Helen Paxton, Director of Communications
Rutgers Faculty of Management
201/648-5177 fax 648-1006
Email: [email protected]
Management Oriented Approach
A business that aims only at producing high quality output, or
aims only at being highly efficient, is making a big mistake. Efficiency
and quality are fine -- in fact absolutely essential -- but they're not end
objectives in themselves. Without a third, overriding objective,
effectiveness, they mean nothing.
Quality in a product is normally measured by its
characteristics, such as versatility, functionality, reliability, and
durability.
Efficiency in a process is usually measured by the ratio of
outputs to inputs. In a broader sense, it is measured as the ratio of
product characteristics -- those named in the previous paragraph -- to
inputs.
But, as anybody can see, a company can make a very high
quality product, and do so very efficiently, and still bomb out. Maybe
nobody wants it. Maybe nobody can afford it. Maybe it harms people.
For reasons like these, the whole process simply might not be
profitable to the company. Or even if it's profitable, maybe producing
this product just isn't what the company wants to be doing.
Prof. Ephraim Sudit's new book, Effectiveness, Quality, and
Efficiency: A Management Oriented Approach (Kluwer, 1997), brings all
these considerations together in a unified framework. He shows how
things once thought to be contradictory can be reconciled, in order to
assure that a company has an overall coherent strategy rather than just
a fragmented or partial one.
For example, people used to think of high quality and low
cost as tradeoffs -- thus the word "cheap" came to refer to quality as
well as price. If you wanted to make a really good product, they
maintained, you had to put more and more resources into it, and if you
got too obsessed with quality you'd price yourself out of the market. So
you had to sort of settle for medium quality at a medium price.
The TQM experts, Prof. Sudit shows, have thoroughly
dispelled that mistaken concept by demonstrating that building quality
in at every step really doesn't cost more. If a product is made right,
then it doesn't have to be relentlessly inspected to assure that it's
good enough and that it won't incur failure costs. Making a high quality
product is, despite the apparent contradiction, actually the cheapest
way.
Applying the same kind of thinking Prof. Sudit attacks
outdated ideas about managing people. He shows that, despite the
surface appearance of plausibility, companies don't really save money
by keeping wages and benefits low. Human resources are far and away
the most valuable assets a company possesses, and money spent on
keeping the people well-trained and loyal is an investment without
parallel. Management by incentive, risk-sharing, and empowerment
might cost more to put in place than management by tight control, but
the rewards far outweigh the costs.
But what about some of the more complex conflicting
demands that face companies? With six major constituencies --
customers, owners, employees, creditors, suppliers, and the
community -- companies are sure to run into conflicting demands that
seem to defy reconciliation. What do you do then?
You start, Prof. Sudit says, by viewing products and services
as "bundles of characteristics," and then you go on to consider the
values and goals of each constituency, and to work on linking
efficiency, quality, and effectiveness measures and integrating them
into an overall strategic planning process.
What happens is that, like the supposed tradeoff between
quality and cost, these other supposed tradeoffs will vanish too, under
further scrutiny. When everything is working toward effectiveness, in
accord with the company's well-formulated end objectives, everybody
comes out a winner.
EPHRAIM SUDIT is Professor of Accounting and Information Systems
and Director of the Professional Accounting Program at Rutgers. His
research has focused mainly on productivity, strategic cost
management, quality management, and pricing.
visit our web site at:
www.rutgers.edu/accounting/raw/gsm
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