Total quality management

TQM 1ST SEM M.COM (I&B) CRYD Page 1
Total Quality Management
INTRODUCTION
 The basic business philosophy is customer satisfaction.
 In simple words quality means meeting the customer or client needs everytime
 According to International Organisation for Standardisation (ISO), quality means,
“the totality of features & characteristics of a product or service that bear on its ability
to satisfy stated or implied needs”.
 Quality is dynamic concept.
 W. Edward Deming, Joseph Juran & Philip Crosby developed TQM.
 First used & introduced the TQM concept by Japanese Companies but it was first
originated in U.S.A.
 TQM is accepted throughout the world these days.
 TQM is a continuous innovation & improvement in all product, service, technology
and process with the involvement of everybody so as to meet the changing
requirement of customer.
 ISO:9000, series standards makes the organisation to adopt TQM.
Meaning & Definition
 Total Quality Management may be defined as creating an organisational culture
committed to the continuous improvement of skills, teamwork, processes, product &
service quality, and customer satisfaction”
 Thus, TQM is a continuous customer-centred employee driven improvement.
 Total Quality Management refers to meeting the requirements of customers
consistently by continuous improvement in the quality of work of all employees.
For achieving total quality 3 things are essential:
1. Meeting customer requirement.
2. Continuous improvement through management process
3. Involvement of all employees.
Objectives of TQM
1. Meeting the customer’s requirements.
2. To organisational survival and growth.
3. Continuous improvement of quality.
4. Developing the relationship of openness and trust among the employees at all levels
in the organisation.
Advantages of TQM
 Helpful in meeting the competition

 Better profitability
 Increased sales & Market Share
 Enhanced customer satisfaction
 Improved cost effectiveness
 Reduction of rejection, scrap & wastage- reworking
 Better control on processes
 Successful new product launch
 Speedier new products introduction
 Improved quality
 Improved productivity
 Better relation, employee job satisfaction & helps in developing adequate
system of communication.
 Lead time reduction
 Continuous review of progress.
Components (elements) of TQM
Customer Orientation:
 Customer means every user of a product or service & not only the end-user
Eg: Product passes through a number of stages, every next stage is a customer
for preceding stage.
 It aims at satisfying the requirements of customers which never remain
constant, but keep on changing with the change in time, needs, fashion etc.
 Thus meeting the requirements of a customer is a continuous goal of the
producer.
Continuous Improvement:
 producer has to cope up with the changing requirements of the customers in
the form new product design, quality of product/services, size, less cost etc.
 So the production process has to be adjusted and accelerated to meet this
changing requirements.
 Management has to take care about competition, so the customer do not shift
to other producers.
 Advancement in technology is also important factor in improving the quality.
 Innovations.
Eg: Xerox Machines, Photography(film roll to chip), typewriter to computer,
LCD projector etc.
 Improving the overall system.
Employees’ Involvement:
 Continuous improvement in quality of products needs improvement in the
quality of work of employees through training and development.

 Skills of employees also brings down cost of production through efficient use
of materials and machines & reduction of wastages.
 TQM is referred as people’s process because of employees’ involvement in
improvement of quality.
Eg: Quality Circle.
 While launching TQM middle & lower level workers also taken into
consideration.
Top Management:
 The fate of any company is determined by the way it is managed by its top
management.
 Top management has to ensure that the TQM is smoothly implemented &
necessary skills and resources must be invested in the organization.
 Top management will decide the requirement list for effective implementation
of TQM
Partnership with Supplier:
 Maintaining good relationship with supplier.
 Which reduces lead time
 Get supply in right time
 Eg: Maruti Udyog Ltd. attracted all their suppliers to have their plants near
their company.
 Saves cost of inventory management
Performance Measure:
 Comparing the actual performance with the standards which already set.
 If there is any deviations then corrective measures has to be taken.
Evolution of TQM
1.Detection and Rectification of Defects: 1910
First stage was initiated because of need for detection of defectives and correcting
it in the course of production.
2. Prevention of Defects:
 During 1930s, the quality management in USA shifted to prevention of effects.
 Detection and correction leads to wastage and additional cost in correction.
 Prevent the defects from occurrence.
 It is achieved by method of process control, by analysing the process and finding out
reasons of occurrence of defects and then taking adequate steps, so that the recurrence
does not take place.

3. Product Design Improvement:
 Defects which is already there (inherent) in the product design, which is not possible
to remove with the help of process control.
 So Japanese organisation concentrated on product improvement on 1960s.
 Importance will be given for product improvement, product design, and product
planning to meet changing requirements of customers through the involvement of
employees.
4.Creativity and Innovation
 The decade 1980 provided the way for creativity and innovation in technology and
management practices.
 Quality circles were introduced to get the support of workers in quality improvement.
 Total Quality Management become the main concept not only in Japan but also in all
over the world.
IMPLEMENTATION OF TQM OR TQM PROCESS
PLAN
1.Lay down policies & objectives of TQM
Determine what the customer is supposed to receive & what they are actually receiving.
2. Chalk out the methods of achieve TQM objectives
DO
3.Educate & train workers & managers to understand & meet the requirements of TQM
4.Implementation of change:
Start the operation of TQM by introducing new product, machines, procedures etc.
CHECK
5.Observe the results of operations & find out causes of non-conformance to quality
standards.
6.Analyse results & determine the consequences of non-conformance & place the report
before the top management
ACT
7.Prevent undesired effects in quality improvement:
Establish personal relationship with employees so that they can tell their concerns & ideas.
8.Suggest measures for improvement of methods & design in future.

Principles of TQM
1. Performance measure is must at organisation, department, individual level.
2. Customer orientation is must
3. Continuous improvement is must
4. Total employee involvement is must
5. Purchasing & supplier management is must.
6. Management by fact is must.
7. Communication with staff at all levels regularly both formally & informally is must.
8. Classifying people’s skills is must.
9. Identifying training needs & relating them with individual capabilities & requirement
is must.
10. Weak processes has to be improved
Barriers to TQM
1. Failure to appreciate TQM as a cultural revolution.
2. Failure of top management to have a long term vision,
3. Lack of top management commitment
4. Fear of senior management losing control
5. Lack of ‘Z’ theory application.
6. Lack of employees commitment.
7. Attempting to producing at capacity.
8. Outdated accounting system.
Requirements of success in TQM/ Guidelines for the successful implementation of TQM
1. The objectives & policies of the firm must reflect its commitment to quality as a
philosophy of customer satisfaction
2. The TQM philosophy must be effectively communicated to each and every employee
and department.
3. The TQM programme should be properly designed to meet the requirements of the
customers.
4. The participation of all the employees should be encouraged so that innovative ideas
are put forward by the employees.
5. Workers and managers should be given necessary training for the effective
implementation of TQM
6. TQM must involve product design and improvement, adoption of new technology,
systems and procedures.
7. TQM should try to integrate the operations of various department.
8. TQM should be considered as a continuous programme as the requirements of
customers keep on changing.

ISO:9000 Series
 Various organisations created standards & guidelines to build quality into the
product.
 To take trading activities with European countries standardise quality required.
 A specialised agency for standardisation, the International Organisation for
Standardisation /International Standards Organisation(ISO) was founded in 1946
& has its headquarters at Geneva in Switzerland.
 It has emerged as one of the top institution of ‘standard organisations’ of 91
countries including India.
 The major thing of ISO is on quality systems & procedures for strict (must follow)
quality standards to the manufacturer on quality systems & management.
 The series of specifications are commonly known as ISO-9000.
 ISO-9000 is a standard not only for the quality of products, but also for the
systematised planning & management of an organisation as a whole.
 It is introduced in the year 1987 & revised in 1994 & again in the year 2000.
 Recent version is ISO 9000:2000 standards.
 Earlier producer/supplier & customer audit the quality standards (2 People).
 Now a days quality measurement standards of an organisation audited by 3rd
party (eg: ISO) & issue certificate.
 The ISO is responsible for promotion & development of international standards &
related activities including assessments such as testing, inspection, laboratory,
accredition & quality assessment.
 ISO covers standardisation in all fields except electrical & electronic engineering
standards, which are covered by International Electrotechnical Commission (IES).
Features of ISO:9000 Series
1. ISO:9000 series standards call for integration of all activities which have a direct
or indirect effect on the quality of a product or service. Thus it leads to
implementation of TQM concept.
2. ISO:9000 series standards tells suppliers & manufacturers what is required of
quality oriented working system.
3. It defines the basic concepts & specifies the procedures & criteria to ensure that
the outgoing product meets the customer requirements.
4. The quality standards are designed to be user friendly.
5. There is no compulsion to get ISO:9000 certification.
6. The total system of quality is thrown open for verification by the customer &
confidence is built in him that the organisation is capable of delivering the
products or services of desired quality.
Areas covered by ISO Standards

 ISO has outlined 20 areas for quality system.
 Which range from recruiting & training of personnel to handling of stores &
finished products.
 The areas covered by quality systems are: management responsibility, quality
system, contract review, design control, document control, purchasing,
purchaser’s supplied products, product identification & traceability, process
control, inspection & testing, inspection, measuring & testing department,
inspection & test status, non-conformity control, corrective actions, handling,
storage, packing & delivery, quality records, internal quality audits, training,
services & statistical techniques.
Benefits of ISO:9000
 It provides for competitive edge in the domestic as well as international market.
 It helps in achieving consistency, economy & cost effectiveness through
standardisation of operations.
 It increases customer’s confidence in the supplier through quality system
transparency.
 It is a versatile marketing tool in today’s international scenario.
 It provides the way for TQM since it ensures continuous quality improvement to
meet the requirement of customers
 It reduces the need for inspection by the buyers.
 In India some concessions for import have been given as Export & Import Policy
to the companies adopting ISO:9000 standard.
 The ISO:9000 certification by a company is a source of motivation to its
employees. The employees feel proud in achieving excellence.
Limitations of ISO:9000
 Time consuming
 Expensive
 Unless carefully interpreted & planned, the system can become burdensome quite
often obstructing normal operations.
 Resistance to change
Procedures of ISO:9000 Registration or Implementation Process
1.Management Commitment:
 The top management decision to start the implementation of ISO:9000 standard in
the company is the prime requirement.
 If top management not committed to the concept of TQM, that shows it is not
giving support to get ISO:9000 certification.
2. Selection of Model:

 Select the ISO:9000 model which is applicable to the organisation.
 It depends on the type of the product & the stage @ which quality is to be
achieved.
 Each clause(guidelines) of the selected model is to be understood carefully before
proceeding further.
3. Steering Groups & Sub-Groups:
 Management must appoint a steering group & a number of sub groups to identify
the activities to be carried out.
 The groups will study the existing quality system & find out their defects or
deficiencies.
 This will help them to identify the activities for quality improvement.
4. Preparation of Check-List:
 The steering group will prepare a check list & categorise the elements,
1. Which are already in practice.
2. Which are in practice but need change or improvement &
3. Which are not in practice.
 The list of equipments & other facilities required is prepared.
 The equipments need to be modified is also identified.
5. Preparation of Quality Manual:
 A quality manual is prepared which contains all documents required for ISO
registration.
6. Training of Leaders & Workers:
 Training on ISO:9000 standards would be necessary for the coordinators & group
leaders.
 Training for employees is also necessary for acceptance of new standards &
methods of doing work.
7. Internal Audit:
 It will be done by a person from quality control & production activities.
 Internal audit involves the appraisal of quality system as documented by the
organisation.
 This will determine the extent to which the organisations own quality procedures
meet relevant ISO:9000 series of standard.
2 Purpose;
1. To find out whether all quality related functions comply with the laid
down procedure
2. To determine whether the implemented system is effective.

 Based on internal audit corrections on procedures can be made, to meet the
standards & the procedure is finalised & documented.
8.Trial Audit:
 Apply to Bureau of Indian Standards or any other certifying body for a trial
audit & get their recommendations.
 The management must implement the recommendations given by certified
body & also include them in quality manual & check list
9. Application for Registration:
 If audit result is positive, the organisation can apply for registration to ISO.
10. Adequacy Audit:
 After the application has been accepted, the documented quality system will be
examined by the ISO.
 If any deficiencies, which has to be corrected by the applicant.
11. Grant of Licence:
 The corrective action taken by the applicant on deficiencies will have to be verified by
the ISO.
 Based on findings & satisfactory report of assessment team, licence will be granted to
the applicant by ISO.
 Then the company can use the certification mark in letter heads, quality certificates
etc.
KAIZEN (改善) “Continuous Improvement”
INTRODUCTION & ORIGIN
 Dynamic organisation make continuous improvement.
 The foundation of Kaizen was laid in Japan after the Second World War, when the
country was attempting to rebuild infrastructure and rethink many systems.
 Several American experts on workplace improvement including W. Edwards Deming
and Joseph Juran came to Japan to lecture and teach.
 Using information from these individuals regarding the TWI (Training Within
Industry) programs , the concept of Kaizen began to be formed and it took off in the
1950s.
 Masaaki Imai is known as the developer of KAIZEN.
 Kaizen logics was first appear in written text with Masaaki Imai’s book ‘KAIZEN -
The Key To Japan’s Competitive Success’ (1986)

What is Kaizen?
 The Japanese word for continuous improvement is ‘KAIZEN’
 Kaizen means improving the overall system by constantly improving the little details.
 “Kai” means “change or modify”
 “zen” means “make good (make better)”
 KAI + ZEN = Change for better
 Kaizen is small incremental changes made for improving productivity and
minimizing wastes.
 Kaizen practitioners view quality as an endless journey, not a final destination. They
are always experimenting, measuring, adjusting & improving.
 It is a method that strives toward perfection by eliminating waste (MUDA) in the
work place (GEMBA).
For ex:
Toyota is well-known as one of the leaders in using Kaizen. In 1999 at one U.S. plant,
7,000 Toyota employees submitted over 75,000 suggestions, of which 99% were
implemented.
Features Of Kaizen
1. Widely applicable.
2. Highly effective and result oriented.
3. A learning experience.
4. Team based and cross-functional.
5 Main Elements Of Kaizen
1.Teamwork
 Use small teams to optimize individual process performance by implementing
Incremental changes.

2.Individual Discipline
 Punctuality, active participation, growth attitude, strategically aligned.
3.Improved Morale
 Energized leaders with clear vision, clear communication, transparency, motivation,
training & development
4.Quality Control Circles

 Employee participation program. A quality control circle consists of a group of
employees (generally volunteers) who meet periodically to identify strengths and
weaknesses in the production process.
 They focus on cost, security & productivity.
5.Suggestions for improvement
 Management should make every effort to help the workers provide suggestions. For
example, Toyota is well-known as one of the leaders in using Kaizen. In 1999 at one
U.S. plant, 7,000 Toyota employees submitted over 75,000 suggestions, of which
99% were implemented.
BENEFITS
1.Kaizen Reduces Waste:
 In areas such as inventory, waiting times, transportation, employee skills,
overproduction etc.
2. Kaizen Improves space utilization, product quality:
3.Kaizen Provides immediate results:
 Instead of focusing on large, capital intensive improvements, Kaizen focuses on
creative investments that continually solve large numbers of small problems.
4.Higher employee Morale:
5.High job satisfaction & Low job turnover:
6.A learning experience:
 Teaches workers how to solve everyday problems.
7.Widely applicable:
DEMERITS / PIT FALLS IN KAIZEN
1. Resistance to change
2. Lack of proper procedure to implement
3. Too much suggestion may lead to confusion and time wastage
4. Difficult to implement in large scale process, where analyzing requires a lot of time.
5 S” in Kaizen
5 S” is a method for organizing a workplace, especially a shared workplace (like a shop floor
or an office space).
1.“Seiri” (Sorting):

Tidiness, keeping only essential items.
2.“Seiton”(Set In Order/Simplifying):
Orderliness, eliminate extra motion.
3.“Seiso” (Shine/Sweeping):
Cleanliness, keep the workplace clean.
4.“Seiketsu” (Standardizing):
Standardize work practices
5.“Shitsuke” (Self Discipline):
Sustaining, maintaining discipline and reviewing standards.
Kaizen : Key principles
1. The first is a heavy reliance on teamwork, in which everyone's opinion is valued and
considered.
2. Workers also have strong personal discipline, and morale in factories must improve
under kaizen.
3. Workers should also be confident about offering suggestions for improvement, even
when a system appears to be functioning adequately
4. Kaizen recognizes that there is always room for improvement
5. Finally, the system uses quality circles, worker groups who meet and work together to
solve problems and come up with innovative changes.
Phases in Kaizen
I. Select an event.
II. Plan an event.
III. Implement an event.
IV. Follow-up an event.
Kaizen in Toyota
The Toyota Production System is known for it’s use of kaizen.(Toyota production system
is known for kaizen, where all line personnel are expected to stop their moving production
line in case of any abnormality and, along with their supervisor, suggest an improvement to
resolve the abnormality which may initiate a kaizen.)
 After World War II, Taiichi Ohno was charged with setting up machine shops for
Toyota. He studied the Ford production systems. He analyzed the various
productive measures and discrepancies in the system.

 Based on the analysis, he outlined several production strategies for Toyota. These
production strategies later became benchmarks for production practices across the
world.
 Toyota thus became one of the first companies in the world to adopt practices
such as Kaizen. Analysts however feel that Kaizen kept TPS, JIT, Kanban and
other practices working smoothly as an interlinked strategic operational plan.
Toyota’s use of Kaizen to solve labor crisis
 In the early 1990s, Toyota was facing acute labor shortage
 Toyota’s initial management focus was on increasing production efficiency
through higher production levels with less number of workers. This resulted in
increased stress and worker exodus
 The global upsurge in car demand during 1987-1991 led to drastic increase in
demand for labors
 Toyota realized that it would have to rely on Kaizen for modifying its existing
assembly lines to attract workers.
 The company decided to change its working conditions to accommodate workers
of more diverse nature
 The management decided to allow plants to set their own annual production
efficiency targets. Production efficiency measurement was based on worker’s
production time rather than on best production time
Kaizen to Toyota is the elimination of three basic things like:
1. Muri (Overburden on employees)
2. Mura(Unevenness in production)
3. Muda (Waste)
QUALITY CIRCLE
INTRODUCTION
 The concept of quality circle emerged from quality control.
 Quality Circle is popular in Japan.
 First established in Japan in 1962 in the Nippon Wireless and Telegraph
Company, it quickly became popular and spread to more than 35 companies in the
first year.
 By seeing its success many organisations in U.S.A & India have also attempted to
implement it.
 It is a future oriented approach.
 They try to find high quality products in the current production run & in the

future.
MEANING
“A quality circle is a small group of employees doing similar or related work who meet
regularly to identify, analyse and solve product quality and other work related
problems and to improve general operations”
 Quality circles are relatively autonomous units(self governing), usually led by a
supervisor or senior worker & organised as work units.
 The ideal size of group is 6 to 10 members(workers).
 Workers meet periodically to discuss, analyse & propose solutions to ongoing
problems.
FEATURES
1.Voluntary Group:
 Employees join the circle on their own
 There is no pressure from management
2.Manageable Size:
3.Regular Meetings:
 Members meet at periodic intervals to discuss quality related problems.
 Assemble during normal working hours usually at the end of the working day
 Time for meeting fixed in advance and each meeting lasts for about an hour.
4.Own Agenda:
 Each circle has its own agenda
 Select its own problems & offers recommendations for solving them
5.Exclusive Focus on Quality:
 Q.C exists to identify, analyse & solve quality related problems
 The ultimate purpose is to improve organisational functioning & quality of work life
6.Quality Circle represents a collective effort (Team Work)
7.It coordinates the activities of members towards improving the quality of work in the
workshop.
8.It has no discrimination against age, sex & position.

PURPOSE/OBJECTIVES
1. Overall improvement of quality of products/services.
2. Improvement of production methods & productivity of the enterprise.
3. Self-development of the employees who take part in quality circles.
4. Encouragement of innovative ideas among the employees.
5. Building high morale of employees by developing team spirit in the organisation.
6. To utilise human talents, skills & knowledge relating to a work area.
7. To improve the quality of working life.
8. To promote better understanding & good relationship.
STRUCTURE OF QUALITY CIRCLES
1. Quality Circle Members:
 Members of single work group form a circle.
 They can withdraw at any time. Nobody is forced to join
 There is no rewards for taking membership and no penalties for not taking
part.
 Members has to attend meeting regularly, participate actively and contribute
ideas for solving quality related problems.
2. Quality Circle Leader:
 Each quality circle is headed by the elected leader who coordinates the work
of all members.
 The manager/supervisor of particular section may act as the leader.
 He conducts meeting, initiates discussion, motivates members for active
participation.
 Acts as a link between member & the facilitator.
 He also trains members in problem identification & solving techniques
3. Facilitator:
 He is an important person between the quality circle & steering committee.
 He act as a consultant & guide to the QC leaders
 Initiate the setting up of Qc’s by persuading the supervisors, by teaching &
training the QC leaders & members.
 He provide feedback to steering committee.
 He act as an evaluator & reviewer.
 He should be a coordinator, coach, promoter, teacher & innovator.
4. Steering Committee:
 It consists of representatives of mgt. from different departments at top
level & top level representatives of recognised unions/federations of
employees.
 They sponsors the QC programme in the entire organisation.
 They set the operating guidelines.
 Problems to be discussed & finalise the suggestions.
 Prepare action plans, budgets etc.

 Selecting and training the facilitators
 Providing the resources & moral support to the facilitator.
BENEFITS/ADVANTAGES
 It helps in bringing out several innovations & change in work methods & products.
 It is an valuable tool for increasing productivity, improving quality & increasing
workers’ job satisfaction.
 Participation of workers/employees encourages commitment of the employees in
producing quality product.
 It helps in the development of the participants as they are encouraged to produce
innovative ideas & learn the ways to improve the product quality.
 It provides opportunities for better understanding among members.
 It creates awareness of the potential of the workers.
Steps in Introducing Q.C in an Organisation
1. Selling the idea of quality circle:
 Workers must be educated about the importance of Q.C from the point of view
of organisation & employees.
 The scope of quality circle should be publicised.
 Workers should be allowed to clear their doubts about Q.C.
 Arrange training to employees who want to form Q.C’s
 Seek voluntary cooperation from workers in implementing Q.C’s.
2. Constitution of Quality Circles:
 Employees should be encouraged to form Q.C’s by selecting members who
are doing similar kind of work.
 Membership of a Q.C should not exceed 10 members.
 The information about the constitution of a Q.C should be made available to
the top management.
3. Analysis of Quality Problems:
 Members of Q.C meet periodically (once a month).
 They should collect the data & analyse.
 Past records, suggestions of employees & customers are very important
because this will lead to identification of the problems that reduces the quality.
4. Problem Solving:
 Members of Q.C should discuss about the problems & find out possible
solutions.
 The merits or demerits of each alternative will be evaluated.
 Finally the solutions to the problem will be taken by all the members.
5. Presentation of Suggestions to the Management:

 Suggestions for improving the quality forwarded to the management in
writing.
 Top management may form a committee to evaluate the suggestions of
different Q.C’s in the organisation.
 They can meet the members of Q.C’s, if it has any doubt.
 The final list of suggestions will be prepared. Which must be implemented for
improving the quality of goods & services.
6. Implementation:
 Proper publicity should be given to the suggestions of Q.C’s which are going
to put into practice.
 This will motivate the employees.
 The implementation of the suggestions should be properly monitored by the
management, so that changes in methods should go smooth.
Problems/Pit Falls in implementation of Q.C’s.
1. Negative Attitude:
 Employees & Managers have negative attitude towards Q.C
 They will resist its implementation.
2. Lack of Ability:
 The workers in India have a low level of education & lack of initiative.
3. Lack of Management Commitment:
 Top management may not be committed to the concept of Q.C
 Management wont allow the employees to hold meeting during working
hours, so employees will loose the interest because they are not ready to use
their personal time.
4. Non-Implementation of Suggestions:
 The workers will feel disheartened if their suggestions are not taken by the top
management without any reason.
 This will de motivate the workers
Requirements of effective Quality Circle
1. The employees who are concerned with quality should be encouraged to come
forward to suggest ways & means to improve upon it.
2. The QC members must be given adequate training in the areas of statistical analysis to
facilitate information processing.
3. Since the members of QC’s have to work in groups, an understanding among group
members is also necessary. Along with that they should develop a problem solving
approach.
4. The members should feel independent to choose any problem which they feel is most
crucial. And they should be free to implement & monitor the result.
5. Each QC should have a number of meetings & discussions.

6. QC’s must have the support & involvement of top management.
7. Educate the workers about quality circle & its importance.
8. If the suggestions are likely to improve quality of products, they must be
implemented.
9. Give recognition for employees’ efforts (Motivation)
LEARNING ORGANISATION
“Without learning the wise become foolish: by learning, the foolish becomes wise”
“The only thing one can predict about the future is change”
Meaning
“A learning organisation is an organisation that can create, acquire & transfer knowledge &
also modify the behaviour of its members to reflect new knowledge & insight.”
OR
“Organisational learning is a process to enable organisation to better use the knowledge of
their members to make business decisions”
 In learning organisation everybody is engaged in identifying & solving problems,
enabling the organisation to continuously expeiment, change & improve and increase
capabilities.
 It helps to create flexible organisation.
 Organisation need to maintain knowledge about new products & processes,
understand what is happening in the outside environment & produce creative
solutions using the knowledge & skills of all within the organisation.
 This requires cooperation b/w individuals & groups, free & reliable communication &
a trust.
Features
1. It provides creative thinking & innovative ideas.
2. It encourages its members to learn continuously.
3. It develops new capabilities & renews itself from time to time
4. Learning is an ongoing process.
5. It employs learning as an competitive advantage
6. It has futuristic outlook.
7. Shared leadership
8. Team based structure
9. Open information
10. Employee empowerment
11. Customer focused strategy

12. Culture of innovation
Advantages
1. It can achieve excellence in both quantity & quality of performance.
2. It enjoys advantage over competitors.
3. It can successfully face environmental challenges & changes.
4. It does not face obsolescence of management practices.
5. It can maintain good relations with different stakeholder groups.
6. It creates energised workforce
Methods of creating Learning Organisation/Components of Learning Organisation/ 5
Disciplines
1. System Thinking:
 Understand how the organisation works
 Organisations are system of interrelationships.
 To become more successful, need to analyze these relationships & find the
problem in them.
2. Personal Mastery:
 Learn to open with others
 Everybody should be motivated to manage himself, to develop & work on
their own goals.
 Improve work climate through empowerment & self managed teams
 Education & training are required to develop values & skills.
3. Mental Models:
 Put aside old ways of thinking & behaving.
 Build a culture that extracts the best & forces people to look a new way.
4. Shared Vision:
 Formulate a plan everyone can agree.
 All the members should actively participate in the formulation of mission,
vision, strategies & values of the organisation.
 A learning organisations employees all share a common vision
 Personal goals must be syncronised with the goals & vision of the
organisation.
5. Team Learning:
 Work together to achieve the shared vision.
 Each member has to learn, think & act as a team.
 Unity & harmony in the team are required.
 Team members must develop open communication, understanding etc.
 Team learning requires individuals to engage in discussions.
Need for Learning Organisation
1. To survive in the knowledge based economy of 21st century

2. To cope with rapid change in technology
3. To manage global competition in future
4. To handle tomorrows demanding & fragmented market
5. To build people based system
 A learning organization is a place where people are continually discovering how they
create their reality.”
 The environment really matters in the learning activity.
 Learning encourages creativity which is essential for organizational development.
BENCHMARKING
Meaning:
Benchmark is a point of reference against which things are measured
 Benchmarking is the practice of identifying, studying & building upon the best
practices in the industry or in the world.
OR
 Benchmarking refers to measuring our performance against that of best in class
companies, determining how the best in class companies achieve those performance
levels & using the information as a basis for our own companies targets, strategies &
implementation.
Definition
“Benchmarking is the search for industry’s best practices that lead to superior performance”
Robert C. Camp
“Benchmarking is a process of identifying, understanding & adopting outstanding practices
from within the same organisation or from other organisations to improve performance”
Sarah Cook
“Benchmarking is the continuous process of measuring products, services & practices against
the toughest competitors or those companies recognised as industry leaders”
-David Kearns of Xerox Corporation

 Examples
 Xerox, Ford, IBM, Toyota etc
 Eg: Toyota’s JIT production system influenced by the U.S Supermarkets.
XEROX CORPORATIONS
It undertook a study of competitors’ products in terms of quality, features & costs in
comparison with Xerox’s products
They find that its cost of manufacturing is same compared to best Japanese maker’s selling
price in the United States, the no. of suppliers nine times more than competitors, lead time is
two times longer, defects per 100 machines were 7 times higher.
After Benchmarking:
 Suppliers were reduced from 5000 to 300
 Quality problems cut by two-thirds
 Manufacturing cost cut by 50%
 Development time cut by 2/3
 Direct labour cut by 50% & corporate staff by 35%
Characteristics/Features
1. Continuous Process:
 It is an ongoing process because industry practices keep on changing
 Practices must be continuously monitored.
2. Measuring:
 It involves measurement & comparison of practices across organisations.
3. Comprehensive:
 It can be applied to all aspects of business such as products, services,
processes & practices.
 It reveals not only the best practices but also how these are used
4. Leading Organisations:
 It is not restricted to direct product competitors but covers the excellent
organisations across a wide variety of functioning.
5. Self-examination:
 It is a process of self examination & search for best management practices.
6. Goal Oriented:
 It is based on purpose
 Goal setting, employee motivation for improved performance & external
orientation are the main objectives of benchmarking.
Advantages
1. It enables an organisation to incorporate creatively the best practices from any
industry.

2. It helps an organisation to more adequately meet the requirements of the end user or
the final customer.
3. It provides stimulation & motivation to the professional experts whose creativity is
necessary for identifying & implementing the benchmarks.
4. Working outside the organisation & the industry can lead to breakthrough thinking &
technological breakthrough.
5. It helps in establishing quality goals & true measure of productivity.
6. It helps in attaining a competitive edge.
7. It facilitate change
8. It facilitate future growth.
Pitfalls of Benchmarking
1. Lack of focus & priority
2. Lack of commitment on the part of management.
3. Failure to consider customer requirements.
4. Incompetent leadership
5. Lack of proper planning
6. Not involving the staff in the programme
7. Conflicting objectives of the organisation & those of benchmarking partners.
8. Lack of adequate resources & facilities.
Steps in Benchmarking Process
I. Planning Phase:
This involves identifying
a) What is to be benchmarked:
 E.g: inventory management, production technology, quality systems,
distribution system, financial management, human resource development etc.
 What is important to the customer & to the business to be benchmarked.
b) To whom or what will we compare:
 Identify the world class or leading edge companies that have similar product
or process.
c) How will the data be Collected:
 Primary or secondary data sources, opinion surveys, trial purchasing,
telephone enquiries, analysis of annaual reports & other published source of
data.
 Trade journals or trade association contacts and consultants services etc.
II. Analysis Phase :
It involves careful understanding of current practices as well as those of
benchmarking partners.
a) Determining Current Performance Gap:

 Understanding of internal performance on which to assess strengths &
weaknesses.
 Are the benchmarking partners better?, why are they better? But how
much? What best practices are being used now? How they implemented
these practices?. Answers will tell about the performance gap: it may be
negative, positive or same.
b) Project Future Performance Levels
 Gap helps to project the performance.
 What is needed is not only an understanding of current practices but where
performance in the future.
 Benchmarking should be a continuous process, so the performance is
constantly measured.
III. Integration Phase:
It is the process of using benchmark findings to get operational targets for change.
It involves careful planning to implement new practices in the operation and make sure
findings are implemented in all formal planning processes.
a) Communicate benchmark findings & gain acceptance:
 Benchmark findings must be communicated to all organisational levels to
obtain support, commitment & ownership.
 Based on findings action plan can be developed.
b) Establish functional goals:
 On the basis of communicated data & acceptance of analysis company should
develop the functional goals achieve them through the benchmarking process.
IV. Action Phase:
a) Implement specific action & monitor progress:
 After implementing the plans, one has to periodically assess & report the
progress.
b) Recalibrate benchmarks:
 Updating may require the recalibration of the competitive benchmarking data.
c) Maturity Phase:
 Maturity will be reached when best industry practices are implemented in all
processes, which leads to superiority.
Types of Benchmarking
1. Internal Benchmarking:
 It involves comparison between different departments & units of the same
organisation/group.
2. Functional Benchmarking:
 Similar functions performed in different types of organisations are evaluated to
benchmark the best practices in each functional area.

 E.g: order processing, customer grievance handling practices, delivery systems,
marketing logistics.
3. Competitive Benchmarking:
 Business practices of leading firms in the same industry are compared
 Purpose is to implement best practices
 Products & services( competitive benchmarking)
 Functional benchmarking is popular for processes.
4. Generic Benchmarking:
 Core business practices are compared
 Cross-functional Comparison
 E.g: Customer Service,
HRD, Product
Development etc.
Requirements for Successful Benchmarking
1. Understand own company’s processes & practices thoroughly.
2. Select the best companies for benchmarking.
3. Share information with the companies selected for benchmarking. Sensitive
information may be kept confidential.
4. Involve the concerned people in benchmarking.
5. Use benchmarking regularly.
6. Be willing to change.

Quality Control Techniques & CONTROL CHART
Quality
 Quality refers to the sum of the attributes or properties that describe a product
 These are generally expressed in terms of specific product characteristics such as
length, width, colour, specific gravity and the like.
 Performance
 Conformity to performance standards
Definition
 ASQC – Quality means the totality of features and characteristics of a product or
service that bear on its ability to satisfy given needs
 From customer’s perspective, quality of a good or service is fitness for use of
it
 Customer satisfaction for the price of the product
“ Quality control as that industrial management technique or group of techniques by means of
which products of uniform acceptable quality measured.”
- Alford & Beatty
“Quality control means the recognition & removal of identifiable causes or defects and
variations from the set standards.”
- J.A Shubin
Quality Control refers to the systematic control of various factors that affect the quality of the
end product. The quality of the end product depends on the quality of raw materials used, the
manufacturing tools & equipment, the degree of skill and proficiency of the workers, working
conditions etc.
Objectives of quality control
1. To establish the quality standards which are economical to achieve & acceptable to
the customer.
2. To establish standards of raw materials which are to be purchased.
3. To evaluate the methods of production and suggests improvements, if necessary.
4. To determine extent or degree of quality deviations in a product during its various
stages of production.
5. To identify causes of deviations from the product standard.
6. To suggest remedial measures to improve the quality of the product.

Benefits/Significance of quality control
1. Quality control brings quality consciousness in the enterprise which discourages the
manufacture or production of sub-standard products.
2. Quality control ensures better utilisation of resources.
3. Quality control helps in providing greater satisfaction to customers. If the customers
are satisfied, the sales are increased.
4. Since there is less waste, the cost of production is reduced.
5. The morale of the employees is increased. They feel that they are working in an
enterprise producing goods of higher quality.
6. Quality control creates a good public image of the enterprise by helping it to provide
goods and services of the higher quality to the society.
Quality Control Techniques/ Methods of Quality Control
1. JIT(Just In Time)
2. Quality at source
3. Inspection
4. SQC (Stastical Quality Control)
5. QC (Quality Circle)
6. TQM (Total Quality Management)
7. Control Charts
8. Acceptance Sampling
9. ISO (International Standardization for Organization)
CONTROL CHART
Meaning:
A control chart is a graph that shows whether a sample of data falls within the common or
normal range of variation.
 A control chart has upper and lower control limits that separate common from
assignable causes of variation.
 The common range of variation is defined by the use of control chart limits.
 A process is out of control when a plot of data reveals that one or more samples fall
outside the control limits.
Types of Control Chart:
 Control charts are one of the most commonly used tools in statistical process control.
 They can be used to measure any characteristic of a product, such as the weight of a
cereal box, the number of chocolates in a box, or the volume of bottled water.

STEPS IN PREPARING CONTROL CHART
1. Select the quality characteristic.
2. Develop a quality plan.
3. Select the type of control chart.
4. Choose the proper subgroup size.
5. Collect the data.
6. Determine the trial control limits and chart midpoint.
7. Determine the revised control limits and chart midpoint.
8. Construct the revised control chart.
9. Continue to use the chart.
Step 1 : Select the Quality Characteristic
 Inspect after operations that are likely to produce defective items to ensure that no more
work will be preformed on faulty items.
 Inspect before costly operations so that costly work will not be preformed on defective
parts.
 Inspect prior to those operations where faulty items are likely to cause production
problems (such as breaking or jamming a machine).
 Inspect before operations that might cover up a defect (such as painting, assembly,etc.).
 Inspect before assembly operations that can’t be undone (such as welding).
 Inspect first and last pieces on automatic and semiautomatic machines.
 Inspect before storage.
 Inspect finished products (remember the customer is the next inspector).
 Use engineering and/or operator judgement to determine when, where and how to inspect
and use charts.
Step 2: Develop the Quality Plan
 The purpose of quality planning should be to establish an economic balance between the
cost of measurement and the value of the measurement. The general rule is to inspect as
little as possible while ensuring product quality.
 Quality plans along with production plans are primarily documented on the work order.
The work order lists all production steps, inspection points, references the drawings,
specifications, procedures, instructions and standards that contain information required
for production and inspection.
 Quality plans should contain as many of the following elements as possible (usually on
the work order).
 Identification of the various inspection points in the process flow where measurements
should be taken. These inspection points should be shown on flowcharts as well as listed
on the work order. Control charts are frequently associated with inspection points.
 The type of measurement to be made and the method used to make the measurement.
This can be simply a visual attribute check recorded manually on paper to a sophisticated
measuring gauge that has a computer interface for recording. This decision is made by
quality management and/or engineering.

 The sample size or subgroup – subsample size. This is the number of units to be
measured at any one time.
 How often the measurements are to be taken (hourly, every 100 units, four times a day,
etc.).
 The mechanism (tool, gauge) to be used for making the measurement.
 Who is to make the measurement – operator, inspector, supervisor, etc.
Step 3: Choose the type of Control Chart
This step is divided into two sub steps (of course it couldn’t be simple). First is determining
which category of chart to use – variables or attributes. The second step is choosing which
type of variable or attribute chart to use (there are at least 27 options to choose from).
Step 3A: Determining the Chart Category
This choice will depend on the characteristic to be controlled. If the characteristic cannot be
measured such as color, surface defects, labeling for example then attributes charts are the
only choice. If a great number of characteristics need control it may prove too costly to use
variable charts because each variable chart can only track one characteristic at a time. The
solution to this dilemma is to use a single attribute chart in place of a multitude of variable
charts by classifying each measurement as good or bad and rejecting the unit if any one
measurement is found to be nonconforming. This method can greatly reduce the cost of
controlling a multitude of characteristics.
Attribute charts have several disadvantages not shared with variable charts. First they can
provide hints, and even strong evidence of possible nonconformance in parts, but they seldom
provide the detailed information needed for a complete solution. For example they cannot
provide information on patterns that occur within the specification limits; it takes a variables
chart to provide this detailed exposure.
Variable charts indicate shifts and potential problems before the process deteriorates to an out
of control status and defects are produced.
Attribute charts seldom provide definitive information needed for good on going process
improvement programs. This is due in large part because of the lack of in-control patterns
from measurements of parts that fall between the specification limits.
In general variable date can be converted to into attributes data (any measurement outside
specifications is defective), but it is much more difficult to convert attributes data into
variables data.
Attributes can be converted into variables by use of an interval scale (judge the effectiveness
or degree of quality, on a scale of 1 to 10, for instance); but this practice is seldom necessary
or useful.
Converting attributes may occasionally be done when using SPC for nonmanufacturing or
service processes. When used in this manor its effectiveness is suspect because of the
subjective “judgement” that must be employed. Interval scale “judgements require a great

deal of training so that all inspectors will be judging from the same base, ie., the same
perspectives and understandings. Definitions of each scale interval must be understood the
same way by all (what constitutes a 1, a 2, a 3, etc.).
General Guidelines for Chart Selection:
Variables chart:
 Installing a new process or product or changing an old process or product.
 The process is obviously in trouble; it cannot produce to the tolerances on a consistent
basis.
 Destructive or expensive testing is being used.
 Sampling further along the manufacturing process can be reduced by a more positive
control at an earlier stage.
 Attributes control charts have shown a problem to exist but the solution is difficult or
unknown.
 There are difficult problem processes with tight specifications, overlapping assembly
tolerances, expensive materials etc.
 When large subgroup sizes are desired (greater than 8) and a variables chart is indicated,
use X- bar,s. When a variables chart is indicated but the characteristic is not critical
enough to warrant a large subsample size, use X-bar,R.
 The critical characteristic is measurable.
 Customer or contract requirements.
Attributes Chart
 Operators have a high degree of control over assignable causes.
 Assembly operations are complex.
 Quality can only be measured in terms of good or bad.
 Historical information is needed for management review.
 Many characteristics must be measured at one time.
 Cost of measurement is high.
 Production runs are large.
Step 3B Choose the Type of Variables or Attribute Chart To Use
Once a decision is made which category (Attribute or Variable) of chart is to be used another
decision must be made as to which variable or attribute chart is appropriate.
Step 4: Choose the Rational Proper Sample Size.
 Actually there are two sample sizes involved in control charts: the total sample
size needed to start –up the chart, and the subgroup size. The total start-up sample
size normally used is 25 subgroups. Thus if the subgroup size is 4, the total start-
up sample size is 100. In order to be statistically viable the start-up sample size

should consist of 100 or more measurements or observations. Some special charts
do use less, which is one reason they should be used with a degree of caution.
 The subgroup size is the amount measured at one time, and should be measured
consecutively as produced. Subgroups are also statistical samples but are called
subgroups (and sometimes subsamples) so as not to confuse them with the total
start-up sample. The actual size of the sample depends on the analysis method
being used, the production run size, the amount available to count, and/or cost
considerations. In actual practice, the subgroup is usually called the sample or
sample size after the initial start up is completed.
Step 5: Collect the Data
Any sample in order to properly represent the population characteristics, must be unbiased
(random, independent and homogeneous). In meeting these criteria, subgroups can be
selected at one time or over a period of time. The instant time method is usually preferred
because it provides a time reference for pinpointing assignable causes.
If the instant time method is used, the inspector measures several subgroups of parts at
random times during the day. That is each subgroup is randomly chosen but the subgroup
itself consists of consecutive units produced at the random time chosen. If the purpose is to
gather enough data for the construction of the control chart, the measurements are recorded
until enough observations are made, after which the chart is made and the subgroup averages
recorded. Data are usually gathered by the inspection function as a normal part of their
regular duties or by the operator themselves if a complete SPC program is in effect.
Data Categorization:
 Continuous, this type of data is the measurable data used in most charts.
 Ranked, (list from high to low). Each ranking is assigned a value that is then used in
the variables charts as if it were an actual measurement. This is one method of
converting attributes data into variables data.
 Interval, (judgement or weighting on a scale of 1 to 5 etc. how good or bad is it. This
is the most used method of converting attributes data into variables data.
 Discrete. In quality control all discrete data are countable; count the number of
defects or defectives. This is the only type of data that can be used in attributes
charts.
Step 6: Determine the Trial Control Limits and the Chart Midpoint.
 Control limits are values that are plus or minus three sigmas (’s) from the central value,
or midpoint. Therefore if the midpoints and limits have been properly determined and the
process is properly operating, 99.73% of all subgroup averages will fall between these
control limits. Any one average has only a .027% chance of being outside these limits.
 All statistical quality control charts have a midpoint or centerline which corresponds to
the process average (the ) and an upper and lower control limit which corresponds to the
 three standard deviations from this midpoint or centerline.

Step 7: Determine the Revised Control Limits and Chart Midpoint.
 Trial control limits are calculated first for the entire sample, after which the out-of-
control subgroup means (those that are either above the upper limit or below the lower
limit) are discarded and the limits recalculated. Before any values can be discarded,
they must first be proved to be out of control (have assignable causes). If not they
should not be discarded for revised limit calculation
Step 8: Construct the Revised Control Chart.
 Control charts are just graphs of the subgroup means (averages) with the central value
shown as a solid line and each limit shown as a dotted line.
 All control charts are constructed from the basic normal curve model. Control charts
for variables use the normal curve model direct, while attributes charts use the normal
curve approximation to the binomial.
 Control charts are normally only constructed for revised limits only.
Step 9: Continue to Use the Charts.
 Once the revised control chart is constructed, all subgroup means (even out-of-control
values) are entered on the chart, and the chart is displayed conspicuously at the job site.
Samples of the same size (subgroup size) are measured periodically and charting is
continued. The chart represents a continuous picture of the process improvement.

Just In Time System
INTRODUCTION:
 With the increased competition at the global level, more & more organizations are
becoming conscious & have started focusing on various aspects , such as :
 Better quality.
 Zero defect.
 New product development.
 Elimination of wastage.
 Continuous improvement , etc.
 A very high emphasis on quality both for products & services has generated a new
concept known as JUST- IN –TIME.
 The JIT system was developed at the Toyota Motor Company in Japan
 It was popularized in the mid 1970s
 Taiichi Ohno was named the Father of JIT.
 JUST-IN-TIME/JIT is an approach which seeks to eliminate all sources of waste in
production activities, anything which doesn’t add value in production activities, by
providing the right part at the right place at the right time.
 JIT is defined as, “a philosophy of manufacturing based on planned elimination of all
waste by purchasing or manufacturing just enough of the right items at right time and
continuous improvement of productivity”
Objectives of JIT System
 Produce only the products that customers want.
 Produce products only as quickly as customers want to use them.
 Produce products with perfect quality.
 Produce in the minimum possible lead times.
 Produce product with features that customer want and no others
 Produce with no waste of labour, materials or equipment.
 Produce with methods that reinforce the occupational development of workers.
Characteristics of JIT System
1. Pull method of material flow.
2. Consistent high quality
3. Small lot sizes.
4. Uniform workstation load.
5. Standardized components and work methods.

6. Close supplier ties.
7. Flexible workforce.
8. Line flow strategy
9. Automated production.
10. Preventive maintenance.
Benefits of JIT System
 Better quality products
 Quality the responsibility of every worker, not just quality control inspectors
 Reduced scrap and rework
 Reduced cycle times
 Lower setup times
 Smoother production flow
 Less inventory, of raw materials, work-in-progress and finished goods
 Cost savings
 Higher productivity
 Higher worker participation
 More skilled workforce.
 Reduced space requirements
 Improved relationships with suppliers
Disadvantages
 Applicable primarily to repetitive operations.
 Requires discipline.
 Based on cooperation and trust.
 Requires change of philosophy.
 Resistance to change
 JIT requires special trainings
Process/Steps for implementing JIT System
I. Top management commitment.
II. Development of a JIT policy manual.
III. Development of a JIT procedure manual.
IV. JIT training program for employees at all levels.
V. Develop and maintain a JIT circle involving key employee group representatives.
VI. Redesigning the organisation to make it flexible and dynamic for allowing JIT
permeate through the system and
VII. Develop and maintaining an effective communication and control system to keep up
the system.

Major Tools & Techniques of JIT System
1. Kanban System or Pull Scheduling:
 Kanban: Card or other device that communicates demand for work or
materials from the preceding station
 Kanban is the Japanese word meaning “signal” or “visible record”
 Paperless production control system
 The idea behind this system is to authorize materials for production only if
there is a need for them.
 Through the use of Kanban authorization cards, production is “pulled” through
the system, instead of pushed out before it is needed and then stored.
2. Set-Up Time Reduction
3. Lean Production
4. Poka-Yoke (Fool Proofing)
5. Quality at the source
6. Standardisation & Simplification
7. Supplier (or Vendor) Partnerships
8. Reduced transaction processing
9. Kaizen (Continuous Improvement).
Elements or Components of JIT System
1. Eliminating Waste
2. Enforced Problem Solving
3. Continuous Improvement
4. Involvement of People
5. Total Quality Management
6. Parallel Processing
Multi skilled Workforce
 The training of a single employee in multiple skill-sets.
 Another definition regards labour unions and their structure, which promotes
workers who have a range of skills or knowledge for working on several different
projects, which may or may not be a part of the worker's technical job
description.
 This increases productivity and cuts the bottom line for a company, which does
not have to hire additional personnel to do other jobs.
Advantage
1. Flexibility
2. Decreased Labour Costs
3. Efficiency In Planning
4. Employee Satisfaction

 Multi-skilled workers are not threatened by obsolescence when new
technology changes the method of production, as workers used to learning
new skills consistently can adapt to changes in production.
 Employee satisfaction improves morale in a business, which leads to increases
in productivity and employee retention rates.
Disadvantages
1. Unhealthy working condition
2. Mental effect on part of management & employees
3. Increases training cost
4. No effect on employee enthusiasm &efficiency.
5. Reduction in productivity during the training period
6. Increased supervisory time is required until the employees is up to speed
7. No good relationships among themselves
Continuous improvement
 Continuous Improvement, often known as kaizen is essentially a small step-by-step
incremental improvement strategy.
 It is based upon a belief that continual improvement can be brought about by a never-
ending series of small changes.
 Even in the face of enormous innovative improvement strategies, there will
always be the need and opportunity to supplement such strategies and initiatives with
continual small step changes.
SIGNS OF CONTINUOUS IMPROVEMENT
1. Higher customer satisfaction
2. Lower run rate
3. Innovation
4. Employees involement
5. Top management
6. Partnership with supplier
7. Performance measurement

CORPORATE GOVERNANCE
 Accountable= responsible for your decisions.
E.g: the accountability of a companies directors to the shareholders.
 Govern=to legally control a country or its people & be responsible for
introducing new laws, organising public services etc
 =to control or influence something/somebody.
 Governance= the activity of governing a country or controlling a company or
an organisation.
=the way in which a country is governed or the company or institution is
controlled.
 Governing=have a right or authority to control
something such as country or an institution
Meaning
 “Corporate Governance ensures how effectively the B.O.D & management are
discharging their functions in building & satisfying stakeholders’ confidence.”
 “Corporate Governance means that company manages its business in a manner that is
accountable & responsible to the shareholders. It includes company's accountability
to other stakeholders such as employees, suppliers, customers & local community”
- Catherwood
 “Corporate Governance is about promoting corporate fairness, transparency &
accountability”
- Financial Times,June1999
Need& Significance
1. Changing ownership structure.
 The profile of corporate ownership has changed significantly.
 FI’s are the single largest shareholder in most of the large corporations in the pvt.
Sector.
 Due to threat of hostile takeover bids & the growth of institutional investors, the big
business houses started talking about corporate governance.
2. Social Responsibility:
 Coy is managed by B.O.D’s which is accountable & responsible to S.H’s who provide
funds.
 Directors are also required to act in the interests of customers , lenders, suppliers &
local community for enhancing shareholders value.
 C.G regulates the duties of directors so that they protect the interests of the
companies.
3. Scams:
 In 1990’s several corporate frauds have shaken the public confidence.

 Harshad Mehta Scandal, CRB Capital case & other frauds have caused heavy loss to
the small investors.
 More than 60% of the listed companies are not operating
4. Corporate obligarchy:
 S.H’s activity & democracy continue to remain history in India.
 Their representatives not allowed to speak at the meetings.
 S.Hs’ associations, investors education, & awareness wasn’t there.
5. Globalisation:
 C.G becomes buzzword(important) when companies went to overseas market
for capital.
 When Indian coys goes overseas for capital they have to get listed in
international stock exchange.
 C.G is an important instrument for investor protection.
6. Economic changes:
 Corporate have to survive in the changing economic environment
 Due to liberalisation coy have to face competition not only domestically but
also internationally.
7. Financial Reporting & Transparency:
 Investors demanding more & more information from the company.
 They want transparency, accountability & responsibility in all transactions.
 It is the obligation of the company to protect their interest.
 Laws & regulations are made to protect the interest of the S.H’s.
 This makes directors to show transparency in their reporting & performance.
8. Shareholders' wealth:
 Maximisation of S.H’s wealth through maximisation of wealth.
 C.G also gives importance to this.
9. Attract long term capital:
 The credibility offered by good C.G procedures also helps to maintain the
confidence of investors both foreign & domestic to attract long term capital.
 This will helps to get more stable source of financing.
Features
1. Constitution of Committee:
 C.G covers constitution & functioning of various committee such as audit
committee, remuneration committee, S.H’s grievance committee, compliance
committee.
2. Structuring of boards:
 C.G covers aspects relating to the organisation of boards.
 Representation of insiders & outsiders on the board.
 Role non-executive & independent directors.
3. Board systems & procedures:

 It covers aspects such as, Calling board meetings, frequency & attendance at
board meetings, fulfilling the information requirements of the board for
decision making.
4. Shareholders’ democracy:
 S.H’s participation in meetings, fulfilling S.H’s rights & disclosure of
information required by stakeholders.
5. Value Orientation:
 C.G also includes ethics, values & morals of a corporation & its directors.
 Monitoring of strategic decisions:
 C.G involves monitoring & overseeing strategic decisions in a socio economic
& cultural contexts.
Objective of C.G
1. Strengthening investors’ confidence:
 It tries to inspire & strengthen the investors’ confidence by ensuring coy’s
commitment to higher profits.
2. Transparency:
 Provide informations which is required by the S.H’s.
 Activities should be transparent.
 Maximizing the S.H’s wealth.
3. Balanced Board:
 To see that the board is balanced with adequate number of non executive
directors & independent directors to take care of the interest of stakeholders.
4. Review of boards policies & procedures:
 To review boards policies, procedures & practices to protect the interest of the
company & stakeholders.
5. Board’s decision to shareholders:
 To check the board provides adequate information relating to the
developments taking place in the company to the shareholders periodically.
6. Long term vision of the board:
 To make sure that the board leads the company towards to maximize long
term value & shareholders wealth.
7. Legal Compliance:
 Maintaining proper compliance with all legal & regulatory requirements under
which company is carrying out its activities.
Benefits
1.Benefits Stakeholders:
 Company, employees, S.H’s, consumers, suppliers, depositors, investors, borrowers
and business constituents.
2. Corporate Image:

 If coy follows C.G norms that increase the image & reputation of the company.
3. Mobilization of Capital Easier:
 If coy adopts C.G norms, that helps to mobilize not only equity & debt capital but also
foreign capital from capital market easily.
4. Minimizes Scope for Mismanagement:
 C.G minimizes wastages, risks, corruption & mismanagement.
5.Greater Productivity:
 It increases confidence among employees & motivate them for increased productivity.
6. Corporate Success:
 Well-managed coy will get corporate success & they find the way for stupendous
growth & development in the long run.
7. Higher Market Valuation:
 Experts become the members of the board, so coy will be managed by professionals.
 Experienced professional directors guide the management team effectively & increase
their competence & proficiency for the growth & development of the company.
 Which leads to higher market valuation.
8. Increased Value of Firm:
 Disclosure of annual reports beyond regulations will enhance the corporate value of
the firm.
9. Scope for greater growth:
 Adoption of C.G practices will provide a way for expansion, diversification &
takeover of the companies as it enjoys goodwill, corporate image & reputation in the
competitive environment.
Reasons for C.G Failure
1. Fraudulent accounting practices.
2. Weak internal controls.
3. Non-adherence of C.G norms.
4. Mismanagement of funds.
5. Unqualified & inexperienced members of the board.
6. Questionable ethics.
7. Non-disclosure of mandatory items.
8. Nepotism, favouritism
9. Poor management.

Requirements to strengthen C.G
1. Enforcement of rights by minority shareholders:
 S.H’s activities have to be encouraged to increase the S.H’s value in long run.
2. Quality of Audit:
 Govt. has to strengthen the quality of audit so as to make the auditor accountable for
the disclosure of information in the annual reports and to monitor the working of audit
firms.
3. Ensuring the independence of directors:
 An appropriate & acceptable system has to be designed to make sure the
independence of directors to discharge their duties as per the requirements of the law.
4. Awareness for adoption of corporate governance practices:
 Among entrepreneurs for better performance.
5. Amendment to bankruptcy laws:
 Need to amend bankruptcy laws for prompt implementation of provisions.
6. Accountability of the board to stakeholders:
 The B.O.Ds as well as CEOs & CFOs are made accountable for the discharge of their
duties with the proper use of their rights within the powers.
7. Upgrading the efficiency of systems:
 There should be quality & effectiveness of the legal, administrative & regulatory
framework.
8. Report on corporate governance:
 Make compulsory for the listed companies to obtain a report on Corporate
Governance Rating (CGR) from a Credit Rating Agency in India.
Principles/Pillars of C.G
1. Fairness:
 It refers to manner in which the business is conducted without any detriment
to the interest of the stakeholders, shareholders, employees and the public .
 Business ethics plays a very important role.
 Company has to follow the ethical code of the society in which a business
operates.
2. Transparency:
 It means accurate, adequate & timely disclosure of relevant information to the
stakeholders.
 Without transparency , it is impossible to make progress towards good C.G.
 There is a need to move towards international standards in terms of disclosure
of information by the corporate.
 By this they can develop a high level of confidence in the minds of public
regarding the business.
 Transparency & disclosure are the main pillars of C.G because they provide
necessary information to stakeholders which helps to know whether their
interests are being taken care of.

 Disclosure should include the following:
 Financial & operating results of the company
 Company’s objectives
 Members of the board
 Material foreseeable risk factors
 Information regarding employees & stakeholders
3. Accountability:
 C.G has to be a top down approach.
 The Chairman, B.O.D & Chief Executives of the company must fulfill their
accountability (responsibility) to the shareholders, customers, workers, society
& the government. Then only C.G becomes a reality.
 Since they have authority over the use of the company resources, it is natural
that they should accept accountability for all their decisions & actions.
4. Independence:
 A strong B.O.D’s is necessary to lead & support the management.
 The B.O.D’s of the company has to be an independent, strong & non partisan
body where the solve motive should be decision making.
 C.G makes sure that long term strategic objectives & plans are established &
that the proper management structure (Organisation, systems & people) is in
place to achieve the objectives.
 It also make sure that the structure functions to maintain the companies
integrity, reputation & responsibility to its various stakeholders.
5. Reporting:
 Good C.G also requires adequate reporting by company to its shareholders &
other stakeholders.
 For E.g: A company should publish its quarterly, half-yearly & yearly
performance & operating results in newspapers.
 It should share changes in its directors & other key officials with the
shareholders in the company’s annual reports.
 The functioning of various committees constituted by the B.O.D’s should also
be reported.
Dimensions of C.G
1. Promoters:
 They form companies.
 Earlier, mostly, the family members of promoters managed companies.
 Since they don’t have managerial competence, most of the companies failed.
 So the promoters felt the need for a professional management to manage the
affairs of the company so as to maximise their returns.
 Good C.G is intended to enhance the quality of functioning of the board.
2. Directors:

 They are the persons appointed by the promoters to manage the affairs of the
corporate/company. They are collectively known as B.O.D’s.
 They have high degree of accountability & responsibility.
 It acts as trustee of the investors’ funds.
 They are responsible & accountable both towards company & shareholders.
 C.G enhances the value of the company by making the board accountable &
responsible.
3. Auditors:
 An auditor has the responsibility of verifying the financial statements of a
company under the companies Act.
 They should act independently & express their opinion.
 Formation of an audit committee as sub-committee of the B.O.D’s would
improve the quality of reporting.
4. Company:
 It is considered as a corporate citizen.
 Company has the relationship with various constituents in day-to-day
business.
 It has the responsibility of being accountable, transparent & fair in all its
dealings.
 C.G is the system by which companies are directed & controlled.
CII CODE OF CORPORATE GOVERNANCE
 In 1997, the Confederation of Indian Industry(CII) finalised a code entitled “Desirable
Corporate Governance in India- A Code”. Which contains provisions for bringing
about qualitative changes in the corporate governance practices prevailing in India.
The important features of the CII’s codes are:
1. The key to good corporate governance is a well-functioning board of directors. The
board should have a core group of excellent, professionally acclaimed non-executive
directors.
2. There should be single-tiered board. The full board should meet a minimum of 6
times a year, at an interval of 2 months and each meeting should have agenda, that
requires at least half a day’s discussion.
3. Any listed company with a turnover of Rs.1 crore and above should have
professionally competent and acclaimed non-executive directors.
4. The non-executive directors should comprise at least 50% of the board if the chairman
and managing director is same person
5. The no-executive directors should comprise 30% of the board if one of them is the
chairman.
6. No individual should be a director on the boards for more than 10 companies at a
time.

7. Non-executive directors must be active with clearly defined responsibilities and must
have a knowledge of financial statements like profit and loss A/C, balance sheet, cash
flow statement, financial ratios etc. and have a knowledge of company law and other
relevant law.
8. Non-executive directors should be paid commission and offered stock options for
their professional inputs in addition to their sitting fees.
9. Directors who have not been present for at least 50% of the board meetings should not
be reappointed.
10. All the key information like operating plans and budgets, long term plans, quarterly
results and internal audit reports must be placed before the board of directors.
11. Details of defaults, payment for intangibles and foreign exchange exposures should be
reported to the board.
12. An audit committee comprising at least 3 non-executive directors should be
constituted and given access to all financial information.
13. Listed companies should disclose ‘Additional Shareholders Information’ in the annual
report on the monthly average share prices, value added and financial performance of
divisions and segments.
14. Major Indian stock exchanges should gradually insist upon compliance certificate
signed by the CEO and the CFO which clearly states that:
a. The accounting policies and standards has been followed.
b. The management is responsible for preparation, integrity and fair presentation
of financial statements and other information annual report.
c. The board has overseen the company’s system of internal accounting and
administrative control systems either through its Audit Committee if the
companies turnover of Rs.100 crore or paid-up capital of Rs.20 crore,
whichever is less or directly.
15. The quality and quantity of disclosure for any domestic issue should be the same as
required for GDR issues.
16. The government must allow for greater funding to the corporate sector against
security of shares and other papers.
17. Recommending for reducing the number of nominee directors of companies, the draft
envisages that financial institutions should withdraw from company boards where
their individual shareholding is 5% or less or the total FI holding under 10%.
18. Financial institutions should eliminate nominee directors except in the event of
serious and systematic debt default, and in case of the debtor company not providing
six monthly or quarterly operational data to the concerned financial institutions.
19. In case a company obtains multiple credit ratings, all the ratings should be disclosed
with companies explaining their significance.
20. Companies that default on fixed deposits should not be permitted to accept further
deposits, make inter-corporate loans or investments and declare dividends until the
default is made good.

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