typical advice was: ‘You just have to document what you are doing in your key
processes—then we will check if there are gaps compared with the ISO requirements.’
With such a ‘low quality’ advice it is not surprising that many companies later realized
that ISO 9000 did not live up to their expectations. The opportunity for improvements of
the production processes as well as the administrative processes were lost. Perhaps this is
the root cause for the dramatic increase in the interest for Business Process Re-
engineering (BPR). The processes were not well engineered from the start.
Another typical mistake was that the employees were not involved very much in
documenting the processes using flow charts. Many companies still had the belief that
involvement of the employees in the certification process would delay the certification
because the employees did not have the necessary profound knowledge of ISO 9000 and
they did not have sufficient overview of the processes. They did not realize that
involvement of their people in the documentation was a necessary first step and the
entrance to continuous improvements.
Milliken Denmark is one of the companies which has learned this lesson. We quote
from Dahlgaard, Kristensen and Kanji (1994):

The last months of 1988 were a milestone in the history of the company.
This was when our quality control system finally obtained ISO 9001
certification. Twenty office staff had spent 4000 working hours over 10
months in documenting the system.
 Fundamentals of total quality management 114

The documentation process was extremely important, since it gave us

the opportunity of looking into every nook and cranny in the firm. There
were overlapping areas of responsibility in several parts of the firm and,
what was perhaps worse, other areas where there was no precisely defined
responsibility at all. Co-ordination at management level during this phase
undoubtedly speeded the quality process along.
We thought we would end up with quality management, but we found
that an ISO certification is more about the quality of management. We
must demand integrity and responsibility from our managers if the
certification is to be more than just a pretty diploma on a wall.
We underestimated the interest and involvement of shopfloor workers
in the documentation phase. We were so caught up in things that there
wasn’t time to tell them what sort of certificate we were trying to get,
what lay behind such a certificate, or how they would be affected by it.
Employees were fobbed off with assurances that, as far as they were
concerned, it would be ‘business as usual’, the only difference being that
now it would be in the name of a formal quality control system.
Once the press conferences and receptions were over, management was
accused by employees of having pulled a fast one. We were put in the
same category as the Emperor’s New Clothes.

We have included these quotations at the beginning of this section in order to explain to
the reader that quality tools are only effective if they are used in the right way and the
basic rules to follow are:
1. Educate your people in understanding the aims and principles of the different tools.
2. Train your people in applying the tools.
3. The best training is ‘on the job training’.
These rules are also good rules to follow when constructing flow charts.
When constructing a flow chart we recommend you follow the following nine steps.

7.10.1 AGREE UPON THE FLOW CHART SYMBOLS TO BE USED

There is not a single standard for construction of a flow chart.
The most simple flow charts use only four symbols which are shown in Figure 7.23
(Robert Bosch, 1994).
We have just one comment to add to these symbols. The connect symbol is used when
there is no more space on the page for continuation of the flow chart. The figure in the
connect symbol tells you which connection you should look for on the following page(s).
It is important to realize that any symbols can be used for flow charts but their
meaning must be clear for all the people involved in the construction and use of the flow
chart. We recommend the above four symbols to be used but we also realize that varying
symbols are used today in the different QC tools software packages (Tool Kit, SAS
QC, etc.).
 Tools for the quality journey 115

7.10.2 DEFINE THE PROCESS

Here it is important to define the boundaries of the process, i.e. the first activity which
you want to include as well as the last activity. The detailed activities between these
boundaries will be described in the next step.

Fig. 7.23 Symbols for use in a flow chart.

(Source: Robert Bosch, 1994.)

7.10.3 IDENTIFY THE STEPS IN THE PROCESS

The output of this step is a list of the detailed process steps. A good way to construct such
a list is to follow normal transactions through the process and write down on a piece of
paper what is happening. When a ‘new activity’ is carried out on the transaction you have
a new step. It is usually necessary to make observations and inquiries where the activities
are happening. In this way you will also be able to identify abnormal transactions.

7.10.4 CONSTRUCT THE FLOW CHART

Here the correct symbols are used to draw the flow chart. In a QC circle it is normally a
good way to construct the flow chart on large pieces of paper (flip chart paper) which are
put sequentially side by side on the wall, so that each participant can overview the whole
process during the construction. With the latest computer packages (Tool Kit, SAS QC
etc.), which are very easy to operate, new ways of constructing the flow chart are
emerging.
The text on the flow chart should be short and clear for the people involved in the
process. For each step describe what, who and where.
 Fundamentals of total quality management 116
The people involved in the construction should include those who carry out the work
of the process, the internal suppliers and customers, the supervisor of the process and a
facilitator.
The facilitator is a person specifically trained in construction of flow charts. Besides
drawing the flow chart the facilitator’s job is to secure that all the participants are active
in discussing the flow. An important issue to discuss during the construction is the
measurement issue. Discuss what is important for the internal suppliers, the process and
the customers (internal as well as external customers) and what is possible to measure.
But remember:
• Before trying to control everything, find out what is important.
Allot enough time to the construction of the flow chart. It may be advisable to meet at
more than one session in order to have time for further data collection.

7.10.5 DETERMINE THE TIME FOR EACH STEP

Time is both a measure of the resources used and a dimension of quality. Customers’
perception of a product or service are usually high correlated with time. Therefore it is
recommended that the estimated average time to complete each step in the flow chart is
discussed and estimated. It is especially important to estimate the time for delays because
the total process time may consist of 90% delays (waiting time, storage etc.) and 10%
activity. All the estimated times should be written on the flow chart beneath each step.

7.10.6 CHECK THE FLOW CHART

Having completed the previous steps it is now time to check and analyse the constructed
flow chart. Is it really a good flow? Where are the weak points in the process? What are
the internal customer-supplier requirements of each step? What are their experiences?
What are the external customer-supplier expectations, needs and requirements? How did
we live up to these needs, expectations and requirements? How can we improve the
process in order to improve customer satisfaction? How can we reduce waste?
The facilitator’s job is to secure that the vital questions as above are discussed. It is
important that the participants both are objective (facts) as well as creative in this step.
There are good opportunities here to apply the seven basic tools for quality control as
well as some of the seven new management tools (e.g. affinity diagram).
The output of this step should be a list of ‘OFIs’ (Opportunities For Improvements).
Some of the suggestions may be complex and difficult to implement immediately so a
plan for evaluation and implementation may be needed.
 Tools for the quality journey 117

7.10.7 IMPROVE THE FLOW CHART (IMPROVE THE PROCESS)

The output of the previous step is a list of improvements to be implemented immediately.
The flow chart has to be revised according to this list and the process has to be changed
accordingly (education, training, communication, etc.). The quality measures and goals as
well as a plan for data collection should be decided.

7.10.8 CHECK THE RESULT

This step follows the rules of the check activity in the PDCA cycle.

7.10.9 STANDARDIZE THE FLOW CHART (STANDARDIZE THE

PROCESS)
If the results are satisfactory the process can be standardized. The process flow chart is a
vital part of the documented standard.

7.11 RELATIONSHIP BETWEEN THE TOOLS AND THE

PDCA CYCLE

As a conclusion to this chapter we present Table 7.10 which gives the reader an overview
of the seven+tools for quality control and their potential application in the PDCA cycle.
As can be seen from the Table 7.10 the seven+tools for quality control can be applied
in different parts of the PDCA cycle. Three of the methods may be applied in the
planning phase (P), all of them may be applied in the Do and Check phases while three of
the methods may be applied in the Action phase. Only one of the methods—flow
charts—may be applied in all the phases of the PDCA cycle. In Chapter 8 we will
improve this table in order to show the importance of applying the various methods in the
different phases of the PDCA cycle. For further information about various methods for
TQM, see Kanji and Asher (1996).
Table 7.10 The relationship between the PDCA cycle and the
seven+tools for quality control
Tool P D C A
Check sheet X X
Pareto diagram X X X
Cause-and-effect diagram X X X
Stratification X X X
Histogram X X X
Control charts X X
Scatter diagram X X
Flow charts X X X X
 Fundamentals of total quality management 118
REFERENCES

Asian Productivity Organization (1984) Quality Control Circles at Work, Tokyo, Japan.
Burr, T., in Readings in Total Quality Management (ed. H.Costin), The Dryden Press, Harcourt
Brace College Publishers, New York, USA.
Dahlgaard, J.J., Kanji, G.K. and Kristensen, K. (1990) A comparative study of quality control
methods and principles in Japan, Korea and Denmark. Journal of Total Quality Management,
1(1), 115–132.
Dahlgaard, J.J., Kristensen, K. and Kanji, G.K. (1994) The Quality Journey—A Journey Without An
End, Advances in Total Quality Management, Total Quality Management, Carfax Publishing
Company, London.
Deming, W.E. (1986) Out of the Crisis, MIT, USA.
Fukude, R. (1983) Managerial Engineering, Productivity Inc., Stanford, USA.
Ishikawa, K. (1985) What is Total Quality Control?—The Japanese Way, Prentice Hall, Englewood
Cliffs, USA.
Japanese Union of Scientists and Engineers (1970) QC Circle Koryo—General Principles of the
QC Circle, Tokyo, Japan.
Kanji, G.K. and Asher, M. 100 Methods for Total Quality Management, SAGE, London.
Robert Bosch (1994) Elementary Quality Assurance Tools, Robert Bosch, Denmark.
Shewhart, W.A. (1931) Economic Control of Quality and Manufactured Products, D. van Nostrand
& Co., Inc., New York. USA.
 8
Some new techniques management

As Senge (1991) points out, the evolution of quality management may best be understood
as a series of waves. In the first wave the focus was on the front-line worker and the idea
was to improve the work process. To this end the seven old QC tools played and still play
a very important role. In the second wave focus is on the manager and the idea is to
improve how the work is done. This calls for a new set of techniques which specifically
focus on the way that managers work and co-operate. Contrary to the seven old
techniques these new techniques are mainly qualitative with a purpose to help the
manager, among other things, to organize large amounts of non-quantitative data, create
hypotheses, clarify interrelationships and establish priorities.
The techniques, although for the most part not invented by the Japanese, were first
presented as a collection in 1979 in a Japanese publication edited by Shigeru Mizuno. In
1988, the publication was translated into English and since then the seven new
management techniques have come to play an important role in the education of Western
managers. This is especially true after an adaption of the techniques to the Western way
of teaching and thinking made by Michal Brassard in 1989. His publication is called The
Memory Jogger Plus and it features six of the original techniques plus a further one.
In his introduction of the techniques, Professor Mizuno analyses the necessary
prerequisites for a continuation of the quality journey and comes up with the following
seven capabilities that should be present in any company:
1. Capability of processing verbal information.
2. Capability of generating ideas.
3. Capability of providing a means of completing tasks.
4. Capability of eliminating failures.
5. Capability of assisting the exchange of information.
6. Capability of disseminating information to concerned parties.
7. Capability of ‘unfiltered expression’.
After studying these demands a collection of techniques was suggested. Most of the
techniques had their origin in the West and were well-known to Western researchers.
They came from various areas of management science, among others, operations research
and multivariate statistics. The only original technique among the seven was the so-called
affinity diagram method which was invented by a Japanese anthropologist for use within
his own area.
In what follows we examine some of the seven techniques and supplement them with
the technique that was included by Bassard as mentioned above. Hence our seven new
management techniques will in fact be eight and to be in line with the Memory Jogger
philosophy we might call them ‘The Seven New Management Techniques PLUS'.
Further management techniques can be found in Kanji and Asher (1966).
 Fundamentals of total quality management 120
The placing of the eight techniques in relation to other quality management techniques
can be demonstrated in Figure 8.1 below. In this the techniques are classified according
to whether they are quantitative or qualitative, whether or not they are advanced and
whether they belong to the old or the new group of techniques.
The seven old techniques have already been described in the previous chapter. Design
of experiments will not be dealt with in detail in this book but an example will be given
when we describe measurement of quality in relation to product development in Chapter
15. In what follows we examine a couple of the new techniques. In our opinion the most
powerful of the new techniques are matrix data analysis, affinity analysis, matrix
diagrams, relations diagrams, tree diagrams and analytical hierarchies and hence these are
the ones that we will be discussing in detail with in this chapter. However, the tree
diagram is a very wellknown and very easy to use method of breaking down a problem or
a phenomenon into details (a tree like the one given in Figure 8.1) and likewise the
relationship diagram is a very easy graphical method of showing the links between the
elements of a given problem by simple putting the elements down on a piece of paper and
then drawing the relevant arrows between them. None of these elements involves special
techniques and hence we will not discuss here.
The remaining techniques, the PDPC and the arrow diagram (equal to PERT), are, to
our experience, seldom used by mainstream managers and hence we will not provide any
information on them here. Instead we ask the reader to consult Kanji and Asher (1996).

Fig. 8.1 A classification of quality

management techniques (tree diagram).

8.1 MATRIX DATA ANALYSIS

As shown in Figure 8.1 above, matrix data analysis is the only real quantitative technique
among the seven new techniques. The objective of the technique is data reduction and
 Some new techniques management 121
identification of the hidden structure behind an observed data set. The name matrix data
analysis refers to the data input to the technique which is a matrix of data consisting of a
number of observations on a number of different variables. This is demonstrated in Table
8.1 in which we have a matrix of n observations on p different variables. A typical data
set of this type will be when the observations are different products and the variables are
different characteristics of the products or when the observations are customers and the
variables represent customer satisfaction measured in different areas.
When you have a data set like this it is very difficult to get a clear picture of the
meaning of the data. Here are the variables interrelated and what does the interrelation
mean? What we need is some kind of visualization of the data set and especially a
reduction of the dimensionality from p or n to two or three which, to most people, are the
maximum that the human brain can deal with.
Table 8.1 A matrix of data
Variable 1 Variable 2 Variable 3 … Variable p
Observation 1 X11 X12 X13 X1p
Observation 2 X21 X22 X23 X2p
Observation 3 X31 X32 X33 X3p
Observation 4 X41 X42 X43 X4p
…
Observation n Xn1 Xn2 Xn3 Xnp

The procedure is as follows:

1. Arrange your data in an n×p matrix as shown in Table 8.1. Call this matrix X.
2. Compute the matrix of squares and cross-products, X’X. Alternatively compute the
matrix of variances and covariances or the correlation matrix.
3. Compute the principal components of the matrix given in 2.
4 Compute the correlations between the original variables and the principal components,
the so-called loadings.
5. Use the first two principal components to give a graphical presentation of the loadings
computed in 4. This presentation gives the best possible description of the original
data set using only two dimensions.
As appears from the description above the backbone of matrix data analysis is the
technique called principal components. It is a multivariate statistical technique which
originates back to the 1930s and which originally was used especially by psychologists to
discover latent phenomena behind the observed data.
The calculation of the principal components of a data set is done by solving the
following equations:

(8.1)
 Fundamentals of total quality management 122
where Ȝj is the jth characteristic root and ȣj is the corresponding characteristic vector. The
jth principal component (yj) which is uncorrelated with all other principal components is
calculated as a linear combination of the original observations as follows:

(8.2)

The principal components are characterized by the fact that the first principal component
explains most of the variance in the original observations. The second principal
component explains second most of the variance and so forth. It is outside the scope of
this book to go more into detail with the technique of principal components but a
thorough presentation of the technique may be found in the excellent book by Johnson
and Wichern (1993).
Calculation of the principal components and loadings and the corresponding graphics
is easily done by using one of the major statistical software packages, e.g. SPSS, SAS or
SYSTAT.
As a demonstration of matrix data analysis consider the following example. A major
company producing and selling different kinds of electric equipment decided to carry out
a customer satisfaction survey. In the survey approximately 200 customers were asked
about the importance of and their satisfaction with the following dimensions:
1. assortment;
2. support to the customer’s own sales and marketing effort;
3. delivery;
4. technical support;
5. technical quality of products;
6. catalogues;
7. close relationship to people working in the sales department;
8. speed of introduction of new products and new ideas;
9. close contact to the company in general;
10. prices.
Each of these areas was evaluated by the customer both concerning importance and
concerning the performance of the company. In order to simplify actions to be taken later
on it was decided to analyse the importance scores in more detail to see how the areas
were interrelated and to find out the simplest way to describe the 10 dimensions.
A matrix data analysis was carried out which resulted in the mapping given below in
Figure 8.2.
Based on the placing of the points in the diagram it was decided to group the customer
satisfaction parameters in two groups. These were:
1. contact parameters;
2. product parameters.
 Some new techniques management 123

Fig. 8.2 Matrix data analysis of customer

satisfaction parameters.

Fig. 8.3 Cause-and-effect diagram of customer

satisfaction parameters.

The grouping appears from the cause and effect diagram given in Figure 8.3.
These two groups have a high correlation within the groups and a smaller correlation
between the groups. This means, e.g. that customers giving high importance to
assortment also tend to give high importance to technical support. From a quality point of
 Fundamentals of total quality management 124
view it follows from this that when action is going to be taken it will be wise to treat the
elements belonging to a group as a whole.
Matrix data analysis is a very effective technique to help you to discover the structure
of large data sets. The technique is a bit complicated from a technical point of view but
fortunately very easy to use software packages are on the market. In order to use the
technique you need to know what it does and how the output is interpreted. You need to
know all the mathematical details of the technique and hence we believe that in spite of
the technicalities there is no reason why the method should not become a standard
technique for the modern manager.

8.2 AFFINITY ANALYSIS

A technique called affinity analysis was developed in the 1960s by Japanese

anthropologist Kawakita Jiro. When he was working in the field he made detailed notes
of all his observations for later study. But this meant that he would be faced with large
amounts of information in the future. In order to simplify the process he developed a new
method for handling the information which he called the KJ method. The idea behind the
method was to be able to go through large amounts of information in an efficient way
and, at the same time, to establish groupings of the information. The method was later
generalized and called the affinity method.
For the modern business person the affinity analysis is an efficient and creative way to
gather and organize large amounts of qualitative information for the solution of a given
problem. The procedure is described in Figure 8.4 below.

8.2.1 STAGES 1, 2, 3 AND 4 (IDEA GENERATION)

As mentioned above the idea of affinity analysis is to gather and combine large amounts
of verbal information in order to find solutions to a specific problem. Hence the first two
stages of the process will be to define the problem and to generate ideas. When defining
the problem it is very important to reach consensus about the words that you are going to
use. There must be absolutely no doubt about the issue under discussion because if this is
the case it may later on be very difficult to use the results. The generation of ideas will
follows the traditional guidelines of brainstorming, structured or unstructured, with no
criticism of ideas whatsoever.
Each idea is written down on a small card or a Post-it note and placed randomly on the
centre of the table where everybody can see it.
 Some new techniques management 125

Fig. 8.4 Procedure for affinity diagram.

8.2.2 STAGES 5, 6 AND 7 (IDEA GROUPING AND PRESENTATION)

After generation of the ideas the grouping session starts. The idea is to arrange the cards
in related groupings. This grouping is done by the entire team and it takes place in
silence. In practice the team members start the grouping by picking out cards that they
think are closely related and then placing these at one side of the table or wall, wherever
the session takes place. Eventually groups of cards appear and the grouping process
continues until all team members are satisfied with the grouping. If a member is not
satisfied he simply moves a card from an existing group to another which he finds more
appropriate. Sometimes a card keeps moving from one group to another. In such a case it
is a good idea to break the silence and discuss the actual meaning of the wording on the
card. When a card keeps moving the usual reason is that the wording on the card is
unclear or equivocable.
After the grouping has come to an end it is time to break the silence. Now the team
discusses the groups and they decide upon headings for the groups. Finally an affinity
diagram showing the entire grouping is drawn.
In our opinion this technique is very efficient in connection with problem solving. It
may seem very simple and unsophisticated but experience shows that it may be of great
help at all levels of management. Furthermore it is a very fast method due to the silence.
Time is not spent in argument, instead you go directly to the point and solve the problem!
As an example we report the results of a study made by a large supplier of food. He
was interested in getting an idea of what the ordinary female consumer thought
characterized the ordinary daily meal. He started the study by setting up two focus groups
each consisting of eight persons. The first group consisted of females below the age of 35
and the latter of females above 35. Within the groups the members were distributed
according to occupation, education and family situation.
One of the exercises that the groups did was to use the affinity technique (after proper
introduction to the technique) to define and group elements that they thought
 Fundamentals of total quality management 126
characterized the daily meal. They followed the procedure given above and one of the
results was the affinity diagram given in Figure 8.5 below.
The two groups came up with almost identical groupings which in itself is very
interesting. The grouping given here is for the 35 4- team and the only difference between
this one and the one given by the other team was that for the younger females the fatty
content was moved from the healthy group to the quality group. For this team less fat
meant higher quality. We believe that if the affinity technique had not been used we
would never have discovered the difference—a difference which is actually very
important that you communicate to your customers.

Fig. 8.5 Affinity diagram describing the daily

meal.

8.3 MATRIX DIAGRAMS

The matrix diagram is a technique which is used for displaying the relationship between
two or more qualitative variables. It is the direct counterpart of graphs in two or more
dimensions showing the relationship between quantitative variables.
There are many uses of matrix diagrams in daily business life. Below are shown some
of the more typical:
• ORGANIZATIONAL
initiative diagrams
responsibility diagrams
educational planning
• PRODUCT DEVELOPMENT
quality function deployment
 Some new techniques management 127

• MARKETING
media planning
planning of a parameter mix
There are a number of different forms of matrix diagram. The most common and useful
forms are the ones given in Table 8.2 above where the so-called L-, T- and X-shaped
matrices are described.
The contents of the matrices are symbols describing the strength of the relationship
between the variables. A blank cell means no relationship, while a triangle means a weak
relationship, a circle a medium relationship and a double circle a strong relationship.
Table 8.2 Matrix forms

(Source: GOAL/QPC 1989)

The L-shaped matrix is the most common. It shows the relationship between two
variables and is the direct basis for, e.g. the well-known house of quality from Quality
Function Deployment. The T-shaped matrix is just two L-shaped matrices on top of each
other. The idea of stacking the matrices follows from the fact that, in this way, it will be
possible to make inductions between two of the variables via the third. This is also the
idea of the X-shaped matrix. In this matrix the relationship between three variables is
directly described and the relationship to the fourth is then found by induction.
The procedure for constructing a matrix may be as follows:
1. Define the problem and choose the team to solve it.
2. Choose the variables to enter the solution.
3. Decide upon the relevant matrix format (L, T, X).
4. Choose symbols for the relationships.
5. Fill in the matrix.
In what follows we describe part of the planning process for a bakery producing and
selling butter cookies. The problem described was concerning the distribution of the
budget for consultancy at different markets but in order to find a solution it was necessary
to break down the problem into relationships that were known and then try to use
inference to establish the unknown relationships.
 Fundamentals of total quality management 128
As a starting point the relationship between the motive for buying butter cookies and
production parameters was considered and a matrix diagram was built up. On top of this
another matrix was built describing the relationship between production parameters and
the necessary help at different markets. The result was now a T-shaped matrix but the
problem was not yet solved. Hence it was continued with another known relationship
which was built into the diagram: the relationship between countries and motives. By
adding this to the T-shaped matrix it was possible to infer the relationship between
markets and the help needed at different markets. The final result is shown in Figure 8.6
below. The symbols in the upper-left matrix have been calculated by using the algorithm
given below the matrix.

Fig. 8.6 Matrix diagram showing the plan

matrix for a bakery.
 Some new techniques management 129
8.4 PRIORITIZATION MATRICES AND ANALYTICAL
HIERARCHIES

We all know that in very many cases it will be necessary to choose between alternatives,
e.g. for the solution of a problem. When the number of alternatives is large the process of
choosing between them becomes increasingly complicated and we need a methodology to
help us.
In America there is a methodology called the analytical hierarchy process which
breaks down the decision into hierarchies and into simple two-dimensional comparisons
which may be understood by anybody. This type of methodology is, in our opinion,
extremely important and may be of very great help to managers dealing with quality
improvements.
To describe the idea of prioritization let us assume that for the solution of a given
problem we have identified four different alternatives A, B, C and D. What we need is
the relative importance of these alternatives but we cannot establish this directly. What
we then do is to set up a matrix where the alternatives are written both as rows and
columns. This is shown in Table 8.3.
Now the prioritization starts by comparing each row with the columns and asking the
question: How important is the row alternative compared to the column alternative? The
answer to the question is a number describing the relative importance. When the total
matrix has been filled in we have the final prioritization matrix from which the idea is
that it should be possible to calculate an estimate of the relative importance of the
individual alternatives. Before we can do that, however, we must consider some
theoretical aspects of the prioritization matrix.

8.4.1 THEORETICAL OUTLINE

Let the i,j entry of the matrix be aij. We then immediately know that the following must
hold good of the entries:

aii=1 (8.3)

i.e. the diagonal elements must be equal to unity and the matrix will be reciprocally
symmetric.

(8.4)

Table 8.3 Prioritization matrix

A B C D
A
B
C
D
 Fundamentals of total quality management 130
What we need from this prioritization is a weight describing the relative importance of
the four alternatives. Let these weights be w1 to w4 (or in general wn). From this follows
that the relationship between the ws and the as must be as follows if the matrix is
consistent:

(8.5)

This leads to the conclusion that

(8.6)

and from which, by summation over all alternatives, we find that the following
interesting relationship must hold:

(8.7)

This tells us that a consistent matrix will have rank 1. Furthermore it will only have one
eigenvalue different from zero and this eigenvalue will be equal to n, the number of
alternatives. The eigenvector corresponding to the eigenvalue n will be equal to the
relative weights of the alternatives.
Of course a matrix will in practice seldomly be consistent (apart from 2×2 matrices)
but then we can still use the theoretical outline to get the best estimate of the relative
weights and furthermore the theory also gives us an indication of the degree of
consistency of a given matrix.
In practice we will define the vector of relative weights as the solution to the
following matrix equation which is equal to the characteristic equation of the
prioritization
matrix A:
Aw=Ȝmaxw
(8.8)

where Ȝmax is the largest eigenvalue and w is the corresponding eigenvector. In addition
we will define the inconsistency by measuring the degree to which the largest eigenvalue
deviates from the theoretically largest eigenvalue, n. As suggested by Saathy (1980), the
inconsistency index will be measured as follows:

(8.9)

This number tells us how consistent the decision makers have been when they
constructed the prioritization matrix. Saathy has suggested that if the ICI exceeds 0.10 the
matrix should be rejected and the process should start over again.
 Some new techniques management 131
This is, of course, a rather complicated theory and to many mainstream managers it
may be very difficult to use results as the ones given in the theoretical outline above.
Fortunately there are some alternatives. First of all there exists a commercial computer
program which can do all the calculations. The name of this program is Expert Choice
and it is available for all modern PCs.
Secondly there is a much easier and more straightforward method of obtaining the
relative weights. This method is, of course, not as accurate as the one given in the
theoretical outline but the results are usually sufficiently precise. The methods goes as
follows:
1. Normalize all columns of the matrix so that they add up to one.
2. Compute the individual row averages. The resulting numbers are the relative weights.
For example let the prioritization matrix be:

Now follow the procedure above and normalize all columns. In this case we get the
following result:

From this we can calculate the row average and obtain an estimate of the relative weights
of the three alternatives. The result is:

which tells us that alternative A has been given a weight of 13%, alternative B a weight of
21% and alternative C a weight of 66%.
The degree of inconsistency is not as easy to calculate if you are not going to use the
matrix calculations. The method is as follows:
1. multiply the columns of the original matrix by the weights of the alternatives;
2. compute the row sum of the new matrix;
3. divide the row sums by the weights of the alternatives;
4. compute the average of the new numbers. This average is an estimate of Ȝmax.
 Fundamentals of total quality management 132
We will continue with the example from above. In step 1 we multiply the columns by the
weights of the alternatives. This leads to the following matrix which we may call C:

Now compute the sum of the rows and divide this sum by the weights of the alternatives.
This gives.

The average of the RHS is now equal to 3.09 from which follows that the ICI is:

(8.10)

We believe that the use of prioritization matrices is going to grow dramatically in the
years to come because of the growing complexity of practical decision making. In order
to ease the use of the matrices Saathy has suggested a scale to be used when filling in the
matrices. This scale is given in Table 8.4 above.
Table 8.4 Important measures
Intensity of Definition Explanation
importance
1 Equal importance Two activities contribute equally to the objective
3 Weak importance of one over Experience and judgment slightly favour one
the other activity over the other
5 Essential or strong Experience and judgment strongly favour one
importance activity over the other
7 Very strong or demonstrated An activity is favoured very strongly over
importance another; its dominance demonstrated in practice
9 Absolute importance The evidence favouring one activity over another
is of the highest possible order of affirmation
2,4,6,8 Intermediate values between When compromise is needed
adjacent scale values
Other scales have been suggested but we believe that the one suggested by Saathy is
working reasonably well in practice. To give an example of the use of the scale, assume
that alternative A is strongly favoured over alternative B, its dominance is however not
demonstrated in practice. In this case the entry in the prioritization matrix at position 1,2
will be 5 and the entry at position 2,1 will be 1/5.
 Some new techniques management 133
Apart from the use of prioritization matrices another important aspect of the analytical
hierarchy process is that decisions are broken down into hierarchies which make it
possible to make the decisions in a sequential way. An example of this is given in Figure
8.7 below in which the choice of future strategy was up for discussion. The board was
discussing the following alternative in order to find an appropriate mix: price changes,
advertising, product development, cost reductions, investments and job enrichment but
they could not reach a conclusion just by considering the alternatives. Hence it was
decided to break down the decision process into stages and try to evaluate the different
stages individually.
The choice between the alternatives will now take place by going through all the
levels of the hierarchy using prioritization matrices at each stage in order to evaluate the
importance of the individual paths.

Fig. 8.7 Decision hierarchy for a textile

company.

Eventually all paths have been ranked and you end up with a final ranking of the
alternatives.
In the authors’ experience it takes a little time to convince managers that this is a good
way to make decisions. But as soon as they have experienced the value of having
consistency measures at each stage, and when decision in this way become very well
documented, the opposition disappears.
 Fundamentals of total quality management 134
8.5 AN EXAMPLE

To finalize our demonstration of the use of these techniques we give you an example
from a sports club. One of the committees of this club was given a sum of $100,000 to
make new initiatives towards the members of the club. They started their work by
breaking down the problem of choosing new activities using a tree diagram. This diagram
is shown in Figure 8.8.
Based on this the committee started its prioritization by prioritizing between the
elements of the first level of the tree: the professionals and the amateurs. This led to the
result given in Figure 8.9.
The next step was to prioritize between the actions for the professionals on the one
side and the actions for the amateurs on the other. These prioritizations are shown in
Figures 8.10 and 8.11.
Now it is possible to complete the hierarchy. At each stage the relative importance
is inserted and by multiplication we may now reach the final result. This is shown in
Figure 8.12.

Fig. 8.8 Choosing new activities using a tree

diagram.

Fig. 8.9 Priority between professionals (E) and

amateurs (M).
 Some new techniques management 135
It can be seen from the figure that the budget has now been distributed between the
alternatives. All members of the committee were satisfied with the solution because it
was clearly based on consensus and it was later on easy to explain why the outcome was
as shown.
Only one thing remained and this was to distribute the jobs between the members of
the committee. To this end a special version of the matrix diagram was used. The
diagram is shown in Figure 8.13.

Fig. 8.11 Prioritization between actions for

amateurs.

Fig. 8.10 Prioritization between actions for

professionals.
Fundamentals of total quality management 136

Fig. 8.12 Final hierarchy with distribution of

budget.

Fig. 8.13 Matrix diagram showing the

distribution of jobs.
 Some new techniques management 137
The conclusion made by the committee members on the use of these techniques in a
situation like this was that the techniques are very efficient for reaching the goals fast. In
other situations a problem like the one described would have been discussed for ages and
when a conclusion had been reached nobody would really be able to explain how it
was reached.

REFERENCES

Brassard, M. (1989) The Memory Jogger Plus, GOAL/QPC, Methuen, MA,USA.

Johnson, R.A. and Wichern, D.W. (1993) Applied Multivariate Statistical Analysis, Prentice-Hall,
New York, USA.
Kanji, G.K. and Asher, M. (1996) 100 Methods for Total Quality Management, SAGE, London.
Mizuno, S. (1988) Management for Quality Improvement: The Seven New QC Tools, Productivity
Press, Mass., USA.
Saathy, T. (1980) The Analytical Hierarchy Process, McGraw-Hill, USA.
Senge, P.M. (1991) The Fifth Discipline—The Art and Practice of the Learning Organization,
Doubleday Currency, New York, USA.
 9
Measurement of quality: an introduction

Modern measurement of quality should of course be closely related to the definition of

quality. As mentioned many times the ultimate judge of quality is the customer which
means that a system of quality measurement should focus on the entire process which
leads to customer satisfaction in the company, from the supplier to the end user.
TQM argues that a basic point behind the creation of customer satisfaction is
leadership and it appears from previous chapters in this book that basic aspect of
leadership is the ability to deal with the future. This has been demonstrated very nicely
by, among others, Jan Leschly, president of Smith Kline, who in a recent speech in
Denmark compared his actual way of leading with the ideal as he saw it. His points are
demonstrated in Figure 9.1 below.
It appears that Jan Leschly argues that today he spends approximately 60% of his time
on fire-fighting, 25% on control and 15% on the future. In his own view a much more
appropriate way of leading would be, so to speak, to turn the figures upside down and
spend 60% of your time on the future, 25% on control and only 15% on fire-fighting.
We believe that the situation described by Jan Leschly holds true for many leaders in
the Western world. There is a clear tendency that leaders in general are much more
focused on short-term profits that on the process that creates profit. This again may lead
to fire-fighting and to the possible disturbing of processes that may be in statistical
control.
The result of this may very well be an increase in the variability of the company’s
performance and hence an increase in quality costs. In this way ‘the short-term leader’
who demonstrates leadership by fighting fires all over the company may very well be
achieving quite the opposite of what it wants to achieve.
To be more specific we are of the opinion that ‘short-term leadership’ may be
synonymous with low quality leadership and we are quite sure that in the future it will be
necessary to adopt a different leadership style in order to survive, a leadership style
which in its nature is long term and which focuses on the processes that lead to the results
rather than the results themselves. This does not of course mean that the results are
uninteresting per se but rather that when the results are there you can do nothing about
them. They are the results of actions taken a long time ago.
All this is of course much easier said than done. In the modern business environment
leaders may not be able to do anything but act on a short-term basis because they do not
have the necessary information to do otherwise. To act on a long-term basis requires that
you have an information system which provides early warning and which makes it
possible for you and gives you time to make the necessary adjustments to the processes
before they turn into unwanted business results. In our view this is what modern
measurement of quality is all about.
 Measurement of quality: an introduction 139
In order to create an interrelated system of quality measurements we have decided to
define the measurement system according to Table 9.1 below, where measurements are
classified according to two criteria: the stakeholder and whether we are talking about
processes or results. (See also section 4.3.)

Fig. 9.1 Actual way of leading compared with

the ideal.
Table 9.1 Measurement of quality—the extended concept
The company The customer The society
The Employee satisfaction (ESI) Control and checkpoints Control and checkpoints
process Checkpoints concerning the concerning the internal concerning, e.g.
internal service structure definition of product and environment, life cycles etc.
service quality
The Business results Financial Customer satisfaction (CSI) ‘Ethical accounts’
result ratios Checkpoints describing the Environmental accounts
customer satisfaction
 Fundamentals of total quality management 140
As appears from Table 9.1 we distinguish between measurements related to the process
and measurements related to the result. The reason for this is obvious in the light of what
has been said above and in the light of the definition of TQM. Furthermore we
distinguish between three ‘interested parties’: the company itself, the customer and the
society. The first two should obviously be part of a measurement system according to the
definition of TQM and the third has been included because there is no doubt that the
focus on companies in relation to their effect on society will be increased in the future
and we expect that very soon we are going to see a great deal of new legislation within
this area.
Traditional measurements have focused on the lower left-hand corner of this table, i.e.
the business result and we have built up extremely detailed reporting systems which can
provide information about all possible types of breakdown of the business result.
However, as mentioned above this type of information is pointing backwards and at this
stage it is too late to do anything about the results. What we need is something which can
tell us about what is going to happen with the business result in the future. This type of
information we find in the rest of the table and we especially believe (and also have
documentation for) that the first four squares of the table are related in a closed loop
which may be called the improvement cycle. This loop is demonstrated in Figure 9.2.
This is particularly due to an increase in customer loyalty stemming from an increase
in customer satisfaction. The relationship between customer satisfaction and customer
loyalty has been documented empirically several times. One example is Rank Xerox,
Denmark who, in their application for the Danish Quality Award, reported that when they
analysed customer satisfaction on a five-point scale where 1 is very dissatisfied and 5 is
very satisfied they observed that on average 93% of those customers who were very
satisfied (5) came back as customers, while only 60% of those who gave a 4 came back.

Fig. 9.2 The improvement loop.

 Measurement of quality: an introduction 141
Another example is a large Danish real estate company who, in a customer satisfaction
survey, asked approximately 2500 customers to evaluate the company on 20 different
parameters. From this evaluation an average value for customer satisfaction (customer
satisfaction index) was calculated. The entire evaluation took place on a five-point scale
with 5 as the best score which means that the customer satisfaction index will have values
in the interval from 1 to 5.
In addition to the questions on parameters, a series of questions concerning loyalty
were asked and from this, a loyalty index was computed and related to the customer
satisfaction index. This analysis revealed some very interesting results which are
summarized in Figure 9.3 below in which the customer satisfaction index is related to the
probability of using the real estate agent once again (probability of being loyal).
It appears that there is a very close relationship between customer satisfaction and
customer loyalty. The relationship is beautifully described by a logistic model.
Furthermore it appears from the figure that in this case the loyalty is around 35% when
the customer satisfaction index is 3, i.e. neither good nor bad. When the customer
satisfaction increases to 4 a dramatic increase in loyalty is observed. In this case the
loyalty is more than 90%. Thus the area between 3 and 4 is very important and it appears
that even very small changes in customer satisfaction in this area may lead to large
changes in the probability of loyalty.

Fig. 9.3 Probability of loyalty as a function of

customer satisfaction.

The observed relationship between business results and customer loyalty on one side and
customer satisfaction on the other is very important information for modern management.
This information provides early warning about future business results and thus provides
management with an instrument to correct failures before they affect the business result.
The next logical step will be to take the analysis one step further back to find internal
indicators of quality which are closely related to customer satisfaction. In this case the
warning system will be even better. These indicators which in Table 9.1 have been named
 Fundamentals of total quality management 142
control points and checkpoints will of course be company specific even if some generic
measure may be defined.
Moving even further back we come to the employee satisfaction measure and other
measures of the processes in the company. We expect these to be closely related to the
internally defined quality. This is actually one of the basic assumptions of TQM. The
more satisfied and more motivated employees you have the higher the quality in the
company.
An indicator of this has been established in the world’s largest service company, the
International Service System (ISS) where employee satisfaction and customer satisfaction
have been measured on a regular basis for some years now (see Chapter 10). In order to
verify the hypothesis of the improvement circle in Figure 9.2, employee satisfaction and
customer satisfaction were measured for 19 different districts in the cleaning division of
the company in 1993. The results were measured on a traditional five-point scale and the
employee satisfaction index and the customer satisfaction index were both computed as
weighted average of the individual parameters. The results are shown in Figure 9.4.

Fig. 9.4 Relationship between ESI and CSI.

The interesting figures shown in Figure 9.4 demonstrate a clear linear relationship
between employee satisfaction and customer satisfaction. The higher the employee
satisfaction the higher the customer satisfaction. The equation of the relationship is as
follows:

CSI=0.75+0.89 ESI (R2=0.85) (9.1)

The coefficients of the equation are highly significant. Thus the standard deviation of the
constant term is 0.33 and of the slope is 0.09. Furthermore we cannot reject a hypothesis
that the slope is equal to 1.
It appears from this that a unit change in employee satisfaction more or less gives the
same change in customer satisfaction. We cannot of course, just from these figures claim
that this is a causal relationship but combined with other information we believe that this
 Measurement of quality: an introduction 143
is strong evidence for the existence of an improvement circle like the one described in
Figure 9.2. To us, therefore, creation of a measurement system along the lines given in
Table 9.1 is necessary. Only in this way will management be able to lead the company
upstream and thus prevent the disasters that inevitably follow the fire-fighting of short-
term management.
In the following chapters we follow this up and will describe in detail the
measurement of customer satisfaction, employee satisfaction and the control and
checkpoints of the process in relation to the customer.
 10
Measurement of customer satisfaction

10.1 INTRODUCTION

As mentioned in the previous chapters the concept of quality has changed dramatically
during the last decade or so. Today increasing customer orientation has forced companies
to use a definition of quality in terms of customer satisfaction.
This change, of course, means that the measurement of quality also has to be changed.
It is no longer sufficient just to measure quality internally. Instead you also have to go to
the market-place and ask the customers about their impression of the total set of goods
and services they receive from the company. A number of companies, especially
Japanese companies, have already realized this but many Western companies (especially
European) are still lagging behind when it comes to quality measurements from the
market-place. This has been demonstrated very clearly in our QED study. In Japan almost
every member company of JUSE has a systematic way of measuring and reporting
customer satisfaction. In Denmark this only holds true for two out of three comparable
companies.
In this chapter we develop a theoretical framework for the measurement of customer
satisfaction. Furthermore we suggest a practical implementation (see Kristensen et al.,
1992). A practical example is given in Chapter 20.

10.2 THEORETICAL CONSIDERATIONS

We assume that the company has a very simple delivery system in which the goods and
services are delivered directly to the end user and where the company can obtain
customer satisfaction information directly from the end user. Furthermore it is assumed
that the goods and services are evaluated by the customer on n different parameters
concerning importance of and satisfaction with each parameter. Let the rate of
importance (weight) of the ith parameter be Ȧi and let ci be the individual satisfaction
evaluations on an appropriate scale. We then define the customer satisfaction index (CSI)
as follows:

(10.1)

We now assume that the revenue from customer satisfaction can be described as some
function of the CSI, ĭ(CSI). This function is of course assumed to be an increasing
function of CSI—the larger the CSI the larger the revenue.
 Measurement of customer satisfaction 145
Furthermore, we assume that the cost of obtaining customer satisfaction is quadratic
with k as a cost parameter. This is a standard assumption within economic theory and
furthermore it is in accordance with, e.g. the philosophy of Taguchi. What the assumption
means is that it becomes more and more expensive to increase customer satisfaction
when customer satisfaction is already at a high level. To put it in another way, the
marginal cost is not constant but instead is an increasing function of customer
satisfaction.
From this it follows that the expected profit is given by

(10.2)

In order to balance the quality effort in the company the management problem is to
maximize profit with respect to the mean value of the individual quality parameters. The
first-order conditions of this maximization are equal to

(10.3)

These conditions may be rewritten in several ways, such as

(10.4)

The left-hand side of this equation may be interpreted as an index explaining how well
the company fulfils the expectations of the customer. The right-hand side balances
revenue and costs and tells us that the required degree of fulfilment will depend upon
how much you get from customer satisfaction measured in relation to the costs.
Practical application of the results will depend upon the available information in the
company. Weight and satisfaction can be estimated by sampling the market while it will
usually be more difficult to get information about individual cost factors. Sometimes a
rough estimate of cost ratios will exist but in many cases it will be necessary to assume
identical costs.
These reflections lead to the suggestion that the company should balance its quality
effort according to the rule:

(10.5)

According to this simple rule which easily can be implemented in practice the degree of
fulfilment should be equal for all quality parameters in the company.
An even simpler presentation of the result can be made if we assume that the right-
hand side of equation (5) is equal to a constant. This will be the case, e.g. if k is equal to
0.5 and that the derivative of the revenue function with respect to CSI is equal to 1. In
this case the following very simple rule will result.
 Fundamentals of total quality management 146
This type of result will make it very easy to report the outcome of the customer
satisfaction study in a graphical way as we shall see later.
All results have been obtained under the assumption that financial restrictions are
without importance in the company. If costs are subject to a restriction this is easily
incorporated in the results and it will not lead to dramatic changes.

10.3 A PRACTICAL PROCEDURE

A general practical procedure for the analysis of customer satisfaction will consist of the
following steps:
1. determination of the customer and the process leading from the company to the
customer;
2. pre-segmentation of the customers;
3. determination of relevant quality attributes (parameters);
4. choice of competitors;
5. design of questionnaire;
6. sampling;
7. post-segmentation of customers based on results;
8. determination of quality types;
9. construction of quality maps;
10. determination of cost points;
11. determination of sales points and customer loyalty;
12. SWOT analysis;
13. determination of corrective actions.
The structure of the procedure is given in the flow chart in Figure 10.1

Fig. 10.1 Flow chart for general CSI analysis.

 Measurement of customer satisfaction 147

Fig. 10.2 Simple customer satisfaction.

Fig. 10.3 Dual customer satisfaction.

10.3.1 STEPS 1 AND 2

The first crucial step is to determine the customer and the process leading from the
company to the customer. In certain simple cases we have a situation like the one
described in Figure 10.2 where the company delivers goods and services to the end user
and gets information back concerning the satisfaction.
 Fundamentals of total quality management 148
In most cases, however, the situation is more like the one described in Figure 10.3
where the delivery consists of a chain of so-called middlemen before the goods and
services reach the final customer.
It is crucial of course that from the start it is well-known what the delivery system
looks like. It may lead to very wrong conclusions if one forgets certain parts of the chain
as the following example illustrates.
A major cleaning company in New York had contracts for the cleaning of large
building complexes with a large number of tenants in each. The level of cleaning and the
prices were discussed not with the individual tenants but rather with a building manager
who decided everything in relation to the contract with the cleaning company. The
cleaning company never really considered the individual tenants as their customers,
instead they focused on the building manager. For a long time this went well. From time
to time the cleaning company called up the building manager and asked him about his
satisfaction and usually he was satisfied because in most cases the cleaning company
lived up to the contract. After a time, however, the tenants became more and more
dissatisfied with the services they received. In the first case they did not say anything to
the building manager, instead they gathered and decided that they wanted another
cleaning company to do the job. A spokesperson went to the building manager and told
him that they were not satisfied with the cleaning company and he was left with no other
choice but to fire the cleaning company. The company of course could not understand
this because as far as it knew it had lived up to the contract and its customer was
satisfied. It learned its lesson, however, and in the future it never just considered the
middleman as its customer. Instead it went out all the way to the end users and asked
them about satisfaction and it used this information not just to improve its own services
but also to keep the building manager informed about the situation.
To sum up, it is extremely important that the customer is clearly defined from the start.
The process must be clear and the possible points of measurement must be identified.
Apart from this it should also at this stage be decided if customers should be
segmented. In most cases customers do not constitute a homogeneous group. Different
segments will require different treatments. Hence it will usually be necessary to split up
customers in groups based upon the information which is already used within marketing,
e.g. size of customer, private or public customer, location etc. In this case we can direct
corrective action as close as possible to the individual customer.

10.3.2 STEP 3
Determination of relevant attributes is the next important step. It is very important that
this takes place in co-operation with the customer. In too many cases companies
themselves define what is relevant to the customer. This is a very bad idea because
experience shows that very often companies only have a vague impression of what is
really relevant to the customer. It follows from this that customers should participate in
defining the relevant attributes and the best way of doing this is usually by setting up
focus groups. Groups with approximately eight members are usually efficient if they are
led by trained psychologists or moderators. The groups come up with a list of relevant
parameters and this list will be the starting point for the next step in which a
questionnaire is designed.
 Measurement of customer satisfaction 149
10.3.3 STEPS 4, 5 AND 6
In this group of steps the sampling takes place but first of all it must be decided whether
competitors should be included in the analysis. In many cases it will be a great advantage
to have competitors in the analysis but this will of course make the entire customer
satisfaction analysis somewhat larger. Furthermore it may complicate the analysis
because in some cases it will be difficult to find respondents who know both the company
in question and the competitors.
Depending upon the decision concerning competitors a questionnaire must be
designed. The size of the questionnaire should be kept to a minimum in order not to
annoy the customers. We usually recommend that the number of parameters should not
exceed 30. The questionnaire must be professional in appearance and in the case of
businessto-business research a contact person must be identified.

10.3.4 STEPS 7 AND 8

Before constructing quality maps it will usually be a good idea to go through the
collected material in order to let the data speak. First of all it is very useful to find out
whether there are any segments in the material other than the ones already defined. This
can be done by using a variety of statistical tools. If significant groupings are found, these
groupings will also be used when reporting the final results.
Furthermore the material should also be analysed in order to find out what kind of
quality the different parameters represent. Is it expected quality or perhaps value-added?
To this end different techniques have been developed by different market research
companies. This kind of information will be very important when evaluating the possible
outcome of actions taken later on.

10.3.5 STEPS 9, 10 AND 11

The following step will be to introduce the quality map. This map is based upon the
theoretical result above in which the optimum was found when the importance is equal to
the satisfaction for each parameter. An example of such a map is given in Figure 10.4.

Fig. 10.4 A quality map.

 Fundamentals of total quality management 150
The map is constructed by plotting the importance on the horizontal axis against the
satisfaction on the vertical axis. To reach optimum profit, theory then shows us that the
parameters should be placed on the principal diagonal of this map.
Very often, however, decision makers are not as strict as this. Instead the map is
divided into squares by dividing each axis into two, using the average importance and the
average satisfaction as dividing points. These four squares are then used for decisions
concerning actions. The two squares with either high/high or low/low are of course the
squares in which the parameters have a correct placing. The other two squares are more
problematic. If the importance is high and the satisfaction is low the company is faced
with a serious problem which may lead to loss of customers in the future. Similarly if the
importance is low and the satisfaction is high the company has allocated its resources in
the wrong way. Being good at something which the customers do not evaluate means a
loss of money. Instead these resources could be used for improving the situation in the
high/low square.
The reasoning above depends of course upon the assumptions made in section 10.2. A
very important assumption is that the costs of improving the satisfaction of a parameter
are equal for each parameter. If this is not the case we have to establish a cost index in the
company and use this index as a correction factor for each parameter. Then the horizontal
axis will no longer be the importance of the parameters but instead the importance per
unit of the costs. This is demonstrated in Figure 10.5 below.
Another way of improving the analysis would be to introduce ‘sales points’ or ‘loyalty
points’ in the analysis to see if there are any differences between the importances
established in the interview with the customer and the loyalty established from a different
set of questions. This difference will usually reflect a difference between short-term and
long-term importance of the parameters (see Kristensen and Mortensen, 1996).

Fig. 10.5 Quality map with the introduction of

costs.
 Measurement of customer satisfaction 151
In practice the loyalty points are constructed by using a series of questions concerning
the loyalty of the customer towards the company. Will the customer buy again,
recommend the company to others and similar questions. Using these questions it will
then be possible, using statistical techniques, to determine the (short-time) loyalty effect
of each parameter. The results may then be communicated as shown in Figures 10.6 and
10.7 below, depending upon whether competitors are included in the analysis or not.
These maps may be interpreted in the same way as the quality maps. The difference is
that they tend to separate the short-term corrections from the more long-term corrections.
There is no doubt that the theoretical results above should be followed but the loyalty
maps will help you to find the best sequence of improvements by selecting the parameters
with the worst relative position (satisfaction/importance) and highest loyalty effect first.

Fig. 10.6 Effect on loyalty and relative

position.

Fig. 10.7 Effect on loyalty and competitor

analysis.
 Fundamentals of total quality management 152
10.3.6 STEP 12
The entire discussion until now has been on an operational basis. But the results of a
customer satisfaction survey should also be used at the strategic level. The quality map is
a perfect instrument for this. Usually strategic discussions will take place using a SWOT
analysis, i.e. identifying strengths, weaknesses, opportunities and threats. Using the
quality map the SWOT elements can be identified as shown in Figure 10.8 below.
Of course the threats will be found where the importance is high combined with a low
satisfaction and strengths will be where both are high. Actions concerning these two are
not very different at the strategic level from the operational level. It is somewhat different
when we consider the other two elements of the figure. From an operational point of view
the actions will be to adjust the parameters in this part of the map in such a way that they
will be concentrated in the low/low part. This will not necessarily be the case when we
consider the map from a strategic point of view. From this point of view parameters in
this part of the map should not exist or rather they should all be changed to become
strengths. In this case the parameters with a high degree of satisfaction are our
opportunities. With these parameters we are already performing well and consequently
the job will be to convince our customers that this group of parameters is important to
them. Concerning the low/low parameters these may strategically be seen as weaknesses.
We are not doing very well. On the other hand the parameters are not very important but
if the situation changes and customers change their evaluation then the parameters may
become a threat. This could easily happen if our competitors find out that we do not
perform very well in these cases. They may then try to convince the customers about the
importance of the parameters and all of a sudden we are left with a threat.

Fig. 10.8 SWOT analysis based on a customer

satisfaction survey.
 Measurement of customer satisfaction 153
REFERENCES

Hoinville, G. and Jowell, R. (1982) Survey Research Practice, Heinemann Educational Books,
London.
Kristensen, K., Dahlgaard, J.J. and Kanji, G.K. (1992) On measurement of cus-tomer satisfaction,
Total Quality Management, 3(2), 123–8.
Kristensen, K. and Martensen, A. (1996) Linking customer satisfaction to loyalty and performance,
Research Methodologies for the New Marketing, ESOMAR Publication Series, vol. 204, 159–
70.
Moser, C.A. and Kalton, G. (1981) Survey Methods in Social Investigation, Heine-mann
Educational Books, London.
 11
Measurement of employee satisfaction

In section 4.3.2 we concluded that:

One of the main control points of ‘human quality’ is employee

satisfaction; which should be measured and balanced in the same way as
customer satisfaction.

In this chapter we will show how employee satisfaction can be measured and how these
measurements may be used as a tool for continuous improvements.
An employee satisfaction survey can be undertaken after carrying out the following
eight-step guidelines:
1. Set up focus groups with employees to determine relevant topics.
2. Design the questionnaire, including questions about both evaluation and importance
for each topic.
3. Compile presentation material for all departments.
4. Present the material in the departments.
5. Carry out the survey.
6. Report at both total and departmental levels.
7. Form improvement teams.
8. Hold an employee conference.
These points are discussed in greater depth in the following pages.

11.1 SET UP FOCUS GROUPS WITH EMPLOYEES TO

DETERMINE RELEVANT TOPICS

It is crucial to the success of the survey that the employees feel that the survey is their
own. They should therefore be included in designing the survey. It is naïve anyway to
think that a survey meant to illustrate the areas/problems/improvement possibilities that
are relevant to employees can be designed without their collaboration. The best way to
involve the employees is to ask them which elements of their job are important to them
and also which of these elements, in their view, should be improved.
One effective method for collecting such information is to set up employee focus
groups with participants from different departments of the company. The aim is to collect
the information from a small representative group of employees, usually two to three
groups with six to eight participants each are enough to represent the employees.
When a group meets the agenda for the meeting is presented by the person who is in
charge of setting up the system for measuring the satisfaction of the employees. After that
 Measurement of employee satisfaction 155
we recommend that the employees receive a short introduction (30 minutes) to the rules
of brainstorming with affinity analysis and then the group starts with its own brainstorm
and affinity analysis. The issue to brainstorm might be formulated as follows:

What are the important elements of my job which should be improved

before I can contribute more effectively to continuous improvements?

The result of each focus group will typically be 30–50 ideas which are grouped in 5–10
main groups (co-operation, communication etc.). An analysis of the two to three affinity
diagrams will show overlapping ideas so there is a need to construct an overall affinity
diagram which is the input to the next step: designing the questionnaire.

11.2 DESIGN THE QUESTIONNAIRE INCLUDING QUESTIONS

ABOUT BOTH EVALUATION AND IMPORTANCE FOR
EACH TOPIC

Experience shows that the questions in an employee survey may be grouped in the
following main groups:
• Co-operation
– between employees
– between departments
– helping others
• Communication and feedback
– communication between employees
– feedback from managers
– feedback from customers
• Work content
– independence
– variety
– challenges to skills
• Daily working conditions
– targets for and definition of tasks
– time frameworks
– measurement of the end result
– importance of the end result for the firm
– education and training
• Wages and conditions of employment
– wages
– working hours
 Fundamentals of total quality management 156

– job security
– pensions
• Information about goals and policies
– information about the firm’s raison d'être
– information about the firm’s goals (short- and long-term)
– information about departmental goals
– information about results
• Management
– qualifications
– commitment
– openness
– credibility
– the ability to guide and support.

The actual questionnaire should not be too comprehensive. Experience has shown that
there should not be more than 30–40 questions. One technique to use when reducing the
number of questions is to run a pilot test with data from a small sample of employees. By
using the statistical technique ‘factor analysis’ the questions which correlate together can
be identified and hence a selection from these questions can be done to be included in the
final questionnaire. Another more simple technique is to select three to five ideas from
the final affinity diagram and hence construct the questions from these ideas.
Table 11.1 An example of a questionnaire to measure
employee satisfaction
Importance Satisfaction
Job elements 1 2 3 4 5 1 2 3 4 5
1. I can plan and decide by myself how my job is done 1 2 3 4 5 1 2 3 4 5
2. My job demands that I do several different activities so that I 1 2 3 4 5 1 2 3 4 5
have to use all my creative abilities
3. I’m well trained before new work processes or new systems 1 2 3 4 5 1 2 3 4 5
are introduced
4. The work flow between the different functions of the 1 2 3 4 5 1 2 3 4 5
organization is simple
5. The co-operation and co-ordination between departments 1 2 3 4 5 1 2 3 4 5

As with customer satisfaction surveys, employee surveys also ask about the evaluation
and importance of each area, using, e.g. a five-point scale. In Table 11.1 the first page of
the questionnaire used at Robert Bosch, Denmark, is shown. The questionnaire which has
been used since 1994 contains 39 questions. As the table shows the employees are asked
to evaluate both the importance and the satisfaction of each element specified in the
questionnaire. Without such data it will be difficult in step 7 to decide which elements are
most important to improve.
 Measurement of employee satisfaction 157
11.3 COMPILE PRESENTATION MATERIAL FOR ALL
DEPARTMENTS AND PRESENT THE MATERIAL TO
THE DEPARTMENTS

It is essential to avoid the creation of myths in connection with an employee survey.

Openness is therefore a key word. It is the departmental manager’s job (if necessary,
assisted by a quality co-ordinator) to ensure that all employees understand the purpose of
the survey and to inform them that they are guaranteed full anonymity.
The most important material to present to the employees is the questionnaire to be
used. The manager should take time to present the questionnaire and discuss it with his
employees. Besides the questionnaire, results from previous surveys may be valuable to
present and discuss. Such examples may come from other companies, other departments
or from the same department where the material is presented.

11.4 CARRY OUT THE SURVEY

The questionnaire should be filled out within the same time interval in all departments.
To increase the response rate the questionnaire may be analysed by an external consultant
who guarantees anonymity. The collection of the filled out questionnaires and check for
‘everybody’s participation’ should be done by a person who has the trust of the
employees. The department’s quality co-ordinator may be the person who has the
ownership of that activity.
To illustrate the importance of this step a company increased the response rate from
approximately 60% to 90% by asking the departments’ secretary to collect the filled in
questionnaires. The year before the questionnaires had been collected by the company’s
central personal department.

11.5 REPORT AT BOTH TOTAL AND DEPARTMENTAL LEVEL

The result of the employee satisfaction survey should be reported in the same way as a
customer satisfaction survey. Top management should receive the overall employee
satisfaction index. This index shows the progress or the lack of progress in employee
satisfaction. Together with the overall index top management should also ask for the
employee satisfaction index from each department. Such results will help the top
management group to identify the departments that need help.
At the departmental level each departmental manager needs the overall index from his
own department plus group results and the details about the questions in each group.
Such information will help the departmental manager and his employees to identify
which elements of customer satisfaction should be improved first.
Fundamentals of total quality management 158

Fig. 11.1 The results of the employee

satisfaction survey for 1993 and 1994 in L.M.
Erickson, Denmark: satisfaction and
importance (results shown are from one
department only with 17 employees in 1993
and 15 in 1994).

Fig. 11.2 Some results from the employee

satisfication survey.
 Measurement of employee satisfaction 159
11.6 FORM IMPROVEMENT TEAMS

As mentioned above, it is the employees’ survey. They have helped to design it

themselves and, through their answers, they have shown where possibilities for
improvements exist. Therefore they should also be allowed a say in how to implement the
improvements. Improvement teams should therefore be formed in those parts of the
company where the survey has indicated opportunities for improvements. This means that
improvement teams must be formed at both departmental level and cross-
organizationally.
To show the effect of focusing on the results of an employee satisfaction survey we
present in Figure 11.1 some of the results of the survey run at L.M. Erichson, Denmark,
in 1993 and 1994. The results shown in Figure 11.2 are the data from one department in
L.M. Erichson. The data show the average satisfaction in 1993 and 1994 in relation to 17
questions from the questionnaire. The questions were selected because a gap between
satisfaction and importance (the stars) was identified. Hence improvement teams were
formed in order to identify the causes behind the gaps and to implement improvements.
After only one year there were considerable improvements in employee satisfaction.

11.7 HOLD AN EMPLOYEE CONFERENCE

The exchange of experiences is important as regards continuous improvements and

general motivation in the firm. We therefore suggest that employees be given the
opportunity at the conference to discuss the various areas they have dealt with and the
suggestions they have made. The results of initiative (implemented suggestions) from
earlier employee surveys can also be discussed at the conference.
 12
Quality checkpoints and quality control
points

In section 4.3.3 we defined and discussed the differences between quality control points
and quality checkpoints. To recapitulate:

When measuring the state of a process result, we say that we have

established a ‘quality control point’.
When measuring the state of a process, we say that we have established
a ‘quality checkpoint’.

Massaki Imai argued in his book Kaizen (1986) that western managers were most
interested in the results, i.e. different quality control points while Japanese managers also
focused on the various process measures, i.e. various quality checkpoints which were
expected to have an effect on the results.
With the introduction of TQM and the dissemination and application of the self-
assessment material from the Malcolm Baldridge Quality Award and the European
Quality Award it is our experience that much has changed in the West since Imai wrote
his book. Western managers are now aware of the importance of establishing a measuring
system which includes measurements from the process (management as well as
production processes) which enable the results and also measurements of the results.
Of course there are problems in establishing a coherent measurement system which
comprises the most important check and control points. The problem is not only to
establish a model of the whole measurement system but also to have the employees
involved in the identification and measurement of the critical control and checkpoints of
the specific processes (administrative as well as production processes).
In establishing a model of the whole system, TQM models, e.g. the European Quality
Award Model, may be of great help and if a company uses this model in a continuous
self-assessment process where all departments are involved in the quality culture will
gradually change to a culture where people become involved in the identification,
measurement and improvement of their own critical check- and control points. In the
process of establishing an effective measuring system most companies need some
inspiration from other companies. We will therefore conclude this chapter by showing
some examples taken from different companies. Most of the examples are specific
applications of the generic quality measure discussed in section 4.3.3:
 Quality checkpoints and quality control points 161
It is our experience that most of the quality measures may be used together with control
charts in order to be able to analyse and distinguish between specific causes and common
causes of variation.
Examples of quality measures for the whole firm, i.e general quality measures
(measures which can be used for both the firm as a whole and individual departments):
• Meeting delivery times as a % of filled orders.
• Number of complaints as a % of filled orders.
• Failure costs as a % of turnover or production value.
• Rate of personnel turnover.
• Number of absentee days as a % of total working days.
• Number of quality improvement suggestions per employee.
• Number of employees in quality improvement teams as a % of total employees.
• Number of hours allotted to education as a % of planned time.
Examples of quality measures in purchasing:
• Number of rejected deliveries as a % of total deliveries.
• Cost of wrong deliveries as a % of purchase value.
• Number of purchase orders with defects as a % of total orders.
• Production stops in time caused by wrong purchases in relation to total production time.
• Number of inventory days (rate of inventory turnover).
Examples of quality measures in production (in a broad sense, i.e. including the
production of services):
• Used production time as a % of planned time.
• Failure costs as a % of production value.
• Number of repaired or scrapped products as a % of total produced products.
• Idle time as a % of total production time.
• Number of inventory days for semi-manufactured goods.
• Ancillary materials, e.g. lubricants, tools etc. as a % of production value.
• Number of invoiceable hours as a % of total time consumption.
• Number of injuries as a % of number of employees.
Examples of quality measures in administration and sales:
• Number of orders with defects as a % of total orders.
• Numbers of orders with errors as a % of total invoices.
• Number of credit notes as a % of total invoices.
• Service costs due to wrong use as a % of sales.
• Auxiliary materials/resources as a % of wage costs.
• Number of unsuccessful phone calls as a % of total calls.
• Number of debtor days.
Examples of quality measures in development and design:
• Number of design changes after approved design in relation to total designs.
• Number of development projects which result in approved projects in relation to total
development projects.
 Fundamentals of total quality management 162

• Failure costs due to the development departments as a % of production or sales value.

• Time consumed in development as a % of planned time consumption.
As the above examples show, there are plenty of opportunities for defining quality
measures and establishing quality control/quality checkpoints throughout the firm. Such
measures are important in connection with continuous improvements.
There are many more examples than the ones outlined above. So it is important that
management and the employees in the various firms and processes take the time needed
to determine whether the examples shown here can be used or whether there are
alternative possibilities for both quality checkpoints and quality control points.

REFERENCES

Imai, M. (1986) KAIZEN—The Key to Japan’s Competitive Success, The Kaizen Institute Ltd,
London.
Motorola (1990) Six Sigma Quality—TQC American Style, Motorola, USA.
 13
Quality measurement in product
development

As apparent from the previous chapters, the quality concept is defined in several ways.
The different quality organizations use different definitions and the definitions may also
be changed over time. It is therefore understandable that among many practitioners there
is considerable uncertainty in the definition that can enable the user of quality
management to actually measure quality and especially quality in relation to product
development.
Deming (1984) stated that ‘quality can be defined only in terms of the agent’. In other
words, it is the user of the product who is the final judge of the quality. This view dates
as far back as Shewhart (1931 who stated that ‘the difficulty in defining quality is to
translate future needs of the user into measurable characteristics, so that the product can
be designed and turned out to give satisfaction at a price that the user will pay’.
Correspondingly, Oyrzanowski (1984) stated that ‘the consumer is the final judge of the
best quality of a given product. It can be defined through market research, marketing etc.’
With these views as our starting point, we will follow by giving a definition of the
quality concept that can be directly related to the necessary statistical measurement. The
measuring methods are outlined and a number of cases will be presented to demonstrate
the use of the definitions in practice.

13.1 DEFINITION OF THE QUALITY CONCEPT FROM A

MEASUREMENT POINT OF VIEW

In the practical measurement of quality there are two aspects to be clarified:

1. Are the properties manifest or latent? Manifest properties are directly
measurable, such as the number of doors in a car, whereas latent properties are
not directly measurable, e.g. properties of a more artistic nature, such as the
design of a tablecloth.
Table 13.1 Typologization of the quality concept
Type of Latent (not measurable) Manifest (measurable)
consumer
Homogeneous Semi-subjective quality: not directly Objective quality: directly measurable
measurable quality, but perception is the quality with the same perception for all
same for all consumers consumers
Heterogeneous Subjective quality: not directly Semi-objective quality: directly
measurable quality with different measurable quality but different
perception with consumers perception with consumers
 Fundamentals of total quality management 164

2. Are the users, i.e. the real quality judges, homogeneous or heterogeneous?
Homogeneous users have a uniform attitude to or assessment of quality, whereas
heterogeneous users have a differentiated perception of quality.
Combining these two facts gives an operational typologization of the quality concept
which will make it possible to measure quality in practice. The four quality types appear
from Table 13.1.
It appears from the table that the classical division of the quality concept into
subjective and objective quality respectively is extended by two, so that now there are
four division criteria: subjective, semi-subjective, objective and semi-objective quality.
All four can in principle appear but homogeneity among consumers must generally be
regarded as a rare phenomenon. We therefore regard the subjective and the semiobjective
quality as the most interesting from a practical point of view and in the following we will
therefore focus on these when measuring quality in relation to product development. The
division between latent and manifest quality attributes is in accordance with the
distinction between the first and second waves of TQM as expressed by Senge (1991). In
the first wave the focus was on measurable aspects of quality, while the second wave
introduced a new perspective of the customer. Senge sees the second wave as starting
with the introduction of the seven new management tools (Chapter 8), and he wrote:

Along with these new tools for thinking and interacting, a new orientation
toward the customer has gradually emerged. The new perspective moved
from satisfying the customer’s expressed requirements to meeting the
latent needs of the customer.

Quality can, in principle, be measured in two different ways. Either by a ‘direct’

measurement of the consumer’s preferences via statistical scaling methods (latent) and
experimental designs (manifest) or by an indirect preference measurement from
observing the reactions of the market, the so-called hedonic analysis. Subsequently, these
methods of measuring will be described through a number of cases from practice and the
emphasis will be on giving the reader an overall impression of the methods. A more
specific discussion of the methods is beyond the scope of this book and is left to more
specialized literature on the subject.

13.2 DIRECT MEASUREMENT OF QUALITY

By direct quality measurement consumers are interviewed about their attitude to and
assessment of different products and their quality dimensions. The choice of method
depends on whether the quality dimensions can be read directly from the product or
whether it is necessary to measure the dimensions indirectly.
In the following, the technique of quality measurement will be described via two cases
from Danish trade and industry. The first case describes the attempts made by a Danish
producer of housing textiles (tablecloths, place-mats, curtains etc.) to uncover the quality
dimensions in a market greatly characterized by subjective assessments (latent quality
attributes). The other case describes the efforts of a Danish dairy to optimize the quality
 Quality measurement in product development 165
of drinking yoghurt based on manifest measurements of the properties of the yoghurt. In
the first case, it is a question of latent quality attributes, whereas the quality attributes in
the second case are regarded as manifest. In both cases the consumers are regarded as
being heterogeneous, so what we see are examples of subjective quality and semi-
objective quality respectively.

13.2.1 MEASUREMENT OF SUBJECTIVE QUALITY: CASE FROM A

DANISH TEXTILE FACTORY
Some years ago one of the authors was contacted by a producer of housing textiles who
wanted to have a detailed discussion of the quality concept in relation to the factory’s
product line. Until then, quality control had been limited to inspection of incoming raw
materials and 100% inspection for misprints but they had become aware that in relation to
the market they were hardly paying attention to the relevant quality dimensions.
To uncover the company’s ‘culture’ in the area, the analysis started out with
interviews with the mercantile as well as the technical managements of the company. The
interviews were unstructured and unaided and the purpose of them was to uncover what
aspects should be considered when assessing the quality of the products.
The mercantile manager, who had a theoretical business background and had always
been employed in the textile industry, stated the following quality dimensions for his
products:
1. smart design;
2. nice colours;
3. highly processed colours;
4. inviting presentation.
According to the mercantile manager, there must of course be a certain technical level but
when this level has been reached, e.g. through a suitable inspection of incoming material,
the technical aspects are not of importance to the customer’s assessment of the quality. In
the market under review, it is a question of feelings and according to the mercantile
manager, it does not serve any purpose to use considerably more time on technical
standards! Resources should be concentrated on uncovering what determines the quality
of a design and on the development of alternative methods of presenting the products
(packaging). Accordingly he was of the opinion that the technical aspects of a tablecloth
could only be considered as expected qualities. In order to give the customer some value
added it was necessary to concentrate on the aspects mentioned above.
The technical manager, who was engineer by education, had—not unexpectedly—a
somewhat different attitude to the concept of tablecloth quality. He started the interview
by the following definition of the quality concept:
Quality=The Degree of Defined Imperfection
The dimensions on which imperfection can be defined were stated as the following
(unaided):
1. creasing resistance (non-iron);
2. shrinkage;
 Fundamentals of total quality management 166

3. fastness of colours to wash;

4. fastness of colours to light;
5. rubbing resistance (wet and dry);
6. tearing strength;
7. pulling strength;
8. ‘Griff.
The first seven dimensions are defined as technical standards and the eighth is the only
subjective element. ‘Griff is the overall evaluation of the cloth by an experienced
producer when he touches the cloth.
After some aid, the technician extended his description with the following two points:
9. design and colour of the pattern;
10. design of the model.
The difference between the two managers’ perceptions of the quality concept is thought-
provoking and it is not surprising that the company felt very uncertain about the direction
to choose for future product development. With the mercantile manager, all qualities
were latent, while practically all qualities (to begin with) were manifest with the technical
manager.
After a number of talks a consensus was reached on the future quality concept. It was
decided to determine a technical level in accordance with the points listed above by using
a benchmarking study of the competitors and then concentrating resources on an
optimization of the quality of design.
The following procedure for a continuous optimization of the quality of design
(including colour) was used from then on:
1. The design department produces n different design proposals on paper.
2. The proposals are screened internally and the proposals accepted are painted on textile.
3. The painted proposals are assessed by a consumer panel on an itemized five-point
rating scale, using products from the existing product programme as well as
competitors’ products.
4. The results are analysed statistically by means of multidimensional scaling (internal
procedure) and the underlying factors (latent quality dimensions) are identified if
possible.
5. The results are communicated to the design department, which is asked to come up
with new proposals in accordance with the results from point 4.
6. The new proposals are test-printed and manufactured.
7. The resulting product proposals are assessed again by a consumer panel and the best
proposals are selected for production, supplemented, however, with marketing
analyses of cannibalization, etc.
The statistical method mentioned, multidimensional scaling (MDS), covers a number of
techniques the purpose of which is to place a number of products in a multidimensional
space based on a number of respondent’s attitudes to the products. It is assumed that
neither respondent nor analyst in advance can identify the quality dimensions used by the
respondents.
 Quality measurement in product development 167
By means of the data from point 3. products as well as consumers are placed in the
same diagram, the products as points and the consumers as vectors oriented in the
preference direction. The diagram is examined by the analyst who, by means of his
background knowledge, tries to name the axes corresponding to the latent quality
dimensions.
Software for MDS is available in many variations. A relatively comprehensive
collection of scaling techniques can be found in SPSS for Windows (Professional
Statistics) which in the module ALSCAL offers an extremely flexible approach to MDS.
Furthermore the manual for the package gives a very good introduction to the concept of
scaling.
Figure 13.1 shows the first result of an MDS run for the mentioned textile factory. The
company analysed two existing designs (E1-E2), six new designs (N1-N6) and one
competing design (C1).
The first run was used for determining the latent quality dimensions and revealing any
gaps in the market which it might be interesting to fill. It became clear relatively quickly
that the design quality is dominated by two dimensions. One distinguishes between
whether the pattern is geometric or floral (romantic), the other whether the pattern is
matched (‘harmonious’) or abstract ‘(disharmonious’). The first of the two dimensions
mentioned divides the population into two segments of practically the same size, whereas
for the other dimension there is no doubt that the quality harmony ought to characterize
the design for tablecloths.

Fig. 13.1 Latent quality dimensions for

tablecloths (before adjustment).
 Fundamentals of total quality management 168
It further appears from the map that, apart from one, hardly any of the new proposals
have a chance in the market. It is also clear that—as assessed by the products included—
there is a substantial gap in the market for products with harmonious floral qualities.
This information went back to the design department, which was given the special task
of finishing the floral area. It was decided to drop N6 and to stake on an adjustment of N5
from the fourth to the third quadrant. Besides, if possible, move N3 and N4 away from
the competing product C1. The result can be seen from Figure 13.2.
It appears from the map that the company has succeeded in obtaining a better position
in the third quadrant after the adjustment of N5. On the other hand, the adjustments of N3
and N4 were less successful in relation to the quality optimization.
The result for the company was that it chose to launch N1 and the adjusted version of
N5. N2 was dropped completely, while the last two designs went back to the design
department for further changes in order to be used at a later stage.

Fig. 13.2 Adjusted quality map for tablecloths.

 Quality measurement in product development 169
It appears from the analysis that through the use of latent techniques like MDS it is
possible to obtain considerable insight into the quality dimensions not directly
measurable. The analysis phase itself is not very difficult and it will be easily mastered by
persons who normally work with quality control. It is somewhat more difficult, however,
to get analyst and designer to play together and it requires some experience to translate
the results of the latent quality dimensions into practical design adjustments.

13.2.2 MEASUREMENT OF SEMI-OBJECTIVE QUALITY: CASE

FROM A DAIRY
In certain production contexts one has the impression that one has a total overview of the
quality dimensions on which consumers assess the product. This was the case when one
of the authors was asked to assist a Danish dairy in optimizing the quality of drinking
yoghurt.
For some time the dairy had been dissatisfied with the sale of drinking yoghurt which
failed to hold its own in competition with other refreshing drinks. It was therefore natural
to reason that the product quality did not live up to the demands of the market. Through
market surveys the dairy knew approximately what quality dimensions the market
generally valued in refreshing drinks but because of extremely strict legislative
requirements the dimensions that could be played on were limited to the following:
1. The acidity (pH value) of the product.
2. The fat content (%) of the product.
3. The type of juice added.
4. The homogenization pressure (kg/cm3) used.
5. The protein content (%) of the product.
On the basis it was decided to carry out an actual experiment with the above-mentioned
factors as a starting point. In order not to incur too heavy test costs it was decided to carry
out the experiment as a 25 factorial design which entailed that 32 different types of
drinking yoghurt had to be produced. Like in the previous case, the results were assessed
on an itemized five-point rating scale by a representative cross-section of the relevant
market segment.
It soon proved impossible to carry out the experiment as a complete factorial design
where all respondents assessed all types of yoghurt. No test person is able to distinguish
between so many different stimuli. It was assessed that the maximum number of types
that could be assessed per test person was four and it was therefore decided to carry out
the experiment as a ‘partially confounded 25 factorial design distributed on eight blocks
with four replications’. In this way, certain effects are confounded but with an expedient
test plan it is possible to design the test in such a way that all effects (main effects and
interactions) can be measured. A classical reference at this point is the monumental work
by Cochran and Cox (1957).
The data from such an experiment can be analysed in several different ways. External
MDS is a possibility or, like here, a multifactor analysis of variance. The results showed
that the type of fruit naturally plays a part but that this variable, so to speak, segments the
market. Otherwise, the optimum quality appeared by using the following basic recipe
irrespective of the type of fruit:
 Fundamentals of total quality management 170

• pH value: high level;

• fat content: low level;
• homogenization: high level;
• protein content: high level.
Besides, the following interactions could be ascertained via the analysis of variance:
1. Products with lemon taste should without exception have a high pH value. The effect is
not quite as marked for sweeter types of juice.
2. If yoghurt of a high fat content is produced, the homogenization pressure ought to be
high.
3. If yoghurt of a high protein content is produced, the homogenization pressure ought to
be high.
4. Products with a low fat content ought to have a low protein content.
It could be ascertained from the analysis that the existing drinking yoghurt was far from
being of optimum quality. Primarily, the fat content was far too high and there was an
undesirable interaction between the factors. A change of this situation would probably
result in an improvement on the demand side and it would furthermore mean lower costs
as a consequence of the reduction of the fat content if the excess butterfat could be put to
use.
It appears also in this example that it was possible through direct preference
measurements to obtain considerable insight into the actual quality of the product. In the
latter case, the analysis followed the classical scientific road with actual experiments and
a very straight-forward analysis. In contrast to the optimization in the latent case, this
procedure is very elementary and the whole process can be mastered without problems by
persons with normal insight into quality control.

13.3 INDIRECT MEASUREMENT OF QUALITY

The direct quality and preference measurement as outlined above has been developed in a
marketing context but the economic field has also been working with quality
measurements for a number of years. In what follows we describe some of the micro-
economic aspects of quality measurement and we outline how this may be used by
quality managers in connection with product development. The exposition follows
Kristensen (1984) closely.
It all started in 1939 when Court (1939) introduced the hedonic technique as a means
of adjusting price indices for quality variations. Later, a number of empirical studies
followed but the theory was not founded until Lancaster (1966) and Rosen (1974) made
their contributions. In theory quality is measured indirectly through the reaction of the
market as the starting point is to establish a connection between the qualities of a product
and the market price of the product.
 Quality measurement in product development 171

13.3.1 AN OUTLINE OF THE HEDONIC THEORY

In classical micro-economic consumer theory consumer choice is based upon
maximization of a utility function specified in the quantities consumed subject to a
financial constraint. This gives very good results but their realism has been questioned by
market researchers and other practical people working with consumer demand and today
the economic theory of consumer demand plays only a small role in management
education. Thus, it is symptomatic that in a major textbook (Engel, Kollat and Blackwell,
1973) only two out of almost 700 pages are devoted to the economic theory of the
consumer.
A major point of criticism is that the neoclassical theory of consumer demand does not
take the intrinsic properties of goods (their characteristics) into consideration and is hence
not able to deal with problems like the introduction of new commodities and quality
variations unless, as Lancaster (1966) put it, you make ‘an incredible stretching of the
consumers’ powers of imagination’.
A way out of some of the problems is to adopt the hedonic hypothesis that goods do
not per se give utility to the consumer but instead are valued for their utility-bearing
attributes (Lancaster, 1966). Such an extension will make it possible to study
heterogeneous goods within the framework of the classical theory of the consumer and
will produce a direct link between the market price of a complex good and its attributes
(quality).
This was shown by Rosen (1974) who provided a framework for the study of
differentiated products. His point of departure is a class of commodities that are described
by n attributes, zi, i=1,…, n. The attributes are assumed to be objectively measured and
the choice between combinations of them is assumed to be continuous for all practical
purposes, i.e. a sufficiently large number of differentiated products are available in the
market.
Each differentiated product has a market price which implicitly reveals the
relationship between price and attributes and it is a main object of the hedonic theory to
explain how this relationship is determined. To simplify things, it is assumed that
consumers are rational in the sense that if two brands contain the same set of attributes,
they only consider the cheaper one and the identity of the seller is of no importance.
To explain the determination of market equilibrium, Rosen (1974) assumed that the
utility function of the household can be defined as

(13.1)

where x is a vector of all other goods than the class of commodities considered and zi,
I=1,…, n, are the attributes for this class. The vector Į represents taste-determining
characteristics and hence differs from person to person. Constrained utility maximization
then leads to the bid function indicating the maximum amount a household would be
willing to pay for different combinations of attributes at a given level of utility:

ș=ș(z1,...,zn,y,Į) (13.2)
 Fundamentals of total quality management 172

where y is the household income.

Symmetrically, Rosen (1974) shows that by means of ordinary profit maximization it
is possible to define the producer’s offer function indicating the minimum price he is
willing to accept for different combinations of attributes at a given level of profit:

(13.3)

where M and ȕ describe the level of output and the characteristics of the producer
regarding production.
Market equilibrium is then obtained by the tangency of the offer and bid functions
resulting in a common envelope denoted p(z). This envelope or function is the implicit
price function or the hedonic price function as it is often called (Griliches, 1971) and it
shows the market relationship between the price and quality attributes of the class of
differentiated commodities considered (Figure 13.3).

Fig. 13.3 Offer and bid functions and the

hedonic function.

The hedonic function represents the available information in the market on which the
agents base their decisions. This, of course, means that knowledge of the function is of
great importance to the suppliers in the market if an optimal product development is
going to take place. But apart from this, how should p(z) be interpreted?
As shown above, p(z) represents a joint envelope of families of offer and bid
functions. Hence, it may be said to represent the market’s consensus about marginal rates
of substitution among the quality attributes (Noland, 1979).
Associated with the hedonic function is the concept of implicit price which is defined
as the partial derivative of p(z) with respect to zi, i=1, …, n. The implicit prices show
what value the market implicitly attaches to marginal amounts of the individual quality
characteristics of a product (ceteris paribus)’, a very useful piece of information when
interpreting the overall correlation between price and quality of a product.
 Quality measurement in product development 173
The assumptions behind the hedonic model may still seem somewhat heroic to
practical people and it must be admitted that the model does not explain everything about
price formation and the consumer choice process. Still, there is no doubt in the mind of
the authors that the hedonic hypothesis is a significant improvement on the classical
theory and one that will be of value to, e.g. quality management researchers trying to
obtain insight into the relationship between price and quality.
What then can be obtained by including this type of analysis in the quality manager’s
tool box?
One of the answers to this question can be found in the way that standard analysis of
the relationship between price and quality is presently conducted. Either the list price is
correlated with a quality composite constructed by someone other than the researcher
(e.g. Consumers’ Union in the USA), or it is correlated with each quality dimension and
then the overall correlation between price and quality is found as an average. In all cases
linear measures of association are used. As examples of all the cases linear measures of
association are used. As examples of the first type of study Riesz (1978) and Sutton and
Riesz (1979) can be mentioned.
A second reason for introducing hedonic theory lies in the fact that no uniform
definition of quality has been adopted by market researchers. As mentioned earlier, some
researchers use quality composites, more or less arbitrarily defined, while others use the
individual quality dimensions in an averaging process. These methods will, however, lead
to different results, and hence studies using different methods are not compatible. This is
explained in detail in Kristensen (1984).
In the authors’ opinion, we need an overall quality index or quality composite when
studying the relationship between price and quality. But such an index with a solid
theoretical background is formed by the hedonic function and hence we have found yet
another reason for dealing with hedonic theory in quality research. In this connection, it
should be stressed that the hedonic function is not a measure of quality to any given
consumer (unless all consumers have the same utility function). The hedonic function
measures the opportunity set facing both consumers and producers and hence expresses
some kind of market consensus concerning the relationship between price and quality.
Some researchers might object that it is obvious that price is strongly related to, e.g.
the size of a differentiated product, and this is not what they are interested in. Their
definition of quality does not include such obvious quality characteristics and hence these
characteristics should not be included when measuring the relationship. The answer to
this is that, when analysing the relationship between price and attributes, all relevant
attributes must be included, otherwise the results for the group of attributes in which the
researcher is interested will be biased. The relationship between the researcher’s concept
of quality and price appears from the value and variability of the implicit price obtained
for the attribute or group of attributes the researcher is considering.
The above-mentioned reasons for introducing hedonic theory in quality research all
focus on an improved measurement of the relationship between price and quality but a set
of more practical reasons with implications for the agents (i.e. buyers and sellers) in the
market are just as important. In practice, the evaluation of complex goods like houses,
cars, antiques etc. in both primary and secondary markets is a very big problem. For the
seller it is a question of price determination and, of course, product development and for
the buyer it is a question of determination of the efficient offers in the market. Consider,
 Fundamentals of total quality management 174
e.g. a real estate agent who gets the job of selling a certain house. What should he
demand for the house? If his offer is not efficient he cannot sell the house and if he gets
too little for the house he will lose customers in the future. A buyer of a new house on his
part will obtain offers from a number of different real estate agents and pick out the best
offers. But how should he do this in a rational manner?
The answer to these questions for both buyers (which of course could very well be
companies) and sellers is to obtain knowledge about the existing relationship in the
market between price and attributes for the good in question. With the help of this
information the seller will be in a good position when pricing a new product or when
determining the viability of prices for existing products. When pricing a new product, one
possibility is to identify the characteristics of the product, substitute these into the
hedonic function and then price the product at the level of p(z). Likewise, the viability of
current prices can be judged by a comparison with p(z). To the buyer, the information
will show whether an offer is under or overpriced by looking at the residuals when
substituting the characteristics into the hedonic function. In this way, the buyer will be
able to pick out the set of efficient offers for further analysis before making a final
decision. This again brings the hedonic function into focus with emphasis this time on the
process of estimation and interpretation. In fact, the background to the empirical part of
this chapter was an inquiry from a group of real estate agents who wanted a tool for a
more systematic pricing of their houses.
The hedonic technique will also be of value to those business people who are doing
different kinds of price research, e.g. calculating and estimating price indexes in order to
forecast future prices. This is due to the fact that by help of the hedonic technique it is
possible, by using time dummies or some other specification of time in the hedonic
function, to separate the quality part of a price movement from the actual inflation and
thus make it possible for the market analyst to adjust existing price indexes for quality
variations and to make a prediction of future prices that also takes changes in quality into
consideration.

13.3.2 A STUDY OF THE DANISH HOUSING MARKET: THE

MATERIALS AND VARIABLES UNDER CONSIDERATION
The collection of data for this example took place around 1980 and consisted (in
principle) of the total number of house transactions completed through a specific estate
agent in the city of Aarhus, Denmark. In total, 528 transactions were examined in detail,
resulting in a database containing information about the financial terms of the transaction,
the attributes of the house and the time of sale. These data were supplemented with
secondary data collected from official sources in order to make an economic evaluation
of the terms of the transaction possible.
The method of sampling chosen has a consequence that the material cannot be said to
give a representative picture of the total number of house transactions in the city of
Aarhus in the time period under consideration. Thus, it would be unreasonable to
postulate that the special characteristics of the estate agent who has supplied the material
should be without importance to the composition of the group of customers. This means
that unbiased estimation of different population characteristics such as proportions and
averages cannot take place. On the other hand, there is no reason to believe that the price-
 Quality measurement in product development 175
forming mechanisms should depend on the agent, which means that the study of the
implicit price function is hardly affected by the non-representativeness of the sample.
This conclusion is supported by some results obtained from a smaller control sample
taken from a different agent. As expected, this sample diverged from the original as
regards composition but it was not possible to detect significant deviations as regards the
relative prices of the attributes of the house.
Normally (Noland, 1979) housing attributes, i.e. the explaining variables of the
hedonic price function, are divided into the following groups with typical representatives
given in parenthesis:
1. Attributes relating to the house
1.1 space (number of rooms, room size, lot size)
1.2 quality (age and type of the building).
2. Attributes relating to the location
2.1 accessibility (access to employment)
2.2 neighbourhood quality (geographical area).
The number and type of attributes included vary depending on the type of housing under
consideration. In most cases, variables are either nominally or intervally scaled but
sometimes also ordinal variables are included. Even latent variables obtained from
principal components or factor analysis are used from time to time, especially when
expressing special quality attributes.
Table 13.2 contains a list of the variables chosen for this study. It appears that the
variables are divided into three groups of which two relate to the attributes of the house
and one relates to the price.
Table 13.2 The variables under consideration
Name Description
Price variables
MPRICE Mortgaged price
CPRICE Cash price according to (4)
PMT Yearly payment of instalments and interest
r Average nominal interest rate
i Average effective interest rate (end of month of
sale)
DPMT Down payment
Location
PLACE 1 Eight city districts, medium quality
PLACE 2 Two city districts, high quality
PLACE 3 Surrounding area
Attributes
LOT Lot size in m2
SPACE Living space (m2) exclusive of basement
BASE Size of basement (m2)
GARAGE Number of garages
 Fundamentals of total quality management 176
AGE Age of building when sold
BATH Number of extra bathrooms
FIRE Number of fireplaces
TYPE Dummy indicating a terrace house (0) or not (1)

(a) Price variables

The concept of price in connection with a Danish house transaction is not unique. Usually
one speaks of a mortgaged price composed of down payment and a number of mortgages
at interest rates below or above the market interest rate. From an economic point of view,
this means that price should be considered a vector consisting of:
MPRICE: mortgaged price
DPMT: down payment
r: nominal interest rate
i: market interest rate
n: duration

so that from a formal point of view, when studying the relation between price and
attributes, one should be talking about multidimensional dependent variable. However,
when estimating marginal prices, traditional theory requires a unique relationship
between the elements of the vector so that price appears as a scalar.
To show how the problem is solved in this case and to demonstrate some of the
peculiarities of the Danish mortgaging market we have included Table 13.3 showing an
example of the financial structure of a Danish deal.
The official price appearing in all documents is DKK 496 000, but this is not equal to
the price that the house would cost if it were paid for in cash because the market rate of
interest is different from the nominal rate. The reason for this difference is found in the
institutional practice in Denmark. When a house is sold, the major part of the deal is
usually financed through the mortgage credit institute in the way that the institute issues
bonds at a maximum interest rate of 12% p.a. and then hands over the bonds to the debtor
who must sell the bonds on the exchange. The quotation of the bonds is usually below
their nominal value and since the loans are annuities, it can be calculated from the
following equation:

L(1–(1+r)–n)/r=QL(1—(1+i)–n)/i (13.4)
Table 13.3 Price structure of a Danish house deal
Financial institution Size of loan Nominal rate of interest p.a. Yearly payment
(DKK) (%) (DKK)
Mortgage credit 110000 10 17820
institute
Private 286000 15 47932
Total 396 000 – 65752
Down payment 100000 – –
Mortgaged price 496 000 – –
 Quality measurement in product development 177
where L is the loan, Q is the quotation, r is the nominal rate of interest, i is the market
rate of interest and n is the duration. It will be seen that for large n the quotation is simply
equal to Q=r/i.
From this it follows that the cash price of a house can be calculated by multiplying the
different loans by the relevant values of Q and then adding the down payment. Assume
that the house described in Table 13.3 was sold in December 1981. At this time, the
official market rate of interest published by the Stock Exchange was 19.96% p.a. for loan
#1 and 20.38% for loan #2; the difference due to differences in duration (10 and 16 years
respectively). By help of the formula above, Q can be calculated at 0.6819 and 0.7810
respectively for the two loans, from which it follows that the cash price is:
CPRICE=110000×0.6819+286000×0.7810+100000
=398 375 (13.5)

In the study this was not done for each loan. Instead, the average value of r was
calculated as

(13.6)

and similarly, the average market rate of interest was used. In this case i=20.17%. By
means of was calculated from the formula

(13.7)

and then the average value of Q could be calculated. After this, the cash price was found
as

(13.8)

In our case and Q=0.7533. Then

CPRICE=0.7533(496000–100000)+100000–398 307. (13.9)

The difference between the two methods is in general very small. The advantage of the
method used is that we only have to deal with one value of r, i and n.

(b) Location variables

Originally 12 different location categories corresponding to the postal districts of the area
were used. In order to obtain information about the two location attributes mentioned
earlier, accessibility and neighbourhood quality, these were divided into three groups of
which two consisted of city districts (PLACE 1 and PLACE 2) and one of the
surrounding districts (PLACE 3). This division should reflect accessibility as well as
 Fundamentals of total quality management 178
quality, since the groups, PLACE 1 and PLACE 2, were formed in accordance with
neighbourhood quality. Thus the difference between the price of PLACE 1 and PLACE 3
should be an estimate of the implicit price of good accessibility, while the difference
between PLACE 1 and PLACE 2 should be an estimate of the implicit price of a good
neighbourhood quality. This, of course, assumes that there is no interaction between these
two location attributes.

(c) Housing variables

This group of variables is almost self-explanatory. It should, however, be mentioned that
AGE is measured in whole years and that in those cases where the house has been
renewed AGE is measured as a weighted average with weights based on the value of the
house before and after the renewal. Those houses that were described as ‘older’ were
given an age of 30 years according to the agent.
Originally, the material also contained information about the type of roof but a number
of tests showed no significance for this attribute and hence it was excluded.

(d) Results of the regression analysis

As mentioned earlier, the object of the following is to determine the functional

relationship between the price and the quality attributes of a house in order to determine
the implicit price of the individual attributes and in order to be able to predict the value of
a house on the basis of its attributes. Formally where a variable describing the time scale
(TIME) has been included.
CPRICE=f(LOT, SPACE, BASE, GARAGE, AGE, BATH,
FIRE, TYPE, PLACE, TIME) (13.10)
Specification of the relation and the functional form plays a vital role for the results
(Palmquist, 1980). Regarding the specification, the discussion in the relevant literature is
centred around the problem of aggregation in connection with the variables representing
time of sale and location (Griliches, 1971; Straszheim, 1974; Palmquist, 1980). It is
recognized that aggregation over time may lead to wrong conclusions but since some
aggregation is necessary in all cases, it is normally accepted to aggregate over time if the
time period is not too long. On the other hand, there is much more doubt whether it is
reasonable to aggregate different geographical areas. In this chapter the consequences of
this are taken, which means that aggregation over time is used in all analyses, while the
reasonableness of geographical aggregation is tested. It should be stressed that
aggregation over time does not mean that time is excluded from the equation. What it
does mean is that relationship is assumed to be stationary over the period of aggregation
and that different time periods can be distinguished by shifting intercepts alone.

(e) Choice of the functional form

As mentioned previously, theoretical economics does not give very much advice
regarding the functional form. There is, however, some indication from the market-place.
Thus, the authors have learned from several sources (estate agents) that according to their
 Quality measurement in product development 179
experience, within certain limits, ‘price goes up twice as fast as the hardware one puts
into the house’. How exactly a prosaic statement like this should be interpreted is not
clear but it is certainly tempting to let it mean that the elasticity of the price with respect
to quality in a broad sense should be equal to 2. In order to test this hypothesis the so-
called Box-Cox theory is used on the following class of transformations:

(13.11)

(13.12)

where xj (i=1,…, 14) indicates all attributes of the house. The object is then to estimate
the parameters Ȝ and ȕi (i=0,…, 14) and to test the hypothesis that
Results of the Box-Cox analysis for the geographically aggregated material show that
the optimal Ȝ value is 0.59 covering a set of acceptable hypotheses on the 95% level
equal to (0.46; 0.73). Hence the material strongly supports the practical experience from
the market-place mentioned earlier. It should be mentioned that the results obtained by
Goodman (1978) are very similar to the results obtained here. Thus, Goodman’s result for
an overall Ȝ value is 0.6 and he also effectively rejects the linear and semilog forms.
The results of the Box-Cox analysis in combination with the prior knowledge obtained
from the market-place has given the author great confidence in the sqrt-model and hence
we shall proceed with a presentation of the estimation results for this model.

(f) Results of the sqrt-model

The results of the sqrt-model are displayed in Table 13.4. In the table regression
coefficients for the aggregated material and for each of the three geographical areas are
shown together with the average implicit prices and their standard deviations.
The mean values of the attributes were used as the basis for this computation.
Looking at the average implicit prices one finds that the prices of LOT, SPASE,
BASE, GARAGE, AGE and BATH are in perfect accordance with what could be
expected from knowing the Danish market. Thus, the estimated prices of the size
variables are somewhat lower than the costs of an extra m2, indicating, as expected, that it
is cheaper to buy a new house than to build an extension to an existing house (ceteris
paribus). The implicit prices of an extra garage and an extra bathroom are very close to
the actual costs of these attributes when building a new house according to a construction
company that was interviewed about these matters. On the other hand, the implicit price
of approximately DKK 40 000 for FIRE comes as a surprise. This price is much higher
than the costs of a new fireplace and probably indicates that the variable FIRE works as a
general quality indicator.
The area prices (PLACE 1 and PLACE 2) take a house placed in the surrounding area
as a starting point. If this house is moved to a medium-quality city area, the price goes up
to approximately DKK 36 000 corresponding to an estimate of the capitalized value of
 Fundamentals of total quality management 180
good accessibility. If the house is moved to a high-quality city area, the price goes up
approximately DKK 60 000. From this it follows that the implicit price of a good area
quality is approximately DKK 24 000.

Table 13.4 Results of the sqrt-model

Variable Aggregated Place 1 Place 2 Place 3 Average implicit price
material (kroner)
Lot 0.020b 0.027 – 0.002 0.017 24.4
(8.6)
Space 0.841a 0.583a 1.331a 1.218a 1024.7
(83.0)
Base 0.456a 0.456a 0.566a 0.398a 555.4
(71.7)
Garage 17.775a 19.022b 29.351a 14.654b 21 943.0
(4903.4)
Age –1.621a –1.708a –1 .943a –1 .295b –1971.1
(230.9)
Bath 9.326c 9542 1.373 9.064 11 420.5
(5742.2)
Fire 32.026a 43.858a 2.742 27.71 9a 39991.0
(6868.5)
Type 0.080 í9.659 22.045c 8.002 62.5
(7195.2)
Place 1 30.299a í – – 36031.9
(6347.8)
Place 2 49.399a – – – 59 693.9 (7879.5)
1975 75.872a 94.673a 54.982a 60.599a 84448.1
(8820.3)
1976 90.177a 109.365a 70.343a 70.262a 101 669.1
(8875.7)
1977 103.246a 122.397a 90.996a 84.229a 117756.2
(9324.3)
1978 146.411a 164.224a 140.393a 121.366a 173322.5
(10187.8)
Constant 342.100a 392.096a 337.658a 304.824a í
0.771 0.726 0.849 0.812
F 110.8a 51 .9a 47.0a 46.7a
N 458 231 99 128
a
Significant at level 0.001.
b
Significant at level 0.01.
c
Significant at level 0.05.

The implicit prices stated in connection with the years 1975 to 1978 indicate the hedonic
price changes in relation to the year 1974. As an example, the figures show that a house
costing DKK 450 000 in 1978 corresponding to a relative increase of 63% or 13% p.a.
This is in very good accordance with the official statistics, which for the period in
 Quality measurement in product development 181
question showed an increase of 68% for MPRICE. As mentioned earlier, time dummies
can be used to adjust nominal prices for quality changes, since the coefficient of a
dummy is equal to the change in the dependent variable, other things being equal. Thus,
the price change from 1974 to 1978 at constant quality was 63%. In the same period the
material showed a nominal increase in CPRICE equal to 68%, indicating an increase in
quality from 100 to 168/163=103.1 during the period. An extensive account of the use of
the hedonic method for constructing quality-adjusted price indexes can be found in
Griliches (1971).
Turning to the individual areas, it will be seen that statistical tests reject regional
homogeneity as regards the quality variables. The most distinctive difference between the
three areas is found for the variable FIRE; a difference which strongly supports the
interpretation of this variable as some kind of quality indicator. Other differences are
relatively small apart from the price increases which, as was expected when knowing the
market, have been strongest for PLACE 1. Otherwise, the structure of the relative prices
is the same for the three areas, and the differences are not so marked that further analysis
based upon the aggregated material will be invalidated.
In conclusion of the preceding study of the relationship between price and quality of
Danish single-family houses we find the following:
1. A special treatment of price was necessary in order to establish compatibility between
prices of the individual houses. This is in general necessary when financing is a part of
the deal and when the market rate of interest differs from the nominal rate.
2. A rather strong but non-linear overall relationship between price and quality was
discovered. Regarding the individual quality elements, it turned out that of those
originally considered only two (the type of the roof and TYPE) were not related to
price. On average, the relative prices of the rest were in good accordance with what
was expected.
3. Since neither consumers nor sellers are identical, the established relationship between
price and quality cannot in this case be assigned to one of these groups, but is rather an
expression of the market’s consensus about the relationship between price and quality
and it represents the information available to the agents in the market on which they
should base their decisions.
It appears from the analysis that by introducing the hedonic technique it is possible to
obtain much more information about the nature of the relationship between price and
quality than would be the case if a traditional correlation study were used. In addition to a
measure of the association between price and quality, the hedonic technique provides
information about the actual economics of the price/quality relationship, information
which will be of great practical value to both quality management researchers and
practitioners when designing new profitable products.

REFERENCES

Cochran, W.G. and Cox, G.M. (1957) Experimental Design, J. Wiley, USA.
Court, A.T. (1939) Hedonic price indexes with automative examples. In: The Dynamics of
Automobile Demand, New York.
Deming, W.E. (1984) Quality, Productivity and Competitive Position, MIT, USA.
 Fundamentals of total quality management 182
Engel, J.F., Kollat, D.T. and Blackwell, R.D. (1973) Consumer Behaviour, New York.
Goodman, A.C. (1978) Hedonic prices, price indices and housing markets. Journal of Urban
Economics, 5, 471–84.
Griliches, Z. (ed.) (1971) Price Indexes and Quality Change, Cambridge, MA, USA.
Kristensen, K. (1984) Hedonic theory, marketing research and the analysis of consumer goods.
International Journal of Research in Marketing, 1, 17–36.
Lancaster, K.J. (1966) A new approach to consumer theory. Journal of Political Economy, 74,
132–57.
Noland, C.W. (1979) Assessing hedonic indexes for housing. Journal of Financial and
Quantitative Analysis, 14, 783–800.
Oyrzanowski, B. (1984) Towards Precision and Clarity of the Concept of Quality. EOQ Quality,
pp. 6–8.
Palmquist, R.B. (1980) Alternative techniques for developing real estate price indexes. The Review
of Economics and Statistics, 62, 442–8.
Riesz, P.C. (1978) Price versus quality in the marketplace: 1961–1975. Journal of Retailing, 54,
15–28.
Rosen, S. (1974) Hedonic prices and implicit markets: product differentiation and pure
competition. Journal of Political Economy, 82, 34–55.
Senge, P.M. (1991) The Fifth Discipline—The Art and Practice of the Learning Organization,
Doubleday Currency, New York, USA.
Shewhart, W.A. (1931) Economic Control of Quality and Manufactured Products, D. van Nostrand
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Strazheim, M. (1974) Hedonic estimation of housing market prices: a further comment. The Review
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Sutton R.J. and Riesz, P.C. (1979) The effect of product visibility upon the relationship between
price and quality. Journal of Consumer Policy, 3, 145–50.
 14
Quality costing

14.1 THE CONCEPT OF TQM AND QUALITY COSTS

In Chapter 4 we defined TQM as being the culmination of a hierarchy of the following

quality definitions:

Quality is to continuously satisfy customers’ expectations;

Total Quality is to achieve quality at low cost;
Total Quality Management is to achieve Total Quality through
everybody’s participation.

The concept quality costs, i.e. the sum of failure costs, inspection/ appraisal costs and
prevention costs is very important to understand when you try to implement Total Quality
Management and in this respect try to establish and fulfil strategic goals. But it is not so
easy to get a profound understanding of the concept. The problem is that because the
majority of these costs are invisible there is a risk that the following deadly disease may
break out: ‘Management by use only of visible figures, with little or no consideration of
figures that are unknown or unknowable’. As Deming told us (1986): The figures which
management needs most are actually unknown and/or unknowable. In spite of this,
successful managements have to take account of these invisible figures.’
In relation to TQM we know that the level of quality will be improved by investing in
the so-called quality management costs. These consist of:
1. Preventive quality costs. These are costs of activities whose aim is to prevent quality
defects and problems cropping up. The aim of preventive activities is to find and
control the causes of quality defects and problems.
2. Inspection/appraisal costs. The object of these costs is to find defects which have
already occurred, or make sure that a given level of quality is being met.
‘Investment’ in so-called quality management costs will improve quality and result in the
reduction of so-called failure costs.
Failure costs are normally divided into the following two groups:
1. Internal failure costs. These are costs which accrue when defects and problems are
discovered inside the company. These costs are typically costs of repairing defects.
2. External failure costs. These are costs which accrue when the defect is first discovered
and experienced outside the firm. The customer discovers the defect and this leads to
costs of claims and as a rule, also a loss of goodwill corresponding to the lost future
profits of lost customers.
 Fundamentals of total quality management 184
We know now that a large part of failure costs, both internal and external, are invisible,
i.e. they are either impossible to record, or not worth recording. We know too that, for the
same reasons, a large part of preventive costs are also invisible. This leaves inspection
costs which are actually the most insignificant part of total quality costs, inasmuch as
these costs gradually become superfluous as the firm begins to improve quality by
investing in preventive costs.
Investing in preventive costs has the following effects:
1. Defects and failure costs go down.
2. Customer satisfaction goes up.
3. The need for inspection and inspection costs goes down.
4. Productivity goes up.
5. Competitiveness and market share increases.
6. Profits go up.
This is why we can say that

Quality is free
or more precisely

The cost of poor quality is extremely high.

It cannot be emphasized too strongly that, in connection with TQM, the concept of failure
should be understood in the broadest possible sense. In principle, it is a failure if the firm
is unable to maintain a given level of quality, i.e. maintain a given level for total
customer satisfaction. Some examples of this are given below.
Example 1: A firm’s products and services do not live up to the quality necessary to
maintain or improve customer satisfaction. The result is:
1. Market share goes down.
2. Profits decline, because the invisible failure costs rise. These do not show up in the
firm’s balance sheet, though their effect can possibly be read on the ‘bottom line’, i.e.
by looking at the change in profits—provided that management does not ‘cheat’ both
auditor and readers of the financial statement by ‘creative bookkeeping’.
Example 2: The production department is not always able to live up to product
specifications. The result is:
1. More scrap and more rework.
2. Chaos in production. Productivity declines.
3. More inspection.
4. More complaints.
5. More loss of goodwill.
6. Profits go down. Some failure costs are visible and do show up in the balance sheet.
Some are invisible and therefore do not show up directly in the accounts. The ‘bottom
line’ of the financial statement shows the effect of both visible and invisible failure
costs.
Example 3: The firm’s marketing promises the customer more than the product can
deliver. The result is:
 Quality costing 185

1. The customer’s expectations are not fulfilled.

2. More complaints.
3. More loss of goodwill.
4. Profits go down. Some failure costs are visible (costs of claims) and show up on the
firm’s balance sheet. Others are invisible (loss of goodwill) and can perhaps be read
indirectly by looking at the trend in the company’s profits.
It will be clear from the examples we have discussed that the traditional classification of
quality costs into:
1. preventive costs,
2. inspection/appraisal costs,
3. internal failure costs and
4. external failure costs
does not directly include these crucial ‘invisible figures’. This oversight could be one of
the reasons why, according to Deming (1986), this deadly disease afflicts most Western
companies. In proposing a new classification of quality costs, we hope to make good this
deficiency.
By comparing these examples it is also clear that much has happened since 1951 when
Dr J.M. Juran published his first Quality Control Handbook in which Chapter 1 (‘The
Economics of Quality’) contained the famous analogy of ‘gold in the mine’ and also the
first definition of quality costs:

The costs which would disappear if no defects were produced.

This definition uses a very narrow failure concept as a failure happens when a defect is
produced. The failure concept used in these days was a product oriented failure concept.
For many years the product oriented failure concept was dominant and the total quality
costs were often calculated as the costs of running the quality department (including
inspection) plus the cost of failures measured as the sum of the following costs:
1. cost of complaints (discounts, allowances etc.);
2. cost of reworks;
3. scrap/cost of rejections.
It is interesting to compare Juran’s definition of quality costs from 1951 with his
definition from his Executive Handbook which was published 38 years later (1989,
p. 50):

Cost of poor Quality (COPQ) is the sum of all costs that would disappear
if there were no quality problems.

This definition uses the broad failure concept which we advocate in this book and it is
also very near to ‘the TQM definition of Total Quality Costs’ presented by Campanella
(1990, p. 8):
 Fundamentals of total quality management 186

The sum of the above costs [prevention costs, appraisal costs and failure
costs]. It represents the difference between the actual cost of a product or
service, and what the reduced cost would be if there was no possibility of
substandard service, failure of products, or defects in their manufacture.

This definition is a kind of benchmarking definition because you compare your cost of
product or service with a perfect company—a company where there is no possibility of
failures. We have never met such a company in this world but the vision of TQM is
gradually to approach the characteristics of such a company. In practice we need other
kinds of benchmarks as the perfect company. We will propose a method to estimate a
lower limit of the total quality costs in section 14.2 which use a best in class but
imperfect company as a benchmark.
The gold in the mine analogy signals first of all that the costs of poor quality are not to
be ignored. These costs are substantial. Secondly the analogy signals that you cannot find
these ‘valuables’ if you do not work as hard as a gold digger. The ‘gold digging process’
in relation to quality costs will be dealt with in section 14.4.
Because of the problem with the invisible costs, we have found it necessary to
introduce a new classification of the firm’s total quality costs—one which takes account
of ‘the invisible figures’. This new classification is shown in Table 14.1.
As Table 14.1 shows, total quality costs can be classified in a table, with internal and
external quality costs on the one side and visible and invisible quality costs on the other.
In the table, we have classified total quality costs into six main groups (1a, 1b, 2, 3a, 3b
and 4). Apart from the visible costs (1a+1b+2), the size of the individual cost totals is
usually unknown.

Table 14.1 A new classification of the firm’s quality costs

Internal costs External costs Total
Visible 1a. Scrap/repair costs 1 b. Preventive costs 2. Guarantee costs/costs of 1+2
costs complaints
Invisible 3a. Loss of efficiency owing to poor 4. Loss of goodwill owing to 3+4
costs quality/bad management 3b. poor quality/bad management
Preventive/appraisal costs
Total 1+3 2+4 1+2+3+4

It is often claimed in quality literature that total quality costs are very considerable,
typically between 10–40% of turnover. This is why these costs are also known as ‘the
hidden factory’, or ‘the gold mine’. We believe that these costs can be much higher,
especially if the invisible costs of ‘loss of goodwill’ are taken into account.

14.2 A NEW METHOD TO ESTIMATE THE TOTAL QUALITY

COSTS

Since quality costs are considerable in most firms, it is hardly surprising that management
is interested in them. The question is, how can they be estimated?
 Quality costing 187
The traditional method is to record costs as they arise (e.g. wage costs, material etc.)
or are thought to arise (e.g. depreciations). However, this method is only applicable in
calculating visible costs. We will therefore propose a new method for the indirect
measurement of total quality costs—a method which we believe may be invaluable in
connection with the strategic quality management process.
The method builds on the basic principle of benchmarking (Chapter 15) where
differences in quality and productivity may be revealed by comparing firms competing in
the same market. The method was first proposed by the authors of this book in 1991 and
has later been proposed by Karlöff (1994) when identifying a benchmarking partner.
The method is as follows.
Let Pjt stand for the ordinary financial result of company j at time t, and let Pjt/Nj stand
for the ordinary financial result per employee. Nj denotes the number of employees,
converted to full-time employees, in company j. Assume also that there are m comparable
firms competing in the same industry/market.
Now let the m competing firms be ranked as follows:

P1t/N1<P2t/N2<…<Pmt/Nm (14.1)

Based on this ranking, the lower limit of company j’s total quality costs at time t can now
be calculated:

Cjt=(Pmt/Nm–Pjt/Nj)×Nj=(Nj /Nm)×Pmt–Pjt (14.2)

The limit in (14.2) is a lower limit in the short term.

It can be seen from (14.2) that this lower limit is calculated as the difference between
the ordinary financial result per employee of the most profitable firm (per employee) and
company j, multiplied by the number of employees in company j.
We call this limit a lower limit because the method builds on a comparison with the
best company, i.e. the company which has achieved the highest profits per employee.
This company is used as a benchmark for the other firms being compared, a consequence
of this approach being that its lower limit of quality costs is zero. It does not have zero
quality costs, of course, which is why, with the help of equation (14.2), we call it a lower
limit.
In conclusion, we present an example of the use of the method in the Danish printing
industry.
The example is based on an analysis of the financial statements of printing firms with
at least 20 employees. Initially, there were 80 such firms who were thought to be
comparable with company j, a printing firm with 64 employees.
The most profitable firm had a profit of 199 966 kroner per employee, while the most
unprofitable firm had a loss of 254142 kroner per employee. 30%, i.e. 24 of the 80 firms
had losses. The lower limit for total quality costs thus varies considerably between the 80
firms.
This variation is shown in Figure 14.1. It can be seen that the correla-tion between the
lower limit of the total quality costs and company size, measured in number of
employees, can be shown by a straight line with a positive slope. It can also be seen that
 Fundamentals of total quality management 188

there is a surprisingly small variation around this line. The coefficient of determination,
which is a measure of how well this straight line shows the relationship, is as high
as 0.97.
The model in Figure 14.1 thus tells us that the biggest firms in the printing industry
also have the highest quality costs. Not surprising, perhaps. What is surprising, though, is
that there is almost a perfect linear relationship between company size and the indirectly
measured quality costs. However, this is a consequence of the correlation between the
ordinary profit and company size. One would normally expect a positive correlation, in
other words, that the biggest firms also have the highest profits. However, this is not the
case in the Danish printing industry. The figures here show that the ordinary business
result (profit) tends to fall as firms get bigger. This relationship is shown in Figure 14.2.
It can be seen from Figure 14.2 that, unlike Figure 14.1, there is a big variation around
the straight line which shows the relationship between quality costs and company size.
The conclusion is that, although we cannot definitely prove that there is a correlation, if
there is one, then this straight line is our best estimate of it. A more detailed analysis,
based on this straight line, shows that for each new employee in a firm in the printing
industry, the ordinary financial result falls by about 19 000 kroner.
A very obvious explanation for this is that growing firms use ineffective management
methods. We are convinced that TQM can change this. Firms must make an immediate
start on the quality journey. Only in this way can total quality costs be reduced which in
turn is the best means of improving profits.

Fig. 14.1 The relation between the lower limit

for quality costs and number of employees
among 80 firms in the printing industry
(r2=0.97).
 Quality costing 189
Following this analysis of industry-wide quality costs, we will now show how an analysis
in a specific company, company j, has been carried out.
Initially, company j’s ‘limit’ was calculated as:
Cjt=(199 966–35 384) · 64=10 533 248 kroner,

corresponding to about 13% of turnover.

After a more detailed analysis of those firms which had bigger profits per employee
than company j, the management objected that some of these firms were
incommensurable with company j. This resulted in the following revised ‘limit’:
Cjt=(109 185–35 384) · 64=4 726 976 kroner,

corresponding to roughly 6% of turnover. This 6% must now be related to Table 14.1,

which showed how total quality costs could be classified into visible and invisible quality
costs. If the 6% is a reasonable lower limit, then a lower limit for invisible costs can
now be calculated as the difference between the 6% and the visible costs, measured as a
percentage of turnover. If the percentage for the visible costs is large compared to the
6%, then the screening method used should be critically reviewed.

Fig. 14.2 The relation between the ordinary

profit and number of employees among 80
firms in the Danish printing industry.
 Fundamentals of total quality management 190
To end this chapter, we present a problem which three groups at a management
seminar on TQM were given to analyse. The problem, presented by an external
consultant, is as follows.
• Quality costs can be divided up into:
– red kroner: internal and external failure costs
– blue kroner: preventive and monitoring costs
– green kroner: losses connected with loss of image, reduced sales, etc.
• Every firm has all three types of costs to a greater or lesser extent.
• At a brainstorming session, the group is asked to draw up lists of cost items within each
of the three types of costs.
• Each group is then asked to estimate the size of the three types of costs—red, blue and
green kroner—plus the total quality costs.
• The results are then discussed at the full meeting.
The three groups each presented their results at the full meeting and their evaluation of
the size of the various types of quality costs are shown in Table 14.2 below.
The three groups were unaware of the above results, where equation (14.2) was used
in the calculation of a lower limit for quality costs and their discussions and evaluations
took place independently of each other.
In view of these initial results, the firm found the method for calculating the lower
limit of total quality costs useful in connection with the strategic planning process. The
method was used the following four years when comparing the financial results with the
most important competitors’ results. Figure 14.3 shows how the company used the
method for one of the years (1992). It is obvious that we have the same strong linear
relationship for the whole industry.
The advantage of the method, apart from being simple to use, is that a firm is forced to
compare itself with its competitors.

14.3 ADVANTAGES AND DISADVANTAGES OF THE NEW

METHOD TO ESTIMATE TOTAL QUALITY COSTS
The firm can see directly whether it is in the premier division, the first, second or third
division, or whether it is struggling at the bottom of the fourth division. Such
comparisons are ‘worth their weight in gold’ to top management and boards of directors
in setting overall quality goals for strategic quality management, not to mention their use
in quality audits, which are top management’s most important means of checking the
firm’s total quality activities. In this connection, there is actually little difference between
a football club and a business.
Football clubs set goals for the next season, e.g. to move up to the premier division
next year and be among the three best premier division clubs within three years. In the
same way, businesses have to set overall quality goals which all employees in the firm
can accept and strive for. We believe that this new method of calculating quality costs has
a number of advantages which make it very useful for this purpose.
 Quality costing 191

Table 14.2 The three groups’ evaluation of the firm’s quality

costs (million kroner)
Group Red kroner Blue kroner Green kroner Total
A 3.5 3.0 0.5 7.0
B 5.2 0.65 0.65 6.5
C 3.25 1.95 1.3 6.5

Fig. 14.3 The relation between the lower limit

for total quality costs and number of
employees among 10 firms in the printing
industry.
The hierarchy of goals which are subsequently set for all the firm’s departments should
be based on the same quality cost philosophy which has been the leitmotif of this book.
The type of questions outlined in section 14.4 are a good point of departure for setting
quality cost goals in the various departments or functions in the firm.
An important criterion for the choice of our new method is that it must be simple to
use and understand. The drawback of our new method on the other hand is that the
method is not foolproof. There may be other causes (non-controllable factors) behind a
low ranking than poor quality management (controllable factors).
Let us finish with an example which may clarify the problem. At a presentation we
were opposed by a student who argued that he could not accept the method because a
company may be able to improve the ranking and hence decrease the lower limit of its
total quality costs by changing the input to the processes from a labour intensive input to
a machine intensive input.
The student’s example showed a company that had a total profit of 10 million kroner.
After having changed the input the company still had a total profit of 10 million kroner
but the number of employees had been reduced by 50%. By using the new method to
 Fundamentals of total quality management 192
estimate the total quality costs the result may show that the company has increased the
ranking and decreased the lower limit of the total quality costs significantly. The
student’s comment was that such a change in the process input did not improve the
quality of the company so the method could not be accepted.
Let us think about this argument. What might be the reasons why the company
decided to change from a labour intensive input to machine intensive input? We can see
no other reasons than quality reasons or cost reasons, i.e. reasons which all may be
related to the definitions of total quality:

Quality is to continuously satisfy customers’ expectations

Total Quality is to achieve quality at low cost.

When the company decided to change the input from labour intensive to machine
intensive input the expectation was that the investment was profitable, i.e. the total profit
would be improved compared to a non-investment situation.
The example above does not show such an effect on the surface. But behind the
figures the profit may have been positive compared to a non-investment situation. The
profit in fact may have been reduced to five million kroner if the company did not invest
in machine intensive input.
If the company were the only company in the market which were able to identify the
opportunity for investment in machine intensive input then of course the effect is that the
company has increased Total Quality dramatically in the short run. The competitors will
sooner or later ‘wake up‘and use the same investment opportunity. In the meantime our
‘pioneer company’ might have improved its ranking and decreased its quality costs.
So the answer to the student and other opponents of the new method to estimate the
total quality costs is that the method is a ‘benchmarking method’ which cannot be used
independently of a company’s competitors because the method is built not only on the
definition of quality but also on the definition of total quality.
An alternative to the proposed method will be to use ‘value added per employee’
instead of ‘ordinary profit per employee’ in (14.1) and (14.2) where Value added’ is
defined as shown below:
Value added=Ordinary Profit+Wages+Depreciation

Using value added instead of profit in (14.1) and (14.2) will not be analysed in this book.
For further understanding of our new method, see section 15.2.

14.4 QUALITY COST MEASUREMENT AND CONTINUOUS

IMPROVEMENTS

If we can define it—we can measure it;

If we can measure it—we can analyze it;
If we can analyze it—we can control it;
If we can control it—we can improve it.
R.M. McNealy (1994)
 Quality costing 193
This quotation tells us in condensed form why it is necessary to measure quality costs and
also that before you start to measure them it is necessary to define exactly what you want
to measure.
The question now is how can measurement of quality costs be made a more integral
part of continuous improvements? Is it possible to make the invisible quality costs visible
and hence to set quality goals for these costs? We will attempt to answer these crucial
questions below.
In connection with the annual or biannual quality audit, the following sequence of
questions would be appropriate in each department of the company:
1. Which quality problems/defects have you observed during the past year?
2. Which additional quality problems/defects are likely when it is remembered that the
goal of quality management is to maintain or improve customers’ satisfaction of
needs?
3. Which preventive activities have been introduced to prevent the problem, or defect,
from occurring?
4. Which inspective activities have been introduced to discover problems which have
occurred?
These preliminary questions are necessary in order to ‘get at the root’ of the problems
which have to be controlled if the firm’s goal is Total Quality and TQM. They are also
important in determining the hierarchy of quality goals which must be systematically set
throughout the whole firm in connection with strategic quality management. These
questions guarantee that new and possibly even more ambitious quality goals are not set
without first considering the methods which can be used to fulfil them. Questions 3 and 4
force people to think about quality control activities, i.e. methods which prevent
problems arising in the first place, or which discover defects or problems which have
already occurred.
The following extract is an example of the quality problems which were identified in a
printing firm by several work groups discussing the first two of the above questions:
1. The quality of the various orders fluctuates too much.
2. Customer film not good enough.
3. Insufficient information on order bags.
4. Too many defective printing plates sent to press room.
5. Poor communication.
6. Inferior raw materials and customer materials.
7. Poor control of various departments’ work.
8. Poor control of received articles/materials.
9. Instructions/order bags not read properly.
10. Inadequate check of own work.
These examples are from one of the foremost firms in the Danish printing industry as
regards quality and profit, so they are probably typical of the industry as a whole.
In planning quality improvement projects, it is essential that a starting point is taken in
these examples. This means carrying out an analysis of causes and, in this connection, an
analysis of existing methods for preventing or discovering quality problems would be
invaluable. Thus questions 3 and 4 above.
 Fundamentals of total quality management 194
Apart from these four questions, it would also be natural to ask about the
consequences of individual quality problems. In other words, a form of quality cost
evaluation ought to be carried out. The following three questions force people to ‘think’
about quality costs:
1. What are the consequences and thus the estimated failure costs per problem/defect?
2. How often does the problem/defect occur?
3. What are the failure costs per year?
These are not easy questions to answer. Both questions 1 and 2 are problematical.
Answering question 1 demands, e.g. a consideration of the invisible consequences, i.e.
taking account of invisible quality costs, which is not that simple. Notwithstanding,
according to Deming (1986), these ‘invisible figures’ are the most important of all. If
they are ignored just because it is hard to estimate their size, then management will soon
‘have neither company nor figures’. These questions force both management and
employees to systematically take account to invisible figures in their efforts to fulfil the
firm’s quality goals. In this connection, the important thing is not so much whether we
can accurately predict the consequences of a quality problem but that these consequences
are evaluated and the chief problems identified. The estimation of quality costs is used to
rank identified problems in order of importance. This ranking eases group discussion, in
that it makes it much easier to agree which problems to tackle first. Ranking is a good
starting point for the setting of quality goals.
The above method enables the firm to identify the most important opportunities for
improvement (OFIs) and thus also enables it to estimate the most important contributions
to total quality costs. The method also helps the firm to decide which quality cost
contributions ought to be regularly measured and recorded. The basic philosophy of the
method is that quality costs only have value if they are recorded or estimated in
connection with continuous improvements. The method has therefore been developed so
that it is natural to use it in connection with quality improvements.
One source of inspiration in connection with the application of the above method, i.e.
when a company decides to identify and measure quality costs, is the work carried out by
the American Society for Quality Control and British Standard. BS 6143 and the ASQC
publication Principles of Quality Costs (Campanella, 1990) contain detailed descriptions
of quality cost elements and suggestions for charts of accounts. Such standard charts of
accounts should only be used as a source of inspiration in determining which quality cost
elements are central in a given company.
The important thing is that as more and more employees become actively involved in
continuous improvements, the main quality elements are gradually identified throughout
the firm, thus the decision about which quality cost element to measure and record can be
made in connection with this. The firm’s own chart of accounts for quality costs thus
becomes a tool in its efforts to improve quality. In Chapter 19 a case example will show
how a Danish company started up with only four accounts and how after eight years they
increased the number of accounts to nine.
 Quality costing 195

REFERENCES

Campanella, J. (1990) Principles of Quality Costs, ASQC, Milwaukee, Wisconsin, USA.

Dahlgaard, J., Kristensen, K. and Kanji, G.K. (1992) Quality costs and total quality management.
Total Quality Management, 3(3), 211–22.
Dahlgaard, J., Kristensen, K and Kanji, G.K. (1994, 1995) The Quality Journey, Carfax, London,
UK and Productivity Press, Madras, India.
Deming, W.E. (1986) Out of the Crisis, MIT, Cambridge, Mass., USA.
Juran, J.M. (1951) Quality Control Handbook, 1st edn, McGraw-Hill, New York, USA.
Juran, J.M. (1989) Juran on Leadership for Quality—An Executive Handbook, The Free Press, New
York, USA.
Karlöff, B. and Östblom, S. (1994) Benchmarking—A Signpost to Excellence in Quality and
Productivity, John Wiley & Sons, New York, USA.
McNealy, R.M. in Readings in Total Quality Management (ed. H.Costin), The Dryden Press,
Harcourt Brace College Publishers, New York, USA.
Womack, J.P., Jones, D.T. and Roos, D. (1990) The Machine that Changed the World, MIT, USA.
 15
Benchmarking

In the 1960s Rank Xerox appeared to be ‘the sweetheart of Wallstreet’. The company had
developed a product—the photocopying machine—which was a real milch cow. Each
time the counter clicked, it meant money to Xerox. The company entered the Fortune 500
in 1962 as number 423 and worked its way up to Number 70 in 1970.
The result of this rising was, however, that the company fell asleep. Much money was
lost on adventures outside the ‘core business’ and the control of vital functions such as
product development and production were lost. Furthermore, the company forgot to keep
an eye on the real competitors. Of course, it had an eye on the progress of IBM and
Kodak but the danger from the Far East was overlooked.
The situation became more and more critical and as Mr Peter McColough, the former
managing director of Xerox, put it:

The Kodak machine combined with IBM’s superior marketing skills could
have killed us.

The situation reached its preliminary climax when Canon declared open war with Xerox
in an advertisement of 12 January 1981:

Waging total war against Xerox.

Obviously, Canon was sure that, at this time, Xerox was an easy target for a direct attack.
However, Xerox had faced the danger and would not accept the attack. Mr David Kearns,
the managing director, said ‘We are determined to change significantly the way we have
been doing business.’ The challenge was accepted and as Canon had declared war, Xerox
could also respond in the same way. The company sought advice and guidance in the
classical art of war and found in Sun Tzu, a Chinese philosopher who lived around 500
BC, the strategy which should be used in the fight against the competitors:

If you know your enemy and know yourself, you need not fear the result
of a hundred battles.

By this, the groundwork for Xerox’s future strategy was laid. They would fight the
competitors by systematically gathering information on the market, the competitors and
themselves for the strategical fixing of means and methods necessary to win the declared
war. We know today that this procedure was the main reason why Rank Xerox could ride
against the tide and regain the lost market shares.
They called this procedure benchmarking and this is the subject of this chapter.
 Benchmarking 197
15.1 WHAT IS BENCHMARKING?

15.1.1 DEFINITION
As stated above, benchmarking is based on Sun Tzu’s rule of the art of good war: ‘To
know yourself and your enemy’. This was combined with an ancient Japanese word
DANTOTSU, meaning striving towards becoming the best of the best. These two things
united form the core of benchmarking as it also appears from the following definition
given by Mr David Kearns, the former managing director of Rank Xerox, in the
childhood of benchmarking:

Benchmarking is the continuous process of measuring products, services,

and practices against the toughest competitors or those companies
recognized as industry leaders.

The definition opens up the possibility that you should not only look at your toughest
competitors but also to other companies from which you may learn something. However,
as this is not evident from the definition, it has been necessary to make a more explicit
definition of benchmarking.
The new definition was published by the American Productivity and Quality Center in
1992 and is the following:

Benchmarking is a systematic and continuous measurement process; a

process of continuously measuring and comparing an organization’s
business processes against business process leaders anywhere in the world
to gain information which will help the organization take action to
improve its performance.

It is important to underline that benchmarking is not the same as copying. As

W.E. Deming (1993) put it in a speech at Hewlett Packard: ‘It is a hazard to copy. It is
necessary to understand the theory of what one wishes to do.’
Benchmarking may form the basis of a renewed development in a company as this
tool helps to identify the processes in which the best possibilities of improvements lie.
The solutions used in other companies, however, can only very seldom be transferred
directly to the company in question. Adjustments in some form will be made but the
understanding of the ‘theory’ behind the solutions should always form the basis of
current improvements.
Benchmarking has had many definitions since Xerox started. One of the more
suggestive has been made by Mr Fred Bowers of Digital Equipment Corporation in a
conference paper at American Productivity and Quality Center in 1992. Bowers see
benchmarking as a company’s attempt to model the human process of learning.
Human beings are exceptionally capable of identifying and using ‘best practice’
everywhere they meet it. From the world of sport we have many fine examples. The
Fosbury Flop (high jump) which became known all over the world in connection with the
 Fundamentals of total quality management 198
Olympic Games in 1968, is one of the best. Today high jumpers all over the world use
their own version of this jump. They have understood the theory behind the jump and
where the centre of gravity lies.

15.1.2 TYPES OF BENCHMARKING

Dependent on the object of analysis, benchmarking is normally divided into the following
three types:
1. internal benchmarking
2. competitor benchmarking
3. functional/generic benchmarking.
The objects of analysis of internal benchmarking are departments, divisions, or sister
companies of the same concern in order to identify the best performance of a given
activity within the company.
In many companies the same activity is displayed in many different places, e.g. order
booking, stocking, distribution and product development. In this case, it would be natural
to start seeking the ‘best practice’ internally in the company. The advantages thereof are
firstly to ease the admittance to information and data. Secondly, this form of
benchmarking opens up the possibility of a deep understanding of how benchmarking can
be implemented. The procedure can—so to speak—be practised internally. Furthermore,
experience shows that internal benchmarking improves the internal level of performance
and the internal customer satisfaction through reduction of the variations of quality and
productivity and it improves at the same time the ability to communicate and co-operate
in the company. If you examine the disadvantages of internal benchmarking, it must be
that only very rarely are ‘world class performances’ found internally in the company. The
consequences thereof are that internal benchmarking cannot stand alone but is the first
step on the road towards the final goal of benchmarking: to be the ‘best in class’.
By competitor benchmarking the company compares itself directly to present and
potential competitors within the same range of products (e.g. competitors at foreign
markets) in order to gather information on the competitors’ products, processes and
results to be able to compare this information with the company’s own results and to
learn from the differences.
Gathering information about the behaviour of competitors is naturally always of
supreme interest for a company. When Rank Xerox started its benchmarking analysis in
the early 1980s its production costs per unit were higher than Canon’s sales price.
Obviously there was something which Canon could do which Xerox could not. To gather
information about this was crucial to Xerox. Consequently, Xerox made an investigation
of the conditions of production in a wider sense, not only with Canon, but also with
Minolta, Toshiba and Ricoh. In doing this, Xerox was helped to a great extent by its
Japanese joint venture named Fuji Xerox Co. Ltd. They discovered that the Japanese
producers of photocopying machines had sought their ideas from inter alia Toyota and
Honda, one of which was the ‘just in time principle’ and they were very fast at adapting
their ideas to their own production.
 Benchmarking 199
The advantages of competitive benchmarking, beside the fact that the company puts
itself in a certain position in comparison with its competitors, is that at a very early stage,
the company’s attention is drawn to the expectations which the customers may rightly
have from it. Furthermore, the results have a high degree of comparability as the products
and thus the basic production structures are identical. The disadvantage of this form of
benchmarking is that the gathering of data is difficult. In many cases, you have to consult
indirect sources as direct information from the competitors is unattainable.
In the third type of benchmarking, called functional/generic benchmarking, the
potential comparative partner is any company which has obtained a reputation of being
excellent within the area which is benchmarked. In this case, it means that the company
does not necessarily have to limit itself to its own trade but keep its eyes open to ‘best
practice’ everywhere. If, for instance, you want to study the dispatch of orders, it may be
natural to compare with a mail order company or other companies which handle a great
number of orders every day. If instead you want to study information systems, it could be
a computer company with which you should compare yourself.
The advantage of this form of benchmarking is that the probability of finding world
class practice grows as the number of potential benchmarking partners is expanded. On
the other hand, it is obvious that the possibility of transferring the found practice directly
to one’s own company is smaller than by the other types of benchmarking. Another
advantage is that the collection of data in this case is considerably easier than by
competitive benchmarking as it is much easier to get a co-operation going with
companies from other lines of business than your own line.
As a final conclusion concerning the three types of benchmarking, we refer to
Figure 15.1.

Fig. 15.1 Characteristics of the three types of

benchmarking.
The figure distinguishes on the horizontal axis between three types of benchmarking.
On the vertical axis is measured the probability of finding world class practice AND the
 Fundamentals of total quality management 200
extent of the possibility of direct transfer (that is without adjustment) to one’s own
company of the practice found.
As previously mentioned, it can be seen that usually the procedures found internally
can to a large extent be transferred directly. On the other hand, the probability of finding
world-class practice internally is usually small. It is the exact opposite by functional
benchmarking. Here the probability of finding world class practice is large. On the other
hand, it is usually necessary to adjust ‘best practice’ to the conditions of one’s own
company. Competitive benchmarking lies in the middle of these two extremes.

15.2 WHAT CAN BE BENCHMARKED?

In the previous section we defined the three types of benchmarking while in this section
we shall describe what can be benchmarked. Table 15.1 shows what can be benchmarked
and which types of benchmarking can be applied.
The purpose of this table is to show that at a superior level, three main areas exist
which can be benchmarked and that in principle all of these three main areas can be
combined by one or more of the three types of benchmarking. This is not the same as
saying that the procedure is identical for the various combinations in the table as the
difficulties of applying each single combination can vary considerably from one
combination to the other, for which reason the detailed benchmarking procedure will also
vary considerably. The parentheses in the table imply that difficulty in applying
especially competitive benchmarking can be expected.

Table 15.1 Types of benchmarking and what can be

benchmarked
Type/what Quality Productivity Time
Internal benchmarking ¥ ¥ ¥
Competitive benchmarking (¥) (¥) (¥)
Functional benchmarking ¥ ¥ ¥

It is shown from Table 15.1 that at a superior level there are three answers to the question
‘what can be benchmarked?’ These three answers are (Karlöf, Bengt and Östblom, 1994,
p. 35):
1. quality
2. productivity
3. time.
However, it can be argued that only two main areas can be benchmarked - quality and
productivity—as time will always be a part of either quality or productivity. When we
have chosen time, despite this fact, as a special area which can be benchmarked, the
reasons are the following:
1. The time concept is simple and easy to understand and is thus easily accepted by all
employees.
 Benchmarking 201

2. The time concept is by definition related to processes and will thus automatically force
the participants to focus on processes and process relations. Consequently, it will, by
definition, invite a better co-operation between processes and departments.
3. Reduction of times (e.g. times of delivery) means increased productivity and increased
quality perception by customers.
Examples of times used for benchmarking are listed below:
1. Turn-around times, e.g. time from order taking to delivery.
2. Time of development for new products.
3. Installation time.
4. Time for debugging.
5. Time for handling of claims.
6. Time for handling of inquiries.
7. Time for dealing with employees’ suggestions for improvements.
8. Punctuality of deliveries in percentage terms.
Many companies have obtained major results by focusing on times. One of these is
Electrolux Cleaning Services in Västervik, Sweden, which has reduced the time of
delivery of vacuum cleaning motors by more than 90%. Another company, ABB, has
launched a new quality improvement programme named ‘Customer Focus’. The aim of
this programme is, inter alia, to halve all turn-around times.
Regarding benchmarking of productivity we would like to mention that comparisons
by means of productivity measures are a common and often effective means of
identifying potential benchmarking partners. A common productivity measure in this
connection is:

The application of this productivity measure in connection with benchmarking is often

applied by analyzing the results of the following three steps:
1. The ordinary net profit per employee is calculated as described above. The potential
benchmarking partners can be identified by means of this measure.
2. A breakdown of the ordinary net profit per employee into its components is made, i.e.
the following key figures are calculated:
a. turnover per employee
b. purchase per employee
c. costs per employee
d. interest per employee
e. depreciations per employee.
By comparing the above key figures with the key figures for the potential
benchmarking partners, it will be possible to minimize the number of potential
partners. At the same time, this comparison creates the possibility of identifying the
processes which will be valuable to benchmark.
 Fundamentals of total quality management 202
3. A further breakdown of the key figures of step 2 is made, if possible. The aim is to
minimize the number of benchmarking partners further and to increase the possibility
of identifying the relevant processes for benchmarking.
The application of the productivity measure ‘ordinary net profit per employee’ will be
dealt with later in connection with benchmarking of the total quality costs of a company.
Benchmarking of quality will either be a natural extension of time or productivity
being applied first in connection with benchmarking or it can be the area which for some
reason has been focused on as the first.
Benchmarking of quality can be divided into the same main areas which are normally
used in connection with the division of the concept of quality:
1. External quality:
a. customer satisfaction
b. the technical quality of the product.
2. Internal quality:
a. employee satisfaction
b. process quality.
In relation to external quality it can be interesting to look into the following questions:
1. How can need and expectations be identified (‘Expected Quality’)?
2. How can Value added’ qualities be identified (‘Charming Quality’)?
3. How are dissatisfied customers identified?
4. How are dissatisfied customers dealt with?
5. How is customer satisfaction measured?
6. Which qualities are included in the customer satisfaction measuring?
7. How are customer satisfaction measurings applied?
8. How are comparisons to competitors carried through (‘Relative Quality’)?
The earliest form of benchmarking we know is that under point 8. The most common way
to do it is simply to become customer of the competitor, buy the competitors’ products
and compare them with your own products.
In relation to employee satisfaction it can be interesting to look into the following
questions:
1. How is employee satisfaction measured?
2. How are measurings applied?
3. How are employees educated and trained?
4. How do you ensure that employees are involved in quality improvements?
5. How is employee involvement measured?
Benchmarking of process quality can be divided up into a row of key processes which in
relation to a production company may consist of the following key processes:
1. Research and development.
2. Production and distribution.
3. Administration supporting processes.
 Benchmarking 203
In relation to research and development it is important to look into the following
questions:
1. How is research and development carried through?
2. How is design review carried through?
3. How are customer demands translated into construction demands?
4. Does the company have a system for shortening the time for development?
5. How is the quality of the development work measured?
In relation to production and distribution the following questions may be important:
1. How are the processes designed?
2. How can times of delivery be minimized?
3. How can process quality be measured?
4. How are the measurings applied?
5. How are continuous improvements ensured?
6. How are defects and problems dealt with?
7. How is quality audit carried through?
8. How are quality plans made?
Finally, in relation to administrative supporting processes the following could be
important:
1. How can supporting processes be identified?
2. How can the quality of supporting processes be measured?
3. How are measurings applied?
4. How can continuous improvements of the supporting processes be ensured?
5. How are defects and problems dealt with?
6. How can quality audits be carried through?
7. How are quality plans of supporting processes made?
The questions mentioned above must not be considered as exhaustive. Beyond the
examples mentioned, there will be a number of things which can be benchmarked, all
dependent on the exact company and the market in question. However, we are of the
opinion that the questions above form a good basis for the beginning of a benchmarking
procedure.

15.3 HOW IS BENCHMARKING CARRIED THROUGH?

There are many ways in which benchmarking can be applied. Rank Xerox, for one, has
its own procedure divided into 10 steps. This procedure is based on the pioneer work laid
down by Camp (1989) in the early 1980s. In our opinion, it can be advantageous to look
at benchmarking in the same light as other continuous improvements. In Figure 15.2 we
have consequently made a model for the implementation of benchmarking based on the
ideas behind the so-called Deming cycle or the PDCA cycle.
 Fundamentals of total quality management 204
It appears from Figure 15.2 that, firstly, benchmarking is considered an eternal process
(a closed loop) meaning that as soon as the benchmarking procedure is implemented and
the improvements started, a new plan and search for improvements starts. Secondly, the
benchmarking is implemented in four natural stages:

Fig. 15.2 The PDCA circle of benchmarking.

1. PLAN: planning
2. DO: search and observe
3. CHECK: analyse the results
4. ACT: adapt results and carry through improvements.
The planning stage (Plan) comprises the initial activities in connection with
benchmarking. The stage will typically consist of the following four points:
1. Determination of what shall be benchmarked.
2. The determination of criteria for the selection of benchmarking partners.
3. The determination of methods for data collection.
4. The determination of use of resources.
As regards point 1 it will, in principle, be a question of choosing between the items
mentioned in section 15.2. The choice will of course reflect the perception of a certain
weakness in a given area, e.g. distribution.
As regards the choice of a partner, the criteria must be determined on the basis of the
superior consideration that the results found will be transferable to one’s own company
and at the same time, the practice found should reflect ‘world class’ (Figure 15.1).
 Benchmarking 205

Table 15.2 Methods for data collection in benchmarking

Data collection
Direct Indirect
Internal 1 . Direct observation of the (Indirect data collection is normally not used in
processes chosen connection with internal benchmarking)
2. Studies of internal material
External 1 . Site visit 1 . Trade analyses
2. Questionnaire 2. Studies of literature
3. Conferences
4. Consultants
5. Experience groups
As regards the data collection, it must be determined from where the data should be
collected and how it should be collected. In principle, the benchmarking can be internal
or external and the data collection can be direct or indirect. If these are combined, the
methods for data collection can be found as shown in Table 15.2.
By and large, Table 15.2 explains itself and consequently, we will not explain the
single elements in detail.
In the next phase, the Do phase, you search and observe as per the criteria laid down
under the Plan phase. The phase comprises the following steps:
1. The concrete choice of a benchmarking partner.
2. Data collection.
In connection with this phase it may be necessary to return to the Plan phase, as the
planned data collection may be impossible with the partner chosen. The two phases will
consequently interplay before you can progress to the third phase of the model.
This phase, the Check phase or the analysis phase, comprises the following steps:
1. Data correction.
2. Identification and quantification of differences of performances (gaps).
3. Identification of causes for differences of performances.
Under the first item, the data are corrected with regard to systematical errors which make
the data not immediately comparable. They may be corrected with regard to differences
in market conditions, level of costs, etc. Under the second and third items, the differences
of performances in quality and productivity are identified and you must try to explain the
reason for these differences. Some of these will often be technological causes, some
systems causes, or be of a human nature.
The final phase is the Act phase. During this phase, the results are adjusted to your
own situation and improvements are implemented. The phase comprises the following
steps:
1. Communication of the results found.
2. Ensuring acceptance with the involved parties.
3. Adjustment of the obtained results to one’s own situation and the arrangement of
functional aims.
4. Making of a plan of action.
5. Implementation of the plan of action.
 Fundamentals of total quality management 206
The last step of the phase, implementation, is not always easy to carry through. Changes
are always met with resistance and item 2 is therefore crucial. Furthermore, it is
important that the implementation is carried through with its own PDCA cycle in such a
way that the steps of the process can be surveyed all the time.
A successful passage through the PCDA cycle of benchmarking depends to a large
extent on the commitments of the management. Naturally, benchmarking leads to
changes and it is the responsibility of management to lead these changes. There is a
saying in Japan that ‘Management’s job is to manage change. If management fails, we
must change management.

REFERENCES

Camp, R.C. (1989) Benchmarking—The Search for Industry Best Practices that Lead to
Superior Performance, ASQC Industry Press, Milwaukee, Wisconsin; Quality Resources,
New York, USA.
Deming, W.E. (1993) The New Economics, MIT Centre for Engineering Study, USA.
Karlöff, B. and Östblom, S. (1994) Benchmarking—A Signpost to Excellence in Quality and
Productivity, John Wiley & Sons, New York, USA.
 PART THREE
Process Management and
Improvement
 16
Leadership, policy deployment and quality
motivation

16.1 INTRODUCTION

Today everybody agrees that leadership is a necessary condition for TQM and any book
about TQM will say this. But what is leadership in relation to quality management? The
answers to this question are not so easily agreed upon and vary considerably from author
to author and from manager to manager.
The purpose of this chapter is to present a leadership model which we find useful in
connection with the policy deployment process of TQM. The model is highly people-
oriented since we have found this aspect of leadership especially weak in current Western
management.

16.2 THE PDCA LEADERSHIP MODEL—A MODEL FOR

POLICY DEPLOYMENT

In Chapter 4 the TQM pyramid was presented and discussed. It was shown that the
foundation of the pyramid was management’s commitment or leadership. In the light of
the discussion in Chapter 4 we conclude that the aim of TQM leadership is to build the
TQM pyramid.
Our experiences, however, tell us that such an aim is not a sufficient condition for
TQM leadership—it is only a necessary condition. Management needs a model which is
process oriented, i.e. a model which follows management’s yearly and follow-up cycle
(the ‘Hoshin Kari’ or policy deployment cycle). We call this model the PDCA Leadership
Model. The model is shown in Figure 16.1.
The cycle of the PDCA Leadership Model begins with the Check phase, because the
development of the plan for quality improvements requires an understanding of the
present situation (where are we now?).
The TQM leadership model is to consist of two key elements based on Deming’s well-
known points 1 and 5: continuous improvement of products and services and continuous
improvement of processes. Hence, the model will consist of the following two elements:
design review and total quality audit.
 Fundamentals of total quality management 210

Fig. 16.1 The PDCA leadership model.

The process of design review consists of checking the product and service development
at various important stages—a preliminary stage, one or more intermediate stages and a
final stage.
Total quality audit consists of checking the concordance between quality plans and
quality results in order to identify future opportunities for improvements. In short, total
quality audit is checking the quality of the processes of the company including the
product development process.
When checking the concordance between plans and results the primary objective is to
understand:
1. Why results did not live up to the expectations (plans)?
2. Why results were better than expected?
In other words the causes behind the measurements should be understood. In this context
a thorough analysis and evaluation of measurements are a must. That means building up a
coherent measurement system is a prerequisite for an effective quality audit (Chapter 12).
When checking the product development process it is important to integrate results
from design review. These results should be evaluated in exactly the same way as results
from other business processes in order to identify future opportunities for improvements.
Before the revolution of TQM top management participation in design review and
quality audit was not common. These activities were usually considered to be the
responsibility of the quality department. Today it is widely realized that these two
activities cannot be delegated. Both are key elements of leadership and policy
deployment.
The next phase of the leadership model is the Act phase, which consists of two
elements—motivation and suggestions.
 Leadership, policy deployment and quality motivation 211
If top management participates wholeheartedly in the check phase an important signal
has been sent out to the whole organization that quality and quality improvements are top
priority. The effect will be people who are motivated for quality improvements. For each
key process suggestions for quality improvements will be generated as input to the next
phase of the PDCA Leadership Model. Section 16.2 will focus on these elements of the
PDCA Leadership Model.
The Plan phase consists of two main elements—deciding on the quality goals and
policies and design of the quality plans.
When deciding on the goals and policies management should have the four sides of
the TQM pyramid as a reference. The goals and policies act as a picture (a vision)
showing where the company wants to be (the goal of the journey). It is vital that this
picture is updated from time to time as a result of the previous two phases (check and
act). Chapters 19 and 20 give two examples on how world class companies have
formulated their goals and policies.
Planning is the process of designing the detailed plans for quality improvements, i.e.
the road map to follow on the quality journey. This planning process should be done on
the same premise as the ‘Hoshin Kanri’ policy deployment process, i.e. people who are
responsible for executing the plan should also participate in the planning process itself.
This foundation will, through group dialogue, secure a stronger plan and will ensure that
the company’s quality culture will be changed into the direction needed. It will also
secure that planning is not finished until the necessary implementation resources have
been discussed or negotiated between top management, middle management and the
implementation teams (QC circles, quality improvement teams etc.).
The design of the detailed plan for quality improvements starts with a top management
decision on which areas should have the highest priority for improvements in the next
year (waste reduction, cost reduction, customer satisfaction, education and training etc.).
The results of the total quality audit combined with the results of a self-assessment and/or
benchmarking are the natural input to this decision process.
The chosen priorities for improvement are ‘thrown’ to the divisional and departmental
managers who ‘catch the ball’ and start a process where the overall goals of the quality
improvements are analysed and evaluated. The aim of the process is to give feedback to
top management and to design the detailed plans which are the means to reach the overall
goals decided by top management.
Both at top management level and also at divisional or departmental level it may be a
help to classify the plan for quality improvements into the following eight categories:
1. improvements in customer satisfaction;
2. improvements in employee satisfaction;
3. improvements in products and services;
4. improvements in processes (systems and technology);
5. improvements in people (education/training);
6. improvements in customer relationships;
7. improvements in supplier relationships;
8. improvements in the measurement system.
 Fundamentals of total quality management 212

These overlapping categories are an efficient check-list during the ‘catch ball’ process of
policy deployment (Hoshin Kanri). They may inspire management at different levels to
identify meaningful opportunities for improvements and then decide on meaningful
targets to achieve.
The last phase of the PDCA Leadership Model is the Do phase. Here we also have two
elements. The final quality plan has to be communicated to everyone concerned and the
necessary education has to be achieved.
Besides the need to educate the employees (including management) in the use of
quality tools there is also a need to educate and train all the employees in human
motivation—theory and practice.
If the previous three phases have been executed ‘in the right way’, i.e. by employee
involvement, the Do phase will be executed under control of ‘the local people’. They will
function as an orchestra directed by their team leaders who are directed by their
departmental leaders who are directed by divisional leaders or divisional quality steering
groups which are directed by the company’s overall steering group for quality
improvements. The notes to play are in the quality plan. The only remark to ‘the
orchestra’ is that the divisional steering group is the company’s cross-functional
committee in respect to the quality improvement process.
A model of this orchestra is shown in Figure 16.2. The model has been developed at
Robert Bosch, Denmark and used in their Policy Deployment Process. CIP means
Continuous Improvement Process, which has the highest priority in Robert Bosch
worldwide.

16.3 LEADERSHIP AND QUALITY MOTIVATION

People are the key to quality. If their actions and reactions become quality related, then
expensive failures and the accumulation of hidden costs may be reduced to an acceptable
minimum or even prevented altogether.
Total Quality is a holistic concept which requires quality motivation of all people in an
organization towards a common goal. Whatever the structure and management process of
the organization the necessary links must be built up between people. We must learn to
accept that employees are not only our greatest and most expensive asset but that they
alone are the creators of quality, i.e. ‘People make Quality’ (Kanji and Asher, 1993).
The belief is that when people are well motivated then they can overcome any
difficulties they experience in solving their problems. Further, whatever work we are
associated with, we must motivate ourselves in order to achieve our work objective.
Quality motivation is all about people because it is people who make quality. We have
a common saying that ‘an organization is as good as its people’. It is well-known that the
majority of quality-related problems within our organizations are not within the control of
the individual employee. As many as 80% of these problems are caused by the way the
people are organized and managed.
 Leadership, policy deployment and quality motivation 213

Fig. 16.2 The CIP orchestra.

Some examples of this bad management can be seen as follows:

• When people are not given the right training to do the job and have to learn the job of
others.
• When the job itself is not properly defined and those doing it have to ‘make it up’ as
they go along.
• When paperwork is out of date or otherwise inaccurate.
• When systems do not reflect the work that actually takes place or are not designed to
help to do the job.
The role of managers within the organization is to ensure that everything necessary is in
place to allow people to make quality. Organizations are run by various systems and
procedures in order to manage their activities smoothly and in an orderly fashion.
However, in recent years the business world has changed rapidly and business processes
have accordingly changed with it. The major activities of managers these days are
therefore to manage these organizational changes. Most of them are due to the modern
quality revolution which, in turn, has created the customers’ higher quality expectation of
products and services.
For the adaptation of these changes many organizations have followed a streamline
route, i.e. a method to eliminate unnecessary work processes, duplication of workloads
and extra cross-functional co-operation. Although streamline routes are desirable for
many organizations, nevertheless, our human system organized in this way could easily
create some negative and undesirable activities, e.g. loss of enthusiasm, lack of creativity
and motivation. It is therefore the leadership of the organization that must play an active
 Fundamentals of total quality management 214
role in preserving the positive aspects of the human system and stimulate the individual
in its real desire to work.
Leadership is the beginning of the quality improvement process which starts with
vision, mission, values, policy and strategy, systems etc. and further continues with other
principles and concepts of Total Quality Management. According to the European Model
for Total Quality Management, leadership is the driving force behind policy and strategy,
people management, resources and processes, leading ultimately to excellence in business
results.
The European Model for Total Quality Management also suggests that customer
satisfaction, people satisfaction and impact on society can be achieved through
leadership. The model has used various criteria to demonstrate leadership including
(EFQM, 1996):
• visible involvement in leading Total Quality;
• a consistent Total Quality culture;
• timely recognition and appreciation of the efforts and successes of individuals and
teams;
• support of Total Quality by provision of appropriate resources and assistance;
• involvement with customers and suppliers;
• active promotion of Total Quality outside the organizations.

16.3.1 ASPECTS OF LEADERSHIP AND THE PDCA LEADERSHIP

MODEL
Clear leadership and vision are considered to be the most important critical success
factors of TQM. If TQM is adopted as a positive business strategy a substantial upfront
investment of management time must be made before a return is seen. The model we
presented in Figure 16.1 is an attempt to point out and to systematize some of the key
tasks for leaders committed to the TQM process.
The PDCA cycle is an obvious choice as a frame of reference. The Plan phase and the
existence of well developed communication reflect the degree of deployment in the firm
while education and training reflect the degree of empowerment. When TQM has been
incorporated into the firm’s strategic and operational plans, communicated to all
employees and delegation of responsibility has been undertaken as a consequence of
education and training, then a need to measure the correspondence between plans and
results is the next managerial step on the quality journey.
The Plan, Do and Check phases in our model reflect top-down leadership but to
modify existing quality plans or establish new quality objectives, participation of the
workforce is crucial. The Act phase reflects the bottom-up principle. It is a very
important managerial task to create a motivational environment to ensure that the
employees perform according to quality goals and make suggestions about quality
improvements. As stressed by many authors motivation is increased and commitment is
shown if management takes immediate action on good ideas from the workforce. Chapter
19 shows how a world-class company (Milliken Denmark) has had success in building up
an effective suggestion system.
 Leadership, policy deployment and quality motivation 215
(a) Education and training
As regards education and training, with the purpose of giving people empowerment to do
their own jobs, we have observed considerable differences in our QED study (Figure
16.3). Japan, Estonia and India report that between 65 and 80 hours per year are used for
educational and training activities per employee. All other countries use 30–40 hours per
year per employee.
The Indian and Estonian results reflect an obvious necessary investment in people to
increase know-how. This is a signal of increasing competition from the developing
countries. Japan may be regarded as the country furthest ahead on the quality journey
(Dahlgaard, Kristensen and Kanji, 1994). When the most obvious changes in the
organization have been made it becomes more and more obvious to management that
new opportunities for improvement depend upon empowerment. Satisfaction of the
workforce and hence motivation and ability to act as a constructive part in the process of
continuous improvement depend upon education and training. This is known and acted
upon in Japan as seen in Figure 16.3. In Western countries less resources are invested in
education and training and this could cause a bottleneck on the quality journey.

Fig. 16.3 Number of hours per year used for

education and training per employee.

(b) Quality motivation and suggestions for improvements

In the TQM leadership model the aim of the Act phase is to create an environment which
motivates people for quality and which encourages them to participate in making
suggestions about quality improvement.
Motivation for quality may be done in many different ways (Kristensen, Dahlgaard
and Kanji, 1993). It appears from Figure 16.4 that the respondents have especially
focused on five different areas. The main observation is that the highest level of activity
directed towards the five quality motivation areas is found in the East Asian countries of
 Fundamentals of total quality management 216
Taiwan, Korea and Japan. The main instrument for quality motivation in these countries
is QC circle activities and this instrument is also widely used in India and Australia. It is
well-known that the QC circle idea originates from Japan but it is not so well-known how
the spread of the ‘gospel’ has taken place. The high use of QC circles in these countries
is, in our opinion, the result of a widespread co-operation between countries in the Pacific
area which started in 1978 with the first International Conference on QC circles. We
know that the idea of teams and QC circles is very useful within quality management and
we hope that the idea is going to spread to European countries as well. In order for this to
happen we may need to establish a co-operation in Europe along the lines mentioned
above.

Fig. 16.4 Quality motivation and suggestions

for improvement. (Source: QED study, 1992)
Quality motivation is not enough to ensure a TQM culture. Quality motivation should
be combined with a number of methods in order to ensure that everybody participates
actively in improving the quality of products, services and processes. In our study we
asked the participating companies how they ensure that the employees are active in
making suggestions. From this question we obtained the results presented in Figure 16.5.
It appears that the methods used in the three East Asian countries differ significantly
from the methods used in the other countries. Again we see that the level of activities is
highest in the East Asian countries—especially Japan. The main discriminator between
East Asian countries and other countries is the concept of standardization. In this
connection, standardization means establishing a system for handling suggestions and
setting goals for the number of suggestions. We believe that this reflects the degree of
leadership commitment concerning integration of the workforce in the quality process.
Hence we consider the figures for East Asian countries to be benchmarks for other
countries. As Imai (1986) points out: There can be no improvement where there are no
 Leadership, policy deployment and quality motivation 217
standards’. Similarly, Professor Yoshio Kondo (1992) pointed out at a series of lectures
at the Aarhus School of Business: The entrance to quality improvement is
standardisation.’

16.3.2 BASIS FOR MOTIVATION (MOTIVATION THEORIES)

Some people believe that there is no basis for motivation because it is only the frame of
mind of an individual. It is true that you have to deal with people’s minds and treat them
fairly in order to motivate them, nevertheless it is difficult to believe that there is no basis
for the development of motivation theory.
These days quality motivation is seen as a vital factor towards achieving work
objectives using human resources and considering human needs. The basis for motivation
theory therefore can be developed by considering some common elements of human
needs.

Fig. 16.5 Methods for quality suggestions in

different countries (Source: QED study, 1992).

Maslow (1943) has described the hierarchy of human needs as follows:

• physiological needs
• safety needs
• social needs
• ego or esteem needs
• self-fulfilment needs.
According to Maslow an individual starts with physiological needs and when he fulfils
that need, he then moves on to the next hierarchy, i.e. safety needs and so on.
Frederick Herzberg (1969), another Western expert, suggested that the motivation is
governed by two types of factor, namely satisfiers and dissatisfiers. For some people,
 Fundamentals of total quality management 218
dissatisfaction at work is caused either due to low pay, noisy working environments or
unsuitable office accommodation or similar other reasons. To eliminate dissatisfaction
from such people it is necessary to satisfy them by providing higher pay and suitable
office accommodation etc.
It is debatable whether by simply removing the sources of dissatisfaction from people
one can motivate them to work with full commitment. On the other hand, one can easily
use a satisfier effectively for the preparation of work standards, setting work goals and
appraising the results etc.
According to Herzberg, fulfilling low level needs suggested by Maslow is equivalent
to fulfilling the needs of a dissatisfier and similarly fulfilling high level needs requires a
genuine satisfier. It is therefore understandable that to motivate people we need to have
both dissatisfiers and satisfiers. That is to say, to motivate people we must not only
remove sources of dissatisfaction but also take positive steps to provide sources of
satisfaction.
In 1973, a task force headed by O’Toole in the USA published its findings about work
in America. In this report he proposed that work should be defined as ‘an activity that
produces something of value for other people’.
At the same time Dr Nishibori of Japan suggested (Kondo, 1991) that the human work
should include the following elements:
• creativity (the joy of thinking);
• physical activity (the joy of physical work);
• sociality (the joy of sharing pleasure and pain with colleagues).
In a real sense, there is no difference between O’Toole’s and Nishibori’s ideas regarding
the elements of human work. As a matter of fact both of these ideas can be present under
one heading as shown in Figure 16.6.

Fig. 16.6 Elements of human work.

Usually, we understand that work involves activity and the humanity in work means the
creativity, i.e. natural fulfilment of the activities. Therefore the development of
motivation requires both the creativity and sociality which incorporates some elements of
humanity.
We will now look at this joint approach by Nishibori and O’Toole to understand the
present development of quality motivation within the Eastern countries.
 Leadership, policy deployment and quality motivation 219
16.3.3 THE STRUCTURE OF A JAPANESE QUALITY MOTIVATION
TRAINING PACKAGE
Kondo (1991) has pointed out that the managers and supervisors must motivate the co-
workers continuously as a part of their normal duties. According to him, people must
develop motivation through on-the-job training and the structure of the motivation theory
can be seen as a large roof resting on three pillars mounted on a solid base as shown in
Figure 16.7.
Here the base represents self-development (i.e. to motivate other people we must
motivate ourselves). The first pillar is getting the job done (i.e. learning how to complete
a difficult task). The second pillar is building teamwork (i.e. working together to achieve
a common goal). The third pillar is rousing the will to work (i.e. creating the desire
to work).

Fig. 16.7 Structure for human motivation

training.
According to Kondo, motivation is affected by different factors and requires various
responses depending on person, time and place. However, these factors have certain
commonalities and the structure described above incorporates many of these
characteristics.

16.3.4 QUALITY MOTIVATION IN JAPAN, TAIWAN AND KOREA

Quality motivation is the major task for modern business management. Without quality
motivation it is impossible to implement Total Quality Management. In our questionnaire
in the OED project (Dahlgaard, Kristensen and Kanji, 1992) we asked companies to
inform us about their methods of motivation. The following main groups for their
answers were chosen:
 Fundamentals of total quality management 220

• bonus for high quality (create the desire to work);

• quality campaigns (create the desire to work);
• economic rewards (create the desire to work);
• QCC activities (building teamwork);
• job rotation (getting the job done).
The results obtained from the QED project regarding the main methods of motivation
from Japan, Taiwan and Korea are given in Figure 16.8. The purpose of this result is to
understand the motivation methods used by the various organizations in order to develop
their Total Quality Management culture.

Fig. 16.8 Quality motivation in Japan, South

Korea and Taiwan.

From Figure 16.8 it is clear to us that 90% of the companies suggested that the QC circles
(i.e. building teamwork) are an important factor for the quality motivation. We therefore
strongly believe that in all three countries QC circle activities are regarded as the major
quality motivator. In Japan and Korea quality campaigns (create desire to work) are
regarded as the second most important motivator and in Japan job rotation (getting the
job done) also plays a very significant role.
Figure 16.8 also points out three major areas of difference between the countries:
1. bonus systems
2. quality campaigns
3. job rotation.
 Leadership, policy deployment and quality motivation 221
In our opinion job rotation is a necessary condition for implementing TQM and we
believe that Japan is on the right track in this respect. This can be seen in Figure 16.9
where the percentages of active QC circles are given for both with and without
job rotation.
The high correlation (Figure 16.9) between the job rotation and the percentage of
active QC circles indicates that it will be necessary for both Taiwan and Korea to
increase the use of job rotation in the future in order to achieve further quality
development. The modest use of job rotation in Korea can probably be explained by the
management structure mentioned in (Dahlgaard, Kristensen and Kanji, 1993).

Fig. 16.9 The importance of job rotation with

respect to QC circle efficiency.
With respect to quality campaigns (Figure 16.8), it is not clear from the information
available to us why this approach is so little used in Taiwan. Only 20% of the companies
in Taiwan have used it which is dramatically lower than Japan and Korea, where the
figures are very high, i.e. 76% and 79% respectively.
Regarding bonus systems the figures are relatively small for all countries but still
significantly lower for Japan. We know that in both Korea and Japan, bonus systems are
frequently used but obviously they are not considered to be quality motivators to any
great extent, which is fully in accordance with the basic motivation theory.
 Fundamentals of total quality management 222
16.4 CONCLUSION

In section 16.1 of the chapter we asked the question ‘what is leadership in relation to
quality?’ and we concluded that the answers to this question are not so easily agreed upon
and vary considerably from author to author and from manager to manager.
Even if a common definition of leadership is not easily agreed upon there is one lesson
which is very clear (Juran, 1989): The most decisive factor in the competition for quality
leadership is the rate of quality improvement.’
In this chapter we have presented a new (dynamic) model of leadership (Figure 16.1)
which we called ‘a PDCA Leadership Model’. The elements of the model are linked
together by using the most widespread model for quality improvements: the PDCA cycle
also called the Deming cycle. The Model has been used to compare survey data from
manufacturing companies in nine different countries. We recommend that the results of
this comparative study could be used for benchmarking purposes where the data from the
countries with the highest rate of quality improvements may be used as benchmarks.
When doing this our PDCA Model for leadership may be an easy and effective model for
managers to follow when they really try to institute leadership according to Deming’s
point 2.
Further, it has been shown that quality motivation is very important for modern
business management. Without proper quality motivation it will be difficult for any
organization to implement Total Quality Management. For development of the
motivation it is essential to fulfil the leadership role and to have real commitment by the
top management of the organization.
The evidence in this study indicates that in order to motivate people within an
organization the leadership must consider job rotation as one of the most important
management strategies. In conclusion we feel that this study has demonstrated that QC
circles, i.e. teamwork, are regarded as the most successful approach for the systematic
development of human motivation in Japan, Korea and Taiwan.

REFERENCES

Akao, Y. (1991) Hoshin Kanri—Policy Deployment for Successful TQM, Productivity Press, Inc.,
Cambridge, MA, USA.
Dahlgaard, J.J. Kristensen, K. Juhl, H.J. and Kanji, G.K. (1994) TQM leadership in different
countries—a comparative study. European Quality, 1(2).
Dahlgaard, J.J., Kristensen, K. and Kanji, G.K. (1992) Quality and economic development project.
Total Quality Management, 3(1), 115–18.
Dahlgaard, J.J., Kristensen, K. and Kanji, G.K. (1995) The Quality Journey—A Journey Without An
End, Productivity Press (India) pvt. Ltd, Madras, India.
EFQM (1996) Self-Assessed Guidelines for Companies, Brussels, Belgium.
Herzberg, F. (1969) The Motivation to Work, John Wiley and Sons, New York, USA.
Imai, M. (1986) KAIZEN—The Key to Japan’s Competitive Success, The Kaizen Institute Ltd,
London.
Juran, J.M. (1989) Juran on Leadership for Quality—An Executive Handbook, The Free Press, New
York, USA.
Kanji, G.K. (1990) Total Quality Management: the second industrial revolution. Total Quality
Management, 1(1), 3–12.
 Leadership, policy deployment and quality motivation 223
Kanji, G.K. and Asher, M. (1993) Total Quality Management: A Systematic Approach, Carfax
Publishing Co., Oxford.
Kano, N. (1984) Attractive quality and must be quality. Quality, 14(2).
Kondo, Y. (1991) Human Motivation: A Key Factor for Management, 3 A Corporation, Tokyo,
Japan.
Kristensen K., Dahlgaard J.J. and Kanji, G.K. (1993), Quality motivation in East Asian countries,
Total Quality Management, 4(1), 79–89.
Maslow, A.H. (1943) A theory of human motivation. Psychological Review, No. 50, 370.
O’Toole, J. et al. (1973) Work in America, MIT Press, Cambridge MA, USA.
 17
Implementation process1
17.1 INTRODUCTION

This chapter discusses how to implement Total Quality Management in the competitive
business world where the customer no longer accepts the traditional approach to quality.
In general it has been accepted that the basic problems which prevent both manufacturing
and service industries from being quality organizations are seen to be the same.
In this modern world the implementation of the TQM process is one of the most
complex activities that a company can undertake, because it requires cultural change for
everybody. It is well-known that it is difficult to change people rather than things,
nevertheless it is necessary for the top managers to take an active leadership role
involving everybody in the organization in order to fulfil the quality goal. Kanji and
Asher (1993) developed a four-stage implementation process for their TQM model. In the
critical analysis stage they indicated that output will be the continuous improvement
cycle, i.e. PDCA cycle.

17.2 FOUR STAGES OF IMPLEMENTATION

We believe that, among other things, two of the most common driving forces behind
implementation of TQM within an organization are competition and the need to keep the
customer happy. Kanji and Asher (1993) used the four-stage process of implementing
TQM in an organization. The stages are:
1. identification and preparation;
2. management understanding and commitment;
3. scheme for improvement;
4. critical analysis.
At the critical analysis stage the output is Deming’s cycle, i.e. PlanDo-Check-Act.
However, the above four stages of implementation can be modelled according to
Deming’s PDCA cycle as follows (Figure 17.1).

17.3 PLAN

Identifying and collecting information about the

organisation in the prime areas where improvement will
have most impact on the organisation’s performance.
Preparing the detailed basic work for the improvement of
all organisation’s activities (Policy Deployment)
Kanji and Asher, 1993
1
The authors would like to thank Mr Daniel Psaila for his contribution to this chapter.
 Implementation process 225
In order to discuss the above implementation process we will consider a service industry
which specializes in the installation of heating and ventilation work. At the plan stage,
after a period of induction and the appointment of external quality consultants, the SDL
company embarked on a quality improvement programme. The company needed to
embark on the quality improvement process because it had to change from managing
growth to survival in the face of deep recession.
More precisely, by the end of 1989, the company’s growth had escalated; more
contracts were being won, more labour was being hired, annual turnover (£2.5 million per
annum) had reached an all-time high and the company appeared to be experiencing its
best ever phase.

Fig. 17.1 PDCA model for implementation.

However, this boom period certainly had its downside. The increasing number of
contracts required more financing which, in turn, increased the company’ overdraft
facility (drain on profits). The calibre and control of labour (particularly site labour) came
to be more and more variable (customer dissatisfaction). The increase in workload
brought with it a concomitant increase in errors, defective work and non-quality costs.
Whereas the increased annual turnover should have meant an increase in profits, the non-
quality costs of inefficient operations were eating into the profit margins instead.
The practical method of identifying the basic problems affecting the company’s
activities was applied. An initial survey of all head office (Mitcham) personnel revealed
the three main areas for improvement as being:
1. accountability
2. communication
3. quality awareness.
 Fundamentals of total quality management 226
Initial attempts at concentrating on the approach of effective problem solving at the early
stage of the quality improvement programme revealed a serious organizational weakness.
Department heads were embroiled in a fire-fighting culture, often responding to problems
with costly knee-jerk reactions and seeking to blame others. Attempts at identifying the
cause of problems were usually met with obstruction and at times open hostility. A
problem that appeared in one department was invariably traceable back through the
internal supply chain to one or more departments. The issue was further clouded by the
absence of objective documentary records of errors, error investigation and corrective
action.
It was clear that many of the problems experienced in the company were traceable
through the management structure or rather lack of a clearly defined management
structure. The company’s rapid growth resulted in an ad hoc internal expansion
characterized by blurred lines of accountability and protectionist internal barriers to
effective communication.
Progress in tackling these issues was made by the managing director agreeing to
formalize the organizational structure. An organization chart was constructed which
reflected the current operations/departments: accounts and administration, estimating and
surveying, contracts, drawing office, Mitcham works, Haverhill works and site operations
plus suppliers (manufacturers). One of the most powerful concepts for the company-wide
principle is the realization that a complex set of customer-supplier relationships exists.
Each department of the company needed to concentrate on the effectiveness of the
internal customer-supplier relationship, i.e. working together, before any significant
progress would be made at improving interdepartmental efficiency.
To address this issue, a steering group comprising all heads of department was
established to drive the quality improvement programme. The group initially focused on
clarifying areas of responsibility, avoiding unnecessary overlaps and improving
interdepartmental communication.
The group also approved the implementation of a company-wide training programme
aimed at raising quality awareness and improving quality control throughout all
operations. It was agreed that incidents of non-conformance with operational procedures
would be recorded (on NCRs) for analysis and review.
The cost implications of non-quality were debated and it was agreed that the
estimating department would cost all NCRs. It was pointed out that reducing the level of
non-quality costs, by tackling the causes of problems not merely dealing with the
symptoms, would lead to improved competitiveness and increased profitability.
However, initial analysis of non-quality costs is usually understated and the real costs
can be staggering (estimates vary but can be as high as between 40 and 70% of sales
turnover).
Establishing the steering group enabled the prime areas where improvement would
have most impact on the company’s performance to be identified and the data collection
method (NCRs) agreed.
A programme of reviewing and improving process capability was approved primarily
targeted at the contracts, drawing office, Mitcham works, Haverhill works and site
operations departments. In this way, the detailed basic work for improving the company’s
activities was prepared.
 Implementation process 227
17.4 DO

Making sure that the management understands the

objective and methodology of TQM and are prepared to
adopt them all the time.
Kanji and Asher, 1993

It is necessary that management understanding of TQM principles, error prevention, costs

of poor quality etc. is addressed through the quality improvement teams.
Changing management style was essential to creating a continuous improvement
culture. As this is not easily achieved it was important that an effective programme of
training be implemented, starting with the steering group itself whose leadership would
be essential to the success of the quality improvement programme.
As part of this process, management needed to move from its reactive style to a
proactive one and prevent rather than solve problems.
Also, as internal competition is wasteful, it was necessary to break down existing
internal barriers and to encourage a teamwork culture across the departments. It was
emphasized in the quality group meetings that the company’s management strategy
needed to reinforce the teamwork approach as part of a TQM implementation.
According to the pyramid principle (Chapter 4), there are four principles that govern
the basic philosophy of TQM:
1. customer focus;
2. continuous improvement;
3. focus on facts;
4. everybody’s participation.
To counter the scepticism detected in some quarters, the potential results of a successful
TQM process was continually stressed in steering group meetings:
1. reduction in wastage;
2. process control improves;
3. company morale gets better.
It was emphasized that improvement in quality would lead to increased (right first time)
productivity which, in turn, would result in greater (external) customer satisfaction.
The challenge of TQM implementation is very much dependent on the commitment
and will of the company’s senior management to carry it through. The company had
embarked on its road to quality voluntarily whilst in a healthy state.
However, the subsequent failure of its senior management, particularly the managing
director, to adopt the objective and methodology of the quality improvement programme
at all times eventually weakened the company’s ability to deal effectively with the
pressure of competition and downturn in financial performance when the effects of
recession worsened.
 Fundamentals of total quality management 228
17.5 CHECK

By a process of involvement of management and

supervision in a proper scheme of training and
communication, identifying quality issues and effecting a
resolution of them by management led improvement
activities.
Kanji and Asher, 1993.

The education of departmental heads continued through the steering group meetings,
which occurred monthly for the first six months and quarterly thereafter. The purpose of
each department in relation to the others was defined in departmental quality policy
statements, translating the corporate policy in departmental terms which were
communicated to all personnel.
All personnel were encouraged to report/record problems as they arose and this data
was collected, investigated and analysed. This data and process capability studies enabled
improvements to be made where these were most required. Although this approach was
applied to situations where errors and their consequences, were readily visible and costly
(traditional approach), this at least provided a starting point for changing to an error
prevention culture. This, however, required a real change of individual and management
approach which was only going to occur over time; even then certain individuals proved
very resistant to change.
As (Kanji and Asher, 1993) point out ‘In many ways the problem solving approach is
the easiest and the cultural change is by far the most difficult aspect of the TQM process.’
The focus on problem solving was supported by a company-wide training programme
aimed at creating quality awareness, followed by practical assistance to improve the
control of key operational processes. This area of activity, at least, was adequately
resourced and all personnel (approximately 120 permanent and casual staff) were
included in the process.
Not surprisingly, the majority of problems showed up either in the two manufacturing
plants or, worse, on customer sites. These were invariably traced back to drawing office
and contract departments. During the period 1990/91, problems/errors were recorded on
NCRs, investigated and improvements actioned. This provided comparative data for the
period 1991/92, to assess which areas were actually improving.

17.5.1 CONTRACTS-DRAWING OFFICE

Although the drawing office was actually the responsibility of the contracts department,
the draughtsmen had been poorly managed, often with costly results. The two contract
managers were directed to work more closely with the draughtsmen and a series of
inspection checks was built into the contracts—the drawing office supply chain. The
draughtsmen were directed to cross-check each other’s work wherever feasible and to
provide regular progress reports on their project drawings.
This process was supported by the instigation of formal contract reviews, where the
contract managers were directed to record and diligently pursue/resolve any ambiguities
 Implementation process 229
or discrepancies between the company’s tender and the customer’s specification. This
area was found to be a significant cause of problems which resulted in company/
customer disputes and fed incorrect (from the customer’s viewpoint) drawings,
manufacture and site installation specifications into the system.
Additionally, monthly project review meetings were instigated which enabled actual
potential problems to be identified and acted upon. Previously these were overlooked or
not acted upon in a timely fashion.
One of the initial problems which had to be confronted here was the siting contract
manager who had tried to excuse the growing number of problems by claiming to have
too much work to contend with. A second contract manager was therefore appointed who
had been the siting manager’s assistant, although in practice he had been impeded in his
attempts to share the workload. This structural move helped to remove this line of
obstruction to the quality improvement initiative.

17.5.2 SITE OPERATIONS

In the worst instances, problems/defective work showed up at the installation stage at
customer sites. One of the initial problems to be tackled here was to distinguish between
errors due to site operatives and errors which site operations had little control over.
Again, the NCR recording system was instrumental in determining the origins of the
causes of errors.
As the majority of reported problems originated outside the site operation’s sphere of
control, these were tackled with the departments concerned.
However, the increase in the company’s workload had led to site labour being taken
on who were not always up to standard; in some cases the labour recruited comprised of
chancers (inexperienced) or liberty takers (unreliable). This compounded the existing
situation where long-standing site labour were assigned to projects more on the basis of
their friendship with the managing director rather than their ability to manage projects
and other site labour.
This situation was improved when an experienced site manager was appointed. He
readily took the quality message on board and proceeded to reorganize the hitherto
chaotic state of affairs. This included allocating site labour to projects on the basis of
capability, shedding undesirable labour, giving a clear message to labour agencies that
provision of substandard labour would not be tolerated and restructuring the pay/
remuneration system to reflect actual performance and ability.
Together we persuaded the managing director to register fitters’ mates on the
industry’s log book training scheme as a means of improving all round technical
performance, as well as investing in the individuals themselves. This scheme proved very
successful at motivating the individuals concerned, who were assured that they would
receive proper training and not, as had been the case, be used as skivvies. As a result,
both performance and morale significantly improved among trainees and experienced
fitters, who were encouraged to impart their skills and assess their mates’ competence in
the field.
By the above means, it was not long before site operations had progressed to a
preventive method of working which was reflected by a significant decrease in site
originated errors.
 Fundamentals of total quality management 230
17.5.3 MITCHAM WORKS
The manufacturing plant at Mitcham was predominantly staffed by very experienced
sheet metal workers (SMWs) who had spent many years in the trade. It did not take long,
therefore, to establish that this plant was not a major contributor to the causes of defective
work; in the majority of cases defective work was traceable to inaccurate drawings or
drawings produced to incorrect contract specifications.
However, the plant had a history of uneasy labour relations. The staff was a mixture of
directly employed and self-employed SMWs who appeared (to the directly employed
staff) to enjoy more favourable rates of pay, freedom and treatment, which at times led to
friction and resentment. This situation was compounded by recurring conflicts between
the self-employed SMWs and the managing director over the setting of rates of pay.
A recent dispute over this issue had resulted in an uneasy truce; the managing director
considered he had been held to ransom by the self-employed SMWs and resolved to turn
the tables when the company enjoyed the more favourable bargaining position! This
conflict characterized the nature of dialogue between the parties in various shop-floor
meetings I observed and did little to foster a co-operative teamwork spirit.
Another source of manufacture error was the estimating department’s production
scheduling, where the manufacturing locations for various drawings were decided by the
managing director and general manager.
The main sources of problems here were identified as:
1. drawings which were split between the Mitcham and Haverhill works, where the
standard of SMWs was inferior;
2. drawings which were offered to the self-employed SMWs on a price work basis;
3. drawings which were subcontracted to external manufacturing suppliers.
Taking these issues in reverse order, it was all too easy to blame defective manufacture
on outside suppliers. However, in many cases it transpired that these problems with
(external) suppliers originated within the company, typically through incorrect or
ambiguous manufacturing specifications. Where drawings were split between the
company’s own works and external suppliers and where externally manufactured
drawings were shipped directly to customer sites, it became that final inspection was
either absent or ineffective.
This situation was improved by introducing inspection and test records for all
manufacture drawings, indicating in-process and final inspection. It was agreed that all
external manufacture would be returned to the Mitcham works for final inspection prior
to delivery to customer sites. Where this policy was followed, the situation significantly
improved by allowing errors to be detected and rectified prior to shipment (rectification
was far more costly post-shipment).
There was a need to improve working relationships with external suppliers—along the
lines of partnership and co-operation—and I was able to liaise closely with the
company’s preferred supplier (TNM). A quality control package was developed which
dovetailed with the company’s quality assurance system requirements; this was installed
in the supplier organization, whose SMWs were inducted into the system’s requirements
and audited on a regular basis. Working closely with the supplier enabled manufacturing
methods to be harmonized, which provided uniformity of finished product (the
 Implementation process 231
significance of which was readily apparent when two separately manufactured duct-work
runs were joined together on-site).
In time, TNM came to regard the QC package as invaluable; it enabled them to claim
for variation work, deal with queries/information requests efficiently and improve the
quality of finished product.
Secondly, drawings which were offered to the self-employed SMWs on a price work
basis often gave rise to problems. Investigating this issue revealed that while the standard
of manufacture was high, certain items were either double manufactured or not made at
all; this was due to the work method employed by the SMWs where duct-work runs were
allocated to small teams to manufacture, with nobody taking overall responsibility for co-
ordination.
Again, the inspection and test records helped to improve this situation as it was
accepted by the SMWs that the job included inspection and co-ordination.
This episode revealed a potential for improving productivity in the works—an issue
that increasingly occupied the managing director’s thoughts! I noticed that when the
SMWs were responsible for how the work was carried out, i.e. price work, their
allocation of tasks among themselves led to the work being completed in about half the
time normally achieved. I knew this to be the case as I had earlier persuaded the
managing director and the SMWs to use the clocking-in cards to time how long jobs took
to complete (this was an attempt to inject some objectivity into the management/shop
floor dispute over job completion time estimates).
As a result, it was recommended to the managing director that the workshop be
reorganized to accommodate manufacture by small teams, as opposed to individual work
benches. I was appalled when the workshop was reorganized—the individual work bench
approach was reinforced by the new layout and the job-timing was applied to each SMW
to find out who the culprits were. My conclusions, after questioning the managing
director on this development, were that (a) my attempts at improvement were being
corrupted and (b) that each means of improvement I came up with was likely to be used
by the managing director against the SMWs as part of his hidden agenda of getting his
own back.

17.5.4 HAVERHILL WORKS

Thirdly, the problems caused by drawings which were issued to the Haverhill works for
manufacture appeared to be a major cause for concern. Unlike Mitcham, the workforce at
Haverhill was largely unskilled—young operatives taken on from school/college and
trained on-the-job by the works manager and his two supervisors. The situation was
compounded by excessive workloads, inadequate manufacture progress recording
systems and inaccurate manufacture specifications.
The quality manager visited this plant once a month and he started working with the
manager to improve the situation. An independent manufacture progress recording
system was set up which gave the plant greater control over its own operations (whenever
items were overlooked by head office or went missing it was always the Haverhill works
who were blamed). An administrator was appointed to run this system which soon proved
its value to the works manager. Additional SMWs were taken on to cope with the
increased workloads.
 Fundamentals of total quality management 232
The initiative which brought about the greatest improvement in performance,
however, was the introduction of a key stage inspection system, which incorporated the
kanban principle (JIT). The key manufacturing stages were identified by means of a
process walk through and these were included as compulsory inspection points on the
inspection and test record. These stages were assessed against the types of errors recorded
by the plant on NCRs to ensure that the common problems would be tackled. Once the
inspection stages had been defined training sessions were held to induct the SMWs into
the system’s requirements.
The main message that was emphasized was that the SMWs were not to proceed to the
next stage of work until the present stage had been inspected and signed off on the
inspection and test record—even if at times they had to wait until a supervisor was free.
Achieving this required something of a change in culture, as getting the job done as
quickly as possible had been the modus operandi.
Eventually, this new method of working became established as the norm. Where the
procedure was not followed, this invariably showed up further down the manufacture line
as defective work. These instances further reinforced the value of operating to the new
system (and embarrassed the SMW concerned).
Also, more authority for managing the manufacture operations were delegated to the
two supervisors, freeing up the works manager’s time to focus more on checking
manufacture instructions and drawings received from head office. Between the
improvement efforts at the contracts-drawing office department end and more thorough
drawing checks at the Haverhill works end, fewer errors were fed into the Haverhill
manufacturing chain.
Cumulatively, the effect of these measures was to alleviate the workload pressures as a
significant amount of manufacturing time had actually been spent on renewing defective
manufacture, which in turn reduced the time available for new manufacture. In many
ways, the improvement achieved by this plant was the most remarkable and showed what
could be achieved when the objective and methodology of TQM was understood and
consistently adopted by a management prepared to train and involve the workforce in
identifying and resolving quality issues.

17.6 ACT

Starting a new initiative with new targets and taking the

complete improvement process to everybody indicating
supplier and customer links in the quality chain. Obtaining
information about progress and consolidating success.
Kanji and Asher, 1993

By the end of the 1990/91 period, the quality improvement programme had enabled
information about each department’s success to be collected and quantified. This in turn
enabled new targets for improvement to be set and communicated to all customer-
supplier links in the company’s internal quality chain.
 Implementation process 233
The information was reviewed and discussed by the steering group and future
improvement action statements were agreed and distributed to all departments. These
statements set the tone for a new initiative which monitored progress and consolidated
the success achieved.
This initiative saw an overall improvement in the performance of all departments,
when assessed at the end of 1991/92. Main improvement results included:
1. overall reduction in NCRs from 99 to 64;
2. 43% reduction in non-conformities by Mitcham works;
3. 83% reduction in non-conformities by Haverhill works including a near total
elimination of the most significant causes of error (applying the Pareto principle);
4. 35% reduction in non-conformities by site operations.
Attempts at quantifying the costs of non-quality were only partially successful. While all
NCRs received (during the period 1991/92) were costed by the estimating department,
these were the only known costs and related to those failure activities which happened to
be reported. Efforts to obtain wider cost data, including prevention and appraisal cost
figures, were invariably frustrated by the managing director who indicated that this area
was very much out of bounds.
Even taking the effects of improvements achieved into account, the reported failure
costs (between 10–15% of annual sales turnover) for the year period 1991/92 were
difficult to assess as attempts to get the estimating department to clear the backlog of
NCRs awaiting costing (relating to the 1990/91 period) proved fruitless. Either way, there
was a serious under reporting of problems and one suspects, of assigning costs (especially
as the most expensive errors seemed to implicate the managing director).
However, the comparative Haverhill data showed that the improvement initiatives
implemented led to a reduction in scrap/defective work valued at approximately £50 000.
It is no coincidence that the greatest cultural change occurred at this plant. This was due
in no small measure to the fact that the plant was located some 60 miles away from the
head office and was therefore less likely to be affected by head office interferences in
effecting change and implementing quality improvement.
Elsewhere, the degree of cultural change which was achieved varied, dependent on
each department head’s commitment to the initiative. While overall this improved as
visible results were obtained, there remained much work to be done in this area at the
time that I parted company with the firm. The individual most resistant to the desired
cultural change happened to be the managing director, who took an ambivalent attitude to
quality and tried to cherry-pick the parts of TQM that suited his viewpoint and ignore the
parts that did not.
When the effects of recession impacted upon the company, there was an increasing
drift back to the bad old ways and much of the quality gains were squandered.
This became evident in the fluctuating customer satisfaction levels. Whereas customer
complaints had decreased over the two-year period, they suddenly began to rise again.
 Fundamentals of total quality management 234
REFERENCES

David, A.J. (1990) The customer /supplier relationship—the Nissan way. Total Quality
Management, 1(1), 59–68.
Kanji, G.K. and Asher, M. (1993) Total Quality Management: A Systematic Approach, Carfax
Publishing Co., Oxford; paperback (1996) Productivity Press (India) Ltd., Madras, India.
 18
Quality culture and learning1
18.1 INTRODUCTION

Total Quality Management is the culture of an organization committed to customer

satisfaction through continuous improvement. This culture varies both from one country
to another and between different industries but has certain essential principles which can
be implemented to secure greater market share, increased profits and reduced costs
(Kanji, 1990).’
Creating a quality culture within an organization is increasingly recognized as one of
the primary conditions for the successful implementation of Total Quality Management.
It requires uncovering current underlying culture and examining the appropriateness of
the objectives in order to adopt Total Quality Management. To close the gap between the
old and the required new culture one must also explore the new quality improvement
process for achieving customer satisfaction.
Taking its starting point in recent literature on quality, quality management and
corporate culture, the purpose of this chapter is to introduce a new concept within
management theory, namely the concept of quality culture. This concept is then discussed
within the framework of Total Quality Management, providing some suggestions about
practical procedures for developing quality culture.
In general, culture represents the way in which members of a business group control
their behaviour in order to communicate with each other and with other groups in that
society. It reveals their pattern of behaviour, customs and practices and the beliefs that
are shared. Most of the countries in the world therefore have their own cultures based on
several such factors.
Like countries, business organizations also have their own cultures. It is the totality of
the norms, beliefs and values that controls the behaviour of individuals and groups within
any given organization. However, many organizations are not even aware of their own
culture or its distinct characteristics. They become aware of it when they have to
communicate with managers from other organizations with different cultures. Sometimes
individuals realize their own culture when mergers and acquisitions take place and a great
deal of cultural adjustment is thrust on them.
We also know that traditional and long established organizations have their own
cultures which have evolved over the long period of their existence. These cultures are
influenced by the culture of the country and the nature of its business of the organization,
e.g. British chemical companies combine British culture with some characteristics of
chemical companies throughout the world. British banks and financial institutions
combine their customs with many of the global norms which are shared by their
counterparts all over the world. It is therefore necessary for the newly developed
industrial nations to combine their particular ways of doing business with the global
practices of the businesses they are involved in.
1
Part of this chapter is based on Hildebrandt, Kristensen, Kanji and Dahlgaard (1991).
 Fundamentals of total quality management 236
There is always a question of how fast an organization should attempt to modify its
culture. The wise thing is to change as fast as is practicable but certainly not as slow as
the organization may find comfortable and cosy. That can run the risk of the boiled frog
phenomenon. If you put a frog in water and warm up the water gradually, the frog will be
so comfortable as the water warms up that it will not realize when the water becomes too
hot and it is boiled to death. That is what a cosy culture can do to an organization.
The importance of organizational culture, generally accepted by many people, can be
summed up by Peters and Waterman (1982) in their book In Search of Excellence, where
they said ‘without exception, the dominance and coherence of culture within these
organizations proved to be the essential quality of success’.
Many managers these days pay proper attention to their organizational culture because
they view culture as an asset (Egan, 1994). In some studies it has been suggested that
organizations with adaptive cultures, geared to satisfy the changing demands of
customers, employees and shareholders can outperform organizations without such
culture. Companies with sound culture can increase their sales three times more than the
organization without a sound culture. Therefore a successful company needs more than
just sound business strategy, it needs a culture to support the strategy.
It is our understanding that sometimes organizations reflect the personality and
character of the founder member’s norms and beliefs. This can be seen easily by
considering Henry Ford who is known for his immeasurable impact on the shape of his
organization’s culture; other examples include Walt Disney at Disney Productions, David
Packard at Hewlett-Packard etc. However, according to Schein (1985), when the founder
moves on, the culture they have embedded does not lose its momentum. The process and
people in the company have become the carriers of the culture and the culture continues
in the organization.

18.2 THE CONCEPT OF CULTURE

The concept of corporate culture has been used in recent years to develop and understand
the concept of culture in connection with the study of organizations. In this section the
concept of quality culture is introduced and developed for the better understanding of the
way quality manifests itself in companies.
There are many definitions of culture. However, the concept of culture which is now
considered for the theory of organizations has its origin within anthropology and is given
by Tyler (1871–1958) as follows:

Culture or civilisation, taken in its wide ethnographic sense, is that

complex whole which includes knowledge, belief, art, morals, law,
custom, and any other capabilities and habits acquired by man as a
member of society.

In recent years a number of behavioural scientists have used the above definition in the
area of corporate culture. In 1956 Juran also proposed the application of the
anthropological concept of culture in order to create a meaningful change within the
organization.
 Quality culture and learning 237
18.3 ORGANIZATIONAL THEORY AND CORPORATE
CULTURE

In discussing quality culture, first of all we will introduce the concepts of formal and
informal organization and later the corporate culture which is one of the most important
aspects of Total Quality Management.
The theory of organizations is often described through different types of
organizational models. These models may be mutually different but have certain
characteristics which are based on a stable structure. The traditional model of an
organization is therefore most often a model emphasizing characteristics of hierarchy,
division of labour and communication.
It is a well-known fact that the organizational structure is traditionally described in an
organization chart and this is important in the understanding of an organization, but has a
limited perspective.
Therefore, it is traditional to supplement the description of the formal organization
with a description of the informal organization. By informal organization we mean non-
planned management, often unknown but stable patterns of behaviour which fulfil the
major parts of the daily routines. The informal organization is described in different
ways, e.g. the human group, where the informal aspect is described as norms and roles in
the sociocultural system and the concept work group, describing a shadow organization
established by the workers in defence of management’s infringements.
In recent years, another important source of understanding of an organization has been
demonstrated through different forms of environmental relationships. It provides a model,
which includes the importance of the environment to organizational structure and
behaviour emphasizing some important variables in the environmental relations, e.g.
market, technology, politics, financing and manpower.
Understanding both the formal, the informal and the environmental-related framework
of description is important in order to understand Total Quality Management and quality
culture.

18.4 CORPORATE CULTURE

The concept of culture has been the subject of considerable interest in the recent literature
on organizational theory but has not to any significant degree been discussed in literature
on quality. The introduction of the concept of culture may be seen as the culmination of a
long trend of development in organizational theory. At first, this development meant that
the conception of the organization as merely a tool was abandoned in favour of the
independent social formation or social units with inner dynamics of their own. Further,
the fundamental social unit in the organization and the idea of the organization as a
cultural community was introduced and has gained ground.
There are many definitions of the concept of corporate culture. A few examples will
be given in the following:
• ‘Corporate culture can be defined as a set of commonly held attitudes, values, and
beliefs that guide the behaviour of an organisation’s members’ (Martin, 1985).
 Fundamentals of total quality management 238

• ‘Culture can be defined as the shared philosophies, ideologies, values, assumptions,

beliefs, experiences, attitudes and norms that knit a community together’ (Kilman,
Saxton and Serpa, 1985).
• ‘Culture will be used here to mean the belief’s top managers in a company share about
how they should conduct their business’ (Lorsch, 1985).
• ‘Culture is the set values, behaviours and norms which make an organisation ticks’
(Atkinson, 1990).
• ‘How things are done around here’ (Ouchi and Johnson, 1978).
• ‘The ways of thinking, speaking and inter-acting that characterise a certain group’
(Braten, 1983).
• ‘Culture reflects assumptions about clients, employees, mission, products, activities and
assumptions that have worked well in the past and which get translated into norms of
behaviour, expectations about what is legitimate, desirable ways of thinking and
acting. These are the focus of its capacity for evolution and change’ (Laurent, 1990).
• ‘A pattern of basic assumptions invented, discovered or developed by a given group as
it learns to cope with its problems of external adaptation and internal integration that
has worked well enough to be considered valid, and to be taught to new members as
the correct way to perceive, think and feel in relation to these problems’ (Schein,
1985).
• ‘Culture is the shared beliefs, values and norms of a company in so far as these drive
shared patterns behaviour’ (Egan, 1994).
Formulated broadly, it applies that corporate culture deals with values and norms in
organizations. The company’s culture is expressed in visible terms in many different
ways: through physical conditions like buildings, the company’s stationary, the quality,
including design, of the products, the colour of the company cars, etc. It is also expressed
through the way people in the organization co-operate and solve problems. Generally
speaking, the concept of visible management is closely associated with the use of the
concept of culture in management theory.
Deal and Kennedy (1982), in discussing the corporate culture, have listed the
following conceptual elements:
• corporate climate
• values
• heroes
• rites and ceremonies
• the cultural network
and further suggested: ‘A strong culture is a system of informal rules which explain in
detail how people should behave most of the time’ and ‘A strong culture enables people
to get a better idea of what they do so that they are more motivated to work harder.’
Schein (1985) argues that the concept of culture ought to be reserved for the deeper-
lying level of basic assumptions and convictions that are common to members of an
organization (Figure 18.1). These assumptions and convictions are acquired responses to
a group’s problems of surviving in their external environment and its problems of internal
integration. According to Schein, a distinction should be made between assumptions,
systems and values which are the form of manifestation of culture in day-to-day life but
not the epitome of culture.
 Quality culture and learning 239

Fig. 18.1 Schein’s three levels of culture.

As indicated above, culture is an acquired product of group experience and therefore can
only appear where there is a definable group with a significant history. It should be noted
that this is a considerable modification in relation to the management-oriented concept of
culture. It is a conception of culture which is rooted more in theories of group
development and group dynamics than in anthropologic theories of how cultures develop.
This entails the assumption that it is possible in this context to take advantage of learning
theories and to develop a dynamic conception of corporate culture. It also entails the
assumptions that it is possible to integrate knowledge from other fields of theory with a
view to gaining both a broader and deeper understanding of the extremely complex
phenomena involved.
It should be noted that the corporate culture mentioned above does not comprise
obvious patterns of behaviour. Schein argues in this context that obvious behaviour is
always determined both by cultural conditions and by the haphazard situations arising in
the external environment. Regularities in behaviour may thus reflect the environment as
much as culture and therefore should not be used as the primary basis of defining culture.
This does not mean that behaviour is of no importance in this context, it simply suggests
that we have a deeper understanding. It will be difficult to decide whether it is a symptom
reflecting culture or not.
The concept of culture as a tool of control and change has been at the centre of interest
in recent years. However, the culture which reflects the management-inspired way of
thinking, i.e. looking optimistically at the possibility of change, has created some
controversy with a more anthropology-inspired way of thinking, i.e. relatively resistant to
conscious change.
 Fundamentals of total quality management 240
Therefore, in discussing the concept of quality culture it is necessary to look at these
two extreme points of view, where the managementoriented viewpoint in its most
extreme form regards culture as something coming from above in the organizational
hierarchy i.e. something created through management decisions and management actions
and therefore which can also be changed through management decisions, whereas the
anthropology-oriented approach regards culture as something spontaneous, growing up
from below as the result of many people’s individual actions and experience and which
therefore cannot be easily changed through any centralized process.
Like in so many other fields these viewpoints are not as reconcilable as it might appear
on the face of it. This question will be taken up later but at this point it may be suggested
that a so-called management-oriented viewpoint does not necessarily entail the type of
top-down view mentioned above but might have connection with the above-mentioned
anthropology-orientation.
An example of cultural change is the Xerox case. The Xerox company was forced to a
radical change of corporate culture due to a collapse of its market shares in the world. To
overcome this problem the company did not minimize the extent of the cultural change
necessary. Some of the changes it adopted for this purpose are given in Table 18.1 as a
result of which they have recaptured their world market shares.
In sections 18.5 and 18.6 we will discuss how a change like this may be achieved.

18.5 CLASSIFYING A CULTURE

Harrison (1972) and Handy (1976) prove that we can classify the culture of an
organization into four broad ranges. The formation of culture depends on a number of
factors including company history, ownership, organization structure, technology, critical
business incidents and environments etc. The four cultures they discuss are power, role,
task and atomistic. The purpose of an analysis would be to assess the degree to which the
predominant culture reflects the needs and constraints of the company. They use
diagrammatic examples to illustrate their ideas of cultural types with high versus low
formalization and high versus low centralization (Figure 18.2).
The role cultures are typically bureaucratic organizations managed by time and motion
studies and precise mechanical specifications with authority based on job descriptions.
An example of a role culture would be government departments.
Table 18.1 Xerox cultural change
From To
Incomplete or ambiguous understanding of Use of systematic approach to understand and satisfy
customer requirements both internal and external requirements
An orientation to short-term objectives and The deliberate balance of long-term goals with
actions with limited long-term perspective successive short-term objectives
Acceptance of a certain margin of error Striving for continuous improvement in error-free
and subsequent corrective action as the output in meeting customer requirements and doing
norm things right first time
Unstructured individualistic problem- Predominantly participative and disciplined problem-
solving decision-making solving and decision-making using a common approach
A management style with uncertain An open style with clear and consistent objectives which
objectives that instils fear or failure encourages problem-solving and group-derived solution
 Quality culture and learning 241
The power culture represents the family business with a concentration of power. This
power is radiated out from the centre by a key person to others in the family who then
transfer the information on to other functions. As entrepreneurial company organized
around an astute founder is a typical example. The culture is verbal and intuitive.
The task culture is characterized by a close liaison between departments and
specialists in an organization that is involved in research and development activities.
Temporary interdisciplinary project groups are organized around a task. It is a
decentralized way of working but still formalized by the disciplines that must be joined.
Atomistic culture is characterized by the decentralized informal approach where
independent experts joined together for mutual convenience, e.g. a group practice or a
consultancy. These organizations reject formal hierarchies and are united in meeting the
needs of their members.
Whilst it may be tempting to think of a company as fitting into one of the four types of
culture, this is not always the case. Subcultures with their varying values exist in many
organizations. These differences may be prominent between departments, geographic
regions and head office. When classifying cultures, therefore, we need to be aware of
subcultures.
In studying the performance of 80 companies, Deal and Kennedy (1982) found that
the more successful companies were those that had strong cultures. A list of the
characteristics of strong cultures that they identified are given below:
• had a widely shared philosophy of management;
• emphasized the importance of people to the success of the organization;
• encouraged rituals and ceremonies to celebrate company events;

Fig. 18.2 Harrison and Handy’s four culture

roles.
 Fundamentals of total quality management 242

• had identified successful people and sung their praises;

• maintained a network to communicate the culture;
• had informal rules of behaviour;
• had strong values;
• set high standards for performance;
• possessed a definitive corporate character.
Similarly Peters and Waterman (1982) listed as follows:
• the importance of enjoying one’s work;
• being the best;
• people being innovators and taking risks without feeling that they will be punished if
they fail;
• the importance of attending to details;
• the importance of people as individuals;
• superior quality and service;
• the importance of informality to improve the flow of communication;
• the importance of economic growth and profits.

18.6 CORPORATE AND QUALITY CULTURE

The concepts of culture and corporate culture have been introduced here on the
assumption that there is an association between the quality concept and the corporate
culture concept. As mentioned before, working with quality presupposes that you work
with company’s culture or with the elements of the company’s culture that manifest
themselves in relevant quality dimensions.
In recent years, the quality concept has attracted increasing attention and created a
quality wave in management literature—a wave which introduced various books
including In Search of Excellence, Thriving on Chaos and Out of the Crisis.
Pirsig (1974) has pointed out through the principal character ‘Faidros’—of his book
that quality and culture are tied together. What excited Faidros was the whole idea that a
concept like quality should even be subjected to a view. He realized that if quality by
definition is kept undefined, then the whole field of aesthetics is wiped out immediately.
Further, by refusing to define quality he had brought the concept outside the range of
analytic thinking. If it cannot be defined, it cannot be subjected to intellectual rules either.
Pirsig (1974) pointed out that the removal of the quality concept will automatically
reveal its importance. Of course, the world could continue to go round without it, he
reasoned, but life would be so sad that one would hardly bother to live, ‘Life would
actually not be worth living at all.’ The word ‘worth’ is a qualitative designation. Life
would be completely void of any value and any purpose. Faidros concludes ‘As the world
obviously does not function normally without the quality concept, this concept obviously
exists whether it is defined or not.’
According to Faidros, quality is neither objective nor subjective. He finally came to
the conclusion that quality is neither a quality of the mind nor of the environment, but an
experience. People can disagree on quality not because quality differs but because people
have different experiences.
 Quality culture and learning 243
In a managerial context, it is necessary to give the quality concept more real values
than it might seem desirable by others. Over time, great efforts have been made in this
field but it was not until the last few years that the problem has been made the subject of
a more varied discussion. A few decades ago, quality was considered synonymous with
the concept of number of defects in a production process and it was related only to a very
limited degree to the needs of the market.
Since then, quality has been developed as a concept of functional quality such as
customer-felt quality, dual quality and total quality. One can say that the new quality
concept now springing up is broadly a total assessment of the company’s supply and
demand (Figure 18.3), but with the important addition that then it also becomes a
question of the processes of production, management and co-operation involved in the
supply and demand processes.

Fig, 18.3 Quality as a total assessment of the

company’s supply and demand.

A view of the development of the theory of organization and management in this

century shows a gradual movement from a narrow, rationalistic and instrumentalistic
conception to a broader, more psychological and sociological viewpoint. A central part of
this development is the concept of culture.
As mentioned earlier, it is the value of the concept of culture as a tool of control and
change which has been at the centre of the interest in organizational theory in the concept
of culture. By way of example, culture as a parameter of control has been emphasized in
connection with the management of decentralized companies where traditional tools of
control are not satisfactory but also in a large number of other contexts in connection
with the management process itself.
Collin (1988) suggests that the organizational culture is a tool of change and he refers,
among other companies, to Scandinavia Airlines Systems which has worked actively with
the concept of culture and says: ‘One must try to generalise the result in order to arrive at
general knowledge about organisational cultures and the tools to be used for controlling
and changing it. A conflict has arrived, however, as mentioned before, in the conception
within the theory of organisations itself and between organisational theory and social
anthropology.’
Within social anthropology it is a fundamental idea that cultures are very difficult to
change, whereas the theories of organization and management emphasize the importance
of culture as a tool of change. In other words: what explains the difference between
unchangeable and changeable cultures?
In an attempt to understand the changeability and stability of culture Collin (1988)
introduced the concepts of group-dynamic and internalized norms suggesting that culture
 Fundamentals of total quality management 244
may be of two essentially different types, depending on whether it is kept together by
group-dynamic or internalized norms. The first type is relatively changeable, the latter
quite resistant to change, which can be explained by the fact that the internalized control
is a control where the driving force is in the person itself and where the person is
controlled with no help from external influences, including pressure from group members
whereas the group-dynamic control is linked up with the group. A characteristic feature
of group control is that the dynamics for the group’s processes of change often come
from a leader or from a small number of leaders.
Collin (1987) also pointed out the two forms of cultural changeability that are both
relevant in this connection. One is the possibility of changing a culture, i.e. changing the
contents of the culture. The other might be called the question of change in cultures, i.e.
the question of whether changeability in itself may be a value in a culture and thus part of
the contents of culture.
From a management point of view, the establishment of a culture susceptible to
change has advantages as well as disadvantages as compared with what might be called a
conservative culture. This can be explained by the fact that the culture susceptible to
change is by definition adaptable and puts up only little resistance to new processes if
they prove to be expedient but lacks loyalty to the procedures.
Within organizational theory, cultural change is therefore a question of changing
cultures as a rational process, beginning with a suspicion among the management of a
organization that its culture is dysfunctional, continuing with a systematic sociological
mapping out to understand whether this is really the case, followed by an effort to
formulate a new, more adaptive culture and finally an effort to abolish the old and
introduce a new culture.
Total Quality Management as a concept is a question of determining, developing and
managing a company’s quality. For this purpose, a number of tools and procedures have
been developed, ranging from statistical techniques to, e.g. quality circles and they are all
described in literature.
What is special about emphasizing the quality culture concept in this connection is an
assumption that a considerable part of the literature so far on control and management of
quality is too superficial. In real terms, a parallel can be drawn to French and Bell’s
(1978) organizational iceberg. By superficial is meant that a number of formal and real
aspects of quality are treated but the more deep-rooted causal and explanatory factors
remain hidden and subconscious. Various literature in this area has tried to penetrate
some of the explanatory factors (see e.g. Peters and Waterman (1982), Peters (1987) and
Waterman (1987)).
With a view to defining more precisely some of the cultural elements that are relevant
in this connection, it has been found expedient to use Johnson and Scholes’ (1984) model
of influence (Figure 18.4).
This model is general and it deals with the total culture of the organization and thus
points to a number of elements which together form the culture of the organization but, at
the same time, the model also points to a number of the elements which in practice must
enter into the concept of quality culture. A brief description of these main elements are as
follows:
 Quality culture and learning 245

• Nature of the environment

As mentioned in the model, the nature of the environment includes factors like
values in the local society and values of organized groups. The increasing interest
in quality seen in recent years may be regarded as an example of changes in value
in society in general and among special groups.
• Type of company
The type of company is a separate cultural factor. It is a question of the
company’s market situation, its products/technology and the trade or industry it is
in. The market and competition situation are relevant for the company’s quality
situation and the same also applies quite traditionally to the product technology
side.
• The special character of the company
The special character of the company is made up of its history, size, management
style and administration style. The subculture concept is often included under
management culture. In this context, especially in connection with the company’s

Fig. 18.4 Main types of factors of influence

determining the total culture of the
organization.
 Fundamentals of total quality management 246

history, reference should be made to the importance of the different stages of

growth or development to the culture of the organization and thus to the
management situation (Schein, 1985).
• The special character of the employees
The special character of the employees is made up of the employees’ values,
attitudes, language, experience etc. and it is not unlikely that we will find
elements of the company’s quality culture in this complex field. This is where we
find the values that substantially determine the actual/manifest quality of the
company’s products and services.
Management literature enumerates different methods of attacking change—methods that
are relevant here. Collin (1987) has shown the relevance of rites, group-dynamic
mechanisms, recognition of the effectiveness of norms and rewards and punishment to
bring about cultural change. Schein (1985) enlists different types of processes of change:
change as a general evolutionary process, change as adaptation, learning or a specific
evolutionary process, change as a therapeutic process, change as a revolutionary process
and change as a managed process.

18.7 WORKING WITH QUALITY CULTURE

We shall not elaborate on the different methods of attacking change mentioned above but
use them as part of Total Quality Management.
One of the important aspects of the Total Quality Management process is that during
the process one discovers new aspects of the goal. This requires: an ability to assess;
situation consciousness; flexibility; ability to co-operate; and courage to enter the
unknown. It also becomes clear that Total Quality Management processes are not simple,
rational processes of solving problems but complex social processes of change.
The management idea underlying this formulation is that management consists in
creating a framework that enables the employees to display their intelligence and
creativity and, at the same time, ensure that it is done in accordance with the company’s
fundamental values and mission. This formulation is based on a holistic view of man, in
this context aiming primarily at a view of the individual as a unique human being.
In the following, we will list some conditions, assumptions and views concerning
Total Quality Management and try to outline the work method.
• There is no standard recipe for a good Total Quality Management process. Each single
project must be planned and implemented on the basis of the real situation in the
company in question.
• A Total Quality Management process cannot be implemented through a management
decision. A TQM process implements itself concurrently with the involvement of
employees and managers at different levels and the setting up of quality groups in the
company.
• Every employee is in fact a quality and profitability centre him/herself and, together
with others, forms one or more natural quality groups.
• When it comes to quality and profitability, the individual employee is the natural centre
of creativity, initiatives, positive participation etc.
 Quality culture and learning 247

• The traditional decision-making structure in the company is not necessarily changed by

a TQM process, which is partly because of the group phenomenon and partly because
managers at different levels participate in relevant groups.
• A TQM process requires that each employee and each manager identifies his/her
customers. In this connection it is of no importance whether this or these customers
are other employees/managers or customers in the traditional sense of the word
(Dahlgaard, Kanji and Kristensen, 1990).
We will now provide a brief account of a method for working with quality culture. Here
the method is based on the assumption that the key question in connection with
implementing TQM in practice is how to create quality consciousness in all employees.
It is believed that quality consciousness is achieved through visible results and actions
with the individual employee. The prerequisites through quality consciousness are:
• To look at one’s own quality situations through other people’s observations, ideas and
thoughts. Quality development must take place in a group situation where insight,
experience and action can be created jointly.
• To motivate every individual in such a way that the framework acts as an incentive to
quality development and gives the courage to make decisions and instil confidence
into others with whom initiatives are taken.
• To create quality by means of a method going beyond the traditional problem-solving
tools. This requires a willingness to work with quality questions in a deeper way,
relying also on one’s own attitudes and values. As a rule, quality levels are, for a given
technology, the result of the norms, culture and expectations of individual employees.
• To set aside time and means and to mobilize persons who have the ability of developing
and implementing quality initiatives. It must be clear to the individual employee that a
quality improvement process is important to the company.
The work method to be indicated here is simple and has been used in practice in
connection with quality work. The fundamental idea is that deep down in the value basis
of an organization you find the source of understanding of an organization’s special way
of acting and taking decisions. Within social ecology, the term is used about the basic
attitudes, values and principles on which a company bases its day-to-day decisions and
daily behaviour. If we introduce the concept of quality in this context, we can then work
with quality culture in practice. By working with quality policies an organization
automatically becomes part of the TQM process. Here, the policy concept represents the
formally adopted rules, procedures etc. for handling various questions and tasks in a
company but without necessarily living by them in practice.
With reference to the model in Figure 18.5, we shall briefly outline the work method.
Field O: Observe present quality phenomena. Our starting point is the quality related
questions in the organization. You might say that in field O (as a person or group of
persons) in a company you wonder what is happening (or not happening) in two ways:
1. you wonder because you are curious to understand the quality situations and
experiences etc.;
2. you wonder because you wish to find a new practice in certain quality areas.
 Fundamentals of total quality management 248
It is important to note that at this level it is not a question of a formulated (and thus
delimited) problem but merely a question, i.e. openings. Questions open up, whereas
even formulating a problem represents a delimitation.
This leads to observations—experienced, observed situations, events that have taken
place which a person can report about as fact. In principle it is all the types of situations
in a company which in one way or the other are manifestations of quality dimensions.

Fig. 18.5 The culture cycle.

In connection with a use of the work method, the activity in field O consists in reporting,
e.g. in different group constellations, on these observed/experienced situations. The
experiences are made as objective and vivid as possible. This is the company’s present
reality, or part of it. It is these realized pictures which, when using this work method,
ought to be the starting point for working with the quality questions existing in the
company.
Field V: Find present values. Field V is the next activity in the work method. The
activity consists in maintaining single pictures from field O and questions relating to the
experiences. In other words, in this activity you penetrate behind the experiences and into
the layers of ideas, principles, values and basic assumptions explaining the pictures. This
is what, in this context, is called quality policies which together form the whole or part of
the company’s quality culture. In practice, this activity, like the other phases/activities,
will involve many people and require a considerable work effort which it is not generally
possible, of course, to define more closely.
The result of working with the fields O and V is a number of statements or sentences
characterizing the values surrounding quality existing in the company now.
Field P: Define future principles. The above is in itself valuable but when put into a
managerial context, there will be against the background of the questions in field O, a
wish for a change. Therefore, the activity in field V will typically be followed by an
assessment of and decisions about the policies found and subsequently, in field P,
desirable, future policies in the quality area are formulated, i.e. the desired changes in the
 Quality culture and learning 249
company’s quality culture are formulated. This is a work of visions that must be adapted
to the company’s other experiences of the future, fundamental ideas etc. The result is
some future-oriented policy sentences representing wishes relating to future quality
behaviour in the company. It is of decisive importance to the result of the total process
that the company carefully takes a position on whether these policies are something the
company really wants to work for including, in particular, whether they are attitudes that
have the full support of the management.
Field A: Act. The last part of the quality management process reflected by field A is
partly a decision on whether a realization of the new quality policies requires fulfilment
of some special conditions which do not exist in the organization today and partly a
detailed decision on the concrete actions to be initiated next, in order to work at changing
the behaviour in the company in the direction of the new policies and maintaining those
parts of the existing quality policies which are regarded as desirable to maintain and
possibly extend.

Fig. 18.6 The Deming cycle.

18.8 QUALITY CULTURE, QUALITY IMPROVEMENT

AND TQM

It is a fact that the Deming cycle has become the basic work method for quality
improvement. It consists of the phases shown in Figure 18.6.
This well-known model is a typical system model which works very well within a
given cultural structure. Traditionally, however, it does not deal with phenomena of
culture which means that it has a tendency to make the company stay within the given
frames of activities.
We believe that culture has to be realized for quality and productivity within a given
system. It is therefore relevant to supplement the Deming cycle with a culture side which
continuously incorporates organizational values into the management of quality.
This can be done superimposing the culture cycle of Figure 18.5 on the Deming cycle
to create an expanded Deming cycle. The result is shown in Figure 18.7.
The two cycles are connected in the action field and the Deming cycle is still the basic
work method. In certain cases, however, the check activity will show so large a
discrepancy that it is found necessary to consider a change in the culture and attitudes of
 Fundamentals of total quality management 250
the company. In that case the action leads to entering the OVPA cycle. From this a new
cultural framework concerning quality emerges and the company is once again ready to
use the PDCA cycle but on a new level.

Fig. 18.7 The expanded Deming cycle.

As an example one could mention the well-known Nissan Corporation. Nissan has
been a pioneer within quality assurance activities starting out, e.g. as early as 1966 with
QC circle activities. In spite of good quality performance, i.e. good use of the Deming
cycle, the company experienced profit problems in the middle of the 1980s that could not
be handled within the traditional planning systems. A new top management realized that
the culture surrounding quality had to be changed and the company entered into the
phases described by our culture cycle. The result of this was a new definition of quality
incorporated into an entirely new corporate philosophy: ‘Our first commitment is to
customer satisfaction. Through diligent efforts to develop new customers and expand our
customers base, we are contributing to the ongoing progress and enrichment of society/
This philosophy was communicated to the workforce in different ways. Among other
things the philosophy was printed on a small plastic card and distributed to every
employee in the company.
According to Nissan the effect was tremendous. The culture of the company was
changed dramatically and Nissan was back in a stable Deming cycle producing high
quality goods but with a new definition of quality based on customer satisfaction. One
notices that the main elements of this process have been the involvement of top
management and the satisfaction of the customer which are the basic points given in the
section on cultural change by Kanji (1990).
It will be seen that the expanded Deming cycle demonstrates an important distinction
between traditional quality assurances and TQM. While QA usually operates within a
given system framework, TQM operates on all levels of the company including the
attitudinal. It is, however, not a total TQM cycle.
 Quality culture and learning 251
In order to make a total TQM cycle the model has to be expanded in the same way as
Kondo (1977) did with the traditional Deming cycle. In what follows, we pursue this idea
in more detail.
One of the important characteristics of TQM is the internal suppliercustomer
relationship. Each employee in the company has many suppliers and many customers and
each has to be treated as if he or she were an external supplier or an external customer.
Each employee knows the quality levels of the suppliers and the demands from the
customers and he/she is continually trying to improve the quality of output in order to
decrease the hidden factory and to increase customers’ satisfaction. Such a successful
implementation needs time and resources and many companies will never reach that
level. There are many obstacles on the path to success and you have to remove each
obstacle before you reach the goal—TQM.

Fig. 18.8 The transfer of Deming’s cycle to the

‘do’ level.
‘Creativity in daily work’ (Kondo, 1977) is needed by each employee in order to
remove all the roadblocks. A necessary condition for creativity in daily work is that each
supplier-customer relationship is controlled by its own Deming cycle and for the vertical
supplier-customer relationships, e.g. relations between top management and middle
management, a transfer of a part of the Deming cycle to the lower level is important.
Such a transfer is described by Kondo as ‘a transfer to the do level’ and Figure 18.8
shows the basic idea of the transfer.
Normally there are no problems in transferring the Deming cycle to a lower level
when you consider the relations between top management and middle management. The
problems increase when you climb down the pyramid. Middle management too often acts
as a dictator and is often not willing to transfer planning, checking and action activities to
lower levels. However, management at all levels must understand that its employees are
its customers. To obtain this a rotation in the culture cycle is needed. The expanded
Deming cycle has to be implemented in all the vertical customer-supplier relationships
from the top to the bottom in order to change the quality culture. Of course, top
management is responsible for a successful implementation of the expanded Deming
cycles at the lower levels.
 Fundamentals of total quality management 252
Regarding the horizontal customer-supplier relationships a rotation in the culture cycle
may be needed from time to time in order to improve the results and, in this way,
satisfying the customers.
From the above, it is evident that a company which has successfully implemented
TQM is characterized by a successful implementation of expanded Deming cycles at
every level and in every customer-supplier relationship. Top management is responsible
for such an implementation which is necessary for changing the quality culture of a
company.
We believe that the proposed implementation strategy of the expanded Deming cycle
has an inherent ability to change the quality culture. Through the implementation process
both the group-dynamic factor (Collin, 1988) and the internalized norms factor will
change the quality culture. The latter factor will gradually be effective when more PCA
(plan, check, action) activities are transferred to each employee. The former factor, the
group-dynamic factor, will immediately be effective when the network of supplier-
customer relationships and the attached expanded Deming cycles are implemented. A
successful implementation requires that the total concept is understood, accepted and
utilized in every customer-supplier relationship all over the company. Of course this is
not possible without the understanding, acceptance and active participation of top
management.
In 1990 Ralph Stayer talked about the challenge of changing attitudes and
performance of the employees of Johnsonville Sausage, a successful family business
where he worked as chief executive. Stayer’s primary concern was that of the gap
between the potential and the performance of his employees. His people did not seem to
care and continuously made costly mistakes. He became extremely anxious of his
company’s ability to survive any possible future competitive challenge with this low level
of commitment and involvement.
His vision was to create Johnsonville as the market leader in the expensive sausage
market. For this to happen, people had to take responsibility for their own work, product
and company as a whole. As a result, the company products and service quality would
improve, margins would increase, costs could be reduced and new markets could be
entered into making Johnsonville ultimately less vulnerable to competition.
In order to understand the present position Stayer had an attitude survey carried out in
the company. The results were not pleasing as Stayer found the attitudes of his employees
to be only average and in line with large bureaucratic organizations.
The main problem was his management style although initially he was reluctant to
admit this. Realizing that his business could not continue as usual, Stayer decided to
make the change and imposed extra responsibilities onto his management team. After two
years he managed to replace all three of the company top managers by appointing new
managers who were strong enough to manage the required change took place.
Following this, Stayer started to change his management style, i.e. instead of making
all the decisions himself he took on a coaching role. As a result, the individuals became
responsible for their own problems, performance and quality. Also managers became
providers of the resources in order to help people to do their jobs properly.
With the help of teamwork, the organization began to resolve quality problems and
customer complaints. A system of reward was adopted to encourage people to seek new
 Quality culture and learning 253
skills. A performance-based share incentive was implemented and teams were taking on
the tasks of the managers, helping to reduce the hierarchical layers.
A systematic approach to educate the employees was developed and gradually the
previous habit of no work-related education was replaced by work-related education.
In 1985 another sausage company decided to ask Johnsonville to take over part of a
production plant that it was closing. This proposal naturally required a strategic decision
and Stayer decided that this decision would be made by the process which all employees
had to own. After several consultations the company decided to take the business and the
Johnsonville employees rose to the challenge and overcame all the problems and
difficulties successfully.

18.9 QUALITY LEARNING

18.9.1 INTRODUCTION
Learning can be defined as a process in which individuals can change their attitude to
adopt a continuous development of basic knowledge and skills in pursuit of total
professionalism.
The essential feature of an effective learning process is constant updating and
continual feedback. Thus the effective learning process in an organization should be
focused around the quality of feedback provided by the organization. Effective action
must be organized around a range of systems and procedures to accomplish the goal.
Learning to learn involves the continuous development of various strategies and skills
that support the process of learning in many different contexts.
The basic requirement of any effective learning process is, therefore, the desire to
learn the skills, to implement them and to practise them in an appropriate context.
However, continuous learning requires a sustained interest in learning over time and
relates to the improvement in learning ability which is independent to the content being
learned.
Experience shows that developing ideas for quality improvements is an investment
which gives the highest return on resources. We believe that educational institutions have
many opportunities for quality improvements which should be fully utilized. If
employees (including teachers) and students are educated and trained in TQM, they have
the joint capability to utilize these lost opportunities. Education and training is only one,
albeit necessary, condition for the involvement of an educational institution’s employees
and students in continuous improvements. However, continuous improvements also
require leadership which is the foundation of TQM.
On the subject of the product of education, we agree with the definition by Brower
(1994): The product of education is a person empowered to educate herself or himself—
an educating person not an educated person.
In this modern world a person can never be truly educated. What a person learns
within a limited time period, say, e.g. four years, will inevitably be more or less outdated
within a few years. Put another way (Brower): The product of education is not a product
at all; it is a process of never ending education. To be empowered in this way requires
that the student gain from education:
 Fundamentals of total quality management 254

1. knowledge of how to continue learning and developing for the rest of her/his life;
2. skills in continuing to learn and develop;
3. a state of mind and being that enables lifelong learning, that sees and feels self-guided
learning to be natural, doable and fun;
4. a strong drive, a will, to continue learning and developing her/ himself.
The key word in relation to continuous improvements is learning. In order to
communicate this to his audience/readers, Deming changed the name of the improvement
cycle (the Deming cycle) from plan-do-checkact to plan-do-study/learn-act. In the check
phase of the improvement cycle, you have to study the results in order to understand what
were the causes behind them. This learning process is the most important part of the
continuous improvement process. Therefore, we will discuss the learning process.
In this section the authors will be discussing the goal, strategy, various learning
processes, advantages and disadvantages of the continuous development of a quality
professional.

18.9.2 CONTINUOUS LEARNING

There is a common misconception that learning in relation to working life at the
professional level ceases when full-time education comes to an end. This may be at the
first degree, masters or doctoral levels. The reality could not be further removed from
this.
There are a variety of learning approaches but the major ones include:
1. studying for examinations for professional membership, e.g. quality management;
2. part-time study for masters and doctoral degrees by study and research, e.g. MSc
TQM, MBA, MPhil and PhD in Quality;
3. learning at work.
It is this last approach that is the focus of attention in this section. It does not mean that
these three ways of learning are mutually exclusive but the desire is to explore
approaches to training and coaching in the workplace. Training in the workplace can
follow many patterns: it can be ad hoc and uncoordinated with much of the responsibility
put on the individual or it can be planned with some assessment of efficacy. This chapter
looks at one learning model.

18.9.3 COMMON LEARNING

It is commonly assumed that learning is strongly associated with the teaching process
when information is given by a teacher. The application of the assimilated information is
then applied to appropriate tasks. This is not now thought to be the case. Most real
learning is achieved via experience. This is on-the-job experience. There is a common
learning cycle (Figure 18.9).
The essential feature is that of feedback; action is taken, the effect is noted and
appropriate modification of behaviour follows.
If real learning is to be achieved then all stages of this cycle must be experienced.
 Quality culture and learning 255
The establishing of this learning cycle as a model of good practice for effective
learning is the focus of this chapter. There are many issues relating to the
facilitation/enabling of this learning cycle to be established in an organization but we
must first look at how a start may be made.

Fig. 18.9 Common learning cycle.

18.9.4 EFFECTIVE LEARNING

There is an obvious need to ensure effective learning. If learning is not treated seriously
then there will be adverse repercussions for the organization concerned. An effective
learning strategy is likely to encompass the following:
1. understand how and why people learn;
2. promote a healthy learning environment;
3. identify individual’s learning needs;
4. prepare a learning plan with agreed objectives;
5. promote learning opportunities;
6. evaluate learning outcomes.

18.9.5 QUALITY LEARNING

We have talked a little about how adults learn through the learning cycle. If people are to
really learn then each stage of the cycle must be travelled. There are many other factors
involved in this process (some of which we will see later). What we need to do is to place
this learning cycle clearly within the organization.
Within an organization there may be many equivalent cycles for areas of development.
Here each cycle needs to be complete and unbroken for effective development to be
possible. Take, for instance, the continuous quality learning process which includes all
organizational activity.
 Fundamentals of total quality management 256
The Continuous Quality Learning Cycle or Continuous Improvement Cycle (Deming,
1986) which helps to improve the quality of the organization can be described as shown
in Figure 18.10.
In general, quality learning is a continuous process that can be broken anywhere in the
learning systems of supply and customer service.
Here in the Deming cycle plan defines the learning process which ensures
documentation and sets measurable objectives against it. The do executes the process and
collects the information and knowledge required. The check analyses the information in a
suitable format. The act obtains corrective action using quality learning techniques and
methods and assesses future plans. At the end of each cycle the process is either
standardized or learning targets are adjusted based on the analysis and the cycle
continues.

Fig. 18.10 Continuous improvement cycle

(PDCA) (Deming).
The Continuous Improvement Cycle and the Learning Cycle can be superimposed, i.e.
integrated in a planned, quality-improving strategy. To do that we need to consider the
learner and how his/her needs should be considered and also look at the preparation of a
learning plan.

18.9.6 LEARNING PLAN

Before a plan can realistically be drawn up both the learning needs of an individual and
the desired learning outcomes for an individual need to be considered.
To identify the learning needs of an individual firstly the knowledge, skills and
attitude required for a particular task or function to be performed successfully must be
established. Against this list should be considered the knowledge, skills and attitude
already possessed by the individual. This second list will probably be achieved by
consideration of career history and known work record. The difference between these two
lists is the learning need (or learning gap). Part of the process of the identification of
learning needs should be open discussion with and the agreement of the individual
concerned.
Learning outcomes define what (which tasks) an individual will be able to perform
and how well they will be capable of performing these tasks as a result of the learning
process. There should be a list of required outcomes in terms of behaviour and
performance. The standard required should also be established so that the effectiveness
 Quality culture and learning 257
and the amount of learning can be measured. There should also be a time horizon for this
learning process.
The learning plan is thus, clearly, a bringing together of learning needs and learning
outcomes. This plan, which is best formalized in writing, should be jointly agreed by both
individual and trainer/supervisor. The plan should follow the learning cycle and so will
consist of a list of desired outcomes together with a list of activities necessary for the
desired outcomes to be achieved. There may well be resource and specific training needs
identified at this stage. This can be viewed as the planning stage of the cycle. Once the
learning experience has been completed than some reflection/assessment should follow.
Hopefully there will have been appropriate consideration of the measurement of the
desired outcomes. The final essential stage of the learning cycle is that conclusions based
on reflection and/or assessment are fed into reformulating and refining the next planning
stage of the learning cycle. The process goes on and on and on…continuing and
continuous learning.

18.9.7 CLOSING REMARKS

In this competitive business world, the traditional approach to quality is no longer
desirable. The basic problem which prevents an industry from becoming a quality
organization is connected with management and process. We believe that the best way of
overcoming the organizational quality problem is through the practice of TQM. To
practise TQM it is necessary to identify the basic activities affecting the organizational
management and process. The approach to deal with these activities affecting
management and process is therefore through education, training, research and quality
learning.
Further the continuous development of a quality professional can be placed within the
framework of a continuous improvement learning cycle. The implementation and
monitoring of this learning model can be evaluated with the co-operation of a panel of
employing organizations in the context of the professional experience.

18.10 CONCLUSION

There are situations when organizations have to change direction. Forward looking and
dynamic organizations change before it becomes necessary to change. They anticipate the
need to change. Sometimes the change occurs as a result of great success and the
resultant need to shoulder much greater responsibility. In other cases it is not success but
threat of failure or actual failure that compels organizations to reform themselves.
To effect a change it is essential to change the top management team and, through
them, the layers below them, to a new way of quality understanding for continuous
improvement.
TQM as management theory is a relatively new concept within organizational theory
which may raise management theory up to a new level of understanding, relevance and
consciousness. As regards the culture concept, it seems justified to conclude that we are
dealing with a concept which it may be expedient to continue to work with within the
theory of quality management.
 Fundamentals of total quality management 258
It is interesting to note that business culture has similar characteristics to the culture of
the country as follows:
• A culture which is lively and progressive can be found constantly evolving and
changing whether it is a business or country culture.
• A progressive culture within a business or country readily evaluates and responds to
stimuli.
• Like religious or political groups, business organizations also have the extreme culture,
i.e. culture tries to preserve what is considered to be the true original set of beliefs.
• Large social migration sometimes creates hybrid cultures in a country in the same way
we have seen the emergence of hybrid cultures created by the multinational
companies.
• Changes in culture of an organization or a country occur when a leader provides
stimulation with ideas that challenge tradition. Gandhi and Martin Luther did so with
society at large.
• Behind all successful business organizations there have been leaders who revived and
changed the culture of their organizations.
• In most cases cultural changes are based on retaining and developing what is good in an
existing culture and adding to it new elements that will stimulate progress.
• A total rejection of all that exists can be devastating.
There is always a question of how fast an organization should try to change. The
important thing is to change as fast as possible but certainly not as slow as organizations
may find easy because it can run the risk of killing the organization. The companies that
anticipate the need to change and respond to change not only survive but prosper in the
future. Those who do not, die over a period of time.
In recent years the effect of cultural change has been manifested on several occasions
at a national level often as a result of some catastrophe or disaster such as defeat in war or
periods of economic upheaval. Wellknown examples are the economic miracles of post-
war Germany and Japan.

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Stayer, R. (1990) How I learned to let my workers lead. Harvard Business Review, 66–8.
Tyler, E.B. (1871, 1958) Primitive Culture: Researchers into the Development of Mythology,
Philosophy, Religion, Art and Custom Vol.1: Origins of Culture Vol 2: Religion in Primitive
Culture, Gloucester, Mass., USA.
Waterman, R.H. (1987) The Renewal Factor. How the Best Get and Keep the Competitive Edge,
New York, USA.
 19
Milliken Denmark A/S case studies:
leadership, participation and quality
costing1

19.1 CONTEXT, IMPERATIVES FOR CHANGE AND

OBJECTIVES FOR QUALITY MANAGEMENT

Milliken Denmark Ltd, located at Mørke, Djursland, is a 28-year-old producer and seller
of washable rental mats, mops etc. plus soap dispensers, hand-soap, scent dispensers and
assorted perfumes. Milliken Denmark is the European Headquarters for Milliken’s Dust
Control Organization.
Its customers are mainly laundries, cleaning firms and wholesalers in Europe and the
Far East. More than 90% of production is exported.
Milliken Denmark Ltd is a subsidiary of Milliken and Co., a privately-owned textile
and chemical concern domiciled in South Carolina, USA. Milliken and Co. is one of the
world’s leading textile concerns and also one of the largest.

19.1.1 CHARACTERISTICS OF THE ORGANIZATION

The firm has over 160 employees, of whom about 11 reside abroad (five in Belgium and
six in the UK). Approximately 100 employees are working within production and the
remaining are working within administration and service (including management).
The sales turnover showed a stagnancy in the beginning of the 1990s, because of a
taking over of the Japanese sales by a new subsidiary company in Japan.

19.1.2 CHARACTERISTICS OF THE MARKET DEVELOPMENT

AND POTENTIAL
The development in mat coverage in Europe can be seen from Table 19.1. As can be seen
the Nordic countries have the highest coverage and the south European countries have the
lowest. For most countries the percentage increase in the coverage is higher than 100%.
The growth in the European mat business is due to two key factors: the growing
standard of cleanliness demanded by the public and cost savings gained to the end user
with a properly installed mat service. In the textile service industry, one thing all present
1
This is a reprint of a case study written by J.J. Dahlgaard and K. Kristensen for the European
Commission, DG III, as part of the European Way for Excellence Study. The authors thank the
Commission and The European Foundation for Quality Management for permission to reprint the
 Milliken Denmark A/S case studies 261
study. There are some overlaps between the case studies and the previous text in order to make the
case studies as stand alone.
and prospective customers have in common, is that they all have floors. Companies in
this business therefore say that there is a potential mat customer behind every door.
The mat market can be divided into two segments: the rental industry market and the
retail market.
The customers on the rental industry market are laundries and cleaning firms which
have the relationship to the customers which are ‘professionals’, i.e. private and public
companies of any type. The companies typically rent the mats from the laundries and
cleaning firms. The total market in Europe is approximately 1.3 million m2 per year
(1995). Milliken’s market share of the rental market is more than 40%. The main
competitors are a UK company, a US company and an Austrian company. The UK
company has a market share of approximately 40%. Hence the rental market is an
oligopoly.
Table 19.1 Actual development in mat coverage 1981 and
1993 (m2 per 10000 inhabitants and percentage increase)
Country 1981 1993 % increase
Finland 208 445 159
Denmark 205 397 93
Norway 128 258 101
Sweden 111 215 93
UK 81 115 42
Ireland 58 147 153
Belgium 41 138 237
Germany 59 110 86
Holland 30 91 203
Austria 26 79 203
Switzerland 31 57 84
France 6 36 500
Italy – 4 –
Spain – 2 –

The retail market is characterized by selling mats of a quality which is different from the
professional market (i.e. mainly a lower quality). The total market is approximately 11
million m2 per year. The market which Milliken goes for (high quality mats) is 2–3
million m2 per year (1995), but this market is growing fast.
The customers are retail companies like furniture shops, building markets, department
stores etc. Milliken Denmark started business on this market in 1993/1994 and their
market share is growing fast.

19.1.3 IMPERATIVE FOR CHANGE

Milliken and Co. bought the Danish firm Clean-tex A/S in 1983, changing its name to
Milliken Denmark Ltd. At that time, Milliken Co. was already two years into a quality
 Fundamentals of total quality management 262
improvement programme, so it was only natural that the Danish firm was drawn into this
process and urged to start its own project.
Quality is Free, by Philip Crosby, was required reading for all managers and Crosby’s
14-step programme was the first set of guidelines for Milliken’s quality process, which in
1989 was further supplemented by Deming’s 14-point programme.
During the whole period the owner (Milliken & Co., USA) has shown a strong,
impressive and never weakening leadership for quality. Milliken’s quality journey which
is presented in sections 19.2 and 19.3 can be characterized by continuous change driven
by this leadership.

19.1.4 OBJECTIVES FOR QUALITY MANAGEMENT

The objectives for quality management can best be described by quoting Milliken’s
business philosophy and the related quality, safety and environmental policies.

The Milliken philosophy:

At Milliken our culture is firmly based on the ‘Pursuit of Excellence’.
As well as setting standards for the quality of our products and
services, this philosophy also embraces the quality of our people. Each
individual is called an Associate and each plays a vital part in achieving
the Milliken goal.
Milliken has been working with all aspects of ‘Total Quality
Management’ for the past thirteen years, and is now recognized as a
leader in this field.
This dedication and hard work was recognized when, in 1989, Milliken
received one of the highest awards for quality; the Malcolm Baldridge
Award which was presented to Mr. Roger Milliken by the President of the
United States at that time, Mr. George Bush. After having received the
European Quality Prize in 1992 Milliken Europe received in 1993 the
European Quality Award.
Milliken’s quality policy:
Milliken and Company is dedicated to continuous improvements of all
products and services through the total involvement of all associates.
All associates are committed to the development and strengthening of
partnerships with our external and internal suppliers.
We will continually strive to provide innovative, better and better
quality products and services to enhance our customers’ continued long-
term profitable growth by understanding and exceeding their requirements
and anticipating their future expectations.
Milliken’s safety policy:
The safety and health of all its people are of primary importance to
Milliken and Company.
Milliken will devote resources to train its people to perform their jobs
safely, to ensure equipment can be operated in a safe manner, to eliminate
workplace hazards and to comply with applicable safety and health laws
and regulations.
 Milliken Denmark A/S case studies 263

Milliken believes that all injuries are preventable, all health risks are
controllable and management is accountable.
Milliken’s environmental policy:
Milliken and Company is committed to operating our plants and
facilities in complete compliance with all applicable environmental
regulations and to operate in a manner that protects the quality of our
environmental and the health and safety of our associates and the public.
We are committed to strive for a goal of zero waste generation to all
media—land, air, water—to be achieved by continual improvements in all
our operations. This goal will guide the conduct of our manufacturing
operations, the development of new products, and our interaction With
our suppliers and customers. Recycling of material is an integral part of
this on-going effort.
We are committed to encouraging our families, our associates and our
communities, through education and leadership to conserve our natural
resources and protect the environment in our daily lives.
We reaffirm our commitment to work with local, state and federal
authorities to develop effective environmental solutions that meet tests of
practicality and feasibility.

19.2 HISTORY OF QUALITY MANAGEMENT

19.2.1 IT STARTED WITH MEASUREMENTS

Milliken Denmark’s great fortune was that its parent company had a couple of years’ lead
and was thus able to set an example. The group management showed the necessary
leadership and from the start one thing was emphasized over and over: ‘Before you start
to change anything, find out where you are now!’ Or, put another way: The quality
process starts with measurements. What the Danish organization was being told, in fact,
was that the firm’s future operations should be based on facts, not beliefs and opinions.
This was echoed by Peter Hørsman, managing director, who declared that, from now on,
guesswork was out, adding that one measurement was better than 10 opinions.

(a) Employees’ safety

As can be seen from the safety policy, Milliken gives top priority to employees’ safety.
The firm’s basic principle is that all accidents can be prevented. Every safety problem is
followed up until an acceptable solution has been found. The following anecdote
illustrates this.
Each year throughout the 1980s, the American division president would pay Milliken
Denmark a one-day visit. The top management had about eight hours to tell him
everything about the business, their plans, visions, investment hopes etc.
A few days before one of these visits, one of the cleaners slipped on some ice in the
car park and broke her ankle. This episode took up fully three hours of the eight hours of
the president’s visit, because he would not let management get away with passing it off as
 Fundamentals of total quality management 264
an unfortunate accident. Management had to draw up plans to make sure that similar
accidents could be prevented in future.
Every four weeks for the past 12 years now, management has sent reports about safety
conditions to the group management, even though there has not always been anything to
report. Milliken keeps statistics on accidents which result in sick leave, on minor
accidents where sick leave has not been necessary and Milliken Denmark has also been
required to keep statistics on irresponsible behaviour which could have led to an accident.

(b) The company barometer

The ‘Company barometer’ is an annual customer satisfaction survey. A sample of
customers are questioned by a bureau on a wide range of things connected with how they
rate collaboration with Milliken Denmark and its competitors. If the survey shows that
Milliken’s competitors have come out on top, or if Milliken has achieved a lower score
than in previous years, then corrective measures are taken. This measurement is regarded
as the most important measurement of all.
The experiences at Milliken are that you can achieve an improvement of almost 50%
the first year simply by measuring and following up regularly—in more or less every
area.

(c) Customer satisfaction and Hoshin planning

The following seven business fundamentals are evaluated in the customer satisfaction
survey:
1. quality
2. cost
3. delivery
4. innovation
5. morale
6. environment
7. support.
Each of these seven parameters is evaluated on a scale from 1 to 10 and a comparison
with the most important competitors is made. These measurements are input to the
strategic planning process (Hoshin planning process) where strategic teams evaluate the
results in order to start the process of establishing new objectives, targets, strategies,
measures, etc. in order to secure continuous improvements in customer satisfaction. For
this purpose they use specially designed forms which have proved to be a valuable tool
for securing that the planning for improvements will also result in improvements.
On each of the above parameters the customers have evaluated Milliken’s quality
between 8 and 9, and compared to the most important competitors Milliken’s overall
quality level is approximately 0.8 higher. This is the definite proof that Milliken’s TQM
journey which has lasted for more than 10 years has been a very valuable one.
 Milliken Denmark A/S case studies 265

(d) Keeping delivery dates

The third area which Milliken Denmark has paid particular attention to from the start of
its quality process is keeping delivery dates. Every morning at 9 a.m., all office staff are
informed about how successful they have been in fulfilling the delivery deadlines
promised to customers. If there have been any delays, a full account of why they have
occurred is given.
Each week Milliken has to report to the European division manager and each month to
the group management in the USA. Excuses such as ‘the delay was due to a
subcontractor’ do not count. The goal is 100% delivery on time and ‘the score’ is over
98%. In the USA, the manager of any company (there are over 50 companies in the group
in the USA alone) which comes under 97% has to present himself at the monthly board
meeting and explain the action he has taken to prevent it happening again.
When analysing the measurements of on time delivery Milliken has, for several years,
used a control chart which has been a valuable tool giving signals when the delivery
process is out of control. Figure 19.1 shows the average results from 1986 to 1993 and
the control chart for the years 1994 and 1995. Comparing 1995 with 1994 it is seen that
the delivery process has become more stable with an average around 98%.

(e) Other measurements

Apart from the things mentioned above, which Milliken’s group management is
especially concerned about, Milliken Denmark measures many things, e.g. employee
satisfaction, number of credit notes, employee education, the amount of time it takes to
process designs, number of guests, all kinds of waste, composition of inventories, number
of complaints about goods and services etc.

Fig. 19.1 On time shipment 1995.

 Fundamentals of total quality management 266
19.2.2 QUALITY IMPROVEMENT TEAMS
Milliken Denmark is one of the Danish companies which was able to motivate employees
to form quality improvement teams in the 1980s and still succeed with this ‘philosophy of
work’.
The team activities started in 1989 with the so-called ‘workshop groups’, i.e. quality
improvement groups established in production. Table 19.2 shows how many workshop
groups operated in 1989 and 1990. From the end of 1991 the team activities extended to
become cross-functional and more focused on removing causes (specific or common)
from the various business processes. As seen from Table 19.2 Milliken’s TEAM
REGISTRATION classify improvement teams into the following four different types of
teams:
1. supplier action teams;
2. customer action teams;
3. corrective action teams;
4. process improvement teams.
It is interesting to see the relatively big variation in the ‘percentage of associate
participation’ from 1991 to 1994. This variation is due to the fact that the organization
used the year 1991 to prepare for ‘team-building’. The associates were educated and
trained in various team-building tools (see below) and after that (in 1992) campaigns
for team-building activities were running. The results of these activities can be seen in
Table 19.2.
One learning point from the team activities in 1992 and 1993 is that there was a
tendency to start up too many teams at the same time. Management had difficulties
following up and giving feedback to the teams and the organization as a whole
experienced some difficulties finding the necessary time for this valuable but also time
consuming activity. It is Milliken’s experience and belief that the team-building activity
from 1994 and onwards has found ‘the optimal level’.

Table 19.2 Milliken’s Team Registration

1989 1990 1991 1992 1993 1994
Total number of teams 23 53 58 53 71 76
Percentage of associate participation (%) 32 69 13 85 77 44
Supplier action teams – – 6 3 4 4
Customer action teams – – 23 17 23 14
Corrective action teams – – 13 24 23 9
Process improvement teams – – 16 9 21 49

(a) The 2×7 tools for quality improvements

To make the team activities as effective as possible, all employees have been trained in
the use of the seven quality tools, thus enabling team members better to analyse and
document the project they are working on. Now all employees have become familiar with
cause-and-effect diagrams, Pareto analysis and flow charting. It is Milliken’s long-term
 Milliken Denmark A/S case studies 267
goal that all employees will be able to use these tools, together with runcharts, scatter
diagrams, histograms and control charts.
Today, management routinely uses affinity diagrams, tree diagrams and matrix
diagrams—three of the seven planning tools (the seven new quality tools). These three
diagrams have been a great help in giving them an overview of large-scale projects or
problems. Management has also acquired knowledge of and training in the use of the
other four planning tools.

(b) Strength of error cause removal teams

After impressive results of the team activities in 1990 and 1991 management realized the
strength of addressing problems by teams. Milliken had experienced several times
management’s confusion that problems which were brought to the management’s
attention through the suggestion system were not always solved, even after
implementation of a solution. We call the suggestion system our Opportunity For
Improvement (OFI) process (section 19.2.3).
The person who submitted the suggestion was pleased but the colleagues working on
another shift did not always see the problem or they did not like the solution. The
consequence was often a new suggestion (a new OFI) which suggested going back to the
original solution or another solution.
The similar situation happened frequently between departments on the sales and
administrative side. Sub-optimization within a department happened often. A department
solved a problem for itself and created a problem for another department.
Milliken’s parent company had for many years organized its error cause removal
activities in teams—and suddenly the management of Milliken Denmark understood
why. From 1992/93 all problems in Milliken Denmark were addressed and solutions
implemented by teams—the few which are not are seldom solved.
The team members are persons who have an interest in a proper solution of the
problem. Most of the teams are therefore cross-functional teams.

19.2.3 THE SUGGESTION SYSTEM

(a) Rediscovering the suggestion box

In 1987 Milliken rediscovered the much-maligned suggestion box. All employees were
invited to suggest ways of improving the firm. There were only a few suggestions to
begin with. Nobody felt they had any contribution to make—not if they had to write it
down and send it to management at any rate.
People had all sorts of excuses, which were really down to their being unaccustomed
to expressing themselves in writing, feelings of inferiority, spelling errors and illegibility.
The breakthrough came at a staff meeting where the managing director convinced them
that he really needed their suggestions. Apart from this, their suggestions would be a
good way of letting him know what employees thought could improve the firm. And,
since he was often away on business trips and therefore could not get round to all
employees as often as he would like, he offered to share his secretary with them.
 Fundamentals of total quality management 268
So twice a week, Inge Høj, management secretary, did the rounds of all production
employees and the result was overwhelming. She got one good suggestion after the other
on everything from organization of the workplace, through product improvement, to
changes in machinery and processes, plus many minor suggestions which, though not
terribly significant, were no doubt good solutions to daily irritants.
After about a year, these bi-weekly visits became unnecessary—by now employees
had overcome their reluctance to put pen to paper.
Now the number of suggestions has grown to over 4700 a year and a whole
organization has grown up to deal with them.
All approved suggestions are rewarded with a small prize, the size of which has only a
minor relation to the importance of the suggestion for the company (see below).
Basically, Milliken believes that the OFI system is in the interest of all employees to
ensure a strong firm, giving them greater job security and the chance to earn more. This
belief also reflects their conviction of employees’ collective responsibility for the
continuing existence of the firm. It is realized that not all employees share this belief but
it is also realized that it is management’s responsibility to help them appreciate this.

(b) The suggestion process and error cause removal

Milliken has found the OFI system indispensable complementing the error cause removal
process.
Many opportunities for removing root causes of errors or for process improvements
are brought to the management’s attention through the suggestion system. Forms are
readily available for everyone throughout the plant and offices and many ideas which
come during discussions and process review activities are captured immediately on an
OFI form.
On the OFI form the submitter (or the OFI committee) is asked to classify the
suggestion into one of eight alternative OFI types which are equal to six of the seven
business fundamentals evaluated in the customer satisfaction survey (section 19.2.1(c))
and later on used as input to the strategic planning process called Hoshin planning plus
safety and energy.
The eight OFI types are shown below:
1. quality improvement
2. cost reduction;
3. delivery;
4. innovation;
5. safety;
6. morale;
7. environment;
8. energy.
The close relation to the seven business fundamental’s supports the Hoshin planning
process. It happens frequently that the management asks the whole organization to
support a certain activity with their ideas. Examples of this could be the drives which
Milliken has with intervals to improve the safety in the plant and to reduce the
environmental impact of their activities. The organization responds with many ideas
 Milliken Denmark A/S case studies 269
about how this could be accomplished and all the ideas feed into the error cause removal
team activity.
The OFI process also plays a very important role as a communication tool on a smaller
scale. When Milliken has a problem area it establishes an error cause removal (ECR)
team of four to six employees to address the problem. Many employees outside the team
are normally affected by the problem or they are aware of it and they often have an
opinion on what the cause is and how it can be solved even if they are not members of the
team. The OFI system has proved to be an excellent vehicle for carrying the ideas of the
employees to the ECR teams.

(c) The suggestions received

The suggestions received can be classified into three categories:
1. About 20% are rejected as unsuitable.
2. About 30% are minor suggestions.
3. About 45% are good suggestions which can make a difference to day-to-day activities.
4. About 5% are really good suggestions which can make all the difference to our
competitiveness.
Table 19.3 Statistics of Milliken’s suggestions
1989 1990 1991 1992 1993 1994 1995
Received suggestions 1512 3625 3586 3689 3269 3747 4729
Approved suggestion (%) 87 79 85 80 85 92 88
Employee participation (%) 71 100 95 90 93 88 79
Number of suggestions per employee 8 16 18 20 16 20 26
Annual saving due to suggestions (1000 1415 598 1222 780 3504 734 1565
kroner)

Table 19.3 shows statistics of proposals from 1989 to the end of 1995.
The annual savings cover only the suggestions of OFI type number 2. The gain from
these ideas has, amongst other things, been able to finance a brand new factory and an
administration block with a modern auditorium.
As can be seen from Table 19.3, the suggestion system runs very smoothly. The
programme has become a natural part of everybody’s daily work. The reasons for that are
several.
One reason is that new employees are given a sponsor and the first contact the new
employee will have with the suggestion system is through this sponsor. The sponsor is
usually a manager from another department and the manager’s responsibility is to make it
easier for the new associate for the first couple of weeks in the new company and to help
him/her to submit his/her first suggestion (OFI). The sponsor simply asks if there is
anything the new associate has seen which he or she thinks may have an opportunity for
improvement.
Milliken’s attitude to the importance of helping the new employees become
acquainted with the suggestion system can be understood by reading the following
quotation from Mr Ejvind Jensen:
 Fundamentals of total quality management 270

A company should be especially attentive to suggestions from new

employees, because a new employee’s power of observation isn’t yet
reduced due to routines and principles. It is very important that the
commitment from new associates isn’t suffocated with remarks like ‘we
don’t work like this’. Instead we point out that we expect to hear from
them what we can do better according to their point of view. This goes for
all associates, whatever their function or position in the company.

This attitude and the resulting ‘sponsorship for suggestions’ are examples of Milliken’s
‘Leadership for Suggestions’.
Another example showing Milliken’s ‘Leadership for Suggestions’ is that managers
(including top management) are also very active in submitting suggestions for
improvement to the OFI system even if they are not rewarded for that. Only ordinary
associates are rewarded for participating in the OFI programme.
Table 19.4 Reward guidelines for OFI suggestions
Points Savings (kroner)

‘Normal’ OFI 1–5 1000–25000

OFI improving safety Min. 3

Other OFI 10–15 25 000–50 000

15–20 50 000–75 000
20–25 75000–100000

(d) The reward system

The reward system is very simple and unbureaucratic. It is based on points where every
point is equal to 25 kroner. The minimum reward is 1 point (=25 kroner) and the
maximum reward is equal to 25 points (=625 kroner).
The reward guidelines followed by the OFI committee are shown in Table 19.4.
It is important to realize that the rewards are very small compared to the savings. The
size of the rewards does not seem to be a motivator for the impressive number of
suggestions.
‘Leadership for Suggestions’ and recognition have been the most important factors
used when Milliken succeeded in building up its suggestion system.

(e) The OFI organization

The OFI organization is divided into two parts with the quality manager as the process
owner. One part of the organization is for production associates and the other part is for
the administration associates.
The reasons for having the quality manager as the process owner are the following:
1. The quality manager is the person in the company with the best overall view of quality
improvements in all departments.
 Milliken Denmark A/S case studies 271

2. It is important to have a top manager as process owner. This sends out a clear signal of
the importance of the OFI programme.
3. The quality manager has the needed authority to make important decisions.
The OFI Committee Administration meets every morning at 9.00 a.m. and the OFI
Committee Production meets every afternoon at 13.00 p.m. The meetings last about one
hour and the number of OFIs dealt with varies from 10 to 30. In the afternoon meetings
three associates from production participate voluntarily. Every six to eight months these
three positions are reported vacant and those who are interested are encouraged to apply
as new members. It has become very popular to become a member of the OFI committee.
The administration of the OFI programme is handled by the managing director’s
secretary who is responsible for the registration of the OFIs and to help her she has an
especially designed computer database.
Every month a list is produced containing the scores (number of OFIs and number of
points) of all the associates. The list is distributed to all departments and put on the notice
boards.
A project manager and a blacksmith are more or less permanently engaged in
implementing the suggestions—to the mutual benefit of both employees and the
company.
The success of the OFI system is the result of ‘Leadership for Suggestions’. One
example which is the result of Milliken’s ‘Leadership for Suggestions’ is the standard
feedback time to the associate who has submitted the suggestion. This standard is very
low. The reason why the OFI committee holds meetings every day is to be able to give
quick feedback. The goal is to give feedback within 24 hours and in case an OFI is
circulated for comments the submitter receives a provisional response within 72 hours.

19.2.4 EXPERIENCES WITH ISO 9001

(a) ISO certification failures

The last months of 1988 were a milestone in the history of Milliken Denmark. This was
when the quality assurance system finally obtained an ISO 9001 certification. Twenty
office staff had spent 4000 working hours over 10 months in documenting the system.
The documentation process was extremely important, since it gave Milliken the
opportunity of looking into every nook and cranny in the company. There were
overlapping areas of responsibility in several parts of the firm and, what was perhaps
worse, other areas where there was no precisely defined responsibility at all. Co-
ordination at management level during this phase undoubtedly speeded the quality
process along.
The management group thought that they would end up with ‘quality management’,
but they found that an ISO certification is more about the quality of management. They
understood that they had to demand integrity and responsibility from all managers if the
certification was to be more than just a pretty diploma on a wall.
The management underestimated the interest and involvement of shop floor workers in
the documentation phase. Management was so caught up in things that there was not the
time to tell them what sort of certificate Milliken were trying to get, what lay behind such
 Fundamentals of total quality management 272
a certificate, or how they would be affected by it. Employees were fobbed off with
assurances that, as far as they were concerned, it would be ‘business as usual’, the only
difference being that now it would be in the name of a formal quality assurance system.
Once the press conferences and receptions were over, management was accused by
employees of having pulled a fast one. Management was put in the same category as the
Emperor’s New Clothes. This was not felt fair in the management group, of course,
because during the lifetime of the company Milliken had won over 40% of the European
market for rental mats. But management had clearly failed in its educational role.

(b) The awakening of the organization

Milliken Denmark has realized that if measurements are the first step of the quality
process, then the education of personnel is the second and the most important one. The
American group management realized this early on and by the time Milliken Denmark
was incorporated into the organization, it was already company policy that everyone in
management should have at least 40 hours of relevant supplementary education a year.
Milliken Denmark has more than lived up to this, e.g. managers clocked up almost 100
hours of supplementary education in 1991.
This policy expanded relatively quickly to include all staff workers, though at the end
of the 1980s it was still hard to see how all these hours of education had contributed
much to an understanding of the quality process.
The management group had tried for years to push the ideas and thoughts of the
quality process down the organization but it had proved extremely hard to translate this
effort into changed behaviour or a greater understanding of the firm’s intentions.
By a coincidence in 1989, Milliken became aware of the courses offered at various
AMU centres (government supported Labour Market Education Centres) and
management quickly realized that there was a chance to mobilize the grass roots to break
through middle managers and administrative personnel. The management group expected
that if both top management and production workers put pressure on administrative
personnel and middle managers, then they might be able to get the process back on
course again.
Milliken developed a very positive relationship with the AMU centre in Djursland and
on the centre’s recommendation, they sent groups of four staff workers and eight hourly-
paid workers on five-day courses in quality consciousness. In all, 15 groups were sent
and the mix of white and blue-collar workers proved to be very beneficial to the success
of the process. Suddenly, they all became aware of each other’s professional and human
qualities. The middle managers found out that the blue-collar worker was an expert in his
field, while the blue-collar worker realized that management did not have ready-made
solutions to all the problems.
For a whole week they talked about quality in the abstract and in relation to their
common place of work. The organizational pyramid was broken down and everybody
learned something from the other.
Not all engineers or other highly-educated employees were overjoyed at the prospect
of spending a week at an AMU centre but this problem soon disappeared when the
managing director himself spent a week there and reported that the course was good both
for the firm and the individual.
 Milliken Denmark A/S case studies 273
Willingness to take on work outside normal demarcation areas was overwhelming. At
one time, Milliken had over 40 teams at work solving problems and some of the results
they achieved were truly remarkable.
Today, Milliken’s policy is that all employees, whether they work on the shop-floor or
in an office, must have at least 40 hours of relevant supplementary education a year.
It has gradually become the experience and belief that the quality process is sustained
by three things: by a management which sets an example by its own behaviour, by the
education of all employees in the process and finally, by an appreciation of the results
achieved by employees.

(c) Zero-defect philosophy and ISO 9001

The Milliken management embraced the zero-defect philosophy relatively early on
(1986), the reasoning being that they felt they should be just as much able to demand zero
defects from themselves and from the employees as we expect from pilots, surgeons, bus
drivers etc.
Discussions about this philosophy have often petered out in a simple exchange of
opinion, with one side rationalizing that to err is human, while the other side claims that
errors can be avoided. However, the management soon realized that the interesting thing
about the zero-defect philosophy, is not the goal of ‘zero defect’ but the process which
ensures fewer and fewer defects every year.
But it was only with the ISO certification in 1988 that Milliken finally found a ‘tool’
to help prevent defects. This tool was the ‘correction report’, the purpose of which is to
systematically describe defects and ensure that their causes are eliminated. Since 1988
about 1000 correction reports have been written, each of which has eliminated at least
one source of error.
These correction reports have also made management realize that it is not only
employees who make mistakes—sources of errors are often built into machines and
processes. Management has also sat through futile discussions where employees’ main
concern has been to shift the blame as far from themselves as possible.
The managing director settled this problem once and for all by saying that any defects
which occur are his fault and his fault alone. In return, he expects any associate to tell
him about ‘his’ mistakes and how they can be avoided in the future. This has dramatically
shortened the length of discussions and reoriented them towards considering how similar
defects can be prevented in future.

(d) Standardization, KAIZEN and innovation

KAIZEN is a Japanese word which, roughly translated, means ‘small, continual changes
for the better’. Innovation stands for ‘new thinking, revolutionary, breakthrough’.
There have been several product developments at Milliken Denmark which can be
described as innovations and these have raised the products and the company up to new
technological and economic heights. Unfortunately, they are also rare occurrences.
Such breakthroughs have created enormous interest in the past, both in the company
and in the market. But even if the competitors soon catch up, Milliken’s top management
 Fundamentals of total quality management 274
has experienced that its own interest in continuous improvements wanes after a while,
with the result that the lead it has built up is lost again.
The management has realized that through standardization it will be able to hang on to
and consolidate the leads it has built up. Management has realized that as soon as a new
standard has been established it should immediately be challenged by means of KAIZEN.
There is now a common agreement that this not only produces incremental advances but
also ensures that these advances are not lost through lack of attention. Furthermore, it
raises the standard, so that the next breakthrough occurs at a higher jumping-off point
than the previous breakthrough brought the firm to.
The suggestion system and the error cause removal teams are both used actively to
challenge the standards documented by the ISO system, thereby creating ‘small changes
for the better’ and ensuring that when the next breakthrough comes, it occurs at a higher
jumping-off point than before.

(e) Process owner and process employee

In 1991 Milliken realized something else. The management group and the other
associates had been struggling for a long time with problems caused by the hierarchical
nature of the organization, where authority and responsibility were shared among
department managers. This structure did nothing to promote problem-solving in the firm,
because problems were rarely limited to only one function or department. As a result,
from the customers’ point of view, problem-solving in the departments had been less than
satisfactory over the years.
By focusing on processes, management came to realize that everything they do is part
of a process and that each process can be divided into innumerable sub-processes.
Management has realized that each process must have a ‘process owner’ who has the
authority and budgetary authorization to change the process and in the process itself there
are process employees, who influence the process but who are not entitled to change it. It
was emphasized that each process employee has both a right and a duty to make
suggestions for improving the process.
Milliken has now assigned process ‘owners’ to all identified processes and their
authority overrides department managers in those departments the process crosses. This
realization has helped to reduce pressure on individual process employees when the
demands of process change have been especially great. The Milliken associates are much
more aware now of who the process owner is and who the process employees are and
these roles are a far cry from the usual rigid organizational hierarchy.
The management and other associates at Milliken Denmark have also learned that
processes have inbuilt variations (normal) and that they can be affected by outside
variations (abnormal). Management has learned that the quality improvement process
should start by concentrating on reducing the normal process variations and that it is
wrong to adjust the machines if they find that the variations can be traced to specific
causes.
 Milliken Denmark A/S case studies 275

19.2.5 THE EUROPEAN QUALITY AWARD

Milliken European Division, of which Milliken Denmark is a part, participated in the
competition for the European Quality Award in 1992 where they won the European
Quality Prize. In 1993 they won the award.
The self-assessment framework of the European quality model greatly helped Milliken
to obtain a much better overview of all its quality related activities including the
management process.
One of the key learnings the company realized from the 1992 participation was that
it needed to look at its process management. Management learned the importance
of following the Plan, Do, Check, Act cycle for continuous improvements and to ask
itself the question whether the process itself was designed to generate the results it was
striving for.

19.2.6 CONCLUSION
Milliken’s quality process has been under way since 1984 now and has taught
management a number of things. One is that the quality process requires patience and
endurance. Another is that progress is often of the two-steps-forward-one-step-back kind
and that the best remedy when you are starting to lose heart is to compare the from today
with what it was a couple of years ago. This is invariably a good pick-me-up.
Milliken’s management has learned that there is no alternative to the quality process.
Today, nearly all firms operate in markets where supply exceeds demand and where it is
often difficult to tell one manufacturer’s products from another. The only possible winner
in such a market is the firm which offers goods and services of the highest quality at
competitive prices.
The problem of how to secure both the highest quality and, at the same time, also
secure competitive prices has a lot to do with the problem of how to measure and reduce
the cost of poor quality. Section 19.3 is devoted to that problem.

19.3 MEASUREMENT OF QUALITY COSTS (THE RESULTS OF

QUALITY MANAGEMENT)

19.3.1 SOME THEORY AND DEFINITIONS

In relation to TQM it is well-known that the level of quality will be improved by
investing in the so-called quality management costs. These consist of:
1. Preventive quality costs. These are costs of activities the aim of which is to prevent
quality defects and problems cropping up. The aim of preventive activities is to find
and control the causes of quality defects and problems.
2. Inspection/appraisal costs. The object of these costs is to find defects which have
already occurred, or make sure that a given level of quality is being met.
 Fundamentals of total quality management 276
Investment’ in the so-called quality management costs will improve quality and result in
the reduction of so-called failure costs.
Failure costs are normally divided into the following two groups:
1. Internal failure costs. These are costs which accrue when defects and problems are
discovered inside the company. These costs are typically costs of repairing defects.
2. External failure costs. These are costs which accrue when the defect is first discovered
and experienced outside the firm. The customer discovers the defect and this leads to
costs of claims and as a rule, also a loss of goodwill corresponding to the lost future
profits of lost customers.
We know now that a large part of failure costs, both internal and external, are invisible,
i.e. they are either impossible to record, or not worth recording. We know too that, for the
same reasons, a large part of preventive costs are also invisible. This leaves inspection
costs, which are actually the most insignificant part of total quality costs, inasmuch as
these costs gradually become superfluous as the firm begins to improve quality by
investing in preventive costs.
Investing in preventive costs has the following effects:
1. Defects and failure costs go down.
2. Customer satisfaction goes up.
3. The need for inspection and inspection costs go down.
4. Productivity goes up.
5. Competitiveness and market shares increase.
6. Profits go up.
This is why we can say that ‘quality is free’ or more precisely ‘the cost of poor quality is
extremely high’.
But how can we reduce the cost of poor quality when most of the quality cost elements
are invisible? Well, the first step is to define the total quality cost (Campanella, 1990):

The sum of the above costs [prevention costs, appraisal costs and failure
costs]. It represents the difference between the actual cost of a product or
service, and what the reduced cost would be if there was no possibility of
substandard service, failure of products, or defects in their manufacture.

This definition is a kind of benchmarking definition because you compare your cost of
product or service with a perfect company—a company where there is no possibility of
failures. We have never met such a company in this world but the vision of TQM is
gradually to approach the characteristics of such a company.
In practice we need other kinds of benchmarks as the perfect company. Such
benchmarks will gradually be built up when you start measuring the most vital elements
of the total quality costs. The following sections will show how Milliken Denmark
succeeded with that process.
 Milliken Denmark A/S case studies 277
19.3.2 HOW IT STARTED
The group management asked Milliken Denmark’s top management to find out how high
the quality costs were. To avoid any long arguments about how these should be defined,
they made it simple by pointing out four accounts from the accounting records. These
four accounts contained costs of complaints and claims, costs of taking goods back,
write-offs in production, plus the costs of sending products two or more times through the
production process.
The definition of the costs on these four accounts were the following:
1. Discounts. This is an internal failure cost element. A failure has been built into the
product but it is found before shipment to the customer. The customer is offered a
discount in order to accept the failure.
2. Allowances. This is an external failure cost element. A failure has been built into the
product and the customer finds the failure. An allowance is negotiated. If the customer
does not accept the shipment the allowance is equal to the amount of invoice.
3. Returns. This is an external failure cost element. If a customer does not accept a
shipment because of a failure caused by Milliken the customer may decide to send the
shipment back. Returns are the freight of returned shipments.
4. Reworks. The cost to repair a product may be either internal costs or external costs
depending on who finds the failure.
These four main accounts contained the sum of failure costs coming from many more
detailed accounts showing what product and what place (departments, functions etc.) the
detailed registrations were coming from.
The group management wanted to establish a simple quality cost system without
arbitrary cost allocations. The quality cost system was not intended to compromise all the
quality cost elements. The intention was to construct a simple thermometer which could
measure if the patient was sick and also of course how sick and what disease.
It was the experience from other companies in the Milliken group that these four cost
categories comprised the major quality cost elements and so the group management
wanted to compare the quality costs from these four accounts between the different
companies.
The group’s companies already had these figures but if any were missing, the
instructions were quite clear: reconstruct it or estimate its size. 1984 was chosen as the
base year and the management has closely followed the trend in these four figures every
four weeks.

19.3.3 THE QUALITY COST THERMOMETER

In 1984, the quality costs measured as the sum of the above quality cost elements were
related to the production volume (measured as the number of square meters produced)
and given an index of 1.00. This index became Milliken’s quality cost thermometer and
the company has followed the trend in this index from 1984 until 1994. The advantage of
using index figures and not actual figures is that index figures are free of the distortions
due to periodic changes in production volume.
Thirteen times per year for more than 10 years the index has been presented to the top
management team at Milliken Denmark and twice a year the index has been presented to
 Fundamentals of total quality management 278
the top management at Milliken, USA. Goals for the index have been established every
year and ‘error cause removal teams’ have been established in order to reduce the index.
Parallel with the activities of the error cause removal teams (see below) bottom-up
activities (QC circles as well as individual improvement activities) gradually became
more and more widespread. These activities were supported by the suggestion system
which was gradually developed to become more and more effective. In 1995 the number
of suggestions per employee had increased to a level of 27 suggestions per employee
(per year).
In 1985 the index was reduced to 0.49 and the following years showed a reduction to
0.19 in 1986 and 0.12 in 1987. Management almost immediately felt, on the bottom line,
the effects of these ‘gold digging activities’. The index in 1991 was 0.07, or put another
way, Milliken has achieved savings of 93% measured on the index, which represent more
than five million kroner a year. In 1994 the target was 0.05 which is well below
Milliken’s world benchmark. Table 19.5 shows the development of the index from 1984
until 1993.

(a) Error cause removal activities

When a team is established with the purpose of addressing a problem with quality costs
(or any problem) the team members’ first activity is to create a shared view on the
problem.
Measurements of non-conformance related to the problem are normally available for
the team and what is missing in terms of measurements for illustrating the magnitude of
the problem is organized by the team.
The key measures available today are, e.g. quality opportunity costs indexes (section
19.3.4), delivery on time reports, customer satisfaction indexes, complaint registrations,
employee satisfaction indexes etc. which, in most cases, give a clear signal when there
are problems. Milliken Denmark also has a series of measures which are directed towards
the performance on the individual job, workstation or department.

Table 19.5 The development of the quality cost index at

Milliken Denmark from 1984 until 1993
Year 84 85 86 87 88 89 90 91 92 93
Index 1.0 .49 .19 .12 .09 .09 .09 .07 .04 .06

A review of the relevant measurements is the starting point for any error cause activity
(ECR) in Milliken Denmark and the team hereafter follows the five-step procedure which
is described in section 19.3.5.
The team establishes thereafter its goals in accordance with the objective for the team.
Valuable input for this part of the process can, in many situations, be obtained from the
customer satisfaction surveys and from the strategic planning process.
Finally, the team starts to plan how to accomplish the goal and the objective. It is
Milliken’s experience and belief that if this planning process is done properly the
probability for success will be high. The learning point is obvious. It is more easy to
implement a carefully developed, detailed plan than it is to bring a fragmented,
uncompleted plan to completion.
 Milliken Denmark A/S case studies 279
19.3.4 THE OPPORTUNITY COST CONCEPT (THE NEW
THERMOMETER)
In 1992 Milliken realized that it needed a new method to measure the quality costs.
Management increasingly felt that it was difficult to motivate the employees to go on
with the quality cost reduction process. The index had been reduced so much that people
felt—and also said—that the possible cost savings were not worth the efforts. For that
reason management decided to extend the number of quality cost accounts from four to
eight and at the same time also to change the way Milliken measured the quality costs.
The management felt it was time to introduce the opportunity cost concept when
measuring the quality cost elements.
The following eight quality cost accounts have been used since 1993:
1. Quality discounts (internal failure cost) or price reductions when selling second
quality.
2. Re works/replacements (internal failure cost).
a. Reworks because of failure found before delivery.
b. Replacement when it is not possible to do rework—hence new production has to be
initiated in order to satisfy the customer.
The failure cost is measured as ‘full costs’, i.e. it is the sum of variable cost,
indirect material cost, depreciation, other fixed production cost and
contribution to administration cost. A common quality cost standard has been
set up within the different product groups.
The philosophy of this ‘full cost measuring system’ is the following: ‘In each
square metre produced we have budgeted with a saving for payment of the
fixed costs. When doing reworks or replacements we have lost this
opportunity.’
3. Final inspection cost (internal failure cost).
The costs include variable costs (wage cost, material cost etc.) and contributions
to fixed production cost and depreciations.
4. Down-time cost (internal failure cost).
The causes for down-time cost are mechanical breakdown of machines, lack of
raw materials, preventive maintenance, planned machine stop because of holidays
etc.
The costs are calculated on a ‘full cost basis’, i.e. they include wages,
depreciations and other costs calculated by using the machine time lost in the
bottleneck process.
5. Returns and allowances (external failure cost).
a. Returns are calculated as full costs including freight.
b. Allowances—return pay to customers because of complaints.
6. Quality adjusters (external failure cost).
The total cost of support services for handling customer complaints. The costs are
based on the total expenditures of the support services departments and other
identifiable sources including salaries, benefits, travel etc. discounted for any
 Fundamentals of total quality management 280
proactive service to the customer purely to enhance relations. The costs calculated
are based on the time used for handling complaints.
7. Write downs (internal or external failure cost).
The causes for write downs are obsolete fabrics, obsolete yarn, over-runs etc.
8. Waste (internal failure cost).
The costs include materials as rubber, textiles, paper etc. In 1991, 390 tons of
wasted materials were sold to waste dealers. The waste is calculated as the
difference between purchase price and waste price. The total waste cost is the
biggest cost element in the new quality cost system.

19.3.5 EXPERIENCES WITH THE NEW THERMOMETER

Milliken Denmark now has two years of experience with this new quality cost system. In
1993, management found out that even though it has worked intensively with quality cost
reductions since 1984 and achieved world class results there were still many
opportunities for quality cost reductions. This was realized when constructing and
working with ‘the new thermometer’.
The new thermometer (the new index) was calculated as the sum of the eight new
quality cost accounts divided by production volume. The sum of the eight new quality
cost accounts represented a substantial amount of money.
The start temperature (index) was set equal to 100 in 1993. In 1994 this temperature
was reduced to 99 and the target for 1995 was 84.
As shown in Figure 19.2 the target for 1995 was not achieved.

Fig. 19.2 Quality opportunity cost 1993 to

1995
One learning point with the new system is that it took some time for the organization to
learn how to understand and utilize the new measurements. It was realized that the
quality of the measurements in the pilot period (1993–1994) was lower than the quality of
 Milliken Denmark A/S case studies 281
the measurements in 1995 when the measurements became more comprehensive and
detailed. People are now more careful in the measurement process than they were in the
pilot period. This is the main reason why the results for 1995 do not look as satisfactory
compared to the previous two years and compared to the goal.

(a) Conclusion
The new quality cost measurement system by which Milliken tries to calculate the real
failure costs by using opportunity costs has given management a very powerful signal
that it still has some big problems to work on. This signal would not have been so
powerful in the old quality costing system.

19.3.6 STEPS IN USING THE QUALITY MEASUREMENTS

When reducing quality costs the teams used the following five-step procedure.
• Step 1: Pareto diagram of the total failure cost is set up.
For each four-week period the measurements are collected and analysed. A Pareto
diagram is constructed showing the eight quality cost categories. The category
with the highest costs is selected for further analysis (Appendix 19.A). Process
waste is selected as an example here.
• Step 2: Pareto diagram to identify ‘the vital few’ is set up.
A new Pareto diagram is constructed showing the elements of the quality cost
category selected in step 1 (Appendix 19.B). One or more of the most vital
elements are selected for ‘error cause removal’, i.e ‘a Business-Hoshin
Implementation Plan’ is developed. Tufted fabric and rubber trim waste is
selected.
• Step 3: The ‘Business-Hoshin Implementation Plan’ is set up.
The ‘Business-Hoshin Implementation Plan’ is developed by using Milliken’s
‘Hoshin forms’. The strategy and tactics are decided and responsible persons are
chosen. A review of progress is done in each period of four weeks.
• Step 4: The Hoshin plan is checked.
‘Check of Hoshin’ means that the total plan is checked at the end of the ‘Hoshin
Period’. A graph is constructed showing the trend in quality costs for the chosen
cost element. An example in Appendix 19.C shows a slow reduction in ‘rubber
trim waste’ since 1985. It is also shown that YTD 95 (year to date) periods are
near (but above) the goal for 1995.
• Step 5: Presentation to top management.
The results are presented to top management after each four-week period and
each quarter the results are presented to top management in Milliken and Co.,
USA, together with presentations from other Milliken companies. Figure 19.3
above shows a typical graph presented at this meeting. The results are discussed
and knowledge is spread in this way between Milliken companies all over the
world.
 Fundamentals of total quality management 282

Fig. 19.3 Continuous improvements and their

consequences.

19.3.7 ECR/OFI/COST OF QUALITY

At this point it may be appropriate to ask the question whether it is possible to measure in
financial terms the total impact of Milliken’s error cause removal process and the
Opportunity For Improvement process (sections 19.2.2 and 19.2.3)?
The answer to this question is that Milliken does not have any measurements which
can split the results in the impact of the error cause removal process and the impact of the
Opportunity For Improvement process on the financial results.
It is an important learning point that the measurable effects of the two processes have
been on both the ‘internal improvements’, i.e. on ‘better use of resources, more efficient
processes etc…’ and on the external improvements (Figure 19.3).
The aim of the internal improvements has been to reduce costs and to remove
dissatisfaction. The aim of the external improvements has been to increase the quality of
products, services and associates in order to keep or increase market share. Both effects
will in the long run increase the company’s profit. It is obvious that there has been a
synergy between the two aims and also between the activities which have been completed
at Milliken Denmark during the 12 years which the case study covers.
The important learning point is that one process cannot thrive without the other.
Milliken Denmark has learned that there is a high element of synergy between the two
processes which has had effects on both the number, the size and the type of
improvements.
 Milliken Denmark A/S case studies 283

19.4 CONCLUSION

The conclusion and learning points from Milliken’s experiences with the continuous
measurement and reduction of quality costs are the following:
1. A quality cost measurement system is a valuable tool in helping to identify the most
vital areas which must be improved.
2. When starting to measure: keep measurements simple and measure only the most vital
failure costs!
3. Have a continuous focus on the results!
4. Establish functional and cross-functional error cause removal teams which have the
responsibility to identify the causes behind the results and to propose and implement
solutions which will ‘kill the causes’!
5. The effect of points 3 and 4 above will typically be a reduction in the measured quality
costs of 50% per year in the first three years, i.e. a reduction to 10–15% of the start
level.
6. After the first three years progress will not be so easy. Now it will be increasingly
important to rely on ‘everybody’s participation’. Suggestion systems should be set up
with clear and simple criteria for recognition and reward. Standards for quick response
are imperative. The suggestions complement ideas for improvements generated by
permanent and ad hoc error cause improvement teams.
7. The quality cost elements to measure (the cost accounts) should be analysed for
comprehensiveness. New cost elements may be included and the opportunity cost
concept may be applied in order to assure continuous reduction of the total quality
costs.
8. A continuous reduction in the total quality costs demands that the quality cost system
is an integrated part of the total management concept: Total Quality Management.
Perhaps the most important learning point has been that the new quality costing system
has made it clear for everybody in the organization that even after 10 years of continuous
reductions in failure costs to a world class level there are still many opportunities for
improvements.
If Milliken Denmark is to continue to be a world class company it has no choice other
than continuing, finding and implementing these opportunities for improvements.
Fundamentals of total quality management 284

APPENDIX

Fig. 19.A.1 1995 YTD quality opportunity

cost.

Fig. 19.B.1 1995 quality opportunity cost:

process waste.
 Milliken Denmark A/S case studies 285

Fig. 19.C.1 Rubber waste.

REFERENCES

Campanella, J. (1990) Principles of Quality Costs, ASQC, Milwaukee, USA.

Crosby, P.B. (1982) Quality is Free, The New American Library Inc., New York, USA.
 20
International Service System A/S case
studies: the winning hand1

20.1 CHANGING FOR THE FUTURE—ADHERING TO OUR

CORE BELIEFS: PREFACE BY GROUP CHIEF EXECUTIVE
WALDEMAR SCHMIDT

When I took over as President and CEO of ISS on October 1,1995, I also took on the task
of changing ISS to prepare it for the challenges of the next century—without abandoning
the core beliefs that made ISS what it is today.
Throughout our development, we have had the firm belief that the leader of the
professional cleaning industry must take on the responsibility to develop and lift the
whole industry to be successful in the long-term.
This has brought about enhancement of the esteem and image of our operatives
through the development of professional equipment and methods, training schedules and
the creation of career paths for service professionals. And last but not least, improvement
of pay and work conditions. Competition has been forced to follow similar paths.
Focus on the customer and high business ethics has been and is ISS’s foundation for
building respectful relationships with customers.
Cutting corners, compromising quality and using unethical—even unlawful—business
methods have earlier been practised by some in the industry, to be able to cut prices and
achieve short-term progress.
However, we firmly believe that by an ethical business conduct and by investing in
people, methods, quality and service development together with our customers, we create
a win-win situation for all parties that leads to sustainable growth and profitability. This
is a model that our serious competitors have adopted.
Building of these core beliefs, where are we heading?

20.1.1 THE ROLLS ROYCE OF CLEANING

Today, the ISS Group’s core business is cleaning and this will continue to be the case in
the future. We pride ourselves in being the ‘Rolls Royce’ of the industry, because we
have invested over the years in quality, training and systems, all of which now
differentiate us in our markets. We also had the courage to expand internationally over
the years, so that today we are in 32 countries, a fact which gives us considerable
competitive advantage for servicing international accounts.
1
This is a reprint of a case study written by J.J. Dahlgaard and K. Kristensen for the European
Commission, DG III, as part of the European Way for Excellence Study. The authors thank the
Commission and The European Foundation for Quality Management for permission to reprint the
study. There are some overlaps between the case studies and the previous text in order to make the
case studies as stand alone.
 International service system A/S case studies: the winning hand 287
One of the key strategic issues we must now address is that of the emerging demand in
some geographical markets, particularly the USA and the UK, for facilities management.
Whilst I do not see ISS becoming a facilities management company, I do believe that we
must have the capability to offer a wider range of services if so required. Facilities
management is a rather vague discipline at the moment. There are no clear definitions.
However, we need to be flexible and open-minded and seek ways of broadening our
service package in those markets and segments where the demand is real, either through
strategic acquisitions, or through partnerships.

20.1.2 MULTI-SERVICE AND MULTI-SKILLING

ISS Mediclean, our UK hospital service company, is an excellent example of the success
we can achieve by extending our services to respond to specific market opportunities.
When it was acquired in 1989, Mediclean was a hospital cleaning company. Today, it is a
true hospital service company, offering cleaning, catering, portering and car park
management. It even helps hospitals turn their canteens into profit centres by handling
everything from the redesign and construction of their facilities to the management of the
service!

20.1.3 WE NO LONGER CLEAN EVERYTHING FOR EVERYBODY

We used to think that we were in the business of cleaning everything for everybody. We
now believe that there is a more strategic approach to identifying which markets and
customers we want to do business with. By breaking the market up into segments, or
groups of customers which share common characteristics, we can choose which segments
are most likely to yield the turnover and profit which we need to achieve our financial
goals. We can then identify and target the customers within each segment we want to do
business with. The most attractive accounts are ‘key accounts’, because their contribution
to the Group’s health and wealth is particularly significant—either in turnover or in profit
terms, or because they are strategically important for other reasons. Key accounts and
non-key accounts usually need to be treated in different ways to ensure that resources are
allocated most cost-effectively.

20.1.4 A GLOBAL/PAN-EUROPEAN SERVICE PARTNER

Another trend which will influence our strategic thinking is the small but significant
demand which is emerging for global service agreements. As the world becomes
increasingly more competitive, some multinational corporations are seeking to reduce the
number of suppliers they deal with worldwide, in order to achieve cost and quality
efficiencies. ISS sees a major opportunity in this trend. We are uniquely positioned to
offer such corporations a global/pan-European service, because we often operate in
many, if not all, of the countries in which they operate. Our entry into nine Far Eastern
countries further underpinned our spread.
 Fundamentals of total quality management 288
20.1.5 NEW MARKETS
We still need to reinforce our geographical presence. There are some other major markets
in the Far East which we need to be in, such as Japan, in order to serve our key accounts
and benefit from the growing trend in outsourcing. Canada and Argentina are other
countries we must penetrate. As far as our European coverage goes, our only major gap
today is Italy, and plans are afoot to remedy this.
As far as new service markets are concerned, elderly care will offer increasingly
attractive opportunities in some countries. The ISS ‘Care Concept’ has already begun in
Sweden and is in its early development phase in Belgium and the UK.

20.1.6 FUNDAMENTAL MANAGEMENT PRINCIPLES

Since ISS launched comprehensive management training in the mid 1970s, several
principles have guided our culture and management practices, amongst which are the
Team Planning Process, the Unit President Concept and Total Quality Management.
These principles will continue to guide our thinking. However, we will not stand still.
The strategy of setting up dedicated operating companies for specific market segments,
which we implemented in ISS Europe, will be rolled out elsewhere when appropriate, for
it is the cornerstone of a targeted and market-driven culture. Dedicated operating
companies with their own business plan, budget, balance sheet and profit and loss and
which have a management team which can ‘talk the customer’s language’ are
undoubtedly the best vehicles for developing specialist markets, as results have shown.
Whatever we do, we will be driven by the market and our customers. There is no
doubt that if we are successful in signing global agreements we will need to ensure that
we have management and operational structures which can provide a consistent and
‘seamless’ service across borders.
Global key account management is a major component of this and will be one of the
most exciting challenges which ISS will address in the near future.
However, as I stated above, there will be no fundamental changes in the principles of
ISS. We will continue to strive for excellence, to build our organization on the foundation
of decentralization, training, quality and technical superiority and thus deliver what we
have promised to our customers, our employees and our shareholders.

20.2 CONTEXT, IMPERATIVES FOR CHANGE AND

OBJECTIVES FOR QUALITY MANAGEMENT

20.2.1 CONTEXT: THE COMPANY

International Service System A/S (ISS) is the largest cleaning company in the world
today. It operates in more than 30 countries all over the world and employs more than
120 000 employees.
The company was founded in Denmark in 1901 by a lawyer and began its activities as
a small security company providing guard and other security services to business
especially in the Copenhagen area. It was not until 1934 that ISS began its cleaning
activities and at that time it was mainly as an add-on to the security service.
 International service system A/S case studies: the winning hand 289
ISS began its internationalization in 1943 by setting up a Swedish operation and this
was followed by a Norwegian operation in 1952. Both of these operations were mainly
cleaning activities because it proved to be very difficult to export the security side of the
company, mainly due to the fact that within this area customers preferred a local supplier.
The real expansion of ISS, at that time actually called DDRS (Det Danske Rengørings
Selskab A/S), started with Mr Paul Andreassen’s being appointed managing director in
1962. He was a 34-year-old engineer working as a technical expert at Scandinavian
Airlines and with him modern times came to ISS. He was both an efficient manager and
an entrepreneurial leader—a very rare combination—and under his leadership from 1962
to 1995, ISS grew from a rather modest Danish company to a recognized multinational
company. In 1962, ISS had a turnover of 50 million kroner and 2000 employees. In 1994,
the turnover had grown to 14 232 million kroner and the number of employees was, as
previously mentioned, more than 120 000. Financial information about ISS has been
included in Table 20.A.1.
The 35-year leadership of Mr Paul Andreassen may be divided into four phases. When
he first arrived at ISS the main thing was to turn the company into a professional
business. Hence the idea was to introduce professional management to the company. This
led to a strong system of standards for cleaning with a very efficient outcome. The market
had, however, started to demand more and ISS realized that the way forward was to
provide value-added services. Management focus was then turned to the concept of
service management and the two together proved to be a very successful combination for
ISS.
In the middle of the 1970s it was realized that the company had grown so much and
had become so diversified that it was necessary to standardize the planning process. A
new system of strategic planning, the team planning process, was developed and through
this third phase ISS could safety continue its growth by application.
At the end of the 1980s the fourth phase of management was introduced. Mr
Andreassen realized that continuous improvement was the only way forward for ISS.
This called for a more holistic management system and to this end the philosophy of
Total Quality Management was adopted. In what follows the development of the quality
process from the late 1980s to 1995 will be described with special emphasis on the
measurement side.

20.2.2 IMPERATIVE FOR CHANGE: THE CHALLENGE OF THE

WINNING HAND
The discussions concerning a modern quality project at ISS started at the end of the
1980s where it had become clear to the executive management board that changes had to
take place in the management style and business performance if ISS were to continue its
success as an efficient and competitive supplier of services to the world market.
The result of the modern quality revolution of Japan and the USA had started to make
an impression on the ISS top management and furthermore the basic ideas of quality
management were not very far from the general viewpoints of management held by Mr
Paul Andreassen. Way back in November 1979 quality had been discussed at the yearly
TMC (top management conference) and Mr Andreassen had at this time stated that
organic growth of ISS could be obtained by an improvement circle starting with quality.
 Fundamentals of total quality management 290
‘Improved quality leads to satisfied customers and satisfied customers lead to increased
turnover and increased profit’, was the message to the participants of the TMC. This
point of view was followed up in 1908 with a big poster where Mr Andreassen was
photographed in the same position as the army general announcing that ‘your country
needs you’. Mr Andreassen pointed to the employees of ISS and said: ‘I want you to
think quality.’
In order to clarify the situation a planning group was formed to discuss the future. The
planning group headed by Mr Jan Rasmussen, then vice president of human resources,
chose to characterize the possible stages that a company may be in relation to the market
at three different points of time: the 1980s, the 1990s and year 2000. The result of this
characterization which was called ‘the winning hand’ is shown in Table 20.1.
It will be seen from Table 20.1 that the possible stages have been characterized as:
• the admission criteria
• the finals
• the winning hand
and for each stage it was asked: what are the requirements to reach this particular stage?
To be a player at the market-place for cleaning in the 1980s the company needed to be
cost-effective. This is obvious because the profit margin in the cleaning market is very
small and if you are not efficient you will very soon be history. To become part of the so-
called choice set you should in addition to cost-effectiveness be able to deliver on time,
or to be more specific, you should be able to deliver where and when your customer
wants. To achieve this was not enough, however, you should also be able to deliver a
quality service on top of the others and this is where the ideas and practice of service
management came in.
Moving into the 1990s and more companies have become able to handle the traditional
ideas of service quality and even more companies are both cost-effective and able to
deliver on time. This means that in order to be a player you now have to be both cost-
effective and able to deliver on time. To reach the finals you should, in addition, provide
service quality but this is no longer enough to become the chosen company. New
requirements showed up in the 1990s and when ISS did this work it was already clear
from the experience made by other companies that these requirements probably could be
characterized as follows:
Table 20.1 ISS and the winning hand
1980 1990 2000
The winning hand Service quality Quality of relationships Innovation
Management by facts Continuous improvement
The finals On time Service quality Quality of relationships
Management by facts
The admission Cost-effectiveness Cost-effectiveness On Cost-effectiveness On time
criteria time Service quality

• quality of relationships
• management by facts.
 International service system A/S case studies: the winning hand 291
Talking about quality of relationships it was expected that one of the ways to improve
business performance was to focus on all types of relationships in the company:
relationship to customers, relationship to vendors, relationship to suppliers and the
internal relationship of the company’s employees. By improving the quality of these
relationships you would be able to improve the total quality of the company’s services
and hence business performance.
But as Roger Milliken once said ‘a team without a Scoreboard is only practising’ It is
not enough to talk about quality of relationships. If you really want to improve, you must
measure both your position and your rate of improvement and this will call for much
more focus on facts. People must be trained differently and taught how to manage
by facts.
Moving on to the year 2000 the expectations of the ISS working group was that
quality of relationships and management by facts had become standard equipment for
many competitors in the market. In that case the only way to remain at the top of the class
was to implement the ideas of continuous improvement in the organization and to create a
basis for innovativeness.
It appears from the discussion above that the conclusion of the working group prior to
any quality initiatives was that a future management system would require the following
focus areas:
1. quality of relationships;
2. management by facts;
3. continuous improvements;
4. innovation.
With this conclusion as a starting point it became clear that the ideas of TQM were very
similar to the requirements of ISS. TQM focuses on more or less the same things.
Management by facts and continuous improvements are usually considered to be
cornerstones of TQM and furthermore TQM focuses on the customer and the employee
and these are of course part of the idea of quality of relationships.
Following this it was not difficult to understand that the ISS top was motivated to
embark on a quality journey. To begin with it was decided to start the journey in the
Scandinavian division called ISS Scandinavia (see the organization chart in Figure
20.A.1), headed by Mr Sven Ipsen, who appointed two VPs to be in charge of the
process, Mr Flemming Schandorff and Mr Poul Poulin, but even if Mr Sven Ipsen was
not directly involved in the structuring of the process he never left it and he was fully
aware of the necessity of top management involvement.

20.3 HISTORY OF QUALITY MANAGEMENT

20.3.1 MANAGEMENT INVOLVEMENT

The planning group headed by Mr Schandorff and Mr Poulin was in no doubt that it was
necessary to start the quality journey by involving management at all levels and that the
best way to do this was to start an education programme for the managers. In order to get
some help with this they contacted the authors and asked them to join the planning group.
 Fundamentals of total quality management 292
After some discussion it was decided to start with the first three layers of management
in the Danish division of ISS Scandinavia A/S. The result of this was that approximately
160 managers at different levels were included in the first wave of education. It was of
course realized that this was only the beginning of the education required but it was the
idea that the first wave should somehow be exploratory and set the guidelines for the
future work.
Today it is generally accepted that a TQM process starts with a self-evaluation and
today we have a number of instruments for this purpose, e.g. the EFQM model. At the
time the ISS process started, systematic self-evaluation was not all part of the normal
routine of process improvement in companies and hence it was quite a revolution when
the planning group suggested that the basis of the management education should be a
self-evaluation done by all participants according to the criteria of the Japanese Deming
Prize. The reason for the choice of the Deming Prize was that at the time the EFQM
model, which probably would have been chosen today, did not exist and experience with
the American Baldridge Award was minimal. On the other hand the authors were familiar
with the criteria of the Deming Prize and furthermore had access to a great deal of
internal material from the Japanese Union of Scientists and Engineers which could be of
a very big help when formulating questions and benchmarking the results.
The basis of the self-evaluation was a questionnaire divided into three parts:
A. Key questions for a service company.
B. A number of questions structure according to the 10 headlines of the Deming Prize.
C. Perceived quality problems, the perceived causes to these problems and the suggested
solutions.
The first two parts consisted of a very structured set of closed questions while the last
part was open-ended. This meant that the analysis of the questionnaire was divided into
two parts but still combined. The first part was a standard statistical analysis while the
second part first consisted of an interpretation of the many answers to the questions in
Group C and after this a coding of these answers in order to make a combined statistical
analysis possible.
The questions in group A—the key service questions—are shown below:
1. Do we have a broad understanding of the service policy of ISS?
2. Have we established specific goals?
3. Do we always consider our customer to be the king?
4. Do we have a continuous identification of our problem areas?
5. Do we have a continuous evaluation of our progress?
6. Do the employees know the requirements of our customers and can they explain these
requirements?
7. Do we have a willingness to perform market research in order to identify customer
requirements and our competitive position?
8. Are you (the management) the perfect role model for your employees?
9. Do we know the barriers preventing us from providing an excellent service? If so, are
these barriers systematically removed?
10. Is focus on the customer the main theme for the training of our employees?
 International service system A/S case studies: the winning hand 293
As already mentioned, the questions for the second part of the self-evaluation were
structured according to the Deming Prize. Within each headline a number of statements
were formulated and the managers were asked to indicate the extent of which the
statement was fulfilled. A few examples of the statements are given below.
1.4 The quality policy is regularly maintained on the basis of collected information
about quality.
3.3 The staff understands the idea of variation in relation to quality.
4.1 The company has a system for the collection of data on customer satisfaction.
The areas and the corresponding number of statements—the Deming Prize
headlines—are shown below:
1. Policy and strategy (7).
2. Organization and operation (6).
3. Education and training (6).
4. Collection and use of data (7).
5. Analysis (4).
6. Standardization (3).
7. Quality control (6).
8. Quality assurance (7).
9. Effect of quality initiatives (3).
10. Planning for the future (4).
The entire analysis was conducted not only for ISS but also for a small independent
company belonging to another part of the service industry. The reason for this was that it
was expected that a number of managers would be reluctant to accept the results and
especially the implications of the results with reference to ISS being very special. A
reaction like this was well-known from other situations within ISS and also from other
companies and hence the planning group decided not to make an excuse like this
possible.
Based on the results of the empirical study which are shown together with their
consequences in the following section an education programme for the managers was
constructed. It was decided to split the education into four blocks as follows:
1. day one training combined with a company visit to Milliken Denmark;
2. private study of material distributed on day one;
3. day two training at ISS University approximately one month after the day one training;
4. a one-week visit to Disney World and participation in the Disney service quality
training programme.
The contents of the two days of training are shown below:
Day 1:
1. The ISS quality profile: identification of problems.
2. What is quality (in general and ISS specific)?
3. What is TQM?
4. Quality culture—possible changes.
5. The economics of quality—visible and invisible quality costs.
6. Milliken’s experience.
 Fundamentals of total quality management 294
Day 2:
1. The ISS quality profile: problem-solving.
2. Deming’s 14 points—stations along the way.
3. Measurement of quality.
4. Product development.
5. Quality tools.
6. Team-building.
7. Quality improvements and strategic quality management.
8. Implementation—how do we get started?
As mentioned already this training programme was only intended to be an introduction.
At the end of the programme it should be decided how and to what extent the education
of the rest of the employees should be carried out. In this connection it should be
remembered that ISS is a very large company with more than 120 000 employees in more
than 30 countries. Furthermore, ISS is a very diversified service company with activities
spanning from simple daily office cleaning to very complicated care service activities.
This means that education and training of the staff is a complex task which requires very
careful and detailed planning.

20.3.2 THE RESULTING QUALITY OBJECTIVES AND QUALITY

POLICY
The results of the self-evaluation study provided a wealth of information for the future
process and it also proved to be very motivating for the quality work because for the first
time there was an overall picture of the quality situation in the company. A picture not
provided by some remote expert but a picture provided by those who had the daily
experience in the company. This made a major difference concerning the acceptance of
the results it showed.
Furthermore it showed that it would be a very good idea to have a validation sample to
compare the results with. First of all it prevented the ‘not-invented-here-syndrome’ which
has already been mentioned but it also made it possible to put the results into perspective.
In Table 20.2 some of the results from the Deming Prize evaluation are reported. Both
ISS results and validation sample results are shown as index numbers. These numbers
have been constructed from the original four-point rating scales using statistical
techniques. The higher an index number, the better the performance within the reported
area.
Table 20.2 Results of Deming Prize evaluation
Index of performance
ISS sample Validation sample
1. Quality consciousness > 80 > 80
– planning for the future
2. The organization of quality management 50–60 40–60
– quality assurance
– standardization
– policy
 International service system A/S case studies: the winning hand 295
3. Quality techniques 40–50 20–40
– analysis
– control
– education and training
4. Information about quality < 40 < 20
– collecting and using information
– effect

The grouping of the individual Deming Prize areas has been done by use of a quality
management technique called matrix data analysis. This technique is part of the so-called
seven new management techniques and it helps to provide an overview of large data sets.
It should be mentioned that the headings of the groups do not come from the Deming
Prize. Instead they are the result of the discussions in the planning group.
The results showed two main things. First of all it was clearly indicated where the
managers actually saw the problems and secondly it could be seen that structurally ISS
was no different from the small service company shown in the validation sample.
There was no doubt that the managers claimed to be motivated for the quality process.
This is seen from the high score in the quality consciousness area. This holds good,
actually, for both companies. But apart from this they evaluated that the organizational
area was their best even if it was not too good. On the other hand the collection and use
of information about quality-related topics was seen as rather poor.
In addition to the overall Deming Prize evaluation, an in-depth discussion of the
perceived problem areas was made, which led to the identification of seven ‘problem
areas’ that were to be taken up in connection with the training and which should also be
the basis of the formulation of a future quality policy. The seven ‘problem areas’ are
given below together with their suggested solutions. The numbers in parenthesis are the
percentages of answers to the areas in question.
Identified ‘problem areas’:
1. Lack of definition of quality and lack of understanding of customer requirements
(63%).
2. Too large variability in product and service (23%).
3. Inefficient internal communication (21%).
4. Functional errors (20%).
5. Delivery problems (19%).
6. Internal deliveries (15%).
7. Add-on services to the customers (9%).
Suggested solutions:
1. Definition of quality standards (57%).
2. Definition of Standards for education (56%)
3. Definition of standards for internal procedures (42%).
4. Programmes for employee motivation (39%).
5. Improvement of internal communication (25%).
6. Systematic market surveillance (14%).
7. Improved instruction of customers (11%).
 Fundamentals of total quality management 296
All these elements were summed up in a conclusion for the future work in the quality
area. This conclusion was divided into three areas as follows:
1. ISS needs a systematic quality policy, especially standards for quality both internally
and externally.
2. ISS needs systematic education in the quality area, including the education of
collaborators.
3. ISS needs a systematic information procedure for:
• customers
• competitors
• processes
• employees.
With this as a starting point the education of the managers was carried out as explained in
the previous section. Furthermore, a smaller group, consisting of the managing directors
of the individual companies belonging to the ISS Scandinavia group, met on a two-day
seminar in order to work out quality goals and quality policies for the group. The results
of this work are shown in the following points.
ISS quality goals:
• Our goal at ISS is for customers to receive products and services which fully live up to
their requirements and expectations and, in addition to this, a unique service.
• To achieve this, ISS will involve customers and employees in a continuous process, the
aim of which is to develop products and services with an ever-increasing level of
quality while at the same time strengthening employees’ quality consciousness.
ISS quality policies: ‘focus on the customer’:
• Customers define what satisfactory quality is.
• Customers have a right to products and services which fulfil their expectation of total
quality.
• Customers are entitled to personal and individual service.
• Customers’ satisfaction is of the utmost importance and is therefore measured at fixed
intervals.
ISS quality policies: ‘focus on employees’:
• Every employee has an influence on and is responsible for quality.
• Employees’ commitment, knowledge and ability are crucial to the firm’s total quality.
• Internal communication and marketing are just as important as external.
• Education and personal development are necessary for the fulfilment of the firm’s
quality goals.
• Employees at all levels must be treated with respect in accordance with the agreed
personnel policy.
• A condition for the continuing attractiveness for ISS as a place of work is mutual
respect for each other and each other’s work.
• Employees’ satisfaction is measured at fixed intervals.
 International service system A/S case studies: the winning hand 297
ISS quality policies: ‘guarantee and quality of delivery’:
• Maintaining satisfactory quality demands continuous quality improvements. This means
that no matter how good present quality is, it can always be better.
• All high-quality work is performed by the firm’s employees who are customers and
suppliers in the processes which produce goods and services to the firm’s customers.
• The best method of achieving quality is to prevent defects and problems instead of
discovering or correcting them after they have occurred.
• Measuring and reporting defects, problems and improvements at fixed intervals are a
condition for continuous quality improvement.
It is obvious that the ISS management has clearly adopted the principles of TQM. Focus
on the customer, focus on the employee, the concept of internal customers, continuous
improvement, everyone’s participation and last but not least the focus on facts are all
elements which are found in the quality policy.
The key areas for the future work coming out of the analysis are very close to the ones
coming out of ‘the winning hand’ discussion at the beginning of this chapter. To
summarize they were:
1. quality of relationships:
• customers
• employees
• vendors;
2. management by facts;
3. continuous improvements.
In what follows we see how these areas were taken care of, focusing especially on
management by facts. We are not going to handle the other two areas in detail in
this chapter. To give an idea of the quality of relationship, however, Figure 20.B.1 and
Tables 20.B.1 to 20.B.3 summarize the discussion that took place in this area.

20.3.3 THE VEHICLE: ISS UNIVERSITY AND ISS QUALITY

INSTITUTE
The results obtained for ISS Scandinavia A/S were found to be promising for the future
development of ISS and henceforth it was decided by Mr Sven Ipsen, CEO of ISS
Scandinavia and his working group that it was a good idea to give a one-day presentation
together with some basic TQM training to the remaining ISS top management: Mr Paul
Andreassen, CEO of ISS, Mr Waldermar Schmidt, CEO ISS Europe, Mr Henrik
Slipsager, CEO ISS North America and Mrs Lise Friis, financial director of the ISS
Group.
Following this, the top management decided that it would be a good idea to have a
special vehicle for driving the total quality process. The idea of a quality institute was
formed and Mr Jan Rasmussen was appointed managing director. Inspiration for the
quality institute was taken from several places but especially the Renault Quality Institute
was chosen as a benchmarking partner. The institute was set up in Copenhagen close to
 Fundamentals of total quality management 298
the ISS head office and the board of directors comprised the top management committee
of ISS plus one of the authors of this book (Kai Kristensen).
Shortly after the creation of the ISS Quality Institute a decision was made to collect all
ISS development activities under the same umbrella. The ISS University was formed
with the Quality Institute as an important part. Mr Jan Rasmussen became managing
director of the university which as a whole has become a very important factor in driving
the entire quality and development process of the company. The ISS University, its
components and its mission are described below.

(a) The ISS University

ISS University A/S is the ISS Group’s international learning and development centre.
Primarily, it is an in-house resource which supports ISS operating companies. Through
continuous development and the transfer of best practices, the ISS University helps the
operating companies to win and retain profitable service contracts. ISS employees,
existing/potential customers, academics and specialists from all over the world come
together at the ISS University to develop service management techniques, service
concepts and TQM.
The ISS University was established as a response to the continuous change and
increasing complexity in the markets where ISS operates. Furthermore, the ISS
University was established to enhance the continuing development and the transfer of
‘best practices’ between ISS companies worldwide.
Success in service as previously mentioned is synonymous with the development of
employees and support systems. That has been the underlying philosophy of ISS for
many years. Seeking new methods, being alert to new opportunities and achieving results
are driving forces of the ISS culture.
The ISS University plays an important role in demonstrating that ISS is capable of
handling any challenge better than any other company in the service business. The ISS
University has expressed its mission as follows:
• To position ISS—at any time and place—as the leading option for the quality-conscious
customer.
• To assist and support ISS companies in winning and retaining service contacts with a
high value added to the customer.
• To develop and maintain methods, tools and processes to assist the development of
human resources and the continuous improvements of ISS services—in accordance
with the needs of the operating companies.
• To strengthen effects of synergy and innovation by facilitating the transfer of expertise
across ISS worldwide networks—those which currently exist and those to be
established.
• To create a ‘home-from-home’ for colleagues and customers.
The ISS University has to contribute substantially to creating the best conditions for
development and new thoughts internationally within ISS. The driving forces in this work
are a number of central questions where the ISS University looks for the answers in
co-operation with the operating companies:
 International service system A/S case studies: the winning hand 299

1. Customer focus. How does ISS create an in-depth understanding of the needs and
expectations of its customers and how does ISS ensure these are built into ISS service
concepts?
2. Focus on results. How does ISS ‘translate’ customer needs and expectations into the
function and quality of ISS services—and then into specific operational goals and
results?
3. Monitoring results. How does ISS measure and monitor the achievement of goals and
results to produce meaningful, action-oriented information that can be used by
employees, management and customers?
4. The delivery system. How does ISS develop and maintain a cost-effective delivery
system which helps achieve goals and results based on the most up-to-date techniques
and methods?
5. Human resources. How does ISS develop and manage human resource and how does
ISS create a working environment that motivates employees to deliver services which
match customers’ expectations?
6. Organization and management. How does ISS apply organizational and managerial
principles and strengthen an organizational culture which supports customer focus and
profitability improvements and also ensures the full commitment of human resources?
7. Innovation and continuous improvement. Which management tools should be deployed
to ensure continuous improvement in quality and productivity and to create the best
possible framework for innovation together with ISS’s customers.
The ISS University has concentrated its efforts on four key activity areas—areas in which
ISS believes it can benefit from an international development. The key activity areas are:
• TQM—the ISS Quality Institute;
• service development;
• management development;
• hotel and a conference centre—the ISS University Hotel.

The ISS Quality Institute

The ISS Quality Institute was established in January 1992 to undertake the long-term
development of TQM and quality assurance as well as ensuring ISS’s ability to respond
quickly to the demands and wishes of its customers. Examples of activities at the ISS
Quality Institute follow.
Quality training Quality training is targeted at top and middle management as well as
supervisors and operatives. The contents and methods taught to each group are the
same—only the structure is different. In some cases, quality training has been adapted to
specific contracts and the training has included key persons, employed by the customer.
An important part of quality training is the training of quality facilitators who support
the quality training in their own companies and thereafter facilitate the ongoing
TQM improvement process. The ISS Quality Institute is responsible for enabling the
operating companies to start the TQM process and to maintain it. The training is a vital
part of this work.
 Fundamentals of total quality management 300
Five-Star Programme The Five-Star Programme is a career progression programme,
designed to ensure that talented operatives can progress to team leader and supervisory
status. The goals of the training programme are to:
• reinforce TQM in the service delivery system;
• provide quality management to the front-line staff;
• offer an attractive career path for service professionals.
The programme highlights subjects such as customer relations, understanding of ISS, job
skills, cleaning systems, personnel management, quality control etc. The programme is
adapted to each country and each company. The ISS Quality Institute staff work as
advisers when starting up the programme in the operating companies.
Systems for quality measurements TQM demands a fact-based approach to quality
service development. It does this by systematically examining every aspect of the
customer/vendor relationship. The ISS Quality Institute works alongside the operating
companies to develop methods which measure quality. As this work must be done in co-
operation with the operating company, the ISS Quality Institute and the customer, it
produces a fruitful dialogue between ISS and the customer. As customers increasingly
demand responsiveness to their changing needs, the need for differentiated quality
measurements is constantly changing and expanding.
The ISS Quality Institute also trains users in the measuring systems developed and
assists in the implementation of such systems to the extent required by the operating
companies concerned.
The ISS Quality Institute provides help to any operating company considering
upgrading its methods to provide the best possible service to the individual customers.
This includes the development of a so-called TQM service contract which means
applying the concepts and principles of TQM to an existing or new contract, aimed at
improving customer satisfaction.
Quality benchmarking One way to become the ‘top of the class’ or to pinpoint and
implement ‘best ISS practices’ in a specific area, is through a benchmarking project. The
ISS Quality Institute provides support for operating companies engaged in setting up and
performing benchmark projects. The ISS Quality Institute is also developing a database
of ISS benchmark studies through contact with external sources. That means that the
Institute is well-placed to help establish contact with the most appropriate benchmark
partners—those already using ‘best practices’.
Customer retention programmes A significant aspect of TQM can be described as
‘listen to the customers’ voice’. The ISS University has developed a standard package
which focuses on the issues involved in customer retention. The ISS University assists in
putting customer retention programmes in place.
The customer retention package is a total system which incorporates:
• Planned and structured contacts between several levels within the customers’
organization and their ISS counterparts. The points of contact would cover systematic
listening, co-planning, co-management and joint control.
• Planned and structured follow-up and reaction processes to ensure the information and
facts gathered are put to good effect.
• A financial analysis method of assessing the contract’s life cycle.
 International service system A/S case studies: the winning hand 301

• A programme to develop the ISS personnel on the contract and their counterparts with
the customer.
• A method to match measurement systems to customer expectations and so form the
basis for contacts, follow-up and quality assurance.
• An activity-based cost management system.
ISS team planning process The ISS team planning process (TPP) is the term for the
strategic planning process in ISS—it has been an important and integral part of the ISS
way of management since the end of the 1970s. It is the responsibility of the corporate
planning function at the ISS University:
• To make sure that the ISS organizations use the TPP in a structured manner to develop
strategic plans which will enhance ISS’s competitiveness and commercial success.
• To ensure that the TPP remains an important management tool in ISS, by developing
the process and introducing best practice methods, models and software for structuring
the planning base, strategic analyses and strategic and operational decision making
and producing guidelines and workbooks which reflect this.
• To help the organizational units adopt and adapt the process by training ISS managers
to understand the process and coaching selected teams in using the tools.
• Working with the total quality management function to ensure that TQM an d TPP are
developed and integrated to become the core of the total ISS management concept.

ISS service development

Alongside the increasing internationalization of ISS, the demand for cohesive
co-ordination and development of joint service concepts increases. The ISS University
has therefore established international service development committees, responsible for
identifying shared improvement points and implementing best practices. The committees
cover food hygiene services, hospital and health care services and airport services. The
choice of these three services has been made as they are identified as services with a
strategic potential.
In the committees, the managers in charge of the different services meet. Also, a
representative from the ISS University and one from ISS headquarters are present. This
composition ensures that both operations and the overall service development benefit
from the work of the committees. Furthermore, ISS headquarters and the ISS University
can allocate resources to projects whenever needed.

ISS management development

It is the responsibility of the ISS University to ensure international management
development. The ISS University offers a variety of training and development
programmes. These programmes are aimed at managers and potential managers at all
levels. All training and development programmes are developed continuously in line with
the needs of the operating companies. Examples of programmes are as follows.
International Management Course (IMC) Once a year, the ISS University offers a
training programme for newly-appointed line and staff managers—the International
Management Course (IMC). The IMC introduces ISS management concept and
 Fundamentals of total quality management 302
principles and provides participants with an understanding of professional service
management and the language of ISS management. The course aims to create
international networks and provide participants with a thorough understanding of The ISS
Way’, i.e. the basic characteristics of ISS as a service enterprise and the ways the
enterprise should be managed.
Management and middle-management training The management and middle-
management training programmes aim to give the participants the tools to perform their
job as better leaders as well as reinforcing ‘The ISS Way’. On an individual level, the
training deals with the leader’s function and responsibility within his/her own
organization. It provides the tools with which to organize and implement changes within
individual companies. At the organization level, it aims at developing networks which
support the co-ordination and synergy in the workplace.
The training programme for higher-level middle-managers is performed in co-
operation with other big companies, so that participants and teachers are mixed. This mix
gives participants a unique opportunity to understand their own culture by comparing it to
other companies.
Top management programme The aim of the TMP is to obtain greater synergy
between the ISS operating companies in mutually developing service management and
service concepts. The programme provides training that will impact upon the individual
and his/her organizational abilities as well as improving overall management abilities.
The Sales Academy The Sales Academy has been established to help the ISS sales
force to reach an understanding of the entire sales process and its mechanisms.
The Sales Academy offers an introductory sales training for newly employed sales
people within ISS. The purpose of the sales training is to give newcomers a basic
introduction to sales work at ISS, to ensure selling methods match ISS standards and
strategies.
The Sales Academy also offers five training programmes for experienced sales
personnel and sales managers. Every step of the sales process is taken into consideration:
sales psychology, cost-benefit arguments (how to illustrate to the customer the cost and
benefits of using ISS service), analysis of customer needs, telephone canvassing (how to
get the first appointment with a potential customer) and how to successfully finalize sales
negotiations.

The ISS University Hotel

To host all the development activities and training programmes it is vital that the
University has its own hotel and conference centre. The ISS University Hotel is the place
where the majority of the development activities takes place. It has 54 bedrooms and
seven VIP/customer suites, several conference rooms, two auditoriums and all the
facilities expected of a professional, modern conference centre. The Hotel is located—
like the rest of the University—25 km north of Copenhagen, Denmark. The idea is
to create a ‘home-from-home’ for the guests whether they are ISS employees or
ISS customers.
 International service system A/S case studies: the winning hand 303
20.3.4 DEVELOPMENT OF A MEASUREMENT MODEL
As seen from the quality policies and again reflected in the description of the ISS
University, measuring quality and monitoring results are corner-stones of the
development process. This particular area was one of the first to be taken up by ISS.
Through research and development a very good procedure of quality measurement has
been created. In what follows this system will be described.

(a) Development of a theoretical model

It was realized that modern measurement of quality should be closely related to the
definition of quality. As mentioned earlier many times the ultimate judge of quality is the
customer which means that a system of quality measurement should focus on the entire
process which leads to customer satisfaction in the company, from the supplier to the end
user.
It was also realized that a basic point behind the creation of customer satisfaction is
leadership and that a basic aspect of leadership is the ability to deal with the future. There
is a clear tendency that leaders in general are much more focused on short-term profits
than on the processes that may be in statistical control. The result of this may very well
be an increase in the variability of ISS’s performance and hence an increase in quality
costs. In this way ‘the short-term leader’ who demonstrates leadership by fighting fires all
over the company may very well achieve quite the opposite of what he wants to achieve.
To be more specific, the working group at ISS was of the opinion that ‘short-term
leadership’ may be synonymous with low quality leadership and the group was quite sure
that in the future it will be necessary to adopt a different leadership style in order to
survive—a leadership style which in its nature is long term and which focuses on the
processes that lead to the results, rather than the results themselves. This does of course
not mean that the results are uninteresting per se but rather that when the results are there
you can do nothing about them. They are the results of actions taken a long time ago.
All this is of course much easier said than done. In the modern business environment
leaders may not be able to do anything but act on the short-term basis because they do not
have the necessary information to do otherwise. To act on a long-term basis requires that
you have an information system which provides early warning and which makes it
possible for you and gives you time to make the necessary adjustments to the processes
before they turn into unwanted business results. In the ISS view this is what modern
measurement of quality is all about.
In order to create an interrelated system of quality measurement it was decided to
define the measurement system according to Table 20.3 below, where measurements are
classified according to two criteria: the interested party and whether we are talking about
processes or results.
As appears from Table 20.3 it was decided to distinguish between measurements
related to the process and measurements related to the result. The reason for this is
obvious in the light of what has been said above and in the light of the definition of
TQM. Furthermore it was decided to distinguish between the ‘interested parties’: the
company itself and the customer.
 Fundamentals of total quality management 304
Traditional ISS measurements have focused on the lower left-hand corner of this table,
i.e the business result, and ISS has built up extremely detailed reporting systems which
can provide information about all possible types of breakdown of the business result.
However, as mentioned above, this type of information is pointing backwards and at this
stage it is too late to do anything about the results. What is needed is something which
can tell ISS about what is going to happen with the business result in the future. This type
of information is found in the rest of the table and it was especially believed that the four
squares of the table are related in a closed loop which may be called the improvement
circle. This loop is demonstrated in Figure 20.1 below.
Table 20.3 Measurement of quality—the extended concept
ISS The customer
The Employee satisfaction (ESI) Checkpoints Control- and checkpoints concerning the
process concerning the internal service structure internal definition of product and service
quality
The Business results Financial ratios Customer satisfaction (CSI) Checkpoints
result describing the customer satisfaction

Fig. 20.1 The ISS improvement loop.

This is particularly due to an increase in customer loyalty stemming from an increase
in customer satisfaction. The relationship between customer satisfaction and customer
loyalty has been documented empirically several times. From a benchmarking with
Rank Xerox, Denmark, it was reported that when they analysed customer satisfaction on
a five-point scale, where 1 is very dissatisfied and 5 is very satisfied, they observed that
on the average 93% of the customers who were very satisfied (5) came back as
customers, while only 60% of those who gave a 4 came back.
 International service system A/S case studies: the winning hand 305
The expected relationship between business results and customer loyalty on one side
and customer satisfaction on the other was considered very important information for the
ISS management. This information provides early warning about future business results
and as thus provides the ISS management with an instrument to correct failures before
they affect the business result.
The next logical step will be to take the analysis one step further back and to find
internal indicators of quality which are closely related to customer satisfaction. In this
case the warning system will be even better. These indicators which in the table have
been named control points and checkpoints will of course be company specific, even if
some generic measures may be defined. At ISS the name chosen for these measurements
was quality standard index or QSI.
Moving even further back we come to the employee satisfaction and other measures of
the process in the company. It was expected that these were closely related to the
internally defined quality. This is actually one of the basic assumptions of TQM. The
more satisfied and more motivated employees you have, the higher the quality in the
company.
Based on this theoretical model and the reflections related to it, it was decided for each
ISS unit to introduce four levels of reporting:
1. employee satisfaction index (ESI);
2. quality standard index (QSI);
3. customer satisfaction index (CSI);
4. profit before tax (PBT).
PBT was of course well defined, but the other areas had to be developed. It was decided
to develop a general model for ESI and CSI in co-operation with one of the present
authors (Kristensen), while QSI should be developed individually at the units of ISS.
Before going into detail with the development work however it was decided to first
have a try with a simple measurement system in the USA in order to get some experience
with the internal acceptance and use of a quality measurement system.

(b) A first try in the USA

For the first try in the USA it was decided that the system should be cheap and simple.
Data should be collected from internal sources and the reporting system should be very
easy to understand. It was decided to follow the eight-step process below:
1. identify measurement areas;
2. identify data sources to use;
3. develop measurement index;
4. develop reporting format;
5. research and clean up data sources;
6. begin reporting quality data;
7. develop secondary reports to further define errors;
8. develop action plans to improve quality.
 Fundamentals of total quality management 306
Four areas of measuring quality were chosen in accordance with the classification above.
As a representative of customer satisfaction, credit memos were chosen. As
representative of internal efficiency the number of manual payroll checks was chosen and
as representatives for employee satisfaction it was decided to use the number of workers’
compensation claims and the employee turnover.
Data sources for each area were defined and careful instructions were given as to the
calculation of the quality index in order to prevent discussions later on.
The results were very promising with rapid improvements in all areas. It was
concluded that measurement was a necessary basis for continuous improvements and it
was decided to continue the development of quality measurements. In his progress report
to the Executive Management Committee Mr Henrik Slipsager, then CEO of ISS North
America, concluded as follows:
1. definite relationship between quality and profit;
2. corporate office needs to maintain the focus;
3. focus creates action;
4. actions create improvement;
5. improvement creates better profit;
6. better profits create happiness!

(c) Measurement of customer satisfaction at ISS

(d) Theoretical considerations

It was first decided to assume a very simple delivery system in which the goods and
services are delivered directly to the end user and where ISS can obtain customer
satisfaction information directly from the end user. The group was, of course, fully aware
that this was a simplification that should be relaxed later on but in order to get acceptance
for the system it was decided not to complicate matters too much. Furthermore, it was
assumed that the goods and services are evaluated by the customer on N different
parameters concerning importance of and satisfaction with each parameter. The rate of
importance (weight) of the ith parameter was named wi and the individual satisfaction
evaluations were named ci and both were measured on an appropriate rating scale. The
customer satisfaction index (CSI) was then defined as follows:

CSI=Ȧ1c1+Ȧ2c2+…+ȦNcN (20.1)

Furthermore it was assumed that the revenue from customer satisfaction may be
described as some function of the CSI. This function is, of course, assumed to be an
increasing function of CSI—the larger the CSI, the larger the revenue.
In addition, it was assumed that the cost of obtaining customer satisfaction is a
quadratic function. What the assumption means is that it becomes more and more
expensive to increase customer satisfaction when customer satisfaction is already at a
high level.
 International service system A/S case studies: the winning hand 307
Based on these assumptions it was suggested that the company should balance its
quality effort according to the rule:

(20.2)

According to this simple rule which can easily be implemented in practice the degree of
fulfilment (i.e. the score divided by the weight) should be equal for all quality parameters
in the company.
An even simpler presentation of the result can be made as follows, if a few theoretical
assumptions are met

ci=Ȧi (20.3)

This type of result will make it very easy to report the outcome of the customer
satisfaction study in a graphical way.

The practical procedure

At first a seven-step procedure was chosen for the conduction of CSI analysis. This
procedure was rather simple and has been refined several times since the first start. Today
the ISS Quality Institute and the ISS Telemarketing Service recommends a 12-step
procedure where the inclusion of loyalty and segmentation is very new:
1. determination of the customer and the process leading from ISS to the customer;
2. pre-segmentation of the customers;
3. determination of relevant quality attributes (parameter);
4. choice of competitors (if necessary);
5. design of questionnaire;
6. sampling;
7. post-segmentation of customers based on results;
8. determination of quality types;
9. construction of quality maps;
10. determination of cost points;
11. determination of sales points and customer loyalty;
12. determination of corrective actions.
Steps 1 and 2: The first crucial step is to determine the customer and the process leading
from the company to the customer. In certain simple cases we have a situation like the
one described above, where the company delivers goods and services to the end user and
gets information back concerning the satisfaction.
In most cases, however, the situation is more like the one described in Figure 20.2,
where the delivery consists of a chain of so-called middlemen before the goods and
services reach the final customer.
 Fundamentals of total quality management 308

Fig. 20.2 Dual customer satisfaction.

It is, of course, crucial that from the start it is well-known what the delivery system looks
like. It may lead to very wrong conclusions if one forgets certain parts of the chain as the
following example illustrates.
In New York, ISS had contracts on the cleaning of large building complexes with a
large number of tenants in each. The level of cleaning and the prices were discussed not
with the individual tenants but rather with a building manager who decided everything in
relation to the contract with the cleaning company. At the beginning ISS never really
considered the individual tenants as their customers, instead they focused on the building
manager. For a long time this went well. From time to time ISS called up the building
manager and asked him about his satisfaction and usually he was satisfied because ISS of
course lived up to the contract. After a time, however, the tenants became more and more
dissatisfied with the services they received. In the first case they did not say anything to
the building manager, instead they gathered and decided that they wanted another
cleaning company to do the job. A spokesperson went to the building manager and told
him that they were not satisfied with ISS and he was left with no other choice but to
threaten to fire ISS who of course could not understand this, because, as far as ISS knew,
it had lived up to the contract and its customer was satisfied. ISS learned its lesson,
however and in the future never just considered the middleman as its customer. Instead
the company went out all the way to the end users and asked them about the satisfaction
and it used this information not just to improve its own services but also to keep the
building manager informed about the situation.
At this stage it should also be decided if customers should be segmented. In most
cases customers do not constitute a homogenous group. Different segments will require
different treatments. Hence it will usually be necessary to split up customers in groups
based upon the information which is already used within marketing, e.g. size of customer,
 International service system A/S case studies: the winning hand 309
private or public customer, location, etc. In this case we can come as close as possible to
the individual customer with the corrective actions.
Step 3: Determination of relevant attributes is the next important step. It was decided
that this takes place in co-operation with the customer. In too many cases one sees
companies themselves defining what is relevant to the customer. This is a very bad idea
because experience shows that very often companies only have a vague impression of
what is really relevant to the customer. There is a clear tendency to define quality in
technical terms instead of consumer terms. From this follows that customers should
participate in defining the relevant attributes and the best form of doing this is usually by
setting up focus groups.
Steps 4, 5 and 6: In this group of steps the sampling takes place but first of all it must
be decided whether competitors should be included in the analysis. In many cases it will
be a great advantage to have competitors in the analysis but this will of course make the
entire customer satisfaction analysis somewhat bigger. Furthermore it may complicate the
analysis because in some cases it will be difficult to find respondents who know both
the ISS company in question and the competitors.
Depending upon the decision concerning competitors, a questionnaire must be
designed. The size of the questionnaire should be kept to a minimum in order not to
annoy the customers. At ISS it is recommended that the number of parameters should not
exceed 30. It goes without saying that the questionnaire must have a professional layout
and, in the case of business-to-business research, a contact person must be identified.
Steps 7 and 8: Before constructing quality maps it will usually be a good idea to go
through the collected material in order to let the data speak. First of all it is very useful to
find whether there are other segments in the material than the ones already defined. This
can be done by using a variety of statistical tools. If significant groupings are found these
groupings will also be used when reporting the final results. Furthermore it is useful to
find out whether the parameters may be segmented into meaningful groups.
Steps 9, 10 and 11: The following step will be to introduce the quality map. This map
is based upon the theoretical result above in which the optimum was found when the
importance is equal to the satisfaction for each parameter. An example of such a map is
given in Figure 20.3.

Fig. 20.3 A quality map.

 Fundamentals of total quality management 310
The map is constructed by plotting importance on the horizontal axis and satisfaction on
the vertical axis. To reach optimum profit the developed theory then shows us that the
parameters should be placed on the principal diagonal of this map.
Very often, however, it has proved to be a good idea to relax this a little. Instead the
map is divided into squares by dividing each axis into two, using the average importance
and the average satisfaction as dividing points. These four squares are then used for
decisions concerning actions. The two squares with either high/high or low/low are of
course the squares in which the parameters have a correct placing. The other two squares
are more problematic. If the importance is high and the satisfaction is low, the company
is faced with a serious problem which may lead to loss of customers in the future.
Similarly if the importance is low and the satisfaction is high, the company has allocated
its resources in a wrong way. Being good at something which the customers do not
appreciate means loss of money. Instead these resources could be used for improving the
situation in the high/low square.
The reasoning above of course depends upon the assumptions made in the theoretical
development. A very important assumption is that the costs of improving the satisfaction
of a parameter is equal for each parameter. If this is not the case we have to establish a
cost index for the individual ISS company and use this index as a correction factor for
each parameter. Then the horizontal axis will no longer be the importance of the
parameters but instead the importance per unit of the costs.
Another way of improving the analysis will be to introduce ‘loyalty points’ in the
analysis to see if there are any differences between the importance established in the
interview with the customer and the loyalty established from a different set of questions.
This difference will usually reflect a difference between short-term and long-term
importance of the parameters.
In practice, the loyalty points are constructed by using a series of questions concerning
the loyalty of the customers towards the company. Will they buy again, will they
recommend ISS to others and similar questions. Using these questions it will then be
possible to determine by use of statistical techniques the (short-term) loyalty effect of
each parameter. This information helps the ISS manager to choose among the individual
improvement areas.
The procedure reported here reflects the state of the play at ISS in November 1995.
However the procedure is subject to constant development and the ISS Quality Institute
together with the ISS Telemarketing Service (now ISS TeleResponse) are working
closely together with marketing specialists and statisticians in order to improve the
methodology.
Parallel with the development of a customer satisfaction measurement procedure, a
procedure for the development of employee satisfaction has been developed. The
theoretical model is exactly the same as the theoretical model for customer satisfaction.
The only difference lies in the sampling procedure—in other areas the CSI methodology
is followed.
Both the customer satisfaction procedure and the employee satisfaction procedure are
documented in manuals from the ISS University in which the process is described and
questionnaires are shown together with a reporting procedure. Furthermore time
schedules and cost are described.
 International service system A/S case studies: the winning hand 311
20.4 SOME RESULTS

ISS now has a very large number of results concerning measurement. In what follows we
will show the results of the first CSI study made according to the theoretical
developments from the Quality Institute and its associates. After this some results
documenting the ISS’s improvement circle will be shown.

20.4.1 ISS DARENAS A/S

In order to begin the process of customer satisfaction measurement one of the seven
companies belonging to the Danish section of ISS was selected for a pilot
implementation. The company, ISS Darenas A/S, is mainly a sales company selling
cleaning machines and other cleaning materials but it is also undertaking consultancy
concerning different aspects of cleaning. Typical customers are other companies or the
public sector.
In this particular case it was decided to use the following seven-step procedure when
implementing the system. This procedure was the first one suggested by the working
group on CSI and it is the one which has now been refined into the 12-step procedure
given above:
1. Define the relevant quality characteristics, i.e. the total set of characteristics creating
customer satisfaction.
2. Define the relevant customer population and the relevant segments to be used when
reporting the results.
3. Obtain the sampling frame.
4. Construct the questionnaire and decide upon the scales to be used for measuring
customer satisfaction.
5. Carry out the survey.
6. Compute the relevant statistics.
7. Communicate the results.

(a) Step 1
In co-operation with the top management of the company the quality characteristics were
divided into five main groups each containing specific characteristics. The resulting 10
quality characteristics were as follows:

Administration
1. Switchboard
2. Service in connection with placement of orders

Delivery
1. Number of residual orders
2. Number of errors
 Fundamentals of total quality management 312
Products
1. Assortment
2. Product quality and documentation

Consultants
1. Knowledge of products
2. Observance of agreements

Repair
1. Quality of repair
2. Waiting time.
The main problem in connection with this step seemed to be keeping the list down to a
manageable size. Initially the list contained more than 75 items but after lengthy
discussions all parties agreed upon the list above.
One experience from the work done at this stage is that it is very important that there
is a consensus of opinion about the list of quality characteristics. Otherwise people may
reject the results at a later stage. Furthermore, one should be very careful when preparing
the list because once the list has been agreed upon it should not be changed since one of
the basic ideas is to compare results from one period to the next.

(b) Step 2
In step 2 it was first discussed whether the company was going to concentrate on the
existing (or known) customers or whether it was going to sample the total potential
market. The latter case was considered preferable but not feasible. Owing to this, it was
decided to start out with the known customers and optimize the procedure with these
before turning to the ultimate goal, i.e. a full-scale market measurement.
In the present case it was decided to sample from a population of known (i.e. past and
present) customers. This was based partly on cost considerations and partly on the
assumption that it would be very difficult to obtain valid information in this particular
case from people who had never done business with the company.
When reporting the results of a CSI study, results should, as mentioned above, be
broken down on relevant segments, segments possibly calling for different treatment. In
the present case the following segments were decided upon: 1. the number of years the
customer had been with the company; 2. line of business; 3. location; 4. financial
importance.

(c) Step 3
The sampling frame will of course depend upon the chosen population. In the present
case the company had records of all past and present customers for a period of two years.
These records were used as a sampling frame with reasonable success apart from the fact
that information about past customers had not been updated.
 International service system A/S case studies: the winning hand 313
One particular problem was the contact person. It is very important that you get the
right person to answer your questions. The right person of course being the person
making decisions concerning the product or service. In this case the records did not
contain sufficient information about this and a lot of effort was expended in order to
shape the records in such a way that sampling was facilitated in the future.

(d) Step 4
Construction of the questionnaire did not cause any problems. With regard to scales a
balanced five-point rating scale was used for both importance and individual quality
ratings. After sampling all quality measurements were rescaled to a number between
0 and 100.
Table 20.4 CSI study for ISS Darenas 1392
Quality characteristics ci Weighted ci
Switchboard 87.3 144.2(10)
Placement of orders 90.0 111.2 (9)
Residual orders 83.9 104.9(8)
Delivery errors 87.4 103.9(7)
Assortment 85.4 87.7 (6)
Product quality and documentation 90.1 83.7 (3)
Knowledge of products 86.8 82.3 (2)
Observance of agreements 91.3 86.8 (5)
Quality of repair 85.8 79.9(1)
Repair waiting time 85.2 85.1 (4)
Total customer satisfaction index 89.1 –

(e) Steps 5 and 6

The survey was carried out as a traditional telephone survey with a sample of
approximately 300. An independent market research bureau called Markeds/Consult
A/S carried out the interviews and the name of the client was not revealed until after the
questions concerning the relative importance of the individual quality characteristics had
been answered. The basic results are shown in Table 20.4.
The weighted ci values are the original satisfaction measures divided by the number of
parameters as well as the weights. The reason for this scaling, which does not affect the
optimality criterion, is that in this case the weighted average of the weighted satisfaction
values will be equal to the arithmetic average of the individual satisfaction values. (Note
that the figures in the table have been slightly changed in relation to the original ones.
This means that it is not possible to calculate backwards in order to obtain the weights!)

(f) Step 7
Both weighted and unweighted satisfaction values are reported. In connection with the
weighted satisfaction values, a rank is given. The lower this rank, the higher the priority
 Fundamentals of total quality management 314
concerning improvements in the area. Remember from the theoretical discussion that in
order to obtain optimal allocation, resources should, in principle, be moved from areas
with high to areas with low weighted satisfaction.
The two indices have different purposes. The unweighted index was communicated to
the individual areas and used for individual inspiration and motivation while the weighted
satisfaction was used by management to allocate resources to the areas. In practice, a total
reallocation is, of course, not possible; instead the numbers show the order in which
quality improvements should be carried out.
In the present case the total CSI is 89.1; a number which will not have much meaning
before some kind of comparison is made possible. This will of course be the case when
sampling is done on a regular basis. The aggregate figure was reported to the top
management of the ISS Group.
Contrary to the aggregate CSI the individual measurements caused immediate action.
The ci values were made public and discussed in detail at a series of meetings where
relevant breakdowns of the material on the segments mentioned previously were
available. Furthermore task forces were created within each area in order to discuss and
suggest quality improvements.
As mentioned the weighted satisfaction values were both communicated to the
individual areas. Instead they were used by the management to pick out areas for
immediate action. It was decided that the repair area should be improved. Not just
through the created task forces but also through an increase in resources, due to the
obvious importance of this area. Furthermore, it was decided to start up an information
programme in order to improve product knowledge and to improve product
documentation.

20.4.2 DOCUMENTATION OF THE ISS IMPROVEMENT CIRCLE

As reported, the whole idea behind the new measurement system was to create a system
of early warning within the ISS Group. It was expected that improved employee
satisfaction would lead to improved customer satisfaction which again would lead to
improved profit before tax.
Due to this it was of great interest to study whether this hypothesis could be
documented in practice. First of all the entire system rested upon this assumption
and furthermore it would be of great internal value when promoting the ideas within
the Group.
An indicator of the relationship has been established at ISS Servisystem in Denmark,
where employee satisfaction and customer satisfaction have been measured on a regular
basis for some years now. In order to verify the hypothesis of the improvement circle,
employee satisfaction and customer satisfaction were measured for 19 different districts
in 1993. The results were measured on a traditional five-point scale and the employee
satisfaction index and the customer satisfaction index were both computed as weighted
averages of the individual parameters. The results are shown in Figure 20.4.
These interesting figures show a clear linear relationship between employee
satisfaction and customer satisfaction. The higher the employee satisfaction, the higher
the customer satisfaction. The equation of the relationship is as follows:
 International service system A/S case studies: the winning hand 315

CSI=0.75+0.89 ESI R2=0.85 (20.4)

Fig. 20.4 Relationship between ESI and CSI at

ISS Servisystem.

The coefficients of the equation are highly significant. Furthermore we cannot reject a
hypothesis that the slope is equal to 1.
It appears from this that a unit change in employee satisfaction more or less gives the
same change in customer satisfaction. One cannot of course just from these figures claim
that this is a causal relationship but, combined with other information, ISS believes that
this is strong evidence for the existence of an improvement circle like the one described
previously. To ISS, therefore, creation of a measurement system along the lines given in
Figure 20.1 is necessary.
Only in this way will management be able to lead ISS upstream and thus prevent the
disasters that inevitably follow the fire-fighting of short-term management.

20.5 CONCLUSION

The quality process at ISS is now well under way. In some areas it may even be
concluded that the level is an example of genuine European excellence. The way, e.g. that
ISS has tackled the problem of measurement by combining well documented theoretical
results with true practical sense in a continuous improvement process should be an
example for other European companies.
The fact that ISS today lives quality can be seen from, e.g. the annual report for 1994.
In this it stated:

Total Quality Management and Certification under ISO 9000 are just two
of a number of quality-related concepts which have become household
words in all ISS contexts. The trend is clear: continuous quality
 Fundamentals of total quality management 316
improvements have become a business prerequisite—not just for ISS but
also for its customers. ISS gives high priority to quality, and many of the
Group’s activities now incorporate new systems which document quality.

Later on in the report under the heading of the creation of competitive advantages
it stated:

Quality: With the setting up of ISS Quality Institute and the Groupwide
implementation of TQM-programmes, ISS has responded to the market’s
demands for continuous quality improvements. The pivotal element is
training and education for all staff categories. Quality management is
based upon regular measurements of satisfaction among customers and
employees. The aim is to optimize customer satisfaction by an unfailing
ability to meet or, even better, surpass their expectations of the services
delivered.

It appears that quality and TQM are not buzz-words at ISS. They have simply become
part of excellent management. Furthermore, in the future, quality and TQM will serve as
the background for development of new business ideas. ISS is on the way to becoming
a mature TQM company in which the basic idea is management by return on investment
in prevention.
 APPENDIX A

Fig. 20.A.1 The ISS Group (including ESGO).

Table 20. A. 1 Financial overview of ISS
1992 1993 1994 1994 (US
(kroner) (kroner) (kroner) dollar)
Consolidated turnover 1 1 356.0 13307.0 14232.5 2339.7
Staff costs (8326.5) (9994.5) (10805.9) (1776.4)
Cost of goods sold (783.6) (875.2) (873.3) (143.6)
Other operating costs (1379.0) (1460.7) (1621.3) (266.5)
Depreciation (329.9) (343.7) (298.8) (49.1)
Operating costs (10819.0) (12674.1) (13599.3) (2235.6)
Operating profit 537.0 632.9 633.2 104.1
Amortization of goodwill (60.7) (84.2) (101.8) (16.8)
Interest receivable and similar income 77.5 61.4 44.3 7.3
Interest payable and similar charges (180.0) (186.4) (155.2) (25.5)
Interest receivable/(payable), net Profit on (102.5) (125.0) (110.9) (18.2) 69.1
ordinary operations 373.8 423.7 420.5
Other income 35.1 247.8 128.7 21.2
Other expenses (31.9) (78.3) (98.3) (16.2)
Other income/(expenses), net 3.2 169.5 30.4 5.0
Profit before tax 377.0 593.2 450.9 74.1
Tax on profit for the year (105.9) (130.8) (151.6) (24.9)
Consolidated profit 271.1 462.4 299.3 49.2
Minority interests (5.2) (0.7) (10.9) (1.8)
ISS consolidated net profit 265.9 461.7 288.4 47.4
 APPENDIX B

Fig. 20.B.1 Quality of relationships.

Table 20.B.1 Key areas for future work at ISS: customers
From To
Nuisance Customers to satisfy
Break down sales resistance Listen to, meet needs, co-operate
Vendor’s specifications Customer’s specifications
Acceptance of contract losses Concern about contract losses
High-pressure sales talks High quality to sell service
Let customers discover defects and fix them Prevent defects, detect and correct them
Delays On time
Vendor defines what quality is Customer defines what quality is
Pricing for short-term profit Pricing for lowest cost of high quality
Customer complaints sometimes corrected Continuous customer contacts
Employees indifferent towards customers Employees trained in how to satisfy the customer

Table 20.B.2 Key areas for future work at ISS: vendors

From To
Many vendors. Selected for lowest Selective. A few high-quality vendors
prices
Often remote relationship Close, co-operative working relationships
Rare ‘technical’ assistance Advise on specifications and solutions
Some rating of vendors Vendor ‘partnerships’
Try to meet specifications Co-operation to see that specifications are met and work
Inspection Joint ‘early-warning’ systems
Sporadic, businesslike communication Planned dialogue based on measurements and new
direction
 Appendix B 319

Table 20.B.3 Key areas for future work at ISS: employees

From To
Autocratic management Participative management
No criteria for recruitment Selective recruitment
‘People don’t like to work’ People like to work if properly led
Keep employees in the dark Keep them informed
Personal growth is ignored Growth is planned and stimulated through career progression
programmes
Grievances are ignored Grievances are resolved
Suggestions are ignored Suggestions are invited
Errors are accepted Errors are prevented through training
Training is absent or sporadic Training for continuous improvement
Very limited recognition Recognition is emphasized
 Index

Page numbers in bold refer to figures and page numbers appearing in italic refer
to tables.

ABB 223
Absentee days 177
Accountability, improvement 250
Action plans 24
Administration
control charts 114–15
ISS 351
and sales, quality measures 178
Administrative
processes, benchmarking 225
support 29
Affinity
analysis 137–40
KJ method 138
diagram 138–10, 138, 140
idea grouping 139
presentation 139
Allowances, Milliken Denmark A/S 310
America, development of TQM 4
American quality award 24, 68
American Society for Quality Control 215
AMU centres, Milliken Denmark A/S 304–5
Analytical hierarchies 142–57, 143
Annual quality audit 41
ANSI Z-1.15 64
Assessment 73–6, 73
enablers 74, 74
results 74, 74
Attributes, housing market 193
Audit
annual quality 41
quality 213–15
Australia, quality motivation 239
Awards
American Quality 24, 68
Deming Prize 23–4
European Quality 23–4, 31, 66, 68–78, 176–7
Milliken Denmark 293
Malcolm Baldridge 23–1
Milliken Denmark 293
 Index 321
Behaviour, and cultures 266
Benchmarking 24–5, 217–28
act 226, 228
administrative processes 225
carrying through 225–8, 226, 227
check 226, 227–8
collection of data 220–1
competitive
advantages 220
data collection 221
competitor 219, 220, 221
competitor-based 24
data collection 227
definition 218–19
distribution 225
do 226, 227
functional 24
functional/generic 219, 220, 220–1, 221
generic 24
internal 24, 219
disadvantages 219
PDCA circle 226, 228
plan 226
process quality 224
production 225
productivity 221–5, 222
quality 221–5, 222, 224, 338
research and development 225
time 221–5, 222
types of 219–21, 221
Box-Cox theory 197
BS 5750 48, 63–7
BS 6143 215
Business ethics, ISO 9000 64
Business parameters
complaints 6
delivery 6
Japan 5
Korea 5
market price 6
product quality 6
and quality
Australia 6
Denmark 6
Estonia 6
Finland 6
India 6
Japan 6
Korea 6
Sweden 6
Taiwan 6
 Index 322
Taiwan 5
warranty 6
Business Process Re-engineering (BPR) 126

Canada, quality league 7

Canon, and Rank Xerox 217, 220
Capability, definition 103–4
Car assembly 25
Case study, Hamanako Denso 116–25
Causal analysis 115
Cause-and-effect diagrams 298
with addition of cards, see CEDAC
CEDAC 55, 56, 85–6, 90, 120
application 59
example 95
and OET 58, 58
and Pareto diagram 90–6
quality defects 59
Sumitomo Electric 103
Certification
failures, Milliken Denmark A/S 303–4
ISO 9000 65
third party 66
Charming quality 18
Check sheets 86, 87–8, 88
cause data 88
result data 88
Checkpoints 34–6
quality 35
China, quality league 7
Collection of data, benchmarking 220–1
Commitment, implementation 248
Committees, steering 43–4
Common, learning 284, 284
Communication 51
and feedback, employees 170
improvement 250
and motivation 51, 60
Sumitomo Electric 57
Company
barometer, Milliken Denmark A/S 295
character of 273–4, 273
definition 17
morale 252
size, and quality costs 207–8, 208
types of 273
Company-wide quality control, see CWQC
Competence, transferring 84, 84
Competitors 211
analysis, and loyalty 167
benchmarking 219, 220, 221
 Index 323
customer satisfaction 160
Complaints 177
business parameters 6
Complex goods, evaluation 191
Complex products 110
Conditions of employment 171
Consistency 14–15
Constancy of purpose 9
Consultants, ISS 351
Consumers
latent 179–80, 181
manifest 179–80, 181
theory 188–92, 189
Continuous
improvements 213–15
ISO 9000 63
ISS university 336–7
Milliken Denmark A/S 316
and standardization 51
learning 283–4
products 110
Continuous Improvement Cycle 285–6
Continuous Improvement Processes (CIP) 234, 235
Contracts, lowest tender 10
Control
charts 100–9, 101, 107, 108, 109
administration 114–15
application 114
attribute 109–15, 109
c 109–15, 113
M-R 104, 106, 107, 108
np 109–15
p 109–15
process 101
traditional production 114
u 110
variables 104–9
limits 101, 103, 104, 106
calculating 104–6
constructing 112
for means (M) 106
points outside 101–2, 101
for ranges (R) 106
variation inside 101, 102
points 34–6
and costs 36–7
definition 34
Corporate
culture 263–7
climate 265
definition 264–5
heroes 265
 Index 324
network 265
rites and ceremonies 265
values 265
and quality cultures 270–4
Corrective action 12
Costs 36–38, 36
appraisal 36
and control points 36–7
external 37, 37
external failure 36, 203, 204, 308–9
failure 214, 259
inspection 36
inspection/appraisal 203, 204, 308
internal 37, 37
internal failure 36, 203, 204, 308
invisible 37, 37, 206
of poor quality (COPQ) 205
preventive 36, 203, 204
quality 308, 309
quality 37, 37
invisible 214
Milliken Denmark A/S 316–17
total quality, definition 36
visible 37, 37, 206
Creativity, and standardization 60–3
Credit notes, Milliken Denmark A/S 296
Critical analysis, implementation 249
Crosby, 14 steps 11–12
CSA Z299 64
Cultural
change
effect of 288
Rank Xerox 267, 268
network, corporate culture 265
Cultures
atomistic 268, 269
and behaviour 266
changing 271–2
classifying 267–9, 269
concept of 263
corporate 263–4, 264–7
and quality 270–4
cycle 276
Henry Ford 262
management-oriented 266
modifying 262
Nissan Corporation 279
organizational 262–3
power 268, 269
quality, working with 274–7
role 267, 269
 Index 325
stability of 271–2
traditional 262
Current prices 191
Customers
defining 163
dual satisfaction 347
and employee 26–30
evaluation 136
external 17
financial importance 352
focus 223
ISS university 336
identifying 22
internal 17
line of business 352
location 352
loyalty 360
Rank Xerox 154
and satisfaction 155–6, 156
policy, ISS 333
population 168
relevant attributes 163–4
requirements 22
retention 338–9
satisfaction 17, 30, 30, 234
cause-and-effect diagram 137
competitors 160
dual 162, 347
and expected profit 159
index 31–3, 33
ISS 344, 345–50
measuring 32–3
parameters 136, 136, 137
in practice 160–8
questionnaire 160, 164
Rank Xerox Denmark 343
satisfaction index 157
analysis 346
cost of 159
definition 159, 345
flow chart 161
quality map 348–9, 349
sampling 164
segmentation 346–8
and supplier 26
CWQC 20
Japan 21

Data
collection 115
benchmarking 227
 Index 326
on people 93
Decision hierarchy 147
Defects
per unit 34, 177
reducing 116
zero 12
Definitions
benchmarking 218–19
capability 103–4
company 17
control points 34
corporate culture 264–5
customer satisfaction index 159, 345
education 283
production process 100
quality 13–14, 182
circle 84
total quality costs 36
value for money 15–16
Delivery
business parameters 6
ISS 334, 351
university 336
Delivery dates 177
Milliken Denmark A/S 295–6, 296
Deming
14 points 9–11, 25, 26
award 39
circle 92–3
cycle 84, 278–82, 278, 280, 283
see PDCA cycle
expanded 278–82, 278
PDCA cycle 285, 285
prize 23–4, 328–30
evaluation 331–8, 331
Denmark
Milliken 32, 40, 126–7, 290–319
printing industry 207–8, 214
quality control 84–5, 85
quality motivation 239
Rank Xerox 154
real estate 155
Robert Bosch 171, 172
stratification 93
Design review 232
management participation 233
Development and design, quality measures 178
Discounts 310
Distribution, benchmarking 225
Down time, opportunity costs 313
Dual customer satisfaction 162, 347
Education 11, 29
 Index 327
definition 283
employee 12
investment 40
time allocated to 177
and training 237–8, 282–3
Effective, learning 285
EFQM model 69, 328
Electrolux Cleaning Services 223
Employees
character of 274
co-operation 170
communication and feedback 170
conditions of employment 171
conference 175
and customer 26–30
focus groups 169–70
goals 171
involvement 126
job improvement 170
and management 172
participation 26
policies 171
ISS 333–4
rewards 46
safety, Milliken Denmark A/S 294
satisfaction 169, 224, 234
index 31–2, 157
ISS 344
measuring 33–4, 156
Milliken Denmark A/S 296
questionnaire 171, 173, 174
reporting on 173–4
suggestions 45–6, 46
wages 171
work content 170
working conditions 172
Enablers 74, 74, 75
Environment, nature of 273
Environmental policy, Milliken Denmark A/S 293
Error cause removal 12, 298
Milliken Denmark A/S 311–12, 317–18
and suggestion process 299–300
Estonia
quality motivation 239
training hours 237–8
European Model for Total Quality Management 236–7
European Quality Award 23–1, 31, 66, 68–78, 176–7
assessment 76
average scores 76
business results 73
customer satisfaction 72
experiences of 75–7
 Index 328
impact on society 73
leadership 70–1
model for 70–3, 70
people management 71
people satisfaction 73
policy 71
processes 72
resources 71–2
results 72
strategy 71
targets 71
Exceptional concept 14
excellence 14
standards 14
traditional 14
Exciting quality 18
Exhortations, eliminating 11
Expected profit, and customer satisfaction 159
Expected quality 17–18, 27
Expert Choice, software 145
External failure, costs 203, 204

Factor analysis 172

Facts 30–8
Failures
causes 55
classification 55, 58
costs 177, 205, 214, 259
eliminating 132
living with 54
preventing 53
Faulty products, costs of 3
Finland, quality motivation 239
Fishbone diagram 90
Flow charts 125–30
checking 129
constructing 128–9
improving 130
software 127
standardizing 130
symbols 127, 128
Focus groups 169–70
Ford Motor Company 8
Formulas
c chart 111
np chart 111
p chart 110–11
u chart 111–12
France, quality league 7
Functional form, housing market 197
Functional/generic, benchmarking 219, 220, 220–1, 221
 Index 329

Germany, quality league 7

Global service, ISS 323
Goal setting 12
Goals, employees 171
Group-dynamic factor 281

Hamanako Denso 116–25

case study 116–25
regular coil winding 117
Hedonic theory 181, 188–92, 189
and implicit price 190
offer and bid functions 189, 189
Heroes, corporate culture 265
Heterogeneous, users 179–80, 180
Histograms 96–9, 99
constructing 97–9
weakness 99
Homogeneous, users 179–80, 180
Hoshin Kanri, policy deployment 231, 233, 234
Hoshin planning 315
Milliken Denmark A/S 295, 300
Hotels 18–19, 27–8
value-added qualities 27–8
Housing, cash price, calculating 195
Housing market
attributes 193, 193
Denmark 19–200
loans 194, 194
functional form 197
location 193
variables 195–6
price variables 193, 194–5
regression analysis 196–7
sampling 192
sqrt-model 197–200, 198
variables 195
Human
needs, hierarchy 242
quality 33–4, 169
resources, ISS university 336
work, elements of 242, 243

Ideas, generating 132

Identification, implementation 248
Impact on society, ISO 9000 64
Imperfections, dimensions 182
Implementation
act 258–60
check 252–8
commitment 248
 Index 330
critical analysis 249
do 251–2
identification 248
improvement 249
management understanding 248
PDCA model 249
plan 249–50
Implicit price, and hedonic theory 190
Improvements 29
accountability 250
circle, ISS 354–5, 355
communication 250
continuous 25, 38–41, 39, 40, 283
customer relationships 234
developing 39
employee suggestions 39, 40
external 81
implementation 249
internal 81–2
loop 155
ISS 343, 343
priority for 233–4
process-oriented 26
processes 234
products 234
quality 234
quality awareness 250
teams 175
India
quality motivation 239
training hours 237–8
Indifferent quality 27, 28
Industry, hotel 18–19
Information
disseminating 133
exchanging 132
Innovation
ISS university 336–7
Milliken Denmark A/S 306
Inspection 29
dependence on 10
Ford Motor Company 8
opportunity costs 312
Inspection/appraisal, costs 203, 204
Internal
benchmarking 219
failure, costs 203, 204
International Management Course,
ISS 340
International recognition, ISO 9000 64
International Service System A/S, see ISS
Investment
 Index 331
education 40
in machines 39
training 40
Invisible figures 204
Ishikawa diagram 90
ISO 9000 48, 63–7, 126
business ethics 64
certification 65
limitations 66
company culture 63
continuous improvement 63
customer satisfaction 63
impact on society 64
international recognition 64
management accounting 63
problems 67
quality assurance 64
sales and marketing 63
standardization 55–6
technology 63
vision and strategies 63
ISO 9001
Milliken Denmark A/S 303–7
zero-defect 305–6
ISS 156, 321–60
administration 351
America 356
Asia 356
change 325–30
the company 324–5
consultants 351
customer
policy 333
satisfaction 344, 345–50
Darenas A/S 350–4, 353
delivery 334, 351
Denmark 328
employees 358
policy 333–4
satisfaction 344
Europe 356
expectations 327
finance 356
financial overview 357
five-star programme 337
future work 358
global service 323
improvement
circle 354–5, 355
loop 343, 343
International Management Course 340
key accounts 323
 Index 332
management 328–31
development 339–40
education 330–1
principles 323–4
Mediclean 322
middle-management 340
new markets 323
New York 347
problem areas 332
products 351
profit before tax 344
quality
goals 333
institute 337–9
of relationships 357
standard index 343–4
relationships 327
repair 351
Sales Academy 340–1
Scandinavia 327–8, 356
self-evaluation 328–9
service development 339
Servisystem 355
team planning 339
turnover 324–5
university 335–7, 356
aims 336
continuous improvement 336–7
customer focus 336
delivery 336
hotel 341
human resources 336
innovation 336–7
organization and management 336
results 336
vendors 358
winning hand 326
Italy, quality league 7

Japan
business parameters 5
CWQC 21
leadership 41–2, 42
quality
control 85–6, 85
circles 244–5, 244
league 7
motivation 238–40
stratification 93
training hours 237–8
 Index 333
Job improvement, employees 170
Job rotation 245
and quality control circles 245, 245
Joharry
new window 51–60, 52, 53
standardization 51–60, 52
Johnsonville Sausage 281–2
management style 281
Joint score 76
Juran, 10 steps 11

KAIZEN, Milliken Denmark A/S 306

Key accounts, ISS 323
Key issues, systems 50, 50
Korea
business parameters 5
quality control circles 244–5, 244
quality motivation 238–40, 244–6, 244

Labour relations, SDL Company 255

Latent, consumers 179–80, 180
Leadership 10, 21–6, 21, 29
act phase 233
check phase 232–3
do phase 234
in Japan 41–2, 42
low quality 153, 342
PDCA model 231–4, 232
and quality motivation 234–46
short-term 153, 342
for suggestions, Milliken Denmark A/S 301–2
Learning
common 284, 284
continuous 283–4
effective 285
feedback 282
outcomes 286
plan 286–7
quality 282–7, 285–6
Line of business, customers 352
Location
customers 352
housing market 193
variables, housing market 195–6
Loyalty
and competitor analysis 167
customers 155–6, 156, 352
points 165–6, 166, 349–50
 Index 334
Machines
investment 39
quality control 94
Malcolm Baldridge Quality Award 23–4
Management
bad 236
by facts 32
commitment 11, 12, 26
costs 202–3
development, ISS 339–40
education, ISS 330–1
and employees 171
and organization 172
principles, ISS 323–4
quality control 94
style
changing 261
Johnsonville Sausage 281
understanding, implementation 248
Managers, role of 236
Manifest, consumers 179–80, 180
Manpower, quality control 94
Market
development, Milliken Denmark A/S 291–2
equilibrium 189
price, business parameters 6
research 353
share movement 203
Marketing
matrix diagrams 140
promises 204
Materials, quality control 94
Matrix
constructing 141
data analysis 133–7, 134, 134, 136
example 135–6
principal components 135
principal components, calculating of 135
technique 134
diagrams 140–2, 141
bakery 142
distribution of jobs 150
marketing 140
organizational 140
product development 140
forms 141
Measurement
models 341–50
and quality 179–81, 342–3, 342
Methods, quality control 94
Mexico, quality league 7
Middle-management, ISS 340
 Index 335
Milieu, quality control 94
Milliken Denmark A/S 31, 40, 126–7, 290–319
allowances 310
AMU centres 304–5
certification failures 303–4
company barometer 295
continuous improvements 316
cost of quality 316–17
credit notes 296
delivery dates 295–6, 296
discounts 310
employee
safety 294
satisfaction 296
environmental policy 293
error cause removal 298, 311–12, 316–17
European quality award 307
Hoshin planning 295, 300
innovation 306
ISO 9001 303–7
KAIZEN 306
leadership for suggestions 301–2
market development 291–2
mat service 291–2, 291
new employees 301
new index 313–15
objectives 292–4
Opportunity for Improvement 298, 302–3
organization 290–1
PDCA cycle 307
personnel education 304
potential 291–2
process employee 306–7
process owner 306–7
quality costs 308–17
quality policy 293
rental market 291–2
retail market 292
returns 310
reward system 302, 302
reworks 310
safety policy 293
standardization 306
suggestions
received 300–2, 301
system 299–303
team registration 297–8, 297
Milliken Europe 69
Mission 50, 50
Motivation 29
and communication 51, 60
theories 240–8
 Index 336
Motorola 34–5, 115
Multidimensional scaling (MDS) 183–4, 183
external 187
software 183
Must-be quality 17–18, 27

Net profit, per employee 223

New markets, ISS 323
New products, pricing 191
New window, Joharry 51–60, 52, 53
New York, ISS 347
Nissan Corporation 279
culture 279
Number of employees, and profit 208–9, 209

OET, and CEDAC 58, 58

Offer and bid functions, hedonic theory 189, 189
Opportunity costs 312–13, 314, 318
down time 313
inspection 312
quality adjusters 313
quality discounts 312
returns and allowances 313
reworks 312
waste 313
write downs 313
Opportunity for improvements 37, 44
Milliken Denmark A/S 298, 302–3
Organization
and management 172
ISS university 336
Milliken Denmark A/S 290–1
parallel quality 42–4, 43
team-oriented 44, 44
Organizational
cultures 262–3
matrix diagrams 140
theory, and corporate culture 263–4
OVPA cycle 276–7, 279

Parallel quality organization 42–4, 43

Pareto analysis 298
Pareto diagram 86, 88–90, 88, 89, 119, 315
and CEDAC 90–6
preventive method 92
ranking 88–9, 88
types of error 89
PDCA circle, benchmarking 226, 227
PDCA cycle 83, 87, 130, 237, 279
check phase 87
do phase 87
 Index 337
Milliken Denmark A/S 307
plan phase 87
and tools 130
Perfection 14–15
Personnel turnover 177
Philosophy
new 9
TQM 9
Plan, do, check, act see PDCA
Policies, employees 171
Potential market, sampling 352
Price
changes, over time 199
and quality 190
research 192
variables 194–5
housing market 193, 194–5
Prioritization 143
final hierarchy 150
matrices 142–57, 143
theory 143–8
sports club 148–51
Problem-solving 82–3
Process control 29
improving 252
Process employee, Milliken Denmark A/S 306–7
Process owner, Milliken Denmark A/S 306–7
Production
benchmarking 225
process, definition 100
quality measures 177–8
scheduling, SDL Company 255
Productivity
benchmarking 221–5, 222
improving 256
Products
development 232
matrix diagrams 140
differentiated 188–9
ISS 351
quality, business parameters 6
Profit, and number of employees 208–9, 209
Profit before tax, ISS 344
Profits, declining 204
Proportional quality 17–18, 27, 28
Purchasing, quality measures 177
Purpose, fitness for 15
Pyramid
principle 252
TQM 20–2, 21, 69, 233
 Index 338
QED project 30
QED study, training 237
Quality
adjusters, opportunity costs 313
assurance 8, 9, 279
audit 22, 23, 213–15
annual 38, 68
management participation 233
total 232
awareness 12
improvement 250
benchmarking 221–5, 222, 338
campaigns 244, 246
charming 18
checkpoints 35, 176
circles 4, 54, 55, 56
definition 84
composite 190
consciousness 275
control 8
circles, Japan 244–5, 244
circles, and job rotation 245, 245
circles, Korea 244–5, 244
circles, Taiwan 244–5, 244
Denmark 84–5, 85
education 82
industrial products 94
Japan 85–6, 85
point 176
point definition 34
South Korea 85–6, 85
story 82–3
tools of 83–7
cost thermometer 310–12, 311
costs 12, 36–8, 210, 210
and company size 207–8, 208
definition 204–5
estimating 206–11, 208, 209, 210, 211–13, 211
measurement 213–15
Milliken Denmark A/S 308–18
preventive 202
councils 12
definition 182
dimensions 181–2
latent 184, 184
effort, rule 160
exciting 18
expectation 236
expected 17–18, 27
goals 22
ISS 333
human 33–4, 169
 Index 339
improvements 3, 12, 234
external 38, 39
internal 38, 39
suggestions 177
improving 94
index 190
indifferent 27, 28
inspection 8
institute, ISS 337–9
internal indicators 154, 156
league
Canada 7
China 7
France 7
Germany 7
Italy 7
Japan 7
Mexico 7
Russia 7
Spain 7
Taiwan 7
UK 7
USA 7
learning 282–7, 285–6
maps 164–5, 165, 185
and costs 166, 166
customer satisfaction index 348–9, 349
measurement 31, 31, 179–81, 315–16, 338
checkpoints 31, 34–6
control points 31, 34–6
direct 180–1, 181–7
indirect 180–1, 187–200
measures
administration and sales 178
development and design 178
production 177–8
purchasing 177
measuring 154
traditional 154
motivation
Australia 239
Denmark 239
Estonia 239
Finland 239
India 239
Japan 238–40, 239, 243–6, 243, 244
Korea 238–40, 239, 244–6, 244
and leadership 234–46
suggestions for improvement 238–40, 239
Sweden 239
Taiwan 238–40, 239, 244–6, 244
 Index 340
must-be 17–18, 27
one dimensional 28
policy 22
Milliken Denmark A/S 293
and price 190
problem root causes 91
proportional 17–18, 27, 28
reverse 27, 28
standard, ISS 344
subjective 181–7
suggestions
Australia 241
Denmark 241
Estonia 241
Finland 241
India 241
Japan 241
Korea 241
Sweden 241
Taiwan 241
training 337
transformative 16
value-added 17–18, 27
variations 100
random causes 100
system causes 100
Questionnaire
constructing 352
customer satisfaction 160
designing 170–2

Rank Xerox 69, 217, 220

and Canon 217, 220
cultural change 267, 268
Real estate 191
Recognition 12
Regression analysis, housing market 194–5
Renault 68
Rental market, Milliken Denmark A/S 291–2
Repair, ISS 351
Research and development, bench-marking 225
Responsibility, transferring 84, 84
Results
ISS university 336
ordinary trading 206–7
scores 75
Retail market, Milliken Denmark A/S 292
Returns
and allowances, opportunity costs 313
Milliken Denmark A/S 310
 Index 341
Reverse, quality 27, 28
Reworks
Milliken Denmark A/S 310
opportunity costs 312
Rites and ceremonies, corporate culture 265
Robert Bosch, Denmark 171, 172
Russia, quality league 7

Saathy scale 146, 147

Safety policy, Milliken Denmark A/S 293
Sales Academy, ISS 340–1
Sales points 165–6
Sampling frame 168
SAS, software 135
Satisfaction
customers 155–6, 156
values
unweighted 353
weighted 353
Scandinavia Airlines Systems 271
Scatter diagrams 115–16, 121
Schein, levels of culture 265–6, 265
SDL Company 249–51
clocking-in 256–7
contracts-drawing office 253–4
cultural change 259
external manufacture 256
Haverhill works 257–8
improvement initiatives 259
inspection 256
labour relations 255
Mitcham works 255–7
PDCA cycle, act 258–60
production scheduling 255
site operations 254–5
supplier (TNM) 256–7
Self-evaluation, ISS 328–9
Service
development, ISS 339
management 26
Software
Expert Choice 145
multidimensional scaling (MDS) 183
SAS 135
SPSS 135
Systat 135
South Korea, quality control 85–6, 85
Spain, quality league 7
SPSS, software 135
Sqrt-model, housing market 197–200, 197
Stages in TQM 10
 Index 342
Standardization
for beginners 62–3
constraints 61–2
and continuous improvement 51
and creativity 60–3
East and West 60
for experienced workers 63
factory floor 60, 61
ISO 9000 55–6
means and method 61–2
Milliken Denmark A/S 306
objectives 61–2
Standards, exceptional concept 14
Statistical
process control 4, 11
quality control 8
Strategy 50, 50
Stratification 85, 93
Denmark 93
Japan 93
and scatter diagrams 115–16
Subcultures 268
Substitution, marginal rates of 190
Suggestion process, and error cause removal 299–300
Suggestions received, Milliken Denmark A/S 300–2, 301
Sumitomo Electric 39, 52, 54, 57
CEDAC 103
communication 57
Supplier
control 29
and customer 26, 279, 280
Supply and demand 270–1, 271
Surveys 172–3
Sweden, quality motivation 239
Swedish Institute for Quality 69
SWOT analysis 167–8, 167
Systat, software 135
Systems
key issues 50, 50
mission 50, 50
origin 48
strategy 50, 50
synergy 48
values 50, 50
vision 49–50, 50

Taiwan
business parameters 5
quality control circles 244–5, 244
quality league 7
quality motivation 238–40, 244–6, 244
 Index 343
Targets, eliminating 11
Team planning, ISS 339
Team registration, Milliken Denmark A/S 297–8, 297
Technology 29
ISO 9000 63
Time, benchmarking 221–5, 222
Tools 42
and PDCA cycle 130
training in use of 86
Total quality audit 232
Tradition, break with 25
Traditional
exceptional concept 14
production, control charts 114
Training
and education 237–8, 282–3
employees 42
hours per year 237
investment 40
on job 10, 127
job-oriented 45
Transformation 16
empowerment 16
qualitative 16

UK, quality league 7

Unfiltered expression 133
USA, quality league 7
Users
heterogeneous 179–80, 180
homogeneous 179–80, 180
Utility maximization 189

Value added 16
per employee 213
quality 17–18, 27
Value chains 51
Value for money 15–16
definition 15–16
Values
corporate culture 265
systems 50, 50
Verbal information, processing 132
Vision 49–50, 50

Wages, employees 171

Walt Disney
Corporation 19, 28–9
World Report 19
 Index 344
Warranty, business parameters 6
Waste
opportunity costs 313
reducing 252
rubber 319
Work content, employees 170
Work teams 41
Working conditions, employees 171
Workmanship, pride in 11
Write downs, opportunity costs 313