General Electric Applied Quality Management - Research Paper Example

? Studying and analyzing General Electric applied Quality Management Introduction Quality forms one of the chief devices, which organizations employ to achieve their goals. Quality improvement is an umbrella term encompassing a number of overlapping concepts such as continuous, organization-wide commitment and employee participation, knowledge of customer needs, systems thinking and analysis of processes, application of scientific data-driven analytic methods and employment of interdisciplinary and cross-functional teams. The evolution of quality management has led to prominence of quality improvement methodologies, such as ISO 9001, Lean Production, Six Sigma, Business Process Reengineer, Business Excellence framework, and Total Quality Management (TQM). Quality management can be conceived to incorporate four critical factors; quality planning, quality assurance, quality control, and quality improvement (Hill and Jones 2010, p.3). Quality improvement embraces the notion that there should be a relentless, continual pursuit of excellence so as to eliminate sources of waste, inefficiencies, rework, or errors (Kuballa 2006, p.6). The core values of quality improvement encompass customer focus, systems review, data driven focus, involvement of all stakeholders, continual improvement, and process optimization (Cheng 2008, p.182). Quality management subscribes to principles such as customer focus, leadership, process approach, involvement of the people, continual improvement, fact based approach to decision making, and mutually beneficial stakeholder relationships (Hill and Jones 2010, p.5). The paper explores the influence of quality improvement and performance in organizations and to investigate the link between quality improvement practices and organizational performance. Quality Gurus Edwards Deming Deming is renowned for developing a system of statistical quality control. Deming asserted that most of the problems that confront management are systematic. His philosophy centers on advocating that quality must be incorporated into the product at all stages so as to attain a high level of excellence. Deming argued that enhanced quality results to increased productivity, which in turn, enhances lasting competitive strength. Deming incorporated what he called as the “Deming Chain reaction” and outlined fourteen points of the system at diverse levels. As quality is enhanced, costs reduce, while productivity increases resulting to enhanced market share and long term corporate survival. Deming’s theories include theory of optimization, theory of variation, theory of knowledge, and theory of Psychology. Joseph Juran Juran defines quality as fitness for use encompassing aspects such as design, conformance, availability, safety, and field use. Juran incorporated managerial dimensions of planning, organizing, and controlling directed at attaining quality. Juran advocated ten steps directed at quality improvement. Philip Crosby Crosby stresses motivation and planning as key components in improving the quality. However, he shied away from endorsing statistical process control and problem techniques that Deming and Juran advocated. Crosby proposed fourteen points critical to effective, quality practices that companies can adopt. Crosby asserted that quality is free since the minimal cost of prevention is comparatively lower compared to cost of detection, correction and failure. Armand Feigenbaum Armand Feigenbaum incorporated a Total Quality Control approach in which he defined as an effective system essential to integrating the quality development, maintenance, and improvement efforts of diverse groups in organizations geared towards enabling the production and service within economical levels. This facilitates customer satisfaction. Kaoru Ishikawa Japanese companies structured their own approach to TQM by Ishikawa, which was based on the literature of Deming and Juran. The new approach to quality was fashioned to suit their culture and operating environment together with development of fresh sets of instruments and procedures and operating systems. The Japanese mode of TQC, (Company Wide Quality Control), translates into quality control encompassing development, designing, production, marketing, and servicing of products and services in a cost-effective and useful manner that guarantees customer satisfaction. Ishikawa asserted that all separate parts of a company must work together so as to attain quality improvement. Summary of the Theories of TQM Crosby Deming Feignbaum Ishikawa Juran Quality definition Conformance to set requirements The three cornerstones of quality encompass: product, user, and instructions for use What the customer says it is What is Satisfactory to the customer Fitness for use Philosophy Defect free Consistency of purpose and statistical analysis Complete customer satisfaction at an economical cost Company-wide quality control Project approach inspired by order of importance Approach Motivate the people Statistical techniques Systems approach to Total Quality Talk with data Quality trilogy encompassing; planning, control, and improvement Mechanics Fourteen steps Fourteen obligations of management The nine “M”s Seven statistical tools Diagnostic and remedial journeys Figure I An Overview of Total Quality Management (TQM) Total quality management encompasses a business philosophy approach to management directed at enhancing customer value by designing and perpetually enhancing organizational processes and systems (Kuballa 2006, p.7). Total quality management places clients at the centre and expresses quality as translating into customer satisfaction, besides relying on data-driven decision making (Joiner 2007, p.617). Total quality management is enabled by an institutionalized and continual process of improvement, where emphasis lies on harnessing the capacity of all employees within the organization so as to attain their potential, besides meeting the customer needs and expectations (Sajjad and Amjad 2011, p.313). Most of the basic elements of total quality management revolve around people on aspects such as a participatory management, innovation, customer feedback, employee engagement and empowerment (Zu, Fredendall and Douglas 2008, p.630). An effective management system such as TQM is designed to: meet customers’ expectations, engage employees’ morale, reduce wastage, enhance process control, minimize costs, and enhance market share (Forza and Filippini 1998, p.2). There are a number of benchmarks, best practices, and expert opinion employed in ensuring quality improvement such as Baldrige Criteria for Performance Excellence, EFQM Excellence Model, Australian Business Excellence Framework, Canadian Framework for Business Excellence, Singapore Quality Award Framework, and Business Performance Improvement Resource Model. Baldrige Criteria for Performance Excellence This is the backbone of US Malcolm Baldrige National Quality Award, which is administered by the American Society for Quality. The framework is employed as the basis for more than 70 other national Business Excellence Awards around the world. The model incorporates seven key categories, namely: leadership; strategic planning; process management; workforce focus; business results; customer and market focus; and, measurement, analysis, and knowledge management. EFQM Excellence Model This is the model behind the European Business Excellence Award, which is run by the European Foundation for Quality Management (EFQM). The model is the framework for national business excellence and quality awards across Europe. EFQM comprises of nine key categories, namely: leadership; people; policy and strategy; partnership and resources; processes; society results; people results; customer results; and, key performance results. The fundamental concepts that underpin EFQM encompass aspects such as customer focus, results orientation, corporate social orientation, continuous learning, innovation and improvement. Australian Business Excellence Framework This is the leading framework for business excellence in Australia, which avails the criteria for the Australian Business Excellence Awards. The framework encompasses seven principal categories, namely: leadership; customer focus; people; strategy and planning; information and knowledge; success and sustainability; and process management, improvement and innovation (Zu, Fredendall and Douglas 2008, p.630). Six Sigma Six Sigma is both an attitude and a method that enhances the quality by analyzing data with statistics in pursuing the cause of quality problems and implementing controls. Six Sigma was initially introduced by Motorola in the 1980s so as to tackle the prevalent chronic problems such as meeting customer expectations and needs effectively. However, the approach gained prominence when Jack Welch made it the chief focus of his business strategy at the General Electric in 1995. General Electric instituted systematic measures divided into four critical phases; measure, analyze, improve, and control. The achievement of Six Sigma quality demands that any given process must produce no more than 3.4 defects per million opportunities (Breyfogle 2003, p.3). Six Sigma represents a fresh form of an all encompassing, multidimensional system approach to quality geared towards the near eradication of flaws from all products, processes, and transactions. The connection between the increase in quality and lowering of costs of production is the main motivation behind the adoption of Six Sigma. Some of the principles of Six Sigma include leadership commitment, customer focus, integrated infrastructure, strategic deployment, education and training, and disciplined framework (Dale, Wiele and Iwaarden 2007, p.275). The core focus of Six Sigma is to eliminate variations within processes so as to attain immediate cost savings (Owen, Mundy, Guild and Guild 2001, p.10). The doctrine of Six Sigma asserts that continuous efforts to attain stable and predictable results are essential to business success. Moreover, the approach rests on the assertion that the achievement of sustained quality improvement demands commitment from the whole organization, especially from top management. Six Sigma utilizes a problem solving approach labelled as DMAIC, which denotes Define-Measure-Analyze-Improvement-Control. DMAIC is an extremely data-driven approach, which utilizes scientific method of inquiry centring on the discernment and implementation of “voice of the customer” (Shammot 2011, p.155). A) How Quality Management Frameworks Can Contribute to the Success of the Business or Organization The capability of a company to maintain the delivery of quality products and services is decisive to its success. GE has applied quality management frameworks such as TQM and Six Sigma in developing its quality culture. The impact of Six Sigma upon implementation at GE was positive. The deployment of Six Sigma transformed GE by improving its productivity and reducing significantly costs. In addition, the deployment of Six Sigma augmented GE’s customer retention and enhanced the GE’s stock prices. The results achieved over the first two years from 1996 to 1998 indicated 11% rise in revenues and a 13% rise in earnings over the same period, besides a 20% rise in productivity. In addition, GE witnessed a 14% rise in Earnings per Share and a 16.7% rise in operating margin coupled with a rise in the working capital. The results from GE’S deployment of Six Sigma reinforce the notion that higher quality translates into lower costs and enhanced productivity, which in turn, contributes to attainment of competitive edge and greater market share. GE was able to attain a high organizational performance and enhanced customer satisfaction owing to its implementation of Six Sigma. Impact of Six Sigma on General Electric The deployment of Six Sigma on GE significantly reduced the incidence of flaws from a three sigma level (66,800 defects per a million) to a near Six Sigma level (less than four defects per million). Prior to implementation of Six Sigma, GE was experiencing about 35,000 defects per million operations. The Six Sigma reportedly earned GE nearly $600 million in savings. This was manifested by a 20% margin improvement, 12-18% capacity enhancement, 12% reduction in headcount, and 10-30% reduction in capital expenditure. Presently, GE accrues benefits of over $2.5 billion across the entire organizations from Six Sigma. In its first year of deployment, GE invested around $200 million with a total return of an approximate $170 million. From 1995 to 1999, GE had been able to train about 800 Champion, 700 Master Black Belts, and 4,500 Black Belts. Within the period, approximately 30,000 employees had undergone training in some form of Lean Six Sigma. In 1998, GE claimed to have amassed benefits of $1.2 billion and costs of $450 million from their implementation of Six Sigma. Hence, the deployment of Six Sigma attracted net benefits of around $750 million. In addition, GE’s 1999 annual report further outlined a net benefit of more than $ 2b billion resulting from the elimination of all non-value added activities within its business processes. The deployment of Six Sigma enabled GE to maintain high earnings growing at an average of 10% per annum. Quality Management is pivotal to organizational success and vitality, especially in maintaining and enhancing their competitiveness in the face of a fierce global competition, evolving markets, and technological breakthroughs. In order to reap benefits from Quality Management, GE invested in leadership training, besides enhancing customer focus, product design, supplier quality management, process management, team work, and quality culture. GE applied the following soft factors in its implementation of Quality Management: top management dedication, customer satisfaction, employee engagement and empowerment, and reward and recognition. Direct Financial Benefits Achieved by GE over a four-year period Year Revenue ($bn) Invested ($bn) % Revenue invested Savings ($bn) % Revenue savings 1996 79.2 0.2 0.3 0.2 0.2 1997 90.8 0.4 0.4 1 1.1 1998 100.5 0.5 0.4 1.3 1.2 1999 111.6 0.6 0.5 2 1.8 1996-1999 382.1 1.6 0.4 4.4 1.2 Figure 2 Six Sigma payoff at GE B) How Quality Management Frameworks are applied by GE In 1995, GE mandated every employee to work towards attaining Six Sigma. At the time, a process at GE averaged at 3 Sigma. By 1997, processes reached about 3.5 Sigma. General Electric adopted Quality Management principles in order to become profitable and/or enhance their competitive edge. The goal of GE was to attain competitive landscape and ensure the company’s products are the real value choice. In implementing Six Sigma, the GE top management viewed it as the biggest opportunity for growth, enhanced profitability, and individual employee satisfaction (Basu and Wright 2003, p.54). Another characteristic was to win their marketplace and attaining GE bottom line. Jack Welch, the then CEO of GE employed Six Sigma program across the entire company by incorporating training of Six Sigma into the company’s promotional structure. The distinguishing features of Six Sigma encompassed end to end process improvement, focus on variation and defect reduction, support for employee leadership skills, and improvements linked to strategic objectives (Antony and Banuelas 2002, p.20). Welch hailed Six Sigma as the opportune methodology to aid individuals in adding business and analytical skills, improving decision making, solving business and quality problems and enhancing the overall performance of the enterprise. Welch demonstrated a significant paradigm of leadership and reinforced Six Sigma program with a strong reward system. GE altered its incentive compensation plan so that 60% of the bonus hinged on financials while the rest 40% was based on Six Sigma results. Moreover, Six Sigma training was a requisite for advancement up GE’s corporate ladder. Immelt, who succeeded Welch in September 2001, put two of GE’s traditional strengths, process orientation and ability to develop, test, and deploy management ideas, into practice. In so doing, there was a need to design a process that could reliably draw fresh revenue streams from existing businesses. The goal of GE is to maintain sustained organic growth, which means that the company must spur growth rate devoid of losing its productivity edge. The core focus is to continue minimizing variability in processes, minimizing quality costs, enhancing process capability, as well as enhancing process throughput yield. Issues or problems faced by GE in Implementing Six Sigma Resistance to implementation of Six Sigma hinged on factors such as change resistance. The deployment of Six Sigma may materialize without enthusiasm (employee buy-in) for the methodology among the employees. Leaders in the Total Quality Management found that any tactic about installing mission/vision, enhancing process, and measuring results yielded nothing if the employees or other stakeholders within the organization did not buy into the new way of operating and could not perceive the future state as significantly better. The apparent resistant to change threatened to compromise the anticipated gains from the implementation of quality management systems. The lack of understanding of the processes may have led to false starts and confusion and not performance excellence. At GE, the employees were distrustful to the effectiveness of the program, especially on the premise that the program would aid in reducing operating costs. Technical impediment whereby individuals found encountered difficulties in understanding statistics within Six Sigma program. As a result, the organization has to spend significant resources in training, leadership grooming, and coaching. In addition, resistance arose from politicization of the program, in which the sought solution was perceived as a loss, real or imagined. A key factor that has provided success to companies in Six Sigma (GE, Motorola, ABB, Sony, and Honeywell) is communicating over of commitment and enthusiasm of Six Sigma, by a direct involvement of the top management. In GE, training has been vital in the successful introduction and development of Six Sigma program. GE implementation of Six Sigma and other quality management frameworks has enhanced quality and has been the bedrock of continuous process improvement within the organization. For GE, the deployment of Six Sigma has been the origin of innovation and competitive advantage. The implementation of quality management systems has been pivotal in the elimination of wastes, rising of productivity, and reduction of costs. Why GE Chose the Six sigma Framework In implementing Six Sigma, the management of GE noted that the gap between three Sigma and Six Sigma was costing the company roughly $7 to $10 billion annually owing to scrap, rework, transaction errors, and lost productivity. Although, financial benefits and stock prices were a propelling force in Six Sigma adoption within GE, the company outlined four critical reasons for its deployment of Six Sigma. An outline of the reasons details: cost reduction, customer satisfaction improvement, Wall Street recognition, and corporate synergies. C) Benefits and Problems faced by organizations in its Future Application of Six Sigma Benefits The key performance indicators of effects of implementation of Six Sigma include financial performance, customer satisfaction, process improvement, and growth sustenance. The indicators are critical to evaluation of whether businesses are able to enhance processes, reduce defects, and eliminate waste (Kwak and Anbari 2006, p.708). Studies done in this area have indicated a cause-effect relationship between quality management systems and corporate performance (Hoyle 2007, p.4). Some leading organizations such as IBM, Xerox, and GE vow that the application quality systems has offered them a significant and sustained competitive advantage. The implementation of Quality systems has enabled GE to increase its market share and profitability (Pfeifer 2002, p.28). Six Sigma Quality Management: Is it the Next Step in the Evolution of Quality Management? Organizations that implement Six Sigma in the future stand to reap benefits from customer satisfaction, broadening of market share, and creation of a competitive advantage decreasing defects, increasing profitability, and price reduction. Through their impact on their organization’s outcomes, QM systems have, in aggregate, proven themselves to be significant players in the health of organizations. This is informed by the fact that managing continuous improvement is challenging. Research indicates that most firms that implement any of the quality management frameworks report process improvements and savings (Gitlow 2001, p.5). However, the effectiveness of the methodology does not translate into the assumption that Six Sigma is a magic bullet for every problem. Problems Faced by organizations in their Future Application of Six Sigma The implementation of Quality systems such as TQM and Six Sigma has not been without controversy. Although, Quality Management has over the years been hailed as an effective cost-savings strategy, some critics argue that the implementation of quality management systems requires massive investment and the cost benefit of its implementation may be less visible. Some firms claim that their implementation of such systems has had adverse effects on their competitiveness. Some firms have not registered more than 10% reduction in defects after applying TQM for two-and-a-half years. In fact, some firms have had to halt their implementation of the programs simply because the programs have failed in delivering the expected results. For instance, Wallace Company, which was the 1990 Malcolm Baldrige National Quality Award winner, filed for bankruptcy two years after winning its award. However, a closer look into disaffection concerning the effectiveness of quality systems such as TQM show that deprivation of information concerning Quality Management were the principal causes of the failures. In adequate leadership, rather than intrinsic flaws in the TQM, are geneses of poor results obtained with TQM in most organizations. In essence, organization’s culture and the tenets of Six Sigma or TQM must be present if implementation problems were to be avoided (Cioana 2009, p.469). The employment of Six Sigma has sometimes being blamed for contributing to killing of creativity, especially within research and development. This is fuelled by the fact that Six Sigma is rigidly methodical and organized. Other problems associated with implementation of Six Sigma include the demand for massive investment of time and money, the ambiguity and difficulty in defining defects, as well as complications arising from decision making process owing to certain shortcomings heralded by the Six Sigma methods (Pfeifer 2002, p.30). Factors causing unsuccessful Six Sigma Implementation The practice of Six Sigma implementation is widely imitated, which means that organizations may in instances be unable to sustain Quality Management practices. Improvement programs fail because of lack of proper identification and prioritization. This is probable in cases where organizations do not understand the principles, tools, objectives, requirements, and other aspects that may be related to quality management (Yaacob 2010, p.1844). Conclusion The significance of quality management practices in attaining operation results and meeting customer satisfaction cannot be overestimated. Organizations can benefit immensely from the establishment of quality management system. In summary, quality improvement principles have been vital in the attainment of outcomes for consumers, enhancing of consumer satisfaction, enhancing of workforce retention and satisfaction, enhancing of program defined outcomes, driving of innovation and best practices, reduction of wastes, rework, and errors, improvement of processes, and ultimately, cutting costs. References List Antony, J. & Banuelas, R. (2002). Key ingredients for the effective implementation of Six Sigma program, Measuring Business Excellence 6 (4). pp.20-27. Basu, R. & Wright, N. 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Quality management essentials, Burlington, Butterworth-Heinemann. pp.2-6. Joiner, T. (2007). Total quality management and performance: The role of organization support and co-worker support, International Journal of Quality & Reliability Management 24 (6). pp.617-627. Kuballa, J. (2006). Aspects and implementation of effective quality management systems, Norderstedt, GRIN Verlag. pp.6-11. Kwak, Y. & Anbari, F. (2006). Benefits, obstacles, and future of Six Sigma approach, Technovation 26 (1). pp.708-715. Owen, K., Mundy R., Guild W. and Guild R. (2001). Creating and sustaining the high performance organization, Managing Service Quality 11 (1). pp.10-21. Pfeifer, T. (2002). Quality Management: Strategies, methods, and techniques, Cincinnati, Hanser Gardner.pp.28-30. Sajjad, F. & Amjad, S. (2011). Assessment of Total Quality Management practices and organizational development: The case of Telecom Services sector of Pakistan, Mediterranean Journal of Social Sciences 2 (2). pp.312-329. 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