Hawaii University

Hawaii University MBA Department Term Project TQM & BPR Professor: Dr. Hassaane Saadeh Written by: Imad Atallah Date: 2\21\2002 The major new element in world market competition is quality. During the 1970's and 1980's, the Japanese and their U.S. companies demonstrated that high quality is achievable at lower costs and greater customer satisfaction. It was the result of using the management principles of total quality management (TQM). More and more U.S. companies have demonstrated that such achievements are possible Using TQM as a new way to manage. Such companies also found that they were recognized with everyone pulling in the same direction. Improvement had become a way of live. Improving competitive position and profit has always been the responsibility of management. Before the 1980's, U.S. management was broadly successful. Until then the dominant management model was that of the autocrat. Management, primly senior management, decided how the business was to operate, including what the policies and objectives were; how it was organized; what jobs were established; and how should they be done. It was an unquestioned axiom that if everyone did what the upper management required, the business would be successful. Organizations are composed of the people in them and the managers who lead them. People respond strongly to leadership expectations and rewards. If they are given little power in their jobs, they have little interest in improving them. If leaders exhort the members for better output but reward (promotions, bonuses, recognition) for mostly higher output, they get the behavior they reward. Quantity over quality has been a common management philosophy in the United States. The first step in implementing TQM requires that upper-management change in both philosophy and behavior. Managers must adopt the objectives of customer satisfaction and continuous improvement. They must implement the change to achieve these objectives through their personal and continuous involvement and in the reeducation of everyone in the organization in TQM principles and practices. The past philosophy of management can work reasonably well if a company dominates world markets. When markets become complex and worldwide with more and stronger competitors, a new model is needed. Asian companies and some in the United States have demonstrated that there is a more effective way to manage, quite different from the autocratic model: It is employee involvement in quality improvement. These companies also introduce high quality at lower cost as a competitive element, thereby changing the competitive equation for everyone. Total Quality Management (TQM) is an organizational process that actively involves every function and every employee in satisfying customer’s needs, both internal and external. TQM works by continuously improving all aspect of work through structured control, improvement and planning activities that are carried out in concern with guiding ideology that focuses on Quality and Customer Satisfaction as the top priorities. TQM recognizes that the Customer is at the center of every activity. The customer may be external or internal. The key is to determine the gap between what the customer needs and what the system delivers. Once the gap is recognized, it would be systematically reduced and results in never-ending improvement in customer satisfaction at every level. TQM depends on and creates a culture in an organization which involves everybody in quality improvement. Everyone in the company can affect quality but must first realize this factor and have the techniques and tools which are appropriate for improving quality. Thus TQM includes the marketing and dissemination of quality and methods not only within the organization and customers but also to suppliers and other partners. The general view to achieve success in TQM could be summarized as below: • Quality as strength • Quality in all processes • The importance of management • The involvement, commitment and responsibility of everybody • Continuous improvement • Zero defects • Focus on prevention rather than inspection • Meeting the needs of target customers • Recovery • Benchmarking Quality is the most important and effective factor a company can use in the battle for customers.” To be competitive, we must satisfy the customers. In order to be more competitive, we must delight the customers. Quality is here defined as the measure of customer delightment. The TQM perspective involves not only quality in relations with external customers but also quality in the internal service chains and in relation to suppliers and other partners. This “Quality Chain” involves everyone in the process and applied throughout the organization. Customer orientation and quality are not just a matter of ensuring that the contents of the product or services satisfies the customer needs. The manner in which the service is delivered and the customers' relations with the company must also meet the customer's expectation. Customers are satisfied with improvement in quality. The more quality improves, the faster sales will increase because customer satisfaction carries its own acceleration. When the quality reputation grows, marketing can emphasize increasing customer satisfaction as a major element in advertising and the other promotions. It is obvious that an unhappy customer will switch. Unfortunately a satisfied customer may also switch, on the theory that he could not lose much and might gain. Profit in business comes from repeat customers, customers that can boast about your product and service, and that bring friends with them. He further stated that we should stay ahead of the customers. This could be achieved through constant quality improvement and innovations. Why Do Companies Lose Customers: • • Death of Customer • • Customer Moving Residence • • Lower Price Elsewhere • • Unsatisfactory Handling of Complaints • • Suppliers' Lack of Interest TQM stress of the importance of zero defects and achieving the right target the first and every time. Variances in product are not acceptable. Zero defects is the result of an emphasis on prevention and diligent use of measurement, process control and the data driven elimination of waste and error. As Crosby said, “The purpose of quality management is to set up a system and a management discipline that prevents defects from happening in the company's performance cycle.” Cost of Quality This is the cost incurred in achieving a quality product or services. These may be prevention cost, appraisal cost, internal failure cost, external failure cost, the cost of exceeding customer's requirement and the cost of lost opportunities. Competitive Benchmarking Comparing with competitors is another reflex of TQM. This is a continuous management process that helps firms access their competition and themselves and to use that knowledge in designing a practical plan to achieve market superiority. When done correctly, benchmarking produces the hard facts needed to plan and execute effective business strategies. Involvement of Everyone In TQM everyone is involved in the process of making the company a successful business. Everyone in the company is responsible for producing quality goods and services and reducing the cost of quality. Synergy in Team Work In Japan, there is no status difference as they believe in synergy. Therefore they consider themselves as partners depending on each other for effective management and success. Ownership and the Elements of Self-Management Total quality programmes are founded on the principal that people want to own the problems, the process, the solution and ultimately the success associated with the quality improvement. Psychologically, the ownership advocated by TQM ties in the development in organizational design away from traditional models of imposing management control over employees' behavior. Recognition and Rewards TQM system considers the rewards and recognition to be critical to a company's programmed, particularly when greater involvement of staff is required. Positive reinforcement through recognition and rewards is essential to maintain achievement and continuous improvement through participative problem-solving projects. The Quality Delivery Process TQM is not just the awareness of quality for the customers. It demands the implementation of a new system. The main objective of TQM may put the customer at the center of every activity and consider the process as customer driven, but all other factors which do not involve the customers have to be taken into consideration for the successful implementation of TQM. Furthermore, the Key features of a quality management system are the documented policy manuals and procedures on which the company could be audited. These policies and procedures should allow flexibility and adapt to change but always regain control. The objective of the quality management system ISO9000 “is to give purchasers an assurance that the quality of the products and/or services provided by a supplier meets their requirements” With this the company would seek to widen its customer base, as the customer is given an assurance of quality and the need for them to carry out their own audit is not required unless their own standards are higher than the requirements of ISO9000. “A number of major purchasers use this registration as the ‘first-pass’ over a supplier’s quality system”. ISO9000 can also be used as the foundation for the introduction of TQM. The application of the ISO9000 series of standards can be used in three ways: 1. To provide guidance to organizations, to assist them in developing their quality systems 2. As a purchasing standard (when specified in contracts) 3. As an assessment standard to be used by both second party and third party organizations. Finally, Total quality management (TQM) is a management philosophy that can provide organizations with the impetus for positive change, stimulating the workforce and creating an environment that gives a company the competitive edge. It is a system of dealing with quality at every stage of the production. TQM aims to improve the effectiveness and flexibility of the business as a whole and attempt to eliminate wasted effort. TQM pays constant attention to the needs of the customer and requires a continuing process of gathering relevant. (Environmental Management and Business Strategy, p.180) In summary, TQM has a number of key attributes. It: • Asks customers what they want and satisfies their requirements. • Attacks processes, not employees. • Instills teamwork and creates an atmosphere for innovation and continuous quality improvement. • Empowers people. • Strives for continuous organization-wide improvement. Business Process Redesign (BPR) or Reengineering is "the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service, and speed. Since the BPR idea has surfaced it has been under constant ridicule by the popular press. They say it takes far too long, creates management headaches, fails 70% of the time, and it's only for big companies with big checkbooks (Hydrel...). However, I feel that with the right plan, the right people, and total commitment from those involved, Reengineering can work for any company. For years and years we've been putting Band-Aids on old work processes - more and more management layers, functional units, and automated traditional processes - in the search for percentage point of improvements in productivity. Reengineering says let's take a clean slate approach; designing the work and systems together to seek order of magnitude improvements in productivity, not incremental change. Think about that for a goal. Ten times greater productivity, not a few percentage points. And there are enough examples in the literature today to say that it can work. It may not be easy - minds dulled to the possibility of meaningful change, and an entrenched, threatened bureaucracy will work against you - but reengineering works. If you have ever waited in line at the grocery store, you can appreciate the need for process improvement. In this case, the "process" is called the check-out process, and the purpose of the process is to pay for and bag your groceries. The process begins with you stepping into line, and ends with you receiving your receipt and leaving the store. You are the customer (you have the money and you have come to buy food), and the store is the supplier. The process steps are the activities that you and the store personnel do to complete the transaction. In this simple example, we have described a business process. Imagine other business processes: ordering clothes from mail order companies, requesting new telephone service from your telephone company, developing new products, administering the social security process, building a new home, etc. Business processes are simply a set of activities that transform a set of inputs into a set of outputs (goods or services) for another person or process using people and tools. We all do them, and at one time or another play the role of customer or supplier. You may see business processes pictured as a set of triangles as shown below. The purpose of this model is to define the supplier and process inputs, your process, and the customer and associated outputs. Also shown is the feedback loop from customers. So why business process improvement? Improving business processes is paramount for businesses to stay competitive in today's marketplace. Over the last 10 to 15 years companies have been forced to improve their business processes because we, as customers, are demanding better and better products and services. And if we do not receive what we want from one supplier, we have many others to choose from (hence the competitive issue for businesses). Many companies began business process improvement with a continuous improvement model. This model attempts to understand and measure the current process, and make performance improvements accordingly. The figure below illustrates the basic steps. You begin by documenting what you do today, establish some way to measure the process based on what your customers want, do the process, measure the results, and then identify improvement opportunities based on the data you collected. You then implement process improvements, and measure the performance of the new process. This loop repeats over and over again, and is called continuous process improvement. You might also hear it called business process improvement, functional process improvement, etc. This method for improving business processes is effective to obtain gradual, incremental improvement. However, over the last 10 years several factors have accelerated the need to improve business processes. The most obvious is technology. New technologies (like the Internet) are rapidly bringing new capabilities to businesses, thereby raising the competitive bar and the need to improve business processes dramatically. Another apparent trend is the opening of world markets and increased free trade. Such changes bring more companies into the marketplace, and competing becomes harder and harder. In today's marketplace, major changes are required to just stay even. It has become a matter of survival for most companies. As a result, companies have sought out methods for faster business process improvement. Moreover, companies want breakthrough performance changes, not just incremental changes, and they want it now. Because the rate of change has increased for everyone, few businesses can afford a slow change process. One approach for rapid change and dramatic improvement that has emerged is Business Process Reengineering (BPR). Business Process Reengineering (BPR) BPR relies on a different school of thought than continuous process improvement. In the extreme, reengineering assumes the current process is irrelevant - it doesn't work, it's broke, forget it. Start over. Such a clean slate perspective enables the designers of business processes to disassociate themselves from today's process, and focus on a new process. In a manner of speaking, it is like projecting yourself into the future and asking yourself: what should the process look like? What do my customers want it to look like? What do other employees want it to look like? How do best-in-class companies do it? What might we be able to do with new technology? Such an approach is pictured below. It begins with defining the scope and objectives of your reengineering project, then going through a learning process (with your customers, your employees, your competitors and non-competitors, and with new technology). Given this knowledge base, you can create a vision for the future and design new business processes. Given the definition of the "to be" state, you can then create a plan of action based on the gap between your current processes, technologies and structures, and where you want to go. It is then a matter of implementing your solution. In summary, the extreme contrast between continuous process improvement and business process reengineering lies in where you start (with today's process, or with a clean slate), and with the magnitude and rate of resulting changes. Over time many derivatives of radical, breakthrough improvement and continuous improvement have emerged that attempt to address the difficulties of implementing major change in corporations. It is difficult to find a single approach exactly matched to a particular company's needs, and the challenge is to know what method to use when, and how to pull it off successfully such that bottom-line business results are achieved. Such are the topics for this module series. What are the most common mistakes made when beginning reengineering? One of the biggest mistakes manufacturers make is over-reliance on information technology solutions. Many are spending huge sums and taking giant leaps of faith without the proper foundation. Organizations must pay attention to all aspects of their operation, including people, products, processes and materials. In many cases, companies simply automate processes that are highly ineffective in the first place. This not only costs a lot of money, but the psychology of it all makes it hard to change once the investment is made. Another mistake is in assuming that BPR will be a quick and simple fix for manufacturing competitiveness. Competitive success in manufacturing results from doing the right things right. Initially, companies should conduct an assessment and planning step that results in an action plan designed to achieve breakthrough performance improvements in cycle time, quality, cost and customer satisfaction. Reengineering Success Factors More than half of early reengineering projects failed to be completed or did not achieve bottom-line business results, and for this reason business process reengineering "success factors" have become an important area of study. The success factors below are derived from benchmarking studies with more than 150 companies over a 24 month period. Success factors are a collection of lessons learned from reengineering projects. Reengineering team members and consultants that have struggled to make their projects successful often say, "If I had it to do over again, I would…" , and from these lessons common themes have emerged. In this module we examine these themes or success factors that lead to successful outcomes for reengineering projects. These include: • Top Management Sponsorship (strong and consistent involvement) • Strategic Alignment (with company strategic direction) • Compelling Business Case for Change (with measurable objectives) • Proven Methodology (that includes a vision process) • Effective Change Management (address cultural transformation) • Line Ownership (pair ownership with accountability) • Reengineering Team Composition (in both breadth and knowledge) Top Management Sponsorship Major business process change typically affects processes, technology, job roles and culture in the workplace. Significant changes to even one of these areas requires resources, money, and leadership. Changing them simultaneously is an extraordinary task. If top management does not provide strong and consistent support, most likely one of these three elements (money, resources, or leadership) will not be present over the life of the project, severely crippling your chances for success. It may be true that consultants and reengineering managers give this topic a lot of attention. Mostly because current models of re-designing business processes use staff functions and consultants as change agents, and often the targeted organizations are not inviting the change. Without top management sponsorship, implementation efforts can be strongly resisted and ineffective. Top management support for large companies with corporate staff organizations has another dimension. If the top management in the "line" organization and "staff" organization do not partner and become equal stakeholders in the change, AND you only have staff management support, you most likely are ill-prepared for a successful reengineering project (line management in this context are the top managers of the operation ultimately accountable for business performance -- P&L, customer service, etc.). Projects that result in major change in an organization rarely succeed without top management support in the line organization. Strategic Alignment You should be able to tie your reengineering project goals back to key business objectives and the overall strategic direction for the organization. This linkage should show the thread from the top down, so each person can easily connect the overall business direction with your reengineering effort. You should be able to demonstrate this alignment from the perspective of financial performance, customer service, associate (employee) value, and the vision for the organization. Reengineering projects not in alignment with the company's strategic direction can be counterproductive. It is not unthinkable that an organization may make significant investments in an area that is not a core competency for the company, and later this capability be outsourced. Such reengineering initiatives are wasteful and steal resources from other strategic projects. Moreover, without strategic alignment your key stakeholders and sponsors may find themselves unable to provide the level of support you need in terms of money and resources, especially if there are other projects more critical to the future of the business, and more aligned with the strategic direction. Business Case for Change In one page or less you must be able to communicate the business case for change. Less is preferred. If it requires more than this, you either don't understand the problem or you don't understand your customers. You may find your first attempt at the business case is 100 pages of text, with an associated presentation of another 50 view graphs (overhead slides). After giving the business case 20 times you find out that you can articulate the need for change in 2 minutes and 3 or 4 paragraphs. Stick with the shorter version. Why is this important? First, your project is not the center of the universe. People have other important things to do, too. Second, you must make this case over and over again throughout the project and during implementation - the simpler and shorter it is, the more understandable and compelling your case will be. Cover the few critical points. Talk to the current state, and what impact this condition has on customers, associates and business results. State the drivers that are causing this condition to occur. State what your going to do about it (vision and plan), and make specific commitments. Keep focusing on the customer. Connect this plan to specific, measurable objectives related to customers, associates, business results, and strategic direction. Show how much time and money you need and when you expect to get it back. Don't sell past the close. No matter how long you talk, you will get resistance from some, and support from others, so you might as well keep it short. The business case for change will remain the center piece that defines your project, and should be a living document that the reengineering team uses to demonstrate success. Financial pay back and real customer impact from major change initiatives are difficult to measure and more difficult to obtain; without a rigorous business case both are unlikely. Proven Methodology The previous module presented several BPR methodologies, and it is important to note that your methodology does matter. Seat-of-the-pants reengineering is just too risky given the size of the investment and impact these projects have on processes and people. Not only should your team members understand reengineering, they should know how to go about it. In short, you need an approach that will meet the needs of your project and one that the team understands and supports. Change Management One of the most overlooked obstacles to successful project implementation is resistance from those whom implementers believe will benefit the most. Most projects underestimate the cultural impact of major process and structural change, and as a result do not achieve the full potential of their change effort. Change is not an event, despite our many attempts to call folks together and have a meeting to make change happen. Change management is the discipline of managing change as a process, with due consideration that we are people, not programmable machines. It is about leadership with open, honest and frequent communication. It must be OK to show resistance, to surface issues, and to be afraid of change. Organizations do not change. People change, one at a time. The better you manage the change, the less pain you will have during the transition, and your impact on work productivity will be minimized. Line Ownership Many re-design teams are the SWAT type -- senior management responding to crisis in line operations with external consultants or their own staff. It's a rescue operation. Unfortunately the ability of external consultants to implement significant change in an organization is small. The chances are only slightly better for staff groups. Ultimately the solution and results come back to those accountable for day-to-day execution. That does not mean that consultants or staff are not valuable. What it does mean, though, is that the terms of engagement and accountability must be clear. The ownership must ultimately rest with the line operation, whether it be manufacturing, customer service, logistics, sales, etc. This is where it gets messy. Often those closest to the problem can't even see it. They seem hardly in a position to implement radical change. They are, in a matter of speaking, the reason you're in this fix to begin with. They lack objectivity, external focus, technical re-design knowledge, and money. On the other hand, they know today's processes, they know the gaps and issues, they have front-line, in-your-face experience. They are real. The customers work with them, not your consultants and staff personnel. Hence your dilemma. The line operation probably cannot heal itself when it comes to major business re-design. Staff and consultants have no lasting accountability for the solution, and never succeed at forcing solutions on line organizations. You need both. You need the line organization to have the awareness that they need help, to contribute their knowledge, and to own the solution and implementation. At the same time you need the expertise and objectivity from outside of the organization. Building this partnership is the responsibility of the line organization, stakeholders and re-design team. No group is off the hook. Reengineering Team Composition The reengineering team composition should be a mixed bag. For example, some members who don't know the process at all, some members that know the process inside-out, include customers if you can, some members representing impacted organizations, one or two technology gurus, each person your best and brightest, passionate and committed, and some members from outside of your company. Moreover, keep the team under 10 players. If you are finding this difficult, give back some of the "representative" members. Not every organization should or needs to be represented on the initial core team. If you fail to keep the team a manageable size, you will find the entire process much more difficult to execute effectively. Despite the agreement on some BPR characteristics, many of these elements overlap with other established methods, like Total Quality Management (TQM). Both TQM and BPR are customer-oriented. They both aim on improving the customer satisfaction. Also, they both suggest thinking outside in. On the other words, they both suggest to think from the customer's viewpoint. Also, both TQM and BPR are process-oriented. They both target to alter the processes, but not just on the product. Moreover, they both take team approach. Nearly all BPR projects are initiated by top-down approach. Since BPR would results great changes, staff resistance is obvious. Therefore, top management's support and commitment are very important. For TQM, both top-down approach and bottom-up approach are possible. The basic assumptions of TQM and BPR are different. TQM assumes that the existing practices or systems are principally right and useful. The target of TQM is to improve on the basis of the existing system. However, BPR takes an opposite assumption. BPR assumes the existing system is useless and suggests starting it over. Unlike TQM that aims on smoothly and incremental improvements, BPR aims on dramatic results. TQM emphasis on total involvement, including all the stakeholders. The involvement even extends to suppliers and customers. Also, TQM also suggests involving all the processes in the company, including human resources management, order fulfilling, manufacturing, marketing and customer management and others. However, for BPR, the project can be controlled to a specified area only. Standardization is one of the key points of TQM. TQM aims on standardize the practices, thus achieving a consistent performance. It also makes that there is a certain degree of documentation for TQM. However, BPR emphasis on flexibility and believes that standardization would increase the complexity of the process. Therefore, standardization is rare in BPR and the level of documentation is much lower. TQM emphasis on the use of statistical process control. However, there is no similar concern for BPR. On the other hand, BPR emphasis more on the enabling role of information technology. TQM is a cultural issue. Once the culture is built, TQM is absorbed in the daily operation. However, BPR is a project. It is with a clear target that should be achieved as soon as possible. In fact, BPR is a risky project that is suitable for organizations in deep trouble or facing great challenges. However, an organization cannot always be under BPR. TQM, on the other hand, can be treated as a consolidation approach for the organizations to maintain continuously improvements. As a conclusion, the approaches are also very different in the way they are practiced. BPR is clearly the most divergent as it is concerned with frame-braking change that attempts to create new systems rather than repairing old systems. For this reason, BPR may be the most suitable approach for an organisation that seeks dramatic changes. It is commonly used by organisations that have widespread problems or are close to bankruptcy, but it is also suitable as a way to stimulate innovation for improvement, rather than survival. TQM is clearly a suitable approach where the quality of the products or services is the major concern. I want to share some of my personal feeling on TQM and BPR. They just like Chinese Kung Fu. There are 'hard' school and 'soft' school of Kung Fu. They are with the same purpose. BPR is just like the 'hard' school of Kung Fu. It is efficient and looks attractive. However, if it is not used carefully, it may be harmful to the own health. TQM, on the other hand, is the 'soft' school of Kung Fu. It needs a long time to practice but it can make one's body healthy too.