Why Quality and Innovation are Important

Why is Quality Important

5/27/2012 3:41:00 PM

- Quality is not a problem until something goes wrong, purpose of quality systems and procedures is to prevent things because cost of prevention is much lower than cure - Do it right the first time, rather than rectifying all the defects, and make sure its consistent and reliable - Minimal standard of quality we expect, basic consistency and reliability about the things we buy and about the things we use. Doesnt harm Doesnt cause problems - Govt sets regulations about the basic level of quality is Cars, has to conform Aus design rules; heres basic level of equipment has to have to operate safely and reliably on AUS roads

- The effect of market failures can be catastrophic - Not just an individual firm being affected rather the market of the whole product/ service being affected from the problem Melamine in milk in the Chinese dairy industry o Third largest dairy industry o Minganui dairy was adding products to change colour and smell better When they over did it, it caused the death of many infants due to toxic effects of the additive

Cadbury in Beijing had to cease operations

Many countries banned the milk and milk products from China o Whole dairy industry in china was affected. People, domestic and international, lost faith in the industry o The joint venture with NZ affected Fontera who didnt have quality systems in place to prevent it o It took a year to recover in china and 6 months for internationals to allow diary exports

- The effect of organizational failures can be catastrophic Pan Am and Lockerbie airlines o From 1960s to 90s, largest airline in the world o o o o It was subject to terrorism and hijacking People questioned the security of airlines 1980s it was hijacked and killed 20, injured 100 Pan Am security Institute as a preventative measure in response to consumers To costly to implement security checks that is now

normal today Didnt act on policies and implement them 1988, one plane was blown out in the sky 270 people were killed 1990 first gulf war broke out, airport security was wanted more by consumers 1991, airline went bankrupt and out of business Peoples perception of quality standards change overtime o Quality is a dynamic thing o E.g. As terrorist incidents adjusted perceptions in security of flying

Qantas o QF32, no2. Engine exploded in Indonesia o Managed to wave the issue as no one was harmed o Management or sheer luck? Enquiry into this found that if it occurred not long after take-off effects would be worse

54 Aero messages had to work through to decide

what state plane was in before they could land it 4 experienced pilots as opposed to two hence were able to work through and land the plane safely o Qantas, shares fell 9%, lost 200 million dollars and 35 million loss in revenue and 65 to fix damage o Importance of global world of managing quality Are the suppliers meeting the same standards Essentially it was a supplier to Rols Royces problem Consumers dont see it as the suppliers fault Be more likely to blame Qantas

Grounded the concord o Attire shredded off the plane, hit engine, plane exploded and hit a village outside of Paris

- Challenge for managers Dont only need to manage quality of own firm but manage all other firms who have business relationships o If they have a quality failure it will affect the firm o Customers who purchase the products from the firm Expect that firm to manage the quality - 99.9% Quality means 1 hour of unsafe drinking water per month o Some people might get a tummy upset o A major outbreak of disease (after animals fell and died in the water supply) o How many are affected depends in the time it occurred 2 unsafe aircraft landings per day 2000 lost mail items per hour 2000 incorrect drug prescriptions each year 2000 incorrect surgical procedures each year

- Social issues effect market regulation Quality standards and global warming

- 30 years ago; asbestos was no an issue; used to prevent in-house fires Had long-term health affects Quality changed overnight o Asbestos was perceived as high quality to dangerous and below minimum standards Basic minimum standards of quality change overtime and firms need to keep on top of things and keeping up with the changing social environment - Competitiveness issues effect firms Customers expectations have increased o The benchmark to what quality is higher Quality is an important competitive weapon - Practice management of Quality can improve competitive position of the firm. - Quality tools provide a guide to good management practice Quality Planning underlies innovation o Built on the back of good quality practice Problem solving tools underpin employee involvement

Best Efforts Are Not Good Enough Best efforts are essential. Unfortunately, best efforts, people charging this way and that way without the guidance of principles can do a lot of damage. Think of the chaos that would come if everyone did their best, not knowing what to do?" W Edwards Deming Underlining importance of having a system in place to understand what quality performance is like. E.g. what to do in an aircraft when the engine catches fire. Why Innovation is Important - Achieving high valuated performance

- Basis of economic growth Expand inputs labour, land, capital o Thats why Aus has innovation programs with immigration to bring in knowledgeable workers o If land is used more productively o Traditional view was doing this through warfare Napoleon became emperor because he invaded nations and bought back to France Nation depended on the loot he stole the keep administrative machinery of France running Expand innovation

- Innovation overcomes resource limitations Tokyo, most of the nation was wiped out in WW2 Expended own human capital they had to become one of the top manufactures in the world Developing individuals to make innovation and improvement in manufacturing - Technological change alone is subject to diminishing returns E.g. Electronics industry o Generations of electronic goods get shorter and shorter o Better and more advanced products come out more quickly o Dynamic and moves quickly - 10 years ago Nokia was the most popular company in terms of electronics Have been taken over by Apple and Samsung because havent kept up with technological changes o E.g. touch screen, cameras etc. o Nokias success was short lived This is the fate of most firms o Build up technology, ride its success then fall because that technology is waning

Demise of Kodak

- 1900 Sells first personal cameras Innovators of their day - 1976- held 90% of film sales and 85% of camera Sales in US - One of Top 5 Global brands GM was one and now they are in trouble Coca Cola, McDonalds etc. - 2012- Enters chapter 11 bankruptcy 6 months to restructure business. If not possible business is folded up Why: - Werent responsive to market demands and competitors Victims of own success How to prevent: - Expand brand - Change management structure -1975 - 1980 Kodak invented the first digital camera o Invented what killed their own business

Kodak executive predicts demise of film photography by 2010 o Kodak didnt listen to the consumer base switching over Could have: Failure on their part to look at the external environment Should have made a product range Transition products between film and digital to convert consumers

- Technology doesnt stand still and organisations need to be aware of that Riding the same can mean the business falls away Not many have used innovation to keep re-inventing themselves o Apple was one of the first 1990s reinvented themselves as a device company rather than computers

History, Definitions and TQM

Competitiveness

5/27/2012 3:41:00 PM

Competitiveness is the degree to which a nation can, under free and fair market conditions, produce goods and services that meet the tests of international markets, while simultaneously maintaining or expanding the real income of its citizens Presidents Commission on Industrial Competitiveness History of Quality - 40 years ago the way quality was managed was informal now formal With rising expectations quality Growth of large scale organisations that produce goods and services where we care about the quality of In the past: - Craft work Individual skilled work o Produced in small workshops with small numbers of highly skilled artisans o Before industrial revolutions, artisanal production was main source of quality Quality rested on the reputation of the master craftsman (or the region) o Would have assistance and apprentices learning that trade and people develop skill knowledge and expertise to becoming a master craftsman o Produced under the supervision of master craftsman o Look at quality of master craftsmen and the products that were produced under his supervision o Quality was a relative thing Standards of quality differed from one workshop to another Could be inferior or superior o This is why perception of high quality is classified on a regional basis at times

 o o o

E.g. best silk is in France

Best crystal is in Bohemia This is still relevant to wine e.g. Champagne is from France No absolute standards Ancient Greece 250 BC, 27 year war at Athens All shields and swords made from 25 people in a workshop, this was considered a big number 1903 Ford model 125 workers were employed to people to make cars These were hand made in the craftsmen standard Specialised crafts people working on different parts of the vehicle

Eventually organisation expended to 30 000 employees, this was difficult to manage on a personal craftsmanship basis hence a standard was set. o Things dont change very much in terms of Craftsmanship - Standardised work (Industrial scale SW System) Standardised tasks and standardised parts o They became simple and repetitive tasks o Rids of variation of how craftsmen did it o Parts- to substitute one gear box for another etc. so they are all identical Quality rests on the reputation of a brand name o More of a collective rather than the individual efforts of the craftsmen o We expect that company to have a management system in place to manage and control quality. Ford went to 1700 cars in 1903 in a year and prices were high 1911 300 000 cars in a year and prices dropped (economic benefits) Economies of scale by standardising processes

o Quality therefore has to change In history not many would respond to poor quality as there was not much power amongst consumers King James Bible Many typographical errors, leaving the word not from the 10 commandments Forced them to reprint it and destroy the original If you werent a king you didnt have much recourse for poor quality work Today consumers have much more recourse as there are quality standards and systems in place Has come from large scale organisations (for products and services) All require a system for the management of quality that fits with the standardization and routinisation of tasks and procedures within any large-scale organisation

Definitions of Quality - Excellence (Subjective Judgement) In observing the excellent companies what we found most striking was the consistent presence of obsession. This characteristically occurred as an unjustifiable over commitment to quality, reliability and service. Peters & Waterman This is still is use by companies who produce high-end luxury goods who can afford to overspend to achieve such quality The obsession of perfection o Not concerned about price and market share o Produce a couple, sell for high prices. Not many operationalise this definition of quality as it is transcends, what is perfection to me isnt perfection to you. o Perception of individuals is different Pursue Excellence

- Conformance "conformance to requirements" Phillip Crosby It can be operationsalised; Here are the minimum standards you have to meet in order to accept what quality means This is the rock bottom standards to stay in business Appeals to firms who want to operate on commodity products (low cost, low price, high volume) o Do what is necessary to meet the legal requirements It is an internally focused definition o Only talks about what happens inside of the company o Not focused on market place and consumer demands Concerned about conformance

- Neither of these two are FOCUSED ON THE MARKET MARKET FOCUSED AND MARKET BASED DEFINITIONS -Incorporates customer feedback into the function and design of products Fitness for use

Good quality does not necessarily mean high quality. It means a predictable degree of uniformity and dependability at low cost with a quality suited to the market." W Edwards Deming. If it does what it says in the box it is a quality product Low-cost product means quality should suit for that end of the market High-valuated product means quality would have to reflect that end of the market Meet expectations of that market segment o Focus on the attributes of quality depending on the standards (relevance) on different consumer segments.

Meeting or exceeding customer expectations (Quality as a

competitive weapon) "the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs" International Standardisation Organization - Value adding from the customers point of view means Not simply meeting basic but doing more at no cost o E.g. Japanese Car companies Buy it at the same price as American car but with air-conditioning and radio as a standard, something American cars didnt give Implied- unmet needs that they didnt know they had until they experience something from a product o E.g. Air-conditioning in car - Last three definitions are part of the standardised quality systems that formulises and rationalises knowledge about quality

Avenues to Business Improvement (Implementing Quality Systems) - What Quality systems can do (including conformance) Viable Business Strategies: - Reduce Wastes - Eliminate defects, reworks, warranty returns and takes a lot of cost out of the business Labour o Of people having to spend time reworking something Materials o That is scrapped, damaged and returned Machines o Reduce time used to make defective goods

Increase Market Share

- If adopt market based quality can improve competitive position and expanding market share. Reliability = Single Source Supplier o Of products, who is the reliable supplier o Single Supplier buy all products and goods, work closely with that supplier overtime to reduce costs o Supplier POV, grows their business Low Margins but high volume = profitability o Expand production volumes Efficiencies from demand smoothing o Internal quality efficiencies o Figure out ways to stop wasting time of the manufacturing of product form A to B to C and smooth out demand and produce more consistently and reliably o Single Suppliers after working with a company for a long time can gear their products based on customer demands and create such internal efficiencies - Charge Premium Prices Unique Features o When consumers want unique features then charge premium prices Mazda cars Reputation for Quality o Consumer purchase goods because company is known to make good quality products

Market Based def of quality, the focus on market demands and customer complaints means increase in competitive advanced in terms of external.

Attributes of Best Practice Manufacturers - Becoming the best competitor - Growing more rapidly and being more profitable than competitors Get better rep for quality Grow market share

Have unique features and they can charge premium prices for

- Hiring and retaining the best people - Being able to respond quickly and decisively to changing market conditions More agile and flexible in that sense as perceptions in consumers change - Adopting a product and process engineering approach which maximises the performance of both Consistency of product and process internally Have ways of making them that enhance quality an low cost - Continually innovating and improving When rely on market-based definition Way in which you exceed peoples expectations, people dont see it before, provide value added TQM Approaches to Understanding the Adoption of TQM - Ideal or Common Types Here is the ideal type of conformance firm Generic thumbnail sketch Create generic ideal types of firms and the way in which they respond to the quality and changes to innovation - Contextual Factors Empirical approach; what are the things that high performing firms do that differ from the things of lower performing firms

Ideal Types

- Hard vs Soft elements of TQM (No firms match up to these caricatures but provide a thinking about how firms do certain things)

Hard (Quality Management Program); all the rational side f TQM, data collections, stat analysis, problem solving tools use to measure and analyse things, identify problems and solve them o Done by technical experts Soft (Quality Management Program); cultural and normative elements, how to empower employees to work on quality elements, make initiatives and come up with ideas and suggestions for innovations, change so everyone has focus on high quality production Some use both soft and hard

Mechanistic vs Cultural model of organization o Mechanistic; Beurocratic, the army, hierarchical organisation with forma rules and procedures that are expected to be followed by employees o Cultural; Relies on normative culture of organisation, people are equal and commitment and passion is what binds them together, collective norms and values to achieve mission/ vision

- New quality paradigm vs Old quality paradigm Old; Quality as conformance; minimum standards that need to be followed. Quality is a technical job that only the quality dept. focuses New; Much employee empowerment to identify and rectify quality problems, focusing externally on what customers are looking for. Contextual Factors - Job security If high wont put the effort into contributing to innovation and high quality Only concern is staying the job which can restrict employee opinions on improvements as it could mean firing

Steel company said if you think of an improvement you will lose job, go and get more paid education the return to a better job.

- Management's approach to trade unions Employees looked at how management treated unions If they saw poor treatment then figured thats who management would treat those who are not from unions Trade unions have positive effect, have organisation wide coverage and ensure consistency in policies and programs Large firms found patchy quality systems because local managers were afraid of employee empowerment Unions demanded even rollout of the quality program

- Organizational politics If accountants are in charge, they will focus on cost reduction Quality means expenditure and this cold create a political issue in terms of how much should be spent in each department and those in charge may have some biases

- History of the organization Introducing innovation and improvement vs those who have failed with the introduction resulting in cynical employees

- Market conditions Those that are able to charge premium prices have more expenditure for quality Position in the market is important If sales are going well, money is available for improvement but if conditions are bad this is the first place costs are cut. - Management policy Senior management view on quality for competitive advantage - Employee attitudes and orientation Norms and culture of organisation Theoretical Frames of Reference

- Bureaucratic frame The rise of large scale of organisations that are highly centralised Hierarchical and bureaucratic; run on impersonal rules and regulations. Not about individual orientation but rather policy Quality introduces another change of policies and procedures as we standardise quality and procedures Introduce new layer of Bureaucracy Standardising procedures and ensuring any changes are documented and there are paper trails for them.

- Political frame Within any organisation there will always be contest at the top about what should be the focus of an organisation, where should money and resources go? - Cultural frame (internalised by employees, those are the dynamic organsations) Provides a number of theories in terms o A culture of quality o Employee Empowerment Engagement Involvement o In innovation and improvement Have better performance in terms of quality and innovation

Quality and Innovation in Business Processes

Understanding Business Processes - Sequence of activates it takes to make something happen to design, manufacture and distribute - Process improvement is critical part of quality management - Process innovation significant element of innovation.

5/27/2012 3:41:00 PM

- Korean Ship Building Industry (REVERSE THINKING APPROACH) Koreans became words largest builder of ships due to the way of building ships differently to which the way it was built before o Improved productivity o Lowered Costs Building ships in modules (pre-fabricated sections) Brought to shipyard and then welded it at the yard Built ships in the water with a floating dock On land shipbuilding method o Build ship and lift with lever o Move ship to barge with skid-steer loader o Submerge barge Supplied gas directly from a ship to new Orleans Sinking ships of purpose to ensure Only finished ones float On board production for oil refinery o Also Build a tanker that breaks ice

- Systems approach Understanding a process like a black box o Put one thing in take another out Transforms set of inputs to a key output Steel and consumables to building process and output is ship and some waste materials

- Process mapping Process is a sequence of activities o Draw boundary around which activates we are interested in o Their Domain of Activity

Marine Architect Manufacturers Engineers etc.

Organization Sub-Systems (AUTOMOTIVE MANUFACTURER)

- You can take any process form a higher level and decompose it to a lower level in any detail - Important because not all management want all the levels in detail Senior management can look at the higher level of extraction for strategic purposes Production managers look at the lower-level and more detailed processes

Example of a Process Map

- Simple sequence of activities (looking at a whole factory) - Flow-chart is a process mapping tool for a job stations

- More and more firms have a mixture in processes of manufacturing and services VW open factory museum, can customize cars for individual needs o Mixture of services and manufacturing operation o VW isnt the only company who is like this Reinventing themselves to have a larger service component Call centers, online transactions (are they services or industrial processes?) It is hard to find that line

Process Choices in Manufacturing

- Critical Variables are: Capital Intensity

o Fixed investment in machinery, plant and equipment Important in manufacturing context

Product Standardisation o Degree to which the product is customised to customer requirements (Comes out the same of very similar) Having heavily standardised products

- Process Focussed Have invested in general purpose equipment and a set of processes, become an expert in this process and what you can make can become very variable o E.g. Printing station Can make hand bills, cards, pamphlets, books etc. Anything that can be printed they can manufacture Hence experts in the printing PROCESS

Jobbing process Batch process ??? Construction machines are experts in building an can move that process to build different things o Wembley stadium in London (non standardised product) Making things in small volumes o Small > Medium production and uses adaptable processes

- Product Focussed Flow process (line & continuous) o Small number of standardised things o Oil refinery Only a small number of products it manufactures but in huge amounts of volumes Expertise is in making that product e.g. in this case petrol Process Choices in Services

- Produce things that are a lot more intangible - Only dominant part of the economy in the last 30 years Critical Variables are: Degree of customer interaction o Length of time customer is involved relative to the length of time it takes to produce the service In terms of professional services Patient being involved in operation Online banking? Is there much customer interaction? High technology services doesnt look much different from manufacturing as there is not much interaction Doesnt give a reliable definition of what a service process is

Labour intensity

o Amount of resource required at the time of service Number of people it takes to produce the service E.g. all the staff involved in the operation (around 810) High labour intensity Doesnt talk about type of intensity High Human Capital (Specialists) to Low Human (McDonalds) capital intensity; are these services equivalent because it requires many to produce a service

- Service factory Low labour intensity Low customer interaction Call centre

Service shop o Low labour intensity o High interaction o Car repair shop

You can specify what is needed

- Mass service McDonalds o Low customer interaction There is a set menu and consumers dont get to customise foods based on their taste - Professional service (need for skilled education and training)8 Operation in hospital High Labour intensity High customer interaction

Services are subject to technological change (happens quickly) From Service Shop to Mass (Service Factory), Netbank o From interacting with a Teller to online Centerlink is another example - Many manufacturing are increasing to provide a service and vice versa o E.g. IKEA In Sweden, the design business Whole part of IKEA is in the manufacturing business Assembly however is done by consumers Are they design, manufacturing or retail? This is the difficulty of trying to think about businesses rather than looking at processes - Many follow a hybrid model so then you need to look at process by process rather than defining a business as either manufacturing or a service Service Processes Low Customer Interaction Low Labour Intensity Service Factory High Customer Interaction Service Shop

High Labour Intensity

Mass Service

Prof. Service

Business Processes in Manufacturing and Services - Services are intangible Intangible elements E.g. Quality of what was in the hospital o Doctor o Nurses etc. - Manufactures are tangible More tangible elements - Services are immediate Can be stored online - Manufactures may be lagged Produce stock and things might sit there in the warehouse for a period of time In the car factory o Manufacturers become more like services - Services have direct customer involvement Need to be consumed on the spot Some exemptions e.g. online banking - Manufactures may have indirect customer involvement Attributes of Product Quality - Performance How well does it work? Is it efficient? Does it do what is claims to do? - Features Features used to attract customers and differ themselves from competition Sometimes consumers will look at a particular feature - Reliability Does it live over its life span?

Does it operate reliably?

- Conformance Specifications (Rules, Regulations and Standards) - Durability Expected service life? Consumers have certain expectations, does it stand up to normal wear/tear and use Warranty - Serviceability Cost of servicing the product Can it be self-serviced Or does the cost money and needs to be taken to a professional - Aesthetics What does it look/feel like Sometimes the design element is very important o Usually the main thing we are thinking about - Perceived Quality Fit for use? Exceeding expectations (High-quality) Low-cost product where quality is very low Attributes of Service Quality - Tangibles Services we can touch and feel? o Are the seats in lecture theatres comfy - Reliability e.g. Train services, are they on time These are measured

- Responsiveness Does it respond to individual needs and requirements? E.g. Lawyer should prepare case in their defence and tailor to suit their needs - Assurance of Quality Competence o Do the people who provide the service know what theyre doing

o Optus Customer service Credibility o Do we believe them in what they say Communication o If a plane is delayed is they need to communicate what is happening o Doctors need to clearly communicate diagnosis and treatment to patient Assure consumers about the quality of the service

- Empathy (about interpersonal reaction) Courtesy o Dont treat them like a number in the system Access o Its easy to find Understanding o About the individual needs and requirements

Quality Philosophies

5/27/2012 3:41:00 PM

- Quality is a discipline With theory Tells us something about role and purpose of organisations o What they should be doing and how they should be structured Developing a business model and strategy for success Looking internally within the firm; how to do business better Give ideas of organizational design at the operational level o Job design o Empowerment of employees o Theory of employee motivation and change Has institutions around it o National bodies o Aus Quality Council Developing regulations, policies and a standards o International standardization organization o Broader bodies such as Universities to teach this practice Broader approach to what business is.

The Evolution of Quality Concepts - How have quality systems evolved in manufacturing and services? - What are the main principles of quality management? - Who have been the important thinkers influencing the development of quality concepts? Changes on how we look at it contributes to the fact it is a discipline Traditional View - Productivity & quality are conflicting goals Trade off, more money= better quality Consistence with conformance approach More that you inspect and test, the better quality you have = more expenditure

- Quality is defined as conformance Now there are market based views and theory Quality is measured by non-conformance internal measure nothing to do about customer perception Quality is achieved through inspection Defects are allowed if minimum standards are met Only aim at minimum standards Quality is a separate function Hire some engineers in specialise in stat methods who are in

charge of quality - Supplier relations are short-term and cost led Current View - Productivity gains are made via quality improvements affects everybody in an organisation body theory how orgs work and set of practices underpinning it Aim not to gain defects = increase productivity Increase capacity in machines Costs are less Labour isnt spent rectifying defects Has a net benefit - Quality is the satisfaction of customer needs Relationship b/w quality and market - Quality is measured via continuous improvement Notion of quality changes in long-term How do you continuously improve to reach these standards - Quality is designed in and controlled at source Becomes big responsibility of management to design quality system in organsaiton - Defects are prevented rather than assessed and measured - Quality is everyone's responsibility not a specialised function - Supplier relationships are long-term and quality led reliability, delivery etc.

Routes to Improvement

Improve Competitive Position Quality Improvement Reduce Wastes: time, material, equipment

Gain Premium Prices Increase Market Share

Increase Revenue Increase Revenue Increase Revenue

Reduce Costs

- Cost reduction route, making improvements to eliminate costs - Market-based route, use quality to improve competitive position (Top 2 squares)

Eight Principles of Quality - People improve work in a system. Managers must work on the system to it Quality is not responsibility of individuals Divide into common causes and special causes 85% due to a common cause; responsibility of management to identify and eliminate (issues in system, poor design) 15% was due to unique set of circumstances (human error and individuals)

- All systems exhibit variability and this must be controlled Always variability in system o Point is to have a narrow range of variability that it becomes insignificant - The majority of problems are because systems are poorly designed. Few problems are the result of worker error - The answer to problems is designing quality into the process Then can get rid of costs in testing and inspection

o Scraps and reworks o Providing another service because the first one failed The relevant definition of quality is that of the customer Market and customer-based All members of an organization should contribute to improvement Empower employees to make changes and improvements Not just responsibility of management Improvement must be planned and continuous Better quality pays

Key Quality Concepts - Variety the mix (range) that can be produced from one process o How many different kinds of services/ products can we rollout with this process - Variation The small changes in the outputs of the process o Always some slight variation o Managements goal to reduce that variation so it becomes insignificant - Variability The frequency and range of changes that occur in the outputs of the process o If we provide the service at the start of the shift its good quality and goes down as the day progresses o Delivery needs to also be narrow The Theory of Quality Management - Core Assumptions: importance of quality o mission to the organisation itself o to the customer experience o competitive success of the enterprise both internally and externally importance of people o whether in manufacturing

o whether in services o understand what motivates people o provide training to meet requirements o invest in continuous development to continuously improve systems in place importance of systems o Managements job to design, monitor, redesign and improve systems importance of senior management o Set the business strategy and decide how quality is incorporated within that o Design monitor and improve the systems - Core Practices: process redesign o process mapping tools use it to design, monitor and redesign process to improve There is a great variety of them control of variability o How to stabilise process so outputs are consistent and reliable with small variation management by facts o How do we go about collecting and analysing that data o To find the common causes of problems, not done by intuition learning and continuous improvement o Orgs dont stand still o Continuously changing, and raising standards of performance o All need to be engaged in some kind of learning process to develop skills and improves systems within o All stemmed from what customers want that should be reflected in design systems in orgs Demings 14 points (redesign of org and employee jobs and emphasize employee improvement)

- Constancy of purpose Need a mission, a goal, something they want to achieve, reflected in outcomes of customers Understand business strategy and model o Who are we serving o What parts, what are we trying to do them

- Continual improvement training and developing employee skills everyone should make contribution and have knowledge of business process Needs a set of tools to formalise this tacit knowledge to understand how things operate

- Cooperation between functions recognised bureaucratic hierarchies stop learning from happening where there are functional specialisation it stops learning because all people see is their little bit of the process rather than the whole - Need to change organisational structure Teamwork o Cross-functional o Task forces o Improvement groups o Multifunctional teams Carry out a whole process within the team - People need to have a view of the whole process Jurans Quality Trilogy

- Quality planning Have to decide which attributes of product are important and focus on the delivery or those attributes in the design stage (also the process of delivering that product or service) - Quality control

Need to have a systems And measure performance of this system

- Quality improvement Jurans Costs of Quality

Cost of Quality

Cost of Conformance

Cost of NonConformance

Prevention Cost

Appraisal Cost

Internal Failure Cost

External Failure Cost

Monatery Cost Non-Monatery Cost

- Conceptualise how quality benefits organisations - Cost of conformance (traditionally the only focus when determining quality rather than looking at training people) - This is ignoring most of the problem because most costs are nonconformance what does it costs internally to produce quality? Prevention o To prevent defects Appraisals o People who are doing the testing and checking - Cost of non-conformance Internal failure o (these are the critical costs that need to be looked at) External failure (what customers see) o Monetary cost, resupply the service, fix up what happened o Non-monetary

Loss of business

Damaging Reputation Warranty returns Legal actions - Significant competitive part of business Crosbys Four Absolutes (Confrormance of Quality) - Define quality Needs to be tangible and measurable Establish quality system, specify performance system

- Establish a quality system - Specify performance standards - Measure quality outcomes If you take all this seriously that you have zero defects Idea of quality as a system of measurement, engineering approach Have a system to make sure things conform

Ishikawa - Quality tools - Internal customer Everybody has a customer in the flow of a business process, that is the next part of the process (not necessarily the end user) Providing a service to the other customer so when they say assemble it there is a quality product coming to them

- Quality Circles first form of groups working Masaaki Imai

Kaizen Continuous Improvement Improve everything in the business continually Everyone takes responsibility for their process Kaizen Methods: o Just-In-Time Supply o Quality Circles o Total Quality Control o Kanban System to achieve JIT o Suggestion Schemes To make ideas and improvements o Zero Defects

Business Process Management Tools

Management by Fact

5/27/2012 3:41:00 PM

- Understand the sources of variation in the business system Collecting and analysing data to identify where problems are Theory of quality is all about Need to be able to measure variance and variability If you measure by common sense to fail to identify the variation in the system What might seem like the answer may not actually be so Understanding the real cause of things Maintenance of the DC6 o o o o o o o Early passenger plane Had high rate of accidents 6 crashes per million plying hours People started thinking it was unsafe to fly Industry had a problem about flying being unsafe Industry thought they should improve maintenance of plane to find out what was going wrong Did it every 8000 flying hours to catch all the problems Implicit assumption is that stuff on the plane is wearing out As a consequence it increased to 24 crashes per million flying hours More maintenance meant more crashes Found a set of failure modes

o o o

o 98% of failures were accounted by other modes o Mode F caused 68%, infant mortality mode, it was a defect in the manufacture of it o As did more maintenance put new parts that were actually failing o Now days when they repair, they run it on a test bed to find infant failures on the ground and no one is injured Other failure modes A, Likely to fail when new and likely to fail when they wear out

Failure mode C, likely to fail as it gets older no pin

point time (5%) D; new out of the shop, risk of failure E; event risk of failure to 14% o Data found that when things fail it is more complex, there could be several ways it failed o Common sense doesnt help o Only by collecting analysing data allowed them to understand the causes of failure - Understand the business system as a whole Three Mile Island (nuclear accident 1979) o Cant just look at one part of the system without looking how it affects all the other parts Meaning system as a whole could function at a suboptimal level o Caused by human intervention as they were taught to respond to singe incident failures and to not react to the system as a whole o Cooling system was failing and thought there was too much water rather then venting water they vented steam and there was no cooling around the reactor o Led to potential reactor meltdown o Whole towns needed to be evacuated as a result of human error o Firms could have invested in a simulator to run scenarios for the operators Gave them a manual to respond to single incident Quality Planning Tools (Juran) - Quality Function Deployment How to control quality at high levels in business Identify the attributes desired by the customer o List of attributes o What is the market and customer focusing on? Performance?

Aesthetics?

Identify the technical features o Have to turn these things into technical features in a product or service Prioritise the features o Which are the critical ones to focus on Evaluate the competition o Benchmarking Identify performance gaps Develop targets o Target to close gaps or meet level of performance that will meet the attributes of those consumers Deploy priority features in the business process o Deploy them in the business process

Quality Function Deployment - Simple tool, correlation matrix What customer wants o In terms of attributes and rank them of importance What the competitors are offering and if there are any gaps Set design targets and requirement o Interpret those See the relationship these things o What level of performance can we deliver without misadvertising o Know whether this will be less or better than the competition o Tweak these things overtime Change and improve product to challenge the competitors - Concurrent Engineering (operational (middle) level) Shorten product and process development times o To introduce new products more quickly o Redesign service processes quickly o To close performance gaps o Introduce new features to current products more quickly

Do this in parallel so all the steps are done at the same time, computer technology has made it easier to do

- Planning Tools (have some images) Affinity Diagram o What we can do to maintain processes o Have activities List other activities underneath that to achieve maintenance and stable system Interrelationship Diagram Tree Diagram o Unpacking one concept and one idea from a high level down to a lower level of detail Process Decision Chart

- Sort data to see any relationships between things diagnose any problems Quality Control & Improvement Tools (Any employee can use) - Simple visual tools to understand to what contributes to customer dissatisfaction and how to improve service - Stops from simply blaming the organisation - To empower employees to rectify problems - In-process Control Check Sheets (example) o Picture of things that you need to check the products to ensure they are of high quality o E.g. doctors drawing on the leg they need to operate on o Simple bits of record keeping Check Lists Defect Concentration Diagrams Control Charts Scatter Diagrams

- Problem Solving

Cause & Effect Diagrams o Fish, what are all the things that could contribute the this 8D Process o whats the problem o who can help us o what are the effects of the problem o Is there a quick fix we can put in place while we sort out real roots of the problem o what causes the problem Use data collection techniques to identify those o what we could do to prevent this from happening again Collect more data to find the best fix Most cost-effective and provides a net benefit for quality o How are we going to make this happen o How will we monitor and follow up Histograms Pareto Diagrams o PICTURE

- Poka Yoke Idiot-proofing o Plug can only be inserted one way o Same idea used in electrical equipment these days o Colour coated cables - Deming Cycle Plan do check act Brainstorm list of causes, test them come back and repeat Eventually youll go to the root causes of the problem

- Benchmarking go and look at what other people are doing then benchmark our performance against theirs RAM chart How something varies overtime

What is the variation of a system in a specific part of the product Set and control limits, within a range that is specified

Quality and Innovation in Australia

Quality Management in Australia

5/27/2012 3:41:00 PM

Developed through joint Business-Government programs Dates back to mid 1980s Govt. provided funding to get consults in firms to develop quality practices and impellent quality told o Create quality award Proactively encourage quality tools adoption and techniques Firms committed themselves to have more quality

Encompassed certification and TQM approaches - Some wanted low-road approach (doing bare minimum to be certified) to high road approach (create culture of quality within the firm use quality as a competitive weapon by empowering employees) Australian Quality Council (AQC) o Focus on standards and application of standards Australian Organization for Quality (AOQ) o TQM approach in organisational culture

Certification became mandatory but TQM was discretionary mid 1990s To win contracts with govt. for govt. business Industries stared creating standards Nations do the same HAS cap standards o General standards such as food hygiene standards o With products been directly consumed by consumer Firms has to certify with several standards o Govt, Industry, Customer Firms (cut down set that suppliers need to conform to) Broader quality approach is discretionary

Certification Issues

Biggest group of Firms - Companies seeking certification sought to: Protect their market share o It becomes mandatory to meet standards if you want to keep doing business Improve efficiency o Identifying obvious wastes within their firms and eliminate them Be considered for tenders o Gain various forms of insurance E.g. maritime, insure cargos on ships you need to meet international quality standards for approval Many have compliance officers that manage all the different quality certifications

- Companies gaining certification found that there was: Improved awareness of quality o Because of effort involved in improving systems for certification Improved awareness of problems o Highlighted by auditors who looked for certification approval o Management can go and work on Improved management control o More transparency how things are done because you need to document quality systems and processes

Limits of the Certification Approach - Non-certified companies continued to win contracts In spite of such regulations in terms of quality certification Because they provided low-cost product Globalisation is increasing issue o Consumer dont care about quality but rather price - Increase in paperwork

Generate a lot of money and paperwork to document procedures and what to do when something goes wrong Manuals need to be generated (dense and detailed) Increase in beaurocratic ways in doing things to meet compliance

- Higher costs of compliance Increased the costs of conformance without necessarily decreasing the costs of non-conformance o Didnt benefit from productivity gains through innovative thinking o Rather focused on fixing problems o Just gaining certification had little impact on things such as customer satisfaction, employee empowerment and key business results o Eliminate known problems rather than innovate in processes to improve those processes - Quality certification requires you to document how you do things now (existing ways to doing business) doesnt encourage innovation for that you need to undertake cultural change to quality program o work to improve those Benefits of TQM Approach (Broader Approach) Improvements in customer satisfaction, employee morale, delivery in full on time, productivity, cash flow and sales growth Cash flow- very important o Enables employees to operate in lower levels of stock and improved process More efficient Improve turnover hence improve cash flow

Human-centered factors critical in lifting performance Beyond just resolution of known problems If you want innovation to improve productivity you need to empower employees to improve processes through innovation Training enhances quality performance

Spending money Improve quality effort and employee skills Learn to use quality tools to make continuous improvement When taking compliance approach this doesnt matter

Trends in Quality Management in Australia TQM is less popular ISO (International Standardisation Organisational Standards) is more popular Range for basic operations, sustainability of the business etc. is a more popular choice amongst firms Can be applied to different parts/features of the business o 1993-60% use TQM, 2000-40%

Decline in use of quality tools 1993-40%, 2000-20% Some have developed them into better programs (business process reengineering) Some are still new to these kinds of tools Quality practices most implemented in Operations - least implemented in (support acitvites) HRM Focused on frontline business process rather than support Employee responsibility for quality has steadily increased, as has training 1993-45% specialised Quality Dept, 2000-25% o Everyone was doing quality 1993-90% Trained, 2000-97% Less attention paid to quality as it has become part of the standards way of doing business and is expected to happen

Tool are still important Some have stopped using them Others have taken them for granted o Use more advanced tools (business process reengineering) The bigger the firm the more they use these tools and techniques

Small firms have lack or resources and people to take on specialised roles and responsibilities to take on quality certification Large firms staff who are dedicated in managing quality certification, managing employee involvement, ideas for innovation with other groups of employees on improvement projects Toyota o GOSHI teams Comes in and helps employee work on idea for improvement so they can implement that kind of project

Malcolm Baldrige National Quality Award Many firms look at such criteria to improve quality Event top performing firms still have areas of improvement Those that entered the baldridge award o Have a cite visit and be audited to find out ROI on $1000 1100% o They are higher performing than those on the standards and

pause ROI 177% - Those who only seek certification dont achieve as much

Trends in Quality Management in China (Way of Comparison) Growth in Certification 1993-14 (were certified), 1999-7447, 2004-15,854 (were certified)

Implementation uneven (comparing to Aus of bare minimum and TQM) JVs successful (joint venture) o It is the international Join Venture Partner who introduces the quality standards o This was the case with Fontera and Chinese dairies SOEs less successful (state owned enterpirses) o Lack of commitment to quality

o Lack of attention to improvement of quality procedures Focus upon standards approach and certification since 1993 Both adopting these at the same time Differences in the nature of firms in the economy means different adoption Innovation in Australia Weaknesses in Australias National Innovation System (focus of most studies of innovation and public policies) Low level of investment in new technology o Leads to low skill, labour intensive production Driven by the fact Aus has smaller firms and smaller production invest less in high technology and more in human skill This is most at risk in globalisation Overseas it is cheaper and factories are being outsourced

Low level of investment in R & D o Short-term focus upon share price Doesnt lead firm to invest in R&D because it takes long time to pay back o Branch office economy Try to keep it closer to H/O Subsidiary firms of overseas companies located here Branch of German company very difficult to have R&D in aus and would rather locate it in Germany then disseminate operations to branches (operations)

Small venture capital market o Harder for entrepreneurs to get capital to get businesses going o End up in US because they can get the money there to get the business going

Those who developed SEEK got venture capital to take the risk on developing new business

Weaknesses in Australias National Innovation System o Lack of connections between R & D centres and industry (should Improve CSIRO and Universities) that can commercialise research and take it to market Loss of innovations overseas o This can be controlled by the Australian Government o CSIRO sell inventions unlicensed to overseas companies Innovation is carried by SMEs (small and medium sized enterprises) Bio-medical firms Flurenza, Bionic ear at monash o Successfully commercialising innovation Some production clusters emerging Biomedical firms in Sydney and Rhyde (in one area) Silicon Valley and the IT industry Helps firms to develop skilled workforce to develop in these industries Need to partner up with other small/ medium firms to get things done Some networks emerging Policies do not support clusters and networks Only individual firms Cannot apply for govt. grants hence limits success

Australian Business Excellence Award Framework Leadership o How well is it at engaging and empowering employees o Providing focus for innovation and improvement activities o Organisational and public reasonability citizenship Strategy & Planning o Is there a link b/w quality and innovation activities and business strategies

o Strategy development/ strategy employement Knowledge & Information o How well do we mobilise internal and external information and knowledge and make that count to innovations and improvement o Information and analysis People o Empowerment of people o Engagement in improvement of activities o Work systems, employee workability and satisafaction Customer & Market Focus Innovation, Quality & Improvement o Process management Success & Sustainability o Distinguishes itself from the American o Not only looking at business success (such flow and profitably) o Business results Employees Suppliers etc. - Come in and asses firms to get 1000 points Checklist Many will get the documentation and do a self-audit Widely used for that purpose 40% of firms use this criteria to understand strengths and weaknesses of their businesses

Benefits of the ABEA Widespread recognition of ABEA 70% Firms seeking improvement use ABEA 40% Firms using the ABEA made improvements in: o Strategy development 50% o Staff communication (people related) 33% o Sales, productivity, profits (business outcomes) 25%

Product Innovation5/27/2012 3:41:00 PM

Predicted: TV wont be successful Computer wont be successful Digital cameras wont be successful Apps on phones wont be successful Great Decisions - Telephone would use this to connect from one house ot another rather than amplifying sound to the deaf - Didnt think it was seriously going to be considered as a means of communication Importance of Innovation Hard to understand its significance until they see it in use and it becomes established in a community in users (not even the market place) - Innovations may confer market dominance Apple and its innovation People didnt demand it but thought it was good use of the technology and people will finds ways to use them Bringing innovations to market is difficult Now we understand that we need to tap into high end users first rather than the mass market - Innovations mean you can charge premium prices Now have something no one else can match or will take a while to match - Product innovation is exploited by first mover advantage e.g. Apple consumer electronics Can Sony survive? o Portable music player o Cassette Recorder o But have been overtaken by smart phones, tables computers, internet connected o Lost advantage innovation in that industry because it moves so fast - Continuous Innovation leads to business sustainability

Challenge in fast moving industries

- Innovation reflects globalisation and rapid change in markets Effect of globalisation and rapid change in markets Word about innovation disseminates more quickly More producers More opportunities to try out different things even if it means losing large amounts of money - Innovation reflects growth of knowledge and technology transfer Consequences of better educated and larger populations Investment in technological developments Requirements of Innovation

- Innovation is knowledge intensive requires new knowledge and skill o Develop new technology and new set of skills in use of that requires different combinations of knowledge and skill in new ways o Firms developed in 1970s mobile phone brought radio technology and telephone into one device o Existing sets of knowledge that went from independent devices to the intergration of the first mobile phone o Innovation is now always about new knowledge Knowledge management; increased peoples focus on how we attract, utilslie knowledge; focus of innovation is focused on knowledge management

- Innovation is difficult to manage early closure of product configurations may limit innovation o how much time do we let people experiment and try things out in different techniques and domains of knowledge to create something new? o Are there limits in certain processes? You cannot predict how long it will take to invent something and then widely recognised and accepted

Types of Innovation - Evolutionary and Revolutionary Innovation - A product based approach Look at the thing thats being invented To decide whether its evolutionary or revolutionary - Evolutionary innovation adds new features to existing products High Design and High Performance features o E.g. Put better colour screen on to mobile phone Gradually improve the technology and product o Either add to the design or the performance of the product - Evolutionary innovation extends product lifecycles By adding the new technology You dont replace the whole product Extends over another lifecycle or two depending on the technological generation More controlled as innovation is much more defined

- Revolutionary innovations create new never before seen products Often based on new technologies o Never before seen products o Higher risk; not sure whether innovation will work and if consumers will adopt it o New technology is not adopted by mass markets but rather small communities of users who are interested in that new type of technology whether its translates to the adoption of general market is un answered o Under the risk of not being adopted - Revolutionary innovations may not find a market because: Fit of products with existing networks o May not work in the social network of use E.g. Cars were difficult to drive because poor access to petrol Mobile phone users; not many phone networks and there wasnt any coverage in regional areas Electric car; where do you go to recharge it?

Hence use hybrid system that uses petrol and

electronic technology Apple; where do you go the get the content? Apple created iTunes to buy music and download it Sometimes you need to do both if you want to be adopted Education of customers o Yes there are high-end users But small group; how to convince a massive group that will benefit them Why learn how to use new technology when current seems to work fine How do we educate what this new product does and has a role in their life and help them o do things that they never thought about doing before Weather apps. Educated to use it and is much more readily accessible rather than having to wait to listen to the weather report.

Issues:

New products or new features? High Design or High Performance features Fit of products with existing networks Education of customers

- Continuous and Discontinuous Innovation A market-based approach Continuous Innovation deepens, expands and extends the market for an existing product o Find ways to use technology to make it more available to more people o In first personal computers You needed to know about programming to make them work No drop down menus, automatic start up etc.

Hence the use was limited to those interested in computers but innovation When innovation improved software it was easier to use The process took 20 years High end to general to common

o Mobile phones Larger and not much coverage Then had the brick phone makes calls Now smaller does a wider range of things and cheaper

o Emails Aussie Mail First to offer email service Only had 100 000 customers Had to dial up email company to download emails over the telephone network Improvement in technology and network overcame limitations and has become part of everyday business Didnt take much time

- Discontinuous Innovation changes the market Disruptive revolutionary o Often enter the market in the emergent market segments Early adopters; interested in new technology May take time for dissemination to broader population

o Often based upon known technologies that are used to meet latent needs Existing capacities in technology that could be used in certain ways but didnt understand how to use it until it became more readily available to them For mobile phones SMS

o Put into the networks for technicians to use o German company made service available to customer for free Didnt anticipate it would be used extensively Assumed it would just be a nice add on but overtook phone calls o Technology was always there but no one knew how people would use it until they were allowed to use it o Now its expanding to receiving data Development of smart phones and apps Changed the way in which we used phones Most go out and buy Smartphones

- Open and Closed Innovation A firm-based approach How can firms manage innovation Open innovations is outside in o Work with supplier, customers, specialised firms Jointly develop new knowledge and technology of doing things o Engage high-end user groups Early adopters Make open sourced software Get feedback from the high-end users and improve offering Use open technological systems Expand system to expand participant Google approach Let mobile and computer tablet manufacturers Work with them to develop online services and

products they have o Use open technological systems - Closed Innovation is inside-out In-house R&D o Spend a lot of money on it o Have exlusive use of it o Dont let consumers get involved in the innovation

Give the customer what is designed for them Exclusive use of technologies o Charging a premium price before that Apple approach o Closed technological system o Want to work with out products have to work with our proprietary networks Why MACs lost sales E.g. Printer had to be Apple Even though competitor had better apple computers People began buying general computers because that could utilise in an interface open systems

They werent locked in to using Apple A more classical idea of innovation

Outcomes of innovation can be ad hoc

Search Strategies Strategy on how to utilise the knowledge (planned) Ad Hoc o Opportunistic o More open innovation system o Dont anticipate that it is an innovation Internal o Hiring-in With expert knowledge and kills needed o Internal mobilisation of R&D, CI Better internal knowledge in order to mobilise the existing knowledge External o Monitoring competitors and what they are doing o Monitoring suppliers o Monitoring industry developments e.g. Industry publications, trade fairs, etc.

Accidental and unplanned

Search Strategies - Stand alone (closed approach) - In association (open Innovation) Local networks and clusters o Working in same or similar industries on a project by project basis Open networks e.g. Technical societies o Linux Developed in open source way through people who were interested in computer development

- Engaging Communities of Practice global and local linkages are important o Should involve high-end users in the creation of the product due to high levels of experience o Focus marketing on them o Medical e.g. New Pacemaker Go to best heart surgeons in the world to provide feedback and test If approved others will copy them o First port of call, because they do have the knowledge o Now applied more broadly Nike People who are into running can provide feedback and good places to run to other consumers Engage community of high end users Engage provision of further valuating services Sell you places to run and provide service that engages you to community of runners Engage communities of prctice

Product Development Strategies

- In-house development leading to enforceable patent works best with simple products e.g. R&D leads to new drug, new device that finds a mass market readily. Control patent (flat screen TV) Leading to a patent works best where imitation is easy o Drugs; be reversed engineered and copied o Patent prevent copies

- Joint development with business partners (open) Sony and VIO Works bet where the product is part of a complex system o Aircraft Design and Development o Need co-operation of suppliers and airlines, external hightechnology companies to develop new technology o Complex systems are hard to copy as they contain a lot of tacit knowledge about system priorities or how to work together Dont need patent More of an open innovation, we develop that system More content and things systems can do May only be developing one particular application but only one part of the system which works with other applications (complexity makes open innovation work well) - Outsourced development Employ small but high tech company to do development - Licensing Someone whos already developed it - Reverse engineering Take someone else product, tear it apart, see how they made it any copying how theyve done it Engagement of Users (general) - Innovations are often unfamiliar and users have to be educated about their functions and features Needs to be overcome to bring new products to the broader market

Smartphones o Provided free training (1 hour) as they understood consumers dont know what they are, use and understand what they do Similar to introducing new version of software o You think you can already do on old one but dont know all the new things you could do and need A lot of this knowledge transfer is done through social networks o Will you rely on that or extend the knowledge in increase market

- Users often have tacit knowledge about products that can be mobilised to drive innovation Continuous Improvement, evolutionary use feedback and knowledge to create a revolutionary innovation Not what we design something to do rather than how they use it rather than how you designed it to be used o Needs to be understood what is and isnt been used to extend the market

Process Innovation5/27/2012 3:41:00 PM

Product Innovation - Creates forms of intellectual property (asset) - Creates products that they could charge premium prices for Importance of Process Innovation - Making modifications and improvement to current processes reduce cost and cycle time - Using new technology to develop innovative processes to develop To create new processes to create new business models

- Improvements in quality, reductions in costs, lead to Improved Competitiveness (By itself) e.g. Korean electronics industry o Havent invented products o Learn how to make existing products simpler more cheaply and with better quality becoming a basis of competitiveness o New ways to manufacture existing produces o Important in early years of any product innovation because it is expensive Flat Screen TVs used to cost thousands o Now you can get them for under 1000 o Companies have found ways to produce them cheaply and reliably through process improvement

- New processes lead to the creation of new business models e.g. New business models in the finance industry o Dominant model of retail banking Passbook with finance, go to bank teller and transact their business Very few do that because banks created: Lobby banking, suite of automatic teller machines and a phone to do it properly Telephone and internet banking Connecting remotely

Kiosk Banking In the busy railway station Concierge o ATM machines o Video Conferences to talk to H/O o Whole range of ways interacting with the bank Changed the way they interact with customers and were able to segment their customer base to detailed If high value; have personal baker that comes to you If low value; have other channels to do banking

Now have different ways to contact certain customers o Able to interact in customers with different ways

Sources of Process Innovation - Applications of new generic technologies Encourage to innovate processes and improve performance o Implies them to improve business processes Any industry can take up as a part of business process (Internet) Trucking industry Track packages via barcodes Banking Speed up time it takes to do things like home-loan approval Make one person make decisions quickly Manufacturing Link up suppliers to the manufacturers Shorten time it takes to supply bits and pieces needed to makes something o Standard for automotive is 20mins

More efficient then monthly production schedules from paper-based More turn around, less holding of stock Can build to order; dont have to fill up warehouses until its sold

- Applications of new industry specific technology Improve processes and productivity specifically o Radiology Limited applications and uses Hospital Engineering research labs (scanning metal) Security screening

Digital imaging changed radiology process (X-raying) o Dont have to develop film anymore o Just log onto web portal to look at images o Simplify process in terms of space and people o Cut down waiting time for patients Process innovation reduces time o E.g. Time to market Time to manufacture Customers expect things to get done more quickly o Process is important but speed of delivery is becoming a key competitive element and process innovation allows us to achieve that

- Process innovations are hard to patent - Process innovations are protected by secrecy as processes are not visible to customers or competitors o Not visible by customers and competitors o Not aware of the innovation within the process o Only see results but cannot copy it - Energy Companies began offering integrated power bills One did this and other couldnt copy it Competitor thought they could do it but couldnt organise the IT systems werent superior enough

- Process innovation Have to develop knowledge and skill of people to be able to make them work because customers only see output Cannot be reverse engineer it - New Organizational Structures - Increased Use of Human Capital Organization and Process Innovation - New forms of organization Change organisational structures o Film-based X-rays Medical offices were crucial for storage Hospitals have responded to the new technology by reorganising offices as they play a minor part

Innovation and Human Capital - Applications of knowledge and skills Have to have these to apply the innovations into the systems and make them work Dont end up like energy company to manually redoing things with student to make to look like you had an innovative process in place People need to learn how to use new technologies People who find new ways of utilising such technology With continuous improvement of the process you can move from one state of the process to a completely different state of the process

- Communities of practice learning from high-end users who are knowledgeable about the technologies and how we could apply them in our particular case

Process innovation fails when they take up new technology and use it to do the process the way that its always been done o Instead of cheap low-tech is expensive high-tech and not efficient Hence need to think of how to use these things differently and understanding what the technology can to and what that means in terms of simplifying the process o Less expensive and one that takes less time

Mass Customisation (LOOK AT EXAMPLES) (LEVIs, pay premium that is tailored and finished to the way they want it, and BAG company customer involvement) - A process Innovation For 50 years most manufacturing firms focused on mass production o Large amounts at low costs Now mass produce to order hence enables personalisation of product in the service context and personalisation of service Personalisation of service

- Enables new business strategies to emerge Go back to how banks were able to segment their customer base - Move from supply-driven mass production to demand- driven manufacturing Low-Cost (reduce wastage of stock that isnt sold) or Diversified Quality Strategies (personalisation at a lower-cost that is more highly customised to users needs and charge small premium) Only make things when there is an order there for it No overproduction or warehouses full of stock

- Search for profitable performance/design driven market niches - Once niches were too small now on a global scale is big enough to start producing goods that are customised to these niches Ford XRs For Territory

- More highly customised products at slightly more than mass production process redefines the market Through process of segmentation o From those who want cheap standard product to those who want to pay a bit more for something more highly customised and personalised to their needs and requirements o More people can access something thats highly customised than could have afforded to buy luxury items - More intensive use of human capital to support higher wages Product design and Engineering become more important o High value added activities are more important o Aus automotive industry GM is now on being able to design and develop cars here Not made here High-skill and knowledge come and that end of the process so focus high valuating on that end of the process

Features of Mass Customisation - Greater diversity of products for Niche Markets - Customer Involvement with the firm They can now personalise the product in ways they couldnt do before - Co-creation on Products with Customers Customers as a source of ideas o Rather than a passive user and buyer

- Flexible Production Systems Volume o To respond to the market since we are now demand-driven Mix o Broader mix of stuff Features

o Be mindful of feature and innovate those features into current products - Reliance on Employee Skills - Dell Doesnt operate retail Order online and customise to the specifications that you want

Low-cost airlines Internet to unpack bundle of services that comes with buying aeroplane ticket and you can customise the service that you want. Do you want food, entertainment, bag services etc.

Mass Customisation at FoA (FORD) - Synchronous Supply involves Co-location of suppliers o Broadmeadows Supplier park 20 mins supply of parts to make individual car They are right next door to the factory -Virtual Supply chain Integrated systems, Air International o On a computer screen o Any supplier can see what component are being made how are they going to be fitted to make particular vehicle - Customisation has made up-stream part of manufacturing Other firms finish off Fords highly customised vehicles Redraws boundaries of what we think is the firm Integrate suppliers downstream on what we do Move upstream to integrate business partners and customers into what we do - Systems Suppliers

Low cost commodity productions separated from high value added productions o Not only do you segment customer base o from standard at low to customised to high process o Segment manufacturing to part of the operation o Cheaper things are outsourced, customised products are in-house and close to the customers o As a result of globalisation for firms (including segmentation)

- Manufacturing Network Performance vehicles o FPV (Ford Performance vehicles) Do high end, high specification customised vehicles and made in smaller qualities We can do it unlike with Mass Production and all a different to tailor to individual needs

Customer Involvement o Vehicle Personalisation PrixCar Takes standard components off the vehicle and puts on customised components o More responsive to customer as we get close to them Shorten the cycle time the personalised order Collect more info more quickly on consumer trends

Process Innovation Can lead to improved competitiveness Can lead to development of new kinds of business models o Drives knowledge of marketplace and makes us more responsive

Knowledge Management and Customers

Issues in Knowledge Creation & Use

5/27/2012 3:41:00 PM

- Product Process Strategy Fit Quality techniques are useful o Key problem that confronts managers o This fit needs to occur if you want to be effective o Lot of knowledge is required and key challenge is to get an alignment for those things Not much use to have a great product if you cannot deliver it in a cost-effective manner Now use have great process if product does not deliver How does this fit with the business strategy?

- Internal Knowledge Mobilisation Traditional project management techniques are for temporary projects rather than continuous innovation o Demming highlighted this when he said there is a need for cross-functional integration o Beauracratic structure allows knowledge to move up and down the hierarchy but not across functional areas o Need to find ways to overcome this separation of knowledge Project teams Different functional specialisations who work on a product and innovation and create a lot of new knowledge and maybe successfully innovate Temporary teams dont work effective When the team is dispended all the knowledge goes with them How can this knowledge be fomrallised so they can capture the knowledge and when new teams come in they can recreate some of the knowledge

- Structural Barriers Organic vs Mechanistic structures

Most organisations have knowledge base in one particular discipline o Apple = IT industry o Sometimes you need to combine with other domains to innovate Creation of partnerships to two different firms o Had foe one firm to have multidisciplinary bases Organic o Much more fluid, Knowledge flows more freely Research setting Small teams of people who interact face to face Knowledge shared informally

Mechanistic o Highly formalised knowledge organisation o Internal barriers between internal functional sectors Information flows up and down but not horizontally

- Getting close to Customers If we want to be highly innovative o How do we go about collecting knowledge from them and understanding their needs in requirement Explicit or latent? Techniques for Quality & Innovation to achieve cross-functional integration - Concurrent Project Engineering More applicable because of growth of IT system o People working together from different functional areas working on the same things at the same time and seeing what other are doing E.g. Google Docs for assignment o Technology facilitates integration and flow of knowledge horizontally (more parallel than sequential) - Infrastructure for Quality & Innovation looking on the kinds of teams that are established o are they working effective

o Are there internal mechanisms for mobilisation of knowledge in projects, improvement activities and ay to day work - Design for Manufacturability Applied more widely than manufacturing Design product and process of delivery of the product at the same time o What it is that we going to deliver and how we design together so we could achieve objectives o Financial service or product Promise home loan approval in 24 hours but cannot keep this promise customer wont be happy Problems of Knowledge Management - Control of Data and Information Highly formalised forms that manager try to manage o Stuff you can set up a system to manage Formalised data and information IT systems can capture the whole range of data Changing radiology processes in hospitals IT systems facilitated faster capture and dissemination of data about patients

- Control of Knowledge Creation Process Knowledge creation process is undetermined o How do you know youve innovated and cannot go any further o How do you know you have knowledge to a point where you can now create product and take to market place o If you close the innovative creativity too early results is a less than optimal knowledge creation o Traditional Project techniques dont help here Creation of knowledge is not sequential Captured of well knowledge

- Failure of Project Teams 30-40 types of teams o There are internal issues Could be rectified by training or reforming groups o Every Part of the organisation has their own agenda Creates clashes when formulate a project team How can they work more effectively How can they work into the organisation more effective

Forms of Knowledge Management - Structural Models to capture tacit knowledge - Different for each firm The Hypertext Organization (IMAGES form hierarchy to project layer in organisation) http://m3ly4.blog.binusian.org/2010/03/08/hypertextorganization/ o 2 layers of organisation: business systems, projects establish a permanent temporary organisation Permanent way of creating and disbanding temporary teams These have an ongoing life because they always exists To capture the knowledge to create Need to create vertical and HORIZONTAL link for knowledge to flow o Project groups allow horizontal knowledge sharing between teams (innovations) also communication the business operation to understand need and requirements of consumers (vertically) o Employees move across these layers and have to be flexible in terms of work role

The Network Organization o Partner up with other firms of skills that we need on a project basis o Network mechanisms, associations, personal exchange, joint learning teams o Problems: How to find the party thats like the network broker Who will they trust to broker project to be done and pick who will be involved Knowledge hoarding and making available to themselves Spill over problem Information become available to competitors Free riders Benefit from activates but dont contribute to knowledge creation

o Brokers Need to manage these problems TO create normative values and trust The Flat or Team-based Organization o Self management and Internal consulting There are too many levels in the hierarchy There had become lots of downsizing including stripping layers of hierarchy So there is less vertical knowledge flow, spreads more horizontally and more quickly Speed to market becoming all important to these days Now lot of self-managing teams Manager only set goals and targets; team works out for themselves and break down their own functional barriers Improving informal communication with organisation hence informal knowledge can move up and down

- Process Models Synchronise and Stabilise o Vertical and horizontal relationships, stage gates, continuous prototyping Process of rapid prototyping continuously and then sort out the problems and iron out any bugs, create vertical and horizontal links Product development team Divide it up functionally of the product o Create horizontal links by creating mentors and critical friend (from another team who review it and make suggestions for improvement) for everybody o Vertical communication to the manager of the team and the overall product. o Every month put all bits together into prototype, see what the bugs are then iron out the problems Works in the IT industry because its cheap and easy and quick to create a prototype Wont work in manufacturing e.g. prototype of a ship is too expensive and feasible Digital economy, ideal for integration of activities for prototyping. This is why for a long period of time continuous upgrading was irritating for consumers so now they prototype until its worth for market then upgrading on a yearly basis Kanos Classification of Customer Requirements (understanding strategic focus on the firms, collection of knowledge) - Dissatisfiers

attributes that are expected but not delivered o create negative sentiment towards product/ service o Sit with conformance view of the worlds

- Satisfiers Attributes that are sought by customers and satisfy needs Fitness for use view of the world o Something that would do consistently and reliably what they want them to do and are prepared to pay for that - Delighters attributes tapping latent needs of customers o Needs that are not important until something stimulates them o Light-bulb moment; see how this can fit in into my daily life - Firms set up systems to collect knowledge but different kinds of knowledge are collected about these things o Only want to seek Dissatisfiers Look at customer complaints Focus Satisfaction o Collect information about how satisfied they are through various tools Focus on delighters (informal knowledge) o Hard to collect o Idea of getting close to your customers is important Begin to understand their latent needs, through observation and conversation involvement o Its not written down; cannot formally get customers to tell latent needs Data Collection Techniques - Customer Surveys and Customer Feedback Cards focus on satisfaction and dissatisfaction - Focus Groups

satisfaction and delighters

- Direct Customer Contact Involvement with the cocreation of the product o Providing value adding services in conjunction the with provision of the product - Customer Complaints Dissatisfaction Data Analysis Techniques - Tree and Affinity Diagrams - Customer Satisfaction Analysis Satisfaction = Quality / Needs & Desires Dont get to hear about their customers unless really annoyed and lodge a complaint Those who focus on dissatisfaction, formal (court) complaints are the only form of contact they really have Most look at satisfaction o Quality is measured by attributes of product/service quality Which ones are they looking for and which ones are being supplied Not market based, all doing is collection info on existing customers Dont know about competition o Or other consumers who dont purchase product/service o Limiting organisations o Dont know where they fit into the market o Why people choose them o If you look at dissatisfaction too you can look at places from improvement and innovation o If only satisfying the existing; not much need to innovate and improve, only time there is an opportunity is when current customers express dissatisfaction - Market Perceived Value Profiles

Value = Quality / Price rank key attributes on importance and get customers to rate them in relation to competitors out of 100 Put against price that is charged for products Then look at value map that gives much more market information on the way they sit compared to competition o On or under value line the you are providing valued goods if over then inferior quality at a higher price o The further below the line, the higher the value

http://www.cval.com/images/value-map-new.gif See where fit against competitors; see what attributes competitive and what are uncompetitive

Problem is that its a dynamic process

Product Life-Cycle Attributes (How they change overtime) - Need to understand to know how to collect the knowledge about consumers in a changing marketplace - Latent (Delighters) Customers dont appreciate full value when first bought or new to market but overtime customers become aware of them and can extend life-cycle of the product and latent attributes become more important - Desired (dissatisfiers not being there) (satisfiers) Customers not willing to pay for but might consider when looking at a product

- Unique Competitors dont have; goal of any innovation Can charge premium price until competition can copy attribute - Pacing Some important early in life-cycle and then fade or become more important later

At what stage to these attributes are becoming more/less

important - Key (dissatisfiers if not there) (satisfiers) customers are focused upon -Fading Less and less important - Basic Desired (dissatisfiers not being there) Are expected and if not there they wont even look at the product

The Ford Territory (Product attributes lead to innovation in product life-cycle)

- An attempt to create something that was customisable to the needs of different customers Looked at general market to see what are consumers looking for Different groups Market was divided up into existing characters of vehicles o Can we design something that can be customised into these slots? o Have different combinations to meet needs of consumers

Attributes of Product Quality (How to translate, focus on innovative efforts)

- Performance Handling, Ride People mover, SUV, needs car-like handling/ride Invest developing suspension/ steering systems make it work Speaking to consumers knows where we have to improve to innovate on

- Features Tiered Seating, Storage Bins, Accessories Flexibility in seating (5-7 seat) Different storage capability (wet bin for wet gear) In-car fridge - Reliability - Conformance - Durability - Serviceability - Aesthetics - Perceived Quality Better than imported models Why buy one of these when you can buy from a competitor Stages in Value Management (RECAP) - Conformance First one used Conforms to specifications and competition doesnt Wont do harm and injury Focuses on dissatisfiers - Customer Satisfaction (limited view) Focus in 1990s o Want to understand what makes them satisfied

- Market Perceived Quality and Value Now interested in all three o What really creates value in MP for customers (MORE THAN SATISFACTION) o Delighters are important - Customer Value Management (look at all three consumers)

What customisation is all about How can it be provided and bundle it up with other services to continue value of that product Not just interested in one-off transactions but rather developing a relationship with consumer Also segmentation comes into play o High-end users; customer value satisfaction strategy can be developed for them