International marketing management lesson 04

66 International Marketing Management LESSON IMPLEMENTING TOTAL QUALITY MARKETING CONTENTS 4.0 Aims and Objectives 4.1 Introduction 4.2 Concept of Total Quality Marketing 4.3 Essential Elements for Implementing Total Quality in Marketing 4.4 Implementing Total Quality Marketing: The Role of Human Resource Management 4.5 Conducting Cost/Benefit Analyses of Implementing Total Quality Marketing 4.5.1 Common Approaches 4.5.2 Calculating Costs 4.5.3 Calculating Benefits 4.5.4 Intangible Benefits 4.6 Using the Seven Management Tools and Planning Tools in Marketing 4.7 Let us Sum up 4.8 Lesson End Activity 4.9 Keywords 4.10 Questions for Discussion 4.11 Suggested Readings 4.0 AIMS AND OBJECTIVES After studying this lesson, you will be able to: Describe the concept of total quality management Know how to implement total quality marketing Describe the role of human resource management in total quality marketing Discuss the new management tools in marketing 4.1 INTRODUCTION Having achieved production quality, aggressive foreign firms are cleverly shifting emphasis to total quality marketing, which is a dynamic market-driven concept that goes beyond the currently popular total quality management approach It centers on customer satisfaction as a way to achieve solutions to business problems It is a market-driven idea that stresses customer satisfaction as crucial to the success of a business in a highly competitive modern business world The concept is an enhanced version of the marketing mix the familiar "4 P paradigm" in marketing Thus, by incorporating quality into their product, price, promotion, and distribution strategy, firms can regain market shares; and can prevent further erosion of market shares to aggressive foreign competitors from Japan, Germany, and the Newly Industrialized Countries (NICs) By not focusing on markets, firms risk losing their businesses to aggressive foreign firms 4.2 CONCEPT OF TOTAL QUALITY MARKETING Total Quality in Marketing integrates the two areas of marketing and quality management and demonstrates how they are mutually compatible and complementary Its primary focus is to assist managers in applying total quality principles to the overall marketing management process-preparing for a more highly competitive marketplace Practical guidelines and processes are offered on how quality initiatives impact planning, organization, implementation, and quality control Total quality management has been defined as "a management philosophy embracing all activities through which the needs of the customer and the community, and the objectives of the organization are satisfied in the most efficient and cost effective way by maximizing the potential of all employees in a continuing drive for improvement." Total quality management has been the fundamental business strategy of the world's leading organizations throughout the 1980s In some developed countries such as Japan, the United Kingdom and the United States of America, a number of organizations have adopted TQM as a way of life for the continuous improvement of the quality of their products and services to their customers Quality, to these organizations is the 'totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs." In the context of service, quality is about putting the right service in the hands of the customer, at the right time and price It is therefore, not surprising that these organizations have focussed their products on niche markets, rather than selling standard mass-produced goods This reaction has been the response to the fierce competition on the domestic and international business environment, technological changes, pressures to demonstrate value for money (especially in service-oriented organizations), and consumer sophistication, among others Today, we are witnesses to quality products and services from Japanese, British and American organizations Total quality marketing is a dynamic idea that goes beyond the currently popular total quality management approach in solving business problems It is a market-driven idea that stresses customer satisfaction as crucial to the success of a business in a highly competitive, modern business world The concept is an enhanced version of the marketing mix—the familiar "4 P paradigm" in marketing Thus, by incorporating quality into their product, price, promotion, and distribution strategy, firms can regain market shares and can prevent further erosion of market shares to aggressive foreign competitors from Japan, Germany, and the Newly Industrialized Countries (NICs) 67 Implementing Total Quality Marketing 68 International Marketing Management 4.3 ESSENTIAL ELEMENTS FOR IMPLEMENTING TOTAL QUALITY IN MARKETING The initials TQM have become one of the most popular acronyms in business management literature Total Quality Management, or TQM, involves the numerous quality programs that many businesses have implemented worldwide in the last three decades First implemented by several large U.S manufacturers following the overwhelming success of overseas competitors, including those in Japan and Germany, TQM has rapidly spread to large retail and small suppliers as well It is viewed as a new organizational culture and way of thinking, and its implementation is built around two essential courses of action: Define customer quality and value A quality product, defined from the customer's perspective, means: 1) a) It performs well b) It has a competitive price (efficiency) c) You provide it quickly and adapt it when needed (responsiveness) Customer value is found in the combination of all three concepts: quality, price and speed In order to increase customer value, companies should ask their customers what is most important to them in the quality-price-speed equation Measure the company's business operations Each department involved in the business process - marketing, operations, R&D, accounting, purchasing, information technology, human resources, warehouse, sales, etc - contributes value in some way to increase or to be better adapted to the customer value equation 2) 4.4 IMPLEMENTING TOTAL QUALITY MARKETING: THE ROLE OF HUMAN RESOURCE MANAGEMENT Globalization in the business theater is driving companies toward a new view of quality as a necessary tool to compete successfully in worldwide markets A direct outcome of this new emphasis is the philosophy of Total Quality Management (TQM) In essence, TQM is a company-wide perspective that strives for customer satisfaction by seeking zero defects in products and services Making quality improvements was once thought to be the sole responsibility of specialists (quality engineers, product designers, and process engineers) Today, developing quality across the entire firm can be an important function of the Human Resource Management (HRM) department A failure on HRM's part to recognize this opportunity and act on it may result in the loss of TQM implementation responsibilities to other departments with less expertise in training and development The ultimate consequence of this loss is an ineffective piecemealing of the TQM strategy Thus, HRM should act as the pivotal change agent necessary for the successful implementation of TQM Check Your Progress 1 What you understand by customer quality and value? How you measure the company's business operations? 4.5 CONDUCTING COST/BENEFIT ANALYSES OF IMPLEMENTING TOTAL QUALITY MARKETING In the 1980s, total quality management (TQM) was successfully adopted by a large number of U.S companies, including many device manufacturers In the 1990s, however, the usefulness and cost-effectiveness of TQM has received mixed reviews from a variety of quarters Manufacturers with an interest in this strategy are now reconsidering whether it is really the best fit for their companies Like any tool or methodology, TQM can be a success or failure depending on how well it is planned, implemented, measured, and encouraged Few would disagree that continuous improvement offers substantial benefits for manufacturers As a basic tenet of TQM, continuous improvement can enable manufacturers to meet the competitive pressures of the global economy head-on, and to develop strategies for making products that are both high in quality and commercially successful For device manufacturers faced with a competitive marketplace made up of increasingly demanding customers, continuous improvement can be more than merely a formal system of business management Companies that not continuously improve everything they for their customers may soon find themselves out of business The challenge for device company managers is how to determine whether implementing TQM or continuous improvement is a worthwhile effort This article explores several of the possible ways that manufacturers can use to analyze the value of investing in TQM, and presents the results of one such cost/benefit analysis 4.5.1 Common Approaches There are several commonly used methods for evaluating the performance of a business management system that can be applied to TQM However, not all such methods reveal enough information to enable the manufacturer to determine whether implementing such a system is the right strategy for the company Following are the several ways to look at TQM, with a brief commentary on the advantages and disadvantages of each Overall Business Performance: One approach that companies sometimes use to evaluate the contribution of TQM is to watch the overall performance of the company as the strategy is implemented According to this method, any change in business performance can be traced to TQM, and any company whose business is improving will find that TQM is an excellent strategy The problem with this method of evaluation is that it leaves open too many questions about the actual relationship of TQM to the company's performance Since many factors operate simultaneously to make a company function, it is really not possible to be certain that TQM alone is responsible for changes in the company's business Good business strategy, marketing and sales skills, and even the behavior of competitors can have an equally important impact on a company's results or performance Unless the whole organization works in synchrony as a well-oiled machine–and nothing in the organization changes except for the implementation of TQM–it is very difficult to isolate the contribution of TQM merely by watching the bottom line Cost of Quality (COQ) Approach: The cost of quality approach is scientific and logical, but it is also a technique that is difficult to implement As a result, few companies have successfully implemented TQM and used the cost of quality approach to determine and explain its success 69 Implementing Total Quality Marketing 70 International Marketing Management This approach seeks to assign the costs of a quality program to discrete categories that can be evaluated to determine what a company has invested to create a successful program The approach can fail for one of three reasons: the inherent difficulty in explaining its concepts, failure to establish a baseline of costs to be used as a point of comparison, or problems in calculating and assigning costs to proper categories such as prevention, appraisal, internal failure, and external failure While many companies use this method to quantify their reductions in cycle times, scrap, and rework, few take the necessary next step of converting this information into hard dollar figures Consequently, all their work to establish categories of costs is wasted, and they never manage to show how their quality management system is resulting in a gradual reduction of overall costs Return on Investment (ROI) Approach: This method is essentially a further elaboration of the cost of quality approach that emphasizes the financial aspects of a company's investments in TQM It enables the manufacturer to determine how much was invested, how much return there was on that investment during a specified period, and what the rate of return was With this information, the manufacturer can also calculate how long the payback period will be for the investment In simple terms, the ROI approach enables a company to determine how much it spends on TQM each year, and how much it saves through that investment Since these were the questions that were ultimately of interest to us, we selected this method to evaluate our company's implementation of a TQM program Applications and Assumptions: The tangible costs of TQM were measured in the same way that capital expenditures are commonly reported Costs were first estimated from current budget plans, and then confirmed from existing documents Cash flows, direct labor costs, and support labor costs were measured and tracked as part of normal business operations Similarly, the benefits of TQM improvements were manifested in existing measures of production efficiency, output, and scrap Measurements of direct tangible benefits were based on actual ones drawn from existing production management systems 4.5.2 Calculating Costs The money that a company invests in TQM is generally spent in one of two ways: either as part of the initial costs of implementing TQM, such as training, education, materials, people's time away from work, and so on; or as part of the ongoing expenses required to maintain the program without significant changes Initial Costs The costs involved in initiating the TQM program consisted of two major items: training and team development The majority of initial training costs were opportunity costs, including the time of both the trainees and their employee trainers These costs did not involve cash flows out of the company, but were a trade-off for productive time Secondary to these opportunity costs were the costs of training materials and off-site activities used during the training cycle To create a common baseline, all employees received a basic level of TQM training focusing on concepts and examples In addition, everyone attended training sessions on the seven basic problem-solving tools For a smaller number of facilitators and others in leadership and technical roles, specialized training was provided on topics such as Statistical Process Control (SPC) and Design of Experiments (DOE) Implementation was considered to require more than formal training Team skills and team development were also considered major ingredients for success To ensure that the costs of team development were fully represented, a full year of team activity for each operator was included in the initial costs of implementation This team development cost was by far the most significant cost of implementation On the other hand, team training costs were not considered for the company's office and technical staff This omission was made deliberately, in light of the fact that many such staff already possessed the team skills required for their participation in the program Continuing Investment in TQM The continuing costs of reinforcing initial training and keeping teams in place are incurred annually However, actual out-of-pocket expenses are usually negligible; the majority of the costs occur through lost opportunities to manufacture products In the operations division that implemented this TQM program, all operators are members of their assembly-line team and are often also members of specialized teams, such as employee suggestion programs and task-oriented teams During the course of the year, it is expected that the typical employee's team-related activities will include regular team meetings, additional training sessions, management communication meetings, and meetings to prepare investigations and reports To enable employees to participate in these team activities, the division allocated 7% (150 hours per year) of the employee's total worktime 4.5.3 Calculating Benefits The benefits of implementing the TQM program came from three sources: reductions in manufacturing costs, reductions in scrap, and reductions in overhead costs Reductions in Manufacturing Costs: Calculations of manufacturing cost savings were based on figures drawn from the company's production management system Information provided by this system included both TQM-driven and engineeringdriven changes Total TQM-driven improvements were calculated as the fraction of the total improvement remaining after engineering project improvements had been isolated The manufacturing cost improvements are real reductions in cash flow, which were achieved through attrition and through reduced use of temporary employees Opportunity costs were not considered tangible savings Reductions in Material Scrap: Scrap reductions are usually the improvements most apparent to production line teams Programs to reduce scrap enable companies to draw a direct correlation between the contribution of a particular production team or operator and the output of their production line The money saved through such efforts can be readily measured, giving employees an immediate sense of value, accomplishment, and ownership In this program, floor scrap was categorized by type and source and ultimately reduced through the efforts of production line teams, scrap teams, the company's manufacturing and engineering groups, and suppliers By certifying its suppliers, the company was able to reduce the number of lots rejected and scrapped at receiving Material scrap was a measure tracked by the company's production management system Together with direct labor costs, scrap costs are among the most important measures of any significant change in production The scrap figures recorded for this report included material costs only; scrap-related labor was included under manufacturing cost reductions Reductions in material scrap represent actual cash flow savings that take the form of fewer component lots ordered Reductions in Overhead Costs: One of the TQM strategies used to attain continuous improvement on the manufacturing floor was to place both responsibility 71 Implementing Total Quality Marketing 72 International Marketing Management and authority for an activity as close to its source as possible A significant application of this strategy was the integration of the traditional quality control (QC) function into the production line Product and process quality were made the responsibility of each production line, to be carried out as an in-process effort rather than as a separate QC function In turn, the QC group was reorganized and given the task of auditing the production lines for compliance with their own procedures The result was a reduced need for QC personnel, which the company was able to accommodate through internal transfers and attrition Overall, these changes reduced production overhead by cutting both direct labor costs and employee benefits In conjunction with the TQM program, the company also negotiated new supplier agreements requiring quality improvements that permitted savings to be found in the area of incoming inspections In some cases, assured supplier quality enabled the company to eliminate incoming inspection altogether, and to move incoming materials directly to the production area The incoming inspection area also reduced overhead by implementing improved inspection methods 4.5.4 Intangible Benefits While companies always look for tangible benefits, they often forget to determine or really appreciate intangible benefits One of the biggest such benefits of TQM is the change in culture–that is, in the way people think, speak, and conduct day-to-day business in the organization Because of their heightened awareness and skill level in the organization, the employees who received TQM training are better prepared to capitalize on opportunities for improvement Similarly, such employees are also better prepared to solve problems in the most efficient and effective manner Any time there is a problem or issue, a cross-functional team is formed to follow the plan-do-check-act cycle of problem solving Because these employees are empowered by the TQM philosophy, their self-esteem is higher and they feel recognized and respected The final effect is that they feel good about themselves and the company, and they contribute at a higher level toward meeting organizational goals Another intangible benefit is that the organization as a whole is better prepared to satisfy customers with its products and services The team spirit developed during implementation of the TQM process removes functional barriers in the organization; employees look at one another as customers and strive to meet each other's requirements These are only a few of the intangible benefits that can be gained by implementing TQM principles Check Your Progress What you understand by Total Quality Marketing? What is cost of Quality Approach? 4.6 USING THE SEVEN MANAGEMENT TOOLS AND PLANNING TOOLS IN MARKETING Marketing researchers face varied and complex challenges when planning and executing marketing research projects It is, therefore, somewhat disappointing that the majority of efforts to improve the entire marketing research process have primarily addressed tools for collecting and analyzing numerical data, particularly using methods of statistical inference Systematic means for structuring research problems, planning research efforts, and collecting and analyzing qualitative data have been left virtually unstudied Yet, the nature of marketing planning and the analysis of qualitative data (specifically, verbal reports) actually are quite similar Both require the creative and insightful structuring of thoughts to surface patterns of thinking For instance, the planning of a research project requires careful insight into the formulation of the research question before any data collection methods can be thoughtfully selected This process means analyzing the thoughts of marketing managers (or other customers of research efforts) in order to surface the crucial research questions Similarly, the analysis of verbal response data (as from depth interviews or focus groups) requires a means of organizing the thoughts of many individuals to surface themes and issues in their thinking on a particular topic Tools found in quality management address these issues Organizations that have adopted methods of statistical quality control are familiar with the seven basic tools of quality management (Kume 1985, Gitlow 1990) These tools are primarily applied in the gathering and analysis of quantitative data Furthermore, they are typically applied to systematic improvement of business processes During the 1970s, a new set of tools were introduced in Japan that focus specifically on analysis of "verbal" information These tools have come to be known collectively as The Seven New QC Tools (or, sometimes, The Seven Management and Planning Tools) These tools are: Affinity Diagram, Relations Diagram, Systematic Diagram, Matrix Diagram, Matrix Data-Analysis, Process Decision Program Chart, and the Arrow Diagram Dissemination and application of these tools has been slow since being introduced in the USA during the mid-1980s Those few organizations that use these methods usually reserve them for analyzing "managerial" problems (primarily strategic planning) Few, if any, organizations have actually used these methods to address marketing- and customer-related issues We will now introduce each of these tools (at a conceptual level) and describe how each can be used in marketing applications 4.7 LET US SUM UP Total Quality in Marketing integrates the two areas of marketing and quality management and demonstrates how they are mutually compatible and complementary Its primary focus is to assist managers in applying total quality principles to the overall marketing management process-preparing for a more highly competitive marketplace Practical guidelines and processes are offered on how quality initiatives impact planning, organization, implementation, and quality control Total Quality Marketing is a dynamic idea that goes beyond the currently popular total quality management approach in solving business problems It is a market-driven idea that stresses customer satisfaction as crucial to the success of a business in a highly competitive, modern business world The concept is an enhanced version of the marketing mix–the familiar "4 P paradigm" in marketing For device manufacturers faced with a competitive marketplace made up of increasingly demanding customers, continuous improvement can be more than merely a formal system 73 Implementing Total Quality Marketing 74 International Marketing Management of business management Companies that not continuously improve everything they for their customers may soon find themselves out of business 4.8 LESSON END ACTIVITY “Total Quality Marketing involves customer expectations and perceptions.” Do you agree with the statement? Give reasons for your answer 4.9 KEYWORDS Total Quality Marketing: It integrates the two areas of marketing and quality management TQM (Total Quality Management): A company-wide perspective that strives for customer satisfaction by seeking zero defects in products and services Cost of Quality Approach: It seeks to assign the costs of a quality programme to discrete categories that can then be evaluated to determine what a company has invested to create a successful programme 4.10 QUESTIONS FOR DISCUSSION Discuss the concept of Total Quality Marketing What are its utilities in international marketing? What are the essential elements of total quality marketing? Describe the role of human resource management in implementing total quality marketing Discuss the advantages and disadvantages of total quality marketing Check Your Progress: Model Answers CYP 1 A quality product, defined from the customer perspective means its good performance, competitive price and its timely availability A company’s business operations can be measured from a joint evaluation of its value involving marketing, R&D, accounting, purchasing, IT, HR, warehouses and sales etc CYP Total Quality Marketing: Total Quality in Marketing integrates the two areas of marketing and quality management and demonstrates how they are mutually compatible and complementary Its primary focus is to assist managers in applying total quality principles to the overall marketing management processpreparing for a more highly competitive marketplace Cost of Quality Approach: The cost of quality approach is scientific and logical, but it is also a technique that is difficult to implement As a result, few companies have successfully implemented TQM and used the cost of quality approach to determine and explain its success 4.11 SUGGESTED READINGS PKVasudeva, International Marketing, Excel Books, New Delhi, 2006 Shyam Shukla, International Business, Excel Books, New Delhi, 2008 Philip R Catero, International Marketing Keegan, Global Marketing Management 75 Implementing Total Quality Marketing ... PKVasudeva, International Marketing, Excel Books, New Delhi, 2006 Shyam Shukla, International Business, Excel Books, New Delhi, 2008 Philip R Catero, International Marketing Keegan, Global Marketing Management. .. Quality Marketing 68 International Marketing Management 4.3 ESSENTIAL ELEMENTS FOR IMPLEMENTING TOTAL QUALITY IN MARKETING The initials TQM have become one of the most popular acronyms in business management. .. of Total Quality Marketing What are its utilities in international marketing? What are the essential elements of total quality marketing? Describe the role of human resource management in implementing