Quality Management Across Profit Models: From Big Splash to Long Tails

Conditions for business success changed from the industrial shops to the manufacturing organizations operating today. One particularly important condition for success is quality management in the creation and production of new products. There exist numerous scarcity factors that impact quality in the production process of slow time-to-market eras. These quality process enabling conditions do not exist in the new long tail profit models of abundance. The article examines a case for accelerated product process and concludes with recommendations. These recommendations may form the basis for accelerated quality management systems minimally impacting the vital importance speed at which products are developed, produced, and distributed.

Taylor and Scientific Management

As in any progressive endeavor, management advancements pushed industrialists and their institutions toward more effective and efficient means of achieving end results. Preceding the decline of agrarian economies in the 17th century, new social norms and political freedoms formed conditions necessary for a new model of enterprise and profitability. No longer limited to the holders of the greatest tracts of arable land, profitable ventures in industrial shops eventually grew into large manufacturing concerns. It is the manufacturing model of productivity to which this discussion will be concerned. Herein, examples of the historical pattern of new conditions of commercial success are presented.

Over time, more efficient technique and limited improvements in process decelerated productivity in industrial shops. Frederick W. Taylor sought to improve the efficacy of such productive pursuits when he wrote The Principles of Scientific Management. In this globally influential essay, Taylor identifies three causes for reduced production: natural soldiering, shared soldiering, and rule-of-thumb estimations. He sees both types of soldiering as an education issue but the third resulted in the scientific management movement. The guidance Taylor gave promoted dividing tasks that affected productivity from the worker/supervisor. The managers with better education and a wider understanding of the entire production process could then establish more efficient conditions under which labor could produce.

Figure 1: Forces of inefficiency and the corrective principle promoted by Taylor.

Taylor’s ideas were believed to provide greater productivity and set success conditions for profitability across industries and around the world. But Taylor himself believed that his ideas would eventually become part of a baseline of performance which would provide no substantial competitive advantage. “No system of management, no single expedient within the control of any man or any set of men can insure continuous prosperity to either workmen or employers” (Taylor, 1911).

Statistical Quality Management

Japan in the 1950s

When W. Edwards Deming and Joseph Juran lectured Japanese organizations in the 1950s, the Japanese businessmen in attendance sought answers to difficult problems faced after their military defeat in World War II. Through the use of disciplined management and statistical methods taught to them by Juran and Deming, Japanese manufacturers overcame serious limitations and cultural impediments. Since American competitors operated without these benefits, the quality of their products progressed at a much slower pace. Consumers rewarded the new level of quality they recognized in Japanese-company product s with increased sales. Over time, the quality programs of Japanese manufacturers resulted in greater profitability and set the bar for conditions of success in industry. “In the U.S. in the early 60s Japanese cameras of superior quality began to ease out the German-made high end cameras. Later in the 60s, Japanese cars began making inroads in the U.S, market while the following decade saw domination by Japanese manufacturers which began to disrupt the planned obsolescence of American goods” (Staton-Reinstein, 2005, p. 7).

Pareto’s Law

Within the business context of production, Juran applied the economic concept of Pareto’s Law more commonly referred to as the 80/20 rule. While not strictly split along such a ratio, quality problems in production manifest as a result of relatively few root causes. By identifying and controlling these at their origin, businesses pay prevention costs (Foster, 2013, p. 93) to avoid potential corrective actions farther down the value chain. Until these and other costs of quality exceed the failure costs according to the Lundvall-Juran model of trade-off, as illustrated in Figure 2, quality program investments produce acceptable returns. While difficult to estimate, the prevention and inspection costs regardless of the size of an organization average around 70 percent of total quality costs (Rodchua, 2009, pp. 39-40). This principle being applicable to quality management means that distribution in numbers of defects is uneven within a set of causes (Grosfeld-Nir, Ronen, & Kozlovsky, 2007, p. 2320). “Typically, a useful or ideal Pareto chart is one where about 20% of the attributes have an 80% weight in terms of relative frequency, thus revealing critical features. However, sometimes, a Pareto chart is less informative, because the different attributes occur with almost uniform relative frequency” (Grosfeld-Nir, Ronen, & Kozlovsky, 2007, p. 2318). Based on this necessary precondition, Deming and Juran concluded confidently and later proved that statistical methods of analysis would identify areas in need of improvement in product development life-cycles.

Figure 2: Quality costs and failure costs plotted along a conformity ratio of 0 to 1 result in a point where diminishing returns discourage additional quality practices.

Quality as Success Condition

Business Advantages

The business benefits from quality planning are improved reputation with customers, suppliers, industry critics and competitors. When partnership agreements require close collaboration and interdependence, quality practices ensure that the products of a company are reliable for their intended and explicitly defined purpose. Cost reductions from the elimination of waste as well as lower incidence of rework bring greater efficiency to the use of resources and capital. This directly increases profitability. All of these positive effects justify the slight reduction in rate of productive output necessary to implement quality management tools and techniques. However, the quality footprint within production brings strategic disadvantages.

Quality Disadvantages and Supplier Partnerships

Quality management implementations reflecting the trade-off between benefit and cost take into account more than materials, man-hours, and production times. The particular quality processes a business adopts reflect product planning constraints evidenced by the level of effort required to bring new products to market. There were high barriers to new entrants in most markets that existed in the 1950s through the 1970s. The high level of capital expenditure to get running and the highly immobile workforce made production infrastructure and the talent required to operate it scarce. The same conditions of scarcity made establishing supply chains difficult when existing suppliers relied heavily upon one client for revenue. The philosophy of quality of the era encouraged this sort of exclusive relationship as mutually beneficial to the partners. Client businesses would invest in the supplier’s development of a quality program and assure them of a minimum volume of product sales. As long as the quality levels of the supplier met the requirements of the client, the profitability and continued collaboration of the supplier would seem assured (Foster, 2013, pp. 226-228). Extrapolating the effort to establish such a partnership, the supplier development condition for success seems enough to dissuade any upstart. Last of the production conditions was the high lead time on new products. Since scarcity dictated the limited the quantity of materials, manpower, and suppliers accessible by any market participant, great care and scrutiny went into new product development. To be given serious consideration for introduction, market analysts had to project a significant volume of sales. Even then, unless the product continued to be a high revenue stream, production would be halted even in the absence of a replacement.

The Long Tail

The New Entertainment Economy

Another shift in conditions of success emerged in the 1980s. The new condition, dubbed the Long Tail (Anderson, 2004), identified a trend toward servicing product markets previously seen as unprofitable. Anderson relates that product offerings must be limited to only a few top selling variations due to the scarcity of man-hours, inventory space, delivery methods, and means of production. The real market may be much larger for variations of the same type of product, but scarcity results in no service being offered in traditional limited supply-and-demand markets. For various reasons, Anderson argues that new rules form the conditions for success in the new entertainment economy. “Now, with online distribution and retail, we are entering a world of abundance. And the differences are profound” (Anderson, 2004).

Figure 3: The long tail is a typical characteristic in the distribution of sales among all product offerings. Lower volume products, if serviced efficiently, can be as profitable in aggregate as top selling offerings in aggregate.

Long Tail Success Conditions

The new market brings characteristics that point to two new conditions for success. Companies seeking competitive advantages outside of traditional quality management processes, a baseline condition for ongoing production, allow the new rules Anderson discusses to guide them. First, with scarcity no longer a limiting characteristic of entertainment market media, companies can make everything. Shelf space is irrelevant and distribution is limited only by electronic delivery throughput. Second, costs of production are almost inconsequential consisting of only the direct cost of the power and disk space utilized for file copy operations and network transfer. Should degradation of quality occur during this production process, automated and calculated checks against the original and copy put the cost of quality at around the same as the cost of production. Even when turning attention to physical products, the on-demand model combines common material and process in the manufacture of all variances. For instance the binding, pages and ink required to produce a physical book do not differ significantly between titles. Third, introduce the long tail offerings by catering to the high volume product consumer. This is not an either/or decision for the previous reasons. Additional costs may be incurred but only offering low volume products presents an incomplete catalog of products. Even if offered at lower margins than the long-tail variances, historical customer data can help drive demand. “This is the difference between push and pull, between broadcast and personalized taste. Long Tail business can treat consumers as individuals, offering mass customization as an alternative to mass-market fare” (Anderson, 2004).

Quality Management under the New Success Conditions

An observable impact of the new product service model is that the focus of the failure cost analysis shifts to product categories and not individual variants. Historically, there exists a tautology between commercial success and quality in the realm of creative content such as video, music, and books from the retailer’s point of view. If it sells, the retailer considers it high quality and if it’s high quality it will sell. With such a depressed sensitivity to other measures of quality, the aggregate quality of the entire catalog of product variant becomes more important. However, measure of quality, as measured in sales volume, does not have a direct relationship with the size of collection variants. A study of long tail drivers reported that too many variants negatively impacts sales (Hinz, Eckert, & Skiera, 2011, p. 63):

[I]n the presence of search tools, we observe the emergence of a typical long tail demand distribution pattern such that demand becomes more evenly distributed and blockbusters lose importance. The share of purchased products indicates that the tail lengthens when additional products are on offer, which increases the average demand per customer, although on a diminishing scale. Too many products may decrease the average demand per customer, though.

Additionally, accelerated time to market impacts the new digital entertainment industry’s pursuit of additional or in many cases primary revenue channels. Some content producers have formed their business model around the sale of niche offerings. With failure costs significantly depressed and efficiencies of scale being leveraged due to the velocity of product production, these digital product companies find profitability. Even with a steady stream of offerings that do not meet traditional relative measures of success, quality remains sufficient to meet the consumer’s expectations. What follows is a case study of accelerated time-to-market within which the realities of quality practices within these new conditions for success will be examined.

Case Study of the New Success Conditions

In their study of new product development for engineer-to-order companies, Kumar and Wellbrock present a case study detailing a new product introduction process along with the cost saving opportunities, an important success condition created with quality processes. In the planning phase, the company incurs prevention costs by increasing the time spent on parameters of quality that seem well-understood. Taking ownership of information like this presumes that biases toward avoiding “known” requirements will not prevail in the face of more recent discoveries. Moving into the product design phase, prototyping helps the company assess its own capabilities. “The authors believe the company needs to split prototype activity into two parts: one that will have the ability to turn sample parts in one or two days to satisfy customer’s form, fit and function needs; the other which will concentrate on using the company’s production processes to assure the part will flow through the factory with high quality and a minimum of problems” (Kumar & Wellbrock, 2009, p. 4242). These prototypes solidify the understanding that can be passed to downstream value-adding activities. Activity in the process design phase revolves around determining the best use, configuration, and organization of people, materials, equipment, and facilities. The deeply collaborative nature of the interactions requires individual experts across the product introduction process to break out of their comfort zones and openly share their domain knowledge. The validation phase and the action phase contain continuous improvement practices to keep knowledge and requirements fresh. The quality considerations at this point should consist of iterative examination of assumptions previously gathered and being presumed as end product requirements. The results of these improvements are summarized in Figure 4.

Metric Old process New process
Total project lead-time 40 days 25 days
Projects on-time percent 87% 93%
First production run yield 78% 85%
Accuracy of product costs ±12% ±7%

Figure 4: Results of the new product introduction process indicate higher quality performance metrics.

Quality Guidance within the Long Tail Markets

The value of more granular customer appeal becomes a profitable endeavor in the long tail markets. Quality management and meeting requirements remain essential to the success of companies within these markets. The differences from traditional resource-limited markets and their quality practices result in a shift to the whole of a product catalog. Conditions allow for more frequent product cycles without incurring higher costs of failure. “Today, reduction of time in NPD offers a new source of competitive advantage” (Sun & Zhao, 2010, p. 351).To better guide these efforts, principles of the current engineering (CE) should shape the product development process (Sun & Zhao, 2010, pp. 352-353). “This technique bridges the gap between upstream design and downstream manufacturing by enhancing intensive information sharing and teamwork” (Sun & Zhao, 2010, p. 352). Extracting the essentials of CE results in suggestions for organizing and operating around new quality expectations and related success conditions:

  • Fewer silos within the product development process
  • Common ownership of information
  • Design for downstream value activities
  • Products should never leave the continuous improvement stage until retirement

References

Anderson, C. (2004). The Long Tail. Retrieved March 24, 2013, from Wired.com: http://www.wired.com/wired/archive/12.10/tail_pr.html

Foster, S. (2013). Managing quality: integrating the supply chain (5 ed.). Upper Saddle Creek, NJ: Pearson Education, Inc.

Grosfeld-Nir, A., Ronen, B., & Kozlovsky, N. (2007). The Pareto managerial principle: when does it apply? International Journal of Production Research, 45(10), 2317-2325. doi:doi:10.1080/00207540600818203

Hinz, O., Eckert, J., & Skiera, B. (2011). Drivers of the long tail phenomenon: An empirical analysis. Journal of Management Information Systems, 27(4), 43-69.

Kerzner, H. (2009). Project management : a systems approach to planning, scheduling, and controlling (10 ed.). Hoboken, NJ: John Wiley and Sons, Inc.

Kumar, S., & Wellbrock, J. (2009). Improved new product development through enhanced design architecture for engineer-to-order companies. International Journal of Production Research, 47(15), 4235-4254. doi:doi:10.1080/00207540801939030

Molina-Castillo, F., Munuera-Alemán, J., & Calantone, R. (2011). Product Quality and new product performance: The role of networkexternalities and switching costs. Journal of Product Innovation Management, 28(6), 915-929. doi:10.1111/j.1540-5885.2011.00847.x

Neureuther, B. D., & Kenyon, G. N. (2004). Quality improvement under budgetary and life-cycle constraints. The Quality Management Journal, 11(2), 21-32. Retrieved from http://ezproxy.umuc.edu/login?url=http://search.proquest.com/docview/213612571?accountid=14580

Project Management Institute. (2008). A guide to the project management body of knowledge (4 ed.). Newton Square, PA: PMI Publishing.

Rodchua, S. (2009). Comparative analysis of quality costs and organization sizes in the manufacturing environment. The Quality Management Journal, 16(2), 34-43. doi:http://ezproxy.umuc.edu/login?url=http://search.proquest.com/docview/213592434?accountid=14580

Staton-Reinstein, R. (2005). Deming déjà vu: What today’s quality professionals canlearn from the quality pioneers. Journal of the Quality Assurance Institute, 19(3), 6-9.

Sun, H., & Zhao, Y. (2010). The empirical relationship between quality management and the. Total Quality Management, 21(4), 351-361.

Taylor, F. (1911). The Principles of Scientific Management. New York: Harper Bros. Retrieved May 01, 2013, from Modern History SourceBook: http://www.fordham.edu/Halsall/mod/1911taylor.asp

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