Chapter 24: Quality

Quality is those features of a product or service that allows it to satisfy (or delight) customers.

 

Benefits of having a quality system:

A Quality System is the approach used by an organisation to achieve quality. Most quality systems can be classified as either quality control or quality assurance.

1. Impact on sales volume

• If the product/service meets customer needs --> Demand would increase --> Enable the business to increase the level of its profits.
• People become richer --> Desire for high quality goods increase rapidly --> Because of less constrained by level of income.

2. Creating a USP

• Not achievable for all businesses, especially those trying to keep costs low
• Can use quality as a USP --> To increase demand.
• E.g. Often there is an 8-week waiting list for weekend bookings for afternoon tea at the Ritz Hotel in London. Potential customers see service as unique, a mix of:
• Tangible quality --> High quality of products and services provided.
• Intangible quality --> Image linked to the name of the hotel.
• The uniqueness of the service increases customers' desire to enjoy it, ensuring regular and high demand.

3. Impact on Selling Price

• Quality as a USP encourages consumers to pay a higher price for products/services.
• E.g. Food prices in M&S is higher than other supermarkets.
• Customers are willing to pay a higher price for better quality.
• Increases profit margins
• Note: Better quality materials and production needed to achieve high quality products.
• Quality as a USP is common in niche markets e.g. Harrods or Hotel Chocolat
• Greater perception of quality --> The higher the selling price the firm can charge
• E.g. Afternoon tea at the Ritz costs £36 pp.

4. Pricing Flexibility

• Reputation for quality gives business ability to be more flexible in its pricing.
• E.g. British airways charges higher prices to customers who value quality of service on flights. They also have flexibility to offer discounted prices in order to fill planes where necessary - the high price paid by customers would have already guaranteed the firm a profit.

5. Cost reductions

• It is costly to implement a quality system but can reduce business costs.
• No wastage of faulty goods or possible recall of many products already sold --> Expensive Process
• Costs of reworking products in a faulty manner or waste of materials.

6. The firm's reputation

• No quality system = Costly to business reputation.
• E.g. 2006 - Cadbury's reputation was damaged by negative publicity --> Salmonella scare and faulty labelling of products.
• Customers remember unfavourable publicity
• Good quality system --> Prevent problems --> Help business avoid any damage to reputation 

Issues involved in introducing and managing a quality system:

1. Costs

• Administrative expense to set up
• Continual monitoring of production, materials and processes
• For an overall assessment of the value of a quality system --> Costs compared with financial benefits arising from high quality achieved EXCEED costs incurred to achieve it.

2. Training

• Quality assurance relies on a well-trained workforce who can understand and implement the quality system.
• Training is quite expensive
• Create cultural changes e.g. more consultative style of management and greater willingness to give responsibility to workers.

3. Disruption to production

• Short-run -Training programme disruptive to existing production methods.
• Training --> Staff will be taken off the current production line to undergo training.
• This would short term damage quality and quantity of production.
• After training complete --> Further disruption --> Workforce, managers and suppliers must adapt to new systems of quality.
• During this period, mistakes are more likely to happen + danger of company's reputation for quality may suffer.
• Yet once new system established --> Problems should disappear.

Quality Control

Quality Control: A system that uses inspection as a way of finding any faults in the good or service being provided.

- This is where there is inspection at the end (with the end product)

- Firms have now moved on from quality control onto quality assurance.



Quality Assurance

Quality assurance is a system that aims to achieve or improve quality by organising every process to get the product 'right first time' and prevent mistakes ever happening.

 This involves self-checking, concentrating on the process of production.

Benefits of Quality Assurance:

• Ownership of the product rests with the workers, giving them greater responsibility.
• Herzberg argues that there are positive effects on motivation because of this sense of ownership and recognition of the worker's responsibility.
• Costs are reduced because there is less waste and less need for reworking of faulty products.
• With all staff responsible for quality, there should be a higher and more consistent level of quality, which can lead to marketing advantages for the firm.

The problems are the same: Cost, training and disruption to production.

Total Quality Management (TQM)

It is the most widely recognised quality assurance system.

Total Quality Management is a culture of quality that involves all employees of a firm.

It is based on the philosophy of 'right first time'.

Kaizen

Kaizen is a policy of implementing SMALL, incremental CHANGES in order to achieve better quality and/or greater efficiency.

Focussed on making 'continual improvement'.

Quality Standards

Quality Standard: A set of criteria for quality established by an organisation. The standard also requires an organisation to have systems for implementing and monitoring its standards.

BS 5750: A British standards award granted to organisations that possess quality assurance systems that meet the standards set.

ISO 9001: The international standard of quality assurance that is equivalent to BS 5750.

The benefits of these awards are:
- Marketing advantages from the acknowledgement of higher quality standards
- Assurance to customers that products meet certain standards
- Greater employee motivation from the sense of responsibility and recognition
- Financial benefits in the long term (due to elimination of waste and improved reputation of firm).

Quality Summary:

Chapter 22: Developing and retaining an effective workforce: Motivating Employees

Motivation: The causes of people's actions - why people behave as they do.

Motivation Theory: The study of factors that influence the behaviour of people in the workplace.

Scientific Management: Business decision making based on data that are researched and tested quantitatively in order to improve the efficiency of an organisation.

Links between Maslow and Hertzberg

Intrinsic Rewards
Rewards that come from the job itself
e.g. responsibility, achievement of tasks etc...
Hertzberg's motivators and Maslow's esteem and self-actualisation

Extrinsic Rewards
Rewards that DO NOT come from the job itself but by means of association.
e.g. Working conditions, fringe benefits, making friends etc...
Hertzberg's hygiene factors and Maslow's physiological, safety and social needs.

Random question:
Q: What is Appraisal?
A: Appraisal is the meeting of an employer and an employee to discuss targets, issues, achievements and work.

Financial and Non-financial Motivators

Financial Methods

1. Time Rates
- Wage or a salary
- Safety need in Maslow's Hierarchy of needs.
- Paid according to input rather than output
- Motivation to work not guaranteed

2. Piece-work (Payment based on the number of items each worker produces)
- Refers to Taylor's theory
- Payment according to output
- Designed as an incentive to work harder
- Could sacrifice quality for quantity
- Costs could increase through carelessness, waste and reduced quality
- A firms output may be heavily influenced by worker's needs rather than customer demand. Output tends to increase at Christmas and summer holidays.
- Only movement not motivation (as shown by Herzberg)

3. Performance-related Pay (A bonus or increase in salary usually awarded for above-average employee performance)
- An overall increase in salary or a bonus given for performance above expectations.

4. Profit Sharing (A financial incentive in which a proportion of a firm's profit is divided among its employees in the form of a bonus paid in addition to an employee's salary)
- Basing employee's rewards on the performance of the company.

5. Share Ownership
Companies give shares to their employees or sell them at favourable rates below the market price.
- Used to encourage employees to identify more directly with company objectives, recognising that their rewards - share value and dividends - are dependant on company performance.

6. Share Options
A financial incentive in which chief executives and senior managers are given the choice of buying a fixed number of shares at a fixed price, by a given date.
- Are believed to provide senior management with the incentive to perform at their very best.
- Some people believe they it would only be short-term until the share option is due, in order to make a profit from the sale of shares. It is not long-term focussed.
- Unfair as excessive financial rewards given to senior managers when the workforce may deserve just as much credit as the directors.

7. Fringe Benefits
Benefits received by employees in addition to their wages or salary.
e.g. discounts when buying the firm's products, a company car or a company pension scheme.
- Encourages staff loyalty and commitment
- Reduces labour turnover


Non-financial methods of Motivation

1. Job enrichment
A means of giving employees greater RESPONSIBILITY and offering them CHALLENGES that allow them to utilise their skills fully.

- Herzberg suggested only job enrichment is likely to provide long-term job satisfaction.
- Enriched jobs introduce new and more difficult tasks and challenges at different ability levels.
- An enriched job involves a complete task which is meaningful rather than a repetitive part of a larger process - said by Taylor.
- Regular feedback on performance so employee is aware of how well they are performing.
- Increase accountability of individual for his/her own work (e.g. Lush)

2. Job enlargement
Increasing the SCOPE of a job, either by job enrichment or by job rotation.
- Gives: more recognition, improves promotional prospects and job achievement in themselves.
- If not used carefully --> Demoralise workforce by giving excessive workloads.

Job enrichment is where the job is expanded vertically (vertical extension) by giving workers more responsibility.

Job rotation is where the job is expanded horizontally (horizontal extension) - giving workers more tasks but the same level of responsibility.

Job Rotation
- Systematic programme of witching jobs
- Greater variety
- Varied work but same level of challenge.

Advantages of Job Rotation:

• Relieve boredom
• Useful if 1 person is absent --> Others can cover job without difficulty
• More motivated --> Wider range of skills + be more flexible
• Greater sense of participation in production process.

Disadvantages of Job Rotation:

• Retraining cost Increase
• Decrease in output due to less specialisation
• Could be seen as involving greater number of boring tasks, but lacking in social benefits of working as groups constantly change.

3. Empowering Employees
Empowerment is = giving employees the means by which they can exercise power over their working lives.
- The freedom to decide what to do and how to do it.
- Achieved through informal systems or formals systems of autonomous work groups
         --> These provide workers with autonomy and decision-making powers, and aim to increase motivation while improving flexibility and quality- adding value to the organisation.

Empowerment involves:

• Recognising workers who are capable of doing more
• Make workers feel trusted, confident in their jobs and make decisions without supervision
• Recognise workers' achievements
• Create an environment where workers wish to contribute and be involved.

3. Teamworking
Teamworking is = A system where production is organised into LARGE UNITS OF WORK and a GROUP of employees work together in order to meet shared objectives.
- By using Teamworking, an organisation gets a more motivated, flexible workforce that can cover absences more easily.
- Used with job rotation/job enrichment and decision-making --> Team work can enhance motivation and relieve boredom. 
- Teamworking can be linked to Mayo (group norms) and Maslow (Social Needs)


Links between organisational structure and the motivational techniques available to managers

1. Flat organisation

- With wide span of control
- Effective delegation could empower employees by giving them more autonomy an responsibility --> Improving Motivation

- Recognition (Mayo and love and belonging needs)
- Profit Sharing?

2. Tall organisation
- Good communication is crucial in maintaining high levels of motivation
Solution: Vertical meetings, teamwork/cross jobs

Lines of Accountability
Must be clear --> Easier to recognise achievement --> To reward this -->Improved Motivation.

Communication
- Employees feel valued and important part of the organisation
- Raises morale
- Regular feedback on employee performance is needed
- Good communication is likely to mean that employees are praised for their efforts --> Maslow (Esteem needs) --> Improve motivation.
- Also good communication can help to make employees feel involved and meet their social needs (Maslow)
- Effective feedback is one of Herzberg's motivators.

Flexible working
- Allowing employees to work more flexibly
- Improved Staff motivation
- Increased productivity
- Improved client service
- Reduced absenteeism

Chapter 20: Measuring the effectiveness of the workforce

Labour Productivity

Labour productivity is a measure of the OUTPUT PER WORKER in a given TIME PERIOD.

Example 1:

 

If a factory has 76 employees and its output is 41,192 units per year, what is its labour productivity?

 

Answer:    41,192

                    76                = 542 units per employee
 

 

 



 

 

 

Labour Turnover

 

Labour turnover is the proportion of employees leaving a business over a period of time - usually a year.

 

 

 

Example 2:

 

 

 

 

 

 

 

 

 

 
 

How to calculate the average number employed:

The average number of employees can be calculated by adding the number of people at the start of the year to the number of people employed at the end of the year and divide the total by 2.

 

Leavers

All leavers are people who leave voluntary and non-voluntary. Non-voluntary leavers would include people who had been made redundant, were sacked or died. Voluntary leavers are people who chose to leave.

 

Internal Causes of Labour Turnover:

• Poor management
• Poor communication
• Poor selection procedures
• Low remuneration rates (pay)
• Monotonous jobs
• Poor working conditions
• Low motivation and morale

External Causes of Labour Turnover:

• New competition
• Higher wages elsewhere
• Better training elsewhere
• More local jobs
• More interesting jobs

 

Issues with high labour turnover:

• Increasing recruitment and selection costs (To replace staff who leave - advertising positions, conducting interviews)
• Increasing induction and training costs (So staff learn the skills needed, staff become familiar with the practices of the business)
• Costs of redesigning jobs in reaction to these rates (Making the job simpler so it is easier to replace staff)
• Reduced productivity rates (Due to skilled staff leaving and new, usually untrained staff joining the business)
• Decrease in morale among existing workers (Unsettling as there is a constant change of work colleagues)

How to improve labour turnover:

• Monitoring (Create a monitoring system that includes: Knowing how labour turnover in the company compares with the industry average, tracking trends in employee turnover over time or identifying area/departments where labour turnover is particularly high)
• Exit Interviews (Can identify problem areas in the organisation and common reasons why workers are leaving. Could discuss pay, training, career prospects or the job itself)
• Recruitment and selection (Money spent here could be regained by low labour turnover)
• Induction and training (Making the employee feel welcome in the firm)
• Reducing turnover of long-term workers (These workers have a huge amount of FIRM-SPECIFIC HUMAN CAPITAL - this is skills and knowledge directly relevant to the firm. To retain these long-term workers they could provide career progression or examine their remuneration)

But don't forget that labour turnover can allow:
- New ideas, skills, talents and enthusiasm to the labour force
- Can help a firm avoid complacency
- Prevent an over-reliance on tried and tested ways of working, making it inflexible in response to changes in its environment
- A business can reduce its workforce slowly without having to resort to redundancies - this is called NATURAL WASTAGE.


Absenteeism

Absenteeism is the proportion of employees not at work on a given day.

 

Example 3:

If 33 out of a workforce of 320 are absent on a given day, what is the absenteeism rate?

Answer:   33
               320     x 100        = 10.3%


To find the rate of absenteeism for a year:

Example 4:
 
If the total number of days that could be worked is 250 (5 days x 50 weeks), the total number of employees is 80 and the number of days lost due to absence is 600, what is the annual rate of absenteeism?
 
Answer:      600    
                80 x 250     x 100        = 3%

Causes of Absenteeism:

- Illness (Unavoidable)
- Transportation issues
- Stress
- Industrial Action (e.g. a strike)
- Avoidance of work

Problems of absenteeism:

- Absence means work has to be covered --> Extra cost of agency workers, overtime rates or extra stress put on present employees

- If new and less skilled staff have to be deployed --> Productivity decreases --> Or Quality sacrificed --> Causes dissatisfied customers --> Adversely affect the profitability of the firm.

- If work cannot be covered, deadlines may be missed.

Strategies to reduce absenteeism:

Health and Safety
Refers to the well being of staff in the workplace.


Includes factors such as:
1. Prevention of accidents with machinery
- Adequate training
- Relevant health and safety procedures adhered to.

2. Prevention of injury (e.g. repetitive strain injury)
- Design of the workplace
- Breaks
- Nature of jobs given

- Most accidents and injuries can be prevented with proper training.
- Health and safety incidents may lead to employee absence and even compensation pay-outs from the business!

Example 5:

If over a period of a year there are 250 actual working days and the number of days lost for health and safety reasons is 5, what is the rate of absenteeism due to health and safety?

Answer:      5 
                 250  x 100      = 2%