LICENTIATE T H E S I S

Luleå University of TechnologyDepartment of Business Administration and Social Sciences

Division of Quality & Environmental Management

:|: -|: - -- ⁄ --

:

Quality Practice and Customer ValueStrengthening the Ideal Linkage

Johan Lilja

Licentiate thesis No 28 Division of Quality & Environmental Management

Quality Practice and Customer Value Strengthening the Ideal Linkage

Johan Lilja

Luleå University of Technology Department of Business Administration & Social Sciences

Division of Quality & Environmental Management

September 2005

ACKNOWLEDGEMENTS This thesis has formally been carried out at the Division of Quality & Environmental Management at Luleå University of Technology. Most of the work has, however, been carried out at the recently launched Division of Quality Technology & Management at Mid Sweden University in Östersund, about 600 kilometres south of Luleå. While working with my thesis, I have received the support of many people from both these sites and others.

First I would like to thank my primary supervisor, Professor Håkan Wiklund, for his enlightening enthusiasm and advice. I am also grateful for the advice and support constantly given by my assistant supervisor, Bengt Klefsjö. The many discussions and seminars concerning the historical roots of modern quality management have truly inspired me. I would furthermore like to thank all of my colleagues located in Luleå for their tremendous hospitality, which has made my many trips on the early morning flight to Luleå a lot easier to bear.

I would also like to thank my colleagues at the Division of Quality Technology & Management in Östersund, who have all helped me to improve the content of this thesis and the appended papers during discussions and seminars. In particular I would like to thank them all for enduring, and occasionally seemingly enjoying, many of my philosophical discussions concerning issues such as the ultimate aim of, and the political content of, Total Quality Management, not to mention the underlying mechanisms of customer value and happiness. The division in Östersund is however still in its infancy with only a small staff of six. As a consequence the support from colleagues and particular PhD-students within other scientific fields has been of great value. Thank you all, and keep up with the vision of being a pioneering and interdisciplinary university.

Finally, I would like to declare my great appreciation to my love and sunshine – Maria. She has shown most astonishing endurance during this time, withstanding not only times of joy but also periods with a boyfriend, out of contact with nothing but his own thoughts. Without you, this journey would never have taken place.

Johan Lilja, Östersund, August 2005

ABSTRACTQuality management is continuously evolving and the progression so far is frequently described in terms of four stages. According to these descriptions, Total Quality Management (TQM) constitutes the currently highest level, or fourth stage, of quality management. Despite the divergence of views on what constitutes TQM, it is commonly described as a number of diverse activities, here designated as quality practice, performed to display and embody a certain set of values. One of these values, acknowledged as central to TQM, is to focus on the customers. This value basically implies that a TQM organization should adapt its operations to what creates value for its customers. Hence, there is ideally a strong linkage between the application of quality practice and the creation of customer value. In a wider perspective, this linkage fundamentally determines the vital contribution of quality practice to competitiveness.

However, this linkage has so far been given poor attention among quality researchers. Furthermore, differences of opinions exist regarding its strength. It has for instance been argued that quality practices commonly included in TQM lack a linkage to customer value, decrease the competitiveness of the organization in which they are implemented, and hinder the organization’s ability to create customer value.

The aim of this thesis is accordingly to examine the ideal linkage between quality practice and customer value in order to increase its strength. In accordance to the idea of continuous improvement, the aim is to improve the reflection of the value ‘focus on the customers’ in quality practice.

The research process described in this thesis has started by examining and developing the current theoretical foundation and models of TQM concerning customer value, in terms of the theory of attractive quality. Furthermore, an affective conceptualization of customer value has been used as a basis for an initial examination of the ideal linkage.

Among the presented results it is indicated that quality practice, including the measures currently used to capture customer perceptions, is more or less restricted to negative motivations of external customers. Negative motivations basically stem from the customers strive to avoid and reduce negative emotional states. The linkage to positive motivations of the external customers is seemingly much weaker or even absent. The indicated focus can be seen as a reflection of early theories of motivation emphasizing negative motivations as the governing principle. Modern theories emphasize, however, both negative and positive motivations. The sole emphasis on negative motivations indicated in current quality practice would imply that external customers prefer to exist in a state of boring neutrality. A dual emphasis recognizes that while our customers want to minimize pain and disappointment, they want to maximize pleasure as well, to make life interesting and stimulating. An extension of quality practice, including the use of multiple output measures, is suggested to increasing the reflection of this duality of customer value in TQM. As a foundation for such an extension, a two-dimensional perspective on the mechanisms involved in the strong positive emotional state associated with attractive quality elements has been proposed. The proposed perspective points at two separate mechanisms in terms of the satisfaction of high-level needs and latent needs.

SAMMANFATTNINGKvalitetsledning utvecklas ständigt och den utveckling som skett hittills beskrivs vanligen i form av fyra steg. Enligt dessa beskrivningar utgör offensiv kvalitetsutveckling (TQM) den för närvarande högsta nivån, eller fjärde steget, av kvalitetsledning. Trotts skillnader i åsikter om vad som utgör TQM, beskrivs det vanligtvis som ett antal aktiviteter av olika slag, här benämnt som den praktiska tillämpningen av TQM, vilka genomförs för att demonstrera och ge uttryck för en uppsättning av specifika värderingar. En av dessa värderingar är att alltid sätta kunderna i centrum. Denna värdering innebär i princip att en TQM organisation skall anpassa sin verksamhet till vad som genererar upplevt värde för dess kunder. Det finns således i bästa fall en stark koppling mellan den praktiska tillämpningen av TQM och skapandet av ett överlägset kundvärde. I ett större perspektiv är det denna koppling som i grunden styr om den praktiska tillämpningen av TQM bidrar till konkurrensförmåga.

Denna länk har dock hittills fått begränsad uppmärksamhet bland kvalitetsforskare. Vidare så finns det stora meningsskiljaktigheter rörande dess styrka. Arbetssätt och verktyg som vanligen inkluderas i TQM har exempelvis hävdats sakna koppling till kundvärde, minska konkurrensförmågan hos den organisation inom vilket de implementerats och förhindra organisationens möjlighet att skapa kundvärde.

Syftet med denna uppsats är således att granska och stärka denna önskvärda länk mellan den praktiska utövningen av TQM och skapandet av kundvärde. I enlighet med kvalitetsledningens strävan efter ständiga förbättringar syftar uppsatsen till att förbättra reflektionen av värderingen sätt kunderna i centrum i den praktiska utövningen av TQM.

Forskningsprocessen som beskrivs i denna uppsats har startat med att granska och utveckla TQMs nuvarande teoretiska grund rörande kundupplevt värde i form av Kanomodellen. Vidare har en känslobaserad modell av kundupplevt värde använts som utgångspunkt för en första granskning av den tänkta länken.

Bland resultaten så indikeras att den praktiska utövningen av TQM, inklusive de mätetal som används för att fånga upp kundens upplevelse, är mer eller mindre begränsade till den externa kundens negativa motivation. Negativ motivation som i princip kan ses som kundens strävan efter att undvika eller reducera negativa känslotillstånd. Kopplingen till den externa kundens positiva motivation bedöms däremot vara mycket svagare eller till och med saknas. Denna antydda fokusering kan ses som en återspegling av tidiga motivationsteorier som betonade negativ motivation som allena styrande människan. Moderna teorier betonar dock vikten av både negativ och positiv motivation. Att uteslutande betona negativ motivation skulle innebära att våra kunder föredrar att leva i ett neutralt och tråkigt tillstånd, medan ett tvåsidigt perspektiv betonar att kunden i tillägg till att slippa negativa känslor så som smärta och besvikelse, även vill uppleva positiva känslor för att göra livet intressant och stimulerande. En utvidgning av TQMs praktiska tillämpning, inklusive användningen av multipla mått för kundvärde, föreslås för att bättre reflektera de två elementen i kundvärde. Som en utgångspunkt för denna utvidgning presenteras en tvådimensionell modell rörande de mekanismer som är involverade i de starka positiva känslor som associeras med attraktiv kvalitet. Förklaringsmodellen pekar på två skilda mekanismer i form av tillfredställelsen av högnivåbehov respektive latenta behov.

TABLE OF CONTENTS 1 INTRODUCTION - 1 -

1.1 Background - 1 - 1.2 Purpose of the Thesis - 3 - 1.3 Research Questions - 4 - 1.4 Delimitations - 5 - 1.5 Thesis Structure - 5 -

2 THEORETICAL FRAME OF REFERENCE - 8 - 2.1 Quality Management - 8 - 2.2 Five Development Patterns of Quality Management - 9 - 2.3 Total Quality Management - 11 - 2.4 A Consistent Hierarchy of Perspectives - 14 - 2.5 The TQM Core Values - 19 - 2.6 The Ideal Linkage - 21 - 2.7 The Strength of the Ideal Linkage - 21 - 2.8 Understanding What Generates Customer Value - 23 -

3 RESEARCH STRATEGY - 31 - 3.1 Introduction - 31 - 3.2 Ultimate Presumptions - 32 - 3.3 Paradigm - 33 - 3.4 The Area of Study - 36 - 3.5 The Research Process - 37 -

4 SUMMARY OF APPENDED PAPERS - 42 - 4.1 Paper A - 42 - 4.2 Paper B - 44 - 4.3 Paper C - 47 - 4.4 Paper D - 50 -

5 CONCLUSIONS - 53 - 5.1 Research Question 1 - 53 - 5.2 Research Question 2 - 54 - 5.3 Research Question 3 - 55 - 5.4 Conclusions of the Thesis - 56 -

6 DISCUSSION AND FUTURE RESEARCH - 58 - 6.1 A Wider Perspective - 58 - 6.2 Continuing along the Intended Path - 59 -

REFERENCES - 61 -

APPENDED PAPERS Paper A: Obstacles to the Creation of Attractive Quality Co-authored with Håkan Wiklund Accepted for publication in The TQM Magazine

Paper B: A Two-Dimensional Perspective on Attractive Quality Co-authored with Håkan Wiklund Submitted for international publication

Paper C: Getting Emotional about Quality: Questioning and Elaborating the Satisfaction Concept

Co-authored with Håkan Wiklund Presented at the 8th QMOD Conference, 29 June-1 July 2005, Palermo, Italy, in Proceedings, pp. 905-916

Paper D: Quality Practice and External Customer Value: Critical Reflections on the Ideal Linkage

Co-authored with Håkan Wiklund. Presented at the 8th QMOD Conference, 29 June-1 July 2005, Palermo, Italy, in Proceedings pp. 281-292

- 1 -

CHAPTER 1

INTRODUCTIONThis chapter presents the background to the research area. In addition, the purpose, the research questions, the delimitations, and the structure of this thesis are presented.

1.1 Background Walter Shewhart, often referred to as the father of modern quality philosophy (see e.g. Garvin, 1988; Bergman & Klefsjö, 2003), clearly accentuated the subjective measures of quality, i.e. what the customer thinks, feels, or senses as a result of the objective reality, as determining the goodness and commercial interest of an offer (Shewhart. 1931). However, in the very same section, he limited his further considerations to the process of obtaining objective quality, i.e. conformance to standards. This contradiction has remained and become a somewhat characteristic feature of quality management. Although focusing on the customer is generally stressed as being an important part of Total Quality Management, TQM, (e.g. Kennerfalk, 1995; Evans & Lindsay 1996; Hellsten, 1997; Sila & Ebrahimpour, 2002), the quality movement has principally remained focused on the internal process perspective and objective quality. Using a distinction between the output perspective (i.e. how customers evaluate quality) and the internal process perspective (i.e. how an organization improve and obtain quality), quality research generally adopts an internal process perspective (Nilsson, 2002). This perspective is reflected in claims such as that TQM is a part of operations management rather than an academic subject in its own right (Dale et al., 2001), and that customer orientation is likely to be the

- 2 -

principle that is emphasized the most, but researched the least within quality management (Nilsson, 2002). The situation is clearly problematic as both quality and TQM generally are defined in terms of the output perspective. Most modern quality definitions recognize that quality should be valued by the customers and always be put in relation to their needs and expectations (e.g. Oakland, 1989; Tenner & DeToro, 1992; Shiba et al., 1993; Dahlgaard et al., 1994; Bergman & Klefsjö, 2003), and the aim of TQM is stated in terms such as to increase internal and external customer satisfaction (Hellsten & Klefsjö, 2000) or meet, and hopefully exceed, the needs and expectations of the customers (e.g. Dale 1999). A common and deep understanding of the output perspective, i.e. how customers evaluate quality, is hence a prerequisite for both the actual measurement of quality and the development of TQM. Advances in the understanding of the output perspective are then of utmost importance for the quality movement, and TQM professionals and researchers constantly need to seek to improve knowledge about it. After all, it seems unreasonable to expect progress if we are aiming at such a vaguely understood target.

In relating to the history of quality management and TQM, the subject field is still in early stages of theory development (Dale et al., 2001). The increasingly intense competition seems to have caused a general shift of interest from the producers’ point of view, which goes under such names as manufacturing-based quality (Garvin, 1984), objective quality (Shewhart, 1931) and production management quality (Steenkamp, 1990), towards perceived or subjective quality. As a result, modern quality management has come to share the notion of the marketing concept, which holds that the key to achieving organizational goals is to be more effective and efficient than competitors in identifying and satisfying the needs of target markets (e.g., Kotler 2003). The essence is that a company should identify its customers’ needs and adapt its operations to their needs (Levitt, 1960).

However, criticism does cast doubt on whether, and how, current quality practice, in terms of the application of the tools and methodologies of TQM, contributes to the creation of customer value. The linkage is currently the subject of frequent criticism. Goh (2002, p.409) argues for instance, in the context of the TQM methodology Six Sigma, that “it is too easy to avoid mistakes or failures by not trying anything novel: When obsessed with error avoidance, one’s attention and energy tend to be diverted from exploratory pursuits and endeavours for value creation”. Another example, drawing on experience from Volvo Cars, Dahlsten (2003) point at a general confusion in many organizations concerning what creates customer value. It is argued that cost-oriented quality practice might take precedence over the genuine satisfaction of the customer. Clifford (2001, p.140) pertinently remark in his criticism that “defects don't matter much if you're making a product no one

- 3 -

wants to buy”. These examples and others (e.g. Pyzdek, 1999a, 1999b, 1999c; Johnson, 2002; Cole, 2003) point to the existence of an incomplete linkage between current quality practice and the creation of customer value. Woodruff (1997) even claims that if TQM organizations are to become better at competing on superior customer value delivery, they will need a corresponding additional set of tools. Quality practice seems then to currently lack an obvious connection to the ability to deliver customer value. This should raise the alarm as the ability to use new opportunities to create value for customers is emphasized as the distinguishing factor for successful companies of the future (e.g. Normann, 2001). Moreover, research shows that value is the primary influence on purchase decisions and the leading indicator of market share, revenue growth, profitability, and competitive advantage (Monroe, 2003). Touching upon the future, a deeper understanding of the quality of life with our internal and external customers is proposed as leading the way towards the next epoch in the area of TQM (Bergman & Klefsjö, 2003). Consequently, it seems to be about time to deepen the knowledge about what creates customer value as well as to examine and strengthen the ideal linkage between current quality practice and customer value.

1.2 Purpose of the Thesis The purpose of this thesis is to examine and improve the ideal linkage between the application of quality practice and the creation of customer value. A strengthening of the linkage will potentially increase the contribution of TQM to the competitiveness of the organizations in which it is implemented. The aim can be further specified into two sub-aims, which are:

To contribute to the current understanding of the mechanisms involved in generating customer value.

To identify areas for improvement concerning the ideal linkage between the quality practice and the creation of customer value.

- 4 -

1.3 Research Questions Three research questions have been formulated in order to further specify the intended focus of the thesis.

1. What mechanisms are involved in generating customer value?

2. How is current quality practice, in terms of the use of methodologies and tools included in TQM, contributing to customer value?

3. How may the ideal linkage between quality practice and the creation of customer value be strengthened?

The anticipated knowledge contributions related to these research questions are listed in Table 1.1 below.

Table 1.1 Research questions of the thesis and the anticipated knowledge contribution.

Research Question Anticipated Knowledge Contribution

(1) What mechanisms are involved in generating customer value?

Identification of alternative mechanisms involved in generating customer value. Identification of weaknesses and suggested improvements to the current theoretical foundation within quality management concerning customer value.

(2) How is current quality practice, in terms of the use of methodologies and tools included in TQM, contributing to customer value?

A description of the current state of the ideal linkage between quality practice and the creation of customer value. Identification of areas for improvement concerning the ideal linkage.

(3) How may the ideal linkage between quality practice and the creation of customer value be strengthened?

A proposal of modifications and additions to TQM that strengthens the ideal linkage.

The first research question addresses a prerequisite for being able to examine the ideal linkage. It is simply not possible to examine the ideal linkage without a deep understanding of the mechanisms that generate customer value. The second research question then addresses the central examination of the linkage between

- 5 -

the use of methodologies and tools included in TQM, referred to as quality practice, and the creation of customer value. Finally, the third research question focuses on the actual contribution to quality practice, following the tradition of provisioning a methodology for use, i.e. practices and techniques, which often is stresses as a strength of quality management compared to other business philosophies (e.g. Spencer, 1994; Woodruff 1997)

1.4 Delimitations The author has, based upon the research questions, made the following delimitation of the research accounted for in this thesis:

The presented examination of the linkage between quality practice and the creation of customer value concerns external customer value.

1.5 Thesis Structure The structure of the thesis is briefly presented below and in Figure 1.1.

Chapter 1: Introduction. This initial chapter consists of the background to the research questions. In addition, the purpose, the research questions, the delimitations, and the structure of the thesis are presented.

Chapter 2: Theoretical Frame of Reference. In this chapter, the theoretical frame of reference is presented and discussed. A system perspective on TQM is presented together with theory concerning its components and how they together are intended to link to the delivered customer value and competitiveness of the organization in which it is implemented. The chapter also includes perspectives on the strength of this linkage.

Chapter 3: Research Strategy. This chapter presents the chosen research strategy. It includes a description and discussion of aspects related to the chosen research approach and process.

Chapter 4: Summary of Papers. In this chapter the four appended papers are summarized under the headings purpose, methodology, findings, practical implications, and value.

Chapter 5: Conclusions. This chapter presents the conclusions with respect to the three research questions of the thesis. General conclusions of the thesis are also presented.

Chapter 6: Discussion and Future Research. The final chapter address what is to come in terms of the focus of future research and discusses the research in a wider perspective.

- 6 -

Chapter 1Introduction

Chapter 2Theoretical Frame

of Reference

Chapter 3Research Strategy

Chapter 4Summary of Papers

Paper D

Paper C

Paper B

Paper A

Chapter 5Conclusions

Appended Papers

Chapter 6Discussion and

Future Research

Preparatory phase

Analyticalphase

Figure 1.1 The figure illustrates the structure of this thesis with its six chapters and appended papers. The first three chapters, labelled as the preparatory phase, serves as a foundation for the following analytical phase.

The thesis is basically structured around the four appended papers which are summarised in Chapter 4. The initial three chapters, in Figure 1.1 labelled as the preparatory phase, describe the foundation of these articles in terms of the aim of the research, relevant and acknowledged perspectives on the subject area of interest, and the strategy that guided the research. The specific results or findings from each article are then presented in Chapter 4. Finally, the last two chapters summarize and take an overarching perspective on the conclusions from the separate papers, discusses in relation to the research questions and future research. The connection between the research questions and the papers is further displayed in Figure 1.2.

- 7 -

Research Question 1 How may the current theoretical foundation and models of TQM concerning the output perspective be advanced?

Research Question 1 What mechanisms are involved in generating superior customer perceived value?

Research Question 3 How may the ideal linkage between the practice of quality management and the creation of superior customer value be strengthened?

Research Question 2 Is the current practice of quality management, in terms of the use of methodologies and tools included in TQM, contributing to or hindering the creation of superior customer perceived value?

Paper 4Quality Practice and External Customer Value: Critical Reflections on the Ideal Linkage

Paper 1Obstacles to the Creation of Attractive Quality

Paper 2A Two-dimensional Perspective on Attractive Quality

Paper 3Getting Emotional about Quality: Questioning and Elaborating the Satisfaction Concept

Figure 1.2 An illustration of the connection between the research questions and the appended papers of the thesis.

Figure 1.2 visualises a complex pattern of relationships. It can be noted that all four papers contribute to both research question one and three. The shared contribution to improvement and strengthening of the ideal linkage reflects the overall aim of the thesis. Further, the general relationship to the identification of mechanisms involved in generating customer value reflects that all the papers include a discourse of theory and models concerning this question.

- 8 -

CHAPTER 2

THEORETICAL FRAME OF REFERENCEIn this chapter the theoretical concepts and theories relevant to the thesis will be presented.

2.1 Quality Management Quality management is described as still in the early stages of theory development (Dale et al., 2001). Seen in relation to traditional sciences such as mathematics and physics, this statement seems adequate. The research presented in this thesis can be seen as part of what Kroslid (1999) describes as the continuous improvement school of thought, committed to the belief in continuous improvement. This school of thought, as well as the broader discipline of quality management, is generally seen as originating from Walter A. Shewhart’s work at Bell Telephone Laboratories in the 1920s and the theories of variation in Shewhart’s (1931) book Economic Control of Manufactured Products (see e.g. Garvin, 1988; Kroslid, 1999; Bergman & Klefsjö, 2003). The main contributors to this school have been Walter A. Shewhart, W. Edwards Deming and Joseph M. Juran. This perspective implies that the discipline of quality management is less than a century old. In these years, the systems for improving and managing quality have evolved rapidly and the discipline of quality management expanded in many ways. Quality as a subject has however been a matter of human concern for a longer period of time than the last century. According to Kano et al. (1996), Aristotle (384-322 BC)

- 9 -

may have been the first to discuss quality in a systematic way. Most interestingly he also summarized the definitions of quality into two basic meanings, which still are highly relevant; the two aspects of subjective and objective quality (see Aristotle, 1924). Embedded in this objective-subjective split is the idea that objective quality pertains to “conformance to requirements” or in the words of Shewhart (1931, p.53) “independent of the existence of man”, while the subjective quality pertains to the satisfaction of the user, the way the user thinks, feels, or senses.

2.2 Five Development Patterns of Quality Management Quality management is constantly influenced by and interacts with the surrounding world. In contributing to understanding this evolving system, one approach is to enlighten some patterns in its continuous evolution. Five such patterns are here presented in an attempt to set the stage for the theoretical frame of reference. For alternative discussions of the development patterns, see e.g. Svensson (2004).

One of the evolutionary patterns of quality management, most frequently referred to, is a change of interest from the producers’ point of view, towards the consumers’ (Kondo, 2000). As a result, quality management has generally come to share the notion of the marketing concept, which holds that the key to achieving organizational goals is to be more effective and efficient than one’s competitors in identifying and in satisfying the needs of target markets (e.g., Kotler, 2003). The essence being that a company should identify its customers’ needs and adapt its operations to their needs (Levitt, 1960). Such development is further accentuated in many future perspectives, as by Bergman & Klefsjö (2003, p.558) hoping for a development, “where the customers’ needs and expectations will be in the centre of attention in all processes; where the aim will be to find win-win solutions; and where the work with continuous improvement is seen as a natural part”.

A second pattern, often referred to in the scholarly literature is the one that describes an evolution or expansion of quality management from inspection, via control and assurance, to Total Quality Management, TQM, (see e.g. Dale et al., 2003; Kanji & Asher, 1993). This pattern has strong similarities with models that like to refer to the evolutionary process as one from reactive towards proactive quality management in terms of increasing the efforts before production (e.g. Berryman, 2002). Bergman & Klefsjö (2003) even seem to merge these evolutionary patterns into one, presenting the evolution of quality movement as four phases. The increasing portion of quality work being devoted to the development of goods and services seems to support the notion of this pattern.

- 10 -

A third pattern in the development of quality management, related specifically to the continuous improvement school, is described by Kroslid (1999). Kroslid describes the focus of practices having gone from process towards what can be described as a customer-oriented culture of continuous improvement.

Fourth, Kano (1987) proposes a development of quality management in terms of three steps where the third stage of the development focuses on attractive quality creation, in terms of potential or latent needs. His analysis of implementation papers presented in the QC conferences, published between 1955 and 1985, further supports the previous notion of a transition from conformity to specifications towards user satisfaction. A transition of interest from the production stages towards R&D and marketing is also identified, described as a change from “how to make to what to make” (Kano, 1987, p.146). In short, Kano’s (1987) analysis shows that product planning will become the core of quality activities in the future.

A final perspective on the development of the quality management is given by Goh (2002) when describing four different quality efforts for performance improvement whose popularity started between the 1940s and 2000s, as illustrated in Table 2.2.

Table 2.2 Quality efforts for performance improvement. From Goh (2002, p.405).

Methodology T&I SPC Six Sigma DFSS 1. Approach Defect detection Defect prevention Defect avoidance Value creation 2. Method Samplings plans Control charts DMAIC IDOV 3. Focus Product Process Project System 4. Information Static Dynamic Varied Uncertainties 5. Medium Observation Data Knowledge Perspectives 6. Nature Passive Defensive Active Pre-emptive 7. Deployment Exit point Downstream Midstream Upstream 8. Application Isolated On-line Off-line Organization wide 9. Format As needed Continuous Project by project Subject by subject 10. Operation Single location Single function Cross function Business wide 11. Execution Prescriptive Rule-based Needs driven Proactive 12. Criterion Conformance Stability Optimality Predictability 13. Improvement Irrelevant Absent Incremental Fundamental 14. Problems Unsolved Contained Understood Anticipated 15. Solutions Unavailable Ad hoc Remedial Built-in 16. Result Damage control Capability Sigma level Robustness 17. Framework Instantaneous Short term Long term Life cycle 18. Customer reaction Acceptance Satisfaction Appreciation Trust 19. Gains None Confidence Savings Profit 20. Enhancement Production Engineering Bottom line Market share 21. Requirements Unsophisticated Procedural Organizational Cultural 22. Core skills Procedures Analysis Communication Synthesis 23. Leaders Technicians Engineers Managers Chief executives 24. Applicability Traditional Modern Contemporary Current 25. Popularity started 1940s 1970s 1990s 2000s KEY: T&I: Testing and inspection, SPC: Statistical process control,

DFSS: Design for Six Sigma

- 11 -

Table 2.2 is instrumental as it relates to the other patterns suggested. It highlights the fact, for instance, that the emphasis of quality management has moved upstream through the years, which is closely related to the development towards proactive quality work. It also visualises a movement from defect detection to value creation, from enhancement of production to enhancement of market share.

This initial description of the development of quality management can be seen as constituting the foundation on which the initiative for this thesis was based. The thesis essentially aims to increase the ability of quality management to support value creation and increase the predictability of the customers’ value perceptions in order to primarily contribute to improvement of upstream activities normally conducted during the early phases of product development and product planning.

2.3 Total Quality Management As described in the second pattern of development, Total Quality Management (TQM) is frequently presented as the currently highest and most comprehensive form of quality management. The concept of TQM is a further development of Total Quality Control (TQC), a concept first introduced by Feigenbaum (1951) in a book with the same name. The TQC concept did, however, not achieve acceptance as intended in the Western companies. On the other hand, TQC was a ‘hit’ in Japan, and developed into what the Japanese themselves call CWQC, Company-Wide Quality Control. This is, according to Dahlgaard et al. (2002), identical to what we in the West today refer to as TQM.

Describing TQM is by no means trivial and several of the attempts so far have been fairly vague. Further, as stated by Fredriksson (2004), it is noteworthy that none of the gurus, referring to Deming, Crosby and Juran, has explicitly used the label TQM for their philosophies. Several descriptions of TQM have been presented over the years, some referring to TQM as a corporate culture and vision (Dahlgaard et al., 2002), others describing it as a management approach (Oakland, 1993). A number of authors have also suggested a system approach, among them Shiba et al. (1993), describing TQM as an evolving system, a view supported by Hellsten & Klefsjö (2000, p.241) when describing TQM as “a continuously evolved management system consisting of values, tools and techniques, the aim of which is to increase external and internal customer satisfaction with a reduced amount of resources”. The system perspective of TQM is acknowledged and used in this thesis based on the author’s preferences of a systems perspective of reality and the ambition to approach the phenomenon TQM as a whole. The system perspective of TQM can further be seen as incorporating many of the alternative descriptions found in literature. Using the terminology of Checkland and Scholes (1990), TQM is henceforth

- 12 -

thought of as a system. For a more thorough discussion of the TQM concept, see e.g. Dean & Bowen (1994), Boaden (1997), Hellsten (1997), and Park Dahlgaard (2001).

A System Perspective The concept of ‘system’, and General Systems Theory (GST), began to be elaborated in the 1940s by the organismic biologist Bertalanffy. He was interested in the organism as a whole rather than any of its constituent parts (see e.g. Bertalanffy, 1968). In general, a system can be seen as an assembly of elements related in an organized whole (Flood & Carson, 1993). Dahlgaard et al. (2002) and Deming (2000) define a system as a network of interdependent components that work together to accomplish the aim or goal of the system. Deming further emphasizes that “a system must have an aim, without an aim there is no system” (2000, p.96). This statement implies that the components and the aim are fundamental to a system and hence also essential in describing the particular management system TQM.

The components of TQM are by Hellsten & Klefsjö (2000) categorized into values, techniques and tools, while Hackman & Wageman (1995) use a categorization into core values and interventions (structures, systems and work practices). In the general context of quality management, Dean & Bowen (1994) view quality management as characterized by its principles, practices and techniques. Each principle is implemented through a set of practices which are supported by a number of techniques. These different descriptions of the components of TQM have strong similarities although the distinction between activities, such as between methodologies, techniques and tools, is seemingly vague. The categorization used in this thesis is therefore a dual categorization of the TQM components into TQM core values and quality practice. The TQM core values are acknowledged as the basis for the culture of the organization, in accordance to Hellsten & Klefsjö (2000). Quality practice then refers to interventions to reach those values. It refers commonly to methodologies as well as tools, commonly to principles as well as techniques. Quality practice is simply acknowledged in this thesis as measures performed to display and embody the TQM core values in practice.

Different authors have different opinions of the aim of TQM, as can be seen by the examples given in Table 2.1. These variations are also naturally reflected as varieties in the elements that different authors include in the system of TQM.

- 13 -

Table 2.1 Examples of the declared aims of TQM found in literature.

Scholar Declared aim of TQM Oakland (1993) Improve the competitiveness,

effectiveness and flexibility of the whole organization

Dale (1999) Long-term success through customer satisfaction, and benefits to all members of the organization and to society

Shiba et al. (1993) Manage companies to provide customer satisfaction in a rapidly changing world

Hellsten & Klefsjö (2000) To increase external and internal customer satisfaction with a reduced amount of resources

Dahlgaard et al. (2002) To continuously satisfy customers’ expectations at low cost through everybody’s participation

The aims in Table 2.1 are generally related to the output of the organization in which TQM is implemented, and more specifically to how the output is perceived by the customers of the organization. In using systems terminology, TQM might hence be fruitfully thought of as a number of interrelated components, by Hellsten & Klefsjö (2000) referred to as values, methodologies and tools, that work together to affect another system, an organization. More specifically, the components of TQM work together to affect the output of the organization in which they are implemented, in terms of improving how the output is perceived by internal and external customers. It can further be noted that some scholars include decreasing the input of the organization in the aim of TQM, in terms of used resources (see e.g. Hellsten & Klefsjö, 2000). Notice that the organization can also be seen as a part of a wider system such as one including external customers and suppliers and that some of the aims also include affecting this wider environment in terms of society. Note also that both an organization, and TQM according to Berman & Klefsjö (2003), have the characteristics of open systems, i.e. having input and output relationships with elements outside of their system boundaries. In commenting on TQM as a system, all its diverse components should ideally work together to accomplish its aim. From another perspective, any component of TQM not contributing to the fulfilment of the aim lacks argument for inclusion.

The divergence of views concerning TQM makes it hard to argue for one general formulation concerning the aim of TQM. However, an attempt is made in this thesis by acknowledging TQM as the latest stage in the evolution of

- 14 -

quality management in accordance with the second development pattern previously described (see e.g. Dale, 2003). The fundamental aim of TQM can by such an acknowledgement be generally understood similar to the aim of quality management in general, that is to manage and improve quality.

2.4 A Consistent Hierarchy of PerspectivesTo facilitate the understanding, this section accounts for and relates the core concepts used in the thesis. The ambition is to achieve a consistent hierarchy of perspectives.

Competitive Advantage Any successful business initiative has to increase competitiveness and profitability, in one way or another. Likewise, the incentive for implementing quality management initiatives, like TQM, is ultimately that it contributes to increasing competitiveness and profitability. Dahlgaard et al. (2002, p.17) clearly accentuate this in arguing that “quality is a philosophy with dimensions and can be summed up as ‘doing things properly’ for competitiveness and profitability”. Deming and Juran argued similarly that the objective of quality management was ‘survival through profitability’ (see discussion in Hellsten, 1997). The ideal connection or linkage between TQM and competitiveness is hence very explicit. For a more thorough discussion of TQM and organizational performance, see Eriksson (2003).

Focusing on the competitive advantage concept, many discussions and definitions of competitive advantage in the literature tend to focus on an internal perspective of the organization in terms of advantage through skills and resources that the competitors do not have, i.e. there must be a capability gap (see e.g. Grant, 1991; Prahalad & Hamel, 1990; Barney, 1986). Competitive advantage is, however, ultimately a matter of perception, something that exists in the mind of the customers. In other words, for a business or organization to enjoy a competitive advantage, the difference(s) between the organization and its competitors must make a difference to the customer (Coyne, 1986). Unique resources (assets) and distinct skills (capabilities) are hence of importance for competitiveness only if they lead to superior value in the “mind of the customer”. The core of competitive advantage can also be described as being perceived as different from your competitors, more specifically to “differentiate”. Porter (1985) explained this strategy as being unique in your industry along some dimensions that are widely valued by the buyers. It should be noted that the means for differentiation are peculiar to each industry. Differentiation can be based on the product itself, the delivery system by which it is sold, the price, the marketing approach, and a broad range of other factors. One feature frequently used for differentiation is the price, categorized by Porter (1985) as a unique strategy. In wider terms, however, offering a lower price than

- 15 -

the competitors is also a way to differentiate, as argued by e.g. Sharp & Dawes (1996). A conclusion is that differentiation does not seem to be an option for competitiveness. As emphasized by Trout & Rivkin (2000), you ought to give the customer some reason to choose your product instead of others. In relating to quality management, the fact that the customers perceive your offer as positively deviating from the competitors’ is what constitutes competitive advantage. In sum, as stated by Porter (1985, p.3), “Competitive advantage grows fundamentally out of value a firm is able to create for its buyers...”, which in a wider quality perspective can be formulated as “Competitive advantage grows fundamentally out of the value an organization is able to create for its customers”. As a consequence, competitive advantage is in this thesis seen as “being perceived as unique in comparison to the perceived alternatives along some dimensions that are widely valued by the customers”. The formulation can be shortened to “being perceived by the customers as delivering superior value”.

Customer Value Customer value, and more specifically the delivery of superior customer value, seems to be a key in the battle for competitive advantage. Referring to quality awards, the EFQM Excellence Model declares that excellence is to create sustainable customer value (EFQM, 2003, p.5). A logical subsequent question is hence: what is customer value? As observed by Woodruff (1997) and Parasuraman (1997), despite the increasing attention being focused on customer value, definitions of the construct are somewhat ambiguous, typically referring to terms such as utility, worth, benefits and quality that are themselves not well defined. However, a review made by Park (1999) shows that value is generally defined as a ratio of function over cost. Monroe (2003) further elaborates this ratio when describing customer perceived value as a mental trade-off between the benefits perceived in the product or service in relation to the total perceived sacrifice of acquiring and using the product or service. This mental trade-off has historically been visualised in value maps such as the one in Figure 2.1. A value map illustrates the way a customer trade-off perceived benefits against perceived price for different offers. The map further implies that competitors who are positioned to the right of the diagonal value equivalence line are likely to gain market share as they provide a higher value in terms of a higher perceived benefits to perceived price ratio. In accordance to the perception notions of Monroe (2003) this traditional understanding seen in the value map should however be modified. One obvious reason being that price may be perceived both as a benefit or sacrifice. Sacrifices are further likely to include a number of different aspects in addition to the traditional price, such as the frustration of failures or frequent need of maintenance, as elaborated in e.g. Zeithaml (1988). An example motivating these modifications is the high price of a Rolex indeed being one of its most essential benefits. In this thesis, customer value is hence

- 16 -

seen as a mental trade-off between the perceived benefits and the perceived sacrifice of acquiring and using the product or service in question.

Value equivalence line

Value advantage area

Value disadvantage areaPerceived

Price

Perceived Benefits

Figure 2.1 A traditional value map visualising the value ratio. Modified from Leszinki and Marn (1997, p. 101)

Superior Value Being superior depends upon the comparisons customers make between competitors. This is accentuated in Porter’s description of superior value (Porter, 1985, p.3) “superior value stems from offering lower prices than competitors for equal benefits or providing unique benefits that more than offset a higher price”. Porter’s description is further directly related to the terms on the axes in the value map in Figure 2.1. It basically accentuate that there are two ways of offering superior value: by offering more benefits or less sacrifice than competitors. Accordingly, superior value is acknowledged as stemming from offering higher value than competitors in this thesis.

QualityDifferent definitions of quality have been proposed in response to the changing demands of business (Reeves & Bednar, 1994). The increasingly intense competition seems, however, to have caused a general shift of interest from the producers’ point of view, which goes under such names as manufacturing-based quality (Garvin, 1984), objective quality (Shewhart, 1931) and production management quality (Steenkamp, 1990), towards perceived or subjective quality. Most modern quality definitions recognize that quality should be valued by the customers and always be put in relation to their needs and expectations (e.g. Oakland, 1989; Tenner & DeToro, 1992; Shiba et al., 1993; Dahlgaard et al., 1994; Bergman & Klefsjö, 2003). Edvardsson et al. (1994) further state that quality is a matter of finding out what creates value for the customer and achieving it. Dale (2003) supports this notion when stating that the focus of the

- 17 -

quality definition is adding value. Similar wordings are also found in practice, Federal Express states, for instance, that “quality is the presence of value defined by customers”.

In a wider perspective Garvin (1984) pointed at a value-based quality perspective as one of five co-existing approaches to the quality concept, relating quality to cost and price. A value perspective seems further to be taken by Feigenbaum (1991), stating that quality is about establishing a proper balance between the cost of the offer and the customer value it renders. Note, however, that Feigenbaum separates cost from value. When including cost or price as a component in the value ratio, quality can simply be seen as the capacity of a product or service to deliver value to the customers. This definition can be seen as including the frequent wordings referring to the ability to satisfy human wants or meeting or exceeding expectations (see e.g. Bergman & Klefsjö, 2003, p.24; Dahlgaard et al., 2002, p.19). These wordings can in fact be seen as referring to different mechanisms involved in generating customers’ perception of value. Quality of a product is therefore acknowledged as “the ability to create customer value”, in this thesis. “Product” here signifies an article or a service, or a combination of the two.

CustomerThe meaning given to the customer concept has dramatically shifted in line with the increasing scope of quality management. According to Juran (1992), the shift can be seen as from viewing the customer as equal to the buyer towards a perspective of the customer as all who are impacted. All who are impacted then includes people inside of the organization, i.e. internal customers, and people outside of the organization such as buyers and users, i.e. external customers, as well as shareholders. An alternative concept used to denote all who are impacted of the organization is “all the stakeholders”, as done by e.g. Dale (2003).

However, the meaning given to the concept of customer still varies. It has for instance been given a narrow definition in the ISO 9000:2000, where the customer is limited to the one who “receives a product”. An advantageous perspective for this thesis, based on previously chosen perspectives, is the one proposed by Bergman and Klefsjö (2003, p.27) stating that “those we want to create value to are our customers”. The formulation is preferred as it comprises all who are impacted, including both external and internal customers as well as shareholders.

Aim of TQM The divergence of views concerning TQM makes it hard to argue for one general formulation concerning the aim of TQM, as previously described. One opportunity is to use a general formulation such as “to manage and improve

- 18 -

quality”. Given the quality definition acknowledged above such an aim can be formulated as “to manage and improve the ability to create customer value”. However, it should be noted that such a formulation suffers from being weakly connected to competitive advantage as it does not acknowledge one of the most fundamental conditions for competitive advantage, the importance of differentiation. It does not include the importance of being superior to competitors. An organization with a successfully implemented TQM system has, when using such a formulation, succeeded with managing and improving the customer value created. This does, however, not necessarily provide a competitive advantage simply because a competitor might offer higher customer value. It is not customer value, but superior customer value, that is the key to competitive advantage. As stated by Bergman & Klefsjö (2003, p.36) “The quality of a product can be experienced as having deteriorated significantly, if a competitive alternative with better properties turns up on the market. The crisis in the American car industry in the beginning of the 1980s is a good example of this”. It seems unwise not to incorporate this, from a customer perspective, essential aspect of comparison into the aim of TQM. The aim of TQM is consequently acknowledged as “to manage and improve the ability to create superior customer value” in this thesis. The acknowledged perspectives are summarized in Table 2.2.

Table 2.2 Perspectives acknowledged in the thesis.

Concept Acknowledged Perspectives Competitive Advantage Being perceived by the customers as

delivering superior value Customer Value A mental trade-off between the

perceived benefits and the perceived sacrifice of acquiring and using the product or service in question

Superior Customer Value Superior value is acknowledged as stemming from offering higher value than competitors

Quality The ability to create customer value Customer Those to whom we want to create

value Aim of TQM To manage and improve the ability to

create superior customer value

It should be noted that the perspectives chosen above should preferably be understood as perspectives and not definitions. One thing for sure is that the concepts used to describe the evolving system TQM will evolve as well. However, the perspectives specified above are found instrumental and acknowledged in the context of this thesis.

- 19 -

2.5 The TQM Core ValuesTQM is an evolving system but a set of TQM values represent a core that in many ways has withstood the test of time. These values have been referred to under different names such as core values, key elements, factors and core concepts in the literature. Their relative stability is supported by the notable similarity between the conclusions of three different attempts to identify them (see Kennerfalk, 1995; Hellsten, 1997; Sila & Ebrahimpour, 2002). The core values were identified as, using the words of Hellsten & Klefsjö (2000) and Bergman & Klefsjö (2003); focus on customers, focus on processes, improve continuously, let everybody be committed, base decisions on fact, and top management commitment. As stated by Hellsten and Klefsjö (2000), the philosophy is the foundation for the TQM concept. The core values of TQM are further discussed in e.g. Kennerfalk (1995), Hellsten (1997), Cameron & Sine (1999), and Sila & Ebrahimpour (2002).

Focus on Customers The TQM core value ‘focus on customers’ might be considered as the most central value in TQM. Dale (2003, p.10) even argues that “TQM is all about customer orientation”. This is also visualized in the cornerstones model proposed by Bergman and Klefsjö (2003), placing ‘focus on customers’ in the middle. The value ‘focus the customers’ basically implies finding out what creates value for the customer, and then systematically try to accomplish it in the development and manufacture of the offer. To always focus on customers can then to some extent be seen as the main core value of TQM.

A hierarchical perspective on what traditionally is seen as the six values of TQMis further supported by what previously has been stated. The aim of TQM is in this thesis acknowledged as “to manage and improve the ability to create superior customer value”. The very system TQM is hence fundamentally seen as all about focusing on the customer. Given that quality is a matter of customer perception, such a perspective seems also to be shared with Deming, stating that “the term TQM implies that quality is a method when in reality it is the outcome of a method” (see Hellsten & Klefsjö, 2000, p.238). It is seemingly also shared with Juran stating that “TQM consists of those actions needed to get to world-class quality” (Juran, 1994, p.32). With the quality perspective acknowledged in this thesis the formulation becomes that TQM consists of those actions needed to get to world-class ability to create customer value.

An Ideological Perspective Another important part of describing TQM is the ideological standpoint inherent in its core values and historical roots. An important theme in TQM is the shared idea that all involved can become winners. Both parties in a relationship should

- 20 -

feel content and benefit from it. Deming (2000) calls this kind of relationships win-win relationships. The cultures that can create win-win relationships are furthermore seen as those that will be the most successful in the long run (Bergman & Klefsjö, 2003). Seen in a wider perspective, quality management can even be seen as aimed to contribute to a more sustainable society, better workplaces and so on. This is made clear in many of Deming’s publications. Such an agenda is also reflected in many of the future perspectives for TQM, advocating a sustainable society with a higher quality of life (Bergman & Klefsjö, 2003). This wider agenda aiming to improve society is also reflected in the aim of TQM as argued by Dale (1999) “Long-term success through customer satisfaction, and benefits to all members of the organization and to society”.

In a management perspective, quality management, in accordance with the school of continuous improvement, has been strongly influenced by the human relations movement and can in many ways be seen as a reflection of normative management philosophy (see e.g. Tengblad, 2000). According to Waring (1991, p.164), many Japanese management techniques are more specifically derived from Drucker’s book The Practice of Management (Drucker, 1955), which is part of the foundation for a normative management philosophy. Further, specific quality methodologies such as quality circles are strongly linked to the human relations movement. TQM can hence also be seen as based upon a shared idea of human nature.

Relating to the Marketing Concept In relating to marketing, modern quality management has come to share the notion of the marketing concept, which holds that the key to achieving organizational goals is to be more effective and efficient than competitors in identifying and satisfying the needs of target markets (e.g., Kotler 2003, p. 19). The essence is that a company should identify its customers’ needs and adapt its operations to their needs (Levitt, 1960). Even though quality management often seems to dissociate itself from marketing, as is made clear in the perspective on advertising referred to in Deming (2000) “The purpose of studies in consumer preferences is to adjust the product to the public, rather than, as in advertising, to adjust the public to the product” (p.168). However, according to Reeves & Bednar (1994), the most widely accepted definition of quality today grew out of the literature on service marketing (see e.g. Bateson and Hoffman, 1999; Grönroos, 2000). There might hence be reasons to believe that quality management and marketing are more closely related than commonly acknowledged. The foundation in common is the notion inherent in the marketing concept that a company should identify its customers’ needs and adapt its operations to their needs (Levitt, 1960). This is essentially similar to the notion that a company should find out what creates value for the customer,

- 21 -

and then systematically try to accomplish it in the development and manufacture of the offer, inherent in the TQM core value ‘focus on the customers’.

2.6 The Ideal Linkage An aim is by definition something that one hopes or intends to accomplish. For TQM this means that its components ideally should manage and improve the ability to create superior customer value in the organization in which they are implemented. In relating to performed activities, there is an ideal linkage between quality practice, acknowledged as “measures performed to display and embody the TQM core values in practice”, and customer value. This ideal linkage can be illustrated as in Figure 2.2.

Quality Practice

Competitive Advantage

Customer Value

Figure 2.2 There is an ideal linkage between quality practice and the creation of customer value. Furthermore, the contribution to customer value ultimately links quality practice to competitive advantage

In short, this ideal linkage reflects the underlying philosophy that the ‘voice of the customer’ should drive all corporate or organizational operations. As for the two different relations in Figure 2.2, the issue of further interest is the linkage between TQM practice and customer value. The second linkage, referring to the one between customer value and competitive advantage represents that competitive advantage fundamentally grows out of the value an organization is able to create for its customers.

2.7 The Strength of the Ideal Linkage The strength of the linkage between quality practice and customer value is widely discussed. It is basically uncertain how different forms of quality practice actually contribute to the aim of TQM. It is uncertain how, and if, the different methodologies and tools of TQM contribute to the creation of customer value. It seems, for instance, uncertain if ISO 9000, categorized as a tool of TQM by Hellsten & Klefsjö (2000), actually contributes to external customer value. Juran argues in an interview with Paton (1999) that “we have no research establishing that companies, which are ISO 9000 certified, have products superior to those which are not certified. I have seen some research comparing products that have come from certified companies and products that have come from non-certified companies, and the authors found no difference”. In a subsequent interview with Paton (2002), Juran even claims that “there are indications that the people who are paying for those assessments are getting fed up”. Another subject of extensive criticism is the Six Sigma initiative, categorized as a methodology of TQM by Bergman & Klefsjö (2003). Goh (2002, p.409) argues that “the error

- 22 -

avoidance focus of Six Sigma tends to divert energy from exploratory pursuits and endeavours for value creation”. Defects simply do not matter much if you are making a product no one wants to buy, as argued by Clifford (2001). Woodruff (1997) even claims that if TQM organizations are to become better at competing on superior customer value delivery, they will need an additional set of tools. In sum, there seems to be reason to question the strength of the ideal linkage.

Sustainability of the Ideal Linkage Given the questionable linkage to customer value, and thereby competitive advantage, an obvious subsequent question is whether current quality practice actually contributes to the sustainability of an organization. The concept of sustainable development, as established in the report from the Brundtland Commission in 1987 contains three dimensions of sustainability, namely economic, social, and environmental sustainability. The economic sustainability in focus here can be seen as a prerequisite for all dimensions as it relates to the actual survival of companies and organizations. Economic sustainability of an organization requires that an organization have a sustainable ability to create superior customer value. As argued by Bharadwaj et al. (1993, p.54) “sustainable competitive advantage is the goal of every competitive strategy”. Furthermore, it has been acknowledged in this thesis that “competitive advantage grows fundamentally out of the value an organization is able to create for its customers”.

There are reasons to question whether quality practice in its current form supports the ability of an organization to create customer value in a sustainable way. Cole (2003) even proposes that it might be fortunate that “sustainable quality improvement” in its current form is out of our grasp. A fully institutionalized approach – that is to say, if a firm were able to develop a coordinated set of routines for delivering sustainable quality improvement along with a supporting set of norms and values - would likely damage the innovative capabilities of the firm. It may be that most organizations are better off with strong, but not fully institutionalized, quality systems. Cole (2003) further refers to Japanese executives discussing their competitive situation, and his surprise at how often the subject of how a strong quality focus might be thwarting innovation came up. Similarly, Johnsson (2002) argues that misdirected focus of Six Sigma in R&D seems likely to result in making the organization less creative, which risks crushing the innovation that is the essence of R&D's contribution to the shared success of the enterprise. It is hence questionable whether many of the quality practices currently included in TQM contributes to the sustainable ability of an organization to create superior customer value.

- 23 -

In a wider perspective, TQM seems simply to be in need of a re-examination in order to match two very different activities of an organization; innovation and routine work. An established view of innovation among organizations is that it needs another type of management than that of routine work. Schumpeter (1934) stated in his classical work, ‘The Theory of Economic Development’, that the management of innovation needs another theory (dynamic) compared to routine work (static). The organizing of innovation activities (innovation management) has been a research subject for several decades, and the problem of simultaneously trying to apply two different ways of organizing has been identified as a central one (Vandeven, 1986). While being innovative, companies must also exploit their current businesses in order to achieve short-term survival. This situation produces a dilemma for companies, since they have to allocate resources for two very different kinds of operations, namely exploration and exploitation (March, 1991).

Quality programmes seem, however, to be more often related to exploitation activities, as argued by Ramis-Pujol (2003). These activities can be associated to the concepts of first-order change (Meyer et al., 1993) or single-loop learning (Argyris & Schön, 1978) and are captured by the literature with concepts such as: choice, production, efficiency, selection, implementation, and execution. Exploration on the other hand is associated with: research, variation, experimentation, game, flexibility, discovery, and innovation (March, 1991). Maintaining equilibrium between exploration and exploitation activities is argued as crucial to guaranteeing the survival of a system. Brown & Duguid (2001) further suggest that a simple choice or a static balance between exploration and exploitation is inadequate. There is actually a constant need to balance both dynamically. It is simply questionable if TQM is adapted to the fact that innovation operations need another logic and control than the exploitation of existing deals. There is a need for the ability to handle efficiency and innovation simultaneously as argued by Magnusson (2000). The resulting situation turns out to be a classical organizational challenge, the productivity dilemma presented by Abernathy (1978), i.e. that an organization cannot simultaneously attain high efficiency and a high level of innovation. Interestingly, there is however, little evidence for the trade-off postulate (Adler et al., 1999), a number of companies challenge it and achieve high rates of both efficiency and innovation, both exploration and exploitation activities.

2.8 Understanding what Generates Customer Value Given the aim of TQM, a deep understanding of what creates customer value, constitutes the foundation for all TQM initiatives. It is simply a prerequisite for the ability to assess or improve the way that quality practice fulfils the aim of TQM. Advances in the understanding of the customers’ perception of value are therefore of outmost importance for TQM. After all, it seems unreasonable to

- 24 -

expect progress if the aim itself is vaguely understood. As stated by Dale (2003, p.10) “Satisfying customers and creating customer enthusiasm through understanding their needs and future requirements is the crux of TQM”. Research further shows that a company’s success depends on making a correct judgement of the customer’s value creation logic (Normann & Ramírez, 1994). It is not until the company has identified what generates value for the customer that they can design a competitive offer. Therefore it is somewhat noticeable that research in quality and operations management often adopts a process perspective, i.e. focuses on the internal operations of the organization alone, as stated by Nilsson (2002). Research concerning the output perspective, i.e. how customers actually evaluate the value or quality of products and services, has generally been an issue for marketing research. The seemingly most important aspect from a TQM perspective, how internal operations links or contributes to customer value, demands an integration of these traditionally distinct fields of research.

A Need for Theory Concerning Customer Value There is a need for theory in order to be able to manage the creation of customer value. Deming (2000, p.101) stated that “management in any form is prediction”. He further stated that “rational prediction requires theory and builds knowledge through systematic revision and extension of theory based on comparison of prediction with observation” (Deming, 2000, p.102). Deming further stresses theory as central to the ability to learn and improve since without theory there is nothing to revise, nothing to learn.

A natural proceeding question is then what theory might be. According to Sutton & Staw (1995), Kaplan (1964), and Merton (1967), theory is the answer to queries of ‘why?’. Theory is about the connections among phenomena, a story about why acts, events, structures, and thoughts occur. Theory emphasizes the nature of casual relationships, identifying what comes first as well as the timing of such events. Strong theory further delves into underlying processes so as to understand the systematic reasons for a particular occurrence or non-occurrence.

A conclusion is that there is a need to understand the systematic reasons for a particular occurrence or non-occurrence of customer value in order to be able to manage customer value creation. Using the logic of realist explanation from Pawson & Tilley (1997), causal outcomes are explained by the operation of particular mechanisms in particular contexts. The inquiry of what generates customer value can then be described as a search for the underlying mechanisms of customer value.

- 25 -

Comments on the Current Understanding Within quality management, the Kano model, also known as “the theory of attractive quality”, is frequently claimed to provide an excellent mental model for deeper understanding of how customers evaluate a product or an offering (see e.g. Tan & Shen, 2000; Bergman & Klefsjö, 2003; Magnusson et al., 2003). Kano et al. (1996), originally aimed to describe the correlation between objective quality (independent of the existence of man) and subjective quality (what we think, feel, or sense as a result of the objective reality) as first defined by Shewhart (1931). As a result, they proposed a two-dimensional recognition of quality as seen in Figure 2.3 with five general categories of quality elements as specified in Table 2.3 (Kano et al., 1996). The model was originally introduced by Kano et al. (1984) in a Japanese article.

Satisfied feeling

State of physical fulfilment

do not like dissatisfaction

non-fulfilment

satisfaction

acceptable

must-be

attractive quality

one-dimensional quality

must-be quality

Figure 2.3 The theory of attractive quality, also referred to as the Kano model. From Kano et al. (1996).

- 26 -

Table 2.3 The five categories of quality elements defined in the theory of attractive quality”. From Kano et al. (1996).

Concept Definition Attractive quality elements Quality elements that when fulfilled

provide satisfaction but when not fulfilled are acceptable

One-dimensional quality elements Quality elements that result in satisfaction when fulfilled and in dissatisfaction when not fulfilled

Must-be quality elements Quality elements that are absolutely expected (taken for granted when fulfilled) but result in dissatisfaction when not fulfilled

Indifferent quality elements Quality elements that neither results in satisfaction nor dissatisfaction, regardless of whether they are fulfilled or not

Reverse quality elements Quality elements that result in dissatisfaction when fulfilled and in satisfaction when not fulfilled

The theory of attractive quality basically suggests that the relationship between the state of physical fulfilment and the customer’s satisfied feeling for a quality element is different for different types of elements. For attractive quality this relationship is positively asymmetrical, for one-dimensional quality it is positively linear, and for must-be quality it is negatively asymmetrical, as illustrated in Figure 2.3. Kano (2001) further argue that the customer’s perception of quality elements is dynamic, in terms of change over time in a sequence from indifferent, via attractive and one-dimensional, to must-be quality elements.

During the past two decades, the theory of attractive quality has gained increasing exposure and acceptance and it has been applied in strategic thinking, business planning, and product development to demonstrate lessons learned in innovation, competitiveness, and product compliance (Watson, 2003). Researchers and practitioners within the field of quality management normally assume that the accuracy of the Kano methodology is acknowledged. However, the discourse concerning its accuracy has been remarkably sparse, one exception being Berger et al. (1993). A most obvious reason for questioning its accuracy is otherwise that its declared theoretical base, i.e. the motivator-hygiene theory (Herzberg et al., 1959; Herzberg, 1966, 1987), has been heavily criticized for dubious validity and is rejected among many job satisfaction scholars today (see e.g. Locke, 1991; Pinder 1998).

- 27 -

Returning to the critical ability to predict and the search for mechanisms, explanations are notably absent in the theory of attractive quality. A number of different relationships between the state of physical fulfilment and user satisfaction are proposed but the systematic reasons for their occurrence are not made clear. The model then enables the classification and identification of quality elements but does not provide explanations as to why some elements are perceived as, for instance, attractive while others are not. Using the logic of realist explanation from Pawson & Tilley (1997), Kano et al. (1996) proposed an empirical regularity, in terms of five patterns in the correlation between subjective and objective quality. However, they did not explain the causes for these regularities or address the question of why these regularities occur.

Searching for Mechanisms of Customer Value Aiming to advance the understanding of the underlying mechanisms that generate customer value, a logical point of departure is to further conceptualize customer value. In this thesis, customer value is seen as a mental trade-off between the perceived benefits and the perceived sacrifice of acquiring and using the product or service in question. A natural proceeding step, given this value perspective, is then to understand the nature of perceived benefit and perceived sacrifice. These are highly individual, basically since perception depends on the meaning we give to the stimuli we are exposed to (Foxall et al., 1998). On a comprehensive level, however, the meaning of perceived benefit and sacrifice can be fruitfully separated into enrichment of meaning and problem solving, respectively (Antonides & Raaij, 1998). Problem solving refers to the avoidance or neutralization of negative affect and enrichment of meaning to the increase of positive affect.

The key word for the further understanding is then affects, which jointly refers to emotional states such as emotions and mood. Emotion, affect and mood, are frequently used interchangeably in literature, but they can be differentiated. In short, emotions usually fade after some time but can leave behind a trace in the form of certain mood. Further, positive and negative emotions and moods are jointly referred to as affects (Cohen & Areni, 1991). Unfortunately, emotional states and emotions seem not to be easily defined, see e.g. Plutchik (1980) who reviews 28 definitions of emotion. However, emotion is in this thesis acknowledged in accordance with Ortony et al. (1988) as, positive or negative reactions to events, agents, or objects. Certain emotions are thought to have biological origins such as anger and joy, while others require additional cognitive processing, such as gratitude.

An acknowledgement of perceived affect as the underlying mechanism of customer value reflects an increased understanding of the human being as an emotional creature. Lazarus and Lazurus (1994) claim that humans are the most

- 28 -

emotional creatures on earth, and these emotions seem to have a vital impact on our behaviour. Research has for instance lately shown that we tend to let our future behaviour be directed by anticipated emotions (Bagozzi & Dholakia, 1999). Customers have been shown to behave in a way that is thought to maximize positive emotions and avoid negative ones (e.g. Parker et al., 1995; Bargozzi et al., 1998). Söderlund (2003) even speculates that emotions might be the underlying mechanisms of our needs, aiming to increase positive and decrease negative emotions, which is similar to the pain-minimizing and pleasure-maximising goals proposed by appraisal theorists (e.g. Roseman & Evdokas, 2004).

Furthermore, an acknowledgement of perceived affect as the underlying mechanism of customer value reflects a general development within marketing from a traditional dominance of cognitive mechanisms of customer value towards the recognition of emotional ones. The development can be seen as from a solely cognitive perspective, via a two-dimensional approach to customer value, with a frequent distinction between feeling appeal and thinking appeal (or factual appeal) (Holbrook & O’Shaghnessy, 1984; Liu & Stout, 1987; Bagozzi et al., 1999). The thinking appeal encompasses “logical, objectively verifiable descriptions of tangible product features”, while the feeling appeal encompasses “emotional, subjective impressions of intangible product features”. However, according to Rossiter & Percy (1987), the separation into rational and emotional seems unfortunate basically since emotional applies to all types of motives. What traditionally have been referred to as rational motives in contrast with emotional ones just seem to relate to negative emotions, more specifically relief by problem removal, contentment from problem avoidance, and so forth. In accordance with this perspective, customer value is in this thesis acknowledged as ultimately being driven by the perceived affect of the customer as illustrated in Figure 2.4.

Figure 2.4 The drivers of the numerator and denominator of the customer value ratio is acknowledged as perceived positive and negative affect, respectively.

CustomerValue

PerceivedBenefits

PerceivedSacrifice

PerceivedPositiveAffect

PerceivedNegative

Affect

=

- 29 -

Comments on Emotional Mechanisms The accentuation of the customers’ affect and emotions is by no means new to quality management. The emotional content of the quality concept was in fact accentuated from the very beginning. Shewhart (1931, p.53) pointed out that what is of commercial interest is the subjective quality which refers to “what we think, feel, or sense as a result of the objective reality”. Emotions even constitute the very foundation of the theory of attractive quality, even though not widely noticed. In re-examining the theoretical roots of the theory of attractive quality, in terms of the motivator-hygiene theory (Herzberg et al., 1959), it is clear that the theory refers to the two “feelings” satisfied and dissatisfied, given the meaning of negative and positive affects. The motivator-hygiene theory further proposes that these feelings are independent and generated from different and specific attributes, or “factors”, of the job. As for its validity, the independence of perceived positive and perceived negative affect now appears fairly robust across many diverse contexts, (see e.g., Bradburn 1969; Zevon & Tellegen 1982; Warr et al., 1983, Diener & Emmons 1985; Larson, 1987; Goldstein & Strube, 1994). The aspects of the theory proposing that the emotions have a one-to-one relationship with specific factors of the job, such as proposing that salary only affects the presence of negative affect, have however been heavily questioned. This seems reasonable given the individual nature of perception and that a single factor, such as salary, might be given several different meanings and hence have relationships to both positive and negative affect. Traces of this emotional basis can be seen in the theory of attractive quality by the use of the term ‘satisfied feeling’ as the very target of quality creation (see Kano et al., 1996). It could further be noticed that the motivator-hygiene theory is part of the subject field of job satisfaction, where satisfaction generally is defined as an emotional response (see Locke, 1969, 1976).

Generating Customer Value To actually be able to create customer value in accordance with the ideal linkage, it seems important to understand how to influence the perceived affect of our customers. Possibilities for influence can be found in motivation theory. Maslow (1999) has, for instance, proposed that his classical need-hierarchy may be reduced to two basic motivations, called deficiency motivation and growth motivation, which basically concerns the decrease of perceived negative affect and the increase of perceived positive affect. These two basic motivations are further very similar to informational and transformational motivations that are used in the context of marketing (see e.g. Rossiter et al., 1984; Rossiter & Percy, 1996). Informational motivations then follow the general emotional path from a distressing emotional state to relaxing. A negative emotional state occurs first (the problem) followed by a relief when the problem is perceived as reduced. On the other hand, transformational motivations follow a completely uncorrelated emotional path from a dull emotional state, or simply from a neutral state, to an

- 30 -

exciting emotional state. The general paths may be visualised in a circumplex, as illustrated in Figure 2.5. The two-dimensional circumplex model of affect is widely supported by data attesting its replicability (e.g. Chamberlain, 1988; Mano, 1991; Meyer and Shack, 1989; Storm and Storm, 1987). Note however, that the circumplex may vary in its graphical rotation. The circumplex is instrumental as it visualizes the important independence of informational and transformational motivations.

Figure 2.5: A graphical representation of the two essential options for customer value creation, based on the affect circumplex. The decrease of negative affect is represented by the informational motivations arrow, and the increase of positive affect is represented by the orthogonal transformational motivations arrow. From Rossiter & Percy (1987, p. 212)

The two-dimensional recognition of human motivation, as illustrated in Figure 2.5, provides a fundamental basis for the understanding of what generates value for human beings in this thesis.

- 31 -

CHAPTER 3

RESEARCH STRATEGY Research can be accomplished in many ways. This chapter discusses and argues in favour of the strategy chosen to answer the research questions of the thesis.

3.1 Introduction The general mission of research is knowledge creation. The chosen research strategy can be seen as a guiding principle for this creation. For the research strategy to be effective, it must “fit” both the problem under consideration and the ultimate presumptions held by the researcher. Arbnor & Bjerke (1997) stress this relationship when claiming that the process of knowledge development is controlled and influenced by the ultimate presumptions of the researcher and the prevailing paradigm within the specific scientific field, as illustrated in Figure 3.1. Concerning the research process presented in this thesis, there are as yet no empirical studies to account for, which implies that there is no operative paradigm to account for. Accordingly, the forthcoming section will focus on the ultimate presumptions, the paradigm and the research process so far.

- 32 -

Figure 3.1 The relationship between theory of science and methodology. Theory of science relates the ultimate presumptions and the methodological approach by a “paradigm”. Methodology, on the other hand, provides an “operative paradigm” relating the methodological approach and a specific area of study. From Arbnor and Bjerke (1997, p.17).

3.2 Ultimate Presumptions In the social sciences, it is nowadays widely accepted that the paradigms and the presumptions of the researcher will influence the research and its findings (Holme et al., 1991). Gummesson (2001) even states that no science can be done without some degree of subjectivity. The author of this thesis believes that all research is conducted on the basis of a pre-understanding of paradigms and theoretical conceptions. My pre-understanding has most certainly influenced the research conducted and this section is my attempt to bring it to the surface and share it with the reader.

I grew up taking part in a diverse family business, designing, producing and mounting balcony parapets as well as designing and producing ergonomic computer aids. Small and Medium Sized Enterprises (SMEs) are hence of particular interest to me. The practical experience also inspired and helped me to translate things learned in school into functional knowledge, applicable in practice, something that students unfortunately often have to do on their own (Biggs, 2003, p.42). This contributed most likely to my pragmatic ideal of science. However, frustration occurred as soon as I entered the technical program at senior high school. Simply put, programs seemed to be designed with the assumption that students were capable of either left-brain thinking (analytical, rational and logical), or right-brain thinking (creative, aesthetic and holistic), in accordance with the learning theories of for instance McCarthy (1987). I was not very fond of this restriction. Design and business development attracted me early because it encompasses some of the highest cognitive abilities of human beings, including what could be seen as both sides of the brain, in

- 33 -

terms of creativity, synthesis and analytical problem-solving. Anyway, during my ten years of technical education, I have come to realize that the prevailing perspective within technical areas of science is domina