Chapter Two:

Quality and Global Competitiveness

MAJOR TOPICS
 The Relationship between Quality and Competitiveness
 Cost of Poor Quality
 Competitiveness and the U.S. Economy
 Factors Inhibiting Competitiveness
 Comparisons of International Competitors
 Human Resources and Competitiveness
 Characteristics of World-Class Organizations
 Management by Accounting, Antithesis of Total Quality
 Key Global Trends
 U.S. Companies: Global Strengths and Weaknesses
Text: Quality Management 5th edition
Authors: David Goetsch & Stanley Davis

Where appropriate reference text page numbers will

be on bottom of slides
What is a Customer?
Let's See
 The Relationship between Quality and
Competitiveness

 The relationship between quality and competitiveness can be

summarized as follows: In a modern global marketplace, quality is
the key to competitiveness.

How does Quality help an organization to become competitive?

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44
 The cost of Quality
 “traditional” attitude is that there is a cost to quality
 Quality is a “support” function; does not contribute
directly to manufacturing and so is often one of the
first functions to go in hard times

When TQ is integrated as a normal part of business,

it contributes directly to manufacturing and is
actually an important tool to avoid hard times
 Cost of Poor Quality
 Poor quality results in cost to the organization. Sometimes in obvious
(traditional) ways, sometimes in not so obvious ways (hidden costs)
 The costs of poor quality include the following traditional costs:

 Waste
 Rejects
 Testing
 Rework
 Customer returns
 Inspection
 Recalls

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 Cost of Poor Quality
The costs of poor quality include the following hidden costs:

 Excessive overtime  Handling Complaints

 Pricing errors
 Billing errors
 Excessive turnover
 Premium Freight Costs
 Development cost of failed
product
 Field Service Costs
 Over due receivables
 Expediting
 System Costs
 Planning delays
 Late Paperwork
 Lack of follow-up
 Excess inventory
 Customer allowances
 Unused Capacity

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 Competitiveness and the U.S. Economy
 The United States came out of World War II as the only
major industrialized nation with its manufacturing sector
completely intact.
 Germany and Japan were devastated by damage during
the war.
 They rebuilt their manufacturing bases on the
assumption that to compete globally, they would have to
produce goods of world-class quality.
 That strategy helped them recover and become world
leaders in manufacturing.

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Competitiveness and the U.S. Economy
 While the U.S. was enjoying it’s position as the world’s
preeminent economic superpower, the other industrialized
nations of the world were busy rebuilding their
manufacturing sectors.
 U.S. manufacturers were slow to catch to catch on that the
game had changed
 Foreign companies started to errode U.S. markets
 U.S. companies mistakenly saw cost rather than quality as
the issue & began sending work off shore to reduce labor
cost
 In a relatively short time, the U.S. went from the world’s
leading lender & exporter to the world’s biggest debtor…..by
1980 the U.S. was consuming more than it produced.

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 Competitiveness and the U.S.
Economy
 Ability to compete globally has direct impact on
quality of life
 Ability to compete depends upon the ability to do a
better job of producing goods
 To do a better job producing goods nations and
organizations need to focus on policies, systems
and resources in a coordinated way to continually
improve

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 Competitiveness and the U.S.
Economy
 Many industrialized nations have taken steps to link
education, economics and labor market policy to
promote competitiveness
 The U.S. is still debating the need for a national
industrial policy and a national education policy
 1980s – U.S. improved productivity by putting more
people to work – other nations improved productivity
by making the worker more efficient
 2000 to 2010 – the number of U.S. workers is on the
decline to maintain productivity U.S. workers must
become more efficient
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 Competitiveness and the U.S.
Economy
 Today 27% of children born in the U.S. will live in
poverty. 30 years ago it was 12%
 The real hourly wage of a worker in the U.S. today
is 16% less than in 1979
 Today the U.S. has the most unequal distribution of
wealth of any industrialized nation in the world.

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 Factors Inhibiting Competitiveness

 Several factors inhibit competitiveness

– Business and government
– Family
– Education.
 Factors Inhibiting Competitiveness
Business and government

 Emphasis on short-term profits fed by fear of

unfriendly takeover attempts and pressure from
lenders or shareholders (2)
 Excessive medical costs (6)
 Excessive costs of liability inflated by lawyers
working on contingency fees (7)

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DEMING'S SEVEN DEADLY DISEASES
 1. Lack of constancy of purpose to plan product and service that will
have a market and keep the company in business, and provide jobs.
 2. Emphasis on short-term profits: short-term thinking (just the
opposite of constancy of purpose to stay in business), fed by fear of
unfriendly takeover, and by push from bankers and owners for
dividends.
 3. Personal review systems, or evaluation of performance, merit
rating, annual review, or annual appraisal, by whatever name, for
people in management, the effects of which are devastating.
Management by objective, on a go, no-go basis, without a method for
accomplishment of the objective, is the same thing by another name.
Management by fear would still be better.
 4. Mobility of management; job hopping.
 5. Use of visible figures only for management, with little or no
consideration of figures that are unknown or unknowable.
 6. Excessive medical costs.
 7. Excessive costs of liability.

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 Factors Inhibiting Competitiveness
Family
 The family unit is the nation’s most important
human resource development agency
 Single parents who must work full time jobs have
little or no time to help their children excel in school
 Parents who must work more than one job have
little or no lime to help their children excel in school
 Children with parents who do no value education
are unlikely to value it themselves

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 Factors Inhibiting Competitiveness
Education
 Quality of the education system is a major factor in
the quality of the labor pool
 The higher the quality of the labor pool, the higher
the quality of entry level employees
 The higher the quality of the entry level employees,
the faster they can become productive employees
and contribute to competitiveness

A high-quality education system is primary

component of a nation’s ability to globally compete
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Comparisons of International Competitors

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 Comparisons of International
Competitors
 When making comparisons among internationally
competing countries, the following indicators are
usually used:
 standard of living
 trade and export growth
 Investment

 manufacturing productivity
 Comparisons of International
Competitors
Standard of Living
 Standard of Living Index is gross national product
per capita
 U.S. SOL has grown since 1972, but has not kept
pace with most other competitive nations.

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 Comparisons of International
Competitors
Trade and export growth

 Half a trillion dollar deficient

 Comparisons of International
Competitors
Investment
 Measured as the percentage of gross national
product spent on education, equipment, facilities,
and research & development.
 Japan’s investment has leveled out at 29%
 U.S. is at 22%
 Take education out of the mix and the U.S. is even
or better than most nations

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 Comparisons of International
Competitors
Manufacturing productivity
 Up until the mid 1970s the U.S. had the highest
productivity levels in the world – 56% higher than
than Japan, next on the list.
 By the late 1980s this lead was down to 6%
 Currently the U.S. and Japan are about even
 Human Resources and Competitiveness
 The most important key in maximizing competitiveness is the
human resource. Following World War II, this was the only
resource that Germany and Japan had to draw on.
Consequently, they built economic systems that encourage
private employers to make business decisions that emphasize
improved productivity and quality, rather than price.
 The basic philosophical constructs underlying the human
resource aspects of the competitiveness of both Japan and
Germany are as follows:
 cooperation among business, labor, and government;
 high-quality education and training;
 employee involvement and empowerment;
 leadership at all levels;

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 teamwork.
 The culture is so different in Europe
and Asia that what works in these
countries will not work in the U.S.

This kind of thinking, although pervasive, misses the

point entirely and in fact is somewhat ethnocentric

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 Human Resources and Competitiveness
 Cooperation among business, labor, and government
 Social partners is the term used in both Japan & Germany
 Both Germany & Japan were very much like the U.S. prior to WWII
 High-quality education and training
 U.S. standing among industrialized nations is poor
 Germany & Japan go about it different ways, but arrive in the same
place
 Employee involvement and empowerment
 In Germany & Japan employees are involved in functions which in the
U.S. would be traditional management responsibilities
 Leadership at all levels
 In Germany & Japan leadership and leadership training occurs at all
levels including first line employees.
 Teamwork
 In Germany & Japan, not only is work done by teams of employees, but
planning and design as well.

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 Characteristics of World-Class
Organizations
 Ultimate manufacturers are those that perform at world-class
levels in the following areas:
 Competitive analysis strategies
– Operations cost efficiencies, speed to market, RnD, rapid
supplier delivery, logistics, real time delivery, zero defects, zero
inventory
 Production and supply chain management strategies
– Collaborative planning, forecasting, delivery to point of use,
supplier managed inventory
 Customization strategies
– Building to order, global sourcing
 Electronic commerce strategies
– Supply management, purchasing, internet ordering and tracking
 Compensation systems strategies

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Management by Accounting, Antithesis
of Total Quality
Managing the organizations financial results instead of
the people and processes that produce those results
 Creates an analytically detached approach to
decision making
– Printouts vs firsthand knowledge and insight
 Focus on short-term cost reduction
– At the cost of long term improvements in people and
processes
 Narrowly focused manages viewing every problem
from a finance and accounting perspective

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 Key global trends

 Key global trends that are increasing the level of

globalization in business are
 the growing irrelevance of distance,
 shiftsin the rates of growth in certain countries
throughout the world,
 and the rise of megacities.

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U.S. Companies: Global Strengths and
Weaknesses
Strengths
 Strong entrepreneurial spirit
 Presence of a “small cap” stock
market for small and mid-sized
firms
 Rapidly advancing
technologies
 Comparatively low taxes
 Low rate of unionization
 World class system of higher
education
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Weaknesses
 Expanding government
regulation (?)
 A growing underclass of “have-
nots”
 A weak public school system
(k-12)
 A poorly skilled labor force and
poor training opportunities
 An increasing protectionist
sentiment
 Growing public alienation with
large institutions
Focus on the long term