Managing Quality and Performance Chapter 19 Managing Quality and Performance

Controlling Managers use a variety of measures to monitor performance: Controlling work processes Regulating employee behavior Systems for financial resources Evaluating profitability Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

The Meaning of Control Organizational control is the systematic process through which managers regulate organizational activities to make them consistent with expectations established in plans, targets, and standards of performance Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Choosing Standards and Measures Common measures and controls = financial: Sales Revenue Profit More focus on measuring intangibles Customer service Increased revenue Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

The Balanced Scorecard Balanced perspective of company performance Integrates various areas of the organization Managers record, analyze, and discuss the metrics Serves as core management-control system Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

The Balanced Scorecard Model Purpose is to translate strategy into measures that uniquely communicate an organization’s vision. Four perspectives: Financial—value to shareholders Customer—customer satisfaction and market growth Innovation and Learning—people and infrastructure Internal—processes that drive the business

19.1 The Balanced Scorecard Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

19.2 Feedback Control Model Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Steps of Feedback Control Establish Standards of Performance Measure Actual Performance Compare Performance to Standards Take Corrective Action Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Application to Budgeting Budgetary control – setting targets and monitoring expenditures Budgets list planned and actual expenditures Budgets are associated with a division or department The unit of analysis for budgeting is the responsibility center Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Financial Control Financial Statements provide basic information for financial control Balance Sheet shows firm’s financial position Income Statement profit-and-loss statement or P&L highlights firm’s financial performance Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

19.3 Balance Sheet Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

19.4 Income Statement Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Financial Analysis: Interpreting Numbers Managers need to evaluate financial reports Comparing performance with other data and industry standards Financial Analysis: Ratios Statistics Review: Profits, assets, sales, and inventory Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

19.5 Common Financial Ratios Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Hierarchical versus Decentralized Approaches Hierarchical controls include the monitoring of behavior through rules, policies, reward systems, and written documentation Decentralized controls based on values and assumptions; rules are only used when necessary Culture is adaptive, uniting individuals and teams Managers’ approach to control is changing in many of today’s organizations Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

19.6 Comparing Methods of Control Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Open-Book Management Decentralized philosophy Get every employee thinking like an owner Information sharing and teamwork Allows employees to see the financial condition of company See how his/her job fits into organizational success Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

19.7 Which Countries Have the Most Secretive Economies? Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Total Quality Management (TQM) Infuse quality into every aspect of the business, all day-to-day activities Became popular in the U.S. in the 1980s Focuses on: Teamwork Collaboration Identifying improvements The goal of TQM is zero-defects Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Interlinking Quality and Profitability Performance

TQM Techniques Quality Circles Benchmarking Six Sigma Reduced Cycle Time Continuous Improvement Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

19.8 The Importance of Quality Improvement Programs Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

19.9 Quality Program Success Factors Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

International Quality Standards ISO 9000 standards – International Organization for Standardization Organization certification 157 Countries Organizations demonstrate a commitment to quality Europe leads in certifications but the United States has had large increases Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

New Financial Control Systems Economic Value-Added (EVA) – gauge financial performance; look at ways to add value Market Value-Added (MVA) – Stock market’s estimate of the value of a company Activity-Based Costing (ABC) – allocating costs across departments and functions Corporate Governance – systems and rules from the top are safeguards for shareholders Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.

Review Questions Define organizational control and explain why it is a key management function.  Explain the benefits of using the balanced scorecard to track performance and control of the organization.  Explain the four steps in the control process.  Discuss the use of financial statements, financial analysis, and budgeting as management controls. Contrast the hierarchical and decentralized methods of control.  Identify the benefits of open-book management.  Describe the concept of total quality management and major TQM techniques, such as quality circles, benchmarking, Six Sigma principles, reduced cycle time, and continuous improvement.  Identify current trends in quality and financial control, including ISO certification, economic-value-added and market-value-added systems, activity-based costing, and corporate governance, and discuss their impact on organizations.

Review Questions – The Balanced Scorecard Model What is the main purpose of the Balanced Scorecard Model? What is the difference between TQM and the Balanced Scorecard Model? Why are “Financials” so important in performance evaluation? What is the weakness of using “Financials only” in performance evaluation? What is “strategic planning” in Schneider’s paper titled “How to Build a Balanced Scorecard”?

Review Questions - TQM Who defines “quality”? Why? Why does TQM quantify quality? Why doesn’t “quality control” improve quality? Why is “quality improvement” better than “quality control”? Why did Toyota lose the 6-sigma reputation in 2000s? Why is TQM a never-ending process? What is the relationship b/w quality & profitability? Why does TQM use the word “Total”? Define leadership and explain its importance for organizations. Identify sources of leader power. Identify the tactics leaders use to influence others.