Quality and Financial Health
“No. We are not going to see how quality impacts on the financial health of companies.” That was the answer I got when our Quality Management professor asked us what our expectations for the course were. I took the matter into my own hands.
The first step was to formulate the correct question, or at least the right question for my needs. After a while, it appeared: how does quality influence the bottom line of a software company?
Quality, as we can see from the TQM approach, is everywhere in any company. It could be good, high or it could be very poor. It will depend on the processes, the strategy and, most of all, on the people. Let’s see some of these aspects and how quality could tip the scales of finances.
As our old friend Juran used to say, quality impacts on financial results of companies generally because their products or services meet customer expectations. Those customers are the main income source for every company and, the more satisfied these customers are, the more likely a new sale will be closed. Upselling becomes more profitable with time.
High quality increases sales, but poor quality not only makes less purchase orders to be issued but it could also make the company lose clients and experience financial difficulties in the future.
Another important point to be considered is the company reputation. You should know something by now: people talk, for good or for bad. Satisfied clients will bring more clients.
Sales are the biggest contributor to income for a company. In customer satisfaction we cover the quantity part of the sales amount equation. The other variable is price. Price depends on a lot of factors: branding, market, moment in time, company strategy, product life cycle. Price also depends on quality. Good quality represents leverage for prices.
Quality can be presented as a competitive advantage. When your products and services are better than others in the market, it pays off. This is a key to achieve higher sales levels.
When we talk about costs and quality a big door opens. We have different types of costs influenced by quality:
- Costs of non-quality: these are the costs the company has to face because of faults, rework, opportunity costs, and inefficiency. According to Defeo, these costs could be between 15% and 30% of the total costs in a company.
- Costs of quality: costs the company has to incur in order to have high quality in its products and services. This includes all the actions taken to fulfill the quality plan, what you do to increase or keep your level of quality, productivity, efficiency. Talking numbers, Defeo says costs of quality are around 5% of the sales amount.
- Costs of software quality: in the software industry, other costs should be considered as well: issue-prevention costs, data-quality costs, training costs, any sort of testing, bug correction, costs to reduce downtime. We all remember the graphic of the cost of bugs and issues increasing with the software-life-cycle stage in which they are found (Mr. Pressman took care of it).
Additionally, there are some points—the most interesting ones in my opinion—that can multiply the effect of quality.
- People: people get along when quality is in the air. It is simple: there are fewer issues, fewer problems. It is easy for people to have a good time. Customers are people, employees are people. It sounds new age-ish, but it shows.
- Culture: quality is contagious. Environments where quality flows make other people buy into quality. People take ownership. They share best practices. Leadership is natural. Respect improves relationships.
Customers and employees become partners. This is what Heskett calls the satisfaction mirror.
- Motivation: people are positively influenced when there is actual evidence that the time, effort and energy spent on their work have beneficial results. This is the first step towards continuous improvement, the virtuous circle of quality.
- Commitment: as a consequence, empowerment appears and a trustful, responsible, shared-values company emerges. Wright did the math and proved that stocks of companies with high employee commitment are 2.5 times more valuable than the rest.
Quality is an asset. But it must be taken care of and studied in depth in order to make it your ally. In Intraway, we understand this and started from the very beginning: our core values reflect most of these items. It is not by chance.
Think incredible. Strive to find a better way. Wow through excellence and commitment. Become trusted advisors. Build the best team. Do more with less. Enjoy the ride.
And please, if you are not acquainted with Joseph Juran, make it happen. He is old school, but it is worth it.
DEFEO, J. 2001. The Tip of the Iceberg – When accounting for quality, don’t forget the often hidden costs of poor quality. May 2001, Quality progress, pp. 30-37.
HESKETT, J., SASSER, W. y L., SCHLESINGER. 1997. Service Profit Chain. Nueva York : The free press, 1997.
JURAN, J., & GODFREY, A. (1999). Juran’s Quality Handbook (Fifth ed.). New York: McGraw-Hill.
SIGMA PRO. (2013). How to influence people with Lean Six Sigma. Retrieved from http://www.sigmapro.co.uk/how-to-influence-people-with-lean-six-sigma.html
WRIGHT, H. (2013, 03 09). Employee Engagement More Than Doubles Stock Price Growth. Retrieved 2013, from Quantum workplace: http://www.quantumworkplace.com/employee-engagement-doubles-stock-price-growth/