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					                                                     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 [1], [2] presented the Balanced Scorecard as a mechanism for reporting an
organization’s performance with respect to its strategy. Andersen et al. [3] 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 [4] developed



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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 [5] 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 [6], and
King [7]). 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 [4] 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.


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    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.


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             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.




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                                  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.




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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.

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                                                                        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




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