"Business Action Plans - PDF"
Dror UTILIZING QFD FOR TRANSLATING BUSINESS OBJECTIVES INTO ACTION PLANS Shuki Dror Dept. of Industrial Engineering and Management, Ort Braude College, Karmiel, Israel ABSTRACT Selection of appropriate business action plans is an essential, but complex task as it requires an understanding of their implications for the strategic objectives in a given industrial situation. This work utilized the Quality Function Deployment (QFD) method as an instrument for ranking action plans of an individual organization in terms of its business objectives. Two methodological stages are suggested. In the first stage, a House of Strategy (HOS) matrix translates the improvement needs of a company's objectives into a list of competitive priority measures ranked according to their relative importance. A Mean Square Error (MSE) criterion supporting the selection of vital competitive priorities to be improved is employed. In the second stage, each vital competitive priority is broken down into its relevant processes and an operation matrix is constructed to translate the desired improvement in the processes into a list of action plans ranked by importance. Again, the MSE criterion supporting the selection of vital action plans is used. An illustrative example has shown that when a firm's vital competitive priority is 'stable product quality', an operation matrix extracts relevant processes and translates the desired improvement in failure costs, by processes, into the relative importance of the quality system action plans. Key Words: Strategy Deployment, Quality Function Deployment (QFD), Analysis of Variance 1. INTRODUCTION Kaplan and Norton ,  presented the Balanced Scorecard as a mechanism for reporting an organization’s performance with respect to its strategy. Andersen et al.  emphasized that the design method of the Balanced Scorecard facilitates selecting activities that match the unique strategic needs of an individual organization. In response to some critics concerning the balanced scorecard, Dror and Barad  developed 1 Dror a Quality Function Deployment (QFD) Matrix, called House of Strategy (HOS), which translates the improvement needs of a company's business objectives into a ranking of the relative importance of its competitive priorities. Tan and Platts  recently argued that short- term choices are difficult because the model’s strategic priorities – cost, quality, delivery and flexibility – are too highly aggregated to direct decision making correctly. This paper has extended the concept beyond that developed in the work of Dror and Barad by developing an operation matrix for selecting action plans in response to each vital competitive priority in the House of Strategy (HOS). 1.1 Quality Function Deployment (QFD) The QFD technique was developed in 1972 at Mitsubishi, and was gradually and successfully adopted by U.S. and Japanese firms during the 1980s and the 1990s (see, e.g., Bossert , and King ). Typically, the approach is described in terms of a four-phase model, consisting of four successive stages or matrices: (1) overall customer requirement planning matrix (also called the House of Quality), (2) final product characteristic deployment matrix, (3) process plan and quality control charts, and, (4) operating instructions. The House of Quality (HOQ) maps the WHATs representing the customer-desired product attributes (customer voice) into the HOWs – technical characteristics as viewed by the R&D staff. 2. METHODOLOGY 2.1 House of Strategy (HOS) matrix Dror and Barad  built on the House of Quality (HOQ) by developing a House of Strategy (HOS) for translating the improvement needs of a company's business objectives (market share, marginal profitability and return on investments) into the relative importance of its competitive priorities (fast delivery, reliable delivery, low price, high product quality, stable product quality, product range, new products, and employee involvement). Dror and Barad utilized the Mean Square Error (MSE) criterion for selecting the vital few competitive priorities to be improved. A short description of the splitting tool is detailed below: 1) Arrange the normalized required improvement levels of the k components in descending order. 2 Dror 2) While keeping this order, divide the k components into two groups, A and B . Group A consists of the first m components while group B comprises the remaining k −m components. 3) Calculate MSE (m) . 4) Find, MSE ( m* ) = Min [MSE (m)] . 1≤ m ≤ k −1 For more details about the formal procedure, see and Barad (2006). 2.2 Operation Matrices The role of the HOS matrix is to identify the vital competitive priorities to be improved. In a regular QFD, the output of the first matrix, which here represents the required improvement level in competitive priorities, is fed as input to the second matrix. Here the pass between the matrices is accomplished differently. For each vital competitive priority identified by the MSE criterion, an operation matrix is built. The WHATs in the operation matrix are processes relevant to each vital competitive priority. The HOWs in the operation matrix are action plans that might improve the processes. The operation matrix functions as a translator, interpreting the required improvement level of the relevant processes into the relative importance of the action plans. The selection of the vital action plans is carried out according to the method presented above. Therefore, the construction of an operation matrix necessitates having information about the relevant processes, their required improvement levels, the action plans and the hypothetical relationships between the relevant processes and the action plans. 3. AN ILLUSTRATIVE EXAMPLE An illustrative example for utilizing the above methodology in a furniture firm is now presented. The firm develops, manufactures and markets high-quality furniture products for customers in the local market. 3.1 HOS construction results Figure 1 presents the House of Strategy (HOS) matrix of a furniture firm. The components of the HOS are detailed below: 1) The business objectives (the WHATs): market share, marginal profitability and return on investments. 3 Dror 2) The required improvement level of a WHAT is calculated by multiplying the values of two factors – the importance of each WHAT and the capability gap between its desired state and its current state. The possible values were based on a Likert scale from 1 to 5. 3) The competitive priorities: fast delivery, reliable delivery, low price, high product quality, stable product quality, product range, and new products. 4) The relationship strengths between the WHATs and the HOWs assigned on a non linear scale (1, 3, 9): The 'market share' is strongly affected by 'fast delivery', by 'reliable delivery' and by 'stable products quality'. There is a strong relationship between 'marginal profitability' and 'stable product quality'. 5) The required improvement level of the HOWs is calculated by multiplying the required improvement level of the WHATs with the HOS matrix. Figure 1: HOS of a furniture firm. HOS Competitive priorities input Required Fast Reliable Low High Stable Product New improvement delivery delivery cost product product range products level of the quality quality business objectives Market share 0.48 9 9 3 0 9 3 3 objectives Business Marginal 0.38 3 3 0 3 9 0 0 profitability Return on 0.14 0 3 0 1 3 0 0 investments Required improvement HOS output level of the 6.36 6.78 1.44 1.28 8.16 1.44 1.44 competitive priorities Normalized 0.236 0.252 0.053 0.047 0.303 0.053 0.053 The calculation of MSE (m) , m = 1,2,.......,6 , are presented in Table 1. 4 Dror Table 1: The Partitioning Results MSE(1) MSE(2) MSE(3) MSE(4) MSE(5) MSE(6) 0.050 0.029 0.002 0.036 .056 .069 It is seen that the lowest MSE (m) is obtained for MSE (3) = 0.002 . Therefore, the vital few competitive priorities to be improved are the first three on the list: 'stable product quality', 'reliable delivery' and 'fast delivery'. 3.2 Operation matrix results Figure 2 presents the operation matrix constructed to improve the 'stable product quality' selected previously by the HOS as a vital competitive priority. The components of the operation matrix are detailed below: 1) The firm’s processes (the WHATs): customer service, development, raw materials warehouse, production, and delivery (internal processes) and service (external process). 2) The corresponding required improvement level of the WHATs: 0.07, 0.16, 0.04, 0.57, 0.11 (internal failure costs), 0.05 (external failure costs). 3) The action plans of the quality system (the HOWs): updating procedures/instructions, quality education and training, quality improvement team meetings, and planned maintenance (prevention costs) and incoming inspection of purchased material, in-process inspection and final inspection (appraisal costs). 4) The relationship strengths between the WHATs and the HOWs: there is a strong relationship between customer service, on the one hand, and quality education and training, on the other. The development process is strongly affected by quality education and training, and by in-process inspection. There are strong relationships between the raw materials warehouse process and incoming inspection of purchased material; between the production process and quality improvement team meetings; and between the delivery process and quality education and training. The service process is strongly affected by updating procedures/instructions, quality education and training, quality improvement team meetings, and final inspection. 5 Dror 5) The corresponding required improvement level of the HOWs. 0.14, 0.23, 0.30, 0.1, 0.1, 0,1, 0.02. Finally, the action plans ('quality improvement team meetings' – 0.30 and 'quality education and training' – 0.23) were selected by means of the MSE criterion. 4. CONCLUSIONS This work utilized the Quality Function Deployment (QFD) method as an instrument for ranking action plans of an individual organization corresponding to its business objectives. Through QFD matrices, connections between strategic needs and operation decisions are established. The QFD matrices ensure that every business objective defined by the enterprise strategy is linked to a set of action plans in the relevant area of operation that may eventually influence its future results. This QFD matrices warrant that proposed action plans are consistent with eventual business objectives. The classification of the WHATs in the operation matrix emphasizes the desire for continuous improvement in the processes. Future research may focus on constructing operation matrices for deploying other competitive priorities such as 'reliable delivery' and 'new products'. 5. REFERENCES 1. R.S. Kaplan and D.P. Norton, The balanced scorecard: Measures that drive performance, Harvard Business Review, 70, 1: 71-79, 1992. 2. R.S. Kaplan and D.P. Norton, Linking the balanced scorecard to strategy, California Management Review, 39, 1: 53-79, 1996. 3. H. Andersen, G. Lawrie and M. Shulver, The balanced scorecard vs. the EFQM business excellence model, 2GC working paper (http://www.2gc.co.uk/), 2000. 4. S. Dror, and M. Barad, House of Strategy (HOS) – From strategic objectives to competitive priorities, International Journal of Production Research, 44, 18-19: 3879-3895, 2006. 5. J. Bossert, Quality Function Deployment - A Practitioner's Approach, ASQC Quality Press, Milwaukee, WI, 1991. 6. R. King, Designing Products and Services that Customers Want, Productivity Press, Portland, Oregon, 1995. 7. K. Tan and K. Platts, Winning Decisions: Translating Business Strategy into Action Plans, University of Cambridge, Center for Strategy and Performance, 2007. 6 Dror Figure 2: Operation matrix of a furniture firm Action Plans Input Prevention Costs Appraisal Costs Incoming Quality Quality Updating inspection In- Processes education improvement Planned Final Normalized procedures/ of process costs and team maintenance inspection instructions purchased inspection training meetings material 1 Customer service 32 0.07 9 3 0 0 3 0 (order mistake) 3 Development 70 0.16 9 3 0 0 9 0 (inadequate design) 3 Raw materials warehouse (defective Internal 16 0.04 0 0 0 9 3 0 Failure Costs components) Production (defective 259 0.57 3 3 9 3 3 0 0 products) 3 Delivery 47 0.11 3 9 0 1 0 0 (hitting in a product) External 9 9 Service 24 0.05 9 3 3 0 9 (installation faults) Required improvement level of 2.80 4.74 6.04 1.97 2.06 1.92 0.45 Output Action Plans Normalized 0.14 0.23 0.30 0.1 0.1 0.1 0.02 7