XIX. Customer-Driven Operations

Most western countries are in the process of deindustrialization; they are shifting from a heavy industry-based to service-based economy. Even where industries still prevail, they have become more sensitive to the customer.

To succeed today, organizations need to transform inputs to outputs efficiently. This is called productivity, a measure of the outputs divided by inputs. But simply being productive is not enough. Organizations must also be effective, which means they must be efficiently producing products and services that customers want.

We have already discussed a number of methods of increasing productivity of workers through increased job satisfaction. By involving workers in the process through participative decision making, team-based work groups and performance based reward systems, their satisfaction is increased which leads to greater productivity.

Another approach is to make management more productive. W. Edwards Deming's management philosophy tries to increase productivity by making managers more effective. His philosophy is now called Total Quality Management or TQM. The basis of his thought is expressed in the fourteen points of improving management's productivity.

Customers want high quality products. To achieve customer satisfaction management must change their normal operating conditions.

A. Total Quality Management (TQM): The Fourteen Points Deming's Fourteen Points for Managers

    1. Plan for the long-term future, not for next month or next year.

Deming believed that the short-focus of the typical American company is detrimental to improving the quality of product. In order to make real quality improvements there must be a major long-run investment in equipment and personnel. These investments are difficult to make if management's concern is the current quarterly earnings.

    2. Never be complacent concerning the quality of your product.

"Good enough" was not in Deming's vocabulary. He showed that there was always room for improvement if only management was willing to look. As the American automotive industry learned to its chagrin, customers are willing to pay extra for quality and just making a product cheaper will not earn market share.

    3. Establish statistical control over your production processes and require your suppliers to do so as well.

Deming, as a statistician, had a unique perspective on production. As discussed in the dartboard example in the previous topic, random variation always exists in a process. By gathering and examining the production data, managers can continuously improve the process. In the dart example, the goal would be to keep reducing the acceptable limit from the inner ring until it was very close to the bull's eye. By examining the process and the control data a manager might be able to redesign the darts or restructure the throwing posture to make the process more accurate.

    4. Deal with the fewest number of suppliers - the best ones, of course.

This is another attempt to reduce variance, this time in inputs. By narrowing the options for supply, the total span of variance is also reduced. By establishing a strong relationship with suppliers, a producer can exercise more control over the quality of the input. There is an incentive for the supplier to cooperate with the producer because of the more stable (and higher) ordering levels.

    5. Find out whether your problems are confined to particular parts of the production process or stem from the overall process itself.

This builds from the statistical control in step three. By examining the data, managers can determine if there is a weak link in the production chain or if the chain itself is poor. In the dart example, using the colored darts allowed a manager to determine that a part of the process was faulty.

    6. Train workers for the job that you are asking them to perform.

This concept can trace its origins back to scientific management. Rather than forcing the workers to guess the best method of working through trial and error, train them on how to accurately perform the task. Additionally, as discussed in motivation, training for the modern workforce is considered a benefit and increases job satisfaction.

    7. Raise the quality of your line supervisors.

The spot where managerial "rubber hits the road" is the first line supervisors. Often these people are promoted from the shop floor based on their expertise as a worker and are not formally trained as managers. In keeping with point #6, if you expect a worker to perform a manager's job, train that person how to lead!

    8. Drive out fear.

Fear is very prevalent in formal organizations. When an organization becomes very rule- bound and focuses solely on outputs and not processes, workers live in fear. They fear retribution, they fear failure, and they fear loss of employment. Workers in these organizations will not contribute additional efforts to the firm (like suggestions) because to stand out for change is to become a target.

To empower an employee, management must accept some failure as part of the learning process. Driving out fear requires management look at failure as the cost of learning and not a personal fault. Management must look to the sources of fear, such as evaluations and unrealistic reward systems, and remove them.

    9. Encourage departments to work closely together rather than to concentrate on departmental or divisional distinctions.

This point is the result of the inefficiencies of "functional silos." A functional silo is the typical hierarchical departmentalized organizational structure. Workers see themselves as working for purchasing, rather than in the purchasing department of the organization. Organizational goals are compromised as each department attempts to maximize their own goals. This point leads to cross-functional teams and other methods of breaking down internal barriers to cooperation and information flow.

    10. Do not be sucked into adopting strictly numerical goals, including the widely popular formula of "zero defect."

In production, "you get what you expect." If an arbitrary goal is established, such as 5% error rate, the workers will focus on achieving that goal not on improving the process. Their concern will be on the 5% not on the 95% going out the door! By directing the workers and management toward process improvement, not a waste goal, the overall process will improve.

    11. Require your workers to do quality work, not just to be at their stations from 9 to 5.

This is another focus on the process of production and control. If the control criteria is be at your station for eight hours, the employees will do just that. If the control criteria are tied to quality, the workers will provide quality. Eight hours of station keeping is not the same as eight hours of quality work.

    12. Train your employees to understand statistical methods.

This is a natural extension of points #3, #5, #6 and #7 and helps build empowerment. If workers are to be responsible for a process, and if the organization is statistically tracking that process, the workers must know what the numbers mean. Not performing this training makes as much sense as writing all the job descriptions in French for an English workforce.

    13. Train your employees in new skills as the need arises.

Never assume your workforce is completely trained. As new procedures and equipment are utilized, train your workers on how to use them. If you are going to use cross- functional teams, train them in the skills they need to succeed. This technique is now referred to as "Just-In-Time-Training."

    14. Make top managers responsible for implementing these principles.

Experience has shown over and again that without top level intense commitment to this organizational change, nothing will occur. Managers who talk TQM but then maintain the old control-based, fear-creating organizational forms are doomed to failure. Workers are anything but stupid. They will examine the system and provide whatever is required to maximize their personal rewards. If the organizational systems are not revamped to reflect the TQM philosophy the old methods will continue and no change will take place.

B. Meeting and Exceeding Customer Needs

Now that an organization is satisfying the primary requirement for customer satisfaction, quality at an affordable price, the organization must move forward to not only meet, but exceed customer needs. There are four basic steps to accomplish this goal.

First, determine who the organization's customers are.

Second, maintain close and frequent contact with these customers. Don't assume that once a product is sold the relationship ends.

Third, create uniqueness. Find a way providing the good or service in a way competitors cannot duplicate (it is the organization's competitive advantage!).

Fourth, determine how to satisfy customers' current, anticipated and future needs. This implies finding out what they are!


Copyright Information
Title: Customer-Driven Operations (Lecture Notes)
Author: John Anderson  (Instructor)
University: National University
Course: MGT 409C- Principles of Management and Organization
Date: June 1, 2002 (Received)

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