MANAGING FOR Quant AND- *; EXCELLENCE Seventh Epirion (ia R. a NvERSITY OF CINCINNATI JorTHERN Kentucky UniversitySOUTH-WESTERN CENGAGE Leaming Managing for Quallty and Performance Excellence, Seventh Edition Jomes R, Evens, Willam M. Lindsay Ye/Eettorial Director: Jack W. Calhoun Editor ~in-Chief: Alex von Rosenberg, Senior Acquisitions Editor: ‘Charles McCormick ‘Senior Developmental Eultor; Allee Denny Content Project Managers: Patrick Cosgrove & Marge Bil Manager, Editorial Media: John Baras ‘Technology Project Editor: John Rich Production Service: Graphic World, Ine Compositor: Macmillan Publishing Solutions ‘et Director: Stacy Jenkins Shirley {Internal and Cover Designer Diane Cartheuser Senior First Print Buyer: Doug Wilke Printed in the United States of America 34567 12 11 10 09 (© 2008 South-Western, a part of Cengage Learning ALL RIGHTS RESERVED. 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For your course and learning solutions vist wnowacengage.com Purchase any of our products at your local college store or at our preferred online store wwwichapters.com.”Preface a Tae Quauiry Sisrett fia Hee | ] i Chapter 4 Chapter 2 Chapter 3 2 | Tue Mavacement Sisten Brier Contents xix Introduction to Quality 3 ‘Total Quality in Organizations 49 Philosophies and Frameworks 91 Chapter’ Focusing on Customers 153 Chapter 5 Leadership and Strategic Planning 211 Chapter 6 High-Performance Hunan Resource Practices (267 Chapter7 Process Management 329 Chapter 8 Performance Measurement and Strategic Information Management 389 Chapter 9 Building and Sustaining Performance Excellence in Organizations 449 Bi Siena AND THE Tecanica Syren 499 Chapter 10 Principles of Six Sigma 601 Chapter 11 Statistical Thinking and Applications 539 Chapter 12 Design for Six Sigma 589 Chapter 13 Tools for Process Improvement 655 Chapter 14 Statistical Process Control_711 | | ‘APPENDIXES AlPreface xix Vt | Twe Quaury System 7 Cxarrer 1 Inrropuction To Quaurry 3 Tie History AND IMPORTANCE OF Quatity 4 ‘The Age of Craftsmanship 5 The Karly Twentieth Century 5 Quauiry Prories: Clanwe Anenican Cieces, Inc, ano Mororous, Inc, Post-World War 7 The US. “Quality Revolution” 8 Barly Successes 9 From Product Quality to Total Quality Management 10 Disappointments and Criticism 10 Performance Excellence 1 Current and Future Challenges. 11 Deeiine Quaurry 12 judgmental Perspective 13 Product-Based Perspective 13 User-Based Perspective 13 ‘Value-Based Perspective 14 Manufacturing-Based Perspective 14 Integrating Perspectives on Quality 15 Customer-Driven Quality 17 Quatiry As A MANAGEMENT FRAMEWORK 18 Principles of Total Quality 19 Infrastructure, Practices, and Tools 23 Quatiry AND CompEriTive ADVANTAGE 26 Quality and Business Results, 28 6vill Contents Taree Levets or Quattry 29 QUALITY AND PERSONAL VALUES 30 Quanity iw Practice: Te EvowuTion oF Quanity aT XeRox: Fron Leaoenshir Tarouc Quauiry 10 Lean Six Sicha 32 Quatiry iW Practice: Bamneing Tora, Quaury Prwwciptes 10 Lire at Kantee 36 Review Questions 39 Discusston QuesTions 39 Proyscrs, Bre. 41 : Casts Sictutep Care PHarmacy 42 A TALE OF TWo RESTAURANTS. 43 Deere & Co. 44 Notes 46 BuwuocRarny 47 Cnaprer 2 ToraL Quattty IN ORGANIZATIONS 49 Quanity AND SysteMs THINKING 50 Quauiry Prorites: Jenks Pusuic ScHoous ano SSM Heautn Care 51 Quarry IN MANUFACTURING 52 Manufacturing Systems 53 Business Support Activities 57 QUALITY IN SERVICES 58 Contrasts with Manufacturing 59 Components of Service System Qué Quairy in Heatti Cane_63 Quatrry iN EDUCATION 66 Koalaty Kid 68 Quality in Higher Education 70 Quairy In Smut. BusmNesses AND Nor-ror-PROFITS 72 Quauiry IN THE PUBLIC SecTOR 74 Quality in the Federal Government 74 State and Local Quality Efforts 77 Quauiry iw Practice: Senvice Quay at THE Rirz-Cartron Hore. Conant, LLC 78 Quauiry in Practice: Kenner W. Monrort Couece oF Business 80 Review Questions 82 Discussion Questions 83 Projects, Erc. 84 (ists Tovora Moror Corroration, Lrp. 85 ‘Tre NIGHTMARE ON TELECOM STREET 87 Waker Auto SALES AND SERVICE 87, Notes 88 BrstioGRraray 89Contents CHapTER 3 PriLosorines AND FRAMEWORKS 91 ‘Tne Demane Putosoray 92 Quauiry Prorive: Texas Naviepuare, Inc., ano Sunparan-Cusrion — 93 Foundations of the Deming Philosophy 94 Deming’s 14 Points 101 ‘Tae JuRaN PuiLosorny 107 ‘Ta Crospy Pxitosorny 109 Comparisons of Quaurty PxmLosoriiss 110, Onur Quaniry Panosorners ‘111 A.V, Reigenbaum 111 Kaoru Ishikawa 112 Genichi Taguchi 112 QUALITY MANAGEMENT AWARDS AND FRAMEWORKS 114 ‘Tr MALCOLM BALDRIGE NATIONAL QUALITY AwaRD 114 History and Purpose 14 ‘The Criteria for Performance Excellence 117 Criteria Evolution 120 Using the Baldrige Criteria 122 Impacts of the Baldrige Program 123 Baldrige and Deming 123 INTERNATIONAL QUALITY AWARD PROGRAMS 124 ‘The Deming Prize 124 European Quality Award 125 Canadian Awards for Business Excellence 126 Australian Business Excellence Award 127 (Quality Awards in China 128 Baldrige and National Culture 129 180 9000:2000 129 Structure of the ISO 9000-2000 Standards 130 Factors Leading to ISO 9000:2000. 131 Implementation and Registration 133 Benefits of IS0 9000. 133 Six Sicma 134 Evolution of Six Sigma 134 Six Sigma as a Quality Framework 136 BALprice, ISO 9000, anD Six Siama_ 136 Quauiny mx Practice: Buwome Business Exceutence in Huncarr 138 Quauiry iw Pracrice: Soc Sicha Intecrarion aT Sausune 140 Review Qurstions 142 Discussion Questions 142 Projects, Ere, 145 (ists TecSmanr Errcrronics 145 Can Six Si¢Ma Work IN Heaurat Care? 147Contents + LANDMARK DINING: UNDERSTANDING THE ORGANIZATIONAL ENVIRONMENT 147 Arroyo Fresco Communrry Hgatra Cenrer: UNDERSTANDING ‘THE ORGANIZATIONAL ENVIRONMENT 148 Nores 148 BrutoGrarny 150 Tue Manacenent Systen Charter 4 Focusinc on Customers 153 Quay Proriue: Pari Place Lexus aNo Roseat Wooo Jonson Univensiry Hosprtat Hammiton 155 ‘Tae Importance OF CUSTOMER SATISFACTION AND LOYALTY 156 ‘The American Customer Satisfaction Index 157 CREATING SarisrieD Cusromers 159 Leading Practices 160 IDENTIFYING CusTomERS 162 Customer Segmentation 164 UNbeRSTANDING CusToMER Nes 165 Garnerinc aND ANALYZING CUSTOMER INFORMATION 168 Linkinc Customer INFORMATION TO DisiGN, PRODUCTION, AND Service DeLivery 170 ‘Customer ReLarionstir MANAGEMENT. 171 Accessibility and Commitments 172 Selecting and Developing Customer-Contact Employees 173 Custoiner-Contact Requirements 174 Effective Complaint Management 176 Strategic Partnerships and Alliances 178 Exploiting Technology 178 Customer Service on the Internet 179 ‘Technology and CRM. 179 MEASURING CUSTOMER SATISFACTION 180 Designing Satisfaction Surveys 181 Analyzing and Using Customer Feedback 183 Why Many Customer Satisfaction Efforts Fail 187 Customer Perceived Value 187 Customer Focus in TH BaLDRice Crrrerta, ISO 9000, AND Six S1GMa_ 188 Quaury ww Practice: Uuoenstanomns tHe Vorce oF THe CustoneR at Lanosn’s Puzenias 190 Quaurry in Practice: CustoneR Focus ar Anazon.con 191 Revirw Questions 193 Discussion Questions 194 Projects, Exc. 198Contents xi Cases Pauzi’s Restaurant AND Microsrewery 200 Fist INTERNET Rewiante BANK 200 Goup Sra Cunt: Customer aNp Market KNowLepcE 203, LANDMARK DINING: Customer Focus 207 Norss 207 Biwuiocrarny 209 Crarrer 5 LEADERSHIP AND STRATEGIC PLANNING 211 LeADERsHIP FOR QUALITY. 213 ‘Quauimr Prorites: Meorab ano Saint Luxe’s HoseitaL oF Kansas Cry 213 Leading Practices for Leadership 217 Leaperstur THrory aNp Practice 220 Contemporary and Emerging Leadership Theories 220 Now Perspectives on the Practice of Leadership 224 “Applying Leadership Theory in a Total Quality Environment 225 CREATING THE LEADERSHIP SYSTEM 226 Leadership, Governance, and Social Responsibilities 229 STRATEGIC PLANNING 232 Leading Practices for Strategic Planning 233 Strategy Development 235 Strategy Deployment 238 LinkiNG HuMAN RESOURCE PLANS AND BUSINESS STRATEGY 241 ‘Tur Seven MANAGEMENT AND PLANNING Toots 242 LEADERSHIY, STRATEGY, AND ORGANIZATIONAL STRUCTURE 243 LeaDerstit? AND STRATEGIC PLANNING IN THE BALDRIGE CRITERIA, 1SO 9000, AND Six,S1GMA 246 Quauirr mm Practice: Leapenswp Chances iN ALcon | 248 Quaury wi Practice: Staarecic Puanun ar Brsticn-Snir Privrin Draision 251 Review Questions 254 Discussion QuEstioNs 254 PRoprems 256 Proyects, Ere, 259 (ses A SrruarionaL Leaperstir CHALLENGE 260 ASTRATEGIC BOTTLENECK 261 : Curron Murat Works 262 ‘LANDMARK DINING: LEADERSHIP AND STRATHGIC PLANNING 263 Nores 263 Bisuiocrarny 265 Cuarter 6 HIGH-PERFORMANCE HUMAN Resource Practices 267 Quauiry Prorite: Sunny Fresi Fooos awo Stover, Inc. 269 ‘Tue Score of HuMaN Resource MANAGEMENT 270 Leading Practices 271xii Contents TRAMS IN ORGANIZATIONAL DESIGN AND QUALITY IMPROVEMENT 275 Building Rffective Teams 279 Six Sigma Project Teams 281 Desicnine HicH-PERtoRMANCE Work Systems. 285 Work and Job Design 285 Employee Involvement 289 Empowerment 291 Rectuitment and Career Development 295 Training and Education 296 Compensation and Recognition 298 Health, Safety, and Employee Well-Being 303, Motivating Employees 304 Performance Appraisal 306 Measuring Employee Satisfaction and HRM Effectiveness 208 ‘Technology and the HE Process 309 Human Resource Focus mv THE BALDRIGE Crrreata, ISO 9000, AND Six StGMA._ 311 Quatiry iw Practice: TRaWinG FOR InPRoviNG Service Quauiry ar Honpa 313 Quarry mi Pracrice: TD Inoustmes 345 Review Questions 317 Discussion Questions 318 Proyects, Bre. 320 (ists Goupen Phaza Horst. 321 ‘Tae Hornrut TeticomMurer 322 | Noxpuam Eurore, Lrp. 323 Eanpmanic DINING: HUMAN RESOURCE FOCUS 324 Nores 325 Brisocrariy 327 Cuarrer 7 PRocess MANAGEMENT 329 Quatiry Porites: Din McDerniorr Perroteun Operations Conpany ‘AND BOEING Acnoseace Support 331 ‘Tur Score OF PROCESS MANAGEMENT. 332 Leading Practices 335 Propucr Desicn Processes 341 Cost, Manufacturability, and Quality 343 Design Quality and Social Responsibility 344 Streamlining the Product Development Process 347 DesiGNING Processes FoR Quattry 349 Special Considerations in Service Process Design 351 Projects As VALUS-CREATION PROCESSES 353 Project Life Cycle Management 354 Process Controt. 357 Process Control in Services 360 | | | |Contonts ii Process IMPROVEMENT 362 Kaizen 364 Flexibility and Cycle Time Reduction 366 Breakthrough Improvement 368 Process MANAGEMENT IN THE BALDRIGE Crrrerta, ISO 9000, ‘AND Six SIGMA_ 370 Quaurry ww Practice: Gow Stax Can: Process Manacenen 3 Quauiry im Practice: Buiwoiis Japanese Quay m North Anenica 375 Review Questions 376 Discussion Questions 377 Proyecrs, Ere. 381 (ists Tue Stare Untversrry EXPERIENCE 382 ‘Tue PIVOT Inrnative at Mipwast Bank, Part I 383 BLACK ELK Meprcat Cenrir 384 Z LANDMARK DINING: PROCESS MANAGEMENT 385 Nores 386 BruiocRarny 387 Carrer 8 PERFORMANCE MEASUREMENT AND STRATEGIC INFORMATION MANAGEMENT 389 ‘Quaury Prories: WawwniGur Inpustaes, lic, ano Baprist HosprnaL, nc. 391 ‘Tur Smnatecic VALUE OF INFORMATION 392 Leading Practices 394 "Tar SCOPE OF PERFORMANCE Measurement” 397 ‘The Balanced Scorecard 397 Customer-Focused Measures 400 Product and Service Measures 40} Financial and Market Measures 402 ~ Human Resource Measures 402 Organizational Effectiveness Measures 402 Leadership and Social Responsibility Measures 403 “The Role of Comparative Data 408 DesiGNING EFFECTIVE PERFORMANCE MEASUREMENT SYSTEMS 404 Linking Measures to Strategy 406 Procese-Level Measurements 409 Identifying and Selecting Process Measures 410 ‘Aligning Strategic and Process-Level Measurements 412 ANALYZING AND USING PERFORMANCE Data 413 ‘Tu Cost oF QuaLity 416 Quality Cost Classification 417 Quality Costs in Service Organizations 420 Capturing Quality Costs Through Activity-Based Costing 420 MEASURING THE RETURN ON QUALITY 421Contents MANAGING INFORMATION AND KNOWLEDGE ASSETS 422 Data Validity 422 Data Accessibility and Security 423, Knowledge Management 424 MEASUREMENT AND INFORMATION MANAGEMENT IN THE BALDRIGE Crrrenia, ISO 9000, anD Six Sicma 427 ‘Quaury in Practice: KnowteoGe ManaceMenr FoR Coxriwuous Inpnovenenr at Convercys = 429 Quaury iv Practice: Moveuins Cause-ano-EFrecr Revarionswies ar IBM Rocwesten 433 Review Qunstions 435 Discussion Qusstions 436 Propiems 437 Proncts, Ere, 442 Gsts Covore Communtry Counce 442 Lanpmark Dintne: Ipuntirvinc Key PERFORMANCE ‘Measurns 446 Lanpmarx Divine: MEASURMENT, ANALYSIS, AND KNOWLEDGE MANAGEMENT 446 Nores 446 BIstiocrarHy 448 CHAPTER 9 BUILDING AND SUSTAINING PERFORMANCE EXCELLENCE IN ORGANIZATIONS 449 Makine THe Comment To PERFORMANCE EXCELLENCE 450 Quaury Prorites: Auenican_Evecraic Power-ano-Pal’s Suopen-Seavice 454 OnGANIZATIONAL CULTURE AND PERFORMANCE EXCELLENCE 452 Cultural Change 456 Building on Best Practices 457 ‘The Role of Employees in Cultural Change 459 CHANGE MANAGEMENT 462 Implementation Barriers to Creating a Culture of Performance Excellence 463 SUSTAINING THE QUALITY ORGANIZATION 466 Quality as.aJoumey 467 ‘The Learning Organization 469 Setr-Assnssment Processes 474 Leveraging Self-Assessment: The Importance of Follow-Up 477 ImpLeMENtinG ISO 9000, BALDRIGE, AND Six SiGMA_ 479 A View Towarp THE FUTURE 483 Quauy tm Pracrice: Gers Back To THE Basics at Foro 484 Quauirr mv Practice: Menawic Divencent Quauy Sistens ar Howevweun 488 Review Questions 491 Discussion QuEstIONS 491 Proyrcts, Ere. 493Contents x (Gises THe Parasie or THE Green Lawn 493 Tue YeLtow Brick Roap ro Quaurry 494 ‘Tue Comrerrrive Construction ComMPANtEs 495 Notes 496 BIBLIOGRAPHY 498 3 | Sox Sica AND THE TECHNICAL Syste 499 Cuaprer 10 Privcipies OF Six Sima 501 ‘Tue StaristicaL BASIs OF Six SIGMA 502 Quatiry Prorives: Kanteé Company ano CaTERPILLAR FINANCIAL Services CorporaTion 503 PROMECT SELECTION FOR SIX SIGMA 506 Six SiGMA PROBLEM SOLVING 508 The DMAIC Methodology 510 Tools and Techniques 514 Design for Six Signa 516 ‘Team Processes and Project Management 517 Six SIGMA IN SERVICES AND SMALL ORGANIZATIONS 517 Six SiGMA AND LEAN PRODUCTION 520 LEAN Six SIGMA AND SERVICES 522 ‘Quaumy in Practice: Au Arpucation oF Six Sica to Reouce Mepicat Exons 524 Quatre in Practice: Sx Sicha ar NavionAL Setriconucton 526 Review QUESTIONS 528 DiscussiON QUESTIONS 528 PROBLEMS 529 Projects, Bre, 530 (Casts Imrunmenrine Six SicMa at GE Fanuc 530 ‘Tue PIVOT Inrrianive ar Mipwest BANK, Parr 2 532 Notes 536 BreuiocrarHy 537 Cuarter 11 StatisticaL THINKING AND APPLICATIONS 539 SrarisTicat THINKING 540 Quauiry Prories: Grawrrenock Conran ano Braxct-Seiri Prive Division - 541 Deming’s Red Bead and Funnel Experiments 544 Srarisicat FouNDations 550 Random Variables and Probability Distributions 550 Sampling 551 StaristicaL MerHopotocy 855 Descriptive Statistics 556 Statistical Analysis with Microsoft Excel 557xvi Contents Statistical Inference 561 Enumerative and Analytic Studies 565 Design of Experiments 566 Analysis of Variance (ANOVA) 570 Regression and Correlation 572 Quauir ww Practice: InprovinG Quaury oF a Wave SocvEnwc Process TuoucH Design oF Experiments 574 Quauiry in Practice: Appuvin StansmicaL AnaLiss 1m A Si Sicha Project ar GE Fanuc 576 Review Questions 579 Prosiems 580 Projects, Erc. 583 (ists Tre Discrruinany Crranion 584 Tae Quarrerty Sais Rerort 584 ‘Tur HMO Puarmacy Crisis 586 Nores 587 BULioGRAPHY 588 Crarrer 12 Desicn ror Six SIGMA 589 Toots ror CoNcErr DeveLormENT 590 ‘Quaurry Prorices: Dana ConPoramton—Sricer Daivesnarr aio 3H Dentan Prooucts Division 591 ‘Quality Function Deployment 592 Concept Engineering 602 Toots ror Design DeveLorment 604 Design Failure Mode and Bifects Analysis 606 Reliability Prediction 606 Toots ror Desicn Orrimization 618 The Taguchi Loss Function 618 Optimizing Reliability 621 Toots FoR DrstGN VERIFICATION 621 Reliability Testing 622 Measurement System Evaluation 623 Process Capability Evaluation 629 Quauiry mv Practice: Testinc Auoio Components ar Shure, Inc. 636 Quauiry wv Paacrice: QFD in a Mawaseo Can Oncanizarion 638 Review Questions 641 PRosiems 642 Projects, Erc. 649 Cists Drsicnive a Universrry Surrorr SERVICE 651 Notes 653 Bwtiocrarny 654Contents CHAPTER 13 TOOLs ror Process IMPROVEMENT 655 Quaurry Prorites: Arwstronc Worto Iuoustates Bunoie Prooucrs OPERATIONS aNo Xerox Business Services 656 Process IMPRovemENT MeTHopoLoGiEs 657 “The Deming Cycle 657 Juran’s Breakthrough Sequence 660 Creative Problem Solving 660 Other Variations 661 Basic TOOLs tox PROCESS IMPROVEMENT 662 Flow Charts 663 Run Charts and Control Charts 665 Check Sheets 669 Histogeamé 671 Pareto Diagrams 672 ‘Cause-and-Bifect Diagrams 673 Scatter Diagrams 677 Orne TOOLs FoR Process IMPROVEMENT 677 Kaizen Blitz 677 Poka-Yoke (Mistake-Proofing) 678 Process Simulation 681 ENGAGING THE WORKFORCE IN PROCESS IMPROVEMENT 683 Skills for Team Leaders 685 Skills for Team Members 685 Quaurry in Practice: Appuvinc Quauiry InPROVENERT Toots to AN ORDER Fuvenuument_Process 686. Quaury iy Peacrice: Inpro Panienr Services at Nippuerown Recionat HoserraL, Review QUESTIONS 692 Discusston Questions 692 PROBLEMS 696 Proyects, Ere, 701 (sts Reapmoncn Restaurant 702 Nartonat. Forntrure 702 Janson Meprcat. Crintc 703 Brack Eux Meprcat Cenrer, Parr Il 704 Nores 708 Bivuiocrarsy 709 Cuarrer 14 Statistica Process Controt 711 Quauiry Prorites: TRIDENT Precision ManuracruniNG, Ic., aND OPERATIONS. Nawacemenr Invenwarionat, Ic, 713 Quatrry CONTROL MEASUREMENTS 714 Carasiiiry AND CONTROL 714 SPC MrrHopoLocy 717 689Controt Crarers ror VARIABLES DATA 718 Constructing X- and R-Charts and Establishing Statistical Control. 718 Interpreting Patterns in Control Charts 719 Process Monitoring and Control. 732 Estimating Process Capability. 734 Modified Control Limits 725 Excel Spreadsheet Templates 736 Srecrat ConTROL Cxarrs FoR VARIABLES Dara 737 Hand s-Chatts 737 Charts for indjviduals 740 Conrrot CHARrs For Arrripures 745 Fraction Nonconforming (p) Chart 745 Variable Sample Size 747 nnp-Chasts for Number Nonconforming 751 Charts for Defects 753 Choosing Between ¢- and u-Charts. 757 Summary OF CONTROL CHART CONSTRUCTION. 758 Dusicninc Conrrot Caanrs 759 : Basis for Sampling 759 Sample Size 760 Sampling Frequency 760 Location of Control Limits 761 SPC, ISO 9000:2000, AND Six Sicma 763 Controlling Six Sigma Processes. 763 Pre-Conrro1—764 Quaury in Practice: AppurinG SPC to PaarnaccuricaL Proouct ManurAcruRING Quaure in Practice: Using a u-Cuart in a Receiving Process 769 Review Questions 772 Proptems 773 (ists La Ventana Winpow Comrany 779 Mourery Truckine, Inc. 780 Day Inpusriurs 782 Nores 782 Busurocrarny 783 APrENDIXES A. AREAS FOR THE STANDARD Normat Disrriution A-2 B Factors ror Contror Carrs A-3 C Ranpom Dierrs A-4 D> Binommat Prowawniries A-5 Inpex I-1 Contents 166PREFACE Some time ago, the American Society for Quality Control dropped the word "Control" from its ttle to reflect a broader and more modern perspective of the field. Business continually changes, and so do we. It was time for us to replace “Control” with a term that better exemplifies what the pursuit of quality means in the 2ist century. Our former title, The Management and Control of Quality, is now Managing for Quality ancl Performance Excellence. The notion of performance excellence, which characterizes the Malcolm Baldrige criteria framevrork upon which much of this book is based, is dramatically different from the industrial notion of control and the 1990s concept of “otal quality.” However, this does not represent any dramatic change in content for this edition; this book has evolved toward a broad performance excellence perspective ‘over the last several eclitions, Today's business and not-for-profit organizations need to capitalize on the knowl- edgeand “lessons learned” that excellent organizations have acquired. With each new edition of Managing for Quality and Performance Excellence, we strive to present the most current information about quality management and performance excellence approaches used in the top organizations. As the Malcolm Baldrige National Quality Award framework has been described as “the leading edge of validated management prac- tices” by 2 former chair of the Baldrige Panel of Judges, we feel that one of the best ways of obtaining such knowledge is from the national zole models that have emerged. from the Baldrige program in the United States and similar programs throughout the world. Thus in this new edition, we continue to use Baldrige as the fundamental framework for organizing and presenting key issues of performance excellence. Six Sigma* has taken the corporate world by storm and represents the thrust of many efforts to improve products, services, and processes. Moreover, Six Sigma is, grounded in the fundamental principles of total quality that have been around for several decades. This book continues to provide a comprehensive focus on Six Sigma and its relationships with fundamental quality principles and the Baldrige categories. CHANGES IN THE SEVENTH EDITION ‘The seventh edition of Managing for Quality and Performance Excellence continues to embrace the fundamental principles and historical foundations of total quality and. * Six Sigma sa federally registred trademark and service mark of Motorola, In. xixProtace to promote high-performance management practices that are reflected in the Baldrige Criteria, while providing a foundation for understanding and applying Six Sigma. All chapters have been updated to provide the most current coverage available. We have also developed many new and interesting Quality in Practice cases and a wide variety of examples from organizations around the world emphasize the impor- tance of quality in the global economy and added or replaced many end-of-chapter ‘cases, Some highlights that continue from the previous edition include: '© Contrasts and comparisons of Baldrige, ISO 9000, and Six Sigma in the man- agerial chapters of the book. +, Student-friendly layout highlighting important concepts. "Bonus Materials" folder on the CD-ROM that includes additional cases, sum- maties of key points and terminology, and supplementary topics for each chapter, + Text coverage of most of the body of knowledge (BOK) required for ASQ certi fication as a Certified Quality Manager. As in the previous edition, Part 1 introduces fundamentals, aitd Part 2 concen- trates on the management system, and Part 3 focuses on Six Sigma and basic techni- cal topics. This organization provides the instructor with considerable flexibility in focusing on both managerial and technical topics, for audiences ranging from undergraduate students, MBA students, or executives. Part 1 provides an introduction to quality management principles. * Chapter 1 introduces the notion of quality, its history and importance, defini- tions, basic principles, and its impact on competitive advantage and financial return. ‘+ Chapter 2 explores the role of total quality in all key economic sectors: manu- facturing, service, health care, education, and the public sector. ‘© Chapter 3 presents the philosophical perspectives supporting total quality, chiefly those of Deming, Juran, and Crosby, as well as quality management frameworks defined by the Malcolm Baldrige National Quality Award and the Criteria for Performance Excellence, ISO 9000, and Six Signa. Part 2 focuses on the management system, which is concerned with planning to meet customers’ needs, arranging to meet those needs through leadership and strategic planning, and accomplishing goals through the actions of people and work ‘processes, All of these activities are cone with an eye toward continuous improve- ment and using data and information to guide the decision-making process. Each of Chapters 4 through 8 summarizes the key relationships and importance of the topics to Baldrige, Six Sigma, and ISO 9000. ‘* In Chapter 4, the focus is on understanding customers and their needs, ancl ‘practices to achieve customer satisfaction + Chapter 5 covers the important role of total quality in leadership and strategic planning. + Chapter 6 deals with humen resource practices, specifically the design of high-performance work systems and HR management in a total quality environment. * Chapter 7 outlines the scope of process management activities for value creation and support processes, the philosophy of continuous improvement, and the role of project management in Six Sigma and other quality improvement efforts, + In Chapter 8, the focus is on the use of data and information to measure and ‘manage organizational performance. This chapter includes discussion of bal- anced scorecards and recent approaches to knowledge management.Preface ‘+ ‘The final chapter in this part, Chapter 9, deals with building and sustaining high performance organizations, Coverage includes building a quality infra- structure, organizational culture, and new sections on self-assessment and change management, Part 3 includes basic technical issues, tools, and techniques that underpin Six Sigma. Features and Pedagogy to Enhance Learning Fach chapter begins with a single-page Quelity Profile of two role-model onganiza- tions. Significant points of learning and emphasis are highlighted in distinctive boxes. Quality Spotlight icons in the margin identify examples of specific organiza- tional actions, and CD icons in the margin indicate that extensive supplementary ‘materials may be found on the accompanying Student CD-ROM, ‘The Quality Profile presented at the beginning of each chapter provides back- ‘ground, important practices, and results for organizations that embrace total quality principles. Most of these organizations are Baldrige recipients, In each chapter, Quality in Practice case studies describe real applications of the chapter material. They reinforce the chapter concepts and provide opportunities for discussion and moze practical understanding. Many of the case studies are drawn from real, published, or personal experiences of the authors, End-of-chapter materials for each chapter include Review Questions, which are designed to help students check their understanding of the key concepts presented in the chapter, All the chapters in Parts 1 and 2 also have Discussion Questions that are open-ended or experiential in nature, and designed to help students expand their thinking or tie practical experiences to abstract concepts, Chapter 8 and those in Part 3 include Problems designed to help students develop and practice quantitative skills, Most chapters have a section entitled Projects, Ftc. that provides projects involv- ing field investigation or other types of research. Finally, each chapter includes sev- eral Cases, which encourage critical thinking to apply the concepts to unstructured or ‘more comprehensive situations. Student CD-ROM 7 ‘The CD-ROM that comes with new copies of the text contains extensive Bonus Materials, including the following: Summaries of key points and terminology for éach chapter ‘Additional readings that support and extend the presentations in the chapters ‘Additional cases for instruction and discussion Baldrige criteria and multimedia case studies, Microsoft® Excel templates for quantitative analysis Solutions to even-numbered problems Tables for Random Digits, Binomial Probabilities, Poisson Probabilities and Values of ‘Web links to key organizations cited in the book + AGlossaty of terms from the textbook Web Site “The URL for the Web site for new edition of Managing for Quality and Performance Excellence is wwrw.cengage.com /decisionsciences/evans. Among other resources on, the site, the Web links for organizations mentioned in the text are given in the Internet vodProtace Resources. he lists are organized by chapter for convenience and may be used:to access the information about the organization. A listing of general Web links on quality is also included, Note on Company References and Citations In today’s ever-changing business environment, many companies and divisions are sold, merged, divested, or declated bankruptcy, resulting in name changes. For exam- ple, Texas Instruments Defense Systems & Electronics Group was sold to Raytheon and is now part of Thales Raytheon Systems Company, and AT&T Universal Card Services was bought by CitiBank (which is now CitiGroup). Although we have made efforts to note these changes in the book, others will undoubtedly occur after publi- ation. In citing applications of quality management in these companies, we have generally preserved their oxiginal names to clarify that the practices and results cited ‘occurred under their original corporate identities. ACKNOWLEDGMENTS We are extremely grateful to all the quality professionals, professors, reviewers, and stuclents who have provided valuable ideas and comments during the development of this and previous editions, ‘Many people deserve special thanks for their contributions to development and production of the book. Our regards go to senior acquisitions editor Charles McCormick, J, senior developmental editor Alice Denny, content project manager Patrick Cosgrove, and technology project manager John Rich at South-Western Cengage Leaming, and Richard Fenton, Mary Schiller, and Esther Craig, our provious editors at West Educational Publishing Quality expert Joseph Juran was asked in an interview in 2002 what advice he would give to someone just starting out in quality today, He replied, "T would start out by saying “Are you lucky!” Recause I think the best is yet 4o be. In this cunrenteen- tury, we are going fo scea lot of growth in quality because the scope has expanded ¢0 much. .. away from manufacturing to all the other industries, including the giants: health care, education, and government.” We will continue to do our best to improve this book in our quest for quality and to spread what we truly believe isa fundamentally important message to future gen- ‘erations of business leaders. James R. Evans Gjames.evans@uc.edu) William M. Lindsay (lindsay@nku.edu) HTue Quatiry Systen Da. ‘quality matter? Scott Paton, in his column “First Word” in the September 2004 issue of Quality Digest, says that he thinks it still does. He observed: “Has quality -advanced to the point-where everyone's quality. is 6 good: that quality is no loviger an issue? After al, is one airline really so different from another? Theis planes may be con- figured a little differently and they may board 2 litle differently, but they all get you from point A to point B for about the same price and at the same level of safety. ...Or could it be quality has gotten so bad that quality isn't a factor in buying decisions? ‘Again, there’s little difference between most of the airlines: You arrive hungry, exhausted, and frustrated after most any flight on any airline these days. So does it really matter which airline you choose? .. .I think quality matters now more than ever because quality is about more than just price. It’s about service, style, substance, dura- bility, the community (locel, national, and global), and the indefinable ‘wow’ factor.” ‘Does quality matter to you personally asa consumer and future employee or ‘manager? We certainly hope so because that is what this book is about. Whereas poor quality can be a source of irritation and frustration to you as a consumer, it can be costly to businesses (and investors) in the form of procluct recalls or lost customers. It also can be lethal—a poorly programmed altitude warning system was partly responsible for a 1997 Korean Air crash that killed 228 people, The economic welfare and survival of businesses and nations depend on the quality of the goods and ser- vices they produce, which depend funcamentally on the quality of the workforce and ‘management practices that define the organization, ‘Today we seldom hear about quality in business, except when things go wrong, For example, in 2005 General Motors recalled mote than 300,000 vehicles because of ‘a tuin signal problem that caused the rear turn lights to flash like a hazard warning, ‘An engineering review of homes in Mississippi destroyed by Hurricane Katrina found evidence of spotty quality among builders and observed that better quality — more nails, extra bolts, and other fasteners—could have helped many wood-frame homes survive the 190-mph wind gusts. Stories of successful organizations gener- ally end up in publications dedicated to quality professionals, which basically “preach to the choir.” ‘We believe that less attention is paid to quality today as the result of two forces— "good news, bad news" type of story. The good news is that quality principles that were new to many organizations in the early 1980s have become so ingrained in the cultures of many organizations that managers and employees need not consciouslyPart 1 The Quality System think about it. The bad news is that without a conscious focus on it, itis easy for qual- ity to fall by the wayside, as has happened to many organizations, such as aitlines and even high-profile automakers such as Mercedes-Benz and Nissan, whose quality woes have been the subject of many articles in the popular business press, For many other organizations, quality is viewed as.a short-term fix; when the hype and thetorie passes, so do their quality efforts. Quality often still takes a backseat to economic Pr Nevertheless, quality has not faded away, and will not fade away, simply because itworks, with clear evidence thatiit improves the bottom line, Quality efforts are alive and well, pethaps under a different moniker in some organizations, and will remain, an important part of a continual quest for improving performance across the globe. Joseph Juran, one of the most respected leaders of quality in the twentieth century, suggested that the past century will be defined by historians as the century of pro- ductivity, He also stated that the current century has to be the century of quality “We've made dependence on the quality of our technology a part of life”? As @ member of the emerging generation of business leaders, you have an opportunity and a responsibility to improve the quality of your company and society, not just for products and services but in everything you say and do. Part 1 introduces the basic concepts of quality. Chapter 1 discusses the history, def- inition, basic principles of quality, andthe impact of quality on competitive advantage and business results. Chapter 2 describes the role of total quality in different types of organizations—manufacturing, service, health care, education, and government— and stresses the importance of taking a systems perspective of quality throughout an organization. Chapter 3 introduces the management philosophies on which modern concepts of quality are based and the managerial frameworks—the Malcolm Baldrige Criteria for Performance Excellence, ISO 9000, and Six Sigma—that guide today’s organizational approaches to quality improvement and performance excellence ‘These topics provide the foundation for the key quality principles and practices that are the subject of the remainder of the book. NOTES Z 1 Jay Reeves, “Storms Showed Bullding Quality 2. Thomas A. Stewart, “A Conversation with Joseph Counts,” The Cinchanati Enquirer, October 3, 2005,A8, Juan" Fortune, Januay 11,1999, 168-169,OutLine ‘Tis History aND Importance oF QuaLry “The Age of Craftsmanship ‘The Barly Twentieth Century Quauy PRoFILEs: Clarke American Checks, Inc., ‘and Motorola, Inc. Post-World War Il ‘The US. “Quality Revolution” Early Successes From Product Quality to Totel Quality Management Disappointments and Criticism Performance Excellence Current and Future Challenges Demin Quatiry Judgeental Perspective Produic-Based Perspective User-Based Perspective Value-Based Perspective Manufacturing Based Perspective Integrating Perspectives on Quality Customer-Driven Quality QUALITY AS A MANAGEMENT FRAMEWORK Principles of Total Quality Infrastructure, Practices, and Tools Quaurry ano Compermye ADVANTAGE Quality and Business Results ‘Tiree Levers or QuaLity Quatiry ano Parsonat VALUES Quaury ni Practice: The Evolution of Quality at Xerox: From Leadership Through Quality to Lean Six Sigma Quaury iW Practice: Bringing Total Quality Principles to Life at KARLEE Review QUESTIONS Discussion Quastions Projects, Exc, ‘Casts Skiltec:Care Pharmacy A Tale of Two Restaurants Deere & Company Bowus Marewats (on tHe stooent CD) Summary of Key Points and Terminology Quality in Practice: Building Trust Through Quality at Gerber Case—A Total Quality Business Model Case—ts Quality Good Marketing or Is Good Marketing Quality? Quaisy is by io means a new concept in modern business. In October 1887 William. Cooper Procter, grandson of the founder of Procter & Gamble, told his employees, “The firstjob we have is to turn out quality merchandise that consumers will buy and keep on buying. If we produce it efficiently and economically, we will earn a profit, in 3Part The Quality System which you will share.” Procter’s statement addresses three issues that are critical to managers of manufacturing and service organizations: productivity, cost, and quality Productivity (the measure of efficiency defined as the amount of output achieved per unit of input), the cost of operations, and the quality of the goods and services that create customer satisfaction all contribute to profitability. Of these three determinants of profitability, the most significant factor in determining the long-run sticcess or fail- lure of any organization is quality. High-quality goods and services can provide an organization with @ competitive edge. High quality reduces costs resulting from relurns, rework, and scrap, It increases productivity, profits, and other measures of success. Most importantly, high quality generates satisfied customers, who reward the organization with continued patronage and favorable word-of-mouth advertising, To better understand the relationship among these factors, just consider Ford Motor Company. During the 1980s Ford fought its way from the bottom of Detroit's Big Three automakers to the top of the pack through a concerted effort to improve quality and better meet customer needs and expectations. It quickly became a highly profitable business, However, on January 12, 2002, a newspaper headline read, “lord to cut 35,000 jobs, close 5 plants.” CEO William Ford is cited as stating, “We strayed from what got us to the top of the mountain, and it cost us greatly. .., We may have underestimated the growing strength of our competitors. There were some strategios that were poorly conceived, and we just didn’t execute on the basics of our business.” ‘The article goes on to observe that Ford “has been dogged by quality problems that forced the recall of several new models, including the Explorer, one of the top money- makers.” One of the key elements of Ford’s 2002 Revitalization Plan was fo “Continue Quality Improvements.” In fact, the top to "vital few priorities” set by Ford's president for North Ametica ate “Improve quality” and “Improve quality.” if it were an easy task, there would be little need for this book. The mandate for focus- ing on quality is clear. In working with Chrysler Corporation (now Daimler Chrysler) to improve quality several decades ago, a vice president of the United Auto Workers (UAW) succinctly stated the impor ssa tance of quality: “No quality, no sales. No sales, “Building maitatine—unly no profit. No profit, no jobs.” inlo. an “Orgintaation’s. goods: ad In this chapter we examine the notion of seri aid more imporlanty, ito quality. We discuss its history, its importance ine infrasiricureof the ganization business, and its role in building and sustaining —_“#8e/f, isnot art ensy task. competitive advantage. At the beginning of each chapter we profile two leading companies that have developed exemplary quality management practices (see the Quality Profiles). These examples will help you understand some of the key cultural issues that comprise the foundation of high- performing organizations. ‘THE HISTORY AND IMPORTANCE OF QUALITY In a broad sense, quality assurance refers to any planned and systematic activity directed toward providing consumers with products (goods and services) of appro- priate quality, along with the confidence that products meet consumers’ requii ments. Quality assurance depends on excellence of two important focal points in business: the design of goods and services and the control of quality during execu- tion of manufacturing and service delivery. It also generally includes some form of measurement and inspection activity. Quality assurance has been an important aspect of production operations throughout history? For instance, Bgyptian- wall: paintings circa 1450 B.C. show evidence of measurement and inspection, Stones for I] iChapter 1 Introduction to Quality the pyramids were cut so precisely that even today it is impossible to put a knife blade between the blocks. The Egyptians’ success was the result of good design, the consistent use of well-developed building methods and procedures, and precise mea- suring devices. ‘The Age of Craftsmanship During the Middle Ages in Europe, the skilled craftspetson served both as manufac- turer and inspector. “Manufacturers” who dealt directly with the customer took con- siderable pride in workmanship. Craft guilds, conbisting of masters, journeymen, and apprentices, emerged to ensure ‘that craftspeople were adequately trained. (Quality asstirance was informal; every effort was made to ensure that quality was built into the final product by the people who produced it. These themes, which were lost with the advent of the Industrial Revolution, are important foundations of modern quality assurance efforts. Tn the middie of the eighteenth century, a French gunsmith, Honoré Le Blane, developed a syetem for manufacturing muskets to a standard patter using inter ‘changeable parts. Thomas Jefferson brought the idea to America, and in 1798 the new US. government awarded Eli Whitney a tivo-year contract to supply 10,000 muskets to its armed foices, ‘The use.of interchangeable parts necessitated careful control of quality, Whereas a customized product built by a eraftsperson can be tweaked and hammered to fit and work conectly, random matching of mating parts provides no such assurance. The parts must be procuced according to a carefully designed stan- dard. Whitney designed special machine tools and trained unskilled workers to make parts following a fixed design, which were then measured and compared to a model He underestimated the effect of variation in production processes, however (an obsta~ cle that continues to plague companies to this day). Becauie ofthe resulting problems, Whitney needed more than ten years to complete the project. Nonetheless, the value of the concept of interchangeable parts was recognized, making quality assurance a “critical component of the production process during the Industrial Revolution. ‘The Early Twentieth Century In the early 1900s the work of Frederick W. Taylor, often called the “father of scientific management,” led to a new philosophy of production. Taylor’s philosophy was to separate the planning function from the execution function. Managers and engineers ‘were given the task of planning; supervisors and workers took on the task of execu tion. This approach worked well at the turn of the century, when workers lacked the ‘education needed for doing planning. By segmenting a job into specific work tasks and focusing on increasing efficiency, quality assurance fell into the hands of inspec- fors. Manufacturers were able to ship good-quality products but at great costs, Defects were present but were removed by inspection. Plants employed hundreds, even thousands, of inspectors. Inspection was thus the primary means of quality con- trol during the first half of the twentieth century. Eventuaily, production organizations created separate. quality departments. ‘This artificial separation of production workers from responsibility for quality assurance led to indifference to quality among both workers and their managers. Concluding that quality was the responsibility of the quality department, many upper managers turned their attention to output quantity and efficiency. Because they had delegated so much responsibility for quality to others, upper managers gained little knowledge about quality, and when the quality crisis hit, they were I_propared to deal with it.6 Part The Quality System ere eee eee ee eet eae ee Quaury Prorites Care American CHects, Inc., AND Motorota, Inc. Headquartered in San Antonio, Texas, Clarke American supplies personalized checks, check- ing account and bill-paying accessories, finan- ial forms, and a growing portfolio of services to more than 4,000 financial institutions in the United States. In the early 1990s, when an excess manufacturing capacity in check print- ing triggered aggressive price competition, Clarke American elected to distinguish itself through service. Company leaders made an all- out commitment to ramp up the firm’s Fixst in Service® (EIS) approach to business excellence. ‘Comprehensive in scope and systematic in exe- ution, the FIS approach defines how Clarke American conducts business and how all com- Pany associates ate expected to act to fulfill the ‘company’s commitment to superior service and quality performance. From orientation and onward, associates are steeped in the company’s culture and values: cus- tomer first, integrity and mutual respect, know!- edge sharing, measurement, quality workplace, recognition, responsiveness, and teamwork. They are schooled regulatly in the application of stan- dardized quality tools, performance measure- ment, use of new technology, team disciplines, and specialized skills. Individual initiative and innovation ate expected. Associates ate encour- aged to contribute improvement ideas under Clarke American's 8.1.4. suggestions, teams, actions, results~program. In 2001 more than 20,000 process improvement ideas saved the com- aay an estimated $10 milion. Motorola, Inc, is among the largest US. indus- ‘rial corporations. Its principal product lines include communication systems and semiconduc- tors, and it distributes its products through direct sales and service operations. Motorola was a leader in the U.S. quality revolution during the 1980s and was one of the initial group of compa- nies to receive the Malcolm Baldrige National Quality Award in 1988. Two key beliefs guide the culture of the firm: respect for people and uncompromising integrity. Motorola's goals are to increase its global market share and to become the beat in its class in all aspects—people, marketing, technology, product, manufacturing, and service. In terms of people, its objective is to be recognized ‘worldwide asa company for which anyone would want to work. Motorola was a pioneer in continual reduc- tion of defects and cycle times in all the com- Pany’s processes, from design, order entry, manufacturing, and marketing, to administra. tive functions. Employees in every function of the business note defects and use statistical techniques to analyze the results, Products that ‘once took weeks to make are now completed in {ess than an hour: Even the time needed for closing the financial books has been reduced, What used to take a month now requires only four days, Although the corporation has had its share of difficulties in tough competitive markets and the economic environment that technology compa- nies have encountered, Motorola's focus on quial- ity has not waned, In 2002 the Commercial, Government, and Industrial Solutions Sector (CGISS) was recognized as a Baldrige Award recipient. CGISS is the leading worldwide sup- Plier of two-way radio communications and produets and is recognized around the world for its environmental, health, and safety efforts, ‘Customers zeport high levels of satisfaction, and the division demonstrates strong financial, prod- uct quality, cycle time, and productivity perfor- mance. These results stem from exceptional Practices in managing human assets; sharing data and information with employees, customers, and suppliers; and aligning all its business processes with key organizational objectives. ‘Source: Baerga Aword Rosipiont Profies, National Insitute of Standards and Technelogy, US. Department of Commerce Portions copyright © Clarka Ameriony Check, Ines, 2001, All tights served.Chapter? tntradvetion to Quality Ironically, one of the leaders of the second Industrial Revolution, Henty Ford St, Geveloped many of the fundamentals of what we now call “total quality practices” in, the early 1900s. This piece of history was not discovered until Ford executives visited Japan in 1982 to study Japanese management practices. As the story goes, one Japanese executive referred repeatedly to “the book,” which the Ford people learned ‘was a Japanese translation of My Life and Work, written by Henry Ford and Samuel Crowther in 1926 (New York: Garden City Publishing Co.) “The book” had become Japan’s industrial bible and helped Ford Motor Company realize how it had strayed from its principles over the years. The Ford! executives had to go toa used bookstore to find a copy when they returned to the United States. ‘The Bell System was the leader in the early modem history of industrial quality assurance.’ It created an inspection department in its Western Blectric Company in the early 1900s to support the Bell operating companies. Although the Bell System achieved its noteworthy quality through massive inspection efforts, the importance of quality in providing telephone service across the nation led it to:research and develop new approaches. In the 1920s employees of Western Electric’s inspection department were transferted to Bell Telephone Laboratories. The duties of this gtoup included the development of new theories and methods of inspection for improving.and maintaining quality. ‘The early pioneers of quality assurance— Walter Shewhart, Harold Dodge, George Edwards, and others such as Joseph Juran and W. Edwards Deming—were members of this group. These pioneers not only coined the term quality assurance; they also developed many useful techniques for improving quality and solving quality problems. Thus, quality became a technical discipline of its own. ‘The Western Blectric group, led by Walter Shewhart, ushered in the era of statisti- cal quality control (SQC), the application of statistical methods for controlling quel= ity. SQC goes beyond inspection to focus on identifying and eliminating the problems that cause defects. Shewhart is credited with developing control charts, which became a popular means of identifying quality problems in production processes. and ensuing consistency of output. Others in the group developed many other useful statistical techniques and approaches, ‘During World War Il, the United States military began using statistical sampling plocedures and imposing stringent standards on suppliers. ‘The War Production Board offered free training courses in the statistical methods developed within the Bell System. The impact on wartime production was minimal, but the effort devel- oped quality specialists, who began to use and extend these tools within their orga- nizations. ‘Thus, statistical quality control became widely known and gradually adopted throughout manufacturing industries. Sampling tables labeled MIL-STD, for military standard, were developed and are still widely used today. ‘The disci- pline’s first professional journal, Industrial Quality Control, was published in 1944, and professional societies—notably the American Society for Quality Control (now called the American Society for Quality, or ASQ, www.asq.org)—were founded soon. after to develop, promote, and apply quality concepts, Post-World War I After the war, during the late 1940s and early 1950s, the shortage of civilian goods in the United States made production a top priority. In most companies, quality remained the province of the specialist. Quality was not a priority of top managers, who delegated this responsibility to quality managers. Top management showed litle interest in quality improvement or the prevention of defects and errors, relying, instead on mass inspection.Port + The Quality Systern During this time, two US. consultants, Dr. Joseph Juran and Dr. W: Edwards Defning, introduced statistical quality control techniques to the Japanese to aid them in their rebuilding efforts. A significant part of their educational activity was focused on-upper management, rather than quality specialists alone. With the support of top managers, the Japanese integrated quality throughout theit organizations and devel- oped a culture of continuous improvement (sometimes referred to by the Japanese term kaizen, pronounced Ki-zen). Back in 1951, the Union of Japanese Scientists and Engineers (USE) instituted the Deming Prize (see Chapter 3) to reward individuals and companies who meet stringent criteria for quality management practice. Improvements in Japanese quality were slow and steady; some 20 years passed. afore the quality of Japanese procucts exceeded that of Western manufacturers. By the 1970s, primarily as a result of the higher quality levels of their products, Japanese companies’ penetration into Western markets was significant, Hewlett- Packard reported one of the more startling facts in 1980. In testing 300,000 16K RAM chips from three U.S. arid three Japanese manofacturers, Hewlett-Packard found that the Japanese chips had an incoming failure rate of zero failures per 1,000 compared to rates of 11 and 19 for the U.S. chips. After 1,000 hours of use, the failure rate of the U.S. chips was up to 27 times higher. In a few short years, the Japanese made major inroads into market previously dominated by American, companies, The automobile industry is anothes, more publicized, example, The June 8, 1987, BusinessWeek special report on quality noted that the number of prob- lems reported per 100 domestic models (1987) in the first 60 to 90 days of owner- ship averaged between 162 and 180. Comparable figures for Japanese and German automobiles were 129 and 152, respectively. In the 1980s the US. steel, consumer electronics, and even banking industries also were victims of global competition. US, business recognized the crisis. ‘The U.S. “Quality Revolution” ‘The decade of the-1980s was a period of remarkable change-and growing awareness of quality by consumers, industry, and government. During the 1950s and 1960s, when “nade in Japan” wes associated with inferior products, U.S. consumers purchased. domestic goods and accepted theit quality without question. During the 1970s, how- ever, increased! global competition and the appearance of higher-quality foreign prod- ucts on the matket led U.S. consumers to consider their purchasing decisions more carofully. They began to notice differences in quality between Japanese- ancl US-made products, and consequently began to expect and clemand high quality and reliability it goods and services at a fair price. Consumers expected products to function properly and not to break or fail under reasonable use, and courts of law supported them. Extensive product recalls mandated by the Consumer Product Safety Commission in the early 1980s and the intensive media coverage of the Challenger space shuttle disas- ter.in 1986, in which the Challenger exploded shortly after takeoff killing all. seven astronauts, increased awareness of the importance of quality. Consequently, consumers are more apt than ever before to compare, evaluate, and choose products critically for total value-quality, price, and serviceability. Magazines such as Consumer Reports and Internet reviews make this task much easier. Obviously, the more technologically complex a product, the more likely that some- thing will go wrong with it. Government safety regulations, product recalls, and the rapid increase in product-liability judgments have changed society's attitude from “let the buyer beware” to “let the producer beware.” Businesses now see increased atten- tiveness to quality as vital to their survival. Xerox, for instance, discovered that iis Japanese competitors were selling small copiers for what it cost Xerox to make them atChapter 1 Introduction to Quality the time, and as a consequence, the company initiated a corporatewide quality improvement focus to meet the challenge. Xerox and its former CEO David Kearns, who led their “Leadership Through Quality” initiative, were a major influence in the promotion of quality among US. corporations, In the five years of continuous improvement culminating in the firm’s receiving the Malcolm Baldrige National Quality Award in 1989, defects per 100 machines were decreased by 78 percent, unscheduled maintenance was decreased by 40 percent, manufacturing costs dropped 20 percent, product development time decreased by 60 percent, overall product qual- ity improved 93 percent, secvice response time was improved by 27 percent, and the company recaptured much of the market it had lost. The company experienced strong, growth during the 1990s, However, like Ford Motor Company, discussed earlier in this chapter, Xerox lost focus on quality as a key business driver, much of it as a result of short-sightedness on the part of former top management. Fortunately, new corpo- rate leadership recognized the crisis and renewed its focus and commnitment to qual- ity (eee the Quality in Practice case at the end of this chapter). ‘A Westinghouse (now CBS) vice president of corporate productivity and quality summed up the situation by quoting Dr. Samuel Johnson’s remark: “Nothing con- centrates a man’s mind so wonderfully as the prospect of being hanged in the mozn- ing.” Quality excellence became recognized as a key to worldwide competitiveness and was heavily promoted throughout industry! Most major U.S. companies insti- tuted extensive quality improvement campaigns, directed not only at improving internal operations, but also toward satisfying external customers. ‘One of the most influential individuals in the quality revolution was W. Edwards Deming, In 1980 NBC televised a special program entitled “If Japan Can... Why Can't We?” The widely viewed program revealed Deming’ key role in the develop- ‘ment of Japanese quality, and his name was soon a household word among corporate executives. Although Deming had helped to transform Japanese industry three clecades earlier, twas only after the television program that U.S. companies asked for his help. From 1980 until his death in 1993, his leaclership and expertise helped many US: companies revolutionize their approach to quality. Barly Successes Asbusiness and industry began to focus on quality, the government recognized how critical quality is to the nation’s economic health. In 1984 the US. government desig nated October as National Quality Month. In 1985 NASA announced an Excellence ‘Award for Quality and Productivity. In 1987 the Malcolm Baldrige National Quality ‘Award (see Chapter 3), a statement of national intent to provide quality leadership, ‘was established by an act of Congress. The Baldrige Award became the most influen- tial instrument for creating quality awareness among U.S. businesses, In 1988 President Reagan established the Federal Quality Prototype Award and the President's Award for governmental agencies. From the late 1980s and through the 19906, interest in quality grew at an unprece+ dented rate, fueled in part by publicity from the Malcolm Baldrige National Quality ‘Award. Companies made significant strides in improving quality. In the automobile industry, for example, improvement efforts by U.S. automakers reduced the number of problems reported per 100 domestic cars in the first 60 to 90 days of ownership fom about 170 in 1987 to 136 in 1991, The gaps between Japanese and US. quality began to natrow, and US, firms regained much of the ground they had lost. (The rate has continued to improve, down to 118 reported problems per 100 ears in the 2005 J.D. Power and Associates’ Initial Quality Survey, with several U.S, models ranking, among the best) In 1989 Florida Power and Light was the first non Japanese company10 Part 1 The Quality System to be awarded Japan’s coveted Deming Prize for quality; in 1994 AT&T Power Systems became the second. Quality practices expanded into the service sector and into such nonprofit orgenizations as schools and hospitals. By 1990 quality drove nearly every organization's quest for success. By the mic-1990s thousands of profes- sional books had been written, and quality-related consulting and training hiad blos- somed into an industry. Companies began to share their knowledge and experience through formal and informal networking. New quality awards were established by the federal government under the Clinton administration, The majority of states in the United States developed award programs for recognizing quality achievements in business, education, not-forprofits, and government. In 1999 Congress added nonprofit education and heelth care sectors to the Baldrige Award. From Product Quality to Total Quality Management Although quality initiatives focused initially on reducing defects and errors in prod- ucts and services through the use of measurement, statistics, and other problem-solving, tools, organizations began to recognize that lasting improvement could not be accomplished without significant attention to the quality of the management prac- tices used on a daily basis. Managers began to realize that the approaches they use to listen to customers and develop long-term relationships, develop strategy, measure performance and analyze data, reward and train employees, design and deliver products and services, and act as leaders in their organizations are the true enablers of quality, customer satisfaction, and business results. In other words, they recog- nized that the “quality of management” isas importants the “menagementof quality” In this fashion, quality assurance gave way to quality management. Many began to use the tetm Big Q to contrast the difference between managing for quality in all organi- zaiional processes as opposed to focusing solely on manufactaring quality (Little Q), As organizations began to integrate quality principles into:their management sys- tems, the notion of total quality management, or TOM, became popular: Rather than ‘a narrow engineering or production-based technicat discipline, quality took on-@ new role that permeated every aspect of running an organization. Disappointments and Criticism Unfortunately, with all the hype and rhetoric (and the unfortunate three-letter acronym, TOM) companies scrambled fo institute quality programs. In their haste, many failed, leading to disappointing results, Consequently, TOM met some harsh criticism. In reference to Douglas Aircraft, a troubled subsidiary of McDonnell Douglas Corporation (since merged with the Boeing Corporation), Newsweek stated, "The aircraft maker three years ago embraced “Total Quelity Management a Japanese import that had become the American business cult of the 1980s... At Douglas, TOM appeared to be just one more hothouse Japanese flower never meant to grow on rocky ground.”® Other articles in The Wall Street Journal (“Quality Progeams Show Shoddy Results,” May 14, 1992) and the New York Times ("The Lemmings Who Love Total Quality,” May 3, 1992) suggested that total quality approaches were passing fads and inherently flawed. BusinessWeek commentator John Byme even pronounced 'TOM “as dead as a pet rock” oes : ri une 23,1997, p.47). However reasons for TOM gph Chit oka failures usually are rooted in poor organiza- salared orn tional approaches and management systems, such as poor quality strategies or good strategiesChapter 1 Introduction to Quality that were poorly executed, and not in the foundation principles of quality manage- ‘ment. In fact, BusinessWeek's Byrne went on to sey that today’s most popular man- agement ideas focus on “good old-fashioned, strategic planning” and customer satisfaction, which are generic to the quality management philosophy. As the editor of Quality Digest put it: "No, TOM isn’t dead. TOM failures just prove that bad management is still alive and kicking.” A poor major business decision such ‘ag an inappropriate merger or acquisition, a weak global economy, or a change in top management can easily undo yeats of effort to build a quality-focused organization. ‘This possibility is evident in what happened at Ford and Xerox. For example, in June 2003 the Securities and Exchange Commission fined six former top Xerox executives, including two former CEOs who followed David Kearns, to settle allegations of finan- cial fraud~~clearly executive attention was diverted to Wall Street rather than quality. Performance Excellence ‘As TQM changed the way that organizations thought about customers, human resources, and manufacturing and service processes, many top executives began to rec- ognize that all funclemental business activities—such as the role of leadership in guid- ing an organization, how an organization creates strategic plans for the future, how daia and information are used to make business decisions, and so on—needed to be aligned with quality principles, work together as a system, ‘and be continuously improved as business conditions and directions change. The notion of quality has evolved into the concept of performance excellence that aligns and integrates all busi- ness activities, results in delivery of ever-improving value to customers and stakehold- ers, and contributes to overall effectiveness and organizational sustainability. As we shall seein Chapter 3, the Malcolm Baldrige National Quality Award provides a frame- work for organizations that wish to achieve high levels of performance excellence. In recent years, a new interest in fundamental quality principles emerged in cor- porate boardrooms under the concept of Six Sigma, a cystomer-focused and results: tiented approach to business improvement. Six Sigma integrates many quality tools and techniques thathave been tested and validated over the years, with a bottom-line orientation that appeals to senior managers. Many companies such as Xerox have adopted Six Sigma as a way of revitalizing their quality efforts. We will discuss the concepis of Six Sigma as they relate to the topics in many chapters of this book and delve into it in more depth in Part 3, Current and Future Challenges “The real challenge today is to ensure that managers continue to apply the basic prin- ciples on which quality management and performance excellence are based. Unfortunately, a survey sponsored by ASQ found significant gaps between exec tives’ awareness of quality improvement processes and implementation, suggesting, that many organizations either are not using these proven approaches or simply don't realize that approaches they do ise are rooted in the quality discipline (and may miss key opportunities to improve them).” As former Xerox president David Kearns observed, quality is “a race without a finish line.” ‘The global marketplace and domestic and international competition have made organizations around the world realize that their survival depends on high quality? ‘Many countries, stich as Korea and India, are mounting national efforts to increase qual- ity awareness, including conferences, seminars, radio shows, school essay contests, and pamphlet distribution. Spain and Brazil are encouraging the publication of quality books in their native language to make them more accessible (this book has been ui 2B Pert 1 The Quality System translated into Spanish and Chinese). These trends will only increase the level of com- petition in the future. Approaches, such as Six Sigma, require increased levels of training, and education for managers and front-line employees alike and require the develop- ment of technical staff. Thus, a key challenge is to allocate the necessary resources to maintain a focus on quality, particularly in times of economic downtums. However, businesses will require an economic justification for quality initiatives: Quality must deliver bottom-line results, An executive at Texas Instruments observed that “Quality will have to be everywhere, integrated into all aspects of a winning organization.” ‘Companies such as Ford and Xerox recognized that the process is not easy; true quality requites persistence, discipline, and steadfast leadership committed to excellence, In 2005 ASQ identified six key forces that will influence the future of quality? 1, Globalization: Organizations will be shaped by the fluidity of the Internet, unen- cumbered by legacy infrastructures and impacted by shifting trade politics. ‘This will demand new kinds of collaboration, carry an unknown competitive intensity, and dive preoccupation with the bottom line. 2. Innooation/creativity/change: Design quality and innovation will become increas- ingly significant to deal with faster rates of change, shorter life cycles, and rising consumer sophistication. 3. Outsourcing: Work will become increasingly independent of place and space. Quality will extend increasingly into global supplier networks. 4, Consumer sophistication: ‘The high expectations of today’s consumers will con- tinue to rise, encompassing product quality, seamless delivery, ever shorter life cycles, and fresh features. Quality is necessary but no longer sufficient, 5. Value creation: Determining the value proposition of any product, service, or business will require clarity and definition from the stakeholder’s viewpoint. Perfect quality and lawless service won’ tbe enough, and management systems, mustadapt. Value includes sustainability; societal, environmental and financial results; and eliminationp£ waste. Quality willhave to create value in everything thatis done. 6. Changes in quality: Quality must evolve from @ process model to a systems approach, Quality will move business strategies and actions through people. ‘A number of implications arise out of these forces. As the business world becomes. more complex, quality must be approached from a systems, rather than a process, petapective, Management systems are becoming more integrated; for example, qual- ity, environment, safety, and health must be viewed together. Quality has transi- tioned from control, to assurance, to management; the next era will focus heavily on quality of design. Quality will take on more of a strategic, rather than tactical, fune- tion. These will challenge both managers and quality professionals, DEFINING QUALITY Quality can be a confusing concept, partly because people view quality in relation to differing criteria based on their inclividual roles in the production-marketing value chain. In addition, the meaning of quality continues to evolve as the quality profession grows and matures. Neither consultants nor business professionals agree on a univer- sal definition. A stady that asked managers of 86 firms in the eastern United States to define quality produced several dozen different responses, including the following: 1. Perfection 2, Consistency 3, Eliminating wasteCheptor 1 Introduction te Quality 4, Speed of delivery 5. Compliance with policies and procedures 6, Provicling a good, usable product 7. Doing, it right the first time 8. Delighting or pleasing customers 9. Total customer service and satisfaction! ‘Thus, it is important to understand the various perspectives from which quality is viewod to fully appreciate the role it plays in the many parts of @ business organization.” Judgmental Perspective ‘One common notion of quality, often used by consumers, is that it is synonymous with superiority or excellence. In 1931 Walter Shewhart first defined quality as the goodness of a product. This view is referred to as the iranscendent (Kranscend, "to rise above or extend notably beyond ordinary limits”) definition of quality. In this sense, quality is “both absolute and universally recognizable, a mark of uncompromising standards and high achievement.” Assuch, it cannot be defined precisely—you just know it when you see it. It is often loosely related to a comparison of features and. characteristics of products and promulgated by marketing efforts aimed at develop- ing quality as an image varieble in the minds of consumers. Cornmon examples of products attibuted with this image are Ritz-Carlton hotels and Lexus automobiles. Excellence is abstract and subjective, however, and standards of excellence may vary considerably among individuals, Fence, the transcendent definition is of little practical value to managers, It does not provide a means by which quality can be meastired or assessed as a basis for decision making, Product-Based Perspective Another definition of quelity is that it is a function of a specific, measurable variable ‘and that differences in quality reflect differences in quantity of some product attribute, stich as in the number of stitches per inch on a shirtor in the number of cylinders in an engine. This assessment implies that higher levels or amounts of product characteris- tics are equivalent to higher quality. As a result, quality is often mistakenly assumed tobe related to price: the higher the price, the higher the quality. Just consider the case ofa man in Florida who purchased a $262,000 Lamborghini only to find a leaky roof, a battery that quit without notice, a sunroof that detached when the car hit a bump, and doors that jammed!" However, a product—a term used in this book to refer to either a manufactured good or a service—need not be expensive to be considered a quality product by consumers. Also, as with the notion of excellence, the assessment of product attributes may vary considerably among individuals, User-Based Perspective A thitdl definition of quality is based on the presumption that quality is determined by what a customer wants. Individuals have different wants and needs and, hence, different quality standards, which leads to a user-based definition: Quality is defined as fitness for intended use, or how well the product performs its intended function. Both a Cadillac sedan and a Jeep Cherokee ate fit for use, for example, but they serve different needs and different groups of customers. If you want a highway-touring, vehicle with luxury amenities, then a Cadillac may better satisfy your needs. If you ‘wanta vehicle for camping, fishing, or skiing, trips, a Jeep might be viewed as having, better quality. 13“4 op Port 1 The Quality Systern Nissan Motor Cat Company Limited's early experience in the U.S. market pro- vides an example of applying the fitness-for-use concept.# Nissan, which pro- duced a line of vehicles called Datsun (stemming from the company’s historical roots), tested the U.S. market in 1960. Not wanting to put the Nissan name on a tisky venture, they decided to use the name Datsun on all cars and trucks sold in North America. Although the car was economical to own, US. drivers found it to be slow, hard to drive, low-powered, and not very comfortable. In essence, it lacked most of the qualities that North American drivers expected. The U.S. repre- sentative, Mr. Katayama, kept asking questions and sending the answers back to Tokyo. For some time, his company refused to believe that US. tastes were differ- ent from its own, After many years of nagging, Mr. Katayarna finally got a product that Americans liked, the sporty 1970 2402. Eventually, the Nissan brand name replaced Datsun. Car enthusiasts will know that Nissan reintroduced a modern, version of ts classic vehicle in 2002, A second example comes from a U.S. appliance company whose stoves and refrigerators were admired by Japanese buyers. Unfortunately, the smaller living quarters of the typical Japanese home lack enough space to accommodate the US. models. Some could not even pass through the narrow doors of Japanese kitchens. Although the products’ performance characteristics were high, the products were simply not fit for use in Japan. Value-Based Perspective A fourth approach to defining quality is based on value—that i, the relationship of usefulness or satisfaction to price. From this perspective, a quality product is one that is as useful 8 é6inpeting products and is sold at.a lower price, or one that offers greater usefulness or satisfaction at a comparable price. Thus, one might purchase a generic product, rather than a brand-riame one, if it performs as well as the brand- rain product ata lower price: Ar-example of this perspective in practice is evident in a comparison of the U.S: and Japanese automobile markets. A Chrysler marketing executive noted, “One of the main reasons that the leading Japanese brands—Toyota and Honda—don’t offer the huge incentives of the Big Three (Genéral Motors, Ford, and Chrysler) is that they have a much better reputation for long-term durability.” In essence, incentives and rebates are payments to customers to compensate for lower quality. Competing on the basis of value became a'koy business strategy in the early 1990s, Procter é& Gamble, for example, instituted a concept it calls value pricing — offering products at “everyday” low prices in an aitempt to counter the common con- sumer practice of buying whatever brand happens to be on special. In this way, P&G hoped to attain consumer brand loyalty and more consistent sales, which would pro- vide significant advantages for its manufacturing system. Competition demands that businesses seek to satisfy consumers’ needs at lower prices. The value approach to quality incorporates a firm’s goal of balancing product characteristics (the customer side of quality) with internal efficiencies (the operations side). Manufacturing-Based Perspective A fifth view of quality is manufactiting based and defines quality as the desirable outcome of engineering and manufacturing practice, or conformance to specifications. Specifications are targets arid tolerances determined by desigiters of products and services. Targets are the ideal values for which production is to strive; tolerances are specified because designers recognize that itis impossible to meet targets all ofChoptor 1 Introduction to Quality the time in manufacturing, For example, a part dimension might be specified as 0,236 + 0.003 em.” These measurements would mean that the target, or ideal value, is 0.236 centimeter and that the allowable variation is 0.003 centimeter from the target (a tolerance of 0.006 em). Thus, any dimension in the range of 0.233 to 0.239 centimeter is deemed acceptable and is said to conform to specifications, Likewise, in services, “on-time arrival” for an airplane might be specified as within 15 minutes of the scheduled arrival time, The target is the scheduled time, and the tolerance is specified to be 15 minutes. For the Coca-Cola Company, for example, quality is “about manufacturing a product that people can depend on every time they teach for it,” according to Donald R. Keough, former president and chief operations officer. Through rigorous quality and packaging standards, the company strives to ensure that its products will taste the same anywhere in the world a consumer might buy them, Even service organiza- tions strive for consistency in performance; The Ritz-Carlton Hotel Company, LLC, ‘which we discuss further in Chapter 2, seeks to ensure that its customers will have the same quality experience at any of their properties around the world. Conformance tospecifications isa key definition of quality because it provides a means of measitring quality. Specifications are meaningless, however, if they do not reflect attributes that ate deemed important to the consumet Integrating Perspectives on Quality Although product quality should be important to all individuals throughout the value chain, how quality is viewed may depend on one's position in the value chain—that is, whether one is the designer, manufacturer or service provider, dis- tributor, or customer, To understand this concept more clearly from a manufactur- ing perspective, examine Figure 1.1. The customer is the driving force for the production of goods and services, and customers generally view quality from. either the transcendent or the product-based perspective. The goods and services produced should meet customers’ needs; indeed, business organizations’ exis- ‘ences depend on meeting customer needs. It is the role of the marketing function to determine these needs. A product that meets customer neéds éan rightly be described as a quality prociuet. Hlence, the user-based definition of quality is mean- ingful to people who work in marketing. The manufacturer must translate customer requirements into detailed product and process specifications. Making this translation is the role of research and devel- opment, product design. and engineering, Product specifications might address such, alttibutes a8 size, form, finish, taste, dimerisions, tolerates, thaterials, operational characteristics, and safety features. Process specifications indicate the types of equip- ment, tools, and facilities to be used in prodwétion. Product designers must balance ‘performance and cost arketing objectives; thus, the velue-based definition’ ‘of quality is most usefi age. zl ‘A great deal of variation can occur during manufacturing operations. Machine settings can fall out of adjustment; operators and assemblers can make mistakes; ‘materials can be defective. Even in the most closely controlled process, specific vati- ations in product output are inevitable and unpredictable. The manufacturing fune- tion is responsible for guaranteeing that design specifications are adhered to during production and that the final product performs as intended. Thus, for production personnel, quality is described by the manufacturing-based definition. Conformance to product specifications is their goal. ‘The production-distribution cycle is completed when the product has been ‘moved from the manufacturing plant, pethaps through wholesale and retail outlets, 1516 Part 1 The Quality System Figure 1.1 Quality Perspectives in the Value Chain “Trenicondont quay and rocks. ely ——[ weteang ! Tae nao ‘ i ‘et Oosign Produets 1 od nea Distro | Information tow = — — > Product flow = ————> to the customer: Distribution does not end the customer’s relationship with the man- tufacturer, however. The customer may need various services such as installation, user information, and special training, Such ser- ignored in quality management. vices are part of the product and cannot be oes dl ni ‘isk Hospital, care offers. a good illustration of how different views of quality can affect a single product in a service context. The tran- scendent definition of quality applies to the » ness functions spank diferent “Ian. s/he nse for diferent views foal coislitutes ually at lifer ent: pomnts: Inside: ond outside a itation is negessay: to tb eeanlation is necessary t0 hospital's need to promote and maintain an. Pvt of fie quality the wil: image of excellence by ensuring the compe-_ fi slomiera‘nendsy tency of its medical staff, the availability of treatments for rare or complicated disorders, or the presence of advanced medical technology. Patients and third-party organizations make subjective judgments about this kind of quality. Those who audit hospital efficiency and monitor treat- ment consistency and resource consumption define quality according to product- based dimensions. This view of quality is predominant among government and health care accrediting agencies. Patients’ perceptions of health care quality are focused on product-based and user-based criteria, and their expectations are high because of widely publicized improvements in medical care, advances in therapeutic drug treatments, and inno- vative surgeries. These expectations increase the pressure on hospitals to provide aa Chapter 1 Introduction to Quality variety of services to meet these expectations. As demand for flawless service increases, the medical staff and ancillary services must tum their attention to a manufacturing based definition of quality. This view of accrediting agencies and tke medical profession mandates conformance to various practices and determines licensing requirements for practice. Customer-Driven Quality The American National Standards Institute (ANSI) and ASQ standardized official definitions of quality terminology in 1978.!° These, groups defined quality as “the totality of features and characteristics of a product or service that bears on its ability to satisfy given needs.” This definition draws heavily on the product- and user-basea approaches and is driven by the need to contribute value to customers and thus to influence satisfaction and preference. By the end of the 1980s, many companies had begun using a simpler, yet powerful, customer-driven definition of quality that remains popular today: Quality is meeting or exceeding customer expectations. To understand this definition; one must first understand the, meanings of "cus- tomer.” Most people think of a customer as the ultimate purchaser of a product or service; for instance, the person who buys an automobile for personal use or the ‘guest who registers at a hotel is considered an ultimate purchaser. These custorners are more precisely referred to as consumers. Clearly, meeting the expectations of ‘consumers is the ultimate goal of any business, Before a product reaches consumers, however, it may flow through a chain of many firms or departments, each of which adds some value to the product. For example, an automobile engine plant may pur- chase steel from a steel company, produce engines, and then transport the engines to an assembly plant. The steel company is a supplier to the engine plant; the engine plant is a supplier to the assembly plant. The engine plant is thus a customer of the steel company, and the assembly plant is a customer of the engine plant. These cus- tomers are called external customers. Every employee in a company also has internal customers who receive goods or services from suppliers within the company. An assembly department, for exam- ple, is an internal customer of the machining department, and managers ate inter~ nal customers of the secretarial pool. Most businesses consist of many such "chains of customers.” Thus, the job of an employee is not simply to please his or her super visor; itis to satisfy the needs of particular internal and external customers, Failure to meet the needs and expectations of internal customers can result in a poor-quality product, For example, a poor design for a computerized hotel reservation systent smokes it difficult for reservation clerks to do their job and consequently affects con- sumers’ satisfaction. Identifying who one’s customers are and understanding their expectations are fundamental to achieving customer satisfaction. This focus is a radical departure from traditional ways of thinking in a functionally oriented orga- nization. It allows workers to understand their place in the larger system and their contribution to the final product. (Who are the customers of a university its instruc~ tors, and its students?) Customer-driven quality is fundamental to high-performing organizations. For instance, Hilton Hotels Corp. implemented its Ultimate Service program in 2004, which trains employees to anticipate guest needs; personalize service; and, if neces- sary, deal with complaints quickly and seamlessly in an effort to ensure high levels of customer satisfaction. Hilton also uses rigorous inspections and satisfaction loyalty tracking surveys.”” v7