Organizational Processes

The organization of quality management should be such that it is not a combination of bits and pieces of responsibilities assigned to different departments; rather, quality management should be a responsibility which is properly organized and which can be properly located. This leads us to the maintenance of a separate functional department or quality management, with its top man ranking high in the organizational hierarchy. The next in the hierarchy to the top man for quality management should subdivide the work along the specialized skills, required in carrying out the jobs. Therefore, if it is the work of looking after different product lines or if it is the specialized work of looking after different functional specialists within the organization, these social tasks should be assigned to specialist personnel. The organization for quality management should, as far as possible, comprise a large span-of-control and few levels of hierarchy. This is necessary to maintain quick feedback of information.
The following points may be remembered in organizing for quality.
1.    To ensure that the integrity of the planning, implementing, monitoring and control feedback cycle is maintained in the total organization for quality.
2.    Wherever the responsibility of quality management is to be delegated to different departments, it should be done with many precautionary measures whereby the monitoring and control is in the hands of the quality management people.
3.    To maintain high quality standards, it is necessary that quality management should have top management support. Therefore the highest person in quality management should be of the same level or a level below that of the top most management of the company.
4.    The hierarchy structure of quality management should be kept to as few levels as possible. The span of control should be as broad as possible. The division of responsibility at the second or third level of quality management organization should be based on the needs of specialized skills, either product wise, function wise, or technique wise. An example of an organizational structure for quality management in a large organization with a number of product lines.

Costs of Quality:

Quality management is not only concerned with maintaining the quality characteristics of a product but also with doing the same at the least possible cost. There are basically three categories of cost of quality:
The cost of quality can be analysed in two different ways:
1.    Category to category comparison: Comparing the relative amounts spent on each of the above mentioned cost categories i.e. how much is spent on prevention? How much on appraisal? And how much on failures?
2.    Time to time comparison: For instance, comparing one quarter’s operation with the previous quarter’s operation.
In small firms, deliberate organizational processes to integrate the technical function with production, marketing strategy and resource allocation are of less central importance than in large firms. In general these functions are less specialized and less likely to be separated by physical and organizational distance. Table below tries to contrast the differences between large and   small firms in how certain key tasks of innovation strategy are accomplished. In large firms  deliberate organizational design and formal  procedures are a means of integrating knowledge of supporting professionals judgments and of getting thing done. In small firms, the characteristics of senior managers – their training experience, responsibilities and external linkages play a central role. In particular, their level of technical and organizational skills will determine whether or not they will be able to develop and commercially exploit a firm with specific technological advantage.
How tasks of innovation strategy are accomplished in large and small firms
Strategic tasks
Integrating technology with production and marketing:
Large Firms:
1)    Organization  design
2)    Organizational processes for knowledge flows across boundaries.
Small firms:
1)    Responsibilities of senior managers.
Strategic tasks
Monitoring and assimilating new technical knowledge
Large Firms:
One R&D and external networks
Small firms:
1)    Trade and technical Journals.
2)    Training and advisory services.
3)    Consultants
4)    Suppliers and customers
Strategic tasks
Judging the learning benefits of investments in technology.
Large Firms:
Judgments based on formal criteria and procedures
Small firms:
Judgments based on qualifications and experience of senior management
Strategic tasks
Matching strategic style with technological opportunities
Large Firms:
Deliberate organizational design
Small firms:
Qualification of managers and staff

There are no correct recipes for locating R&D and related  innovation activities in the firm. Tensions are inevitable between organizational   decentralization for rapid implementation and sensitivity to production and customers on the one hand and organizational centralization for the   exploration of radical and long term opportunities not linked to current businesses on the other. There are also inevitable tensions between geographic dispersion for adapting to local markets, integrating local skills on the one hand and geographic concentration for the effective launching of major innovations on the other. The important management challenges are therefore:
1)    Reconciling rapid product development and quick profit returns, with long term search for major new technological opportunities.
2)    Reconciling effective new product launches. With the assimilation of competencies located in foreign countries.
Formal inputs from the corporate technical function into corporate strategy  have been strongest in the determination of R&D  priorities but less strong in R&D funding and organizations and in market positioning. In addition;
Corporate strategic style must be compatible with the nature  of technological opportunities if these are to be  effectively exploited: Completed emphasis on financial control will discourage innovation and the appropriate degree of centralization of entrepreneurial initiative will depend  on the size of each innovative investment and on the degree of similarity of user  markets.
Failure  in established  firms to benefit  from radical  new technologies now arises less from the inability to master them, and more from the inability or unwillingness to deal with their consequences for organizational change.
Conventional project appraisal techniques are of only limited usefulness for R&D project evaluation and resource allocation, given high uncertainties in outcomes and difficulties in putting a financial value on the technological learning associated with R&D. In particular in the real stages of R&D uncertainties are high costs (and therefore risks) are low, choices essentially judgmental .
Of great importance are the process of resource allocation that recognizes the essentially incremental nature of progress in R&D and related innovation activities and that integrate the skills and methods (technical, financial  and other)  appropriate to the purpose and nature of three types of innovation-  activity knowledge, building strategic positioning and business investment.
A case of ICI:
Why ICI chose to demerge?
Imperial Chemical Industries (ICI) sought new sources of growth during the 1980s to offset the sluggish sales of its older products but, in the end only increased the complexity of it’s already complicated and hard to manage portfolio of businesses. ICI’s response was unusual, a merger that split the organization into two separate companies new ICI and Zeneca. The rationale underlying the structure composition and expansion of the old ICI had been technology and vertical integration. Investment in research and development traditionally ensured a flow of the products. Huge chemical complexes grew up around very large  plants, such as ethylene crackers and ICI exploited each by-product stream to develop a new business. In the 1970s the chemical  industry began to mature . [In the 1980s] ICI pushed strongly into high value specialty chemicals using both in –house development and acquisitions but such moves did little to reduce the complexity of ICIs businesses.
The key to successful restructuring was recognizing a technological fault line with ICI. Pharmaceuticals and other bioscience related activities fell on one side of the fault line; the traditional chemical businesses fell to the other. The fault line divided two coherent groups of businesses that could be managed   as separate companies. Within each group –but not across them – there was the potential for mutual support and interdependence. The demerger preserved the advantages of retaining under a single ownership, business that shared technical competencies and benefited  from common services  and informed central direction. Each of the two companies has had to evolve a balance between the centre and the businesses that suits its particular  circumstances. The narrower focus and greater homogeneity of the problems that the new head office is required to handle and sharpen the lines of communication between headquarters and the operating businesses.
In 1993 ICI (the chemicals business) and  Zeneca  (the pharmaceuticals and biotechnology  businesses) demerged. Subsequently ICI disposed of is bulk chemicals businesses and began to focus on the higher growth and less cyclical speciality chemicals business. In 1997 it acquired the specialty chemicals business of Unilever for $ 4.9 bn. The group now consists of the traditional paints division (Dulux) flavours and foods (Quest) and food starches and adhesives (National  Starch).

In the meantime, Zeneca   outperformed most other pharmaceutical  firms in terms of sales growth  and in 2000 and merged with Astra to become   AstraZeneca. By means of such organizational; evolution, ICI has continued  to develop new businesses  based on development in chemistry, pharmaceuticals and the biosciences with the organizational implications of the new technology which may require radical and disruptive changes. For example product markets, degree of decentralization the boundaries of corporate divisions, the key internal interfaces and external networks and the relative power an influence of various professionals groups.
Source: Managing Innovation

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