Quality and Service Improvements Lead to Enhanced Company Revenues - Essay Example

Quality and Service Improvements Lead to Enhanced Company Revenues and Higher Margins Total Quality is a major factor in the business quality revolution that has proven itself to be one of the 20th century's most powerful creators of sales and revenue growth, genuinely good new jobs, and soundly based and sustainable business expansion. (Feigenbaum and Feigenbaum , 1999) Introduction: Superiority quality of products and consistent and dependable processes have become the minimum expectations of customers during the past few years. Technology-driven enterprises need to offer a competitive quality promise or they could lose their market shares to competitors who proactively do the same. Do quality and service improvements related efforts add cost to the production operations, or does it cut down wastage, improve product appeal and thus generate greater revenues Disjointed quality related efforts add expenses and do not contribute extra profits to the bottom line. Where as sincere efforts with active participation of all layers of an enterprise can rejuvenate and reinvigorate the entire organization and provide commendable competitive advantage. Having said all this we need to know what exactly quality is as identification of quality would result in its improvement and thus increase revenues. Literally quality originates from the Latin word 'qualis' which can be translated as 'such as the thing really is'. Quality has various meanings and each has a depth within itself. Before starting of with how quality and service results in enhanced profits we will identify what actually quality is and how various gurus have identified quality as. Quality itself has been defined as the ongoing process of building and sustaining relationships by assessing, anticipating, and fulfilling stated and implied needs.' (Winder, Richard E. and Judd, Daniel K., 1996, organizational orienteering: Linking Deming, Covey, and Senge in an Integrated Five Dimension Quality Model). Quality is all about conformance to requirements or fitness for use which can be defined through five principal approaches: (1) Transcendent quality is an ideal, a condition of excellence. (2) Product-based quality is based on a product attribute. (3) User-based quality is fitness for use. (4) Manufacturing-based quality is conformance to requirements. (5) Value-based quality is the degree of excellence at an acceptable price. Also, quality has two major components: (1) quality of conformance-quality is defined by the absence of defects, and (2) quality of design-quality is measured by the degree of customer satisfaction with a product's characteristics and features. (http://scrc.ncsu.edu/public/definitions.html). Quality management enhances an organization's profits and gets them greater margins. The importance of quality can be seen by the fact that we as customers never want to associate our selves with a bad quality product. That can be with respect to: Performance Features Reliability Durability Conformance Serviceability Responsiveness Competence communication Credibility Access security Aesthetics Perceived quality This not only results in you never availing that service or product but spreading the word around to others you concerned with. This obviously affects the sales of the product or service causing problems for the organization. Goodman et al. (2000), based on a range of studies carried out by TARP (Technical Assistance Research Programs), states: Quality and service improvements can be directly and logically linked to enhanced revenue within one's own company; and secondly, higher quality allows companies to obtain higher margins. These arguments were proven by various surveys which resulted in the following conclusions which prove the relation of quality and service improvements to the revenues and profits of the organization. (Source: CMC Partnership Ltd. (1991)) - Problems decrease customer loyalty by 15 per cent to 30 per cent: - 50 per cent of individual consumers and 25 per cent of business customers who have problems never complain to anyone at the company: - If the call centre can resolve a customer's problem using quality service, thus changing a dissatisfied customer to a satisfied one, the company usually gets an increase in loyalty of 50 percentage points - One potential customer will be lost for every 50 who hear someone complain about a product or service - Market leaders can change between 5 per cent and 10 per cent premiums for outstanding quality and service These data emphasize the importance of customer acquisition and retention. The factors that are regarded as important and significant are the performance, durability, service, price, appearance and brand name in the order of importance. If the customers do consider a product carries a high quality, based on the perception that they have, they will be willing to pay a premium on it. In today's world intrinsic quality of a product carries more important than the extrinsic quality it offers to the customer. Intrinsic quality relates to the inherent quality attained from a product other than the physical benefit from the product. With respect to services the factors that a customer looks for and perceives as of superior quality are based on courtesy, promptness, a basic sense that one's needs are being satisfied and Attitudes of the service provider. Based on the survey conducted by ASQ/Gallup in 1992 it was observed that six out of ten executives focus greatly on personal leadership impact on customer focus and satisfaction, strategic quality planning, quality and operational results and financial results. They believe management has a vital role in determining quality policy within their company. In a survey conducted by McKinsey and Company (1989) to survey the CEOs of the top 500 west European corporations in relation to quality performance and the management of quality got a reply from 150 CEOs. The results showed that more than 90% considered quality performance to be 'critical' for their corporation and agreed that lately quality performance has become a lot more important than before. The reason for considering quality of high importance now is because quality is considered as the primary buying reason for the final buyer. Plus it's a means of reducing costs and improving flexibility and receptiveness while reducing throughput time. Based on the same survey it was deduced that (McKinsey and Company (1989)): - The feasible improvement in gross margin on sales through improved quality performance was rated at an average of 17 per cent. - More than 85 per cent of the leading CEOs in Europe consider the management of quality to be one of the top priorities for their corporations. If an order or contract is ended due to quality issues it is tougher to regain than a customer lost due to price etc. as the customer would go to another seller. Quality is non negotiable in today's business world and the penalties for unsatisfactory product quality and poor service are likely to be severe. Companies are involved in continuous improvement in their mode of operation, causing a reduction in monopolies, government legislation, and deregulation, changes in market share, mergers, takeovers, and collaborative joint ventures. TQM also encompasses issues relating to costs and productivity and to people involvement and development. During the past decade cost, productivity and quality improvements are complementary and not alternative objectives. Till quite some time managers were of the view that focusing on planning for the quality and service improvement wastes valuable processing time and costs. Example can be of Bridgestone/Firestone and Ford case where Ford had to later recall all Explorer tires since they were directly related to major accidents. They always emphasized on corrective action rather then preventive techniques not realizing the impact this has on the customers who have been affected by the non-conformances. The following data signifies the importance of quality with respect to various industry goods. (ASQ/Gallup, 1992) The Profit Impact of Market Strategy (PIMS) has a database which contains over 3,000 records of detailed business performance. A key PIMS concept is relative perceived quality (RPQ) which refers to the product and service offering as perceived by the customer. It has been established by PIMS that the factors having most influence on return on investment are relative perceived quality and relative market share. Plus companies having larger market shares are of relatively high quality. (Buzzell and Gale 1987). Another key finding is that businesses who know and understand customers' priorities for quality improvements can achieve a threefold increase in profitability (Roberts 1996). A report published by the US General Accounting Office (GAO) (1991) focused on the top 20 scorers of the Malcolm Baldrige National Quality Award (MBNQA) in the period 1988-9. Information gathered fom 15 of the 20 companies who experienced the following annual average increases showed the following statistics: Market share: 13.7 per cent; Sales per employee: 8.6 per cent; Return on assets: 1.3 per cent; Return on sales: 0.4 per cent. Larry (1993) found that they 'Yielded a cumulative 89 per cent gain, whereas the same investment in the Standard and Poor (S&P) 500 - Stock Index delivered only 33.1 per cent.' Among the findings reported by George (2002) are: From September 30th, 1998 to December 31st, 2001 the Q-100 returned 26.97 per cent compared with the S and P 500 return of 17.59 per cent. A $10,000 investment in both indices on September 30th, 1998 would have grown to $12,697 for the Q-100 on the last day of 2001, compared with $11,759 for the S and P 500. Executives in the more profitable service firms have inferred that delivering quality services is simply the price of admission to attract and retain client business in today's highly competitive marketplace. Partners need to learn how to position themselves by enhancing their qualitative differences against the competing firms that are also capable of delivering quality services. They need to "fine-tune" their attitudes about their role in marketing the firm. Managing partners and heads agree that if properly envisioned and executed with care, this new marketing concept will be valuable for the firm's clients and will increase the synergism among and between managers practicing in the same or different specialty areas. Clients will take note of the changes in the attitudes of the professionals toward helping them. Conclusion: After identifying and analyzing how quality leads to high profits significance of quality cannot be ignored and certain issues need to be resolved to achieve such quality management. There is no specific way of guaranteeing the quality of an organization's products or services. What matters is that continuous improvement; kaizen is required which is cost effective also as no two organizations have the same best way of starting a process of continuous improvement. Commitment is necessary at the senior management level to gain credibility, assure continuity and establish longevity of the process. They need to analyze deeply about the subject and commit to it the required resources. Visionary planning is crucial to ensure that the principles of TQM are firmly rooted in the culture of the organization along with patience and persistence. Quality objectives and strategies must be developed and deployed throughout the organizational hierarchy with the quality processes all integrated with other organizational improvement initiatives and business strategies. The system must be well documented, provide direction and feedback and be audited internally on a regular and effective basis. At the design stage of QFD all potential non-conformances must be identified and eliminated. Different tools, techniques, systems, and packages need to be used at different stages in different organizations during their quality development with the right timing. Managers should keep in mind that customer satisfaction is a business issue and that all processes should work towards satisfying the customer. Through TQM, DFD, 6 Sigma or other tools customer requirements must be identified and systems developed to assess conformance. Regular self-assessment of the progress against the criteria of the Malcolm Baldrige National Quality Award for Performance Excellence (1999) or EFQM excellence model (1999) should be carried out. This will assist in making the quality improvement efforts more efficient and cost effective. Thus for getting high revenues and greater margins you need greater repeat purchases, positive word-of-mouth and customer loyalty. Therefore it would be quite accurate to say that a firm will achieve high revenues and sales: "...When who comes back is the client, not the product..." (http://www.qualitydigest.com/html/qualitydef.html) Reference: 1. Winder, Richard E. and Judd, Daniel K., (1996), ORGANIZATIONAL ORIENTEERING: Linking Deming, Covey, and Senge in an Integrated Five Dimension Quality Model, In ASQC Seventh National Quality Management Conference Transactions. American Society for Quality. Website: http://elsmar.com/pdf_files/Definition_of_Quality.pdf 2. B. G. Dale (2003)The Development, Introduction and Sustaining of Total Quality Management (TQM), part 1, 3-32 Website: www.blackwellpublishing.com/content/BPL_Images/Content_store/Sample_chapter/9780631236146/Dale_C01.pdf 3.Website: http://scrc.ncsu.edu/public/DEFINITIONS.html 4. Joel A. Rose (nd) How Adding Value Can Enhance Profits website: www.nysba.org/.../Attorney_Resources/Law_Practice_Management1/HowAddingValueCanEnhanceProfits.pdf 5. BS EN ISO9000 (2000), Quality Management Systems: Fundamentals and Vocabulary. London: British Standards Institution. Read More