Balancing and
Alignment of Cost and Quality
THE
STRATEGIC MANAGEMENT
By Edly
Ramly
Which one come first PROFIT or
QUALITY
It is not always so obvious though. Most of profit oriented organization will
focus on profit. Ask your top management, what will be the answer. If we
doesn’t make any profit, how we can employ you! But for quality practitioner,
the argument will be different. Same goes to accountant. So which one comes
first? Profit comes from cost. Is the profit also will come from quality? Let
discuss the issues in setting the prioritisation.
Defining
Cost and Quality
In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it is counted as cost. In this case, money is the input that is gone in order to acquire the thing. This acquisition cost may be the sum of the cost of production as incurred by the original producer, and further costs of transaction as incurred by the acquirer over and above the price paid to the producer. Usually, the price also includes a mark-up for profit over the cost of production.
For Quality, there are many definitions of quality, but
the actual meaning and concept is same. Hence used of standard definition from
ISO9000 (2005) was recommended. ISO9000 (2005) defined quality as degree to
which a set of inherent characteristics
fulfils requirements. The
requirements include need or
expectation whether is stated, generally implied or obligatory. Commonly the
need or expectation refers to customers. Woodhouse (2003) stated that the
quality has been applied to a number of characteristics such as excellence, value
for money, conformance to specifications, transformation, and value added. This
definition is more related toward the accomplishing the purpose of the
organization where it is consider that if the organization has any of these
characteristic is believed to has quality if it is performing necessary act to
achieve its goals. On the other hand, Goldgberg and Shmilovici (2003) define
quality as the ensemble of features and attributes which characterize a product
or a service, and indicate its capacity to provide an implicit or explicit
need. This explain that quality is about creating desired physical attributes
of the products or services.
Important to balance
the cost and quality
Balancing
Customer satisfaction and profit both are
required to be achieved and should be balance. But quality cannot be scarifies
at the cost of bottom line results. However it is a delicate issue and highly
depends on the requirement of organization at that point of time. According to
organizational excellence principals, Customer Satisfaction should be the
ultimate goal of organizational performance. Logically, and as some mentioned
above, you achieve positive financial results through positive quality.
Both are
interconnected
Both are interconnected. In the business world
if solely focus on quality and ignore the bottom line, you probably will be out
of business sooner or later. And the same will happen if you focus on your
bottom line without taking care of your customers.
So, ultimately excellent organizations
should achieve "balanced results" in both areas in order to be able
to sustain its performance. The other thing, the three principles (1) financial
performance (2) customer satisfaction and (3) employee satisfaction and we
should not forget our employees and their own satisfaction with the company
they work for, the jobs they are doing, the work environment they live in, the
career path possibilities they have, and the kind of incentives, Welfare,
SAFETY and HEALTH and motivation.
1- Financial Performance - what you want to
achieve in financial side
2- Customer Satisfaction - where the financial results come from
3- Employee Satisfaction - who get the job done and satisfy the customers
2- Customer Satisfaction - where the financial results come from
3- Employee Satisfaction - who get the job done and satisfy the customers
Any unbalanced/short-sighted policies focusing on one thing and not the
other two will ultimately fail in sustaining their business
It includes SAFETY AND HEALTH
Now when it comes
to the real world, few organizations are able to do both on a continuous base.
The balanced score card is the best and the right method to keep your business
on the right path towards excellence.
Choosing the right strategy
Strategic thinking has engaged the brains of business leaders for
centuries. Organizations always seek to adopt dynamic and effective strategic
management to secure proper growth and remain competitive. Strategic
management is necessary to any organisation where there is a rapidly changing
environment with adverse competition and surprises which may act as serious
threats to organisation stability.
There are many other different definitions generated from the nature of
strategy approach; but they all have one thing in common, which is the aim to
maximize the organization performance by enhancing its capability of
competition with other organizations functioning in the same competitive
environment.
 |
Government sector used
Classical Approaches
There are many construction
contractor adopted
the survival in th
e jungle strategies
|
There are different approaches to strategy. Strategists of today must
deeply understand the widely used approaches at least, to be efficient in
thinking strategically. Whittington (2001) categorized strategy in four basic
generic approaches: Classical, Evolutionary, Processual and Systematic which
have different perspectives about strategy. In classical approach, the strategy
is a rational process of deliberate calculation and analysis designed to
maximize long term advantage (Whittington, 2001). Many scholars argued that
classical approach is not applicable any more, since classical theory has no
mechanism for strategy creation and doesn’t suit the dynamic environments.
However, the classical approached still commonly used in government sector.
WHAT STRATEGY USED BY YOUR ORGANIZATION?
 |
| How about this organization? |
NESTLE (NESCAFE, MILO) used which strategy?
Processual approach is similar to evolutionary approach in the sense
that it doubts the value of rational long term planning but it does not agree
of leaving the profit-maximizing outcomes to the market since market is full of
mess and confusion (Cuizon, 2009). Processual approach states that strategy is
an emergent process of learning and adaptation (Whittington, 2001). It adopts a
pragmatic view aiming to make the sophisticated processes simple in light of
the fact that the environment is not ideal or perfect. The
approached have been adopted in the ISO9001 Quality Management System. However
the approaches separated the social requirements such as on occupational health
and safety and environment issues.
Systematic approach has a relativist position. It believes that
organisation is able to plan and act effectively. It is much less pessimistic
than Processual approach about people’s capacity to carry out rational plans of
action and much more optimistic than evolutional approach about its ability to
define strategy regardless of market forces (Whittington, 2001). The approach
argues that strategies must be sociologically efficient to understand the
firm’s environment. This means that there should be no separation between
economic activities and social factors to ensure success. Which include
employee, branding and loyalty
Conclusion
Remarks
 |
ISO9001 adopted the
process approaches
Is branding and Loyalty Important?
|
Systemic or
Processual
Isn't it is question of priorities rather
than implying we do one but rather than the other. The point about quality
being where the financial results come from but as in all things, the mission
of every business is economic performance, meaning satisfying customers in a
way that generates a profit to be invested in creating and satisfying new
customers. Balancing the both required processual and
systemic strategy.
However, this strategic approaches offer an
insight into the motivation behind the company’s vision and what strategies
they most likely implement. Strategists agree on a common point that strategic
management process includes analysis, choice, implementation and feedback.
Prior to start with strategic management process for any firm, the strategist
should ensure that the firm already has a well defined and clear mission and
vision statements. On next issues of CQ Review, the author will
explore on organization vision, mission, policy and objectives. |
Author: Edly Ramly is also the founder for EFR Group
References
Whittington, R. (2001) What is Strategy – and does it matter?,
Second edition, Thomson Learning, London. Cuizon, G. (Feb. 2009), Theories of
Action in Business Strategy: Classical, Evolutionary, Processual and Systemic
Approaches. Retrieved on March 22, 2009 from the world wide web: http://strategic-businessplanning.suite101.com/article.cfm/theories_of_action_in_business_strategy
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