Publisher’s Note: Ever wonder what it’d be like to get your MBA? For the next four weeks, Dr. Rick Franza takes you inside his classroom at Augusta University. Here is lesson #1 for your mini-MBA!
RICK: Inflation and unemployment data have been volatile along with equity markets, and our conflict with Iran has clearly added one more element of uncertainty that impacts our economy, supply chains, commodities, and national security. Given this backdrop, my goal this month is to distract you from the potential instability in the world.
I will go in lockstep with my MBA class on Operations and Supply Chain Management (O&SCM) to provide you with a “Mini-MBA” which will enhance your ability to compete in your markets.
During the first half of this semester, which began in January, my class focused on the analysis and improvement of processes, and while two of their remaining major assignments will continue to hone their process skills, our in-class discussions transitioned into other essential O&SCM topics. During March, we will examine Competing on Quality, Effectively Managing Inventory, Essentials of Supply Chains, and Reducing Lines in Service Environments, and I will mirror those lessons in this column. So, today’s column delves into the importance of competing on quality.
There are three main points I want to drive home when discussing the importance of quality and how it is managed relative to its impact on competitiveness in your markets:
- While quality does not necessarily win your firm business, the lack of quality will certainly lose your firm business.
- There are multiple dimensions of quality. You do not need to stand out in all of them, but you need to know which dimensions are most valued by your target market.
- The correlation between quality and cost might not be what you expect it to be.
Let’s explore each of these in a way that will allow you to leverage how you manage quality to effectively compete in your markets.
Quality as an “Order Qualifier”: In every market in which you compete, quality matters. When I use the term “order qualifier,” I mean that for your target market, there is a minimum level of quality they will require to consider your product for purchase. If your product is below that requisite quality level, it does not matter how inexpensive your product is and/or how fast you can deliver it; the customer will not consider it for purchase. Such a minimum level of quality might hold for multiple of the dimensions of quality discussed next. So, while quality could be the distinguishing aspect of your product that wins a customer’s purchase, it is more often the case that your quality needs to be good enough to contend for your customer’s business rather than win it.
Dimensions of Quality: There are eight dimensions of quality, so when determining if you are competing on quality, you also need to determine which of these dimensions are most valued by your target market. Those eight dimensions are:
- Performance: The primary operating characteristics of your product, such as the acceleration of your automobile, the processing capability of your computer, or the service area of your cell phone provider.
- Features: The added “bells and whistles” that supplement basic functioning, such as a heated steering wheel on an automobile or a camera on your cell phone.
- Reliability: The probability of a product malfunctioning or failing during a specific timeframe, like your automobile not starting or your computer not connecting to Wi-Fi.
- Durability: A measure of the product’s life, both from a technical and economic standpoint. Examples include the length of time an alkaline battery lasts or how long your tires last on your automobile.
- Serviceability: The speed, ease, and cost of repair. Your automobile provides another excellent example for this dimension.
- Aesthetics: Anything to do with the senses, but primarily deals with how the product looks. Clothing, autos, and golf clubs are good examples of items customers judge aesthetically.
- Perceived Quality: Reputation…for example, for those of my age group…Maytag for reliability and Volvo for safety (performance).
- Conformance: The degree to which a product consistently meets expected design/operating standards. Think Honda and Toyota, as their cars are consistently what we expect them to be.
As you compete on quality, be sure to understand which of these dimension(s) your target market values the most.
Quality and Cost: Many believe that quality and cost are inversely correlated. That is, to produce a high-quality product costs more. While this is likely true for the dimensions of high performance, certain features, and aesthetics, it is not necessarily true for reliability, durability, and conformance. Typically, if you produce products that are unreliable, inconsistent, or have short useful lives, your overall costs will be higher due to having to fix and/or replace your products that customers will likely not buy again. That creates another cost in terms of lost customers. The reason companies like Honda and Toyota are so successful is that when products are consistent, reliable, and durable, you have very low costs of repair and replacement, and you create brand loyal customers. So, while some dimensions of quality are expensive, there are others that save you money.
I hope you found today’s “Mini-MBA” lesson on competing on quality to be valuable, and you will return for next week’s lesson on effectively managing inventory.
