Total Quality, Total Quality, Competitive Competitive

Advantage, and Advantage, and Strategic Strategic

ManagementManagement

Competitive Competitive AdvantageAdvantage

• 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.

StrategyStrategy• 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 Quality and Competitive Competitive AdvantageAdvantage

• A strong competitive advantage has six characteristics:o Driven by customer wants and needso Makes a significant contribution to the success of

the businesso Matches the organization’s unique resources with

the opportunities in the environmento Durable and lasting and difficult for competitors to

copyo Provides a basis for further improvemento Provides direction and motivation to the entire

organization

Sources of Sources of Competitive Competitive AdvantageAdvantage

• 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 LeadershipCost 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.

DifferentiationDifferentiation• 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.

PeoplePeople• 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 Quality and Differentiation Differentiation

StrategiesStrategies• 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:o Superior product and service designo Outstanding serviceo High agilityo Continuous innovationo Rapid response

Information and Information and Knowledge for Knowledge for

Competitive AdvantageCompetitive 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 ScorecardBalanced 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:o Financial Perspectiveo Internal Perspectiveo Customer Perspectiveo Innovation and Learning Perspective

Balanced ScorecardBalanced 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 TQ and Strategic PlanningPlanning

• Quality as a Strategic FocusThe 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.

Vision

Action Plans

Environmental Assessment

Strategy Development

Deployment

Mission

Financial and Societal Risks

Competitive Environment

Customer and Market Requirements

Technological Capabilities

Human Resource Capabilities and

Needs

Guiding Principles

Forecasts

Analyses

Supplier Capabilities

Models

Business Intelligence

Strategic Planning Process

Strategy DevelopmentStrategy 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 Strategy ImplementationImplementation• 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 PlanningHoshin Planning

TQM Wheel (Hoshin TQM Wheel (Hoshin Planning)Planning)

TQ and Strategic TQ and Strategic Management TheoryManagement Theory

• Requirements for effective planning:o 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.

o A clear company strategy with action plans derived from it, and human resource plans related to the action plans.

o An approach for implementing action plans. The approach should consider how the critical requirements for implementing action plans.

o An approach for monitoring company performance relative to the strategic plan

o Projection of strategy-related changes in key indicators of company performance.