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Implementation of Social Responsibility:


Improving the Quality of Life for Humanity
2014 BES Business Excellence Solutions, Ltd. 1
Gregory H. Watson
Management Seminar
China (Shanghai)
Pilot Free Trade Zone
24 July 2014
Implementation of Social Responsibility:
Improving the Quality of Life for Humanity
Module 1: Understanding how Corporate Social Responsibility
Relates to the Obligations of Organizations

Module 2: Implementing the Principles of Social Responsibility
Using the Methods of Quality Management

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IMPLEMENTING THE PRINCIPLES OF SOCIAL RESPONSIBILITY
USING THE METHODS OF QUALITY MANAGEMENT
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Part 2:
IMPLEMENTATION OF SOCIAL RESPONSIBILITY:
IMPROVING THE QUALITY OF LIFE FOR HUMANITY
Corporate culture and corporate responsibility merge!
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Laozi or Lao Tzu []
Zhou Dynasty [6
th
Century BCE)
These two together merge; they have different names yet
theyre called the same; that which is even more profound than
the profound the gateway of all subtleties.

Lao-Tzu
Te-Tao Ching, Chapter 1
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What challenge? Economic growth or development?
What do organizations need: growth or development? Russell
Ackoff described the difference between these ideas this way:
Growth: increasing more of what is already existing.
Development: changing the state of what already exists.

Should organizations focus just on their financial or bottom
line performance or should they expand to consider what is
called the quadruple bottom line of the economic, social,
environmental and spiritual aspects of doing business. If this
change is made then how would an organizations financial
accounting and work performance measurement systems be
required to change? The spiritual component focuses self-
fulfillment of individuals, not on religious aspects of belief.

More specifically: How should a Chinese organization prepare
itself to become a leading global brand? What must change in
their fundamental CSR policy and activities to gain this level?
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Concept of a social contract
The idea of the social contract originated in the so-called
Age of Enlightenment and it was expressed by such diverse
philosophers such as Britains John Locke (1689) and Frances
Jean-Jacques Rousseau (1762). The idea describes a balance
between the rights of the society and the rights of individuals
as well as the question of the authority of the state over the
individual. From a legal perspective, the rights of people have
been assigned to corporations and they act as an accountable
entity in society just as individuals do.
What is the purpose of granting such a charter to businesses?
Achieving the greatest prosperity or greatest good for society!
Question to consider: Under what circumstances does either a
corporation or an individual participate in society to achieve
mutual benefit through coordinated activities that results in
the achievement of this greatest good?
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Concept of prosperity proposed by Frederick Taylor:
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.

.

One of the dangers to be guarded against, when the pay of a man or
woman is made in any way to depend upon the quantity of the work
done, is that in the effort to increase the quantity the quality is apt
to deteriorate.
The system must be first.
But, you cannot inspect quality into products!
Frederick Winslow Taylor (1856-1915)
Founder of Scientific Management

Principles of Scientific Management (1911)
Efficiency in business delivers a fair deal to employees:
1. Need for clearly defined objectives with delegation of authority
2. Application of common sense to define principles of management
3. Competent counsel to challenge ways of thinking and working
4. Self-executing discipline must be created with esprit de corps
5. Need for equity in working assignments and tasking (fair deal)
6. Reliable, immediate, and adequate work records are required
7. The flow of work must be controlled
8. Establish rational work schedules and standards
9. Need to control the performance of working processes
10. Requirement of a systematic approach to standard operations
11. Necessity of written standard practice instructions
12. Management must provide recognition for efficient performance
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Harrington Emerson (1853-1931)
Engineering Consultant
Twelve Principles of Efficiency (1908)

Was the first to raise questions regarding the efficiency and
productivity of large scale operations (1908).
Developed twelve principles of operating efficiency to
systematize the lessons learned throughout the industrial
revolution:
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Henry Fords definition of prosperity:
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Thinking men know that work is the salvation of the race, morally, physically,
socially. Work does more than get us our living: it gets us our life.
Since the public makes a business, the primary obligation of business is to the
public. Those who work for and with the business are part of this public. An
this settles on the fundamental corporate policy to whom shall the benefits of
improvements accrue?
A business cannot serve both the public and money power.
A business that does not make a profit for the buyer of a commodity, as well as
for the seller is not a good business.
The test of the service of a corporation is in how far its benefits are passed on
to the consumer.
The essential law of prosperity . . . we can make prosperity continuous and
universal.
Men must be led into prosperity.
Henry Ford (1863-1943)
Founder of Ford Motor Company
Today and Tomorrow (1926)
The wisdom of Russian dissident Alexander Ilyin:
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Scrutinize the history of Russia, the fate of its people, ponder upon its
wreck and humiliation and you will see, that all its basic difficulties came
from an over-emphasis on volume and quantity.

We trust and are confident that the hour will come when Russia will rise
from disintegration and humiliation and begin an epoch of new
development and greatness. But it will revive and blossom only after the
Russian people understand that they must search for salvation in quality.
Ivan Aleksandrovich Ilyin (1993-1954)
Russian Dissident Philosopher

Essay: Salvation through Quality (1928)
Translated by: Gregory H. Watson
Quality is the outcome of a cooperative social system!
Productivity and capacity are false measures of value!
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What is the meaning of freedom for the greatest good?
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Ama-gi (2350 B.C.) an historical imperative for mankind:

The Sumerian cuneiform that means a return to mother and
expresses the idea of freedom that occurs from the process
of reform. It is the earliest concept related to quality.

Freedom from waste, loss, bigotry, abuse, hunger, debt, fear,
defects, failure all of the negatives in lifes experience which
destroy the quality in the lives of all humanity.

Mankind must cooperate in order to achieve this quality level!
Considering quality as a common global value
Quality is socially responsible: mankind must not squander the
worlds scarce resources by consuming them poorly. In the end,
quality outcomes generate economic value!
Economic freedom is an essential ingredient of democracy. What is
this freedom? A form of equality establishing characteristics that
are equal in terms of quality or value.
But we must view quality beyond the micro-economic requirements
of one business. Quality is an obligation of social responsibility.
The idea of quality for prosperity is a macro-economic application
of quality thinking and doing so that it can become a cultural way
of being that applies to society as a whole.
To achieve macro-economic quality, the whole of a society must
embrace this way of quality; prosperity must become the objective
for all mankind through a pursuit of quality!
Ilyin was right: mankinds salvation is through quality!
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What do most organizations believe that CSR involves?
Related international standards and business guidelines:
ISO45001/OHSAS18001 Occupational Safety and Health
ISO14000 Environmental Management
ISO26000/SA8000 Social Accountability
United Nations Global Compact Moral Imperatives

However:
There is no global agreement on the specific content of CSR elements
Minimum international agreement CSR company makes safe, quality
products; while others add:
Secure employment for employees
Corporate philanthropy and charitable projects
Positive contribution to social needs (e.g., health care and education)
Fair trade and labor practices
Creating Shared Value (CSV) corporate success and social welfare will
operate in an interdependent manner (e.g., the triple bottom line of
profit, people and planet)
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So, what is CSR and how can it be managed for quality?
Corporate Social Responsibility (CSR) became popular in the 1960s
and has remained a term that is used (often in a very indiscriminate
manner) to describe the set of legal and moral responsibilities that
have been assumed by an organizations. CSR has been added to the
mission statements of organizations to describe what the company
believes in and what it will support regarding social, environmental
and human aspects of its citizenship in exercising its social contract.

CSR is a self-regulated element in an organizations business model
and acts as the corporate conscience which may also be stated as a
governing policy to define the expectations that stakeholders may
reasonably anticipate that the organization will embrace as its agreed
responsibility for community social action and how it will encourage
positive impact through its activities on the environment, consumers,
employees, and the local communities in which it operates.
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How could Chinese companies design CSR systems?
China Quality Outline encourages development of global brands
by leading members of Chinese industry.
However, this requires development of organizations that have
an ability to operate effectively in the global marketplace which
in turn requires that these organizations become aligned with
all global systems especially those related to brand identity
and reputation. This particular imperative means that Chinese
leading companies must translate their cultures from the view
of being excellent in China to being excellent globally.
Such a transition will require development of global social
systems that are more compatible with the value systems that
are prevalent within the major world markets.
This objective may be accomplished by an imaginative or
creative extension of an organizations system of managing for
quality as defined by its regional customers in terms of their
respected and desired value propositions.
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How to develop a best practice global CSR system?
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Developing a CSR system is secondary to developing the core business.
It is essential that a business operate effectively and efficiently and that
it delivers an economic benefit that allows it to sustain its operation (or
deliver strength in the long-term). Thus, profitability is a pre-condition
for an effective CSR system.
CSR contributes to increasing competitiveness of an organization that is
already competitive and is now seeking to achieve an enhanced level
of excellence by becoming the best of the best within its industry.
Basic CSR mitigates various risk elements and the operational impact
that they generate and supports the organizations relationships with
its external partners, customers, and governmental authorities.
Advanced CSR increases the value of organizations by developing the
human capital of the organization relative to society and integrating
the business into the local and global communities where it operates.
Thus, CSR implements the long-term organization strategy and it must
become a planned aspect of the corporate development program.

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What is the strategic value of CSR for organizations?
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Environmental
Analysis
Strategic
Plan
Customer
Expectations
Investor
Expectations
Strategic
Benchmarking
Operational
Plans
- Strategic Intent
- Core Competence
- Process Capability
- Product Line
- Strategic Alliances
- Technology Portfolio
Organization
- Strategic Intent
- Core Competence
- Process Capability
- Product Line
- Strategic Alliances
- Technology Portfolio
Competitor
Operational
Benchmarking
Situational Awareness
Long-Term Sensemaking
Short-Term Sensemaking
The obligation of management is
to deliver profit in the short-term
and strength in the long-term. This
requires elimination of waste and
increasing efficiency in the short
term and building organizational
competence and capability in the
long-term.

Each of these perspectives has a
different challenge for reducing
waste and potential for loss in the
organization.
Head-to-Head
Comparison
Search for Competitive Advantage
Advantage by positioning,
technology, or policy
Waste elimination and
efficiency improvement.
Advantage in productive value
through efficiency, effectiveness,
or economics.
What is a natural sequence to expand CSR values?
Most organizations that have been in business for some time
already possess the foundation of a CSR system the base is an
ISO9000 approach to quality management. However, the
ISO9000 standard does not specify what an organization must
do to operate it only identifies areas to address in which the
organization must develop the content of its specific practices.
Likewise, mature organizations have already implemented their
safety and product quality methods to reduce risk of injury to
workers and to increase the probability to make good products
for their customers. These items represent the core aspects
of a comprehensive risk management system for a business.
After this base has been developed, then management must
define what will be their next step to advance performance.
Developing a mature, value-enhancing CSR system means that
senior managers must identify topics will increase the value of
their business model and a sequence in which to address them.
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Corporate Social Responsibility System Architecture:
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B
r
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d

A
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n
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s
s

B
r
a
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R
e
p
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t
a
t
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B
r
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L
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a
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t
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Basic
CSR
Advanced
CSR
Level 1: Risk Management
Level 2: Social Alignment
Level 3: Corporate Philanthropy
Level 4: Value Creation
Social Responsibility Framework
International and National Laws, Regulations and Guidelines
Level 1: CSR as Risk Management
Quality Management System
Environmental Management System
Safety Management System
Occupational Health Management System
Supplier Management System
Customer Experience Management System
Business Risk Management System
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The initial focus for development of a CSR System must
be placed upon the tangible quality aspects of product
and service quality. This first level serves as a foundation
for CSR and must be designed to fit an organizations
culture. The second level will round out the basic CSR
competence by aligning CSR to the locality in which it
operates.
Theme: doing what is required and doing it well
Components of the
Risk Management
System
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Establishing a foundation for responsible action:*
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ISO9000 Quality Management
ISO3100 Risk Management
ISO14000 and EMAS - Environmental Management
OHSAS18001 and ISO45001 Occupational Safety and Health
ISO/IEC27000 Information Technology Security
ISO26000 and SA8000 Social Accountability
* Note that these steps are illustrative and not prescriptive.
Specifically, they do not imply a recommended sequence
for implementation of these standard and systems.
Color Code:
Third-Party certification is available.
Third-Party certification is not available.
Note that in most
Western companies
the certification need
is a choice by the top
management. Most
organizations focus
only on achieving
voluntary standard
compliance.
Build core flexibility into the system; not core rigidity!
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* Leonard-Barton, D. A. (1992), Core Capabilities and Core Rigidities, Strategic Management Journal, 13, pp. 111-125.
Harvard professor Dorothy A. Leonard has described a circumstance
whereby traditional sources of the core capabilities of a firm (e.g.,
technical systems, personnel skills and human competence, and
organizational management systems) create a dysfunctional state
that she calls core rigidity a condition where the organizations
innovation becomes restricted by a state of inertia that is induced
by inflexibility in the design of its organizational components.
To overcome this situation, flexibility must be consciously designed
into the infrastructure of the organizational values and norms that
define the CSR system. Such systems invoke essential behavioral
characteristics of social systems through engagement of motivations
of individuals thereby persuading people to align their personal
energy and commitment to the organizations strategic direction.
This distinct core CSR capability responds to externalities in flexible
ways by linking psychological factors with external dynamics needed
for organizations to response to changing market circumstances in
all dimensions: legislative, regulatory, economic, competitive and
technical all which can increase risks to the organizations business
model.
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Level 2: CSR as Social Alignment
Providing benefits to employees that are beyond
the legally required social benefits.
Expanding education and training to development
of community feeder systems for key employee
skills and capabilities that are required for future
development of the corporation
Development of community infrastructure that
will also support targeted objectives for corporate
development for future infrastructure (e.g., roads,
IT system access, etc.)

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The focus for development of the second level in a CSR
System is upon the integration of social systems that are
beyond the level that is required by common practice or
law. This second level completes the basic components
of a CSR system by aligning it with the locality in which it
operates.
Theme: doing more than what is required
Components of the
Social Alignment
System
Level 3: CSR as Corporate Philanthropy
In this level focus of CSR activity shifts to more intangible
areas of outreach beginning with the building of external
relationships with organizations that are close to home.
Organizations will typically choose a vital few of the
philanthropic causes to develop innovative relationships
based on alignment with its strategic intent and future
direction.
Local community social outreach and support
Local charity and social engagement
CSR enables corporate brand development
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Components of
Corporate
Philanthropy
Development of a third level CSR System concentrates
on the generosity in financial donations for the good of
the local society. This level initiates the outreach efforts
of an organization by making financial donations to the
local charities or encouraging employees to participate
in the projects of these charitable groups. Emphasis is on
local beneficiaries that contribute to the community.
Theme: giving back to society from financial benefits
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Level 4: CSR as Value Creation
Commitment is directed by the Board of Directors of
the corporation and is included in strategic planning
of the organization.
Development of a global leadership position occurs
through a formal philanthropic foundation which is a
participant in the organizations budgeting process
and acts as a vehicle for concentrating on external
outreach on a global basis.
At this level the corporation is an active participant in
global activities (e.g., World Economic Forum, United
Nations Global Contract, etc.).

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The focus for development of the highest level of a CSR
System is on value creation by leveraging investment to
differentiate a corporation from its competitors by its
approach to the pursuit of corporate responsibility. This
creates a competitive advantage by building brand value
through CSR: an action-based commitment to pursue its
responsibilities in the world for the benefit of humanity.
Theme: doing well by doing good
Components of the
Value Creation
System
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Big Q Strategic Quality Little Q Operational Quality
Culture (Company)
Vision, Mission and Values
Policy and Philosophy
Competition (Business Learning)
Innovation
Leverage
Benchmarking
Change (Renewal)
Strategic
Operational
Cascade (Alignment)
Improvement Projects
Objectives and Targets
Measures
Communication (Awareness)
Message
Media
Competence (People)
Individual and team development
Training/development program
Capability (Process)
Daily process management
Data bases and analytic software
Compliance (Product)
Quality management system
Performance agreements
Certification (Standardization)
System certifications/standards
Functional certifications/standards
Industry certifications/standards
Conformity (Learning)
Business and operational reviews
Correction (Repair & Improvement)
Corrective / Preventive Actions
Business Excellence in Corporate Culture Operations Excellence in Local Culture
How can CSR become embedded into work processes?
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Key Point: The global system becomes the local system!
There is a need for diversity in culture as an organization
expands from its initial national base to become a global
competitor.

However, your international customers anticipate that an
infrastructure will be consistent across all interactions and
engagements on a global basis.

Therefore, your global system devolves into a local system!

This presents a problem in terms of how to align the way
organizations operate in alignment with the diversity of
cultures at the local level when they conflict with a global
cultural framework for the corporation!
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Establish a Common Purpose
Build Shared Objectives
Lead the Local Action
Evaluate Results and Process
C
o
n
t
i
n
u
a
l

I
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p
r
o
v
e
m
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n
t

Develop an Integrated Plan
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So, how to develop a universal process of managing? *
* Hewlett-Packard Corporate Quality, The Process of Management, 1987.
The Process of Management (POM) is
distinct from content or work that
the people manage.

This process applies PDCA (Plan-Do-
Check-Act) continual improvement to
the tasks of management. Content is
a set of actions and issues that flow
through this sequence of activities.

Thus, management has two aspects:
one related to content or the what
that is managed and another related
to the process by which this content
is defined, developed, deployed and
monitored to generate a state of the
continual improvement for the whole
organization.
Adapted from Hewlett-Packard
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Competitiveness emanates from process and content!
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Quality is required in both the content of deliverable as well as
in the delivery process itself.
The content that is





delivered to customers.
The process for delivering content to customers.
We often use the word quality to refer to the attributes of a
product (its content) as well as the methods by which these
attributes are produced (the process).
Quality outcomes what is known about quality:
30 2014 BES Business Excellence Solutions, Ltd.
Theory of Attractive Quality Noriaki Kanos Mental Model:
Degree of Performance
Customer Satisfaction
High
High
Low
Low
Indifferent Feeling
Indifferent
Function
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Quality processes discovering and delivering quality:
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Quality Journey


What the
Customer
Wants
What the
Customer
is Promised
What the
Customer
Gets
Design Gap Conformity Gap
Customer
Entitlement
Customer
Expectation
The basis
for Customer
Perception
Quality Loss
Excellence
Reliability
by Design
Quality by
Management
Creative
Ideas
Implementation
in Practice
Quality Design Process Gregory H. Watsons Mental Model:
Customer Feedback
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Raw Aptitude
Skills
Knowledge
ABILITY

Customer Requirements
CAPACITY
Resource Limited
Constraints (Cp)
CAPABILITY
Entropy ( d Cpk)
Actual Achieved (Cpk)
Targeted Capability (Cpm)

Continual Improvement Loop
(+ d Cpk)
Human Competence

+ Experience
MASTERY
Experience will
either increase or
degrade the
process capability

Organizations purchase capacity!
Organizations develop competence!
Social systems develop capability from inherent ability:
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What is waste?
Waste is any activity that adds cost or time, and does not add value or that
increases risk to employees through hazardous work conditions.
Japanese quality uses three words to describe waste:
Muri (): No waste from bad thinking irrational waste.
This type of waste arises from poor decision-making.

Mura (): No waste from unbalanced working flow waste.
This type of waste arises from poor integration.

Muda (): No waste in work discipline process waste.
This type of waste arises from poor operations.
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Each of these wastes may occur at any level of an organization!
Waste of all resources represents poor management responsibility!
How does management create systemic waste?
Management decisions are constrained by a bounded level
of rationality as all decisions are subject to three issues:
Ability of the manager to make the decision (competence)
Integrity of the data to properly describe the observation (the
cost of bad data is the illusion of knowledge Steven Hawking).
Timing urgency or rapidity with which decisions must be made.
Problematic decisions about mergers and acquisitions, capital
equipment investments, organization design or restructuring,
product commercialization, operations expense management,
or personnel development and promotion can all be classified
as muri waste (irrational) which may cause the business
system to flow unevenly (mura waste) and also create the
various categories of totally useless waste within all the
operating areas of the organization (muda waste).
Thus, management can be a stimulus by which organizations
create waste in all of its forms!
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Financial measures distort operational decisions:
Management decisions must support setting expectations for
financial performance to satisfy organizational investors.
However, distortion in understanding the drivers of operating
performance occurs when we attempt to convert production
units into financial units this is because financial values are
based on an uncontrollable :customer willingness to pay or
an external reality of market value, rather than the internal
value that attempts to achieve cost payback and achieve the
profitability targets of the investors.
Product pricing is based on estimates of standard costs the
average cost (therefore a central tendency or expected cost
for production and service delivery) and ignore the variation
that occurs in the components of cost.
Distortion also occurs due to a fundamental misunderstanding
of the concept of quality costs as taught in business schools.
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Uncommon wisdom about the Quality-Cost trade-off:
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The Common Wisdom of quality cost: Quality Investments result in diminishing
returns where further increases in quality are off-set by additional cost of achieving
this quality performance. After this point an economic trade-off must be made to
achieve additional quality performance by compromising with higher product cost.
Defect Rate
Cost of Control
Point of Diminishing
Economic Returns
from
Quality Investments
Failures Cost
99% Good = 4s
Timeline of Improvement and Investment
The model was created in the 1950s to describe the relationship between quality
and costs. The failures identified are defects that escape to end customers while
the costs account for increasing the number of inspectors to sort out defects!
Where did this model
originate and how was
this improvement level
achieved? Does it still
hold true in operations
today?
What do you think?
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Weaknesses in standard cost accounting:
Standard cost accounting bases price calculations on the average
costs of work performed to produce a fixed volume of units. This
standard cost accounting methodology divides cost into two
categories: fixed and variable costs which are further divided
into direct and indirect costs. Actual expenses are allocated by a
system that assigns indirect costs to direct costs (loading costs)
so that all costs can be absorbed into the financial structure and
are supportive of the pricing process. When evaluating benefits
of capital equipment purchased an equipment utilization factor
is calculated to check the value of parts produced compared to
the cost to see if the investment is being fully absorbed into the
pricing. This accounting approach has a distorting influence on
the outcome as it encourages production of inventory to assure
that the capital payback for an individual asset is optimized, even
if production of unrequired units occurs and it must be held in
inventory and not contribute to immediate revenue generation.
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How does cost change as muri and mura are reduced?
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Apply the principles of activity-based costing to understand transaction costs.
Quality improvement is achieved not by adding inspectors, whose work is not very
efficient, but by improving the process to eliminate the root cause(s) of poor quality,
so problems are permanently resolved and work is standardized on best practice so
that mistakes are not replicated in the next generation of new products.
Defect Rate
Process Costs
Cost of Quality:

Failure analysis
Scrap
Rework
100% sorting
Re-inspection
Re-test
Warranty
Downgrading
Allowances
Overtime
Expediting
Inventory
Cost of Prevention:

Process control
Training
Inspection
Testing
Audits
Redesign
Automation
Failures Cost
Timeline of Improvement and Investment
Process costs actually decrease
as quality improves!
4s
5s
6s
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Remember that costs are an artificial results indicator!
Production processes produce units which are assigned value based
on accounting rules. Value of these goods changes as the market
perception changes (e.g., depreciation) so that the decision made at
one point of time to produce goods with a certain value will appear
to be a bad decision when its market value is diminished in the
future. While we produce units we value them monetarily.
Because the value of goods is dependent on market conditions, it is
necessary for judgments about process costing to be based on the
lowest total cost of operations (both internal for the company and
external at suppliers and customers) because estimates of beneficial
value are subject to market variability and are out of the control of
internal managers. The public must be willing to pay the price! We
only produce things we assign value to things to get cost. Value is
what changes as a function of customer perception!
Thus, no matter how a process is designed, it must be implemented
with minimal waste in all circumstances! What happens as process
waste is eliminated as expressed by activity costs? Value increases!
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How effective and efficient are our improvement tools?
The most important quality methods for CSR relate to the set of
strategic quality management practices:
Hoshin Kanri Strategic direction setting and implementation
Business Excellence Management process self-assessment
Strategic Benchmarking Discovering better ways to work
Performance Measurement Integrated measurement system
Strategy Management Search and decision-making for change
Change Management Designing and implementing change
Business Review Reviewing operational performance results
Structural Design Managing the structure of the organization
Resource Management Managing efficient use of all resources

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Which quality methods and tools apply to competitive CSR?
Taking a systems approach to managerial engineering of the business!
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How will quality develop in the future?
Impact of Technology:
Cloud computing, data mining, and automated control systems will
drive changes in the way we apply the methods of quality and also
how we coordinate and collaborate to solve universal problems.
Impact of Culture:
Shifting political realities will create a more diverse culture around
quality where emphasis will be on the science of quality and its
theoretical basis rather than emulating a particular national culture.
Impact of Crisis:
Foreseeable economic and environmental crisis will affect all global
societies and require collaborative actions on behalf of humanity
to resolve root causes, rather than the nationalistic, self-centered
way to deal with such issues as characterizes current approaches.
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The Challenge: Increase quality (process) in social institutions to assure
superior quality of life (content) for all people (customers).
2014 BES Business Excellence Solutions, Ltd. 42
Thank you! Any questions?

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