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Chater 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?
Page 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:
Pg 46

Waste

Rejects

Testing

Rework

Customer returns

Inspection

Recalls
Cost of Poor Quality
The costs of poor quality include the following hidden costs:

Excessive overtime

Handling Complaints

Pricing errors

Expiditing

Billing errors

System Costs

Excessice turnover

Planning delays

Premium Freight Costs

Late Paperwork

Development cost of failed
product

Lack of follow-up

Excess inventory

Customer allowances

Unused Capacity

Field Service Costs

Over due receivables
Pg 46
Cost of Poor Quality
A tale of two cities
Text page 45
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.
Pg 46
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.
Pg 47
Competitiveness and the U.S.
Economy
See quote in text page 47
Ray Marshall & Marc Tucker
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
Pg 47
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
Pg 48
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.
Pg 56
Pg 49
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)
Pg 49
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.
Page 21
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
Pg 51
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
Pg 51
Pg 51
Pg 52
Pg 52
Pg 53
Pg 53
Factors Inhibiting Competitiveness
Education
Discussion assignment 2-1
Page 75 of text
Comparisons of International Competitors
Pg 55
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.
Pg 57
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
Pg 58
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:
Pg 59

cooperation among business, labor, and government;

high-quality education and training;

employee involvement and empowerment;

leadership at all levels;

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
Pg 59
Human Resources and Competitiveness

Cooperation among business, labor, and government



High-quality education and training



In Germany & Japan employees are involved in functions which in the
U.S. would be traditional management responsibilities
Leadership at all levels


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


Social partners is the term used in both Japan & Germany
Both Germany & Japan were very much like the U.S. prior to WWII
In Germany & Japan leadership and leadership training occurs at all
levels including first line employees.
Teamwork

Pg 60
In Germany & Japan, not only is work done by teams of employees, but
planning and design as well.
Characteristics of World-Class
Organizations

Ultimate manufacturers are those that perform at world-class
levels in the following areas:

Competitive analysis strategies
–

Production and supply chain management strategies
–

Pg 63
Building to order, global sourcing
Electronic commerce strategies
–

Collaborative planning, forecasting, delivery to point of use,
supplier managed inventory
Customization strategies
–

Operations cost efficiencies, speed to market, RnD, rapid
supplier delivery, logistics, real time delivery, zero defects, zero
inventory
Supply management, purchasing, internet ordering and tracking
Compensation systems strategies
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
–

Focus on short-term cost reduction
–

Printouts vs firsthand knowledge and insight
At the cost of long term improvements in people and
processes
Narrowly focused manages viewing every problem
from a finance and accounting perspective
Pg 67
Key global trends

Key global trends that are increasing the level of
globalization in business are
Pg 68

the growing irrelevance of distance,

shifts in the rates of growth in certain countries
throughout the world,

and the rise of megacities.
U.S. Companies: Global Strengths and
Weaknesses
Strengths
Weaknesses

Strong entrepreneurial spirit


Presence of a “small cap” stock
market for small and mid-sized
firms
Expanding government
regulation (?)

A growing underclass of “havenots”

Rapidly advancing
technologies

A weak public school system
(k-12)

Comparatively low taxes


Low rate of unionization
A poorly skilled labor force and
poor training opportunities

World class system of higher
education

An increasing protectionist
sentiment

Growing public alienation with
large institutions
Pg 70
Focus on the long term