CASES

Case 1-1 FedEx: Managing Quality Day and Night FedEx Homepage: www.fedex.com

As darkness falls across America and most businesses are locking up for the evening, one company is gearing up for a long night’s work. FedEx, the world leader in the overnight package delivery market, delivers more than 7.6 million packages per business day. Most of us know FedEx as the overnight delivery company with white delivery vans, courteous drivers, and the distinc- tive purple-and-orange FedEx logo. But behind what the casual observer sees is a very complex company with the capacity to deliver millions of packages to millions of addresses around the globe overnight. Throughout the course of virtually every day and night, FedEx mobilizes its army of 165,000 employees, 47,500 vans and trucks, and 647 planes to get the job done.

For FedEx, getting the job done means managing quality 24 hours per day, with a watchful eye on customer expectations. The company’s goals are simple: 100% cus- tomer satisfaction, 100% on-time deliveries, and 100%

accurate information available on every shipment to every location around the world. Although these sound like far- fetched goals, the company goes to great lengths to try to make them a reality. One of the principal weapons that FedEx uses in pursuit of its goals is its total commitment to quality management.

Quality management at FedEx encompasses all its operations. Although the company is the acknowl- edged leader in the air freight industry, a formal Quality Improvement Process (QIP) plays an inte- gral role in all the company’s activities.¹⁰

At the heart of the QIP program is the philoso- phy that quality must be a part of the way that FedEx

does business, not part of the time, but all the time.

As a result, themes such as “Do it right the first time,”

“Make the first time you do it the only time anyone has to,” and “Q = P” (quality = productivity) are important parts of the FedEx culture. To reinforce these themes, the company teaches its employees the 1–10–100 rule.

According to the rule, if a problem is caught and fixed as soon as it occurs, it costs a certain amount of time and money to correct. If a mistake is caught later in a different department or location, it may cost 10 times that much to repair. And if a mistake is caught by a cus- tomer, it may cost 100 times as much to fix.

A number of substantive strategies have been im- plemented by FedEx to support its quality efforts. Quality action teams (QATs) design work processes to support new product and service offerings. A set of service qual- ity indicators (SQIs) has been established to determine the main areas of customers’ perception of service. Through careful tracking of these indicators, the company generates a weekly summary of how well it is meeting its customer satisfaction targets. An SQI team works through problems revealed by the indicators. For example, if problems were being created by confusion in FedEx labeling instructions, the team would work on improving the clarity of the in- structions. Some of the company’s tactics to ensure total quality are extraordinary. For example, every night FedEx launches an empty airliner from Portland, Oregon, bound for Memphis. The jet follows a course that brings it close to several FedEx terminal airports. The purpose of the jet is to swoop down and pick up FedEx packages if any of the company’s regularly scheduled airplanes is experienc- ing mechanical difficulty.

10www.fedex.com. (continued)

Along with a focus on its external customers, FedEx’s approach to quality also involves strengthening the bonds between its internal customers, or employees.

To reinforce this notion, the company asks all its em- ployees to ask the following three questions when they interface with a co-worker:

1. What do you need from me?

2. What do you do with what I give you?

3. Are there any gaps between what I give you and what you need?

The company also reaches out to its employ- ees in a number of substantive ways. To do this, the company adopted its People–Service–Profit (PSP) phi- losophy, which articulates the view that when people are placed first, service and profit follow. An aggres- sive training program, competitive wages and benefits, profit sharing, bonuses, and a state-of-the-art employee grievance process are all elements of the PSP philoso- phy. Employee recognition also plays an important role in the company’s quality pursuits. For example, each quarter FedEx divisions select their best quality

success story, which is entered in a company-wide competition. Presentations are made by the finalists be- fore the company’s CEO, executive vice president, and other top managers. The award for being a finalist is a gold quality pin for each member of the team and the opportunity to be interviewed on the company’s inter- nal television network.

The quality efforts practiced by FedEx have paid off. The company has achieved a remarkable 99.7%

on-time delivery level. The list of awards the company has won are too numerous to publish. The most impres- sive are the Malcolm Baldrige award; the AT&T Top Performer award; the Quality Carrier of the Year award, presented by Merck Pharmaceuticals; and the Company of the Year Distinguished Service award, presented by the National Alliance of Businesses. Will FedEx’s pur- suit of quality end here? Asked if winning the Malcolm Baldrige award signifies that FedEx has achieved the ultimate level of quality, CEO Fred Smith said,

“Receipt of the award is simply our license to practice.”

Apparently, the quest for improved quality at FedEx will continue, day and night.

Discussion Questions

1. What is FedEx’s “common language” of quality? Is it important for a company to establish a “common language” of quality? If so, why?

2. There are several different perspectives of quality, including the operations perspective, the strategic perspective, the marketing perspective, the financial

perspective, the HR perspective, and the systems perspective. Which of these perspectives are being emphasized by FedEx? Why?

3. Is FedEx’s level of emphasis on quality appropriate?

Why or why not?

Case 1-2 Graniterock Company: Achieving Quality through Employees Graniterock Homepage: www.graniterock.com

Graniterock, a California-based mining and construc- tion company, was founded in 1900, but its journey to- ward improved quality did not start until many decades later. The managers at Graniterock knew that a resulting decline in customer satisfaction was inevitable and re- sponded to this self-assessment by deciding it needed to become more customer focused. At Graniterock, this meant not only learning more about the customer but also providing its employees the training and skills necessary to properly implement the company’s new philosophy.

At first, this focus on HR management was em- phasized through employee training. As explained by ex-CEO Bruce Woolpert, you can’t have employees out telling customers “yes” unless everyone else in the company knows how to follow up on “yes.” As a re- sult, an aggressive training program was implemented,

involving on-the-job training and classroom time for a majority of the firm’s employees. A program called IPDP (Individual Personal Development Plan) was cre- ated to help each employee take responsibility for his or her own training program. As the program gained mo- mentum, remarkable things started to happen. One em- ployee indicated that he wanted to learn to read better.

As a result of that request, the company initiated a read- ing program that has helped a number of Graniterock’s employees improve their reading skills. As part of the company’s effort to reduce process variability and in- crease product reliability, many employees were trained in statistical process control, root-cause analysis, and other quality-minded competencies. Today, Graniterock spends up to $1,600 per year for training of each em- ployee, which is more than 10 times the average for the mining and construction industries.

An equally important step in equipping its em- ployees to contribute to the firm’s efforts was establish- ing an atmosphere of trust between management and the rank-and-file employees. That effort has been pursued in a number of ways, and the trust developed through- out the company has resulted in the effective imple- mentation of employee empowerment and teamwork.

In addition, the company has done away with its con- ventional performance-appraisal system (feeling that it was ineffective) and has incorporated performance ap- praisal into each employee’s IPDP. As part of this plan, each employee meets with his or her supervisor at least

once per year to discuss job responsibilities, review ac- complishments, assess skills, and set skill and career development goals. Although the IPDP is not manda- tory for the company’s unionized workers, overall par- ticipation stands at 83%. Because the IPDP approach to training and appraisal prepares employees to assume greater responsibilities, Graniterock promotes heavily from within.

Graniterock, having won the Malcolm Baldrige award and one of Fortune magazine’s best 100 com- panies to work for, is aggressively pursuing its quality initiatives, with the cooperation of its 700 employees.

Discussion Questions

1. Rather than focusing on human resource manage- ment (HRM) as a means of supporting its quality initiatives, Graniterock could have chosen another area as its focal point (e.g., marketing, operations, information systems, and so on). How does a focus on HRM support a company’s quality initiatives?

2. Discuss the different components of Graniterock’s HRM initiatives. How can each of these compo- nents support the company’s quality efforts?

3. Discuss ex-CEO Woolpert’s feelings about com- munication with the customers (paragraph 2).

What happens when others in the company don’t know what has been promised to the customer?

How can quality management help to overcome this situation?

48

C h a p t e r 2

Quality Theory

Chapter Objectives

After completing this chapter, you should be able to:

1. Integrate theories and concepts from key thought leaders in quality management.

2. Discuss differing ideas from quality management thought leaders to determine the best methods for managing quality.

3. Discuss key quality improvement variables and how they combine to create a quality management system.

4. Assess a quality management system using the theoretical framework for quality management.

F

or some reason, the word theory conjures negative thoughts among many students and businesspeople. There is a supposition that an emphasis on theory will somehow dis- tance us from the real world and what “really works.” However, theories form the basis for much of what happens around us, and most of us use them every day without knowing it.

For instance, mechanical theories are at work when you drive your car. When you turn on a light, theories are at work, harnessing the power of electricity. The airplanes overhead benefit by Bernoulli’s theory. The organizations we work for are based on theories proposed by generations of organizational theorists. The money we spend is managed by macroeconomic theory. Because there can be no understanding of the phenomena that surround us without theory, shouldn’t there be a general theory of quality management? In other words, is there a model that explains how organizations such as Federal Express, Apple, and Toyota have achieved such high levels of qual- ity within the past generation?

Several theories on quality improvement are in practice currently. In this chapter we learn about the experts in this field, their theories, and how these theories have been used by various organizations.

What is theory?

The term theory is often misused. Generally, theory is a “coherent group of general propositions used as principles of explanation for a class of phenomena.”¹ For example, it might have been observed that many companies that have implemented quality improvement have experienced

1Random House Webster’s College Dictionary 2011.

improved worker morale. Therefore, a theoretical model of quality and worker morale might be developed as shown in Figure 2-1.

The model in Figure 2-1 has two variables: quality improvement and worker morale. The arrow implies causality. Because the head of the arrow points to worker morale, this is the depen- dent variable, with quality improvement being the independent variable. Thus we can see that our small theoretical model is testable. To test our model, we formulate a hypothesis, gather data under controlled conditions, and analyze the data. There is no way to prove the theory. The results of our statistical research will only support the theory or fail to support the theory.

For a theory to be complete, it must have four elements²: what, how, why, and who-where- when. The what of the theory involves which variables or factors are included in the model. The variables in Figure 2-1 are the what of that model.

The how of a theoretical model involves the nature, direction, and extent of the relation- ship among the variables. For example, in our simple quality/morale model, we posited that quality improvement positively influences worker morale. This is represented by the plus sign in the model.

The why of the theory is the theoretical glue that holds the model together. For example, what are the psychological dynamics that could cause quality improvement to increase worker morale? Suppose we theorize that organizations using quality improvement are more organic in nature, stressing worker empowerment. Suppose further that worker empowerment lifts worker self-esteem by stressing increased decision making and control over his or her own job. Finally, we propose that this increase in self-esteem results in improved worker morale.

The who-where-when aspects place contextual bounds on the theory. For example, we might add a condition to our model stating that morale is improved only in companies that receive strong leadership by top management to implement quality improvement.

As shown in Figure 2-2, theories are established in one of two ways. A theory generated by observation and description is said to have been developed by the process of induction. The process of induction is useful, but it is also subject to observer bias and misperception. Suppose we developed our quality/morale theory after visiting a series of Chicago, Illinois, firms that had implemented quality improvement. During our site visits, we found that employee morale was

Quality Improvement

Worker Morale +

Figure 2-1 A Theoretical Model Relating Quality Improvement to Worker Morale

2Davis, J., Eisenhardt, K., and Bingham, C., “Developing Theory through Simulation Methods,” Academy of Management Review 32, 2 (2007): 480–499.

Data Generalization

Generalization Supported by Data Induction

Deduction

Figure 2-2 Inductive versus Deductive Reasoning

high in all the sites we visited. Our inductive observations of quality influencing morale might be correct. However, as committed researchers, we are so enthralled by our discovery that we fail to notice that the Cubs (the Chicago baseball franchise) just won the World Series. Therefore, our inductively produced model of quality/morale might have been confounded by an intervening variable (the glorious win by the Cubs).

The more common theoretical approach used by researchers is deduction. Using deduc- tion, researchers propose a model based on prior research and design an experiment to test the theoretical model. These studies follow the scientific method discussed in Chapter 1.

Many of the concepts and models proposed in this chapter are developed by induction.

Therefore, when considering concepts put forth by experts such as Deming, Juran, and Crosby, note that their principles are based on years of experience with a wide variety of firms that have improved quality. Their models and principles are also laden with personal biases, judgments, and values. This is fine, as long as you recognize these limitations to their models.

is there a theory of Quality Management?

As yet, there is not a unified theory explaining quality improvement in the supply chain that is widely accepted by the quality community. In fact, as we saw in Chapter 1, the literature con- cerning quality is contradictory and somewhat confusing. Different theories have been proposed by practitioners and researchers. Some of these theories have been drawn from organizational theory, behavioral theory, and statistical theory.

The differing approaches to quality improvement represent competing philosophies that have sought their places in the marketplace of ideas. Practicing quality managers must become familiar with these philosophies and apply those that are appropriate to their particular situations.

The diversity of approaches to quality contributes to variability in the approaches used by companies and increases the chance for failure in organizations. Some of these approaches are proven, and others aren’t. This has spawned myriad consulting firms and consultants. As shown in A Closer Look at Quality 2-1, some of them are legitimate, and some are in it for profit only.

In past decades, there has been an explosion of consulting firms around the world that taught a variety of means for achieving quality. In the following sections, we discuss the problem of the fragmentation of the quality message from a managerial point of view.

A Closer look At QuAlity 2-1

Quality and Management Fads³

Every holiday season, there are long lines at the toy stores. Everyone is hoping to purchase the popular toy. Walking down the street or in school hallways, people are wearing the same style of clothes. The latest trends are what people think about. But just as quickly as the toy or clothing fad comes, it will go away with the next “it” item. Fads are not confined to the fashion or toy industry, but also exist in the area of business management and quality theories and practices.

Quality management can be a jumble of alphabet soup. Managers say, “We use TQM, lean and MBO” or “We are ISO registered.” Some of these programs add value to a company, whereas others may be fads without lasting effects. Danny Miller and Jon Hartwick state, “Fads like TQM can profoundly change companies, for better or for worse.”

So how does a firm avoid a fad and select a tool that might endure? Through research, Miller and Hartwick have identified several qualities of business fads. They define fads as simple, prescriptive, falsely encouraging, one-size-fits-all, easy to cut and paste, in tune with the zeitgeist, novel, not radical, and externally legitimized by gurus and disciples. These can serve as a set of criteria for evaluating busi- ness and quality programs.

3Based on Miller, D., and Hartwick, J., “Spotting Management Fads,” Harvard Business Review 80, 10 (2002): 26–27.

(continued)

history oF Quality ManageMent

Table 2-1 outlines a brief history of the quality movement. Later in this chapter, we further develop the teachings of many of the key contributors in quality management. From the scientific manage- ment movement of the early twentieth century to the present focus on supply chain quality, there has been a continual growth of the field.

leading Contributors to Quality theory:

W. edWards deMing

W. Edwards Deming (see Figure 2-3) was widely accepted as the world’s preeminent authority on quality management. Deming gained credibility because of his influence on Japanese and American industry. When it became apparent that many Japanese products were of better quality than U.S. products, U.S. managers were surprised to learn that the Japanese had learned quality Making changes in a company is not easy. The goal is to make a positive impact. As we discuss in this chapter, quality tools should be assessed based on their effects on the business. Following are some questions to consider:

• Is the approach used in the real world?

• Is the approach a correct fit for or adaptable to the business?

• Does the approach deliver measurable results?

• Does the approach address the root cause of problems?

• Does the approach challenge the status quo?

Proven tools come from responding to economic, social, and competitive challenges. Ultimately, lasting changes to the firm will come from management profoundly understanding the business and adapting quality tools to the particular needs of the business.

There is no perfect test to distinguish fads from proven tools. Some fads will have merit and make a positive lasting change. Management must perform due diligence when selecting tools for the organi- zation. If done correctly, the firm will have its own distinct “style” when it comes to managing quality.

table 2-1 History of Quality

Early 1900s Frederick Taylor, Frank and Lillian Gilbreth, and scientific management 1920s Walter Shewhart and statistical process control

1930s Dodge and Romig introduce acceptance sampling 1940s Military standards introduced

1950s Deming and Juran introduce quality management to Japan 1960s Taguchi method and other tools developed

1970s Quality becomes strategic; beginning of major adoption in the United States 1980s “If Japan Can, Why Can’t We?” airs on U.S. TV; introduction of Lean

with Schonberger, Shingo, and Hall; TQM and empowerment become watchwords in quality field; Baldrige award program implemented 1990s Reengineering and Six Sigma become major movements with mixed results;

wide dissemination of quality approaches

2000s Growth of supply chain management and improvement of supplier development; lean Six Sigma becomes popular; contingency theory in quality becomes recognized as important

2010s Supply chain quality management (SCQM) gains traction as a field Innovation in design is emphasized, along with supplier development and customer relationship management