Organizational Development: A Manual for Managers and ... - FPDL

Internal failure costs include waste of time in activities associated with doing unnecessary things or
doing things the wrong way - waste of materials, equipment and other resources, scrap, rework,
correction, downgrading of product, failure analysis, conflicts, tension, negative motivation, high
staff turnover, etc.
External failure costs include all work and costs associated with handling and servicing customer
complaints (if they do not complain but simply leave, it ultimately costs much more), repair or
additional service to a non-compliant product, warranty claims, returns, liability litigation, negative
impact on reputation and image,- all of which directly impact future sales and prices.
According to Philip B, Crosby, “not doing things right the first time in human service organizations
takes away about 40 percent of total operating costs”. Joseph M. Juran estimates that over the
course of ten years (1980’s) about 1/3 of all work in American companies was actually rework
because of problems with quality. Hewlett-Packard found out that rework and dealing with
customer complaints cost the company about 20 percent of revenues and involved the time and
effort of 25 percent of company employees (Lawrence L. Martin, 1993). Even if these figures are a
bit too pessimistic – there is something for even an optimist to consider.
Quality is inseparable from the effectiveness of an organization, because poor quality means that
customers did not receive what they should have received; their needs were met badly; and the
mission of the organization is not being implemented properly. In terms of poor quality (consider
medical care, for example), the effect may not only be ‘not as good as expected’, but may turn out
to be something bad or harmful.
Quality is also inseparable from efficiency, because poor quality means poor sales (or low use of
public services), usually coupled with considerably high costs. People in organizations that provide
poor quality service to customers never feel good about that, and they are seldom motivated to
exert more effort or creativity, the atmosphere is apt to produce conflicts, and morale is usually
low.
However, quality is not the cause; it is a consequence. Poor quality is never the central problem –
usually it is the result of many unresolved problems in the organization. The quality is a reflection
of the organization as a whole. A healthy organization provides good quality products and services.
An exceptional organization will be able to ensure excellent quality. Poor quality emanates from an
unhealthy organization.
An unhealthy organization is an unhealthy organism - it would die in nature or in the market, and it
should also die in the public domain, although this usually takes a bit more time.
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