Total Quality, Competitive Advantage, and Strategic Management

Competitive Advantage Denotes a firm’s ability to achieve market superiority over its competitors. In the long run, a sustainable competitive advantage provides above-average performance. A firm has many options in defining its long-term goals and objectives, the customers it wants to serve, the products and services it produces and delivers, and the design of the production and service system to meet these objectives. Creating a sustainable competitive advantage depends on developing and executing a good strategy.

Strategy The pattern of decisions that determines and reveals a company’s goals, policies, and plans to meet the needs of its stakeholders. Strategic Planning is the process by which the members of an organization envision its future and develop the necessary procedures and operations to carry out that vision.

Quality and Competitive Advantage A strong competitive advantage has six characteristics: Driven by customer wants and needs Makes a significant contribution to the success of the business Matches the organization’s unique resources with the opportunities in the environment Durable and lasting and difficult for competitors to copy Provides a basis for further improvement Provides direction and motivation to the entire organization

Sources of Competitive Advantage Classic literature on competitive strategy suggests that a firm can possess two basic types of competitive advantage: Low Cost and Differentiation. Modern thinking has added a third source of competitive advantage: an organization’s people.

Cost Leadership Firms that practice this produce high volumes of mature products and achieve their competitive advantage through low prices. They emphasize achieving economies of scale and finding cost advantages from all sources. A cost leader can achieve above-average performance if it can command prices at or near the industry average. Low cost can result from high productivity and high capacity utilization. Moreover, improvements in quality lead to improvements in productivity, which in turn lead to lower costs.

Differentiation To achieve differentiation, a firm must be unique in its industry along some dimensions that are widely valued by customers. It selects one or more attributes that customers perceive as important and positions itself uniquely to meet those needs. Often, a firm with a differentiation strategy can command premium prices and achieve higher profits. However, a firm that uses differentiation as its source of competitive advantage must make its products or systems difficult to copy.

People The human resource is the only one that competitors cannot copy, and the only one that can synergize – that is, product output whose value is greater than the sum of its parts. The competitive advantage resulting form an organization’s people can drive low cost and differentiation.

Quality and Differentiation Strategies Competitive advantage is gained form meeting or exceeding customer expectations – the fundamental definition of quality. A business may concentrate on any of several quality-related dimensions in order to differentiate itself rom its competition. These key dimensions are: Superior product and service design Outstanding service High agility Continuous innovation Rapid response

Information and Knowledge for Competitive Advantage Managing information and knowledge can require a significant commitment of resources as the sources of information grow dramatically each year. Understanding the impact of business decisions on results and benchmarking results against competitors and industry leaders has taken on increased importance in recent years. A supply of consistent, accurate, and timely information across all functional areas of business provides real-time information for evaluation and improvement of processes, products, and services to meet business objectives and rapidly changing customer needs.

Balanced Scorecard This was coined by Robert Kaplan and David Norton of the Harvard Business School in response to the limitations of traditional accounting measures. Four Perspectives: Financial Perspective Internal Perspective Customer Perspective Innovation and Learning Perspective

Balanced Scorecard

A good balanced scorecard contains both leading and lagging measures and indicators. Lagging Measures (outcomes) tell what has happened and Leading Measures (performance drivers) predict what will happen. For example, customer survey results about recent transactions might be a leading indicator for customer retention (lagging indicator).

TQ and Strategic Planning Quality as a Strategic Focus The essence of strategy is to build a posture that is so strong in selective ways that the organization can achieve its goals despite unforeseeable external forces that may arise. Many firms have recognized that a strategy driven by quality can lead to significant market advantages.

Quality in the Process of Strategic Planning Many organizations do a poor job because they do not view it as a business process. The role of strategic planning is to align work processes with the company strategic directions, thereby ensuring that improvement and learning reinforce company priorities. Strategic planning consists of two principal activities: development and implementation.

Environmental Assessment Strategic Planning Process Mission Guiding Principles Vision Human Resource Capabilities and Needs Customer and Market Requirements Competitive Environment Technological Capabilities Environmental Assessment Financial and Societal Risks Supplier Capabilities Models Forecasts Strategy Development Analyses Business Intelligence Action Plans Deployment Strategic Planning Process

Strategy Development Effective strategic planning depends upon a clear understanding of customer and market needs and expectations, as well as the competitive environment and internal capabilities.

Strategy Implementation Top management requires a method to ensure that their plans and strategies are successfully executed within the organizations. The Japanese deploy strategy through a process known as hoshin planning or policy deployment. Hoshin means policy or policy deployment. Policy Deployment is a systems approach to managing change in critical business processes. It emphasizes organization-wide planning and setting of priorities, providing resources to meet objectives, and measuring performance as a basis for improving performance.

Hoshin Planning

TQM Wheel (Hoshin Planning)

TQ and Strategic Management Theory Requirements for effective planning: A definable approach for developing company strategy. The approach should consider factors related to the market environment, the competitive environment, risk, human resource capabilities, company capabilities, and supplier/partner capabilities. A clear company strategy with action plans derived from it, and human resource plans related to the action plans. An approach for implementing action plans. The approach should consider how the critical requirements for implementing action plans. An approach for monitoring company performance relative to the strategic plan Projection of strategy-related changes in key indicators of company performance.