Quality & Performance

Excellence, 8th Edition

Chapter 5

Competitive Advantage and

Strategic Management for
Performance Excellence

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 Outline

 Examine the relationship between quality and profitability

 Discuss cost leadership, differentiation, and people as principal

sources of competitive advantage
 Describe the importance of quality in meeting customer
expectations
 Discuss the role of information in strategic planning and quality-
focused decisions; and
 Describe the role of quality in strategy formulation and
implementation

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 Competitive Advantage

 Competitive advantage: a firm’s ability to achieve

market superiority over its competitors.
 Characteristics:
 Is driven by customer wants and needs
 Makes significant contribution to business success
 Matches organization’s unique resources with opportunities
 Is durable and lasting
 Provides basis for further improvement
 Provides direction and motivation

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Product Quality and Business Performance
- PIMS Studies

 Product quality is the most important determinant of business profitability.

 Businesses offering premium quality products and services usually have

large market shares and were early entrants into their markets.
 Quality is positively and significantly related to a higher return on
investment for almost all kinds of products and market situations.
 A strategy of quality improvement usually leads to increased market share
but at a cost in terms of reduced short-run profitability.
 High-quality producers can usually charge premium prices.

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 Quality and Profitability
Improved quality Improved quality
of design of conformance

Higher perceived Higher Lower

value prices manufacturing and
service costs
Increased market Increased
share revenues

Higher profitability
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 Quality and Business Results
Studies
 General Accounting Office study of
Baldrige Award applicants
 Hendricks and Singhal study of quality
award winners
 Performance results of Baldrige Award
winners

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GAO Study Model

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Sources of Competitive Advantage

 Cost Leadership

 Differentiation

 People

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 Quality and Differentiation
Strategies

 Superior product and service design

 Outstanding service

 High agility

 Continuous innovation

 Rapid response

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 Competing on Superior
Product Design

 Understanding customer needs and expectations

 Systematic processes for design and product improvement

 Tools and techniques

 Concurrent engineering
 Value analysis
 Design reviews
 Experimental design
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 Competing on Service

 Researchers repeatedly have demonstrated that

when service employee job satisfaction is high,
customer satisfaction is high, and that when job
satisfaction is low, customer satisfaction is low.
 Key components of service quality: employees
and information technology

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 Elements of Superior Service

 Establish service goals that support business and product-line

objectives.
 Identify and define customer expectations for service quality and
 responsiveness.
 Translate customer expectations into clear, deliverable, service features.
 Set up efficient, responsive, and integrated service delivery systems and
organizations.
 Monitor and control service quality and performance.
 Provide quick but cost-effective response to customers’ needs.

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 Competing on Agility

 Agility – capacity for flexibility and rapid change

 Agility requires
 Continual monitoring and sensing of changing
customer needs and expectations
 Fast design changes
 Rapid roll out of new products and processes
 Cross-functional cooperation and coordination
 Good supplier relations
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 Competing on Innovation

 Innovation is vital to competing in today’s world

 Innovation creates new customer needs and

expectations and leads to higher levels of
performance
 Creativity and breakthrough thinking are
encouraged

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 Competing on Time

 Cycle time – the time it takes to accomplish one cycle of a process

 Success in today’s markets requires increasingly shorter cycle times
 Major improvements in response time often require work
organizations, processes, and paths to be simplified and shortened.
Simplified processes reduce opportunities for errors, leading to
improved quality.
 Improvements in response time often result from increased
understanding of internal customer-supplier relationships and
teamwork.

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 Information and Knowledge for
Competitive Advantage

 A supply of consistent, accurate, and timely data

across all functional areas of business provides
real-time information for the evaluation, control,
and improvement of processes, products, and
services to meet both business objectives and
rapidly changing customer needs.

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 Need for Performance
Measurement
 To lead the entire organization in a particular
direction; that is, to drive strategies and
organizational change;
 To manage the resources needed to travel in this
direction by evaluating the effectiveness of action
plans; and
 To operate the processes that make the organization
work and continuously improve
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 Balanced Scorecard

1. Financial perspective
2. Internal perspective

3. Customer perspective

4. Innovation and learning perspective

Leading measures Lagging measures

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 Baldrige Classification of
Performance Measures

 Product and process outcomes

 Customer-focused outcomes
 Workforce-focused outcomes
 Leadership and governance outcomes
 Financial and market outcomes

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 Strategic Planning

 Strategy – the pattern of decisions that determines

and reveals a company’s goals, policies, and plans to
meet the needs of its stakeholders
 Strategic planning – the process by which members
of an organization envision its future and develop the
necessary procedures and operations to carry out that
vision
 Two activities: development and implementation
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 Goals of Strategic Planning

 Plan for the long term, and understand the key influences, risks,
challenges, and other requirements that might affect the organization’s
future opportunities and directions.

 Project the future competitive environment to help detect and reduce

competitive threats, shorten reaction time, and identify opportunities.

 Develop action plans and deploy resources—particularly human resources

—to achieve alignment and consistency, and provide a basis for setting
and communicating priorities for ongoing improvement activities.

 Ensure that deployment will be effective—that a measurement system

enables tracking of action plan achievement in all areas.
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 Mission

 Definition of products and services,

markets, customer needs, and distinctive
competencies
 Example – Freese and Nichols: “Innovative
approaches… practical results…
outstanding service.”

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 Vision

 Where the organization is headed and what it

intends to be
 Brief and memorable - grab attention
 Inspiring and challenging - creates excitement
 Descriptive of an ideal state - provides guidance
 Appealing to all stakeholders - employees can identify
with
 Example – Freese and Nichols: “Be the firm of
choice for clients and employees.”
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 Values (Guiding Principles)

 Define attitudes and policies for all employees, which are reinforced through
conscious and subconscious behavior at all levels of the organization.
 Example – Freese and Nichols:
 We are ethical
 We deliver quality
 We are responsive
 We add value
 We improve continuously
 We are innovative
 We develop professionally
 We respect others
 We give back to our communities

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 Environmental Assessment

 Customer and market requirements, expectations, and

opportunities
 Technological and other innovations

 Changes in global or national economy

 Partner and supply chain needs

 Strategic challenges - those pressures that exert a decisive

influence on an organization’s likelihood of future success

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Typical Strategic Planning Process

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 Strategies and Action Plans

 Strategies are broad statements that set the

direction for the organization to take in realizing
its mission and vision.
 Strategic objectives are what an organization must
change or improve to remain or become
competitive.
 Action plans are things that an organization must
do to achieve its strategic objectives.

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 Strategy Implementation

 Developing detailed action plans,

defining resource requirements and
performance measures, and aligning
work unit, supplier, or partner plans with
overall strategic objectives.

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 Policy Deployment
(Hoshin Kanri)

 Top management vision leading to long-term

objectives
 Deployment through annual objectives and action
plans
 Negotiation for short-term objectives and resources
(catchball)
 Periodic reviews

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 Linking Human Resource Plans and
Business Strategy

 Changes in strategy often require changes in HR

plans
 Examples
 Redesign of the work organization to increase empowerment or
teamwork
 Changes in labor/management partnerships
 Directed training and education
 Improved processes for knowledge sharing

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Illustrative Example

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The Seven Management and Planning
Tools

 Affinity diagrams
 Interrelationship digraphs
 Tree diagrams
 Matrix diagrams
 Matrix data analysis
 Process decision program charts
 Arrow diagrams
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Core Competencies and Strategic
Work Design

 Core competencies refers to an organization’s areas of greatest

expertise that provide a sustainable competitive advantage in
the marketplace or service environment.

 Some contemporary theories suggest that business activities

that do not make up an organization’s core competency should
be outsourced. Outsourcing is the practice of transferring the
operations of a business function to an outside supplier. The
opposite of outsourcing is vertical integration, by which certain
business functions are acquired and consolidated within a firm.

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 Requirements for Effective
Strategic Planning

 A definable approach for developing company strategy.

 A clear company strategy with action plans derived from it, and
human resource plans related to the action plans.
 An approach for implementing action plans.
 An approach for monitoring company performance relative to
the strategic plan.
 Projections of strategy-related changes in key indicators of
company performance.

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 TQ and Strategic
Management Theory

 Classic strategy formulation addresses the market

environment, competitive environment, and company
capabilities
 Other TQ-related factors – financial and societal risk,
human resource capabilities, and supplier/partner
capabilities – are addressed only indirectly in the literature

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