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Quality Improvement Running head: QUALITY IMPROVEMENT AND ORGANIZATIONAL CHANGE

Quality Improvement and Organizational Change John Doe Baker College BUSN/813 Dr. Professor Doe October 06, 2009

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Quality Improvement and Organizational Change

Although research exists that supports a clear link between organizations that implement total quality approaches and improved financial performance, there are also documented cases of failure (Chan, 2005; Hendricks & Singhal, 1997). This conflicting research warrants further study to understand the constructs and practices that may influence the success or failure of these total quality approaches. This paper will investigate the correlation between fundamental principles of total quality and the organizational performance within two companies. The total quality principles examined include: customer and stakeholder focus, strong commitment to teamwork and employee empowerment, and a systematic approach to continuous learning and improvement (Evans & Lindsay, 2008). The organizations the author of this paper examines are Proctor and Gamble and Continental Airlines. The purpose of examining these organizations is based their top 10 ranking in Fortune magazine as the best management quality companies globally (Fortune, 2007). Furthermore, a service and product company will be chosen for evaluation if quality management initiatives have correlation across industry types. Annual reports and external research will be evaluated to determine if a relationship exists between the fundamentals of total quality, differing sectors of business, and organizational performance. Total Quality Principles The following section introduces the total quality principles and how they apply to customer and stakeholder focus while including a systematic approach to continuous learning and improvement, and a commitment to teamwork and employee empowerment. The research herein, provides the findings of the correlation between quality improvement and organizational changes.

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Customer and stakeholder focus A strong customer focus can be defined as designing a new product that exceeds customer expectations. This ability to innovate rapidly and respond to market demands globally is essential in acquiring market share. Because the marketplace is influenced by the quality of the design, improvements allow the organization to differentiate itself from competitors and potentially establish a competitive advantage. A sustained competitive advantage should allow organizations to realize higher prices and increases in market share (Evans & Lindsay, 2008). A primary business driver for Procter and Gamble (P&G) is innovation. This commitment to innovation is centered on a systematic and formalized innovation process that has quality design as a key component. This process includes the use of cross-functional teams that leverage challenging success criteria based on customer demands, consumer testing, and advanced technologies. P&G has been able to establish world class expertise in 11 core technology areas (Procter & Gamble, 2008). Furthermore, P&G measures this success in quality design based on organic growth with their goal for organic growth being four to six percent annualized. In 2001, they achieved six percent and in 2008 they achieved five percent growth (Procter & Gamble). P&G (2008), reports that due to their innovative capability, one third of the most successful products for their industry have come from their organization which is more than the combined top six competitors. In 2008, five of the top 10 products in the consumer industry came from P&G, therefore advancing significant growth in market share. Continental Airlines has been ranked by J.D. Powers as the highest in customer satisfaction within North American carriers from 2006 through 2008. Continental attributes this success to their focus on exceeding customer expectations. This is exhibited by Continental being one of the first carriers to offer customer driven technology that allows the customer to

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take control of the check-in process. This customer focused initiative allows over 85% of Continental customers to use several self service products to check in for their flights. This has resulted in shorter wait times for the airline industry. Executive leaders contribute the continual growth in market share to this focus on the design and development of customer driven technology (Continental, 2008). Continental has experienced a 25% increase in revenues from 2005 to 2008, which is a growth that exceeds most domestic carriers (Hoovers, 2009). By focusing on designing new products or services that meet or exceed customer expectations both P&G and Continental have experienced improvements in key performance indicators. A Systematic Approach to Continuous Learning and Improvement The total quality principal of continuous improvement can be defined as increasing productivity and effectiveness in the use of all resources (Evans & Lindsay, 2008). P&G materials and manufacturing management groups systematically design new formulations and processes that lower costs. The evidence of these initiatives can be seen in historical productivity improvement. Since 1980, productivity has increased more than threefold growing at a compound average rate of five percent a year. This growth rate is more than twice the broad based U.S productivity rate. Net earnings per employee have increased to more than eight times the growing rate at an average of nearly eight percent per year (Procter & Gamble, 2008). The annual reports present clear evidence on the success of this total quality, which has been sustained and embedded for decades within the organization. Continuous improvement depends on learning, which means understanding why changes are successful. A learning cycle has four stages: planning, execution, assessment and revision (Evans & Lindsay, 2008). P&G has been recognized as one of the top organizations for continual learning and was ranked as one of the three best companies for leadership capability and knowledge by the Hay Group and Chief

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executive magazine. The organization has also developed advanced leadership training implementing the four stage learning cycle within their graduate school for senior leadership (Procter & Gamble, 2007). Continental Airlines demonstrates an increase in effectiveness with its resources by using one the world’s most efficient fleets. By standardizing (removing variation) on just three fleet types the company is able to achieve greater efficiencies in pilot training, crew flexibility, simplified maintenance, and savings on spare parts (Continental, 2008). This efficiency in managing the company’s capital intensive assets, demonstrates its commitment to improving the effectiveness of major resources. In 2005, Continental reported gross profits at an increased rate of almost 75% from 900.76 million to 100.698 million in 2007 (Hoover, 2009). Strong Commitment to Teamwork and Employee Empowerment A Total quality organization must demonstrate commitment to employees, provide opportunities for development and growth, recognition beyond normal compensation, and encourage risk taking (Evans & Lindsay, 2008). P&G’s culture embraces the use of employee improvement teams within the product and process innovation. In addition, the organization is recognized as one of the industry leaders in internal employee development and advancement (Proctor & Gamble, 2005). The organization is continually re-designing its structure, striving to eliminate layers of management while empowering associates to take ownership of his or her areas of responsibility. This empowerment of both multifunctional and process orientated teams, leads to faster and more innovative change within an organization. Continental airlines pride itself on a culture that empowers and rewards employees when the organization achieves certain performance targets. Employees participate in bonuses on a monthly basis in the areas of on time arrivals. Continental continues to be first among six

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network carriers for on time performance. Employees are empowered to adapt to procedures as necessary in the interest of customer satisfaction, which weighs heavily in continental customer satisfaction ranking which are first in the nation (Continental, 2008). Conclusion In analyzing these two organizations, the principles of total quality appear to have been embedded into all levels of their organization for several decades and have become part of their culture. These organizations have implemented total quality principles as a foundation of their competitive advantage. They have also enhanced those principles further to become industry leaders in new product development, the speed of innovation, and excelling in customer service. This synopsis review of these two organizations reinforces the research by Hendricks and Singhal (1997), which states that when implemented effectively, total quality management approaches improve financial performance. This is evident specifically in the two case studies presented within the performance measures of organic growth, profit, sales per employee, and market share. Furthermore, research of these organizations reveals a balanced and integrated approach focusing on all three of the total quality principles versus focusing on just one of the principles. An integrated approach is one of the key reasons for the translation of total quality initiatives into organizational performance. Research by Cua, McKone, and Shroeder (2006), indicate that improved organizational performance is directly related to the integration of major total quality principles into a systematic approach. Organizations that fail to gain performance improvements may initiate quality approaches independent of the other fundamental principles, or are not part of a systematic approach enforced by management systems. The two organizations examined

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References Chan, H.K. (2005). Implementation of total productive maintenance: A case study. International Journal of Production Economics, 95(71). Cua, K., McKone, K., & Shroeder, R. (2006). Improving Performance through an Integrated Manufacturing Program. The Quality Management Journal, 13(3). 45. Continental Airlines. (2008) Annual report. Retrieved Friday October 2, 2009 from the World Wide Web at: www.continental.com/web/en-US/.../reports.aspx Evans, J., & Linsay, W. (2008). Managing for quality and Performance excellence. 7th ed. Chula Vista, CA: South- Western College Pub. Fortune Magazine. (2007). Most admired companies 2007. Retrieved Friday Oct. 2, 2009 from the World Wide Web at: http://money.cnn.com/magazines/fortune/globalmostadmired Hoovers. (2009). Financial Reports. Retrieved Friday October 2, 2009 from the World Wide Web at: http://invreports.galegroup.combakerezproxy.palnet/reuters/financialreport/continental Procter and Gamble. (2008). Annual report. Retrieved Friday October 2, 2009 from the World Wide Web at: www.pg.com/investors/sectionmain.shtml Procter and Gamble. (2007). Annual report. Retrieved Friday October 2, 2009 from the World Wide Web at: www.pg.com/investors/sectionmain.shtml Procter and Gamble. (2005). Annual report. Retrieved Friday October 2, 2009 from the World Wide Web at: www.pg.com/investors/sectionmain.shtml