Global Quality and International Quality Awards Chapter 3 Global Quality and International Quality Awards S. Thomas Foster, Jr. Boise State University Slides Prepared by Bruce R. Barringer University of Central Florida ©2001 Prentice-Hall

Chapter Overview Slide 1 of 2 Managing Quality for the Multinational Firm (MNF) Quality Improvement: The American Way The Malcolm Baldrige National Quality Award (MBNQA) Quality Improvement: The Japanese Way Quality Improvement: The European Way

Chapter Overview Slide 2 of 2 ISO 9000 Are Quality Approaches Influenced by Culture?

Introduction Certainly, the task of managing quality is affected by the increased globalization.

Managing Quality for the MNF Figure 3.1 shows that although the trade deficit has remained relatively constant over time (until recent), both imports and exports of products have been steadily increasing.

Managing Quality for the MNF Figure 3.1 U.S. Trade 1960-2000

Managing Quality for the MNF Slide 1 of 5 Mechanisms That Firms Use In Globalizing Licensing By licensing, a U.S. corporation can allow foreign firms to sell in restricted markets while using the design of the original designer. Partnering( or Joint Ventures) This agreement is often reached when two firms have technology, product, or access to markets that each other wants.

Managing Quality for the MNF With both licensing and partnering, the risk to the company is loss of proprietary technology. In this case, the Deming attribute of trust is key to a successful working relationship. The benefits of licensing and partnering were that the exporting firm did not have to globalize to make sales in international markets.

Managing Quality for the MNF Slide 2 of 5 Mechanisms That Firms Use In Globalizing Globalization . Globalization means that a firm fundamentally changes the nature of its business by establishing production and marketing facilities in foreign countries. We refer to these firms as multinational corporations.

Managing Quality for the MNF - Globalization . By globalizing, firms significantly change the physical environment, the task environment, and the societal environment in which they operate. . By changing their physical environment firms locate themselves near to or far away from natural resources.

Managing Quality for the MNF Physical environment - The advantage of saving labor costs often overemphasized when deciding to change the physical environment. - Figure 3.2 shows the fiscal contrast between making an automobile in Mexico and in the United States.

Mechanisms That Firms Use In Globalization

Mechanisms That Firms Use In Globalization Task environment - The task environment of the firm has to do with the operating structure that the firm encounters when globalizing. - The economic structures, skills of the employees, compensation structure, technologies, and government agencies, all vary when globalizing. - The regulatory structures that firms encounter when globalizing require an understanding of international law.

Mechanisms That Firms Use In Globalization Social environment - The social environment facing globalizing corporations refers to cultural factors such as language, business customs, customer preferences, and patterns of communication. - The cultural factors facing globalizing firms are often the most complex and difficult issues they will encounter.

Mechanisms That Firms Use In Globalization Social environment - From a quality point of view, the efficiency-minded American way of moving customers through a system may not translate well to South American. Customer who are used to more personalized service. - As shown in Figure 3.3, physical, task, and societal environments have implications for the choices made in improving quality, particularly in the area of quality management.

Mechanisms That Firms Use In Globalization Figure 3.3 Globalizing Factors That Affect Quality-Related Decisions Physical Environment Task Environment Quality Management Social Environment

Mechanisms That Firms Use In Globalization Market diversity drives the need for culture-specific research and development. This greatly increase the complexity of international marketing and R&D. Often globalized firms also must apply for patents in different places in the world to protect their domestic patents.

Mechanisms That Firms Use In Globalization As shown in Table 3.1, only three of the top 11 applicants for patents in the United States in 1996 were American companies. The other eight were Japanese companies. Quality Highlight 3.1 shows how one company has adapted itself to provide high quality service on a worldwide basis.

Mechanisms That Firms Use In Globalization

Managing Quality for the MNF Exporter - Another means of entering international marketing is to not globalize but become an exporter. - Many times pure exporters are subject to limitations that resident companies do not have in terms of import tariffs and import restrictions. - Companies wishing to export to Japan have found it easier to establish operations in Japan than pure exportation.

Managing Quality for the MNF Exporter - Another issue with exporting is that the United States developed a negative quality image during 1970s and 1980s. - This image improves greatly in the 1990s as America reached quality levels similar to Japan’s in many markets. - Recent research by Macy, Foster, and Barringer shows that quality still a significant factor in helping U.S. exporters achieve success.

Managing Quality for the MNF Exporter - Figure 3.4 shows an empirically derived model for quality-based success for exporting companies. - For exporting firms, quality leads to low price and greater export success. - The global market is a reality that must be addressed.

Managing Quality for the MNF Slide 5 of 5 Export Quality Model ( Figure 3.4) Firm Characteristics Product Strategy Performance Low Price Entrepreneurship High Quality Export Planning Standardization Export Success Promotion

Quality improvement: The American Way American can be called the birthplace of modern quality management because it is home to Shewhart, Deming, Juran, and others. The U.S. military also has been an early adopter of many quality techniques. Originally, the main interest in quality in the United States was in the application of statistics to solve quality problems. In recent years, the approach has become much more behavioral as teams and other approaches have been applied.

The Malcolm Baldrige National Quality Award (MBNQA) slide 1 of 10 One of the most powerful self-assessment mechanisms is the Malcolm Baldrige National Quality Award. The MBNQA process is open to small (less than 500 employees) and large firms (more than 500 employees) in the manufacturing and service sectors. In 1999, the criteria were adapted for health care and educational institutes.

The Malcolm Baldrige National Quality Award (MBNQA) It is not open to public-sector and not-for-profit organizations. The criteria is available for assessment under a variety of different mechanisms. There can be only two winners per category each year. That limits the number of yearly awards to six.

The Malcolm Baldrige National Quality Award Slide 2 of 10 Key Characteristics of the MBNQA The criteria focus on business results. Companies must shown outstanding results in a variety of areas to win. The Baldrige criteria are non-prescriptive and adaptive. Although the focus on the Baldrige is on results, the means for obtaining these results are not prescribed.

The Malcolm Baldrige National Quality Award Slide 3 of 10 Key Characteristics of the MBNQA (cont.) The criteria support company-wide alignment of goals and processes. Alignment between strategic goals and operational sub-plans help foster a learning-based system. The criteria permit goal-based diagnosis. The criteria and scoring guidelines provide assessment dimensions.

Baldrige Award Framework The model for the Malcolm Baldrige National Quality Award consists of seven interrelated categories that compose the organizational system for performance, shown as Figure 3.5.

The Malcolm Baldrige National Quality Award Slide 4 of 10 Figure 3.5 Baldrige Award Framework, 1999 Customer and Market Focused Strategy and Action Plans 2 Strategic planning 5 HR develop. & management 7 Business results 1 Leadership 3 Customer and market focus 6 Process management 4 Information and analysis

The Malcolm Baldrige National Quality Award The inter-related categories are varies from year to year as modification from the award winner. Each of these seven categories is divided into items and areas to address. The number of items and areas are varies from year to year as the award criteria are constantly updated by the Baldrige staff, examiners, and judges.

The Malcolm Baldrige National Quality Award Slide 5 of 10 MBNQA Categories Category 1(Table 3.2) Category 2(Table 3.3) Category 2 focuses on how the company establishes strategic directions and how it sets it tactical actions plans to implement the strategic plans Category 1 shows the award criteria for leadership

The Malcolm Baldrige National Quality Award Slide 6 of 10 MBNQA Categories Category 3(Table 3.4) Category 4(Table 3.5) Category 4, information and analysis, relates to the firm’s selection, management, and use of information to support company Category 3 addresses the customer and market focus.

The Malcolm Baldrige National Quality Award Slide 7 of 10 MBNQA Categories Category 5(Table 3.6) Category 6(Table 3.7) Category 5 deals with human resources and development. Category 6 examines the key aspects of process management.

The Malcolm Baldrige National Quality Award MBNQA Categories Category 7(Table 3.8) Documents the results of the other six categories and requires a series of tables and graphs that demonstrate the operational and business results of the firm

A Closer Look at Quality 3.1 A Closer Look at Quality 3.1 gives some details about MBNQA’s life.

The Malcolm Baldrige National Quality Award Slide 8 of 10 The Baldrige Process The first step is eligibility determination. Firms that are granted Baldrige site visits sometimes refer to themselves as “Baldrige Qualified.” The site visit consists of a team of 4 to 6 examiners visiting a company over a period not to exceed one week.

The Malcolm Baldrige National Quality Award The purpose of the site visit is to verify and clarify those portions of the Baldrige application having the greatest impact on the judges’ scores. One of the most important outcomes of the Baldrige process is examiner feedback to applicant companies. As shown in Figure 3.6, feedback reports are provided to the applicants as part of the assessment process.

The Malcolm Baldrige National Quality Award Slide 9 of 10 Baldrige Evaluation Process(Figure 3.6) Receive applications Feedback report Stage 1 Independent review Stage 2 Consensus review Stage 3 Site visit review Select for consensus review? Judges Select for site visit? Judges Review and Recommend winners Judges Yes Yes No No Feedback report to applicant Feedback report to applicant No Feedback report to applicant Yes

The Malcolm Baldrige National Quality Award Many firms have found these comments of feedback reports helpful in identifying gaps in deployment in their improvement processes. The feedback reports have become more useful for improving overall management of processes and systems. The feedback report is one of the major benefits of the Baldrige process.

The Malcolm Baldrige National Quality Award The feedback report includes: - The scoring summary which is a synthesis of the most important strengths and areas for improvement for each of the seven Baldrige categories. - The individual scoring range which provides a 20-point scoring range. - The scoring distribution provides the percentage of applicants for a particular year that scored in each of the eight scoring bands. - The examiner comments give feedback concerning the organization.

The Malcolm Baldrige National Quality Award The Baldrige applications are scored with supporting written guidelines. These guidelines are provided in Table 3.9. (1999, old, not newest ) If you are doing everything according to the Baldrige criteria, you will score 50%. To score in the higher scoring bands, you must demonstrate in the application that you not only have all of the major aspects of a quality system, the quality system must have been refined and improved over an extended period of time.

The Malcolm Baldrige National Quality Award Quality highlight 3.2 shows how Dana Corporation won the Baldrige by improving and refining its processes.

The Malcolm Baldrige National Quality Award Slide 10 of 10 Being a Baldrige Examiner Appointment to the board of Trustees for the MBNQA Board of Examiners is a very prestigious designations. Examiners are unpaid volunteers, and must be willing to give up approximately 10% of their year to serve as an examiner. All of these people have one thing in common: They are committed to the core values of the Baldrige award.

The Malcolm Baldrige National Quality Award Being a Baldrige Examiner Besides scoring applications, examiners are asked to write cases, update the criteria, and help to improve the Baldrige process The examiners are expected to exhibit the highest professionalism, maintain absolute confidentially, and be prompt and organized in responding to the requirements of the position.

State Awards First Approach: Full-Baldrige Approach (e.g. Missouri, New York, and Florida) Second Approach: Baldrige-Lite Approach, Use Baldrige Criteria but with a simplified Process ( e.g. Massachusetts and California) Third Approach: Multilevel Approach - Top level: Full-Baldrige Criteria - Second level: :Baldrige-Lite Approach - Lower level: recognition is provided for firms

Quality Improvement: The Japanese Way The Japanese must be credited for raising worldwide quality to a new level of competitiveness. Using quality as a competitive weapon to win orders in the marketplace, the Japanese initiated a response from the rest of the world that has benefited producers and customers all over the world.

Quality Improvement: The Japanese Way Slide 1 of 6 Deming Prize The Deming Prize for quality was established in 1951 by the Japanese Union of Scientists and Engineers (JUSE). Unlike the Baldrige, there is no limit on the number of companies that can receive the award in a given year. The Deming Prize is much more focused on processes than is the Baldrige.

Quality Improvement: The Japanese Way Deming Prize Table 3.10 compares categories of the Deming , Baldrige, and European Quality Award competitions. A review of these categories shows the Baldrige is more general and managerial. At the same time, the Deming Prize is more prescriptive.

Quality Improvement: The Japanese Way

Quality Improvement: The Japanese Way Slide 2 of 6 Deming Prize Categories Policy Org. and Development The first category of the Deming Prize addresses the areas of management of quality policy, quality formation, policy correctness and consistency, and related topics. The organization and operation portion of the Deming application requires the applicant to document processes for clarifying authority and responsibility, and related topics.

Quality Improvement: The Japanese Way Slide 3 of 6 Deming Prize Categories Information Analysis The analysis category of the Deming Prize covers the areas of selection of priority problems and themes, correct use of analytical methods, and use of statistical methods. The information that is collected for this item includes information that is gathered on the outside and inside.

Quality Improvement: The Japanese Way Slide 4 of 6 Deming Prize Categories Planning for the Future Education & Training To plan well for the future, firms must understand their present condition well, which is the documentation required for this category. Applicants document plans and accomplishments relating to education and training.

Quality Improvement: The Japanese Way Slide 5 of 6 Deming Prize Categories Quality Assurance Quality Effects As discussed in Chapter 1, quality assurance has to do with the design of products and the new product development process. Quality effects relate to the documentation of benefits, outcomes, and results of quality improvement.

Quality Improvement: The Japanese Way Slide 6 of 6 Deming Prize Categories Standardization Control Finally, the last category of the Deming Prize is control. Essentially, the applicants describe how they are using SQC, control points, control items, and related quality tools. The Deming Prize rewards standardization.

Quality Improvement: The Japanese Way A can be seen, the focus of the Deming Prize is quite different from that of the Baldrige. Although the Baldrige has become very managerial in nature, the Deming focuses more on the nuts and bolts of the quality improvement. The Deming is focused on the statistical methods, a complete picture of the management system may not emerge. At the same time, because the Baldrige is so diffuse in its focus, some of the fundamentals of quality improvement may be overlooked by examiners.

Other Japanese Contributions to Quality Thought Slide 1 of 7 Just-in-Time Production Two views emerge in the literature that pertain to just-in-time (JIT) manufacturing. The first view of JIT is a philosophical view of waste reduction. This view asserts that anything in the process that does not add value for the customer should be eliminated. The second view of JIT is a systems view stating the JIT is a group of techniques or systems focused on optimizing quality processes.

Other Japanese Contributions to Quality Thought Just-in-Time Production We combine the philosophical and systems views to define JIT as a productive system whose focus is on optimizing processes through the philosophy of continual improvement. Shigeo Shingo identified a group of seven wastes that workers could address in improvement processes (Table 3.11).

Other Japanese Contributions to Quality Thought– JIT as a Philosophy

Other Japanese Contributions to Quality Thought Slide 2 of 7 Japanese Total Quality Control (TQC) Just as the Japanese JIT approach requires attention to detail in every aspect of the process, so does the TQC approach. This attention to detail runs deep in the Japanese culture. Beyond Deming’s 14 points, there are several Japanese contributions to quality thought and practice that we outline next.

Other Japanese Contributions to Quality Thought Slide 3 of 7 Visibility In the Japanese approach to quality, problems must be made visible before they can be addressed. Andon or warning lights Line-stop authority In-Process Inspection With work in-process inspection, all work is inspected at each stage of the process, and the workers inspect their own work.

Other Japanese Contributions to Quality Thought Slide 4 of 7 N = 2 Technique (only the first and last pieces are needed for acceptance inspection) The N = 2 technique is an alternative to acceptance sampling. Usually, an acceptance sampling plan involves rules such as: 1.If 2 or fewer defects, accept the lot. 2.If more than 2 defects, reject the lot. . If the supplier’s processes are in control and if the first and last pieces in the lot meet specification, then it is concluded that the entire lot of materials will meet specification.

Other Japanese Contributions to Quality Thought Slide 5 of 7 Total Involvement of Workforce We all become responsible for the aspects of quality we influence in a day’s work. Horizontal deployment means that all departments are involved in quality. Vertical deployment means that all levels of management and workers are actively involved in quality.

Other Japanese Contributions to Quality Thought Slide 6 of 7 The Five S’s. The five Ss are a sequential process that companies follow to literally “clean up their acts.” The Five Ss are: Seri: organizing by getting rid of the unnecessary. Seiton: neatness that is achieved by straightening offices and work areas. Seiso: cleaning plant and equipment to eliminate dirtiness that can hide or obscure problems. Seiketsu: standardizing locations for tools and other materials. Shetsuke: discipline in maintain the prior four Ss.

Other Japanese Contributions to Quality Thought Slide 7 of 7 Quality Circles Are natural work teams made up of workers that are empowered to improve processes and are use by Japanese companies to involve employees in improving processes and process capability. Preventive Maintenance (PM) The idea behind this concept is that the worst condition a machine should ever by is on the day you purchase it.

Quality Improvement: The European Way - ISO 9000 is the European standard for quality that has been expanded worldwide. - There is a perception in the quality community that Europe is falling further behind the Japanese and the United States in improving quality. - Culture plays a greater role in European quality practices than it does in the United States.

Quality Improvement: The European Way - There are only two examples of why, if service is to be improved, not only business practices will have to change in parts of Europe but also ingrained culture must change. - Two types of quality recognition are widely used in Europe. - These are the European Quality Award (EQA) and ISO 9000 certification.

Quality Improvement: The European Way European Quality Award (EQA) The EQA has two levels. The highest level is the EQA for the most accomplished applicant in a given year. The second level given in the European Quality Prize for other firms that meet the award criteria. The model for the EQA is shown in Figure 3.7. (2000, old, not newest) The differences between EQA and MBNQA are found primarily in the categories of people satisfaction, impact on society, and business results.

Quality Improvement: The European Way European Quality Award (EQA)

Quality Improvement: The European Way A comparison of the Baldrige, Deming, and European awards is presented in Table 3.12. Like the Baldrige, the category of business results focuses on operational and financial results. However, the EQA focus also on corporate social responsibility in the corporate results category. This includes an assessment of results relating to social and ecological factors.

European Quality Award (EQA) Table 3.12

ISO 9000 What is ISO 9000? What is the Purpose of ISO 9000? ISO 9000 is the European standard for quality that has been expanded worldwide. ISO stands for Organization for International Standards. What is the Purpose of ISO 9000? The purpose of ISO 9000 is to provide a mechanism for firms to document their quality systems in a series of manuals to facilitate trade through supplier conformance.

ISO 9000 Selecting a Registrar - To many who have implemented ISO 9000, the selection of the registrar is the most important step in the ISO 9000 process. - There is no centralized authority that qualifies ISO registrars. - When selecting a registrar, firms must be careful. They should check with customers and departments of commerce and customers within the countries to which they plan to export.

ISO 9000 Limitations of ISO 9000 - Among the criticisms of ISO are that it is mainly for exporting firms, is a barrier to trade, is time consuming, is costly, is difficult for small firms to afford, eats up human resources, discourages free thinking and employee empowerment, and the fact that not all countries accept all ISO registrars (see Table 3.13).

ISO 9000

ISO 14000 What is ISO 14000 and ISO 14001? ISO 14000 is an international standard for environmental compliance. The compliance standard is ISO 14001, Environmental Management Systems. This system may provide the basis for developing a comprehensive environmental management system. Table 3.14 presents the ISO 14001 Elements A key process has to do with selecting the appropriate registrar. It is expected that firms with little environmental exposure will adopt ISO 14000 first.

ISO 14000

Are Quality Approaches Influenced By Culture? Quality Approaches are Influence by Culture The Japanese approach is based on an ethic of consistency and emphasis on reduction of waste. The Europeans have adopted broad standards that can be adapted to the diverse nation states of the EC. The US approach has historically been command-and-control oriented.

Are Quality Approaches Influenced By Culture? Are other cultures developing quality methods that will be instructive for world competitors? Several Asian Tiger nations, such as Malaysia, South Korea, and Singapore, have begun to make inroads in the field of quality and will become formidable competitors in the future. We will keep watching.