3.3 Why Is Quality Important?

Several academic studies have highlighted the financial impact of TQM on companies. The studies show that companies that successfully applied the TQM process had higher stock returns than similar competitors that did not. While this is true, it does not fully highlight the importance of quality to an organization.

Let’s take a look at the importance of quality through an anecdote. In class, your instructor emphasizes the importance of quality. He asks how many of the students own a Japanese car or truck. About a third of the students say they do. He asks how many have an American car or truck. Again, about a third say they do. The remaining students either don’t own a vehicle or have a European or Korean car.

Next, he asks, how did the students choose the car or truck they have? The answers usually fall into several categories: “I liked how it looked,” “I needed practical transportation,” “it’s what my parents chose,” “it was all I could afford.” Now, here is what you may find interesting. When the surface-level factors are removed from the equation, the students’ most common set of criteria is the value (i.e., low price) and dependability or reliability of the car. To segue into the quality discussion, the instructor’s last question is, “How many of you own a Yugo?”

Right now, you are probably asking, what’s a Yugo? Yugo was a brand of automobiles made in Yugoslavia, hence “Yugo,” back in the late 1980s. Figure 3.1 shows a picture of the basic model. It was designed to be low-cost, reliable transportation. It had a sticker price of $3,990. Amazing deal, right? The first three years of full production saw 30,000–40,000 cars per year in the United States (1986–1988). Then, starting in 1989, there was a dramatic drop in sales every year. By 1993, the company no longer had sales in America. What was the problem? Quality.

Even thirty years after its last American sale, Yugo is remembered for its awful quality and for being the Worst Car of the Millennium. Surprisingly, the company continued to make cars in Yugoslavia (which became Serbia) until 2008. In a final ironic twist, the factory where Yugos were made was eventually sold to the Fiat motor company. Fiat used it to produce the Fiat 500L for the American market.

Much like the Yugo story, the Fiat’s goal for low-cost and high-quality transportation was not successful. With its introduction in 2013, the 500L sold 6,861 cars and peaked in 2014 with 12,413 sales. By 2020, annual sales were 475. Although the quality of the 500L is vastly superior to the Yugo, it ranks 24th out of 26 compact SUVs, according to Repair Pal. This observation aligns with the overall perception of Fiat’s quality as a brand. This author had a little Fiat that looked a lot like the Yugo while in college, and the running joke in the family was Fiat stood for “Fix It Again Tony!!” We never bought another Fiat car in our family. The point is, quality matters!!

Think about the products in your life today. If you own a car, how often does it break down? What is the cost of maintenance? When you next buy a car, will its reliability be a vital part of your buying decision process? Quality matters to you when you buy a car. It also matters to you when you buy almost any product. For example, think about going to the grocery store. Do you get the fresh fruits and vegetables or the old, brown-looking ones? When you go shopping for clothes, do you look at the ones that will last longer? When you buy a phone, do you look for the one that will last?

In almost every case, you will likely prefer the quality product or service. The challenge is cost. Most higher-quality products and services cost more. Think about the cost difference between a first-class airline ticket and a coach ticket. There is a clear difference in the service levels, but is the additional cost worth the extra level of quality?

Compare a Rolls Royce to a Toyota car. Which is higher quality? This is a loaded question. The Rolls Royce is more luxurious, but is that the only definition of quality? Toyota is more likely to be mechanically reliable and less likely to fail. So, which is higher quality? And, is cost or price the only quality driver? A true TQM process aims to increase quality while simultaneously reducing cost. This situation is the ultimate win-win for the customer, but it is not easy. If it were, all of us might be driving Yugos today.