Achieving Sustainable Performance Through TQM and Market Orientation: A Proposed Framework for Empirical Investigations - Page 11

Process optimisation and performance.

Process optimisation refers to various organisational capabilities and practices to control and achieve efficient operations in the value delivery processes. It aims to lower product costs while ensure quality of conformance to design. Constant improvement in process may lead to best practices, which can be reflected through high plants and facilities utilisation; labour efficiency; reduced scrap, waste and rework; increased product and service reliability; and reduced relative operating costs. This emphasis is consistent with cost leadership advantage, although not all process optimisation emphasis leads to lowest cost in the industry.

Internally focused revenue growth can be derived from either cost saving in operation or reduction in capital employed, which mean in either case managing effectively existing resources. In another word firm’s TQM contents are tailored to improve productivity that is by getting more output from the same resources or getting the same outcome from fewer resources. Through TQM efforts productivity is achieved without specifically resulting in reduced headcount, unlike downsizing, rightsizing, delayering, or reengineering, which almost always do (e.g. Hamel and Prahalad, 1994).

Cost avoidance through holding capital expansion, cutting promotion, deferred physical investment or making employees redundant (through downsizing, restructuring or reengineering) are common practices in times of economic malaise, but cost reduction by continuous process improvement can be a continual pursuit irrespective of economic conditions. Lower cost can be the result as well as the cause to increased productivity. In the context of operation, increased productivity is parallel to process optimisation, which can be derived from improved design, improved reliability or conformance to specifications. Flynn et al., (1995) suggest that effective process management improve quality performance through reduction of process variance and defective production. They noted that process flow management practices include reliance on preventive maintenance (echoed Garvin, 1993), foolproofing or poka-yoki, flexible and effective scheduling, and teamwork between managers and operatives in quickly solving operations problems. Therefore, TQM companies that improve process optimisation will be able to control operational costs and achieve sustainable performance.

Product and service reliability and performance

Quality leadership is based on thrust to become a leader in industry through achieving high standards in the product performance, reliability and features, at competitive cost. High reliability creates product or service reputation, which is also a component of company reputation and source of market advantage. By leveraging this reputation as strategic asset firm can charge premium price in the market. High product and service reliability has been shown to be associated with fewer complaints, lower warranty costs, reduced service costs after sale, higher customer satisfaction and perceived market quality. Perceived product performance relative to competitor’s products can create differential advantage and reputation, which are likely to sustain firm’s performance.

Reliability is affected by design, quality control in operation, control of suppliers and maintenance. These activities must be co-ordinated with appropriate resources suitable to the requirements of the product. Product requirements for reliability may involve varied degrees of customer and supplier involvement and must be determined by market assessment, warranty cost considerations and the customers. Since reliability affects availability, repairs, spare units, support technician, customer defection recovery efforts, etc, the improvement in delivered customer value can be achieved by improving total aspects of reliability.

Operation-focused firm and sustainable performance

This category of companies is concerned with operational excellence: effective operation and efficient process to achieve lower costs. They search for improved operational results and best practices as the sources for competitiveness. They operate in opposite direction to the customer-focused TQM companies. This strategy is not necessarily ineffective, especially in stable market environment and less dynamic technological change.

Garvin (1988, p. 90) has depicted the relationship between improved quality and lowering cost. Gummesson (1994) links quality to both productivity and profitably. The Crosby’s (1979) slogan ‘Quality is free’ suggests that substantial saving can be achieved by doing job right first time that avoid rework and prevent dissatisfied customers. This means a cheaper product or service cost at the end, while firm enhances its image among customers. As a consequent it encourages repeat purchase, attracting new customers resulting from word of mouth recommendation, and increasing revenue.

Crosby (1979) suggests that cost of quality arising from producing ‘non-quality’ as much as 35 %, which 95% of it is accounted by failure and appraisal cost. Because TQM emphasises cost effectiveness through continuous improvement and process management, there is a massive potential reduction in overall cost, even by allocating prevention cost such as TQM planning and implementation cost above 5% level. As has been earlier pointed out in chapter two one of the assumptions of TQM principles is that the benefits from TQM implementation by far outweigh the costs of not implementing TQM.

TQM literature clearly indicated that efficient production through prevention of defect along the production stages lead to cost saving and lower cost of production (Crosby, 1979, 1984; Deming, 1982, 1986), and the earlier the defect is detected, the less expensive it is to correct (Garvin, 1988). The quality gurus address many aspects of management issues in improving efficiency and control of the firm operation. Unlike customer orientation construct, operation focus has never been fully defined or measured although wide acceptance of the concept exist in the classical scientific management and current management theory that deal with the internal control of the firm and the governance of its activities (Reed et al., 1996).

Operation focus firms aim to excel through quality leadership via product performance, reliability and features and cost effectiveness. Therefore their emphases are more likely associated with operational excellence indicated by process efficiency and product and service reliability. TQM programmes such as process management, statistical control, continuous improvement, employee involvement, supplier management and inspections are all related to operational effectiveness, which can lead to lower cost.

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