Business Management Articles
/ Quality Management
Rene T. Domingo
A major cause of failure in implementing Total
Quality Management (TQM) is top management's
refusal to drop and dismantle anti-quality
corporate policies, procedures, and practices.
Usually time-honored and taken for granted,
they serve to hinder employees and managers
in showing quality in their jobs and in serving
customers. These policies and the work environment
they create dictate employee behavior such
that in spite of his good intention "to
do things right the first time" and management's
exhortation to that effect, he commits mistakes,
defects, errors, and customer disservice.
The employee is punished, demoralized, and
worse, sent by management to a "values"
or "corporate culture" seminar to
change his behavior. Since the policies- the
root causes - stay, the problem is not solved
Why do many companies professing TQM fail
to review and change policies? Mainly because
of ignorance. Ignorance that such policies
affect employee behavior. Ignorance that such
policies exist at all. Another reason is that
they think they can mix conventional management
with TQM. Management may define TQM as a ritual
of slogans, speeches, QC circles, and employee
training -- and not about policy changes.
Another possible reason is that changing policies
is regarded as painful and loss of political
This article will discuss common policies
of traditionally managed companies that are
potential obstacles to TQM implementation.
It is not meant to be an exhaustive list,
but it will serve to enlighten and guide those
who wish to review and evaluate policies as
a major step in TQM implementation.
The most subtle company policy that could
affect quality is that of gauging corporate
performance. Typical measures are financial
in nature : "bottom-line" profits,
"top line" sales and market share,
and "middle line" budgets and costs.
Note that none of these sacred indices directly
indicate quality performance and customer
service. In fact, they are very effective
in hiding quality problems and deceiving management
that everything is well.
A profitable company exceeding sales targets
and meeting budgets, can actually be providing
poor customer service -- high warranty claims,
long queues, delayed deliveries. Profit is
composite of sales and costs. Quality problems
can be hidden in either item -- lost customers
and bad service in sales, and defects and
wastes in costs -- and be offset by improvement
in the other item. Declining sales due to
lost customers frustrated with bad service
could be offset by cost cutting. High rework
and scrap rate which drive costs up could
be offset by increase in sales, thus showing
a healthy profit picture. High sales could
also be achieved by replacing lost and disappointed
customers with new and bigger customers; salesmen
may employ this trick to reach their quota.
Budgets do not take service quality into the
picture. Worse, budgets, being historical
in nature, incorporate and hide ever increasing
allowances for wastes and defects.
By meeting or exceeding profit, sales, and
cost targets, a conventional company does
not suspect or thoroughly investigate any
customer service problems and wastes in operations.
Management is more concerned with how to distribute
profits as bonuses. Its attitude is "we
are making money and selling a lot, therefore
all customers are satisfied; they have no
right to complain." The management paradigm
is CAWS or Can't Argue With Success.
It is not surprising and very ironic indeed,
that in many countries, the biggest and most
profitable companies are known for poor, slow,
and costly customer service: banks, utility
companies, airlines, hospitals, supermarkets,
insurance companies, drugstores, petroleum
companies, to name a few. When was the last
time you ever praised these institutions for
their fast and friendly service? Customers
keep coming back- grudgingly-, not because
of quality service, but because there is no
other place to go to. They have been used
and desensitized to the dismal and chronic
level of service and willing to live with
it -- until and unless a competitor could
come up with a better and faster service.
TQM is not against profits and market domination.
It achieves these by focusing on process targets
rather than simplistic financial indicators.
They track product quality, customer service,
quality costs (costs of not doing it right
the first time), productivity, safety, inventory
levels, process times, etc. TQM companies
gauge their performance by monitoring these
indicators continuously with real-time data
from the customers and shopfloors, and continuously
raise and improve their levels.
companies live by the following commandments
of customer service:
The customer is king (or god as in Japan).
The customer is always right.
Never argue with a customer. (You may win
the argument but lose the customer.)
Anti-quality service policies essentially
violate these principles. If there are theories
X and Y to describe how management treats
employees, we can also think of similar theories
to describe how it treats customers. Theory
X assumes all employees are lazy, incompetent,
and incorrigible; theory Y assumes they are
all hardworking, capable, and full of potential.
Similarly, theory X in customer service assumes
that all customers are bad unless proven otherwise.
Companies with this business philosophy have
sophisticated and obnoxious control systems
and policies that monitor and check customer
when they enter, roam around , and exit company
premises and stores. They also have bureaucratic
procedures to check customer background and
credentials before they can avail of the company's
goods and services. For instance, a theory
X bank assumes that all borrowers are potential
bad debtors, and depositors as launderers
of illegally gotten wealth. Theory X supermarkets
and department stores treat all customers
as nuisance window shoppers or worse, potential
shoplifters. To treat customers with indifference
or sloppiness is bad enough, but to suspect
them of evil intent is worse and contrary
to all business sense.
Front-line employees who maltreat customers
may just be complying with the company's theory
X service policies. A company which mistreats
its employees usually mistreats its own customers,
employing theory X policies in both cases.
To aggravate the situation, the employees
take revenge on customers.
The other extreme is theory Y which assumes
all customers are good. Theory Y companies
are known for absence of or minimal customer
control systems and policies. Customers are
treated as kings. They can go in and out of
company premises without controls and appointments.
They can avail of and pay for products and
services without hassles and with a minimum
paperwork and requirements. They can return
purchased merchandise anytime for any reason
and the company staff will cheerfully replace
it or return his money -- without question
or investigation. For some theory Y companies,
customers need not pay anything if they are
not completely satisfied with the service.
Theory Y companies definitely delight customers
who eventually become repeat and loyal ones.
Theory Y companies are genuine TQM companies,
and they are rare. In reality, companies serve
customers within the range of theories X &
Y, with the majority clustering nearer to
Why do companies knowingly control rather
than serve customers? The type I and type
II errors of statistics will serve as a useful
analogy. Type I error or false negative is
rejecting a hypothesis when it should be accepted,
while type II error or false positive is accepting
it when it should be rejected. Similarly,
type I error of customer service is rejecting
a good customer when he should have been accepted
- served or sold to. Type II error is accepting
a bad customer when he should have been rejected-
disqualified for loan, etc. Anti-quality service
policies try to avoid type II errors; TQM
tries to avoid type I errors. TQM companies
do not try to balance the costs of the two
type of errors. The anti-quality company is
more concerned about avoiding the cost and
damage due to one bad customer to the extent
of compromising the convenience of good, paying
customers which form the vast majority of
clients in any business.
It is indeed very rare for a company to go
bankrupt or lose huge sums because of bad
non-paying customers. Besides, some customers
do not pay on time because they received bad
products and bad service in the first place.
Much more common are companies going under
because they have been milked by its management
Success in any business comes from delighting
the vast majority of customers, even to the
extent of accepting some bad ones and committing
type II errors. The word service was derived
from the Latin word servus which means servant
or slave. TQM companies are servants of their
customers, and all their policies reflect
Another area which abounds with anti-quality
policies is employee performance evaluation
and control systems. These systems are used
to compensate, promote, motivate, monitor,
check, and discipline employees.
The two most common performance targets used
for evaluation are sales and production output.
Quotas are set to determine compensation.
Salesmen commission are paid based on achieving
or exceeding sales quota. Workers' incentive
pay and even take-home pay as in the piece-rate
system may be determined by production output
. The danger with these targets is that they
are pure numbers and completely hide the level
of product quality and/or customer service.
They are typically set as objectives under
the result-oriented MBO system. The MBO manager
does not care about how the result were achieved
by his subordinates as long as they are achieved.
He could not care less about process improvement
and development, customer feelings and suggestions.
If customers or sales are lost because of
product defect, bad service or late delivery,
the salesman could get new and bigger customers
to cover up the shortfall. He may actually
increase sales and exceed his quota. The same
could also happen if the other remaining customers
order much more than before. The evaluator
or sales manager and the salesman will not
bother with the product and service problems
because the quota has been satisfied. Product
defects may not be fed back to the production
people for immediate correction. Of course,
the lost customer will bad mouth the company
to ten other customers - current or potential.
Similarly, production quota may be achieved
even with high internal reject rates by the
Quality Assurance department or high external
reject rates by customers. The production
worker is just interested in increasing output
to increase his pay. The system allows and
encourages him to behave this way even if
quality, cost, yield, and customers are sacrificed.
Even when defects are produced, the line is
not stopped since output will decline and
so is his pay. Defects are not investigated,
and to make matters worse, they are rerouted
to rework operators, whose incentive pay is
tied to the amount they have repaired.
The budget system is also notorious for hiding
quality and service problems. In theory and
in practice, the cost budget can be achieved
even with bad service to customers leading
to lost sales, or high wastage, defects, and
rework in the shopfloor. Again, budgeting
is a numbers game and encourages managers
and employees to forget about quality. It
does not reflect and recognize process improvements
done by employees. Zero budget variance can
be achieved even with zero customer service.
Finally, a pervasive anti-quality policy is
designating the superior or direct boss as
the evaluators of the performance of his subordinates.
At first glance, this policy sounds reasonable
since the boss is supposed to be watching
his staff and know everything they do or don't
do. The fallacy here is that with the exception
of a secretary which serves her boss, employees
usually do not directly serve their boss but
other employees, managers, departments, and
customers of the company. The superior has
no idea of the service quality and efficiency
of his staff, and is therefore the least qualified
to pass judgment. Only the internal customers,
or other employees and departments served
by his staff, can truly evaluate the latter
as to their performance. It is common to be
highly evaluated by one's boss, and get promoted
accordingly, while being rebuked by one's
internal customers for bad service.
The only correct performance evaluation can
be done by one's customers- internal or external.
The marketing department should evaluate the
performance of the production department which
in turn should evaluate the performance of
the maintenance, engineering, and purchasing
departments. Of course, the best evaluator
of performance and quality is none other than
the external or paying customer, the ultimate
recipient and judge of the company's products
and services. American Express makes it a
policy to tie the manager's bonus to the number
of customer complaints his department receives.
TQM companies still use quotas and budgets,
but very carefully and intelligently. They
are tempered and validated by quality data
and customer feedback before they are used
to evaluate and motivate people.
policies can also be found in the way the
company selects and evaluates suppliers. Under
TQM, suppliers are long-term partners, not
third-parties to be pitted against each other.
Among the most blatant anti-quality supplier
policy in this regard is the simplistic awarding
of contracts to the lowest bidder. Even the
highly educated and highly paid purchasing
managers of major corporations have been reduced
to the clerical task of comparing bids and
selecting the supplier with lowest bid price.
The supplier will naturally play by the buyer's
rules, bid as low as possible and sacrifice
the other vital elements of quality, delivery,
commitment, service, and reliability. He can
tactfully hide these tradeoffs in his bid,
since the evaluator or purchasing manager
is often too restricted, naive, lazy, or incompetent
to check these complicated, often technical
and long-term issues. The lowest bidder turns
out to be the highest bidder in the long run
because of the production delays and lost
customers its poor quality and reliability
What is ironic is that a company may proclaim
to be practicing TQM and urge its supplier
to improve quality and deliver just-in-time,
without changing the policy of awarding and
selecting suppliers based on bid price. Since
price is the focal point, the supplier will
not heed any exhortation to improve quality.
TQM companies not only evaluate their suppliers
on over-all long term performance and reliability,
but also train and develop them so that they
would become world-class in terms of quality
A related anti-quality policy is having the
purchasing department report to the finance
department; this set-up sends the strong signal
to the organization that purchasing is about
cost-cutting and finding the cheapest source.
Typically, the finance department, being control
and audit oriented, is the least concerned
or knowledgeable about product and service
quality. TQM companies would rather have the
purchasing department report directly to the
CEO or to its main internal customer - the
manufacturing department. The first set-up
would make purchasing more concerned about
total corporate needs and profitability, while
the second would make it more sensitive to
the requirements of its main internal client.
AND PRODUCTION MANAGEMENT
The most blatant and repulsive anti-quality
policies can be found in sales and production
management. These are, in increasing order
Maintaining rework operations.
Downgrading defects, minor or major, into
second class products.
Selling seconds or downgrades to employees.
Selling seconds or downgrades to the public.
may not be possible to dismantle these policies
right away for those just starting on TQM.
But to recognize these as anti-quality in
nature is a first bold step in reviewing and
gradually revoking these.
These policies definitely elicit anti-quality
employee behavior and attitudes such as:
Why will I do my work right the first time
when the company pays somebody else to check
and repair my mistakes?
Why will I prevent defects when the company
can sell these as seconds anyway?
Why will I prevent defects when I can buy
these myself later at a big discount?
Downgrades and rework policies are most common,
pervasive, and tempting in process industries
- paper, plastic, rubber, metal - where materials
of defects are easily remelted and mixed with
virgin material. But such policies also exist
in manufactured and assembled products like
semiconductors and home appliances. Downgrades
may come in two forms:
Downgrades are sold with the same brand name
as first class products but at a discount.
Downgrades are sold with a different brand
name, but cheaper than first class.
Customers may shift to the downgrades since
they are cheaper, and an artificial demand
is created. Thus a defect becomes a "new
product line" with its own production
and sales plan, and budgets! Of course, product
and company image eventually deteriorates
as the market becomes confused with company
products, first class and downgrades, bearing
the same logo and brand name, sold at different
prices for no apparent reason. Production
planning of first class products becomes chaotic
since seconds unpredictably come from first
class defects and use first class materials.
The main reason for downgrades and rework
is financial in nature. The company thinks
that rather than scrap defects, it is cheaper
to rework them and/or sell them as downgrades
at a discount. Management also thinks it is
doing its employees a favor by giving them
first priority in buying the defects they
themselves produced. These policies backfire
and the company incur more costs since defects
are not investigated and prevented. Worse,
defects are encouraged and rewarded -- with
employee discounts. The biggest toll is the
deterioration of company image and employee
MANAGEMENT = BAD QUALITY
Quality guru, Dr. Deming, said that 80% of
quality problems is caused by management,
and 20% by employees. Bad quality comes from
bad management, not bad employees. Bad management
means bad leadership and bad policies. No
employee is by nature bad; his work is his
livelihood, and he knows he must do his job
right and follow the rules to keep it. Essentially,
it is the environment, the rules, the tools,
the training, and the support management provides
or does not provide that make him commit mistakes.
This belief is fundamental to the understanding
of TQM. Companies which are not ready and
willing to take full management responsibility
for all quality problems should not go into