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Part V: A Framework for IT Value

Last week, we discussed the time to market dimension of IT Value. This week, we will discuss the quality dimension.

Last week, we discussed the time to market dimension of IT Value. This week, we will discuss the quality dimension.

Before we have a discussion on the IT Value generated through its application to quality, we must understand the business imperative of quality. Sometimes, we take quality out of the equation and others assume that better quality is more desirable to our customers. Quality must not be viewed in isolation.

The impact of quality on business value

Quality of products and services has an impact on both revenues and cost of operations.

  • Revenue Implications:
    • Higher product sales: Products sell on their quality.
    • Higher product price: Products command a higher price based on quality.
  • Cost Implications:
    • Ensuring quality can increase the cost of operations i.e. higher quality products take more investment to manufacture
    • Better quality products reduce the need for after sales support and service, thereby lowering cost of operations.

Therefore, measuring the value generated by quality can be done through both revenue and cost metrics.

The risk implications of quality

Revenue and cost are important and direct considerations in measuring the value generate by quality. However, there are indirect implications of quality on business value. Specifically, the risk it introduces. Take for example, the impact of a bad quality food item on business value. One might be able to make, store and sell it cheap but pay for it in other ways. If someone falls sick eating it, then are there are obvious implications on that customer not buying your product again. There is also the ripple effect of them telling their immediate circle of friends and family who might not buy your products and in turn tell their circle of family and friends. Unfortunately, severe as it might be, that is not the extent of the possible damage. What if the customer decides to sue you for endangering their health? Are you liable for damages? What about the legal cost of defending yourself? Depending on the industry, your entire business might be shut down by the government!

This risk can and should be measured when making decisions about quality. A grocery store is well advised to make adequate investment in refrigeration and manufacturers must spend the money to ensure that product packaging has accurate expiration dates.

Quality is more than just product quality

Product quality is perhaps the most critical aspect of quality in an organization. However, a quality organization has quality operations – there are opportunities to create customer goodwill at every step of the customer interaction.

In fact, one can overcome the negative impact of a shoddy product if the after sales support is stellar. Companies do make mistakes when they first introduce a product – not by design but by the nature of things. At myopic organizations, these mistakes are exacerbated by the lack of after sales support. On the other hand, quality companies use after sales support to cushion the blow. Take for example, car companies that immediately issue recalls when informed of major problems with their vehicles.

A meaningful discussion on quality and its impact on value must not be done only in the context of product quality. It must consider the entire operations of the company.

Quality must not be viewed in isolation

However, none of the statements or the assumptions about the revenue and cost impact of quality is an absolute or universal truth:

  • Lower quality products do sell. Ever been to a “dollar” store? How does the quality of products sold at Wall Mart compare to those at Neiman Markus? Both the Dollar Stores and Wall Mart are doing just fine! Kia Motors is selling cars as well as, or perhaps better than, Rolls Royce.
  • Cost of operations can be high despite high quality products. Indeed, quality or more appropriately, the blind quest for it, results in higher cost of operations
    • First, customers need after sales support for more reasons than “fixing” a shoddy product. Take for example, a high quality but complex product. Customers will call in to ask how to work the controls! In general, customers call in because they want to or have to. Might not have anything to do with product quality
    • If you spend too much effort – money in other words – on quality, without understanding the reason why the customer is buying your product in the first place, then every dollar spent in that direction might as well be flushed down the toilet.

Quality is only one of the value propositions. Decisions about quality must be made keeping in mind the big picture. As always, your business model determines what level of quality is the best for your business.

It is not in doubt that IT can improve the quality of products and services. The application of IT to product quality cannot be done without making a fundamental business decision: What level of quality are we building in?

The rest of this discussion assumes that you have made that business decision and now want to apply IT toward it and measure the value created as a result.

IT Can Help Improve “meaningful” quality

From ascertaining the desired quality for optimal customer demand to ensuring quality manufacturing and Quality assurance, IT plays a critical role in ensuring “meaningful” quality products are manufactured and delivered quickly and cost effectively.

Measuring the value of these systems and the underlying infrastructure must take into consideration their impact on revenues, costs and risk.

Follow the Series:

  1. Part I: A Framework for IT Value
  2. Part II: A Framework for IT Value
    In Part 1, we lay the foundation for a discussion on IT Value. This week, we look at specific areas where IT creates value.
  3. Part III: A Framework for IT Value
    In Part 2, we focused on revenues. This week, we look at the costs in the IT value equation.
  4. Part IV: A Framework For IT Value
    In Part 3, we discussed the cost dimension of IT Value. This week, we will discuss the time to market dimension.
  5. Part V: A Framework for IT Value
    In Part 4, we discussed the time to market dimension of IT Value. This week, we will discuss the quality dimension.
  6. Part VI: A Framework for IT Value
    In Part 5, we focused on quality and its impact on IT Value. This week, we will take a look at productivity and its impact on IT Value
  7. Part VII: A Framework for IT Value
    In Part 6, we focused on productivity and its impact on IT Value. This week, we will take a look at customer satisfaction and its impact on IT Value
  8. Part VIII: A Framework for IT Value (Risk Dimension)
    In Part 7, we discussed customer satisfaction. This week we will look at the risk dimension of IT Value.

 

Sourabh Hajela is a management consultant and trainer with over 20 years of experience creating shareholder value for his Fortune 50 clients. His consulting practice is focused on IT strategy, alignment and ROI. For more information, please visit http://www.startsmarts.com/


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Part V: A Framework for IT Value

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