Total Quality Management for Micro-businesses in the Manufacturing Industry

Contents

1 Introduction
1.1 Motivation
1.2 Layout of This Thesis

2 Background
2.1 The Role of TQM in Business Today
2.2 Evolution of Quality
2.3 TQM, the Competitive Edge of the 21st Century

3 Quality Management in Micro-businesses is Different
3.1 The Definition of Micro-businesses
3.2 What Makes Micro-businesses Unique - The Business Environment of Very Small Companies
3.2.1 Ownership
3.2.2 Management
3.2.3 Organizational Structure
3.2.4 Capital and Resources
3.2.5 Objectives
3.2.6 Markets and Customers
3.3 Why Quality is Integral to Micro-businesses
3.3.1 Strengths of Micro-businesses
3.3.2 Weaknesses of Micro-businesses
3.3.3 Opportunities for Micro-businesses
3.3.4 Threats for Micro-businesses
3.4 Critical Appraisal of Research on Quality Management in Micro-businesses
3.4.1 Conclusion

4 Development of the Model: Micro TQM for Micro-businesses Framework
4.1 Two Cost Types as the Starting Point
4.2 Elements of the Model
4.2.1 Hypotheses
4.2.2 Context
4.2.3 Quality Awareness
4.2.4 Prevention
4.2.4.1 Areas for Preventive Activities
4.2.4.2 Internal Prevention vs. External Prevention
4.2.4.3 Process Quality of Prevention
4.2.5 Correction
4.2.5.1 Internal Correction vs. External Correction
4.2.5.2 Process Quality of Correction
4.2.6 Customer Satisfaction
4.2.7 Performance Dimensions

5 Empirical Survey
5.1 Design/Methodology
5.2 Difficulties in Empirical Studies on Micro-businesses

6 Summary and Outlook

List of Abbreviations

illustration not visible in this excerpt¹²

List of Figures

Figure 1: Egyptian Relief: Craftsman and Quality Control Inspector, 1450 BC

Figure 2: Positioning of TQM in the Quality Context

Figure 3: Categorization of Companies

Figure 4: Cost of Quality

Figure 5: Iceberg Model

Figure 6: Total Cost of Quality

Figure 7: Figure 8: Micro TQM for Micro-businesses Framework

Figure 9: PDCA Circle

Figure 10: Multiplier Rule of Quality Management

Figure 11: Information Flow in Supply Chains

Figure 12: Factors Having an Impact on Customer Satisfaction

Figure 13: KANO Model

List of Tables

Table 1: Statistics on Micro-business in the U.S

Table 2: Definitions of Awareness

Table 3: Prevention Techniques in Small Businesses, Literature Review

Table 4: Areas of Prevention, Aggregated

Table 5: Internal vs. External Prevention

List of Definitions

Definition 1: Quality According to ISO 9000:2005

Definition 2: Definition of TQM, Freely Adapted From DIN ISO 8204

Definition 3: Micro-businesses

Definition 4: Cost of Quality

Definition 5: Cost of Quality, Sub-Categories

Definition 6: Quality Awareness

Definition 7: Prevention According to ISO 9000:2005

Definition 8: Internal Prevention

Definition 9: External Prevention

Definition 10: Correction According to ISO 9000:2005

Definition 11: Internal Correction

Definition 12: External Correction

Definition 13: Customer Satisfaction According to ISO 9000:2005

1 Introduction

1.1 Motivation

Total Quality Management (TQM) has already made its mark in history. Big players in major industries, such as Ford³and Siemens⁴, have already aligned their business and production processes to this holistic management concept.⁵Over the past three dec­ades there are more medium-sized companies applying TQM principles to their busi­ness'⁶Quality has been important in helping companies gaining a competitive edge in globalized markets. TQM with its extensive set of methods aims to embed quality awareness among all departments of a company where work affects the quality of the products.⁷There are thousands of articles and books written on how large and medium sized companies have successfully implemented of TQM.⁸

An extensive literature review and interviews of experts and owners of very small businesses (micro-businesses) indicate that this is the only industry where TQM systems have not yet been implemented. Although micro-businesses are pressured by their customers⁹to achieve high levels of quality in their products,¹⁰there is not enough research that addresses the issues of implementing TQM practices for micro­businesses.

Scientific literature does not provide answers to crucial questions such as:

- What methods of quality management are currently being in use in micro­businesses?
- How could a TQM system be tailored to meet the needs in a micro-business environment?

This thesis is part of a large-scale field study that recently has been launched by the Howe School of Technology Management at Stevens Institute of Technology, Hobo­ken, NJ. The study aims to reveal answers to the questions listed above.

This thesis forms the foundation for the subsequent field study. The main goals is to deploy a systematic TQM framework for micro-businesses that will be help micro­businesses understand how the quality management culture has an impact on a com­pany’s success. Additionally, this thesis aims to develop a questionnaire that will ex­amine the validity of the framework and serve as basis for the field study.

The focus is on very small manufacturers. First breakthroughs in quality management have been taken place in this industry.¹¹Thus we can dispose of more than 100 years of research results in this field. Furthermore it is the manufacturer who is used to the first-movers role in new quality management models - another good reason for choos­ing this industry.

1.2 Layout of This Thesis

After an exposure of the problem in Chapter 1, Chapter 2 addresses the extraordinary meaning of total quality management for today’s businesses. In addition, this chapter highlights the historical development of quality and total quality management. Then Chapter 3 defines what this thesis means by the term ‘micro-business’ and gives some background information on peculiarities of this sector of the economy. This chapter also pinpoints differences in the implementation of quality management practices between micro-businesses and larger enterprises and integrates micro-businesses into the qual­ity management context. For this purpose research papers are examined in an exten­sive literature review that reveals a serious lack of knowledge about the quality man­agement practices of micro-businesses within the world of business sciences. In Chap­ter 4 existing research results and the authors’ and experts’ own ideas are combined into a new model of total quality management for micro-businesses, called ‘Micro TQM for Micro-businesses Framework’. The chapter highlights the core and the starting point of the model - the cost curves of prevention and the one of correction. Then each ele­ment of the framework is discussed in detail and interconnections explained. Chapter 5 provides information about the development process of the quality management ques­tionnaire that is needed for the field-study that follows the work of this thesis. The chap­ter also highlights the structure and methodology of the survey and the questionnaire. Possible problems and solutions regarding the subsequent telephone interviews are addressed. Chapter 6 gives a brief summary of the thesis and discusses limitations of the work.

2 Background

In order to familiarize oneself with the Total Quality Management concept and its out­standing role in today’s management¹²of companies it is first of all important to com­prehend the increasing need for quality products nowadays.

2.1 The Role of TQM in Business Today

Companies have to face a market environment where meeting increasing customer requirements has become vital for businesses. For several reasons customers are not as easy to satisfy as 100 years ago during the beginning industrialization. There are several possible reasons for the importance of taking increasing customer expectations seriously:

- Increasing economic wealth leads to higher expectations of products, e.g. high­er performance, usability under extreme conditions, etc.¹³
- After decades where disposable products were highly demanded¹⁴modern economies have been experiencing a renaissance of the appreciation of work­manship in products. These days, customers require more and more durable and economical products.¹⁵
- In times of very similar products in terms of technology and design in many markets it has become increasingly difficult for competitors to differentiate their products from others.¹⁶Therefore quality and price have gained importance as sales rationale.
- In saturated markets companies need loyal customers¹⁷. Quality products can lead to loyalty to a brand.¹⁸

Thus, today’s managers need to understand the principle and the meaning of quality. There are many approaches for finding a general all encompassing definition for the concept of quality depending on the individual perspective.

According to Baker et al.,¹⁹quality from the customer’s perspective means if an organi­zation creates items that are able to satisfy his needs at a price the customer is willing to pay and delivers them in the required amount and time to the right destination pro­duces quality products²⁰

The International Organization for Standardization, as most recognized publisher of definitions in the field of quality management²¹, defines quality in ISO 9000:2005 as follows:

Definition: Quality is the “Degree to which a set of inherent characteristic fulfills requirements".

Definition 1: Quality According to ISO 9000:2005 ²²

The definition implies that quality is intangible which makes it necessary for the organi­zation to define the set of characteristics, for instance color, dimensions, weight of the product, in order to meet the requirements of the customer.²³

Communication with and in many cases an interactive commitment of the customer himself in the product development process are crucial prerequisites to successfully address his needs through quality products.²⁴The extent to which the customer will be integrated in the process of product definition and quality control depends on the vari­ous industries and business factors.²⁵

According to ISO 9000:2005 quality is “Conformity to Requirements” which reflects an emphasis of putting the customer into the center of company focus.²⁶This definition goes above and beyond a second approach which is “Conformity to Specification”.

That means that specifications such as drawings and other methods to define up front what the future product is supposed to be able to perform, do and look like are put into praxis in the manufacturing process.²⁷Nevertheless, Conformity to Requirements can only be achieved through conforming to specification and those products can be as­sumed to be "Fit for Purpose” - the third form of conformity.²⁸

Needs and requirements, however, are subject to changes as technology advances and competitors create new needs. That means quality companies need to establish dynamic systems allowing them to update customer information from time to time.²⁹

2.2 Evolution of Quality

By 3000 BC the Babylonians are said to have already used simple quality control tech­niques such as the measurement of weight and size of craftwork with the intention to create uniformity of their products and reduce losses.³⁰An Egyptian relief that dates back to 1450 BC shows the first depicted evidence of sophisticated methods for stone cutting. Standardized and quality controlled blocks of stones enabled them to build structures of a never before known height and static excellence that have lasted with­out maintenance for thousands of years since their construction.³¹

illustration not visible in this excerpt

Figure 1: Egyptian Relief: Craftsman and Quality Control Inspector, 1450 BC³²

It was the British Marine of the 17th century that first held its suppliers responsible for ensuring the quality of ship-timbers, sailcloth, and anchors. For this purpose the British Admiralty set standards for the maintenance of its fleet, such as following example found in an official document exposed by the Naval Department Library in Washington: Ships are to be "fit for his Majesty’s Service” ³³ in all aspects.

Until the beginning industrialization in the early 20th century goods were typically pro­duced in small workshops³⁴ with no more than a handful of employees and the owner of the enterprise participating in and overseeing the product generation process.³⁵ This changed dramatically when products began to be mass-produced in modern machine driven factories and on assembly lines. The upcoming complexity of industrialized processes required quality to be addressed as a separate unit, quality departments.³⁶ Full-time quality inspectors were appointed and conducted an in-process and final product inspection that could no longer be handled by the business owner himself.³⁷

It was also about that time when highly sophisticated quality techniques emerged in big companies during the 1920’s.38 For instance, Bell Telephone Laboratories, a leading telecommunication company in the US of the previous century, was the first to apply ³⁸ quality control charts to their production, which continues to help companies keep track of deviances in processes today.³⁹

The militaries of all engaged nations in the Second World War used new written quality standards and documents in order to get their enormous manufacturing activities and new technologies managed.⁴⁰ After World War II, two American engineers, Dr. Juran and Dr. Deming, helped manufacturing enterprises of the reinvigorating world economy improve quality management methods with new models and theories.⁴¹ They are con­sidered to be the first "Quality Gurus”⁴² of modern quality management. They promoted their management concept of Total Quality Control⁴³ in Japan and created the basis for a competitive advantage of Japanese companies over those overseas, especially established automotive companies in the U.S., such as Ford.⁴⁴ The results of globa­lized markets had been decreased profit margins and therefore the need for cost re­duction.⁴⁵ The more quality activities became important in this context the more compli­cated it became for companies to meet customer requirements properly. Production in remote facilities in large batches led to difficulties in communication between custom­ers and suppliers.⁴⁶ The ideal of customers directly articulating requirements at the lo­cation of manufacturing, as common practice on a workshop level of previous centu­ries, was no longer given.

With the Quality Gurus attracting attention in the business world, a new mindset was born, the epoch of Quality Assurance.⁴⁷ Quality assurance is a way of ensuring quali­ty by focusing on prevention rather than on detection of problems.⁴⁸ From now on sup­pliers provided quality systems to their clients in order to create confidence in their ability to produce quality products.⁴⁹ Certification bodies, such as the TÜV Rhein­landpfalz, started auditing quality systems against accepted standards, such as ISO 9001:2000 which is the most wide-spread norm in the world.⁵⁰ Process-orientation and customer focus with internal customers being considered customers process-wise as well, serve as major foundation pillars of the ISO standard.⁵¹

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Figure 2: Positioning of TQM in the Quality Context⁵²

Total Quality Management (TQM) was the logical next step in the evolution of the quality concept, enriching the Quality Assurance approach by elements that went beyond purely process-oriented approaches. TQM is an integral theory that also en­compasses components such as mission, vision, leadership, and the market orientation of a company.⁵³So far there is no commonly accepted definition of Total Quality Man­agement.⁵⁴Before the ISO 9000 coming into effect the German Industry Norm DIN ISO 8204 defined TQM as:

Definition: Total Quality Management is a “management method that bases on the cooperation of all its members of an organization, that puts quality in the center of all company activity, and that aims on both sustainable financial profit and benefits for the or­ganization itself and the society through customer satisfaction.”

Definition 2: Definition of TQM, Freely Adapted From DIN ISO 8204⁵⁵

This attempt at defining TQM makes it clear that TQM is a leadership method in con­trast to Quality Management Systems according to the ISO 9000 series. Furthermore TQM includes all stakeholders of an organization and aims to ensure quality among all departments of an organization that affect quality directly. ⁵⁶

The quality movement spread from Japan to America, and finally to Europe.⁵⁷ There­fore it was those regions of the world to be the first in developing quality prizes⁵⁸. Qual­ity Awards appreciate excellence in providing quality products. Companies must show their quality commitment in the form of extensive quality manuals and are subject to audits by the award committee in order to gain these desired awards.⁵⁹ The Frame­works behind these awards, also called Excellence Models, are often not only used by the applicants for their preparation work, but also by organizations that are seeking competitive positions.⁶⁰ There might be internal reasons for going the "excellence way”, e.g. the need to improve performance, or external reasons, e.g. competitive pressure.⁶¹ The most acknowledged Quality Awards are:

- Deming Prize (Japan),⁶²
- Malcolm Baldrige Award (USA),⁶³ and
- EFQM Excellence Award (European Union).⁶⁴

TQM, and the Malcolm Baldrige Award in particular, was the driving force behind U.S. American companies⁶⁵ regaining their competitive edge against their Japanese com­petitors in the 1980’s.⁶⁶ The development of TQM, however, is a journey with no end. In the 1920 Deming promoted the idea of never-ending improvement as the competitive edge for organizations.⁶⁷

What began with Deming’s PDCA⁶⁸methods for continuous improvement has ad­vanced to holistic TQM systems at present time that became the new competitive edge.

2.3 TQM, the Competitive Edge of the 21st Century

Nowadays, major industries, e.g. the automotive industry, the IT industry, or the con­sumer electronics industry, are dominated by very large firms.⁶⁹Those conglomerates such as General Motors or Siemens bind their suppliers by contract to comply with in­dustry standards. To appear on an approved suppliers list, many companies want to prove their ability⁷⁰to meet client’s needs through providing quality certificates issued to conforming companies by accredited certification bodies such as the TUV. If this is not applicable to them due to financial limitations, many clients will at least conduct external audits at the suppliers’ site in order to evaluate whether they can trust in the quality of goods and services offered.⁷¹

Those industry structures imply that the need for quality management is passed down the supply chain from the final customer to the smallest of suppliers.⁷²Thus, compa­nies face a natural selection process, where the ability of managing quality properly decides whether they are going to stay in the market or not. Quality is no longer seen as a competitive weapon but rather a pre-condition to survival.⁷³

3 Quality Management in Micro Businesses is Different

This Chapter illustrates the characteristics of micro-businesses and explains why there is a need for a totally new understanding of quality management for these companies.

3.1 The Definition of Micro-businesses

Typically companies⁷⁴are classified by their, number of employees, annual sales, or- NAICS Code⁷⁵.

The number of employees, however, is widely accepted as criterion to distinguish be­tween companies of different size.⁷⁶In this context the size of the workforce is used as a proxy for the resources a company can dispose of in general, such as capital, man­power, equipment, etc.⁷⁷Quality Management Systems that are actively implemented usually go along with expenditures that require a sufficient amount of available re­sources.⁷⁸Thus the number of employees is a good indicator as to which companies are at the end of the spectrum with a limited ability to perform quality activities - micro­businesses.

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Figure 3: Categorization of Companies⁷⁹

In the quality management literature, companies are usually divided into three groups: large, medium-sized, and small companies.⁸⁰Furthermore the category small compa­nies is sometimes subdivided into two segments: very small and ("ordinary”) small companies.⁸¹Very small companies are also referred to as micro-businesses⁸²or mi­cro-enterprises.⁸³Figure 2 shows the groups as they were identified in some related articles.

There is, however, no consensus about the boundaries of each group and subgroup. The one thing all analyzed sources have in common is that large companies are those with more than 499 employees⁸⁴. On the other hand there is more uncertainty about medium-sized businesses. Sizes vary from between 100⁸⁵ and 250⁸⁶ employees, to 499 employees. The main group small businesses⁸⁷ are defined as are firms employing 249 people or less in reference to Raynold (1985). According to Stephens (2005), however, the cutoff is 99 employees for companies just being considered small. Espe­cially important to this investigation though is the cutoff that separates micro­ businesses from other small firms. The Micro-business Advancement Center⁸⁸ defines micro-businesses as “businesses with twenty five or less people including the owners” whereas Matlay (1999)⁸⁹ considers companies with less than ten employees as micro. On rare occasions one will also find five employees as the limit for micro-businesses⁹⁰.

Subsequently, the following definition found at Stephens (2005) shall be used:

Definition: Micro-businesses are companies that employ less than 20 people.

Definition 3: Micro-businesses

The database of the SBA⁹¹a governmental organization for business research, pro­vides some valuable basic statistics on micro-businesses in general and in particular micro manufacturers in New York which is the focal group of this study. Data from Ta­ble 1 has been extracted from this source.

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Table 1: Statistics on Micro-business in the U.S.⁹²

Table 1 shows that during the evaluation period, 2003 until 2005⁹³, the number of mi­cro-businesses according to the definition above has remained constant at about 90% of all American companies. That equals approximately five million micro-businesses for the entire country.

Also noteworthy is the fact that U.S. micro-businesses generate revenues of about $3 Billion, which is only 14.2% of all companies in the country. Although 9 out of 10 busi­ nesses in the U.S. are micro-businesses, they employ only a small fraction of the American work force (18%). ⁹⁴

The importance of micro-businesses for the American economy apparently does not lie in its job potential. In contrast this is actually true for small businesses on a whole⁹⁵. Micro-businesses can be seen as the "seedbed for entrepreneurial talent”⁹⁶. Since small business in general is often referred to as the "engine room of the economy”⁹⁷one could denominate micro-businesses with the title "preheater of the enconomy”, because they have the potential to generate jobs and profit potential through growth. This is only true for entrepreneurial businesses with the will to grow, but not for mom- and-pop shops. More about these two types of micro-businesses is discussed in sec­tion 3.2 (objectives).

3.2 What Makes Micro-businesses Unique - The Business Environment of Very Small Compa nies

In their acknowledged work "Small Business Management”⁹⁸Broom and Longenecker define small businesses as companies that have shown one of the following characte­ristics:

- 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 market does not need to be
- The business is small compared to the biggest units in its field

Since micro-businesses are a subgroup of small businesses⁹⁹above descriptions are applicable to them as well. Nevertheless, in our understanding more than one of Broom and Longenecker’s characteristics have to come together in order to call a company micro because micro-businesses differ from other small businesses in the following areas:¹⁰⁰

- Ownership,
- Management,
- Organizational structure,
- Capital and resources,
- Objectives, and
- Markets and customers.

3.2.1 Ownership

Only about seven out of 100 small businesses of up to 100 employees¹⁰¹are publicly traded. Most companies conduct their Initial Public Offering (IPO), when the owners sell parts of their business, after a couple of years.¹⁰²For the most part owners decide to make their company go public when the business has grown significantly and seems attractive enough for investors to buy shares.¹⁰³Therefore it is very unlikely that the number of micro-businesses that are public traded reach these 7%. In contrast, one can legitimately assume that over 90% of all micro-companies are privately owned by the founder/s.¹⁰⁴

3.2.2 Management

In the majority of cases the owner of micro-businesses is also the manager. Absentee ownership, which means hiring a managing director for the company, is very rare.¹⁰⁵In many cases the owner runs the businesses independently without assistance from oth­er managers. Moreover, hiring consultants is also very rare because of the weak finan­cial base of most micro-businesses compared to large companies.¹⁰⁶Therefore, net­working is crucial for small business owners. For critical decisions they often seek help from entrepreneurial networking groups, former colleagues and friends.¹⁰⁷

Quality management, however, is a day-to-day business where a lot of experience, specific knowledge¹⁰⁸ about the philosophy, methodology and techniques are required. In most cases, since there is no in-house quality manager available 24/7, the owner often has to perform quality tasks on his own.¹⁰⁹ The average micro-business owner puts a lot of engagement into his work since he is highly involved both intrinsically and extrinsically in his business with which he usually identifies himself. He cares for the company like others do for a child¹¹⁰.

Management methods of micro-enterprises differ a lot from larger-sized companies. Short-term decisions play a much larger role for these businesses because firms of this kind have to manage their day-to-day survival.¹¹¹ The survival rate of companies in the Unites States that are still in business after three years is only about 60%.¹¹² By fighting the hardships of small business ownership the managerial focus is shifted from strateg­ic issues to more operational ones.¹¹³

For example, during an interview that we conducted with a female entrepreneur, she expressed her worries about her handbag manufacturing business in Hoboken, NJ, in this way: “I always have to ask myself, whether there are enough orders within the next weeks to pay my employees, or if I have to tell them not to come to work for a while”.¹¹⁴ When asked what importance strategic considerations hold for her, she replied that there simply is no strategic planning. Of course, this is her personal perspective and her management style cannot serve for general assumptions. But research on micro­business literature tends to show similar results.¹¹⁵

Finally, most of the business and manufacturing activities that are performed should not be called processes. They are less sophisticated in their structure and often lacking basic requirements for formal processes.¹¹⁶ These include a formal written definition of the work performed, the definition of process owners, in- and out-put parameters and the assignment of specific resources.¹¹⁷ One major reason why micro-enterprises lack formal processes is specifics in their organizational structure.

3.2.3 Organizational Structure

Most micro-businesses have a very elementary, organizational structure. There is not a complex hierarchy with many layers of authority, but rather a flexible system with the owner, or the family of the owner, as the manager(s) responsible for managerial, and production processes that some are personally involved in.¹¹⁸Employees’ work is usually closely linked to the work of the business owner who often works with his co­workers on projects as an active member of the group rather than just being in charge or delegating tasks.¹¹⁹

3.2.4 Capital and Resources

The biggest limitation for micro-businesses to grow is the lack of capital and resources. Generating sufficient cash flow to keep the business flourishing always used to be an issue especially for the smallest of all businesses.¹²⁰Especially for entrepreneurial businesses, raising money is accompanied by overcoming many hurdles. Investors are rare when a business is still small and does not have a sufficient amount of assets for financial security.¹²¹Thus, family members (15% of start-up funds) and the owner’s credit card (15%) are often the only source of capital.¹²²Those financial barriers can easily result in a lack of skilled employees, managerial competencies and other crucial input factors needed for reliable and stable value-added process.

3.2.5 Objectives

There are a variety of reasons why people are running micro-businesses. Quite a few of them are non-profit organizations.¹²³But given there is a monetary motivation for the business owners several forms need to be distinguished. Some companies are only founded for the purpose of the owner’s self-employment. For many people it is satisfy­ing to manage their own firm, to create success from scratch, to be independent from others, or to put an idea that has been existing in their mind for years into practice.

Many owners simply take pride in performing their craftsmanship on their own account, which again has to do with the desire for independence.¹²⁴

Many founders are real entrepreneurs who have the vision to find a market niche for their product where the company is able to grow in order to generate entrepreneurial revenues. Others just establish a mom-and-pop shop without having the ambition to grow at all. Studies trace this phenomenon back to the business reaching a ‘comfort level’¹²⁵, where sales are sufficient and stable enough to allow the owner a good living. Other groups of founders might have had great ambition but they end up running a stagnating business.

Objectives vary greatly and it is too simple to treat owners of micro-business as a ho­mogeneous group of people. But, the smaller the company the more likely it is that the main objective of the business does not lie in growth but in self-employment.

3.2.6 Markets and Customers

For the most part micro-businesses perform their business activities within their own geographic area. They find their customers in local markets, hire staff in their close surrounding, and face the hardest competition with local competitors.¹²⁶Of course, glo­balization has also become an issue for micro-businesses as already mentioned. But one of the major advantages that very small local companies have over non-local com­panies either non-domestic or domestic is that they are much closer to the (local) cus­tomer.¹²⁷Frequent customer contact serves as a niche against the market power of bigger or stronger competitors and can compensate for weaknesses in other fields.

3.3 Why Quality is Integral to Micro-businesses

Based on the previous analysis determining business factors that make micro­businesses special among small businesses, this section will conduct a SWOT¹²⁸anal­ysis where those factors will be classified and rated. SWOT is a strategic management tool¹²⁹consisting of a two part internal and external analysis. In the internal analysis, a resource based model, strengths and weaknesses of micro-businesses will be identi­fied. The external analysis is an environmental model which highlights opportunities and threats coming from competitors, markets, and other external parameters. The SWOT analysis will discover areas where total quality management can be used as a tool for micro-businesses regarding the minimization of risks and maximization of per­formance.

3.3.1 Strengths of Micro-businesses

1. The chance of failures in production and business processes tends to be lower due to less complex procedures.¹³⁰
2. Defects are very likely to be detected by employees working in production themselves. Micro-businesses face less fluctuation, thus employees are more familiar with processes. Since work areas are less delimited from one another, workers usually collaborate closely and check each others work immediately, reducing the occurrence of defects.¹³¹
3. Micro-businesses are characterized by a higher level of flexibility compared to bigger companies and can therefore adjust more easily to changing environ­mental conditions, such as changing customer requirements.¹³²
4. Informal and flexible structures lead to a high degree of innovation.¹³³
5. They have lower overhead costs.¹³⁴
6. A strong commitment from the owner can be inspiring for his employees that usually know the owner personally.
7. Flat hierarchies can lead to high job satisfaction among employees.¹³⁵
8. It is easier for micro-businesses to maintain closeness to their customer due to less bureaucratic organizational structures.¹³⁶

3.3.2 Weaknesses of Micro-businesses

1. There is a notorious shortage of capital and¹³⁷ other viable resources.¹³⁸
2. It is uncommon for micro-businesses to play a dominating role in supply chain management, e.g. in terms of supplier development, due to the lack of market power.¹³⁹
3. There is often a lack of management expertise, experience and knowledge¹⁴⁰in crucial fields of business such as quality or finance, which often results in re­sources being allocated non-effectively.
4. There is often no understanding of, or effort put in strategic management tech­niques¹⁴¹which also results in resources being allocated non-effectively.
5. The applicability of many management tools nowadays depends on the exis­tence and routine actualization of data. But the maintenance of documents like the written definition of processes is not often conducted in micro-businesses.¹⁴²
6. Large companies have the power of economies of scale, which micro­businesses are missing. Therefore facing direct competition in the same market is not recommended for micro-businesses.¹⁴³

The SWOT analysis can only unleash its full power by linking internal and external analysis.¹⁴⁴The following threats and opportunities have been extracted from standard literature. Under each item there is a suggestion for how certain strengths or weak­nesses of the section above can be addressed by micro-businesses in order to:

- Exploit opportunities by utilizing strengths,
- Overcome weaknesses by taking opportunities,
- Avoid threats by utilizing strengths, and
- Avoid threats by overcoming weaknesses.

In some cases threats can also be opportunities if managed favorably. Boundaries be­tween these two categories are sometimes blurred.

3.3.3 Opportunities for Micro-businesses

1. TQM can be used as a marketing tool. Companies in saturated markets, such as the U.S., often use quality as their unique selling proposition¹⁴⁵often actively communicated to the customer.¹⁴⁶Labels such as "Made in Germany” often in­dicate quality products and serve as USP for the customer. TQM can be utilized as a tool for fostering quality improvement and positioning the company and its products in a high quality niche, one way to face a globalized competitive envi­ronment (weakness, point 6).
2. Having a TQM system established is a promising way to obtain capital from in­vestors and banks, because quality-aware companies sustain operational ex­cellence. This widely accepted technique serves well as an argument for inves­tors. Thereby micro-businesses have the opportunity to counteract underfund­ing problems. (weakness, point 1)¹⁴⁷
3. One trend in the new century that has attracted remarkable attention among re­search companies world-wide is the trend towards personalized products.¹⁴⁸Web 2.0 is the name for this development in the IT sector. Many other indus­tries have also had to shift their focus from what they were used to doing for the last decades.¹⁴⁹The customer demands more and more non-standardized, or ‘customized’ products. Furthermore, customer expectations are changing at a pace like never before.¹⁵⁰Large companies that maintain enormous administra­tive capacities are often too sluggish in their business processes to adequately meet changing customer needs. That is exactly the situation where the lean or­ganizational structures of micro-businesses come into play. Flexibility, flat hie­rarchies, and closeness to the customer can be leverage in better serving changing customer expectations. (strength, point 3,7, and 8)
4. Due to his prominent status within the company,¹⁵¹the owner has the opportuni­ty to influence the corporate culture directly through his own commitment. If he actively practices quality in his own work and communicates quality awareness to his employees they are very likely follow his example.¹⁵²(strength, point 6)
5. Total Quality Management can help set the owner free of tasks that accrue on a daily base and keep him from more important duties. Prevention of problems saves time and money resources that are always a scarce and precious in mi­cro-businesses. (weakness, point 1)¹⁵³

3.3.4 Threats for Micro-businesses

1. In a globalized world markets grow together and local distance does not play the role it used to play. As Thomas L. Friedman accurately describes in his book "The World is Flat”¹⁵⁴, radical innovations in the field of telecommunication and logistics have leveled global markets and changed core economic con­cepts. Companies find partners, customers, and their suppliers easily over the internet. Quality and price have become main selling arguments.¹⁵⁵In this busi­ness environment micro-businesses often cope with dealing with competitors they have not thought of before. Whoever had the standards of quality that are not in line with the market will have to retreat.¹⁵⁶Therefore, micro-businesses must overcome their own weak points in quality management in order to sur­vive. (weakness, point 3)
2. Many micro-enterprises supply parts to large corporations that require them to meet their quality standards.¹⁵⁷Micro-businesses that are not fit in quality can easily fall behind competitors. In times of lean production, where it is common practice to reduce the number of suppliers, this is a serious threat for micro- businesses.¹⁵⁸Statistics show that the U.S. economy has been underlying an increasing competition throughout many core industries.^159160161(weakness, point 2 and 3)
3. Over the past years customers have become aware of their increased bargain­ing power160 161 and demand for outstanding quality. Sometimes industries that have never had to care about quality issues now have to deal with emancipated customers having concrete expectations for what quality they want to receive for their money. For instance, customer service in the airline industry had to be reinvented when former government owned airlines went public and had to face their competitors in the 80s of the last century.¹⁶²In the service sector customer orientation drives the business. (strength, point 8)
4. Owners who clearly understand how to improve quality culture among their em­ployees can avoid having issues with unsatisfied employees. In comparison to larger companies, it is much more difficult for micro-businesses to find qualified personnel.¹⁶³One reason for this is that opportunities for career development within a micro-company are not often given¹⁶⁴
Owners simply can not afford to lose trained staff. Dissatisfied employees emerge for a variety of reasons. Two matters that have the potential to taint the work climate are:¹⁶⁵
- dealing with continuous customers complaints due to problems with quality or
- not having their work appreciated, e.g. not getting praised for excellent work
One core dimension in TQM is the focus on employees with the sub-dimensions job satisfaction, motivation and personal performance.¹⁶⁶(strength, point 6 and 7)
5. The weak financial base of many micro-businesses makes them vulnerable to serious quality problems.¹⁶⁷A single big problem can mean being put out of business. Sometimes streamlining the entire business is the only way to keep the company from experiencing grave financial damage or even bankruptcy - TQM as "the avenue for survival”!¹⁶⁸(weakness, point 1)

This brief and condensed analysis has shown that TQM, if applied properly, can assu­medly be used by micro-businesses as a powerful tool for coping with the challenges of the highly competitive business environment of the 21st century.

3.4 Critical Appraisal of Research on Quality Management in Micro-businesses

Not surprisingly, most of the research on success of companies through the implemen­tation of total quality management techniques was conducted in the field of large or medium-sized enterprises.¹⁶⁹This has a number of reasons:

- Large companies, in general, define processes for all quality related fields of their business.¹⁷⁰In quality management literature, the formal definition of processes is being considered an essential element of Quality Management Systems.¹⁷¹For the most part small businesses, and especially micro­businesses do not define processes or must be required by their customers to do so.¹⁷²
- The main focal point of theories for quality management ‘Gurus’¹⁷³, such as Deming, Juran, and Crosby, and the frameworks of quality awards, such as the Malcolm Baldridge National Quality Award (MBNQA) and the EFQM Excellence Award, is on large companies. The criteria for the awards is quite difficult for small businesses to meet. Stephens, Evans and Matthews¹⁷⁴conclude that en­terprises with less than 50 employees are probably too small to successfully apply the criteria of the Baldrige Award. Since the first award ceremony in 1989, the MBNQA has awarded a special award for small businesses, which shows that small businesses are treated as a distinct group or the exception to the rule.¹⁷⁵
- Large companies are more interested in quantitative and qualitative research projects on quality management than small firms. They are more willing to fund research in this area.¹⁷⁶

[...]

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¹See also appendix 3.

²See also appendix 2.

³Cp. Berger (2001), p. 72

⁴Cp. Steers and Nardon (2005), p. 323

⁵Cp. Kirchgeorg et al. (2005), p. 343

⁶Cp. Khosrow-Pour (2006), p. 251

⁷Cp. Campbell et al. (2002), p. 241 f.

⁸Cp. Furterer and Elshennawy (2005); cf. Rogers and Kaynak (1996); cf. Arcaro and Arcaro (1995), cf. Smith (1977)

⁹mostly business customers: ibidem

¹⁰Cp. McLaney (2006), p. 445 ff.

¹¹Cp. Berger (2001), p. 72

¹²Cp. Mishra et al. (2005), p. 14 f.

¹³Cp. Atkinson (1982), p. 180

¹⁴Cp. Hawkins (2005), p. 26 ff.

¹⁵Cp. Seaver (2003) p. 54

¹⁶Cp. Twiss (1992), p. 74 f.

¹⁷Cp. Khosrow-Pour (2000), p. 1049

¹⁸Cp. Singh Soin (1999), p. 28

¹⁹Cp. Baker et al. (2003), p. 372 f.

²⁰According to ISO 9000:2005 products can also be services.

²¹Cp. Grimes, K. R. (2003), p. 2 f.

²²Cp. u.a. (2005), p. 7.

²³Cp. Al-Assaf and Assaf (1997), p. 32.

²⁴Cp. Maromonte (1996), p. 75 ff.

²⁵Cp. Meloan and Graham (1998), p. 188.

²⁶Cp. Bidgoli (2003), p. 456.

²⁷Cp. Strehlow et al. (1993), p. 308 f.

²⁸Cp. Cadle and Yeates (2004), p. 234.

²⁹Cp. Ulrich and Lake (1990), p. 174 ff.

³⁰Cp. Adanur (1997), p. 309.

³¹Cp. Dhillon (2002), p. 245.

³² Ibidem.

³³ Davis (1811), p. 3.

³⁴Cp. Pollard and Pollard (1990), p. 49 ff.

³⁵Cp. Hounshell (1984), p. 316 f.

³⁶Cp. Ridderstrale and Nordström (2001), p. 271.

³⁷Cp. Rampersad and El-Homsi (2007), p. 3.

³⁸Cp. Dhanakumar (1999), p. 194 f.

³⁹Cp. Breyfogle (2003), p. 204 f.

⁴⁰Cp. Asher (1996), p. 13.

⁴¹Cp. Furnham and Gunter (1993), p. 209.

⁴²Cp. Kelada (1996), p. 20 ff.

⁴³Cp. Milakovich (1995), p. 13.

⁴⁴Cp. Beechler and Stucker (1998), p. 333 f.

⁴⁵Cp. Choi and Greenaway (2001), p. 196.

⁴⁶Cp. Chandra and Kamrani (2004), p. 12.

⁴⁷Cp. Kelada (1996), p. 306 ff.

⁴⁸Cp. Tayntor (2002), p. 5.

⁴⁹Cp. Kanawaty, (1992), p. 184.

⁵⁰Cp. Grimes, K. R. (2003), p. 2.

⁵¹Cp. Sharp (2000), p. 96 ff.

⁵²Source: Compiled by the Author.

⁵³Cp. Davis et al. (1998), p. 139 f.

⁵⁴Cp. Kubr (2002), p. 465.

⁵⁵Cp. u.a. (1998a), p. 3 f.

⁵⁶Cp. Luning et al. (2006), p. 289 f.

⁵⁷Cp. Karwowski and Bonnet (2001), p. 1313.

⁵⁸Or Quality Awards.

⁵⁹Cp. Hertz (2001), p. 58 f.

⁶⁰Cp. Kossmann (2006), p. 65.

⁶¹Cp. Löffler and Vintar (2004), p. 157 f.

⁶²Cp. http://www.juse.or.jp/e/deming/index.html.

⁶³Cp. http://www.quality.nist.gov/.

⁶⁴Cp. http://www.efqm.eu/.

⁶⁵E.g. Ford, Motorola, Cp. Tennant (2001), p. 6.

⁶⁶Ibidem.

⁶⁷Cp. Walton and Deming (1988), p. 206.

⁶⁸See also 4.2.4.

⁶⁹Cp. Leonard (1988), p. 17 ff..

⁷⁰cp Hough (1996), p. 52.

⁷¹Cp. Mitra (1998), p. 106.

⁷²Cp. Webber and Weller (2001), p. 90 f.

⁷³Cp. Berry (1990), p. 5.

⁷⁴Cp.Krakoff and Fouss (1988), p. 29 ff.

⁷⁵ North American Industry Classification. Replaces the former SIC (Standard Industrial Code). , System that categorizes companies by industry.

⁷⁶Cp. Kalleberg et al. (1996), p. 49 f.

⁷⁷Cp. Haksever (1996), p. 33 .

⁷⁸Cp. Futrell et al. (2002), p. 773.

⁷⁹Compiled by author, various sources: cp. Rodwell and Shadur (1997); p. 54; cp. Haksever (1996), p. 34; cp. Stephens et al. (2005), p. 22.

⁸⁰ Ibidem.

⁸¹Stephens et al. (2005), p. 22 f.

⁸²Cp. Leonard (2006), p. 567

⁸³Cp. Kubr (2002), p. 575

⁸⁴ Rodwell, Shadur (1997); p. 54 f.

⁸⁵Cp. Haksever (1996), p. 34 ff.

⁸⁶ Ibidem.

⁸⁷ Not to be confused with the sub-group in Figure 3.

⁸⁸u.a. (2007).

⁸⁹Cp. Matlay (1999), p. 286 ff.

⁹⁰Cp. Walker (2000), p. 1.

⁹¹United States Small Business Administration, The SBA was established by the U.S. Congress for the purpose of supporting small businesses nation-wide and providing free statistics to the public.

⁹²Cp. SBA (2008) f.

⁹³Most recent available data published by SBA.

⁹⁴Cp. SBA (2008).

⁹⁵Cp. Walker (2000), p. 1 f.

⁹⁶Cp. Micro-business Consultative Group (1998), p. 23.

⁹⁷Cp. Howard (1997), p. iii.

⁹⁸Cp. Broom and Longenecker (1993), p. 235 ff.

⁹⁹Cp. Meredith (1989), p. 9.

¹⁰⁰ Cp. Haksever (1996), p. 34 ff.

¹⁰¹ Cp. Haksever (1996), p. 34.

¹⁰² Cp. Draho (2004), p. 89 f.

¹⁰³ Ibidem.

¹⁰⁴ Cp. Aaron and Slemrod (2004), p. 109.

¹⁰⁵ Cp. Beaver (2002), p. 56.

¹⁰⁶ Cp. Rogak (2004), p. 103 f

¹⁰⁷ Cp. Perry (1999), p. xii.

¹⁰⁸ Cp. Haksever (1996), p. 35.

¹⁰⁹ Cp. Longenecker (2006), p. 13.

¹¹⁰ Cp. Rickertsen and Gunther (2001), p. 106.

¹¹¹ Cp. Gupta et al. (2005), p. 346 f.

¹¹² Cp. u.a. (1998b), p. 248.

¹¹³ Cp. Little (2005), p. 86.

¹¹⁴ Information obtained in an interview with a micro business owner in Hoboken, NJ. (2008).

¹¹⁵ Cp. Little (2005), p. 86 ff.; cp. Hall (2004), p. 1 ff.

¹¹⁶ Cp. Huxtable (1994), p. xii.

¹¹⁷ Cp. Barkley and Saylor (2001), p. 344 ff.

¹¹⁸ Cp. Buhalis and Costa (2005), p. 124 f.

¹¹⁹ Cp. Gupta et al. (2005), p. 347.

¹²⁰ Cp. Hey-Cunningham (2002), p. 318 f.

¹²¹ Cp. Vinturella and Erickson (2003), p. 36.

¹²² Cp. Pakroo and Caputo (2008), p. 86; Sources of Start-up Funding of Small Businesses: 1st: Personal Savings: 81%, 2nd: Bank Loan: 18%; Credit Card: 15%; Friend/Family Loan:15%.

¹²³ Cp. Hankin and Seidner (1998), p. 3 ff.

¹²⁴ Cp. Baines et al. (2003), p. 9 ff.

¹²⁵ Cp. Rosa et al. (1996), p. 464.

¹²⁶ Cp. Walker (2000), p. 38 f.

¹²⁷ Cp. Pride et al. (2002), p. 165.

¹²⁸ SWOT = strengths, weaknesses, opportunities, threats

¹²⁹ Cp. Wilson and Gilligan (2005), p. 53 ff.

¹³⁰ Cp. Ahire (1996), p. 44 f.

¹³¹ Ibidem.

¹³² Ibidem.

¹³³ Ibidem.

¹³⁴ Cp. Marks (2006), p. 584; Cp. Ahire (1996), p. 44.

¹³⁵ Cp. Kanter (1993), p. 276.

¹³⁶ Cp. Barzelay and Armajani (1992), p. 180 f.

¹³⁷ Cp. Ahire et al. (1994), p. 31.

¹³⁸ Cp. Morrisson et. al (1994), p. 18.

¹³⁹ Cp. Atrill (2005), p. 417.

¹⁴⁰ Cp. Sironopolis (1994), p. 13 f.

¹⁴¹ Cp. Rogak (2004), p. 103.

¹⁴² Cp. Schonberger (1986), p. 134.

¹⁴³ Cp. Schiller (1999), p. 136.

¹⁴⁴ Cp. Mawhinney (2001), p. 51 ff.

¹⁴⁵ USP = Unique Selling Proposition.

¹⁴⁶ Cp. Wright (2004), p. 229.

¹⁴⁷ Cp. Meigham (2000), p. 119 f.

¹⁴⁸ Cp. Smith and Taylor (2004), p. 400 ff.

¹⁴⁹ E.g. Food: Cp. Kok et al. (2007), p. 246; Apparel: Cp. Sztandera and Pastore (2003), p. 118.

¹⁵⁰ Cp. Rushton et al. (2006), p. 90.

¹⁵¹ See also 3.2.2.

¹⁵² Cp. Barltrop and McNaughton (1992), p. 107 f.

¹⁵³ Cp. Langston and Lauge-Kristensen (2002), p. 230

¹⁵⁴ Cp. Friedman (2005), p. 2 ff.

¹⁵⁵ Cp. Tracy (2000), p. 92

¹⁵⁶ Cp. Hoyle (2005), p. 5

¹⁵⁷ Cp. Chadwick and Schroeder (2002), p. 34 f.

¹⁵⁸ Cp. Womack et al. (1990), p. 158

¹⁵⁹ Cp. Duetsch (2002), p. 1 f.

¹⁶⁰ Supported by new technologies such as the Internet technology

¹⁶¹ Cp. McMillan (2002), p. 47.

¹⁶² Cp. Adie (1989), p. 69.

¹⁶³ Cp. Longenecker et al. (2006), p. 561 ff.

¹⁶⁴ Cp. U.S. Department of Labor (2000), p. 16 f.

¹⁶⁵ Cp. Shearer (2005), p. 204.

¹⁶⁶ Cp. Williams Koch and Wagner (2000), p. 82; Cp. Potterfield (1999), p. 48.

¹⁶⁷ Cp. Pakroo and Caputo (2008), p. 114.

¹⁶⁸ Cp. Bigler and Norris (2004), p. 84 ff.

¹⁶⁹ Cp. North et. al (1998), p. 162.

¹⁷⁰ Cp. Kelada (1996), p. 257.

¹⁷¹ Cp. Tennant (2001), p. 34.

¹⁷² Cp. Khosrowpour (2001), p. 16; cp. Schonberger (1986), p. 134.

¹⁷³ Cp. Fernandez (1994), p. 301.

¹⁷⁴ Cp. Stephens et al. (2005), p. 24.

¹⁷⁵ Cp. Novak (2005), p. 238.

¹⁷⁶ Cp. Mullins (2006), p. 258 ff.