ality is the best business plan," John Lasseter, a pioneer of 3D animation and former chief creative officer at Pixar and Walt Disney Animation Studios, once quipped. For organizations navigating the complexities of today's rapidly changing business landscape, Lasseter's words hold significant truth.
Quality vs. Cost: The Misconception
Many organizations see quality assurance and the associated costs as a necessary evil—a drain on resources that could be better spent elsewhere. However, this perspective could not be further from reality. The Cost of Quality (CoQ) is not about the price of creating a quality product or service; it is about the cost incurred due to not creating a quality product or service. This includes rework, waste, and even loss of customers due to a product not meeting their expectations.
The Four Categories of Quality Costs
The American Society for Quality (ASQ), a leading authority on quality, divides the CoQ into four categories that executives must understand and control to maintain profitability. These include:
Prevention costs: These are costs associated with preventing defects before they happen by building a quality product from the start. This includes design review, supplier evaluation, preventive maintenance, and training.
Appraisal costs: Costs associated with evaluating and inspecting the products or services to ensure they meet the desired quality. This could involve testing, quality audits, and inspection equipment.
Internal failure costs: These costs arise when a product fails to meet quality standards while it's still within the organization. Consider costs related to rework, scrap, downtime, or even product redesign in extreme cases.
External failure costs: These are costs incurred when a product fails once it is in the hands of the customer. This includes warranty claims, returns, lost sales, and even reputational damage due to negative reviews.
Strategic Management and CoQ
Leaders at Fortune 500 companies and beyond should recognize the financial impact of CoQ. A study from Strategic Planning and Operational Excellence indicated that quality-related costs can be as high as 20-30% of revenue for many organizations. By understanding, measuring, and reducing CoQ, businesses can unlock hidden profits and gain a competitive advantage.
Strategic Management of quality begins with "Leadership Commitment." As a C-level executive, it falls on you to set the tone for quality within your organization. This includes promoting a culture of quality, allocating resources for prevention costs, and integrating quality objectives into your strategic planning process.
Investment in Quality: The Compounding Effect
Investing in quality can provide a compounding effect. While prevention and appraisal costs may be upfront and tangible, the costs of not investing—namely internal and external failure costs—are often more significant and damaging. They can incur legal liabilities, damage brand reputation, and erode customer loyalty—costs that are much harder to quantify and remedy.
Lean Management and CoQ
Lean Management principles can also play a critical role in reducing CoQ. By focusing on creating value for the customer and eliminating waste, Lean Management contributes to improved quality. Techniques such as Value Stream Mapping help to identify and eliminate non-value adding processes, thus reducing the potential for defects and lowering overall quality cost.
Operational Excellence and CoQ
Operational Excellence—another key strategy that directly impacts CoQ—strives to balance cost reduction with increased productivity. Tools such as 5S, Six Sigma, and Total Quality Management (TQM) can allow organizations to reduce waste, decrease defects, and optimize processes, thereby reducing the CoQ and contributing to higher profits.
Remember, as Peter Drucker correctly observed, "Quality in a product or service is not what the supplier puts in. It is what the customer gets out and is willing to pay for." As a C-level executive, strategically managing the Cost of Quality should be a priority in your organization. Not just because of the financial implications, but because of the lasting impact it can have on customer satisfaction and brand reputation.
CUSTOMER TESTIMONIALS
"As a consultant requiring up to date and professional material that will be of value and use to my clients, I find Flevy a very reliable resource.
The variety and quality of material available through Flevy offers a very useful and commanding source for information. Using Flevy saves me time, enhances my expertise and ends up being a good decision."
– Dennis Gershowitz, Principal at DG Associates
"As an Independent Management Consultant, I find Flevy to add great value as a source of best practices, templates and information on new trends. Flevy has matured and the quality and quantity of the library is excellent. Lastly the price charged is reasonable, creating a win-win value for the customer, Flevy and the various authors. This is truly a service that benefits the consulting industry and associated clients. Thanks for providing this service. "
– Jim Schoen, Principal at FRC Group
"If you are looking for great resources to save time with your business presentations, Flevy is truly a value-added resource. Flevy has done all the work for you and we will continue to utilize Flevy as a source to extract up-to-date information and data for our virtual and onsite presentations!"
– Debbi Saffo, President at The NiKhar Group
"As a niche strategic consulting firm, Flevy and FlevyPro frameworks and documents are an on-going reference to help us structure our findings and recommendations to our clients as well as improve their clarity, strength, and visual power. For us, it is an invaluable resource to increase our impact and value."
– David Coloma, Consulting Area Manager at Cynertia Consulting
"As a small business owner, the resource material available from FlevyPro has proven to be invaluable. The ability to search for material on demand based our project events and client requirements was great for me and proved very beneficial to my clients. Importantly, being able to easily edit and tailor the material for specific purposes helped us to make presentations, knowledge sharing, and toolkit development, which formed part of the overall program collateral. While FlevyPro contains resource material that any consultancy, project or delivery firm must have, it is an essential part of a small firm or independent consultant's toolbox."
– Michael Duff, Managing Director at Change Strategy (UK)
"Flevy is now a part of my business routine. I visit Flevy at least 3 times each month.
Flevy has become my preferred learning source, because what it provides is practical, current, and useful in this era where the business world is being rewritten.
In today's environment where there are so many challenges and there is the need to make the right decisions in a short time, with so much scattered information, we are fortunate to have Flevy. Flevy investigates, selects, and puts at our disposal the best of the best to help us be successful in our work."
– Omar Hernán Montes Parra, CEO at Quantum SFE
"FlevyPro provides business frameworks from many of the global giants in management consulting that allow you to provide best in class solutions for your clients."
– David Harris, Managing Director at Futures Strategy
"I have used FlevyPro for several business applications. It is a great complement to working with expensive consultants. The quality and effectiveness of the tools are of the highest standards."
– Moritz Bernhoerster, Global Sourcing Director at Fortune 500
SELECT CUSTOMERS
Since 2012, we have provided best practices to over 10,000 businesses and organizations of all sizes across the world—in over 130 countries.
Below is just a very small sample of our customer base.
Did you know?
The average daily rate of a McKinsey consultant is $6,625 (not including expenses). The average price of a Flevy document is $65.
Download our free compilation of 50+ Strategy & Transformation slides and templates. Frameworks include McKinsey 7-S Strategy Model, Balanced Scorecard, Disruptive Innovation, BCG Experience Curve, and many more.
Download our free compilation of 50+ Strategy & Transformation slides and templates. Frameworks include McKinsey 7-S Strategy Model, Balanced Scorecard, Disruptive Innovation, BCG Experience Curve, and many more.