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Total Quality Management For Micro-businesses in the Manufacturing Industry

Diplomarbeit 2008 106 Seiten

BWL - Unternehmensführung, Management, Organisation



1 Introduction
1.1 Motivation
1.2 Layout of This Thesis

2 Background
2.1 The Role of TQM in Business Today
2.2 Evolution of Quality
2.3 TQM, the Competitive Edge of the 21st Century

3 Quality Management in Micro-businesses is Different
3.1 The Definition of Micro-businesses
3.2 What Makes Micro-businesses Unique – The Business Environment of Very Small Companies
3.2.1 Ownership
3.2.2 Management
3.2.3 Organizational Structure
3.2.4 Capital and Resources
3.2.5 Objectives
3.2.6 Markets and Customers
3.3 Why Quality is Integral to Micro-businesses
3.3.1 Strengths of Micro-businesses
3.3.2 Weaknesses of Micro-businesses
3.3.3 Opportunities for Micro-businesses
3.3.4 Threats for Micro-businesses
3.4 Critical Appraisal of Research on Quality Management in Micro-businesses
3.4.1 Conclusion

4 Development of the Model: Micro TQM for Micro-businesses Framework
4.1 Two Cost Types as the Starting Point
4.2 Elements of the Model
4.2.1 Hypotheses
4.2.2 Context
4.2.3 Quality Awareness
4.2.4 Prevention Areas for Preventive Activities Internal Prevention vs. External Prevention Process Quality of Prevention
4.2.5 Correction Internal Correction vs. External Correction Process Quality of Correction
4.2.6 Customer Satisfaction
4.2.7 Performance Dimensions

5 Empirical Survey
5.1 Design/Methodology
5.2 Difficulties in Empirical Studies on Micro-businesses

6 Summary and Outlook

List of Abbreviations

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List of Figures

Figure 1: Egyptian Relief: Craftsman and Quality Control Inspector, 1450 BC

Figure 2: Positioning of TQM in the Quality Context

Figure 3: Categorization of Companies

Figure 4: Cost of Quality

Figure 5: Iceberg Model

Figure 6: Total Cost of Quality

Figure 7: Figure 8: Micro TQM for Micro-businesses Framework

Figure 9: PDCA Circle

Figure 10: Multiplier Rule of Quality Management

Figure 11: Information Flow in Supply Chains

Figure 12: Factors Having an Impact on Customer Satisfaction

Figure 13: KANO Model

List of Tables

Table 1: Statistics on Micro-business in the U.S.

Table 2: Definitions of Awareness

Table 3: Prevention Techniques in Small Businesses, Literature Review

Table 4: Areas of Prevention, Aggregated

Table 5: Internal vs. External Prevention

List of Definitions

Definition 1: Quality According to ISO 9000:2005

Definition 2: Definition of TQM, Freely Adapted From DIN ISO 8204

Definition 3: Micro-businesses

Definition 4: Cost of Quality

Definition 5: Cost of Quality, Sub-Categories

Definition 6: Quality Awareness

Definition 7: Prevention According to ISO 9000:2005

Definition 8: Internal Prevention

Definition 9: External Prevention

Definition 10: Correction According to ISO 9000:2005

Definition 11: Internal Correction

Definition 12: External Correction

Definition 13: Customer Satisfaction According to ISO 9000:2005

1 Introduction

1.1 Motivation

Total Quality Management (TQM) has already made its mark in history. Big players in major industries, such as Ford[3] and Siemens[4], have already aligned their business and production processes to this holistic management concept.[5] Over the past three decades there are more medium-sized companies applying TQM principles to their business.[6] Quality has been important in helping companies gaining a competitive edge in globalized markets. TQM with its extensive set of methods aims to embed quality awareness among all departments of a company where work affects the quality of the products.[7] There are thousands of articles and books written on how large and medium sized companies have successfully implemented of TQM.[8]

An extensive literature review and interviews of experts and owners of very small businesses (micro-businesses) indicate that this is the only industry where TQM systems have not yet been implemented. Although micro-businesses are pressured by their customers[9] to achieve high levels of quality in their products,[10] there is not enough research that addresses the issues of implementing TQM practices for micro-businesses.

Scientific literature does not provide answers to crucial questions such as:

- What methods of quality management are currently being in use in micro-businesses?
- How could a TQM system be tailored to meet the needs in a micro-business environment?

This thesis is part of a large-scale field study that recently has been launched by the Howe School of Technology Management at Stevens Institute of Technology, Hoboken, NJ. The study aims to reveal answers to the questions listed above.

This thesis forms the foundation for the subsequent field study. The main goals is to deploy a systematic TQM framework for micro-businesses that will be help micro-businesses understand how the quality management culture has an impact on a company’s success. Additionally, this thesis aims to develop a questionnaire that will examine the validity of the framework and serve as basis for the field study.

The focus is on very small manufacturers. First breakthroughs in quality management have been taken place in this industry.[11] Thus we can dispose of more than 100 years of research results in this field. Furthermore it is the manufacturer who is used to the first-movers role in new quality management models – another good reason for choosing this industry.

1.2 Layout of This Thesis

After an exposure of the problem in Chapter 1, Chapter 2 addresses the extraordinary meaning of total quality management for today’s businesses. In addition, this chapter highlights the historical development of quality and total quality management. Then Chapter 3 defines what this thesis means by the term ‘micro-business’ and gives some background information on peculiarities of this sector of the economy. This chapter also pinpoints differences in the implementation of quality management practices between micro-businesses and larger enterprises and integrates micro-businesses into the quality management context. For this purpose research papers are examined in an extensive literature review that reveals a serious lack of knowledge about the quality management practices of micro-businesses within the world of business sciences. In Chapter 4 existing research results and the authors’ and experts’ own ideas are combined into a new model of total quality management for micro-businesses, called ‘Micro TQM for Micro-businesses Framework’. The chapter highlights the core and the starting point of the model – the cost curves of prevention and the one of correction. Then each element of the framework is discussed in detail and interconnections explained. Chapter 5 provides information about the development process of the quality management questionnaire that is needed for the field-study that follows the work of this thesis. The chapter also highlights the structure and methodology of the survey and the questionnaire. Possible problems and solutions regarding the subsequent telephone interviews are addressed. Chapter 6 gives a brief summary of the thesis and discusses limitations of the work.

2 Background

In order to familiarize oneself with the Total Quality Management concept and its outstanding role in today’s management[12] of companies it is first of all important to comprehend the increasing need for quality products nowadays.

2.1 The Role of TQM in Business Today

Companies have to face a market environment where meeting increasing customer requirements has become vital for businesses. For several reasons customers are not as easy to satisfy as 100 years ago during the beginning industrialization. There are several possible reasons for the importance of taking increasing customer expectations seriously:

- Increasing economic wealth leads to higher expectations of products, e.g. higher performance, usability under extreme conditions, etc.[13]
- After decades where disposable products were highly demanded[14] modern economies have been experiencing a renaissance of the appreciation of workmanship in products. These days, customers require more and more durable and economical products.[15]
- In times of very similar products in terms of technology and design in many markets it has become increasingly difficult for competitors to differentiate their products from others.[16] Therefore quality and price have gained importance as sales rationale.
- In saturated markets companies need loyal customers[17]. Quality products can lead to loyalty to a brand.[18]

Thus, today’s managers need to understand the principle and the meaning of quality. There are many approaches for finding a general all encompassing definition for the concept of quality depending on the individual perspective.

According to Baker et al.,[19] quality from the customer’s perspective means if an organization creates items that are able to satisfy his needs at a price the customer is willing to pay and delivers them in the required amount and time to the right destination produces quality products[20]

The International Organization for Standardization, as most recognized publisher of definitions in the field of quality management[21], defines quality in ISO 9000:2005 as follows:

Definition 1 : Quality According to ISO 9000:2005 [22]

The definition implies that quality is intangible which makes it necessary for the organization to define the set of characteristics, for instance color, dimensions, weight of the product, in order to meet the requirements of the customer.[23]

Communication with and in many cases an interactive commitment of the customer himself in the product development process are crucial prerequisites to successfully address his needs through quality products.[24] The extent to which the customer will be integrated in the process of product definition and quality control depends on the various industries and business factors.[25]

According to ISO 9000:2005 quality is “Conformity to Requirements” which reflects an emphasis of putting the customer into the center of company focus.[26] This definition goes above and beyond a second approach which is “Conformity to Specification”. That means that specifications such as drawings and other methods to define up front what the future product is supposed to be able to perform, do and look like are put into praxis in the manufacturing process.[27] Nevertheless, Conformity to Requirements can only be achieved through conforming to specification and those products can be assumed to be “Fit for Purpose” - the third form of conformity.[28]

Needs and requirements, however, are subject to changes as technology advances and competitors create new needs. That means quality companies need to establish dynamic systems allowing them to update customer information from time to time.[29]

2.2 Evolution of Quality

By 3000 BC the Babylonians are said to have already used simple quality control techniques such as the measurement of weight and size of craftwork with the intention to create uniformity of their products and reduce losses.[30] An Egyptian relief that dates back to 1450 BC shows the first depicted evidence of sophisticated methods for stone cutting. Standardized and quality controlled blocks of stones enabled them to build structures of a never before known height and static excellence that have lasted without maintenance for thousands of years since their construction.[31]

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Figure 1: Egyptian Relief: Craftsman and Quality Control Inspector, 1450 BC[32]

It was the British Marine of the 17th century that first held its suppliers responsible for ensuring the quality of ship-timbers, sailcloth, and anchors. For this purpose the British Admiralty set standards for the maintenance of its fleet, such as following example found in an official document exposed by the Naval Department Library in Washington: Ships are to be “fit for his Majesty’s Service”[33] in all aspects.

Until the beginning industrialization in the early 20th century goods were typically produced in small workshops[34] with no more than a handful of employees and the owner of the enterprise participating in and overseeing the product generation process.[35] This changed dramatically when products began to be mass-produced in modern machine driven factories and on assembly lines. The upcoming complexity of industrialized processes required quality to be addressed as a separate unit, quality departments.[36] Full-time quality inspectors were appointed and conducted an in-process and final product inspection that could no longer be handled by the business owner himself.[37]

It was also about that time when highly sophisticated quality techniques emerged in big companies during the 1920’s.[38] For instance, Bell Telephone Laboratories, a leading telecommunication company in the US of the previous century, was the first to apply quality control charts to their production, which continues to help companies keep track of deviances in processes today.[39]

The militaries of all engaged nations in the Second World War used new written quality standards and documents in order to get their enormous manufacturing activities and new technologies managed.[40] After World War II, two American engineers, Dr. Juran and Dr. Deming, helped manufacturing enterprises of the reinvigorating world economy improve quality management methods with new models and theories.[41] They are considered to be the first “Quality Gurus”[42] of modern quality management. They promoted their management concept of Total Quality Control [43] in Japan and created the basis for a competitive advantage of Japanese companies over those overseas, especially established automotive companies in the U.S., such as Ford.[44] The results of globalized markets had been decreased profit margins and therefore the need for cost reduction.[45] The more quality activities became important in this context the more complicated it became for companies to meet customer requirements properly. Production in remote facilities in large batches led to difficulties in communication between customers and suppliers.[46] The ideal of customers directly articulating requirements at the location of manufacturing, as common practice on a workshop level of previous centuries, was no longer given.

With the Quality Gurus attracting attention in the business world, a new mindset was born, the epoch of Quality Assurance.[47] Quality assurance is a way of ensuring quality by focusing on prevention rather than on detection of problems.[48] From now on suppliers provided quality systems to their clients in order to create confidence in their ability to produce quality products.[49] Certification bodies, such as the TÜV Rheinlandpfalz, started auditing quality systems against accepted standards, such as ISO 9001:2000 which is the most wide-spread norm in the world.[50] Process-orientation and customer focus with internal customers being considered customers process-wise as well, serve as major foundation pillars of the ISO standard.[51]

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Figure 2: Positioning of TQM in the Quality Context[52]

Total Quality Management (TQM) was the logical next step in the evolution of the quality concept, enriching the Quality Assurance approach by elements that went beyond purely process-oriented approaches. TQM is an integral theory that also encompasses components such as mission, vision, leadership, and the market orientation of a company.[53] So far there is no commonly accepted definition of Total Quality Management.[54] Before the ISO 9000 coming into effect the German Industry Norm DIN ISO 8204 defined TQM as:

Definition 2: Definition of TQM, Freely Adapted From DIN ISO 8204[55]

This attempt at defining TQM makes it clear that TQM is a leadership method in contrast to Quality Management Systems according to the ISO 9000 series. Furthermore TQM includes all stakeholders of an organization and aims to ensure quality among all departments of an organization that affect quality directly.[56]

The quality movement spread from Japan to America, and finally to Europe.[57] Therefore it was those regions of the world to be the first in developing quality prizes[58]. Quality Awards appreciate excellence in providing quality products. Companies must show their quality commitment in the form of extensive quality manuals and are subject to audits by the award committee in order to gain these desired awards.[59] The Frameworks behind these awards, also called Excellence Models, are often not only used by the applicants for their preparation work, but also by organizations that are seeking competitive positions.[60] There might be internal reasons for going the “excellence way”, e.g. the need to improve performance, or external reasons, e.g. competitive pressure.[61] The most acknowledged Quality Awards are:

- Deming Prize (Japan),[62]
- Malcolm Baldrige Award (USA),[63] and
- EFQM Excellence Award (European Union).[64]

TQM, and the Malcolm Baldrige Award in particular, was the driving force behind U.S. American companies[65] regaining their competitive edge against their Japanese competitors in the 1980’s.[66] The development of TQM, however, is a journey with no end. In the 1920 Deming promoted the idea of never-ending improvement as the competitive edge for organizations.[67]

What began with Deming’s PDCA[68] methods for continuous improvement has advanced to holistic TQM systems at present time that became the new competitive edge.

2.3 TQM, the Competitive Edge of the 21st Century

Nowadays, major industries, e.g. the automotive industry, the IT industry, or the consumer electronics industry, are dominated by very large firms.[69] Those conglomerates such as General Motors or Siemens bind their suppliers by contract to comply with industry standards. To appear on an approved suppliers list, many companies want to prove their ability[70] to meet client’s needs through providing quality certificates issued to conforming companies by accredited certification bodies such as the TUV. If this is not applicable to them due to financial limitations, many clients will at least conduct external audits at the suppliers’ site in order to evaluate whether they can trust in the quality of goods and services offered.[71]

Those industry structures imply that the need for quality management is passed down the supply chain from the final customer to the smallest of suppliers.[72] Thus, companies face a natural selection process, where the ability of managing quality properly decides whether they are going to stay in the market or not. Quality is no longer seen as a competitive weapon but rather a pre-condition to survival.[73]

3 Quality Management in Micro Businesses is Different

This Chapter illustrates the characteristics of micro-businesses and explains why there is a need for a totally new understanding of quality management for these companies.

3.1 The Definition of Micro-businesses

Typically companies[74] are classified by their, number of employees, annual sales, orNAICS Code,[75].

The number of employees, however, is widely accepted as criterion to distinguish between companies of different size.[76] In this context the size of the workforce is used as a proxy for the resources a company can dispose of in general, such as capital, manpower, equipment, etc.[77] Quality Management Systems that are actively implemented usually go along with expenditures that require a sufficient amount of available resources.[78] Thus the number of employees is a good indicator as to which companies are at the end of the spectrum with a limited ability to perform quality activities – micro-businesses.

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Figure 3: Categorization of Companies[79]

In the quality management literature, companies are usually divided into three groups: large, medium-sized, and small companies.[80] Furthermore the category small companies is sometimes subdivided into two segments: very small and (“ordinary”) small companies.[81] Very small companies are also referred to as micro-businesses[82] or micro-enterprises.[83] Figure 2 shows the groups as they were identified in some related articles.

There is, however, no consensus about the boundaries of each group and subgroup. The one thing all analyzed sources have in common is that large companies are those with more than 499 employees[84]. On the other hand there is more uncertainty about medium-sized businesses. Sizes vary from between 100[85] and 250[86] employees, to 499 employees. The main group small businesses[87] are defined as are firms employing 249 people or less in reference to Raynold (1985). According to Stephens (2005), however, the cutoff is 99 employees for companies just being considered small. Especially important to this investigation though is the cutoff that separates micro-businesses from other small firms. The Micro-business Advancement Center[88] defines micro-businesses as “businesses with twenty five or less people including the owners” whereas Matlay (1999)[89] considers companies with less than ten employees as micro. On rare occasions one will also find five employees as the limit for micro-businesses[90].

Subsequently, the following definition found at Stephens (2005) shall be used:

Definition 3: Micro-businesses

The database of the SBA[91] a governmental organization for business research, provides some valuable basic statistics on micro-businesses in general and in particular micro manufacturers in New York which is the focal group of this study. Data from Table 1 has been extracted from this source.

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Table 1: Statistics on Micro-business in the U.S.[92]

Table 1 shows that during the evaluation period, 2003 until 2005 [93] , the number of micro-businesses according to the definition above has remained constant at about 90% of all American companies. That equals approximately five million micro-businesses for the entire country.

Also noteworthy is the fact that U.S. micro-businesses generate revenues of about $3 Billion, which is only 14.2% of all companies in the country. Although 9 out of 10 businesses in the U.S. are micro-businesses, they employ only a small fraction of the American work force (18%).[94]

The importance of micro-businesses for the American economy apparently does not lie in its job potential. In contrast this is actually true for small businesses on a whole[95]. Micro-businesses can be seen as the “seedbed for entrepreneurial talent”[96]. Since small business in general is often referred to as the “engine room of the economy”[97] one could denominate micro-businesses with the title “preheater of the enconomy”, because they have the potential to generate jobs and profit potential through growth. This is only true for entrepreneurial businesses with the will to grow, but not for mom-and-pop shops. More about these two types of micro-businesses is discussed in section 3.2 (objectives).

3.2 What Makes Micro-businesses Unique – The Business Environment of Very Small Compa nies

In their acknowledged work “Small Business Management”[98] Broom and Longenecker define small businesses as companies that have shown one of the following characteristics:

- Management is independent, usually the manager is also the owner
- Capital is supplied and ownership is held by an individual or a small group
- The area of operations is mainly local, workers and owners tend to be in one home community, although the market does not need to be
- The business is small compared to the biggest units in its field

Since micro-businesses are a subgroup of small businesses[99] above descriptions are applicable to them as well. Nevertheless, in our understanding more than one of Broom and Longenecker’s characteristics have to come together in order to call a company micro because micro-businesses differ from other small businesses in the following areas:[100]

- Ownership,
- Management,
- Organizational structure,
- Capital and resources,
- Objectives, and
- Markets and customers.

3.2.1 Ownership

Only about seven out of 100 small businesses of up to 100 employees[101] are publicly traded. Most companies conduct their Initial Public Offering (IPO), when the owners sell parts of their business, after a couple of years.[102] For the most part owners decide to make their company go public when the business has grown significantly and seems attractive enough for investors to buy shares.[103] Therefore it is very unlikely that the number of micro-businesses that are public traded reach these 7%. In contrast, one can legitimately assume that over 90% of all micro-companies are privately owned by the founder/s.[104]

3.2.2 Management

In the majority of cases the owner of micro-businesses is also the manager. Absentee ownership, which means hiring a managing director for the company, is very rare.[105] In many cases the owner runs the businesses independently without assistance from other managers. Moreover, hiring consultants is also very rare because of the weak financial base of most micro-businesses compared to large companies.[106] Therefore, networking is crucial for small business owners. For critical decisions they often seek help from entrepreneurial networking groups, former colleagues and friends.[107]

Quality management, however, is a day-to-day business where a lot of experience, specific knowledge[108] about the philosophy, methodology and techniques are required. In most cases, since there is no in-house quality manager available 24/7, the owner often has to perform quality tasks on his own.[109] The average micro-business owner puts a lot of engagement into his work since he is highly involved both intrinsically and extrinsically in his business with which he usually identifies himself. He cares for the company like others do for a child[110].

Management methods of micro-enterprises differ a lot from larger-sized companies. Short-term decisions play a much larger role for these businesses because firms of this kind have to manage their day-to-day survival.[111] The survival rate of companies in the Unites States that are still in business after three years is only about 60%.[112] By fighting the hardships of small business ownership the managerial focus is shifted from strategic issues to more operational ones.[113]

For example, during an interview that we conducted with a female entrepreneur, she expressed her worries about her handbag manufacturing business in Hoboken, NJ, in this way: “I always have to ask myself, whether there are enough orders within the next weeks to pay my employees, or if I have to tell them not to come to work for a while”.[114] When asked what importance strategic considerations hold for her, she replied that there simply is no strategic planning. Of course, this is her personal perspective and her management style cannot serve for general assumptions. But research on micro-business literature tends to show similar results.[115]

Finally, most of the business and manufacturing activities that are performed should not be called processes. They are less sophisticated in their structure and often lacking basic requirements for formal processes.[116] These include a formal written definition of the work performed, the definition of process owners, in- and out-put parameters and the assignment of specific resources.[117] One major reason why micro-enterprises lack formal processes is specifics in their organizational structure.

3.2.3 Organizational Structure

Most micro-businesses have a very elementary, organizational structure. There is not a complex hierarchy with many layers of authority, but rather a flexible system with the owner, or the family of the owner, as the manager(s) responsible for managerial, and production processes that some are personally involved in.[118] Employees’ work is usually closely linked to the work of the business owner who often works with his co-workers on projects as an active member of the group rather than just being in charge or delegating tasks.[119]

3.2.4 Capital and Resources

The biggest limitation for micro-businesses to grow is the lack of capital and resources. Generating sufficient cash flow to keep the business flourishing always used to be an issue especially for the smallest of all businesses.[120] Especially for entrepreneurial businesses, raising money is accompanied by overcoming many hurdles. Investors are rare when a business is still small and does not have a sufficient amount of assets for financial security.[121] Thus, family members (15% of start-up funds) and the owner’s credit card (15%) are often the only source of capital.[122] Those financial barriers can easily result in a lack of skilled employees, managerial competencies and other crucial input factors needed for reliable and stable value-added process.

3.2.5 Objectives

There are a variety of reasons why people are running micro-businesses. Quite a few of them are non-profit organizations.[123] But given there is a monetary motivation for the business owners several forms need to be distinguished. Some companies are only founded for the purpose of the owner’s self-employment. For many people it is satisfying to manage their own firm, to create success from scratch, to be independent from others, or to put an idea that has been existing in their mind for years into practice. Many owners simply take pride in performing their craftsmanship on their own account, which again has to do with the desire for independence.[124]

Many founders are real entrepreneurs who have the vision to find a market niche for their product where the company is able to grow in order to generate entrepreneurial revenues. Others just establish a mom-and-pop shop without having the ambition to grow at all. Studies trace this phenomenon back to the business reaching a ‘comfort level’[125], where sales are sufficient and stable enough to allow the owner a good living. Other groups of founders might have had great ambition but they end up running a stagnating business.

Objectives vary greatly and it is too simple to treat owners of micro-business as a homogeneous group of people. But, the smaller the company the more likely it is that the main objective of the business does not lie in growth but in self-employment.

3.2.6 Markets and Customers

For the most part micro-businesses perform their business activities within their own geographic area. They find their customers in local markets, hire staff in their close surrounding, and face the hardest competition with local competitors.[126] Of course, globalization has also become an issue for micro-businesses as already mentioned. But one of the major advantages that very small local companies have over non-local companies either non-domestic or domestic is that they are much closer to the (local) customer.[127] Frequent customer contact serves as a niche against the market power of bigger or stronger competitors and can compensate for weaknesses in other fields.

3.3 Why Quality is Integral to Micro-businesses

Based on the previous analysis determining business factors that make micro-businesses special among small businesses, this section will conduct a SWOT[128] analysis where those factors will be classified and rated. SWOT is a strategic management tool[129] consisting of a two part internal and external analysis. In the internal analysis, a resource based model, strengths and weaknesses of micro-businesses will be identified. The external analysis is an environmental model which highlights opportunities and threats coming from competitors, markets, and other external parameters. The SWOT analysis will discover areas where total quality management can be used as a tool for micro-businesses regarding the minimization of risks and maximization of performance.

3.3.1 Strengths of Micro-businesses

1. The chance of failures in production and business processes tends to be lower due to less complex procedures.[130]
2. Defects are very likely to be detected by employees working in production themselves. Micro-businesses face less fluctuation, thus employees are more familiar with processes. Since work areas are less delimited from one another, workers usually collaborate closely and check each others work immediately, reducing the occurrence of defects.[131]
3. Micro-businesses are characterized by a higher level of flexibility compared to bigger companies and can therefore adjust more easily to changing environmental conditions, such as changing customer requirements.[132]
4. Informal and flexible structures lead to a high degree of innovation.[133]
5. They have lower overhead costs.[134]
6. A strong commitment from the owner can be inspiring for his employees that usually know the owner personally.
7. Flat hierarchies can lead to high job satisfaction among employees.[135]
8. It is easier for micro-businesses to maintain closeness to their customer due to less bureaucratic organizational structures.[136][137]

3.3.2 Weaknesses of Micro-businesses

1. There is a notorious shortage of capital and other viable resources.[138]
2. It is uncommon for micro-businesses to play a dominating role in supply chain management, e.g. in terms of supplier development, due to the lack of market power.[139]
3. There is often a lack of management expertise, experience and knowledge[140] in crucial fields of business such as quality or finance, which often results in resources being allocated non-effectively.
4. There is often no understanding of, or effort put in strategic management techniques[141] which also results in resources being allocated non-effectively.
5. The applicability of many management tools nowadays depends on the existence and routine actualization of data. But the maintenance of documents like the written definition of processes is not often conducted in micro-businesses.[142]
6. Large companies have the power of economies of scale, which micro-businesses are missing. Therefore facing direct competition in the same market is not recommended for micro-businesses.[143]

The SWOT analysis can only unleash its full power by linking internal and external analysis.[144] The following threats and opportunities have been extracted from standard literature. Under each item there is a suggestion for how certain strengths or weaknesses of the section above can be addressed by micro-businesses in order to:

- Exploit opportunities by utilizing strengths,
- Overcome weaknesses by taking opportunities,
- Avoid threats by utilizing strengths, and
- Avoid threats by overcoming weaknesses.

In some cases threats can also be opportunities if managed favorably. Boundaries between these two categories are sometimes blurred.

3.3.3 Opportunities for Micro-businesses

1. TQM can be used as a marketing tool. Companies in saturated markets, such as the U.S., often use quality as their unique selling proposition[145] often actively communicated to the customer.[146] Labels such as “Made in Germany” often indicate quality products and serve as USP for the customer. TQM can be utilized as a tool for fostering quality improvement and positioning the company and its products in a high quality niche, one way to face a globalized competitive environment (weakness, point 6).

2. Having a TQM system established is a promising way to obtain capital from investors and banks, because quality-aware companies sustain operational excellence. This widely accepted technique serves well as an argument for investors. Thereby micro-businesses have the opportunity to counteract underfunding problems. (weakness, point 1)[147]

3. One trend in the new century that has attracted remarkable attention among research companies world-wide is the trend towards personalized products.[148] Web 2.0 is the name for this development in the IT sector. Many other industries have also had to shift their focus from what they were used to doing for the last decades.[149] The customer demands more and more non-standardized, or ‘customized’ products. Furthermore, customer expectations are changing at a pace like never before.[150] Large companies that maintain enormous administrative capacities are often too sluggish in their business processes to adequately meet changing customer needs. That is exactly the situation where the lean organizational structures of micro-businesses come into play. Flexibility, flat hierarchies, and closeness to the customer can be leverage in better serving changing customer expectations. (strength, point 3,7, and 8)

4. Due to his prominent status within the company,[151] the owner has the opportunity to influence the corporate culture directly through his own commitment. If he actively practices quality in his own work and communicates quality awareness to his employees they are very likely follow his example.[152] (strength, point 6)

5. Total Quality Management can help set the owner free of tasks that accrue on a daily base and keep him from more important duties. Prevention of problems saves time and money resources that are always a scarce and precious in micro-businesses. (weakness, point 1)[153]

3.3.4 Threats for Micro-businesses

1. In a globalized world markets grow together and local distance does not play the role it used to play. As Thomas L. Friedman accurately describes in his book “The World is Flat”[154], radical innovations in the field of telecommunication and logistics have leveled global markets and changed core economic concepts. Companies find partners, customers, and their suppliers easily over the internet. Quality and price have become main selling arguments.[155] In this business environment micro-businesses often cope with dealing with competitors they have not thought of before. Whoever had the standards of quality that are not in line with the market will have to retreat.[156] Therefore, micro-businesses must overcome their own weak points in quality management in order to survive. (weakness, point 3)

2. Many micro-enterprises supply parts to large corporations that require them to meet their quality standards.[157] Micro-businesses that are not fit in quality can easily fall behind competitors. In times of lean production, where it is common practice to reduce the number of suppliers, this is a serious threat for micro-businesses.[158] Statistics show that the U.S. economy has been underlying an increasing competition throughout many core industries.[159] (weakness, point 2 and 3)

3. Over the past years customers have become aware of their increased bargaining power[160] [161] and demand for outstanding quality. Sometimes industries that have never had to care about quality issues now have to deal with emancipated customers having concrete expectations for what quality they want to receive for their money. For instance, customer service in the airline industry had to be reinvented when former government owned airlines went public and had to face their competitors in the 80s of the last century.[162] In the service sector customer orientation drives the business. (strength, point 8)

4. Owners who clearly understand how to improve quality culture among their employees can avoid having issues with unsatisfied employees. In comparison to larger companies, it is much more difficult for micro-businesses to find qualified personnel.[163] One reason for this is that opportunities for career development within a micro-company are not often given[164]

Owners simply can not afford to lose trained staff. Dissatisfied employees emerge for a variety of reasons. Two matters that have the potential to taint the work climate are:[165]

- dealing with continuous customers complaints due to problems with quality or
- not having their work appreciated, e.g. not getting praised for excellent work
One core dimension in TQM is the focus on employees with the sub-dimensions job satisfaction, motivation and personal performance.[166]

(strength, point 6 and 7)

5. The weak financial base of many micro-businesses makes them vulnerable to serious quality problems.[167] A single big problem can mean being put out of business. Sometimes streamlining the entire business is the only way to keep the company from experiencing grave financial damage or even bankruptcy -TQM as “the avenue for survival”![168] (weakness, point 1)

This brief and condensed analysis has shown that TQM, if applied properly, can assumedly be used by micro-businesses as a powerful tool for coping with the challenges of the highly competitive business environment of the 21st century.

3.4 Critical Appraisal of Research on Quality Management in Micro-businesses

Not surprisingly, most of the research on success of companies through the implementation of total quality management techniques was conducted in the field of large or medium-sized enterprises.[169] This has a number of reasons:

- Large companies, in general, define processes for all quality related fields of their business.[170] In quality management literature, the formal definition of processes is being considered an essential element of Quality Management Systems.[171] For the most part small businesses, and especially micro-businesses do not define processes or must be required by their customers to do so.[172]
- The main focal point of theories for quality management ‘Gurus’[173], such as Deming, Juran, and Crosby, and the frameworks of quality awards, such as the Malcolm Baldridge National Quality Award (MBNQA) and the EFQM Excellence Award, is on large companies. The criteria for the awards is quite difficult for small businesses to meet. Stephens, Evans and Matthews[174] conclude that enterprises with less than 50 employees are probably too small to successfully apply the criteria of the Baldrige Award. Since the first award ceremony in 1989, the MBNQA has awarded a special award for small businesses, which shows that small businesses are treated as a distinct group or the exception to the rule.[175]
- Large companies are more interested in quantitative and qualitative research projects on quality management than small firms. They are more willing to fund research in this area.[176]


-Thomas C. Dandridge-[177]

In reviewing literature, research papers and relevant books about quality management for small businesses, it was recognized that those recommendations and models probably cannot be transferred one-to-one to micro-businesses.

Most literature on the TQM of small businesses, however, incorporates micro-businesses into the investigated group whereas only a few number of articles on this subject examined micro-businesses in particular as a discrete cluster (or subgroup) of small businesses.[178] This may be the case because micro-businesses are often treated as small businesses in an early stage of development, not taking into account that not all micro-business are going to expand in the future.[179] Research dedicated exclusively to micro-businesses is rare with some exceptions. There is one article by Cook, Chaganti, and Haksever that depicts the implementation of quality management practices in micro-businesses[180]. Another article by Baines et al.[181] investigates the relationship between the business and private life of micro-business owners. In this context the authors provide very personal insight into the particularities of the business environment of micro-businesses.

For the most part, authors of papers or articles on the TQM of small businesses try to transfer tools, which have been successful in managing quality in big companies, to small businesses. This phenomenon had already been discovered by Rodwell and Shadur[182]. In their article “What's size got to do with it? - Implications for contemporary management practices in IT companies” they observed that it is a common approach in research to simply reduce the complexity of well-known tools with the mindset of “one size fits all”, as happened in a recent dissertation of Alexander Bellabarba at the Technical University of Berlin (TUB).[183] Rodwell and Shadur criticize in their paper that widespread models and tools are originally tailored to big companies that can afford maintaining a quality management department. Furthermore, they state that those quality practices can only be applied to small businesses to a very limited degree since their organization and business processes differ significantly[184] [185]. Bellabarba, for instance, attempts to derive quality tools for new ventures from tool sets that are in use in big companies in his work on Quality Management Systems for entrepreneurial businesses. For example, he recommends that entrepreneurial businesses should apply a reduced form of FMEA[186] in order to improve their pre-defined processes. Formal process management, however, does often not exist in early stage companies according to other sources.[187]

Authors like Bellabarba do not take into consideration that small businesses and micro-businesses are consistently doing business fundamentally different.[188] Yet Penrose, in his 1980 work “The Theory of the Growth of the Firm[189] ’, supports Dandrige’s[190] statement, of “children” not being “little grown-ups”:


- Penrose -[191]

3.4.1 Conclusion

After conducting a detailed literature review it becomes evident that scientific work about Quality Management Systems for small business is scarce but exists. Articles expounding the implementation of TQM in the small business environment are usually written about companies of at least medium size. In fact, only one research paper could be found that analyzed the necessity and feasibility of implementing quality management practices in micro-businesses.[192] However, even this paper focused exclusively on one specific area of quality management – employee empowerment, teamwork, and training.

Research needs to be done to know to what degree micro-businesses have already put TQM systems in place, whether it has helped them become more successful, and what an ideal TQM system for micro-businesses can look like.

4 Development of the Model: Micro TQM for Micro-businesses Framework

The focus of this chapter is on developing a model that explains success of micro-enterprises based on the quality philosophy of an organization. Furthermore it shall reveal what factors must come together in order to establish a vital total Quality Management System that fits in a micro-business environment as depicted in previous chapters. For this purpose existing research results from literature will be incorporated, always bearing in mind this one question: How could a TQM system be designed that breaks with traditions of costly, time-consuming and highly precise tool sets that are common practice in medium-sized and large companies but over-engineered for micro-businesses?[193] There is the opportunity for a new framework to fill the research gap by considering the specific business environment of micro-businesses.

4.1 Two Cost Types as the Starting Point

Basically and essentially, the main purpose of companies is to generate value and as the result profit for their owners[194] besides some exceptions[195]. Otherwise no investor would be willing to put his money in businesses. The most basic equation of all business activity is ‘profit equals revenue minus costs’[196]. That means as a business owner you can increase your profit by either increasing your revenue or cutting your costs. All companies - whether large, small, or even micro - have to cope with this economic principle.

One major cost component is Cost of Quality:

Definition 4 : Cost of Quality [197]

Depending on the industry these costs sum up to between 20% to 40%[198] of sales which are significant numbers in terms of profitability.

Abbildung in dieser Leseprobe nicht enthalten

Figure 4: Cost of Quality[199]

Generally, Cost of Quality is grouped into two main cost types. Cost of Good Quality, with its sub-categories Appraisal and Prevention Costs and Cost of Poor Quality standing for Internal and External Correction Costs.[200]

Definition 5: Cost of Quality, Sub-Categories[201]

A good illustration for correction costs is the model of an iceberg. The Hidden Costs of poor quality overweigh significantly the visible costs such as reword and scrap costs. The problem that goes along with this is that Hidden Costs of quality are difficult to track and estimate.

Abbildung in dieser Leseprobe nicht enthalten

Figure 5: Iceberg Model[202]

Figure 6 depicts the curve progressions for the main quality cost types.

Abbildung in dieser Leseprobe nicht enthalten

Figure 6: Total Cost of Quality[203]


[1] See also appendix 3.

[2] See also appendix 2.

[3] Cp. Berger (2001), p. 72

[4] Cp. Steers and Nardon (2005), p. 323

[5] Cp. Kirchgeorg et al. (2005), p. 343

[6] Cp. Khosrow-Pour (2006), p. 251

[7] Cp. Campbell et al. (2002), p. 241 f.

[8] Cp. Furterer and Elshennawy (2005); cf. Rogers and Kaynak (1996); cf. Arcaro and Arcaro
(1995), cf. Smith (1977)

[9] mostly business customers: ibidem

[10] Cp. McLaney (2006), p. 445 ff.

[11] Cp. Berger (2001), p. 72

[12] Cp. Mishra et al. (2005), p. 14 f.

[13] Cp. Atkinson (1982), p. 180

[14] Cp. Hawkins (2005), p. 26 ff.

[15] Cp. Seaver (2003) p. 54

[16] Cp. Twiss (1992), p. 74 f.

[17] Cp. Khosrow-Pour (2000), p. 1049

[18] Cp. Singh Soin (1999), p. 28

[19] Cp. Baker et al. (2003), p. 372 f.

[20] According to ISO 9000:2005 products can also be services.

[21] Cp. Grimes, K. R. (2003), p. 2 f.

[22] Cp. u.a. (2005), p. 7.

[23] Cp. Al-Assaf and Assaf (1997), p. 32.

[24] Cp. Maromonte (1996), p. 75 ff.

[25] Cp. Meloan and Graham (1998), p. 188.

[26] Cp. Bidgoli (2003), p. 456.

[27] Cp. Strehlow et al. (1993), p. 308 f.

[28] Cp. Cadle and Yeates (2004), p. 234.

[29] Cp. Ulrich and Lake (1990), p. 174 ff.

[30] Cp. Adanur (1997), p. 309.

[31] Cp. Dhillon (2002), p. 245.

[32] Ibidem.

[33] Davis (1811), p. 3.

[34] Cp. Pollard and Pollard (1990), p. 49 ff.

[35] Cp. Hounshell (1984), p. 316 f.

[36] Cp. Ridderstrale and Nordström (2001), p. 271.

[37] Cp. Rampersad and El-Homsi (2007), p. 3.

[38] Cp. Dhanakumar (1999), p. 194 f.

[39] Cp. Breyfogle (2003), p. 204 f.

[40] Cp. Asher (1996), p. 13.

[41] Cp. Furnham and Gunter (1993), p. 209.

[42] Cp. Kelada (1996), p. 20 ff.

[43] Cp. Milakovich (1995), p. 13.

[44] Cp. Beechler and Stucker (1998), p. 333 f.

[45] Cp. Choi and Greenaway (2001), p. 196.

[46] Cp. Chandra and Kamrani (2004), p. 12.

[47] Cp. Kelada (1996), p. 306 ff.

[48] Cp. Tayntor (2002), p. 5.

[49] Cp. Kanawaty, (1992), p. 184.

[50] Cp. Grimes, K. R. (2003), p. 2.

[51] Cp. Sharp (2000), p. 96 ff.

[52] Source: Compiled by the Author.

[53] Cp. Davis et al. (1998), p. 139 f.

[54] Cp. Kubr (2002), p. 465.

[55] Cp. u.a. (1998a), p. 3 f.

[56] Cp. Luning et al. (2006), p. 289 f.

[57] Cp. Karwowski and Bonnet (2001), p. 1313.

[58] Or Quality Awards.

[59] Cp. Hertz (2001), p. 59 f.

[60] Cp. Kossmann (2006), p. 65.

[61] Cp. Löffler and Vintar (2004), p. 157 f.

[62] Cp.

[63] Cp.

[64] Cp.

[65] E.g. Ford, Motorola, Cp. Tennant (2001), p. 6.

[66] Ibidem.

[67] Cp. Walton and Deming (1988), p. 206.

[68] See also 4.2.4.

[69] Cp. Leonard (1988), p. 17 ff..

[70] cp Hough (1996), p. 52.

[71] Cp. Mitra (1998), p. 106.

[72] Cp. Webber and Weller (2001), p. 90 f.

[73] Cp. Berry (1990), p. 5.

[74] Cp.Krakoff and Fouss (1988), p. 29 ff.

[75] North American Industry Classification. Replaces the former SIC (Standard Industrial Code). ,
System that categorizes companies by industry.

[76] Cp. Kalleberg et al. (1996), p. 49 f.

[77] Cp. Haksever (1996), p. 33 .

[78] Cp. Futrell et al. (2002), p. 773.

[79] Compiled by author, various sources: cp. Rodwell and Shadur (1997); p. 54; cp. Haksever
(1996), p. 34; cp. Stephens et al. (2005), p. 22.

[80] Ibidem.

[81] Stephens et al. (2005), p. 22 f.

[82] Cp. Leonard (2006), p. 567

[83] Cp. Kubr (2002), p. 575

[84] Rodwell, Shadur (1997); p. 54 f.

[85] Cp. Haksever (1996), p. 34 ff.

[86] Ibidem.

[87] Not to be confused with the sub-group in Figure 3.

[88] u.a. (2007).

[89] Cp. Matlay (1999), p. 286 ff.

[90] Cp. Walker (2000), p. 1.

[91] United States Small Business Administration, The SBA was established by the U.S. Congress
for the purpose of supporting small businesses nation-wide and providing free statistics to the

[92] Cp. SBA (2008) f.

[93] Most recent available data published by SBA.

[94] Cp. SBA (2008).

[95] Cp. Walker (2000), p. 1 f.

[96] Cp. Micro-business Consultative Group (1998), p. 23.

[97] Cp. Howard (1997), p. iii.

[98] Cp. Broom and Longenecker (1993), p. 235 ff.

[99] Cp. Meredith (1989), p. 9.

[100] Cp. Haksever (1996), p. 34 ff.

[101] Cp. Haksever (1996), p. 34.

[102] Cp. Draho (2004), p. 89 f.

[103] Ibidem.

[104] Cp. Aaron and Slemrod (2004), p. 109.

[105] Cp. Beaver (2002), p. 56.

[106] Cp. Rogak (2004), p. 103 f

[107] Cp. Perry (1999), p. xii.

[108] Cp. Haksever (1996), p. 35.

[109] Cp. Longenecker (2006), p. 13.

[110] Cp. Rickertsen and Gunther (2001), p. 106.

[111] Cp. Gupta et al. (2005), p. 346 f.

[112] Cp. u.a. (1998b), p. 248.

[113] Cp. Little (2005), p. 86.

[114] Information obtained in an interview with a micro business owner in Hoboken, NJ. (2008).

[115] Cp. Little (2005), p. 86 ff.; cp. Hall (2004), p. 1 ff.

[116] Cp. Huxtable (1994), p. xii.

[117] Cp. Barkley and Saylor (2001), p. 344 ff.

[118] Cp. Buhalis and Costa (2005), p. 124 f.

[119] Cp. Gupta et al. (2005), p. 347.

[120] Cp. Hey-Cunningham (2002), p. 318 f.

[121] Cp. Vinturella and Erickson (2003), p. 36.

[122] Cp. Pakroo and Caputo (2008), p. 86; Sources of Start-up Funding of Small Businesses: 1st:
Personal Savings: 81%, 2nd: Bank Loan: 18%; Credit Card: 15%; Friend/Family Loan:15%.

[123] Cp. Hankin and Seidner (1998), p. 3 ff.

[124] Cp. Baines et al. (2003), p. 9 ff.

[125] Cp. Rosa et al. (1996), p. 464.

[126] Cp. Walker (2000), p. 38 f.

[127] Cp. Pride et al. (2002), p. 165.

[128] SWOT = strengths, weaknesses, opportunities, threats

[129] Cp. Wilson and Gilligan (2005), p. 53 ff.

[130] Cp. Ahire (1996), p. 44 f.

[131] Ibidem.

[132] Ibidem.

[133] Ibidem.

[134] Cp. Marks (2006), p. 584; Cp. Ahire (1996), p. 44.

[135] Cp. Kanter (1993), p. 276.

[136] Cp. Barzelay and Armajani (1992), p. 180 f.

[137] Cp. Ahire et al. (1994), p. 31.

[138] Cp. Morrisson et. al (1994), p. 18.

[139] Cp. Atrill (2005), p. 417.

[140] Cp. Sironopolis (1994), p. 13 f.

[141] Cp. Rogak (2004), p. 103.

[142] Cp. Schonberger (1986), p. 134.

[143] Cp. Schiller (1999), p. 136.

[144] Cp. Mawhinney (2001), p. 51 ff.

[145] USP = Unique Selling Proposition.

[146] Cp. Wright (2004), p. 229.

[147] Cp. Meigham (2000), p. 119 f.

[148] Cp. Smith and Taylor (2004), p. 400 ff.

[149] E.g. Food: Cp. Kok et al. (2007), p. 246; Apparel: Cp. Sztandera and Pastore (2003), p. 118.

[150] Cp. Rushton et al. (2006), p. 90.

[151] See also 3.2.2.

[152] Cp. Barltrop and McNaughton (1992), p. 107 f.

[153] Cp. Langston and Lauge-Kristensen (2002), p. 230

[154] Cp. Friedman (2005), p. 2 ff.

[155] Cp. Tracy (2000), p. 92

[156] Cp. Hoyle (2005), p. 5

[157] Cp. Chadwick and Schroeder (2002), p. 34 f.

[158] Cp. Womack et al. (1990), p. 158

[159] Cp. Duetsch (2002), p. 1 f.

[160] Supported by new technologies such as the Internet technology

[161] Cp. McMillan (2002), p. 47.

[162] Cp. Adie (1989), p. 69.

[163] Cp. Longenecker et al. (2006), p. 561 ff.

[164] Cp. U.S. Department of Labor (2000), p. 16 f.

[165] Cp. Shearer (2005), p. 204.

[166] Cp. Williams Koch and Wagner (2000), p. 82; Cp. Potterfield (1999), p. 48.

[167] Cp. Pakroo and Caputo (2008), p. 114.

[168] Cp. Bigler and Norris (2004), p. 84 ff.

[169] Cp. North et. al (1998), p. 162.

[170] Cp. Kelada (1996), p. 257.

[171] Cp. Tennant (2001), p. 34.

[172] Cp. Khosrowpour (2001), p. 16; cp. Schonberger (1986), p. 134.

[173] Cp. Fernandez (1994), p. 301.

[174] Cp. Stephens et al. (2005), p. 24.

[175] Cp. Novak (2005), p. 238.

[176] Cp. Mullins (2006), p. 258 ff.

[177] Cp. Dandridge (1979), p. 1 f.

[178] Cp. Cook et al. (2004), p. 1; Cp. Walker (2000), p. 1; Cp. Stephens et al. (2005), p. 22.

[179] See also 3.2.5.

[180] Cp. Cook et al. (2004).

[181] Cp. Baines et al. (1997)

[182] Cp. Rodwell, Shadur (1997).

[183] Cp. Bellabarba (2003).

[184] Cp. Khosrowpour (2001), p. 16; cp. Rodwell, Shadur (1997), p. 51.

[185] Cp. Rodwell, Shadur (1997), p. 51.

[186] Cp. Bellabarba (2003), p. 91 ff.

[187] Cp. Schonberger (1986), p. 134 f.

[188] Cp. Jennigs and Beaver (1997), p. 63 ff.

[189] Cp. Penrose (1980), p. 13.

[190] Cp. Dandridge (1979), p. 1.

[191] Cp. Penrose (1980), p. 13.

[192] Cp. Cook et al. (2004).

[193] Cp. North et al. (1998), p. 168.

[194] Cp. Reichheld and Teal (1996), p. 302 f.

[195] Except non-profit organizations.

[196] Cp. Alan et al. (1998), p. 57.

[197] Cp. Jain (2008), p. 10 f.

[198] Cp. Gryna (1988), p. 42; Cp. Clemmer and Sheehy, p. 47 ff.

[199] Cp. Heldman et al. (2007), p. 155.

[200] See also Definition 5.

[201] Cp. Campanella (1999), p.189 ff.

[202] Cp. Campanella, (1999) p. 7.

[203] Source: compiled by author; Cp. Pyzdek (2003), p. 221 f.


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Titel: Total Quality Management For Micro-businesses in the Manufacturing Industry