Module IV

STRATEGIC MANAGEMENT

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Organizational
Structure and Controls

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Organizational Structure
Organizational structure specifies the firm’s formal reporting relationships, procedures,
controls, and authority and decision-making processes
It is critical to match organizational structure to the firm’s strategy

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Stability and Flexibility in
Structure
Structural stability provides the capacity
◦ required to consistently and predictably manage the firm’s daily work routines

Structural flexibility provides the opportunity to

◦ explore competitive possibilities
◦ allocate resources to activities that shape competitive advantages needed by the firm

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Organizational Controls
Organizational controls
◦ guide the use of strategy
◦ indicate how to compare actual results with expected results
◦ suggest corrective actions to take when the difference between actual and expected results is
unacceptable

Two types of organizational controls

◦ strategic controls
◦ financial controls

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Organizational Controls:
Strategic Controls
Concerned with examining the fit between
Strategic Controls ◦ what the firm might do (as suggested by opportunities
in its external environment)
◦ what it can do (as indicated by its competitive
advantages)

Used to evaluate the degree to which the firm

focuses on the requirements to implement its
strategies

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Organizational Controls:
Financial Controls
Strategic Controls ● Objective criteria
● Accounting-based measures
Financial Controls include
– return on investment
– return on assets

● Market-based measures include

– economic value added

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Matching Control to Strategy
Relative use of controls varies by type of strategy
◦ large diversified firms using the cost leadership strategy emphasize financial controls
◦ companies and business units using the differentiation strategy emphasize strategic controls

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Evolutionary Patterns of Strategy and
Organizational Structure
Firms grow in predictable patterns
◦ by volume
◦ by geography
◦ integration (vertical, horizontal)
◦ through product/business diversification

A firm’s growth patterns determine its structural form

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Evolutionary Patterns of Strategy and
Organizational Structure
All organizations require some form of organizational structure to implement and manage their
strategies
Firms frequently alter their structure as they grow in size and complexity
Three basic structure types:
◦ simple structure
◦ functional structure
◦ multi-divisional structure (M-form)

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Strategy and Structure Growth
Pattern:
Simple Structure
Simple
Structure

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Strategy and Structure Growth Pattern:
Simple Structure
Organizational form in which the owner-manager
◦ makes all major decisions directly
◦ monitors all activities
Staff
◦ serves as an extension of the manager’s supervisory authority
Matched with focus strategies and business-level strategies
◦ commonly compete by offering a single product line in a single geographic market

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Strategy and Structure Growth Pattern
Simple Structure
Growth creates
◦ complexity
◦ managerial and structural challenges
Owner-managers
◦ commonly lack organizational skills and experience
◦ become ineffective in managing the specialized and complex tasks involved with multiple organizational
functions

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Strategy and Structure Growth Pattern
Functional Structure
Simple
Structure

Efficient implementation of
formulated strategy

Sales Growth-
Coordination and
Control Problems

Functional
Structure

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Strategy and Structure Growth Pattern
Functional Structure
Chief Executive Officer (CEO)
◦ limited corporate staff
Functional line managers in dominant organizational areas
◦ production – accounting
◦ marketing – R&D
◦ engineering – human resources
Supports use of business-level strategies and some corporate-level
strategies
◦ single or dominant business with low levels of diversification

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Strategy and Structure Growth Pattern
Functional Structure
Differences in orientation among organizational functions can
◦ impede communication and coordination
◦ increase the need for CEO to integrate decisions and actions of business functions
◦ facilitate career paths and professional development in specialized functional areas
◦ cause functional-area managers to focus on local versus overall company strategic issues

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Strategy and Structure Growth Pattern
Multidivisional Structure
Strategic control
◦ operating divisions
◦ each division is separate business or profit center
Top corporate officer delegates responsibilities to division managers
◦ for day-to-day operations
◦ for business-unit strategy
Appropriate when the firm grows through diversification

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Strategy and Structure Growth Pattern
Multidivisional Structure
Three major benefits
◦ corporate officers able to more accurately monitor the performance of each
business, which simplifies the problem of control
◦ facilitates comparisons between divisions, which improves the resource
allocation process
◦ stimulates managers of poorly performing divisions to look for ways of improving
performance

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Strategy and Structure Growth
Pattern:
Multidivisional Structure
Simple
Structure

Efficient implementation of
formulated strategy

Multidivisional
Sales Growth- Structure
Coordination and
Control Problems

Efficient
implementation of Sales Growth-
Functional formulated strategy Coordination and
Structure
Control Problems

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Matching Structure and Strategy
Different forms of the functional organizational structure are matched to
◦ cost leadership strategy
◦ differentiation strategy
◦ integrated cost leadership/differentiation strategy

differences in these forms seen in three important structural

characteristics
◦ specialization
◦ centralization
◦ formalization

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Structure for Cost Leadership Strategy
• Operations is main function Office of the President

• Process engineering is
emphasized over R&D
• Large centralized staff Centralized Staff
• Formalized procedures
• Structure is mechanical, job
roles highly structured
Engineering Operations Accounting

Marketing Personnel
DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY
Structure for Differentiation Strategy
President and
Limited Staff

R&D Marketing

New Product Marketing Finance

R&D

Operations Human
Resources

• Marketing is the main function for tracking new product ideas

• New product R&D is emphasized
• Most functions are decentralized
• Formalization is limited to foster change and promote new ideas
DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY
Multidivisional Structure
Each division is operated as a separate business
Appropriate for related-diversified businesses
Key task of corporate managers is exploiting synergies among divisions
Managers use a combination of strategic controls and financial controls

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Multidivisional Structure
Managers try to strike a balance between:
◦ competing among divisions for scarce capital resources
◦ creating opportunities for cooperation to develop synergies

The goal is to maximize overall firm performance

The decision-making of managers in a multi-divisional structure may be:
◦ centralized or decentralized
◦ bureaucratic or non-bureaucratic

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Multidivisional Structure
Balance on these dimensions may change over time
Structure will evolve over time with:
◦ changes in strategy
◦ degree of diversification
◦ geographic scope
◦ nature of competition

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Three Variations of the Multidivisional
Structure
Multidivisional
Structure
(M-form)

Cooperative Competitive
Form Form

Strategic Business-Unit
(SBU) Form

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Cooperative Form of Multidivisional Structure
Related-Constrained Strategy
Headquarters Office
President

Government Legal
Affairs Affairs

Corporate
Corporate Strategic Corporate Corporate
Human
R&D Lab Planning Marketing Finance
Resources

Product Product Product Product Product

Division Division Division Division Division
DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY
Cooperative Form of Multidivisional Structure:
Related-Constrained Strategy
Structural integration devices create tight links among all divisions
Corporate office emphasizes centralized strategic planning, human resources,
and marketing to foster cooperation between divisions
R&D is likely to be centralized
Rewards are subjective and tend to emphasize overall corporate performance,
in addition to divisional performance
Culture emphasizes cooperative sharing

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

SBU Form of Multidivisional Structure
Related-Linked Strategy
Headquarters Office
President

Corporate Strategic Corporate Corporate Corporate

R&D Lab Planning HRM Marketing Finance

SBU SBU SBU

Division Division Division Division Division Division

Division Division Division

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY
SBU Form of Multidivisional Structure
Related-Linked Strategy
Structural integration devices create tight links among all divisions
Corporate office emphasizes centralized strategic planning, human resources,
and marketing to foster cooperation between divisions
R&D is likely to be centralized
Rewards are subjective and tend to emphasize overall corporate performance,
in addition to divisional performance
Culture emphasizes cooperative sharing

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Competitive Form of Multidivisional Structure
Unrelated Diversification Strategy
Headquarters Office
President

Legal
Finance Auditing
Affairs

Division Division Division Division Division Division

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Competitive Form of Multidivisional Structure
Unrelated Diversification Strategy
Corporate headquarters has a small staff
Finance and auditing are the most prominent functions in the headquarters to
manage cash flow and ensure the accuracy of performance data coming from
divisions
The legal affairs function becomes important when the firm acquires or divests
assets
Divisions are independent and separate for financial evaluation purposes
Divisions retain strategic control, but cash is managed by the corporate office
Divisions compete for corporate resources

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Multidivisional Structure: Other Points
Complex multi-divisional structure firms may be simultaneously
◦ centralized and decentralized
◦ depending upon the various business-level strategies employed throughout the firm’s individual
businesses

Multi-divisional structure firms use a combination of:

◦ strategic controls
◦ financial controls

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Characteristics of Various Structural Forms
Structural Cooperative SBU Competitive
Characteristics M-Form M-Form M-Form

Type of Related- Related- Unrelated

Strategy Constrained Linked Diversification

Degree of Centralized at Partially Decentralized

Centralization Corporate Office Centralized to Divisions
in SBUs

Use of
Integrating Extensive Moderate Nonexistent
Mechanisms

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Characteristics of Various Structural Forms
Structural Cooperative SBU Competitive
Characteristics M-Form M-Form M-Form

Divisional Subjective Strategic & Objective

Performance Strategic Financial Financial
Appraisal Criteria Criteria Criteria

Divisional Linked to Linked to Linked to

Incentive Corporate Corporate Divisional
Compensation Performance SBU & Division Performance
Performance

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Worldwide Geographic Area Structure
Multidomestic Strategy
• product characteristics
United tailored to local preferences
Asia
States • isolation from global
competitiion
– establish protected market
positions
Multination –compete in industry
Latin al segments most affected by
Europe differences among local
America Headquarter
s countries

Middle
Australi
East/
a
Africa

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Worldwide Product Divisional Structure
Global Strategy
World World
wide wide • standardized products across
Produc Produc countries
ts ts • economies of scope and
Divisio Divisio scale
n n • outsource some primary or
World World support activities to the
wide Global wide world’s best providers
Produc Corporate Produc • decision-making authority
ts Headquarter ts centralized in worldwide
Divisio s Divisio division headquarters
n n
World World
wide wide
Produc Produc
ts ts
Divisio Divisio
n n
DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY
Using the Combination Structure
Transnational
Strategy
The combination structure has characteristics and mechanisms that result in an emphasis on
both geographic and product structures
◦ local responsiveness (multidomestic strategy)
◦ global efficiency (global strategy)

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Strategic Network
A strategic network is a grouping of organizations that has been formed to create
value through participation in an array of cooperative arrangements, such as
alliances and joint ventures
The strategic network seeks to develop a competitive advantage in primary or
support activities
A strategic center firm often manages the network

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Strategic Network
strategic center firm engages in four primary tasks

– strategic outsourcing (outsources and partners with more firms than do other
network members)
– competencies (supports each member’s efforts to develop core competencies
that can benefit the network)

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Strategic Network
strategic center firm engages in four primary tasks

– technology (manages the development and sharing of technology-based ideas

among network members)
– race to learn (guides participants in efforts to form network-specific competitive
advantages)

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Strategic Network

Strategic
Center
Firm

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Distributed Strategic Network
International cooperative strategies often require more complex networks
Many large multinational firms form distributed strategic networks with multiple
regional strategic centers to manage their array of cooperative arrangements with
partner firms
Breaking large networks into multiple manageably-sized networks helps to manage
the complexity of maintaining many relationships

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Distributed Strategic Network

Main
Strategic
Strategic
Center
Center
Firm
Firm

= Distributed Strategic Center Firms

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY
Strategic Leadership

DR. BHUMIKA ACHHNANI, FMS, MARWADI

UNIVERSITY
Strategic Leadership
Strategic leadership involves:
◦ the ability to anticipate, envision, maintain flexibility and empower others to create strategic change
◦ multi-functional work that involves working through others
◦ consideration of the entire enterprise rather than just a sub-unit
◦ a managerial frame of reference

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Strategic Leadership and the Strategic
Management Process
Effective Strategic
Leadership

shapes the formulation of

Strategic Intent Strategic Mission

and
influence

Successful
Strategic Actions

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Strategic Leadership and the Strategic
Management Process
Successful
Strategic Actions

Formulation Implementation
of Strategies of Strategies
yields

Strategic
Competitiveness
Above-Average Returns
DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY
Factors Affecting Managerial
Discretion
External Environment
External Environment
• Industry structure
• Rate of market growth
• Number and type of
competitors
• Nature and degree of
political/legal constraints
• Degree to which products
can be differentiated

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Factors Affecting Managerial
Discretion
External Environment
Characteristics of the
Organization
• Size
Characteristics of the
Organization • Age
• Culture
• Availability of resources
• Patterns of interaction
among employees

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Factors Affecting Managerial
Discretion
External Environment
Characteristics of the
Manager
• Tolerance for ambiguity
Characteristics of the
Organization • Commitment to the firm
and its desired strategic
Characteristics of the outcomes
Manager
• Interpersonal skills
• Aspiration level
• Degree of self-confidence
Managerial
Discretion

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Top Management Teams
The top management team is composed of key managers who are responsible for
◦ formulating and
◦ implementing
◦ the organization’s strategies

A heterogeneous top management team with varied expertise and knowledge can
draw on multiple perspectives when evaluating alternative strategies and building
consensus

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Top Management Teams
A top management team must also be able to function effectively as a team in order to
implement strategies
◦ a heterogeneous team makes this more difficult
◦ a heterogeneous team, however, is associated positively with innovation and strategic change

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Strategic Leadership
Chief executive officers can gain so much power that they are virtually independent of oversight
by the board of directors
This is especially true when the CEO is also chairman of the board of directors
CEOs of long tenure can also wield substantial power
The most effective forms of governance share power and influence among the CEO and board of
directors

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Managerial Labor Markets
The internal labor market is comprised of the career path alternatives available to a
firm’s managers
Selecting internal candidates for management positions helps to build on valuable
firm-specific knowledge

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Managerial Labor Markets
The external labor market includes the collection of career opportunities for managers
outside their firm
Selecting an outsider often brings fresh insights and may energize the firm with
innovative new ideas

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Managerial Labor Markets
Managerial Labor Market:
CEO Succession

Internal CEO External CEO

succession succession

Ambiguous:
Homogeneous Stable possible change in
strategy top management
team and strategy
Top Management
Team Composition

Heterogeneous Stable strategy Strategic

with innovation change

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Exercise of Effective Strategic
Leadership
Determining
Establishing strategic Exploiting and
balanced direction maintaining
organizational core
controls competencies

Effective Strategic
Leadership

Emphasizing Developing
ethical Sustaining human
practice an effective capital
organizational
culture
DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY
Determining Strategic Direction
Strategic direction means the development of a long-term vision of a firm’s strategic
intent
A charismatic leader can help achieve strategic intent
It is important not to lose sight of the strengths of the organization when making
changes required by a new strategic direction
Executives must structure the firm effectively to help achieve the vision

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Exploiting and Maintaining Core
Competencies
Core competencies are resources and capabilities that serve as a source of competitive
advantage for a firm over its rivals
Strategic leaders must verify that the firm’s competencies are emphasized in strategy
implementation efforts

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Exploiting and Maintaining Core
Competencies
In many large firms, and certainly in related-diversified ones, core competencies are exploited
effectively when they are developed and applied across different organizational units
Core competencies cannot be developed or exploited effectively without developing the
capabilities of human capital

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Developing Human Capital
Human capital refers to the knowledge and skills of the firm’s entire workforce
Employees are viewed as a capital resource that requires investment
No strategy can be effective unless the firm is able to develop and retain good
people to carry it out
The effective development and management of the firm’s human capital may be the
primary determinant of a firm’s ability to formulate and implement strategies
successfully

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Sustaining an Effective Organizational
Culture
An organizational culture consists of a complex set of ideologies, symbols, and core values that
is shared throughout the firm and influences the way it conducts business
Shaping the firm’s culture is a central task of effective strategic leadership

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Sustaining an Effective Organizational
Culture
An appropriate organizational culture encourages the development of an entrepreneurial
orientation among employees and an ability to change the culture as necessary
Reengineering can facilitate this process

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Sustaining an Effective Organizational
Culture
Changing Culture and Business Reengineering

● The benefits of business reengineering are

maximized when employees believe that:
– every job in the company is essential and important
– all employees must create value through their work

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Sustaining an Effective Organizational
Culture
Changing Culture and Business Reengineering

● Constant learning is a vital part of every person’s job

● Teamwork is essential to successful implementation
● Problems are solved only when teams accept the
responsibility for the solution

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Emphasizing Ethical Practices
Ethical practices increase the effectiveness of strategy implementation processes
Ethical companies encourage and enable people at all organizational levels to exercise ethical
judgment

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Emphasizing Ethical Practices
To properly influence employee judgment and behavior, ethical practices must shape the firm’s
decision-making process and be an integral part of an organization’s culture
Leaders set the tone for creating an environment of mutual respect, honesty and ethical
practices among employees

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Total Quality
Management

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

TQM: The Total Definition
Total quality management is a management strategy focused on the continual improvement of
business processes with maximum customer satisfaction as the overarching goal.
Unlike other strategies that are exclusive to top management, the participation of every
employee is crucial to the successful deployment of TQM effort.
TQM is a management philosophy that seeks to integrate all organizational functions
(marketing, finance, design, engineering, and production, customer service, etc.) to focus on
meeting customer needs and organizational objectives.

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

TQM: Genesis and Evolution
Armand Feigenbaum classified the costs of quality into four: prevention costs, appraisal costs,
internal failure costs, and external failure costs. He also pioneered the philosophy of involving
everyone in the quality process.

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Benefits of TQM
Reduction in Production Cost
Whenever a TQM strategy is implemented, it makes processes more efficient and effective.
Efficiency shaves off excess cost in the aspect of field warranty, field service, and rework.
Reduction of cost can help companies optimize revenue because these reduced costs flow
directly into net profit.
Finally, TQM places a strong emphasis on quality improvement, reducing the need to employ or
hire an expensive team of quality assurance personnel to detect errors.

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Benefits of TQM
Higher Productivity
Improved systems are one of the benefits of TQM. Workers don’t have to spend time detecting
and correcting errors. They can instead focus on their jobs which improves their overall output.
In addition, one of TQM’s core principles focuses on improving systems, which could include
providing conducive working environments. Doing this will boost workers’ morale. Their job
performance will go up and turnover rates will drop too.

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Benefits of TQM
Improved Customer Satisfaction and Retention
If you offer a good product to your customers and it satisfies their needs, they will come back to
buy again and again.
Customer satisfaction makes it easier to:
Retain customers
Increase your customers’ lifetime value, and ultimately
Boost your company’s bottom line in the long run
Besides, your company’s insistence on creating error-free products leads to fewer customer
complaints and refunds. This means you get tosave resources that would have been spent on
customer service.

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Benefits of TQM
High Employee Morale and Higher Employee Engagement
The proven success of TQM, especially the contribution of workers to that success, can motivate
them to do more.
And since the focus of TQM is to engage every employee, workers feel more like they belong
and that they are a part of something biggeThis can be very satisfying for many employees.

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Benefits of TQM
More efficient information & process management
Monitoring performance metrics such as quality data defect rates, scrap rates, error rates,
defects, and rework rates helps a companypredict what will be spent on production and how
much they’re losing to errors.
Monitoring performance metrics also helps to create error-proof systems that minimize future
errors.

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Benefits of TQM
Better training
Having a practical knowledge base where employees can learn about quality concepts and
techniques can help them implement qualitymanagement measures the right way.
It also helps managers to monitor and analyze workers’ progress so that their performance can
be improved and their productivityoptimized.

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Benefits of TQM
More fruitful supplier relationships
Working closely with your company’s suppliers and involving them in product development
helps in making sure they deliver high-qualitymaterials.
This is because the principal insists on quality and not cheaper prices when looking to work with
suppliers.

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Benefits of TQM
Improved social responsibility
Another aspect that improves when you implement TQM is the environment. Implementing
TQM strategies can result in a significant reduction of gas emissions, pollution, and noise levels
from machinery.
Leveraging social responsibility can also lead to increased brand equity since some customer
segments may want to identify with socially responsible businesses.

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

TQM Principles
Customer-centered
Total employee commitment
Process approach
Having an integrated system
Strategic and systematic approach
Continual improvement
Fact-based decision making
Communications

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

The PDCA model
The PDCA model is a continuous loop of planning, doing, checking (or studying), and acting. It
provides a simple and effective approachfor solving problems and managing change. It is used
to understand why some products or processes are ineffective.
Pioneered by Walter Shewhart, the PDCA approach includes four different stages/phases:
Plan
Do
Check
Act

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Process Approach in TQM
Define the process to achieve the needed results. The process needs to be illustrated and
explained in detail along with the expected results.
Specify the inputs and outputs of the process. This should include human resources, energy,
and the unfinished and finished product or service.
Define where and how the process relates to other tasks. The components of a process will
relate with other aspects and need to be identified as well as quantified for an effective quality
management procedure.
Estimate potential risks. This has to do with how customers, suppliers, and other stakeholders
are affected by the process at each step.

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Process Approach in TQM
Set key responsibility. For a process to be planned and successfully executed, specific roles and
scope will have to be set for each individual with a task.
Decide key stakeholders of the process. Both the external and internal customers, suppliers and
other stakeholders involved in the process and its execution should be specified.
Process resources. Many elements are involved in creating a process approach. These include
tasks, flows, control tactics, training requirements, data, and tools that aid in executing the
process. These should all be outlined.

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

The Four Primary Costs of Quality
Prevention costs
Preventive costs are grouped into four categories:
Training and development programs
Developing and using a quality system
Establishing standards for product or service and
Developing a plan for quality and production

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

The Four Primary Costs of Quality
Appraisal costs
Appraisal costs are the costs incurred during the activity of inspecting products before they get to the
customer. Although appraisal costs aren’t cheap, it’s less expensive to incur costs that arise when customers
get low-quality goods.
It’s desirable for appraisal to happen early in the production process because if it happens at the end, where
labor and time have been expended, the resulting losses will be much more, compared to if issues have been
found and addressed earlier on.
Keeping appraisal costs down can be achieved by improving production processes and monitoring incoming
supplies. This way the system is incapable of producing defective processes in the first place.
Examples of appraisal costs include:
◦ Inspection of materials delivered by suppliers
◦ Inspection of work-in-process
◦ Inspection of finished products
◦ Inspection of supplies used to conduct inspections
◦ Supervision of inspection staff
◦ Maintenance of test equipment

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

The Four Primary Costs of Quality
Internal failure costs
This type is costs that are spent to remove errors from the products before taking them to
consumers. Examples of internal failure costs include:
Waste due to poorly designed processes
Machine breakdown due to improper maintenance
Costs associated with failure analysis

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

The Four Primary Costs of Quality
External failure costs
If customers receive low-quality products or substandard services, the resulting costs of shipping
replacements or providing refunds aredubbed external failure costs.
Decreased sales volumes because of poor reputation
Replacements
Refunds, etc.

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Six Sigma

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Six Sigma
Six Sigma is a term used to define various techniques and management tools designed to make
business processes more efficient and effective.
It provides statistical tools to eliminate defects, identify the cause of the error, and reduce the
possibilities of error.
Thus, Six Sigma creates an environment of continuous process improvement, enabling
businesses to provide better products and services to customers. It was developed by Motorola,
Inc. in 1986.
The term “Six Sigma” is derived from the bell curve in statistics, in whichsigma represents the
standard deviation from the center.
Hence, a process with six sigmas will achieve an extremely low defect rate. The failure of a
business process or product is regarded as a defect. When a process produces less than 3.4
defects for one million chances, it is considered efficient.

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Customer focus
Assess the value chain and find the problem
Eliminate defects and outliers
Involve stakeholders
Flexible and responsive system

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Objectives of Sig Sigma

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Six Sigma Methodology
DMAIC
DMAIC is a data-driven approach used for optimizing and improving the existing business
designs and processes. It is an effective method of controlled change management. The five
phases of DMAIC are listed below, and each phase involves tools and tasks to help find the final
solution.
Define the problem and the goals of the project
Measure the different aspects of the existing process in detail
Analyze data to find the main flaw in a process
Improve the given process
Control the way the process is implemented in the future

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

DMADV
DMADV focuses on the development of an entirely new process, product, or service. It is used
when existing processes, even after improvement, do not satisfy the customer’s needs, and new
methods are required to be developed. It comprises five phases:
Define the purpose of the project, product, or service
Measure the crucial components of a process and product capabilities
Analyze data and develop design alternatives, ultimately selecting the best design
Design the selected best alternative and test the prototype
Verify the effectiveness of the design through several simulations and a pilot program

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY

Thank You!

DR. BHUMIKA ACHHNANI, FMS, MARWADI UNIVERSITY