Intellect | Blog Post | Quality Culture and Profitability

Intellect | Blog Post | Quality Culture and Profitability

Author Romeo Elias

We’ve written a lot recently about the importance of a culture of quality, including how to promote a healthy quality-oriented culturestreamlining operations, and injecting a spirit of fun and teamwork into your quality programs. All these things contribute to a stronger sense of shared purpose and a positive vision for your organization. Quality programs have a much more tangible impact as well, though. Company with the quality programs save money, benefit from increased sales, and enjoy lower employee turnover rates. In other words, a culture of quality is good for the bottom line. 

If you’re older than 50, you might remember what happened to the US auto industry in the late 1970s and early 80s. Quality issues were rampant, and workers commonly complained that management treated them with disdain. Then came the oil crisis of the late 70s, and the gas guzzling cars being sold by US manufacturers abruptly fell in popularity. The decade from 1973 to 1983 became known as the “malaise era, characterized by dated design, better performance, and poor quality. 

While there were a number of factors that contributed to the malaise, the absence of a quality-oriented culture certainly played a significant part. That became evident as Japanese automakers introduced smaller, more fuel-efficient models to the US market; but quality also became a distinctive factor in many consumers’ buying criteriaThey quickly developed an appreciation for the new generation of Japanese imports.  

Quality Drives Customer Retention 

Japanese automakers like Toyota and Honda quickly established a well-deserved reputation for quality. Legendary quality pioneer Taiichi Ohno led the former company in establishing programs that led to rapid growth in sales throughout the world. Gladly, manufacturers throughout the auto industry have caught on and adopted many of the same innovations, – but the contrast between the malaise era cars coming out of American factories and the new wave of Japanese imports speaks volumes about the value of quality culture. 

The first and most important lesson, of course, is that quality is a competitive differentiator. A company’s reputation will reflect the aggregate experience of its customers. This is especially true in this day of social media and online reviews, where news travels very fast. We have all heard the statistic claiming that it costs five times as much to acquire a new customer as it does to retain an existing one. In this respect, quality can have a truly profound impact on profitability because it is a key driver of customer retention. 

Quality Culture Drives Costs Down 

A culture of quality can have a dramatic impact on costs as well. Let’s consider a few of the cost items that increase when quality programs receive insufficient attention: 

When customers report defects, the company must spend valuable resources handling returns; replacing or repairing product; or in some cases scrapping goods that must be written off altogether. These activities involve warranty claims, shipping costs, inspection, and repair, not to mention the reputational damage the company suffer when customers are dissatisfied. 

Health and safety concerns are even more important because of the potentially catastrophic human costs. In regulated industries especially, violations can result in heavy fines and penalties. Recalls can be enormously expensive. Findings of liability can drive insurance costs significantly higher, further eroding profits. In companies with a strong culture of quality, audits can often proceed quickly and efficiently. Without a strong quality culture, though, the process can be protracted and far more likely to result in negative consequences to the business. 

Driving Quality Culture 

This brings us back to the critical point that we have made many times before; when your company has a strong culture of quality in place, quality programs are simply more effective. People understand the “why” of quality initiatives. They take pride in their work. They share a common vision of excellence for the organization. 

At Toyota, managers enshrined their culture of quality in the principles that have become known as the Toyota Way. Part three of those principles underscore the importance of corporate culture in achieving outstanding results by declaring that a company should “add value to the organization by developing your people.” That includes developing strong leaders who share a vision for quality and excellence, as well as propagating that vision throughout the company’s supply chain. 

If your organization is seeking to build quality programs around a similar shared vision, and to drive customer satisfaction, higher revenue, and lower costs as a result; we at Intellect would love to speak with you. Contact us today to talk about your quality programs and learn how we can help you achieve your goals.