As seen prominently in the popular press, Toyota recalled more than 24 million cars in 2009–2013, costing the world’s then-number-one automaker billions of dollars and a severe blemish to its high-quality image. Problems ranging from sticking gas pedals to stalling engines and malfunctioning fuel pumps were dangerous and costly not only to Toyota, but also to many consumers.

As with goods producers, service providers and customers suffer financial distress from poor-quality service products. The banking industry is a current example. As a backbone of the U.S. financial system, banks and their customers are still suffering because of bad financial products, most notably home mortgage loans. Lenders during “good times” began relaxing (or even ignoring altogether) traditional lending standards for determining whether borrowers were creditworthy. Lenders in some cases intentionally overstated property values so customers could borrow more money than the property justified. Borrowers were sometimes encouraged to overstate (falsify) their incomes and were not required to present evidence of income or even employment. Some borrowers, unaware of the terms of their loan agreements, were surprised after an initial time lapse when a much higher interest rate (and monthly payment) suddenly kicked in. Unable to meet their payments, borrowers had to abandon their homes. Meanwhile, banks were left holding foreclosed properties, unpaid (defaulted) loans, and no cash. With shortages of bank funds threatening to shut down the entire financial system, the entire nation felt the widespread costs of poor quality—loss of equity by homeowners from foreclosures, a weakened economy, high unemployment, and loss of retirement funds in peoples’ savings accounts.

To ensure high-quality goods and services, many firms assign responsibility for some aspects of TQM to specific departments or positions. These specialists and experts may be called in to assist with quality-related problems in any department, and they keep everyone informed about the latest developments in quality-related equipment and methods. They also monitor quality-control activities to identify areas for improvement.

The backbone of TQM, however, and its biggest challenge, is motivating all employees and the company’s suppliers to achieve quality goals. Leaders of the quality movement use various methods and resources to foster a quality focus, such as training, verbal encouragement, teamwork, and tying compensation to work quality. When those efforts succeed, employees and suppliers will ultimately accept quality ownership, the idea that quality belongs to each person who creates it while performing a job.

With TQM, everyone—purchasers, engineers, janitors, marketers, machinists, suppliers, and others—must focus on quality. At Saint Luke’s Hospital of Kansas City, for example, every employee receives the hospital’s “balanced scorecard” showing whether the hospital is meeting its goals: fast patient recovery for specific illnesses, 94 percent or better patient-satisfaction rating, every room cleaned when a patient is gone to X-ray, and the hospital’s return on investment being good enough to get a good bond rating in the financial markets. Quarterly scores show the achievement level reached for each goal. Every employee can recite where the hospital is excelling and where it needs improvement. In recognition of its employees’ dedication to quality performance, Saint Luke’s received the Malcolm Baldrige National Quality Award, the prestigious U.S. award for excellence in quality, and is a five-time winner of the Missouri Quality Award.¹³

Value-added analysis refers to the evaluation of all work activities, materials flows, and paperwork to determine the value that they add for customers. It often reveals wasteful or unnecessary activities that can be eliminated without jeopardizing customer service. The basic tenet is so important that Tootsie Roll Industries, the venerable candy company, employs it as a corporate principle: “We run a trim operation and continually strive to eliminate waste, minimize cost, and implement performance improvements.”¹⁴

Companies throughout the world have adopted quality improvement teams, which are patterned after the successful Japanese concept of quality circles, collaborative groups of employees from various work areas who meet regularly to define, analyze, and solve common production problems. The teams’ goal is to improve both their own work methods and the products they make. Quality improvement teams organize their own work, select leaders, and address problems in the workplace. For years, Motorola has sponsored companywide team competitions to emphasize the value of the team approach, to recognize outstanding team performance, and to reaffirm the team’s role in the company’s continuous-improvement culture.

Successful businesses take steps to know what their customers want in the products they consume. On the other hand, struggling companies have often lost sight of customers as the driving force behind all business activity. Such companies waste resources by designing products that customers do not want. Sometimes, they ignore customer reactions to existing products. For instance, some airlines seem to disregard customer complaints about poor service. Or companies fail to keep up with changing customer preferences. BlackBerry mobile devices, for example, fell behind competing products because they did not offer customers the features that Samsung, Motorola, and Apple provided.

Successful firms take steps to know what their customers want in the products they consume. Caterpillar’s (CAT) financial services department, for example, received the Malcolm Baldrige National Quality Award for high ratings by its customers (that is, dealers and buyers of Caterpillar equipment). Buying and financing equipment from Cat Financial became easier as CAT moved its services increasingly online. Customers now have 24/7 access to information on how much they owe on equipment costing anywhere from $30,000 to $2 million, and they can make payments around the clock, too. In the past, the 60,000 customers had to phone a CAT representative, who was often unavailable, resulting in delays and wasted time. The improved online system is testimony to Cat Financial’s dedication in knowing what customers want, and then providing it.¹⁵

Perhaps you’ve driven past companies proudly displaying large banners announcing, “This Facility Is ISO Certified.” The ISO (pronounced ICE-oh) label is a mark of quality achievement that is respected throughout the world, and, in some countries, it’s a requirement for doing business.

Every business consists of processes, activities that it performs regularly and routinely in conducting business, such as receiving and storing materials from suppliers, billing patients for medical treatment, filing insurance claims for auto accidents, and filling customer orders from Internet sales. Any business process can increase customer satisfaction by performing it well. By the same token, any business process can disappoint customers when it’s poorly managed.

Business process reengineering focuses on improving a business process—rethinking each of its steps by starting from scratch. Reengineering is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements as measured by cost, quality, service, and speed. The discussion of CAT’s changeover to an online system for customers is an example. CAT reengineered the whole payments and financing process by improving equipment, retraining employees, and connecting customers to CAT’s databases. As the example illustrates, redesign is guided by a desire to improve operations and thereby provide higher-value services for customers.