Why does a company need to adapt to stay on course? Controlling (or monitoring) is the process by which managers measure performance and make sure the company’s plans and strategies are being or have been properly carried out. Through the control process, managers ensure that the direction a company is moving toward aligns with its short- and long-term plans. The controlling process also can detect errors in systems, so if a plan is not meeting its goals, it can be modified.

How is moving toward the corporate vision measured? Most companies have control systems that help measure how well the plans they put in motion are working. In general, the control system forms a cycle, as shown in Figure 7.11. Performance standards are set, and actual performance is measured and compared against the standard. To measure a firm’s performance, reporting tools such as financial statements and sales reports are used. These reports help determine whether the firm’s products are competitive and being produced efficiently and whether the company is using its capital wisely. Based on this information, adjustments are made, and the cycle begins again.

Figure 7.11

The Monitoring/Control Cycle

Are financial, production, and sales measures the only tools for assessing performance? No. Another measure of performance is quality—the goods or services a company provides must meet and exceed customer expectations. Many managers use total quality management (TQM), which is an integrated approach that focuses on quality from the beginning of the production process up through the final monitoring to detect and correct problems.

What are the basic tools managers use for monitoring quality? There are seven basic tools managers use to monitor quality-related goals:

• Check sheet. A simple sheet recording the number of times certain product defects occur (Figure 7.12A).

  Figure 7.12A

  Check Sheet

  

  Figure 7.12A Full Alternative Text

• Control chart. A graph that shows the average and fluctuations of a process being monitored to determine whether it is behaving within the limits of proper functioning. Figure 7.12B shows the average weld strength (35.5) and the fluctuations around the average according to the lot number.

  Figure 7.12B

  Control Chart

  

  Figure 7.12B Full Alternative Text

• Histogram. A graph that displays the count of the number of times a specific event occurs (for example, the number of times the smoothness of a tube produced was in the range 5 to 10) (Figure 7.12C).

  Figure 7.12C

  Histogram

  

  Figure 7.12C Full Alternative Text

• Pareto chart. A combination bar and line graph that shows different categories of problems and the total (cumulative) number of problems. The Pareto chart in Figure 7.12D shows the breakdown of types of complaints leading to returned merchandise.

  Figure 7.12D

  Pareto Chart

  

  Figure 7.12D Full Alternative Text

• Scatter plot. A graph that displays the values of two variables to see if there is a relationship between them. For example, the scatter plot in Figure 7.12E would help a firm decide if more time in the kiln creates tiles that have a higher smoothness value.

  Figure 7.12E

  Scatter Plot

  

  Figure 7.12E Full Alternative Text

• Run chart. A graph that displays the value of some data across a specific set of dates. Managers can then identify problems that occur in a certain cycle, for example, once a month. Does the run chart in Figure 7.12F show there is a pattern to the production of higher-brilliance bulbs?

  Figure 7.12F

  Run Chart

  

  Figure 7.12F Full Alternative Text

• Cause-and-effect diagram. Also called a fishbone diagram, this illustrates all of the contributing factors in the product design that might lead to faulty production (Figure 7.12G). For example, if the defect being analyzed is a soldering defect, the cause-and-effect diagram would show that contributing factors could be from the machinery operator, materials, or methods.

  Figure 7.12G

  Cause-and-Effect Diagram

  

  Figure 7.12G Full Alternative Text

There are many more advanced statistical tools available, but managers often begin their drive toward TQM with these seven basic tools.

What is the Six Sigma strategy for quality? Another well-known quality initiative is Six Sigma, a statistically based, proactive, long-term process designed to examine the overall business process and prevent problems. To achieve the “Six Sigma standard,” a business must not allow more than 3.4 defects per million opportunities. To achieve such levels, it can take years to train and implement a staff that understands the approach. The techniques of Six Sigma produce results that are consistent and repeatable, which translates into few defects and consistent high levels of customer satisfaction.

GE was a huge proponent of the Six Sigma method and pushed it into every corner of the company with great success. However, there is controversy around the proper use of Six Sigma monitoring in the business community.14 For example, Robert Nardelli, who left GE to become the CEO of Home Depot, applied Six Sigma practices there with great fervor. Home Depot initially saw great growth in profits, but the huge amount of paperwork and data collection began to take a toll on store workers. It left them less time for customer interaction, causing customer satisfaction to plummet. The next CEO of Home Depot modified the Six Sigma approach to allow store managers to make more decisions independently.