Service Quality

Quality Does Not Cost - A Lack of Quality Does

The notion that high quality implies higher costs is not based on facts.  Normally, it is the other way around.  Frequently the more important issue is that it is a lack of quality that costs.  If you concentrate on making quality certain, you can probably increase your profit by an amount equal of 5 to 10 percent of your sales.  That is a lot of money for free. This statement is based on the notion that many firms spend more than 20 percent of their sales dollars doing things wrong and then having to correct these mistakes.  Lee Iacocca of Chrysler confirms this by stating that “if there's any doubt that lack of quality costs American industry a ton of money, get this statistics: As many as one out of four factory workers produces nothing at all.  They spend their entire workday fixing the mistakes of other workers" (Iacocca 1988, p. 251).
These are facts from manufacturing.  However, service organisations are probably no better off.  On the contrary, Gummesson (1987) notes that as much as 35 percent of their operating costs may be caused by a lack of quality.  This, of course, follows from the fact that service quality is a much more complicated phenomenon and that, consequently, it is much more difficult to monitor and assure quality in service than in manufacturing.  Furthermore, manufacturing has a long history of quality control research and a whole collection of quality monitoring techniques at its service, whereas for more than a decade service quality issues have not been addressed explicitly.
Hence, improving quality by creating customer-oriented and foolproof systems and by training employees to know how to perform is a way, not to increase costs, but to get rid of unnecessary costs of a low quality level or a lack of quality.  If we assume that 35 percent of the operating costs are unnecessary, because they are due to bad quality, quality improvement by removing these quality problems would save 35 percent of these costs.  All of this would be visible on the bottom line.  However, such an improvement would not go unnoticed by the market, and some new business and additional revenues could be expected to be achieved.  This would add even more to the bottom line, that is, profits would be boosted by more than 35 percent of original operating costs.  Furthermore, if the firm would spend this 35 percent on improving quality even more, the operating costs would remain on the same level as they were originally.  This quality improvement process could be expected to bring in more business, and perhaps, even probably, enable the firm to get a better price for its services.  The effects on the bottom line are obvious.
Another common reason why managers feel that developing and offering services with 100 percent quality is impossible is their feeling that 'we are so special; our industry is so difficult; it is impossible to guarantee customers top quality all the time; it cannot be done."
Consequently, the organisation accepts that mistakes happen, and failures are allowed.  Psychologically, the battle for excellent performance is over before it even started.
Saying and maybe believing that a particular firm is so special and its services are so complex and difficult to produce that top quality cannot be achieved is only an excuse for not trying hard enough.  True enough, hard and long-term efforts may frequently be required, but it is never impossible.