Chapter 15: Managing Quality and Performance

• Organizational control


  The systematic process of regulating organizational activities to make them consistent with the expectations established in plans, targets, and standards of performance
• Four Steps of Feedback Control

  1. Establish standards of performance

  2. Measure actual performance

  3. Compare performance to standards

  4. Take corrective action
• Balanced scorecard


  Comprehensive management control system that balances traditional financial measures with operational measures relating to a company's critical success factors
• Key performance metrics


  • Financial performance
  • Customer service
  • Internal business processes
  • Potential for learning and growth
• Hierarchical control


  Involves monitoring and influencing employee behavior through extensive use of rules, policies, hierarchy of authority, written documentation, reward systems, and other formal mechanisms
• Decentralized control


  Relies on cultural values, traditions, shared beliefs, and trust to foster compliance with organizational goals
• Algorithmic control


  Use of software algorithms to set targets, measure performance, provide feedback, and decide rewards for employees
• Total quality management (TQM)


  An organization-wide effort to infuse quality into every activity in a company through continuous improvement
• TQM Techniques

  • Quality circle
  • Benchmarking
  • Six Sigma principles
  • Quality partnering
  • Continuous improvement
• Quality circle


  A group of 6 to 12 volunteer employees who meet regularly to discuss and solve problems affecting the quality of their work
• Benchmarking


  The continuous process of measuring products, services, and practices against the toughest competitors or those companies recognized as industry leaders to identify areas for improvement
• Six Sigma


  A highly ambitious quality standard that specifies a goal of no more than 3.4 defects per million parts. Has become a generic term for a quality control approach that takes nothing for granted and emphasizes higher quality and lower costs. A five-step methodology referred to as DMAIC (define, measure, analyze, improve, and control) that provides a structured way for organizations to approach and solve problems.
• Quality partnering


  Quality control personnel work alongside others within a functional area, identifying opportunities for quality improvements throughout the work process
• Kaizen, or continuous improvement


  Implementation of a large number of small, incremental improvements in all areas of the organization on an ongoing basis
• Budgetary control


  Process of setting targets and monitoring expenditures
• Responsibility center


  Any organizational department or unit under the supervision of a single person who is responsible for its activity
• Expense budget


  Outlines the anticipated and actual expenses for a responsibility center
• Revenue budget


  Lists forecasted and actual revenues of the organization
• Cash budget


  Estimates receipts and expenditures of money on a regular basis to ensure sufficient cash to meet an organization's obligations
• Capital budget


  Plan for investments in major assets to be depreciated over several years
• Zero-based budget


  Approach to planning that starts at zero and requires a complete justification for every line item in a budget
• Top-down budgeting


  Budgeted amounts for the coming year are literally imposed on middle- and lower-level managers
• Bottom-up budgeting


  Lower-level managers anticipate their department's budget needs and pass them up to top management for approval
• Balance sheet


  Financial statement that shows the firm's financial position with respect to assets and liabilities at a specific point in time
• Income statement


  Financial statement that summarizes the firm's financial performance for a given time interval, usually one year
• Liquidity ratio


  Indicates an organization's ability to meet its current debt obligations
• Activity ratio


  Measures internal performance with respect to key activities defined by management
• Profitability ratios


  State profits relative to a source of profits, such as sales or assets
• Financial


  Do actions contribute to improving financial performance?
• Learning and Growth


  Are we learning, changing, and improving?
• Internal Business Processes 


  Do internal activities and processes add value for customers and shareholders?
• Customers


  How well do we serve our customers?
• Five Step Benchmarking Process

  1. Plan
  2. Find
  3. Collect
  4. Analyze
  5. Improve