ISO 9001 and Total Quality Management

Total Quality Management

Total Quality Management, or TQM, has become one of the most frequently discussed topics in current business literature. Because of the competitive pressures created by Japanese companies, quality became a competitive weapon in the 1980s in most industries. Its role in economic life seems to be attaining a new level in the 1990s; in some industries, such as the automotive industry, quality no longer seems to be a competitive weapon, but rather a prerequisite to survival.

Competitive pressures of the 1980s and 1990s have been felt most strongly in the major industries that are dominated by very large firms. Large U.S. corporations were the first to feel the impact of international competition and suffer its devastating effects. Thus, it is natural that almost all discussions of quality and related issues have focused on large corporations. Small firms seem all but forgotten. This article attempts to attract attention to this neglect and propose a conceptual framework for implementing TQM in the small business environment. Specifically, its emphasis is on small firms in the United States.

The main assumption is that quality is as important for small businesses as it is for large corporations. One reason is that some small companies have been competing directly with foreign firms for a long time; some have suffered the same consequences as large companies, while others have prospered in the competition. A second reason is that many large firms rely on a number of small companies for parts and services they use in producing their products. Quality-conscious corporations are demanding continuously higher quality in the goods and services they buy from small businesses; at the same time, they are reducing considerably the number of vendors. Criteria used in deciding which company to keep as a vendor are based almost entirely on cost and quality. Third, competition in the American economy seems to be intensifying, and new conditions emerge to which small firms have to adapt. Quality and productivity seem to be the indispensable main ingredients in a small firm's struggle for survival in these new conditions.

SMALL BUSINESS DEFINED

A challenging issue one must deal with when writing about small business--an issue that has not yet been settled in a generally accepted manner--is to define what small business is and distinguish it from big business. Most of the attempts at defining small business have to rely on some quantifiable characteristic, such as the number of employees, sales volume, or worth of assets. One classification scheme defines a small business as a firm with fewer than 500 employees. A more detailed classification divides this range further into subcategories: very small (1-19); small (20-99); and medium (100-499). Any company with more than 500 employees is considered to be a big business.

But there are other, qualitative approaches that offer valuable insight into understanding small business. According to The Small Business Act of 1953, a small business is independently owned and operated and not dominant in its field of operation. The Committee for Economic Development, as reported in Broom and Longenecker (1993), proposed identifying a small business as a firm that is characterized by at least two of the following:

Management is independent; usually the manager is also the owner.

Capital is supplied and ownership is held by an individual or a small group.

The area of operations is mainly local; workers and owners tend to be in one home community, although the markets need not be.

The business is small compared to the biggest units in its field.

Clearly, these are all useful definitions of small business, with some more appropriate for certain purposes than others. The classification that divides small businesses into three sub-categories (very small, small, and medium) with respect to the number of employees will be used in the rest of the discussion in this paper--not as rigid groups that are clearly distinguishable from others, but as reference points along a continuum of small businesses of different sizes.

The main reason for this approach is that the number of people a firm employs is usually proportional to the magnitude of its financial and human resources. Consequently, the number of employees is a proxy for the resources a firm may possess. The resources at the disposal of a company play an important role in the implementation of TQM. Therefore, the position of small firms along the size continuum (from 1 to 499 employees) will indicate the level of resources they possess.

THE NATURE OF SMALL BUSINESS

Many believe that a small business is more than just a "scaled-down" version of a big business. What makes it different may be discussed in four categories: (a) ownership, management, and organizational structure; (b) capital and resources; (c) objectives; and (d) markets and customers. In the following paragraphs, characteristics in each category will be described briefly. Later they will be referred to as they relate to applying TQM in the small business environment.

Ownership, Management, and Organizational Structure

Almost all small businesses start small and stay that way. Usually they are started by an entrepreneur who has a bright idea about a service or has developed a new product that fills a niche. A majority of small firms are privately owned; only about 40,000 of them are publicly traded. In most cases the business is owned by the entrepreneur, or jointly by close family members. The management is independent; usually the owner is the manager and reports to no one, or to other members of the family if they are also owners. Absentee ownership is very rare.

Although owners/entrepreneurs are generally experts in the product or service they produce, they usually have neither the education nor the skills required to manage a business. Many small business owners, who do not understand the intricacies of running a business and being proud craftsmen, may think those duties are beneath them. Yet they end up making most of the decisions--at least all the critical ones. Often they do not know how to delegate authority and responsibility, or the organization lacks qualified people to assume some of the authority and responsibility. Consequently, an owner has to make decisions in areas such as inventory or finance that are usually the responsibility of expert professionals in large firms.

Organization structure in a small firm is usually very simple, with few layers. Sometimes management positions are filled by family members, making it a truly family business. Employees usually perform a variety of tasks, often giving the business greater flexibility than larger businesses have. In general, organizational complexity and the number of levels increase as one moves from companies with a few employees to the higher end of the size continuum.

Capital and Resources

Because of the nature of ownership, typical small business firms often suffer from a shortage of capital. Originally, capital is supplied by the owner or the owner's family. Additional capital for growth, or Short-term credit for weathering bad times, is very difficult to raise. The main reason for the difficulty in obtaining long-term financing is that a large proportion of a typical small firm's assets includes short-lived equipment and fixtures, leaving insufficient long-term assets to qualify for long-term loans. Many small businesses do not even have sufficient record keeping to provide the necessary documents for bank loans. Insufficient capital is usually the main reason why most small businesses are service companies.

In addition to sparse. physical resources, small businesses are also severely limited in human resources, and so cannot attract highly qualified and experienced managers or professionals. Again, this weakness disappears as the firm grows in size and sales. Many small companies, however, provide some employees with a rich learning experience because of their focus on craftsmanship and the multitude of tasks required of them.

Objectives

Many small businesses are established as a means of self-employment. As long as the owner receives a satisfactory income, there may be no desire to expand the business. In some cases, the motive for profit may take a back seat to other motives, such as pride and craftsmanship. Some may become small business owners because they prefer a more relaxed and less competitive environment. Some have the objective of maintaining ownership and control of the business. Thus, growth is not an objective for many owners. According to Solomon (1986), most small firms fall into this category.

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