Business Management Articles
/ Quality Management


by Rene T. Domingo

A major cause of failure in implementing Total Quality Management (TQM) is top management's refusal to drop and dismantle anti-quality corporate policies, procedures, and practices. Usually time-honored and taken for granted, they serve to hinder employees and managers in showing quality in their jobs and in serving customers. These policies and the work environment they create dictate employee behavior such that in spite of his good intention "to do things right the first time" and management's exhortation to that effect, he commits mistakes, defects, errors, and customer disservice. The employee is punished, demoralized, and worse, sent by management to a "values" or "corporate culture" seminar to change his behavior. Since the policies- the root causes - stay, the problem is not solved and recurs.

Why do many companies professing TQM fail to review and change policies? Mainly because of ignorance. Ignorance that such policies affect employee behavior. Ignorance that such policies exist at all. Another reason is that they think they can mix conventional management with TQM. Management may define TQM as a ritual of slogans, speeches, QC circles, and employee training -- and not about policy changes. Another possible reason is that changing policies is regarded as painful and loss of political power.

This article will discuss common policies of traditionally managed companies that are potential obstacles to TQM implementation. It is not meant to be an exhaustive list, but it will serve to enlighten and guide those who wish to review and evaluate policies as a major step in TQM implementation.


The most subtle company policy that could affect quality is that of gauging corporate performance. Typical measures are financial in nature : "bottom-line" profits, "top line" sales and market share, and "middle line" budgets and costs. Note that none of these sacred indices directly indicate quality performance and customer service. In fact, they are very effective in hiding quality problems and deceiving management that everything is well.

A profitable company exceeding sales targets and meeting budgets, can actually be providing poor customer service -- high warranty claims, long queues, delayed deliveries. Profit is composite of sales and costs. Quality problems can be hidden in either item -- lost customers and bad service in sales, and defects and wastes in costs -- and be offset by improvement in the other item. Declining sales due to lost customers frustrated with bad service could be offset by cost cutting. High rework and scrap rate which drive costs up could be offset by increase in sales, thus showing a healthy profit picture. High sales could also be achieved by replacing lost and disappointed customers with new and bigger customers; salesmen may employ this trick to reach their quota. Budgets do not take service quality into the picture. Worse, budgets, being historical in nature, incorporate and hide ever increasing allowances for wastes and defects.

By meeting or exceeding profit, sales, and cost targets, a conventional company does not suspect or thoroughly investigate any customer service problems and wastes in operations. Management is more concerned with how to distribute profits as bonuses. Its attitude is "we are making money and selling a lot, therefore all customers are satisfied; they have no right to complain." The management paradigm is CAWS or Can't Argue With Success.

It is not surprising and very ironic indeed, that in many countries, the biggest and most profitable companies are known for poor, slow, and costly customer service: banks, utility companies, airlines, hospitals, supermarkets, insurance companies, drugstores, petroleum companies, to name a few. When was the last time you ever praised these institutions for their fast and friendly service? Customers keep coming back- grudgingly-, not because of quality service, but because there is no other place to go to. They have been used and desensitized to the dismal and chronic level of service and willing to live with it -- until and unless a competitor could come up with a better and faster service.

TQM is not against profits and market domination. It achieves these by focusing on process targets rather than simplistic financial indicators. They track product quality, customer service, quality costs (costs of not doing it right the first time), productivity, safety, inventory levels, process times, etc. TQM companies gauge their performance by monitoring these indicators continuously with real-time data from the customers and shopfloors, and continuously raise and improve their levels.


TQM companies live by the following commandments of customer service:

{ The customer is king (or god as in Japan).

{ The customer is always right.

{ Never argue with a customer. (You may win the argument but lose the customer.)

Anti-quality service policies essentially violate these principles. If there are theories X and Y to describe how management treats employees, we can also think of similar theories to describe how it treats customers. Theory X assumes all employees are lazy, incompetent, and incorrigible; theory Y assumes they are all hardworking, capable, and full of potential.

Similarly, theory X in customer service assumes that all customers are bad unless proven otherwise. Companies with this business philosophy have sophisticated and obnoxious control systems and policies that monitor and check customer when they enter, roam around , and exit company premises and stores. They also have bureaucratic procedures to check customer background and credentials before they can avail of the company's goods and services. For instance, a theory X bank assumes that all borrowers are potential bad debtors, and depositors as launderers of illegally gotten wealth. Theory X supermarkets and department stores treat all customers as nuisance window shoppers or worse, potential shoplifters. To treat customers with indifference or sloppiness is bad enough, but to suspect them of evil intent is worse and contrary to all business sense.

Front-line employees who maltreat customers may just be complying with the company's theory X service policies. A company which mistreats its employees usually mistreats its own customers, employing theory X policies in both cases. To aggravate the situation, the employees take revenge on customers.

The other extreme is theory Y which assumes all customers are good. Theory Y companies are known for absence of or minimal customer control systems and policies. Customers are treated as kings. They can go in and out of company premises without controls and appointments. They can avail of and pay for products and services without hassles and with a minimum paperwork and requirements. They can return purchased merchandise anytime for any reason and the company staff will cheerfully replace it or return his money -- without question or investigation. For some theory Y companies, customers need not pay anything if they are not completely satisfied with the service. Theory Y companies definitely delight customers who eventually become repeat and loyal ones. Theory Y companies are genuine TQM companies, and they are rare. In reality, companies serve customers within the range of theories X & Y, with the majority clustering nearer to theory X.

Why do companies knowingly control rather than serve customers? The type I and type II errors of statistics will serve as a useful analogy. Type I error or false negative is rejecting a hypothesis when it should be accepted, while type II error or false positive is accepting it when it should be rejected. Similarly, type I error of customer service is rejecting a good customer when he should have been accepted - served or sold to. Type II error is accepting a bad customer when he should have been rejected- disqualified for loan, etc. Anti-quality service policies try to avoid type II errors; TQM tries to avoid type I errors. TQM companies do not try to balance the costs of the two type of errors. The anti-quality company is more concerned about avoiding the cost and damage due to one bad customer to the extent of compromising the convenience of good, paying customers which form the vast majority of clients in any business.

It is indeed very rare for a company to go bankrupt or lose huge sums because of bad non-paying customers. Besides, some customers do not pay on time because they received bad products and bad service in the first place. Much more common are companies going under because they have been milked by its management or owners.

Success in any business comes from delighting the vast majority of customers, even to the extent of accepting some bad ones and committing type II errors. The word service was derived from the Latin word servus which means servant or slave. TQM companies are servants of their customers, and all their policies reflect this philosophy.


Another area which abounds with anti-quality policies is employee performance evaluation and control systems. These systems are used to compensate, promote, motivate, monitor, check, and discipline employees.

The two most common performance targets used for evaluation are sales and production output. Quotas are set to determine compensation. Salesmen commission are paid based on achieving or exceeding sales quota. Workers' incentive pay and even take-home pay as in the piece-rate system may be determined by production output . The danger with these targets is that they are pure numbers and completely hide the level of product quality and/or customer service. They are typically set as objectives under the result-oriented MBO system. The MBO manager does not care about how the result were achieved by his subordinates as long as they are achieved. He could not care less about process improvement and development, customer feelings and suggestions.

If customers or sales are lost because of product defect, bad service or late delivery, the salesman could get new and bigger customers to cover up the shortfall. He may actually increase sales and exceed his quota. The same could also happen if the other remaining customers order much more than before. The evaluator or sales manager and the salesman will not bother with the product and service problems because the quota has been satisfied. Product defects may not be fed back to the production people for immediate correction. Of course, the lost customer will bad mouth the company to ten other customers - current or potential.

Similarly, production quota may be achieved even with high internal reject rates by the Quality Assurance department or high external reject rates by customers. The production worker is just interested in increasing output to increase his pay. The system allows and encourages him to behave this way even if quality, cost, yield, and customers are sacrificed. Even when defects are produced, the line is not stopped since output will decline and so is his pay. Defects are not investigated, and to make matters worse, they are rerouted to rework operators, whose incentive pay is tied to the amount they have repaired.

The budget system is also notorious for hiding quality and service problems. In theory and in practice, the cost budget can be achieved even with bad service to customers leading to lost sales, or high wastage, defects, and rework in the shopfloor. Again, budgeting is a numbers game and encourages managers and employees to forget about quality. It does not reflect and recognize process improvements done by employees. Zero budget variance can be achieved even with zero customer service.

Finally, a pervasive anti-quality policy is designating the superior or direct boss as the evaluators of the performance of his subordinates. At first glance, this policy sounds reasonable since the boss is supposed to be watching his staff and know everything they do or don't do. The fallacy here is that with the exception of a secretary which serves her boss, employees usually do not directly serve their boss but other employees, managers, departments, and customers of the company. The superior has no idea of the service quality and efficiency of his staff, and is therefore the least qualified to pass judgment. Only the internal customers, or other employees and departments served by his staff, can truly evaluate the latter as to their performance. It is common to be highly evaluated by one's boss, and get promoted accordingly, while being rebuked by one's internal customers for bad service.

The only correct performance evaluation can be done by one's customers- internal or external. The marketing department should evaluate the performance of the production department which in turn should evaluate the performance of the maintenance, engineering, and purchasing departments. Of course, the best evaluator of performance and quality is none other than the external or paying customer, the ultimate recipient and judge of the company's products and services. American Express makes it a policy to tie the manager's bonus to the number of customer complaints his department receives.

TQM companies still use quotas and budgets, but very carefully and intelligently. They are tempered and validated by quality data and customer feedback before they are used to evaluate and motivate people.


Anti-quality policies can also be found in the way the company selects and evaluates suppliers. Under TQM, suppliers are long-term partners, not third-parties to be pitted against each other. Among the most blatant anti-quality supplier policy in this regard is the simplistic awarding of contracts to the lowest bidder. Even the highly educated and highly paid purchasing managers of major corporations have been reduced to the clerical task of comparing bids and selecting the supplier with lowest bid price. The supplier will naturally play by the buyer's rules, bid as low as possible and sacrifice the other vital elements of quality, delivery, commitment, service, and reliability. He can tactfully hide these tradeoffs in his bid, since the evaluator or purchasing manager is often too restricted, naive, lazy, or incompetent to check these complicated, often technical and long-term issues. The lowest bidder turns out to be the highest bidder in the long run because of the production delays and lost customers its poor quality and reliability cause.

What is ironic is that a company may proclaim to be practicing TQM and urge its supplier to improve quality and deliver just-in-time, without changing the policy of awarding and selecting suppliers based on bid price. Since price is the focal point, the supplier will not heed any exhortation to improve quality. TQM companies not only evaluate their suppliers on over-all long term performance and reliability, but also train and develop them so that they would become world-class in terms of quality and delivery.

A related anti-quality policy is having the purchasing department report to the finance department; this set-up sends the strong signal to the organization that purchasing is about cost-cutting and finding the cheapest source. Typically, the finance department, being control and audit oriented, is the least concerned or knowledgeable about product and service quality. TQM companies would rather have the purchasing department report directly to the CEO or to its main internal customer - the manufacturing department. The first set-up would make purchasing more concerned about total corporate needs and profitability, while the second would make it more sensitive to the requirements of its main internal client.


The most blatant and repulsive anti-quality policies can be found in sales and production management. These are, in increasing order of gravity:

{ Maintaining rework operations.

{ Downgrading defects, minor or major, into second class products.

{ Selling seconds or downgrades to employees.

{ Selling seconds or downgrades to the public.

It may not be possible to dismantle these policies right away for those just starting on TQM. But to recognize these as anti-quality in nature is a first bold step in reviewing and gradually revoking these.

These policies definitely elicit anti-quality employee behavior and attitudes such as:

{ Why will I do my work right the first time when the company pays somebody else to check and repair my mistakes?

{ Why will I prevent defects when the company can sell these as seconds anyway?

{ Why will I prevent defects when I can buy these myself later at a big discount?

Downgrades and rework policies are most common, pervasive, and tempting in process industries - paper, plastic, rubber, metal - where materials of defects are easily remelted and mixed with virgin material. But such policies also exist in manufactured and assembled products like semiconductors and home appliances. Downgrades may come in two forms:

{ Downgrades are sold with the same brand name as first class products but at a discount.

{ Downgrades are sold with a different brand name, but cheaper than first class.

Customers may shift to the downgrades since they are cheaper, and an artificial demand is created. Thus a defect becomes a "new product line" with its own production and sales plan, and budgets! Of course, product and company image eventually deteriorates as the market becomes confused with company products, first class and downgrades, bearing the same logo and brand name, sold at different prices for no apparent reason. Production planning of first class products becomes chaotic since seconds unpredictably come from first class defects and use first class materials.

The main reason for downgrades and rework is financial in nature. The company thinks that rather than scrap defects, it is cheaper to rework them and/or sell them as downgrades at a discount. Management also thinks it is doing its employees a favor by giving them first priority in buying the defects they themselves produced. These policies backfire and the company incur more costs since defects are not investigated and prevented. Worse, defects are encouraged and rewarded -- with employee discounts. The biggest toll is the deterioration of company image and employee behavior.


Quality guru, Dr. Deming, said that 80% of quality problems is caused by management, and 20% by employees. Bad quality comes from bad management, not bad employees. Bad management means bad leadership and bad policies. No employee is by nature bad; his work is his livelihood, and he knows he must do his job right and follow the rules to keep it. Essentially, it is the environment, the rules, the tools, the training, and the support management provides or does not provide that make him commit mistakes. This belief is fundamental to the understanding of TQM. Companies which are not ready and willing to take full management responsibility for all quality problems should not go into TQM.


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